Kratos Defense & Security Solutions Announces Third Quarter 2009 Financial Results

-- Revenues of $86.1 million increase 10.5% over previous year
third quarter
-- Net Income of $2.7 million or $.19 EPS
-- Third quarter cash flow generated from operations $9.9 million
-- Pro forma EBITDA of $6.4 million, EBITDA margin rate of 7.4%
-- Derivative Lawsuit Settlement Reached and other Legacy Legal
Matters closed with no material financial impact to the Company
SAN DIEGO, Nov. 3, 2009 (GLOBE NEWSWIRE) -- Kratos Defense & Security Solutions,
Inc. (Nasdaq:KTOS), a leading national defense, IT and security solutions
provider, today reported third quarter 2009 revenues of $86.1 million, a 10.5
percent increase over third quarter 2008 revenues. Third quarter 2009 pro forma
EBITDA of $6.4 million or 7.4% of revenues, increased 8.5 percent over the
previous year's third quarter pro forma EBITDA of $5.9 million, or 7.6% of
revenues. Kratos' Government Solutions business segment, where Kratos primarily
performs its Department of Defense and National Security work, generated third
quarter pro forma EBITDA of 8.6%. Third quarter cash flow generated from
operations was $9.9 million, and the Company has generated total cash flow from
operations of approximately $23.2 million for the first 9 months of 2009, which
includes the reduction of DSOs from 107 to 85 days.

As of September 27, 2009, the Company has paid down its total bank debt to
approximately $56.5 million, down from $75.3 million at the end of the second
quarter. Net debt at the end of the third quarter was $46.6 million, comprised
of debt of $57.5 million, less cash on the balance sheet of $10.9 million.

The Company reported total backlog of approximately $620 million at September
27, 2009, and a qualified bid and proposal pipeline of $1.6 billion.

Third quarter revenues include contributions from the Digital Fusion, Inc. (DFI)
acquisition, which was completed in December 2008. Revenue increases were offset
somewhat by reductions in the Company's commercial and public safety & security
system integration business, which have been negatively impacted by the current
adverse economic environment, as well as the planned and anticipated reductions
of small business and other set aside contract work from previously acquired
companies, pass through work and other contract work in the Company's Government
Solutions segment.

Eric DeMarco, President and Chief Executive Officer, said, "The Company
continues to make progress against our previously stated objectives and business
plan. We are particularly proud of the $9.9 million in operating cash flow the
business generated during the third quarter, which is representative of a very
high quality of earnings and overall operational performance that Kratos is
currently achieving. Additionally, the Company achieved solid EPS and EBITDA,
and we currently expect overall 2010 EBITDA margins to improve over 2009."

Kratos' contractual and operational highlights during the quarter included:

-- Award of a contract valued at $43 million for Space and Missile
Defense Technology Development. Certain of the work Kratos
will be performing under this contract includes:
- Unmanned System and other Airframe Technologies work,
including as related to Sensors and Weapons Platforms
- Advanced Electro Optical and Infra Red (EO/IR) Sensor work
- Modeling & Simulation work specifically related to ISR,
EO/IR and certain Seekers.
-- Active Participation, including Certain Hardware Deliverables,
to the successful August Ballistic Missile Defense Test Stellar
Avenger
-- Recognition among the top U.S. Public Safety & Security Systems
Integrators
Since the end of the second quarter, the Company has reached a Settlement,
subject to final documentation and approval, of the derivative lawsuits which
have been outstanding since 2004, related to businesses previously discontinued
and divested by the Company. Additionally, the Company also has recently been
informed that the stock option backdating investigation by the U.S. Attorney's
Office is now officially closed. Neither the settlement of the derivative
lawsuits or the official completion of the stock option investigation is
expected to have any material impact, financial or otherwise, to the Company.

DeMarco concluded, "The settlement of the derivative matter, and the official
closing of the stock option backdating investigation will bring to closure the
last of the major legacy matters for the Company, and mean that both a
significant management distraction and a significant cost element, primarily in
attorneys fees related to these matters will be gone in 2010."

Conference Call

There will be an analyst and investor conference call conducted by the Kratos
management team to discuss the third quarter 2009 financial results today at
2:00 p.m., Pacific Time/5:00 p.m. Eastern Time. The live discussion can be
accessed via webcast on the Internet at www.kratosdefense.com. There will be a
replay of the webcast available on the website for those shareholders and
analysts who are unable to listen to the live call.

The financial results included in this release are unaudited.

