Kratos Reports Full Year and Fourth Quarter Fiscal 2012 Financial Results

Kratos Reports Full Year and Fourth Quarter Fiscal 2012 Financial Results

 Kratos Affirms Previously Issued Fiscal 2013 Guidance for Adjusted Free Cash
   Flow and Provides Fiscal Year 2013 Revenue and Adjusted EBITDA Guidance

   Reports Non-Cash Goodwill Impairment Charge Primarily Related to Legacy
                             Services Businesses

SAN DIEGO, March 12, 2013 (GLOBE NEWSWIRE) -- Kratos Defense & Security
Solutions, Inc. (Nasdaq:KTOS), a leading National Security Solutions provider,
today reported fiscal year 2012 revenues of $969.2 million, an increase of 36
percent over fiscal year 2011. Kratos also reported for fiscal 2012 Adjusted
EBITDA of $115.4 million or 11.9 percent of revenue, Adjusted Cash Flow From
Continuing Operations of $57.7 million and Adjusted Free Cash Flow of $41.1
million.For the fourth quarter ended December 30, 2012, Kratos reported
revenues of $263.6 million and Adjusted EBITDA of $31.6 million or 12 percent
of revenue and Adjusted Free Cash Flow of $14.9 million.

For the fourth quarter, Kratos generated a book-to-bill ratio of 1.1 to 1.0,
representing the third sequential fiscal quarter in a row that Kratos'
book-to-bill performance has exceeded 1.0 to 1.0.At fiscal year-end December
30, 2012, Kratos reported total backlog of $1.3 billion and a qualified bid
and proposal pipeline of $4.2 billion.Importantly, Kratos does not include in
its backlog, book-to-bill ratio or bid and proposal pipeline any amounts
expected from Multiple Award Contracts (MAC's), Indefinite Delivery Indefinite
Quantity contracts (IDIQ's) or Government Wide Acquisition Contracts (GWAC's)
unless associated funded Task Orders have been received.

Key contracts recently awarded to Kratos include:

  *Kratos was successful in winning the recompete on one of the Company's
    largest contracts, in the satellite communications C2 area, for an
    additional six years, assuming all contract options are exercised.
    
  *One of Kratos' five largest customers awarded Kratos a 2013 aerial drone
    production award, and the customer indicated it intends to award Kratos
    five years of additional production on a sole source basis.
    
  *Two of Kratos' top ten customers awarded Kratos continued full rate
    production for 2013 of specialized electronic products in support of
    certain strategic Electronic Warfare and Missile System related programs.
    
  *Earlier in 2012, another Kratos top ten customer exercised a $50 million
    option on a $100 million Ballistic Missile Defense and Hypersonic vehicle
    focused Kratos contract.

For the full year and fourth quarter ended December 30, 2012, Pro forma EPS
from continuing operations was $0.53 and $0.15, respectively.

Kratos' fourth quarter results include important contributions from its
unmanned aerial drone, aerial target, aerial systems, ballistic missile
defense, electronic warfare and products, satellite communications, cyber
security, C5ISR and training product areas, and Kratos' critical
infrastructure security business. During the fourth quarter and throughout
2012, Kratos also experienced continued contraction in its traditional
government information technology and services business, which now represent
approximately ten percent of Kratos' overall consolidated revenues.

Approximately 65 percent of Kratos' business is focused on providing or
supporting specialty products for strategic National Security programs.An
additional approximate 25 percent of Kratos' business is focused on providing
critical infrastructure security, public safety and cyber security related
products and solutions for certain of our country's most strategic and
important assets.Approximately 30 percent of Kratos' overall business is
funded by commercial or international security focused customers, and is not
impacted by U.S. Federal Budgets.

