Generac Holdings (GNRC) 10-K risk factor changes: FY2017 vs FY2016

_We rely on independent dealers and distribution partners, and the loss of these dealers and distribution partners, or of any of our sales arrangements with significant private [removed: label, telecommunications,] [added: label,_ _national__,] retail or equipment rental customers, would adversely affect our business._

Our distribution agreements and any contracts we have with large [removed: telecommunications,] [added: national,] retail and other customers are typically not exclusive, and many of the distributors with whom we do business offer competitors’ products and services.

In some cases, we may be required to modify our products or develop new products to comply with new regulations, particularly those relating to air [removed: emissions.][added: emissions and carbon monoxide.]

_W__e may incur costs and liabilities as a result [removed: of] [added: o__f] product [removed: liability claims._][added: liability_ _claims._]

At December 31, [removed: 2016,] [added: 2017,] goodwill and other indefinite-lived intangibles totaled [removed: $833.0] [added: $849.8] million.

We review goodwill and other intangibles at least annually for impairment and any excess in carrying value over the estimated fair value is charged to the statement of [removed: operations.][added: comprehensive income.]

_We are unable to determine the specific impact of changes in selling prices or changes in [removed: volumes of] [added: volumes_ _or mix_ _of] our products on our net sales._

Because of the wide range of products that we sell, the level of customization for many of our products, the frequent rollout of new [removed: products] [added: products, the different accounting systems utilized,] and the fact that we do not apply pricing changes uniformly across our entire portfolio of products, we are unable to determine with specificity the effect of volume [added: or mix] changes or changes in selling prices on our net sales.

The [removed: combination] [added: integration] of independent businesses is a complex, costly and time-consuming process.

_We may encounter difficulties [removed: in implementing or operating] [added: in_ _operating or_ _implementing] a new enterprise resource planning (ERP) [removed: system across] [added: system_ _across] our [removed: subsidiaries,] [added: subsidiaries__,] which may adversely affect our operations and financial [removed: reportin__g._][added: reporting._]

[removed: In 2016,] [added: Over the past two years,] we [added: have] implemented a new ERP system for a majority of our business as part of our ongoing efforts to improve and strengthen our operational and financial processes and our reporting [removed: systems, and we will be implementing the new ERP system at our other locations in future years.][added: systems.]

_Failures or security breaches of our networks or information technology systems could have an adverse effect on our [removed: business._][added: business__._]

These attacks pose a risk to the security of the products, systems and networks of our customers, suppliers and third-party service providers, as well [added: as] to the confidentiality of our information and the integrity and availability of our data.

Despite the precautions we take, an intrusion or infection of our systems could result in the disruption of our business, [added: or a] loss of proprietary or confidential [removed: information, or injuries to people or property.][added: information.]

We intend to use future earnings for the operation and expansion of our business, as well as for repayment of outstanding [removed: debt] [added: debt, acquisitions,] and for share repurchases.

_We [removed: have a significant amount of indebtedness] [added: hav__e_ _indebtedness] which could adversely affect our cash flow and our ability to remain in compliance with debt covenants and make payments on our indebtedness._

As of December 31, [removed: 2016,] [added: 2017,] we had total indebtedness of [removed: $1,052.9] [added: $928.7] million.

Our [removed: significant] level of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness.

Our [removed: significant] indebtedness, combined with our other financial obligations and contractual commitments could have other important consequences.

| | ● | require us to dedicate a portion of our cash flow from operations to [added: interest] payments on our indebtedness, thereby reducing the availability of our cash flows to fund working capital, capital expenditures, acquisitions and other general corporate purposes; |

| | ● | limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; [added: and] |

Any of the above-listed factors could [removed: materially] adversely affect our business, financial condition, results of operations and cash flows.

We expect to implement the new ERP system at our other locations in future years.

_Recently enacted U.S. tax legislation, as well as future U.S. tax legislation, may adversely affect our business, results of operations, financial condition and cash flow._

On December 22, 2017, the President signed into law Public Law No. 115-97, a comprehensive tax reform bill commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) that makes significant changes to U.S. federal income tax laws.

We have performed a preliminary assessment of the impact of the Tax Act.

However, as the Tax Act is complex and far-reaching, there could be future effects of the Tax Act that we have not identified and that could have an adverse effect on our business, results of operations, financial condition and cash flow.

| --- | --- | --- |

We have a significant amount of indebtedness.

| | ● | place us at a competitive disadvantage compared to our competitors that have less debt; and |

We are a leading [added: 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.

Power generation is our primary focus, which differentiates us from our [removed: primary] [added: main] competitors that also have broad operations outside of the power equipment market.

Other engine powered products that we design and manufacture include light towers which provide temporary lighting for various end markets; commercial and industrial mobile heaters [added: and pumps] used in the oil & gas, construction and other industrial markets; and a broad product line of outdoor power equipment for residential and commercial use.

[added: _Acquisitions._] Over the [removed: past several] years, we have executed a number of acquisitions that [removed: support] [added: supported] our strategic plan.

A summary of [removed: these] [added: the recent] acquisitions can be found in Note 1, “Description of Business,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K.

_Increasing penetration opportunity._ Many potential customers are [added: still] not aware of the costs and benefits of automatic backup power solutions.

The emergence of lower cost, cleaner burning natural gas fueled generators has helped to increase the penetration of standby generators [added: over the past decade] in the light-commercial market.

In addition, the installed base of backup power for telecommunications infrastructure is [added: still] increasing due to the growing importance for uninterrupted voice and data services.

We believe by expanding our distribution network, continuing to develop our product line, and targeting our marketing efforts, we can continue to build awareness and increase penetration for our standby [removed: and mobile] generators for residential, commercial and industrial purposes.

Increased frequency and duration of major power outage events, that have a broader impact beyond a localized level, increases product awareness and may drive consumers to accelerate their purchase of a [removed: portable or] standby [added: or portable] generator during the immediate and subsequent period, which we believe may last for [removed: nine] [added: six] to twelve months following a major power outage event for standby generators.

In addition, we believe demand for our mobile power products [added: will continue to] benefit [removed: over the long term] from a secular shift towards renting versus buying this type of equipment.

We are subject to various factors that can affect our results of operations, which we attempt to mitigate through factors we can control, including continued product development, expanded distribution, [removed: pricing and] [added: pricing,] cost [removed: control.][added: control and hedging.]

Also, [removed: with the Pramac acquisition] [added: acquisitions] in [removed: 2016, we] [added: recent years] have further expanded our commercial and operational presence outside of the United States.

[removed: This acquisition,] [added: These acquisitions,] along with our existing international presence, exposes us to fluctuations in foreign currency exchange rates that can have a material impact on our results of operations.

_Seasonality._ Although there is demand for our products throughout the year, in each of the past five years approximately [removed: 23%] [added: 20%] to 27% of our net sales occurred in the first quarter, [removed: 20%] [added: 22%] to 25% in the second quarter, 24% to 27% in the third quarter and 25% to 29% in the fourth quarter, with different seasonality depending on the occurrence, timing and severity of major power outage activity in each year.

_Factors influencing [removed: interest expense_] [added: interest_ _expense_] _and cash interest expense__._ Interest expense can be impacted by a variety of factors, including market fluctuations in LIBOR, interest rate election periods, interest rate swap agreements, [removed: credit facility pricing grids,] and repayments or borrowings of indebtedness.

Cash interest expense [removed: increased] [added: decreased] during [removed: 2016] [added: 2017] compared to [removed: 2015,] [added: 2016,] primarily due [removed: additional] [added: to the $25 million voluntary prepayment of Term Loan] debt [removed: assumed] in [removed: recent acquisitions, increased] [added: November 2016, the May and December 2017 Term Loan refinancings, the repayment of $100 million of ABL Facility borrowings, and decreased] borrowings at other [removed: foreign subsidiaries and] [added: subsidiaries; partially offset by] an increase in the LIBOR rate.

[removed: _Factors influencing provision for income taxes and cash_ _income_ _taxes paid._ We] [added: Further, we] had approximately [removed: $592] [added: $470] million of tax-deductible goodwill and intangible asset amortization remaining as of December 31, [removed: 2016] [added: 2017] related to our acquisition by CCMP [added: Capital Advisors, LLC] in 2006 that we expect to generate aggregate cash tax savings of approximately [removed: $231] [added: $122] million through 2021, assuming continued profitability and a [removed: 39%] [added: 26% combined federal and state] tax rate.

The recognition of the tax benefit associated with these assets for tax purposes is expected to be $122 million annually through 2020 and $102 million in 2021, which generates annual cash tax savings of [removed: $48] [added: $32] million through 2020 and [removed: $40] [added: $26] million in 2021, assuming profitability and a [removed: 39%] [added: 26% combined federal and state] tax rate.

As a result of the asset acquisition of the Magnum business in the fourth quarter of 2011, we had approximately [removed: $38.0] [added: $34] million of incremental tax deductible goodwill and intangible assets remaining as of December 31, [removed: 2016.][added: 2017.]

We expect these assets to generate aggregate cash tax savings of [removed: $14.9] [added: $9.0] million through 2026 assuming continued profitability and a [removed: 39%] [added: 26% combined federal and state] tax rate.

The amortization of these assets for tax purposes is expected to be $3.8 million annually through 2025 and $2.8 million in 2026, which generates an additional annual cash tax savings of [removed: $1.5] [added: $1.0] million through 2025 and [removed: $1.1] [added: $0.7] million in 2026, assuming profitability and a [removed: 39%] [added: 26% combined federal and state] tax rate.

Substantially all of our net sales are generated through the sale of our power [removed: generator] [added: generation] equipment and other engine powered products to the residential, light commercial and industrial markets.

We also sell [removed: engines to certain customers and] service parts to our dealer network.

We are not dependent on any one channel or customer for our net sales, with no single customer representing more than [removed: 7%] [added: 6%] of our sales, and our top ten customers representing less than 22% of our total sales for the year ended December 31, [removed: 2016.][added: 2017.]

Component parts and raw materials comprised approximately [removed: 78%] [added: 77%] of costs of goods sold for the year ended December 31, [removed: 2016.][added: 2017.]

[removed: However, there] [added: There] is typically a lag between raw material price fluctuations and their effect on our costs of goods sold.

We operate engineering facilities at many locations globally and employ over [removed: 300] [added: 350] personnel with focus on new product development, existing product improvement and cost containment.

[removed: _Other Income (E__xpense)_][added: _Other_ _(Expense) Income_]

Other [removed: income] (expense) [added: income] includes the interest expense on our outstanding borrowings, amortization of debt financing costs and original issue discount, and expenses related to interest rate swap agreements.

Other [removed: income] (expense) [added: income] also includes other financial items such as losses on extinguishment of debt, gains (losses) on change in contractual interest rate, interest income earned on our cash and cash equivalents, and costs related to acquisitions.

