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

Business Wire

MCLEAN, Va. -- March 1, 2013

ITT Exelis (NYSE: 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      521       537       696
tax expense
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           (58)      (49)      36
excess of costs
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                                         1       (4)     —
Net cash (used in) provided by investing           (159)   (85)    114
activities
Financing activities
Short-term borrowing under credit facility           —         240       —
Repayments under credit facility                     —         (240)     —
Proceeds from the issuance of debt, net              —         649       —
Payment of debt issuance costs                       —         (6)       —
Dividend paid                                        (77)      (19)      —
Proceeds from the exercise of stock options          19        —         —
Transfers to parent, net                             —         (775)     (747)
Other, net                                         1       4       (28)
Net cash used in financing activities              (57)    (147)   (775)
Exchange rate effects on cash and cash               7         (4)       —
equivalents
Net cash from discontinued operations              —       —       4
Net change in cash and cash equivalents              176       98        (16)
Cash and cash equivalents – beginning of year        116       18        34
Cash and cash equivalents – end of year           $ 292    $ 116    $ 18
Supplemental disclosures of cash flow
information
Cash paid during the year for
Income taxes (net of refunds received)             $ 28      $ 86      $ 206
Interest                                          $ 37     $ —      $ —
                                                                         

Key Performance Indicators and Non-GAAP Financial 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.
Non-GAAP Financial Measures - Adjusted Net Income & Adjusted EPS
                                                                       
                                      Three Months Ended   Twelve Months Ended
                                      December 31,         December 31,
($ million, except per share)        2012       2011     2012       2011
Net Income                            86          64       330         326
                                                                
Separation Costs, net of tax          4           14       19          29
Separation Related Tax Items         -          16       -          16
Adjusted Net Income                  90         94       349        371
                                                                
Net Income per fully diluted share    $0.45       $0.34    $1.75       $1.75
Adjusted Net Income per fully        $0.47      $0.50    $1.85      $1.99
diluted share
                                                                       
Weighted Average Shares               189.5       186.7    188.6       186.7
Outstanding, Diluted
                                                                       

                                                                
EXELIS INC.
Non-GAAP Financial Measures - Adjusted Segment Operating Income & Operating
Margin
                                                                       
                                      Three Months Ended   Twelve Months Ended
                                      December 31,         December 31,
($ million)                          2012       2011     2012       2011
Sales                                 1,361       1,480    5,522       5,839
C4ISR                                 603         709      2,487       2,817
I&TS                                  758         771      3,035       3,022
                                                                
Segment Operating Income, As          135         143      561         535
Reported
C4ISR                                 89          106      350         385
I&TS                                 46         37       211        150
                                                                
Separation Costs                      7           25       29          48
C4ISR                                 4           16       16          30
I&TS                                 3          9        13         18
                                                                
Segment Operating Income, Adjusted    142         168      590         583
C4ISR                                 93          122      366         415
I&TS                                 49         46       224        168
                                                                
Segment Operating Margin, As
Reported
C4ISR                                 14.8%       15.0%    14.1%       13.7%
I&TS                                 6.1%       4.8%     7.0%       5.0%
                                                                
Segment Operating Margin, Adjusted
C4ISR                                 15.4%       17.2%    14.7%       14.7%
I&TS                                 6.5%       6.0%     7.4%       5.6%
                                                                
Operating Margin, As Reported         9.9%        9.7%     10.2%       9.2%
Operating Margin, Adjusted           10.4%      11.4%    10.7%      10.0%
                                                                       

                                                            
EXELIS INC.
Non-GAAP Financial Measures - Quarterly Free Cash Flow
                                                                
                                Three Months    Twelve Months   Nine Months
                                Ended           Ending          Ended
                                December 31,    December 31,    September 30,
($ million)                    2012            2012           2012
Cash Flow From Operating       288             385            97
Activities
Subtract                                                    
Capital Expenditures            (33)            (119)           (86)
                                                           
                                                           
Free Cash Flow                 255             266            11
                                                                
Add:                                                        
Separation Costs, net of tax   4               19             15
                                                           
Free Cash Flow, as Adjusted    259             285            26
                                                                

                                                       
EXELIS INC.
Free Cash Flow Year-to-Date
                                                          
                                   Twelve Months Ending   Twelve Months Ending
                                   December 31,           December 31,
($ million)                       2012                  2011
Cash Flow From Operating          385                   334
Activities
Subtract                                               
Capital Expenditures              (119)                 (95)
                                                      
Free Cash Flow                    266                   239
                                                          
Add:                                                   
Separation Costs, net of tax       19                     29
Cash Taxes Paid Adjustment         -                      161
Non-Cash Allocated                -                     79
Postretirement Costs
Free Cash Flow, as Adjusted       285                   508
                                                          

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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