Segment Information

The Company operates in three reportable segments. The Kratos Government Solutions (“KGS”) reportable segment is comprised of an aggregation of KGS operating segments, including the microwave electronic products, satellite communications, modular systems and defense and rocket support operating segments. The Unmanned Systems (“US”) reportable segment consists of its unmanned aerial system and unmanned ground and seaborne system businesses. The KGS and US reportable segments provide products, solutions and services for mission critical national security programs. KGS and US customers primarily include national security related agencies, the U.S. Department of Defense (the “DoD”), intelligence agencies and classified agencies, and to a lesser degree, international government agencies and domestic and international commercial customers. The Public Safety & Security (“PSS”) reportable segment provides independent integrated solutions for advanced homeland security, public safety, critical infrastructure, and security and surveillance systems for government and commercial applications. PSS customers include those in the critical infrastructure, power generation, power transport, nuclear energy, financial, IT, healthcare, education, transportation and petro-chemical industries, as well as certain government customers.

The Company organizes its reportable segments based on the nature of the products, solutions and services offered. Transactions between segments are generally negotiated and accounted for under terms and conditions similar to other government and commercial contracts. This presentation is consistent with the Company’s operating structure. In the following table, total operating income (loss) from continuing operations of the reportable business segments is reconciled to the corresponding consolidated amount. The reconciling item “unallocated corporate expense, net” includes costs for certain stock-based compensation programs (including stock-based compensation costs for stock options, employee stock purchase plan and restricted stock units), the effects of items not considered part of management’s evaluation of segment operating performance, merger and acquisition expenses, corporate costs not allocated to the segments, and other miscellaneous corporate activities.

During the nine months ended September 25, 2016, the PSS reportable segment recorded a $1.9 million charge related to a litigation settlement of a contract dispute and the KGS reportable segment recorded a $7.8 million charge as a result of the decision to close one of its manufacturing facilities and exit certain lower margin product business lines. The operating loss for the US segment for the three and nine months ended September 25, 2016 includes an $18.7 million loss accrual recorded on the Low Cost Attritable Unmanned Aerial System Demonstration cost share contract awarded in July 2016.

Revenues, depreciation and amortization, and operating income (loss) generated by the Company’s reportable segments for the three and nine month periods ended October 1, 2017 and September 25, 2016 are as follows (in millions):



	Three Months Ended						Nine Months Ended
	October 1, 2017			September 25, 2016			October 1, 2017			September 25, 2016
Revenues:
Kratos Government Solutions
Service revenues	$	47.5		$	52.9		$	149.4		$	163.1
Product sales	67.9			59.9			207.0			178.3
Total Kratos Government Solutions	115.4			112.8			356.4			341.4
Public Safety & Security
Service revenues	39.2			34.3			113.9			94.9
Product sales	—			—			—			—
Total Public Safety & Security	39.2			34.3			113.9			94.9
Unmanned Systems
Service revenues	—			—			—			—
Product sales	41.6			18.3			79.4			50.3
Total Unmanned Systems	41.6			18.3			79.4			50.3
Total revenues	$	196.2		$	165.4		$	549.7		$	486.6
Depreciation & amortization:
Kratos Government Solutions	$	3.5		$	3.6		$	10.7		$	11.3
Public Safety & Security	0.1			0.1			0.3			0.4
Unmanned Systems	2.4			1.9			6.0			5.6
Total depreciation and amortization	$	6.0		$	5.6		$	17.0		$	17.3
Operating income (loss) from continuing operations:
Kratos Government Solutions	$	1.7		$	7.7		$	17.0		$	10.4
Public Safety & Security	2.5			0.8			2.8			(1.7		)
Unmanned Systems	1.7			(20.4		)	(5.1		)	(27.6		)
Unallocated corporate expense, net	(2.8		)	(1.1		)	(7.3		)	(4.3		)
Total operating income (loss) from continuing operations	$	3.1		$	(13.0	)	$	7.4		$	(23.2	)