. Segment Reporting

The Company has

two

reportable segments for financial reporting purposes - Domestic and International. 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, Motortech and Selmec businesses, 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.

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 (C&I) products are each a similar class of products based on similar power output and end customer. The breakout of net sales between residential, C&I, and other products by reportable segment is as follows:

	Net Sales by Segment
	Three Months Ended June 30, 2018
Product Classes	Domestic		International		Total
Residential products	$	234,131	$	12,267	$	246,398
Commercial & industrial products		120,521		95,107		215,628
Other		26,395		6,528		32,923
Total net sales	$	381,047	$	113,902	$	494,949

	Three Months Ended June 30, 2017
Product Classes	Domestic		International		Total
Residential products	$	185,114	$	13,354	$	198,468
Commercial & industrial products		98,909		70,994		169,903
Other		21,383		5,121		26,504
Total net sales	$	305,406	$	89,469	$	394,875

	Six Months Ended June 30, 2018
Product Classes	Domestic		International		Total
Residential products	$	410,816	$	26,056	$	436,872
Commercial & industrial products		218,292		172,461		390,753
Other		52,158		12,800		64,958
Total net sales	$	681,266	$	211,317	$	892,583

	Six Months Ended June 30, 2017
Product Classes	Domestic		International		Total
Residential products	$	326,815	$	25,870	$	352,685
Commercial & industrial products		183,674		136,982		320,656
Other		42,085		9,934		52,019
Total net sales	$	552,574	$	172,786	$	725,360

Residential products consist primarily of automatic standby generators ranging in output from

6kW

60kW,

portable generators, power washers and other outdoor power equipment. These products are sold through independent residential dealers, national and regional retailers, e-commerce merchants, electrical and HVAC wholesalers and outdoor power equipment dealers. The residential products revenue consists of the sale of the product to our distribution partners, which in turn sell or rent the product to the end consumer, including installation and maintenance services. In some cases, residential products are sold direct to the end consumer. Substantially all of the residential products revenues are transferred to the customer at a point in time.

C&I products consist of larger output stationary generators fueled by diesel, natural gas, liquid propane and bi-fuel, with power outputs ranging from

10kW

up to

3,250kW.

Also included in C&I products are mobile generators, light towers, mobile heaters and mobile pumps. These products are sold through industrial distributors and dealers, equipment rental companies and equipment distributors. The C&I products revenue consists of the sale of the product to our distribution channels, which in turn sell the product to the end consumer, including installation and maintenance services. In some cases, C&I products are sold direct to the end consumer. Substantially all of the C&I products revenues are transferred to the customer at a point in time.

Other products consist primarily of aftermarket service parts sold to our dealers, product accessories and proprietary engines sold to

third

-party original equipment manufacturers. Substantially all of the Other products revenues are transferred to the customer at a point in time.

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
	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Domestic	$	90,602		$	63,692		$	156,077		$	105,583
International		11,628			6,034			17,934			10,846
Total adjusted EBITDA	$	102,230		$	69,726		$	174,011		$	116,429

Interest expense		(11,002	)		(10,893	)		(21,115	)		(21,681	)
Depreciation and amortization		(11,600	)		(12,986	)		(23,283	)		(25,583	)
Non-cash write-down and other adjustments (1)		(1,316	)		(1,710	)		(2,622	)		(1,876	)
Non-cash share-based compensation expense (2)		(3,885	)		(3,186	)		(6,991	)		(5,818	)
Loss on extinguishment of debt (3)		(1,332	)		-			(1,332	)		-
Transaction costs and credit facility fees (4)		(441	)		(420	)		(703	)		(736	)
Business optimization expenses (5)		(29	)		(1,346	)		(167	)		(1,446	)
Other		(12	)		69			1			(30	)
Income before provision for income taxes	$	72,613		$	39,254		$	117,799		$	59,259

(

)

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.

(

)

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

(

)

Represents the non-cash write-off of original issue discount and deferred financing costs due to a voluntary prepayment of Term Loan debt.

(

)

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.

(

)

Represents charges relating to business optimization and restructuring costs.

The Company’s sales in the United States represented approximately

73%

of total sales for the

three

month periods ended

June 30, 2018

and

2017,

and represented approximately

72%

of total sales for the

six

month periods ended

June 30, 2018

and

2017.

Approximately

85%

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

June 30, 2018

and

December 31, 2017.