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Exelis Reports Third-quarter 2012 Financial Results; Maintains 2012 Full-year Outlook

Stocks in this article: XLS

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




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