UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM 8-K
CURRENT
REPORT
Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported):
August
1, 2014
EXELIS INC.
(Exact
name of registrant as specified in its charter)
Indiana
|
|
001-35228
|
|
45-2083813
|
(State or other jurisdiction
of incorporation)
|
|
(Commission
File Number)
|
|
(IRS Employer
Identification No.)
|
1650 Tysons Boulevard, Suite 1700 McLean, Virginia
|
|
22102
|
(Address of principal executive offices)
|
|
(Zip Code)
|
(703) 790-6300
(Registrant’s
telephone number, including area code)
NOT APPLICABLE
(Former
name or former address, if changed since last report)
Check the
appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any
of the following provisions (see General Instruction A.2. below):
⃞
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
⃞
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
⃞
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
⃞
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
TABLE OF CONTENTS
|
|
ITEM 2.02 Results of Operations and Financial Condition
|
3
|
|
|
ITEM 7.01 Regulation FD Disclosure
|
3
|
|
|
ITEM 9.01 Financial Statements and Exhibits
|
4
|
|
|
SIGNATURE
|
5
|
ITEM 2.02 Results of Operations and Financial Condition.
Attached hereto as Exhibit 99.1 and incorporated by reference herein is
a press release issued by Exelis Inc. (the “Company”) on August 1, 2014
that includes financial information for the Company for the second
quarter of 2014, and updated fiscal 2014 guidance. This information
shall not be deemed filed for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) or incorporated by
reference into any filing under the Securities Act of 1933, as amended
(the “Securities Act”), or the Exchange Act, except as shall be
expressly set forth by specific reference in such filing.
ITEM 7.01 Regulation FD Disclosure.
Mr. David Melcher, Chief Executive Officer and President, and Mr. Peter
Milligan, Senior Vice President and Chief Financial Officer, will
present financial information for the Company for the second quarter of
2014, and updated fiscal 2014 guidance on August 1, 2014. A copy of the
presentation is attached hereto and incorporated by reference herein as
Exhibit 99.2. This information is furnished pursuant to Item 7.01
Regulation FD Disclosure and shall not be deemed filed for purposes of
Section 18 of the Exchange Act or incorporated by reference into any
filing under the Securities Act or the Exchange Act, except as shall be
expressly set forth by specific reference in such filing.
ITEM 9.01 Financial Statements and
Exhibits
(d) Exhibits.
|
|
|
Exhibit
|
|
No.
|
|
Description
|
99.1
|
|
Press Release of Exelis Inc. dated August 1, 2014
|
99.2
|
|
Presentation slides issued by Exelis Inc. on August 1, 2014
|
SIGNATURES
Pursuant to
the requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
|
|
EXELIS INC.
|
|
|
|
|
|
Date:
|
August 1, 2014
|
By:
|
/s/ Kathleen S. Stolar
|
|
|
|
|
Kathleen S. Stolar
|
|
|
|
|
|
|
|
|
Its:
|
Assistant Secretary
|
|
|
|
|
(Authorized Officer of Registrant)
|
|
Exhibit 99.1
Exelis
reports second-quarter 2014 financial results
-
$1.2
billion in funded orders in the quarter and funded backlog increase of
17 percent over the second quarter of 2013
-
C4ISR
segment operating income up 50 percent from the second quarter of
2013; up 60 percent excluding spin-off-related items
-
Mission
Systems spin-off progressing toward completion in late summer/early
fall 2014
MCLEAN, Va.--(BUSINESS WIRE)--August 1, 2014--Exelis (NYSE: XLS)
reported financial results for the second quarter of 2014.
Second-quarter revenue was $1.1 billion, an 11 percent decrease from the
second quarter of 2013, and second-quarter earnings were $61 million, or
$0.32 per share, a 22 percent decrease from the second quarter of 2013.
Adjusted earnings, which exclude costs related to the pending spin-off
of the current Exelis Mission Systems business into an independent
company that will be known as Vectrus, were $0.34 per share, a 17
percent decrease from the same period in 2013. Exelis generated $174
million in free cash flow during the quarter and returned $49 million to
shareholders via dividends and share buybacks.