Refer to Note [removed: 3, “Acquisitions” and Note 19, “Subsequent Events”] [added: 1, “Description of Business,”] to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for [removed: additional] [added: further] information on the Company’s [removed: recent] [added: business] acquisitions.

_Year ended December 31, 201__6_ _compared_ _to year ended December [removed: 3__1, 2015_][added: 31, 201__5_]

| | | Year Ended December [removed: 31,] [added: 31,] | | | | | | | | | | | | | | |

| | | [removed: Year] [added: Year] Ended December [removed: 31,] [added: 31,] | | | | | | | | | | | | | | |

Partially offsetting [removed: these impacts] [added: this] was the contribution from the CHP acquisition, along with increased shipments of portable and home standby generators.

The increase in net income attributable to Generac Holdings Inc. was primarily due to a [removed: prior year] [added: 2015] $40.7 million pre-tax, non-cash charge for the impairment of certain intangible assets, partially offset by the business optimization charge discussed above and the other factors outlined in this section.

Excluding the impact of these adjustments, [added: pro-forma] gross profit margin was 36.1%, an improvement of 120 basis points over the [removed: prior year.][added: year ended December 31, 2015.]

The [added: pro-forma] increase was primarily due to the favorable impacts from lower commodity costs and overseas sourcing benefits from a stronger U.S. Dollar, along with an overall favorable organic product mix.

In addition, gross margin in [removed: the prior year] [added: 2015] was negatively impacted by temporary increases in certain costs associated with the west coast port congestion as well as other overhead-related costs that did not repeat in the current year.

Recent Developments

On February 13, 2018, we signed a purchase agreement to acquire Selmec Equipos Industriales, S.A. de C.V. (Selmec), which is headquartered in Mexico City, Mexico.

Selmec, which has approximately 300 employees, is a designer and manufacturer of industrial generators ranging from 10 kW to 2,750 kW.

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

For example, the major outage events that occurred during the second half of 2017 drove strong demand for portable and home standby generators, and the increased awareness of these products contributed to strong revenue growth in 2017.

We believe the passage of the Tax Act in late 2017 could have a favorable impact on future demand within many of the end markets that we serve, as the improved cash flow, liquidity and business sentiment may lead to further investments in equipment, facilities and infrastructure in the United States.

_Factors influencing provision for income taxes and cash_ _income_ _taxes paid._ On December 22, 2017, the U.S. government enacted the Tax Act, which significantly changes how the U.S. taxes corporations.

The Tax Act requires complex computations to be performed that were not previously required in U.S. tax law, significant judgments to be made in interpretation of the provisions of the Tax Act and significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced.

The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the Tax Act will be applied or otherwise administered that is different from our interpretation.

As a result of the Tax Act, we recognized a one-time, non-cash benefit of $28.4 million in the fourth quarter of 2017 primarily from the impact of the revaluation of our net deferred tax liabilities.

While the Company continues to assess the full impact of the Tax Act, the preliminary analysis suggests a meaningful benefit from the legislation.

Specifically for 2018, the combined federal and state effective tax rate is expected to decline to between 25 to 26%, resulting in lower cash income taxes.

As we complete our analysis of the Tax Act, collect and prepare necessary data, and interpret any additional guidance, we may make adjustments to provisional amounts that we have recorded that may materially impact our provision for income taxes in the period in which the adjustments are made.

The aggregate cash tax savings reflects a decrease of $61 million due to a reduction in the assumed tax rate from 39% to 26% as a result of the Tax Act.

The aggregate cash tax savings reflects a decrease of $4.5 million due to a reduction in the assumed tax rate from 39% to 26% as a result of the Tax Act.

_Year ended Decemb__er 31, 2017_ _compared_ _to year ended December 3__1, 2016_

| (U.S. Dollars in thousands) | | 2017 | | | | 2016 | | | | $ Change | | | | % Change | | |

| Net sales | | $ | 1,672,445 | | | $ | 1,444,453 | | | | 227,992 | | | | 15.8 | % |

| Cost of goods sold | | | 1,090,328 | | | | 930,347 | | | | 159,981 | | | | 17.2 | % |

| Gross profit | | | 582,117 | | | | 514,106 | | | | 68,011 | | | | 13.2 | % |

| Selling and service | | | 171,755 | | | | 164,607 | | | | 7,148 | | | | 4.3 | % |

| Research and development | | | 42,925 | | | | 37,229 | | | | 5,696 | | | | 15.3 | % |

| General and administrative | | | 87,512 | | | | 74,700 | | | | 12,812 | | | | 17.2 | % |

| Amortization of intangible assets | | | 28,861 | | | | 32,953 | | | | (4,092 | ) | | | \-12.4 | % |

| Total operating expenses | | | 331,053 | | | | 309,489 | | | | 21,564 | | | | 7.0 | % |

| Income from operations | | | 251,064 | | | | 204,617 | | | | 46,447 | | | | 22.7 | % |

| Total other expense, net | | | (46,376 | ) | | | (48,235 | ) | | | 1,859 | | | | \-3.9 | % |

| Income before provision for income taxes | | | 204,688 | | | | 156,382 | | | | 48,306 | | | | 30.9 | % |

| Provision for income taxes | | | 43,553 | | | | 57,570 | | | | (14,017 | ) | | | \-24.3 | % |

| Net income | | | 161,135 | | | | 98,812 | | | | 62,323 | | | | 63.1 | % |

| Net income attributable to noncontrolling interests | | | 1,749 | | | | 24 | | | | 1,725 | | | | N/A | |

| Net income attributable to Generac Holdings Inc. | | $ | 159,386 | | | $ | 98,788 | | | | 60,598 | | | | 61.3 | % |

| | | Net Sales | | | | | | | | | | | | | | |

| (U.S. Dollars in thousands) | | 2017 | | | | 2016 | | | | $ Change | | | | % Change | | |

| Domestic | | $ | 1,296,578 | | | $ | 1,173,559 | | | | 123,019 | | | | 10.5 | % |

| International | | | 375,867 | | | | 270,894 | | | | 104,973 | | | | 38.8 | % |

| Total net sales | | $ | 1,672,445 | | | $ | 1,444,453 | | | | 227,992 | | | | 15.8 | % |

| | | Adjusted EBITDA | | | | | | | | | | | | | | |

| | | 2017 | | | | 2016 | | | | $ Change | | | | % Change | | |

| Domestic | | $ | 290,720 | | | $ | 261,428 | | | | 29,292 | | | | 11.2 | % |

_Costs related to acquisition__s__._ In 2016, the other expenses include transaction expenses related to the acquisitions of Pramac and Motortech.

In 2015, the other expenses include transaction expenses related to the acquisitions of CHP and Pramac.

In 2014, the other expenses include transaction expenses related to the acquisitions of Powermate and MAC.

| (U.S. Dollars in thousands) | | 2016 | | | | 2015 | | | | $ Change | | | | % Change | | |

| | | Net Sales | | | | | | | | | | | | | | |

| (U.S. Dollars in thousands) | | 2016 | | | | 2015 | | | | $ Change | | | | % Change | | |

| | | Adjusted EBITDA | | | | | | | | | | | | | | |

| | | 2016 | | | | 2015 | | | | $ Change | | | | % Change | | |

| (U.S. Dollars in thousands) | | 2015 | | | | 2014 | | | | $ Change | | | | % Change | | |

| Net sales | | $ | 1,317,299 | | | $ | 1,460,919 | | | | (143,620 | ) | | | \-9.8 | % |

| Cost of goods sold | | | 857,349 | | | | 944,700 | | | | (87,351 | ) | | | \-9.2 | % |

| Gross profit | | | 459,950 | | | | 516,219 | | | | (56,269 | ) | | | \-10.9 | % |

| Selling and service | | | 130,242 | | | | 120,408 | | | | 9,834 | | | | 8.2 | % |

| Research and development | | | 32,922 | | | | 31,494 | | | | 1,428 | | | | 4.5 | % |

| General and administrative | | | 52,947 | | | | 54,795 | | | | (1,848 | ) | | | \-3.4 | % |

| Amortization of intangible assets | | | 23,591 | | | | 21,024 | | | | 2,567 | | | | 12.2 | % |

| Tradename and goodwill impairment | | | 40,687 | | | | \- | | | | 40,687 | | | | N/A | |

| Gain on remeasurement of contingent consideration | | | \- | | | | (4,877 | ) | | | 4,877 | | | | \-100.0 | % |

| Total operating expenses | | | 280,389 | | | | 222,844 | | | | 57,545 | | | | 25.8 | % |

| Income from operations | | | 179,561 | | | | 293,375 | | | | (113,814 | ) | | | \-38.8 | % |

| Total other expense, net | | | (56,578 | ) | | | (35,013 | ) | | | (21,565 | ) | | | 61.6 | % |

| Income before provision for income taxes | | | 122,983 | | | | 258,362 | | | | (135,379 | ) | | | \-52.4 | % |

| Provision for income taxes | | | 45,236 | | | | 83,749 | | | | (38,513 | ) | | | \-46.0 | % |

| Net income | | $ | 77,747 | | | $ | 174,613 | | | | (96,866 | ) | | | \-55.5 | % |

| | | Net Sales | | | | | | | | | | | | | | |

| Domestic | | $ | 1,204,589 | | | $ | 1,343,367 | | | | (138,778 | ) | | | \-10.3 | % |

| International | | | 112,710 | | | | 117,552 | | | | (4,842 | ) | | | \-4.1 | % |

| Total net sales | | $ | 1,317,299 | | | $ | 1,460,919 | | | | (143,619 | ) | | | \-9.8 | % |

| | | Adjusted EBITDA | | | | | | | | | | | | | | |

| | | 2015 | | | | 2014 | | | | $ Change | | | | % Change | | |

| Domestic | | $ | 254,882 | | | $ | 322,769 | | | | (67,887 | ) | | | \-21.0 | % |

| International | | | 15,934 | | | | 14,514 | | | | 1,420 | | | | 9.8 | % |

| Total Adjusted EBITDA | | $ | 270,816 | | | $ | 337,283 | | | | (66,467 | ) | | | \-19.7 | % |

| Residential products | | $ | 673,764 | | | $ | 722,206 | | | | (48,442 | ) | | | \-6.7 | % |

| Commercial & industrial products | | | 548,440 | | | | 652,216 | | | | (103,776 | ) | | | \-15.9 | % |

| Other | | | 95,095 | | | | 86,497 | | | | 8,598 | | | | 9.9 | % |

| Total net sales | | $ | 1,317,299 | | | $ | 1,460,919 | | | | (143,620 | ) | | | \-9.8 | % |

_Net sales._ The decrease in Domestic sales for the year ended December 31, 2015 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, and a reduction in shipments into oil & gas and general rental markets and, to a lesser extent, reduced shipments to telecom national account customers.

Partially offsetting these impacts was the contribution from the CHP acquisition.

