10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2013

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

Commission file number 001-34460

KRATOS DEFENSE & SECURITY SOLUTIONS, INC.

(Exact name of Registrant as specified in its charter)

Delaware	13-3818604
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4820 Eastgate Mall, Suite 200

San Diego, CA 92121

(858) 812-7300

(Address, including zip code, and telephone number, including

area code, of Registrant’s principal executive offices)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ý  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ý  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer o	Accelerated filer ý
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o  No ý

As of May 3, 2013, 56,668,864 shares of the registrant’s common stock were outstanding.

KRATOS DEFENSE & SECURITY SOLUTIONS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2013

INDEX

		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets at December 30, 2012 and March 31, 2013 (unaudited)	3
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 25, 2012 and March 31, 2013 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 25, 2012 and March 31, 2013 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	39
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	40
Item 6.	Exhibits	41

2

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

KRATOS DEFENSE & SECURITY SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except par value and number of shares)

(Unaudited)

	December 30, 2012			March 31, 2013
Assets
Current assets:
Cash and cash equivalents	$	49.0		$	51.6
Restricted cash	5.5			5.3
Accounts receivable, net	271.9			281.8
Inventoried costs	94.3			88.2
Prepaid expenses	17.4			18.0
Other current assets	17.3			10.2
Total current assets	455.4			455.1
Property, plant and equipment, net	85.6			84.0
Goodwill	596.4			596.4
Intangible assets, net	106.1			96.8
Other assets	40.4			38.3
Total assets	$	1,283.9		$	1,270.6
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	83.6		$	71.6
Accrued expenses	46.4			41.7
Accrued compensation	47.8			43.4
Accrued interest	6.3			21.7
Billings in excess of costs and earnings on uncompleted contracts	43.7			48.4
Deferred income tax liability	28.9			29.0
Other current liabilities	22.1			19.8
Total current liabilities	278.8			275.6
Long-term debt principal, net of current portion	629.7			629.5
Long-term debt premium	18.7			17.7
Other long-term liabilities	32.6			32.2
Total liabilities	959.8			955.0
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized, 0 shares outstanding at December 30, 2012 and March 31, 2013	—			—
Common stock, $0.001 par value, 195,000,000 shares authorized; 56,613,024 and 56,654,577 shares issued and outstanding at December 30, 2012 and March 31, 2013, respectively	—			—
Additional paid-in capital	847.1			848.8
Accumulated other comprehensive loss	(0.8		)	(0.7		)
Accumulated deficit	(522.2		)	(532.5		)
Total stockholders' equity	324.1			315.6
Total liabilities and stockholders’ equity	$	1,283.9		$	1,270.6

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

KRATOS DEFENSE & SECURITY SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in millions, except per share amounts)

(Unaudited)

	Three Months Ended
	March 25, 2012			March 31, 2013
Service revenues	$	102.1		$	115.5
Product sales	107.4			137.3
Total revenues	209.5			252.8
Cost of service revenues	79.8			88.2
Cost of product sales	71.9			98.9
Total costs	151.7			187.1
Gross profit	57.8			65.7
Selling, general and administrative expenses	44.2			49.2
Merger and acquisition expenses	0.9			0.1
Research and development expenses	3.6			4.9
Operating income from continuing operations	9.1			11.5
Other income (expense):
Interest expense, net	(16.1		)	(16.2		)
Other income (expense), net	0.4			(0.7		)
Total other expense, net	(15.7		)	(16.9		)
Loss from continuing operations before income taxes	(6.6		)	(5.4		)
Provision (benefit) for income taxes from continuing operations	(4.1		)	2.8
Loss from continuing operations	(2.5		)	(8.2		)
Loss from discontinued operations	(0.5		)	(2.1		)
Net loss	$	(3.0	)	$	(10.3	)
Basic income (loss) per common share:
Net loss from continuing operations	$	(0.08	)	$	(0.14	)
Net loss from discontinued operations	(0.01		)	(0.04		)
Net loss per common share	$	(0.09	)	$	(0.18	)
Diluted income (loss) per common share:
Net loss from continuing operations	$	(0.08	)	$	(0.14	)
Net loss from discontinued operations	(0.01		)	(0.04		)
Net loss per common share	$	(0.09	)	$	(0.18	)
Weighted average common shares outstanding:
Basic	32.5			56.6
Diluted	32.5			56.6
Comprehensive Loss
Net loss from above	$	(3.0	)	$	(10.3	)
Other comprehensive income:
Change in cumulative translation adjustment	—			0.1
Other comprehensive income, net of tax	—			0.1
Comprehensive loss	$	(3.0	)	$	(10.2	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

KRATOS DEFENSE & SECURITY SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)

	Three Months Ended
	March 25, 2012			March 31, 2013
Operating activities:
Net loss	$	(3.0	)	$	(10.3	)
Less: Loss from discontinued operations	(0.5		)	(2.1		)
Loss from continuing operations	(2.5		)	(8.2		)
Adjustments to reconcile loss from continuing operations to net cash provided by operating activities from continuing operations:
Depreciation and amortization	13.6			14.2
Stock-based compensation	1.1			1.9
Amortization of deferred financing costs	1.3			1.3
Amortization of premium on Senior Secured Notes	(1.0		)	(1.0		)
Provision for doubtful accounts	0.3			0.1
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	12.9			(9.8		)
Inventoried costs	(7.1		)	6.3
Prepaid expenses and other assets	(4.9		)	—
Accounts payable	6.0			(12.0		)
Accrued compensation	0.7			(4.3		)
Accrued expenses	(3.7		)	(4.7		)
Accrued interest payable	15.6			15.3
Billings in excess of costs and earnings on uncompleted contracts	(1.1		)	4.9
Income tax receivable and payable	(5.0		)	2.9
Other liabilities	(1.2		)	(1.8		)
Net cash provided by operating activities from continuing operations	25.0			5.1
Investing activities:
Cash paid for acquisitions, net of cash acquired	(21.5		)	1.2
Decrease in restricted cash	0.4			0.2
Capital expenditures	(2.7		)	(3.3		)
Net cash used in investing activities from continuing operations	(23.8		)	(1.9		)
Financing activities:
Repayment of debt	(0.3		)	(0.3		)
Other	(0.1		)	(0.2		)
Net cash used in financing activities from continuing operations	(0.4		)	(0.5		)
Net cash flows of continuing operations	0.8			2.7
Net operating cash flows of discontinued operations	3.9			0.2
Effect of exchange rate changes on cash and cash equivalents	(0.1		)	(0.3		)
Net increase in cash and cash equivalents	4.6			2.6
Cash and cash equivalents at beginning of period	69.6			49.0
Cash and cash equivalents at end of period	$	74.2		$	51.6

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

KRATOS DEFENSE & SECURITY SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Summary of Significant Accounting Policies

All references to the “Company” and “Kratos” refer to Kratos Defense & Security Solutions, Inc., a Delaware corporation, and its subsidiaries.

(a) Basis of Presentation

The information as of March 31, 2013 and for the three months ended March 25, 2012 and March 31, 2013 is unaudited. The condensed consolidated balance sheet as of December 30, 2012 was derived from the Company’s audited consolidated financial statements at that date. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods presented. The results have been prepared in accordance with the instructions to Form 10-Q and do not necessarily include all information and footnotes necessary for presentation in accordance with accounting principles generally accepted in the U.S. (“GAAP”). These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in the Company’s audited annual consolidated financial statements for the fiscal year ended December 30, 2012, included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission ("SEC") on March 12, 2013 (the “Form 10-K”). Interim operating results are not necessarily indicative of operating results expected in subsequent periods or for the year as a whole.

(b) Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries for which all inter-company transactions have been eliminated in consolidation.

(c) Fiscal Year

The Company has a 52/53 week fiscal year ending on the last Sunday of the calendar year, with interim fiscal periods ending on the last Sunday of each calendar quarter. The three months ended March 25, 2012 and March 31, 2013 consisted of 13-week periods. There were 53 calendar weeks in the fiscal year ended December 30, 2012 and there are 52 calendar weeks in the fiscal year ending on December 29, 2013.

(d) Reclassifications

A reclassification was made to the March 25, 2012 condensed consolidated statement of cash flows to present the change in accrued interest of approximately $15.6 million as a discrete line item which has previously been reported in accrued expenses. In addition, a reclassification was made to the March 25, 2012 condensed consolidated statement of operations and comprehensive income (loss) to reclassify approximately $0.4 million of commission expense out of cost of product sales to selling, general and administrative expenses to conform with the March 31, 2013 classification of these expenses.

(e) Accounting Policies and Accounting Standards Updates

In February 2013, the Financial Accounting Standards Board ("FASB") issued "Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income," which requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, entities are required to cross-reference to other disclosures required under GAAP that provide additional detail on these amounts. This standard is effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted this standard in the quarter ended March 31, 2013, which did not have a material impact on its consolidated financial statements.

6

In December 2011 and February 2013, the FASB issued an amendment to the Balance Sheet topic of the Accounting Standards Codification ("ASC"), which requires entities to disclose both gross and net information about both derivatives and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting agreement. The objective of the disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards. This standard is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. Retrospective presentation for all comparative periods presented is required. Accordingly, the Company will adopt this amendment in the first quarter of fiscal year 2014. The Company does not believe that the adoption of this guidance will have a material impact on its consolidated financial statements.

Other than as noted above, there have been no changes in the Company's significant accounting policies for the three months ended March 31, 2013 as compared to the significant accounting policies described in the Form 10-K.

(f) Concentrations and Uncertainties

The Company maintains cash balances at various financial institutions, and such balances commonly exceed the $250,000 insured amount by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in such accounts, and management believes that the Company is not exposed to any significant credit risk with respect to such cash and cash equivalents.

Financial instruments, which subject the Company to potential concentrations of credit risk, consist principally of the Company’s billed and unbilled accounts receivable. The Company’s accounts receivable result from sales to customers within the federal government, state and local agencies and commercial customers in various industries. The Company performs ongoing credit evaluations of its commercial customers. Credit is extended based on evaluation of the customer’s financial condition, and collateral is not required. Accounts receivable are recorded at the invoiced amount and do not bear interest. See Note 11 for a discussion of the Company’s significant customers.

The Company has 10% Senior Secured Notes due 2017 ("the Notes") with an aggregate principal amount of $625.0 million outstanding as of March 31, 2013. The Notes are due on June 1, 2017, and the Company pays interest at the rate of 10% per annum semi-annually, in arrears, on June 1 and December 1 of each year. In addition, the Company has $91.7 million available under its existing revolving credit agreement. See Note 9 for a complete description of the Company’s debt.

The Company intends to fund its cash requirements with cash on hand, cash flows from operating activities and borrowings under its existing revolving credit facility. Management believes these sources of liquidity should be sufficient to meet the Company’s cash needs for at least the next 12 months. The Company’s quarterly and annual operating results have fluctuated in the past and may vary in the future due to a variety of factors, many of which are external to the Company's control. If the conditions in its industry deteriorate, its customers cancel or postpone projects, its customers experience significant cost constraints as a result of federal budget cuts or sequestration or if the Company is unable to sufficiently increase its revenues or reduce its expenses, the Company may experience, in the future, a significant long-term negative impact to its financial results and cash flows from operations. In such a situation, the Company could fall out of compliance with its financial and other covenants which, if not waived, could limit its liquidity and capital resources.

Note 2.  Acquisitions

(a)    Summary of Recent Acquisitions

Composite Engineering, Inc.

On July 2, 2012, the Company completed the acquisition of Composite Engineering, Inc. (“CEI”) for approximately $164.0 million. The purchase price including an adjustment for working capital and cash to be paid to the CEI shareholders for the 338(h)(10) election includes $135.0 million in cash and 4.0 million shares of the Company's common stock, valued at $5.94 per share on July 2, 2012, or $23.8 million. $10.7 million of the cash paid was placed into an escrow account as security for CEI's indemnification obligations as set forth in the CEI purchase agreement and will be reduced by $1.0 million to pay the working capital adjustment owed to the Company in July 2013. In addition, $2.5 million was paid to retire certain pre-existing CEI debt and settle pre-existing accounts receivable from CEI at its carrying and fair value of $3.0 million. The Company made an election under Section 338(h)(10) of the Internal Revenue Code, which resulted in tax deductible goodwill related to this transaction, and will pay an estimated $1.6 million in additional tax liability incurred by the shareholders of CEI for this election. The Company estimates that the tax deductible goodwill and intangibles, which is subject to change based upon the

7

final fair value of assets acquired and liabilities assumed, will be approximately $140.6 million and can be deducted for federal and California state income taxes over a 15-year period.

In connection with the completion of the CEI transaction, certain CEI personnel entered into long-term employment agreements with the Company. On July 2, 2012, the Company granted restricted stock units ("RSUs") for an aggregate 2.0 million shares of common stock as long-term retention inducement grants to certain employees of CEI who joined Kratos. The RSUs had an estimated value of $11.9 million on the grant date, vest on the fourth anniversary of the closing of the CEI acquisition, or earlier upon the occurrence of certain events, and are being accounted for as compensation expense over such four-year period.

To fund the acquisition of CEI, on May 14, 2012, the Company sold approximately 20.0 million shares of its common stock at a purchase price of $5.00 per share in an underwritten public offering. The Company received gross proceeds of approximately $100.0 million and net proceeds of approximately $97.0 million after deducting underwriting fees and other offering expenses. The Company used the net proceeds from this offering to fund a portion of the purchase price for the acquisition of CEI. In addition, the Company used borrowings of $40.0 million from its revolving line of credit to fund the purchase price of CEI.

CEI is a vertically integrated manufacturer and developer of unmanned aerial target systems and composite structures used for national security programs. Its drones are designed to replicate some of the most lethal aerial threats facing warfighters and strategic assets. CEI's customers include U.S. agencies and foreign governments. CEI is a part of the Kratos Government Solutions ("KGS") segment.

The excess of the purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition was allocated to goodwill. The value of the goodwill represents the value the Company expects to be created by enabling it to strategically expand its strengths in the areas of design, engineering, development, manufacturing and production of unmanned aerial targets, and will also enable the Company to realize significant cross selling opportunities.

The transaction has been accounted for using the acquisition method of accounting, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The following table summarizes the preliminary estimated fair values of the major assets acquired and liabilities assumed (in millions):

Cash	$	8.9
Accounts receivable	9.3
Inventoried costs	12.3
Other current assets	8.9
Property and equipment	8.1
Intangible assets	38.0
Goodwill	104.2
Total assets	189.7
Current liabilities	(25.7		)
Net assets acquired	$	164.0

The goodwill recorded in this transaction is tax deductible.

As of July 2, 2012, the expected fair value of accounts receivable approximated historical cost. The gross accounts receivable was $9.3 million, all of which is expected to be collectible. There was no contingent purchase consideration associated with the acquisition of CEI.

The amounts of revenue and operating loss of CEI included in the Company's condensed consolidated statement of operations and comprehensive income (loss) for the three months ended March 31, 2013 are $25.9 million and $3.2 million, respectively.

8

Asset Purchase

On December 30, 2011, the Company acquired selected assets of a critical infrastructure security and public safety system integration business (the “Critical Infrastructure Business”) for approximately $18.8 million, which includes a final agreement on the working capital adjustment.

The Critical Infrastructure Business designs, engineers, deploys, manages and maintains specialty security systems at some of the most strategic asset and critical infrastructure locations in the U.S. Additionally, these security systems are typically integrated into command and control system infrastructure or command centers. Approximately 15% of the revenues of the Critical Infrastructure Business are recurring in nature due to the operation, maintenance or sustainment of the security systems once deployed. The Critical Infrastructure Business is part of the Company's Public Safety & Security (“PSS”) segment.

The excess of the purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition was allocated to goodwill. The value of the goodwill represents the value the Company expects to be created by enabling it to strategically expand its strengths in the areas of homeland security solutions and will also enable the Company to realize significant cross selling opportunities and increase its sales of higher margin, fixed price products.

The transaction has been accounted for using the acquisition method of accounting, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The following table summarizes the estimated fair values of the major assets acquired and liabilities assumed (in millions):

Accounts receivable	$	23.4
Other assets	0.5
Intangible assets	2.0
Goodwill	2.6
Total assets	28.5
Current liabilities	(9.7		)
Net assets acquired	$	18.8

The goodwill recorded in this transaction is tax deductible.

As of December 30, 2011, the expected fair value of accounts receivable approximated historical cost. The gross accounts receivable was $24.4 million, of which approximately $1.0 million is not expected to be collectible.

Due to the integration of the Critical Infrastructure Business with the Company's existing PSS business it is impractical to estimate the amounts of revenue and operating income (loss) included in the Company's condensed consolidated statement of operations and comprehensive income (loss).

In accordance with FASB Accounting Standards Codification ("ASC") Topic 805, Business Combinations (“Topic 805”), the allocation of the purchase price for the Company’s acquisition of CEI is subject to adjustment during the measurement period after the respective closing dates when additional information on asset and liability valuations becomes available. The above estimated fair values of assets acquired and liabilities assumed of CEI are provisional and are based on the information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. Measurement period adjustments reflect new information obtained about facts and circumstances that existed as of the acquisition date. The Company believes that such information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is waiting for additional information necessary to finalize those fair values. The Company has not finalized its valuation of certain assets and liabilities recorded in connection with this transaction, including contingent liabilities and deferred taxes. Thus, the provisional measurements recorded are subject to change. Any changes will be recorded as adjustments to the fair value of those assets and liabilities, and residual amounts will be allocated to goodwill. The final valuation adjustments may also require adjustment to the condensed consolidated statements of operations and comprehensive income (loss).

Pro Forma Financial Information

9

The following tables summarize the supplemental condensed consolidated statements of operations information on an unaudited pro forma basis as if the acquisition of CEI occurred on December 26, 2011 and include adjustments that were directly attributable to the transaction or were not expected to have a continuing impact on the Company. The acquisition of CEI is included in the results of operations for the three months ended March 31, 2013. There are no material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings for 2012. The pro forma results are for illustrative purposes only for the applicable period and do not purport to be indicative of the actual results that would have occurred had the transaction been completed as of the beginning of the period, nor are they indicative of results of operations that may occur in the future (all amounts except per share amounts are in millions):

	For the Three Months Ended March 25, 2012
Pro forma revenues	$	232.4
Pro forma net loss before tax	(9.4		)
Pro forma net loss	(5.3		)
Net loss attributable to the registrant	(2.5		)
Basic and diluted pro forma loss per share	$	(0.09	)

The pro forma financial information reflects acquisition related expenses incurred, pro forma adjustments for the additional amortization associated with finite-lived intangible assets acquired, additional incremental interest expense, stock compensation related to the RSUs granted in the CEI transaction, and the related tax expense.

These adjustments are as follows (in millions):

	For the Three Months Ended March 25, 2012
Intangible amortization	$	4.0
Net change in stock compensation expense	$	0.7
Increase in weighted average common shares outstanding for shares issued and not already included in the weighted average common shares outstanding	24.0

Contingent Acquisition Consideration

In connection with certain acquisitions, the Company has agreed to make additional future payments to the seller contingent upon achievement of specific performance-based milestones by the acquired entities. Pursuant to the provisions of Topic 805, the Company will re-measure these liabilities each reporting period and record changes in the fair value in its condensed consolidated statement of operations and comprehensive income (loss). Increases or decreases in the fair value of the contingent consideration liability, which is measured as the present value of expected future cash flows, a Level 3 measurement in the fair value hierarchy (Level 3 hierarchy as defined by ASC Topic 820, Fair Value Measurements and Disclosures (“Topic 820”)), can result from changes in discount periods and rates, as well as changes in the estimates on the achievement of the performance-based milestones.

Contingent acquisition consideration as of March 31, 2013, which is related to the DEI Services Corporation ("DEI") acquisition, is summarized in the following table (in millions):

Balance as of December 30, 2012	$	2.1
Cash payments and adjustments	—
Balance as of March 31, 2013	$	2.1

As of March 31, 2013, the $2.1 million of contingent acquisition consideration is reflected in other current liabilities in the condensed consolidated balance sheet.

10

Pursuant to the terms of the agreement and plan of merger with DEI Services Corporation entered into on August 9, 2010 (“the DEI Agreement”), upon achievement of certain cash receipts, revenue, EBITDA and backlog amounts in 2010, 2011 and 2012, the Company will be obligated to pay certain additional contingent consideration (the “DEI Contingent Consideration”). The Company has paid $2.9 million related to the DEI Contingent Consideration, of which $2.5 million was paid in April 2012. As of March 31, 2013, the undiscounted amount of future DEI Contingent Consideration that is payable by the Company under the DEI Agreement is $2.1 million, which was paid in April of 2013.

Note 3. Goodwill and Intangible Assets

(a) Goodwill

The Company performs its annual impairment test for goodwill in accordance with ASC Topic 350, Intangibles-Goodwill and Other (“Topic 350”) as of the last day of each fiscal year or when evidence of potential impairment exists.

The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a component. The Company determines its reporting units by first identifying its operating segments, and then assessing whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component. The Company aggregates components within an operating segment that have similar economic characteristics. For the annual and, if necessary, interim impairment assessment, the Company identified its reporting units to be its KGS and PSS operating segments.

In order to test for potential impairment, the Company estimates the fair value of each of its reporting units based on a comparison and weighting of the income approach, specifically the discounted cash flow method and the market approach, which estimates the fair value of the Company's reporting units based upon comparable market prices and recent transactions and also validates the reasonableness of the implied multiples from the income approach. The Company reconciles the fair value of its reporting units to its market capitalization by calculating its market capitalization based upon an average of its stock price prior to and subsequent to the date the Company performs its analysis and assuming a control premium. The Company uses these methodologies to determine the fair value of its reporting units for comparison to their corresponding book values because there are no observable inputs available, a Level 3 measurement. If the book value exceeds the estimated fair value for a reporting unit a potential impairment is indicated, and Topic 350 prescribes the approach for determining the impairment amount, if any.

In accordance with Topic 350, as a result of the Company's decision in June 2012 to dispose of certain non-core businesses acquired in the Integral acquisition, the Company allocated $1.5 million of goodwill to discontinued operations, which resulted in an impairment charge (see Note 8). The Company then tested the goodwill remaining in the KGS reporting unit. The fair value of the KGS reporting unit exceeded its carrying value by 7.4% at that time.

During the fourth quarter of 2012, the KGS reporting unit was impacted by continued declining market valuations and the economic uncertainty in the U.S. defense industry. At that time, Congress had been unable to agree on a budget that conformed with the Budget Control Act of 2011 requirements, which required additional substantial defense spending reductions through sequestration. Additionally, Congress and the President failed to agree on budgetary, tax and spending issues, and as a result a FY 2013 budget was not passed and a six-month continuing resolution that funded the U.S. Government through March 27, 2013 was passed. As of December 2012, these events significantly increased the likelihood of the sequester occurring, which has negative consequences for the defense industry. In addition, as Congress and the Administration could not come to an agreement on terms of a possible national fiscal approach, they also failed to address other fiscal matters such as the debt ceiling, which is currently expected to be reached during the first half of 2013. These events negatively impacted the Company's estimate of the fair value of the KGS reporting unit, resulting in the book value of KGS exceeding its fair value in step one of the impairment test in the fourth quarter of 2012.

The Company then performed the second step of the goodwill impairment test to measure the amount of the impairment loss, if any, of the KGS reporting unit. The second step of the test requires the allocation of the reporting unit's fair value to its assets and liabilities, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill is less than the carrying value, the difference is recorded as an impairment loss. Based on the results of the step two analysis, the Company recorded an $82.0 million goodwill impairment in the fourth quarter of 2012.

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The changes in the carrying amount of goodwill for the three months ended March 31, 2013 are as follows (in millions):

	Public Safety & Security		Government Solutions			Total
Balance as of December 30, 2012	$	35.6	$	560.9		$	596.5
Retrospective adjustments	—		(0.1		)	(0.1		)
Balance as of December 30, 2012 after retrospective adjustments	$	35.6	$	560.8		$	596.4

The accumulated impairment losses as of December 30, 2012 and March 31, 2013 were $247.4 million, of which $229.1 million was associated with the KGS segment and $18.3 million was associated with the PSS segment.

(b) Purchased Intangible Assets

The following table sets forth information for finite-lived intangible assets subject to amortization (in millions):

	As of December 30, 2012							As of March 31, 2013
	Gross Value		Accumulated Amortization			Net Value		Gross Value		Accumulated Amortization			Net Value
Acquired finite-lived intangible assets:
Customer relationships	$	97.7	$	(36.2	)	$	61.5	$	97.7	$	(40.1	)	$	57.6
Contracts and backlog	80.0		(64.3		)	15.7		80.0		(68.6		)	11.4
Developed technology and technical know-how	22.1		(6.4		)	15.7		22.1		(6.9		)	15.2
Trade names	6.1		(1.2		)	4.9		6.1		(1.7		)	4.4
Favorable operating lease	1.8		(0.4		)	1.4		1.8		(0.5		)	1.3
Total	$	207.7	$	(108.5	)	$	99.2	$	207.7	$	(117.8	)	$	89.9

In addition to the finite-lived intangible assets listed in the table above, the Company has $6.9 million of indefinite-lived intangible assets consisting of trade names at both December 30, 2012 and March 31, 2013.

Consolidated amortization expense related to intangible assets subject to amortization was $10.5 million and $9.3 million for the three months ended March 25, 2012 and March 31, 2013.

Note 4. Inventoried Costs

Inventoried costs are stated at the lower of cost or market. Cost is determined using the average cost or first-in, first-out method and is applied consistently within an operating entity. Inventoried costs primarily relate to work in process under fixed-price contracts using costs as the basis of the percentage-of-completion calculation under the units produced method of revenue recognition. These costs represent accumulated contract costs less the portion of such costs allocated to delivered items. Accumulated contract costs include direct production costs, factory and engineering overhead and production tooling costs. Pursuant to contract provisions of U.S. Government contracts, such customers may have title to, or a security interest in, inventories related to such contracts as a result of advances, performance-based payments or progress payments. The Company reflects those advances and payments as an offset against the related inventory balances.

The Company regularly reviews inventory quantities on hand, future purchase commitments with its suppliers, and the estimated utility of its inventory. If the Company’s review indicates a reduction in utility below carrying value, it reduces its inventory to a new cost basis.

Inventoried costs consisted of the following components (in millions):

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	December 30, 2012			March 31, 2013
Raw materials	$	48.4		$	42.5
Work in process	36.5			39.2
Finished goods	7.3			5.8
Supplies and other	2.2			1.7
Subtotal inventoried costs	94.4			89.2
Less: Customer advances and progress payments	(0.1		)	(1.0		)
Total inventoried costs	$	94.3		$	88.2

Note 5. Stockholders’ Equity

A summary of the changes in stockholders’ equity is provided below (in millions):

	For the Three Months Ended
	March 25, 2012			March 31, 2013
Stockholders’ equity at beginning of period	$	312.6		$	324.1
Comprehensive loss:
Net loss	(3.0		)	(10.3		)
Foreign currency translation	—			0.1
Total comprehensive loss	(3.0		)	(10.2		)
Stock-based compensation	1.1			1.9
Restricted stock units traded for taxes	—			(0.2		)
Stockholders’ equity at end of period	$	310.7		$	315.6

The components of accumulated other comprehensive loss are as follows (in millions):

	March 25, 2012			March 31, 2013
Cumulative translation adjustment	$	0.1		$	(0.2	)
Post retirement benefit reserve adjustment net of tax expense	(0.3		)	(0.5		)
Total accumulated other comprehensive loss	$	(0.2	)	$	(0.7	)

There were no reclassifications from other comprehensive income to net loss for the three months ended March 31, 2013.

Common stock issued by the Company for the three months ended March 25, 2012 and March 31, 2013 was as follows (in millions):

	For the Three Months Ended
	March 25, 2012	March 31, 2013
Shares outstanding at beginning of the period	32.4	56.6
Stock issued for employee stock purchase plan, stock options and restricted stock units exercised	0.1	0.1
Shares outstanding at end of the period	32.5	56.7

Note 6. Net Income (Loss) Per Common Share

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The Company calculates net income (loss) per share in accordance with ASC Topic 260, Earnings Per Share (“Topic 260”). Under Topic 260, basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. Diluted net income (loss) per common share reflects the effects of potentially dilutive securities.

	For the Three Months Ended
(In millions, except earnings per share)	March 25, 2012			March 31, 2013
Loss from continuing operations (A)	$	(2.5	)	$	(8.2	)
Weighted average outstanding shares of common stock (B)	32.5			56.6
Dilutive effect of employee stock options and awards	—			—
Common stock and common stock equivalents (C)	32.5			56.6
Loss per share:
Basic (A/B)	$	(0.08	)	$	(0.14	)
Diluted (A/C)	$	(0.08	)	$	(0.14	)

The following shares were excluded from the calculation of diluted loss per share because their inclusion would have been anti-dilutive:

	For the Three Months Ended
(In millions)	March 25, 2012	March 31, 2013
Shares from stock options and awards	2.8	5.5

Note 7. Income Taxes

As of December 30, 2012, the Company had $13.4 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate, subject to possible offset by an increase in the valuation allowance. During the three months ended March 31, 2013, this amount was increased by $0.1 million and was recorded as an adjustment to goodwill.

The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. During the three months ended March 25, 2012, a $0.2 million expense was recorded related to interest and penalties. There was no material expense recorded during the three months ended March 31, 2013. The Company recorded a benefit for interest and penalties related to the reversal of prior positions of $0.1 million for the three months ended March 25, 2012 and no benefit for the three months ended March 31, 2013. The Company believes that it is reasonably possible that as much as $1.5 million of the liabilities for uncertain tax positions will expire within twelve months of March 31, 2013 due to the expiration of various applicable statutes of limitations.

The Company is subject to taxation in the U.S., various state tax jurisdictions and various foreign tax jurisdictions. The Company's tax years for 2000 and later are subject to examination by the U.S. and state tax authorities due to the existence of net operating loss (“NOL”) carryforwards. Generally, the Company's tax years for 2002 and later are subject to examination by various foreign tax authorities.

In assessing the Company's ability to realize deferred tax assets, management considers, on a periodic basis, whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. As such, management has determined that it is appropriate to maintain a full valuation allowance against the Company's deferred tax assets, with the exception of an amount equal to its deferred tax liabilities, which can be expected to reverse over a definite life. Management will continue to evaluate the necessity to maintain a valuation allowance against the Company's net deferred tax assets. A reconciliation of the total income tax provision to the amount computed by applying the statutory federal income tax rate of 35% to loss from continuing operations before income tax provision for the three months ended March 25, 2012 and March 31, 2013 is as follows (in millions):

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	For the Three Months Ended
	March 25, 2012			March 31, 2013
Income tax benefit at federal statutory rate	$	(2.3	)	$	(1.8	)
State and foreign taxes, net of federal tax benefit and valuation allowance	(3.0		)	0.9
Nondeductible expenses and other	0.5			0.1
Impact of indefinite lived deferred tax liabilities and state law changes	(1.0		)	1.9
Increase/(decrease) in reserves for uncertain tax positions	(0.1		)	0.1
Increase/(decrease) in federal valuation allowance	1.8			1.6
Total	$	(4.1	)	$	2.8

Federal and state income tax laws impose restrictions on the utilization of NOL and tax credit carryforwards in the event that an “ownership change” occurs for tax purposes, as defined by Section 382 (“Section 382”) of the Internal Revenue Code of 1986, as amended (the “Code”). In general, an ownership change occurs when shareholders owning 5% or more of a “loss corporation” (a corporation entitled to use NOL or other loss carryovers) have increased their ownership of stock in such corporation by more than 50 percentage points during any 3-year period. The annual base Section 382 limitation is calculated by multiplying the loss corporation's value (which may be modified for certain recent increases to capital) at the time of the ownership change times the greater of the long-term tax-exempt rate determined by the Internal Revenue Service (“IRS”) in the month of the ownership change or the two preceding months. In March 2010, an “ownership change” occurred that will limit the utilization of the loss carryforwards. Additionally, in May 2012, another “ownership change” was triggered. As a result of these changes, the Company's federal annual utilization of NOL carryforwards will be limited to $28.1 million a year for the five years succeeding the initial ownership change in March 2010 and $11.6 million per year thereafter. If the entire limitation amount is not utilized in a year, the excess can be carried forward and utilized in future years. For the three months ended March 31, 2013, there was no impact of such limitations on the income tax provision since the amount of taxable income did not exceed the annual limitation amount. In addition, future equity offerings or acquisitions that have equity as a component of the purchase price could also result in an ownership change. If and when any other “ownership change” occurs, utilization of the NOL or other tax attributes may be further limited. As discussed elsewhere, deferred tax assets relating to the NOL and credit carryforwards are offset by a full valuation allowance. In addition, utilization of state tax loss carryforwards is dependent upon sufficient taxable income apportioned to the states.

