Kratos To Sell U.S. And U.K. Operations Of EPD To Ultra Electronics For $265 Mln

(RTTNews) - Kratos Defense & Security Solutions Inc. (KTOS) said that it agreed to sell the U.S. and U.K. operations of its Electronic Products Division or "EPD" to Ultra Electronics Holdings plc for $260 million in cash to be paid at closing and the reimbursement of up to $5 million for taxes incurred as part of the transaction, for a total of $265 million in total gross cash proceeds, subject to certain working capital adjustments.

The EPD Operations to be divested include those located in Massachusetts, Pennsylvania, New Jersey and the United Kingdom. The divested operations provide electronic systems, subsystems and components for electronic warfare, missile, radar, intelligence surveillance and reconnaissance programs.

Closing of the Transaction is subject to the receipt of certain regulatory approvals and other conditions.

As per the terms of the Agreement, Kratos will be making a 338(h)(10) election for income tax purposes, providing a "step up" in tax basis and certain other related future tax attributes to Ultra.

As a result of the Transaction, Kratos will be utilizing approximately $180 million of its total aggregate approximate $400 million in income tax net operating loss (NOL) carryforwards, reducing the total taxable gain of the Transaction to Kratos. Total Transaction related costs and net cash taxes to be paid are estimated to aggregate approximately $25 million, resulting in total initial estimated net cash proceeds from the Transaction to Kratos of approximately $240 million. Post Transaction close, Kratos will have over $200 million in NOL's and over $110 million in additional income tax related deductions available to reduce future taxable income.

Following the closing of the Transaction, Kratos currently intends to initiate a repurchase process for approximately $175 to $200 million of the Company's 7 Percent Senior Secured Notes at par, once all requisite requirements have been met in accordance with the Notes Indenture Agreement.

In addition, Kratos intends to pay down all outstanding amounts on the Company's $110 million bank credit facility, which total approximately $41 million. In connection with the Transaction, the Company also amended its credit facility to allow for this divestiture as well as provide a permanent reduction in the financial covenants for future periods under the credit agreement.