- $1.5 billion in funded orders in the quarter and funded backlog increase of 15 percent over the second quarter of 2014
- C4ISR segment revenue increases year-over-year for second consecutive quarter
- 2014 full-year guidance revised to reflect successful spin-off of Vectrus
MCLEAN, Va. — (BUSINESS WIRE) — October 31, 2014 — Exelis ( NYSE: XLS) reported financial results for the third quarter of 2014. Third-quarter revenue was $1.1 billion, a six percent decrease from the third quarter of 2013, and third-quarter earnings were $52 million, or $0.27 per diluted share, a 34 percent decrease from the third quarter of 2013. Adjusted earnings, which exclude costs related to the spin-off of Vectrus, were $0.32 per share, a 22 percent decrease from the same period in 2013. Exelis generated $39 million in free cash flow during the quarter.
The company earned $1.5 billion in funded orders during the third quarter of 2014, including new business in its strategic growth platforms. Key announcements during the quarter included:
- Completion of the spin-off of the former Mission Systems business into Vectrus, a separate, publicly traded government services provider;
- A contract to provide advanced military air traffic management capabilities to the Saudi Arabian National Guard;
- An award from the U.S. Army for Generation 3 night vision equipment;
- A follow-on contract from Lockheed Martin for composite missile bodies and structures for the Joint Air-to-Surface Standoff Missile;
- Acquisition of Barco Orthogon, based in Bremen, Germany, which provides applications for air traffic flow management and decision-making to airport operators and air navigation service providers around the world.
“We are encouraged by the developing trend of revenue growth in our C4ISR segment and continue to earn new business in each of our strategic growth platforms, as well as from targeted international and commercial customers,” said Exelis CEO and President David F. Melcher. “Successful completion of the Vectrus spinoff was also a major milestone for us in the third quarter and positions both companies for success in the future.”
Segment Results
C4ISR Electronics and Systems
C4ISR Electronics and Systems third-quarter 2014 revenue was $503 million, up 1 percent from the same period in 2013 due to higher revenue on airborne and shipboard electronic warfare products, partially offset by lower revenue from domestic radios. Segment adjusted operating income for the quarter was $64 million, a decrease of 7 percent from the third quarter of 2013.
Information and Technical Services
Information and Technical Services third-quarter 2014 revenue was $565 million, a decrease of 12 percent from the same period in 2013, driven by lower customer activity in several U.S. government programs in Afghanistan. Third-quarter adjusted operating income for the segment was $47 million, down 27 percent from the same period in 2013, primarily due to lower revenue.
2014 Guidance
Sales | ≈$3.25 billion | ||
Adjusted Operating Margin | ≈12.5% | ||
Adjusted Earnings Per Share | ≈$1.22 | ||
Free Cash Flow | ≈$140 million | ||
