Exelis reports third-quarter 2012 financial results; maintains 2012 full-year outlook

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Exelis reports third-quarter 2012 financial results; maintains 2012 full-year outlook

  • $1.3 billion in orders for third quarter 2012, strongest quarter year-to-date
  • Earnings of $0.47 per share, adjusted earnings of $0.45 per share
  • Third quarter free cash flow of $167 million

MCLEAN, Va.--(BUSINESS WIRE)-- ITT Exelis (NYS: XLS) today reported 2012 third-quarter revenue of $1.4 billion, an 11 percent decrease from the same previous-year period. Third-quarter 2012 earnings were $0.47 per share, a 13 percent decrease from the same period in 2011 and, adjusted earnings per share were $0.45 for the quarter. Adjusted operating income was $149 million and adjusted operating margin was 10.9 percent. Free cash flow for the quarter of $167 million was driven by lower required pension contributions and improved collections.

During the third quarter, Exelis secured $1.3 billion in new orders, including upgrade and delivery of airborne electronic warfare equipment for domestic and international customers, base operations and logistics support at Ft. Rucker, Ala., ancillary equipment and upgrades for SINCGARS radios, as well as global logistics services and cyber solutions for the U.S. military. The company also partnered to develop a wide-area surveillance solution for the border security market and entered into agreements with the Greater Orlando Aviation Authority and Metron Aviation to provide air traffic management solutions.


"During the third quarter we improved our free cash flow and continue to be aggressive in driving efficiencies, controlling costs and earning business from new and existing customers as we execute against our corporate strategy," said Exelis CEO and President David F. Melcher. "Revenue and income impacts in this quarter have been primarily market driven and consistent with our previous forecasts."

Segment Results

C4ISR Electronics and Systems

C4ISR Electronics and Systems third-quarter 2012 revenue was $611 million, down 18 percent from the same period in 2011, due to expected lower demand for night vision goggles, jammers and radios. C4ISR Electronics and Systems third-quarter adjusted operating income was $87 million, down 23 percent from the third-quarter of 2011, due to lower volume and sales mix partially offset by lower discretionary expenses.

Information and Technical Services

Information and Technical Services third-quarter 2012 revenue was $750 million, 5 percent lower than the same period in 2011 mainly due to the completion of an information systems contract and decreased activity on two overseas services contracts, partially offset by increased activity on our Afghanistan programs. Third-quarter adjusted operating income for the segment was $62 million, up 19 percent over the third quarter of 2011, primarily driven by productivity improvements and lower discretionary expenses.

2012 Guidance

The company affirms its previously announced guidance for 2012. Full-year 2012 revenue is expected to be near the higher end of the previously announced $5.4 billion to $5.5 billion range, a decrease of 6 percent from 2011. Full-year adjusted operating margin is expected to be 10.6 percent to 10.8 percent, an increase of 60 to 80 basis points year-over-year. Adjusted earnings are expected in the range of $1.80 to $1.86 per share, at the midpoint, reflecting a decrease of 8 percent from 2011. The company notes that forward-looking statements of future performance made in this release are based upon current expectations and are subject to factors that could cause actual results to differ materially from those suggested here, including those factors set forth in the Safe Harbor Statement below.

Investor Call Today

Exelis senior management will host a conference call for investors today at 10 a.m. Eastern Daylight Time to review third-quarter 2012 results and answer questions. The briefing can be monitored live via webcast at the following address on the company's website: www.exelisinc.com/investors.

About ITT Exelis

Exelis is a diversified, top-tier global aerospace, defense and information solutions company with strong positions in enduring and emerging global markets. Exelis is a leader in networked communications, sensing and surveillance, electronic warfare, navigation, air traffic solutions and information systems with growing positions in cyber security, composite aerostructures, logistics and technical services. The company has a 50-year legacy of innovation and technology expertise, partnering with customers worldwide to deliver affordable, mission-critical products and services for managing global threats, conflicts and complexities. Headquartered in McLean, Va., the company employs about 20,500 people and generated 2011 sales of $5.8 billion. www.exelisinc.com

Safe Harbor Statement

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 (the "Act"): Certain material presented herein includes forward-looking statements intended to qualify for the safe harbor from liability established by the Act. These forward-looking statements include, but are not limited to, statements about the separation of the company from ITT Corporation, the terms and the effect of the separation, the nature and impact of such a separation, capitalization of the company, future strategic plans and other statements that describe the company's business strategy, outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance. Whenever used, words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "target" and other terms of similar meaning are intended to identify such forward-looking statements. Forward-looking statements are uncertain and to some extent unpredictable, and involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such forward-looking statements. Factors that could cause results to differ materially from those anticipated include, but are not limited to:

