MCLEAN, Va.--(BUSINESS WIRE)--Exelis (NYSE: XLS) today reported third-quarter 2013 revenue of $1.1 billion, compared to $1.4 billion in the third quarter of 2012. Operating income was $133 million and net income was $0.41 per diluted share, compared to $143 million and $0.47 per diluted share during the same period in 2012. Orders received in the third quarter of 2013 totaled $2 billion, a 48 percent improvement from the third quarter of 2012. Orders benefited from significant funded orders for Middle East region programs in the Information and Technical Services segment.
Highlights from the quarter include announced awards of more than $140 million in communication systems and night vision equipment for international customers and low rate initial production orders totaling $60 million for carriage and release systems for the F-35 Lightning II. Also announced during the quarter was the delivery of an integrated, super-spectral payload to DigitalGlobe for the WorldView-3 satellite.
“During the third quarter, we demonstrated success in utilizing our installed base to drive strategic new orders,” said Exelis CEO and President David F. Melcher. “In spite of complex economic pressures, our customers continue to value our ability to deliver mission critical and affordable products and services. We continue to proactively align our business to the dynamic market environment and enable future investment in our strategic growth platforms.”
Segment Results
C4ISR Electronics and Systems
C4ISR Electronics and Systems third-quarter 2013 revenue was $498 million, compared to $611 million during the same period in 2012, mainly due to decreased domestic sales of counter-IED products and legacy night vision equipment, partially offset by sales of Spiral Enhanced Night Vision Goggles and classified programs. Segment operating income for the quarter was $69 million, versus $84 million for the third quarter of 2012, primarily driven by volume declines and increased pension expense partially offset by cost cutting initiatives.
Information and Technical Services
Information and Technical Services third-quarter 2013 revenue was $643 million, compared to $750 million in the third quarter of 2012, primarily due to decreased activity on Afghanistan contracts, partially offset by increased activity in Federal Aviation Administration programs. Segment operating income for the quarter was $64 million, compared to $59 million for the same period in 2012, driven by contract productivity improvements and strong contract performance resulting in higher award fees.
2013 Guidance
Exelis also updated its previously published guidance for 2013 revenue and operating margin.
| Current Update | August 2013 Guidance | |||||||
| Revenue | $4.9 billion - $5.0 billion |
$5.0 billion - $5.1 billion
Low end |
||||||
| Operating Margin | High end of range | 9.4% - 9.8% | ||||||
| Earnings Per Share | No change | $1.45 - $1.55 | ||||||
| Free Cash Flow | No change | > $225 million | ||||||
The company’s 2013 financial guidance includes approximately $85 million of projected restructuring expense. FAS pension expense for the year is projected in the range of $80 million to $90 million, at the midpoint, an increase of approximately $53 million from the prior year. The company anticipates generating free cash flow in excess of $225 million after making pension contributions of approximately $146 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.
Transition of the Exelis Brand
Effective today, the company also formally removed the “ITT” from its name and will be branded as “Exelis” going forward. Exelis has used the “ITT” name alongside “Exelis” as part of its branding strategy since October 31, 2011, under a licensing agreement with ITT Corporation.
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 2013 financial results and 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 Exelis
Exelis is a diversified, top-tier global aerospace, defense, information and 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 timing and navigation, sensors, air traffic solutions, image processing and distribution, communications and information systems, logistics and technical services; and we are focused on strategic growth in the areas of critical networks, ISR and analytics, electronic warfare and composite aerostructures. Headquartered in McLean, Va., Exelis employs about 19,000 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;
- Our ability to execute our internal performance plans including restructuring, productivity improvements and cost reduction initiatives;
- Unanticipated changes in our tax provisions or exposure to additional income tax liabilities; and
- Ability to execute our internal performance plans, including restructuring, productivity and cost-reduction initiatives.
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. | |||||||||||||||||
| Condensed Consolidated Statements of Operations | |||||||||||||||||
| (unaudited) | |||||||||||||||||
| (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2013 | 2012 | 2013 | 2012 | ||||||||||||||
| Product revenue | $ | 498 | $ | 611 | $ | 1,515 | $ | 1,884 | |||||||||
| Service revenue | 643 | 750 | 2,062 | 2,277 | |||||||||||||
| Total revenue | 1,141 | 1,361 | 3,577 | 4,161 | |||||||||||||
| Cost of product revenue | 354 | 434 | 1,091 | 1,328 | |||||||||||||
