UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
March
10, 2010
Date of
Report (Date of earliest event reported)
Kratos
Defense & Security Solutions, Inc.
(Exact
name of registrant as specified in its charter)
|
Delaware
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||
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(State
or other jurisdiction of incorporation)
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||
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0-27231
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13-3818604
|
|
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(Commission
File Number)
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(IRS
Employer Identification No.)
|
|
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4810
Eastgate Mall, San Diego, CA
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92121
|
|
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(address
of principal executive offices)
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(Zip
Code)
|
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(858)
812-7300
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||
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(Registrant’s
telephone number, including area
code)
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||
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
|
o
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|
|
o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
|
o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
|
|
o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
|
Item
2.02. Results of Operations and Financial Condition
On March
10, 2010, Kratos Defense & Security Solutions, Inc. (the “Company”) issued a
press release regarding the Company’s financial results for the fourth quarter
and fiscal 2009. The full text of the Company’s press release is
attached hereto as Exhibit 99.1.
Item 9.01. Exhibits.
|
Exhibit
No.
|
Description
|
|
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99.1
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March
10, 2010 Press Release by Kratos Defense & Security Solutions,
Inc.
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2
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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Kratos Defense & Security
Solutions, Inc.
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||||
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Date: March
10, 2010
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By:
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/s/
Deanna H. Lund
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||
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Deanna
H. Lund
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||||
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Executive
Vice President, Chief Financial
Officer
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||||
3
EXHIBIT
INDEX
|
Description
|
||
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99.1
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March
10, 2010 Press Release by Kratos Defense & Security Solutions,
Inc.
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4
Exhibit 99.1
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FOR
IMMEDIATE RELEASE
|
Press
Contact:
Yolanda
White
858-812-7302
Investor
Information:
877-934-4687
investor@kratosdefense.com
|
KRATOS
DEFENSE & SECURITY SOLUTIONS ANNOUNCES FOURTH QUARTER AND FISCAL 2009
FINANCIAL RESULTS
|
·
|
2009
Revenues increase 16.9% to $334.5
million
|
|
·
|
Fourth
Quarter Revenues increase to $75.2 million, 2.6% over prior
year
|
|
·
|
2009 EBITDA
of $24.7 million and EBITDA margin rate of 7.4% increases 35% over
2008
|
|
·
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Fourth
Quarter 2009 EBITDA of $6.0 million, EBITDA margin rate
increases to 8.7% for Kratos’ Government Business, and increases to 8%
overall;
|
|
·
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Fourth
quarter Pro forma EPS of $0.05; GAAP Net Income of $0.4 million, and GAAP
Earnings per Share of $0.02.
|
|
·
|
2009
cash flow generated from operations $26.2 million; Fourth quarter cash
flow generated from operations $3.0
million
|
SAN DIEGO, CA, March 10, 2010
– Kratos Defense &
Security Solutions, Inc. (NASDAQ: KTOS), a leading National Security,
Information Technology Assurance and Public Safety Solutions provider, today
reported 2009 revenues of $334.5 million, a 16.9 percent increase over the prior
year. Kratos’ Government Solutions business segment, where Kratos performs its
Department of Defense and National Security related work, grew 23% year over
year. Fourth quarter 2009 revenues increased to $75.2 million, a 2.6
percent increase over fourth quarter 2008 revenues. The Company
reported fourth quarter 2009 EBITDA of $6.0 million, or 8.0% of revenues, a 13.2
percent increase over the previous year’s fourth quarter EBITDA of $5.3 million,
or 7.2% of revenues. Kratos’ Government Solutions business segment,
generated 2009 fourth quarter pro forma EBITDA of 8.7%. Also in the fourth
quarter, Kratos’ Public Safety and Security business segment returned to
profitability, and contributed to the overall EBITDA of the
Corporation. The Company generated fourth quarter pro forma EPS
of $.05, excluding a $0.7 million interest charge for the acceleration of
deferred financing costs, which resulted from the Company’s early pay down of
debt, with a net of tax impact of $0.4 million. Fourth quarter GAAP
net income was $0.4 million, and earnings per share of $0.02.
For 2009,
Kratos generated cash flow from operations of $26.2 million, with fourth quarter
cash flow generated from operations of $3.0 million. During 2009 the
Company reduced its days sales outstanding from 107 to 95 days.