Kratos is affirming its previously communicated Adjusted Free Cash Flow
guidance for full fiscal year 2013 of $50 million.Kratos is providing full
fiscal year 2013 revenue guidance of $950 million to $1 billion, and Adjusted
EBITDA guidance of $115 million to $125 million, respectively.Kratos' 2013
financial guidance is being provided in an extremely uncertain U.S. Federal
Government budgetary environment, including Federal debt ceiling discussions,
an existing six-month Continuing Resolution Authorization, which expires March
27, 2013, no Fiscal 2013 DoD budget currently being in place, a delayed Fiscal
2014 DoD budget request, and a potential for an extended Sequestration or
similar significant Federal budgetary reduction scenario.The potential impact
of an extended Sequestration event, as currently written with an approximate
10 percent across the budget line item reduction, has not been assumed in
Kratos' guidance.Kratos' 2013 guidance does assume that the Pentagon will
ultimately be provided the discretion to protect its priority programs and
initiatives that support the new Defense Strategy and the Strategic
Pivot.Kratos currently expects that the Company's first and second quarter
fiscal 2013 revenues will be in the range of $235 to $245 million, and that
the Company's third and fourth quarter fiscal 2013 revenues will be in the
range of $240 to $255 million.The Company currently expects adjusted EBITDA
margins of approximately 11% to 12% in the first half of fiscal year 2013, and
approximately 12% to 13% in the second half of fiscal 2013.The forecasted
increased revenues and Adjusted EBITDA for the second half of fiscal 2013 is
primarily due to expected U.S. Federal Government funding flows around the
September 30 Federal Government fiscal year end and expected growth in Kratos'
critical infrastructure security business.Kratos currently expects its
second, third and fourth fiscal quarters of 2013 cash receipts to be stronger
than the first quarter, due primarily to the expected collection of
significant contract milestone payments in those periods, with the first
quarter being approximately Adjusted Free Cash Flow neutral.Additionally, in
2013 Kratos will make the bi-annual interest payments on its Senior Secured
Notes in the second and fourth quarters.

Eric DeMarco, Kratos' President & CEO said, "We closed out 2012 positioned
well for 2013, generating a 1.1 to 1.0 book-to-bill ratio and $41 million of
Adjusted Free Cash Flow for the year, giving us confidence in our 2013
Adjusted Free Cash Flow target of $50 million.As we begin 2013, we believe
that Kratos is a uniquely differentiated specialty product and solutions
business, focused on strategic mission critical National Security programs,
platforms and initiatives which we believe will remain funding priorities for
our country.We also believe that the current and expected future budgetary
environment will provide companies like Kratos the opportunity to demonstrate
our ability to offer cost saving innovations and deliver leading edge
technology and products that address our customers' mission and are
affordable.Our plan for 2013 is to remain laser focused on operational
excellence, cash flow generation and the integration of the businesses we
acquired in 2012, including CEI, which has performed outstandingly well as we
originally expected.We will continue our ongoing facilities and back office
consolidation and cost reduction initiatives, reducing non-critical and
duplicative G&A and overhead, and focus our IR&D investments in areas where we
see growth opportunities. Also importantly, in 2013 we expect Kratos'
critical infrastructure security and public safety business to recover from
the work stoppage and delays we experienced in the fourth quarter of 2012 as a
result of Hurricane Sandy, and for this business to continue an organic growth
trajectory in the second half of 2013."

Kratos also reported that in connection with the preparation of Kratos' fiscal
year ended and fourth quarter financial statements, the Company conducted a
test of its goodwill as of December 30, 2012, in accordance with Accounting
Standards Codification Topic 350.As a result of this goodwill test, and due
primarily to U.S. Defense industry conditions, related equity market
conditions, and the Company's equity valuation, all of which have been
adversely impacted by the threat of a long term sequestration event, an
existing six-month Continuing Resolution Authorization and overall U.S.
Federal budgetary uncertainty, the Company recorded a non-cash goodwill and
intangible asset impairment charge of $96.6 million.The goodwill and
intangible asset charge is related primarily to previously acquired legacy
services businesses, which the Company has deemphasized as part of its core
strategy over the past several years, as Kratos builds a specialty product and
technology based business.Additionally, the non-cash impairment charge is not
related in any way to the operating performance or cash flows of the Company's
recently acquired product and technology focused businesses.The impairment
charge also has no impact on Kratos' business operations, cash balances, cash
flow or debt agreements.

Management will discuss the financial results in a conference call beginning
at 2:00 p.m. Pacific (5:00 p.m. Eastern) today. Analysts and institutional
investors may participate in the conference call by dialing 866-393-0674,
referencing the call by ID number 11523954. The general public may access the
conference call by dialing (877) 344-3935 or on the day of the event by
visiting www.kratosdefense.com for a simultaneous webcast. A replay of the
webcast will be available on the Kratos web site approximately two hours after
the conclusion of the conference call.

