10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

or

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to            

Commission File Number: 001-35228

EXELIS INC.

 (Exact name of registrant as specified in its charter)

State of Indiana	45-2083813
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

1650 Tysons Boulevard, Suite 1700, McLean, Virginia 22102

(Address of Principal Executive Offices)

(703) 790-6300

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.    Yes þ   No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   þ	Accelerated filer   ¨	Non-accelerated filer   ¨	Smaller reporting company  ¨
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ

As of October 28, 2013 there were 188,836,826 shares of common stock ($0.01 par value per share) outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	3
ITEM 1. FINANCIAL STATEMENTS	3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)	3
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)	4
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)	5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)	6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	7
NOTE 1 BACKGROUND, BASIS OF PRESENTATION AND USE OF ESTIMATES	7
NOTE 2 RECENT ACCOUNTING PRONOUNCEMENTS	8
NOTE 3 RESTRUCTURING AND ASSET IMPAIRMENT CHARGES, NET	8
NOTE 4 EARNINGS PER SHARE	9
NOTE 5 SHAREHOLDERS’ EQUITY	10
NOTE 6 ACCUMULATED OTHER COMPREHENSIVE LOSS	10
NOTE 7 INCOME TAXES	11
NOTE 8 RECEIVABLES, NET	11
NOTE 9 INVENTORIES, NET	12
NOTE 10 GOODWILL AND OTHER INTANGIBLE ASSETS, NET	12
NOTE 11 DEBT	13
NOTE 12 POSTRETIREMENT BENEFIT PLANS	14
NOTE 13 STOCK-BASED COMPENSATION	15
NOTE 14 RELATED PARTY TRANSACTIONS	16
NOTE 15 COMMITMENTS AND CONTINGENCIES	16
NOTE 16 SEGMENT INFORMATION	18
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20
OVERVIEW	20
DISCUSSION OF FINANCIAL RESULTS	22
LIQUIDITY AND CAPITAL RESOURCES	26
CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS	28
FORWARD-LOOKING AND CAUTIONARY STATEMENTS	28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	28
ITEM 4. CONTROLS AND PROCEDURES	29
PART II. OTHER INFORMATION	30
ITEM 1. LEGAL PROCEEDINGS	30
ITEM 1A. RISK FACTORS	30
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	30
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	30
ITEM 4. MINE SAFETY DISCLOSURES	30
ITEM 5. OTHER INFORMATION	30
ITEM 6. EXHIBITS	30
SIGNATURE	31
EXHIBIT INDEX	32

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

The accompanying notes are an integral part of the condensed consolidated financial statements.

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EXELIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(IN MILLIONS)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013			2012
Net income	$	80	$	88	$	202		$	244
Other comprehensive income (loss), net of tax
Net foreign currency translation adjustments	9		5		(3		)	4
Defined benefit plans
Net actuarial gain arising during the period	—		—		116			—
Amortization of actuarial loss included in net periodic benefit cost	17		13		53			39
Amortization of prior service cost included in net periodic benefit cost	—		—		1			—
Other comprehensive income (loss), net of tax	26		18		167			43
Total comprehensive income	$	106	$	106	$	369		$	287

The accompanying notes are an integral part of the condensed consolidated financial statements.

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EXELIS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(IN MILLIONS)

	September 30, 2013			December 31, 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

The accompanying notes are an integral part of the condensed consolidated financial statements.

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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

The accompanying notes are an integral part of the condensed consolidated financial statements.

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EXELIS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(DOLLARS AND SHARE AMOUNTS IN MILLIONS, UNLESS OTHERWISE STATED)

NOTE 1

BACKGROUND, BASIS OF PRESENTATION AND USE OF ESTIMATES

Background

Exelis Inc. (“Exelis” or the “Company”) is a leader in Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) related products and systems and information and technical services, which it supplies to military, government and commercial customers in the United States and globally. Exelis provides mission-critical systems in the areas of networked communications, sensing and surveillance, electronic warfare, navigation, air traffic solutions and information systems, with growing positions in cyber-security, composite aerostructures, logistics and technical services. The Company’s customers include the U.S. Department of Defense (DoD), including the U.S. Army, Navy, Marines and Air Force, and its prime contractors, U.S. Government intelligence agencies, National Aeronautics and Space Administration (NASA), Federal Aviation Administration (FAA), allied foreign governments and domestic and foreign commercial customers. As a prime contractor, subcontractor, or preferred supplier, Exelis participates in many high priority defense and non-defense programs in the United States. Exelis conducts most of its business with the U.S. Government, principally the DoD.