As of
December 27, 2009, the Company had reduced its total bank debt to approximately
$54.4 million, down from $78.8 million at the end of 2008. Net debt
of the Company at December 27, 2009 was $46.4 million, including cash on hand at
year end of $9.9 million.
The
Company reported total backlog of approximately $565 million at December 27,
2009, and a qualified bid and proposal pipeline of $1.5 billion. The
Company does not include any amounts in backlog from its numerous GWAC, GSA or
other similar types of contract vehicles.
Fourth
quarter revenue highlights include contributions from Gun Range and Weapon
Systems related work at Dahlgren for the US Navy and other customers, various
Weapons Systems Sustainment, Preset and Reset work, Aegis Readiness Assessment
Vehicle (ARAV) work related to Ballistic Missile Defense
programs, Net Work Management, Protection and Information Assurance
program work, including the Company’s proprietary NeuralStar Product, C5ISR
related work including work on various Sensors, and Work Force Management,
Training and Performance Measurement Work on various contracts for the United
States Navy and other customers. Fourth quarter revenue also included
contributions from the Digital Fusion, Inc. (DFI) acquisition, which was
completed in December 2008. Revenue increases were offset by
reductions in the Company’s commercial and Public Safety & Security system
integration business, which has been negatively impacted by the current adverse
economic environment, as well as the planned and anticipated reductions of small
business and other set aside contract work from previously acquired companies,
pass through work and other contract work and the impact of in-sourcing by the
Government in the Company’s Government Solutions segment.
Eric
DeMarco, President and Chief Executive Officer, said “We are pleased with the
progress we have made in 2009, which we consider our first true year of
operations of the Company we are today. We have achieved the EBITDA
margins of our comparative peer group, the Corporation has returned to sustained
operational profitability and cash flow generation, and in 2009 we significantly
reduced our debt. As we begin 2010, with the recent release of the
2011 DoD Budget Proposal and the most recent Quadrennial Defense Review, we
believe that our business is well positioned in areas that are National Security
Priorities.”
Kratos’
contractual and operational highlights during the quarter included:
|
·
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Foreign
Military Sales Weapons Systems Support total task order funding increased
to approximately $76 Million, including new fourth quarter tasking for FMS
weapons systems sustainment.
|
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·
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The
successful launch of the Kratos Aegis Readiness Assessment Vehicle – C
(ARAV – C) Target Rocket, in support of certain Ballistic Missile Defense
initiatives
|
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·
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The
successful launch in November of four Aegis Readiness Assessment Vehicles
(ARAV’s) in support of Joint United States and Japanese Ballistic Missile
Defense Exercises.
|
|
·
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Kratos’
proprietary NeuralStar Software Product was chosen to manage and protect
United States Intelligence Agency
Networks
|
|
·
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Kratos
was awarded a $5.4 million United States Navy Contract for work force
training.
|
|
·
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Kratos
Public Security & Safety Business was awarded $16 million in new
contract awards for Security, Safety and other System Integration
work.
|
DeMarco
concluded, “We completed 2009 with approximately $335 million in revenues, and
the most solid bid and proposal pipeline in our Company’s
history. Though our fourth quarter revenue was somewhat impacted by
continued Government procurement and contract award delays, we exceeded our
profitability targets. The contract delay issue seems to be abating
somewhat with the beginning of 2010, and we have now received a very large, $48
million fully funded weapons system contract, and a number of other awards in
the first quarter which we will be more formally announcing
shortly. Additionally, we are currently tracking and working on a
number of new opportunities which we intend to bid on in the future, some of
which are significantly larger contracts than we were previously qualified to
practically pursue. We will also continue to reduce lower margin
pass-through revenues to enhance our operating margins and improve liquidity,
and as we have stated before, in 2010 we expect that the effect of remaining
acquired small business contracts which we can no longer perform in the prime
position will be completed. Accordingly, we are expecting 2010 EBITDA
of $27 to $29 million, and we expect our 2010 revenues to be in the range of
$340 to $350 million, which reflects an implied organic growth rate of
approximately 10 percent, excluding the non continuing small business work we
generated in 2009. We also expect 2010 Operating Income, Net Income
and EPS all to improve above 2009 performance.”
Conference
Call
There
will be an analyst and investor conference call conducted by the Kratos
management team to discuss the fourth quarter and fiscal 2009 financial results
today at 2:00 p.m., Pacific Time/5:00 p.m. Eastern Time. The live
discussion can be accessed via webcast on the Internet at www.kratosdefense.com. There
will be a replay of the webcast available on the website for those shareholders
and analysts who are unable to listen to the live call.
