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(Mark One)
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ý
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 30, 2018
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
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Delaware
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13-3818604
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.)
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Title of Each Class
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Name of each exchange on which registered
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Common Stock, par value $0.001
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The NASDAQ Global Select Market
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Emerging growth company
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Page
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1.
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spending limits created by the Budget Control Act of 2011 (“BCA”) would be increased by approximately $300 billion over the next two years;
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2.
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defense spending would be increased by $80 billion in FY (as defined below) 2018 and by $85 billion in the current FY, to approximately $700 billion and $705 billion, respectively;
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3.
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domestic spending would be increased by $63 billion in FY 2018 and by $68 billion in the current FY; and
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4.
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Congress would suspend the debt limit through March 2019.
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Unmanned aerial drone, unmanned ground and unmanned seaborne systems
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Satellite communications and radio frequency interference detection location and mitigation
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Microwave electronics supporting warfare, missile, radar and communication systems
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Electronic warfare, attack, missile, and radar systems
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Intelligence, surveillance and reconnaissance
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Ballistic missile defense systems
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Command, control and combat systems
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Cyber security and information assurance
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Specialized training systems and operational readiness
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In 2017, we successfully advanced to Phase II of the Gremlins program, awarded by DARPA, the U.S. Government’s leader in breakthrough technologies for national security, teamed with our partner company, Dynetics. In 2018, as part of the Dynetics led team, we were selected for award on Phase III of the Gremlins program to demonstrate safe and reliable launch and aerial recovery of multiple unmanned drone system aircraft, capable of employing and recovering diverse distributed payloads in volley quantities.
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In 2016, we were awarded the AFRL Low Cost Attritable Strike Demonstration (“LCASD”) UCAS single-award cost share contract. The LCASD is an approximately 30 foot by 22 foot unmanned strike aerial drone system. Our customer expects the initial flight of this leading technology UAS to occur in the first quarter of 2019.
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We have redeveloped our Air Force Subscale Aerial Target BQM-167 into what we believe to be the highest performance unmanned aircraft in the world, the U.S. Navy Sub-Sonic Aerial Target (“SSAT”) Drone BQM-177A, with low rate initial production awarded to Kratos in June 2017. In 2018, delivery of the first production aerial targets was made to the U.S. Navy. In addition, our customer, Naval Air Systems Command (NAVAIR) announced that it expects to award a quantity of up to 60 BQM-177As with deliveries in 2020 and
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In 2018, we received a single award $109 million maximum value three year production contract for Air Force Subscale Aerial Target BQM-167A, with $27 million being initially obligated at the time of award for 30 Lot 14 BQM-167A aerial targets and production support.
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In 2018, we received a ten-year, sole source, single award framework contract from QinetiQ UK for Kratos’ MQM-178 Firejet aerial targets, spares, ground support equipment, technical services, and training. In 2018, we were awarded a prime contract for the Aerial Target Systems 2 (ATS-2), Multiple Award Indefinite Delivery Indefinite Quantity (“IDIQ”) Contract with a ceiling value of $93.3 million, and a five year period of performance.
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In 2018, we received a sole source, single award multi-year IDIQ contract from Swedish Defence Materiel Administration for our MQM-178 Firejet aerial target aircraft and associated ground support equipment, spares, payloads, components, expendables and support services. The first order under the three-year IDIQ contract is expected in the first half of 2019. Additionally, there are two three-year exercisable option periods for a total potential contract performance term of nine years.
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We invested in internally funded research, development and capital expenditures to build our own UTAP-22 (Mako) UAS from 2012 to 2015, and demonstrated the capabilities of the UTAP-22 Mako in a flight demonstration in the fall of 2015. As a result, we were awarded an initial $12.6 million prime contract from the DIUx for sensor integration and flight demonstration of our UTAP-22 Mako unmanned aerial system the following year. Under this effort, we integrated certain sensors into our UTAP-22 Mako and participated in a large, complex flight exercise in 2017.
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We received a $40.8 million single award, cost-share contract from the AFRL for the LCASD. Under the LCASD contract award, we are designing, developing, and will deliver, demonstrate and test a technical baseline for a high-speed long-range, low-cost limited life-strike UAS. For our investment, we will retain hard (including two LCASD aircraft) and other assets, and important intellectual property, software, data, platform and system rights, which we believe will be critically important and valuable over the expected long-term life of this platform, including with respect to future production opportunities. Our customer expects the initial flight of this leading technology UAS to occur in the first quarter of 2019.
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We were awarded one of four prime contract awards from DARPA for the Gremlins program. Under the Gremlins program, DARPA envisions a swarm of approximately 20 high performance unmanned aerial vehicles that are deployed by an inflight aircraft, and are later recovered, inflight, by an aircraft. The approximate $3.9 million Phase I contracts were awarded to four competing companies, with the intent to ultimately down select to one finalist company over a period of approximately 36 months. In 2017, we successfully advanced to Phase II of the Gremlin’s program, teamed with our partner company Dynetics. In 2018, as part of the Dynetics-led team, we were selected for award on Phase III of the Gremlins program to demonstrate safe and reliable launch and aerial recovery of multiple unmanned drone system aircraft, capable of employing and recovering diverse distributed payloads in volley quantities.
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the Federal Acquisition Regulations and supplemental agency regulations, which comprehensively regulate the formation, administration, and performance under government contracts;
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the Truthful Cost or Pricing Data Statute (formerly the Truth in Negotiations Act), which requires certification and disclosure of all cost and pricing data in connection with contract negotiations;
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the Cost Accounting Standards, which impose accounting requirements that govern our right to reimbursement under cost-based government contracts;
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the Foreign Corrupt Practices Act, which prohibits U.S. companies from providing anything of value to a foreign official to help obtain, retain or direct business, or obtain any unfair advantages;
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the False Claims Act and the False Statements Act, which, respectively, impose penalties for payments made on the basis of false facts provided to the government and impose penalties on the basis of false statements, even if they do not result in a payment; and
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laws, regulations and executive orders restricting the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data.
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divert sales from us by winning very large‑scale government contracts, a risk that is enhanced by the recent trend in government procurement practices to bundle services into larger contracts and the recent trend of making award determinations on a LPTA basis;
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divert sales from us by the award of government contracts to our competitors who may be willing to bid at substantially lower prices;
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force us to charge lower prices; or
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adversely affect our relationships with current customers, including our ability to continue to win competitively awarded engagements in which we are the incumbent.
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customer satisfaction with these types of systems as solutions;
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the cost, performance and reliability of our products and products offered by our competitors;
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customer perceptions regarding the effectiveness and value of these types of systems;
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limitations on our ability to market our US products and services outside the U.S. due to U.S.
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marketing efforts and publicity regarding these types of systems.
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terminate our existing contracts;
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reduce potential future income from our existing contracts;
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modify some of the terms and conditions in our existing contracts;
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suspend or permanently prohibit us from doing business with the U.S. Government or with any specific government agency;
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impose fines and penalties;
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subject us to criminal prosecution;
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suspend work under existing multiple year contracts and related task orders if the necessary funds are not appropriated by Congress;
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decline to exercise an option to extend an existing multiple year contract; and
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claim rights in technologies and systems invented, developed or produced by us.
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lose revenue due to adverse customer reaction;
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be required to provide additional services to a customer at no charge;
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cause customers to postpone, cancel or fail to renew contracts;
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receive negative publicity, which could damage our reputation and adversely affect our ability to attract or retain customers; and
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suffer claims for substantial damages.
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the terms of customer contracts that affect the timing of revenue recognition;
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variability in demand for our services and solutions;
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commencement, completion or termination of contracts during any particular quarter;
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timing of shipments and product deliveries;
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timing of award or performance incentive fee notices;
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timing of significant bid and proposal costs;
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the costs of remediating unknown defects, errors or performance problems of our product offerings;
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variable purchasing patterns under GSA contracts, GWACs, blanket purchase agreements and other IDIQ contracts;
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restrictions on and delays related to the export of defense articles and services;
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costs related to government inquiries;
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strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs and joint ventures;
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strategic investments or changes in business strategy;
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changes in the extent to which we use subcontractors;
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seasonal fluctuations in our staff utilization rates;
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changes in our effective tax rate, including changes in our judgment as to the necessity of the valuation allowance recorded against our deferred tax assets; and
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the length of sales cycles.
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our inability to achieve the operating synergies anticipated in the acquisitions;
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diversion of management attention from ongoing business concerns to integration matters;
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difficulties in consolidating and rationalizing IT platforms and administrative infrastructures;
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complexities associated with managing the geographic separation of the combined businesses and consolidating multiple physical locations where management may determine consolidation is desirable;
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difficulties in integrating personnel from different corporate cultures while maintaining focus on providing consistent, high quality customer service;
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difficulties or delays in transitioning U.S. Government contracts pursuant to federal acquisition regulations;
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challenges in demonstrating to customers of Kratos and to customers of acquired businesses that the acquisition will not result in adverse changes in customer service standards or business focus;
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possible cash flow interruption or loss of revenue as a result of change of ownership transitional matters; and
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inability to generate sufficient revenue to offset acquisition costs.
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foreign currency exchange rate fluctuations, potentially reducing the U.S. dollars we receive for sales denominated in foreign currency;
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the possibility that unfriendly nations or groups could boycott our solutions;
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political conditions in the markets in which we operate;
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potential increased costs associated with overlapping tax structures;
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import-export control;
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the ability to obtain required U.S. government agency issued export licenses to ship our product overseas;
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more limited protection for intellectual property rights in some countries;
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difficulties and costs associated with staffing and managing foreign operations;
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unexpected changes in regulatory requirements;
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the difficulties of compliance with a wide variety of foreign laws and regulations;
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longer accounts receivable cycles in certain foreign countries, whether due to cultural differences, exchange rate fluctuation or other factors;
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technology transfer restrictions;
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changes to our distribution networks; and
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our employees.
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it may limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;
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it may require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;
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it may restrict us from making strategic acquisitions or exploiting business opportunities;
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it may place us at a competitive disadvantage compared to our competitors that have less debt;
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it may limit our ability to borrow additional funds;
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it may prevent us from raising the funds necessary to repurchase our outstanding 6.5% Notes (as defined below) tendered to us if there is a change of control, which would constitute a default under the Indenture (as defined below) governing our 6.5% Notes and under our Credit Agreement; and
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it may decrease our ability to compete effectively or operate successfully under adverse economic and industry conditions.
