Segment Information

3 Months Ended

Mar. 27, 2016

Segment Reporting [Abstract]

Segment Information

Segment Information

The Kratos Government Solutions (“KGS”) reportable segment is comprised of an aggregation of KGS operating segments, including our microwave electronic products, satellite communications, modular systems and defense and rocket support operating segments. The Unmanned Systems (“US”) reportable segment consists of our unmanned aerial, ground, seaborne and command, control and communications system business. The KGS and US segments provide products, solutions and services for mission critical national security programs. KGS and US customers primarily include national security related agencies, the U.S. Department of Defense (the “DoD”), intelligence agencies and classified agencies, and to a lesser degree, international government agencies and domestic and international commercial customers. The Public Safety & Security (“PSS”) reportable segment designs, engineers, deploys, operates, integrates into command and control infrastructure, maintains and operates security and surveillance solutions for homeland security, public safety, critical infrastructure, government and commercial customers. PSS customers include those in the critical infrastructure, power generation, power transport, nuclear energy, financial, IT, healthcare, education, transportation and petro-chemical industries, as well as certain government and military customers.

The Company organizes its reportable segments based on the nature of the products, solutions and services offered. Transactions between segments are generally negotiated and accounted for under terms and conditions similar to other government and commercial contracts. This presentation is consistent with the Company’s operating structure. In the following table total operating income (loss) from continuing operations of the reportable 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 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 segments, and other miscellaneous corporate activities.

As discussed in Note 2 - Discontinued Operations, the Company began reporting the Herley Entities as discontinued operations effective in the second quarter of fiscal 2015. Prior to the decision to sell the Herley Entities, the Company reported their financial results in the KGS reportable segment. Accordingly, segment results for the first quarter of fiscal 2015 have been recast to reflect the disposition of the Herley Entities as discontinued operations.

As certain overhead type costs previously allocated to the Herley Entities are not allocable to discontinued operations, prior period corporate costs have been reallocated amongst the continuing reportable segments.

During the three months ended March 27, 2016, the PSS reportable segment recorded a $1.9 million charge related to a litigation settlement of a contract dispute and the KGS reportable segment recorded a $3.0 million impairment charge of the carrying value of inventories as a result of the decision to close one of its manufacturing facilities and the exit of certain lower margin product business lines. The Company expects to complete the restructuring and record any additional related charges in the second fiscal quarter.

 Revenues, depreciation and amortization, and operating income (loss) generated by the Company’s reportable segments for the three month periods ended March 27, 2016 and March 29, 2015 are as follows (in millions):

	Three Months Ended
	March 27, 2016			March 29, 2015
Revenues:
Kratos Government Solutions
Service revenues	$	52.4		$	49.8
Product sales	56.2			57.4
Total Kratos Government Solutions	108.6			107.2
Public Safety & Security
Service revenues	30.2			37.5
Product sales	—			—
Total Public Safety & Security	30.2			37.5
Unmanned Systems
Service revenues	—			—
Product sales	14.2			12.4
Total Unmanned Systems	14.2			12.4
Total revenues	$	153.0		$	157.1
Depreciation & amortization:
Kratos Government Solutions	$	4.1		$	5.1
Public Safety & Security	0.1			0.2
Unmanned Systems	1.9			1.6
Total depreciation and amortization	$	6.1		$	6.9
Operating income (loss) from continuing operations:
Kratos Government Solutions	$	(1.8	)	$	2.4
Public Safety & Security	(2.7		)	—
Unmanned Systems	(4.2		)	(4.2		)
Unallocated corporate expense, net	(1.5		)	(2.1		)
Total operating loss from continuing operations	$	(10.2	)	$	(3.9	)