The decrease in International sales for the year ended December 31, 2015 was primarily due to the negative impact of foreign currency translation.

Realized gains and losses on transactions denominated in foreign currency are recorded [removed: in earnings] as a component of cost of goods sold on the statements of comprehensive income.

The following is a summary of the [added: twenty-eight] foreign currency contracts outstanding as of December 31, [removed: 2016] [added: 2017] (in thousands):

| [removed: Currency Denomination] [added: Currency Denomination] | [removed: Trade Dates] | [added: Trade Dates] | | Effective Dates | | [removed: | | Notional Amount |] [added: Notional Amount] | | Expiration [removed: Dates | |] [added: Date] |

As of December 31, [removed: 2016,] [added: 2017,] we had the following commodity forward contract outstanding (in thousands):

| Copper | [added: |] October 19, 2016 | [added: |] October 20, 2016 | | $ | 3,502 | | | $ | 2.118 | | December 31, 2017 |

For additional information on the Company’s [added: foreign currency and] commodity forward contracts, [added: and interest rate swaps,] including amounts charged to the statement of comprehensive income during [removed: 2016, see] [added: 2017, refer to] Note 4, “Derivative Instruments and Hedging [removed: Activity,”] [added: Activities,” and Note 5, “Accumulated Other Comprehensive Loss,”] to [removed: the] [added: our] consolidated financial statements in Item 8 of this Annual Report on Form 10-K.

As of December 31, [removed: 2016,] [added: 2017,] all of the outstanding debt under our Term Loan was subject to floating interest rate risk.

As of December 31, [removed: 2016,] [added: 2017,] we had the following interest rate swap contracts outstanding (in thousands):

| Hedged [removed: Item] [added: Item] | [added: |] Contract [removed: Date] [added: Date] | [added: |] Effective [removed: Date] [added: Date] | | [removed: Notional Amount] [added: Notional Amount] | | | | Fixed [removed: LIBOR Rate] [added: LIBOR Rate] | | | Expiration [removed: Date] [added: Date] |

| Interest [removed: rate] [added: Rate] | [added: |] October 23, 2013 | [added: |] July 1, 2014 | | $ | 100,000 | | | | [removed: 1.7420] [added: 1.7420%] | [removed: %] | July [removed: 1,] [added: 2,] 2018 |

| Interest [removed: rate] [added: Rate] | [added: |] October 23, 2013 | [added: |] July 1, 2014 | | [removed: $] | 100,000 | | | | [removed: 1.7370] [added: 1.7370%] | [removed: %] | July [removed: 1,] [added: 2,] 2018 |

| Interest [removed: rate] [added: Rate] | [added: |] May 19, 2014 | [added: |] July 1, 2014 | | [removed: $] | 100,000 | | | | [removed: 1.6195] [added: 1.6195%] | [removed: %] | July [removed: 1,] [added: 2,] 2018 |

At December 31, [removed: 2016,] [added: 2017,] the fair value of these interest rate swaps was [removed: a liability] [added: an asset] of [removed: $1.7] [added: $4.4] million.

A hypothetical change in the LIBOR interest rate of 100 basis points would have changed annual cash interest expense by approximately $6.3 million (or, without the swaps in place, $9.3 million) in [removed: 2016.][added: 2017.]

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| GBP | | 9/26/17 - 12/20/17 | | 9/26/17 - 12/20/17 | | 14,756 | | 1/10/18 - 3/17/18 |

| Hedged Item | | Contract Date | | Effective Date | | Notional Amount | | | | Fixed Price (per LB) | | | Expiration Date |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Interest Rate | | June 19, 2017 | | July 2, 2018 | | | 125,000 | | | | 1.6543% | | July 1, 2019 |

| Interest Rate | | June 19, 2017 | | July 1, 2019 | | | 125,000 | | | | 1.9053% | | July 1, 2020 |

| Interest Rate | | June 19, 2017 | | July 1, 2020 | | | 125,000 | | | | 2.1328% | | July 1, 2021 |

| Interest Rate | | June 19, 2017 | | July 1, 2021 | | | 125,000 | | | | 2.3453% | | July 1, 2022 |

| Interest Rate | | June 19, 2017 | | July 1, 2022 | | | 125,000 | | | | 2.4828% | | May 31, 2023 |

| Interest Rate | | June 30, 2017 | | July 1, 2018 | | | 125,000 | | | | 1.7090% | | July 1, 2019 |

| Interest Rate | | June 30, 2017 | | July 1, 2019 | | | 125,000 | | | | 1.9750% | | July 1, 2020 |

| Interest Rate | | June 30, 2017 | | July 1, 2020 | | | 125,000 | | | | 2.2170% | | July 1, 2021 |

| Interest Rate | | June 30, 2017 | | July 1, 2021 | | | 125,000 | | | | 2.4360% | | July 1, 2022 |

| Interest Rate | | June 30, 2017 | | July 1, 2022 | | | 125,000 | | | | 2.5910% | | May 31, 2023 |

| Interest Rate | | August 9, 2017 | | July 1, 2018 | | | 125,000 | | | | 1.6298% | | July 1, 2019 |

| Interest Rate | | August 9, 2017 | | July 1, 2019 | | | 125,000 | | | | 1.8598% | | July 1, 2020 |

| Interest Rate | | August 9, 2017 | | July 1, 2020 | | | 125,000 | | | | 2.0848% | | July 1, 2021 |

| Interest Rate | | August 9, 2017 | | July 1, 2021 | | | 125,000 | | | | 2.3010% | | July 1, 2022 |

| Interest Rate | | August 9, 2017 | | July 1, 2022 | | | 125,000 | | | | 2.4848% | | May 31, 2023 |

| Interest Rate | | August 30, 2017 | | July 1, 2018 | | | 125,000 | | | | 1.5503% | | July 1, 2019 |

| Interest Rate | | August 30, 2017 | | July 1, 2019 | | | 125,000 | | | | 1.7553% | | July 1, 2020 |

| Interest Rate | | August 30, 2017 | | July 1, 2020 | | | 125,000 | | | | 1.9803% | | July 1, 2021 |

| Interest Rate | | August 30, 2017 | | July 1, 2021 | | | 125,000 | | | | 2.2228% | | July 1, 2022 |

| Interest Rate | | August 30, 2017 | | July 1, 2022 | | | 125,000 | | | | 2.4153% | | May 31, 2023 |

| | | | | | | | | | | | | | |

| GBP | 9/28/16 | – | 12/20/16 | 9/28/16 | – | 1/9/17 | | | 5,850 | | 1/27/17 | – | 6/28/17 |

| USD | 9/26/16 | – | 12/19/16 | 9/26/16 | – | 12/19/16 | | | 7,950 | | 1/13/17 | – | 6/30/17 |

| Hedged Item | Trade Date | Effective Date | | Notional Amount | | | | Fixed Price (per LB) | | | Expiration Date |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | |

For additional information on the Company’s interest rate swaps, including amounts charged to the statement of comprehensive income during 2016, see Note 4, “Derivative Instruments and Hedging Activities,” and Note 5, “Accumulated Other Comprehensive Loss,” to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K.

The existence of a 0.75% LIBOR floor provision in our Term Loan limits the impact of a hypothetical 100 basis point change in LIBOR at current December 31, 2016 LIBOR rates.

[removed: We are] [added: Founded in 1959, Generac Holdings Inc. (the Company or Generac) is] a leading [added: 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.

Power generation is our primary focus, which differentiates us from our [removed: primary] [added: main] competitors that also have broad operations outside of the [removed: generator] [added: power equipment] market.

As the only significant market participant focused predominantly on these products, we have one of the leading market positions in the power [removed: generation] [added: equipment] market in North America and an expanding presence internationally.

Other engine powered products that we design and manufacture include light towers which provide temporary lighting for various end markets; commercial and industrial mobile heaters [added: and pumps] used in the oil & gas, construction and other industrial markets; and a broad product line of outdoor power equipment for residential and commercial use.

We also sell direct to certain national and regional account customers, as well as to individual consumers, [removed: that] [added: who] are the end users of our products.

[removed: Additionally,] [added: Over the years,] we have executed a number of acquisitions that support our strategic plan.

A summary of [removed: these] [added: the recent] acquisitions can be found in Note 1, “Description of Business,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K.

The International segment includes the Ottomotores, Tower [removed: Light and] [added: Light,] Pramac [added: and Motortech] acquisitions, all of which have revenues that are substantially derived from outside the U.S. and Canada.

Both [added: reportable] segments design and manufacture a wide range of power generation equipment and other engine powered products, which are discussed in further detail below in the context of our product classes.

Our residential automatic standby generators range in output from 6kW to 60kW, with manufacturer's suggested retail prices (MSRPs) from approximately [removed: $1,899] [added: $1,949] to $16,199.

We provide a broad product line of portable [added: and inverter] generators that are fueled predominantly by gasoline, with certain models running on propane and diesel fuel, which range in size from 800W to [removed: 17,500W.][added: 17.5kW.]

Our portable generators are targeted at homeowners, with price points ranging between the consumer value end of the market through the premium homeowner market; at professional contractors, starting at the value end through the premium contractor segment; and [removed: inverter generators targeted] at the recreational [removed: market.][added: market with our inverter product line.]

Further, we provide a broad product line of outdoor power equipment that includes trimmer & brush mowers, log splitters, lawn & leaf vacuums, and chipper shredders for the property maintenance needs of larger-acreage residences, [removed: light] commercial properties, municipalities and farms.

These products are largely sold in North America through [removed: catalogs] [added: catalogs, on-line, retail hardware stores] and outdoor power equipment dealers primarily under the DR® brand name.

Residential products comprised [removed: 53.5%, 51.2%] [added: 52.0%, 53.5%] and [removed: 49.5%,] [added: 51.2%,] respectively, of total net sales in [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014.][added: 2015.]

Our light-commercial standby generators include a full range of affordable systems from 22kW to 150kW and related transfer switches, providing three-phase power sufficient for most small and mid-sized businesses [removed: including] [added: such as] grocery stores, convenience stores, restaurants, gas stations, pharmacies, retail banks, small health care facilities and other small-footprint retail applications.

We manufacture a broad [added: product] line of standard and configured stationary generators and related transfer switches for various industrial standby, continuous-duty and prime rated applications.

Our industrial standby generators are primarily used as emergency backup for [removed: large] [added: larger applications in the] healthcare, telecom, datacom, commercial office, municipal and manufacturing [removed: customers.][added: markets.]

We provide a broad [added: product] line of light towers, mobile generators and mobile heaters, which provide temporary lighting, power and heat for various end markets, such as road and commercial construction, energy, mining, military and special events.

C&I products comprised [removed: 38.6%, 41.6%] [added: 41.0%, 38.6%] and [removed: 44.6%] [added: 41.6%] respectively, of total net sales in [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014.][added: 2015.]

