Segment Information

The Company operates in three reportable segments. The KGS reportable segment is comprised of an aggregation of KGS operating segments, including defense and rocket support services, microwave electronic products and satellite communications, technical and training solutions, and modular systems operating segments. The US reportable segment consists of the Company’s unmanned aerial, unmanned ground, unmanned seaborne and command, control and communications system business. The KGS and US segments provide products, solutions and services for mission critical national security programs. KGS and US customers primarily include national security related agencies, the DoD, intelligence agencies and classified agencies, and to a lesser degree, international government agencies and domestic and international commercial customers. The PSS segment designs, engineers, deploys, operates, integrates into command and control infrastructure, maintains and operates security and surveillance solutions for homeland security, public safety, critical infrastructure, government and commercial customers. 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 and military 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. 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.

As discussed in “Discontinued Operations” in Note 8 of these notes to consolidated financial statements, the Company began reporting the Herley Entities as discontinued operations effective in the second quarter of fiscal 2015. Prior to the decision to sell the Herley Entities, the Company reported their financial results in the KGS reportable segment. Accordingly, segment results have been recast for 2015 to reflect the disposition of the Herley Entities as discontinued operations.

As certain overhead type costs previously allocated to the Herley Entities were not allocable to discontinued operations, prior period corporate costs have been reallocated amongst the continuing reportable segments.

Revenues, operating income (loss) and assets disclosed below provided by the Company’s reportable segments for the years ended December 31, 2017, December 25, 2016, and December 27, 2015, are as follows (in millions):



	2017			2016			2015
Revenues:
Kratos Government Solutions
Service revenues	$	196.5		$	221.0		$	209.5
Product sales	283.8			244.8			236.6
Total Kratos Government Solutions	480.3			465.8			446.1
Public Safety & Security
Service revenues	149.9			127.1			144.7
Product sales	—			—			—
Total Public Safety & Security	149.9			127.1			144.7
Unmanned Systems
Service revenues	—			—			—
Product sales	121.7			75.8			66.3
Total Unmanned Systems	121.7			75.8			66.3
Total revenues	$	751.9		$	668.7		$	657.1
Depreciation and amortization:
Kratos Government Solutions	$	14.3		$	14.9		$	18.2
Public Safety & Security	0.4			0.5			0.6
Unmanned Systems	7.8			7.4			6.7
Total depreciation and amortization	$	22.5		$	22.8		$	25.5
Operating income (loss) from continuing operations:
Kratos Government Solutions	$	1.7		$	17.3		$	16.1
Public Safety & Security	3.8			(3.0		)	2.6
Unmanned Systems	(3.0		)	(27.7		)	(16.2		)
Corporate activities	(8.3		)	(5.2		)	(7.0		)
Total operating loss from continuing operations	$	(5.8	)	$	(18.6	)	$	(4.5	)

Revenues from foreign customers were approximately $84.7 million or 11%, $80.1 million or 12% and $73.2 million or 11% of total revenue for the years ended December 31, 2017, December 25, 2016, and December 27, 2015, respectively.

Included in the 2016 operating losses for the US reportable segment is an $18.7 million loss accrual recorded on the Air Force Research Laboratory (“AFRL”) Low-Cost Attritable Strike UAS Demonstration (“LCASD”) cost share contract awarded in July 2016. Included in the 2015 operating losses for the US reportable segment are increased costs of $5.7 million, primarily related to certain retrofits necessary to address product design changes as well as due to a contract conversion adjustment on certain of the Company’s aerial platforms.

Included in the 2016 operating losses for the PSS reportable segment is a $1.9 million charge related to the settlement

of a contract dispute and $4.1 million in unexpected cost growth on several large long-term security integration projects which

are nearing completion.

Included in the 2017 operating loss for the KGS reportable segment is a $24.2 million impairment of the carrying value of the goodwill of the DRSS business within the KGS segment.

Included in the 2016 operating income for the KGS reportable segment is a $9.2 million charge that was recorded in the Company’s modular systems business as a result of the closure of one of its manufacturing facilities, and the exit from certain lower margin product business lines.

Reportable segment assets are as follows (in millions):



	December 31, 2017		December 25, 2016		December 27, 2015
Assets:
Kratos Government Solutions	$	597.9	$	609.8	$	606.8
Unmanned Systems	201.9		172.1		162.0
Public Safety & Security	97.4		92.0		96.8
Corporate activities	126.8		74.7		37.7
Total assets	$	1,024.0	$	948.6	$	903.3

Assets of foreign subsidiaries in the KGS segment were $116.7 million, $113.7 million and $106.2 million as of December 31, 2017, December 25, 2016 and December 27, 2015, respectively.