KRATOS DEFENSE & SECURITY SOLUTIONS, INC.KTOS

KRATOS DEFENSE & SECURITY SOLUTIONS, INC. Fair Value Disclosure

10-KFiled Feb 23, 20262 min read
Fair Value Measurement
 
ASC Topic 820, Fair Value Measurement, establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

As more fully described in Note 16, Derivative Financial Instruments, our forward exchange contracts used to manage foreign currency risks and an interest rate swap contract to hedge U.S. dollar-one month Term SOFR in order to mitigate the exposure to interest rate movements associated with the Company’s Term Loan A are recognized on the Consolidated Balance Sheets as either assets or liabilities and are measured at fair value. On June 30, 2025, in anticipation of the extinguishment of all outstanding Term Loan A debt under the 2022 Credit Facility, the Company terminated the interest rate swap contract referred to above. As of December 28, 2025, we had no derivative assets or liabilities recorded on the Consolidated Balance Sheets.

Historical Timeline

Fiscal YearFiled
2025Feb 23, 2026Showing above
2024Feb 26, 2025
2023Feb 13, 2024
2022Feb 23, 2023
2021Feb 22, 2022
2020Feb 25, 2021
2019Feb 24, 2020
2018Feb 28, 2019
2017Feb 28, 2018
2016Feb 27, 2017
2015Mar 11, 2016

About Fair Value Disclosures

Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.

Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.

Other Available Disclosures

Income TaxesRevenueEarnings Per SharePP&EGoodwill & IntangiblesLeasesSegmentsDebtCommitmentsNew StandardsPay vs Performance