Other [removed: power] products comprised [removed: 7.9%, 7.2%] [added: 7.0%, 7.9%] and [removed: 5.9%,] [added: 7.2%,] respectively, of total net sales in [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014.][added: 2015.]

We distribute our products through [removed: several] [added: a variety of different] distribution channels to increase awareness of our product categories and brands, and to ensure our products reach a broad customer base.

Our network is well balanced with no customer providing more than [removed: 7%] [added: 6%] of our sales in [removed: 2016.][added: 2017.]

We [removed: further] expanded our dealer network [added: in recent years] on a global basis with the acquisition of Pramac in March 2016, particularly in Europe, the Middle East and Asia/Pacific regions.

[removed: In recent] [added: Over the past several] years, we have been expanding our dealer network globally through [removed: the Ottomotores acquisition in December 2012] [added: acquisitions] and [removed: Pramac acquisition in March 2016, along with] organic means, in order to expand our international sales opportunities.

These physical retail locations are supplemented by a [added: growing presence of e-commerce retailers, along with a] number of catalog [removed: and e-commerce] retailers.

Additionally, [removed: a portion of] our [removed: portable generators and other engine powered tools] [added: residential products] are sold direct to individual consumers, who are the end users of the product.

We are also committed to a number of sales process initiatives [added: and go-to-market strategies] to [added: increase market visibility and] improve the overall specification rates for our products which should increase quoting activity and close rates for our industrial distributors.

While still a [removed: much] smaller portion of the overall C&I market, we believe demand for these products continues to increase at a faster rate than traditional diesel fueled generators as a result of their lower capital investment and operating costs.

_Expanding_ _global [removed: presence._] [added: presence_.] We have increased our revenues shipped outside the U.S. and Canada in recent years, with sales outside this region accounting for approximately [removed: 20%] [added: 22%] of our revenues during [removed: 2016,] [added: 2017,] as compared to approximately [removed: 10%] [added: 20%] and [removed: 9%] [added: 10%] in [removed: 2015] [added: 2016] and [removed: 2014,] [added: 2015,] respectively.

This increase is largely the result of acquisitions made that comprise our International segment – Ottomotores, Tower [removed: Light] [added: Light, Pramac] and [removed: Pramac.][added: Motortech.]

Research and development (R&D) is a core competency and includes a staff of over [removed: 300] [added: 350] engineers working on numerous projects.

Our [removed: sponsored research and development] [added: total R&D] expense was [removed: $37.2] [added: $42.9] million, [removed: $32.9] [added: $37.2] million and [removed: $31.5] [added: $32.9] million for the years ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014,] [added: 2015,] respectively.

[removed: Research and development is conducted at several of our manufacturing facilities worldwide and is] [added: These activities are] focused on developing new technologies and product enhancements as well as maintaining product competitiveness by improving manufacturing costs, safety characteristics, reliability and performance while ensuring compliance with regulatory standards.

Our [removed: strategic global sourcing] [added: Strategic Global Sourcing (SGS)] function continuously evaluates the quality and cost structure of our products and assesses the capabilities of our supply chain.

We are the only significant market participant with a primary focus on power [removed: generation] [added: equipment] with a core emphasis on standby, portable and mobile generators with broad capabilities across the residential, light-commercial and industrial markets.

_C&I p__roducts_ – Caterpillar, Cummins, Kohler, MTU, Stemac, [removed: Selmec,] IGSA, Wacker, MultiQuip, Terex, Doosan, Briggs & Stratton (Allmand), Atlas Copco and Himonisa; certain of which focus on the market for diesel generators as they are also diesel engine manufacturers.

As of December 31, [removed: 2016,] [added: 2017,] we had [removed: 4,202] [added: 4,556] employees [removed: (3,608] [added: (4,017] full time and [removed: 594] [added: 539] part-time and temporary employees).

Of those, [removed: 2,266] [added: 2,393] employees were directly involved in manufacturing at our manufacturing facilities.

The Company’s annual [removed: report] [added: reports] on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available free of charge through the “Investors” portion of the Company’s web site, www.generac.com, as soon as reasonably practical after they are filed with the Securities and Exchange Commission (SEC).

The Company has two reportable segments for financial reporting purposes – Domestic and International.

The acquisition of Motortech in January 2017 added gaseous-engine control systems and accessories which are sold primarily to European gas-engine manufacturers and to aftermarket customers.

We offer a broad set of tools, programs and factory support to help our distribution partners be successful.

In addition, international acquisitions over the past several years have provided access to numerous independent distributors in over 150 countries.

Business Strategy

As part of this strategy, we plan to continue to expand our natural gas product offering into larger power nodes to take advantage of the continuing shift from diesel to natural gas generators.

R&D is conducted at various facilities worldwide, including a recent expansion of our advanced engineering labs at our corporate headquarters and the addition of a Chinese technology center in Suzhou, China.

In addition, certain products in the United States are subject to safety standards as established by various other standards and rule making bodies, or state and local agencies, including the U.S. Consumer Product Safety Commission (CPSC).

| Jeffrey Mueller | | 49 | | President / General Manager – Consumer Power |

Jeffrey Mueller began serving as our President / General Manager – Consumer Power in November 2017.

Mr. Mueller was Group President for Broan-Nutone from 2014 prior to joining Generac.

Prior to his time at Broan, Mr. Mueller was at Kohler Company from 1991 where he held various U.S. and international executive-level positions in the Kitchen & Bath & Interiors Group, including President of Kohler’s faucet business globally.

He is a Marquette University alumnus where he earned an Executive MBA with an international focus and a Bachelor of Science degree in Mechanical Engineering.

History

Generac Holdings Inc. (the Company or Generac) is a Delaware corporation, which was founded in 1959 to market a line of affordable portable generators that offered superior performance and features.

Through innovation and focus, we have grown to be a leading provider of power generation equipment and other engine powered products to the residential, light-commercial and industrial markets.

Key events in our history include the following:

| | ● | In 1980, we expanded beyond portable generators into the industrial market with the introduction of our first stationary generators that provided up to 200 kW of power output. |

| --- | --- | --- |

| | ● | During the 1990’s, we expanded our industrial product development and global distribution system, forming a series of alliances that tripled our higher-output generator sales. |

| | ● | In 1998, we sold our Generac® portable products business (which included portable generator and power washer product lines) to a private equity firm who eventually sold this business to another company. |

| | ● | Our growth accelerated in 2000 as we expanded our purpose-built line of residential automatic standby generators and implemented our multi-layered distribution philosophy. |

| | ● | In 2005, we introduced our quiet-running QT Series generators, accelerating our penetration in the commercial market. |

| | ● | In 2006, the founder of Generac Power Systems sold the company to affiliates of CCMP Capital Advisors, LLC (CCMP), together with certain other investors and members of our management. |

| | ● | In 2008, we successfully expanded our position in the portable generator market after the expiration of our non-compete agreement that was entered into when we sold our Generac® portable products business in 1998. |

| | ● | In February 2010, we completed our initial public offering of 20.7 million primary shares of our common stock (including additional share over allotment). |

| | ● | In early 2011, we re-entered the market for gasoline-powered pressure washers (or power washers), which we previously exited in 1998 with the sale of our Generac® portable products business. |

| | ● | In August 2013, CCMP completed the last of a series of sale transactions that began in November 2012 by which it sold substantially all of the shares of common stock that it owned as of the initial public offering. |

Effective in the second quarter of 2016, we changed our segment reporting from one reportable segment to two reportable segments – Domestic and International – as a result of the recent Pramac acquisition and the ongoing strategy to expand the business internationally.

The acquisition of PR Industrial S.r.l.

(Pramac) in March 2016 added a broad product line of portable generators that are sold globally and used for numerous residential, light construction and recreational purposes.

The acquisition of Pramac in March 2016 added a broad product line of C&I stationary and mobile generators that are sold in over 150 countries through a broad distribution network.

In addition, our Tower Light and Pramac businesses provide access to numerous independent distributors in over 150 countries.

Business Strategy

As of December 31, [removed: 2016,] [added: 2017,] we believe that there is no litigation pending that would have a material effect on our results of operations or financial condition.

10-K 1 [removed: gnrc20161231_10k.htm] [added: gnrc20171231_10k.htm] FORM 10-K

| For the fiscal year ended December 31, [removed: 2016] [added: 2017] Or | |

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, [removed: or a] smaller reporting [added: company, or an emerging growth] company.

See definitions of “large accelerated filer,” “accelerated filer,” [removed: and] “smaller reporting [added: company,” and “ emerging growth] company” in Rule 12b-2 of the Exchange Act.

| [removed: Large accelerated filer ☒ | Accelerated filer ☐ |] Non-accelerated filer ☐ (Do not check if a smaller reporting company) | [added: | |] Smaller reporting company ☐ | [added: | | |]

The aggregate market value of the voting common equity held by non-affiliates of the registrant on June 30, [removed: 2016,] [added: 2017,] the last business day of the registrant’s most recently completed second fiscal quarter, was approximately [removed: $2,247,442,615] [added: $2,189,264,580] based upon the closing price reported for such date on the New York Stock Exchange.

As of February [removed: 17, 2017, 62,735,597] [added: 16, 2018, 62,325,716] shares of registrant's common stock were outstanding.

Portions of the registrant’s Annual Report to Stockholders for the year ended December 31, [removed: 2016] [added: 2017] furnished to the Securities and Exchange Commission are incorporated by reference into Part II of this Form 10-K.

Portions of the registrant’s Proxy Statement for the [removed: 2017] [added: 2018] Annual Meeting of Stockholders (the [removed: “2017] [added: “2018] Proxy Statement”), which will be filed by the registrant on or prior to 120 days following the end of the registrant’s fiscal year ended December 31, [removed: 2016,] [added: 2017,] are incorporated by reference into Part III of this Form 10-K.