The company secured $1.2 billion in funded orders during the second
quarter of 2014, including significant new business in several of its
strategic growth platforms, along with orders from a variety of
international customers. Key contract announcements in the quarter
included:
-
A contract awarded by NASA worth up to $208 million to build a
satellite payload that will improve scientific understanding of
climate change
-
Securing positions on the EAGLE and OASIS IDIQ contract vehicles
-
A $25 million contract to deliver five additional infrared sensing
systems for use on the Gorgon Stare program
-
Contract awards from NATO, the U.S. Army and General Dynamics – U.K.
for communication equipment and support
-
A multimillion dollar contract award from Airbus to supply composite
floor beam struts for the A380 aircraft
“New business, which included contracts in several of our strategic
growth platforms, remained strong in the second quarter and we continue
to work toward the spin-off of Mission Systems, which we expect to
complete later this summer or early fall,” said Exelis CEO and President
David F. Melcher. "While encouraged by our business performance, we
continue to see significant contraction in our Afghanistan programs, and
as a result, we are adjusting our full-year expectations to account for
this trend."
Segment Results
C4ISR Electronics and Systems
C4ISR Electronics and Systems second-quarter 2014 revenue was $523
million, up one percent from the same period in 2013 due to sales of
airborne electronic warfare equipment and counter-IED jammer products,
partially offset by volume declines in domestic tactical radios. Segment
adjusted operating income for the quarter was $64 million, an increase
of 60 percent from the second quarter of 2013, due to improved revenue
mix and lower restructuring and pension expenses.
Information and Technical Services
Information and Technical Services second-quarter 2014 revenue was $594
million, a decrease of 19 percent from the same period in 2013, driven
by lower customer activity on U.S. government contracts in Afghanistan,
partially offset by an increase in professional and engineering services
programs. Second-quarter adjusted operating income for the segment was
$47 million, down 46 percent from the same period in 2013, primarily due
to favorable contract modifications in 2013.
Mission Systems Spin-off
The company continues to progress through regulatory and legal
requirements for the scheduled spin-off of its current Mission Systems
business into an independent, publicly traded company that will be known
as Vectrus. The most current public information on the Mission Systems
spin-off can be found at www.exelisinc.com/transformation.
2014 Guidance
|
|
|
|
Sales
|
|
|
≈$4.45 billion
|
Adjusted Operating Margin
|
|
|
≈10.5%
|
Adjusted Earnings Per Share
|
|
|
$1.44 - $1.50
|
Free Cash Flow
|
|
|
≈$200 million
|
|
|
|
|
Exelis is adjusting its 2014 financial guidance due to further
contraction in Afghanistan programs. Financial guidance includes
approximately $15 million of projected restructuring expense and
excludes approximately $25 million of expenses related to the planned
spin-off of Mission Systems. 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 2014 results
and guidance, and answer questions. The briefing can be monitored live
via webcast at the following address on the company's website: http://investors.exelisinc.com.
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
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, Va., Exelis employs about
17,000 people and generated 2013 sales of $4.8 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 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:
-
The timing and completion of the tax-free spin-off described in this
document;
-
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, 2013, and
those described from time to time in our future reports filed with the
Securities and Exchange Commission.
|
|
|
|
|
|
|
|
|
|
|
|
|
EXELIS INC.
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
Product revenue
|
|
$
|
523
|
|
$
|
518
|
|
$
|
1,003
|
|
$
|
1,017
|
Service revenue
|
|
|
594
|
|
|
733
|
|
|
1,159
|
|
|
1,419
|
Total revenue
|
|
|
1,117
|
|
|
1,251
|
|
|
2,162
|
|
|
2,436
|
Costs of product revenue
|
|
|
378
|
|
|
380
|
|
|
732
|
|
|
737
|
Costs of service revenue
|
|
|
505
|
|
|
594
|
|
|
979
|
|
|
1,171
|
Selling, general and administrative expenses
|
|
|
114
|
|
|
122
|
|
|
227
|
|
|
237
|
Research and development expenses
|
|
|
15
|
|
|
15
|
|
|
25
|
|
|
28
|
Restructuring and asset impairment charges
|
|
|
2
|
|
|
13
|
|
|
7
|
|
|
62
|
Operating income
|
|
|
103
|
|
|
127
|
|
|
192
|
|
|
201
|
Interest expense, net
|
|
|
9
|
|
|
10
|
|
|
18
|
|
|
18
|
Other (income) expense, net
|
|
|
(2)
|
|
|
(3)
|
|
|
(4)
|
|
|
(1)
|
Income from continuing operations before income tax expense
|
|
|
96
|
|
|
120
|
|
|
178
|
|
|
184
|
Income tax expense
|
|
|
35
|
|
|
42
|
|
|
65
|
|
|
62
|
Net income
|
|
$
|
61
|
|
$
|
78
|
|
$
|
113
|
|
$
|
122
|
Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.32
|
|
$
|
0.41
|
|
$
|
0.60
|
|
$
|
0.65
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.32
|
|
$
|
0.41
|
|
$
|
0.58
|
|
$
|
0.64
|
Weighted average common shares outstanding – basic
|
|
|
189.0
|
|
|
188.2
|
|
|
189.3
|
|
|
188.2
|
Weighted average common shares outstanding – diluted
|
|
|
193.6
|
|
|
190.5
|
|
|
194.2
|
|
|
190.2
|
Cash dividends declared per common share
|
|
$
|
0.10
|
|
$
|
0.10
|
|
$
|
0.21
|
|
$
|
0.21
|
|
|
|
|
|
|
|
EXELIS INC.
