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Exelis Reports Solid Second-Quarter 2012 Financial Results; Maintains 2012 Full-Year Outlook

MCLEAN, Va. — (BUSINESS WIRE) — August 3, 2012 — ITT Exelis (NYSE: XLS) today reported 2012 second-quarter revenue of $1.4 billion, a 7 percent decrease from the same previous-year period. Net income was $86 million, up 9 percent from the second quarter of 2011. Adjusted operating income grew 12 percent, to $148 million, and adjusted operating margin increased 180 basis points to 10.7 percent from the same period in 2011, due to productivity improvements and lower pension costs. Adjusted earnings were $0.46 per share, unchanged from the second quarter of 2011.

During the second quarter, Exelis secured $1.2 billion in new orders, and announced more than $300 million in contract awards for electronic warfare equipment from U.S. and international customers, further solidifying the company’s role as a leader in this global market.

In early July, Exelis completed the acquisition of Space Computer Corporation (SCC), a Los Angeles, Calif., company focused on information-processing software and solutions associated with advanced hyper-spectral sensor systems. SCC became part of the company’s C4ISR Electronics and Systems business, enhancing the ability for Exelis to provide geospatial solutions from sensors to decisions for its customers.

The company also continued to diversify outside of the U.S. federal government market with sales of its Symphony airport management solution to several customers, including the Metropolitan Washington Airports Authority, as well as delivery of the imaging system for the GeoEye-2 satellite. Exelis continued to add to its international portfolio, delivering a coastal surveillance radar system to the Swedish government and securing a $54 million foreign military sales contract for defensive aircraft electronics.

Segment Results

C4ISR Electronics and Systems

C4ISR Electronics and Systems second-quarter 2012 revenue was $620 million, down 9 percent from the same period in 2011, due to expected declines in sales of radios, jammers and domestic night vision equipment, partially offset by increased sales of upgrade kits to the installed base for CREW jammers. C4ISR Electronics and Systems second-quarter adjusted operating income was $88 million, down 11 percent from the second-quarter of 2011, due to lower volume and a sales mix shift toward new product lines, partially offset by lower pension expense.

Information and Technical Services

Information and Technical Services second-quarter 2012 revenue was $759 million, 6 percent lower than the same period in 2011 mainly due to moderating revenue on a large Middle East services contract reflecting a more sustainable activity level. Second-quarter adjusted operating income for the segment was $60 million, up 82 percent over the second quarter of 2011, primarily driven by productivity improvements on Afghanistan and air traffic management programs.

2012 Guidance

The company affirms its 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 second-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:

In addition, there are risks and uncertainties relating to the separation 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 June 30,     Six Months Ended June 30,
      2012       2011       2012     2011  
Product revenue $ 620 $ 679 $ 1,273 $ 1,362
Service revenue     759       806       1,527     1,467  
Total revenue     1,379       1,485       2,800     2,829  
Cost of product and service revenue
Costs of product revenue 433 470 894 954
Costs of service revenue 654 727 1,328 1,308
Selling, general and administrative expenses 130 139 263 279
Research and development expenses 16 27 30 48
Restructuring charges, net     1       1       2     5  
Operating income 145 121 283 235
Interest expense, net 11 20
Other expense (income), net     (1 )     (4 )     7     (14 )
Income from continuing operations before income tax expense 135 125 256 249
Income tax expense     49       46       100     88  
Net income   $ 86     $ 79     $ 156   $ 161  
Earnings Per Share
Basic
Net income $ 0.46 $ 0.42 $ 0.83 $ 0.86
Diluted
Net income $ 0.46 $ 0.42 $ 0.83 $ 0.86
Weighted average common shares – basic 187.5 186.2 187.1 186.2
Weighted average common shares – diluted 188.5 187.1 188.0 187.1
Cash dividends declared per common share   $ 0.10     $     $ 0.21   $  

       
Exelis Inc.
Consolidated and Combined Balance Sheets
(unaudited)
 
 
(IN MILLIONS) June 30, December 31,
        2012         2011  
Assets
Current assets
Cash and cash equivalents $ 166 $ 116
Receivables, net 1,177 1,061
Inventories, net 338 337
Deferred tax asset 61 106
Other current assets       50         49  
Total current assets       1,792         1,669  
Plant, property and equipment, net 504 494
Goodwill 2,167 2,154
Other intangible assets, net 200 211
Deferred tax asset 422 507
Other non-current assets       62         64  
Total non-current assets       3,355         3,430  
Total assets     $ 5,147       $ 5,099  
Liabilities and Shareholders' Equity
Current liabilities
Short-term debt $ 257 $
Accounts payable 428 447
Advance payments and billings in excess of costs 349 378
Compensation and other employee benefits 228 250
Other accrued liabilities       191         199  
Total current liabilities       1,453         1,274  
Postretirement benefit plans 1,853 2,149
Long-term debt 649 649
Deferred tax liability 1 1
Other non-current liabilities       130         133  
Total non-current liabilities       2,633         2,932  
Total liabilities       4,086         4,206  
Commitments and contingencies
Shareholders' equity
Common stock 2 2
Additional paid-in capital 2,550 2,523
Retained earnings 139 23
Accumulated other comprehensive loss       (1,630 )       (1,655 )
Total shareholders' equity       1,061         893  
Total liabilities and shareholders' equity     $ 5,147       $ 5,099  

