Segment Information

Reportable operating segments are determined based on Comtech’s management approach. The management approach, as defined by FASB ASC 280 "Segment Reporting" is based on the way that the chief operating decision-maker ("CODM") organizes the segments within an enterprise for making decisions about resources to be allocated and assessing their performance. Our CODM, for purposes of FASB ASC 280, is our Chief Executive Officer and President.

Our Commercial Solutions segment serves commercial customers and smaller government customers, such as state and local governments, that require advanced communications technologies to meet their needs. This segment also serves certain large government customers (including the U.S. government) when they have requirements for off-the-shelf commercial equipment. Commercial solutions products include satellite earth station communications equipment such as modems and traveling wave tube amplifiers, public safety technologies including those that are utilized in next generation 911 systems and enterprise technologies such as trusted location and text-messaging platforms.

Our Government Solutions segment serves large U.S. and foreign government end-users that require mission critical technologies and systems. Government solutions products include command and control technologies (such as remote sensing tracking systems, rugged solid state drives, land mobile products and quick deploy satellite systems), troposcatter technologies systems (such as digital troposcatter multiplexers, digital over-the-horizon modems, troposcatter systems and frequency converter systems) and RF power and switching technologies products (such as solid-state high-power narrow and broadband amplifiers, enhanced position location reporting system ("EPLRS") amplifier assemblies, identification friend or foe amplifiers and amplifiers used in the counteraction of improvised explosive devices).

Our CODM primarily uses a metric that we refer to as Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") to measure an operating segment’s performance and to make decisions about resources to be allocated. Our Adjusted EBITDA metric does not consider any allocation of the following: income taxes, interest (income) and other expense, interest expense, amortization of stock-based compensation, amortization of intangibles, depreciation expense, settlement of intellectual property litigation, acquisition plan expenses or strategic alternatives analysis expenses and other. These items, while periodically affecting our results, may vary significantly from period to period and may have a disproportionate effect in a given period, thereby affecting the comparability of results. Our Adjusted EBITDA is also used by our management in assessing the Company's operating results. Although closely aligned, the Company's definition of Adjusted EBITDA is different than the Consolidated EBITDA (as such term is defined in our Secured Credit Facility, as amended) utilized for financial covenant calculations and also may differ from the definition of EBITDA or Adjusted EBITDA used by other companies and, therefore, may not be comparable to similarly titled measures used by other companies.

Operating segment information, along with a reconciliation of segment net income (loss) and consolidated net loss to Adjusted EBITDA is presented in the tables below:



	Three months ended October 31, 2017
		Commercial Solutions		Government Solutions		Unallocated		Total
Net sales		$	76,114,000	45,455,000		—		$	121,569,000
Operating income (loss)		$	4,792,000	(641,000	)	(3,929,000	)	$	222,000

Net income (loss)		$	4,702,000	(642,000	)	(5,720,000	)	$	(1,660,000	)
Provision for (benefit from) income taxes		6,000		—		(751,000	)	(745,000		)
Interest (income) and other expense		48,000		(2,000	)	(7,000	)	39,000
Interest expense		36,000		3,000		2,549,000		2,588,000
Amortization of stock-based compensation		—		—		747,000		747,000
Amortization of intangibles		4,425,000		844,000		—		5,269,000
Depreciation		2,444,000		616,000		286,000		3,346,000
Adjusted EBITDA		$	11,661,000	819,000		(2,896,000	)	$	9,584,000

Purchases of property, plant and equipment		$	959,000	93,000		56,000		$	1,108,000
Total assets at October 31, 2017		$	600,649,000	181,739,000		43,844,000		$	826,232,000



	Three months ended October 31, 2016
		Commercial Solutions			Government Solutions		Unallocated		Total
Net sales		$	76,178,000		59,608,000		—		$	135,786,000
Operating income (loss)		$	3,098,000		2,500,000		(6,326,000	)	$	(728,000	)

Net income (loss)		$	3,013,000		2,503,000		(8,005,000	)	$	(2,489,000	)
Provision for (benefit from) income taxes		23,000			—		(1,585,000	)	(1,562,000		)
Interest (income) and other expense		(2,000		)	(3,000	)	3,000		(2,000		)
Interest expense		64,000			—		3,261,000		3,325,000
Amortization of stock-based compensation		—			—		970,000		970,000
Amortization of intangibles		4,436,000			1,619,000		—		6,055,000
Depreciation		2,587,000			751,000		411,000		3,749,000
Adjusted EBITDA		$	10,121,000		4,870,000		(4,945,000	)	$	10,046,000

Purchases of property, plant and equipment		$	1,995,000		10,000		70,000		$	2,075,000
Total assets at October 31, 2016		$	623,510,000		211,021,000		68,921,000		$	903,452,000

Unallocated expenses result from corporate expenses such as executive compensation, accounting, legal and other regulatory compliance related costs and also includes all of our amortization of stock-based compensation.

Interest expense for the three months ended October 31, 2017 and 2016 includes $2,465,000 and $3,175,000 respectively, related to our Secured Credit Facility, as amended, and includes the amortization of deferred financing costs. See Note (9) - “Secured Credit Facility” for further discussion of such debt.

Intersegment sales for the three months ended October 31, 2017 and 2016 by the Commercial Solutions segment to the Government Solutions segment were $2,621,000 and $3,426,000, respectively. There were nominal sales by the Government Solutions segment to the Commercial Solutions segment for these periods. All intersegment sales are eliminated in consolidation and are excluded from the tables above.

Unallocated assets at October 31, 2017 consist principally of cash and cash equivalents, income taxes receivable, corporate property, plant and equipment and deferred financing costs. Substantially all of our long-lived assets are located in the U.S.