Discontinued Operations

12 Months Ended

Dec. 25, 2011

Discontinued Operations

Discontinued Operations

Note 9. Discontinued Operations

        In 2007, the Company entered into a definitive agreement with an affiliate of Platinum Equity to sell the Company's wireless deployment business. In accordance with the acquisition agreement, the Company came to an agreement with Platinum Equity on a working capital adjustment of $5.0 million. The Company made the final working capital payments of $2.8 million in 2009.

        During the due diligence process related to the acquisition of SYS, senior management identified three business units of SYS which were non-core to Kratos' base national security and public security businesses. These businesses provided video surveillance and information analysis products, digital broadcasting products and incident response management systems. In December 2008, after evaluating these businesses further, a decision was made to dispose of and sell all three business units. In accordance with FASB ASC Topic 205, Presentation of Financial Statements ("Topic 205"), these business units were classified as held for sale and reported in discontinued operations as of and for the year ended December 28, 2008. The Company recorded a $4.5 million impairment charge in the fourth quarter of 2008 primarily related to the impairment of goodwill allocated to these businesses. In the first quarter of 2009, all three of the businesses were sold for an aggregate cash consideration of approximately $0.4 million.

        In addition, the plan to sell these businesses included a comprehensive assessment of personnel, relocation of personnel, facility consolidation and exit strategies for certain lines of business. The plan provided for approximately $2.0 million of restructuring costs associated with personnel, and additional costs of $0.6 million for facilities consolidation. The restructuring costs are primarily associated with the businesses sold and are accounted for in discontinued operations in the accompanying consolidated financial statements. As of December 25, 2011, approximately $2.0 million of severance costs and $0.6 million of facilities costs have been paid. In addition, the liability related to severance costs was reduced by approximately $0.1 million, to reflect a revised estimate, which was recognized in the net loss of discontinued operations. The remaining liabilities for severance and facilities are $0.1 million and $0.0 million, respectively, and are included in current liabilities of discontinued operations in the consolidated balance sheets. The following table shows a reconciliation of the beginning accrual to the remaining balance as of December 25, 2011 (in millions):

	Severance			Lease Termination			Total
Original accrual recorded in 2008	$	2.0		$	0.6		$	2.6
Payments in 2008		(0.2	)		(0.4	)		(0.6	)
Payments in 2009		(0.9	)		(0.1	)		(1.0	)
Payments in 2010		(0.7	)		(0.1	)		(0.8	)
Payments in 2011		(0.1	)		—			(0.1	)
Adjustments		(0.1	)		—			(0.1	)
Balance December 25, 2011	$	—		$	—		$	—

        On June 24, 2009, as a result of the continued operating losses in the Southeast division of the PSS segment (the "Southeast Division"), the Company's board of directors approved a plan to sell and dispose of the Southeast Division. In accordance with Topic 205, this business unit was classified as held for sale and reported in discontinued operations in the accompanying consolidated financial statements. The Company recorded a $2.0 million impairment charge in the second quarter of 2009 and an additional $0.2 million in the second quarter of 2010 related to management's estimate of the fair value of the business. On August 2, 2010, the Company divested its Southeast Division for approximately $0.1 million cash consideration and the assumption of certain liabilities.

        The following table presents the results of discontinued operations including gain and loss on disposals which is included in income (loss) before taxes (in millions):

	Year ended December 27, 2009			Year ended December 26, 2010			Year ended December 25, 2011
Revenue	$	5.9		$	2.2		$	—
Loss before taxes		(3.8	)		(0.9	)		(0.1	)
Benefit for income taxes		(0.6	)		(0.8	)		(0.6	)
Net income (loss)	$	(3.2	)	$	(0.1	)	$	0.5

        Following is a summary of the assets and liabilities of discontinued operations as of December 26, 2010 and December 25, 2011 (in millions):

	December 26, 2010		December 25, 2011
Accounts receivable, net	$	0.3	$	—
Other current assets (liabilities)		0.2		—
Current assets of discontinued operations	$	0.5	$	—
Accrued expenses	$	1.7	$	1.5
Other current liabilities		0.4		0.3
Current liabilities of discontinued operations	$	2.1	$	1.8
Non-current unrecognized tax benefits	$	0.6	$	0.5
Other noncurrent liabilities		0.8		—
Non-current liabilities of discontinued operations	$	1.4	$	0.5