   
Exelis Inc.
Consolidated and Combined Statements of Cash Flows
(unaudited)
 
 
(IN MILLIONS) Six Months Ended June 30,
    2012   2011
Operating activities
Net income $ 156 $ 161
Adjustments to reconcile net income to cash (use in) provided by operating activities:
Depreciation and amortization 63 68
Stock-based compensation 13 8
Restructuring charges, net 2 5
Payments for restructuring (11 ) (14 )
Postretirement benefit plans expense 24 5
Postretirement benefit plans payments (275 ) (9 )
Change in assets and liabilities
Change in receivables (114 ) (67 )
Change in inventories (1 ) (54 )
Change in other assets (2 ) (40 )
Change in accounts payable (21 ) 86
Change in advance payments and billings in excess of costs (29 ) 7
Change in deferred taxes 130 76
Change in other liabilities (44 ) (15 )
Other, net     (1 )     (1 )
Net cash (used in) provided by operating activities     (110 )     216  
Investing activities
Capital expenditures (50 ) (35 )
Proceeds from the sale of assets 1
Acquisitions, net of cash acquired (24 )
Other, net     2       11  
Net cash used in investing activities     (71 )     (24 )
Financing activities
Proceeds from commercial paper, net 257
Dividend paid (39 )
Proceeds from the exercise of options 14
Transfers to parent, net (185 )
Other, net     (2 )     (5 )
Net cash provided by (used in) financing activities     230       (190 )
Exchange rate effects on cash and cash equivalents     1        
Net change in cash and cash equivalents 50 2
Cash and cash equivalents – beginning of year     116       18  
Cash and cash equivalents – end of year   $ 166     $ 20  

 
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 June 30, Six Months Ended June 30,
($ million, except per share)     2012     2011   2012     2011
Net Income 86 79 156 161
               
Separation Costs, net of tax 1 7 15 9
Separation Related Tax Items     -     -   4     -
Adjusted Net Income     87     86   175     170
               
Net Income per fully diluted share $ 0.46 $ 0.42 $ 0.83 $ 0.86
Adjusted Net Income per fully diluted share   $ 0.46   $ 0.46 $ 0.93   $ 0.91
 
Weighted Average Shares Outstanding, Diluted 188.5 187.1 188.0 187.1

       
Exelis Inc.
Reported v. Adjusted Segment Operating Income and Operating Margin
 
Three Months Ended June 30, Six Months Ended June 30,
($ million)   2012     2011   2012     2011  
Sales 1,379 1,485 2,800 2,829
C4ISR 620 683 1,273 1,368
I&TS 759 811 1,527 1,474
Eliminations   -     (9 ) -     (13 )
               
Segment Operating Income, As Reported 145 121 283 235
C4ISR 86 92 177 171
I&TS   59     29   106     64  
               
Separation Costs 3 11 16 14
C4ISR 2 7 10 9
I&TS   1     4   6     5  
               
Segment Operating Income, Adjusted 148 132 299 249
C4ISR 88 99 187 180
I&TS   60     33   112     69  
               
Segment Operating Margin, As Reported
C4ISR 13.9 % 13.5 % 13.9 % 12.5 %
I&TS   7.8 %   3.6 % 6.9 %   4.3 %
               
Segment Operating Margin, Adjusted
C4ISR 14.2 % 14.5 % 14.7 % 13.2 %
I&TS   7.9 %   4.1 % 7.3 %   4.7 %
               
Operating Margin, As Reported 10.5 % 8.1 % 10.1 % 8.3 %
Operating Margin, Adjusted   10.7 %   8.9 % 10.7 %   8.8 %

   
Exelis Inc.
Free Cash Flow
 
Six Months Ended June 30,
($ million)   2012   2011
Cash Flow From Operating Activities   (110 )   216  
Subtract:
Capital Expenditures (50 ) (35 )
         
         
Free Cash Flow   (160 )   181  
Add:
Separation Costs, net of tax 15 9
Separation Related Tax Items   4      
         
Free Cash Flow, as Adjusted   (141 )   190  

 
Exelis Inc.
2012 Guidance Midpoint
 
 
($ million, except per share)

Twelve Months Ending

December 31, 2012

Sales, Guidance Mid Point Estimate $ 5,450  
   
Operating Income, Guidance Mid Point Estimate   554  
   
Separation Costs   30  
   
Adjusted Operating Income, Guidance Mid Point Estimate   584  
   
Operating Margin, Guidance Mid Point Estimate 10.2 %
Adjusted Operating Margin, Guidance Mid Point Estimate   10.7 %
   
Net Income, Guidance Mid Point Estimate 322
Separation Costs, net of tax   23  
   
Adjusted Net Income, Guidance Mid Point Estimate   345  
   
Net Income per fully diluted share, Guidance Mid Point Estimate $ 1.71
Adjusted Net Income per fully diluted share, Guidance Mid Point Estimate $ 1.83  
 
Weighted Average number shares outstanding diluted 188.4



Contact:

ITT Exelis
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Katy Herr, 703-790-6376
Email Contact
or
Media
B.J. Talley, 703-790-6349
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