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Square feet (in thousands)
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Owned
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Leased
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Total
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Kratos Government Solutions
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417
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807
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1,224
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Unmanned Systems
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20
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234
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254
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Corporate (includes San Diego, operations of KGS and US segments)
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—
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26
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26
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Total
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437
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1,067
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1,504
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COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
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Among Kratos Defense & Security Solutions, Inc., the Russell 2000 Index,
Old Peer Group (1), and New Peer Group (2)
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*$100 invested on 12/31/13 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31. |
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(1)
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The companies included in the Company’s Old Peer Group are: AAR Corp., Aerojet Rocketdyne Holdings, Inc., AeroVironment Inc., Arotech Corp., Comtech Telecommunications Corp., CPI Aerostructures Inc., Ducommun Inc., Frequency Electronics Inc., and Sparton Corp.
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(2)
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The companies included in the Company’s New Peer Group are: AAR Corp., Aerojet Rocketdyne Holdings, Inc., AeroVironment Inc., Arotech Corp., Comtech Telecommunications Corp., CPI Aerostructures Inc., Ducommun Inc., Frequency Electronics Inc., and Mercury Systems Inc.
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2018
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2017
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$ Change
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% Change
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Kratos Government Solutions
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Service revenues
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$
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200.7
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$
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197.8
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$
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2.9
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1.5
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%
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Product sales
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284.4
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283.8
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0.6
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0.2
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%
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Total Kratos Government Solutions
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485.1
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481.6
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3.5
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0.7
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%
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Unmanned Systems - product sales
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132.9
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121.7
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11.2
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9.2
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%
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Total revenues
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$
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618.0
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$
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603.3
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$
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14.7
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2.4
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%
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Total service revenues
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$
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200.7
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$
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197.8
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$
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2.9
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1.5
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%
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Total product sales
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417.3
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405.5
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11.8
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2.9
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%
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Total revenues
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$
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618.0
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$
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603.3
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$
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14.7
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2.4
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%
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2017
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2016
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$ Change
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% Change
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Kratos Government Solutions
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Service revenues
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$
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197.8
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$
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221.3
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$
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(23.5
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)
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(10.6
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)%
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Product sales
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283.8
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244.8
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39.0
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15.9
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%
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Total Kratos Government Solutions
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481.6
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466.1
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15.5
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3.3
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%
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Unmanned Systems - product sales
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121.7
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75.8
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45.9
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60.6
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%
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Total revenues
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$
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603.3
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$
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541.9
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$
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61.4
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11.3
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%
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Total service revenues
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$
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197.8
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$
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221.3
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$
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(23.5
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(10.6
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)%
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Total product sales
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405.5
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320.6
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84.9
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26.5
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%
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Total revenues
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$
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603.3
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$
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541.9
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$
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61.4
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11.3
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%
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Year Ended
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December 30, 2018
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December 31, 2017
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December 25, 2016
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Net cash provided by (used in) operating activities from continuing operations
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$
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18.1
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$
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(26.9
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$
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(14.6
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)
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Year Ended
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December 30, 2018
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December 31, 2017
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December 25, 2016
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Investing activities:
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Cash paid for acquisitions, net of cash acquired
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$
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(2.9
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)
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$
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—
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$
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(5.1
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)
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Proceeds from sale of assets
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66.0
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0.7
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—
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Capital expenditures
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(22.6
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(26.1
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(9.0
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)
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Net cash provided by (used in) investing activities from continuing operations
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$
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40.5
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$
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(25.4
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)
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$
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(14.1
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)
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Year Ended
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December 30, 2018
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December 31, 2017
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December 25, 2016
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Financing activities:
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Proceeds from the issuance of long-term debt
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$
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—
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$
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300.0
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$
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—
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Extinguishment of long-term debt
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—
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(448.8
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)
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(14.1
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)
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Proceeds from the issuance of common stock
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(1.1
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)
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269.1
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76.2
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Repayments under credit facility
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(0.8
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)
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(1.0
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)
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(1.0
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)
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Debt issuance costs
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(0.1
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)
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(6.6
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)
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—
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|||
Proceeds from exercise of restricted stock units, employee stock options, and employee stock purchase plan
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3.7
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1.5
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2.0
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Other
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—
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(0.8
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)
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—
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|||
Net cash provided by financing activities from continuing operations
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$
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1.7
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$
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113.4
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$
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63.1
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|
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Year Ended
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||||||||||
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December 30, 2018
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December 31, 2017
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December 25, 2016
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|
|||||
Net operating cash flows of discontinued operations
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$
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(7.7
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)
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$
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(0.8
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)
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$
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1.5
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Net investing cash flows of discontinued operations
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—
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(0.6
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)
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4.0
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|
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Payments Due/Forecast by Period
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||||||||||||||||||
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Total
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2019
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|
2020 - 2021
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2022 - 2023
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|
2024 and After
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||||||||||
Debt, net of interest(1)
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$
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300.0
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|
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$
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—
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|
|
$
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—
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|
|
$
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—
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|
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$
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300.0
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Estimated interest on debt(2)
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136.5
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|
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19.5
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39.0
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|
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39.0
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39.0
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|
|||||
Purchase orders(3)
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132.4
|
|
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116.3
|
|
|
15.7
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|
|
0.4
|
|
|
—
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|
|||||
Operating leases(4)
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117.2
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|
|
16.5
|
|
|
21.6
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|
|
16.0
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|
|
63.1
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|
|||||
Unrecognized tax benefits, including interest and penalties(5)
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—
|
|
|
—
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|
|
—
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|
|
—
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|
|
—
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|
|||||
Total commitments and recorded liabilities
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$
|
686.1
|
|
|
$
|
152.3
|
|
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$
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76.3
|
|
|
$
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55.4
|
|
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$
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402.1
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(1)
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The 6.5% Notes in the aggregate outstanding principal amount of
$300.0 million
are due November 30, 2025. See Note 4 in the Notes to Consolidated Financial Statements contained within this Annual Report for further details.
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(2)
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Includes interest payments on the 6.5% Notes. See Note 4 in the Notes to Consolidated Financial Statements contained within in this Annual Report for further details.
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(3)
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Purchase orders include commitments in which a written purchase order has been issued to a vendor, but the goods have not been received or services have not been performed.
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(4)
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We have entered into or acquired various non-cancelable operating lease agreements that expire on various dates through 2033. The amounts include
$2.4 million
in excess facility costs and exclude expected sublease income. See Note 5 in the Notes to Consolidated Financial Statements contained within this Annual Report for further details.
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(5)
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As of
December 30, 2018
, we have an $8.1 million noncurrent liability for uncertain tax positions and a $6.4 million guarantor liability, all of which may result in cash payments. The future payments related to uncertain tax positions have not been presented in the table above due to the uncertainty of the amounts and timing of cash settlements with the taxing authorities.
|
•
|
significant underperformance relative to expected historical or projected future operating results;
|
•
|
significant changes in the manner of our use of the acquired assets or the strategy for our overall business;
|
•
|
significant negative industry or economic trends;
|
•
|
significant decline in our stock price for a sustained period; and
|
•
|
our market capitalization relative to net book value.
|
•
|
The timing of future cash flows within our DCF analysis is based on our most recent forecasts and other estimates. Our historical growth rates and operating results are not indicative of our projected growth rates and operating results as a consequence of our acquisitions and divestitures.
|
•
|
The terminal growth rate is used to calculate the value of cash flows beyond the last projected period in our DCF analysis and reflects our best estimates for stable, perpetual growth of our reporting units.
|
•
|
We use estimates of market participant weighted average cost of capital (“WACC”) as a basis for determining the discount rates to apply to our reporting units’ future expected cash flows. The significant assumptions within our WACC are: (a) equity risk premium, (b) beta, (c) size premium adjustments, (d) cost of debt and (e) capital structure assumptions. In addition, we use a company specific risk adjustment which is a subjective adjustment that, by its very nature does not include market related data, but instead examines the prospects of the reporting unit relative to the broader industry to determine if there are specific factors, which may make it more “risky” relative to the industry.
|
•
|
Recent historical market multiples are used to estimate future market pricing.
|
•
|
We use an estimated control premium in reconciling the aggregate value of our reporting units to our market capitalization. As discussed in
Topic 350
, control premiums may effectively cause a company’s aggregate fair value of its reporting unit(s) to exceed its current market capitalization due to the ability of a controlling shareholder to benefit from synergies and other intangible assets that arise from such control. As a result, the measurement of fair value of an entity with a collection of assets and liabilities that operate together to produce cash flows is different from the fair value measurement of that entity’s individual securities, hence, the reason a control premium is paid.
|
•
|
a decline in our stock price and resulting market capitalization, if we determine the decline is sustained and is indicative of a reduction in the fair value below the carrying value of our reporting units;
|
•
|
a decrease in available government funding, including budgetary constraints affecting U.S. Government spending generally, or specific departments or agencies;
|
•
|
changes in U.S. Government programs or requirements, including the increased use of small business providers;
|
•
|
our failure to reach our internal forecasts could impact our ability to achieve our forecasted levels of cash flows and reduce the estimated discounted value of our reporting units;
|
•
|
volatility in equity and debt markets resulting in higher discount rates; and
|
•
|
market and political factors that could impact the success of new products, especially related to new unmanned systems platforms.
|
(a)(1)
|
Financial Statements
|
(a)(2)
|
Financial Statement Schedules
|
|
|
|
|
Incorporated by
Reference
|
|
|
||||
Exhibit
Number
|
|
Exhibit Description
|
|
Form
|
|
Filing Date (File No.)