About Kratos Defense & Security Solutions

Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS) provides mission
critical engineering, IT services and war fighter solutions for the U.S. federal
government and for state and local agencies. Principal services include C4ISR,
weapon systems sustainment, military weapon range operations and technical
services, network engineering services, information assurance and cyber security
solutions, security and surveillance systems, and critical infrastructure design
and integration. The Company is headquartered in San Diego, California, with
resources located throughout the U.S. and at key strategic military locations.
News and information are available at www.KratosDefense.com.

The Kratos Defense & Security Solutions, Inc. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=3519

Notice Regarding Forward-Looking Statements

This news release and filing contains certain forward-looking statements that
involve risks and uncertainties, including, without limitation, expressed or
implied statements concerning the Company's expectations regarding future
financial performance, bid and proposal pipeline, performance of key contracts,
market developments and timing and impact of anticipated lawsuit settlement.
Such statements are only predictions, and the Company's actual results may
differ materially. Factors that may cause the Company's results to differ
include, but are not limited to: risks of adverse regulatory action or
litigation; risks associated with debt leverage; risks that our cost cutting
initiatives will not provide the anticipated benefits; risks that changes,
cutbacks or delays in spending by the U.S. Department of Defense may occur,
which could cause delays or cancellations of key government contracts; risks
that changes may occur in Federal government (or other applicable) procurement
laws, regulations, policies and budgets; risks related to our compliance with
applicable contracting and procurement laws, regulations and standards; risks
relating to contract performance; changes in the competitive environment
(including as a result of bid protests); failure to successfully consummate
acquisitions or integrate acquired operations and competition in the marketplace
which could reduce revenues and profit margins; risks that potential future
goodwill impairments will adversely affect our operating results; risks that
anticipated tax benefits will not be realized in accordance with our
expectations; and risks that the current economic environment will adversely
impact our business. The Company undertakes no obligation to update any
forward-looking statements. These and other risk factors are more fully
discussed in the Company's Annual Report on Form 10-K for the period ended
December 28, 2008, and in other filings made with the Securities and Exchange
Commission.

Note Regarding Use of Non-GAAP Financial Measures

Certain of the information set forth herein, including EBITDA and pro forma
EBITDA, are considered non-GAAP financial measures. Kratos believes this
information is useful to investors because it provides a basis for measuring the
Company's available capital resources, the operating performance of the
Company's business and the Company's cash flow, excluding extraordinary items
and non-cash items that would normally be included in the most directly
comparable measures calculated and presented in accordance with generally
accepted accounting principles. The Company's management uses these non-GAAP
financial measures along with the most directly comparable GAAP financial
measures in evaluating the Company's operating performance and capital resources
and cash flow. Non-GAAP financial measures should not be considered in isolation
from, or as a substitute for, financial information presented in compliance with
GAAP, and non-financial measures as reported by the Company may not be
comparable to similarly titled amounts reported by other companies.

Kratos Defense & Security Solutions
Unaudited Consolidated Statements of Operations
(in millions, except per share data)

Three Months Ended Nine Months Ended
----------------- -----------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
2009 2008 2009 2008
----------------- -----------------

Revenues $ 86.1 $ 77.9 $ 259.3 $ 212.9

Cost of revenues 68.4 60.7 207.0 171.0
----------------- -----------------
Gross profit 17.7 17.2 52.3 41.9
----------------- -----------------
Selling, general and
administrative expenses 11.4 11.4 34.0 30.1
Recovery of unauthorized
issuance of stock options,
stock option investigation
& related fees, and
settlement of derivative
litigation (0.5) (1.0) (0.2) (1.6)
Impairment of goodwill -- -- 41.3 --
Research and development 0.4 0.5 1.3 0.5
Impairment of assets and
adjustment to the liability
for unused office space -- 0.3 0.6 (0.3)
Depreciation 0.4 0.4 1.3 1.2
Amortization of intangible
assets 1.5 1.3 4.4 3.5
----------------- -----------------
Operating income (loss) 4.5 4.3 (30.4) 8.5
Interest expense, net (2.2) (2.7) (7.7) (7.5)
Other income (expense), net -- (0.2) (0.2) 0.7
----------------- -----------------
Income (loss) from continuing
operations before income
taxes 2.3 1.4 (38.3) 1.7
Provision (benefit) for
income taxes (0.1) 0.5 0.5 1.4
----------------- -----------------
Income (loss) from continuing
operations 2.4 0.9 (38.8) 0.3
Income (loss) from
discontinued operations,
net of taxes 0.3 (1.1) (3.1) (1.6)
----------------- -----------------
Net income (loss) $ 2.7 $ (0.2) $ (41.9) $ (1.3)
================= =================

