- $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
MCLEAN, Va. — (BUSINESS WIRE) — November 2, 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 PER SHARE AMOUNTS) | Three Months Ended September 30, | Nine Months Ended 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 administrative expenses | 114 | 150 | 377 | 429 | ||||||||||
| Research and development expenses | 18 | 24 | 48 | 72 | ||||||||||
| Restructuring and asset impairment charges, net | 3 | 1 | 5 | 5 | ||||||||||
| Operating income | 143 | 156 | 426 | 392 | ||||||||||
| Interest expense, net | 9 | 1 | 29 | 1 | ||||||||||
| Other expense (income), net | (4 | ) | 1 | 3 | (13 | ) | ||||||||
| Income from continuing operations before income tax expense | 138 | 154 | 394 | 404 | ||||||||||
| 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 shares – basic | 187.6 | 186.2 | 187.3 | 186.2 | ||||||||||
| Weighted average common shares – diluted | 188.7 | 187.1 | 188.3 | 187.1 | ||||||||||
| Cash dividends declared per common share | $ | 0.10 | $ | — | $ | 0.31 | $ | — | ||||||
| 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 costs | 366 | 378 | ||||||
| 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, net | 5 | 5 | ||||||
| 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 excess of costs | (14 | ) | 17 | |||||
| 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 activities | 102 | (250 | ) | |||||
| Exchange rate effects on cash and cash equivalents | 6 | (2 | ) | |||||
| Net change in cash and cash equivalents | 78 | 46 | ||||||
| Cash and cash equivalents – beginning of year | 116 | 18 | ||||||
| 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 Receivable Write-down | (4 | ) |
- |
(4 | ) |
- |
||||||||
| 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 diluted share | $ | 0.45 | $ | 0.57 | $ | 1.38 | $ | 1.48 | ||||||
| Weighted Average Shares Outstanding, Diluted | 188.7 | 187.1 | 188.3 | 187.1 | ||||||||||
| 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 Ended | Nine Months Ending | Six Months Ended | |||||||
| September 30, | September 30, | June 30, | |||||||
| ($ million) | 2012 | 2012 | 2012 | ||||||
| Cash Flow From Operating Activities | 207 | 97 | (110 | ) | |||||
| 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 Tax Receivable Write-down | (4 | ) | (4 | ) | - | ||||
| Reversal of Separation Related Tax Items | (4 | ) | - | 4 | |||||
| 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 Estimate | $1.74 | ||
| Adjusted Net Income per fully diluted share, Guidance Mid Point Estimate | $1.83 | ||
| Weighted Average number shares outstanding diluted | 188.5 | ||
Contact:
ITT Exelis
Investors
Katy Herr, 703-790-6376
Email Contact
or
Media
B.J.
Talley, 703-790-6349
Email Contact