Segment Information

12 Months Ended

Dec. 25, 2011

Segment Information

Segment Information

Note 14. Segment Information

        The Company operates in two principal business segments: Kratos Government Solutions and Public Safety & Security. The KGS segment provides products, solutions and services primarily for mission critical national security priorities. KGS customers primarily include national security related agencies, the DoD, intelligence agencies and classified agencies. The PSS segment provides independent integrated solutions for advanced homeland security, public safety, critical infrastructure, and security and surveillance systems for government and commercial applications. PSS customers are in the critical infrastructure, power generation, power transport, nuclear energy, financial, IT, healthcare, education, transportation and petro-chemical industries, as well as certain government and military customers.

        The Company organizes its business segments based on the nature of the products and services offered. Transactions between segments are generally negotiated and accounted for under terms and conditions similar to other government and commercial contracts and these intercompany transactions are eliminated in consolidation. Transactions between segments are generally negotiated and accounted for under terms and conditions similar to other government and commercial contracts. This presentation is consistent with the Company's operating structure. In the following table, total operating income of the business segments is reconciled to the corresponding consolidated amount. The reconciling item "corporate activities" includes costs for certain stock-based compensation programs (including stock-based compensation costs for stock options, employee stock purchase plan and restricted stock units), the effects of items not considered part of management's evaluation of segment operating performance, merger and acquisition expenses, corporate costs not allocated to the operating segments, and other miscellaneous corporate activities.

        Revenues, operating income (loss) and assets disclosed below provided by the Company's segments for the years ended December 27, 2009, December 26, 2010, and December 2, 2011, are as follows (in millions):

	2009			2010			2011
Revenues:
Kratos Government Solutions	$	304.3		$	372.2		$	610.9
Public Safety & Security		30.2			36.3			112.2
Total revenues	$	334.5		$	408.5		$	723.1
Depreciation and amortization:
Kratos Government Solutions	$	7.5		$	12.3		$	45.7
Public Safety & Security		0.8			0.6			2.3
Total depreciation and amortization	$	8.3		$	12.9		$	48.0
Operating income (loss) from continuing operations:
Kratos Government Solutions	$	(23.6	)	$	25.1		$	34.1
Public Safety & Security		(1.4	)		1.8			9.9
Corporate activities		(2.0	)		(3.8	)		(15.8	)
Total operating income (loss) from continuing operations	$	(27.0	)	$	23.1		$	28.2

        Revenue from foreign subsidiaries was approximately $39.8 million or 6% of total revenue for the year ended December 25, 2011. There were no revenues from foreign subsidiaries for the years ended December 26, 2010 or December 27, 2009.

        Amounts related to corporate activities were impacted by the following items in 2009, 2010 and 2011.

        In 2009, the Company reached an agreement with the plaintiffs to settle the outstanding 2004 and 2007 derivative lawsuits. This resulted in a benefit in 2009 of $0.2 million as a result of the reduction in the estimated accrual related to this litigation offset by expenses related to government inquiries by the Department of Justice ("DOJ") related to the Company's historical stock option granting practices which was completed in 2009. In addition, in 2009, there was an expense of $0.6 million which was a result of a change in the Company's excess facility accrual due to the consolidation of space at its corporate headquarters following the sale of the SYS commercial businesses and a cancellation of a sublease of one of its tenants due to financial difficulties.

        In 2010, the Company reached a settlement with one of its directors' and officers' insurance carriers to cover costs related to its completed stock options and DOJ investigations. The settlement received, net of legal expenses was a $1.4 million benefit. This benefit was offset by expenses of $3.1 million related to merger and acquisition activities.

        In 2010 and 2011, the Company had merger and acquisition expenses of approximately $3.1 million and $12.5 million, respectively.

	2010		2011
Assets:
Kratos Government Solutions	$	406.5	$	1,041.4
Public Safety & Security		98.1		88.6
Discontinued operations		0.5		—
Corporate activities		30.6		86.4
Total assets	$	535.7	$	1,216.4

        The increase in assets in the KGS segment is primarily attributable to the acquisitions of Herley and Integral. The increase in assets in corporate activities is primarily due to an increase in cash and cash equivalents from the sale of $285.0 million and $115.0 million of Notes and the issuance of common stock during the year ended December 25, 2011, partially offset by the cash paid for the acquisitions of Herley and Integral. See Notes 3, 5 and 11. Assets of foreign subsidiaries were $0 and $47.2 million as of December 26, 2010 and December 25, 2011, respectively.