  • Our dependence on the defense industry and the business risks peculiar to that industry, including changing priorities or reductions in the U.S. Government or international defense budgets;
  • Government regulations and compliance therewith, including changes to the Department of Defense procurement process;
  • Our international operations, including sales to foreign customers;
  • Competition, industry capacity and production rates;
  • Misconduct of our employees, subcontractors, agents and business partners;
  • The level of returns on postretirement benefit plan assets and potential employee benefit plan contributions and other employment and pension matters;
  • Changes in interest rates and other factors that affect earnings and cash flows;
  • The mix of our contracts and programs, our performance, and our ability to control costs;
  • Governmental investigations;
  • Our level of indebtedness and our ability to make payments on or service our indebtedness;
  • Subcontractor performance;
  • Economic and capital markets conditions;
  • The availability and pricing of raw materials and components;
  • Ability to retain and recruit qualified personnel;
  • Protection of intellectual property rights;
  • Changes in technology;
  • Contingencies related to actual or alleged environmental contamination, claims and concerns;
  • Security breaches and other disruptions to our information technology and operations; and
  • Unanticipated changes in our tax provisions or exposure to additional income tax liabilities.

In addition, there are risks and uncertainties relating to our separation from ITT Corporation, including whether those transactions will result in any tax liability, the operational and financial profile of the company or any of its businesses after giving effect to the separation, and the ability of the company to operate as an independent entity.

The forward-looking statements in this release are made as of the date hereof and the company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the company's historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in the Exelis Inc. Form 10-K for the fiscal year ended December 31, 2011, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

    
Exelis Inc.
Consolidated and Combined Statements of Operations
(unaudited)
 
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)Three Months Ended September 30, Nine Months Ended September 30,
  2012  2011 2012 2011 
Product revenue$611$744$1,884$2,111
Service revenue  750   785  2,277  2,248 
Total revenue  1,361   1,529  4,161  4,359 
Cost of product and service revenue
Cost of product revenue4345101,3281,465
Cost of service revenue6496881,9771,996
Selling, general and administrative expenses114150377429
Research and development expenses18244872
Restructuring and asset impairment charges, net  3   1  5  5 
Operating income143156426392
Interest expense, net91291
Other expense (income), net  (4)  1  3  (13)
Income from continuing operations before income tax expense138154394404
Income tax expense  50   53  150  142 
Net income $88  $101 $244 $262 
Earnings Per Share
Basic
Net income$0.47$0.54$1.30$1.41
Diluted
Net income$0.47$0.54$1.30$1.40
Weighted average common shares - basic187.6186.2187.3186.2
Weighted average common shares - diluted188.7187.1188.3187.1
Cash dividends declared per common share $0.10  $ $0.31 $ 
 

Exelis Inc.
Consolidated Balance Sheets
(unaudited)
  
 
(IN MILLIONS)September 30,December 31,
  2012 2011
Assets

Current assets

Cash and cash equivalents$194$116
Receivables, net1,0801,061
Inventories, net310337
Deferred tax asset80106
Other current assets  47   49 
Total current assets  1,711   1,669 
Plant, property and equipment, net511494
Goodwill2,1782,154
Other intangible assets, net194211
Deferred tax asset420507
Other non-current assets  68   64 
Total non-current assets  3,371   3,430 
Total assets $5,082  $5,099 
Liabilities and Shareholders' Equity
Current liabilities
Short-term debt$134$
Accounts payable416447
Advance payments and billings in excess of costs366378
Compensation and other employee benefits217250
Other accrued liabilities  184   199 
Total current liabilities  1,317   1,274 
Postretirement benefit plans1,8282,149
Long-term debt649649
Deferred tax liability11
Other non-current liabilities  132   133 
Total non-current liabilities  2,610   2,932 
Total liabilities  3,927   4,206 
Commitments and contingencies (Note 13)
Shareholders' equity
Common stock22
Additional paid-in capital2,5682,523
Retained earnings20823
Accumulated other comprehensive loss  (1,623)  (1,655)
Total shareholders' equity  1,155   893 
Total liabilities and shareholders' equity $5,082  $5,099 
 

Exelis Inc.
Consolidated and Combined Statements of Cash Flows
(unaudited)
  
 
(IN MILLIONS)Nine Months Ended September 30,
  2012 2011
Operating activities
Net income$244$262
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization97100
Stock-based compensation1812
Restructuring and asset impairment charges, net55
Payments for restructuring(14)(17)
Postretirement benefit plans expense367
Postretirement benefit plans payments(293)(33)
Change in assets and liabilities
Change in receivables(40)(103)
Change in inventories29(91)
Change in other assets1(43)
Change in accounts payable(53)104
Change in advance payments and billings in excess of costs(14)17
Change in deferred taxes14719
Change in other liabilities(66)103
Other, net     1 
Net cash provided by operating activities  97   343 
Investing activities
Capital expenditures(86)(55)
Proceeds from the sale of assets214
Acquisitions, net of cash acquired(42)
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