Exelis reports fourth-quarter and full-year 2012 financial results; provides 2013 outlook

Exelis reports fourth-quarter and full-year 2012 financial results; provides 2013 outlook

  • Fourth-quarter 2012 earnings of $0.45 per share; Adjusted fourth-quarter 2012 earnings of $0.47 per share

  • Full-year 2012 adjusted earnings of $1.85 per share

  • 2012 free cash flow of $285 million

MCLEAN, Va.--(BUSINESS WIRE)-- ITT Exelis (NYS: XLS) reported 2012 financial results for the fourth quarter and full year of 2012. Fourth-quarter revenue was $1.4 billion, an 8 percent decrease from the fourth quarter of 2011. Earnings were $0.45 per share, a 32 percent increase from the fourth quarter of 2011. Adjusted earnings were $0.47 per share for the fourth quarter, a 6 percent decrease from the same period in 2011. The company generated $259 million in free cash flow in the quarter.

For the full-year 2012, the company reported revenue of $5.5 billion, a 5 percent decline from 2011; and earnings of $1.75 per share, the same as the previous year. Adjusted earnings were $1.85 per share, down 7 percent from 2011. Full-year revenue was impacted by slowing global acquisition cycles due to budget and economic challenges, while the continued sales mix shift away from high volume, surge-related products also drove revenue lower year-over-year. Free cash flow for the year was $285 million, which reflects $266 million in contributions made by the company to its pension fund.


"In 2012, our first full year as an independent company, we set a solid foundation for the future," said Exelis CEO and President David F. Melcher. "And while we are acutely aware that 2013 will be a challenging year throughout the defense industry, we are proactively restructuring, driving operational efficiencies, and pursuing commercial and international markets for our products and services, to help mitigate the market uncertainties on the horizon. Above all, we remain fully committed to continuing to deliver value to shareholders and mission-critical solutions to our customers."

Segment Results

C4ISR Electronics and Systems

C4ISR Electronics and Systems fourth-quarter 2012 revenue was $603 million, down 15 percent from the same period in 2011. Full-year revenue for the segment was $2.5 billion, down 12 percent compared to 2011 as declines in sales of domestic night vision goggles, SINCGARS radios and IED jammers were offset partially by sales of upgrade kits for the installed base of jammers. Fourth-quarter 2012 adjusted operating income was $93 million, down 24 percent from the fourth quarter of 2011. Full-year 2012 adjusted operating income was $366 million, a decline of 12 percent from 2011, driven by lower sales volumes and a continued shift away from surge-related production contracts.

Information and Technical Services

Information and Technical Services fourth-quarter 2012 revenue was $758 million, a decrease of 2 percent from the same period in 2011. Full-year revenue for the segment was $3 billion, up 0.4 percent from 2011, driven by strength in the NASA SCNS contract and several Afghanistan programs, offset by lower revenue on the TSE Bridge and APS-5 Kuwait programs. Fourth-quarter adjusted operating income was $49 million, up 6 percent from the fourth quarter of 2011. Full-year 2012 adjusted operating income was $224 million, 33 percent higher than 2011 due to program performance and operational efficiencies.

2013 Guidance

Sales

$5.0 billion - $5.1 billion

Operating Margin

9.4% - 9.8%

Earnings Per Share

$1.45 - $1.55

Free Cash Flow

> $225 million

Guidance for 2013 does not assume any significant disruption or shutdown of government operations resulting from sequestration.

The company's 2013 financial guidance includes $60 million to $70 million of projected restructuring expense, an expected impact of approximately $0.18 per share at the midpoint of earnings guidance. FAS pension expense for the year is projected in the range of $90 million - $100 million, at the midpoint an increase of approximately $63 million from the prior year with an expected impact of approximately $0.21 per share at the midpoint of earnings guidance. The company anticipates generating free cash flow in excess of $225 million after making pension contributions in the range of $145 million to $160 million.

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 Standard Time to review fourth-quarter and full-year 2012 results and 2013 guidance, as well as to 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, information and technical services company that leverages a 50-year legacy of deep customer knowledge and technical expertise to deliver affordable, mission-critical solutions for global customers. We are a leader in communications, sensing and surveillance, critical networks, electronic warfare, navigation, air traffic solutions and information systems with growing positions in C4ISR, composite aerostructures, logistics and technical services. Headquartered in McLean, Va., the company employs about 19,900 people and generated 2012 sales of $5.5 billion. For more information visit our website at www.exelisinc.com or connect with us on Facebook, Twitter and YouTube.