Note 8. Discontinued Operations

In June 2012, consistent with the Company's plans to complete its assessment and evaluation of the non-core businesses acquired in the Integral acquisition, the Company committed to a plan to sell certain lines of business associated with antennas, satellite-cased products and fly-away terminals. These operations were previously reported in the KGS segment, and in accordance with Topic 205, Presentation of Financial Statements ("Topic 205"), these businesses have been classified as held for sale and reported in discontinued operations in the accompanying condensed consolidated financial statements. In the second quarter of 2012, the Company recorded a $1.5 million impairment charge associated with the portion of goodwill that was allocated to the discontinued businesses based on management's estimate of the fair value of the business. The Company sold its domestic operations to two buyers for approximately $0.8 million in cash consideration and the assumption of certain liabilities. The Company received $0.3 million in cash in 2012 from the first buyer and $0.5 million in cash in April 2013 from the second buyer. The Company recorded a $1.2 million impairment charge in the first quarter of 2013 related to its revised estimate of the fair value of these operations.

The following table presents the results of discontinued operations (in millions):

	For the Three Months Ended
	March 25, 2012			March 31, 2013
Revenue	$	5.6		$	3.6
Net loss before taxes	(0.6		)	(2.1		)
Provision for income taxes	(0.1		)	—
Net loss after taxes	$	(0.5	)	$	(2.1	)

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 The following is a summary of the assets and liabilities of discontinued operations, which are in other current assets, other non-current assets, other current liabilities and other long-term liabilities in the accompanying condensed consolidated balance sheets as of December 30, 2012 and March 31, 2013 (in millions):

	December 30, 2012		March 31, 2013
Accounts receivable, net	$	3.4	$	3.0
Inventoried costs	3.0		0.9
Other current assets	0.2		0.2
Current assets of discontinued operations	6.6		4.1
Other non-current assets	0.4		0.2
Non-current assets of discontinued operations	$	0.4	$	0.2
Accounts payable and accrued expenses	$	4.4	$	3.8
Billings in excess of costs and earnings on uncompleted contracts	0.1		0.1
Other current liabilities	0.4		0.3
Current liabilities of discontinued operations	4.9		4.2
Other long-term liabilities	0.3		0.2
Long-term liabilities of discontinued operations	$	0.3	$	0.2

Note 9. Debt

(a) Issuance of 10% Senior Secured Notes due 2017

On May 19, 2010, the Company entered into an indenture with the guarantors set forth therein and Wilmington Trust FSB, as trustee and collateral agent (as amended or supplemented the “Indenture”), to issue the Notes. As of March 31, 2013, the Company has issued Notes in the aggregate principal amount of $625.0 million under the Indenture, of which $225.0 million were issued on May 19, 2010, $285.0 million were issued on March 25, 2011 at a $20.0 million premium and an effective interest rate of 8.5%, and $115.0 million were issued on July 27, 2011 at a $5.8 million premium and an effective interest rate of 8.9%. These Notes have been used to fund acquisitions and for general corporate purposes. The holders of the Notes have a first priority lien on substantially all of the Company's assets and the assets of the guarantors, except with respect to accounts receivable, inventory, deposit accounts, securities accounts, cash, securities and general intangibles (other than intellectual property), on which the holders of the Notes have a second priority lien to the $110.0 million credit facility described below.

The Company pays interest on the Notes semi-annually, in arrears, on June 1 and December 1 of each year. The Notes include customary covenants and events of default as well as a consolidated fixed charge ratio of 2:1 for the incurrence of additional indebtedness. Negative covenants include, among other things, limitations on additional debt, liens, negative pledges, investments, dividends, stock repurchases, asset sales and affiliate transactions. Events of default include, among other events, non-performance of covenants, breach of representations, cross-default to other material debt, bankruptcy, insolvency, material judgments and changes in control. As of March 31, 2013, the Company was in compliance with the covenants contained in the Indenture governing the Notes.

On or after June 1, 2014, the Company may redeem some or all of the Notes at 105% of the aggregate principal amount of such notes through June 1, 2015, 102.5% of the aggregate principal amount of such notes through June 1, 2016 and 100% of the aggregate principal amount of such notes thereafter, plus accrued and unpaid interest to the date of redemption. Prior to June 1, 2013, the Company may redeem up to 35% of the aggregate principal amount of the Notes at 110% of the aggregate principal amount of the Notes, plus accrued and unpaid interest to the date of redemption, with the net cash proceeds of certain equity offerings. In addition, the Company may, at its option, redeem some or all of the Notes at any time prior to June 1, 2014 by paying a “make whole” premium, plus accrued and unpaid interest, if any, to the date of redemption. The Company may also purchase outstanding Notes traded on the open market at any time.

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(b) Other Indebtedness

$110.0 Million Credit Facility

On July 27, 2011, the Company entered into a credit and security agreement with KeyBank National Association (“KeyBank”), as lead arranger, sole book runner and administrative agent, and East West Bank and Bank of the West, as the lenders (the “2011 Credit Agreement”). The 2011 Credit Agreement amends and restates in its entirety the credit and security agreement, dated as of May 19, 2010, by and among the Company, KeyBank and the lenders named therein (as amended). The 2011 Credit Agreement established a five-year senior secured revolving credit facility in the amount of $65.0 million (as amended and described below, the “Amended Revolver”). The Amended Revolver is secured by a lien on substantially all of the Company's assets and the assets of the guarantors thereunder, subject to certain exceptions and permitted liens. The Amended Revolver has a first priority lien on accounts receivable, inventory, deposit accounts, securities accounts, cash, securities and general intangibles (other than intellectual property). On all other assets, the Amended Revolver has a second priority lien junior to the lien securing the Notes.

Borrowings under the Amended Revolver are subject to mandatory prepayment upon the occurrence of certain events, including the issuance of certain securities, the incurrence of certain debt and the sale or other disposition of certain assets. The Amended Revolver includes customary affirmative and negative covenants and events of default, as well as a financial covenant relating to a minimum fixed charge coverage ratio of 1.25. Negative covenants include, among other things, limitations on additional debt, liens, negative pledges, investments, dividends, stock repurchases, asset sales and affiliate transactions. Events of default include, among other events, non-performance of covenants, breach of representations, cross-default to other material debt, bankruptcy and insolvency, material judgments and changes in control.

On November 14, 2011, the Company entered into a first amendment (the “First Amendment”) with certain lenders and KeyBank that amended the 2011 Credit Agreement. Among other things, the First Amendment: (i) increased the amount of the Amended Revolver from $65.0 million to $90.0 million; (ii) added to and modified the definitions of certain terms contained in the 2011 Credit Agreement; (iii) added PNC Bank, National Association as a lender under the 2011 Credit Agreement; and (iv) updated certain schedules to the 2011 Credit Agreement.

 On May 4, 2012, the Company entered into a second amendment (the "Second Amendment") to the 2011 Credit Agreement. Among other things, the Second Amendment (i) increased the amount of the Amended Revolver from $90.0 million to $110.0 million, (ii) added to and modified the definitions of certain terms contained in the 2011 Credit Agreement, (iii) added Cathay Bank as a lender under the 2011 Credit Agreement, (iv) increased the maximum available to be borrowed under the 2011 Credit Agreement to $135.0 million subject to KeyBank's approval, and (v) updated certain schedules to the Credit Agreement.

On May 8, 2012, the Company entered into a third amendment (the "Third Amendment") to the 2011 Credit Agreement. Under the terms of the Third Amendment, the definitions of certain terms of the 2011 Credit Agreement were modified and the acquisition of CEI was approved. The Company used the net proceeds from the sale of 20.0 million shares of its common stock, together with the borrowings under its credit facility, to fund the purchase of CEI on July 2, 2012 and to pay related fees and expenses.

On February 27, 2013, the Company entered into a fourth amendment (the "Fourth Amendment") to the 2011 Credit Agreement. Under the terms of the Fourth Amendment, the definition of certain terms of the 2011 Credit Agreement and reporting requirements were modified.

The amounts of borrowings that may be made under the Amended Revolver are based on a borrowing base and are comprised of specified percentages of eligible receivables, eligible unbilled receivables and eligible inventory. If the amount of borrowings outstanding under the Amended Revolver exceeds the borrowing base then in effect, the Company is required to repay such borrowings in an amount sufficient to eliminate such excess. The Amended Revolver includes $50.0 million of availability for letters of credit and $10.0 million of availability for swing line loans.

The Company may borrow funds under the Amended Revolver at a rate based either on LIBOR or a base rate established by KeyBank. Base rate borrowings bear interest at an applicable margin of 1.00% to 1.75% over the base rate (which will be the greater of the prime rate or 0.5% over the federal funds rate, with a floor of 1.0% over one month LIBOR). LIBOR rate borrowings will bear interest at an applicable margin of 3.00% to 3.75% over the LIBOR rate. The applicable margin for base rate borrowings and LIBOR borrowings will depend on the average monthly revolving credit availability. The Amended Revolver also has a commitment fee of 0.50% to 0.75%, depending on the average monthly revolving credit availability. As of March 31, 2013, there were no outstanding borrowings on the Amended Revolver and $14.1 million was

17

outstanding on letters of credit resulting in net borrowing base availability of $91.7 million. The Company was in compliance with the financial covenants as of March 31, 2013.

Debt Acquired in Acquisition of Herley

The Company assumed a $10.0 million10-year term loan with a bank in Israel that Herley entered into on September 16, 2008 in connection with the acquisition of one of its wholly owned subsidiaries. The balance as of March 31, 2013 was $5.5 million, and the loan is payable in quarterly installments of $0.3 million plus interest at LIBOR plus a margin of 1.5%. The loan agreement contains various covenants, including a minimum net equity covenant as defined in the loan agreement. The Company was in compliance with all covenants, including the minimum net equity covenant, as of March 31, 2013.

Fair Value of Long-term Debt

Carrying amounts and the related estimated fair values of the Company’s long-term debt financial instruments not measured at fair value on a recurring basis at December 30, 2012 and March 31, 2013 are presented in the following table:

	As of December 30, 2012						As of March 31, 2013
$ in millions	Principal		Carrying Amount		Fair Value		Principal		Carrying Amount		Fair Value
Total Long-term debt including current portion	$	630.7	$	649.4	$	690.5	$	630.5	$	648.2	$	691.9

The fair value of the Company’s long-term debt was based upon actual trading activity (Level 1, Observable inputs —quoted prices in active markets) and is the estimated amount the Company would have to pay to repurchase its debt, including any premium or discount attributable to the difference between the stated interest rate and market value of interest at the balance sheet date.

The net unamortized debt premium of $17.7 million as of March 31, 2013, which is the difference between the carrying amount of $648.2 million and the principal amount of $630.5 million represented in the previous table, is being amortized to interest expense over the terms of the related debt.

Note 10. Fair Value of Financial Instruments

The carrying amounts and the related estimated fair values of the Company's long-term debt financial instruments not measured at fair value on a recurring basis at December 30, 2012 and March 31, 2013 are presented in Note 9. The carrying value of all other financial instruments, including cash equivalents, accounts receivable, accounts payable and short-term debt, approximated their estimated fair values at December 30, 2012 and March 31, 2013.

Note 11. Significant Customers

Revenue from the U.S. Government, which includes foreign military sales, includes revenue from contracts for which the Company is the prime contractor as well as those for which the Company is a subcontractor and the ultimate customer is the U.S. Government. The KGS segment has substantial revenue from the U.S. Government. Sales to the U.S. Government amounted to approximately $140.9 million and $160.7 million or 67% and 64% of total Kratos revenue for the three months ended March 25, 2012 and March 31, 2013, respectively.

The U.S. Government continues to focus on developing and implementing spending, tax, and other initiatives to reduce the deficit, create jobs, and stimulate the economy. Although defense spending is expected to remain a national priority within future federal budgets, the Budget Control Act of 2011 (“Budget Control Act”) committed the U.S. Government to reduce the federal deficit over the next ten years. Under the Budget Control Act, the Bi-Partisan Congressional Joint Select Committee on Deficit Reduction (“the Joint Committee”) was responsible for identifying $1.2 to $1.5 trillion in deficit reductions by November 30, 2011. The Joint Committee was unable to identify the reductions by this deadline and thereby triggered a provision of the Budget Control Act called “sequestration,” which requires very substantial automatic spending cuts that have started in 2013, are split between defense and non-defense programs, and continue over a nine-year period.

On March 26, 2013, the President signed into law the Consolidated and Further Continuing Appropriations Act, 2013, which includes specific appropriations for the Company's major federal customers, including the DoD. On April 10, 2013, the

18

President delivered his proposed FY 2014 budget to Congress. The President's $527 billion FY 2014 defense budget is slightly lower than final defense appropriations for FY 2013. While it largely reflects defense spending plans in the FY 2013 budget, it does not reflect the reductions mandated by Part II of the Budget Control Act. The Congressional appropriation and authorization of FY 2014 defense spending is likely to be marked by significant debate and an uncertain schedule. There continues to be uncertainty in how sequestration will ultimately be implemented, and there are many variables in how the law could be applied that make it difficult to determine the specific impacts. Any automatic reductions in national defense programs could impact the Company's significant customers, which in turn could impact the Company's business and financial results.

Note 12. Segment Information

The Company operates in two principal business segments: Kratos Government Solutions and Public Safety & Security. The Company organizes its business segments based on the nature of the services offered. In the following table, total operating income of the business segments is reconciled to the corresponding consolidated amount. The reconciling item “Unallocated corporate expense, net” includes costs for certain stock-based compensation programs (including stock-based compensation costs for stock options, employee stock purchase plan shares 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. Transactions between segments are generally negotiated and accounted for under terms and conditions similar to other government and commercial contracts.

Revenues, depreciation and amortization, and operating income generated by the Company’s current reporting segments for the three months endedMarch 25, 2012 and March 31, 2013 are as follows (in millions):

	Three Months Ended
	March 25, 2012			March 31, 2013
Revenues:
Kratos Government Solutions
Service revenues	$	61.5		$	64.9
Product sales	107.4			137.3
Total Kratos Government Solutions	168.9			202.2
Public Safety & Security
Service revenues	40.6			50.6
Product sales	—			—
Total Public Safety & Security	40.6			50.6
Total revenues	$	209.5		$	252.8
Depreciation & amortization:
Kratos Government Solutions	$	12.8		$	13.2
Public Safety & Security	0.8			1.0
Total depreciation and amortization	$	13.6		$	14.2
Operating income:
Kratos Government Solutions	$	9.6		$	12.2
Public Safety & Security	1.2			1.2
Unallocated corporate expense, net	(1.7		)	(1.9		)
Total operating income	$	9.1		$	11.5

Note 13. Commitments and Contingencies

(a) Legal Matters

In addition to commitments and obligations in the ordinary course of business, the Company is subject to various claims, pending and potential legal actions for damages, investigations relating to governmental laws and regulations and other matters arising out of the normal conduct of its business. The Company assesses contingencies to determine the degree of probability and range of possible loss for potential accrual in its consolidated financial statements. An estimated loss contingency is accrued in the Company's consolidated financial statements if it is probable that a liability has been incurred and

19

the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing litigation contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against the Company may be unsupported, exaggerated or unrelated to possible outcomes, and as such are not meaningful indicators of the Company's potential liability. The Company regularly reviews contingencies to determine the adequacy of its accruals and related disclosures. The amount of ultimate loss may differ from these estimates. It is possible that cash flows or results of operations could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies. Whether any losses finally determined in any claim, action, investigation or proceeding could reasonably have a material effect on the Company's business, financial condition, results of operations or cash flows will depend on a number of variables, including the timing and amount of such losses; the structure and type of any remedies; the monetary significance of any such losses, damages or remedies on the Company's consolidated financial statements; and the unique facts and circumstances of the particular matter that may give rise to additional factors.

Legal and Regulatory Matters

Integral Indemnification Obligation. Integral, which was acquired on July 27, 2011, was previously the subject of a SEC investigation. On July 30, 2009, the SEC and Integral each announced that an administrative settlement had been reached concluding the SEC's investigation. In conjunction with its announcement of the administrative settlement, the SEC disclosed that it was instituting separate civil actions against three former officers of Integral, Steven R. Chamberlain (now deceased), Elaine M. Brown and Gary A. Prince, in a case filed July 30, 2009 captioned United States Securities and Exchange Commission v. Steven R. Chamberlain, Elaine M. Brown, and Gary A. Prince, Case No. 09-CV-01423, pending in the United States District Court for the District of Columbia. The SEC's complaint alleges that from 1999 through August 2006, Chamberlain, Brown and Prince made materially false and misleading statements and omitted material information in various filings with the SEC by failing to disclose the role of Prince, who had been convicted of engaging in securities fraud while at another company, at Integral and his legal background in its filings. The SEC sought permanent injunctions against each defendant, as well as court orders imposing officer and director bars and civil penalties. Integral has indemnification obligations to these individuals, as well as to other former directors and officers of Integral who may incur indemnifiable costs in connection with these actions, pursuant to the terms of separate indemnification agreements entered into with each of them effective as of December 4, 2002. As a result of the acquisition of Integral, the Company has assumed these indemnification obligations. The indemnification agreements provide, subject to certain terms and conditions, that the Company shall indemnify the individual to the fullest extent permissible by Maryland law against judgments, penalties, fines, settlements and reasonable expenses actually incurred in the event that the individual is made a party to a legal proceeding by reason of his or her present or prior service as an officer or employee of Integral, and shall also advance reasonable litigation expenses actually incurred subject to, among other conditions, receipt of a written undertaking to repay any costs or expenses advanced if it shall ultimately be determined that the individual has not met the standard of conduct required for indemnification under Maryland law. Certain costs and expenses were previously covered under Integral's applicable directors and officers liability insurance policy. The policy limits were exhausted in December 2011, and the Company is advancing payment of indemnifiable costs pursuant to the indemnification agreements. On November 26, 2012, the SEC announced that it had finalized a settlement with Elaine M. Brown, resulting in a final judgment that resolved the SEC's matter against Brown. The SEC's case against Gary A. Prince proceeded to a bench trial in December 2012, which trial concluded in January 2013. On May 2, 2013, the court issued a memorandum opinion and entered an order granting judgment in favor of the SEC on one count of its complaint. The court found that in 1997, an accounting bar order had been issued against Mr. Prince because of his conduct at a different company, and that Mr. Prince violated the bar order between 1998 and 2006. The court issued an injunction permanently restraining and enjoining Mr. Prince from violating the accounting bar order. The court entered judgment in favor of Mr. Prince on all other counts of the SEC's complaint. No relief was sought or entered against Integral. Either party may appeal the court's decision, which would require the Company to continue to advance payment of indemnifiable costs.

U.S. Government Cost Claims. The Company's contracts with the Department of Defense are subject to audit by the Defense Contract Audit Agency (“DCAA”). As a result of these audits, from time to time, the Company is advised of claims concerning potential disallowed, overstated or disputed costs. For example, during the course of its current audits, the DCAA is closely examining and questioning certain of its established and disclosed practices that it had previously audited and accepted. In addition, based on a DCAA audit, the U.S. Department of Justice is currently investigating whether one of the Company's subsidiaries violated the federal False Claims Act by overstating its labor and material costs in a contract with the Department of Defense prior to the Company's acquisition of the subsidiary. Under the False Claims Act, the Department of Justice can seek civil penalties plus treble damages. The Company intends to defend itself in these matters and to work to resolve or settle any disputed contract costs. When appropriate, the Company records accruals to reflect its expected exposure to the matters raised by the U.S. Government, and it reviews such accruals on a quarterly basis for sufficiency based on the

20

most recent information available. Based on its assessment, it has accrued an amount in its financial statements for contingent liabilities associated with these matters that it considers to be immaterial to its overall financial position. The matter that is currently being investigated was identified during the acquisition process and was taken into consideration in the purchase price allocation of this subsidiary. Contract disputes with the U.S. Government, however, are inherently unpredictable, and unfavorable resolutions could occur. As a result, assessing contingencies is highly subjective and requires judgment about future events. The amount of ultimate loss may exceed the Company's current accruals, and it is possible that its cash flows or results of operations could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies.

Other Litigation Matters. The Company is subject to normal and routine litigation arising from the ordinary course and conduct of business, and, at times, as a result of acquisitions and dispositions. Such disputes include, for example, commercial, employment, intellectual property, environmental and securities matters.

The aggregate amounts accrued related to these matters are not material to the total liabilities of the Company.

(b) Warranty

Certain of the Company’s products, product finishes, and services are covered by a warranty to be free from defects in material and workmanship for periods ranging from one to ten years. Optional extended warranty contracts can also be purchased with the revenue deferred and amortized over the extended warranty period. The Company accrues a warranty liability for estimated costs to provide products, parts or services to repair or replace products in satisfaction of warranty obligations. Warranty revenues related to extended warranty contracts are amortized to income, over the life of the contract, using the straight-line method. Costs under extended warranty contracts are expensed as incurred.

The Company’s estimate of costs to service its warranty obligations is based upon historical experience and expectations of future conditions. To the extent that the Company experiences any changes in warranty claim activity or costs associated with servicing those claims, its warranty liability is adjusted accordingly.

The changes in the Company's aggregate product warranty liabilities, which are included in other current liabilities and other long term-liabilities on the Company's condensed consolidated balance sheets, were as follows (in millions):

	Three Months Ended
	March 25, 2012			March 31, 2013
Balance at beginning of the period	$	4.3		$	4.9
Costs accrued and revenues deferred	0.2			0.2
Warranty liabilities assumed from acquisitions	0.5			—
Settlements made (in cash or kind) and revenues recognized	(0.3		)	—
Balance at end of period	4.7			5.1
Less: Current portion	4.4			4.8
Non-current accrued product warranty and deferred warranty revenue	$	0.3		$	0.3

Note 14. Condensed Consolidating Financial Statements

The Company has $625.0 million in outstanding Senior Secured Notes (see Note 9). The Notes are guaranteed by all of the Company's 100% owned domestic subsidiaries (the "Subsidiary Guarantors") and are collateralized by the assets of all of the Company's 100% owned subsidiaries. The Notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary and the Company. There are no contractual restrictions limiting cash transfers from guarantor subsidiaries by dividends, loans or advances to the Company. The Senior Secured Notes are not guaranteed by the Company's foreign subsidiaries (the “Non-Guarantor Subsidiaries”).

The following tables present condensed consolidating financial statements for the parent company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries, respectively. The condensed consolidating financial information below follows the same accounting policies as described in the consolidated financial statements, except for the use of the equity method of accounting to reflect ownership interests in wholly owned subsidiaries, which are eliminated upon consolidation.

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Condensed Consolidating Balance Sheet December 30, 2012 (Unaudited)
	Parent Company		Guarantors on a Combined Basis			Non-Guarantors on a Combined Basis		Eliminations			Consolidated
Assets
Current Assets:
Cash and cash equivalents	$	37.8	$	(4.0	)	$	15.2	$	—		$	49.0
Accounts receivable, net	—		253.5			18.4		—			271.9
Amounts due from affiliated companies	480.2		—			—		(480.2		)	—
Inventoried costs	—		75.4			18.9		—			94.3
Other current assets	9.1		28.0			3.1		—			40.2
Total current assets	527.1		352.9			55.6		(480.2		)	455.4
Property, plant and equipment, net	1.3		74.7			9.6		—			85.6
Goodwill	—		574.7			21.7		—			596.4
Intangible assets, net	—		103.4			2.7		—			106.1
Investment in subsidiaries	439.8		28.8			—		(468.6		)	—
Amounts due from affiliated companies	—		24.0			—		(24.0		)	—
Other assets	17.6		22.4			0.4		—			40.4
Total assets	$	985.8	$	1,180.9		$	90.0	$	(972.8	)	$	1,283.9
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	2.8	$	75.2		$	5.6	$	—		$	83.6
Accrued expenses	7.0		42.3			3.4		—			52.7
Accrued compensation	2.9		41.8			3.1		—			47.8
Billings in excess of costs and earnings on uncompleted contracts	—		40.5			3.2		—			43.7
Deferred income tax liability	—		28.9			—		—			28.9
Amounts due to affiliated companies	—		455.1			25.1		(480.2		)	—
Other current liabilities	1.1		19.1			1.9		—			22.1
Total current liabilities	13.8		702.9			42.3		(480.2		)	278.8
Long-term debt, net of current portion	643.6					4.8		—			648.4
Amounts due to affiliated companies	—		—			24.0		(24.0		)	—
Other long-term liabilities	4.3		26.2			2.1		—			32.6
Total liabilities	661.7		729.1			73.2		(504.2		)	959.8
Total stockholders' equity	324.1		451.8			16.8		(468.6		)	324.1
Total liabilities and stockholders' equity	$	985.8	$	1,180.9		$	90.0	$	(972.8	)	$	1,283.9

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Condensed Consolidating Balance Sheet March 31, 2013 (Unaudited)
	Parent Company		Guarantors on a Combined Basis			Non-Guarantors on a Combined Basis		Eliminations			Consolidated
Assets
Current Assets:
Cash and cash equivalents	$	34.3	$	(1.9	)	$	19.2	$	—		$	51.6
Accounts receivable, net	—		264.7			17.1		—			281.8
Amounts due from affiliated companies	482.7		—			—		(482.7		)	—
Inventoried costs	—		70.7			17.5		—			88.2
Other current assets	8.8		21.6			3.1		—			33.5
Total current assets	525.8		355.1			56.9		(482.7		)	455.1
Amounts due from affiliated companies, long-term	—		24.0			—		(24.0		)	—
Property, plant and equipment, net	1.3		73.0			9.7		—			84.0
Goodwill	—		574.7			21.7		—			596.4
Intangible assets, net	—		94.5			2.3		—			96.8
Investment in subsidiaries	448.5		30.1			—		(478.6		)	—
Other assets	16.4		21.5			0.4		—			38.3
Total assets	$	992.0	$	1,172.9		$	91.0	$	(985.3	)	$	1,270.6
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1.9	$	66.5		$	3.2	$	—		$	71.6
Accrued expenses	22.6		38.1			2.7		—			63.4
Accrued compensation	3.8		36.6			3.0		—			43.4
Billings in excess of costs and earnings on uncompleted contracts	—		42.3			6.1		—			48.4
Deferred income tax liability	—		29.0			—		—			29.0
Amounts due to affiliated companies	—		457.3			25.4		(482.7		)	—
Other current liabilities	1.1		16.8			1.9		—			19.8
Total current liabilities	29.4		686.6			42.3		(482.7		)	275.6
Long-term debt, net of current portion	642.7		—			4.5		—			647.2
Amounts due to affiliated companies	—		—			24.0		(24.0		)	—
Other long-term liabilities	4.3		25.8			2.1		—			32.2
Total liabilities	676.4		712.4			72.9		(506.7		)	955.0
Total stockholders' equity	315.6		460.5			18.1		(478.6		)	315.6
Total liabilities and stockholders' equity	$	992.0	$	1,172.9		$	91.0	$	(985.3	)	$	1,270.6

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Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) Three Months Ended March 25, 2012 (Unaudited)
	Parent Company			Guarantors on a Combined Basis			Non-Guarantors on a Combined Basis			Eliminations			Consolidated
Service revenues	$	—		$	101.5		$	0.6		$	—		$	102.1
Product sales	—			96.0			14.3			(2.9		)	107.4
Total revenues	—			197.5			14.9			(2.9		)	209.5
Cost of service revenues	—			79.5			0.3			—			79.8
Cost of product sales	—			65.3			9.5			(2.9		)	71.9
Total costs	—			144.8			9.8			(2.9		)	151.7
Gross profit	—			52.7			5.1			—			57.8
Selling, general and administrative expenses	2.2			39.3			3.6			—			45.1
Research and development expenses	—			3.3			0.3			—			3.6
Operating income from continuing operations	(2.2		)	10.1			1.2			—			9.1
Other income (expense):
Interest expense, net	(16.0		)	—			(0.1		)	—			(16.1		)
Other income (expense), net	0.3			(0.1		)	0.2			—			0.4
Total other income and expense, net	(15.7		)	(0.1		)	0.1			—			(15.7		)
Income (loss) from continuing operations before income taxes	(17.9		)	10.0			1.3			—			(6.6		)
Benefit for income taxes from continuing operations	—			3.4			0.7			—			4.1
Income (loss) from continuing operations	(17.9		)	13.4			2.0			—			(2.5		)
Income (loss) from discontinued operations	—			(0.6		)	0.1			—			(0.5		)
Equity in net income (loss) of subsidiaries	14.9			2.1			—			(17.0		)	—
Net income (loss)	$	(3.0	)	$	14.9		$	2.1		$	(17.0	)	$	(3.0	)
Comprehensive income (loss)	$	(3.0	)	$	14.9		$	2.1		$	(17.0	)	$	(3.0	)

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Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) Three Months Ended March 31, 2013 (Unaudited)
	Parent Company			Guarantors on a Combined Basis			Non-Guarantors on a Combined Basis			Eliminations			Consolidated
Service revenues	$	—		$	115.5		$	—		$	—		$	115.5
Product sales	—			123.3			18.8			(4.8		)	137.3
Total revenues	—			238.8			18.8			(4.8		)	252.8
Cost of service revenues	—			88.2			—			—			88.2
Cost of product sales	—			90.7			13.0			(4.8		)	98.9
Total costs	—			178.9			13.0			(4.8		)	187.1
Gross profit	—			59.9			5.8			—			65.7
Selling, general and administrative expenses	2.6			43.8			2.9			—			49.3
Research and development expenses	—			4.5			0.4			—			4.9
Operating income from continuing operations	(2.6		)	11.6			2.5			—			11.5
Other income expense:
Interest expense, net	(16.1		)	—			(0.1		)	—			(16.2		)
Other expense, net	—			—			(0.7		)	—			(0.7		)
Total other expense, net	(16.1		)	—			(0.8		)	—			(16.9		)
Income (loss) from continuing operations before income taxes	(18.7		)	11.6			1.7			—			(5.4		)
Provision for income taxes from continuing operations	0.3			2.4			0.1			—			2.8
Income (loss) from continuing operations	(19.0		)	9.2			1.6			—			(8.2		)
Loss from discontinued operations	—			(1.8		)	(0.3		)	—			(2.1		)
Equity in net income (loss) of subsidiaries	8.7			1.3			—			(10.0		)	—
Net income (loss)	$	(10.3	)	$	8.7		$	1.3		$	(10.0	)	$	(10.3	)
Comprehensive income (loss)	$	(10.2	)	$	8.7		$	1.2		$	(9.9	)	$	(10.2	)

25

Condensed Consolidating Statement of Cash Flows Three Months Ended March 25, 2012 (Unaudited)
	Parent Company			Guarantors on a Combined Basis			Non-Guarantors on a Combined Basis			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	(6.2	)	$	26.3		$	4.9		$	—	$	25.0
Investing activities:
Cash paid for acquisitions, net of cash acquired	(21.5		)	—			—			—		(21.5		)
(Increase) decrease in restricted cash	(0.3		)	0.7			—			—		0.4
Capital expenditures	—			(2.4		)	(0.3		)	—		(2.7		)
Net cash used in investing activities from continuing operations	(21.8		)	(1.7		)	(0.3		)	—		(23.8		)
Financing activities:
Repayment of debt	—			—			(0.3		)	—		(0.3		)
Financing from affiliated companies	30.9			(30.9		)	—			—		—
Other, net	—			(0.1		)	—			—		(0.1		)
Net cash provided by (used in) financing activities from continuing operations	30.9			(31.0		)	(0.3		)	—		(0.4		)
Net cash flows of continuing operations	2.9			(6.4		)	4.3			—		0.8
Net operating cash flows from discontinued operations	—			3.7			0.2			—		3.9
Effect of exchange rate changes on cash and cash equivalents	—			—			(0.1		)	—		(0.1		)
Net increase in cash and cash equivalents	$	2.9		$	(2.7	)	$	4.4		$	—	$	4.6

26

Condensed Consolidating Statement of Cash Flows Three Months Ended March 31, 2013 (Unaudited)
	Parent Company			Guarantors on a Combined Basis			Non-Guarantors on a Combined Basis			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	(0.8	)	$	0.8		$	5.1		$	—	$	5.1
Investing activities:
Cash paid for acquisitions, net of cash acquired	—			1.2			—			—		1.2
Decrease in restricted cash	—			0.2			—			—		0.2
Capital expenditures	(0.1		)	(2.7		)	(0.5		)	—		(3.3		)
Net cash used in investing activities from continuing operations	(0.1		)	(1.3		)	(0.5		)	—		(1.9		)
Financing activities:
Repayment of debt	—			—			(0.3		)	—		(0.3		)
Financings from affiliated companies	(2.4		)	2.4			—			—		—
Other, net	(0.2		)	—			—			—		(0.2		)
Net cash provided by (used in) financing activities from continuing operations	(2.6		)	2.4			(0.3		)	—		(0.5		)
Net cash flows of continuing operations	(3.5		)	1.9			4.3			—		2.7
Net operating cash flows from discontinued operations	—			0.2			—			—		0.2
Effect of exchange rate changes on cash and cash equivalents	—			—			(0.3		)	—		(0.3		)
Net increase (decrease) in cash and cash equivalents	$	(3.5	)	$	2.1		$	4.0		$	—	$	2.6

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains “forward-looking statements” relating to our future financial performance, the market for our services and our expansion plans and opportunities. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the negative of such terms or other comparable terminology. These forward-looking statements reflect our current beliefs, expectations and projections, are based on assumptions, and are subject to known and unknown risks and uncertainties that could cause our actual results or achievements to differ materially from any future results or achievements expressed in or implied by our forward-looking statements. Many of these factors are beyond our ability to control or predict. As a result, you should not place undue reliance on forward-looking statements. The most important risk and uncertainties that could cause our actual results or achievements to differ materially from the results or achievements reflected in our forward-looking statements, include, but are not limited to: changes or cutbacks in spending or the appropriation of funding by the federal government, including the U.S. Department of Defense, which could cause delays, cancellations or reductions of key government contracts; changes in the scope or timing of our projects; the timing, rescheduling or cancellation of significant customer contracts and agreements, or consolidation by or the loss of key customers; risks of adverse regulatory action or litigation; risks associated with debt leverage; failure to successfully consummate acquisitions or integrate acquired operations; risks related to security breaches, cybersecurity attacks or other significant disruptions of our information systems; and competition in the marketplace, which could reduce revenues and profit margins, as well as the additional risks and uncertainties described in “Item 1A-Risk Factors” of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 30, 2012 filed with the Securities and Exchange Commission on March 12, 2013. These forward-looking statements reflect our views and assumptions only as of the date such forward-looking statements are made. Except as required by law, we assume no responsibility for updating any forward-looking statements, whether as a result of new information, future events or otherwise.