|
|
Exhibit
|
|
Filed-
Furnished
Herewith
|
2.1+*
|
|
|
10-Q
|
|
08/06/2015
(001-34460)
|
|
2.4
|
|
|
|
2.2+
|
|
|
10-Q
|
|
5/10/2018
(001-34460)
|
|
2.2
|
|
|
|
3.1
|
|
|
10-K
|
|
2/27/2017
(001-34460)
|
|
3.1
|
|
|
|
3.2
|
|
|
10-K
|
|
2/27/2017
(001-34460)
|
|
3.2
|
|
|
|
4.1
|
|
|
10-K
|
|
2/27/2017
(001-34460)
|
|
4.1
|
|
|
|
4.2
|
|
|
8-K
|
|
05/15/2014
(001-34460)
|
|
4.1
|
|
|
|
4.3
|
|
|
8-K
|
|
11/21/2017
(001-34460)
|
|
4.1
|
|
|
|
4.4*
|
|
|
10-K
|
|
02/28/2018
(001-34460)
|
|
4.5
|
|
|
|
10.1#
|
|
|
10-Q
|
|
08/04/2011
(001-34460)
|
|
10.8
|
|
|
|
10.2#
|
|
|
S-8
|
|
07/31/2017
(001-34460)
|
|
99.1
|
|
|
|
10.3#
|
|
|
10-Q
|
|
11/14/2000
(000-27231)
|
|
10.2
|
|
|
|
10.4#
|
|
|
10-Q
|
|
11/14/2000
(000-27231)
|
|
10.3
|
|
|
|
10.5#
|
|
|
S-8
|
|
08/01/2005
(333-127060)
|
|
99.2
|
|
|
|
10.6#
|
|
|
S-8
|
|
08/01/2005
(333-127060)
|
|
99.1
|
|
|
10.7#
|
|
|
8-K
|
|
01/17/2007
(000-27231)
|
|
99.3
|
|
|
|
10.8#
|
|
|
S-8
|
|
04/08/2011
(333-173383)
|
|
4.11
|
|
|
|
10.9#
|
|
|
S-8
|
|
04/08/2011
(333-173383)
|
|
4.13
|
|
|
|
10.10#
|
|
|
S-8
|
|
04/08/2011
(333-173383)
|
|
4.14
|
|
|
|
10.11#
|
|
|
S-8
|
|
04/08/2011
(333-173383)
|
|
4.15
|
|
|
|
10.12#
|
|
|
DEF 14A
|
|
04/15/2011
(001-34460)
|
|
n/a
|
|
|
|
10.13#
|
|
|
8-K
|
|
11/18/2011
(001-34460)
|
|
10.2
|
|
|
|
10.14#
|
|
|
S-8
|
|
07/31/2017
(001-34460)
|
|
99.2
|
|
|
|
10.15#
|
|
|
10-Q
|
|
11/07/2014
(001-34460)
|
|
10.1
|
|
|
|
10.16#
|
|
|
10-Q
|
|
08/04/2011
(001-34460)
|
|
10.3
|
|
|
|
10.17#
|
|
|
10-Q
|
|
08/04/2011
(001-34460)
|
|
10.4
|
|
|
|
10.18
|
|
|
10-K
|
|
03/11/2010
(001-34460)
|
|
10.26
|
|
|
|
10.19#
|
|
|
S-8
|
|
03/08/2012
(333-179977)
|
|
4.10
|
|
|
|
10.20#
|
|
|
S-8
|
|
03/08/2012
(333-179977)
|
|
4.11
|
|
|
|
10.21
|
|
|
8-K
|
|
05/15/2012
(001-34460)
|
|
10.1
|
|
|
10.22#
|
|
|
S-8
|
|
07/27/2012
(333-182910)
|
|
4.12
|
|
|
|
10.23#
|
|
|
8-K
|
|
03/12/2015
(001-34460)
|
|
10.1
|
|
|
|
10.24#
|
|
|
8-K
|
|
06/02/2015
(001-34460)
|
|
10.1
|
|
|
|
10.25#
|
|
|
8-K
|
|
08/09/2016
(001-34460)
|
|
10.1
|
|
|
|
10.26#
|
|
|
8-K
|
|
12/08/2016
(001-34460)
|
|
10.1
|
|
|
|
10.27
|
|
|
8-K
|
|
05/15/2014
(001-34460)
|
|
10.2
|
|
|
|
10.28
|
|
|
10-Q
|
|
08/06/2015
(001-34460)
|
|
10.1
|
|
|
|
10.29
|
|
|
8-K
|
|
08/24/2015
(001-34460)
|
|
10.1
|
|
|
|
10.30
|
|
|
10-K
|
|
02/28//2018
(001-34460)
|
|
10.34
|
|
|
|
10.31
|
|
|
8-K
|
|
11/21/2017
(001-34460)
|
|
10.1
|
|
|
|
10.32
|
|
|
8-K
|
|
06/13/2018
(001-34460)
|
|
10.1
|
|
|
|
10.33
|
|
|
10-Q
|
|
05/04/2017
(001-34460)
|
|
10.2
|
|
|
10.34
|
|
|
|
|
|
|
|
|
*
|
|
21.1
|
|
|
|
|
|
|
|
|
*
|
|
23.1
|
|
|
|
|
|
|
|
|
*
|
|
31.1
|
|
|
|
|
|
|
|
|
*
|
|
31.2
|
|
|
|
|
|
|
|
|
*
|
|
32.1
|
|
|
|
|
|
|
|
|
*
|
|
32.2
|
|
|
|
|
|
|
|
|
*
|
|
101
|
|
Financial statements from the Annual Report on Form 10-K of Kratos Defense & Security Solutions, Inc. for the year ended December 30, 2018, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Loss, (iii) the Consolidated Statements of Cash Flows, (iv) the Notes to the Consolidated Financial Statements.
|
|
|
|
|
|
|
|
*
|
|
|
Kratos Defense & Security Solutions, Inc.
|
|
|
|
|
|
|
/s/ Eric M. DeMarco
|
|
By:
|
Eric M. DeMarco
President and Chief Executive Officer (Principal
Executive Officer)
|
Signature
|
Title
|
Date
|
|||||||||||
|
|
|
|||||||||||
/s/ Eric M. DeMarco
Eric M. DeMarco
|
President, Chief Executive Officer and Director (Principal Executive Officer)
|
February 28, 2019
|
|||||||||||
|
|
|
|||||||||||
/s/ Deanna H. Lund
Deanna H. Lund
|
Executive Vice President, Chief Financial Officer (Principal Financial Officer)
|
February 28, 2019
|
|||||||||||
|
|
|
|||||||||||
/s/ Maria Cervantes de Burgreen
Maria Cervantes de Burgreen
|
Vice President and Corporate Controller
(Principal Accounting Officer)
|
February 28, 2019
|
|||||||||||
|
|
|
|||||||||||
/s/ Scott Anderson
Scott Anderson
|
Director
|
February 28, 2019
|
|||||||||||
|
|
|
|||||||||||
/s/ Bandel Carano
Bandel Carano
|
Director
|
February 28, 2019
|
|||||||||||
|
|
|
|||||||||||
/s/ William Hoglund
William Hoglund
|
Director
|
February 28, 2019
|
|||||||||||
|
|
|
|||||||||||
/s/ Scot Jarvis
Scot Jarvis
|
Director
|
February 28, 2019
|
|||||||||||
|
|
|
|||||||||||
/s/ Jane E. Judd
Jane E. Judd
|
Director
|
February 28, 2019
|
|||||||||||
|
|
|
|||||||||||
/s/ Sam Liberatore
Sam Liberatore
|
Director
|
February 28, 2019
|
|||||||||||
|
|
|
|||||||||||
/s/ Amy Zegart
Amy Zegart
|
Director
|
February 28, 2019
|
|
||
|
||
|
||
|
||
|
||
|
|
2018
|
|
2017
|
||||
Assets
|
|
|
|
|
|
||
Current assets:
|
|
|
|
|
|
||
Cash and cash equivalents
|
$
|
182.7
|
|
|
$
|
130.5
|
|
Restricted cash
|
0.3
|
|
|
0.4
|
|
||
Accounts receivable, net
|
64.6
|
|
|
74.2
|
|
||
Unbilled receivables, net
|
172.8
|
|
|
138.1
|
|
||
Inventoried costs
|
46.8
|
|
|
49.0
|
|
||
Prepaid expenses
|
8.9
|
|
|
11.1
|
|
||
Other current assets
|
10.3
|
|
|
9.5
|
|
||
Current assets of discontinued operations
|
8.3
|
|
|
58.6
|
|
||
Total current assets
|
494.7
|
|
|
471.4
|
|
||
Property, plant and equipment, net
|
67.1
|
|
|
58.0
|
|
||
Goodwill
|
425.7
|
|
|
425.7
|
|
||
Intangible assets, net
|
16.1
|
|
|
22.0
|
|
||
Other assets
|
6.5
|
|
|
8.1
|
|
||
Non-current assets of discontinued operations
|
—
|
|
|
38.8
|
|
||
Total assets
|
$
|
1,010.1
|
|
|
$
|
1,024.0
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
||
Current liabilities:
|
|
|
|
|
|
||
Accounts payable
|
$
|
46.6
|
|
|
$
|
34.7
|
|
Accrued expenses
|
38.1
|
|
|
40.9
|
|
||
Accrued compensation
|
33.5
|
|
|
30.2
|
|
||
Accrued interest
|
1.6
|
|
|
1.7
|
|
||
Billings in excess of costs and earnings on uncompleted contracts
|
34.9
|
|
|
42.8
|
|
||
Other current liabilities
|
4.7
|
|
|
9.4
|
|
||
Current liabilities of discontinued operations
|
5.3
|
|
|
29.2
|
|
||
Total current liabilities
|
164.7
|
|
|
188.9
|
|
||
Long-term debt principal, net of current portion
|
294.2
|
|
|
293.5
|
|
||
Other long-term liabilities
|
25.5
|
|
|
24.1
|
|
||
Long-term liabilities of discontinued operations
|
6.4
|
|
|
6.0
|
|
||
Total liabilities
|
490.8
|
|
|
512.5
|
|
||
Commitments and contingencies
|
|
|
|
|
|
||
Stockholders’ equity:
|
|
|
|
|
|
||
Preferred stock, $0.001 par value, 5,000,000 authorized, 0 shares outstanding at December 30, 2018 and December 31, 2017
|
—
|
|
|
—
|
|
||
Common stock, $0.001 par value, 195,000,000 shares authorized; 103,766,899 and 103,297,525 shares issued and outstanding at December 30, 2018 and December 31, 2017, respectively
|
—
|
|
|
—
|
|
||
Additional paid-in capital
|
1,244.5
|
|
|
1,233.7
|
|
||
Accumulated other comprehensive loss
|
(0.7
|
)
|
|
(1.4
|
)
|
||
Accumulated deficit
|
(724.5
|
)
|
|
(720.8
|
)
|
||
Total stockholders’ equity
|
519.3
|
|
|
511.5