The
financial results included in this release are
unaudited. The audited financial statements of the Company
for the year ended December 27, 2009 will be included in Kratos’ Annual Report
Form 10-K.
About
Kratos Defense & Security Solutions
Kratos
Defense & Security Solutions, Inc. (Nasdaq: KTOS) provides mission critical
engineering, IT services and war fighter solutions for the U.S. federal
government and for state and local agencies. Principal services include C5ISR,
weapon systems sustainment, military weapon range operations and technical
services, network engineering services, information assurance and cyber security
solutions, security and surveillance systems, and critical infrastructure design
and integration. The Company is headquartered in San Diego, California, with
resources located throughout the U.S. and at key strategic military locations.
News and information are available at www.KratosDefense.com.
Notice
Regarding Forward-Looking Statements
This news
release and filing contains certain forward-looking statements that involve
risks and uncertainties, including, without limitation, expressed or implied
statements concerning the Company’s expectations regarding future financial
performance, bid and proposal pipeline, performance of key contracts, market
developments and timing and impact of anticipated lawsuit settlement. Such
statements are only predictions, and the Company’s actual results may differ
materially. Factors that may cause the Company’s results to differ include, but
are not limited to: risks of adverse regulatory action or litigation; risks
associated with debt leverage; risks that our cost cutting initiatives will not
provide the anticipated benefits; risks that changes, cutbacks or delays in
spending by the U.S. Department of Defense may occur, which could cause delays
or cancellations of key government contracts; risks that changes may occur in
Federal government (or other applicable) procurement laws, regulations, policies
and budgets; risks of increases in the Federal Government initiatives related to
in-sourcing; risks related to our compliance with applicable contracting and
procurement laws, regulations and standards; risks relating to contract
performance; changes in the competitive environment (including as a result of
bid protests); failure to successfully consummate acquisitions or integrate
acquired operations and competition in the marketplace which could reduce
revenues and profit margins; risks that potential future goodwill impairments
will adversely affect our operating results; risks that anticipated tax benefits
will not be realized in accordance with our expectations; risks that a change in
ownership if our stock could limit future utilization of our Net Operating
Losses; and risks that the current economic environment will adversely impact
our business. The Company undertakes no obligation to update any forward-looking
statements. These and other risk factors are more fully discussed in the
Company’s Annual Report on Form 10-K for the period ended December 28, 2008, and
in other filings made with the Securities and Exchange Commission.
Note
Regarding Use of Non-GAAP Financial Measures
Certain of the information set forth
herein, including EPS excluding interest charge, EBITDA and pro forma EBITDA and
the associated margin rates, are considered non-GAAP financial measures.
Kratos believes this information is useful to investors because it provides a
basis for measuring the Company’s available capital resources, the operating
performance of the Company’s business and the Company’s cash flow, excluding
extraordinary items and non-cash items that would normally be included in the
most directly comparable measures calculated and presented in accordance with
generally accepted accounting principles. The Company’s management uses
these non-GAAP financial measures along with the most directly comparable GAAP
financial measures in evaluating the Company’s operating performance and capital
resources and cash flow. Non-GAAP financial measures should not be
considered in isolation from, or as a substitute for, financial information
presented in compliance with GAAP, and non-financial measures as reported by the
Company may not be comparable to similarly titled amounts reported by other
companies.