All references to “us,” “we,” “our,” the “Company” and “Kratos” refer to Kratos Defense & Security Solutions, Inc., a Delaware corporation, and its subsidiaries.

Overview

We are a specialized security technology business providing mission critical products, services and solutions for domestic and international customers, with our principal customers being national security related agencies of the U.S. Government. Our core capabilities are sophisticated engineering, manufacturing, system integration, and test and evaluation offerings for national security platforms and programs. Our principal products and services are related to Command, Control, Communications, Computing, Combat Systems, Intelligence, Surveillance and Reconnaissance (“C5ISR”). We offer our customers products, solutions, services and expertise to support their mission-critical needs by leveraging our skills across our core offering areas in C5ISR.

We manufacture and design specialized electronic components, subsystems and systems for electronic attack, electronic warfare, radar, ISR, and missile system platforms; integrated technology solutions for satellite communications; products and solutions for unmanned systems; products and services related to cybersecurity and cyberwarfare; products and solutions for ballistic missile defense; weapons systems trainers; advanced network engineering and information technology services; weapons systems lifecycle support and sustainment; military weapon range operations and technical services; and public safety, critical infrastructure security and surveillance systems. We believe our stable client base, strong client relationships, broad array of contract vehicles, large employee base possessing specialized skills, extensive list of past performance qualifications, and significant management and operational capabilities position us for continued growth.

We were incorporated in the state of New York on December 19, 1994 and began operations in March 1995. We reincorporated in the state of Delaware in 1998.

Industry Update

In August 2011, Congress and the Administration enacted the Budget Control Act of 2011 (the “Budget Control Act”) in order to permit an increase in the federal government's borrowing limit while reducing projected net government spending over the next ten years. The Budget Control Act required $900 billion in immediate cuts to discretionary spending for 2012-2021. It also established a bi-partisan congressional Joint Select Committee on Deficit Reduction (the “Joint Committee”), which was charged with recommending legislation that would reduce net government spending by $1.2 to $1.5

28

trillion over the next 10 years, in addition to the $900 billion in immediate discretionary spending reductions referenced above. The Joint Committee was unable to identify the required reductions, thereby triggering a provision of the Budget Control Act called “sequestration,” which requires very substantial automatic spending cuts, split between defense and non-defense programs, that start in 2013 and continue over a nine-year period.

In January 2013, Congress enacted the American Taxpayer Relief Act of 2012. It addressed a number of tax code provisions and certain spending issues but left in place the sequester (although delaying its implementation to March 1, 2013) and did not address other fiscal matters such as the debt ceiling. Although debate on budget reductions continued through the first two months of 2013, no resolution was reached prior to the March 1, 2013 sequester deadline. As a result, the President was required by law to issue an order canceling $85 billion in budgetary resources across the U.S. Government for the remainder of FY 2013. The Office of Management and Budget (“OMB”) in its report to Congress on March 1, 2013, entitled “OMB Report to the Congress on the Joint Committee Sequestration,” calculated that, over the course of the fiscal year, the order requires a 7.8 percent reduction in non-exempt defense discretionary funding and a 5.0 percent reduction in non-exempt non-defense discretionary funding. The sequestration also requires reductions of 7.9 percent to non-exempt defense mandatory programs. The sequestration report provides calculations of the amounts and percentages by which various budgetary resources are required to be reduced, and a listing of the reductions required for each non-exempt budget account. Federal agencies were directed to apply the same percentage reduction to all programs, projects, and activities within a budget account, as required by Section 256(k)(2) of Balanced Budget and Emergency Deficit Control Act, as amended (“BBEDCA”), and to operate in a manner that is consistent with guidance provided by OMB in Memorandum 13-03, Planning for Uncertainty with Respect to Fiscal Year 2013 Budgetary Resources and Memorandum 13-05, Agency Responsibilities for Implementation of Potential Joint Committee Sequestration.

The delay in the sequester has left the DoD less time to enact 2013 automatic spending cuts and adds to the uncertainty from such cuts. The nation's debt ceiling is currently expected to be reached in the summer of 2013. The U.S. Government continues to face substantial fiscal and economic challenges that affect funding for its discretionary and non-discretionary budget. On March 26, 2013, the President signed into law the Consolidated and Further Continuing Appropriations Act, 2013, which includes specific appropriations for our major federal customers, including the DoD. Although we are not yet able to determine all program specific impacts, we expect the reduced FY 2013 budget levels will result in lower 2013 awards on some of our programs and the related impacts to company revenues, earnings and cash flows will likely follow reduced awards.

On April 10, 2013, the President delivered his proposed FY 2014 budget to Congress. The President's $527 billion FY 2014 defense budget is slightly lower than final defense appropriations for FY 2013. While it largely reflects defense spending plans in the FY 2013 budget, it does not reflect the reductions mandated by Part II of the Budget Control Act. The Congressional appropriation and authorization of FY 2014 defense spending is likely to be marked by significant debate and an uncertain schedule. In addition, if Congress does not timely pass a FY 2014 defense appropriation or a continuing resolution, we may be required to continue to perform for some period of time on certain of our U.S. Government contracts even if the U.S. Government is unable to make timely payments.

Despite the sequestration order and the budget debate, we believe that spending on modernization and maintenance of foundational and strategic defense, national and homeland security assets will continue to be a national priority. The vast majority of our programs are funded in the DoD Base budget and not the Overseas Contingency Operations budget. We also believe that our business is aligned with mission critical national security priorities, particularly in the areas of unmanned aerial vehicles, cybersecurity, ballistic missile defense, satellite communications, space programs and science and technology efforts. Nevertheless, the actual impact of sequestration and the federal budget debates are uncertain at this time, and we cannot assure you that these events will not have a significant adverse effect on our business and results of operations. See the risk factor entitled “The U.S. Government provides a significant portion of our revenue, and our business could be adversely affected by changes in the fiscal policies of the U.S. Government and governmental entities” in Part II, Item 1A, "Risk Factors" of the Form 10-K.

Current Reporting Segments

We operate in two principal business segments: Kratos Government Solutions (“KGS”) and Public Safety & Security (“PSS”). We organize our business segments based on the nature of the 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. The condensed consolidated financial statements in this Form 10-Q are presented in a manner consistent with our operating structure. For additional information regarding our operating segments, see Note 12 of the notes to the condensed consolidated financial statements. From a customer and solutions perspective, we view our business as an integrated whole, leveraging skills and assets wherever possible.

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Strategic Acquisitions

We have supplemented our organic growth by identifying, acquiring and integrating businesses that meet our primary objective of providing us with enhanced capabilities to pursue a broader cross section of the DoD, Department of Homeland Security (“DHS”) and other government markets, complement and broaden our existing client base and expand our primary service offerings. Our senior management team has significant acquisition experience.

On July 2, 2012, we completed the acquisition of CEI for approximately $164.0 million. The purchase price including an adjustment for working capital and cash to be paid to the shareholders for the 338(h)(10) election includes $135.0 million in cash and 4.0 million shares of our common stock, valued at $5.94 per share on July 2, 2012, or $23.8 million. $10.7 million of the cash paid was placed into an escrow account as security for CEI's indemnification obligations as set forth in the CEI purchase agreement and will be reduced by $1.0 million to pay the working capital adjustment owed to us in July 2013. In addition, $2.5 million was paid to retire certain pre-existing CEI debt and settle pre-existing accounts receivable from CEI at its carrying and fair value of $3.0 million. We made an election under Section 338(h)(10) of the Internal Revenue Code, which resulted in tax deductible goodwill related to this transaction and as a result will pay an estimated $1.6 million in additional tax liability incurred by the shareholders of CEI for this election. We estimate the tax deductible goodwill and intangibles, which are subject to change based upon the final fair value of assets acquired and liabilities assumed, will be approximately $140.6 million and can be deducted for federal and California state income taxes over a 15-year period.

In connection with the completion of the CEI transaction, certain CEI personnel entered into long-term employment agreements with us. On July 2, 2012, we granted restricted stock units ("RSUs") for an aggregate 2.0 million shares of common stock as long-term retention inducement grants to certain employees of CEI who joined Kratos. The RSUs had an estimated value of $11.9 million on the grant date, vest on the fourth anniversary of the closing of the CEI acquisition, or earlier upon the occurrence of certain events, and are being accounted for as compensation expense over such four-year period.

To fund the acquisition of CEI, on May 14, 2012, the Company sold approximately 20.0 million shares of its common stock at a purchase price of $5.00 per share in an underwritten public offering. We received gross proceeds of approximately $100.0 million and net proceeds of approximately $97.0 million after deducting underwriting fees and other offering expenses. We used the net proceeds from this offering to fund a portion of the purchase price for the acquisition of CEI. In addition, we borrowed $40.0 million from our revolving line of credit to fund the purchase price of CEI.

CEI is a vertically integrated manufacturer and developer of unmanned aerial target systems and composite structures used for national security programs. Its drones are designed to replicate some of the most lethal aerial threats facing warfighters and strategic assets. CEI's customers include U.S. and foreign governments.

On December 30, 2011, we acquired selected assets of a Critical Infrastructure Business for approximately $18.8 million, which includes a final agreement on the working capital adjustment.

The Critical Infrastructure Business designs, engineers, deploys, manages and maintains specialty security systems at some of the most strategic asset and critical infrastructure locations in the U.S. Additionally, these security systems are typically integrated into command and control system infrastructure or command centers. Approximately 15% of the revenues of the Critical Infrastructure Business are recurring in nature due to the operation, maintenance or sustainment of the security systems once deployed.

Key Financial Statement Concepts

For a complete description of our business and a discussion of our critical accounting matters, please refer to Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” in the Form 10-K.

As of March 31, 2013, we consider the following factors to be important in understanding our financial statements.

KGS' business with the U.S. Government and prime contractors is generally performed under cost reimbursable, fixed-price or time and materials contracts. Cost reimbursable contracts for the U.S. Government provide for reimbursement of costs plus the payment of a fee. Some cost reimbursable contracts include incentive fees that are awarded based on performance on the contract. Under time and materials contracts, we are reimbursed for labor hours at negotiated hourly billing rates and reimbursed for travel and other direct expenses at actual costs plus applied general and administrative expenses. In accounting for our long-term contracts for production of products and services provided to the U.S. Government and provided to our PSS segment customers under fixed price contracts, we utilize both cost-to-cost and units produced measures under the

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percentage-of-completion method of accounting under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition. Under the units produced measure of the percentage-of-completion method of accounting, sales are recognized as the units are accepted by the customer generally using sales values for units in accordance with the contract terms. We estimate profit as the difference between total estimated revenue and total estimated cost of a contract and recognize that profit over the life of the contract based on deliveries or as computed on the basis of the estimated final average unit costs plus profit. We classify contract revenues as product sales or service revenues depending upon the predominant attributes of the relevant underlying contracts.

We consider the following factors when determining if collection of a receivable is reasonably assured: comprehensive collection history; results of our communications with customers; the current financial position of the customer; and the relevant economic conditions in the customer's country. If we have had no prior experience with the customer, we review reports from various credit organizations to ensure that the customer has a history of paying its creditors in a reliable and effective manner. If the financial condition of our customers were to deteriorate and adversely affect their financial ability to make payments, additional allowances would be required. Additionally, on certain contracts whereby we perform services for a prime/general contractor, a specified percentage of the invoiced trade accounts receivable may be retained by the customer until we complete the project. We periodically review all retainages for collectability and record allowances for doubtful accounts when deemed appropriate, based on our assessment of the associated risks.

We monitor our policies and procedures with respect to our contracts on a regular basis to ensure consistent application under similar terms and conditions as well as compliance with all applicable government regulations. In addition, costs incurred and allocated to contracts with the U.S. Government are routinely audited by the Defense Contract Audit Agency.

We manage and assess the performance of our businesses based on our performance on individual contracts and programs obtained generally from government organizations with consideration given to the Critical Accounting Principles and Estimates as described in the Form 10-K. Due to the Federal Acquisition Regulation rules that govern our business, most types of costs are allowable, and we do not focus on individual cost groupings (such as cost of sales or general and administrative costs) as much as we do on total contract costs, which are a key factor in determining contract operating income. As a result, in evaluating our operating performance, we look primarily at changes in sales and service revenue and at operating income, including the effects of significant changes in operating income. Changes in contract estimates are reviewed on a contract-by-contract basis and are revised periodically throughout the life of the contract such that adjustments to profit resulting from revisions are made cumulative to the date of the revision in accordance with GAAP. Significant management judgments and estimates, including the estimated costs to complete the project, which determine the project's percent complete, must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and timing of our revenue for any period if management makes different judgments or utilizes different estimates.

Comparison of Results for the Three Months Ended March 25, 2012 to the Three Months Ended March 31, 2013

Revenues.  Revenues increased $43.3 million from $209.5 million for the three months ended March 25, 2012 to $252.8 million for the three months ended March 31, 2013. KGS segment revenue increased by $33.3 million. This increase was primarily due to revenues of $25.9 million from our CEI acquisition as well as organic growth in our satellite communications business, specialized ground equipment, and cyber security businesses, partially offset by continued ongoing weakness and increased competition in our legacy government services businesses of $3.1 million and delay of service programs as a result of the continuing resolution and uncertainty related to sequestration. PSS segment revenue increased by $10.0 million due to organic growth primarily driven by revenue from large metropolitan transit authority programs. Revenues by operating segment for the three months ended March 25, 2012 and March 31, 2013 are as follows (dollars in millions):

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	March 25, 2012		March 31, 2013		$ change		% change
Kratos Government Solutions
Service revenues	$	61.5	$	64.9	$	3.4	5.5	%
Product sales	107.4		137.3		29.9		27.8	%
Total Kratos Government Solutions	168.9		202.2		33.3		19.7	%
Public Safety & Security
Service revenues	40.6		50.6		10.0		24.6	%
Product sales	—		—		—		—	%
Total Public Safety & Security	40.6		50.6		10.0		24.6	%
Total revenues	$	209.5	$	252.8	$	43.3	20.7	%

Product sales increased $29.9 million from $107.4 million for the three months ended March 25, 2012 to $137.3 million for the three months ended March 31, 2013.  As a percentage of total revenue, product sales were 51.3% for the three months ended March 25, 2012 as compared to 54.3% for the three months ended March 31, 2013.  The increase in product sales was primarily related to the acquisition of CEI. Service revenues increased by $13.4 million from $102.1 million for the three months ended March 25, 2012 to $115.5 million for the three months ended March 31, 2013. The increase was primarily related to the organic growth in the PSS segment, partially offset by the reductions in the legacy government service revenue in other business units in the KGS segment as discussed above.

Cost of Revenues.  Cost of revenues increased $35.4 million from $151.7 million for the three months ended March 25, 2012 to $187.1 million for the three months ended March 31, 2013. The increase in cost of revenues was primarily a result of our acquisition of CEI and costs related to revenue from organic growth in our PSS segment as discussed above.

Gross margin decreased from 27.6% for the three months ended March 25, 2012 to 26.0% for the three months ended March 31, 2013. Margins on services increased for the three months ended March 25, 2012 as compared to March 31, 2013, from 21.8% to 23.6%, respectively, due primarily to increased margins in our KGS segment. Margins on products decreased for the three months ended March 25, 2012 as compared to March 31, 2013 from 33.1% to 28.0%, respectively, as a result of an increase in the shipment of specialized ground equipment, which has lower margins than other products. Margins in the KGS segment decreased from 28.1% for the three months ended March 25, 2012 to 26.2% for the three months ended March 31, 2013, primarily as a result of the mix of products shipped. Margins in the PSS segment remained fairly flat at 25.6% for the three months ended March 25, 2012 and 25.3% for the three months ended March 31, 2013.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses (“SG&A”) increased $5.0 million from $44.2 million for the three months ended March 25, 2012 to $49.2 million for the three months ended March 31, 2013. The increase was primarily a result of the acquisition of CEI. As a percentage of revenues, SG&A decreased from 21.1% to 19.5%. Excluding amortization of intangibles of $10.5 million for the three months ended March 25, 2012 and amortization of intangibles of $9.3 million for the three months ended March 31, 2013, SG&A decreased slightly as a percentage of revenues from 16.1% to 15.8% for the three months ended March 25, 2012 and March 31, 2013, respectively. 

Merger and Acquisition Expenses.  Merger and acquisition expenses for the three months ended March 25, 2012 and March 31, 2013 were $0.9 million and $0.1 million, respectively.

Research and Development Expenses.  Research and development expenses increased from $3.6 million for the three months ended March 25, 2012 to $4.9 million for the three months ended March 31, 2013 due to select investments we are making to enhance certain satellite and electronic warfare/electronic attack products and the acquisition of CEI.

Other Expense, Net.  Other expense, net increased from $15.7 million to $16.9 million for the three months ended March 25, 2012 and March 31, 2013, respectively. The increase in expense of $1.2 million is primarily related to a $0.8 million year over year increase in foreign currency transaction losses.

Provision (Benefit) for Income Taxes.  Income tax benefit for the three months ended March 25, 2012 was $4.1 million and the income tax expense for the three months ended March 31, 2013 was $2.8 million, on a loss before income taxes of $6.6 million and $5.4 million, respectively. The tax benefit of $4.1 million and expense of $2.8 million for the three months ended March 25, 2012 and March 31, 2013, respectively, were primarily a function of the estimated effective tax rate for the respective years. The estimated effective tax rate for any given year is driven by estimated foreign taxes, estimated state taxes,

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permanent book/tax differences, tax amortization of intangible assets that have an indefinite life under GAAP and the projected income or loss for the year.

Income from Discontinued Operations.  Revenue from discontinued operations was $5.6 million and $3.6 million, tax expense was $0.1 million and $0.0 million, and loss from discontinued operations was $0.5 million and $2.1 million for the three months ended March 25, 2012 and March 31, 2013, respectively. The revenue and income for the three months ended March 25, 2012 and March 31, 2013 was primarily related to operations of the non-core businesses from the Integral acquisition that have been classified as held for sale. During the three months ended March 31, 2013, we also recorded a $1.2 million impairment charge related to our revised estimate of the fair value of these operations (See Note 8 Discontinued Operations).

Backlog

As of March 25, 2012 and March 31, 2013, our backlog was approximately $1.1 billion and $1.2 billion, respectively, of which $500.0 million was funded in 2012 and $604.0 million was funded in 2013. Backlog is our estimate of the amount of revenue we expect to realize over the remaining life of awarded contracts and task orders that we have in hand as of the measurement date. Our total backlog consists of funded and unfunded backlog. We define funded backlog as estimated future revenue under government contracts and task orders for which funding has been appropriated by Congress and authorized for expenditure by the applicable agency, plus our estimate of the future revenue we expect to realize from our commercial contracts that are under firm orders. Our funded backlog does not include the full potential value of our contracts because Congress often appropriates funds to be used by an agency for a particular program of a contract on a yearly or quarterly basis even though the contract may call for performance over a number of years. As a result, contracts typically are only partially funded at any point during their term, and all or some of the work to be performed under the contracts may remain unfunded unless and until Congress makes subsequent appropriation and the procuring agency allocates funding to the contract.

Unfunded backlog reflects our estimate of future revenue under awarded government contracts and task orders for which either funding has not yet been appropriated or expenditure has not yet been authorized. Our total backlog does not include estimates of revenue from government-wide acquisition contracts or General Services Administration schedules beyond awarded or funded task orders, but our unfunded backlog does include estimates of revenue beyond awarded or funded task orders for other types of indefinite delivery, indefinite quantity contracts based on our experience under such contracts and similar contracts. Unfunded backlog also includes priced options, which consist of the aggregate contract revenues expected to be earned as a result of a customer exercising an option period that has been specifically defined in the original contract award.

Contracts undertaken by us may extend beyond one year. Accordingly, portions are carried forward from one year to the next as part of backlog. Because many factors affect the scheduling of projects, no assurance can be given as to when revenue will be realized on projects included in our backlog. Although funded backlog represents only business that is considered to be firm, we cannot guarantee that cancellations or scope adjustments will not occur. The majority of funded backlog represents contracts with terms that would entitle us to all or a portion of our costs incurred and potential fees upon cancellation by the customer.

Management believes that year-to-year comparisons of backlog are not necessarily indicative of future revenues. The actual timing of receipt of revenues, if any, on projects included in backlog could change because many factors affect the scheduling of projects. In addition, cancellation or adjustments to contracts may occur. Backlog is typically subject to large variations from quarter to quarter as existing contracts are renewed or new contracts are awarded. Additionally, all U.S. Government contracts included in backlog, whether or not funded, may be terminated at the convenience of the U.S. Government.

Liquidity and Capital Resources

As of March 31, 2013, we had cash and cash equivalents of $51.6 million compared with cash and cash equivalents of $49.0 million as of December 30, 2012, which includes $19.2 million and $15.2 million, respectively, of cash and cash equivalents held by our foreign subsidiaries. We are not presently aware of any restrictions on the repatriation of these funds, although a portion may be considered permanently invested in these foreign subsidiaries. If these funds were needed to fund our operations or satisfy obligations in the U.S. they could be repatriated, and their repatriation into the U.S. may cause us to incur additional U.S. income taxes or foreign withholding taxes. Any additional taxes could be offset, in part or in whole, by foreign tax credits. The amount of such taxes and application of tax credits would be dependent on the income tax laws and other circumstances at the time these amounts are repatriated. Based on these variables, it is not practicable to determine the income tax liability that might be incurred if these earnings were to be repatriated. We do not currently intend to repatriate these earnings.

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Our total debt, including capital lease obligations, principal due on the Notes, other term debt, and the premium of $17.7 million received on Notes issued, decreased by $1.4 million from $650.3 million on December 30, 2012 to $648.9 million on March 31, 2013. The decrease in debt was primarily the result of the amortization of the premium on the Notes of approximately $1.0 million and a $0.3 million principal payment on a ten-year term loan with a bank in Israel.

Our operating cash flow is used to finance trade accounts receivable, fund necessary increases in inventory, fund capital expenditures and our ongoing operations, service our debt and make strategic acquisitions. Financing trade accounts receivable is necessary because, on average, our customers do not pay us as quickly as we pay our vendors and employees for their goods and services. Financing increases in inventory balances is necessary to fulfill shipment requirements to meet delivery schedules of our customers. Cash from continuing operations is primarily derived from our customer contracts in progress and associated changes in working capital components. Our accounts receivable balance of $281.8 million at March 31, 2013 includes $1.3 million of receivables due from a Greek customer under a subcontract arrangement Gichner Holdings, Inc. ("Gichner") entered into with the Greek Ministry of Defense (GMoD) in 2004 prior to our acquisition of Gichner in 2010. After numerous delays by our customer and the GMoD, activity has resumed on the project. We currently expect product shipments to continue through late 2013 when the final shipment is delivered. We do not have any significant direct exposure to European government receivables, and our customers do not rely heavily on European government subsidies or other European government support. We will continue to monitor our exposure to risks relating to European sovereign debt.

A summary of our net cash provided by operating activities from continuing operations from our condensed consolidated statements of cash flows is as follows (in millions):

	Three Months Ended
	March 25, 2012		March 31, 2013
Net cash provided by operating activities from continuing operations	$	25.0	$	5.1

Cash provided by operating activities from continuing operations for the three months ended March 25, 2012 includes $2.3 million in transaction costs paid related to our acquisitions.

Our cash used in investing activities from continuing operations is summarized as follows (in millions):

	Three Months Ended
	March 25, 2012			March 31, 2013
Investing activities:
Cash paid for acquisitions, net of cash acquired	$	(21.5	)	$	1.2
Decrease in restricted cash	0.4			0.2
Capital expenditures	(2.7		)	(3.3		)
Net cash used in investing activities from continuing operations	$	(23.8	)	$	(1.9	)

Cash paid for acquisitions was the most significant outlay for investing activities for the three months ended March 25, 2012, as a result of the implementation of our strategy to diversify our business through strategic acquisitions. On December 30, 2011, we acquired selected assets of the Critical Infrastructure Business for approximately $20.0 million. In March 2012, we paid $1.5 million related to the contingent acquisition consideration for SecureInfo for performance milestones achieved in 2011.

Capital expenditures consist primarily of investment in machinery, computer hardware and software, and improvement of our physical properties in order to maintain suitable conditions in which to conduct our business. The increase in capital expenditures of $0.5 million from $2.7 million for the three months ended March 25, 2012 to $3.3 million for the three months ended March 31, 2013 was primarily a result of capital equipment expenditures made by CEI.

Cash used in financing activities from continuing operations is summarized as follows (in millions):

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	Three Months Ended
	March 25, 2012			March 31, 2013
Financing activities:
Repayments of debt	(0.3		)	(0.3		)
Other	(0.1		)	(0.2		)
Net cash used in financing activities from continuing operations	$	(0.4	)	$	(0.5	)

Cash provided by discontinued operations is summarized as follows (in millions):

	Three Months Ended
	March 25, 2012		March 31, 2013
Net cash flows provided by discontinued operations	$	3.9	$	0.2

The cash flow from discontinued operations is primarily related to non-core businesses we acquired in the Integral acquisition.

Contractual Obligations and Commitments

In order to fund our acquisitions in 2011 and 2012, we issued equity and increased our leverage through a series of financing transactions.

Issuance of 10% Senior Secured Notes due 2017

On May 19, 2010, we entered into an indenture with the guarantors set forth therein and Wilmington Trust FSB, as trustee and collateral agent (as amended or supplemented the “Indenture”), to issue the Notes. As of March 31, 2013, we have issued Notes in the aggregate principal amount of $625.0 million under the Indenture, of which $225.0 million were issued on May 19, 2010, $285.0 million were issued on March 25, 2011 at a $20.0 million premium and an effective interest rate of 8.5 % and $115.0 million were issued on July 27, 2011 at a $5.8 million premium and an effective interest rate of 8.9%. These Notes have been used to fund acquisitions and for general corporate purposes. The holders of the Notes have a first priority lien on substantially all of our assets and the assets of the guarantors, except with respect to accounts receivable, inventory, deposit accounts, securities accounts, cash, securities and general intangibles (other than intellectual property), on which the holders of the Notes have a second priority lien to the $110.0 million credit facility described below.

We pay interest on the Notes semi-annually, in arrears, on June 1 and December 1 of each year. The Notes include customary covenants and events of default as well as a consolidated fixed charge ratio of 2:1 for the incurrence of additional indebtedness. Negative covenants include, among other things, limitations on additional debt, liens, negative pledges, investments, dividends, stock repurchases, asset sales and affiliate transactions. Events of default include, among other events, non-performance of covenants, breach of representations, cross-default to other material debt, bankruptcy, insolvency, material judgments and changes in control. As of March 31, 2013, we were in compliance with the covenants contained in the Indenture governing the Notes.

On or after June 1, 2014, we may redeem some or all of the Notes at 105% of the aggregate principal amount of such Notes through June 1, 2015, 102.5% of the aggregate principal amount of such Notes through June 1, 2016 and 100% of the aggregate principal amount of such Notes thereafter, plus accrued and unpaid interest to the date of redemption. Prior to June 1, 2013, we may redeem up to 35% of the aggregate principal amount of the Notes at 110% of the aggregate principal amount of the Notes, plus accrued and unpaid interest to the date of redemption, with the net cash proceeds of certain equity offerings. In addition, we may, at our option, redeem some or all of the Notes at any time prior to June 1, 2014, by paying a “make whole” premium, plus accrued and unpaid interest, if any, to the date of redemption. The Company may also at any time purchase outstanding Notes traded on the open market.

Other Indebtedness

$110.0 Million Credit Facility

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On July 27, 2011, we entered into a credit and security agreement with KeyBank National Association (“KeyBank”), as lead arranger, sole book runner and administrative agent, and East West Bank and Bank of the West, as the lenders (the “2011 Credit Agreement”). The 2011 Credit Agreement amends and restates in its entirety the credit and security agreement, dated as of May 19, 2010, by and among the Company, KeyBank and the lenders named therein (as amended). The 2011 Credit Agreement establishes a five-year senior secured revolving credit facility in the amount of $65.0 million (as amended as described below, the “Amended Revolver”). The Amended Revolver is secured by a lien on substantially all of our assets and the assets of the guarantors thereunder, subject to certain exceptions and permitted liens. The Amended Revolver has a first priority lien on accounts receivable, inventory, deposit accounts, securities accounts, cash, securities and general intangibles (other than intellectual property). On all other assets, the Amended Revolver has a second priority lien junior to the lien securing the Notes.