|
|
||
Total liabilities and stockholders’ equity
|
$
|
1,010.1
|
|
|
$
|
1,024.0
|
|
|
|
|
|
|
|
||||||
|
2018
|
|
2017
|
|
2016
|
||||||
Service revenues
|
$
|
200.7
|
|
|
$
|
197.8
|
|
|
$
|
221.3
|
|
Product sales
|
417.3
|
|
|
405.5
|
|
|
320.6
|
|
|||
Total revenues
|
618.0
|
|
|
603.3
|
|
|
541.9
|
|
|||
Cost of service revenues
|
137.8
|
|
|
138.6
|
|
|
162.1
|
|
|||
Cost of product sales
|
310.5
|
|
|
307.1
|
|
|
259.3
|
|
|||
Total costs
|
448.3
|
|
|
445.7
|
|
|
421.4
|
|
|||
Gross profit
|
169.7
|
|
|
157.6
|
|
|
120.5
|
|
|||
Selling, general and administrative expenses
|
119.8
|
|
|
127.3
|
|
|
114.6
|
|
|||
Research and development expenses
|
15.6
|
|
|
17.8
|
|
|
13.9
|
|
|||
Impairment of goodwill
|
—
|
|
|
24.2
|
|
|
—
|
|
|||
Restructuring expenses and other
|
3.8
|
|
|
0.3
|
|
|
10.0
|
|
|||
Operating income (loss) from continuing operations
|
30.5
|
|
|
(12.0
|
)
|
|
(18.0
|
)
|
|||
Other income (expense):
|
|
|
|
|
|
||||||
Interest expense, net
|
(20.8
|
)
|
|
(28.6
|
)
|
|
(34.7
|
)
|
|||
Gain (loss) on extinguishment of debt
|
—
|
|
|
(17.3
|
)
|
|
0.2
|
|
|||
Other income (loss), net
|
(1.0
|
)
|
|
0.8
|
|
|
0.7
|
|
|||
Total other expense, net
|
(21.8
|
)
|
|
(45.1
|
)
|
|
(33.8
|
)
|
|||
Income (loss) from continuing operations before income taxes
|
8.7
|
|
|
(57.1
|
)
|
|
(51.8
|
)
|
|||
Provision (benefit) for income taxes from continuing operations
|
4.6
|
|
|
(10.2
|
)
|
|
5.8
|
|
|||
Income (loss) from continuing operations
|
4.1
|
|
|
(46.9
|
)
|
|
(57.6
|
)
|
|||
Discontinued operations (Note 8)
|
|
|
|
|
|
||||||
Income (loss) from operations of discontinued component (including gain on disposal of $0.0 million for the year ended December 30, 2018)
|
(9.4
|
)
|
|
6.3
|
|
|
(0.6
|
)
|
|||
Income tax expense (benefit)
|
(1.8
|
)
|
|
2.1
|
|
|
2.3
|
|
|||
Income (loss) from discontinued operations
|
(7.6
|
)
|
|
4.2
|
|
|
(2.9
|
)
|
|||
Net loss
|
$
|
(3.5
|
)
|
|
$
|
(42.7
|
)
|
|
$
|
(60.5
|
)
|
Basic income and loss per common share:
|
|
|
|
|
|
||||||
Income (loss) from continuing operations
|
$
|
0.04
|
|
|
$
|
(0.52
|
)
|
|
$
|
(0.94
|
)
|
Income (loss) from discontinued operations
|
(0.07
|
)
|
|
0.04
|
|
|
(0.05
|
)
|
|||
Net loss per common share
|
$
|
(0.03
|
)
|
|
$
|
(0.48
|
)
|
|
$
|
(0.99
|
)
|
Diluted income and loss per common share:
|
|
|
|
|
|
||||||
Income (loss) from continuing operations
|
$
|
0.04
|
|
|
$
|
(0.52
|
)
|
|
$
|
(0.94
|
)
|
Income (loss) from discontinued operations
|
(0.07
|
)
|
|
0.04
|
|
|
(0.05
|
)
|
|||
Net loss per common share
|
$
|
(0.03
|
)
|
|
$
|
(0.48
|
)
|
|
$
|
(0.99
|
)
|
Weighted average common shares outstanding:
|
|
|
|
|
|
||||||
Basic
|
103.8
|
|
|
89.5
|
|
|
61.3
|
|
|||
Diluted
|
106.1
|
|
|
89.5
|
|
|
61.3
|
|
|||
Comprehensive Loss
|
|
|
|
|
|
||||||
Net loss from above
|
$
|
(3.5
|
)
|
|
$
|
(42.7
|
)
|
|
$
|
(60.5
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
||||||
Change in cumulative translation adjustment
|
0.4
|
|
|
0.1
|
|
|
(0.5
|
)
|
|||
Postretirement benefit reserve adjustment net of tax expense
|
0.3
|
|
|
0.2
|
|
|
0.2
|
|
|||
Other comprehensive income (loss), net of tax
|
0.7
|
|
|
0.3
|
|
|
(0.3
|
)
|
|||
Comprehensive loss
|
$
|
(2.8
|
)
|
|
$
|
(42.4
|
)
|
|
$
|
(60.8
|
)
|
|
|
Common Stock
|
|
Additional Paid-In Capital
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Accumulated Deficit
|
|
Total Stockholders’ Equity
|
|||||||||||||
|
|
Shares
|
|
Amounts
|
|
|
|
|
|||||||||||||||
Balance, December 27, 2015
|
|
59.1
|
|
|
$
|
—
|
|
|
$
|
873.2
|
|
|
$
|
(1.4
|
)
|
|
$
|
(617.6
|
)
|
|
$
|
254.2
|
|
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
5.1
|
|
|
—
|
|
|
—
|
|
|
5.1
|
|
|||||
Issuance of common stock for cash
|
|
13.4
|
|
|
|
|
75.8
|
|
|
|
|
|
|
75.8
|
|
||||||||
Issuance of common stock for employee stock purchase plan, options and warrants
|
|
0.8
|
|
|
—
|
|
|
2.6
|
|
|
—
|
|
|
—
|
|
|
2.6
|
|
|||||
Restricted stock issued and related taxes
|
|
0.6
|
|
|
—
|
|
|
(0.5
|
)
|
|
—
|
|
|
—
|
|
|
(0.5
|
)
|
|||||
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(60.5
|
)
|
|
(60.5
|
)
|
|||||
Other comprehensive loss, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
(0.3
|
)
|
|||||
Balance, December 25, 2016
|
|
73.9
|
|
|
—
|
|
|
956.2
|
|
|
(1.7
|
)
|
|
(678.1
|
)
|
|
276.4
|
|
|||||
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
7.8
|
|
|
—
|
|
|
—
|
|
|
7.8
|
|
|||||
Issuance of common stock for cash
|
|
28.0
|
|
|
—
|
|
|
268.2
|
|
|
—
|
|
|
—
|
|
|
268.2
|
|
|||||
Issuance of common stock for employee stock purchase plan, options and warrants
|
|
0.7
|
|
|
—
|
|
|
3.5
|
|
|
—
|
|
|
—
|
|
|
3.5
|
|
|||||
Restricted stock issued and related taxes
|
|
0.7
|
|
|
—
|
|
|
(2.0
|
)
|
|
—
|
|
|
—
|
|
|
(2.0
|
)
|
|||||
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(42.7
|
)
|
|
(42.7
|
)
|
|||||
Other comprehensive income, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
0.3
|
|
|||||
Balance, December 31, 2017
|
|
103.3
|
|
|
—
|
|
|
1,233.7
|
|
|
(1.4
|
)
|
|
(720.8
|
)
|
|
511.5
|
|
|||||
Impact from the adoption of ASC 606 (Note 1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
(0.2
|
)
|
|||||
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
7.2
|
|
|
—
|
|
|
—
|
|
|
7.2
|
|
|||||
Issuance of common stock for employee stock purchase plan, options and warrants
|
|
0.4
|
|
|
—
|
|
|
3.7
|
|
|
—
|
|
|
—
|
|
|
3.7
|
|
|||||
Restricted stock issued and related taxes
|
|
0.1
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|||||
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.5
|
)
|
|
(3.5
|
)
|
|||||
Other comprehensive income, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
|
—
|
|
|
0.7
|
|
|||||
Balance, December 30, 2018
|
|
103.8
|
|
|
$
|
—
|
|
|
$
|
1,244.5
|
|
|
$
|
(0.7
|
)
|
|
$
|
(724.5
|
)
|
|
$
|
519.3
|
|
|
2018
|
|
2017
|
|
2016
|
||||||
Operating activities:
|
|
|
|
|
|
|
|
||||
Net loss
|
$
|
(3.5
|
)
|
|
$
|
(42.7
|
)
|
|
$
|
(60.5
|
)
|
Income (loss) from discontinued operations
|
(7.6
|
)
|
|
4.2
|
|
|
(2.9
|
)
|
|||
Income (loss) from continuing operations
|
4.1
|
|
|
(46.9
|
)
|
|
(57.6
|
)
|
|||
Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities from continuing operations:
|
|
|
|
|
|
|
|
||||
Depreciation and amortization
|
17.9
|
|
|
22.2
|
|
|
22.5
|
|
|||
Deferred income taxes
|
(0.4
|
)
|
|
(9.5
|
)
|
|
4.6
|
|
|||
Stock-based compensation
|
7.2
|
|
|
7.8
|
|
|
5.1
|
|
|||
Goodwill impairment charge
|
—
|
|
|
24.2
|
|
|
—
|
|
|||
Loss (gain) on extinguishment of debt
|
—
|
|
|
17.3
|
|
|
(0.2
|
)
|
|||
Amortization of deferred financing costs
|
1.0
|
|
|
1.3
|
|
|
1.5
|
|
|||
Amortization of premium and discount on Senior Secured Notes
|
—
|
|
|
0.7
|
|
|