|
CONSOLIDATED BALANCE SHEETS
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(IN MILLIONS)
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
Assets
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
394
|
|
$
|
469
|
Receivables, net
|
|
|
964
|
|
|
939
|
Inventories, net
|
|
|
259
|
|
|
246
|
Deferred tax asset
|
|
|
18
|
|
|
16
|
Other current assets
|
|
|
50
|
|
|
70
|
Total current assets
|
|
|
1,685
|
|
|
1,740
|
Plant, property and equipment, net
|
|
|
460
|
|
|
498
|
Goodwill
|
|
|
2,190
|
|
|
2,184
|
Other intangible assets, net
|
|
|
157
|
|
|
167
|
Deferred tax asset
|
|
|
183
|
|
|
216
|
Other non-current assets
|
|
|
93
|
|
|
79
|
Total non-current assets
|
|
|
3,083
|
|
|
3,144
|
Total assets
|
|
$
|
4,768
|
|
$
|
4,884
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
348
|
|
$
|
367
|
Advance payments and billings in excess of costs
|
|
|
272
|
|
|
301
|
Compensation and other employee benefits
|
|
|
196
|
|
|
216
|
Other accrued liabilities
|
|
|
143
|
|
|
160
|
Total current liabilities
|
|
|
959
|
|
|
1,044
|
Defined benefit plans
|
|
|
1,312
|
|
|
1,407
|
Long-term debt
|
|
|
649
|
|
|
649
|
Deferred tax liability
|
|
|
3
|
|
|
2
|
Other non-current liabilities
|
|
|
113
|
|
|
130
|
Total non-current liabilities
|
|
|
2,077
|
|
|
2,188
|
Total liabilities
|
|
|
3,036
|
|
|
3,232
|
Commitments and contingencies
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
|
|
Common stock
|
|
|
2
|
|
|
2
|
Additional paid-in capital
|
|
|
2,651
|
|
|
2,623
|
Treasury stock
|
|
|
(69)
|
|
|
(16)
|
Retained earnings
|
|
|
548
|
|
|
475
|
Accumulated other comprehensive loss
|
|
|
(1,400)
|
|
|
(1,432)
|
Total shareholders' equity
|
|
|
1,732
|
|
|
1,652
|
Total liabilities and shareholders' equity
|
|
$
|
4,768
|
|
$
|
4,884
|
|
|
|
|
|
|
|
EXELIS INC.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(IN MILLIONS)
|
|
Six Months Ended June 30,
|
|
|
2014
|
|
2013
|
Operating activities
|
|
|
|
|
|
|
Net income
|
|
$
|
113
|
|
$
|
122
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
55
|
|
|
56
|
Stock-based compensation
|
|
|
14
|
|
|
16
|
Restructuring and asset impairment charges
|
|
|
7
|
|
|
62
|
Payments for restructuring
|
|
|
(18)
|
|
|
(23)
|
Defined benefit plans expense
|
|
|
34
|
|
|
48
|
Defined benefit plans payments
|
|
|
(84)
|
|
|
(75)
|
Change in assets and liabilities
|
|
|
|
|
|
|
Change in receivables
|
|
|
(25)
|
|
|
(45)
|
Change in inventories
|
|
|
(13)
|
|
|
(13)
|
Change in other assets
|
|
|
18
|
|
|
(3)
|
Change in accounts payable
|
|
|
(19)
|
|
|
(76)
|
Change in advance payments and billings in excess of costs
|
|
|
(29)
|
|
|
6
|
Change in deferred taxes
|
|
|
14
|
|
|
7
|
Change in other liabilities
|
|
|
(43)
|
|
|
(39)
|
Other, net
|
|
|
(2)
|
|
|
1
|
Net cash provided by operating activities
|
|
|
22
|
|
|
44
|
Investing activities
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(18)
|
|
|
(36)
|
Proceeds from the sale of assets
|
|
|
3
|
|
|
9
|
Acquisitions, net of cash acquired
|
|
|
(6)
|
|
|
(16)
|
Other, net
|
|
|
