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

Business Wire

MCLEAN, Va. -- November 02, 2012

ITT Exelis (NYSE: 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        Three Months Ended      Nine Months Ended
PER SHARE AMOUNTS)          September 30,            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        114             150         377          429
administrative expenses
Research and                18              24          48           72
development expenses
Restructuring and asset   3            1         5          5      
impairment charges, net
Operating income            143             156         426          392
Interest expense, net       9               1           29           1
Other expense (income),   (4     )      1         3          (13    )
net
Income from continuing
operations before           138             154         394          404
income tax expense
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     187.6           186.2       187.3        186.2
shares – basic
Weighted average common     188.7           187.1       188.3        187.1
shares – diluted
Cash dividends declared  $ 0.10       $  —       $  0.31     $  —      
per common share
                                                                     

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           366             378
costs
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,        5                  5
net
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         (14    )           17
excess of costs
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    )           —
Other, net                                       (1     )         (4    )
Net cash used in investing activities            (127   )         (45   )
Financing activities
Proceeds from commercial paper, net                134                —
Proceeds from the issuance of debt, net            —                  649
Payment of debt issuance costs                     —                  (6    )
Dividends paid                                     (39    )           —
Proceeds from the exercise of options              14                 —
Transfers to parent, net                           —                  (899  )
Other, net                                       (7     )         6     
Net cash provided by (used in) financing         102             (250  )
activities
Exchange rate effects on cash and cash           6               (2    )
equivalents
Net change in cash and cash equivalents            78                 46
Cash and cash equivalents – beginning of         116             18    
year
Cash and cash equivalents – end of year       $   194          $   64    
                                                                            


Key Performance Indicators and Non-GAAP Measures

Management reviews key performance indicators including revenue, segment
operating income and margins, orders growth, and backlog, among other metrics
on a regular basis. In addition, we consider certain additional measures to be
useful to management and investors evaluating our operating performance for
the periods presented, and provide a tool for evaluating our ongoing
operations, liquidity and management of assets. This information can assist
investors in assessing our financial performance and measures our ability to
generate capital for deployment among competing strategic alternatives and
initiatives, including, but not limited to, acquisitions, and debt repayment.
These metrics, however, are not measures of financial performance under
accounting principles generally accepted in the United States of America
(GAAP) and should not be considered a substitute for sales, operating income,
income from continuing operations, or net cash from continuing operations as
determined in accordance with GAAP. We consider the following non-GAAP
measures, which may not be comparable to similarly titled measures reported by
other companies, to be key performance indicators:

“adjusted net income” defined as net income, adjusted to exclude items that
include, but are not limited to significant charges or credits that impact
current results, but are not related to our ongoing operations, unusual and
infrequent non-operating items and non-operating tax settlements or
adjustments. A reconciliation of adjusted net income is provided below.

“segment adjusted operating income” defined as operating income of our two
segments, adjusted to exclude items that include, but are not limited to
significant charges or credits that impact current results, but are not
related to our ongoing operations, unusual and infrequent non-operating items
and non-operating tax settlements or adjustments. A reconciliation of segment
operating income is provided below.

“segment adjusted operating margin” defined as segment adjusted operating
income as defined above, divided by revenue. A reconciliation of segment
operating margin is provided below.

“Free cash flow” defined as GAAP cash flow from operating activities, less
capital expenditures. This metric does not include dividend payments.

                                                                  
Exelis Inc.
Reported v. Adjusted Net Income and Adjusted EPS
                                                                       
                                     Three Months Ended    Nine Months Ended
                                     September 30,         September 30,
($ million, except per share)       2012       2011      2012       2011
Net Income                             88          101       244         262
                                                                
Separation Costs, net of tax           4           6         19          15
Reversal of Separation Related Tax     (4    )   -           (4    )   -
Receivable Write-down
Separation Related Tax Items         (4    )   -        -        -
Adjusted Net Income                  84       107      259      277
                                                                
Net Income per fully diluted share   $ 0.47      $ 0.54    $ 1.30      $ 1.40
Adjusted Net Income per fully       $ 0.45    $ 0.57    $ 1.38    $ 1.48
diluted share
                                                                       