[removed: 2016] [added: 2017] FORM 10-K ANNUAL REPORT

| [removed: [PART I](<#PART I>)] [added: PART I] | | |

| Item 1. | [removed: [Business](<#Item 1>)] [added: [Business](#item1)] | 1 |

| Item 1A. | [Risk [removed: Factors](<#Item 1A>)] [added: Factors](#item1a)] | 8 |

| Item 1B. | [Unresolved Staff [removed: Comments](<#Item 1B>)] [added: Comments](#item1b)] | 15 |

| Item 2. | [removed: [Properties](<#Item 2>)] [added: [Properties](#item2)] | [removed: 15] [added: 16] |

| Item 3. | [Legal [removed: Proceedings](<#Item 3>)] [added: Proceedings](#item3)] | 16 |

| Item 4. | [Mine Safety [removed: Disclosures](<#Item 4>)] [added: Disclosures](#item4)] | 16 |

| [removed: [PART II](<#PART II>)] [added: PART II] | | |

| Item 5. | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](<#Item 5>)] [added: Securities](#item5)] | [removed: 17] [added: 16] |

| Item 6. | [Selected Financial [removed: Data](<#Item 6>)] [added: Data](#item6)] | [removed: 19] [added: 18] |

| Item 7. | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](<#Item 7>)] [added: Operations](#item7)] | [removed: 24] [added: 23] |

| Item 7A. | [Quantitative and Qualitative Disclosures About Market [removed: Risk](<#Item 7A>)] [added: Risk](#item7a)] | [removed: 36] [added: 35] |

| Item 8. | [Financial Statements and Supplementary [removed: Data](<#Item 8>)] [added: Data](#item8)] | [removed: 38] [added: 37] |

| Item 9. | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](<#Item 9>)] [added: Disclosure](#item9)] | [removed: 70] [added: 69] |

| Item 9A. | [Controls and [removed: Procedures](<#Item 9A>)] [added: Procedures](#item9a)] | [removed: 70] [added: 69] |

| Item 9B. | [Other [removed: Information](<#Item 9B>)] [added: Information](#item9b)] | [removed: 71] [added: 70] |

| [removed: [PART III](<#Part III>)] [added: PART III] | | |

| Item 10. | [Directors, Executive Officers and Corporate [removed: Governance](<#Item 10>)] [added: Governance](#item10)] | [removed: 71] [added: 70] |

| Item 11. | [Executive [removed: Compensation](<#Item 11>)] [added: Compensation](#item11)] | [removed: 71] [added: 70] |

| Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](<#Item 12>)] [added: Matters](#item12)] | [removed: 71] [added: 70] |

| Item 13. | [Certain Relationships and Related Transactions, and Director [removed: Independence](<#Item 13>)] [added: Independence](#item13)] | [removed: 71] [added: 70] |

| Item 14. | [Principal Accountant Fees and [removed: Services](<#Item 14>)] [added: Services](#item14)] | [removed: 71] [added: 70] |

| [removed: [PART IV](<#Part IV>)] [added: PART IV] | | |

| Item 15. | [Exhibits and Financial Statement [removed: Schedules](<#Item 15>)] [added: Schedules](#item15)] | [removed: 71] [added: 70] |

| | ● | the impact on our results of possible fluctuations in interest [removed: rates and] [added: rates,] foreign currency exchange [removed: rates;] [added: rates, commodities and product mix;] |

| Large accelerated filer ☑ | | | Accelerated filer ☐ | | | |

| --- | --- | --- | --- | --- | --- | --- |

| Emerging growth company ☐ | | | | | | |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

| | |

| --- | --- | --- | --- |

| | | | |

| --- | --- | --- |

| | | |

| | ● | competitive factors in the industry in which we operate; |

| Waukesha, WI | | Owned | | Corporate headquarters, manufacturing, [removed: storage,] R&D, service parts distribution | | Domestic |

| Oshkosh, WI | | Owned | | Manufacturing, office, [removed: storage,] [added: warehouse,] R&D | | Domestic |

| Berlin, WI | | Owned | | Manufacturing, office, [removed: storage,] [added: warehouse,] R&D | | Domestic |

| Various WI | | Leased | | [removed: Storage] [added: warehouse] | | Domestic |

| Winooski, VT | | Leased | | [removed: Manufacturing, R&D] [added: Distribution] | | Domestic |

| Mexico City, Mexico | | Owned | | Manufacturing, sales, distribution, [removed: storage,] [added: warehouse,] office, R&D | | International |

| Mexico City, Mexico | | Leased | | [removed: Office, storage] [added: Office] and warehouse | | International |

| [removed: Curitiba, Brazil] [added: Milan, Italy] | | Leased | | Manufacturing, sales, distribution, [removed: storage, office] [added: warehouse, office, R&D] | | International |

| [removed: Milan,] [added: Casole d’Elsa,] Italy | | Leased | | Manufacturing, [removed: sales, distribution, storage,] office, [added: warehouse,] R&D | | International |

| Balsicas, Spain | | Leased | | Manufacturing, office, [removed: storage,] [added: warehouse,] R&D | | International |

| Foshan, China | | Owned | | Manufacturing, office, [removed: storage,] [added: warehouse,] R&D | | International |

| Saint-Nizier-sous-Charlieu, France | | Leased | | Sales, office, [removed: storage] [added: warehouse] | | International |

| Ribeirao Preto, Brazil | | Leased | | Manufacturing, office, [removed: storage] [added: warehouse] | | International |

| Fellbach, Germany | | Leased | | Sales, office, [removed: storage] [added: warehouse] | | International |

| Crewe, England | | Leased | | Sales, office, [removed: storage] [added: warehouse] | | International |

As of December 31, [removed: 2016,] [added: 2017,] substantially all of our domestically-owned and a portion of our internationally-owned properties are subject to collateral provisions under our senior secured credit facilities.

We also operate a dealer training center at our Eagle, Wisconsin facility, which allows us to train new industrial and residential dealers on the service and installation of our products and provide existing dealers with training on product innovations.

| | | | | | | |

| Casole d’Elsa, Italy | | Leased | | Manufacturing, office, storage, R&D | | International |

Shares of our common stock are traded on the New York Stock Exchange (NYSE) under the symbol “GNRC.” The following table sets forth the high and low sales prices reported on the NYSE for our common stock by fiscal quarter during [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] respectively.

| [removed: ​2016] [added: 2017] | | [removed: High] [added: High] | | | | [removed: Low] [added: Low] | | |

| [removed: 2015] [added: 2016] | | High | | | | Low | | |

The following table summarizes the stock repurchase activity for the three months ended December 31, [removed: 2016,] [added: 2017,] which [added: also] consisted of the withholding of shares upon the vesting of restricted stock awards to pay [added: related] withholding taxes on behalf of the [removed: recipient and shares repurchased under the Company’s $250.0 million stock repurchase program authorized in October 2016:][added: recipient:]

| | | [added: | |] Total Number of Shares Purchased | | | | Average Price Paid per Share | | | | Total Number Of Shares Purchased As Part Of Publicly Announced Plans Or Programs | | | | Approximate Dollar Value Of Shares That May Yet Be Purchased Under The Plans Or Programs | | |

The line graph below compares the cumulative total stockholder return on our common stock with the cumulative total return of the Standard & Poor’s S&P 500 Index, the S&P 500 Industrials Index and the Russell 2000 Index for the five-year period ended December 31, [removed: 2016.][added: 2017.]

The graph and table assume that $100 was invested on December 31, [removed: 2011] [added: 2012] in each of our common stock, the S&P 500 Index, the S&P 500 Industrials Index and the Russell 2000 Index, and that all dividends were reinvested.

[removed: ][added: ]

| Company / Market / Peer Group | | [removed: 12/31/2011 | | | |] 12/31/2012 | | | | 12/31/2013 | | | | 12/31/2014 | | | | 12/31/2015 | | | | 12/31/2016 | | | [added: | 12/31/2017 | | |]

As of February [removed: 17, 2017,] [added: 16, 2018,] there were approximately [removed: 199] [added: 204] registered holders of record of Generac’s common stock.

[added: Our business is conducted through our subsidiaries, including our principal operating subsidiary, Generac Power Systems, Inc.] Dividends from, and cash generated by our subsidiaries will be our principal sources of cash to repay indebtedness, fund operations, repurchase shares of common stock and pay dividends.

Accordingly, our ability to pay dividends to our stockholders is dependent on the earnings and distributions of funds from our subsidiaries, including Generac Power [removed: Systems.][added: Systems, Inc.]

| Fourth Quarter | | $ | 52.09 | | | $ | 48.21 | |

| Third Quarter | | $ | 46.15 | | | $ | 35.91 | |

| Second Quarter | | $ | 37.29 | | | $ | 34.52 | |

| First Quarter | | $ | 42.64 | | | $ | 36.79 | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | |

| 10/01/17 | \- | 10/31/17 | | | 79 | | | $ | 51.77 | | | | \- | | | $ | 170,108,876 | |

| 11/01/17 | \- | 11/30/17 | | | 641 | | | | 49.21 | | | | \- | | | | 170,108,876 | |

| 12/01/17 | \- | 12/31/17 | | | \- | | | | \- | | | | \- | | | | 170,108,876 | |

| Total | | | | | 720 | | | $ | 49.49 | | | | | | | | | |

| Generac Holdings Inc. | | $ | 100.00 | | | $ | 187.73 | | | $ | 154.98 | | | $ | 98.67 | | | $ | 135.03 | | | $ | 164.13 | |

| S&P 500 Index - Total Returns | | | 100.00 | | | | 132.39 | | | | 150.51 | | | | 152.59 | | | | 170.84 | | | | 208.14 | |

| S&P 500 Industrials Index | | | 100.00 | | | | 140.68 | | | | 154.50 | | | | 150.59 | | | | 178.99 | | | | 216.64 | |

| Russell 2000 Index | | | 100.00 | | | | 138.82 | | | | 145.62 | | | | 139.19 | | | | 168.85 | | | | 193.58 | |

| Fourth Quarter | | $ | 32.53 | | | $ | 26.88 | |

| Third Quarter | | $ | 39.78 | | | $ | 27.16 | |

| Second Quarter | | $ | 49.35 | | | $ | 39.62 | |

| First Quarter | | $ | 50.41 | | | $ | 43.74 | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | |

| 10/01/16 - 10/31/16 | | | 38,699 | | | $ | 38.58 | | | | 38,500 | | | $ | 248,639,009 | |

| 11/01/16 - 11/30/16 | | | 716,809 | | | | 39.66 | | | | 716,000 | | | | 220,244,705 | |

| 12/01/16 - 12/31/16 | | | 481,000 | | | | 41.84 | | | | 481,000 | | | | 200,120,516 | |

| Total | | | 1,236,508 | | | $ | 40.47 | | | | | | | | | |

| Generac Holdings Inc. | | $ | 100.00 | | | $ | 157.76 | | | $ | 296.17 | | | $ | 244.51 | | | $ | 155.67 | | | $ | 213.03 | |

| S&P 500 Index - Total Returns | | | 100.00 | | | | 116.00 | | | | 153.57 | | | | 174.60 | | | | 177.01 | | | | 198.18 | |

| S&P 500 Industrials Index | | | 100.00 | | | | 115.35 | | | | 162.27 | | | | 178.22 | | | | 173.70 | | | | 206.46 | |

| Russell 2000 Index | | | 100.00 | | | | 116.35 | | | | 161.52 | | | | 169.42 | | | | 161.95 | | | | 196.45 | |

Our business is conducted through our subsidiaries, including our principal operating subsidiary, Generac Power Systems.

