Filed by: Harris Corporation
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
of the Securities Exchange Act of 1934
Subject Company: Exelis Inc.
Commission File No.: 001-35228
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Acquisition of Exelis
February 6, 2015
harris.com
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Forward-looking statements
Statements in this presentation that are not historical facts are forward-looking statements that reflect management’s current expectations, assumptions and estimates of future performance and economic conditions. Such statements are made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include but are not limited to: statements about the expected timing and completion of the proposed transaction; the anticipated benefits of the proposed combination, including estimated synergies; the estimated financial results of Exelis for 2014; Exelis’ expected unfunded pension liability at the end of 2014; the effects of the proposed combination with Exelis, including effects on future financial and operating results, and other statements that are not historical facts. Harris cautions investors that any forward-looking statements are subject to risks and uncertainties that may cause actual results and future trends to differ materially from those matters expressed in or implied by such forward-looking statements. Among the risks and uncertainties that could cause actual results to differ from those described in forward-looking statements tatements are the following: the occurrence ccurrence of any event, change or other circumstances ircumstances that could give ive rise to the termination of the merger agreement; the possibility that Exelis shareholders may not approve the merger agreement, the risk that the parties may not be able to obtain the necessary regulatory approvals or to satisfy any of the other conditions to the proposed transaction in a timely manner or at all; the risk that financing for the proposed transaction may not be obtained on anticipated terms or at all; risks related to disruption of management time from ongoing business operations due to the proposed transaction; the risk that Harris may fail to realize the benefits expected from the proposed transaction; the risk that any announcements relating to the proposed transaction could have adverse effects on the market price of Harris’ common stock; and the risk that the proposed transaction and its announcement could have an adverse effect on the ability of Harris and Exelis to retain customers and retain and hire key personnel and maintain relationships with their suppliers and customers, including the U.S. Government; and on their operating results and businesses generally. Further information relating to factors that may impact Harris’ and Exelis’ results and forward-looking statements are disclosed in their respective filings with the Securities and Exchange Commission. The forward-looking statements contained in this press release are made as of the date of this press release, and Harris and Exelis disclaim any intention or obligation, other than imposed by law, to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Investors are cautioned not to place undue reliance on these forward-looking statements.
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A transformational acquisition
Powerful combination of two culturally-aligned, technology-focused, highly complementary companies
~23,000 employees including ~9,000 engineers/scientists
~$8.2 billion revenue
~$1.6 billion EBITDA
Creates an industry innovator with much greater scale providing a broad spectrum of technology-based advanced communication systems
Notes:
(1) Trailing 12 months as of quarter ending January 2, 2015 (2) Represents 2014 Exelis guidance as of February 6, 2015
$ Billions
Revenue
4.96 3.25 8.21
Harris(1) Exelis(2) Harris Pro forma
$ Billions
Harris(1) Exelis(2) Harris Pro forma
1.07 0.51 1.58
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Exelis overview
Electronic Geospatial Information Night Vision Aerostructures Systems Systems Systems and Communications
Spun out of ITT in 2011 Headquartered in McLean, VA ~10,000 employees, 3,000 engineers and scientists 2014 revenue of ~$3.25 billion / EBITDA of ~$511 million(1)
Prime: 71%; Sub: 29%
Fixed price: 53%; Cost plus: 47% Funded backlog of ~$2.8 billion as of 12/31/14(1)
Segment revenue
Aerostructures
3% Electronic Information Systems Systems 29%
34%
21% 13%
Geospatial Night Vision
& Comms
Customer revenue
International & Air Force Commercial 23%
21%
17%
Civil U.S. 16%
Navy & 17% 6% Marines Other DoD Army
& Intel
Note:
(1) Represents 2014 Exelis guidance as of February 6, 2015
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Transaction overview
Consideration
Financing
Approvals and Timing
Total purchase price of $23.75 per share or $4.75 billion enterprise value 70% cash / 30% equity Exelis’ shareholders will receive $16.625 in cash and 0.1025 Harris shares
Fully committed bridge financing in place
Historically low rate financing environment
Strong balance sheet providing flexibility and ability to invest for growth
Pro-forma leverage of ~2.9x net debt to adjusted EBITDA(1) at closing with significant pre-payable debt
Rapid de-leveraging with net leverage of ~1.5x in year 3
Subject to approval of Exelis’ shareholders Customary regulatory approvals, including HSR Transaction expected to close in June 2015
Note:
(1) Exelis’ standalone EBITDA adjusted for the purchase accounting reset of its net actuarial pension losses to zero
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Pension position
Significant diligence on pension plan using specialist outside advisors
12/31/14 net unfunded pension position of
~$1.9 billion(1)
Interest rates are at historically low levels, providing a strong positive bias to net underfunding
Pension funding requirements are clear and fully factored into our thinking:
High level of government / CAS reimbursements
Stable and highly visible near-term cash funding requirements due to MAP-21
Pro forma pension position is in-line with peers
20 Year History of the 10-year Treasury Rate(2)
2014 – 2015 YTD
10.0%
3.0%
2.5%
808.0%
2.0%
1.5%
6.0%
4.0%
2.0%
1.79%
0.0%
Jan-95
Dec-98
Dec-02
Dec-06
Dec-10
Feb-15
Pension Liability / Market Cap. vs. Peers
N/M
Exelis Harris Pro
Aerospace & Defense Peers
Forma
Notes:
(1) Represents 2014 Exelis guidance as of February 6, 2015 (2) As of February 3, 2015
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Highly strategic acquisition
Strengthens core franchises and provides optionality for portfolio shaping Builds stronger platform for growth Creates scale and more balanced earnings Generates meaningful cost synergies Creates significant value for all stakeholders Timing perfect, internally and externally