AboutKratos Defense & Security Solutions

Kratos Defense & Security Solutions, Inc.(Nasdaq:KTOS) is a specialized
National Security technology business providing mission critical products,
services and solutions for United States National Security.Kratos'core
capabilities are sophisticated engineering, manufacturing and system
integration offerings for National Security platforms and
programs.Kratos'areas of expertise include Command, Control, Communications,
Computing, Combat Systems, Intelligence, Surveillance and Reconnaissance
(C5ISR), satellite communication systems, unmanned systems, cyber warfare,
cyber security, information assurance, and critical infrastructure
security.Kratoshas primarily an engineering and technical oriented work
force of approximately 4,300. The vast majority ofKratos'work is performed
on a military base, in a secure facility or at a critical infrastructure
location.Kratos'primary end customers are national security related
agencies. News and information are available atwww.KratosDefense.com.

The Kratos Defense & Security Solutions, Inc. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=3519

Notice Regarding Forward-Looking Statements

This news release and filing contains certain forward-looking statements that
involve risks and uncertainties, including, without limitation, express or
implied statements concerning the Company's expectations regarding its future
financial performance, bid and proposal pipeline, demand for its products and
services, performance of key contracts, timing and expected impact of
integration and divestiture activities, and market and industry developments,
including the potential impact of sequestration and the impact of Federal
budget cuts on our business. Such statements are only predictions, and the
Company's actual results may differ materially. Investors are cautioned not to
place undue reliance on any such forward-looking statements. All such
forward-looking statements speak only as of the date they are made, and the
Company undertakes no obligation to update or revise these statements, whether
as a result of new information, future events or otherwise. Factors that may
cause the Company's results to differ include, but are not limited to: risks
of adverse regulatory action or litigation; risks associated with debt
leverage; risks that our cost cutting initiatives will not provide the
anticipated benefits; risks that changes, cutbacks or delays in spending by
the U.S. Department of Defense may occur, which could cause delays or
cancellations of key government contracts; risks that changes may occur in
Federal government (or other applicable) procurement laws, regulations,
policies and budgets; risks of the availability of government funding for the
Company's products and services due to performance, cost growth, or other
factors, changes in government and customer priorities and requirements
(including cost-cutting initiatives, the potential deferral of awards,
terminations or reduction of expenditures to respond to the priorities of
Congress and the Administration, or budgetary cuts resulting from
Congressional committee recommendations or automatic sequestration under the
Budget Control Act of 2011), risks of increases in the Federal government
initiatives related to in-sourcing; risks related to security breaches,
including cyber security attacks and threats or other significant disruptions
of our information systems, facilities and infrastructures; risks related to
our compliance with applicable contracting and procurement laws, regulations
and standards; risks relating to contract performance; risks of our
subcontractors or suppliers failure to perform their contractual obligations,
including the appearance of counterfeit parts in our products; changes in the
competitive environment (including as a result of bid protests); failure to
successfully integrate acquired operations and competition in the marketplace
which could reduce revenues and profit margins; risks associated with our
planned divestiture of certain non-core businesses; risks that potential
future goodwill impairments will adversely affect our operating results; risks
that anticipated tax benefits will not be realized in accordance with our
expectations; risks that a change in ownership of our stock could cause
further limitation to the future utilization of our net operating losses;
risks that the current economic environment will adversely impact our
business; and risks related to natural disasters or severe weather. These and
other risk factors are more fully discussed in the Company's Annual Report on
Form 10-K for the period ended December 30, 2012, and in our other filings
made with the Securities and Exchange Commission.