Exelis is adjusting its 2014 financial guidance to account for the spin-off of Vectrus, which was completed on September 27, 2014. Financial guidance includes approximately $15 million of projected restructuring expense and excludes approximately $25 million of expenses related to the spin-off of Vectrus. 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. EDT to review third-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, global, aerospace, defense and information solutions 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 approximately 10,000 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, LinkedIn 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:
- 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
|
Nine Months Ended
|
||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Product revenue | $ | 503 | $ | 498 | $ | 1,506 | $ | 1,515 | ||||||||
Service revenue | 565 | 643 | 1,724 | 2,062 | ||||||||||||
Total revenue | 1,068 | 1,141 | 3,230 | 3,577 | ||||||||||||
Cost of product revenue | 356 | 354 | 1,088 | 1,091 | ||||||||||||
Cost of service revenue | 477 | 537 | 1,456 | 1,708 | ||||||||||||
Selling, general and administrative expenses | 117 | 100 | 344 | 337 | ||||||||||||
Research and development expenses | 18 | 11 | 43 | 39 | ||||||||||||
Restructuring and asset impairment charges | 4 | 6 | 11 | 68 | ||||||||||||
Operating income | 96 | 133 | 288 | 334 | ||||||||||||
Interest expense, net | 9 | 10 | 27 | 28 | ||||||||||||
Other (income) expense, net | (1) | 3 | (5) | 2 | ||||||||||||
Income from continuing operations before income tax expense | 88 | 120 | 266 | 304 | ||||||||||||
Income tax expense | 36 | 40 | 101 | 102 | ||||||||||||
Net income | $ | 52 | $ | 80 | $ | 165 | $ | 202 | ||||||||
Earnings Per Share | ||||||||||||||||
Basic | ||||||||||||||||
Net income | $ | 0.28 | $ | 0.42 | $ | 0.87 | $ | 1.07 | ||||||||
Diluted | ||||||||||||||||
Net income | $ | 0.27 | $ | 0.41 | $ | 0.85 | $ | 1.06 | ||||||||
Weighted average common shares outstanding – basic | 188.4 | 188.5 | 189.0 | 188.3 | ||||||||||||
Weighted average common shares outstanding – diluted | 193.2 | 192.8 | 193.9 | 191.0 | ||||||||||||
Cash dividends declared per common share | $ | 0.10 | $ | 0.10 | $ | 0.31 | $ | 0.31 | ||||||||
Exelis Inc. | |||||||||
Consolidated Balance Sheets | |||||||||
(unaudited) | |||||||||
(IN MILLIONS) | September 30, | December 31, | |||||||
2014 | 2013 | ||||||||
Assets | |||||||||
Current assets | |||||||||
Cash and cash equivalents | $ | 524 | $ | 469 | |||||
Receivables, net | 939 | 939 | |||||||
Inventories, net | 258 | 246 | |||||||
Deferred tax asset | 44 | 16 | |||||||
Other current assets | 42 | 70 | |||||||
Total current assets | 1,807 | 1,740 | |||||||
Plant, property and equipment, net | 452 | 498 | |||||||
Goodwill | 2,195 | 2,184 | |||||||
Other intangible assets, net | 157 | 167 | |||||||
Deferred tax asset | 186 | 216 | |||||||
Other non-current assets | 120 | 79 | |||||||
Total non-current assets | 3,110 | 3,144 | |||||||
Total assets | $ | 4,917 | $ | 4,884 | |||||
Liabilities and Shareholders' Equity | |||||||||
Current liabilities | |||||||||
Accounts payable | $ | 311 | $ | 367 | |||||
Advance payments and billings in excess of costs | 266 | 301 | |||||||
Compensation and other employee benefits | 183 | 216 | |||||||
Other accrued liabilities | 173 | 160 | |||||||
Total current liabilities | 933 | 1,044 | |||||||
Defined benefit plans | 1,259 | 1,407 | |||||||
Long-term debt | 778 | 649 | |||||||