Borrowings under the Amended Revolver are subject to mandatory prepayment upon the occurrence of certain events, including the issuance of certain securities, the incurrence of certain debt and the sale or other disposition of certain assets. The Amended Revolver includes customary affirmative and negative covenants and events of default, as well as a financial covenant relating to a minimum fixed charge coverage ratio of 1.25. Negative covenants include, among other things, limitations on additional debt, liens, negative pledges, investments, dividends, stock repurchases, asset sales and affiliate transactions. Events of default include, among other events, non-performance of covenants, breach of representations, cross-default to other material debt, bankruptcy and insolvency, material judgments and changes in control.

 On May 4, 2012, we entered into a second amendment (the "Second Amendment") to the 2011 Credit Agreement. Among other things, the Second Amendment (i) increased the amount of the Amended Revolver from $90.0 million to $110.0 million, (ii) added to and modified the definitions of certain terms contained in the 2011 Credit Agreement, (iii) added Cathay Bank as a lender under the 2011 Credit Agreement, (iv) increased the maximum revolving amount capacity of the 2011Credit Agreement to $135.0 million, and (v) updated certain schedules to the 2011 Credit Agreement.

On May 8, 2012, we entered into a third amendment (the "Third Amendment") to the 2011 Credit Agreement. Under the terms of the Third Amendment, the definitions of certain terms of the 2011 Credit Agreement were modified and the acquisition of CEI was approved. We used the net proceeds from the sale of 20.0 million shares of our common stock, together with a $40.0 million borrowing under the Amended Revolver, to fund the purchase of the CEI and to pay related fees and expenses. As of September 30, 2012, we repaid the $40.0 million borrowing under our credit facility.

On February 27, 2013, we entered into a fourth amendment (the "Fourth Amendment") to the 2011 Credit Agreement. Under the terms of the Fourth Amendment, the definition of certain terms of the 2011 Credit Agreement and reporting requirements were modified.

The amounts of borrowings that may be made under the Amended Revolver are based on a borrowing base and are comprised of specified percentages of eligible receivables, eligible unbilled receivables and eligible inventory. If the amount of borrowings outstanding under the Amended Revolver exceeds the borrowing base then in effect, we are required to repay such borrowings in an amount sufficient to eliminate such excess. The Amended Revolver includes $50.0 million of availability for letters of credit and $10.0 million of availability for swing line loans.

We may borrow funds under the Amended Revolver at a rate based either on LIBOR or a base rate established by KeyBank. Base rate borrowings bear interest at an applicable margin of 1.00% to 1.75% over the base rate (which will be the greater of the prime rate or 0.5% over the federal funds rate, with a floor of 1.0% over one month LIBOR). LIBOR rate borrowings will bear interest at an applicable margin of 3.00% to 3.75% over the LIBOR rate. The applicable margin for base rate borrowings and LIBOR borrowings will depend on the average monthly revolving credit availability. The Amended Revolver also has a commitment fee of 0.50% to 0.75%, depending on the average monthly revolving credit availability. As of March 31, 2013, there were no outstanding borrowings on the Amended Revolver and $14.1 million was outstanding on letters of credit resulting in net borrowing base availability of $91.7 million. We were in compliance with the financial covenants as of March 31, 2013.

Debt Acquired in Acquisition of Herley

We assumed a $10.0 million ten-year term loan with a bank in Israel that Herley entered into on September 16, 2008 in connection with the acquisition of one of its wholly owned subsidiaries. The balance as of March 31, 2013 was $5.5 million, and the loan is payable in quarterly installments of $0.3 million plus interest at LIBOR plus a margin of 1.5%. The loan agreement contains various covenants, including a minimum net equity covenant as defined in the loan agreement. We were in compliance with the financial covenants of the loan agreement as of March 31, 2013.

36

Contingent Consideration and Liabilities in Connection with Acquisitions

In connection with our business acquisitions, we have agreed to make additional future payments to sellers based on final purchase price adjustments and the expiration of certain indemnification obligations. Pursuant to the provisions of Topic 805, such amounts are recorded at fair value on the acquisition date.

The agreement and plan of merger entered into in connection with our acquisition of SecureInfo provided that upon achievement of certain cash receipts, revenue and EBITDA in 2011, we were obligated to pay the former stockholders of SecureInfo additional cash contingent consideration. In March 2012, we paid $1.5 million related to this contingent consideration.

Pursuant to the terms of the agreement and plan of merger with DEI Services Corporation entered into on August 9, 2010 (“the DEI Agreement”), upon achievement of certain cash receipts, revenue, EBITDA and backlog amounts in 2010, 2011 and 2012, we will be obligated to pay certain additional contingent consideration (the “DEI Contingent Consideration”). We have paid $2.9 million related to the DEI Contingent Consideration, of which $2.5 million was paid in April 2012. As of March 31, 2013, the undiscounted amount of future DEI Contingent Consideration that is payable by us under the DEI Agreement is $2.1 million, which was paid in April of 2013.

Other Liquidity Matters

We believe that our cash on hand, together with funds available under the Amended Revolver and cash expected to be generated from operating activities, will be sufficient to fund our anticipated working capital and other cash needs for at least the next 12 months.

As discussed in Part II, Item 1A, “Risk Factors” of the Form 10-K, our quarterly and annual operating results have fluctuated in the past and may vary in the future due to a variety of factors, many of which are external to our control. If the conditions in our industry deteriorate or our customers cancel or postpone projects or if we are unable to sufficiently increase our revenues or further reduce our expenses, we may experience, in the future, a significant long-term negative impact to our financial results and cash flows from operations. In such a situation, we could fall out of compliance with our financial and other covenants which, if not waived, could limit our liquidity and capital resources.

Critical Accounting Principles and Estimates

The foregoing discussion of our financial condition and results of operations is based on the condensed consolidated financial statements included in this Form 10-Q. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and the related disclosures of contingencies. We base these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates.

For the three months ended March 31, 2013, there have been no significant changes to our Critical Accounting Policies or Estimates as compared to the significant accounting policies described in the Form 10-K.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board ("FASB") issued "Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income," which requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, entities are required to cross-reference to other disclosures required under GAAP that provide additional detail on these amounts. This standard is effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted this standard in the quarter ended March 31, 2013, which did not have a material impact on its consolidated financial statements.

In December 2011 and February 2013, the FASB issued an amendment to the Balance Sheet topic of the Accounting

37

Standards Codification ("ASC"), which requires entities to disclose both gross and net information about both derivatives and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting agreement. The objective of the disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards. This standard is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. Retrospective presentation for all comparative periods presented is required. Accordingly, the Company will adopt this amendment in the first quarter of fiscal year 2014. The Company does not believe that the adoption of this guidance will have a material impact on its consolidated financial statements.

Other than as noted above, there have been no changes in the Company's significant accounting policies for the three months ended March 31, 2013 as compared to the significant accounting policies described in the Form 10-K.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risk, primarily related to interest rates and foreign currency exchange rates.

Exposure to market risk for changes in interest rates relates to our outstanding debt. We are exposed to interest rate risk, primarily through our borrowing activities under the Amended Revolver discussed under "Contractual Obligations and Commitments" above. Based on our current outstanding balances, a 1% change in the LIBOR rate would not impact our financial position. We manage exposure to these risks through our operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Derivative financial instruments are viewed as risk management tools and are not used for speculation or for trading purposes. Derivative financial instruments were contracted with investment grade counterparties to reduce exposure to nonperformance on our prior credit facilities.

Exposure to market risk for foreign currency exchange rate risk is related to receipts from customers, payments to suppliers and intercompany loans denominated in foreign currencies. We currently do not enter into foreign currency forward contracts to manage foreign currency exchange rate risk because to date exchange rate fluctuations have had minimal impact on our operating results and cash flows.

Cash and cash equivalents as of March 31, 2013 were $51.6 million and are primarily invested in money market interest bearing accounts. A hypothetical 10% adverse change in the average interest rate on our money market cash investments and short-term investments would have had no material effect on our net loss for the three months ended March 31, 2013.

38

Item 4.  Controls and Procedures.

Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) promulgated under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.

Based on the foregoing, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2013.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting during the three months ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings.

See Note 13 of the Notes to the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q for a discussion of our legal proceedings.

Item 1A.  Risk Factors.

In evaluating us and our common stock, we urge you to carefully consider the risks and other information in this Quarterly Report on Form 10-Q, as well as the risk factors disclosed in Item 1A. to Part I of our Annual Report on Form 10-K for the fiscal year ended December 30, 2012, which we filed with the SEC on March 12, 2013. The risks and uncertainties described in “Item 1A - Risk Factors” of our Annual Report on Form 10-K have not materially changed. Any of the risks discussed in this Quarterly Report on Form 10-Q or any of the risks disclosed in Item 1A. to Part I of our Annual Report on Form 10-K for the fiscal year ended December 30, 2012, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations or financial condition.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

There were no unregistered sales of the Company's equity securities during the quarter ended March 31, 2013 that were not previously disclosed in a Current Report on Form 8-K.

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures.

Not applicable.

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Item 5.  Other Information.

On February 27, 2013, the Company entered into a fourth amendment (the “Fourth Amendment”) to the 2011 Credit Agreement. Under the terms of the Fourth Amendment, the definition of certain terms of the 2011 Credit Agreement and reporting requirements were modified. The foregoing description of the Fourth Amendment does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Fourth Amendment, a copy of which is attached hereto as Exhibit 10.1 and the terms of which are incorporated herein by reference.

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Item 6.  Exhibits.

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Filing Date/ Period End Date	Exhibit	Filed- Furnished Herewith
2.1#	Stock Purchase Agreement, dated May 8, 2012, by and among Kratos Defense & Security Solutions, Inc., Composite Engineering, Inc., and Amy Fournier, the stockholders representative	8-K	05/08/2012	2.1
2.2#	Agreement and Plan of Merger, dated May 15, 2011, by and among Kratos Defense & Security Solutions, Inc., Integral Systems, Inc., IRIS Merger Sub Inc., and IRIS Acquisition Sub LLC.	8-K	05/18/2011	2.1
2.3#	Agreement and Plan of Merger, dated February 7, 2011, by and among Kratos Defense & Security Solutions, Inc., Lanza Acquisition, Co. and Herley Industries, Inc. (incorporated by reference to Annex A to the Prospectus Supplement dated February 8, 2011, pursuant to the Registration Statement on Form S-3 of Kratos Defense & Security Solutions, Inc.)	424	2/8/2011	n/a
3.1	Amended and Restated Certificate of Incorporation of Kratos Defense & Security Solutions, Inc.	10-Q	09/30/01	4.1
3.2	Certificate of Ownership and Merger of Kratos Defense & Security Solutions, Inc. into Wireless Facilities, Inc.	8-K	09/14/2007	3.1
3.3	Certificate of Amendment to Amended and Restated Certificate of Incorporation of Kratos Defense & Security Solutions, Inc.	10-Q	09/27/2009	3.1
3.4	Certificate of Designations, Preferences and Rights of Series A Preferred Stock.	10-Q	09/30/2001	4.2
3.5	Certificate of Designations, Preferences and Rights of Series B Preferred Stock (included as Exhibit A to the Preferred Stock Purchase Agreement dated as of May 16, 2002 among the Company, Meritech Capital Partners II L.P., Meritech Capital Affiliates II L.P., MCB Entrepreneur Partners II L.P., Oak Investment Partners X, Limited Partnership, Oak X Affiliates Fund, Limited Partnership, Oak Investment Partners IX, L.P, Oak Affiliates Fund, L.P, Oak IX Affiliates Fund-A, L.P, and the KLS Trust dated July 14, 1999).	8-K/A	6/5/2002	4.1
3.6	Certificate of Designation of Series C Preferred Stock.	8-K	12/17/2004	3.1
3.7	Second Amended and Restated Bylaws of Kratos Defense & Security Solutions, Inc.	8-K	03/15/2011	3.1
4.1	Specimen Stock Certificate.	10-K	12/26/2010	4.1
4.2	Rights Agreement, dated as of December 16, 2004, between Kratos Defense & Security Solutions, Inc. and Wells Fargo, N.A.	8-K	12/17/2004	4.1
4.3	Amendment No. 1 to Rights Agreement, dated as of May 14, 2012, between Kratos Defense & Security Solutions, Inc. and Wells Fargo, N.A.	8-K	05/15/2012	4.1

41

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Filing Date/ Period End Date	Exhibit	Filed- Furnished Herewith
4.4	Indenture, dated as of May 19, 2010, by and among Kratos Defense & Security Solutions, Inc., the Guarantors set forth therein and Wilmington Trust FSB, as Trustee and Collateral Agent (including the Form of 10% Senior Secured Notes due 2017 as an exhibit thereto).	8-K	05/25/2010	4.1
4.5	First Supplemental Indenture, dated as of February 7, 2011, by and among Kratos Defense & Security Solutions, Inc., the guarantors listed on Exhibit A thereto and Wilmington Trust FSB, to the Indenture, dated as of May 19, 2010 (as amended or supplemented), among Kratos Defense & Security Solutions, Inc., the guarantors party thereto and Wilmington Trust FSB, as trustee and collateral agent.	8-K	02/07/2011	10.2
4.6	Supplemental Indenture, dated April 1, 2011, among the guaranteeing subsidiaries named therein and Wilmington Trust FSB, as trustee, to the Indenture (as amended or supplemented), dated as of May 19, 2010, among Kratos Defense & Security Solutions, Inc., the guarantors party thereto and Wilmington Trust FSB, as trustee and collateral agent.	8-K	04/07/2011	4.1
4.7	Third Supplemental Indenture, dated April 15, 2011, by and among Kratos Defense & Security Solutions, Inc., the guaranteeing subsidiaries named therein and Wilmington Trust FSB, as trustee and collateral agent, to the Indenture, dated as of May 19, 2010 (as amended or supplemented), among Kratos Defense & Security Solutions, Inc., the guarantors party thereto and Wilmington Trust FSB, as trustee and collateral agent.	8-K	04/20/2011	4.1
4.8	Sixth Supplemental Indenture, dated July 27, 2011, by and among Kratos Defense & Security Solutions, Inc., the guaranteeing subsidiaries named therein and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as trustee and collateral agent, to the Indenture, dated as of May 19, 2010 (as amended or supplemented), among Kratos Defense & Security Solutions, Inc., the guarantors party thereto and Wilmington Trust FSB, as trustee and collateral agent.	8-K	07/29/2011	4.1
4.9	Form of 10% Senior Secured Note due 2017 (issuable in connection with the 2010 exchange offer).	S-4	06/28/10	4.1
4.10	Form of 10% Senior Secured Note due 2017 (issuable in connection with the August 2011 exchange offer).	S-4	06/07/2011	4.2
4.11	Form of 10% Senior Secured Note due 2017 (issuable in connection with the October 2011 exchange offer).	S-4	10/25/2011	4.2

42

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Filing Date/ Period End Date	Exhibit	Filed- Furnished Herewith
4.12	Registration Rights Agreement, dated as of May 19, 2010, by and among Kratos Defense & Security Solutions, Inc., the Guarantors set forth therein, Jefferies & Company, Inc., B. Riley & Co., LLC, Imperial Capital, LLC, Keybanc Capital Markets Inc. and Noble International Investments, Inc.	8-K	05/25/2010	10.4
4.13	Indenture, dated March 25, 2011, by and among Acquisition Co. Lanza Parent, the Guarantors named therein and a party thereto, and Wilmington Trust FSB, as Trustee and Collateral Agent (including the Form of 10% Senior Secured Notes).	8-K	03/29/2011	4.1
4.14	First Supplemental Indenture, date April 4, 2011, by and among Kratos Defense & Security Solutions, Inc., Herley Industries, Inc. and Wilmington Trust FSB, as Trustee and Collateral Agent, to the Indenture, dated as of March 25, 2011, among Kratos Defense & Security Solutions, Inc., the Guarantor party thereto and Wilmington Trust FSB, as Trustee and Collateral Agent.	8-K	04/04/11	4.2
4.15	Registration Rights Agreement, dated March 25, 2011, by and among Kratos Defense & Security Solutions, Inc., Acquisition Co. Lanza Parent, Lanza Acquisition Co., the Guarantors named therein, Jefferies & Company, Inc., KeyBanc Capital Markets Inc. and Oppenheimer & Co. Inc.	8-K	03/29/2011	4.2
4.16	Registration Rights Agreement, dated July 27, 2011, by and among Kratos Defense & Security Solutions, Inc., the guarantors named therein, Jefferies & Company, Inc., KeyBanc Capital Markets Inc. and B. Riley & Co., LLC.	8-K	07/29/2011	4.2
10.1	Fourth Amendment to Credit and Security Agreement, dated as of February 27, 2013, among Kratos Defense & Security Solutions, the lenders named therein, and KeyBank National Association.				*
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.				*
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.				*
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Eric M. DeMarco.				*
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Deanna Lund.				*

43

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Filing Date/ Period End Date	Exhibit	Filed- Furnished Herewith
101†	Financial statements from the Quarterly Report on Form 10-Q of Kratos Defense & Security Solutions, Inc. for the quarter ended March 31, 2013, formatted in XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations and Comprehensive Income, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Notes to the Condensed Consolidated Financial Statements.				*

#    Certain schedules and exhibits referenced in this document have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request.

†    Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Exchange Act of 1934, and otherwise is not subject to liability under these sections.

44

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, thereunto duly authorized.

		KRATOS DEFENSE & SECURITY SOLUTIONS, INC.
		By:	/s/ ERIC M. DEMARCO
			Eric M. DeMarco
			Chief Executive Officer, President
			(Principal Executive Officer)
		By:	/s/ DEANNA H. LUND, CPA
			Deanna H. Lund
			Executive Vice President, Chief Financial Officer
			(Principal Financial Officer)
		By:	/s/ LAURA L. SIEGAL, CPA
			Laura L. Siegal
			Vice President, Corporate Controller
			(Principal Accounting Officer)
		By:	/s/ DEBORAH BUTERA
			Deborah Butera
			Senior Vice President, General Counsel, Chief Compliance Officer and
			Secretary/Registered In-House Counsel
Date:	May 9, 2013

45

EX-10.1

EXHIBIT 10.1

FOURTH AMENDMENT AGREEMENT

This FOURTH AMENDMENT AGREEMENT (this “Amendment”) is made as of the 27^th day of February, 2013 among:

(a)    KRATOS DEFENSE & SECURITY SOLUTIONS, INC., a Delaware corporation (the “Borrower”);

(b)    the Lenders, as defined in the Credit Agreement, as hereinafter defined; and

(c)    KEYBANK NATIONAL ASSOCIATION, as the lead arranger, sole book runner and administrative agent for the Lenders under the Credit Agreement (the “Administrative Agent”).

WHEREAS, the Borrower, the Administrative Agent and the Lenders are parties to that certain Credit and Security Agreement, dated as of May 19, 2010, as amended and restated as of July 27, 2011, that provides, among other things, for loans and letters of credit aggregating One Hundred Ten Million Dollars ($110,000,000), all upon certain terms and conditions (as amended and as the same may from time to time be further amended, restated or otherwise modified, the “Credit Agreement”);

WHEREAS, the Borrower, the Administrative Agent and the Lenders desire to amend the Credit Agreement to modify certain provisions thereof and add certain provisions thereto;

WHEREAS, each capitalized term used herein and defined in the Credit Agreement, but not otherwise defined herein, shall have the meaning given such term in the Credit Agreement; and

WHEREAS, unless otherwise specifically provided herein, the provisions of the Credit Agreement revised herein are amended effective as of the date of this Amendment;

NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Borrower, the Administrative Agent and the Lenders agree as follows:

1.    Amendment to Definitions in the Credit Agreement. Section 1.1 of the Credit Agreement is hereby amended to delete the definition of “Eligible Unbilled Receivable” therefrom and to insert in place thereof the following:

“Eligible Unbilled Receivable” means, for any date, an Account of a Borrowing Base Company that was not billed prior to the end of the immediately preceding month.

2.    Amendment to Financial Statements, Collateral Reporting and Information Covenant Provisions. Section 5.3 of the Credit Agreement is hereby amended to delete subsection (f) therefrom and to insert in place thereof the following:

(f)    Inventory Report. The Borrower shall deliver to the Administrative Agent a summary of Inventory, in form and substance satisfactory to the Administrative Agent and signed by a Financial Officer, concurrently with the delivery of the Borrowing Base Certificate referenced in subsection (a) above, based upon period-end balances reconciled to the period-end balance sheet and the period-end Borrowing Base Certificate, and accompanied by an Inventory certification, in form and substance reasonably acceptable to the Administrative Agent and including a calculation of the Eligible Inventory of the Borrowing Base Companies (the calculation of Eligible Inventory reflecting the then most recent period-end balance). The Borrower shall deliver, after the end of each Quarterly Reporting Period, to the Administrative Agent, Inventory records, in such detail as the Administrative Agent and the Lenders shall deem reasonably necessary to determine the level of Eligible Inventory. The values shown on the Inventory reports shall be at the lower of cost or market value, determined in accordance with the usual cost accounting system of the Borrowing Base Companies. The Borrower shall provide such other reports with respect to the Inventory of the Borrowing Base Companies as the Administrative Agent may reasonably request from time to time. Notwithstanding anything above in this Section 5.3(f) to the contrary, unless otherwise required by the Administrative Agent in writing, the Borrower shall only be required to deliver Inventory reports with respect to Borrowing Base Companies whose Inventory is a component of the Borrowing Base.

3.    Closing Deliveries. Concurrently with the execution of this Amendment, the Borrower shall:

(a)    cause each Guarantor of Payment to execute the attached Guarantor Acknowledgment and Agreement; and

(b)    pay all legal fees and expenses of the Administrative Agent in connection with this Amendment and any other Loan Documents.

4.    Representations and Warranties. The Borrower hereby represents and warrants to the Administrative Agent and the Lenders that (a) the Borrower has the legal power and authority to execute and deliver this Amendment; (b) the officers executing this Amendment have been duly authorized to execute and deliver the same and bind the Borrower with respect to the provisions hereof; (c) the execution and delivery hereof by the Borrower and the performance and observance by the Borrower of the provisions hereof do not violate or conflict with the Organizational Documents of the Borrower or any law applicable to the Borrower or result in a breach of any provision of or constitute a default under any other agreement, instrument or document binding upon or enforceable against the Borrower; (d) no Default or Event of Default exists, nor will any occur immediately after the execution and delivery of this Amendment or by the performance or observance of any provision hereof; (e) each of the representations and warranties contained in the Loan Documents is true and correct in all material respects as of the date hereof as if made on the date hereof, except to the extent that any such representation or warranty expressly states that it relates to an earlier date (in which case such representation or warranty is true and correct in all material respects as of such earlier date); (f) the Borrower is not aware of any claim or offset against, or defense or counterclaim to, the Borrower’s obligations or liabilities under the Credit Agreement or any other Related Writing; and (g) this Amendment constitutes a valid and binding obligation of the Borrower in every respect, enforceable in accordance with its terms.

5.    Waiver and Release. The Borrower, by signing below, hereby waives and releases the Administrative Agent, and each of the Lenders, and their respective directors, officers, employees, attorneys, affiliates and subsidiaries, from any and all claims, offsets, defenses and counterclaims of which the Borrower is aware, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto.

6.     References to Credit Agreement and Ratification. Each reference to the Credit Agreement that is made in the Credit Agreement or any other Related Writing shall hereafter be construed as a reference to the Credit Agreement as amended hereby. Except as otherwise specifically provided herein, all terms and provisions of the Credit Agreement are confirmed and ratified and shall remain in full force and effect and be unaffected hereby. This Amendment is a Loan Document.

7.    Counterparts. This Amendment may be executed in any number of counterparts, by different parties hereto in separate counterparts and by facsimile or other electronic signature, each of which, when so executed and delivered, shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement.

8.    Headings. The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment.

9.    Severability. Any provision of this Amendment that shall be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

10.    Governing Law. The rights and obligations of all parties hereto shall be governed by the laws of the State of New York, without regard to principles of conflicts of laws.

[Remainder of page intentionally left blank.]

11696178.8

JURY TRIAL WAIVER. THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS, TO THE EXTENT PERMITTED BY LAW, EACH HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AMENDMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.

IN WITNESS WHEREOF, the parties have executed and delivered this Amendment as of the date first set forth above.

KRATOS DEFENSE & SECURITY SOLUTIONS, INC.

By:

Name:

Title:

KEYBANK NATIONAL ASSOCIATION

   as the Administrative Agent and as a Lender

By:

Name:

Title:

PNC BANK, NATIONAL ASSOCIATION

By:

Name:

Title:

EAST WEST BANK

By:

Name:

Title:

CATHAY BANK

By:

Name:

Title:

BANK OF THE WEST

By:

Name:

Title:

GUARANTOR ACKNOWLEDGMENT AND AGREEMENT

The undersigned consent and agree to and acknowledge the terms of the foregoing Fourth Amendment Agreement dated as of February 27, 2013. The undersigned further agree that the obligations of the undersigned pursuant to the Guaranty of Payment executed by the undersigned are hereby ratified and shall remain in full force and effect and be unaffected hereby.

The undersigned hereby waive and release the Administrative Agent and the Lenders and their respective directors, officers, employees, attorneys, affiliates and subsidiaries from any and all claims, offsets, defenses and counterclaims of any kind or nature, absolute and contingent, of which the undersigned are aware or should be aware, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto.

JURY TRIAL WAIVER. THE UNDERSIGNED, TO THE EXTENT PERMITTED BY LAW, HEREBY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG THE BORROWER, THE ADMINISTRATIVE AGENT, THE LENDERS AND THE UNDERSIGNED, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AMENDMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.

KRATOS PUBLIC SAFETY & SECURITY SOLUTIONS, INC. KPSS GOVERNMENT SOLUTIONS, INC. (F/K/A KRATOS MID-ATLANTIC, INC.) KRATOS SOUTHEAST, INC. KRATOS TEXAS, INC. WFI NMC CORP. KRATOS TECHNOLOGY & TRAINING SOLUTIONS, INC. AI METRIX, INC. POLEXIS, INC. REALITY BASED IT SERVICES, LTD. SHADOW I, INC. SHADOW II, INC. KRATOS INTEGRAL SYSTEMS INTERNATIONAL, INC. (F/K/A SHADOW III, INC.) DIGITAL FUSION, INC. DIGITAL FUSION SOLUTIONS, INC. SUMMIT RESEARCH CORPORATION By:       Deanna H. Lund       Executive Vice President & Chief Financial Officer

DEFENSE SYSTEMS, INCORPORATED HAVERSTICK CONSULTING, INC. HGS HOLDINGS, INC. DTI ASSOCIATES, INC. HAVERSTICK GOVERNMENT SOLUTIONS, INC. ROCKET SUPPORT SERVICES, LLC JMA ASSOCIATES, INC. (D/B/A TLA ASSOCIATES) MADISON RESEARCH CORPORATION GICHNER SYSTEMS GROUP, INC. KRATOS UNMANNED SYSTEMS SOLUTIONS, INC. ( F/K/A GICHNER HOLDINGS, INC.) GICHNER SYSTEMS INTERNATIONAL, INC. CHARLESTON MARINE CONTAINERS INC. DALLASTOWN REALTY I, LLC DALLASTOWN REALTY II, LLC DEI SERVICES CORPORATION SCT ACQUISITION, LLC SCT REAL ESTATE, LLC By:       Deanna H. Lund       Executive Vice President & Chief Financial Officer

KRATOS DEFENSE & ROCKET SUPPORT SERVICES, INC. (F/K/A KRATOS DEFENSE ENGINEERING SOLUTIONS, INC.) KRATOS SOUTHWEST L.P.,      by Kratos Texas, Inc., its general partner GENERAL MICROWAVE CORPORATION      (D/B/A HERLEY NEW YORK) GENERAL MICROWAVE ISRAEL CORPORATION HERLEY INDUSTRIES, INC. HERLEY-CTI, INC. HERLEY - RSS, INC. MICRO SYSTEMS, INC. MSI ACQUISITION CORP. STAPOR RESEARCH, INC. KRATOS INTEGRAL HOLDINGS, LLC (F/K/A IRIS ACQUISITION SUB LLC) AVTEC SYSTEMS, INC. CVG, INCORPORATED LVDM, INC. LUMISTAR, INC. KRATOS NETWORKS, INC. (F/K/A NEWPOINT TECHNOLOGIES, INC.) REAL TIME LOGIC, INC. SAT CORPORATION SECUREINFO CORPORATION COMPOSITE ENGINEERING, INC. By:       Deanna H. Lund       Executive Vice President & Chief Financial Officer

HENRY BROS. ELECTRONICS, INC.,    a Delaware corporation HENRY BROS. ELECTRONICS, INC.,    a Colorado corporation HENRY BROS. ELECTRONICS, INC.,    a Virginia corporation HENRY BROS. ELECTRONICS, INC.,    a New Jersey corporation HENRY BROS. ELECTRONICS, INC.,    a California corporation DIVERSIFIED SECURITY SOLUTIONS, INC. HENRY BROS. ELECTRONICS, LLC NATIONAL SAFE OF CALIFORNIA, INC. AIRORLITE COMMUNICATIONS, INC. By:       Deanna H. Lund       Executive Vice President & Chief Financial       Officer

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Eric M. DeMarco, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Kratos Defense & Security Solutions, Inc.;

2. 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;

3. 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;

4. 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:

(a) 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;

(b) 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;

(c) 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

(d)  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

5. 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):

(a) 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

(b) 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.

Date: May 9, 2013

KRATOS DEFENSE & SECURITY SOLUTIONS, INC.

/s/ ERIC M. DEMARCO

Eric M. DeMarco

Chief Executive Officer, President

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Deanna H. Lund, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Kratos Defense & Security Solutions, Inc.;

2. 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;

3. 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;

4. 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:

(a) 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;

(b) 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;

(c) 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

(d)  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

5. 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):

(a) 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

(b) 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.

Date: May 9, 2013

KRATOS DEFENSE & SECURITY SOLUTIONS, INC.

/s/ DEANNA H. LUND

Deanna H. Lund

Executive Vice President, Chief Financial Officer

(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the accompanying Quarterly Report of Kratos Defense & Security Solutions, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2013 (the “Report”), I, Eric M. DeMarco, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 9, 2013

KRATOS DEFENSE & SECURITY SOLUTIONS, INC.

/s/ ERIC M. DEMARCO

Eric M. DeMarco

Chief Executive Officer, President

(Principal Executive Officer)

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the accompanying Quarterly Report of Kratos Defense & Security Solutions, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2013 (the “Report”), I, Deanna H. Lund, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 9, 2013

KRATOS DEFENSE & SECURITY SOLUTIONS, INC.