Note Regarding Use of Non-GAAP Financial Measures

This news release contains non-GAAP financial measures, including Adjusted
Cash Flow From Operations (computed as Cash provided by operating activities
from continuing operations excluding the impairment of goodwill and intangible
assets, payment of acquisition related items), Adjusted Free Cash Flow
(computed as Cash provided by operating activities from continuing operations
excluding the impairment of goodwill and intangible assets, payment of
acquisition related items less payments for capital expenditures), Pro Forma
EPS (computed using net income excluding the impairment of goodwill and
intangible assets, amortization of purchased intangibles, acquisition related
items, contract settlements of acquired contracts, and unused office space
expense less the estimated tax cash payments), and Adjusted EBITDA (which
excludes the impairment of goodwill and intangible assets, losses from
discontinued operations, transaction and other acquisition related items,
contract settlements, stock compensation expense and income from SWAP
instruments, and the associated margin rates).Kratos believes this
information is useful to investors because it provides a basis for measuring
the Company's available capital resources, the actual and forecasted operating
performance of the Company's business and the Company's cash flow, excluding
extraordinary items and non-cash items that would normally be included in the
most directly comparable measures calculated and presented in accordance with
generally accepted accounting principles. The Company's management uses these
non-GAAP financial measures along with the most directly comparable GAAP
financial measures in evaluating the Company's actual and forecasted operating
performance, capital resources and cash flow. Non-GAAP financial measures
should not be considered in isolation from, or as a substitute for, financial
information presented in compliance with GAAP, and investors should carefully
evaluate the Company's financial results calculated in accordance with GAAP
and reconciliations to those financial statements.In addition, non-GAAP
financial measures as reported by the Company may not be comparable to
similarly titled amounts reported by other companies.As appropriate, the most
directly comparable GAAP financial measures and information reconciling these
non-GAAP financial measures to the Company's financial results prepared in
accordance with GAAP are included in this news release.

                                                              
Kratos Defense & Security Solutions
Unaudited Condensed Consolidated Statements of Operations
(in millions, except per share data)
                                                              
                        Three Months Ended          Twelve Months Ended
                        December 30,  December 25,  December 30, December 25,
                        2012          2011          2012         2011
                                                              
Service revenues         $110.2      $102.7      $450.0     $351.0
Product sales            153.4        110.7        519.2       362.9
Total revenues           263.6        213.4        969.2       713.9
Cost of service revenues 86.0         73.8         350.8       260.7
Cost of product sales    109.6        80.2         361.2       262.0
Total costs              195.6        154.0        712.0       522.7
Gross profit - services  24.2         28.9         99.2        90.3
Gross profit - products  43.8         30.5         158.0       100.9
                                                              
Total gross profit      68.0         59.4         257.2       191.2
                                                              
Selling, general and     39.3         30.1         144.0       98.7
administrative expenses
Merger and acquisition   (5.4)        1.2          (2.7)       12.5
related items
Research and development 4.9          3.6          17.8        8.6
expenses
Impairment of goodwill   96.6         --          96.6        --
and intangibles
Unused office space and  --          --          2.1         --
other
Depreciation            1.4          1.3          5.2         3.9
Amortization of          11.5         13.5         43.9        38.0
intangible assets
Operating income (loss) (80.3)       9.7          (49.7)      29.5
Interest expense, net    (16.2)       (16.3)       (66.1)      (51.1)
Other income, net        --          --          1.3         --
Loss from continuing
operations before income (96.5)       (6.6)        (114.5)     (21.6)
taxes
Provision (benefit) for  (5.4)        0.6          (1.6)       1.9
income taxes
Loss from continuing     (91.1)       (7.2)        (112.9)     (23.5)
operations
Income (loss) from
discontinued operations, 1.1          (1.4)        (1.5)       (0.7)
net of taxes
Net loss                $(90.0)     $(8.6)      $(114.4)   $(24.2)
                                                              
Basic income (loss) per                                        
common share:
Loss from continuing    $(1.61)     $(0.21)     $(2.41)    $(0.86)
operations
Income (loss) from
discontinued operations, $0.02       (0.04)       (0.03)      (0.02)
net of taxes
Net loss                $(1.59)     $(0.25)     $(2.44)    $(0.88)
                                                              
Diluted income (loss)                                          
per common share:
Loss from continuing    $(1.61)     $(0.21)     $(2.41)    $(0.86)
operations
Income (loss) from
discontinued operations, $0.02       (0.04)       (0.03)      (0.02)
net of taxes
Net loss                $(1.59)     $(0.25)     $(2.44)    $(0.88)
                                                              