Deferred tax liability | 3 | 2 | |||||||
Other non-current liabilities | 155 | 130 | |||||||
Total non-current liabilities | 2,195 | 2,188 | |||||||
Total liabilities | 3,128 | 3,232 | |||||||
Commitments and contingencies | |||||||||
Shareholders' equity | |||||||||
Common stock | 2 | 2 | |||||||
Additional paid-in capital | 2,660 | 2,623 | |||||||
Treasury stock |
(69 |
) |
(16 |
) |
|||||
Retained earnings | 580 | 475 | |||||||
Accumulated other comprehensive loss | (1,384 | ) | (1,432 | ) | |||||
Total shareholders' equity | 1,789 | 1,652 | |||||||
Total liabilities and shareholders' equity | $ | 4,917 | $ | 4,884 | |||||
Exelis Inc. | ||||||||
Consolidated Statements of Cash Flows | ||||||||
(unaudited) | ||||||||
(IN MILLIONS) | Nine Months Ended September 30, | |||||||
2014 | 2013 | |||||||
Operating activities | ||||||||
Net income | $ | 165 | $ | 202 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 88 | 85 | ||||||
Stock-based compensation | 21 | 25 | ||||||
Restructuring and asset impairment charges | 11 | 68 | ||||||
Payments for restructuring | (23) | (42) | ||||||
Defined benefit plans expense | 48 | 69 | ||||||
Defined benefit plans payments | (134) | (136) | ||||||
Change in assets and liabilities | ||||||||
Change in receivables | 1 | (22) | ||||||
Change in inventories | (10) | (4) | ||||||
Change in other assets | 9 | (5) | ||||||
Change in accounts payable | (56) | (93) | ||||||
Change in advance payments and billings in excess of costs | (35) | 13 | ||||||
Change in deferred taxes | (14) | 31 | ||||||
Change in other liabilities | 2 | (73) | ||||||
Other, net | (2) | — | ||||||
Net cash provided by operating activities | 71 | 118 | ||||||
Investing activities | ||||||||
Capital expenditures | (37) | (57) | ||||||
Proceeds from the sale of assets | 4 | 9 | ||||||
Acquisitions, net of cash acquired | (22) | (16) | ||||||
Other, net | (1) | — | ||||||
Net cash used in investing activities | (56) | (64) | ||||||
Financing activities | ||||||||
Proceeds from issuance of debt | 140 | — | ||||||
Payment of debt issuance costs | (4) | — | ||||||
Dividends paid | (60) | (39) | ||||||
Common stock repurchased | (53) | (5) | ||||||
Proceeds from exercise of stock options | 17 | 11 | ||||||
Other, net | 2 | (2) | ||||||
Net cash provided by (used in) financing activities | 42 | (35) | ||||||
Exchange rate effects on cash and cash equivalents | (2) | (2) | ||||||
Net change in cash and cash equivalents | 55 | 17 | ||||||
Cash and cash equivalents – beginning of year | 469 | 292 | ||||||
Cash and cash equivalents – end of period | $ | 524 | $ | 309 | ||||
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. |
“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. |
“Segment adjusted operating margin” defined as segment adjusted operating income as defined above, divided by revenue. |
“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. |
“Estimated adjusted net income excluding Vectrus” defined as adjusted net income as defined above adjusted to exclude estimated Vectrus results and give effect to spin-related estimated G&A/tax adjustments. |
“Estimated adjusted operating income excluding Vectrus" defined as adjusted operating income as defined above adjusted to exclude estimated Vectrus results and give effect to spin-related estimated G&A/tax adjustments. |
