. 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 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 September 30, 2018
Product Classes	Domestic		International		Total
Residential products	$	300,387	$	11,531	$	311,918
Commercial & industrial products		121,952		84,414		206,366
Other		30,920		10,311		41,231
Total net sales	$	453,259	$	106,256	$	559,515

	Three Months Ended September 30, 2017
Product Classes	Domestic		International		Total
Residential products	$	236,821	$	14,382	$	251,203
Commercial & industrial products		101,122		72,720		173,842
Other		24,966		5,828		30,794
Total net sales	$	362,909	$	92,930	$	455,839

	Nine Months Ended September 30, 2018
Product Classes	Domestic		International		Total
Residential products	$	711,203	$	37,587	$	748,790
Commercial & industrial products		340,244		256,875		597,119
Other		83,078		23,111		106,189
Total net sales	$	1,134,525	$	317,573	$	1,452,098

	Nine Months Ended September 30, 2017
Product Classes	Domestic		International		Total
Residential products	$	563,636	$	40,252	$	603,888
Commercial & industrial products		284,796		209,702		494,498
Other		67,051		15,762		82,813
Total net sales	$	915,483	$	265,716	$	1,181,199

Residential products consist primarily of automatic home 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 used in C&I applications and 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 partners, which in turn sell or rent the product to the end customer, including installation and maintenance services. In some cases, C&I products are sold direct to the end customer. 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 September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Domestic	$	117,108		$	82,817		$	273,185		$	188,400
International		7,366			5,625			25,300			16,471
Total adjusted EBITDA	$	124,474		$	88,442		$	298,485		$	204,871

Interest expense		(9,824	)		(10,672	)		(30,939	)		(32,353	)
Depreciation and amortization		(11,841	)		(13,108	)		(35,124	)		(38,691	)
Non-cash write-down and other adjustments (1)		(900	)		(756	)		(3,522	)		(2,632	)
Non-cash share-based compensation expense (2)		(2,919	)		(2,584	)		(9,910	)		(8,402	)
Loss on extinguishment of debt (3)		-			-			(1,332	)		-
Transaction costs and credit facility fees (4)		(1,767	)		(234	)		(2,470	)		(970	)
Business optimization expenses (5)		(583	)		(487	)		(750	)		(1,933	)
Other		(46	)		(421	)		(45	)		(451	)
Income before provision for income taxes	$	96,594		$	60,180		$	214,393		$	119,439

(

)

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

78%

and

76%

of total sales for the

three

month periods ended

September 30, 2018

and

2017,

respectively, and represented approximately

74%

of total sales for the

nine

month periods ended

September 30, 2018

and

2017.

Approximately

80%

and

85%

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

September 30, 2018

and

December 31, 2017,

respectively.