―
|
|
|
(1)
|
Net cash used in investing activities
|
|
|
(21)
|
|
|
(44)
|
Financing activities
|
|
|
|
|
|
|
Dividends paid
|
|
|
(40)
|
|
|
(19)
|
Common stock repurchased
|
|
|
(53)
|
|
|
(5)
|
Proceeds from exercise of stock options
|
|
|
15
|
|
|
3
|
Other, net
|
|
|
(2)
|
|
|
(3)
|
Net cash used in financing activities
|
|
|
(80)
|
|
|
(24)
|
Exchange rate effects on cash and cash equivalents
|
|
|
4
|
|
|
(9)
|
Net change in cash and cash equivalents
|
|
|
(75)
|
|
|
(33)
|
Cash and cash equivalents – beginning of year
|
|
|
469
|
|
|
292
|
Cash and cash equivalents – end of period
|
|
$
|
394
|
|
$
|
259
|
|
|
|
|
|
|
|
Key Performance Indicators and Non-GAAP Financial 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 revenue, 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 provided by
operating activities, less capital expenditures plus separation costs
related to the spin-off of Mission Systems. This metric does not include
dividend payments.
|
Exelis Inc.
|
Non-GAAP Financial Measures - Adjusted Net Income & Adjusted EPS
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
($ million, except per share)
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Net Income
|
|
61
|
|
78
|
|
113
|
|
122
|
|
|
|
|
|
|
|
|
|
Separation Costs for the Mission Systems Spin-off, net of tax
|
|
5
|
|
-
|
|
10
|
|
-
|
Adjusted Net Income
|
|
66
|
|
78
|
|
123
|
|
122
|
|
|
|
|
|
|
|
|
|
Net Income per fully diluted share
|
|
$0.32
|
|
$0.41
|
|
$0.58
|
|
$0.64
|
Adjusted Net Income per fully diluted share
|
|
$0.34
|
|
$0.41
|
|
$0.63
|
|
$0.64
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding, Diluted
|
|
193.6
|
|
190.5
|
|
194.2
|
|
190.2
|
|
|
|
|
|
|
|
|
|
Exelis Inc.
|
Non-GAAP Financial Measures - Adjusted Segment Operating Income &
Operating Margin
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
($ million)
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Sales
|
|
1,117
|
|
1,251
|
|
2,162
|
|
2,436
|
C4ISR
|
|
523
|
|
518
|
|
1,003
|
|
1,017
|
I&TS
|
|
594
|
|
733
|
|
1,159
|
|
1,419
|
|
|
|
|
|
|
|
|
|
Segment Operating Income, As Reported
|
|
103
|
|
127
|
|
192
|
|
201
|
C4ISR
|
|
60
|
|
40
|
|
103
|
|
59
|
I&TS
|
|
43
|
|
87
|
|
89
|
|
142
|
|
|
|
|
|
|
|
|
|
Separation Costs for the Mission Systems Spin-off, pre tax
|
|
8
|
|
-
|
|
15
|
|
-
|
C4ISR
|
|
4
|
|
-
|
|
8
|
|
-
|
I&TS
|
|
4
|
|
-
|
|
7
|
|
-
|
|
|
|
|
|
|
|
|
|
Segment Operating Income, Adjusted
|
|
111
|
|
127
|
|
207
|
|
201
|
C4ISR
|
|
64
|
|
40
|
|
111
|
|
59
|
I&TS
|
|
47
|
|
87
|
|
96
|
|
142
|
|
|
|
|
|
|
|
|
|
Segment Operating Margin, As Reported
|
|
|
|
|
|
|
|
|
C4ISR
|
|
11.5%
|
|
7.7%
|
|
10.3%
|
|
5.8%
|
I&TS
|
|
7.2%
|
|
11.9%
|
|
7.7%
|
|
10.0%
|
|
|
|
|
|
|
|
|
|
Segment Operating Margin, Adjusted
|
|
|
|
|
|
|
|
|
C4ISR
|
|
12.2%
|
|
7.7%
|
|
11.1%
|
|
5.8%
|
I&TS
|
|
7.9%
|
|
11.9%
|
|
8.3%
|
|
10.0%
|
|
|
|
|
|
|
|
|
|
Operating Margin, As Reported
|
|
9.2%
|
|
10.2%
|
|
8.9%
|
|
8.3%
|
Operating Margin, Adjusted
|
|
9.9%
|
|
10.2%
|
|
9.6%
|
|
8.3%
|
|
|
|
|
|
Exelis Inc.