“Estimated adjusted operating margin excluding Vectrus" defined as estimated adjusted operating income as defined above adjusted to exclude estimated Vectrus results and give effect to spin-related estimated G&A/tax adjustments. |
“Estimated adjusted free cash flow excluding Vectrus" defined as free cash flow as defined above adjusted to exclude estimated Vectrus results and give effect to spin-related estimated G&A/tax adjustments. |
Exelis Inc. | ||||||||
Non-GAAP Financial Measures - Adjusted Net Income & Adjusted EPS | ||||||||
Three Months Ended | Nine Months Ended | |||||||
September 30, | September 30, | |||||||
($ million, except per share) | 2014 | 2013 | 2014 | 2013 | ||||
Net Income | 52 | 80 | 165 | 202 | ||||
Separation Costs for the Vectrus Spin-off, net of tax | 9 | - | 19 | - | ||||
Adjusted Net Income | 61 | 80 | 184 | 202 | ||||
Net Income per fully diluted share | $0.27 | $0.41 | $0.85 | $1.06 | ||||
Adjusted Net Income per fully diluted share | $0.32 | $0.41 | $0.95 | $1.06 | ||||
Weighted Average Shares Outstanding, Diluted | 193.2 | 192.8 | 193.9 | 191.0 | ||||
Exelis Inc. | |||||||||
Non-GAAP Financial Measures - Adjusted Segment Operating Income & Operating Margin | |||||||||
Three Months Ended |
Nine Months Ended |
||||||||
September 30, |
September 30, |
||||||||
($ million) | 2014 | 2013 | 2014 | 2013 | |||||
Sales | 1,068 | 1,141 | 3,230 | 3,577 | |||||
C4ISR | 503 | 498 | 1,506 | 1,515 | |||||
I&TS | 565 | 643 | 1,724 | 2,062 | |||||
Segment Operating Income, As Reported | 96 | 133 | 288 | 334 | |||||
C4ISR | 59 | 69 | 162 | 128 | |||||
I&TS | 37 | 64 | 126 | 206 | |||||
Separation Costs for the Vectrus Spin-off, pre tax | 15 | - | 30 | - | |||||
C4ISR | 5 | - | 13 | - | |||||
I&TS | 10 | - | 17 | - | |||||
Segment Operating Income, Adjusted | 111 | 133 | 318 | 334 | |||||
C4ISR | 64 | 69 | 175 | 128 | |||||
I&TS | 47 | 64 | 143 | 206 | |||||
Segment Operating Margin, As Reported | |||||||||
C4ISR | 11.7% | 13.9% | 10.8% | 8.4% | |||||
I&TS | 6.5% | 10.0% | 7.3% | 10.0% | |||||
Segment Operating Margin, Adjusted |
|
|
|
|
|||||
C4ISR | 12.7% | 13.9% | 11.6% | 8.4% | |||||
I&TS | 8.3% | 10.0% | 8.3% | 10.0% | |||||
Operating Margin, As Reported | 9.0% | 11.7% | 8.9% | 9.3% | |||||
Operating Margin, Adjusted | 10.4% | 11.7% | 9.8% | 9.3% | |||||
Exelis Inc. | ||||
Free Cash Flow Year-to-Date | ||||
Nine Months Ended | Nine Months Ended | |||
September 30, | September 30, | |||
($ million) | 2014 | 2013 | ||
Cash Flow From Operating Activities | 71 | 118 | ||
Subtract: | ||||
Capital Expenditures | (37) | (57) | ||
Free Cash Flow | 34 | 61 | ||
Add: | ||||
Separation Costs for the Mission Systems Spin-off, net of tax | 19 | - | ||
Free Cash Flow, as Adjusted | 53 | 61 | ||
Exelis Inc. | ||||||
Free Cash Flow Quarter-to-Date | ||||||
Three Months Ended | Nine Months Ended | Six Months Ending | ||||
September 30, |
September 30, |
June 30, | ||||
($ million) | 2014 | 2014 | 2014 | |||
Cash Flow From Operating Activities | 49 | 71 | 22 | |||
Subtract: | ||||||
Capital Expenditures | (19) | (37) | (18) | |||
Free Cash Flow | 30 | 34 | 4 | |||
Add: | ||||||
Separation Costs for the Mission Systems Spin-off, net of tax | 9 | 19 | 10 | |||
Free Cash Flow, as Adjusted | 39 | 53 | 14 | |||
Exelis Inc. | |||||||||