/s/ DEANNA H. LUND

Deanna H. Lund

Executive Vice President, Chief Financial Officer

(Principal Financial Officer)

XML

Acquisitions - Contingent Acquisition Consideration (Details) (DEI Services Corporation, USD $) In Millions, unless otherwise specified	1 Months Ended	3 Months Ended
	Apr. 30, 2012	Mar. 31, 2013
Business Acquisition, Contingent Consideration [Line Items]
Business Acquisition, Contingent Consideration, Cumulative Amount Paid		$ 2.9
Balance as of December 25, 2011		2.1
Cash payments	2.5	0
Balance as of September 30, 2012		2.1
Business Acquisition, Contingent Consideration, Potential Cash Payment		2.1
Other Current Liabilities [Member]
Business Acquisition, Contingent Consideration [Line Items]
Balance as of September 30, 2012		$ 2.1

XML

Significant Customers (Details) (U.S. Government, Kratos Government Solutions, USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 25, 2012
U.S. Government | Kratos Government Solutions
Revenue, Major Customer [Line Items]
Sales to the U.S. Government - amount	$ 160.7	$ 140.9
Sales to the U.S. Government - percentage of total revenue	64.00%	67.00%

XML

Income Taxes - Income Tax Provision Reconciliation (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 25, 2012
Income Tax Expense (Benefit), Continuing Operations, Income Tax Reconciliation [Abstract]
Federal statutory income tax rate	35.00%	35.00%
Income tax benefit at federal statutory rate	$ (1.8)	$ (2.3)
State and foreign taxes, net of federal benefit and valuation allowance	0.9	(3.0)
Nondeductible expenses and other	0.1	0.5
Impact of indefinite lived deferred tax liabilities and state law changes	1.9	(1.0)
Increase/(Decrease) in reserves for uncertain tax positions	0.1	(0.1)
Increase/(Decrease) in federal valuation allowance	1.6	1.8
Total	$ 2.8	$ (4.1)

XML

Segment Information (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013 Segment	Mar. 25, 2012
Segment Reporting Information [Line Items]
Number of principal business segments	2
Revenues	$ 252.8	$ 209.5
Service revenues	115.5	102.1
Product sales	137.3	107.4
Depreciation and amortization	14.2	13.6
Operating income	11.5	9.1
Kratos Government Solutions
Segment Reporting Information [Line Items]
Revenues	202.2	168.9
Service revenues	64.9	61.5
Product sales	137.3	107.4
Depreciation and amortization	13.2	12.8
Operating income	12.2	9.6
Public Safety and Security
Segment Reporting Information [Line Items]
Revenues	50.6	40.6
Service revenues	50.6	40.6
Product sales	0	0
Depreciation and amortization	1.0	0.8
Operating income	1.2	1.2
Unallocated corporate expense, net
Segment Reporting Information [Line Items]
Operating income	$ (1.9)	$ (1.7)

XML

Net Income (Loss) Per Common Share (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 25, 2012
Earnings Per Share [Abstract]
Loss from continuing operations available for common stockholders (A)	$ (8.2)	$ (2.5)
Weighted average outstanding shares of common stock (B) (in shares)	56.6	32.5
Dilutive effect of employee stock options and awards (in shares)	0	0
Common stock and common stock equivalents (C) (in shares)	56.6	32.5
Basic (A/B) (in dollars per share)	$ (0.14)	$ (0.08)
Diluted (A/C) (in dollars per share)	$ (0.14)	$ (0.08)
Shares from stock options and awards
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Number of shares from stock options and awards	5.5	2.8

XML

Summary of Significant Accounting Policies - Concentrations and Uncertainties (Details) (USD $)	Mar. 31, 2013	Dec. 30, 2012	Mar. 31, 2013 Revolving credit facility	Mar. 31, 2013 Senior notes Senior Notes due June 2017	Jul. 27, 2011 Senior notes Senior Notes due June 2017	Mar. 25, 2011 Senior notes Senior Notes due June 2017	May 19, 2010 Senior notes Senior Notes due June 2017
Debt Instrument [Line Items]
Stated interest rate percentage				10.00%
Principal amount outstanding	$ 630,500,000.0	$ 630,700,000.0		$ 625,000,000	$ 115,000,000	$ 285,000,000	$ 225,000,000
Remaining borrowing capacity			$ 91,700,000

XML

Condensed Consolidating Financial Statements - Balance Sheet (Details) (USD $)	Mar. 31, 2013	Dec. 30, 2012	Mar. 25, 2012	Dec. 25, 2011	Mar. 31, 2013 Parent Company	Dec. 30, 2012 Parent Company	Mar. 31, 2013 Guarantors on a Combined Basis	Dec. 30, 2012 Guarantors on a Combined Basis	Mar. 31, 2013 Non-Guarantors on a Combined Basis	Dec. 30, 2012 Non-Guarantors on a Combined Basis	Mar. 31, 2013 Eliminations	Dec. 30, 2012 Eliminations	Mar. 31, 2013 Senior notes Senior Notes due June 2017	Jul. 27, 2011 Senior notes Senior Notes due June 2017	Mar. 25, 2011 Senior notes Senior Notes due June 2017	May 19, 2010 Senior notes Senior Notes due June 2017
Condensed Financial Statements, Captions [Line Items]
Principal amount outstanding	$ 630,500,000.0	$ 630,700,000.0											$ 625,000,000	$ 115,000,000	$ 285,000,000	$ 225,000,000
Current assets:
Cash and cash equivalents	51,600,000	49,000,000	74,200,000	69,600,000	34,300,000	37,800,000	(1,900,000)	(4,000,000)	19,200,000	15,200,000	0	0
Accounts receivable, net	281,800,000	271,900,000			0	0	264,700,000	253,500,000	17,100,000	18,400,000	0	0
Amounts due from affiliated companies	0	0			482,700,000	480,200,000	0	0	0	0	(482,700,000)	(480,200,000)
Inventoried costs	88,200,000	94,300,000			0	0	70,700,000	75,400,000	17,500,000	18,900,000	0	0
Other current assets	33,500,000	40,200,000			8,800,000	9,100,000	21,600,000	28,000,000	3,100,000	3,100,000	0	0
Total current assets	455,100,000	455,400,000			525,800,000	527,100,000	355,100,000	352,900,000	56,900,000	55,600,000	(482,700,000)	(480,200,000)
Property, plant and equipment, net	84,000,000	85,600,000			1,300,000	1,300,000	73,000,000	74,700,000	9,700,000	9,600,000	0	0
Goodwill	596,400,000	596,400,000			0	0	574,700,000	574,700,000	21,700,000	21,700,000	0	0
Intangible assets, net	96,800,000	106,100,000			0	0	94,500,000	103,400,000	2,300,000	2,700,000	0	0
Investment in subsidiaries	0	0			448,500,000	439,800,000	30,100,000	28,800,000	0	0	(478,600,000)	(468,600,000)
Amounts due from affiliated companies	0	0			0	0	24,000,000	24,000,000	0	0	(24,000,000)	(24,000,000)
Other assets	38,300,000	40,400,000			16,400,000	17,600,000	21,500,000	22,400,000	400,000	400,000	0	0
Total assets	1,270,600,000	1,283,900,000			992,000,000	985,800,000	1,172,900,000	1,180,900,000	91,000,000	90,000,000	(985,300,000)	(972,800,000)
Current liabilities:
Accounts payable	71,600,000	83,600,000			1,900,000	2,800,000	66,500,000	75,200,000	3,200,000	5,600,000	0	0
Accrued expenses	63,400,000	52,700,000			22,600,000	7,000,000	38,100,000	42,300,000	2,700,000	3,400,000	0	0
Accrued compensation	43,400,000	47,800,000			3,800,000	2,900,000	36,600,000	41,800,000	3,000,000	3,100,000	0	0
Billings in excess of costs and earnings on uncompleted contracts	48,400,000	43,700,000			0	0	42,300,000	40,500,000	6,100,000	3,200,000	0	0
Deferred income tax liability	29,000,000	28,900,000			0	0	29,000,000	28,900,000	0	0	0	0
Amounts due to affiliated companies	0	0			0	0	457,300,000	455,100,000	25,400,000	25,100,000	(482,700,000)	(480,200,000)
Other current liabilities	19,800,000	22,100,000			1,100,000	1,100,000	16,800,000	19,100,000	1,900,000	1,900,000	0	0
Total current liabilities	275,600,000	278,800,000			29,400,000	13,800,000	686,600,000	702,900,000	42,300,000	42,300,000	(482,700,000)	(480,200,000)
Long-term debt, net of current portion	647,200,000	648,400,000			642,700,000	643,600,000	0		4,500,000	4,800,000	0	0
Amounts due to affiliated companies	0	0			0	0	0	0	24,000,000	24,000,000	(24,000,000)	(24,000,000)
Other long-term liabilities	32,200,000	32,600,000			4,300,000	4,300,000	25,800,000	26,200,000	2,100,000	2,100,000	0	0
Total liabilities	955,000,000	959,800,000			676,400,000	661,700,000	712,400,000	729,100,000	72,900,000	73,200,000	(506,700,000)	(504,200,000)
Total stockholders' equity	315,600,000	324,100,000			315,600,000	324,100,000	460,500,000	451,800,000	18,100,000	16,800,000	(478,600,000)	(468,600,000)
Total liabilities and stockholders’ equity	$ 1,270,600,000	$ 1,283,900,000			$ 992,000,000	$ 985,800,000	$ 1,172,900,000	$ 1,180,900,000	$ 91,000,000	$ 90,000,000	$ (985,300,000)	$ (972,800,000)

XML

Net Income (Loss) Per Common Share (Tables)

3 Months Ended

Mar. 31, 2013

Earnings Per Share [Abstract]

Schedule of earnings per share, basic and diluted

	For the Three Months Ended
(In millions, except earnings per share)	March 25, 2012			March 31, 2013
Loss from continuing operations (A)	$	(2.5	)	$	(8.2	)
Weighted average outstanding shares of common stock (B)	32.5			56.6
Dilutive effect of employee stock options and awards	—			—
Common stock and common stock equivalents (C)	32.5			56.6
Loss per share:
Basic (A/B)	$	(0.08	)	$	(0.14	)
Diluted (A/C)	$	(0.08	)	$	(0.14	)

Schedule of antidilutive securities excluded from computation of earnings per share

The following shares were excluded from the calculation of diluted loss per share because their inclusion would have been anti-dilutive:

	For the Three Months Ended
(In millions)	March 25, 2012	March 31, 2013
Shares from stock options and awards	2.8	5.5

XML

Debt - Issuance of 10% Senior Secured Notes due 2017 (Details) (USD $)							3 Months Ended
	Mar. 31, 2013	Dec. 30, 2012	Mar. 31, 2013 Senior notes Senior Notes due June 2017	Jul. 27, 2011 Senior notes Senior Notes due June 2017	Mar. 25, 2011 Senior notes Senior Notes due June 2017	May 19, 2010 Senior notes Senior Notes due June 2017	Mar. 31, 2013 Senior notes Senior Notes due June 2017 Between 6/1/2014 and 6/1/2015	Mar. 31, 2013 Senior notes Senior Notes due June 2017 Between 6/1/2015 and 6/1/2016	Mar. 31, 2013 Senior notes Senior Notes due June 2017 After 6/1/2016	Mar. 31, 2013 Senior notes Senior Notes due June 2017 Prior to 6/1/2013
Debt Instrument [Line Items]
Stated interest rate percentage			10.00%
Principal amount outstanding	$ 630,500,000.0	$ 630,700,000.0	$ 625,000,000	$ 115,000,000	$ 285,000,000	$ 225,000,000
Long-term debt premium	$ 17,700,000	$ 18,700,000		$ 5,800,000	$ 20,000,000
Effective interest rate				8.90%	8.50%
Fixed charge coverage ratio			2.0
Redemption price as percentage of aggregate principal amount							105.00%	102.50%	100.00%	110.00%
Permitted redemption amount as percentage of aggregate principal amount										35.00%

XML

Inventoried Costs (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2013	Dec. 30, 2012
Inventory Disclosure [Abstract]
Raw materials	$ 42.5	$ 48.4
Work in process	39.2	36.5
Finished goods	5.8	7.3
Supplies and other	1.7	2.2
Total inventoried costs	89.2	94.4
Less: customer advances and progress payments	(1.0)	(0.1)
Total inventoried costs	$ 88.2	$ 94.3

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Acquisitions - Pro Forma Financial Information (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 25, 2012
Business Combinations [Abstract]
Pro forma revenues	$ 232.4
Pro forma net loss before tax	(9.4)
Net loss attributable to the registrant	(5.3)
Net income (loss) attributable to the registrant	$ (2.5)
Basic and diluted pro forma loss per share	$ (0.09)

XML

Debt - Debt Acquired in Acquisition of Herley (Details) (USD $)			0 Months Ended
	Mar. 31, 2013	Dec. 30, 2012	Mar. 25, 2011 10-year term loan	Mar. 31, 2013 10-year term loan
Debt Instrument [Line Items]
Principal amount outstanding	$ 630,500,000.0	$ 630,700,000.0	$ 10,000,000.0
Maturity period			10 years
Carrying amount	648,200,000	649,400,000		5,500,000
Quarterly installment payment - principal			$ 300,000
Basis spread on variable rate			1.50%

XML

Income Taxes - Narrative (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 25, 2012	Dec. 30, 2012	May 27, 2012
Income Tax Contingency [Line Items]
Unrecognized tax benefits that if recognized would affect effective tax rate			$ 13.4
Income tax penalties and interest expense	0	0.2
Benefit for interest and penalties related to reversal of prior positions	(0.1)
Liabilities for uncertain tax positions that will expire within 12 months	1.5
Federal annual utilization of NOL carryforwards limit, next five years				28.1
Federal annual utilization of NOL carryforwards limit, after year five				11.6
Discontinued operations
Income Tax Contingency [Line Items]
Unrecognized tax benefits reduction relating to expiration of statutes of limitations	$ 0.1

XML

Inventoried Costs

3 Months Ended

Mar. 31, 2013

Inventory Disclosure [Abstract]

Inventoried Costs

Inventoried Costs

Inventoried costs are stated at the lower of cost or market. Cost is determined using the average cost or first-in, first-out method and is applied consistently within an operating entity. Inventoried costs primarily relate to work in process under fixed-price contracts using costs as the basis of the percentage-of-completion calculation under the units produced method of revenue recognition. These costs represent accumulated contract costs less the portion of such costs allocated to delivered items. Accumulated contract costs include direct production costs, factory and engineering overhead and production tooling costs. Pursuant to contract provisions of U.S. Government contracts, such customers may have title to, or a security interest in, inventories related to such contracts as a result of advances, performance-based payments or progress payments. The Company reflects those advances and payments as an offset against the related inventory balances.

The Company regularly reviews inventory quantities on hand, future purchase commitments with its suppliers, and the estimated utility of its inventory. If the Company’s review indicates a reduction in utility below carrying value, it reduces its inventory to a new cost basis.

Inventoried costs consisted of the following components (in millions):

	December 30, 2012			March 31, 2013
Raw materials	$	48.4		$	42.5
Work in process	36.5			39.2
Finished goods	7.3			5.8
Supplies and other	2.2			1.7
Subtotal inventoried costs	94.4			89.2
Less: Customer advances and progress payments	(0.1		)	(1.0		)
Total inventoried costs	$	94.3		$	88.2

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Stockholders' Equity - Summary of Changes in Stockholders' Equity (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 25, 2012
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stockholders' equity at beginning of period	$ 324.1	$ 312.6
Net loss	(10.3)	(3.0)
Foreign currency translation	0.1	0
Comprehensive loss	(10.2)	(3.0)
Stock-based compensation	1.9	1.1
Restricted stock units traded for taxes	(0.2)	0
Stockholders' equity at end of period	$ 315.6	$ 310.7

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Segment Information (Tables)

3 Months Ended

Mar. 31, 2013

Segment Reporting [Abstract]

Schedule of segment revenues, operating income, and assets

Revenues, depreciation and amortization, and operating income generated by the Company’s current reporting segments for the three months endedMarch 25, 2012 and March 31, 2013 are as follows (in millions):

	Three Months Ended
	March 25, 2012			March 31, 2013
Revenues:
Kratos Government Solutions
Service revenues	$	61.5		$	64.9
Product sales	107.4			137.3
Total Kratos Government Solutions	168.9			202.2
Public Safety & Security
Service revenues	40.6			50.6
Product sales	—			—
Total Public Safety & Security	40.6			50.6
Total revenues	$	209.5		$	252.8
Depreciation & amortization:
Kratos Government Solutions	$	12.8		$	13.2
Public Safety & Security	0.8			1.0
Total depreciation and amortization	$	13.6		$	14.2
Operating income:
Kratos Government Solutions	$	9.6		$	12.2
Public Safety & Security	1.2			1.2
Unallocated corporate expense, net	(1.7		)	(1.9		)
Total operating income	$	9.1		$	11.5

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Debt (Tables)

3 Months Ended

Mar. 31, 2013

Debt Disclosure [Abstract]

Fair value of long-term debt

Carrying amounts and the related estimated fair values of the Company’s long-term debt financial instruments not measured at fair value on a recurring basis at December 30, 2012 and March 31, 2013 are presented in the following table:

	As of December 30, 2012						As of March 31, 2013
$ in millions	Principal		Carrying Amount		Fair Value		Principal		Carrying Amount		Fair Value
Total Long-term debt including current portion	$	630.7	$	649.4	$	690.5	$	630.5	$	648.2	$	691.9

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Commitments and Contingencies (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 25, 2012
Movement in Standard and Extended Product Warranty, Increase (Decrease) [Roll Forward]
Balance at beginning of the period	$ 4.9	$ 4.3
Costs accrued and revenues deferred	0.2	0.2
Warranty liabilities assumed from acquisitions	0	0.5
Settlements made (in cash or kind) and revenues recognized	0	(0.3)
Balance at end of period	5.1	4.7
Less: Current portion	4.8	4.4
Noncurrent accrued product warranty and deferred warranty revenue	$ 0.3	$ 0.3
Product Warranties | Minimum
Warranty Coverage Period [Line Items]
Warranty coverage period	1 year
Product Warranties | Maximum
Warranty Coverage Period [Line Items]
Warranty coverage period	10 years

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Stockholders' Equity - Accumulated Other Comprehensive Loss (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Dec. 30, 2012	Mar. 25, 2012
Accumulated Other Comprehensive Income (Loss) [Line Items]
Total accumulated other comprehensive loss	$ (0.7)	$ (0.8)	$ (0.2)
Reclassifications from other comprehensive income	0
Cumulative translation adjustment
Accumulated Other Comprehensive Income (Loss) [Line Items]
Total accumulated other comprehensive loss	(0.2)		0.1
Post retirement benefit reserve adjustment net of tax expense
Accumulated Other Comprehensive Income (Loss) [Line Items]
Total accumulated other comprehensive loss	$ (0.5)		$ (0.3)

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Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

Schedule of Product Warranty Liabilities

The changes in the Company's aggregate product warranty liabilities, which are included in other current liabilities and other long term-liabilities on the Company's condensed consolidated balance sheets, were as follows (in millions):

	Three Months Ended
	March 25, 2012			March 31, 2013
Balance at beginning of the period	$	4.3		$	4.9
Costs accrued and revenues deferred	0.2			0.2
Warranty liabilities assumed from acquisitions	0.5			—
Settlements made (in cash or kind) and revenues recognized	(0.3		)	—
Balance at end of period	4.7			5.1
Less: Current portion	4.4			4.8
Non-current accrued product warranty and deferred warranty revenue	$	0.3		$	0.3

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Condensed Consolidating Financial Statements (Tables)

3 Months Ended

Mar. 31, 2013

Condensed Consolidating Financial Statements [Abstract]

Schedule of Condensed Balance Sheet

Condensed Consolidating Balance Sheet December 30, 2012 (Unaudited)
	Parent Company		Guarantors on a Combined Basis			Non-Guarantors on a Combined Basis		Eliminations			Consolidated
Assets
Current Assets:
Cash and cash equivalents	$	37.8	$	(4.0	)	$	15.2	$	—		$	49.0
Accounts receivable, net	—		253.5			18.4		—			271.9
Amounts due from affiliated companies	480.2		—			—		(480.2		)	—
Inventoried costs	—		75.4			18.9		—			94.3
Other current assets	9.1		28.0			3.1		—			40.2
Total current assets	527.1		352.9			55.6		(480.2		)	455.4
Property, plant and equipment, net	1.3		74.7			9.6		—			85.6
Goodwill	—		574.7			21.7		—			596.4
Intangible assets, net	—		103.4			2.7		—			106.1
Investment in subsidiaries	439.8		28.8			—		(468.6		)	—
Amounts due from affiliated companies	—		24.0			—		(24.0		)	—
Other assets	17.6		22.4			0.4		—			40.4
Total assets	$	985.8	$	1,180.9		$	90.0	$	(972.8	)	$	1,283.9
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	2.8	$	75.2		$	5.6	$	—		$	83.6
Accrued expenses	7.0		42.3			3.4		—			52.7
Accrued compensation	2.9		41.8			3.1		—			47.8
Billings in excess of costs and earnings on uncompleted contracts	—		40.5			3.2		—			43.7
Deferred income tax liability	—		28.9			—		—			28.9
Amounts due to affiliated companies	—		455.1			25.1		(480.2		)	—
Other current liabilities	1.1		19.1			1.9		—			22.1
Total current liabilities	13.8		702.9			42.3		(480.2		)	278.8
Long-term debt, net of current portion	643.6					4.8		—			648.4
Amounts due to affiliated companies	—		—			24.0		(24.0		)	—
Other long-term liabilities	4.3		26.2			2.1		—			32.6
Total liabilities	661.7		729.1			73.2		(504.2		)	959.8
Total stockholders' equity	324.1		451.8			16.8		(468.6		)	324.1
Total liabilities and stockholders' equity	$	985.8	$	1,180.9		$	90.0	$	(972.8	)	$	1,283.9

Condensed Consolidating Balance Sheet March 31, 2013 (Unaudited)
	Parent Company		Guarantors on a Combined Basis			Non-Guarantors on a Combined Basis		Eliminations			Consolidated
Assets
Current Assets:
Cash and cash equivalents	$	34.3	$	(1.9	)	$	19.2	$	—		$	51.6
Accounts receivable, net	—		264.7			17.1		—			281.8
Amounts due from affiliated companies	482.7		—			—		(482.7		)	—
Inventoried costs	—		70.7			17.5		—			88.2
Other current assets	8.8		21.6			3.1		—			33.5
Total current assets	525.8		355.1			56.9		(482.7		)	455.1
Amounts due from affiliated companies, long-term	—		24.0			—		(24.0		)	—
Property, plant and equipment, net	1.3		73.0			9.7		—			84.0
Goodwill	—		574.7			21.7		—			596.4
Intangible assets, net	—		94.5			2.3		—			96.8
Investment in subsidiaries	448.5		30.1			—		(478.6		)	—
Other assets	16.4		21.5			0.4		—			38.3
Total assets	$	992.0	$	1,172.9		$	91.0	$	(985.3	)	$	1,270.6
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1.9	$	66.5		$	3.2	$	—		$	71.6
Accrued expenses	22.6		38.1			2.7		—			63.4
Accrued compensation	3.8		36.6			3.0		—			43.4
Billings in excess of costs and earnings on uncompleted contracts	—		42.3			6.1		—			48.4
Deferred income tax liability	—		29.0			—		—			29.0
Amounts due to affiliated companies	—		457.3			25.4		(482.7		)	—
Other current liabilities	1.1		16.8			1.9		—			19.8
Total current liabilities	29.4		686.6			42.3		(482.7		)	275.6
Long-term debt, net of current portion	642.7		—			4.5		—			647.2
Amounts due to affiliated companies	—		—			24.0		(24.0		)	—
Other long-term liabilities	4.3		25.8			2.1		—			32.2
Total liabilities	676.4		712.4			72.9		(506.7		)	955.0
Total stockholders' equity	315.6		460.5			18.1		(478.6		)	315.6
Total liabilities and stockholders' equity	$	992.0	$	1,172.9		$	91.0	$	(985.3	)	$	1,270.6

Schedule of Condensed Statement of Operations and Comprehensive Income

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) Three Months Ended March 25, 2012 (Unaudited)
	Parent Company			Guarantors on a Combined Basis			Non-Guarantors on a Combined Basis			Eliminations			Consolidated
Service revenues	$	—		$	101.5		$	0.6		$	—		$	102.1
Product sales	—			96.0			14.3			(2.9		)	107.4
Total revenues	—			197.5			14.9			(2.9		)	209.5
Cost of service revenues	—			79.5			0.3			—			79.8
Cost of product sales	—			65.3			9.5			(2.9		)	71.9
Total costs	—			144.8			9.8			(2.9		)	151.7
Gross profit	—			52.7			5.1			—			57.8
Selling, general and administrative expenses	2.2			39.3			3.6			—			45.1
Research and development expenses	—			3.3			0.3			—			3.6
Operating income from continuing operations	(2.2		)	10.1			1.2			—			9.1
Other income (expense):
Interest expense, net	(16.0		)	—			(0.1		)	—			(16.1		)
Other income (expense), net	0.3			(0.1		)	0.2			—			0.4
Total other income and expense, net	(15.7		)	(0.1		)	0.1			—			(15.7		)
Income (loss) from continuing operations before income taxes	(17.9		)	10.0			1.3			—			(6.6		)
Benefit for income taxes from continuing operations	—			3.4			0.7			—			4.1
Income (loss) from continuing operations	(17.9		)	13.4			2.0			—			(2.5		)
Income (loss) from discontinued operations	—			(0.6		)	0.1			—			(0.5		)
Equity in net income (loss) of subsidiaries	14.9			2.1			—			(17.0		)	—
Net income (loss)	$	(3.0	)	$	14.9		$	2.1		$	(17.0	)	$	(3.0	)
Comprehensive income (loss)	$	(3.0	)	$	14.9		$	2.1		$	(17.0	)	$	(3.0	)

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) Three Months Ended March 31, 2013 (Unaudited)
	Parent Company			Guarantors on a Combined Basis			Non-Guarantors on a Combined Basis			Eliminations			Consolidated
Service revenues	$	—		$	115.5		$	—		$	—		$	115.5
Product sales	—			123.3			18.8			(4.8		)	137.3
Total revenues	—			238.8			18.8			(4.8		)	252.8
Cost of service revenues	—			88.2			—			—			88.2
Cost of product sales	—			90.7			13.0			(4.8		)	98.9
Total costs	—			178.9			13.0			(4.8		)	187.1
Gross profit	—			59.9			5.8			—			65.7
Selling, general and administrative expenses	2.6			43.8			2.9			—			49.3
Research and development expenses	—			4.5			0.4			—			4.9
Operating income from continuing operations	(2.6		)	11.6			2.5			—			11.5
Other income expense:
Interest expense, net	(16.1		)	—			(0.1		)	—			(16.2		)
Other expense, net	—			—			(0.7		)	—			(0.7		)
Total other expense, net	(16.1		)	—			(0.8		)	—			(16.9		)
Income (loss) from continuing operations before income taxes	(18.7		)	11.6			1.7			—			(5.4		)
Provision for income taxes from continuing operations	0.3			2.4			0.1			—			2.8
Income (loss) from continuing operations	(19.0		)	9.2			1.6			—			(8.2		)
Loss from discontinued operations	—			(1.8		)	(0.3		)	—			(2.1		)
Equity in net income (loss) of subsidiaries	8.7			1.3			—			(10.0		)	—
Net income (loss)	$	(10.3	)	$	8.7		$	1.3		$	(10.0	)	$	(10.3	)
Comprehensive income (loss)	$	(10.2	)	$	8.7		$	1.2		$	(9.9	)	$	(10.2	)

Schedule of Condensed Cash Flow Statement

Condensed Consolidating Statement of Cash Flows Three Months Ended March 25, 2012 (Unaudited)
	Parent Company			Guarantors on a Combined Basis			Non-Guarantors on a Combined Basis			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	(6.2	)	$	26.3		$	4.9		$	—	$	25.0
Investing activities:
Cash paid for acquisitions, net of cash acquired	(21.5		)	—			—			—		(21.5		)
(Increase) decrease in restricted cash	(0.3		)	0.7			—			—		0.4
Capital expenditures	—			(2.4		)	(0.3		)	—		(2.7		)
Net cash used in investing activities from continuing operations	(21.8		)	(1.7		)	(0.3		)	—		(23.8		)
Financing activities:
Repayment of debt	—			—			(0.3		)	—		(0.3		)
Financing from affiliated companies	30.9			(30.9		)	—			—		—
Other, net	—			(0.1		)	—			—		(0.1		)
Net cash provided by (used in) financing activities from continuing operations	30.9			(31.0		)	(0.3		)	—		(0.4		)
Net cash flows of continuing operations	2.9			(6.4		)	4.3			—		0.8
Net operating cash flows from discontinued operations	—			3.7			0.2			—		3.9
Effect of exchange rate changes on cash and cash equivalents	—			—			(0.1		)	—		(0.1		)
Net increase in cash and cash equivalents	$	2.9		$	(2.7	)	$	4.4		$	—	$	4.6

Condensed Consolidating Statement of Cash Flows Three Months Ended March 31, 2013 (Unaudited)
	Parent Company			Guarantors on a Combined Basis			Non-Guarantors on a Combined Basis			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	(0.8	)	$	0.8		$	5.1		$	—	$	5.1
Investing activities:
Cash paid for acquisitions, net of cash acquired	—			1.2			—			—		1.2
Decrease in restricted cash	—			0.2			—			—		0.2
Capital expenditures	(0.1		)	(2.7		)	(0.5		)	—		(3.3		)
Net cash used in investing activities from continuing operations	(0.1		)	(1.3		)	(0.5		)	—		(1.9		)
Financing activities:
Repayment of debt	—			—			(0.3		)	—		(0.3		)
Financings from affiliated companies	(2.4		)	2.4			—			—		—
Other, net	(0.2		)	—			—			—		(0.2		)
Net cash provided by (used in) financing activities from continuing operations	(2.6		)	2.4			(0.3		)	—		(0.5		)
Net cash flows of continuing operations	(3.5		)	1.9			4.3			—		2.7
Net operating cash flows from discontinued operations	—			0.2			—			—		0.2
Effect of exchange rate changes on cash and cash equivalents	—			—			(0.3		)	—		(0.3		)
Net increase (decrease) in cash and cash equivalents	$	(3.5	)	$	2.1		$	4.0		$	—	$	2.6

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Goodwill and Intangible Assets

3 Months Ended

Mar. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

(a) Goodwill

The Company performs its annual impairment test for goodwill in accordance with ASC Topic 350, Intangibles-Goodwill and Other (“Topic 350”) as of the last day of each fiscal year or when evidence of potential impairment exists.

The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a component. The Company determines its reporting units by first identifying its operating segments, and then assessing whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component. The Company aggregates components within an operating segment that have similar economic characteristics. For the annual and, if necessary, interim impairment assessment, the Company identified its reporting units to be its KGS and PSS operating segments.

In order to test for potential impairment, the Company estimates the fair value of each of its reporting units based on a comparison and weighting of the income approach, specifically the discounted cash flow method and the market approach, which estimates the fair value of the Company's reporting units based upon comparable market prices and recent transactions and also validates the reasonableness of the implied multiples from the income approach. The Company reconciles the fair value of its reporting units to its market capitalization by calculating its market capitalization based upon an average of its stock price prior to and subsequent to the date the Company performs its analysis and assuming a control premium. The Company uses these methodologies to determine the fair value of its reporting units for comparison to their corresponding book values because there are no observable inputs available, a Level 3 measurement. If the book value exceeds the estimated fair value for a reporting unit a potential impairment is indicated, and Topic 350 prescribes the approach for determining the impairment amount, if any.

In accordance with Topic 350, as a result of the Company's decision in June 2012 to dispose of certain non-core businesses acquired in the Integral acquisition, the Company allocated $1.5 million of goodwill to discontinued operations, which resulted in an impairment charge (see Note 8). The Company then tested the goodwill remaining in the KGS reporting unit. The fair value of the KGS reporting unit exceeded its carrying value by 7.4% at that time.

During the fourth quarter of 2012, the KGS reporting unit was impacted by continued declining market valuations and the economic uncertainty in the U.S. defense industry. At that time, Congress had been unable to agree on a budget that conformed with the Budget Control Act of 2011 requirements, which required additional substantial defense spending reductions through sequestration. Additionally, Congress and the President failed to agree on budgetary, tax and spending issues, and as a result a FY 2013 budget was not passed and a six-month continuing resolution that funded the U.S. Government through March 27, 2013 was passed. As of December 2012, these events significantly increased the likelihood of the sequester occurring, which has negative consequences for the defense industry. In addition, as Congress and the Administration could not come to an agreement on terms of a possible national fiscal approach, they also failed to address other fiscal matters such as the debt ceiling, which is currently expected to be reached during the first half of 2013. These events negatively impacted the Company's estimate of the fair value of the KGS reporting unit, resulting in the book value of KGS exceeding its fair value in step one of the impairment test in the fourth quarter of 2012.