|
Free Cash Flow Year-to-Date
|
|
|
|
|
|
|
|
Six Months Ending
|
|
Six Months Ending
|
|
|
June 30,
|
|
June 30,
|
($ million)
|
|
2014
|
|
2013
|
Cash Flow From Operating Activities
|
|
22
|
|
44
|
|
|
|
|
|
Subtract:
|
|
|
|
|
Capital Expenditures
|
|
(18)
|
|
(36)
|
Free Cash Flow
|
|
4
|
|
8
|
|
|
|
|
|
Add:
|
|
|
|
|
Separation Costs for the Mission Systems Spin-off, net of tax
|
|
10
|
|
-
|
Free Cash Flow, as Adjusted
|
|
14
|
|
8
|
|
|
|
|
|
|
|
Exelis Inc.
|
Free Cash Flow Quarter-to-Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ending
|
|
Six Months Ending
|
|
Three Months Ending
|
|
|
June 30,
|
|
June 30,
|
|
March 31,
|
($ million)
|
|
2014
|
|
2014
|
|
2014
|
Cash Flow From Operating Activities
|
|
180
|
|
22
|
|
(158)
|
|
|
|
|
|
|
|
Subtract:
|
|
|
|
|
|
|
Capital Expenditures
|
|
(11)
|
|
(18)
|
|
(7)
|
Free Cash Flow
|
|
169
|
|
4
|
|
(165)
|
|
|
|
|
|
|
|
Add:
|
|
|
|
|
|
|
Separation Costs for the Mission Systems Spin-off, net of tax
|
|
5
|
|
10
|
|
5
|
Free Cash Flow, as Adjusted
|
|
174
|
|
14
|
|
(160)
|
CONTACT:
Exelis
Investors
Katy Herr, 703-790-6376
Katy.Herr@exelisinc.com
or
Media
B.J.
Talley, 703-790-6349
William.Talley@exelisinc.com
Exhibit 99.2
Second Quarter 2014Earnings
Presentation David Melcher Chief Executive Officer and President Peter
Milligan Senior Vice President and Chief Financial Officer August 1, 2014
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 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 bylaw. 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: The forward-looking statements in this presentation 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, 2013, and
those described from time to time in our future reports filed with the
Securities and Exchange Commission. The timing and completion of the
tax-free spin-off described in this presentation; 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; Unanticipated changes in our tax provisions or exposure to
additional income tax liabilities; and Ability to execute our internal
performance plans including restructuring, productivity improvements and
cost reduction initiatives.
Q2 2014 Financial Results
Q2 2014 Results Consolidated Ex. Mission Systems $ millions, except per
share amounts 2014 vs. 2013(1)vs. 2013(4)Funded Orders$ 1,168
-16%-21%Revenue$ 1,117-11%-3%Adj.Operating Income (2) $ 111 -13% +31%
Adj. Operating Margin (2) 9.9% -30 bps +330 bps Adj. EPS (2) $ 0.34 -17%
Year-to-Date Free Cash Flow (FCF)(3)$ 14 +75% (1)Second quarter 2013
results are as reported, including $13M of restructuring expense.
