Exelis (XLS) 8-K Entry into a Material Definitive Agreement

Exhibit 99.2

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

On September 27, 2014, Exelis Inc. (“Exelis” or the “Company”) completed the previously announced spin-off of Vectrus, Inc. (“Vectrus”), its former Mission Systems business, through a pro rata distribution to the Company’s shareholders of one share of Vectrus common stock for every 18 shares of the Company’s common stock held by such shareholders as of September 18, 2014 (the “Record Date”), resulting in a total distribution of approximately 10.5 million shares of Vectrus common stock. In connection with the spin-off, Vectrus made a net cash distribution of $136 million to a subsidiary of Exelis on September 26, 2014. This cash distribution is subject to a working capital adjustment. Vectrus filed a registration statement on Form 10 with the Securities and Exchange Commission (SEC) describing the spin-off and other information about Vectrus that was declared effective by the SEC on September 8, 2014.

Vectrus was part of the Company’s Information and Technical Services segment and included the following major program areas: Infrastructure Asset Management; Logistics and Supply Chain Management; and Information Technology and Network Communication Services. Immediately after the spin-off, the Company does not beneficially own any shares of Vectrus common stock and will not consolidate the financial results of Vectrus for its future financial reporting. Vectrus’ financial results prior to the spin-off will be reported as discontinued operations beginning in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

Prior to the completion of the spin-off, the Company and Vectrus entered into a Distribution Agreement and related separation agreements that will govern the post-separation relationship between the Company and Vectrus. These agreements generally provide that each party is responsible for its respective assets, liabilities and obligations following the spin-off, including employee benefits, intellectual property, information technology, insurance and tax-related assets and liabilities. The agreements also describe the Company’s future commitments to provide Vectrus with certain temporary transition services.

The following unaudited pro forma condensed consolidated financial information consists of unaudited pro forma condensed consolidated statements of operations for the six months ended June 30, 2014 and for the years ended December 31, 2013, 2012 and 2011, and an unaudited pro forma condensed consolidated balance sheet as of June 30, 2014, which were derived from the Company’s historical consolidated and combined financial statements and give effect to the spin-off. The unaudited pro forma condensed consolidated financial information should be read together with the Company’s historical consolidated and combined financial statements and accompanying notes included in its Annual Report on From 10-K for the year ended December 31, 2013 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2014.

The unaudited pro forma condensed consolidated statements of operations for the six months ended June 30, 2014 and for the years ended December 31, 2013, 2012 and 2011 reflect the Company’s results as if the spin-off and related transactions described below had occurred as of January 1, 2011. The unaudited pro forma condensed consolidated balance sheet as of June 30, 2014 reflects the Company’s financial position as if the spin-off and related transactions described below had occurred as of that date.

The unaudited pro forma condensed consolidated financial information gives effect to the spin-off and related transactions, including:

• the transfer to Vectrus of Company assets and liabilities that are specifically identifiable or otherwise allocable to Vectrus;

• the elimination of the Company’s equity interest in Vectrus;

• the removal of certain non-recurring separation costs directly related to the spin-off transaction; and

• the net cash distribution from Vectrus to a subsidiary of the Company.

The unaudited pro forma condensed consolidated financial information is not intended to be a complete presentation of the Company’s financial position or results of operations had the spin-off and related transactions occurred as of and for the periods indicated. In addition, the unaudited pro forma condensed consolidated financial information is provided for illustrative and informational purposes only and is not necessarily indicative of the Company’s future results of operations or financial condition had the spin-off been completed on the dates assumed. The pro forma adjustments are based on available information and assumptions that Exelis management believes are reasonable, that reflect the impacts of events directly attributable to the spin-off, that are factually supportable, and for purposes of the statements of operations, are expected to have a continuing impact on Exelis. The pro forma adjustments may differ from those that will be calculated to report Vectrus as a discontinued operation in the Company’s future filings.

See the notes to the unaudited pro forma condensed consolidated financial information for a more detailed discussion of these transactions.

EXELIS INC.

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

	Six Months Ended June 30, 2014
				Pro Forma Adjustments
	Historical			Vectrus (A)			Other		Pro Forma
Product revenue	$	1,003		$	—		$	—	$	1,003
Service revenue		1,159			(598	)		—		561
Total revenue		2,162			(598	)		—		1,564
Cost of product revenue		732			—			—		732
Cost of service revenue		979			(535	)		—		444
Selling, general and administrative expenses		227			(35	)		—		192
Research and development expenses		25			—			—		25
Restructuring and asset impairment charges		7			—			—		7
Operating income		192			(28	)		—		164
Interest expense, net		18			—			—		18
Other expense (income), net		(4	)		—			—		(4	)
Income from continuing operations before income tax expense		178			(28	)		—		150
Income tax expense		65			(10	)		—		55
Net income	$	113		$	(18	)	$	—	$	95
Earnings Per Share
Basic
Net income	$	0.60							$	0.50
Diluted
Net income	$	0.58							$	0.49
Weighted average common shares outstanding – basic		189.3								189.3
Weighted average common shares outstanding – diluted		194.2								194.2

EXELIS INC.