The Company then performed the second step of the goodwill impairment test to measure the amount of the impairment loss, if any, of the KGS reporting unit. The second step of the test requires the allocation of the reporting unit's fair value to its assets and liabilities, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill is less than the carrying value, the difference is recorded as an impairment loss. Based on the results of the step two analysis, the Company recorded an $82.0 million goodwill impairment in the fourth quarter of 2012.

The changes in the carrying amount of goodwill for the three months ended March 31, 2013 are as follows (in millions):

	Public Safety & Security		Government Solutions			Total
Balance as of December 30, 2012	$	35.6	$	560.9		$	596.5
Retrospective adjustments	—		(0.1		)	(0.1		)
Balance as of December 30, 2012 after retrospective adjustments	$	35.6	$	560.8		$	596.4

The accumulated impairment losses as of December 30, 2012 and March 31, 2013 were $247.4 million, of which $229.1 million was associated with the KGS segment and $18.3 million was associated with the PSS segment.

(b) Purchased Intangible Assets

The following table sets forth information for finite-lived intangible assets subject to amortization (in millions):

	As of December 30, 2012							As of March 31, 2013
	Gross Value		Accumulated Amortization			Net Value		Gross Value		Accumulated Amortization			Net Value
Acquired finite-lived intangible assets:
Customer relationships	$	97.7	$	(36.2	)	$	61.5	$	97.7	$	(40.1	)	$	57.6
Contracts and backlog	80.0		(64.3		)	15.7		80.0		(68.6		)	11.4
Developed technology and technical know-how	22.1		(6.4		)	15.7		22.1		(6.9		)	15.2
Trade names	6.1		(1.2		)	4.9		6.1		(1.7		)	4.4
Favorable operating lease	1.8		(0.4		)	1.4		1.8		(0.5		)	1.3
Total	$	207.7	$	(108.5	)	$	99.2	$	207.7	$	(117.8	)	$	89.9

In addition to the finite-lived intangible assets listed in the table above, the Company has $6.9 million of indefinite-lived intangible assets consisting of trade names at both December 30, 2012 and March 31, 2013.

Consolidated amortization expense related to intangible assets subject to amortization was $10.5 million and $9.3 million for the three months ended March 25, 2012 and March 31, 2013.

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Summary of Significant Accounting Policies (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 25, 2012	Dec. 30, 2012
Significant Accounting Policies Disclosure [Line Items]
Fiscal year duration	52 weeks		53 weeks
First quarter duration	13 weeks	13 weeks
Accured interest reclassified out of accrued expenses to a discrete line item	$ 15.3	$ 15.6
Commission expense reclassified out of Product Sales to Selling, General and Administrative Expense	49.2	44.2
Reclassification adjustment
Significant Accounting Policies Disclosure [Line Items]
Accured interest reclassified out of accrued expenses to a discrete line item		15.6
Commission expense reclassified out of Product Sales to Selling, General and Administrative Expense		$ 0.4
Minimum
Significant Accounting Policies Disclosure [Line Items]
Fiscal year duration	52 weeks
Maximum
Significant Accounting Policies Disclosure [Line Items]
Fiscal year duration	53 weeks

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Goodwill and Intangible Assets - Goodwill (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		3 Months Ended		3 Months Ended		1 Months Ended	3 Months Ended
	Mar. 31, 2013	Dec. 30, 2012	Mar. 31, 2013 Public Safety and Security	Dec. 30, 2012 Public Safety and Security	Mar. 31, 2013 Kratos Government Solutions	Dec. 30, 2012 Kratos Government Solutions	Jun. 30, 2012 Discontinued operations	Jun. 24, 2012 Discontinued operations	Dec. 30, 2012 Scenario, Previously Reported [Member]	Dec. 30, 2012 Scenario, Previously Reported [Member] Public Safety and Security	Dec. 30, 2012 Scenario, Previously Reported [Member] Kratos Government Solutions
Goodwill [Line Items]
Goodwill impairment charge associated with discontinued operations						$ 82.0	$ 1.5	$ 1.5
Percentage that goodwill fair value exceeded its carrying value					7.40%
Goodwill	596.4	596.4		35.6		560.8			596.5	35.6	560.9
Restrospective adjustments	(0.1)		0		(0.1)
Accumulated impairment losses	$ 247.4	$ 247.4	$ 18.3	$ 18.3	$ 229.1	$ 229.1

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Debt - Fair Value of Long-term Debt (Details) (USD $)	Mar. 31, 2013	Dec. 30, 2012
Debt Disclosure [Abstract]
Principal amount outstanding	$ 630,500,000.0	$ 630,700,000.0
Carrying amount	648,200,000	649,400,000
Fair value	691,900,000	690,500,000
Long-term debt premium	$ 17,700,000	$ 18,700,000

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Millions, unless otherwise specified	Mar. 31, 2013	Dec. 30, 2012
Current assets:
Cash and cash equivalents	$ 51.6	$ 49.0
Restricted cash	5.3	5.5
Accounts receivable, net	281.8	271.9
Inventoried costs	88.2	94.3
Prepaid expenses	18.0	17.4
Other current assets	10.2	17.3
Total current assets	455.1	455.4
Property, plant and equipment, net	84.0	85.6
Goodwill	596.4	596.4
Intangible assets, net	96.8	106.1
Other assets	38.3	40.4
Total assets	1,270.6	1,283.9
Current liabilities:
Accounts payable	71.6	83.6
Accrued expenses	41.7	46.4
Accrued compensation	43.4	47.8
Accrued interest	21.7	6.3
Billings in excess of costs and earnings on uncompleted contracts	48.4	43.7
Deferred income tax liability	29.0	28.9
Other current liabilities	19.8	22.1
Total current liabilities	275.6	278.8
Long-term debt principal, net of current portion	629.5	629.7
Long-term debt premium	17.7	18.7
Other long-term liabilities	32.2	32.6
Total liabilities	955.0	959.8
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized, 0 shares outstanding at December 30, 2012 and March 31, 2013	0	0
Common stock, $0.001 par value, 195,000,000 shares authorized; 56,613,024 and 56,654,577 shares issued and outstanding at December 30, 2012 and March 31, 2013, respectively	0	0
Additional paid-in capital	848.8	847.1
Accumulated other comprehensive loss	(0.7)	(0.8)
Accumulated deficit	(532.5)	(522.2)
Total stockholders' equity	315.6	324.1
Total liabilities and stockholders’ equity	$ 1,270.6	$ 1,283.9

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Stockholders' Equity - Rollforward of Common Stock Outstanding (Details)	3 Months Ended
	Mar. 31, 2013	Mar. 25, 2012
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Shares outstanding at beginning of the period	56,613,024	32,400,000
Stock issued for employee stock purchase plan, stock options and restricted stock units	100,000	100,000
Shares outstanding at end of the period	56,654,577	32,500,000

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

All references to the “Company” and “Kratos” refer to Kratos Defense & Security Solutions, Inc., a Delaware corporation, and its subsidiaries.

(a) Basis of Presentation

The information as of March 31, 2013 and for the three months ended March 25, 2012 and March 31, 2013 is unaudited. The condensed consolidated balance sheet as of December 30, 2012 was derived from the Company’s audited consolidated financial statements at that date. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods presented. The results have been prepared in accordance with the instructions to Form 10-Q and do not necessarily include all information and footnotes necessary for presentation in accordance with accounting principles generally accepted in the U.S. (“GAAP”). These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in the Company’s audited annual consolidated financial statements for the fiscal year ended December 30, 2012, included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission ("SEC") on March 12, 2013 (the “Form 10-K”). Interim operating results are not necessarily indicative of operating results expected in subsequent periods or for the year as a whole.

(b) Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries for which all inter-company transactions have been eliminated in consolidation.

(c) Fiscal Year

The Company has a 52/53 week fiscal year ending on the last Sunday of the calendar year, with interim fiscal periods ending on the last Sunday of each calendar quarter. The three months ended March 25, 2012 and March 31, 2013 consisted of 13-week periods. There were 53 calendar weeks in the fiscal year ended December 30, 2012 and there are 52 calendar weeks in the fiscal year ending on December 29, 2013.

(d) Reclassifications

A reclassification was made to the March 25, 2012 condensed consolidated statement of cash flows to present the change in accrued interest of approximately $15.6 million as a discrete line item which has previously been reported in accrued expenses. In addition, a reclassification was made to the March 25, 2012 condensed consolidated statement of operations and comprehensive income (loss) to reclassify approximately $0.4 million of commission expense out of cost of product sales to selling, general and administrative expenses to conform with the March 31, 2013 classification of these expenses.

(e) Accounting Policies and Accounting Standards Updates

In February 2013, the Financial Accounting Standards Board ("FASB") issued "Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income," which requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, entities are required to cross-reference to other disclosures required under GAAP that provide additional detail on these amounts. This standard is effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted this standard in the quarter ended March 31, 2013, which did not have a material impact on its consolidated financial statements.

In December 2011 and February 2013, the FASB issued an amendment to the Balance Sheet topic of the Accounting Standards Codification ("ASC"), which requires entities to disclose both gross and net information about both derivatives and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting agreement. The objective of the disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards. This standard is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. Retrospective presentation for all comparative periods presented is required. Accordingly, the Company will adopt this amendment in the first quarter of fiscal year 2014. The Company does not believe that the adoption of this guidance will have a material impact on its consolidated financial statements.

Other than as noted above, there have been no changes in the Company's significant accounting policies for the three months ended March 31, 2013 as compared to the significant accounting policies described in the Form 10-K.

(f) Concentrations and Uncertainties

The Company maintains cash balances at various financial institutions, and such balances commonly exceed the $250,000 insured amount by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in such accounts, and management believes that the Company is not exposed to any significant credit risk with respect to such cash and cash equivalents.

Financial instruments, which subject the Company to potential concentrations of credit risk, consist principally of the Company’s billed and unbilled accounts receivable. The Company’s accounts receivable result from sales to customers within the federal government, state and local agencies and commercial customers in various industries. The Company performs ongoing credit evaluations of its commercial customers. Credit is extended based on evaluation of the customer’s financial condition, and collateral is not required. Accounts receivable are recorded at the invoiced amount and do not bear interest. See Note 11 for a discussion of the Company’s significant customers.

The Company has 10% Senior Secured Notes due 2017 ("the Notes") with an aggregate principal amount of $625.0 million outstanding as of March 31, 2013. The Notes are due on June 1, 2017, and the Company pays interest at the rate of 10% per annum semi-annually, in arrears, on June 1 and December 1 of each year. In addition, the Company has $91.7 million available under its existing revolving credit agreement. See Note 9 for a complete description of the Company’s debt.

The Company intends to fund its cash requirements with cash on hand, cash flows from operating activities and borrowings under its existing revolving credit facility. Management believes these sources of liquidity should be sufficient to meet the Company’s cash needs for at least the next 12 months. The Company’s quarterly and annual operating results have fluctuated in the past and may vary in the future due to a variety of factors, many of which are external to the Company's control. If the conditions in its industry deteriorate, its customers cancel or postpone projects, its customers experience significant cost constraints as a result of federal budget cuts or sequestration or if the Company is unable to sufficiently increase its revenues or reduce its expenses, the Company may experience, in the future, a significant long-term negative impact to its financial results and cash flows from operations. In such a situation, the Company could fall out of compliance with its financial and other covenants which, if not waived, could limit its liquidity and capital resources.

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Condensed Consolidating Financial Statements - Statement of Cash Flows (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 25, 2012
Condensed Financial Statements, Captions [Line Items]
Net cash provided by (used in) operating activities	$ 5.1	$ 25.0
Investing activities:
Cash paid for acquisitions, net of cash acquired	1.2	(21.5)
Decrease in restricted cash	0.2	0.4
Capital expenditures	(3.3)	(2.7)
Net cash used in investing activities from continuing operations	(1.9)	(23.8)
Financing activities:
Repayment of debt	(0.3)	(0.3)
Financing from affiliated companies	0	0
Other, net	(0.2)	(0.1)
Net cash used in financing activities from continuing operations	(0.5)	(0.4)
Net cash flows of continuing operations	2.7	0.8
Net operating cash flows of discontinued operations	0.2	3.9
Effect of exchange rate changes on cash and cash equivalents	(0.3)	(0.1)
Net increase in cash and cash equivalents	2.6	4.6
Parent Company
Condensed Financial Statements, Captions [Line Items]
Net cash provided by (used in) operating activities	(0.8)	(6.2)
Investing activities:
Cash paid for acquisitions, net of cash acquired	0	(21.5)
Decrease in restricted cash	0	(0.3)
Capital expenditures	(0.1)	0
Net cash used in investing activities from continuing operations	(0.1)	(21.8)
Financing activities:
Repayment of debt	0	0
Financing from affiliated companies	(2.4)	30.9
Other, net	(0.2)	0
Net cash used in financing activities from continuing operations	(2.6)	30.9
Net cash flows of continuing operations	(3.5)	2.9
Net operating cash flows of discontinued operations	0	0
Effect of exchange rate changes on cash and cash equivalents	0	0
Net increase in cash and cash equivalents	(3.5)	2.9
Guarantors on a Combined Basis
Condensed Financial Statements, Captions [Line Items]
Net cash provided by (used in) operating activities	0.8	26.3
Investing activities:
Cash paid for acquisitions, net of cash acquired	1.2	0
Decrease in restricted cash	0.2	0.7
Capital expenditures	(2.7)	(2.4)
Net cash used in investing activities from continuing operations	(1.3)	(1.7)
Financing activities:
Repayment of debt	0	0
Financing from affiliated companies	2.4	(30.9)
Other, net	0	(0.1)
Net cash used in financing activities from continuing operations	2.4	(31.0)
Net cash flows of continuing operations	1.9	(6.4)
Net operating cash flows of discontinued operations	0.2	3.7
Effect of exchange rate changes on cash and cash equivalents	0	0
Net increase in cash and cash equivalents	2.1	(2.7)
Non-Guarantors on a Combined Basis
Condensed Financial Statements, Captions [Line Items]
Net cash provided by (used in) operating activities	5.1	4.9
Investing activities:
Cash paid for acquisitions, net of cash acquired	0	0
Decrease in restricted cash	0	0
Capital expenditures	(0.5)	(0.3)
Net cash used in investing activities from continuing operations	(0.5)	(0.3)
Financing activities:
Repayment of debt	(0.3)	(0.3)
Financing from affiliated companies	0	0
Other, net	0	0
Net cash used in financing activities from continuing operations	(0.3)	(0.3)
Net cash flows of continuing operations	4.3	4.3
Net operating cash flows of discontinued operations	0	0.2
Effect of exchange rate changes on cash and cash equivalents	(0.3)	(0.1)
Net increase in cash and cash equivalents	4.0	4.4
Eliminations
Condensed Financial Statements, Captions [Line Items]
Net cash provided by (used in) operating activities	0	0
Investing activities:
Cash paid for acquisitions, net of cash acquired	0	0
Decrease in restricted cash	0	0
Capital expenditures	0	0
Net cash used in investing activities from continuing operations	0	0
Financing activities:
Repayment of debt	0	0
Financing from affiliated companies	0	0
Other, net	0	0
Net cash used in financing activities from continuing operations	0	0
Net cash flows of continuing operations	0	0
Net operating cash flows of discontinued operations	0	0
Effect of exchange rate changes on cash and cash equivalents	0	0
Net increase in cash and cash equivalents	$ 0	$ 0

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Acquisitions - Composite Engineering, Inc. (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended			0 Months Ended		3 Months Ended		0 Months Ended
	Mar. 31, 2013	Mar. 25, 2012	Mar. 31, 2013 Revolving credit facility	Jul. 02, 2012 Composite Engineering, Inc.	May 14, 2012 Composite Engineering, Inc.	Mar. 31, 2013 Composite Engineering, Inc.	Jul. 02, 2012 Composite Engineering, Inc. Revolving credit facility	Jul. 02, 2012 Composite Engineering, Inc. Restricted Stock Units (RSUs) Management
Business Acquisition [Line Items]
Consideration transferred				$ 164.0
Aggregate amount of cash paid				135.0
Number of shares given as part of purchase price				4.0
Common stock issued for acquisitions				20.0	20.0
Purchase price per share				$ 5.94	$ 5.00
Common stock exchanged as consideration, value				23.8
Business Combination, Amount Placed in Escrow				10.7
Business Combination, Contingent Consideration Arrangement, Working Capital Adjustment				1.0
Consideration transferred, retirement of acquiree's debt				2.5
Consideration transferred, settlement of pre-existing accounts receivable				3.0
Additional tax liability incurred				1.6
Business Combination, Goodwill and Intangible Assets, Tax Deductible				140.6
Tax deductible goodwill, deduction realization period				15 years
Number of shares issued as part of long-term employement agreements								2.0
Fair value of shares issued as part of long-term employement agreements								11.9
Share-based compensation, period for recognition								4 years
Gross proceeds from issuance of common stock					100.0
Proceeds from the issuance of common stock					97.0
Outstanding borrowings			0				40.0
Acquired accounts receivable, gross				9.3
Revenues	252.8	209.5				25.9
Operating income (loss)	$ 11.5	$ 9.1				$ 3.2

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Goodwill and Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of goodwill

The changes in the carrying amount of goodwill for the three months ended March 31, 2013 are as follows (in millions):

	Public Safety & Security		Government Solutions			Total
Balance as of December 30, 2012	$	35.6	$	560.9		$	596.5
Retrospective adjustments	—		(0.1		)	(0.1		)
Balance as of December 30, 2012 after retrospective adjustments	$	35.6	$	560.8		$	596.4

Schedule of acquired finite-lived intangible assets

The following table sets forth information for finite-lived intangible assets subject to amortization (in millions):

	As of December 30, 2012							As of March 31, 2013
	Gross Value		Accumulated Amortization			Net Value		Gross Value		Accumulated Amortization			Net Value
Acquired finite-lived intangible assets:
Customer relationships	$	97.7	$	(36.2	)	$	61.5	$	97.7	$	(40.1	)	$	57.6
Contracts and backlog	80.0		(64.3		)	15.7		80.0		(68.6		)	11.4
Developed technology and technical know-how	22.1		(6.4		)	15.7		22.1		(6.9		)	15.2
Trade names	6.1		(1.2		)	4.9		6.1		(1.7		)	4.4
Favorable operating lease	1.8		(0.4		)	1.4		1.8		(0.5		)	1.3
Total	$	207.7	$	(108.5	)	$	99.2	$	207.7	$	(117.8	)	$	89.9

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Acquisitions - Critical Infrastructure Business (Details) (Critical Infrastructure Business, USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Dec. 30, 2011
Critical Infrastructure Business
Business Acquisition, Cost of Acquired Entity, Purchase Price [Abstract]
Purchase price		$ 18.8
Recurring Critical Infrastructure Business revenues, percentage	15.00%
Business Combination, Acquired Receivables [Abstract]
Acquired accounts receivable, gross		24.4
Acquired accounts receivable, estimated uncollectible		$ (1.0)

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Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2013

Equity [Abstract]

Summary of changes in stockholders' equity

A summary of the changes in stockholders’ equity is provided below (in millions):

	For the Three Months Ended
	March 25, 2012			March 31, 2013
Stockholders’ equity at beginning of period	$	312.6		$	324.1
Comprehensive loss:
Net loss	(3.0		)	(10.3		)
Foreign currency translation	—			0.1
Total comprehensive loss	(3.0		)	(10.2		)
Stock-based compensation	1.1			1.9
Restricted stock units traded for taxes	—			(0.2		)
Stockholders’ equity at end of period	$	310.7		$	315.6

Schedule of Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive loss are as follows (in millions):

	March 25, 2012			March 31, 2013
Cumulative translation adjustment	$	0.1		$	(0.2	)
Post retirement benefit reserve adjustment net of tax expense	(0.3		)	(0.5		)
Total accumulated other comprehensive loss	$	(0.2	)	$	(0.7	)

Rollforward of common stock outstanding

Common stock issued by the Company for the three months ended March 25, 2012 and March 31, 2013 was as follows (in millions):

	For the Three Months Ended
	March 25, 2012	March 31, 2013
Shares outstanding at beginning of the period	32.4	56.6
Stock issued for employee stock purchase plan, stock options and restricted stock units exercised	0.1	0.1
Shares outstanding at end of the period	32.5	56.7

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Acquisitions

3 Months Ended

Mar. 31, 2013

Business Combinations [Abstract]

Acquisitions

Acquisitions

(a)    Summary of Recent Acquisitions

Composite Engineering, Inc.

On July 2, 2012, the Company completed the acquisition of Composite Engineering, Inc. (“CEI”) for approximately $164.0 million. The purchase price including an adjustment for working capital and cash to be paid to the CEI shareholders for the 338(h)(10) election includes $135.0 million in cash and 4.0 million shares of the Company's common stock, valued at $5.94 per share on July 2, 2012, or $23.8 million. $10.7 million of the cash paid was placed into an escrow account as security for CEI's indemnification obligations as set forth in the CEI purchase agreement and will be reduced by $1.0 million to pay the working capital adjustment owed to the Company in July 2013. In addition, $2.5 million was paid to retire certain pre-existing CEI debt and settle pre-existing accounts receivable from CEI at its carrying and fair value of $3.0 million. The Company made an election under Section 338(h)(10) of the Internal Revenue Code, which resulted in tax deductible goodwill related to this transaction, and will pay an estimated $1.6 million in additional tax liability incurred by the shareholders of CEI for this election. The Company estimates that the tax deductible goodwill and intangibles, which is subject to change based upon the final fair value of assets acquired and liabilities assumed, will be approximately $140.6 million and can be deducted for federal and California state income taxes over a 15-year period.

In connection with the completion of the CEI transaction, certain CEI personnel entered into long-term employment agreements with the Company. On July 2, 2012, the Company granted restricted stock units ("RSUs") for an aggregate 2.0 million shares of common stock as long-term retention inducement grants to certain employees of CEI who joined Kratos. The RSUs had an estimated value of $11.9 million on the grant date, vest on the fourth anniversary of the closing of the CEI acquisition, or earlier upon the occurrence of certain events, and are being accounted for as compensation expense over such four-year period.

To fund the acquisition of CEI, on May 14, 2012, the Company sold approximately 20.0 million shares of its common stock at a purchase price of $5.00 per share in an underwritten public offering. The Company received gross proceeds of approximately $100.0 million and net proceeds of approximately $97.0 million after deducting underwriting fees and other offering expenses. The Company used the net proceeds from this offering to fund a portion of the purchase price for the acquisition of CEI. In addition, the Company used borrowings of $40.0 million from its revolving line of credit to fund the purchase price of CEI.

CEI is a vertically integrated manufacturer and developer of unmanned aerial target systems and composite structures used for national security programs. Its drones are designed to replicate some of the most lethal aerial threats facing warfighters and strategic assets. CEI's customers include U.S. agencies and foreign governments. CEI is a part of the Kratos Government Solutions ("KGS") segment.

The excess of the purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition was allocated to goodwill. The value of the goodwill represents the value the Company expects to be created by enabling it to strategically expand its strengths in the areas of design, engineering, development, manufacturing and production of unmanned aerial targets, and will also enable the Company to realize significant cross selling opportunities.

The transaction has been accounted for using the acquisition method of accounting, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The following table summarizes the preliminary estimated fair values of the major assets acquired and liabilities assumed (in millions):

Cash	$	8.9
Accounts receivable	9.3
Inventoried costs	12.3
Other current assets	8.9
Property and equipment	8.1
Intangible assets	38.0
Goodwill	104.2
Total assets	189.7
Current liabilities	(25.7		)
Net assets acquired	$	164.0

The goodwill recorded in this transaction is tax deductible.

As of July 2, 2012, the expected fair value of accounts receivable approximated historical cost. The gross accounts receivable was $9.3 million, all of which is expected to be collectible. There was no contingent purchase consideration associated with the acquisition of CEI.

The amounts of revenue and operating loss of CEI included in the Company's condensed consolidated statement of operations and comprehensive income (loss) for the three months ended March 31, 2013 are $25.9 million and $3.2 million, respectively.

Asset Purchase

On December 30, 2011, the Company acquired selected assets of a critical infrastructure security and public safety system integration business (the “Critical Infrastructure Business”) for approximately $18.8 million, which includes a final agreement on the working capital adjustment.

The Critical Infrastructure Business designs, engineers, deploys, manages and maintains specialty security systems at some of the most strategic asset and critical infrastructure locations in the U.S. Additionally, these security systems are typically integrated into command and control system infrastructure or command centers. Approximately 15% of the revenues of the Critical Infrastructure Business are recurring in nature due to the operation, maintenance or sustainment of the security systems once deployed. The Critical Infrastructure Business is part of the Company's Public Safety & Security (“PSS”) segment.

The excess of the purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition was allocated to goodwill. The value of the goodwill represents the value the Company expects to be created by enabling it to strategically expand its strengths in the areas of homeland security solutions and will also enable the Company to realize significant cross selling opportunities and increase its sales of higher margin, fixed price products.

The transaction has been accounted for using the acquisition method of accounting, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The following table summarizes the estimated fair values of the major assets acquired and liabilities assumed (in millions):

Accounts receivable	$	23.4
Other assets	0.5
Intangible assets	2.0
Goodwill	2.6
Total assets	28.5
Current liabilities	(9.7		)
Net assets acquired	$	18.8

The goodwill recorded in this transaction is tax deductible.

As of December 30, 2011, the expected fair value of accounts receivable approximated historical cost. The gross accounts receivable was $24.4 million, of which approximately $1.0 million is not expected to be collectible.

Due to the integration of the Critical Infrastructure Business with the Company's existing PSS business it is impractical to estimate the amounts of revenue and operating income (loss) included in the Company's condensed consolidated statement of operations and comprehensive income (loss).

In accordance with FASB Accounting Standards Codification ("ASC") Topic 805, Business Combinations (“Topic 805”), the allocation of the purchase price for the Company’s acquisition of CEI is subject to adjustment during the measurement period after the respective closing dates when additional information on asset and liability valuations becomes available. The above estimated fair values of assets acquired and liabilities assumed of CEI are provisional and are based on the information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. Measurement period adjustments reflect new information obtained about facts and circumstances that existed as of the acquisition date. The Company believes that such information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is waiting for additional information necessary to finalize those fair values. The Company has not finalized its valuation of certain assets and liabilities recorded in connection with this transaction, including contingent liabilities and deferred taxes. Thus, the provisional measurements recorded are subject to change. Any changes will be recorded as adjustments to the fair value of those assets and liabilities, and residual amounts will be allocated to goodwill. The final valuation adjustments may also require adjustment to the condensed consolidated statements of operations and comprehensive income (loss).

Pro Forma Financial Information

The following tables summarize the supplemental condensed consolidated statements of operations information on an unaudited pro forma basis as if the acquisition of CEI occurred on December 26, 2011 and include adjustments that were directly attributable to the transaction or were not expected to have a continuing impact on the Company. The acquisition of CEI is included in the results of operations for the three months ended March 31, 2013. There are no material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings for 2012. The pro forma results are for illustrative purposes only for the applicable period and do not purport to be indicative of the actual results that would have occurred had the transaction been completed as of the beginning of the period, nor are they indicative of results of operations that may occur in the future (all amounts except per share amounts are in millions):

	For the Three Months Ended March 25, 2012
Pro forma revenues	$	232.4
Pro forma net loss before tax	(9.4		)
Pro forma net loss	(5.3		)
Net loss attributable to the registrant	(2.5		)
Basic and diluted pro forma loss per share	$	(0.09	)

The pro forma financial information reflects acquisition related expenses incurred, pro forma adjustments for the additional amortization associated with finite-lived intangible assets acquired, additional incremental interest expense, stock compensation related to the RSUs granted in the CEI transaction, and the related tax expense.

These adjustments are as follows (in millions):

	For the Three Months Ended March 25, 2012
Intangible amortization	$	4.0
Net change in stock compensation expense	$	0.7
Increase in weighted average common shares outstanding for shares issued and not already included in the weighted average common shares outstanding	24.0

Contingent Acquisition Consideration

In connection with certain acquisitions, the Company has agreed to make additional future payments to the seller contingent upon achievement of specific performance-based milestones by the acquired entities. Pursuant to the provisions of Topic 805, the Company will re-measure these liabilities each reporting period and record changes in the fair value in its condensed consolidated statement of operations and comprehensive income (loss). Increases or decreases in the fair value of the contingent consideration liability, which is measured as the present value of expected future cash flows, a Level 3 measurement in the fair value hierarchy (Level 3 hierarchy as defined by ASC Topic 820, Fair Value Measurements and Disclosures (“Topic 820”)), can result from changes in discount periods and rates, as well as changes in the estimates on the achievement of the performance-based milestones.

Contingent acquisition consideration as of March 31, 2013, which is related to the DEI Services Corporation ("DEI") acquisition, is summarized in the following table (in millions):

Balance as of December 30, 2012	$	2.1
Cash payments and adjustments	—
Balance as of March 31, 2013	$	2.1

As of March 31, 2013, the $2.1 million of contingent acquisition consideration is reflected in other current liabilities in the condensed consolidated balance sheet.

Pursuant to the terms of the agreement and plan of merger with DEI Services Corporation entered into on August 9, 2010 (“the DEI Agreement”), upon achievement of certain cash receipts, revenue, EBITDA and backlog amounts in 2010, 2011 and 2012, the Company will be obligated to pay certain additional contingent consideration (the “DEI Contingent Consideration”). The Company has paid $2.9 million related to the DEI Contingent Consideration, of which $2.5 million was paid in April 2012. As of March 31, 2013, the undiscounted amount of future DEI Contingent Consideration that is payable by the Company under the DEI Agreement is $2.1 million, which was paid in April of 2013.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Mar. 31, 2013	Dec. 30, 2012
Preferred Stock:
Shares authorized (in shares)	5,000,000	5,000,000
Par value (in dollars per share)	$ 0.001	$ 0.001
Shares outstanding (in shares)	0	0
Common Stock:
Par value (in dollars per share)	$ 0.001	$ 0.001
Shares authorized (in shares)	195,000,000	195,000,000
Shares issued (in shares)	56,654,577	56,613,024
Shares outstanding (in shares)	56,654,577	56,613,024

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Segment Information

3 Months Ended

Mar. 31, 2013

Segment Reporting [Abstract]

Segment Information

Segment Information

The Company operates in two principal business segments: Kratos Government Solutions and Public Safety & Security. The Company organizes its business segments based on the nature of the services offered. In the following table, total operating income of the business segments is reconciled to the corresponding consolidated amount. The reconciling item “Unallocated corporate expense, net” includes costs for certain stock-based compensation programs (including stock-based compensation costs for stock options, employee stock purchase plan shares 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. Transactions between segments are generally negotiated and accounted for under terms and conditions similar to other government and commercial contracts.