Non-GAAP Financial Measures - Adjusted Net Income & Adjusted EPS Excluding Vectrus Results | |||||||||
Three Months Ended | Nine Months Ended | ||||||||
September 30, | September 30, | ||||||||
($ million, except per share) | 2014 | 2013 | 2014 | 2013 | |||||
Reported Net Income | 52 | 80 | 165 | 202 | |||||
Subtract: Estimated Net Income, Vectrus Operations | 2 | 24 | 22 | 84 | |||||
Estimated Net Income, Stand-alone Exelis | 50 | 56 | 143 | 118 | |||||
Separation costs for the Vectrus spin-off, net of tax | 9 | - | 19 | - | |||||
Subtract: Separation costs, Vectrus Operations | 8 | - | 15 | - | |||||
Separation costs, Stand-alone Exelis | 1 | - | 4 | - | |||||
Adjusted Net Income | 61 | 80 | 184 | 202 | |||||
Subtract: Estimated Adjusted Net Income, Vectrus Operations | 10 | 24 | 37 | 84 | |||||
Estimated Adjusted Net Income, Stand-alone Exelis | 51 | 56 | 147 | 118 | |||||
Net Income per fully diluted share | 0.27 | 0.41 | 0.85 | 1.06 | |||||
Subtract: Estimated Net Income per fully diluted share, Vectrus Operations | 0.01 | 0.13 | 0.11 | 0.44 | |||||
Estimated Net Income per fully diluted share, Stand-alone Exelis | 0.26 | 0.29 | 0.74 | 0.62 | |||||
Adjusted Net Income per fully diluted share | 0.32 | 0.41 | 0.95 | 1.06 | |||||
Subtract: Estimated Adjusted net Income per fully diluted share, Vectrus Operations | 0.06 | 0.13 | 0.19 | 0.44 | |||||
Estimated Adjusted Net Income per fully diluted share, Stand-alone Exelis | 0.26 | 0.29 | 0.76 | 0.62 | |||||
Weighted Average Shares Outstanding, Diluted | 193.2 | 192.8 | 193.9 | 191 | |||||
Exelis Inc. | |||||||||||||||||||||||
Non-GAAP Financial Measures - Adjusted Net Income & Adjusted EPS Excluding Vectrus Results | |||||||||||||||||||||||
Three Months Ended | Three Months Ended | ||||||||||||||||||||||
September 30, 2014 |
September 30, 2013 |
||||||||||||||||||||||
Estimated |
Separation Costs |
Estimated |
Estimated |
Separation Costs |
Estimated | ||||||||||||||||||
Vectrus | Stand-alone |
Stand-alone |
Vectrus | Stand-alone | Stand-alone | ||||||||||||||||||
($ million) | As Reported | Operations | Exelis |
Exelis |
As Reported | Operations | Exelis | Exelis | |||||||||||||||
Orders | 1,544 | (686 | ) | 858 | 1,969 | (922 | ) | 1,047 | |||||||||||||||
C4ISR | 437 | 437 | 540 | 540 | |||||||||||||||||||
I&TS | 1,107 | (686 | ) | 421 | 1,429 | (922 | ) | 507 | |||||||||||||||
Sales | 1,068 | (288 | ) | 780 | 1,141 | (346 | ) | 795 | |||||||||||||||
C4ISR | 503 | 503 | 498 | 498 | |||||||||||||||||||
I&TS | 565 | (288 | ) | 277 | 643 | (346 | ) | 297 | |||||||||||||||
Operating Income | 96 | (2 | ) | 2 | 96 | 133 | (32 | ) | 101 | ||||||||||||||
C4ISR | 59 | 1 | 60 | 69 | (2 | ) | 67 | ||||||||||||||||
I&TS | 37 | (2 | ) | 1 | 36 | 64 | (30 | ) | 34 | ||||||||||||||
Operating Margin | 9.0 | % | 12.3 | % | 11.7 | % | 12.7 | % | |||||||||||||||
C4ISR | 11.7 | % | 11.9 | % | 13.9 | % | 13.5 | % | |||||||||||||||
I&TS | 6.5 | % | 13.0 | % | 10.0 | % | 11.4 | % | |||||||||||||||
Cash Flow from Operating Activities | 49 | (35 | ) | 2 | 16 | 74 | (12 | ) | 62 | ||||||||||||||
Subtract: Capital Expenditures | (19 | ) | - | (19 | ) | (20 | ) | - | (20 | ) | |||||||||||||
Free Cash Flow | 30 | (35 | ) | 2 | (3 | ) | 54 | (12 | ) | - | 42 | ||||||||||||
Contact:
Exelis
Investors
Katy Herr, 703-790-6376
Email Contact
or
Media
B.J.
Talley, 703-790-6349
Email Contact