2
|
Kratos
Defense & Security Solutions
|
||||||||
|
Unaudited
Consolidated Statements of Operations
|
||||||||
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(in
millions, except per share data)
|
||||||||
|
Three
Months Ended
|
Twelve
Months Ended
|
|||||||
|
December
27,
|
December
28,
|
December
27,
|
December
28,
|
|||||
|
2009
|
2008
|
2009
|
2008
|
|||||
|
Revenues
|
|
$ 75.2
|
$ 73.3
|
$ 334.5
|
$ 286.2
|
|||
|
Cost
of revenues
|
58.2
|
57.0
|
265.2
|
228.0
|
||||
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Gross
profit
|
17.0
|
16.3
|
69.3
|
58.2
|
||||
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Selling,
general and administrative expenses
|
11.4
|
12.2
|
45.4
|
42.3
|
||||
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Recovery
of unauthorized issuance of stock options,
|
||||||||
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stock
option investigation & related fees, and
|
||||||||
|
settlement
of derivative litigation
|
-
|
(2.9)
|
(0.2)
|
(4.5)
|
||||
|
Impairment
of goodwill
|
-
|
105.8
|
41.3
|
105.8
|
||||
|
Research
and development
|
0.5
|
0.4
|
1.8
|
0.9
|
||||
|
Impairment
of assets and adjustment to the liability for
|
||||||||
|
unused
office space
|
-
|
0.6
|
0.6
|
0.3
|
||||
|
Depreciation
|
0.4
|
0.5
|
1.7
|
1.7
|
||||
|
Amortization
of intangible assets
|
1.3
|
1.4
|
5.7
|
4.9
|
||||
|
Operating
income (loss)
|
3.4
|
(101.7)
|
(27.0)
|
(93.2)
|
||||
|
Interest
expense, net
|
(2.7)
|
(2.5)
|
(10.4)
|
(10.0)
|
||||
|
Other
income (expense), net
|
0.3
|
(2.2)
|
0.1
|
(1.5)
|
||||
|
Income
(loss) from continuing operations before income taxes
|
1.0
|
(106.4)
|
(37.3)
|
(104.7)
|
||||
|
Provision
(benefit) for income taxes
|
0.5
|
(2.1)
|
1.0
|
(0.7)
|
||||
|
Income
(loss) from continuing operations
|
0.5
|
(104.3)
|
(38.3)
|
(104.0)
|
||||
|
Income
(loss) from discontinued operations, net of taxes
|
(0.1)
|
(5.5)
|
(3.2)
|
(7.1)
|
||||
|
Net
income (loss)
|
$ 0.4
|
$ (109.8)
|
$ (41.5)
|
$ (111.1)
|
||||
|
|
|
|||||||
|
Basic
income (loss) per common share:
|
|
|
||||||
|
Income
(loss) from continuing operations
|
$ 0.03
|
$ (9.84)
|
$ (2.76)
|
$ (11.18)
|
||||
|
Income
(loss) from discontinued operations, net of taxes
|
0.00
|
(0.52)
|
(0.23)
|
(0.77)
|
||||
|
Net
income (loss)
|
$ 0.03
|
$ (10.36)
|
$ (2.99)
|
$ (11.95)
|
||||
|
|
|
|||||||
|
Diluted
income (loss) per common share:
|
|
|
||||||
|
Income
(loss) from continuing operations
|
$ 0.03
|
$ (9.84)
|
$ (2.76)
|
$ (11.18)
|
||||
|
Income
(loss) from discontinued operations, net of taxes
|
(0.01)
|
(0.52)
|
(0.23)
|
(0.77)
|
||||
|
Net
income (loss)
|
$ 0.02
|
$ (10.36)
|
$ (2.99)
|
$ (11.95)
|
||||
|
|
|
|
|
|||||
|
Weighted
average common shares outstanding
|
|
|
|
|
||||
|
Basic
|
15.9
|
10.6
|
13.9
|
9.3
|
||||
|
Diluted
|
16.1
|
10.6
|
13.9
|
9.3
|
||||
|
EBITDA
(1)
|
$ 6.0
|
$ 5.3
|
$ 24.7
|
$ 18.2
|
||||
|
|
||||||||
|
Note:
(1) EBITDA is a non-GAAP measure defined as GAAP net income (loss) plus
(minus) the income (loss) from discontinued
|
||||||||
|
operations,
interest expense, net other income (expense) related to SWAP instruments,
income taxes,
|
||||||||
|
depreciation
and amortization, stock compensation, amortization of intangible assets,
impairment of goodwill, stock option
|
||||||||
|
investigation
and related fees and recovery of unauthorized issuance of stock options
and the adjustment to the
|
||||||||
|
liability
for unused office space and derivative settlement.
|
||||||||
|
EBITDA
as calculated by us may be calculated differently than EBITDA for other
companies. We have provided EBITDA because
|
||||||||
|
we
believe it is a commonly used measure of financial performance in
comparable companies and is provded to help investors
|
||||||||
|
evaluate
companies on a consistent basis, as well as to enhance an understanding of
our operating results. EBITDA should not
|
||||||||
|
be
construed as either an alternative to net income or as an indicator of our
operating performance or an alternative to cash flows
|
||||||||
|
as
a measure of liquidity. Please refer to the following table
that reconciles GAAP net income to EBITDA.
