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

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 revenue

434

510

1,328

1,465

Cost of service revenue

649

688

1,977

1,996

Selling, general and administrative expenses

114

150

377

429

Research and development expenses

18

24

48

72

Restructuring and asset impairment charges, net

3

1

5

5

Operating income

143

156

426

392

Interest expense, net

9

1

29

1

Other expense (income), net

(4

)

1

3

(13

)

Income from continuing operations before income tax expense

138

154

394

404

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 - basic

187.6

186.2

187.3

186.2

Weighted average common shares - diluted

188.7

187.1

188.3

187.1

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, net

1,080

1,061

Inventories, net

310

337

Deferred tax asset

80

106

Other current assets

47

49

Total current assets

1,711

1,669

Plant, property and equipment, net

511

494

Goodwill

2,178

2,154

Other intangible assets, net

194

211

Deferred tax asset

420

507

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 payable

416

447

Advance payments and billings in excess of costs

366

378

Compensation and other employee benefits

217

250

Other accrued liabilities

184

199

Total current liabilities

1,317

1,274

Postretirement benefit plans

1,828

2,149

Long-term debt

649

649

Deferred tax liability

1

1

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 stock

2

2

Additional paid-in capital

2,568

2,523

Retained earnings

208

23

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 amortization

97

100

Stock-based compensation

18

12

Restructuring and asset impairment charges, net

5

5

Payments for restructuring

(14

)

(17

)

Postretirement benefit plans expense

36

7

Postretirement benefit plans payments

(293

)

(33

)

Change in assets and liabilities

Change in receivables

(40

)

(103

)

Change in inventories

29

(91

)

Change in other assets

1

(43

)

Change in accounts payable

(53

)

104

Change in advance payments and billings in excess of costs

(14

)

17

Change in deferred taxes

147

19

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 assets

2

14

Acquisitions, net of cash acquired

(42

)