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 

	Year Ended December 31, 2013
			Pro Forma Adjustments
	Historical		Vectrus (A)			Other		Pro Forma
Product revenue	$	2,136	$	—		$	—	$	2,136
Service revenue		2,680		(1,475	)		—		1,205
Total revenue		4,816		(1,475	)		—		3,341
Cost of product revenue		1,517		—			—		1,517
Cost of service revenue		2,231		(1,264	)		—		967
Selling, general and administrative expenses		455		(60	)		—		395
Research and development expenses		54		—			—		54
Restructuring and asset impairment charges		83		(3	)		—		80
Operating income		476		(148	)		—		328
Interest expense, net		37		—			—		37
Other expense (income), net		2		1			—		3
Income from continuing operations before income tax expense		437		(149	)		—		288
Income tax expense		156		(46	)		—		110
Net income	$	281	$	(103	)	$	—	$	178
Earnings Per Share
Basic
Net income	$	1.49						$	0.94
Diluted
Net income	$	1.46						$	0.93
Weighted average common shares outstanding – basic		188.5							188.5
Weighted average common shares outstanding – diluted		192.0							192.0

EXELIS INC.

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 

	Year Ended December 31, 2012
			Pro Forma Adjustments
	Historical		Vectrus (A)			Other		Pro Forma
Product revenue	$	2,487	$	—		$	—	$	2,487
Service revenue		3,035		(1,792	)		—		1,243
Total revenue		5,522		(1,792	)		—		3,730
Cost of product revenue		1,726		—			—		1,726
Cost of service revenue		2,633		(1,606	)		—		1,027
Selling, general and administrative expenses		516		(57	)		—		459
Research and development expenses		67		—			—		67
Restructuring and asset impairment charges		19		—			—		19
Operating income		561		(129	)		—		432
Interest expense, net		37		—			—		37
Other expense (income), net		3		—			—		3
Income from continuing operations before income tax expense		521		(129	)		—		392
Income tax expense		191		(45	)		—		146
Net income	$	330	$	(84	)	$	—	$	246
Earnings Per Share
Basic
Net income	$	1.76						$	1.31
Diluted
Net income	$	1.75						$	1.30
Weighted average common shares outstanding – basic		187.4							187.4
Weighted average common shares outstanding – diluted		188.6							188.6

EXELIS INC.

PRO FORMA CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS (UNAUDITED)

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

	Year Ended December 31, 2011
				Pro Forma Adjustments
	Historical			Vectrus (A)			Other		Pro Forma
Product revenue	$	2,817		$	—		$	—	$	2,817
Service revenue		3,022			(1,785	)		—		1,237
Total revenue		5,839			(1,785	)		—		4,054
Cost of product revenue		1,933			—			—		1,933
Cost of service revenue		2,683			(1,634	)		—		1,049
Selling, general and administrative expenses		566			(46	)		—		520
Research and development expenses		99			—			—		99
Restructuring and asset impairment charges		23			—			—		23
Operating income		535			(105	)		—		430
Interest expense, net		10			—			—		10
Other expense (income), net		(12	)		—			—		(12	)
Income from continuing operations before income tax expense		537			(105	)		—		432
Income tax expense		211			(43	)		—		168
Net income	$	326		$	(62	)	$	—	$	264
Earnings Per Share
Basic
Net income	$	1.75							$	1.42
Diluted
Net income	$	1.75							$	1.41
Weighted average common shares outstanding – basic		186.2								186.2
Weighted average common shares outstanding – diluted		186.7								186.7

EXELIS INC.

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

(IN MILLIONS)

	June 30, 2014
				Pro Forma Adjustments
	Historical			Vectrus (A)			Other			Pro Forma
Assets
Current assets
Cash and cash equivalents	$	394		$	(9	)	$	120	(B)	$	505
Receivables, net		964			(237	)		—			727
Inventories, net		259			(4	)		—			255
Deferred tax asset		18			21			—			39
Other current assets		50			(10	)		—			40
Total current assets		1,685			(239	)		120			1,566
Plant, property and equipment, net		460			(9	)		—			451
Goodwill		2,190			(217	)		—			1,973
Other intangible assets, net		157			—			—			157
Deferred tax asset		183			86			—			269
Other non-current assets		93			(3	)		—			90
Total non-current assets		3,083			(143	)		—			2,940
Total assets	$	4,768		$	(382	)	$	120		$	4,506
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$	348		$	(115	)	$	—		$	233
Advance payments and billings in excess of costs		272			(7	)		—			265
Compensation and other employee benefits		196			(56	)		—			140
Other accrued liabilities		143			(9	)		—			134
Total current liabilities		959			(187	)		—			772
Defined benefit plans		1,312			—			—			1,312
Long-term debt		649			—			—			649
Deferred tax liability		3			(1	)		—			2
Other non-current liabilities		113			(3	)		—			110
Total non-current liabilities		2,077			(4	)		—			2,073
Total liabilities		3,036			(191	)		—			2,845
Shareholders’ equity
Common stock		2			—			—			2
Additional paid-in capital		2,651			(193	)		120	(B)		2,578
Treasury stock		(69	)		—			—			(69	)
Retained earnings		548			—			—			548
Accumulated other comprehensive loss		(1,400	)		2			—			(1,398	)
Total shareholders’ equity		1,732			(191	)		120			1,661
Total liabilities and shareholders’ equity	$	4,768		$	(382	)	$	120		$	4,506

EXELIS INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)

(IN MILLIONS, UNLESS OTHERWISE STATED)

Statements of Operations and Balance Sheet

(A) The adjustments reflect the discontinued operations of Vectrus; including the removal of the assets, liabilities, equity and results of operations of Vectrus and non-recurring separation costs directly related to the spin-off transaction, and excluding certain general corporate overhead expenses that were not specifically related to Vectrus and that did not meet the discontinued operations criteria. The non-recurring separation costs removed were $6, $2, $0 and $0 for the six months ended June 30, 2014 and for the years ended December 31, 2013, 2012 and 2011, respectively.

(B) The adjustments reflect the net cash distribution from Vectrus to Exelis. The distribution was funded by the proceeds from a senior secured term loan issued by Vectrus in connection with the spin-off.