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Exelis reports first quarter 2015 financial results

MCLEAN, Va. — (BUSINESS WIRE) — May 6, 2015 — Exelis (NYSE: XLS) reported financial results for the first quarter of 2015. First-quarter revenue from continuing operations was $785 million, a five percent increase from the first quarter of 2014. First-quarter operating income from continuing operations was $104 million, a 51 percent improvement from the first quarter of 2014. First-quarter diluted earnings per share from continuing operations were $0.31 per share, a 55 percent increase from the first quarter of 2014. The company reported $(17) million in first quarter cash from continuing operations an improvement of $91 million from the prior period.

The company secured $700 million in orders in the first quarter of 2015, including new business in its strategic growth platforms. Key announcements during the quarter included:

“First-quarter revenue and profitability growth reflect the strength of our current backlog and improvements in our operational efficiency,” said Exelis CEO and President David F. Melcher. “As we move toward closing the merger with Harris Corporation, I am proud of our employees’ continued commitment to the Exelis growth strategy and delivering our customers and shareholders outstanding capabilities and value.”

Segment Results

C4ISR Electronics and Systems

C4ISR Electronics and Systems first-quarter 2015 revenue was $508 million, up 6 percent from the same period in 2014 primarily due to higher revenue on environmental sensing satellite payloads and international electronic warfare products. First-quarter 2015 operating income from continuing operations was $74 million, up 85 percent from the first quarter of 2014, driven by favorable sales mix and lower restructuring costs and SG&A.

Information and Technical Services

Information and Technical Services first-quarter 2015 revenue from continuing operations was $277 million, an increase of 3 percent from the same period in 2014, driven by higher activity on Civil and Aerospace program area contracts. First-quarter operating income from continuing operations was $30 million, up 3 percent from the first quarter of 2014.

About Exelis

Exelis is a diversified, top-tier global aerospace, defense, information and services company that leverages a greater than 50-year legacy of deep customer knowledge and technical expertise to deliver affordable, mission-critical solutions for global customers. Exelis is a leader in positioning and navigation, sensors, air traffic management solutions, image processing and distribution, communications and information systems; and focused on strategic growth in the areas of critical networks, ISR and analytics, electronic warfare and composite aerostructures. Headquartered in McLean, Virginia, Exelis employs approximately 10,000 people and generated 2014 sales of approximately $3.3 billion. For more information, visit our website at www.exelisinc.com or connect with us on Facebook, Twitter and YouTube.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

This communication contains “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, known as the PSLRA. These statements, as they relate to Exelis and Harris, the management of either such company or the proposed transaction between Exelis and Harris, involve risks and uncertainties that may cause results to differ materially from those set forth in the statements. These statements are based on current plans, estimates and projections, and therefore, you are cautioned not to place undue reliance on them. No forward-looking statement can be guaranteed, and actual results may differ materially from those projected. Exelis and Harris undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise, except to the extent required by law. Forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about the business and future financial results, and other legal, regulatory and economic developments. We use words such as “anticipates,” “believes,” “plans,” “expects,” “projects,” “future,” “intends,” “may,” “will,” “should,” “could,” “estimates,” “predicts,” “potential,” “continue,” “guidance,” and similar expressions to identify these forward-looking statements that are intended to be covered by the safe harbor provisions of the PSLRA. Actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including: the risk that the businesses will not be integrated successfully; the risk that the cost savings and any other synergies from the transaction may not be fully realized or may take longer to realize than expected; disruption from the transaction making it more difficult to maintain relationships with customers, employees or suppliers; the failure to obtain governmental approvals of the transaction on the proposed terms and schedule, and any conditions imposed on the combined company in connection with consummation of the merger; the failure to obtain approval of the merger by the shareholders of Exelis and the failure to satisfy various other conditions to the closing of the merger contemplated by the merger agreement; and the risks that are described from time to time in Exelis’ and Harris’ respective reports filed with the SEC, including Exelis’ Annual Report on Form 10-K for the year ended December 31, 2014 (as amended by Annual Report on Form 10-K/A filed on April 6, 2015), and Harris’ annual report on Form 10-K for the year ended June 27, 2014 and quarterly reports on Form 10-Q for the quarters ended September 26, 2014, and January 2, 2015, in each case, as such reports may have been amended. This document speaks only as of its date, and Exelis and Harris each disclaims any duty to update the information herein.

Additional Information and Where to Find It

In connection with the proposed transaction, Harris has filed with the SEC, and the SEC has declared effective, a Registration Statement on Form S-4 (Reg. No. 333-202539), containing a proxy statement/prospectus regarding the proposed merger. SHAREHOLDERS OF EXELIS ARE ENCOURAGED TO READ THE REGISTRATION STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE DEFINITIVE PROXY STATEMENT/ PROSPECTUS THAT IS PART OF THE REGISTRATION STATEMENT, BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. The definitive proxy statement/prospectus has been mailed to shareholders of Exelis. Investors and security holders may obtain the documents free of charge at the SEC’s web site, www.sec.gov, from Harris at its web site, www.Harris.com, or from Exelis at its web site, www.Exelisinc.com, or 1650 Tysons Blvd. Suite 1700, McLean, VA 22102, attention: Corporate Secretary.

