Note 6 - Segment Reporting

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

6. Segment Reporting

Effective

in the

second

quarter of

2016,

the Company changed its 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 Domestic segment includes the legacy Generac business and the impact of acquisitions that are based in the United States, all of which have revenues that are substantially derived from the U.S. and Canada. The International segment includes the Ottomotores, Tower Light and Pramac acquisitions, all of which have revenues that are substantially derived from outside of the U.S and Canada. Both reportable segments design and manufacture a wide range of power generation equipment and other engine powered products. The Company has multiple operating segments, which it aggregates into the

two

reportable segments, based on materially similar economic characteristics, products, production processes, classes of customers and distribution methods.

 All segment information has been retrospectively applied to all periods presented to reflect the new reportable segment structure.

	Net Sales
	Year Ended December 31,
Reportable Segments	2016		2015		2014
Domestic	$	1,173,559	$	1,204,589	$	1,343,367
International		270,894		112,710		117,552
Total	$	1,444,453	$	1,317,299	$	1,460,919

The Company's product offerings consist primarily of power

generation equipment and other engine powered products geared for varying end customer uses. Residential products and commercial & industrial products are each a similar class of products based on similar power output and end customer. The breakout of net sales between residential, commercial & industrial, and other products by product class is as follows:

	Net Sales
	Year Ended December 31,
Product Classes	2016		2015		2014
Residential products	$	772,436	$	673,764	$	722,206
Commercial & industrial products		557,532		548,440		652,216
Other		114,485		95,095		86,497
Total	$	1,444,453	$	1,317,299	$	1,460,919

Management evaluates the performance of its segments based primarily on Adjusted EBITDA,

which is reconciled to Income before provision for income taxes below. The computation of Adjusted EBITDA is based on the definition that is contained in the Company’s credit agreements.

	Adjusted EBITDA
	Year Ended December 31,
	2016			2015			2014
Domestic	$	261,428		$	254,882		$	322,769
International		16,959			15,934			14,514
Total adjusted EBITDA	$	278,387		$	270,816		$	337,283
Interest expense		(44,568	)		(42,843	)		(47,215	)
Depreciation and amortization		(54,418	)		(40,333	)		(34,730	)
Non-cash write-down and other adjustments (1)		(357	)		(3,892	)		3,853
Non-cash share-based compensation expense (2)		(9,493	)		(8,241	)		(12,612	)
Tradename and goodwill impairment (3)		-			(40,687	)		-
Loss on extinguishment of debt (4)		(574	)		(4,795	)		(2,084	)
Gain (loss) on change in contractual interest rate (5)		(2,957	)		(2,381	)		16,014
Transaction costs and credit facility fees (6)		(2,442	)		(2,249	)		(1,851	)
Business optimization expenses (7)		(7,316	)		(1,947	)		-
Other		120			(465	)		(296	)
Income before provision for income taxes	$	156,382		$	122,983		$	258,362

(1) Includes gains/losses on disposal of assets, unrealized mark-to-market adjustments on commodity contracts, and certain foreign currency and purchase accounting related adjustments.

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

(3) Represents the 2015  impairment of certain tradenames due to a change in brand strategy to transition and consolidate various brands to the Generac® tradename ($36,076) and the impairment of goodwill related to the Ottomotores reporting unit ($4,611).

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

(5) For the year ended December 31, 2016, represents a non-cash loss in the third quarter 2016 relating to the continued 25 basis point increase in borrowing costs as a result of the credit agreement leverage ratio remaining above 3.0 times and expected to remain above 3.0 based on current projections. 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 effective third quarter 2015 and expected to remain above 3.0 times based on projections at the 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 effective second quarter 2014 and expected to remain below 3.0 times based on projections at the time.

(6) Represents transaction costs incurred directly in connection with any investment, as defined in our credit agreement; equity issuance, debt issuance or refinancing; together with certain fees relating to our senior secured credit facilities.

(7) Represents charges relating to business optimization and restructuring costs.

The following tables summarize additional financial information by reportable segment:

	Assets
	Year Ended December 31,
	2016		2015		2014
Domestic	$	1,521,665	$	1,605,043	$	1,672,336
International		340,019		173,592		192,083
Total	$	1,861,684	$	1,778,635	$	1,864,419

	Depreciation and Amortization
	Year Ended December 31,
	2016		2015		2014
Domestic	$	42,346	$	35,327	$	29,410
International		12,072		5,006		5,320
Total	$	54,418	$	40,333	$	34,730

	Capital Expenditures
	Year Ended December 31,
	2016		2015		2014
Domestic	$	26,936	$	29,368	$	33,976
International		3,531		1,283		713
Total	$	30,467	$	30,651	$	34,689

The Company

’s sales in the United States represent approximately

77%,

85%,

and

84%

of total sales for the years ended

December

31,

2016,

2015

and

2014,

respectively. Approximately

87%

and

93%

of the Company’s identifiable long-lived assets are located in the United States as of

December

31,

2016

and

2015,

respectively.