Weighted average common                                        
shares outstanding
Basic                   56.6         33.9         46.9        27.4
Diluted                 56.6         33.9         46.9        27.4
                                                              
Adjusted EBITDA (1)      $31.6       $28.5       $115.4     $93.0
                                                                
Note: (1) Adjusted EBITDA is a non-GAAP measure defined as GAAP net income
(loss) plus (income) loss from discontinued operations, net interest expense,
other (income) related to SWAP instruments, income taxes, depreciation and
amortization, stock compensation, unused office space and other, other
acquisition related items, and impairment of goodwill and intangibles.
                                                              
Adjusted EBITDA as calculated by us may be calculated differently than EBITDA
for other companies.We have provided Adjusted EBITDA because we believe it is
a commonly used measure of financial performance in comparable companies and
is provided to help investors evaluate companies on a consistent basis, as
well as to enhance an understanding of our operating results.Adjusted EBITDA
should not be construed as either an alternative to net income or as an
indicator of our operating performance or an alternative to cash flows as a
measure of liquidity.Please refer to the following table that reconciles GAAP
net loss to Adjusted EBITDA:
                                                              
                                                              
                                                              
                        Three Months Ended          Twelve Months Ended
                        December 30,  December 25,  December 30, December 25,
Reconciliation of Net
loss to Adjusted EBITDA  2012          2011          2012         2011
is as follows:
                                                              
Net loss                 $(90.0)     $(8.6)      $(114.4)   $(24.2)
(Income) loss from       (1.1)        1.4          1.5         0.7
discontinued operations
Acquisition related      (2.2)        1.2          0.5         12.5
items and other
Interest expense, net    16.2         16.3         66.1        51.1
Other income related to  --          --          --         (0.3)
SWAP instruments
Provision (benefit) for  (5.4)        0.6          (1.6)       1.9
income taxes
Depreciation *           4.0          3.1          14.1        10.0
Stock compensation       2.0          1.0          6.6         3.3
Impairment of goodwill   96.6         --          96.6        --
and intangibles
Unused office space      --          --          2.1         --
expense and other
Amortization of          11.5         13.5         43.9        38.0
intangible assets
                                                              
Adjusted EBITDA          $31.6       $28.5       $115.4     $93.0
                                                              
* Includes depreciation
reported in cost of                                            
service revenues and
product sales.
                                                              
                                                              
                        Three Months Ended          Twelve Months Ended
                        December 30,  December 25,  December 30, December 25,
Reconciliation of
acquisition related      2012          2011          2012         2011
items and other:
Acquisition related      $--        $1.2        $2.7       $12.5
expenses
Litigation accrual       (3.3)        --          (3.3)       --
Settlement of
acquisition related      (1.1)        --          (1.1)       --
items
Reduction of acquisition (1.0)        --          (1.0)       --
earn-out
Close-out of acquired    3.2          --          3.2         --
contact
                                                              
Total acquisition        $(2.2)      $1.2        $0.5       $12.5
related items and other
                                                              
                                                              
Kratos Defense & Security Solutions
Unaudited Segment Data
(in millions)
                                                              
                        Three Months Ended          Twelve Months Ended
                        December 30,  December 25,  December 30, December 25,
                        2012          2011          2012         2011
Revenues:                                                      
Government Solutions    $215.0      $184.8      $783.2     $601.7
Public Safety &         48.6         28.6         186.0       112.2
Security
Total revenues          $263.6      $213.4      $969.2     $713.9
                                                              
Operating income (loss)
from continuing                                                
operations:
Government Solutions    $(73.8)     $8.6        $(41.5)    $35.4
Public Safety &         (9.9)        3.3          (2.5)       9.9
Security
Other activities        3.4          (2.2)        (5.7)       (15.8)
Total operating income
(loss) from continuing   $(80.3)     $9.7        $(49.7)    $29.5
operations
                                                              
Note: Operating loss for the three and twelve months ended December 30, 2012
includes impairment of goodwill of $82.0 million and a contract settlement
charge of $3.2 million in the Government Solutions segment and impairment of
intangibles of $1.7 million and $12.9 million in the Government Solutions and
Public Safety & Security segments, respectively. Other activities in the three
months ended December 30, 2012 and December 25, 2011 include a benefit for
acquisition items of $5.4 million andacquisition expenses of $1.2 million,
respectively, and for the twelve months ended December 30, 2012 and December
25, 2012 include acquisition related items of $1.2 million and $12.5 million,
respectively.
                                                              