Participants In Solicitation

Exelis and Harris and their respective directors and executive officers, other members of management and employees and the proposed directors and executive officers of the combined company, may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information concerning the proposed directors and executive officers of the combined company, Exelis’ and Harris’ respective directors and executive officers and other participants in the proxy solicitation, including a description of their interests, is included in the definitive proxy statement/prospectus contained in the above-referenced Registration Statement on Form S-4 (Reg. No. 333-202539), as amended, and in Exelis’ and Harris’ respective Form 10-Ks, as amended, for the year ended December 31, 2014 in respect of Exelis and for the year ended June 27, 2014 in respect of Harris.

This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

   
Exelis Inc.
Consolidated Statements of Operations (unaudited)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
 

Three Months Ended March 31,

      2015     2014
Product revenue $ 508 $ 480
Service revenue     277       268  
Total revenue     785       748  
Cost of product revenue 354 354
Cost of service revenue 218 212
Selling, general and administrative expenses 95 98
Research and development expenses 13 10
Restructuring and asset impairment charges     1       5  
Operating income 104 69
Interest expense, net 9 9
Other (income) expense, net     −       (2 )
Income from continuing operations before income tax expense 95 62
Income tax expense     36       23  
Income from Continuing operations 59 39
Income from discontinued operations, net of tax     −       13  
Net income   $ 59     $ 52  
Earnings Per Share
Basic
Continuing operations $ 0.32 $ 0.21
Discontinued operations $ − $ 0.07
Net income $ 0.32 $ 0.27
Diluted
Continuing operations $ 0.31 $ 0.20
Discontinued operations $ − $ 0.07
Net income $ 0.31 $ 0.27
Weighted average common shares outstanding – basic 186.4 189.6
Weighted average common shares outstanding – diluted 191.5 194.9
Cash dividends declared per common share   $ 0.10     $ 0.10  

   
Exelis Inc.
Consolidated Balance Sheets (unaudited)
(IN MILLIONS)
 
March 31, December 31,
      2015     2014
Assets
Current assets
Cash and cash equivalents $ 479 $ 510
Receivables, net 853 824
Inventories, net 231 225
Deferred tax asset 55 56
Other current assets     47       47  
Total current assets     1,665       1,662  
Plant, property and equipment, net 422 437
Goodwill 1,973 1,976
Other intangible assets, net 143 150
Deferred tax asset 541 566
Other non-current assets     87       87  
Total non-current assets     3,166       3,216  
Total assets   $ 4,831     $ 4,878  
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 229 $ 238
Advance payments and billings in excess of costs 231 242
Compensation and other employee benefits 120 170
Other accrued liabilities     134       124  
Total current liabilities     714       774  
Defined benefit plans 2,021 2,072
Long-term debt 649 649
Deferred tax liability 2 2
Other non-current liabilities     135       134  
Total non-current liabilities     2,807       2,857  
Total liabilities     3,521       3,631  
Commitments and contingencies
Shareholders' equity
Common stock 2 2
Additional paid-in capital 2,621 2,607
Treasury stock (128 ) (128 )
Retained earnings 685 645
Accumulated other comprehensive loss     (1,870 )     (1,879 )
Total shareholders' equity     1,310       1,247  
Total liabilities and shareholders' equity   $ 4,831     $ 4,878  

   
Exelis Inc.
Consolidated Statements of Cash Flows (unaudited)
(IN MILLIONS)
 
Three Months Ended March 31,
    2015   2014
Operating activities
Net income $ 59 $ 52
Less income from discontinued operations     —       13  
Income from continuing operations 59 39
Adjustments to reconcile net income to net cash used in operating activities from continuing operations:
Depreciation and amortization 25 26
Stock-based compensation 8 8
Restructuring and asset impairment charges 1 5
Payments for restructuring (2 ) (10 )
Defined benefit plans expense 20 17
Defined benefit plans payments (41 ) (42 )
Change in assets and liabilities
Change in receivables (30 ) (42 )
Change in inventories (8 ) (17 )
Change in other assets (1 ) (3 )
Change in accounts payable (8 ) (31 )
Change in advance payments and billings in excess of costs (10 ) (24 )
Change in deferred taxes 14 13
Change in other liabilities (44 ) (44 )
Other, net     —       (3 )
Net cash used in operating activities from continuing operations     (17 )     (108 )
Investing activities
Capital expenditures (8 ) (7 )
Proceeds from the sale of assets     6       3  
Net cash used in investing activities from continuing operations     (2 )     (4 )
Financing activities
Dividends paid (20 ) (20 )
Common stock repurchased — (24 )
Proceeds from the exercise of stock options 12 12
Transfer from Vectrus, net — 3
Other, net     1       5  
Net cash used in financing activities from continuing operations     (7 )     (24 )
Exchange rate effects on cash and cash equivalents (5 ) —
Net cash used in discontinued operations     —       (50 )
Net change in cash and cash equivalents (31 ) (186 )
Cash and cash equivalents – beginning of year     510       459  
Cash and cash equivalents – end of period   $ 479     $ 273  


Contact:

Exelis
Investors
Katy Herr, 703-790-6376
Email Contact
or
Media
David Albritton, 703-790-6320
Email Contact