Combination creates a significantly stronger, more diversified and more competitive company that is better positioned with its key customers to compete for and win new contracts
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Strengthens core franchises
Space & Weather Intelligence
Air Traffic Management Tactical Communications
Highly complementary core franchises
Enhanced scale across platforms to drive efficiency and better address customer needs
Optimized R&D portfolio to drive innovation Deep customer relationships Similar cultures and shared values
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Builds stronger platform for growth
International Channels
Complementary Platforms and Solutions
Value-Added Services
Tactical Communications
Electronic Warfare Air Traffic Management Weather Night Vision
Markets with channel opportunity
Individual
Mission processors Soldier System
Digital maps
Data links
Night Vision Tactical Radios
Airborne radios
Geospatial image analysis Geospatial image analysis
Cloud-based solution Hyper spectral imaging
Airport situational awareness Remote sensing Light detection and ranging
Web-based tracking 3D topographic mapping
Real-time weather intelligence Aviation weather data
Location-based updates National real-time data
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Creates scale, more balanced earnings
Industry Players
12/31/14 LTM Revenues ($B)(1)
46
31 31
24 24 23
12
8 7
5 5 55 5 4
3 3
Long tail of Tier 3/4 Suppliers
(2) (3) (3) (3) (3)
Primes Tier 2
Harris Segment Operating Income
Harris FY14 Harris Pro Forma
INS
RF
GCS 29% 59% RF
Other
Harris FY14 Harris Pro Forma
Int’l & Air Force Navy Int’l & Air Force
Commercial 8% & Marines Commercial
6% Army Navy
32% 6% & Marines
22% Army
Other DoD Other DoD &
26% & Intel Intel
Civil / State / Local Civil / State / Local
Notes:
(1) Source: company estimates based on public filings (2) Excludes commercial aerospace (3) LTM as of last public filing
LMT BA GD BAE NOC RTN LLL Harris PF LDOS BAH CPL ATK / ORB Harris
SAIC CACI Exelis
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Generates meaningful cost synergies
Significant work done to fully diligence synergy opportunity
Sources of cost synergies
HQ consolidation and public company costs
Manufacturing / supply chain / program efficiencies
Functional efficiencies / overhead reductions
Net of customer flow-through savings
No revenue synergies included but opportunities exist
Net Synergy(1)
$ Millions
Cash Investment Cost
Run-Rate Savings
130 – 150
100 – 120
A focused and highly experienced management team to drive the integration
Note:
(1) Excludes deal related costs
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Creates significant value for shareholders
$4.75 billion acquisition at attractive multiples
9.3x 2014 EBITDA(1)
8.0x 2014 adjusted EBITDA(1)(2)
Immediate and significant earnings accretion
Transaction is GAAP EPS accretive in first full year and a significant contributor thereafter
Free cash flow generation
Significantly larger, more diversified company with expected pro forma FCF approaching $1 billion in year 4
In-line pro forma pension position with clear visibility on cash funding needs
Notes:
(1) Based on 2014 Exelis guidance as of February 6, 2015
(2) Exelis’ standalone EBITDA adjusted for the purchase accounting reset of its net actuarial pension losses to zero
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Timing perfect – internally and externally
Harris Business Excellence embedded in culture
Budgets expected to improve
Historically low interest rates
Integration
Speed, sense of urgency and “best of best” management philosophy
Dedicated senior-level integration team with deep CEO involvement
Integration leaders transition to the business and own the results
DoD base budget
5-year CAGR
Estimate with
Sequestration 2.8%
2.1%
556 561 570
528 530 534 547
495 496 496
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
President’s GFY16 budget request
20 Year History of the 10-year Treasury Rate(1)
10.0% 3.0% 2014 – 2015 YTD
2.5%
8.0% 2.0%
1.5%
6.0%
4.0%
2.0%
1.79%
0.0%
Jan-95 Dec-98 Dec-02 Dec-06 Dec-10 Feb-15
Note:
(1) As of February 3, 2015
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Additional Information and Where to Find It
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. This communication may be deemed to be solicitation material in respect of the proposed transaction between Harris Corporation and Exelis. In connection with the proposed transaction, Harris Corporation intends to file a registration statement on Form S-4, that will include a proxy statement of Exelis and a prospectus of Harris with the Securities and Exchange Commission (“SEC”). This communication is not a substitute for the registration statement, definitive proxy statement/prospectus or any other documents that Exelis or Harris Corporation may file with the SEC or send to shareholders in connection with the proposed transaction. INVESTORS AND SHAREHOLDERS OF EXELIS ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE PROXY
STATEMENT/PROSPECTUS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.
Investors and security holders will be able to obtain copies of the proxy statement/prospectus and other documents filed with the SEC (when available) free of charge at the SEC’s website, http://www.sec.gov. Copies of documents filed with the SEC by Harris Corporation will be made available free of charge on Harris Corporation’s website at http://harris.com/investors/. Copies of documents filed with the SEC by Exelis will be made available free of charge on Exelis’s website at http://investors.exelisinc.com/.
Participants in Solicitation
Harris Corporation and its directors and executive officers, and Exelis and its directors and executive officers, may be deemed to be participants in the solicitation of proxies roxies from the holders of Exelis common stock tock in respect of the proposed transaction. Information about the directors and executive officers of Harris Corporation is set forth in the proxy statement for Harris Corporation’s 2014 Annual Meeting of Shareholders, which was filed with the SEC on September 9, 2014.
Information about the directors and executive officers of Exelis is set forth in the proxy statement for Exelis’s 2014 Annual Meeting of Shareholders, which was filed with the SEC on March 26, 2014. Investors may obtain additional information regarding the interest of such participants by reading the proxy statement/prospectus regarding the proposed transaction when it becomes available. You may obtain free copies of these documents as described in the preceding paragraph.
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