|
||||||||
|
Reconciliation
of Net income (loss) to EBITDA is as follows:
|
||||||||
|
Three
Months Ended
|
Twelve
Months Ended
|
|||||||
|
December
27,
|
December
28,
|
December
27,
|
December
28,
|
|||||
|
2009
|
2008
|
2009
|
2008
|
|||||
|
Net
income (loss)
|
$ 0.4
|
$ (109.8)
|
$ (41.5)
|
$ (111.1)
|
||||
|
(Income)
loss from discontinued operations
|
0.1
|
5.5
|
3.2
|
7.1
|
||||
|
Impairment
of goodwill
|
-
|
105.8
|
41.3
|
105.8
|
||||
|
Interest
expense, net
|
2.7
|
2.5
|
10.4
|
10.0
|
||||
|
Other
(income) expense related to SWAP instruments
|
(0.3)
|
2.1
|
(0.1)
|
1.7
|
||||
|
Provision
(benefit) for income taxes
|
0.5
|
(2.1)
|
1.0
|
(0.7)
|
||||
|
Depreciation
|
0.7
|
0.7
|
2.6
|
2.4
|
||||
|
Stock
compensation
|
0.6
|
0.3
|
1.7
|
1.1
|
||||
|
Recovery
of unauthorized issuance of stock options, stock option
|
||||||||
|
investigation
& related fees, and settlement of derivative
litigation
|
-
|
(2.9)
|
(0.2)
|
(4.5)
|
||||
|
Impairment
of assets and adjustment to the liability for
|
||||||||
|
unused
office space
|
-
|
0.6
|
0.6
|
0.3
|
||||
|
Write-off
of rate variances
|
-
|
1.2
|
-
|
1.2
|
||||
|
Amortization
of intangible assets
|
1.3
|
1.4
|
5.7
|
4.9
|
||||
|
EBITDA
|
$ 6.0
|
$ 5.3
|
$ 24.7
|
$ 18.2
|
||||
|
-more-
|
||||||||
3
|
Kratos
Defense & Security Solutions
|
||||||||
|
Unaudited
Segment Data
|
||||||||
|
(in
millions)
|
||||||||
|
Three
Months Ended
|
Twelve
Months Ended
|
|||||||
|
December
27,
|
December
28,
|
December
27,
|
December
28,
|
|||||
|
2009
|
2008
|
2009
|
2008
|
|||||
|
Revenues:
|
||||||||
|
Government
Solutions
|
$ 67.7
|
$ 64.7
|
$ 304.3
|
$ 246.7
|
||||
|
Public
Safety & Security
|
7.5
|
8.6
|
30.2
|
39.5
|
||||
|
Total
revenues
|
$ 75.2
|
$ 73.3
|
$ 334.5
|
$ 286.2
|
||||
|
Depreciation
and amortization
|
||||||||
|
Government
Solutions
|
$ 1.7
|
$ 1.8
|
$ 7.5
|
$ 6.4
|
||||
|
Public
Safety & Security
|
0.3
|
0.3
|
0.8
|
0.9
|
||||
|
Total
depreciation and amortization
|
$ 2.0
|
$ 2.1
|
$ 8.3
|
$ 7.3
|
||||
|
Operating
income (loss) from continuing operations:
|
||||||||
|
Government
Solutions
|
$ 4.2
|
$ (103.4)
|
$ (23.6)
|
$ (97.3)
|
||||
|
Public
Safety & Security
|
(0.1)
|
(0.7)
|
(1.4)
|
0.6
|
||||
|
Other
activities
|
(0.7)
|
2.4
|
(2.0)
|
3.5
|
||||
|
Total
operating income (loss) from continuing operations
|
$ 3.4
|
$ (101.7)
|
$ (27.0)
|
$ (93.2)
|
||||
|
Note:
Other activities in 2008 include stock compensation expense, a benefit
from insurance proceeds received for items previously
expensed,
|
||||||||
|
and
a benefit related to a change in estimate for the Company's unused office
space. Other activities in 2009 include stock compensation
expense,
|
||||||||
|
an
expense related to a change in estimate for the Company's unused office
space and a benefit from the estimated settlement of the derivative
lawsuits.
|
||||||||
|
The
operating loss for the Government Solutions segment for the year ended
December 27, 2009 and December 28, 2008 includes a goodwill
impairment charge
|
||||||||
|
of
$41.3 million and $105.8 million, respectively.
|
||||||||
|
-end-
|
||||||||