The selected historical consolidated financial data for the years ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014] [added: 2015] 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, [removed: 2013] [added: 2014] and [removed: 2012] [added: 2013] is derived from our audited historical consolidated financial statements not included in this annual report.

| | | [removed: Year] [added: Year] Ended December [removed: 31,] [added: 31,] | | | | | | | | | | | | | | | | | | |

| (U.S. Dollars in thousands, except per share [removed: data)] [added: data)] | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | |

| Statement of Operations [removed: Data:] [added: Data:] | | | | | | | | | | | | | | | | | | | | |

| Net sales | | $ | [removed: 1,444,453] [added: 1,672,445] | | | $ | [removed: 1,317,299] [added: 1,444,453] | | | $ | [removed: 1,460,919] [added: 1,317,299] | | | $ | [removed: 1,485,765] [added: 1,460,919] | | | $ | [removed: 1,176,306] [added: 1,485,765] | |

| Costs of goods sold | | | [removed: 930,347] [added: 1,090,328] | | | | [removed: 857,349] [added: 930,347] | | | | [removed: 944,700] [added: 857,349] | | | | [removed: 916,205] [added: 944,700] | | | | [removed: 735,906] [added: 916,205] | |

| Gross profit | | | [removed: 514,106] [added: 582,117] | | | | [removed: 459,950] [added: 514,106] | | | | [removed: 516,219] [added: 459,950] | | | | [removed: 569,560] [added: 516,219] | | | | [removed: 440,400] [added: 569,560] | |

| Selling and service | | | [removed: 164,607] [added: 171,755] | | | | [removed: 130,242] [added: 164,607] | | | | [removed: 120,408] [added: 130,242] | | | | [removed: 107,515] [added: 120,408] | | | | [removed: 101,448] [added: 107,515] | |

| Research and development | | | [removed: 37,229] [added: 42,925] | | | | [removed: 32,922] [added: 37,229] | | | | [removed: 31,494] [added: 32,922] | | | | [removed: 29,271] [added: 31,494] | | | | [removed: 23,499] [added: 29,271] | |

| General and administrative | | | [removed: 74,700] [added: 87,512] | | | | [removed: 52,947] [added: 74,700] | | | | [removed: 54,795] [added: 52,947] | | | | [removed: 55,490] [added: 54,795] | | | | [removed: 46,031] [added: 55,490] | |

| Amortization of intangibles (1) | | | [removed: 32,953] [added: 28,861] | | | | [removed: 23,591] [added: 32,953] | | | | [removed: 21,024] [added: 23,591] | | | | [removed: 25,819] [added: 21,024] | | | | [removed: 45,867] [added: 25,819] | |

| Tradename and goodwill impairment (2) | | | \- | | | | [removed: 40,687] [added: \-] | | | | [removed: \-] [added: 40,687] | | | | \- | | | | \- | |

| Gain on remeasurement of contingent consideration (3) | | | \- | | | | \- | | | | [removed: (4,877] [added: \-] | [removed: )] | | | [removed: \-] [added: (4,877] | [added: )] | | | \- | |

| Total operating expenses | | | [removed: 309,489] [added: 331,053] | | | | [removed: 280,389] [added: 309,489] | | | | [removed: 222,844] [added: 280,389] | | | | [removed: 218,095] [added: 222,844] | | | | [removed: 216,845] [added: 218,095] | |

| Income from operations | | | [removed: 204,617] [added: 251,064] | | | | [removed: 179,561] [added: 204,617] | | | | [removed: 293,375] [added: 179,561] | | | | [removed: 351,465] [added: 293,375] | | | | [removed: 223,555] [added: 351,465] | |

| Other [removed: income (expense):] [added: (expense) income:] | | | | | | | | | | | | | | | | | | | | |

| Interest expense | | | [removed: (44,568] [added: (42,667] | ) | | | [removed: (42,843] [added: (44,568] | ) | | | [removed: (47,215] [added: (42,843] | ) | | | [removed: (54,435] [added: (47,215] | ) | | | [removed: (49,114] [added: (54,435] | ) |

| Investment income | | | [removed: 44] [added: 298] | | | | [removed: 123] [added: 44] | | | | [removed: 130] [added: 123] | | | | [removed: 91] [added: 130] | | | | [removed: 79] [added: 91] | |

| Loss on extinguishment of debt (4) | | | [removed: (574] [added: \-] | [removed: )] | | | [removed: (4,795] [added: (574] | ) | | | [removed: (2,084] [added: (4,795] | ) | | | [removed: (15,336] [added: (2,084] | ) | | | [removed: (14,308] [added: (15,336] | ) |

| Gain (loss) on change in contractual interest rate (5) | | | [removed: (2,957] [added: \-] | [removed: )] | | | [removed: (2,381] [added: (2,957] | ) | | | [removed: 16,014] [added: (2,381] | [added: )] | | | [removed: \-] [added: 16,014] | | | | \- | |

| Costs related to acquisitions | | | [removed: (1,082] [added: (777] | ) | | | [removed: (1,195] [added: (1,082] | ) | | | [removed: (396] [added: (1,195] | ) | | | [removed: (1,086] [added: (396] | ) | | | [removed: (1,062] [added: (1,086] | ) |

| Other, net | | | [removed: 902] [added: (3,230] | [added: )] | | | [removed: (5,487] [added: 902] | [removed: )] | | | [removed: (1,462] [added: (5,487] | ) | | | [removed: (1,983] [added: (1,462] | ) | | | [removed: (2,798] [added: (1,983] | ) |

| Total other expense, net | | | [removed: (48,235] [added: (46,376] | ) | | | [removed: (56,578] [added: (48,235] | ) | | | [removed: (35,013] [added: (56,578] | ) | | | [removed: (72,749] [added: (35,013] | ) | | | [removed: (67,203] [added: (72,749] | ) |

| Income before provision for income taxes | | | [removed: 156,382] [added: 204,688] | | | | [removed: 122,983] [added: 156,382] | | | | [removed: 258,362] [added: 122,983] | | | | [removed: 278,716] [added: 258,362] | | | | [removed: 156,352] [added: 278,716] | |

| Provision for income taxes [added: (6)] | | | [removed: 57,570] [added: 43,553] | | | | [removed: 45,236] [added: 57,570] | | | | [removed: 83,749] [added: 45,236] | | | | [removed: 104,177] [added: 83,749] | | | | [removed: 63,129] [added: 104,177] | |

| Net income | | | [removed: 98,812] [added: 161,135] | | | | [removed: 77,747] [added: 98,812] | | | | [removed: 174,613] [added: 77,747] | | | | [removed: 174,539] [added: 174,613] | | | | [removed: 93,223] [added: 174,539] | |

| Net income attributable to noncontrolling interests | | | [removed: 24] [added: 1,749] | | | | [removed: \-] [added: 24] | | | | \- | | | | \- | | | | \- | |

| Net income attributable to Generac Holdings Inc. | | $ | [removed: 98,788] [added: 159,386] | | | $ | [removed: 77,747] [added: 98,788] | | | $ | [removed: 174,613] [added: 77,747] | | | $ | [removed: 174,539] [added: 174,613] | | | $ | [removed: 93,223] [added: 174,539] | |

| Net income attributable to common shareholders per common share - diluted: | | $ | [removed: 1.50] [added: 2.56] | | | $ | [removed: 1.12] [added: 1.50] | | | $ | [removed: 2.49] [added: 1.12] | | | $ | [removed: 2.51] [added: 2.49] | | | $ | [removed: 1.35] [added: 2.51] | |

| Statement of Cash Flows [removed: data:] [added: data:] | | | | | | | | | | | | | | | | | | | | |

| Depreciation | | $ | [removed: 21,465] [added: 23,127] | | | $ | [removed: 16,742] [added: 21,465] | | | $ | [removed: 13,706] [added: 16,742] | | | $ | [removed: 10,955] [added: 13,706] | | | $ | [removed: 8,293] [added: 10,955] | |

| Amortization of intangible assets | | | [removed: 32,953] [added: 28,861] | | | | [removed: 23,591] [added: 32,953] | | | | [removed: 21,024] [added: 23,591] | | | | [removed: 25,819] [added: 21,024] | | | | [removed: 45,867] [added: 25,819] | |

| Expenditures for property and equipment | | | [removed: (30,467] [added: (33,261] | ) | | | [removed: (30,651] [added: (30,467] | ) | | | [removed: (34,689] [added: (30,651] | ) | | | [removed: (30,770] [added: (34,689] | ) | | | [removed: (22,392] [added: (30,770] | ) |

| Other Financial [removed: Data:] [added: Data:] | | | | | | | | | | | | | | | | | | | | |

| Adjusted EBITDA attributable to Generac Holdings Inc. [removed: (6)] [added: (7)] | | $ | [removed: 274,603] [added: 311,655] | | | $ | [removed: 270,816] [added: 274,603] | | | $ | [removed: 337,283] [added: 270,816] | | | $ | [removed: 402,613] [added: 337,283] | | | $ | [removed: 289,809] [added: 402,613] | |

| Adjusted net income attributable to Generac Holdings Inc. [removed: (7)] [added: (8)] | | | [removed: 198,257] [added: 212,858] | | | | [removed: 198,436] [added: 198,257] | | | | [removed: 234,165] [added: 198,436] | | | | [removed: 301,664] [added: 234,165] | | | | [removed: 220,792] [added: 301,664] | |

| Balance Sheet [removed: Data:] [added: Data:] | | | | | | | | | | | | | | | | | | | | |

| Current assets | | $ | [removed: 683,509] [added: 818,556] | | | $ | [removed: 632,017] [added: 683,509] | | | $ | [removed: 707,637] [added: 632,017] | | | $ | [removed: 627,310] [added: 707,637] | | | $ | [removed: 473,866] [added: 627,310] | |

| [removed: Property, plant] [added: Property] and equipment, net | | | [removed: 212,793] [added: 230,380] | | | | [removed: 184,213] [added: 212,793] | | | | [removed: 168,821] [added: 184,213] | | | | [removed: 146,390] [added: 168,821] | | | | [removed: 104,718] [added: 146,390] | |

| | | As of December 31, | | | | | | | | | | | | | | | | | | |

| (U.S. Dollars in thousands) | | 2017 | | | | 2016 | | | | 2015 | | | | 2014 | | | | 2013 | | |

Following the May 2017 Term Loan amendment, which removed the pricing grid based on leverage ratio achieved, gains or losses on changes in contractual interest rate will no longer be recorded in the statements of comprehensive income.

(6) As a result of the Tax Act, we recognized a one-time, non-cash benefit of $28.4 million in the fourth quarter of 2017 primarily from the impact of the revaluation of the net deferred tax liabilities.

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 Act and its impact.

| (U.S. Dollars in thousands) | | 2017 | | | | 2016 | | | | 2015 | | | | 2014 | | | | 2013 | | |

| Net income attributable to Generac Holdings Inc. | | $ | 159,386 | | | $ | 98,788 | | | $ | 77,747 | | | $ | 174,613 | | | $ | 174,539 | |

| Net income | | | 161,135 | | | | 98,812 | | | | 77,747 | | | | 174,613 | | | | 174,539 | |

| Provision for income taxes | | | 43,553 | | | | 57,570 | | | | 45,236 | | | | 83,749 | | | | 104,177 | |

This brand strategy change resulted in a reclassification to a two year remaining useful life and a $36.1 million non-cash charge to write-down the impacted tradenames to net realizable value.