Unless the context otherwise requires, references in these notes to “Exelis”, “we,” “us,” “our,” “the Company” and “our Company” refer to Exelis Inc. and its subsidiaries.

Basis of Presentation

The unaudited Condensed Consolidated Financial Statements included in this Form 10-Q have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and, in the opinion of management, reflect all adjustments (which include normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. Certain information and note disclosures normally included in financial statements prepared annually in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such SEC rules. These financial statements should be read in conjunction with the audited Consolidated and Combined Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2012. We believe that the disclosures included in this Form 10-Q are adequate to make the information presented not misleading.

Our quarterly financial periods end on the Saturday closest to the last day of the calendar quarter, except for the last quarterly period of the fiscal year, which ends on December 31^st. For ease of presentation, the quarterly financial statements included herein are described as ending on the last day of the calendar quarter. The results reported in these financial statements are not necessarily indicative of results that may be expected for the entire year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Estimates are revised as additional information becomes available. Estimates and assumptions are used for, but not limited to, revenue recognition, income taxes, contingency accruals and valuation allowances, fair value measurements, impairment of goodwill and other intangibles, postretirement obligations and certain contingent liabilities. Actual results could differ from these estimates.

During the performance of long-term sale contracts, estimated final contract prices and costs are reviewed periodically and revisions are made as required and recorded in income in the period in which they are determined. Changes in estimated revenues, cost of revenue and the related effect to operating income are recognized using a cumulative catch-up adjustment which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a contract’s percent complete. For the three and nine months ended September 30, 2013, net

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favorable cumulative catch-up adjustments related to prior periods increased operating income by approximately $16 and $83, respectively, and diluted earnings per share by approximately $0.06 and $0.29, respectively. For the three and nine months ended September 30, 2012, net favorable cumulative catch-up adjustments related to prior periods increased operating income by approximately $26 and $79, respectively, and diluted earnings per share by approximately $0.09 and $0.26, respectively.

NOTE 2

RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Pronouncements

In February 2013, the Financial Accounting Standards Board (FASB) issued guidance intended to update the disclosure requirements for accumulated other comprehensive income (AOCI). This guidance does not change the current requirements for reporting net income or other comprehensive income in the financial statements. The updated guidance requires an entity to disclose additional information about changes in AOCI balances by component and significant amounts reclassified out of AOCI by component. This guidance is effective prospectively for reporting periods beginning after December 15, 2012. We adopted this guidance on January 1, 2013 and have provided the additional required disclosures in the notes to these financial statements.

Pronouncements Not Yet Adopted

New pronouncements issued but not effective until after September 30, 2013 are not expected to have a material impact on our financial position, results of operations or cash flows.

NOTE 3

RESTRUCTURING AND ASSET IMPAIRMENT CHARGES, NET

During the first quarter of 2013, we initiated an action to reduce the size of our workforce and consolidate our facilities footprint to align our cost structure more closely to customer and market conditions, which is expected to be completed by the end of 2013. Through voluntary and involuntary employee reductions, we are eliminating approximately 1,136 positions related to this action, which includes factory workers, administrative personnel and management employees. For the year ended December 31, 2013, we expect to incur aggregate restructuring charges of approximately $85 related to this action. During the three and nine months ended September 30, 2013, charges incurred under this action primarily related to employee severance, and to a lesser extent, lease cancellation and other costs associated with the consolidation of certain facilities. During the three and nine months ended September 30, 2013, we recorded net restructuring charges of $5 and $67, respectively, related to this action and $1 in both periods related to prior actions. We did not have any individually significant restructuring activities during the three and nine months ended September 30, 2012.

The components of restructuring and asset impairment charges, net, are summarized in the table below.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013			2012
By component
Severance charges	$	5		$	2	$	57		$	4
Other restructuring charges	3			—		13			—
Reversal of restructuring charges	(2		)	—		(2		)	—
Total restructuring charges	$	6		$	2	$	68		$	4
Asset impairment charges	—			1		—			1
Restructuring and asset impairment charges, net	6			3		68			5
By segment
C4ISR Electronics and Systems	$	4		$	3	$	54		$	5
Information and Technical Services	2			—		14			—
Restructuring and asset impairment charges, net	$	6		$	3	$	68		$	5

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The following table displays a roll-forward of restructuring accruals for the nine months ended September 30, 2013 and details, by type and segment, the restructuring accruals balance at September 30, 2013, which is presented on our Condensed Consolidated Balance Sheets within other accrued liabilities.

