Exelis reports first-quarter 2013 financial results; reaffirms 2013 forecast

  Exelis reports first-quarter 2013 financial results; reaffirms 2013 forecast

  *Revenue and earnings results in line with company expectations
  *Corporate restructuring initiative on-plan
  *Program performance driving improved operating income in Information and
    Technical Services segment

Business Wire

MCLEAN, Va. -- May 03, 2013

ITT Exelis (NYSE: XLS) reported first-quarter 2013 financial results today.
First-quarter revenue was $1.2 billion, compared to $1.4 billion in the first
quarter of 2012. Operating income was $74 million and net earnings were $0.23
per diluted share, compared to $138 million and $0.37 per diluted share during
the same period in 2012. As expected, results for the first quarter of 2013
were impacted by $49 million in restructuring charges incurred by the company
as it aligns its headcount, footprint and cost structure more closely with
customer and market conditions.

Significant new orders announced during the first quarter of 2013 included a
$102 million contract to provide electronic support measures suites for two
classes of Australian warships; a multimillion dollar contract to provide
South Korea with an advanced geostationary weather imager; the company’s first
base operations contract for the U.S. Navy in Deveselu, Romania; and multiple
international orders, totaling more than $40 million, for communications
equipment and sustainment. Exelis also completed the acquisition of C4i Pty.
Ltd., an Australian company that provides advanced communications software
that is integral to air traffic management systems and mobile communications
solutions around the globe.

“Our first quarter results were in line with expectations. We secured several
significant orders from international customers and our restructuring efforts
are proceeding on schedule,” said Exelis CEO and President David F. Melcher.
“While challenges and uncertainties remain within the U.S. defense and
aerospace market, we continue to focus on cost improvement, operational
efficiency and delivering value to our customers and shareholders.”

Segment Results

C4ISR Electronics and Systems

C4ISR Electronics and Systems first-quarter 2013 revenue was $499 million,
compared to $653 million during the same period in 2012, mainly due to
decreased sales of SINCGARS, night vision and counter-IED products, partially
offset by increased international demand for airborne electronic warfare
equipment. Segment operating income for the quarter was $19 million, versus
$91 million for the first quarter of 2012, primarily driven by volume declines
and restructuring charges taken in the segment during the first three months
of 2013.

Information and Technical Services

Information and Technical Services first-quarter 2013 revenue was $686
million, compared to $768 million in the first quarter of 2012, primarily due
to decreased activity on several Information Systems and Middle East facility
operations programs. Segment operating income for the quarter was $55 million,
compared to $47 million for the same period in 2012, positively impacted by
contract productivity improvements, but partially offset by higher
restructuring charges.

2013 Guidance

Exelis also reaffirms its previously published guidance for 2013 sales,
operating margin, earnings per share and free cash flow.

                     
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
                     

The company’s 2013 financial guidance includes $60 million to $70 million of
projected restructuring expense. FAS pension expense for the year is projected
in the range of $90 million to $100 million, at the midpoint, an increase of
approximately $63 million from the prior year. 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 Daylight Time to review first-quarter 2013 financial results, 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 Consolidated Statements of Operations
(unaudited)

                                                                        
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)           Three Months Ended March 31,
                                               2013             2012
Product revenue                                   $   499            $  653
Service revenue                                    686            768
Total revenue                                      1,185          1,421
Costs of product revenue                              357               461
Costs of service revenue                              577               674
Selling, general and administrative expenses          115               133
Research and development expenses                     13                14
Restructuring charges, net                         49             1
Operating income                                      74                138
Interest expense, net                                 8                 9
Other expense (income), net                        2              8
Income from continuing operations before              64                121
income tax expense
Income tax expense                                 20             51
Net income                                      $   44           $  70
Earnings Per Share
Basic
Net income                                        $   0.23           $  0.38
Diluted
Net income                                        $   0.23           $  0.37
Weighted average common shares outstanding –          188.3             186.6
basic
Weighted average common shares outstanding –          189.8             187.5
diluted
Cash dividends declared per common share        $   0.10         $  0.10
                                                                        


Exelis Inc.
Consolidated Consolidated Balance Sheets
(unaudited)
                                                             
                                                                             
(IN MILLIONS)                                      March 31,      December 31,
                                                2013         2012
Assets
Current assets
Cash and cash equivalents                          $ 185          $  292
Receivables, net                                     1,022           995
Inventories, net                                     301             283
Deferred tax asset                                   68              85
Other current assets                              62          58      
Total current assets                              1,638       1,713   
Plant, property and equipment, net                   509             512
Goodwill                                             2,188           2,180
Other intangible assets, net                         184             184
Deferred tax asset                                   543             556
Other non-current assets                          66          67      
Total non-current assets                          3,490       3,499   
Total assets                                     $ 5,128     $  5,212   
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable                                   $ 368          $  444
Advance payments and billings in excess of           327             322
costs
Compensation and other employee benefits             177             246
Other accrued liabilities                         265         203     
Total current liabilities                         1,137       1,215   
Defined benefit plans                                2,160           2,203
Long-term debt                                       649             649
Deferred tax liability                               3               1
Other non-current liabilities                     127         128     
Total non-current liabilities                     2,939       2,981   
Total liabilities                                 4,076       4,196   
Commitments and contingencies
Shareholders' equity
Common stock                                         2               2
Additional paid-in capital                           2,578           2,575
Retained earnings                                    298             274
Accumulated other comprehensive loss              (1,826 )     (1,835  )
Total shareholders' equity                        1,052       1,016   
Total liabilities and shareholders' equity       $ 5,128     $  5,212   
                                                                             


Exelis Inc.
Consolidated Consolidated Statements of Cash Flows
(unaudited)
                                                              
                                                                             
(IN MILLIONS)                                     Three Months Ended March 31,
                                               2013            2012
Operating activities
Net income                                        $  44             $  70
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization                        27                30
Stock-based compensation                             5                 5
Restructuring charges, net                           49                1
Payments for restructuring                           (6    )           (8    )
Defined benefit plans expense                        26                12
Defined benefit plans payments                       (39   )           (197  )
Change in assets and liabilities
Change in receivables                                (27   )           (225  )
Change in inventories                                (17   )           1
Change in other assets                               (3    )           (11   )
Change in accounts payable                           (77   )           15
Change in advance payments and billings in           6                 10
excess of costs
Change in deferred taxes                             18                69
Change in other liabilities                          (72   )           (66   )
Other, net                                        1             (4    )
Net cash used in operating activities             (65   )        (298  )
Investing activities
Capital expenditures                                 (17   )           (24   )
Proceeds from the sale of assets                     —                 1
Acquisitions, net of cash acquired                   (15   )           —
Other, net                                        —             2     
Net cash used in investing activities             (32   )        (21   )
Financing activities
Short-term borrowing under credit facility,          —                 145
net
Proceeds from commercial paper, net                  —                 265
Dividend paid                                        —                 (19   )
Proceeds from the exercise of options                1                 13
Other, net                                        (2    )        2     
Net cash (used in) provided by financing          (1    )        406   
activities
Exchange rate effects on cash and cash            (9    )        5     
equivalents
Net change in cash and cash equivalents              (107  )           92
Cash and cash equivalents – beginning of year     292           116   
Cash and cash equivalents – end of period       $  185         $  208   
                                                                             

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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