Revenues, depreciation and amortization, and operating income generated by the Company’s current reporting segments for the three months endedMarch 25, 2012 and March 31, 2013 are as follows (in millions):

	Three Months Ended
	March 25, 2012			March 31, 2013
Revenues:
Kratos Government Solutions
Service revenues	$	61.5		$	64.9
Product sales	107.4			137.3
Total Kratos Government Solutions	168.9			202.2
Public Safety & Security
Service revenues	40.6			50.6
Product sales	—			—
Total Public Safety & Security	40.6			50.6
Total revenues	$	209.5		$	252.8
Depreciation & amortization:
Kratos Government Solutions	$	12.8		$	13.2
Public Safety & Security	0.8			1.0
Total depreciation and amortization	$	13.6		$	14.2
Operating income:
Kratos Government Solutions	$	9.6		$	12.2
Public Safety & Security	1.2			1.2
Unallocated corporate expense, net	(1.7		)	(1.9		)
Total operating income	$	9.1		$	11.5

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Document and Entity Information	3 Months Ended
	Mar. 31, 2013	May 03, 2013
Document And Entity Information
Entity Registrant Name	KRATOS DEFENSE & SECURITY SOLUTIONS, INC.
Entity Central Index Key	0001069258
Current Fiscal Year End Date	--12-29
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Mar. 31, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding		56,668,864

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

(a) Legal Matters

In addition to commitments and obligations in the ordinary course of business, the Company is subject to various claims, pending and potential legal actions for damages, investigations relating to governmental laws and regulations and other matters arising out of the normal conduct of its business. The Company assesses contingencies to determine the degree of probability and range of possible loss for potential accrual in its consolidated financial statements. An estimated loss contingency is accrued in the Company's consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing litigation contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against the Company may be unsupported, exaggerated or unrelated to possible outcomes, and as such are not meaningful indicators of the Company's potential liability. The Company regularly reviews contingencies to determine the adequacy of its accruals and related disclosures. The amount of ultimate loss may differ from these estimates. It is possible that cash flows or results of operations could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies. Whether any losses finally determined in any claim, action, investigation or proceeding could reasonably have a material effect on the Company's business, financial condition, results of operations or cash flows will depend on a number of variables, including the timing and amount of such losses; the structure and type of any remedies; the monetary significance of any such losses, damages or remedies on the Company's consolidated financial statements; and the unique facts and circumstances of the particular matter that may give rise to additional factors.

Legal and Regulatory Matters

Integral Indemnification Obligation. Integral, which was acquired on July 27, 2011, was previously the subject of a SEC investigation. On July 30, 2009, the SEC and Integral each announced that an administrative settlement had been reached concluding the SEC's investigation. In conjunction with its announcement of the administrative settlement, the SEC disclosed that it was instituting separate civil actions against three former officers of Integral, Steven R. Chamberlain (now deceased), Elaine M. Brown and Gary A. Prince, in a case filed July 30, 2009 captioned United States Securities and Exchange Commission v. Steven R. Chamberlain, Elaine M. Brown, and Gary A. Prince, Case No. 09-CV-01423, pending in the United States District Court for the District of Columbia. The SEC's complaint alleges that from 1999 through August 2006, Chamberlain, Brown and Prince made materially false and misleading statements and omitted material information in various filings with the SEC by failing to disclose the role of Prince, who had been convicted of engaging in securities fraud while at another company, at Integral and his legal background in its filings. The SEC sought permanent injunctions against each defendant, as well as court orders imposing officer and director bars and civil penalties. Integral has indemnification obligations to these individuals, as well as to other former directors and officers of Integral who may incur indemnifiable costs in connection with these actions, pursuant to the terms of separate indemnification agreements entered into with each of them effective as of December 4, 2002. As a result of the acquisition of Integral, the Company has assumed these indemnification obligations. The indemnification agreements provide, subject to certain terms and conditions, that the Company shall indemnify the individual to the fullest extent permissible by Maryland law against judgments, penalties, fines, settlements and reasonable expenses actually incurred in the event that the individual is made a party to a legal proceeding by reason of his or her present or prior service as an officer or employee of Integral, and shall also advance reasonable litigation expenses actually incurred subject to, among other conditions, receipt of a written undertaking to repay any costs or expenses advanced if it shall ultimately be determined that the individual has not met the standard of conduct required for indemnification under Maryland law. Certain costs and expenses were previously covered under Integral's applicable directors and officers liability insurance policy. The policy limits were exhausted in December 2011, and the Company is advancing payment of indemnifiable costs pursuant to the indemnification agreements. On November 26, 2012, the SEC announced that it had finalized a settlement with Elaine M. Brown, resulting in a final judgment that resolved the SEC's matter against Brown. The SEC's case against Gary A. Prince proceeded to a bench trial in December 2012, which trial concluded in January 2013. On May 2, 2013, the court issued a memorandum opinion and entered an order granting judgment in favor of the SEC on one count of its complaint. The court found that in 1997, an accounting bar order had been issued against Mr. Prince because of his conduct at a different company, and that Mr. Prince violated the bar order between 1998 and 2006. The court issued an injunction permanently restraining and enjoining Mr. Prince from violating the accounting bar order. The court entered judgment in favor of Mr. Prince on all other counts of the SEC's complaint. No relief was sought or entered against Integral. Either party may appeal the court's decision, which would require the Company to continue to advance payment of indemnifiable costs.

U.S. Government Cost Claims. The Company's contracts with the Department of Defense are subject to audit by the Defense Contract Audit Agency (“DCAA”). As a result of these audits, from time to time, the Company is advised of claims concerning potential disallowed, overstated or disputed costs. For example, during the course of its current audits, the DCAA is closely examining and questioning certain of its established and disclosed practices that it had previously audited and accepted. In addition, based on a DCAA audit, the U.S. Department of Justice is currently investigating whether one of the Company's subsidiaries violated the federal False Claims Act by overstating its labor and material costs in a contract with the Department of Defense prior to the Company's acquisition of the subsidiary. Under the False Claims Act, the Department of Justice can seek civil penalties plus treble damages. The Company intends to defend itself in these matters and to work to resolve or settle any disputed contract costs. When appropriate, the Company records accruals to reflect its expected exposure to the matters raised by the U.S. Government, and it reviews such accruals on a quarterly basis for sufficiency based on the most recent information available. Based on its assessment, it has accrued an amount in its financial statements for contingent liabilities associated with these matters that it considers to be immaterial to its overall financial position. The matter that is currently being investigated was identified during the acquisition process and was taken into consideration in the purchase price allocation of this subsidiary. Contract disputes with the U.S. Government, however, are inherently unpredictable, and unfavorable resolutions could occur. As a result, assessing contingencies is highly subjective and requires judgment about future events. The amount of ultimate loss may exceed the Company's current accruals, and it is possible that its cash flows or results of operations could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies.

Other Litigation Matters. The Company is subject to normal and routine litigation arising from the ordinary course and conduct of business, and, at times, as a result of acquisitions and dispositions. Such disputes include, for example, commercial, employment, intellectual property, environmental and securities matters.

The aggregate amounts accrued related to these matters are not material to the total liabilities of the Company.

(b) Warranty

Certain of the Company’s products, product finishes, and services are covered by a warranty to be free from defects in material and workmanship for periods ranging from one to ten years. Optional extended warranty contracts can also be purchased with the revenue deferred and amortized over the extended warranty period. The Company accrues a warranty liability for estimated costs to provide products, parts or services to repair or replace products in satisfaction of warranty obligations. Warranty revenues related to extended warranty contracts are amortized to income, over the life of the contract, using the straight-line method. Costs under extended warranty contracts are expensed as incurred.

The Company’s estimate of costs to service its warranty obligations is based upon historical experience and expectations of future conditions. To the extent that the Company experiences any changes in warranty claim activity or costs associated with servicing those claims, its warranty liability is adjusted accordingly.

The changes in the Company's aggregate product warranty liabilities, which are included in other current liabilities and other long term-liabilities on the Company's condensed consolidated balance sheets, were as follows (in millions):

	Three Months Ended
	March 25, 2012			March 31, 2013
Balance at beginning of the period	$	4.3		$	4.9
Costs accrued and revenues deferred	0.2			0.2
Warranty liabilities assumed from acquisitions	0.5			—
Settlements made (in cash or kind) and revenues recognized	(0.3		)	—
Balance at end of period	4.7			5.1
Less: Current portion	4.4			4.8
Non-current accrued product warranty and deferred warranty revenue	$	0.3		$	0.3

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 25, 2012
Service revenues	$ 115.5	$ 102.1
Product sales	137.3	107.4
Total revenues	252.8	209.5
Cost of service revenues	88.2	79.8
Cost of product sales	98.9	71.9
Total costs	187.1	151.7
Gross profit	65.7	57.8
Selling, general and administrative expenses	49.2	44.2
Merger and acquisition expenses	0.1	0.9
Research and development expenses	4.9	3.6
Operating income from continuing operations	11.5	9.1
Other income (expense):
Interest expense, net	(16.2)	(16.1)
Other income (expense), net	(0.7)	0.4
Total other expense, net	(16.9)	(15.7)
Loss from continuing operations before income taxes	(5.4)	(6.6)
Provision (benefit) for income taxes from continuing operations	2.8	(4.1)
Loss from continuing operations	(8.2)	(2.5)
Loss from discontinued operations	(2.1)	(0.5)
Net loss	(10.3)	(3.0)
Basic income (loss) per common share:
Net loss from continuing operations (in dollars per share)	$ (0.14)	$ (0.08)
Net Loss from discontinued operations (in dollars per share)	$ (0.04)	$ (0.01)
Net loss per common share (in dollars per share)	$ (0.18)	$ (0.09)
Diluted income (loss) per common share:
Net loss from continuing operations (in dollars per share)	$ (0.14)	$ (0.08)
Net Loss from discontinued operations (in dollars per share)	$ (0.04)	$ (0.01)
Net loss per common share (in dollars per share)	$ (0.18)	$ (0.09)
Weighted average common shares outstanding:
Basic (in shares)	56.6	32.5
Diluted (in shares)	56.6	32.5
Comprehensive Loss
Net loss from above	(10.3)	(3.0)
Other comprehensive income:
Change in cumulative translation adjustment	0.1	0
Other comprehensive income, net of tax	0.1	0
Comprehensive loss	$ (10.2)	$ (3.0)

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Income Taxes

3 Months Ended

Mar. 31, 2013

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

As of December 30, 2012, the Company had $13.4 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate, subject to possible offset by an increase in the valuation allowance. During the three months ended March 31, 2013, this amount was increased by $0.1 million and was recorded as an adjustment to goodwill.

The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. During the three months ended March 25, 2012, a $0.2 million expense was recorded related to interest and penalties. There was no material expense recorded during the three months ended March 31, 2013. The Company recorded a benefit for interest and penalties related to the reversal of prior positions of $0.1 million for the three months ended March 25, 2012 and no benefit for the three months ended March 31, 2013. The Company believes that it is reasonably possible that as much as $1.5 million of the liabilities for uncertain tax positions will expire within twelve months of March 31, 2013 due to the expiration of various applicable statutes of limitations.

The Company is subject to taxation in the U.S., various state tax jurisdictions and various foreign tax jurisdictions. The Company's tax years for 2000 and later are subject to examination by the U.S. and state tax authorities due to the existence of net operating loss (“NOL”) carryforwards. Generally, the Company's tax years for 2002 and later are subject to examination by various foreign tax authorities.

In assessing the Company's ability to realize deferred tax assets, management considers, on a periodic basis, whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. As such, management has determined that it is appropriate to maintain a full valuation allowance against the Company's deferred tax assets, with the exception of an amount equal to its deferred tax liabilities, which can be expected to reverse over a definite life. Management will continue to evaluate the necessity to maintain a valuation allowance against the Company's net deferred tax assets. A reconciliation of the total income tax provision to the amount computed by applying the statutory federal income tax rate of 35% to loss from continuing operations before income tax provision for the three months ended March 25, 2012 and March 31, 2013 is as follows (in millions):

	For the Three Months Ended
	March 25, 2012			March 31, 2013
Income tax benefit at federal statutory rate	$	(2.3	)	$	(1.8	)
State and foreign taxes, net of federal tax benefit and valuation allowance	(3.0		)	0.9
Nondeductible expenses and other	0.5			0.1
Impact of indefinite lived deferred tax liabilities and state law changes	(1.0		)	1.9
Increase/(decrease) in reserves for uncertain tax positions	(0.1		)	0.1
Increase/(decrease) in federal valuation allowance	1.8			1.6
Total	$	(4.1	)	$	2.8

Federal and state income tax laws impose restrictions on the utilization of NOL and tax credit carryforwards in the event that an “ownership change” occurs for tax purposes, as defined by Section 382 (“Section 382”) of the Internal Revenue Code of 1986, as amended (the “Code”). In general, an ownership change occurs when shareholders owning 5% or more of a “loss corporation” (a corporation entitled to use NOL or other loss carryovers) have increased their ownership of stock in such corporation by more than 50 percentage points during any 3-year period. The annual base Section 382 limitation is calculated by multiplying the loss corporation's value (which may be modified for certain recent increases to capital) at the time of the ownership change times the greater of the long-term tax-exempt rate determined by the Internal Revenue Service (“IRS”) in the month of the ownership change or the two preceding months. In March 2010, an “ownership change” occurred that will limit the utilization of the loss carryforwards. Additionally, in May 2012, another “ownership change” was triggered. As a result of these changes, the Company's federal annual utilization of NOL carryforwards will be limited to $28.1 million a year for the five years succeeding the initial ownership change in March 2010 and $11.6 million per year thereafter. If the entire limitation amount is not utilized in a year, the excess can be carried forward and utilized in future years. For the three months ended March 31, 2013, there was no impact of such limitations on the income tax provision since the amount of taxable income did not exceed the annual limitation amount. In addition, future equity offerings or acquisitions that have equity as a component of the purchase price could also result in an ownership change. If and when any other “ownership change” occurs, utilization of the NOL or other tax attributes may be further limited. As discussed elsewhere, deferred tax assets relating to the NOL and credit carryforwards are offset by a full valuation allowance. In addition, utilization of state tax loss carryforwards is dependent upon sufficient taxable income apportioned to the states.

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Net Income (Loss) Per Common Share

3 Months Ended

Mar. 31, 2013

Earnings Per Share [Abstract]

Net Income (Loss) Per Common Share

Net Income (Loss) Per Common Share

The Company calculates net income (loss) per share in accordance with ASC Topic 260, Earnings Per Share (“Topic 260”). Under Topic 260, basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. Diluted net income (loss) per common share reflects the effects of potentially dilutive securities.

	For the Three Months Ended
(In millions, except earnings per share)	March 25, 2012			March 31, 2013
Loss from continuing operations (A)	$	(2.5	)	$	(8.2	)
Weighted average outstanding shares of common stock (B)	32.5			56.6
Dilutive effect of employee stock options and awards	—			—
Common stock and common stock equivalents (C)	32.5			56.6
Loss per share:
Basic (A/B)	$	(0.08	)	$	(0.14	)
Diluted (A/C)	$	(0.08	)	$	(0.14	)

The following shares were excluded from the calculation of diluted loss per share because their inclusion would have been anti-dilutive:

	For the Three Months Ended
(In millions)	March 25, 2012	March 31, 2013
Shares from stock options and awards	2.8	5.5

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Inventoried Costs (Tables)

3 Months Ended

Mar. 31, 2013

Inventory Disclosure [Abstract]

Schedule of inventoried costs

Inventoried costs consisted of the following components (in millions):

	December 30, 2012			March 31, 2013
Raw materials	$	48.4		$	42.5
Work in process	36.5			39.2
Finished goods	7.3			5.8
Supplies and other	2.2			1.7
Subtotal inventoried costs	94.4			89.2
Less: Customer advances and progress payments	(0.1		)	(1.0		)
Total inventoried costs	$	94.3		$	88.2

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Condensed Consolidating Financial Statements

3 Months Ended

Mar. 31, 2013

Condensed Consolidating Financial Statements [Abstract]

Condensed Consolidating Financial Statements

Condensed Consolidating Financial Statements

The Company has $625.0 million in outstanding Senior Secured Notes (see Note 9). The Notes are guaranteed by all of the Company's 100% owned domestic subsidiaries (the "Subsidiary Guarantors") and are collateralized by the assets of all of the Company's 100% owned subsidiaries. The Notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary and the Company. There are no contractual restrictions limiting cash transfers from guarantor subsidiaries by dividends, loans or advances to the Company. The Senior Secured Notes are not guaranteed by the Company's foreign subsidiaries (the “Non-Guarantor Subsidiaries”).

The following tables present condensed consolidating financial statements for the parent company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries, respectively. The condensed consolidating financial information below follows the same accounting policies as described in the consolidated financial statements, except for the use of the equity method of accounting to reflect ownership interests in wholly owned subsidiaries, which are eliminated upon consolidation.

Condensed Consolidating Balance Sheet December 30, 2012 (Unaudited)
	Parent Company		Guarantors on a Combined Basis			Non-Guarantors on a Combined Basis		Eliminations			Consolidated
Assets
Current Assets:
Cash and cash equivalents	$	37.8	$	(4.0	)	$	15.2	$	—		$	49.0
Accounts receivable, net	—		253.5			18.4		—			271.9
Amounts due from affiliated companies	480.2		—			—		(480.2		)	—
Inventoried costs	—		75.4			18.9		—			94.3
Other current assets	9.1		28.0			3.1		—			40.2
Total current assets	527.1		352.9			55.6		(480.2		)	455.4
Property, plant and equipment, net	1.3		74.7			9.6		—			85.6
Goodwill	—		574.7			21.7		—			596.4
Intangible assets, net	—		103.4			2.7		—			106.1
Investment in subsidiaries	439.8		28.8			—		(468.6		)	—
Amounts due from affiliated companies	—		24.0			—		(24.0		)	—
Other assets	17.6		22.4			0.4		—			40.4
Total assets	$	985.8	$	1,180.9		$	90.0	$	(972.8	)	$	1,283.9
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	2.8	$	75.2		$	5.6	$	—		$	83.6
Accrued expenses	7.0		42.3			3.4		—			52.7
Accrued compensation	2.9		41.8			3.1		—			47.8
Billings in excess of costs and earnings on uncompleted contracts	—		40.5			3.2		—			43.7
Deferred income tax liability	—		28.9			—		—			28.9
Amounts due to affiliated companies	—		455.1			25.1		(480.2		)	—
Other current liabilities	1.1		19.1			1.9		—			22.1
Total current liabilities	13.8		702.9			42.3		(480.2		)	278.8
Long-term debt, net of current portion	643.6					4.8		—			648.4
Amounts due to affiliated companies	—		—			24.0		(24.0		)	—
Other long-term liabilities	4.3		26.2			2.1		—			32.6
Total liabilities	661.7		729.1			73.2		(504.2		)	959.8
Total stockholders' equity	324.1		451.8			16.8		(468.6		)	324.1
Total liabilities and stockholders' equity	$	985.8	$	1,180.9		$	90.0	$	(972.8	)	$	1,283.9

Condensed Consolidating Balance Sheet March 31, 2013 (Unaudited)
	Parent Company		Guarantors on a Combined Basis			Non-Guarantors on a Combined Basis		Eliminations			Consolidated
Assets
Current Assets:
Cash and cash equivalents	$	34.3	$	(1.9	)	$	19.2	$	—		$	51.6
Accounts receivable, net	—		264.7			17.1		—			281.8
Amounts due from affiliated companies	482.7		—			—		(482.7		)	—
Inventoried costs	—		70.7			17.5		—			88.2
Other current assets	8.8		21.6			3.1		—			33.5
Total current assets	525.8		355.1			56.9		(482.7		)	455.1
Amounts due from affiliated companies, long-term	—		24.0			—		(24.0		)	—
Property, plant and equipment, net	1.3		73.0			9.7		—			84.0
Goodwill	—		574.7			21.7		—			596.4
Intangible assets, net	—		94.5			2.3		—			96.8
Investment in subsidiaries	448.5		30.1			—		(478.6		)	—
Other assets	16.4		21.5			0.4		—			38.3
Total assets	$	992.0	$	1,172.9		$	91.0	$	(985.3	)	$	1,270.6
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1.9	$	66.5		$	3.2	$	—		$	71.6
Accrued expenses	22.6		38.1			2.7		—			63.4
Accrued compensation	3.8		36.6			3.0		—			43.4
Billings in excess of costs and earnings on uncompleted contracts	—		42.3			6.1		—			48.4
Deferred income tax liability	—		29.0			—		—			29.0
Amounts due to affiliated companies	—		457.3			25.4		(482.7		)	—
Other current liabilities	1.1		16.8			1.9		—			19.8
Total current liabilities	29.4		686.6			42.3		(482.7		)	275.6
Long-term debt, net of current portion	642.7		—			4.5		—			647.2
Amounts due to affiliated companies	—		—			24.0		(24.0		)	—
Other long-term liabilities	4.3		25.8			2.1		—			32.2
Total liabilities	676.4		712.4			72.9		(506.7		)	955.0
Total stockholders' equity	315.6		460.5			18.1		(478.6		)	315.6
Total liabilities and stockholders' equity	$	992.0	$	1,172.9		$	91.0	$	(985.3	)	$	1,270.6

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) Three Months Ended March 25, 2012 (Unaudited)
	Parent Company			Guarantors on a Combined Basis			Non-Guarantors on a Combined Basis			Eliminations			Consolidated
Service revenues	$	—		$	101.5		$	0.6		$	—		$	102.1
Product sales	—			96.0			14.3			(2.9		)	107.4
Total revenues	—			197.5			14.9			(2.9		)	209.5
Cost of service revenues	—			79.5			0.3			—			79.8
Cost of product sales	—			65.3			9.5			(2.9		)	71.9
Total costs	—			144.8			9.8			(2.9		)	151.7
Gross profit	—			52.7			5.1			—			57.8
Selling, general and administrative expenses	2.2			39.3			3.6			—			45.1
Research and development expenses	—			3.3			0.3			—			3.6
Operating income from continuing operations	(2.2		)	10.1			1.2			—			9.1
Other income (expense):
Interest expense, net	(16.0		)	—			(0.1		)	—			(16.1		)
Other income (expense), net	0.3			(0.1		)	0.2			—			0.4
Total other income and expense, net	(15.7		)	(0.1		)	0.1			—			(15.7		)
Income (loss) from continuing operations before income taxes	(17.9		)	10.0			1.3			—			(6.6		)
Benefit for income taxes from continuing operations	—			3.4			0.7			—			4.1
Income (loss) from continuing operations	(17.9		)	13.4			2.0			—			(2.5		)
Income (loss) from discontinued operations	—			(0.6		)	0.1			—			(0.5		)
Equity in net income (loss) of subsidiaries	14.9			2.1			—			(17.0		)	—
Net income (loss)	$	(3.0	)	$	14.9		$	2.1		$	(17.0	)	$	(3.0	)
Comprehensive income (loss)	$	(3.0	)	$	14.9		$	2.1		$	(17.0	)	$	(3.0	)

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) Three Months Ended March 31, 2013 (Unaudited)
	Parent Company			Guarantors on a Combined Basis			Non-Guarantors on a Combined Basis			Eliminations			Consolidated
Service revenues	$	—		$	115.5		$	—		$	—		$	115.5
Product sales	—			123.3			18.8			(4.8		)	137.3
Total revenues	—			238.8			18.8			(4.8		)	252.8
Cost of service revenues	—			88.2			—			—			88.2
Cost of product sales	—			90.7			13.0			(4.8		)	98.9
Total costs	—			178.9			13.0			(4.8		)	187.1
Gross profit	—			59.9			5.8			—			65.7
Selling, general and administrative expenses	2.6			43.8			2.9			—			49.3
Research and development expenses	—			4.5			0.4			—			4.9
Operating income from continuing operations	(2.6		)	11.6			2.5			—			11.5
Other income expense:
Interest expense, net	(16.1		)	—			(0.1		)	—			(16.2		)
Other expense, net	—			—			(0.7		)	—			(0.7		)
Total other expense, net	(16.1		)	—			(0.8		)	—			(16.9		)
Income (loss) from continuing operations before income taxes	(18.7		)	11.6			1.7			—			(5.4		)
Provision for income taxes from continuing operations	0.3			2.4			0.1			—			2.8
Income (loss) from continuing operations	(19.0		)	9.2			1.6			—			(8.2		)
Loss from discontinued operations	—			(1.8		)	(0.3		)	—			(2.1		)
Equity in net income (loss) of subsidiaries	8.7			1.3			—			(10.0		)	—
Net income (loss)	$	(10.3	)	$	8.7		$	1.3		$	(10.0	)	$	(10.3	)
Comprehensive income (loss)	$	(10.2	)	$	8.7		$	1.2		$	(9.9	)	$	(10.2	)

Condensed Consolidating Statement of Cash Flows Three Months Ended March 25, 2012 (Unaudited)
	Parent Company			Guarantors on a Combined Basis			Non-Guarantors on a Combined Basis			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	(6.2	)	$	26.3		$	4.9		$	—	$	25.0
Investing activities:
Cash paid for acquisitions, net of cash acquired	(21.5		)	—			—			—		(21.5		)
(Increase) decrease in restricted cash	(0.3		)	0.7			—			—		0.4
Capital expenditures	—			(2.4		)	(0.3		)	—		(2.7		)
Net cash used in investing activities from continuing operations	(21.8		)	(1.7		)	(0.3		)	—		(23.8		)
Financing activities:
Repayment of debt	—			—			(0.3		)	—		(0.3		)
Financing from affiliated companies	30.9			(30.9		)	—			—		—
Other, net	—			(0.1		)	—			—		(0.1		)
Net cash provided by (used in) financing activities from continuing operations	30.9			(31.0		)	(0.3		)	—		(0.4		)
Net cash flows of continuing operations	2.9			(6.4		)	4.3			—		0.8
Net operating cash flows from discontinued operations	—			3.7			0.2			—		3.9
Effect of exchange rate changes on cash and cash equivalents	—			—			(0.1		)	—		(0.1		)
Net increase in cash and cash equivalents	$	2.9		$	(2.7	)	$	4.4		$	—	$	4.6

Condensed Consolidating Statement of Cash Flows Three Months Ended March 31, 2013 (Unaudited)
	Parent Company			Guarantors on a Combined Basis			Non-Guarantors on a Combined Basis			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	(0.8	)	$	0.8		$	5.1		$	—	$	5.1
Investing activities:
Cash paid for acquisitions, net of cash acquired	—			1.2			—			—		1.2
Decrease in restricted cash	—			0.2			—			—		0.2
Capital expenditures	(0.1		)	(2.7		)	(0.5		)	—		(3.3		)
Net cash used in investing activities from continuing operations	(0.1		)	(1.3		)	(0.5		)	—		(1.9		)
Financing activities:
Repayment of debt	—			—			(0.3		)	—		(0.3		)
Financings from affiliated companies	(2.4		)	2.4			—			—		—
Other, net	(0.2		)	—			—			—		(0.2		)
Net cash provided by (used in) financing activities from continuing operations	(2.6		)	2.4			(0.3		)	—		(0.5		)
Net cash flows of continuing operations	(3.5		)	1.9			4.3			—		2.7
Net operating cash flows from discontinued operations	—			0.2			—			—		0.2
Effect of exchange rate changes on cash and cash equivalents	—			—			(0.3		)	—		(0.3		)
Net increase (decrease) in cash and cash equivalents	$	(3.5	)	$	2.1		$	4.0		$	—	$	2.6

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Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying amounts and the related estimated fair values of the Company's long-term debt financial instruments not measured at fair value on a recurring basis at December 30, 2012 and March 31, 2013 are presented in Note 9. The carrying value of all other financial instruments, including cash equivalents, accounts receivable, accounts payable and short-term debt, approximated their estimated fair values at December 30, 2012 and March 31, 2013.

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Discontinued Operations

3 Months Ended

Mar. 31, 2013

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued Operations

In June 2012, consistent with the Company's plans to complete its assessment and evaluation of the non-core businesses acquired in the Integral acquisition, the Company committed to a plan to sell certain lines of business associated with antennas, satellite-cased products and fly-away terminals. These operations were previously reported in the KGS segment, and in accordance with Topic 205, Presentation of Financial Statements ("Topic 205"), these businesses have been classified as held for sale and reported in discontinued operations in the accompanying condensed consolidated financial statements. In the second quarter of 2012, the Company recorded a $1.5 million impairment charge associated with the portion of goodwill that was allocated to the discontinued businesses based on management's estimate of the fair value of the business. The Company sold its domestic operations to two buyers for approximately $0.8 million in cash consideration and the assumption of certain liabilities. The Company received $0.3 million in cash in 2012 from the first buyer and $0.5 million in cash in April 2013 from the second buyer. The Company recorded a $1.2 million impairment charge in the first quarter of 2013 related to its revised estimate of the fair value of these operations.

The following table presents the results of discontinued operations (in millions):

	For the Three Months Ended
	March 25, 2012			March 31, 2013
Revenue	$	5.6		$	3.6
Net loss before taxes	(0.6		)	(2.1		)
Provision for income taxes	(0.1		)	—
Net loss after taxes	$	(0.5	)	$	(2.1	)

 The following is a summary of the assets and liabilities of discontinued operations, which are in other current assets, other non-current assets, other current liabilities and other long-term liabilities in the accompanying condensed consolidated balance sheets as of December 30, 2012 and March 31, 2013 (in millions):

	December 30, 2012		March 31, 2013
Accounts receivable, net	$	3.4	$	3.0
Inventoried costs	3.0		0.9
Other current assets	0.2		0.2
Current assets of discontinued operations	6.6		4.1
Other non-current assets	0.4		0.2
Non-current assets of discontinued operations	$	0.4	$	0.2
Accounts payable and accrued expenses	$	4.4	$	3.8
Billings in excess of costs and earnings on uncompleted contracts	0.1		0.1
Other current liabilities	0.4		0.3
Current liabilities of discontinued operations	4.9		4.2
Other long-term liabilities	0.3		0.2
Long-term liabilities of discontinued operations	$	0.3	$	0.2

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Debt

3 Months Ended

Mar. 31, 2013

Debt Disclosure [Abstract]

Debt

Debt

(a) Issuance of 10% Senior Secured Notes due 2017

On May 19, 2010, the Company entered into an indenture with the guarantors set forth therein and Wilmington Trust FSB, as trustee and collateral agent (as amended or supplemented the “Indenture”), to issue the Notes. As of March 31, 2013, the Company has issued Notes in the aggregate principal amount of $625.0 million under the Indenture, of which $225.0 million were issued on May 19, 2010, $285.0 million were issued on March 25, 2011 at a $20.0 million premium and an effective interest rate of 8.5%, and $115.0 million were issued on July 27, 2011 at a $5.8 million premium and an effective interest rate of 8.9%. These Notes have been used to fund acquisitions and for general corporate purposes. The holders of the Notes have a first priority lien on substantially all of the Company's assets and the assets of the guarantors, except with respect to accounts receivable, inventory, deposit accounts, securities accounts, cash, securities and general intangibles (other than intellectual property), on which the holders of the Notes have a second priority lien to the $110.0 million credit facility described below.

The Company pays interest on the Notes semi-annually, in arrears, on June 1 and December 1 of each year. The Notes include customary covenants and events of default as well as a consolidated fixed charge ratio of 2:1 for the incurrence of additional indebtedness. Negative covenants include, among other things, limitations on additional debt, liens, negative pledges, investments, dividends, stock repurchases, asset sales and affiliate transactions. Events of default include, among other events, non-performance of covenants, breach of representations, cross-default to other material debt, bankruptcy, insolvency, material judgments and changes in control. As of March 31, 2013, the Company was in compliance with the covenants contained in the Indenture governing the Notes.

On or after June 1, 2014, the Company may redeem some or all of the Notes at 105% of the aggregate principal amount of such notes through June 1, 2015, 102.5% of the aggregate principal amount of such notes through June 1, 2016 and 100% of the aggregate principal amount of such notes thereafter, plus accrued and unpaid interest to the date of redemption. Prior to June 1, 2013, the Company may redeem up to 35% of the aggregate principal amount of the Notes at 110% of the aggregate principal amount of the Notes, plus accrued and unpaid interest to the date of redemption, with the net cash proceeds of certain equity offerings. In addition, the Company may, at its option, redeem some or all of the Notes at any time prior to June 1, 2014 by paying a “make whole” premium, plus accrued and unpaid interest, if any, to the date of redemption. The Company may also purchase outstanding Notes traded on the open market at any time.

(b) Other Indebtedness

$110.0 Million Credit Facility

On July 27, 2011, the Company entered into a credit and security agreement with KeyBank National Association (“KeyBank”), as lead arranger, sole book runner and administrative agent, and East West Bank and Bank of the West, as the lenders (the “2011 Credit Agreement”). The 2011 Credit Agreement amends and restates in its entirety the credit and security agreement, dated as of May 19, 2010, by and among the Company, KeyBank and the lenders named therein (as amended). The 2011 Credit Agreement established a five-year senior secured revolving credit facility in the amount of $65.0 million (as amended and described below, the “Amended Revolver”). The Amended Revolver is secured by a lien on substantially all of the Company's assets and the assets of the guarantors thereunder, subject to certain exceptions and permitted liens. The Amended Revolver has a first priority lien on accounts receivable, inventory, deposit accounts, securities accounts, cash, securities and general intangibles (other than intellectual property). On all other assets, the Amended Revolver has a second priority lien junior to the lien securing the Notes.