(2)2014 adjusted operating income, operating margin and EPS excludes
separation charges related to the pending spin-off of Mission
Systems.(3)Free Cash Flow = Net Cash Provided by Operating Activities
less Capital Expenditures plus separation costs related to the Mission
Systems spin-off. (4)Based on exclusion of the Mission Systems division
results in Q2 2014 and Q2 2013.For Non-GAAP reconciliations, refer to
appendix and www.exelisinc.com/investors Funded backlog increased 17%
from Q2’13 C4ISR adjusted operating income up 60% y/y Generated $174M in
Free Cash Flow during the quarter Stabilizing revenue and profitability
trends ex-Mission Systems
Q2 2014 Backlog & Business
Environment International orders +14% YTD Q2 strategic announcements
Airbus A380 floor beam struts Climate monitoring satellite payload for
NASA Positions on key federal IDIQ contract vehicles, EAGLE II and OASIS
Communications awards with the U.S. Army, NATO and General Dynamics –UK
Decelerating operational tempo on Middle East and Afghanistan programs
Decline in Mission Systems unfunded backlog drives > 75% of total
backlog change $3.4 $9.0 $9.4 $3.4 $1.1 $2.3 $6.3 $3.1 $5.8 $3.2 C4ISR
I&TS
Mission Systems Spin-off
Update Q2’14 Financial Performance Continued contraction in Afghanistan
programs driving top-line and bottom-line pressure2014E revenue ≈ -20
-25% from 2013 2014E pro forma operating margin ≈ 4.0 –4.5% $9.0B+ in
new business/recompete pipeline over the next 36 months Continue to
progress through regulatory and legal requirements Spin-off on track for
completion late summer/early fall 2014
+450 bps Adjusted Operating
Margin (2) Improved revenue mix Lower restructuring and pension expenses
-25% Funded Orders Satellite payloads; Radar systems Domestic airborne
EW timing +1% Revenue Domestic airborne EW; Ground CIED; TM-NVG Domestic
tactical radios C4ISR Segment (1) Second quarter 2013 results are as
reported, including $10M of restructuring expense in the C4ISR
segment. (2) 2014 adjusted operating income, operating margin and EPS
excludes separation charges related to the pending spin-off of Mission
Systems. For Non-GAAP reconciliations, refer to appendix and
www.exelisinc.com/investors Q2 2014 Results $ millions, except per share
amounts 2014vs. 2013 (1) Funded Orders $ 515 -25% Revenue $ 523 +1%
Adj. Operating Income (2) $ 64 +60% Adj.Operating Margin (2) 12.2% +450
bps Year-to-date book-to-bill 1.2x
-400 bps Adjusted Operating
Margin (2)Significant favorable contract modifications in 2013 -7%
Funded Orders Professional engineering services Air traffic management
programs; Space Ground and Range programs -19% Revenue FAA programs
Afghanistan programs I&TS Segment (1) Second quarter 2013 results are as
reported, including $3M of restructuring expense in the I&TS segment.
(2) 2014 adjusted operating income, operating margin and EPS excludes
separation charges related to the pending spin-off of Mission Systems.
(3) Based on exclusion of the Mission Systems division results in Q2
2014. and Q1 2014.For Non-GAAP reconciliations, refer to appendix and
www.exelisinc.com/investors Q2 2014 Results $ millions, except per share
amounts 2014vs. 2013 (1) Funded Orders $ 653 -7% Revenue $ 594 19% Adj.
