. Segment Reporting

Effective i

n 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 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, Pramac and Motortech 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
	Three Months Ended March 31,
Reportable Segments	2017		2016
Domestic	$	248,497	$	248,017
International		83,317		38,518
Total net sales	$	331,814	$	286,535

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
	Three Months Ended March 31,
Product Classes	2017		2016
Residential products	$	154,856	$	158,980
Commercial & industrial products		151,443		102,991
Other		25,515		24,564
Total net sales	$	331,814	$	286,535

Management

evaluates the performance of its segments based primarily on Adjusted EBITDA, and therefore 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
	Three Months Ended March 31,
	2017			2016
Domestic	$	42,846		$	46,860
International		4,812			2,949
Total adjusted EBITDA	$	47,658		$	49,809

Interest expense		(10,788	)		(11,035	)
Depreciation and amortization		(12,597	)		(12,793	)
Non-cash write-down and other adjustments (1)		(166	)		127
Non-cash share-based compensation expense (2)		(2,632	)		(2,485	)
Transaction costs and credit facility fees (3)		(316	)		(523	)
Business optimization expenses (4)		(100	)		(7,106	)
Other		41			(63	)
Income before provision for income taxes	$	21,100		$	15,931

(1)

Includes gains/losses on disposal of assets, unrealized mark-to-market adjustments on commodity contracts,

foreign currency gains/losses and certain 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 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.

(4)

Represents charges relating to business optimization and restructuring costs.

he Company’s sales in the United States represented approximately

71%

and

83%

of total sales for the

three

months ended

March

31,

2017

and

2016,

respectively. Approximately

86%

and

87%

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

March

31,

2017

and

December

31,

2016,

respectively.