0.9
|
|
|||
Provision for doubtful accounts
|
1.8
|
|
|
—
|
|
|
0.1
|
|
|||
Provision for non-cash restructuring charges
|
—
|
|
|
—
|
|
|
9.1
|
|
|||
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
||||
Accounts receivable
|
8.2
|
|
|
0.5
|
|
|
(9.9
|
)
|
|||
Unbilled receivables
|
(35.9
|
)
|
|
(35.2
|
)
|
|
(17.9
|
)
|
|||
Inventoried costs
|
2.0
|
|
|
7.2
|
|
|
(2.5
|
)
|
|||
Prepaid expenses
|
2.2
|
|
|
(3.0
|
)
|
|
1.7
|
|
|||
Other assets
|
1.2
|
|
|
(2.7
|
)
|
|
2.8
|
|
|||
Accounts payable
|
12.2
|
|
|
(8.3
|
)
|
|
1.7
|
|
|||
Accrued expenses
|
(1.7
|
)
|
|
(3.8
|
)
|
|
20.6
|
|
|||
Accrued compensation
|
3.3
|
|
|
(2.9
|
)
|
|
2.5
|
|
|||
Accrued interest
|
(0.1
|
)
|
|
(1.9
|
)
|
|
(0.3
|
)
|
|||
Billings in excess of costs and earnings on uncompleted contracts
|
(6.9
|
)
|
|
6.3
|
|
|
(0.6
|
)
|
|||
Income tax receivable and payable
|
0.2
|
|
|
1.4
|
|
|
1.2
|
|
|||
Other liabilities
|
1.8
|
|
|
(1.6
|
)
|
|
0.1
|
|
|||
Net cash provided by (used in) operating activities from continuing operations
|
18.1
|
|
|
(26.9
|
)
|
|
(14.6
|
)
|
|||
Investing activities:
|
|
|
|
|
|
|
|
||||
Cash paid for acquisitions, net of cash acquired
|
(2.9
|
)
|
|
—
|
|
|
(5.1
|
)
|
|||
Proceeds from sale of assets
|
66.0
|
|
|
0.7
|
|
|
—
|
|
|||
Capital expenditures
|
(22.6
|
)
|
|
(26.1
|
)
|
|
(9.0
|
)
|
|||
Net cash provided by (used in) investing activities from continuing operations
|
40.5
|
|
|
(25.4
|
)
|
|
(14.1
|
)
|
|||
Financing activities:
|
|
|
|
|
|
|
|
||||
Proceeds from the issuance of long-term debt
|
—
|
|
|
300.0
|
|
|
—
|
|
|||
Extinguishment of long-term debt
|
—
|
|
|
(448.8
|
)
|
|
(14.1
|
)
|
|||
Proceeds (expenses) from the issuance of common stock
|
(1.1
|
)
|
|
269.1
|
|
|
76.2
|
|
|||
Repayments under credit facility
|
(0.8
|
)
|
|
(1.0
|
)
|
|
(1.0
|
)
|
|||
Debt issuance costs
|
(0.1
|
)
|
|
(6.6
|
)
|
|
—
|
|
|||
Proceeds from exercise of restricted stock units, employee stock options, and employee stock purchase plan
|
3.7
|
|
|
1.5
|
|
|
2.0
|
|
|||
Other
|
—
|
|
|
(0.8
|
)
|
|
—
|
|
|||
Net cash provided by financing activities from continuing operations
|
1.7
|
|
|
113.4
|
|
|
63.1
|
|
|||
Net cash flows of continuing operations
|
60.3
|
|
|
61.1
|
|
|
34.4
|
|
|||
Net operating cash flows of discontinued operations
|
(7.7
|
)
|
|
(0.8
|
)
|
|
1.5
|
|
|||
Net investing cash flows of discontinued operations
|
—
|
|
|
(0.6
|
)
|
|
4.0
|
|
|||
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
(0.5
|
)
|
|
0.5
|
|
|
(0.3
|
)
|
|||
Net increase in cash, cash equivalents and restricted cash
|
52.1
|
|
|
60.2
|
|
|
39.6
|
|
|||
Cash, cash equivalents and restricted cash at beginning of year
|
130.9
|
|
|
70.7
|
|
|
31.1
|
|
|||
Cash, cash equivalents and restricted cash at end of year
|
$
|
183.0
|
|
|
$
|
130.9
|
|
|
$
|
70.7
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
||||||
Cash paid during the year for interest
|
$
|
20.5
|
|
|
$
|
28.3
|
|
|
$
|
32.4
|
|
Net cash paid during the year for income taxes
|
$
|
1.5
|
|
|
$
|
(0.6
|
)
|
|
$
|
(0.1
|
)
|
Non-cash financing and investing activities:
|
|
|
|
|
|
||||||
Capital expenditures included in accounts payable and accrued expenses
|
$
|
1.3
|
|
|
$
|
1.6
|
|
|
$
|
2.1
|
|
Liability for contingent consideration and goodwill related to acquisition
|
$
|
—
|
|
|
$
|
2.9
|
|
|
$
|
5.1
|
|
(a)
|
Description of Business
|
(b)
|
Principles of Consolidation and Basis of Presentation
|
(d)
|
Use of Estimates
|
(e)
|
Revenue Recognition
|
|
December 30, 2018
|
|
January 1, 2018
|
|
Net Change
|
||||||
Contract assets
|
$
|
172.9
|
|
|
$
|
139.4
|
|
|
$
|
33.5
|
|
Contract liabilities
|
$
|
37.0
|
|
|
$
|
46.8
|
|
|
$
|
(9.8
|
)
|
Net contract assets
|
$
|
135.9
|
|
|
$
|
92.6
|
|
|
$
|
43.3
|
|
|
Year Ended December 30, 2018
|
||
Kratos Government Solutions
|
|
||
Fixed price
|
$
|
424.9
|
|
Cost plus fee
|
32.6
|
|
|
Time and materials
|
27.6
|
|
|
Total Kratos Government Solutions
|
485.1
|
|
|
Unmanned Systems
|
|
||
Fixed price
|
104.8
|
|
|
Cost plus fee
|
26.5
|
|
|
Time and materials
|
1.6
|
|
|
Total Unmanned Systems
|
132.9
|
|
|
Total Revenues
|
$
|
618.0
|
|
|
Year Ended December 30, 2018
|
||
Kratos Government Solutions
|
|
||
U.S. Government
(1)
|
$
|
333.5
|
|
International
(2)
|
96.0
|
|
|
U.S. Commercial and other customers
|
55.6
|
|
|
Total Kratos Government Solutions
|
485.1
|
|
|
Unmanned Systems
|
|
||
U.S. Government
(1)
|
113.5
|
|
|
International
(2)
|
18.3
|
|
|
U.S. Commercial and other customers
|
1.1
|
|
|
Total Unmanned Systems
|
132.9
|
|
|
Total Revenues
|
$
|
618.0
|
|
(f)
|
Inventoried costs
|
(h)
|
Income Taxes
|
(i)
|
Stock-Based Compensation
|
|
2018
|
|
2017
|
|
2016
|
||||||
Selling, general and administrative expenses
|
$
|
7.2
|
|
|
$
|
7.8
|
|
|
$
|
5.1
|
|
Total cost of employee stock-based compensation included in operating income (loss) from continuing operations
|
$
|
7.2
|
|
|
$
|
7.8
|
|
|
$
|
5.1
|
|
Impact on net loss per common share:
|
|
|
|
|
|
||||||
Basic and diluted
|
$
|
(0.07
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.08
|
)
|
(j)
|
Allowance for Doubtful Accounts
|
Allowance for Doubtful Accounts
|
Balance at Beginning of Year
|
|
Provisions
|
|
Write-offs/Recoveries
|
|
Balance at End of Year
|
||||||||
Year ended December 25, 2016
|
$
|
1.5
|
|
|
$
|
0.1
|
|
|
$
|
(0.1
|
)
|
|
$
|
1.5
|
|
Year ended December 31, 2017
|
$
|
1.5
|
|
|
$
|
—
|
|
|
$
|
(1.0
|
)
|
|
$
|
0.5
|
|
Year ended December 30, 2018
|
$
|
0.5
|
|
|
$
|
1.8
|
|
|
$
|
—
|
|
|
$
|
2.3
|
|
(k)
|
Cash and Cash Equivalents
|
(l)
|
Property and Equipment, Net
|
|
Years
|
Buildings and improvements
|
15 – 39
|
Machinery and equipment
|
3 – 10
|
Computer equipment and software
|
1 – 10
|
Vehicles, furniture, and office equipment
|
5
|
Leasehold improvements
|
Shorter of useful life or length of lease
|
(m)
|
Leases
|
(n)
|
Goodwill and Other Intangible Assets, Net
|
(p)
|
Fair Value of Financial Instruments
|
(q)
|
Concentrations and Uncertainties
|
(s)
|
Interest Expense, Net
|
|
2018
|
|
2017
|
|
2016
|
||||||
Interest expense incurred primarily on the Company’s Senior Secured Notes
|
$
|
(21.6
|
)
|
|
$
|
(29.1
|
)
|
|
$
|
(34.7
|
)
|
Miscellaneous interest income
|
0.8
|
|
|
0.5
|
|
|
—
|
|
|||
Interest expense, net
|
$
|
(20.8
|
)
|
|
$
|
(28.6
|
)
|
|
$
|
(34.7
|
)
|
(t)
|
Foreign Currency
|
|
Balance at January 1, 2018
|
|
ASC 606 Adjustment
|
|
Adjusted Balance at January 1, 2018
|
||||||
Assets
|
|
|
|
|
|
||||||
Unbilled receivables, net
|
$
|
138.1
|
|
|
$
|
1.3
|
|
|
$
|
139.4
|
|
Inventoried costs
|
49.0
|
|
|
(0.3
|
)
|
|
48.7
|
|
|||
|
|
|
|
|
|
||||||
Liabilities
|
|
|
|
|
|
||||||
Accrued expenses
|
$
|
40.9
|
|
|
$
|
(0.6
|
)
|
|
$
|
40.3
|