Balance at January 1, 2013	$	9
Charges for plans initiated during the year	69
Charges for plans initiated in prior years	1
Cash payments	(42		)
Reversal of accruals and other	(6		)
Balance at September 30, 2013	$	31
By accrual type
Severance accrual	$	22
Facility carrying and other costs accrual	9
By segment
C4ISR Electronics and Systems	$	23
Information and Technical Services	8

The following table displays a roll-forward of the number of employee reductions associated with all restructuring activities for the nine months ended September 30, 2013.

Planned reductions at January 1, 2013	46
Additional planned reductions	1,136
Actual reductions	(1,146	)
Planned reductions at September 30, 2013	36

NOTE 4

EARNINGS PER SHARE

The following table sets forth the reconciliation of basic and diluted weighted average shares outstanding for our earnings per share calculations:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2013	2012	2013	2012
Weighted average common shares outstanding	188.5	186.8	188.1	186.3
Add: Weighted average restricted stock awards outstanding(a)	—	0.8	0.2	1.0
Basic weighted average common shares outstanding	188.5	187.6	188.3	187.3
Add: Dilutive impact of stock options	2.2	0.4	0.9	0.5
Add: Dilutive impact of restricted stock units	2.1	0.7	1.8	0.5
Diluted weighted average common shares outstanding	192.8	188.7	191.0	188.3

(a) Restricted stock awards containing rights to non-forfeitable dividends which participate in undistributed earnings with common shareholders are considered participating securities for purposes of computing earnings per share.

For the three and nine months ended September 30, 2013, we excluded from our diluted share calculation 0.1 and 2.6 shares, respectively, related to stock options and zero and less than 0.1shares, respectively, related to restricted stock units, and for the three and nine months ended September 30, 2012, we excluded 10.0 and9.3shares, respectively, related to stock options and less than 0.1shares for both periods related to restricted stock units, as their effect would have been antidilutive.

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NOTE 5

SHAREHOLDERS’ EQUITY

Capital Stock

Authorized capital was comprised of 750 shares of common stock ($0.01 par value per share (in whole dollars)) and 50 shares of preferred stock (no par value) on September 30, 2013 and December 31, 2012. There were 189.2 and 188.3 shares of common stock issued at September 30, 2013 and December 31, 2012, respectively, and 188.8 and 188.3 shares of common stock outstanding at September 30, 2013 and December 31, 2012, respectively. No preferred stock was issued and outstanding at September 30, 2013 and December 31, 2012.

During the nine months ended September 30, 2013, we repurchased a total of 0.4 shares of our common stock under our share repurchase program for $5, and as of September 30, 2013 the Company had remaining authorization of $95 for future share repurchases through December 31, 2015. We account for shares repurchased as treasury stock under the cost method.

Dividends

On August 12, 2013, our Board of Directors declared a cash dividend of $0.10 per share, payable on October 1, 2013 to shareholders of record on August 30, 2013. During the nine months ended September 30, 2013, we declared three quarterly cash dividends totaling $59 or $0.31 per share (in whole dollars).

NOTE 6

ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table presents changes in accumulated other comprehensive loss, net of tax, by component, for the nine months ended September 30, 2013:

	Net Foreign Currency Translation Adjustments			Unamortized Defined Benefit Plan Costs				Accumulated Other Comprehensive Loss
Balance at January 1, 2013	$	15		$	(1,850	)		$	(1,835	)
Other comprehensive income (loss) before reclassifications	(3		)	116				113
Amounts reclassified from accumulated other comprehensive loss	—			54			(a)	54
Net current period other comprehensive income (loss)	(3		)	170				167
Balance at September 30, 2013	$	12		$	(1,680	)		$	(1,668	)

(a) This accumulated other comprehensive loss component primarily relates to the amortization of net actuarial loss. For the three and nine months ended September 30, 2013, the amortization of net actuarial loss was $17 (net of tax of $11) and $53 (net of tax of $35), respectively, which are included in the computation of net periodic benefit cost (Note 12).