Weighted Average Shares                188.7       187.1     188.3       187.1
Outstanding, Diluted


Exelis Inc.
Reported v. Adjusted Segment Operating Income and Operating Margin
                                                                  
                                        Three Months Ended   Nine Months Ended
                                        September 30,        September 30,
($ million)                            2012      2011      2012     2011
Sales                                   1,361      1,529     4,161     4,359
C4ISR                                   611        746       1,884     2,114
I&TS                                    750        786       2,277     2,250
Eliminations                           -        (3    )   -       (5    )
                                                                
Segment Operating Income, As Reported   143        156       426       392
C4ISR                                   84         107       261       278
I&TS                                   59       49       165     114   
                                                                
Separation Costs                        6          9         22        23
C4ISR                                   3          6         13        15
I&TS                                   3        3        9       8     
                                                                
Segment Operating Income, Adjusted      149        165       448       415
C4ISR                                   87         113       274       293
I&TS                                   62       52       174     122   
                                                                
Segment Operating Margin, As Reported
C4ISR                                   13.7   %   14.3  %   13.9  %   13.2  %
I&TS                                   7.9    %  6.2   %   7.2   %  5.1   %
                                                                
Segment Operating Margin, Adjusted
C4ISR                                   14.2   %   15.1  %   14.5  %   13.9  %
I&TS                                   8.3    %  6.6   %   7.6   %  5.4   %
                                                                
Operating Margin, As Reported           10.5   %   10.2  %   10.2  %   9.0   %
Operating Margin, Adjusted             10.9   %  10.8  %   10.8  %  9.5   %

                                                                
Exelis Inc.
Quarterly Free Cash Flow
                                                                    
                                  Three Months     Nine Months      Six Months
                                  Ended            Ending           Ended
                                  September 30,    September 30,   June 30,
($ million)                      2012             2012            2012
Cash Flow From Operating         207             97             (110   )
Activities
Subtract                                                        
Capital Expenditures              (36      )       (86      )       (50    )
                                                               
                                                               
Free Cash Flow                   171             11             (160   )
                                                                    
Add:                                                            
Separation Costs, net of tax      4                19               15
Reversal of Separation Related    (4       )       (4       )       -
Tax Receivable Write-down
Reversal of Separation Related   (4       )       -              4      
Tax Items
Free Cash Flow, as Adjusted      167             26             (141   )

                                                        
Exelis Inc.
Free Cash Flow Year-to-Date
                                                           
                                      Nine Months Ending   Nine Months Ending
                                      September 30,       September 30,
($ million)                          2012                2011
Cash Flow From Operating Activities  97                 343        
Subtract                                                
Capital Expenditures                  (86        )         (55        )
                                                       
                                                       
Free Cash Flow                       11                 288        
                                                           
Add:                                                    
Separation Costs, net of tax          19                   15
Reversal Separation Tax Receivable    (4         )         -
Separation Related Tax Items         -                  -          
Free Cash Flow, as Adjusted          26                 303        

                                                        
Exelis Inc.
2012 Guidance Midpoint
                                                          
                                                          Twelve Months Ending
($ million, except per share)                            December 31, 2012
Sales, Guidance Mid Point Estimate                       5,450        
                                                        
Operating Income, Guidance Mid Point Estimate            567          
                                                        
Separation Costs                                         27           
                                                        
Adjusted Operating Income, Guidance Mid Point Estimate   594          
                                                        
Operating Margin, Guidance Mid Point Estimate             10.4         %
Adjusted Operating Margin, Guidance Mid Point Estimate   10.9         %
                                                        
Net Income, Guidance Mid Point Estimate                   327
Separation Costs, net of tax                             17           
                                                        
Adjusted Net Income, Guidance Mid Point Estimate         344          
                                                        
Net Income per fully diluted share, Guidance Mid Point    $1.74
Estimate
Adjusted Net Income per fully diluted share, Guidance    $1.83        
Mid Point Estimate
                                                          
Weighted Average number shares outstanding diluted        188.5

Contact:

ITT Exelis
Investors
Katy Herr, 703-790-6376
Katy.Herr@exelisinc.com
or
Media
B.J. Talley, 703-790-6349
William.Talley@exelisinc.com
 
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