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. As of April 30, 2016, our chief operating decision maker, for purposes of FASB ASC 280, is our President and Chief Executive Officer ("CEO").

Beginning with our third quarter of fiscal 2016, we began managing our business in two reportable segments: Commercial Solutions and Government Solutions.

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 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 who 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 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, 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. Adjusted EBITDA is used by management in assessing the Company's operating results. The Company's definition of Adjusted EBITDA may differ from the definition of EBITDA used by other companies (including TCS prior to our acquisition) and may not be comparable to similarly titled measures used by other companies.

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



	Three months ended April 30, 2016
		Commercial Solutions		Government Solutions		Unallocated		Total
Net sales		$	71,985,000	52,202,000		—		$	124,187,000
Operating income (loss)		$	6,560,000	5,629,000		(25,586,000	)	$	(13,397,000	)

Net income (loss)		$	6,437,000	5,634,000		(26,426,000	)	$	(14,355,000	)
Income taxes		2,000		—		(2,512,000	)	(2,510,000		)
Interest (income) and other expense		53,000		(5,000	)	(53,000	)	(5,000		)
Interest expense		68,000		—		3,405,000		3,473,000
Amortization of stock-based compensation		—		—		1,041,000		1,041,000
Amortization of intangibles		3,622,000		1,154,000		—		4,776,000
Depreciation		2,130,000		647,000		305,000		3,082,000
Acquisition plan expenses		—		—		16,960,000		16,960,000
Adjusted EBITDA		$	12,312,000	7,430,000		(7,280,000	)	$	12,462,000

Purchases of property, plant and equipment		$	1,119,000	142,000		339,000		$	1,600,000
Long-lived assets acquired in connection with the TCS acquisition		$	353,729,000	76,681,000		4,359,000		$	434,769,000
Total assets at April 30, 2016		$	616,247,000	209,278,000		77,803,000		$	903,328,000



	Three months ended April 30, 2015
		Commercial Solutions			Government Solutions		Unallocated		Total
Net sales		$	47,531,000		24,102,000		—		$	71,633,000
Operating income (loss)		$	3,201,000		7,978,000		(4,019,000	)	$	7,160,000

Net income (loss)		$	3,259,000		7,987,000		(6,286,000	)	$	4,960,000
Income taxes		(135,000		)	—		2,370,000		2,235,000
Interest (income) and other expense		5,000			(9,000	)	(103,000	)	(107,000		)
Interest expense		72,000			—		—		72,000
Amortization of stock-based compensation		—			—		1,244,000		1,244,000
Amortization of intangibles		1,561,000			—		—		1,561,000
Depreciation		1,328,000			327,000		11,000		1,666,000
Adjusted EBITDA		$	6,090,000		8,305,000		(2,764,000	)	$	11,631,000

Purchases of property, plant and equipment		$	379,000		290,000		19,000		$	688,000
Total assets at April 30, 2015		$	244,735,000		94,506,000		134,554,000		$	473,795,000



	Nine months ended April 30, 2016
		Commercial Solutions		Government Solutions		Unallocated		Total
Net sales		$	165,657,000	92,970,000		—		$	258,627,000
Operating income (loss)		$	14,048,000	15,389,000		(37,477,000	)	$	(8,040,000	)

Net income (loss)		$	13,635,000	15,409,000		(39,484,000	)	$	(10,440,000	)
Income taxes		94,000		—		(1,088,000	)	(994,000		)
Interest (income) and other expense		103,000		(20,000	)	(310,000	)	(227,000		)
Interest expense		216,000		—		3,405,000		3,621,000
Amortization of stock-based compensation		—		—		3,166,000		3,166,000
Amortization of intangibles		6,194,000		1,154,000		—		7,348,000
Depreciation		4,568,000		1,189,000		321,000		6,078,000
Acquisition plan expenses		—		—		20,689,000		20,689,000
Adjusted EBITDA		$	24,810,000	17,732,000		(13,301,000	)	29,241,000

Purchases of property, plant and equipment		$	2,067,000	642,000		354,000		$	3,063,000
Long-lived assets acquired in connection with the TCS acquisition		$	353,729,000	76,681,000		4,359,000		$	434,769,000
Total assets at April 30, 2016		$	616,247,000	209,278,000		77,803,000		$	903,328,000



	Nine months ended April 30, 2015
		Commercial Solutions			Government Solutions		Unallocated		Total
Net sales		$	152,105,000		77,721,000		—		$	229,826,000
Operating income (loss)		$	14,460,000		23,542,000		(12,000,000	)	$	26,002,000

Net income (loss)		$	14,390,000		23,564,000		(20,184,000	)	$	17,770,000
Income taxes		(230,000		)	—		8,337,000		8,107,000
Interest (income) and other expense		92,000			(22,000	)	(351,000	)	(281,000		)
Interest expense		208,000			—		198,000		406,000
Amortization of stock-based compensation		—			—		3,642,000		3,642,000
Amortization of intangibles		4,682,000			—		—		4,682,000
Depreciation		3,947,000			923,000		26,000		4,896,000
Strategic alternatives analysis expenses and other		—			—		585,000		585,000
Adjusted EBITDA		$	23,089,000		24,465,000		(7,747,000	)	$	39,807,000

Purchases of property, plant and equipment		$	1,965,000		802,000		66,000		$	2,833,000
Total assets at April 30, 2015		$	244,735,000		94,506,000		134,554,000		$	473,795,000

Unallocated expenses result from corporate expenses such as executive compensation, accounting, legal and other regulatory compliance related costs. In addition, unallocated expenses for the three and nine months ended April 30, 2016 include $16,960,000 and $20,689,000, respectively, of transaction costs primarily related to our acquisition of TCS. Unallocated expenses for the nine months ended April 30, 2015 include $585,000 of expenses related to our strategic alternatives analysis which we concluded in December 2014. There were no such expenses during the three months ended April 30, 2015.

Unallocated expenses also include amortization of stock-based compensation of $1,041,000, and $3,166,000, respectively, for the three and nine months ended April 30, 2016 and $1,244,000 and $3,642,000, respectively, for the three and nine months ended April 30, 2015. Interest expense for the three and nine months ended April 30, 2016 includes $2,981,000 related to our Secured Credit Facility, as further discussed in Note (10) - "Secured Credit Facility," including the amortization of deferred financing costs. The nine months ended April 30, 2015 includes interest on a committed $100,000,000 secured revolving credit facility that expired on October 31, 2014 and amortization of deferred financing costs, neither of which is allocated to the operating segments. Unallocated assets at April 30, 2016 consist principally of cash, income taxes receivable, corporate property, plant and equipment and deferred financing costs.

Intersegment sales for the three months ended April 30, 2016 and 2015 by the Commercial Solutions segment to the Government Solutions segment were $2,198,000 and $1,073,000, respectively. Intersegment sales for the nine months ended April 30, 2016 and 2015 by the Commercial Solutions segment to the Government Solutions segment were $4,082,000 and $3,378,000, respectively. There were no sales by the Government Solutions segment to the Commercial Solutions segment for any of these three or nine month periods.

Substantially all of our long-lived assets are located in the U.S. and all intersegment sales are eliminated in consolidation and are excluded from the tables above.