|
Billings in excess of costs and earnings on uncompleted contracts
|
42.8
|
|
|
1.8
|
|
|
44.6
|
|
|||
|
|
|
|
|
|
||||||
Stockholders’ equity
|
|
|
|
|
|
||||||
Accumulated deficit
|
$
|
(720.8
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(721.0
|
)
|
|
December 30, 2018
|
||||||||||
|
As Reported
|
|
Balances Without Adoption of ASC 606
|
|
Effect of Change Higher/(Lower)
|
||||||
Service revenues
|
$
|
200.7
|
|
|
$
|
200.7
|
|
|
$
|
—
|
|
Product sales
|
417.3
|
|
|
387.3
|
|
|
30.0
|
|
|||
Total revenues
|
618.0
|
|
|
588.0
|
|
|
30.0
|
|
|||
Cost of service revenue
|
137.8
|
|
|
137.8
|
|
|
—
|
|
|||
Cost of product sales
|
310.5
|
|
|
288.6
|
|
|
21.9
|
|
|||
Total costs
|
448.3
|
|
|
426.4
|
|
|
21.9
|
|
|||
Gross profit
|
169.7
|
|
|
161.6
|
|
|
8.1
|
|
|||
Selling, general and administrative expenses
|
119.8
|
|
|
119.8
|
|
|
—
|
|
|||
Operating income from continuing operations
|
$
|
30.5
|
|
|
$
|
22.4
|
|
|
$
|
8.1
|
|
|
December 30, 2018
|
||||||||||
|
As Reported
|
|
Balances Without Adoption of ASC 606
|
|
Effect of Change Higher/(Lower)
|
||||||
Assets
|
|
|
|
|
|
||||||
Accounts receivable, net
|
$
|
64.6
|
|
|
$
|
66.5
|
|
|
$
|
(1.9
|
)
|
Unbilled receivables, net
|
172.8
|
|
|
148.1
|
|
|
24.7
|
|
|||
Inventoried costs
|
46.8
|
|
|
68.7
|
|
|
(21.9
|
)
|
|||
|
|
|
|
|
|
||||||
Liabilities
|
|
|
|
|
|
||||||
Billings in excess of costs and earnings on uncompleted contracts
|
34.9
|
|
|
42.1
|
|
|
(7.2
|
)
|
|||
|
|
|
|
|
|
||||||
Stockholders’ equity
|
|
|
|
|
|
||||||
Accumulated deficit
|
$
|
(724.5
|
)
|
|
$
|
(732.6
|
)
|
|
$
|
8.1
|
|
(a)
|
Goodwill
|
|
As of December 30, 2018
|
||||||||||
|
US
|
|
KGS
|
|
Total
|
||||||
Gross value
|
$
|
111.1
|
|
|
$
|
567.9
|
|
|
$
|
679.0
|
|
Less accumulated impairment
|
13.8
|
|
|
239.5
|
|
|
253.3
|
|
|||
Net
|
$
|
97.3
|
|
|
$
|
328.4
|
|
|
$
|
425.7
|
|
|
|
|
|
|
|
(b)
|
Purchased Intangible Assets
|
|
As of December 30, 2018
|
|
As of December 31, 2017
|
||||||||||||||||||||
|
Gross
Value
|
|
Accumulated
Amortization
|
|
Net
Value
|
|
Gross
Value
|
|
Accumulated
Amortization
|
|
Net
Value
|
||||||||||||
Acquired finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Customer relationships
|
$
|
52.6
|
|
|
$
|
(50.6
|
)
|
|
$
|
2.0
|
|
|
$
|
52.6
|
|
|
$
|
(49.1
|
)
|
|
$
|
3.5
|
|
Contracts and backlog
|
29.9
|
|
|
(26.4
|
)
|
|
3.5
|
|
|
29.9
|
|
|
(24.8
|
)
|
|
5.1
|
|
||||||
Developed technology and technical know-how
|
25.0
|
|
|
(21.3
|
)
|
|
3.7
|
|
|
25.0
|
|
|
(18.6
|
)
|
|
6.4
|
|
||||||
Trade names
|
1.4
|
|
|
(1.4
|
)
|
|
—
|
|
|
1.4
|
|
|
(1.3
|
)
|
|
0.1
|
|
||||||
Total finite-lived intangible assets
|
108.9
|
|
|
(99.7
|
)
|
|
9.2
|
|
|
108.9
|
|
|
(93.8
|
)
|
|
15.1
|
|
||||||
Indefinite-lived trade names
|
6.9
|
|
|
—
|
|
|
6.9
|
|
|
6.9
|
|
|
—
|
|
|
6.9
|
|
||||||
Total intangible assets
|
$
|
115.8
|
|
|
$
|
(99.7
|
)
|
|
$
|
16.1
|
|
|
$
|
115.8
|
|
|
$
|
(93.8
|
)
|
|
$
|
22.0
|
|
Fiscal Year
|
Amount
|
||
2019
|
$
|
5.1
|
|
2020
|
3.0
|
|
|
2021
|
1.1
|
|
|
Total
|
$
|
9.2
|
|
|
December 30, 2018
|
|
December 31, 2017
|
||||
Billed, current
|
$
|
66.5
|
|
|
$
|
74.3
|
|
Unbilled, current
|
173.2
|
|
|
138.5
|
|
||
Total current accounts receivable
|
239.7
|
|
|
212.8
|
|
||
Allowance for doubtful accounts
|
(2.3
|
)
|
|
(0.5
|
)
|
||
Total accounts receivable, net
|
$
|
237.4
|
|
|
$
|
212.3
|
|
|
December 30, 2018
|
|
December 31, 2017
|
||||
Billed
|
$
|
16.5
|
|
|
$
|
16.9
|
|
Unbilled
|
83.1
|
|
|
55.1
|
|
||
Total U.S. Government contract receivables
|
$
|
99.6
|
|
|
$
|
72.0
|
|
|
December 30,
2018 |
|
December 31,
2017 |
||||
Raw materials
|
$
|
34.7
|
|
|
$
|
35.9
|
|
Work in process
|
10.3
|
|
|
11.4
|
|
||
Finished goods
|
1.8
|
|
|
2.3
|
|
||
Subtotal inventoried costs
|
46.8
|
|
|
49.6
|
|
||
Less customer advances and progress payments
|
—
|
|
|
(0.6
|
)
|
||
Total inventoried costs
|
$
|
46.8
|
|
|
$
|
49.0
|
|
|
December 30, 2018
|
|
December 31, 2017
|
||||
Land and buildings
|
$
|
11.9
|
|
|
$
|
12.1
|
|
Computer equipment and software
|
28.3
|
|
|
27.3
|
|
||
Machinery and equipment
|
56.8
|
|
|
49.7
|
|
||
Furniture and office equipment
|
6.3
|
|
|
5.1
|
|
||
Leasehold improvements
|
10.9
|
|
|
10.1
|
|
||
Construction in progress
|
21.5
|
|
|
17.3
|
|
||
Property and equipment
|
135.7
|
|
|
121.6
|
|
||
Accumulated depreciation and amortization
|
(68.6
|
)
|
|
(63.6
|
)
|
||
Total property and equipment, net
|
$
|
67.1
|
|
|
$
|
58.0
|
|
(b)
|
Issuance of
7.00%
Senior Secured Notes due 2019
|
|
As of December 30, 2018
|
|
As of December 31, 2017
|
||||||||||||||||||||
$ in millions
|
Principal
|
|
Carrying
Amount
|
|
Fair Value
|
|
Principal
|
|
Carrying
Amount
|
|
Fair Value
|
||||||||||||
Long-term debt
|
$
|
300.0
|
|
|
$
|
294.2
|
|
|
$
|
305.3
|
|
|
$
|
300.8
|
|
|
$
|
294.3
|
|
|
$
|
312.7
|
|
Year
|
Operating Leases
|
||
2019
|
$
|
16.5
|
|
2020
|
12.0
|
|
|
2021
|
9.6
|
|
|
2022
|
8.1
|
|
|
2023
|
7.9
|
|
|
Thereafter
|
63.1
|
|
|
Total future minimum lease payments
|
$
|
117.2
|
|
|
Excess Facilities
|
||
Balance as of December 25, 2016
|
$
|
4.0
|
|
Adjustment of excess facility accrual
|
—
|
|
|
Cash payments
|
(0.7
|
)
|
|
Balance as of December 31, 2017
|
3.3
|
|
|
Adjustment of excess facility accrual
|
—
|
|
|
Cash payments
|
(0.9
|
)
|
|
Balance as of December 30, 2018
|
$
|
2.4
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
December 25, 2016
|
|||
Shares from stock options and awards
|
0.1
|
|
|
0.1
|
|
|
1.4
|
|
|
2018
|
|
2017
|
|
2016
|
||||||
Domestic
|
$
|
2.2
|
|
|
$
|
(60.5
|
)
|
|
$
|
(61.3
|
)
|
Foreign
|
6.5
|
|
|
3.4
|
|
|
9.5
|
|
|||
Total
|
$
|
8.7
|
|
|
$
|
(57.1
|
)
|
|
$
|
(51.8
|
)
|
|
2018
|
|
2017
|
|
2016
|
||||||
Federal income taxes:
|
|
|
|
|
|
||||||
Current
|
$
|
(0.4
|
)
|
|
$
|
(2.9
|
)
|
|
$
|
(0.5
|
)
|
Deferred
|
(1.8
|
)
|
|
(9.0
|
)
|
|
3.8
|
|
|||
Total Federal
|
(2.2
|
)
|
|
(11.9
|
)
|
|
3.3
|
|
|||
State and local income taxes
|
|
|
|
|
|
||||||
Current
|
0.4
|
|
|
0.5
|
|
|
0.2
|
|
|||
Deferred
|
1.4
|
|
|
(0.3
|
)
|
|
0.7
|
|
|||
Total State and local
|
1.8
|
|
|
0.2
|
|
|
0.9
|
|
|||
Foreign income taxes:
|
|
|
|
|
|
||||||
Current
|
4.8
|
|
|
2.0
|
|
|
1.5
|
|
|||
Deferred
|
0.2
|
|
|
(0.5
|
)
|
|
0.1
|
|
|||
Total Foreign
|
5.0
|
|
|
1.5
|
|
|
1.6
|
|
|||
Total
|
$
|
4.6
|
|
|
$
|
(10.2
|
)
|
|
$
|
5.8
|
|
|
2018
|
|
2017
|
|
2016
|
||||||
Income tax (benefit) at federal statutory rate
|
$
|
1.8
|
|
|
$
|
(20.0
|
)
|
|
$
|
(18.1
|
)
|
State taxes, net of federal tax benefit and valuation allowance
|
0.9
|
|
|
0.5
|
|
|
0.1
|
|
|||
Difference in tax rates between U.S. and foreign
|
0.7
|
|
|
—
|
|
|
0.1
|
|
|||
Increase (decrease) in valuation allowance
|
4.7
|
|
|
(45.6
|
)
|
|
18.9
|
|
|||