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 and expected to remain above 3.0 times based on projections at that time.

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 and expected to remain below 3.0 times based on projections at that time.

Following the May 2017 Term Loan amendment, which removed the pricing grid based on leverage ratio achieved, gains or losses on changes in contractual interest rate will no longer be recorded in the statements of comprehensive income.

(h) Represents severance and non-recurring plant consolidation costs.

| (U.S. Dollars in thousands) | | 2017 | | | | 2016 | | | | 2015 | | | | 2014 | | | | 2013 | | |

| Net income attributable to Generac Holdings Inc. | | $ | 159,386 | | | $ | 98,788 | | | $ | 77,747 | | | $ | 174,613 | | | $ | 174,539 | |

| Net income attributable to noncontrolling interests | | | 1,749 | | | | 24 | | | | \- | | | | \- | | | | \- | |

| Net income | | | 161,135 | | | | 98,812 | | | | 77,747 | | | | 174,613 | | | | 174,539 | |

| Provision for income taxes | | | 43,553 | | | | 57,570 | | | | 45,236 | | | | 83,749 | | | | 104,177 | |

| Income before provision for income taxes | | | 204,688 | | | | 156,382 | | | | 122,983 | | | | 258,362 | | | | 278,716 | |

| (U.S. Dollars in thousands) | | As of December 31, 2016 | | | | As of December 31, 2015 | | | | As of December 31, 2014 | | | | As of December 31, 2013 | | | | As of December 31, 2012 | | |

| (U.S. Dollars in thousands) | | 2016 | | | | 2015 | | | | 2014 | | | | 2013 | | | | 2012 | | |

To the [added: Shareholders and] Board of Directors [removed: and Stockholders] of Generac Holdings Inc.

We have audited the accompanying consolidated [removed: balance sheet of Generac Holdings Inc. and subsidiaries (the "Company") as of December 31, 2016, and the related consolidated] statements of comprehensive income, [removed: stockholders'] [added: stockholders’] equity and cash flows [added: of Generac Holdings Inc. (the Company)] for the year ended December 31, [removed: 2016.][added: 2015.]

These [removed: consolidated] financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on these consolidated financial statements based on our [removed: audit.][added: audits.]

We conducted our audit in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material [removed: misstatement.][added: misstatement, whether due to error or fraud.]

[removed: An audit includes] [added: Such procedures include] examining, on a test basis, evidence [removed: supporting] [added: regarding] the amounts and disclosures in the financial statements.

[removed: An audit] [added: Our audits] also [removed: includes assessing] [added: included evaluating] the accounting principles used and significant estimates made by management, as well as evaluating the overall [added: presentation of the] financial [removed: statement presentation.][added: statements.]

We believe that our [removed: audit provides] [added: audits provide] a reasonable basis for our opinion.

In our opinion, the [removed: consolidated] financial statements referred to above present fairly, in all material respects, the consolidated [removed: financial position of Generac Holdings Inc. and subsidiaries as of December 31, 2016, and the consolidated] results of [removed: their] operations and [removed: their] cash flows [added: of Generac Holdings Inc.] for the year ended December 31, [removed: 2016,] [added: 2015,] in conformity [removed: accounting principles] [added: with U.S.] generally accepted [removed: in the United States of America.][added: accounting principles.]

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the [removed: Company's] [added: Company’s] internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on criteria established in [removed: Internal] [added: _Internal] Control-Integrated Framework [added: (2013)_] issued by the Committee of Sponsoring Organizations of the Treadway Commission [removed: (2013)] and our report dated February [removed: 24, 2017] [added: 26, 2018] expressed an unqualified opinion [removed: thereon.][added: on the Company’s internal control over financial reporting.]

We have audited the accompanying consolidated balance [removed: sheet] [added: sheets] of Generac Holdings Inc. [added: and subsidiaries] (the [removed: Company)] [added: “Company”)] as of December 31, [removed: 2015,] [added: 2017] and [added: 2016,] the related consolidated statements of comprehensive income, [removed: stockholders'] [added: stockholders’] equity and cash flows for each of the two years in the period ended December 31, [removed: 2015.][added: 2017, and the related notes, collectively referred to as the “financial statements”.]

In our opinion, the financial statements [removed: referred to above] present fairly, in all material respects, the [removed: consolidated] financial position of [removed: Generac Holdings Inc. at] [added: the Company as of] December 31, [removed: 2015,] [added: 2017] and [added: 2016, and] the [removed: consolidated] results of its operations and its cash flows for each of the two years in the period ended December 31, [removed: 2015,] [added: 2017,] in conformity with [removed: U.S.] [added: accounting principles] generally accepted [removed: accounting principles.][added: in the United States of America.]

February 26, [removed: 2016] [added: 2016,] (except for Note 6, _Segment [removed: Reporting_,] [added: Reporting,_] and Note 2, _New Accounting [removed: Pronouncements_,] [added: Pronouncements,_] as to which the date is February 24, 2017)

We have audited the internal control over financial reporting of Generac Holdings Inc. and its subsidiaries (the "Company") as of December 31, [removed: 2016,] [added: 2017,] based on criteria established in [removed: Internal] [added: _Internal] Control — Integrated Framework [removed: (2013)] [added: (2013)_] issued by the Committee of Sponsoring Organizations of the Treadway [removed: Commission.][added: Commission (COSO).]

A company's internal control over financial reporting is a process designed [removed: by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel] to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Also, projections of any evaluation of [removed: the] effectiveness [removed: of the internal control over financial reporting] to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on the criteria established in [removed: Internal] [added: _Internal] Control — Integrated Framework [removed: (2013)] [added: (2013)_] issued by [removed: the Committee of Sponsoring Organizations of the Treadway Commission.][added: COSO.]

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United [removed: States),] [added: States) (PCAOB),] the consolidated [removed: balance sheet] [added: financial statements] as of [removed: December 31, 2016] and [removed: the related consolidated statement of comprehensive income, stockholders’ equity and cash flows] for the year ended December 31, [removed: 2016] [added: 2017,] of [removed: Generac Holdings Inc.] [added: the Company] and our report dated February [removed: 24, 2017] [added: 26, 2018] expressed an unqualified opinion on those financial statements.

| _(U.S. Dollars in Thousands, Except Share and Per Share [removed: Data)_] [added: Data__)_] | | | |

| | | December [removed: 31,] [added: 31,] | | | | | | |

| | | [added: 2017 | | | |] 2016 | | | | 2015 | | |

| Cash and cash equivalents [added: at beginning of period] | | [removed: $] | [removed: 67,272] [added: _67,272_] | | | [removed: $] | [removed: 115,857] [added: _115,857_] | | [added: | | _189,761_ | |]

| Accounts receivable, less allowance for doubtful accounts of [removed: $5,642] [added: $4,805] and [removed: $2,494] [added: $5,642] at December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] respectively | | | [removed: 241,857] [added: _280,002_] | | | | [removed: 182,185] [added: _241,857_] | |

| Inventories | | | [removed: 349,731] [added: _380,341_] | | | | [removed: 325,375] [added: _349,731_] | |

| Prepaid expenses and other assets | | | [removed: 24,649] [added: _19,741_] | | | | [removed: 8,600] [added: _24,649_] | |

| Total current assets | | | [removed: 683,509] [added: _818,556_] | | | | [removed: 632,017] [added: _683,509_] | |

| Property and equipment, net | | | [removed: 212,793] [added: _230,380_] | | | | [removed: 184,213] [added: _212,793_] | |

| Customer lists, net | | | [removed: 45,312] [added: _41,064_] | | | | [removed: 39,313] [added: _45,312_] | |

| Patents, net | | | [removed: 48,061] [added: _39,617_] | | | | [removed: 53,772] [added: _48,061_] | |

| Other intangible assets, net | | | [removed: 2,925] [added: _2,401_] | | | | [removed: 2,768] [added: _2,925_] | |

| Tradenames, net | | | [removed: 158,874] [added: _152,683_] | | | | [removed: 161,057] [added: _158,874_] | |

| Goodwill | | | [removed: 704,640] [added: _721,523_] | | | | [removed: 669,719] [added: _704,640_] | |

| Deferred income taxes | | | [removed: 3,337] [added: _3,238_] | | | | [removed: 34,812] [added: _3,337_] | |

| Other assets | | | [removed: 2,233] [added: _10,502_] | | | | [removed: 964] [added: _2,233_] | |

| Total [removed: assets] | | $ | [removed: 1,861,684] [added: _2,019,964_] | | | $ | [removed: 1,778,635] [added: _1,861,684_] | | [added: | $ | _1,778,635_ | |]

| Liabilities and stockholders’ [removed: equity] [added: equity] | | | | | | | | |

| Short-term borrowings | | $ | [removed: 31,198] [added: _20,602_] | | | $ | [removed: 8,594] [added: _31,198_] | |

| Accounts payable | | | [removed: 181,519] [added: _233,639_] | | | | [removed: 108,332] [added: _181,519_] | |

| Accrued wages and employee benefits | | | [removed: 21,189] [added: _27,992_] | | | | [removed: 13,101] [added: _21,189_] | |

Opinion on the Financial Statements

Basis for Opinion

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

February 26, 2018

We have served as the Company’s auditor since 2016.

To the Shareholders and Board of Directors of Generac Holdings Inc.

Opinion on Internal Control over Financial Reporting

Basis for Opinion

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Definition and Limitations of Internal Control over Financial Reporting

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

February 26, 2018

| | | 2017 | | | | 2016 | | |

| Assets | | | | | | | | |

| Cash and cash equivalents | | $ | _138,472_ | | | $ | _67,272_ | |

| Total assets | | $ | _2,019,964_ | | | $ | _1,861,684_ | |

| | | | | | | | | | | | | | | | | | | | | | | Excess Purchase Price | | | | | | | | Accumulated | | | | | | | | | | | | | | |

| | | | | | | | | | | Additional | | | | | | | | | | | | Over | | | | | | | | Other | | | | Total | | | | | | | | | | |

| | | Common Stock | | | | | | | | Paid-In | | | | Treasury Stock | | | | | | | | _Predecessor_ | | | | Retained | | | | Comprehensive | | | | Stockholders' | | | | Noncontrolling | | | | | | |

| | | Shares | | | | Amount | | | | Capital | | | | Shares | | | | Amount | | | | Basis | | | | Earnings | | | | Income (Loss) | | | | Equity | | | | Interest | | | | Total | | |

| Change in noncontrolling interest share | | | _–_ | | | | _–_ | | | | _(2,124_ | ) | | | _–_ | | | | _–_ | | | | _–_ | | | | _–_ | | | | _–_ | | | | _(2,124_ | ) | | | _184_ | | | | _(1,940_ | ) |

| Stock repurchases | | | _–_ | | | | _–_ | | | | _–_ | | | | _(844,500_ | ) | | | _(30,012_ | ) | | | _–_ | | | | _–_ | | | | _–_ | | | | _(30,012_ | ) | | | _–_ | | | | _(30,012_ | ) |

| Share-based compensation | | | _–_ | | | | _–_ | | | | _10,205_ | | | | _–_ | | | | _–_ | | | | _–_ | | | | _–_ | | | | _–_ | | | | _10,205_ | | | | _–_ | | | | _10,205_ | |

| Net income | | | _–_ | | | | _–_ | | | | _–_ | | | | _–_ | | | | _–_ | | | | _–_ | | | | _159,386_ | | | | _–_ | | | | _159,386_ | | | | _119_ | | | | _159,505_ | |

| Balance at December 31, 2017 | | | _70,820,173_ | | | $ | _708_ | | | $ | _459,816_ | | | | _(8,448,874_ | ) | | $ | _(294,005_ | ) | | $ | _(202,116_ | ) | | $ | _616,347_ | | | $ | _(21,198_ | ) | | $ | _559,552_ | | | $ | _279_ | | | $ | _559,831_ | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Operating activities | | | | | | | | | | | | |

| Investing activities | | | | | | | | | | | | |

| Financing activities | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- |

The Company has the option to assess goodwill for impairment by performing either a qualitative assessment or quantitative test.