Borrowings under the Amended Revolver are subject to mandatory prepayment upon the occurrence of certain events, including the issuance of certain securities, the incurrence of certain debt and the sale or other disposition of certain assets. The Amended Revolver includes customary affirmative and negative covenants and events of default, as well as a financial covenant relating to a minimum fixed charge coverage ratio of 1.25. Negative covenants include, among other things, limitations on additional debt, liens, negative pledges, investments, dividends, stock repurchases, asset sales and affiliate transactions. Events of default include, among other events, non-performance of covenants, breach of representations, cross-default to other material debt, bankruptcy and insolvency, material judgments and changes in control.

On November 14, 2011, the Company entered into a first amendment (the “First Amendment”) with certain lenders and KeyBank that amended the 2011 Credit Agreement. Among other things, the First Amendment: (i) increased the amount of the Amended Revolver from $65.0 million to $90.0 million; (ii) added to and modified the definitions of certain terms contained in the 2011 Credit Agreement; (iii) added PNC Bank, National Association as a lender under the 2011 Credit Agreement; and (iv) updated certain schedules to the 2011 Credit Agreement.

 On May 4, 2012, the Company entered into a second amendment (the "Second Amendment") to the 2011 Credit Agreement. Among other things, the Second Amendment (i) increased the amount of the Amended Revolver from $90.0 million to $110.0 million, (ii) added to and modified the definitions of certain terms contained in the 2011 Credit Agreement, (iii) added Cathay Bank as a lender under the 2011 Credit Agreement, (iv) increased the maximum available to be borrowed under the 2011 Credit Agreement to $135.0 million subject to KeyBank's approval, and (v) updated certain schedules to the Credit Agreement.

On May 8, 2012, the Company entered into a third amendment (the "Third Amendment") to the 2011 Credit Agreement. Under the terms of the Third Amendment, the definitions of certain terms of the 2011 Credit Agreement were modified and the acquisition of CEI was approved. The Company used the net proceeds from the sale of 20.0 million shares of its common stock, together with the borrowings under its credit facility, to fund the purchase of CEI on July 2, 2012 and to pay related fees and expenses.

On February 27, 2013, the Company entered into a fourth amendment (the "Fourth Amendment") to the 2011 Credit Agreement. Under the terms of the Fourth Amendment, the definition of certain terms of the 2011 Credit Agreement and reporting requirements were modified.

The amounts of borrowings that may be made under the Amended Revolver are based on a borrowing base and are comprised of specified percentages of eligible receivables, eligible unbilled receivables and eligible inventory. If the amount of borrowings outstanding under the Amended Revolver exceeds the borrowing base then in effect, the Company is required to repay such borrowings in an amount sufficient to eliminate such excess. The Amended Revolver includes $50.0 million of availability for letters of credit and $10.0 million of availability for swing line loans.

The Company may borrow funds under the Amended Revolver at a rate based either on LIBOR or a base rate established by KeyBank. Base rate borrowings bear interest at an applicable margin of 1.00% to 1.75% over the base rate (which will be the greater of the prime rate or 0.5% over the federal funds rate, with a floor of 1.0% over one month LIBOR). LIBOR rate borrowings will bear interest at an applicable margin of 3.00% to 3.75% over the LIBOR rate. The applicable margin for base rate borrowings and LIBOR borrowings will depend on the average monthly revolving credit availability. The Amended Revolver also has a commitment fee of 0.50% to 0.75%, depending on the average monthly revolving credit availability. As of March 31, 2013, there were no outstanding borrowings on the Amended Revolver and $14.1 million was outstanding on letters of credit resulting in net borrowing base availability of $91.7 million. The Company was in compliance with the financial covenants as of March 31, 2013.

Debt Acquired in Acquisition of Herley

The Company assumed a $10.0 million10-year term loan with a bank in Israel that Herley entered into on September 16, 2008 in connection with the acquisition of one of its wholly owned subsidiaries. The balance as of March 31, 2013 was $5.5 million, and the loan is payable in quarterly installments of $0.3 million plus interest at LIBOR plus a margin of 1.5%. The loan agreement contains various covenants, including a minimum net equity covenant as defined in the loan agreement. The Company was in compliance with all covenants, including the minimum net equity covenant, as of March 31, 2013.

Fair Value of Long-term Debt

Carrying amounts and the related estimated fair values of the Company’s long-term debt financial instruments not measured at fair value on a recurring basis at December 30, 2012 and March 31, 2013 are presented in the following table:

	As of December 30, 2012						As of March 31, 2013
$ in millions	Principal		Carrying Amount		Fair Value		Principal		Carrying Amount		Fair Value
Total Long-term debt including current portion	$	630.7	$	649.4	$	690.5	$	630.5	$	648.2	$	691.9

The fair value of the Company’s long-term debt was based upon actual trading activity (Level 1, Observable inputs —quoted prices in active markets) and is the estimated amount the Company would have to pay to repurchase its debt, including any premium or discount attributable to the difference between the stated interest rate and market value of interest at the balance sheet date.

The net unamortized debt premium of $17.7 million as of March 31, 2013, which is the difference between the carrying amount of $648.2 million and the principal amount of $630.5 million represented in the previous table, is being amortized to interest expense over the terms of the related debt.

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Significant Customers

3 Months Ended

Mar. 31, 2013

Segment Reporting [Abstract]

Significant Customers

Significant Customers

Revenue from the U.S. Government, which includes foreign military sales, includes revenue from contracts for which the Company is the prime contractor as well as those for which the Company is a subcontractor and the ultimate customer is the U.S. Government. The KGS segment has substantial revenue from the U.S. Government. Sales to the U.S. Government amounted to approximately $140.9 million and $160.7 million or 67% and 64% of total Kratos revenue for the three months ended March 25, 2012 and March 31, 2013, respectively.

The U.S. Government continues to focus on developing and implementing spending, tax, and other initiatives to reduce the deficit, create jobs, and stimulate the economy. Although defense spending is expected to remain a national priority within future federal budgets, the Budget Control Act of 2011 (“Budget Control Act”) committed the U.S. Government to reduce the federal deficit over the next ten years. Under the Budget Control Act, the Bi-Partisan Congressional Joint Select Committee on Deficit Reduction (“the Joint Committee”) was responsible for identifying $1.2 to $1.5 trillion in deficit reductions by November 30, 2011. The Joint Committee was unable to identify the reductions by this deadline and thereby triggered a provision of the Budget Control Act called “sequestration,” which requires very substantial automatic spending cuts that have started in 2013, are split between defense and non-defense programs, and continue over a nine-year period.

On March 26, 2013, the President signed into law the Consolidated and Further Continuing Appropriations Act, 2013, which includes specific appropriations for the Company's major federal customers, including the DoD. On April 10, 2013, the President delivered his proposed FY 2014 budget to Congress. The President's $527 billion FY 2014 defense budget is slightly lower than final defense appropriations for FY 2013. While it largely reflects defense spending plans in the FY 2013 budget, it does not reflect the reductions mandated by Part II of the Budget Control Act. The Congressional appropriation and authorization of FY 2014 defense spending is likely to be marked by significant debate and an uncertain schedule. There continues to be uncertainty in how sequestration will ultimately be implemented, and there are many variables in how the law could be applied that make it difficult to determine the specific impacts. Any automatic reductions in national defense programs could impact the Company's significant customers, which in turn could impact the Company's business and financial results.

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Acquisitions - Assets Acquired and Liabilities Assumed (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2013	Dec. 30, 2012	Jul. 02, 2012 Composite Engineering, Inc.	Dec. 30, 2011 Critical Infrastructure Business
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
Cash			$ 8.9
Accounts receivable			9.3
Inventoried costs			12.3
Other current assets			8.9
Property and equipment			8.1
Intangible assets			38.0
Goodwill	596.4	596.4	104.2
Total assets			189.7
Current liabilities			(25.7)
Net assets acquired			164.0
Business Acquisition, Purchase Price Allocation [Abstract]
Accounts receivable				23.4
Other assets				0.5
Intangible assets				2.0
Goodwill				2.6
Total assets				28.5
Current liabilities				(9.7)
Net assets acquired				$ 18.8

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Debt - $110.0 million Credit Facility (Details) (USD $) In Millions, unless otherwise specified	0 Months Ended							0 Months Ended					0 Months Ended
	Jul. 02, 2012 CEI	May 14, 2012 CEI	Mar. 31, 2013 Revolving credit facility	May 04, 2012 Revolving credit facility	Nov. 14, 2011 Revolving credit facility	Jul. 27, 2011 Revolving credit facility	Jul. 02, 2012 Revolving credit facility CEI	Jul. 27, 2011 Revolving credit facility Minimum	Jul. 27, 2011 Revolving credit facility Maximum	Jul. 27, 2011 LIBOR base rate	Jul. 27, 2011 LIBOR base rate Minimum	Jul. 27, 2011 LIBOR base rate Maximum	Jul. 27, 2011 Base rate other than LIBOR	Jul. 27, 2011 Base rate other than LIBOR Minimum	Jul. 27, 2011 Base rate other than LIBOR Maximum	Mar. 31, 2013 Letter of credit	Jul. 27, 2011 Letter of credit	Jul. 27, 2011 Swing line loan
Line of Credit Facility [Line Items]
Maximum borrowing capacity			$ 110.0		$ 90.0	$ 65.0											$ 50.0	$ 10.0
Maturity period						5 years
Fixed charge coverage ratio								1.25
Maximum possible borrowing capacity subject to application and bank approval				135.0
Common stock issued for acquisitions	20.0	20.0
Description of variable rate basis										LIBOR			federal funds rate
Basis spread on variable rate											3.00%	3.75%		1.00%	1.75%
Base rate (the greater of prime rate or 0.5% over federal funds rate)													0.50%
Base rate (floor, 1.0% over one-month LIBOR)													1.00%
Commitment fee								0.50%	0.75%
Outstanding borrowings			0				40.0									14.1
Remaining borrowing capacity			$ 91.7

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Acquisitions (Tables)

3 Months Ended

Mar. 31, 2013

Business Acquisition [Line Items]

Schedule of pro forma financial information

The pro forma results are for illustrative purposes only for the applicable period and do not purport to be indicative of the actual results that would have occurred had the transaction been completed as of the beginning of the period, nor are they indicative of results of operations that may occur in the future (all amounts except per share amounts are in millions):

	For the Three Months Ended March 25, 2012
Pro forma revenues	$	232.4
Pro forma net loss before tax	(9.4		)
Pro forma net loss	(5.3		)
Net loss attributable to the registrant	(2.5		)
Basic and diluted pro forma loss per share	$	(0.09	)

Schedule of nonrecurring pro forma adjustments

These adjustments are as follows (in millions):

	For the Three Months Ended March 25, 2012
Intangible amortization	$	4.0
Net change in stock compensation expense	$	0.7
Increase in weighted average common shares outstanding for shares issued and not already included in the weighted average common shares outstanding	24.0

Schedule of contingent acquisition consideration

Contingent acquisition consideration as of March 31, 2013, which is related to the DEI Services Corporation ("DEI") acquisition, is summarized in the following table (in millions):

Balance as of December 30, 2012	$	2.1
Cash payments and adjustments	—
Balance as of March 31, 2013	$	2.1

Composite Engineering, Inc.

Business Acquisition [Line Items]

Schedule of purchase price allocation

The following table summarizes the preliminary estimated fair values of the major assets acquired and liabilities assumed (in millions):

Cash	$	8.9
Accounts receivable	9.3
Inventoried costs	12.3
Other current assets	8.9
Property and equipment	8.1
Intangible assets	38.0
Goodwill	104.2
Total assets	189.7
Current liabilities	(25.7		)
Net assets acquired	$	164.0

Critical Infrastructure Business

Business Acquisition [Line Items]

Schedule of purchase price allocation

The following table summarizes the estimated fair values of the major assets acquired and liabilities assumed (in millions):

Accounts receivable	$	23.4
Other assets	0.5
Intangible assets	2.0
Goodwill	2.6
Total assets	28.5
Current liabilities	(9.7		)
Net assets acquired	$	18.8

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Income Taxes (Tables)

3 Months Ended

Mar. 31, 2013

Income Tax Disclosure [Abstract]

Schedule of components of income tax expense (benefit)

A reconciliation of the total income tax provision to the amount computed by applying the statutory federal income tax rate of 35% to loss from continuing operations before income tax provision for the three months ended March 25, 2012 and March 31, 2013 is as follows (in millions):

	For the Three Months Ended
	March 25, 2012			March 31, 2013
Income tax benefit at federal statutory rate	$	(2.3	)	$	(1.8	)
State and foreign taxes, net of federal tax benefit and valuation allowance	(3.0		)	0.9
Nondeductible expenses and other	0.5			0.1
Impact of indefinite lived deferred tax liabilities and state law changes	(1.0		)	1.9
Increase/(decrease) in reserves for uncertain tax positions	(0.1		)	0.1
Increase/(decrease) in federal valuation allowance	1.8			1.6
Total	$	(4.1	)	$	2.8

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Discontinued Operations (Details) (USD $) In Millions, unless otherwise specified	1 Months Ended	3 Months Ended		12 Months Ended	1 Months Ended	3 Months Ended
	Apr. 30, 2013	Mar. 31, 2013	Mar. 25, 2012	Dec. 30, 2012	Jun. 30, 2012 Discontinued operations	Jun. 24, 2012 Discontinued operations
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Goodwill impairment charge associated with discontinued operations					$ 1.5	$ 1.5
Total cash and assumption of liabilities for divested operations		0.8
Cash received for divested operations	0.5			0.3
Impairment charge related to revised estimate of the fair value of divested operations		1.2
Disposal Group, Including Discontinued Operation, Income Statement Disclosures [Abstract]
Revenue		3.6	5.6
Net income (loss) before taxes		(2.1)	(0.6)
Benefit for income taxes		0	(0.1)
Net income (loss) after taxes		(2.1)	(0.5)
Disposal Group, Including Discontinued Operation, Balance Sheet Disclosures [Abstract]
Cash		3.0		3.4
Accounts receivable, net		0.9		3.0
Other current assets		0.2		0.2
Current assets of discontinued operations		4.1		6.6
Other non-current assets		0.2		0.4
Non-current assets of discontinued operations		0.2		0.4
Accounts payable		3.8		4.4
Accrued expenses		0.1		0.1
Other current liabilities		0.3		0.4
Current liabilities of discontinued operations		4.2		4.9
Other non-current liabilities		0.2		0.3
Non-current liabilities of discontinued operations		$ 0.2		$ 0.3

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Goodwill and Intangible Assets - Purchased Intangible Assets (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 25, 2012	Dec. 30, 2012
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Value	$ 207.7		$ 207.7
Accumulated Amortization	(117.8)		(108.5)
Net Value	89.9		99.2
Consolidated amortization expense related to intangible assets subject to amortization	9.3	10.5
Customer relationships
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Value	97.7		97.7
Accumulated Amortization	(40.1)		(36.2)
Net Value	57.6		61.5
Contracts and backlog
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Value	80.0		80.0
Accumulated Amortization	(68.6)		(64.3)
Net Value	11.4		15.7
Developed technology and technical know-how
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Value	22.1		22.1
Accumulated Amortization	(6.9)		(6.4)
Net Value	15.2		15.7
Trade names
Acquired Finite-Lived Intangible Assets [Line Items]
Indefinite-lived intangible assets			6.9
Gross Value	6.1		6.1
Accumulated Amortization	(1.7)		(1.2)
Net Value	4.4		4.9
Favorable operating lease
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Value	1.8		1.8
Accumulated Amortization	(0.5)		(0.4)
Net Value	$ 1.3		$ 1.4

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 25, 2012
Operating activities:
Net loss	$ (10.3)	$ (3.0)
Less: Loss from discontinued operations	(2.1)	(0.5)
Loss from continuing operations	(8.2)	(2.5)
Adjustments to reconcile loss from continuing operations to net cash provided by operating activities from continuing operations:
Depreciation and amortization	14.2	13.6
Stock-based compensation	1.9	1.1
Amortization of deferred financing costs	1.3	1.3
Amortization of premium on Senior Secured Notes	(1.0)	(1.0)
Provision for doubtful accounts	0.1	0.3
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	(9.8)	12.9
Inventoried costs	6.3	(7.1)
Prepaid expenses and other assets	0	(4.9)
Accounts payable	(12.0)	6.0
Accrued compensation	(4.3)	0.7
Accrued expenses	(4.7)	(3.7)
Accrued interest payable	15.3	15.6
Billings in excess of costs and earnings on uncompleted contracts	4.9	(1.1)
Income tax receivable and payable	2.9	(5.0)
Other liabilities	(1.8)	(1.2)
Net cash provided by operating activities from continuing operations	5.1	25.0
Investing activities:
Cash paid for acquisitions, net of cash acquired	1.2	(21.5)
Decrease in restricted cash	0.2	0.4
Capital expenditures	(3.3)	(2.7)
Net cash used in investing activities from continuing operations	(1.9)	(23.8)
Financing activities:
Repayment of debt	(0.3)	(0.3)
Other	(0.2)	(0.1)
Net cash used in financing activities from continuing operations	(0.5)	(0.4)
Net cash flows of continuing operations	2.7	0.8
Net operating cash flows of discontinued operations	0.2	3.9
Effect of exchange rate changes on cash and cash equivalents	(0.3)	(0.1)
Net increase in cash and cash equivalents	2.6	4.6
Cash and cash equivalents at beginning of period	49.0	69.6
Cash and cash equivalents at end of period	$ 51.6	$ 74.2

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Stockholders' Equity

3 Months Ended

Mar. 31, 2013

Equity [Abstract]

Stockholders' Equity

Stockholders’ Equity

A summary of the changes in stockholders’ equity is provided below (in millions):

	For the Three Months Ended
	March 25, 2012			March 31, 2013
Stockholders’ equity at beginning of period	$	312.6		$	324.1
Comprehensive loss:
Net loss	(3.0		)	(10.3		)
Foreign currency translation	—			0.1
Total comprehensive loss	(3.0		)	(10.2		)
Stock-based compensation	1.1			1.9
Restricted stock units traded for taxes	—			(0.2		)
Stockholders’ equity at end of period	$	310.7		$	315.6

The components of accumulated other comprehensive loss are as follows (in millions):

	March 25, 2012			March 31, 2013
Cumulative translation adjustment	$	0.1		$	(0.2	)
Post retirement benefit reserve adjustment net of tax expense	(0.3		)	(0.5		)
Total accumulated other comprehensive loss	$	(0.2	)	$	(0.7	)

There were no reclassifications from other comprehensive income to net loss for the three months ended March 31, 2013.

Common stock issued by the Company for the three months ended March 25, 2012 and March 31, 2013 was as follows (in millions):

	For the Three Months Ended
	March 25, 2012	March 31, 2013
Shares outstanding at beginning of the period	32.4	56.6
Stock issued for employee stock purchase plan, stock options and restricted stock units exercised	0.1	0.1
Shares outstanding at end of the period	32.5	56.7

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Condensed Consolidating Financial Statements - Statement of Operations and Comprehensive Income (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 25, 2012
Condensed Financial Statements, Captions [Line Items]
Service revenues	$ 115.5	$ 102.1
Product sales	137.3	107.4
Total revenues	252.8	209.5
Cost of service revenues	88.2	79.8
Cost of product sales	98.9	71.9
Total costs	187.1	151.7
Gross profit	65.7	57.8
Selling, general and administrative expenses	49.3	45.1
Research and development expenses	4.9	3.6
Operating income from continuing operations	11.5	9.1
Other income (expense):
Interest expense, net	(16.2)	(16.1)
Other income (expense), net	(0.7)	0.4
Total other expense, net	(16.9)	(15.7)
Loss from continuing operations before income taxes	(5.4)	(6.6)
Provision (benefit) for income taxes from continuing operations	2.8	(4.1)
Loss from continuing operations	(8.2)	(2.5)
Loss from discontinued operations	(2.1)	(0.5)
Equity in net income (loss) of subsidiaries	0	0
Net loss	(10.3)	(3.0)
Comprehensive income (loss)	(10.2)	(3.0)
Parent Company
Condensed Financial Statements, Captions [Line Items]
Service revenues	0	0
Product sales	0	0
Total revenues	0	0
Cost of service revenues	0	0
Cost of product sales	0	0
Total costs	0	0
Gross profit	0	0
Selling, general and administrative expenses	2.6	2.2
Research and development expenses	0	0
Operating income from continuing operations	(2.6)	(2.2)
Other income (expense):
Interest expense, net	(16.1)	(16.0)
Other income (expense), net	0	0.3
Total other expense, net	(16.1)	(15.7)
Loss from continuing operations before income taxes	(18.7)	(17.9)
Provision (benefit) for income taxes from continuing operations	0.3	0
Loss from continuing operations	(19.0)	(17.9)
Loss from discontinued operations	0	0
Equity in net income (loss) of subsidiaries	8.7	14.9
Net loss	(10.3)	(3.0)
Comprehensive income (loss)	(10.2)	(3.0)
Guarantors on a Combined Basis
Condensed Financial Statements, Captions [Line Items]
Service revenues	115.5	101.5
Product sales	123.3	96.0
Total revenues	238.8	197.5
Cost of service revenues	88.2	79.5
Cost of product sales	90.7	65.3
Total costs	178.9	144.8
Gross profit	59.9	52.7
Selling, general and administrative expenses	43.8	39.3
Research and development expenses	4.5	3.3
Operating income from continuing operations	11.6	10.1
Other income (expense):
Interest expense, net	0	0
Other income (expense), net	0	(0.1)
Total other expense, net	0	(0.1)
Loss from continuing operations before income taxes	11.6	10.0
Provision (benefit) for income taxes from continuing operations	2.4	(3.4)
Loss from continuing operations	9.2	13.4
Loss from discontinued operations	(1.8)	(0.6)
Equity in net income (loss) of subsidiaries	1.3	2.1
Net loss	8.7	14.9
Comprehensive income (loss)	8.7	14.9
Non-Guarantors on a Combined Basis
Condensed Financial Statements, Captions [Line Items]
Service revenues	0	0.6
Product sales	18.8	14.3
Total revenues	18.8	14.9
Cost of service revenues	0	0.3
Cost of product sales	13.0	9.5
Total costs	13.0	9.8
Gross profit	5.8	5.1
Selling, general and administrative expenses	2.9	3.6
Research and development expenses	0.4	0.3
Operating income from continuing operations	2.5	1.2
Other income (expense):
Interest expense, net	(0.1)	(0.1)
Other income (expense), net	(0.7)	0.2
Total other expense, net	(0.8)	0.1
Loss from continuing operations before income taxes	1.7	1.3
Provision (benefit) for income taxes from continuing operations	0.1	(0.7)
Loss from continuing operations	1.6	2.0
Loss from discontinued operations	(0.3)	0.1
Equity in net income (loss) of subsidiaries	0	0
Net loss	1.3	2.1
Comprehensive income (loss)	1.2	2.1
Eliminations
Condensed Financial Statements, Captions [Line Items]
Service revenues	0	0
Product sales	(4.8)	(2.9)
Total revenues	(4.8)	(2.9)
Cost of service revenues	0	0
Cost of product sales	(4.8)	(2.9)
Total costs	(4.8)	(2.9)
Gross profit	0	0
Selling, general and administrative expenses	0	0
Research and development expenses	0	0
Operating income from continuing operations	0	0
Other income (expense):
Interest expense, net	0	0
Other income (expense), net	0	0
Total other expense, net	0	0
Loss from continuing operations before income taxes	0	0
Provision (benefit) for income taxes from continuing operations	0	0
Loss from continuing operations	0	0
Loss from discontinued operations	0	0
Equity in net income (loss) of subsidiaries	(10.0)	(17.0)
Net loss	(10.0)	(17.0)
Comprehensive income (loss)	$ (9.9)	$ (17.0)

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Discontinued Operations (Tables)

3 Months Ended

Mar. 31, 2013

Discontinued Operations and Disposal Groups [Abstract]

Schedule of income statement and balance sheet disclosures for discontinued operations

The following table presents the results of discontinued operations (in millions):

	For the Three Months Ended
	March 25, 2012			March 31, 2013
Revenue	$	5.6		$	3.6
Net loss before taxes	(0.6		)	(2.1		)
Provision for income taxes	(0.1		)	—
Net loss after taxes	$	(0.5	)	$	(2.1	)

The following is a summary of the assets and liabilities of discontinued operations, which are in other current assets, other non-current assets, other current liabilities and other long-term liabilities in the accompanying condensed consolidated balance sheets as of December 30, 2012 and March 31, 2013 (in millions):

	December 30, 2012		March 31, 2013
Accounts receivable, net	$	3.4	$	3.0
Inventoried costs	3.0		0.9
Other current assets	0.2		0.2
Current assets of discontinued operations	6.6		4.1
Other non-current assets	0.4		0.2
Non-current assets of discontinued operations	$	0.4	$	0.2
Accounts payable and accrued expenses	$	4.4	$	3.8
Billings in excess of costs and earnings on uncompleted contracts	0.1		0.1
Other current liabilities	0.4		0.3
Current liabilities of discontinued operations	4.9		4.2
Other long-term liabilities	0.3		0.2
Long-term liabilities of discontinued operations	$	0.3	$	0.2

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Acquisitions - Pro Forma Financial Information, Nonrecurring Adjustments (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 25, 2012
Business Acquisition, Pro Forma Information, Nonrecurring Adjustment [Line Items]
Net loss from above	$ (10.3)	$ (3.0)
Intangible amortization
Business Acquisition, Pro Forma Information, Nonrecurring Adjustment [Line Items]
Net loss from above		4.0
Net change in stock compensation expense
Business Acquisition, Pro Forma Information, Nonrecurring Adjustment [Line Items]
Net loss from above		$ 0.7
Increase in weighted average common shares outstanding for shares issued and not already included in the weighted average common shares outstanding
Business Acquisition, Pro Forma Information, Nonrecurring Adjustment [Line Items]
Weighted average number of basic shares outstanding adjustment, pro forma		24.0

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Principles of Consolidation

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries for which all inter-company transactions have been eliminated in consolidation.

Fiscal Year

Fiscal Year

The Company has a 52/53 week fiscal year ending on the last Sunday of the calendar year, with interim fiscal periods ending on the last Sunday of each calendar quarter.

Accounting Policies and Accounting Standards Updates

Accounting Policies and Accounting Standards Updates

In February 2013, the Financial Accounting Standards Board ("FASB") issued "Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income," which requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, entities are required to cross-reference to other disclosures required under GAAP that provide additional detail on these amounts. This standard is effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted this standard in the quarter ended March 31, 2013, which did not have a material impact on its consolidated financial statements.

In December 2011 and February 2013, the FASB issued an amendment to the Balance Sheet topic of the Accounting Standards Codification ("ASC"), which requires entities to disclose both gross and net information about both derivatives and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting agreement. The objective of the disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards. This standard is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. Retrospective presentation for all comparative periods presented is required. Accordingly, the Company will adopt this amendment in the first quarter of fiscal year 2014. The Company does not believe that the adoption of this guidance will have a material impact on its consolidated financial statements.

Other than as noted above, there have been no changes in the Company's significant accounting policies for the three months ended March 31, 2013 as compared to the significant accounting policies described in the Form 10-K.

Concentrations and Uncertainties

Concentrations and Uncertainties

The Company maintains cash balances at various financial institutions, and such balances commonly exceed the $250,000 insured amount by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in such accounts, and management believes that the Company is not exposed to any significant credit risk with respect to such cash and cash equivalents.

Financial instruments, which subject the Company to potential concentrations of credit risk, consist principally of the Company’s billed and unbilled accounts receivable. The Company’s accounts receivable result from sales to customers within the federal government, state and local agencies and commercial customers in various industries. The Company performs ongoing credit evaluations of its commercial customers. Credit is extended based on evaluation of the customer’s financial condition, and collateral is not required. Accounts receivable are recorded at the invoiced amount and do not bear interest. See Note 11 for a discussion of the Company’s significant customers.

The Company has 10% Senior Secured Notes due 2017 ("the Notes") with an aggregate principal amount of $625.0 million outstanding as of March 31, 2013. The Notes are due on June 1, 2017, and the Company pays interest at the rate of 10% per annum semi-annually, in arrears, on June 1 and December 1 of each year. In addition, the Company has $91.7 million available under its existing revolving credit agreement. See Note 9 for a complete description of the Company’s debt.

The Company intends to fund its cash requirements with cash on hand, cash flows from operating activities and borrowings under its existing revolving credit facility. Management believes these sources of liquidity should be sufficient to meet the Company’s cash needs for at least the next 12 months. The Company’s quarterly and annual operating results have fluctuated in the past and may vary in the future due to a variety of factors, many of which are external to the Company's control. If the conditions in its industry deteriorate, its customers cancel or postpone projects, its customers experience significant cost constraints as a result of federal budget cuts or sequestration or if the Company is unable to sufficiently increase its revenues or reduce its expenses, the Company may experience, in the future, a significant long-term negative impact to its financial results and cash flows from operations. In such a situation, the Company could fall out of compliance with its financial and other covenants which, if not waived, could limit its liquidity and capital resources.

Goodwill and intangible assets

Goodwill

The Company performs its annual impairment test for goodwill in accordance with ASC Topic 350, Intangibles-Goodwill and Other (“Topic 350”) as of the last day of each fiscal year or when evidence of potential impairment exists.

The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a component. The Company determines its reporting units by first identifying its operating segments, and then assessing whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component. The Company aggregates components within an operating segment that have similar economic characteristics. For the annual and, if necessary, interim impairment assessment, the Company identified its reporting units to be its KGS and PSS operating segments.

In order to test for potential impairment, the Company estimates the fair value of each of its reporting units based on a comparison and weighting of the income approach, specifically the discounted cash flow method and the market approach, which estimates the fair value of the Company's reporting units based upon comparable market prices and recent transactions and also validates the reasonableness of the implied multiples from the income approach. The Company reconciles the fair value of its reporting units to its market capitalization by calculating its market capitalization based upon an average of its stock price prior to and subsequent to the date the Company performs its analysis and assuming a control premium. The Company uses these methodologies to determine the fair value of its reporting units for comparison to their corresponding book values because there are no observable inputs available, a Level 3 measurement. If the book value exceeds the estimated fair value for a reporting unit a potential impairment is indicated, and Topic 350 prescribes the approach for determining the impairment amount, if any.

Inventoried costs

Inventoried Costs

Inventoried costs are stated at the lower of cost or market. Cost is determined using the average cost or first-in, first-out method and is applied consistently within an operating entity. Inventoried costs primarily relate to work in process under fixed-price contracts using costs as the basis of the percentage-of-completion calculation under the units produced method of revenue recognition. These costs represent accumulated contract costs less the portion of such costs allocated to delivered items. Accumulated contract costs include direct production costs, factory and engineering overhead and production tooling costs. Pursuant to contract provisions of U.S. Government contracts, such customers may have title to, or a security interest in, inventories related to such contracts as a result of advances, performance-based payments or progress payments. The Company reflects those advances and payments as an offset against the related inventory balances.

The Company regularly reviews inventory quantities on hand, future purchase commitments with its suppliers, and the estimated utility of its inventory. If the Company’s review indicates a reduction in utility below carrying value, it reduces its inventory to a new cost basis.

Earnings per share

Net Income (Loss) Per Common Share

The Company calculates net income (loss) per share in accordance with ASC Topic 260, Earnings Per Share (“Topic 260”). Under Topic 260, basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. Diluted net income (loss) per common share reflects the effects of potentially dilutive securities.