Basic income (loss) per
common share:
Income (loss) from
continuing operations $ 0.17 $ 0.08 $ (2.94) $ 0.03
Income (loss) from
discontinued operations,
net of taxes 0.02 (0.10) (0.23) (0.18)
----------------- -----------------
Net income (loss) $ 0.19 $ (0.02) $ (3.17) $ (0.15)
================= =================

Diluted income (loss) per
common share:
Income (loss) from
continuing operations $ 0.17 $ 0.08 $ (2.94) $ 0.03
Income (loss) from
discontinued operations,
net of taxes 0.02 (0.10) (0.23) (0.17)
----------------- -----------------
Net income (loss) $ 0.19 $ (0.02) $ (3.17) $ (0.14)
================= =================

Weighted average common
shares outstanding
Basic 13.9 10.6 13.2 8.9
================= =================
Diluted 14.2 10.9 13.2 9.2
================= =================

EBITDA (1) $ 6.4 $ 5.9 $ 18.7 $ 12.9

Note: (1) EBITDA is a non-GAAP measure defined as GAAP
net income (loss) plus (minus) the income (loss) from
discontinued operations, interest expense, net other income
(expense) related to SWAP instruments, income taxes,
depreciation and amortization, stock compensation,
amortization of intangible assets, impairment of goodwill,
stock option investigation and related fees and recovery of
unauthorized issuance of stock options and the
adjustment to the liability for unused office space and
derivative settlement.

EBITDA as calculated by us may be calculated differently than
EBITDA for other companies. We have provided EBITDA because we
believe it is a commonly used measure of financial performance
in comparable companies and is provided to help investors
evaluate companies on a consistent basis, as well as to enhance
an understanding of our operating results. EBITDA should not be
construed as either an alternative to net income or as an
indicator of our operating performance or an alternative to
cash flows as a measure of liquidity. Please refer to the
following table that reconciles GAAP net income to EBITDA.
Reconciliation of Net income (loss) to EBITDA is as follows:

Three Months Ended Nine Months Ended
----------------- -----------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
2009 2008 2009 2008
----------------- -----------------

Net income (loss) $ 2.7 $ (0.2) $ (41.9) $ (1.3)
(Income) loss from
discontinued
operations (0.3) 1.1 3.1 1.6
Impairment of goodwill -- -- 41.3 --
Interest expense, net 2.2 2.7 7.7 7.5
Other (income) expense related
to SWAP instruments -- 0.2 0.2 (0.4)
Provision (benefit) for
income taxes (0.1) 0.5 0.5 1.4
Depreciation 0.5 0.6 1.9 1.7
Stock compensation 0.4 0.4 1.1 0.8
Recovery of unauthorized
issuance of stock options,
stock option investigation
& related fees, and
settlement of derivative
litigation (0.5) (1.0) (0.2) (1.6)
Impairment of assets and
adjustment to the liability
for unused office space -- 0.3 0.6 (0.3)
Amortization of intangible
assets 1.5 1.3 4.4 3.5
----------------- -----------------

EBITDA $ 6.4 $ 5.9 $ 18.7 $ 12.9
================= =================
Kratos Defense & Security Solutions
Unaudited Segment Data
(in millions)

Three Months Ended Nine Months Ended
----------------- -----------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
2009 2008 2009 2008
----------------- -----------------
Revenues:
Government Solutions $ 79.0 $ 67.9 $ 236.6 $ 182.0
Public Safety & Security 7.1 10.0 22.7 30.9
----------------- -----------------
Total revenues $ 86.1 $ 77.9 $ 259.3 $ 212.9

Operating income (loss) from
continuing operations:
Government Solutions $ 4.9 $ 3.5 $ (27.8) $ 6.1
Public Safety & Security (0.5) 0.5 (1.3) 1.3
Other activities 0.1 0.3 (1.3) 1.1
----------------- -----------------
Total operating income
(loss) from continuing
operations $ 4.5 $ 4.3 $ (30.4) $ 8.5
================= =================

Note: Other activities in 2008 include stock compensation expense, a
benefit from insurance proceeds received for items previously
expensed, and a benefit related to a change in estimate for the
Company's unused office space. Other activities in 2009 include
stock compensation expense, an expense related to a change in
estimate for the Company's unused office space and a benefit
from the estimated settlement of the derivative lawsuits. The
operating loss for the Government Solutions segment for the
nine months ended September 27, 2009 includes a $41.3 million
goodwill impairment charge.
-0-
CONTACT: Kratos Defense & Security Solutions, Inc.
Press Contact:
Yolanda White
858-812-7302
Investor Information:
877-934-4687
investor@kratosdefense.com