The Company has completed its assessment of the impacts the standard will have on its financial statements, and determined that the adoption does _not_ have a material impact.

In all material respects, the Company has identified a similar amount of performance obligations under the new guidance as compared with deliverables previously identified.

As a result, the timing of revenue recognition will generally remain the same.

The Company adopted the standard _January 1, 2018_ and will use the full retrospective method.

In _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.

For existing hedges, this guidance should be applied using a cumulative effect adjustment, while the presentation and disclosure guidance should be adopted on a prospective basis.

February 24, 2017

As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at the PR Industrial business ("Pramac"), which was acquired on March 1, 2016 and whose financial statements constitute 22.5% and 11.1% of net and total assets, respectively, 12.6% of revenues, and 0.7% of net income of the total consolidated financial statement amounts as of and for the year ended December 31, 2016.

Accordingly, our audit did not include the internal control over financial reporting at Pramac.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.

| Assets | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | 2016 | | | | 2015 | | | | 2014 | | |

| | | | | | | | | | | | | |

| Gain on remeasurement of contingent consideration | | | – | | | | – | | | | (4,877 | ) |

| | | Common Stock | | | | | | | | Additional Paid-In | | | | Treasury Stock | | | | | | | | Excess Purchase Price Over Predecessor | | | | Retained | | | | Accumulated Other Comprehensive | | | | Total Stockholders' | | | | Noncontrolling | | | | | | |

| | | Shares | | | | Amount | | | | Capital | | | | Shares | | | | Amount | | | | Basis | | | | Earnings | | | | Income (Loss) | | | | Equity | | | | Interest | | | | Total | | |

| Balance at December 31, 2013 | | | 68,767,367 | | | $ | 688 | | | $ | 421,672 | | | | (163,458 | ) | | $ | (6,571 | ) | | $ | (202,116 | ) | | $ | 105,813 | | | $ | (2,415 | ) | | $ | 317,071 | | | $ | – | | | $ | 317,071 | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Dividends declared | | | – | | | | – | | | | 29 | | | | – | | | | – | | | | – | | | | | | | | – | | | | 29 | | | | – | | | | 29 | |

| --- |

| | | 2016 | | | | 2015 | | | | 2014 | | |

| Operating activities | | | | | | | | | | | | |

| Net income | | $ | 98,812 | | | $ | 77,747 | | | $ | 174,613 | |

| Investing activities | | | | | | | | | | | | |

| Financing activities | | | | | | | | | | | | |

| Excess tax benefits from equity awards | | | 7,920 | | | | 9,559 | | | | 10,972 | |

| Cash and cash equivalents at end of period | | $ | 67,272 | | | $ | 115,857 | | | $ | 189,761 | |

| | ● | In October 2011, the Company acquired substantially all 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. |

| | ● | In 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. |

| --- | --- | --- | --- | --- | --- | --- |

If the fair value of the reporting unit is less than its book value, there is an indication of potential impairment and a second step is performed.

When required, the second step of testing involves calculating the implied fair value of goodwill for the reporting unit.

The implied fair value of goodwill is determined in the same manner as goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit determined in step one over the fair value of its net assets and identifiable intangible assets as if the reporting unit had been acquired.

For reporting units with a negative book value (i.e., excess of liabilities over assets), qualitative factors are evaluated to determine whether it is necessary to perform the second step of the goodwill impairment test.

The Company conducts its annual impairment test for indefinite-lived intangible assets as of October 31 of each year.

There can be no assurance that future impairment tests will not result in a charge to earnings.

The fair value of all derivative contracts is classified as Level 2.

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.

This guidance is a part of the FASB’s initiative to reduce complexity in accounting standards, and includes simplification involving several aspects of the accounting for share-based payment transactions, including excess tax benefits.

Additionally, this change will result in excess tax benefits from stock compensation to be reflected in net cash from operating activities on the statement of cash flows.

Early adoption is permitted for goodwill impairment tests performed after January 1, 2017.

In the first quarter of 2016, the Company adopted ASU 2015-03, _Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs_.

As a result, the Company adjusted the impacted line items in the December 31, 2015 consolidated balance sheet to conform to the current period’s presentation; decreasing both the Deferred financing costs, net and Long-term borrowings and capital lease obligations line items by $12,965.

There were no changes in, or disagreements with, accountants reportable herein.

In April 2016, the Company dismissed Ernst & Young LLP as its independent registered public accounting firm, and appointed Deloitte & Touche LLP as its new independent registered public accounting firm.

See the Company's 8-K filed as of April 20, 2016 for full disclosures related to the change in accountants.

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an assessment of the effectiveness of internal control over financial reporting as of December 31, [removed: 2016] [added: 2017] based on the criteria established in the 2013 _Internal Control – Integrated Framework_, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on this assessment, our management has concluded that our internal control over financial reporting was effective as of December 31, [removed: 2016.][added: 2017.]

In connection with [removed: this] [added: those] ERP system [removed: implementation,] [added: implementations,] we [removed: have updated] [added: are updating] our internal controls over financial [removed: reporting,] [added: reporting for those subsidiaries] as necessary, to accommodate modifications to [removed: our] [added: their] business processes and accounting procedures.

Additional implementations [removed: will] [added: are expected to] occur at our remaining locations over a multi-year period.

[removed: Our] [added: Deloitte & Touche LLP, the Company’s] independent registered public accounting [removed: firm has] [added: firm,] issued an attestation report on [removed: our] [added: the effectiveness of the Company’s] internal control over financial reporting as of December 31, [removed: 2016.][added: 2017, which is included herein.]

Other than the assessment of controls for the ERP [removed: system] implementation [removed: and Pramac acquisition] noted above, there have been no changes in our internal control over financial reporting that occurred during the year ended December 31, [removed: 2016] [added: 2017] that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In October 2017 and January 2018, two subsidiaries implemented the Company's global enterprise resource planning (ERP) systems.

In conducting this assessment, our management excluded the Pramac business, which was acquired on March 1, 2016 and whose financial statements constitute 22.5% and 11.1% of net and total assets, respectively, 12.6% of revenues, and 0.7% of net income of the total consolidated financial statement amounts as of and for the year ended December 31, 2016.

In January 2016, we implemented a new global enterprise resource planning (ERP) system for a majority of our business, with another subsidiary of the Company implementing in October 2016.

Its report appears in the consolidated financial statements included in this Annual Report on Form 10-K on page 40.

The information required by Item 10 not already provided herein under “Item 1 – Business – Executive Officers”, will be included in our [removed: 2017] [added: 2018] Proxy Statement and is incorporated herein by reference.

The information required by this item will be included in our [removed: 2017] [added: 2018] Proxy Statement and is incorporated herein by reference.

The information required by this item, including under the heading “Securities Authorized for Issuance Under Equity Compensation Plans,” will be included in our [removed: 2017] [added: 2018] Proxy Statement and is incorporated herein by reference.

The information required by this item will be included in our [removed: 2017] [added: 2018] Proxy Statement and is incorporated herein by reference.

The information required by this item will be included in our [removed: 2017] [added: 2018] Proxy Statement and is incorporated herein by reference.

| Reports of Independent Registered Public Accounting Firms | [removed: 38] [added: 37] |

| Consolidated balance sheets as of December 31, [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016] | [removed: 41] [added: 40] |

| Consolidated statements of comprehensive income for years ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014] [added: 2015] | [removed: 42] [added: 41] |

| Consolidated statements of stockholders’ equity for years ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014] [added: 2015] | [removed: 43] [added: 42] |

| Consolidated statements of cash flows for the years ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014] [added: 2015] | [removed: 44] [added: 43] |

| Notes to consolidated financial statements | [removed: 45] [added: 44] |

Dated: February [removed: 24, 2017][added: 26, 2018]

| Signature | [removed: | | |] Title | | [removed: | |] Date | | |

| /s/ Aaron Jagdfeld | [removed: | |] Chairman, President and Chief Executive | | [removed: | |] February [removed: 24, 2017 |] [added: 26, 2018] | | |

| Aaron Jagdfeld | [removed: | |] Officer | | | | | [removed: | | |]

| /s/ York A. Ragen | [removed: | |] Chief Financial Officer and | | [removed: | |] February [removed: 24, 2017 |] [added: 26, 2018] | | |

| York A. Ragen | [removed: | |] Chief Accounting Officer | | | | | [removed: | | |]

| /s/ [removed: Todd] [added: TODD] A. [removed: Adams | |] [added: ADAMS] | [removed: Lead] Director | | [removed: | |] February [removed: 24, 2017 |] [added: 26, 2018] | | |

| Todd A. Adams | | | | | | [removed: | | | | |]

| /s/ [removed: John] [added: JOHN] D. [removed: Bowlin | |] [added: BOWLIN] | Director | | [removed: | |] February [removed: 24, 2017 |] [added: 26, 2018] | | |

| John D. Bowlin | | | | | | [removed: | | | | |]

| /s/ Robert D. Dixon | [removed: | |] Director | | [removed: | |] February [removed: 24, 2017 |] [added: 26, 2018] | | |

| Robert D. Dixon | | | | | | [removed: | | | | |]

| /s/ Andrew G. Lampereur | [removed: | |] Director | | [removed: | |] February [removed: 24, 2017 |] [added: 26, 2018] | | |

| Andrew G. Lampereur | | | | | | [removed: | | | | |]

| /s/ [removed: Bennett] [added: bennett] Morgan | [removed: | |] [added: Lead] Director | | [removed: | |] February [removed: 24, 2017 |] [added: 26, 2018] | | |