| Cost of service revenue | 537 | 649 | 1,708 | 1,977 | |||||||||||||
| Selling, general and administrative expenses | 100 | 114 | 337 | 377 | |||||||||||||
| Research and development expenses | 11 | 18 | 39 | 48 | |||||||||||||
| Restructuring and asset impairment charges, net | 6 | 3 | 68 | 5 | |||||||||||||
| Operating income | 133 | 143 | 334 | 426 | |||||||||||||
|
Interest expense, net |
10 | 9 | 28 | 29 | |||||||||||||
| Other expense (income), net | 3 | (4 | ) | 2 | 3 | ||||||||||||
| Income from continuing operations before income tax expense | 120 | 138 | 304 | 394 | |||||||||||||
| Income tax expense | 40 | 50 | 102 | 150 | |||||||||||||
| Net income | $ | 80 | $ | 88 | $ | 202 | $ | 244 | |||||||||
| Earnings Per Share | |||||||||||||||||
| Basic | |||||||||||||||||
| Net income | $ | 0.42 | $ | 0.47 | $ | 1.07 | $ | 1.30 | |||||||||
| Diluted | |||||||||||||||||
| Net income | $ | 0.41 | $ | 0.47 | $ | 1.06 | $ | 1.30 | |||||||||
| Weighted average common shares outstanding – basic | 188.5 | 187.6 | 188.3 | 187.3 | |||||||||||||
| Weighted average common shares outstanding – diluted | 192.8 | 188.7 | 191.0 | 188.3 | |||||||||||||
| Cash dividends declared per common share | $ | 0.10 | $ | 0.10 | $ | 0.31 | $ | 0.31 | |||||||||
| Exelis Inc. | ||||||||||
| Condensed Consolidated Balance Sheets | ||||||||||
| (unaudited) | ||||||||||
| (IN MILLIONS) | September 30, | December 31, | ||||||||
| 2013 | 2012 | |||||||||
| Assets | ||||||||||
| Current assets | ||||||||||
| Cash and cash equivalents | $ | 309 | $ | 292 | ||||||
| Receivables, net | 1,012 | 995 | ||||||||
| Inventories, net | 288 | 283 | ||||||||
| Deferred tax asset | 29 | 85 | ||||||||
| Other current assets | 56 | 58 | ||||||||
| Total current assets | 1,694 | 1,713 | ||||||||
| Plant, property and equipment, net | 500 | 512 | ||||||||
| Goodwill | 2,184 | 2,180 | ||||||||
| Other intangible assets, net | 173 | 184 | ||||||||
| Deferred tax asset | 471 | 556 | ||||||||
| Other non-current assets | 71 | 67 | ||||||||
| Total non-current assets | 3,399 | 3,499 | ||||||||
| Total assets | $ | 5,093 | $ | 5,212 | ||||||
| Liabilities and Shareholders' Equity | ||||||||||
| Current liabilities | ||||||||||
| Accounts payable | $ | 351 | $ | 444 | ||||||
| Advance payments and billings in excess of costs | 335 | 322 | ||||||||
| Compensation and other employee benefits | 192 | 246 | ||||||||
| Other accrued liabilities | 229 | 203 | ||||||||
| Total current liabilities | 1,107 | 1,215 | ||||||||
| Defined benefit plans | 1,858 | 2,203 | ||||||||
| Long-term debt | 649 | 649 | ||||||||
| Deferred tax liability | 3 | 1 | ||||||||
| Other non-current liabilities | 129 | 128 | ||||||||
| Total non-current liabilities | 2,639 | 2,981 | ||||||||
| Total liabilities | 3,746 | 4,196 | ||||||||
| Commitments and contingencies (Note 15) | ||||||||||
| Shareholders' equity | ||||||||||
| Common stock | 2 | 2 | ||||||||
| Additional paid-in capital | 2,602 | 2,575 | ||||||||
| Treasury stock | (5 | ) | — | |||||||
| Retained earnings | 416 | 274 | ||||||||
| Accumulated other comprehensive loss | (1,668 | ) | (1,835 | ) | ||||||
| Total shareholders' equity | 1,347 | 1,016 | ||||||||
| Total liabilities and shareholders' equity | $ | 5,093 | $ | 5,212 | ||||||
| Exelis Inc. | ||||||||||
| Condensed Consolidated Statements of Cash Flows | ||||||||||
| (unaudited) | ||||||||||
| (IN MILLIONS) | Nine Months Ended September 30, | |||||||||
| 2013 | 2012 | |||||||||
| Operating activities | ||||||||||
| Net income | $ | 202 | $ | 244 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
| Depreciation and amortization | 85 | 97 | ||||||||
| Stock-based compensation | 25 | 18 | ||||||||
| Restructuring and asset impairment charges, net | 68 | 5 | ||||||||
| Payments for restructuring | (42 | ) | (14 | ) | ||||||
| Defined benefit plans expense | 69 | 36 | ||||||||
| Defined benefit plans payments | (136 | ) | (293 | ) | ||||||
| Change in assets and liabilities | ||||||||||
| Change in receivables | (22 | ) | (40 | ) | ||||||
| Change in inventories | (4 | ) | 29 | |||||||
| Change in other assets | (5 | ) | 1 | |||||||
| Change in accounts payable | (93 | ) | (53 | ) | ||||||
| Change in advance payments and billings in excess of costs | 13 | (14 | ) | |||||||
| Change in deferred taxes | 31 | 147 | ||||||||
| Change in other liabilities | (73 | ) | (66 | ) | ||||||
| Net cash provided by operating activities | 118 | 97 | ||||||||
| Investing activities | ||||||||||
| Capital expenditures | (57 | ) | (86 | ) | ||||||
| Proceeds from the sale of assets | 9 | 2 | ||||||||
| Acquisitions, net of cash acquired | (16 | ) | (42 | ) | ||||||
| Other, net | — | (1 | ) | |||||||
| Net cash used in investing activities | (64 | ) | (127 | ) | ||||||
| Financing activities | ||||||||||
| Proceeds from commercial paper, net | — | 134 | ||||||||
| Dividends paid | (39 | ) | (39 | ) | ||||||
| Common stock repurchased | (5 | ) | — | |||||||
| Proceeds from exercise of stock options | 11 | 14 | ||||||||
| Other, net | (2 | ) | (7 | ) | ||||||
| Net cash (used in) provided by financing activities | (35 | ) | 102 | |||||||
| Exchange rate effects on cash and cash equivalents | (2 | ) | 6 | |||||||
| Net change in cash and cash equivalents | 17 | 78 | ||||||||
| Cash and cash equivalents – beginning of year | 292 | 116 | ||||||||
| Cash and cash equivalents – end of period | $ | 309 | $ | 194 | ||||||