Safe Harbor Statement

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 (the "Act"): Some of the information included herein includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995 (the "Act"). Whenever used, words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "target," "may," "could," "outlook" 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 in, or implied from, such forward-looking statements. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. 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:

  • 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.

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, 2012, 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

(preliminary and unaudited)

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

Year ended December 31,

2012

2011

2010

Product revenue

$

2,487

$

2,817

$

3,596

Service revenue

3,035

3,022

2,295

Total revenue

5,522

5,839

5,891

Costs of product revenue

1,726

1,933

2,491

Costs of service revenue

2,633

2,683

2,032

Selling, general and administrative expenses

516

566

525

Research and development expenses

67

99

119

Restructuring and asset impairment charges, net

19

23

35

Operating income

561

535

689

Interest expense, net

37

10

Other expense (income), net

3

(12)

(7)

Income from continuing operations before income tax expense

521

537

696

Income tax expense

191

211

248

Income from continuing operations

330

326

448

Income from discontinued operations, net of tax

139

Net income

$

330

$

326

$

587

Earnings Per Share

Basic

Continuing operations

$

1.76

$

1.75

$

2.41

Discontinued operations

0.75

Net income

$

1.76

$

1.75

$

3.15

Diluted

Continuing operations

$

1.75

$

1.75

$

2.39

Discontinued operations

0.74

Net income

$

1.75

$

1.75

$

3.14

Weighted average common shares - basic

187.4

186.2

186.2

Weighted average common shares - diluted

188.6

186.7

187.1

Cash dividends declared per common share

$

0.41

$

0.10

$

EXELIS INC.

CONSOLIDATED BALANCE SHEETS

(preliminary and unaudited)

(IN MILLIONS)

December 31,

2012

2011

Assets

Current assets

Cash and cash equivalents

$

292

$

116

Receivables, net

995

1,061

Inventories, net

283

337

Deferred tax asset

85

106

Other current assets

58

49

Total current assets

1,713

1,669

Plant, property and equipment, net

512

494

Goodwill

2,180

2,154

Other intangible assets, net

184

211

Deferred tax asset

556

507

Other non-current assets

67

64

Total non-current assets

3,499

3,430

Total assets

$

5,212

$

5,099

Liabilities and Shareholders' Equity

Current liabilities

Accounts payable

$

444

$

447

Advance payments and billings in excess of costs

322

378

Compensation and other employee benefits

246

250

Other accrued liabilities

203

199

Total current liabilities

1,215

1,274

Defined benefit plans

2,203

2,149

Long-term debt

649

649

Deferred tax liability

1

1

Other non-current liabilities

128

133

Total non-current liabilities

2,981

2,932

Total liabilities

4,196

4,206

Commitments and contingencies

Shareholders' equity

Common stock

2

2

Additional paid-in capital

2,575

2,523

Retained earnings

274

23

Accumulated other comprehensive loss

(1,835)

(1,655)

Total shareholders' equity

1,016

893

Total liabilities and shareholders' equity

$

5,212

$

5,099

EXELIS INC.

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(preliminary and unaudited)

(IN MILLIONS)

Year Ended December 31,

2012

2011

2010

Operating activities

Net income

$

330

$

326

$

587

Less income from discontinued operations

(139)

Income from continuing operations

330

326

448

Adjustments to reconcile income from continuing operations to cash provided by operating activities:

Depreciation and amortization

130

133

139

Stock-based compensation

24

18

15

Restructuring and asset impairment charges, net

19

23

35

Payments for restructuring

(20)

(19)

(21)

Defined benefit plans expense

43

46

7

Defined benefit plans payments

(290)

(87)

(6)

Change in assets and liabilities

Change in receivables

41

(106)

(100)

Change in inventories

56

(99)

131

Change in other assets

(11)

(27)

6

Change in accounts payable

(2)

122

(37)

Change in advance payments and billings in excess of costs

(58)

(49)

36

Change in deferred taxes

112

64

(1)

Change in other liabilities

9

(13)

(12)

Other, net

2

2

1

Net cash provided by operating activities

385

334

641

Investing activities

Capital expenditures

(119)

(95)

(108)

Proceeds from the sale of assets

2

14

251

Acquisitions, net of cash acquired

(43)

(29)

Other, net