Nondeductible expense
|
0.6
|
|
|
1.1
|
|
|
0.7
|
|
|||
Increase in reserve for uncertain tax positions
|
4.0
|
|
|
1.3
|
|
|
0.1
|
|
|||
Changes to indefinite life items and separate state deferred taxes
|
(0.7
|
)
|
|
(1.8
|
)
|
|
4.0
|
|
|||
One-time transition tax on previously undistributed foreign earnings
|
2.2
|
|
|
6.2
|
|
|
—
|
|
|||
Goodwill impairment
|
—
|
|
|
8.1
|
|
|
—
|
|
|||
Decrease in deferred taxes related to disposition
|
(9.6
|
)
|
|
—
|
|
|
—
|
|
|||
Impact related to the 2017 Tax Act
|
—
|
|
|
40.0
|
|
|
—
|
|
|||
Total
|
$
|
4.6
|
|
|
$
|
(10.2
|
)
|
|
$
|
5.8
|
|
|
2018
|
|
2017
|
||||
Deferred tax assets:
|
|
|
|
||||
Allowance for doubtful accounts
|
$
|
0.6
|
|
|
$
|
0.2
|
|
Sundry accruals
|
1.1
|
|
|
1.5
|
|
||
Vacation accrual
|
2.7
|
|
|
3.2
|
|
||
Stock-based compensation
|
4.2
|
|
|
3.1
|
|
||
Payroll related accruals
|
2.4
|
|
|
2.1
|
|
||
Lease accruals
|
2.0
|
|
|
2.5
|
|
||
Investments
|
1.3
|
|
|
1.3
|
|
||
Net operating loss carryforwards
|
81.7
|
|
|
95.7
|
|
||
Capital loss carryforwards
|
1.9
|
|
|
—
|
|
||
Tax credit carryforwards
|
9.9
|
|
|
9.5
|
|
||
Deferred revenue
|
1.5
|
|
|
1.9
|
|
||
Reserves and other
|
10.8
|
|
|
6.1
|
|
||
|
120.1
|
|
|
127.1
|
|
||
Valuation allowance
|
(92.2
|
)
|
|
(87.5
|
)
|
||
Total deferred tax assets, net of valuation allowance
|
27.9
|
|
|
39.6
|
|
||
Deferred tax liabilities:
|
|
|
|
||||
Unearned revenue
|
(23.9
|
)
|
|
(38.8
|
)
|
||
Other intangibles
|
(8.9
|
)
|
|
(5.4
|
)
|
||
Property and equipment, principally due to differences in depreciation
|
(0.9
|
)
|
|
(0.7
|
)
|
||
Other
|
(1.2
|
)
|
|
(1.7
|
)
|
||
Total deferred tax liabilities
|
(34.9
|
)
|
|
(46.6
|
)
|
||
Net deferred tax liability
|
$
|
(7.0
|
)
|
|
$
|
(7.0
|
)
|
Balance as of December 27, 2015
|
$
|
17.2
|
|
Increases related to prior periods
|
1.4
|
|
|
Increases related to current year tax positions
|
0.2
|
|
|
Decreases related to disposition
|
(0.2
|
)
|
|
Balance as of December 25, 2016
|
18.6
|
|
|
Increases related to prior periods
|
0.4
|
|
|
Increases related to current year tax positions
|
1.1
|
|
|
Expiration of applicable statutes of limitations
|
(0.6
|
)
|
|
Decrease in federal tax rate
|
(3.9
|
)
|
|
Balance as of December 31, 2017
|
15.6
|
|
|
Increases related to prior periods
|
0.5
|
|
|
Increases related to current year tax positions
|
4.0
|
|
|
Expiration of applicable statutes of limitations
|
(0.4
|
)
|
|
Decreases related to prior year tax positions
|
(0.3
|
)
|
|
Decreases related to disposition
|
(1.7
|
)
|
|
Balance as of December 30, 2018
|
$
|
17.7
|
|
|
Year ended December 30, 2018
|
|
Year ended December 31, 2017
|
|
Year ended December 25, 2016
|
||||||
Revenue
|
$
|
44.2
|
|
|
$
|
149.9
|
|
|
$
|
127.1
|
|
Cost of sales
|
34.2
|
|
|
110.1
|
|
|
93.9
|
|
|||
Selling, general and administrative expenses
|
16.7
|
|
|
33.6
|
|
|
33.8
|
|
|||
Other net income (expense) items that are not major
|
2.7
|
|
|
(0.1
|
)
|
|
—
|
|
|||
Income (loss) from discontinued operations before income taxes
|
(9.4
|
)
|
|
6.3
|
|
|
(0.6
|
)
|
|||
Gain on disposal of discontinued operations before income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|||
Total gain (loss) of discontinued operations before income taxes
|
(9.4
|
)
|
|
6.3
|
|
|
(0.6
|
)
|
|||
Income tax (benefit) expense
|
(1.8
|
)
|
|
2.1
|
|
|
2.3
|
|
|||
Income (loss) from discontinued operations
|
$
|
(7.6
|
)
|
|
$
|
4.2
|
|
|
$
|
(2.9
|
)
|
|
December 30, 2018
|
|
December 31, 2017
|
||||
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
(0.9
|
)
|
Accounts receivable, net
|
8.2
|
|
|
56.0
|
|
||
Inventoried costs
|
—
|
|
|
1.5
|
|
||
Other current assets
|
0.1
|
|
|
2.0
|
|
||
Current assets of discontinued operations
|
$
|
8.3
|
|
|
$
|
58.6
|
|
Property, plant and equipment, net
|
$
|
—
|
|
|
$
|
3.0
|
|
Goodwill
|
—
|
|
|
35.6
|
|
||
Other assets
|
—
|
|
|
0.2
|
|
||
Non-current assets of discontinued operations
|
$
|
—
|
|
|
$
|
38.8
|
|
Accounts payable
|
$
|
0.3
|
|
|
$
|
14.2
|
|
Accrued expenses
|
0.4
|
|
|
4.7
|
|
||
Accrued compensation
|
$
|
—
|
|
|
$
|
4.6
|
|
Billings in excess of cost and earnings on uncompleted contracts
|
—
|
|
|
4.3
|
|
||
Other current liabilities
|
4.6
|
|
|
1.4
|
|
||
Current liabilities of discontinued operations
|
$
|
5.3
|
|
|
$
|
29.2
|
|
Other long-term liabilities of discontinued operations
|
$
|
6.4
|
|
|
$
|
6.0
|
|
|
2018
|
|
2017
|
|
2016
|
Stock Options
|
|
|
|
|
|
Expected life
|
10.0
|
|
10.0
|
|
10.0
|
Risk-free interest rate(1)
|
2.9% - 3.2%
|
|
2.2% - 2.5%
|
|
1.8% - 2.4%
|
Volatility(2)
|
52.9% - 53.4%
|
|
53.8% - 55.0%
|
|
55.2% - 55.8%
|
Forfeiture rate(3)
|
5.1%
|
|
5.0%
|
|
5.0%
|
Dividend yield(4)
|
—%
|
|
—%
|
|
—%
|
|
|
Number of
Shares Under Option
|
|
Weighted-Average Exercise Price per Share
|
|
Weighted-
Average
Remaining
Contractual
Term
(in years)
|
|
Aggregate Intrinsic Value
|
|||||
|
|
(000’s)
|
|
|
|
|
|
(000’s)
|
|||||
Options outstanding at December 31, 2017
|
|
899
|
|
|
$
|
7.82
|
|
|
4.4
|
|
$
|
4,224.8
|
|
Granted
|
|
5
|
|
|
$
|
11.78
|
|
|
|
|
|
||
Exercised
|
|
(10
|
)
|
|
$
|
8.71
|
|
|
|
|
|
||
Forfeited or expired
|
|
(126
|
)
|
|
$
|
24.01
|
|
|
|
|
|
||
Options outstanding at December 30, 2018
|
|
768
|
|
|
$
|
5.17
|
|
|
4.2
|
|
6,587.5
|
|
|
Options exercisable at December 30, 2018
|
|
767
|
|
|
$
|
5.16
|
|
|
4.1
|
|
$
|
6,586.5
|
|
|
2018
|
|
2017
|
|
2016
|
||||||
Weighted average grant date fair value of options granted
|
$
|
7.54
|
|
|
$
|
6.39
|
|
|
$
|
3.36
|
|
Total intrinsic value of options exercised (in thousands)
|
$
|
40.6
|
|
|
$
|
67.1
|
|
|
$
|
—
|
|
|
|
Restricted
Stock Units (000’s) |
|
Weighted-Average Grant Date Fair Value
|
|||
Nonvested balance at December 31, 2017
|
|
2,258
|
|
|
$
|
6.83
|
|
Grants
|
|
1,119
|
|
|
$
|
11.08
|
|
Vested
|
|
(84
|
)
|
|
$
|
9.03
|
|
Forfeitures
|
|
—
|
|
|
$
|
—
|
|
Vested but not released
|
|
—
|
|
|
$
|
—
|
|
Nonvested balance at December 30, 2018
|
|
3,293
|
|
|
$
|
8.22
|
|
(c)
|
Amended and Restated Employee Stock Purchase Plan
|
|
Offering
Periods
January 1 to
December 31
2018
|
|
Offering
Periods
January 1 to
December 31,
2017
|
|
Offering
Periods
January 1 to
December 31,
2016
|
Expected term (in years)(1)
|
0.5
|
|
0.5
|
|
0.5
|
Risk-free interest rate(2)
|
1.53% - 2.11%
|
|
0.62% - 1.14%
|
|
0.36% - 0.49%
|
Expected volatility(3)
|
40.24% - 44.83%
|
|
44.38% - 53.70%
|
|
53.00% - 55.55%
|
Expected dividend yield(4)
|
—%
|
|
—%
|
|
—%
|
Weighted average grant-date fair value per share
|
$3.03
|
|
$2.51
|
|
$1.23
|
(1)
|
The expected term is equivalent to the offering period.
|
(2)
|
The risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant with a term equal to the expected term.
