Discontinued Operations

12 Months Ended

Dec. 29, 2019

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued Operations

On February 28, 2018, the Company entered into a Stock Purchase Agreement to sell the operations of Kratos Public Safety & Security Solutions, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“PSS”), to Securitas Electronic Security, Inc., a Delaware corporation (“Buyer”). On June 11, 2018, the Company completed the sale of all of the issued and outstanding capital stock of PSS to Buyer for a purchase price of $69 million in cash, subject to a closing net working capital adjustment (the “Transaction”). The Company and the Buyer are currently in a dispute regarding the closing net working capital adjustment. The amount in dispute is approximately $8 million. To date, the Company has collected approximately $3.7 million of the retained net working capital. The Company currently expects that the remaining net working capital retained by the Company will be collected during 2020 once certain legacy projects are completed and the project close-out process has been completed. The Company currently expects to recognize a net break-even on the sale of the PSS business once the aggregate net proceeds described above have been collected excluding the impact of the final settlement and determination of the closing net working capital adjustment. Any changes or adjustments to the expected net proceeds will be reflected in future periods.

In accordance with ASC 360-10-45-9, Property, Plant, and Equipment (Topic 360) and ASC 205-20-45-3 Presentation of Financial Statements (Topic 205), PSS and its subsidiaries have been reported in discontinued operations in the accompanying consolidated financial statements for all periods presented.

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

	Year ended December 29, 2019			Year ended December 30, 2018			Year ended December 31, 2017
Revenue	$	0.3		$	44.2		$	149.9
Cost of sales	0.9			34.2			110.1
Selling, general and administrative expenses	1.1			16.7			33.6
Other (income) expense items that are not major	(3.6		)	2.7			(0.1		)
Income (loss) from discontinued operations before income taxes	1.9			(9.4		)	6.3
Gain on disposal of discontinued operations before income taxes	—			—			—
Total gain (loss) of discontinued operations before income taxes	1.9			(9.4		)	6.3
Income tax (benefit) expense	0.2			(1.8		)	2.1
Income (loss) from discontinued operations	$	1.7		$	(7.6	)	$	4.2

Revenue and operating results for the year ended December 29, 2019 reflect the performance on the contracts and working capital retained by the Company. Included in the year ended December 29, 2019, is a $3.6 million gain recorded as a result of the release of an indemnification liability following the lapse of the statute of limitations associated with a potential tax liability that was recorded in 2015 as part of the previous sale of our Electronic Products Division. Discontinued operations for year ended December 30, 2018 were impacted by approximately $2.0 million of cost adjustments on certain security system deployment projects for a mass transit authority. Transaction expenses of $2.7 million, primarily comprised of investment advisory fees, legal fees, and other direct transaction expenses related to the Transaction, were included in Other (income) expense items that are not major for the year ended December 30, 2018. Depreciation expense included in Selling, general and administrative expenses was $0.0 million, $0.1 million and $0.3 million for the years ended December 29, 2019, December 30, 2018, and December 31, 2017 respectively.

Intra-period tax allocation rules require the Company to allocate its provision for income taxes between continuing operations and other categories of earnings. Upon closing of the PSS sale, amounts historically carried as unrecognized tax benefits were reclassified to guarantor liability in accordance with ASC 460. As a result of the reclassification, the Company recorded a $2.1 million tax benefit in discontinued operations for the year ended December 30, 2018.

The following is a summary of the assets and liabilities of discontinued operations as of December 29, 2019 and December 30, 2018 (in millions):

	December 29, 2019		December 30, 2018
Accounts receivable, net	3.3		8.2
Other current assets	—		0.1
Current assets of discontinued operations	$	3.3	$	8.3
Accounts payable	$	0.2	$	0.3
Accrued expenses	0.3		0.4
Other current liabilities	2.8		4.6
Current liabilities of discontinued operations	$	3.3	$	5.3
Other long-term liabilities of discontinued operations	$	2.8	$	6.4