. Segment Reporting

he 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 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 adjusted for all periods presented to reflect the current reportable segment structure.

	Net Sales
	Three Months Ended September 30,				Nine Months Ended September 30,
Reportable Segments	2017		2016		2017		2016
Domestic	$	364,323	$	299,095	$	918,727	$	833,831
International		92,930		74,026		265,716		193,201
Total net sales	$	457,253	$	373,121	$	1,184,443	$	1,027,032

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 September 30,				Nine Months Ended September 30,
Product Classes	2017		2016		2017		2016
Residential products	$	251,921	$	192,856	$	604,894	$	533,572
Commercial & industrial products		174,538		149,676		496,736		409,396
Other		30,794		30,589		82,813		84,064
Total net sales	$	457,253	$	373,121	$	1,184,443	$	1,027,032

Management

evaluates the performance of its segments based primarily on Adjusted EBITDA before noncontrolling interests, 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,
	2017		2016		2017		2016
Domestic	$	83,128	$	69,309	$	190,131	$	173,521
International		5,625		3,527		16,471		13,050
Total adjusted EBITDA	$	88,753	$	72,836	$	206,602	$	186,571

Interest expense		(10,672)		(11,299)		(32,353)		(33,714)
Depreciation and amortization		(13,108)		(14,900)		(38,691)		(41,343)
Non-cash write-down and other adjustments (1)		(756)		1,093		(2,632)		(1,689)
Non-cash share-based compensation expense (2)		(2,584)		(2,419)		(8,402)		(7,805)
Loss on change in contractual interest rate (3)		-		(2,957)		-		(2,957)
Transaction costs and credit facility fees (4)		(234)		(739)		(970)		(1,499)
Business optimization expenses (5)		(487)		(58)		(1,933)		(7,164)
Other		(281)		(31)		(31)		(79)
Income before provision for income taxes	$	60,631	$	41,526	$	121,590	$	90,321

(

)

Includes gains/losses on disposal of assets, unrealized mark-to-market adju

stments 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.

(

)

For the

three

and

nine

month periods ended

September 30, 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.

(

)

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.

he Company’s sales in the United States represented approximately

76%

and

77%

of total sales for the

three

months ended

September 30, 2017

and

2016,

respectively, and represented approximately

74%

and

78%

of total sales for the

nine

months ended

September 30, 2017

and

2016,

respectively. Approximately

85%

and

87%

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

September 30, 2017

and

December 31, 2016,

respectively.