|
|
2018
|
|
2017
|
|
2016
|
||||||
Revenues:
|
|
|
|
|
|
||||||
Kratos Government Solutions
|
|
|
|
|
|
||||||
Service revenues
|
$
|
200.7
|
|
|
$
|
197.8
|
|
|
$
|
221.3
|
|
Product sales
|
284.4
|
|
|
283.8
|
|
|
244.8
|
|
|||
Total Kratos Government Solutions
|
485.1
|
|
|
481.6
|
|
|
466.1
|
|
|||
Unmanned Systems
|
|
|
|
|
|
||||||
Service revenues
|
—
|
|
|
—
|
|
|
—
|
|
|||
Product sales
|
132.9
|
|
|
121.7
|
|
|
75.8
|
|
|||
Total Unmanned Systems
|
132.9
|
|
|
121.7
|
|
|
75.8
|
|
|||
Total revenues
|
$
|
618.0
|
|
|
$
|
603.3
|
|
|
$
|
541.9
|
|
Depreciation and amortization:
|
|
|
|
|
|
||||||
Kratos Government Solutions
|
$
|
13.2
|
|
|
$
|
14.4
|
|
|
$
|
15.0
|
|
Unmanned Systems
|
4.7
|
|
|
7.8
|
|
|
7.5
|
|
|||
Total depreciation and amortization
|
$
|
17.9
|
|
|
$
|
22.2
|
|
|
$
|
22.5
|
|
Operating income (loss) from continuing operations:
|
|
|
|
|
|
||||||
Kratos Government Solutions
|
$
|
35.5
|
|
|
$
|
(0.1
|
)
|
|
$
|
15.5
|
|
Unmanned Systems
|
5.1
|
|
|
(3.6
|
)
|
|
(28.3
|
)
|
|||
Corporate activities
|
(10.1
|
)
|
|
(8.3
|
)
|
|
(5.2
|
)
|
|||
Total operating income (loss) from continuing operations
|
$
|
30.5
|
|
|
$
|
(12.0
|
)
|
|
$
|
(18.0
|
)
|
|
December 30, 2018
|
|
December 31, 2017
|
|
December 25, 2016
|
||||||
Assets:
|
|
|
|
|
|
||||||
Kratos Government Solutions
|
$
|
602.8
|
|
|
$
|
597.9
|
|
|
$
|
609.8
|
|
Unmanned Systems
|
220.9
|
|
|
201.9
|
|
|
172.1
|
|
|||
Discontinued operations
|
8.3
|
|
|
97.4
|
|
|
92.0
|
|
|||
Corporate activities
|
178.1
|
|
|
126.8
|
|
|
74.7
|
|
|||
Total assets
|
$
|
1,010.1
|
|
|
$
|
1,024.0
|
|
|
$
|
948.6
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
||||||||
Fiscal year 2018
|
|
|
|
|
|
|
|
||||||||
Revenues
|
$
|
143.0
|
|
|
$
|
151.2
|
|
|
$
|
159.4
|
|
|
$
|
164.4
|
|
Gross profit
|
40.8
|
|
|
39.3
|
|
|
44.1
|
|
|
45.5
|
|
||||
Operating income from continuing operations
|
7.0
|
|
|
2.6
|
|
|
10.1
|
|
|
10.8
|
|
||||
Provision for income taxes
|
0.9
|
|
|
0.1
|
|
|
3.4
|
|
|
0.2
|
|
||||
Income (loss) from continuing operations
|
1.3
|
|
|
(3.8
|
)
|
|
1.4
|
|
|
5.2
|
|
||||
Income (loss) from discontinued operations
|
(3.5
|
)
|
|
(3.9
|
)
|
|
0.3
|
|
|
(0.5
|
)
|
||||
Net income (loss)
|
$
|
(2.2
|
)
|
|
$
|
(7.7
|
)
|
|
$
|
1.7
|
|
|
$
|
4.7
|
|
Basic income (loss) per common share:
|
|
|
|
|
|
|
|
||||||||
Income (loss) from continuing operations
|
$
|
0.01
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.01
|
|
|
$
|
0.05
|
|
Income (loss) from discontinued operations
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.01
|
|
|
$
|
—
|
|
Net income (loss) per common share
|
$
|
(0.02
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
0.02
|
|
|
$
|
0.05
|
|
Diluted income (loss) per common share:
|
|
|
|
|
|
|
|
||||||||
Income (loss) from continuing operations
|
$
|
0.01
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.01
|
|
|
$
|
0.05
|
|
Income (loss) from discontinued operations
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
Net income (loss) per common share
|
$
|
(0.02
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
0.02
|
|
|
$
|
0.04
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
||||||||
Fiscal year 2017
|
|
|
|
|
|
|
|
||||||||
Revenues
|
$
|
132.0
|
|
|
$
|
147.9
|
|
|
$
|
157.1
|
|
|
$
|
166.3
|
|
Gross profit
|
36.1
|
|
|
37.5
|
|
|
37.2
|
|
|
46.8
|
|
||||
Operating income (loss) from continuing operations
|
1.4
|
|
|
1.5
|
|
|
0.1
|
|
|
(15.0
|
)
|
||||
Provision (benefit) for income taxes
|
1.4
|
|
|
1.3
|
|
|
(1.1
|
)
|
|
(11.8
|
)
|
||||
Loss from continuing operations
|
(10.1
|
)
|
|
(6.9
|
)
|
|
(5.9
|
)
|
|
(24.0
|
)
|
||||
Income from discontinued operations
|
0.1
|
|
|
0.7
|
|
|
1.6
|
|
|
1.8
|
|
||||
Net loss
|
$
|
(10.0
|
)
|
|
$
|
(6.2
|
)
|
|
$
|
(4.3
|
)
|
|
$
|
(22.2
|
)
|
Basic loss per common share:
|
|
|
|
|
|
|
|
||||||||
Loss from continuing operations
|
$
|
(0.13
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.23
|
)
|
Income from discontinued operations
|
$
|
—
|
|
|
$
|
0.01
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
Net loss per common share
|
$
|
(0.13
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.21
|
)
|
Diluted loss per common share:
|
|
|
|
|
|
|
|
||||||||
Loss from continuing operations
|
$
|
(0.13
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.23
|
)
|
Income from discontinued operations
|
$
|
—
|
|
|
$
|
0.01
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
Net loss per common share
|
$
|
(0.13
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.21
|
)
|
(b)
|
Insurance Provisions
.
All insurance policies shall:
|
(iii)
|
contain deductibles not to exceed $100,000;
|
(e)
|
if there is an Insolvency Event affecting Lessee or the Guarantor;
|
(i)
|
to use the Security Deposit as described in Section 4.09 hereof;
|
If to Lessee:
|
Kratos RT Logic, Inc.
12515 Academy Ridge View Colorado Springs, CO 80921 Attention: Director of Operations Email:
shamilton@rtlogic.com
|
With a copy to:
|
Kratos Defense & Security Solutions, Inc. 10680 Treena Street, Suite 600
San Diego, CA 92131 Attention: General Counsel
Email:
marie.mendoza@kratosdefense.com
|
If to Lessor:
|
STORE Capital Acquisitions, LLC 8377 E. Hartford Drive, Suite 100
Scottsdale, AZ 85255 Attention: Asset Management
Email:
customerservice@storecapital.com
|
With a copy to:
|
Kutak Rock LLP
1801 California Street, Suite 3000
Denver, CO 80202
Attention: Kristine Poston, Esq. Email:
kristine.poston@kutakrock.com
|
3.
|
Off-track betting parlor;
|
4.
|
Pawn shop;
|
6.
|
Junk yard or flea market;
|
7.
|
Stockyard or recycling facility;
|
8.
|
Motor vehicle or boat storage facility;
|
9.
|
Billiard parlor;
|
10.
|
Dry cleaning or laundry plant (which shall not preclude a dry cleaning or laundry business);
|
11.
|
Living quarters, sleeping apartments, or lodging rooms;
|
12.
|
Mortuary;
|
13.
|
Massage parlor; or
|
14.
|
Refining, quarrying or mining operations of any kind.
|
Ai Metrix, Inc.
|
Delaware
|
Avtec Systems, Inc.
|
Virginia
|
BSC Partners, LLC
|
New York
|
Carlsbad ISI, Inc.
|
Maryland
|
Charleston Marine Containers, Inc.
|
Delaware
|
Dallastown Realty I, LLC
|
Delaware
|
Dallastown Realty II, LLC
|
Delaware
|
Defense Systems, Incorporated
|
Virginia
|
DEI Services Corporation
|
Florida
|
DFI Realty, LLC
|
Florida
|
Digital Fusion Solutions, Inc.
|
Florida
|
Digital Fusion, Inc.
|
Delaware
|
DTI Associates, Inc.
|
Virginia
|
General Microwave Israel (1987) Ltd.
|
Israel
|
General Microwave Israel Corporation
|
Delaware
|
General Microwave Corporation
|
New York
|
Gichner Europe Limited
|
United Kingdom
|
Gichner Systems Group, Inc.
|
Delaware
|
Gichner Systems International, Inc.
|
Delaware
|
Haverstick Consulting, Inc.
|
Indiana
|
Haverstick Government Solutions, Inc.
|
Ohio
|
HGS Holdings, Inc.
|
Indiana
|
JMA Associates, Inc.
|
Delaware
|
Kratos Arabia, Ltd.
|
Saudi Arabia
|
Kratos Communications, Inc.
|
Delaware
|
Kratos Communications Ltd.
|
United Kingdom
|
Kratos Communications S.A.S.
|
France
|
Kratos Defense (Australia) Pty Limited
|
Australia
|
Kratos Defense & Rocket Support Services, Inc.
|
Delaware
|
Kratos Holdings UK Ltd.
|
United Kingdom
|
Kratos Integral Holdings, LLC
|
Maryland
|
Kratos Integral Systems International, Inc.
|
California
|
Kratos GMI Eyal Ltd.
|
Israel
|
Kratos Norway AS
|
Norway
|
Kratos RT Logic, Inc.
|
Colorado
|
Kratos Technology & Training Solutions, Inc.
|
California
|
Kratos Unmanned Aerial Systems, Inc.
|
California
|
Kratos Unmanned Systems Solutions, Inc.
|
Delaware
|
Kratos Space & Missile Defense Systems, Inc.
|
Delaware
|
Kratos Systems and Solutions, Inc.
|
Virginia
|
LVDM, Inc.
|
Nevada
|
Madison Research Corporation
|
Alabama
|
Micro Systems, Inc.
|
Florida
|
MSI Acquisition Corp.
|
Delaware
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Polexis, Inc.
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California
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Reality Based IT Services Ltd.
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Maryland
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Rocket Support Services, LLC
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Indiana
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SAT Corporation
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California
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SCT Acquisition, LLC
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Delaware
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SCT Real Estate, LLC
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Delaware
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SecureInfo Corporation
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Delaware
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Shadow I, Inc.
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California
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Shadow II, Inc.
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California
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Summit Research Corporation
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Alabama
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1.
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I have reviewed this Annual report on Form 10-K of Kratos Defense & Security Solutions, Inc.;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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(a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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(a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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KRATOS DEFENSE & SECURITY SOLUTIONS, INC.
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/s/ ERIC M. DEMARCO
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Eric M. DeMarco
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Chief Executive Officer, President
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(Principal Executive Officer)
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1.
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I have reviewed this Annual report on Form 10-K of Kratos Defense & Security Solutions, Inc.;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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(a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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(a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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KRATOS DEFENSE & SECURITY SOLUTIONS, INC.
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/s/ DEANNA H. LUND
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Deanna H. Lund
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Executive Vice President, Chief Financial Officer
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(Principal Financial Officer)
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(1)
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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(2)
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ ERIC M. DEMARCO
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Eric M. DeMarco
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Chief Executive Officer, President
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(Principal Executive Officer)
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(1)
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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(2)
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ DEANNA H. LUND
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Deanna H. Lund
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Executive Vice President, Chief Financial Officer
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(Principal Financial Officer)
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