Reconciliation of
consolidated Adjusted
EBITDA to Adjusted                                             
EBITDA by segment is as
follows:
                                                              
                        Three Months Ended          Twelve Months Ended
                        December 30,  December 25,  December 30, December 25,
                        2012          2011          2012         2011
                                                              
KGS                      $27.6       $24.6       $101.5     $80.6
% of revenue            12.8%         13.3%         13.0%        13.4%
PSS                      4.0          3.9          13.9        12.4
% of revenue             8.2%          13.6%         7.5%         11.1%
Total                    $31.6       $28.5       $115.4     $93.0
% of revenue            12.0%         13.4%         11.9%        13.0%
                                                              
                                                              
                                                              
Kratos Defense & Security Solutions
Unaudited Condensed Consolidated Balance Sheet
(in millions)
                                                              
                                                   As of
                                                  December 30, December 25,
                                                  2012         2011
Assets                                                           
Current assets:                                                  
Cash and cash equivalents                           $49.0      $69.6
Restricted cash                                     5.5         1.1
Accounts receivable, net                            271.9       245.3
Inventoried costs                                   94.3        76.6
Prepaid expenses                                    17.4        12.7
Other current assets                                10.7        6.0
Current assets of discontinued operations           6.6         9.7
Total current assets                                455.4       421.0
Property and equipment, net                         85.6        72.5
Goodwill                                            596.5       571.6
Intangibles, net                                    106.1       124.6
Other assets                                        40.4        26.3
Total assets                                        $1,284.0   $1,216.0
Liabilities and Stockholders' Equity                             
Current liabilities:                                             
Accounts payable                                    $83.6      $48.8
Accrued expenses                                    46.4        50.7
Accrued compensation                                47.8        39.8
Accrued interest                                     6.3         5.1
Billings in excess of costs and earnings on          43.7        36.2
uncompleted contracts
Deferred income tax liability                        28.9        8.5
Other current liabilities                           22.3        24.7
Total current liabilities                           279.0       213.8
Long-term debt principal, net of current portion    629.7       630.8
Long-term debt premium                              18.7        22.8
Other long-term liabilities                         32.5        36.0
Total liabilities                                   959.9       903.4
Commitments and contingencies                                    
Stockholders' equity:                                            
Preferred stock, 5,000,000 shares authorized, $.001
par value, no shares outstanding at December 25,     --         --
2011 and September 30, 2012.
Common stock, $.001 par value, 195,000,000 shares
authorized; 34,395,895 and 56,613,024 shares issued  --         --
and outstanding at December 25, 2011 and December
30, 2012, respectively.
Additional paid-in capital                          847.1       720.6
Accumulated other comprehensive loss                 (0.8)       (0.2)
Accumulated deficit                                 (522.2)     (407.8)
Total stockholders' equity                          324.1       312.6
Total liabilities and stockholders' equity          $1,284.0   $1,216.0
                                                              
                                                              
                                                              
Kratos Defense & Security Solutions
Unaudited Condensed Consolidated Statement of Cash Flows
(in millions)
                                                              
