6.	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 power 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 power 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
	Year Ended December 31, 2018
Product Classes	Domestic		International		Total
Residential products	$	990,631	$	52,108	$	1,042,739
Commercial & industrial products		464,066		356,204		820,270
Other		125,628		34,827		160,455
Total net sales	$	1,580,325	$	443,139	$	2,023,464

	Year Ended December 31, 2017
Product Classes	Domestic		International		Total
Residential products	$	815,125	$	55,365	$	870,490
Commercial & industrial products		385,575		298,778		684,353
Other		102,806		21,724		124,530
Total net sales	$	1,303,506	$	375,867	$	1,679,373

	Year Ended December 31, 2016
Product Classes	Domestic		International		Total
Residential products	$	730,288	$	38,888	$	769,176
Commercial & industrial products		346,094		212,374		558,468
Other		100,467		19,632		120,099
Total net sales	$	1,176,849	$	270,894	$	1,447,743

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 and product accessories sold to our dealers, and the amortization of extended warranty deferred revenue. The aftermarket service parts and product accessories are generally transferred to the customer at a point in time, while the extended warranty revenue is recognized over the life of the contract.

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,
	2018			2017			2016
Domestic	$	388,685		$	290,290		$	259,563
International		35,867			27,010			16,959
Total adjusted EBITDA	$	424,552		$	317,300		$	276,522

Interest expense		(40,956	)		(42,667	)		(44,568	)
Depreciation and amortization		(47,408	)		(51,988	)		(54,418	)
Non-cash write-down and other adjustments (1)		(3,532	)		(2,923	)		(357	)
Non-cash share-based compensation expense (2)		(14,563	)		(10,205	)		(9,493	)
Loss on extinguishment of debt (3)		(1,332	)		-			(574	)
Loss on change in contractual interest rate (4)		-			-			(2,957	)
Transaction costs and credit facility fees (5)		(3,883	)		(2,145	)		(2,442	)
Business optimization expenses (6)		(952	)		(2,912	)		(7,316	)
Other		(850	)		(761	)		(700	)
Income before provision for income taxes	$	311,076		$	203,699		$	153,697

(

)

Includes gains/losses on disposal of assets, unrealized mark-to-market adjustments on commodity contracts, and certain foreign currency and 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 write-off of original issue discount and capitalized debt issuance costs due to voluntary debt prepayments.

(

)

For the year ended

December 31, 2016,

represents a non-cash loss relating to the continued

basis point increase in borrowing costs as a result of the credit agreement leverage ratio remaining above

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

longer be recorded in the statements of comprehensive income. Refer to Note

10,

“Credit Agreements,” to the consolidated financial statements for further information on the gains and losses on changes in the contractual interest rate.

(

)

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 following tables summarize additional financial information by reportable segment:

	Assets
	Year Ended December 31,
	2018		2017		2016
Domestic	$	1,868,554	$	1,612,607	$	1,525,950
International		557,760		413,358		340,019
Total	$	2,426,314	$	2,025,965	$	1,865,969

	Depreciation and Amortization
	Year Ended December 31,
	2018		2017		2016
Domestic	$	35,586	$	37,962	$	42,346
International		11,822		14,026		12,072
Total	$	47,408	$	51,988	$	54,418

	Capital Expenditures
	Year Ended December 31,
	2018		2017		2016
Domestic	$	38,242	$	29,258	$	26,936
International		9,359		4,003		3,531
Total	$	47,601	$	33,261	$	30,467

The Company’s sales in the United States represent approximately

74%,

and

77%

of total sales for the years ended

December 31, 2018,

2017

and

2016,

respectively. Approximately

80%

and

85%

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

December 31, 2018

and

2017,

respectively.