Operating Income(2) $ 47 -46% Adj. Operating Margin (2) 7.9% (400) bps
Ex-Mission Systems Year-to-Date Book-to-Bill > 1.0x (3)
Revised 2014 Guidance
Revised 2014 Guidance Midpoint vs. Adj. 2013 Revenue ≈ 4,450 C4ISR
revenues flat to up low-single digit Contraction in Afghanistan ≈ -7.5%
Ex-Mission Systems down low-single digit (2) Adjusted Operating Margin
(1) ≈ 10.5% C4ISR benefit from lower restructuring expense and improved
cost structure I&TS margins return to historical levels ≈ +50 bps
Ex-Mission Systems + ≈ 200 bps y/y (2) Adjusted EPS (3) $1.44 –1.50 ≈
-2.0% Restructuring Activities ≈ $15 Separation Expenses Related to
Mission Systems Spin-off ≈ $25 Free Cash Flow (4) ≈ $200 $ millions,
except per share amounts (1) 2013 Adjusted Operating Income/Margin
excludes charges related to the pending spin-off of Mission Systems and
a tax accrual related to a pending settlement between the IRS and ITT
Corporation, the former parent of Exelis. 2014 Adjusted Operating
Income/Margin/EPS excludes charges related to the pending spin-off of
Mission Systems. (2) Based on exclusion of the Mission Systems division
results in 2014E and 2013. (3) Adjusted EPS = GAAP EPS, excluding 2013
and 2014 charges as outlined in Note (1). (4) Free Cash Flow = Net Cash
Provided by Operating Activities less Capital Expenditures plus
separation costs related to the Mission Systems spin-off. For Non-GAAP
reconciliations, refer to appendix and www.exelisinc.com/investors
Post-spin Exelis portfolio positioned to deliver improved margins and
opportunities for long-term growth
Appendix
Reconciliation of 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 revenue, 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. ($ million, except per share)Q2 2014Q2 2013Q2 2014 YTDQ2
2013 YTD Net Income 61 78 113 122 Separation Costs for the Mission
Systems Spin-off, net of tax 5 - 10 - Adjusted Net Income 66 78 123 122
Net Income per fully diluted share $0.32 $0.41 $0.58 $0.64 Adjusted Net
Income per fully diluted share $0.34 $0.41 $0.63 $0.64 Weighted Average
Shares Outstanding, Diluted 193.6 190.5 194.2 190.2
Reconciliation of Non-GAAP
Measures (cont.) “segment adjusted operating income” defined as
operating income of our two segments, adjusted to exclude items that
include, but are not limited to, significant charges or credits that
impact current results, but are not related to our ongoing operations,
unusual and infrequent non-operating items and non-operating tax
settlements or adjustments. A reconciliation of segment operating income
is provided below. “segment adjusted operating margin” defined as
segment adjusted operating income as defined above, divided by revenue.
A reconciliation of segment operating margin is provided below.($
million)Q2 2014Q2 2013Q2 2014 YTDQ2 2013 YTD Sales 1,117 1,251 2,162
2,436 C4ISR 523 518 1,003 1,017 I&TS 594 733 1,159 1,419 Segment
Operating Income, As Reported 103 127 192 201 C4ISR 60 40 103 59 I&TS 43
87 89 142 Separation Costs for the Mission Systems Spin-off, pre tax8 -
15 - C4ISR 4 - 8 - I&TS 4 - 7 - Segment Operating Income, Adjusted 111
127 207 201 C4ISR 64 40 111 59 I&TS 47 87 96 142 Segment Operating
Margin, As Reported C4ISR 11.5 %7.7 %10.3 %5.8 % I&TS 7.2% 11.9% 7.7%
10.0% Segment Operating Margin, Adjusted 9.9% 10.2% 9.6% 8.3% C4ISR
12.2% 7.7% 11.1% 5.8% I&TS 7.9% 11.9% 8.3% 10.0% Operating Margin, As
Reported 9.2% 10.2% 8.9% 8.3% Operating Margin, Adjusted 9.9% 10.2% 9.6%
8.3%
Reconciliation of Non-GAAP
Measures (cont.) “Free cash flow” defined as GAAP cash provided by
operating activities, less capital expenditures plus separation costs
related to the spin-off of Mission Systems. This metric does not include
dividend payments. Year-to-Date Free Cash Flow Reconciliation Q2 YTD
2014 Q2 YTD 2013 ($ million) Cash Flow From Operating Activities 22 44
Subtract: Capital Expenditures (18) (36) Free Cash Flow 4 8 Add:
Separation Costs for the Mission Systems Spin-off, net of tax10 - Free
Cash Flow, as Adjusted 14 8
Reconciliation of Non-GAAP
Measures (cont.) “Free cash flow” defined as GAAP cash provided by
operating activities, less capital expenditures plus separation costs
related to the spin-off of Mission Systems. This metric does not include
dividend payments. Quarter-to-Date Free Cash Flow Reconciliation Q2 QTD
2014 Q2 YTD 2014 Q1 YTD 2014 ($ million) Cash Flow From Operating
Activities 180 22 (158) Subtract: Capital Expenditures (11) (18) (7)
Free Cash Flow169 4 (165) Add: Separation Costs for the Mission Systems
Spin-off, net of tax 5 10 5 Free Cash Flow, as Adjusted 174 14 (160)