                                                   Twelve Months Ended
                                                  December 30, December 25,
                                                  2012         2011
Operating activities:                                            
Net loss                                            $(114.4)   $(24.2)
Less: Loss from discontinued operations             (1.5)       (0.7)
Loss from continuing operations                     (112.9)     (23.5)
Adjustments to reconcile loss from continuing
operations to net cash provided by operating                     
activities from continuing operations:
Depreciation and amortization                       58.0        48.0
Deferred income taxes                               (2.5)       (0.1)
Stock‑based compensation                            6.6         3.3
Impairment of goodwill and intangibles               96.6        --
Mark to market on swaps                             --         (0.3)
Change in accrual for excess facilities              1.8         --
Amortization of deferred financing costs            5.1         3.8
Amortization of premium on Senior Secured Notes     (4.2)       (2.8)
Provision for doubtful accounts                     0.4         1.8
Changes in assets and liabilities, net of                        
acquisitions:
Accounts receivable                                 2.8         (14.4)
Inventoried costs                                    (5.2)       5.6
Prepaid expenses and other assets                    (1.9)       1.4
Accounts payable and accrued expenses                15.3        (6.6)
Accrued compensation                                 4.3         (3.8)
Accrued interest payable                             1.2         (5.1)
Billings in excess of costs and earnings on          (5.0)       (1.8)
uncompleted contracts
Other liabilities                                   (8.1)       (0.3)
Net cash provided by operating activities from       52.3        5.2
continuing operations
Investing activities:                                            
Cash paid for acquisitions, net of cash acquired    (149.4)     (391.1)
Decrease in restricted cash                         0.6         3.0
Proceeds from the disposition of discontinued        0.3         --
operations
Capital expenditures                                (16.6)      (7.5)
Net cash used in investing activities from           (165.1)     (395.6)
continuing operations
Financing activities:                                            
Proceeds from the issuance of long-term debt, net of --         425.7
issuance costs
Proceeds from the issuance of common stock, net of   97.0        61.1
issuance costs
Purchase of treasury stock                           --         (10.9)
Cash paid for contingent acquisition consideration  (2.5)       --
Borrowings under line of credit                      50.0        --
Repayment of debt                                    (51.0)      (2.7)
Debt issuance costs                                 (1.2)       (22.1)
Other                                                (1.4)       1.3
Net cash provided by financing activities from       90.9        452.4
continuing operations
Net cash flows from continuing operations           (21.9)      62.0
Net operating cash flows from discontinued          1.3         (2.7)
operations
Effect of exchange rate changes on cash and cash     --         (0.5)
equivalents
Net increase in cash and cash equivalents           (20.6)      58.8
Cash and cash equivalents at beginning of period    69.6        10.8
Cash and cash equivalents at end of period          $49.0      $69.6
                                                              
                                                              
                                                              
Kratos Defense & Security Solutions
Unaudited Non-GAAP Measures
Adjusted Earnings Before Amortization and Acquisition Related Expenses
(in millions, except per share data)
                                                              
                        Three Months Ended          Twelve Months Ended
                        December 30,  December 25,  December 30, December 25,
                        2012          2011          2012         2011
                                                              
Loss from continuing     $(96.5)     $(6.6)      $(114.5)   $(21.6)
operations before taxes
Add: Amortization of     11.5         13.5         43.9        38.0
intangible assets
Add: Unused office space --          --          2.1         --
and other
Add: Impairment of
goodwill and intangible  96.6         --          96.6        --
assets
Add: Close-out of        3.2          --          3.2         --
acquired contract
Add: Merger and          (5.4)        1.2          (2.7)       12.5
acquisition expenses
Adjusted income from
continuing operations    $9.4        $8.1        $28.6      $28.9
before income taxes
                                                              
Estimated cash tax      1.0          1.1          3.8         4.3
provision
Adjusted income from
continuing operations    $8.4        $7.0        $24.8      $24.6
before acquisition and
amortization expenses
                                                              
Pro Forma Diluted income                                       
per common share:
Adjusted income from    $0.15       $0.21       $0.53      $0.90
continuing operations
                                                              
Weighted average common                                        
shares outstanding
Diluted                 56.6         33.9         46.9        27.4
                                                              
                                                              
Adjusted Cash Flows From Operations
(in millions)
                                                              
                        Three Months Ended          Twelve Months Ended
                        December 30,  December 25,  December 30, December 25,
                        2012          2011          2012         2011
Net cash provided by
(used in) operating      $17.2       $(7.4)      $52.3      $5.2
activities from
continuing operations
Add: Acquisition related 2.3          6.9          5.4         27.8
items
Adjusted cash flows from $19.5       $(0.5)      $57.7      $33.0
operations
Less: Capital            $(4.6)      $(2.3)      $(16.6)    $(7.5)
expenditures
Adjusted free cash flow  $14.9       $(2.8)      $41.1      $25.5

CONTACT: Press Contact:
         Yolanda White
         858-812-7302 Direct
        
         Investor Information:
         877-934-4687
         investor@kratosdefense.com

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