Unamortized defined benefit plan costs consist primarily of net actuarial loss totaling $1,676 and $1,845, net of tax, as of September 30, 2013 and December 31, 2012, respectively. Net actuarial gains or losses principally arise from gains or losses on plan assets due to variations in the fair market value of the underlying assets and changes in the benefit obligation due to changes in actuarial assumptions.

Unamortized defined benefit plan costs included in accumulated other comprehensive loss in the unaudited Condensed Consolidated Balance Sheets were reduced by taxes of $1,100 and $1,211 as of September 30, 2013 and December 31, 2012, respectively. The changes in defined benefit plan costs included in other comprehensive income (loss) in the unaudited Condensed Consolidated Statements of Comprehensive Income were reduced by taxes of $11 and $111 for the three and nine months ended September 30, 2013, respectively, and $9 and $26 for the three and nine months ended September 30, 2012, respectively.

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NOTE 7

INCOME TAXES

Effective Tax Rate

Our quarterly income tax expense is measured using an estimated annual effective income tax rate, adjusted for discrete items within the period. The comparison of effective income tax rates between periods is significantly affected by discrete items recognized during the periods, the level and mix of earnings by tax jurisdiction and permanent differences.

For the three months ended September 30, 2013, the Company recorded an income tax provision of $40 or 33.3% of income from continuing operations before income tax expense as compared to $50 or 36.2% during the same prior year period. For the nine months ended September 30, 2013, the Company recorded an income tax provision of $102 or 33.6% of income from continuing operations before income tax expense as compared to $150 or 38.1% during the same prior year period. The effective income tax rate varies from the federal statutory rate of 35% primarily due to the unfavorable impact of state taxes offset by the favorable impacts from the U.S. manufacturing deduction. The effective income tax rate for the nine months ended September 30, 2013 also included the favorable impact of a discrete item related to the renewal of the 2012 federal research and development tax credit.

Uncertain Tax Positions

As of September 30, 2013 and December 31, 2012, unrecognized tax benefits were $12 and $56, respectively. Unrecognized tax benefits are primarily related to the timing of certain income and deductions and we anticipate that these unrecognized tax benefits will significantly decrease within twelve months of the reporting date due to the expected filing and acceptance of accounting method changes, which will not impact income tax expense.

We classify interest relating to tax matters as a component of interest expense and tax penalties as a component of income tax expense in our unaudited Condensed Consolidated Statements of Operations. As of September 30, 2013 and December 31, 2012, we had no interest accrued for tax matters and $2 and $9, respectively, accrued for tax penalties.

NOTE 8

RECEIVABLES, NET

Receivables, net were comprised of the following:

	September 30, 2013			December 31, 2012
Billed receivables	$	477		$	429
Unbilled contract receivables	530			562
Other	9			7
Receivables, gross	1,016			998
Allowance for doubtful accounts	(4		)	(3		)
Receivables, net	$	1,012		$	995

Total billed receivables due from the U.S. Government, either directly or as a subcontractor with the U.S. Government, were $397 and $340 at September 30, 2013 and December 31, 2012, respectively. Because the Company’s receivables are primarily with the U.S. Government, the Company does not have a material credit risk exposure.

Unbilled contract receivables represent revenue recognized on long-term contracts in excess of amounts billed as of the balance sheet date. We expect to bill and collect substantially all of the September 30, 2013 unbilled contract receivables during the next twelve months as scheduled performance milestones are completed or units are delivered.

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NOTE 9

INVENTORIES, NET

Inventories, net were comprised of the following:

	September 30, 2013			December 31, 2012
Production costs of contracts in process	$	260		$	253
Less progress payments	(17		)	(22		)
Production costs of contracts in process, net	243			231
Product inventory	45			52
Inventories, net	$	288		$	283

NOTE 10

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

As of September 30, 2013 and December 31, 2012, goodwill was $2,184 and $2,180, respectively. As of September 30, 2013 and December 31, 2012, goodwill for our C4ISR Electronics and Systems segment was $1,800 and $1,802, respectively, and goodwill for our Information and Technical Services segment was $384 and $378, respectively.

During the first quarter of 2013, the Company acquired C4i Pty. Ltd. for an aggregate purchase price of approximately $16, net of cash acquired, resulting in an increase to goodwill of $7 and other intangible assets of $7. The operating results of the business are reported in the Information and Technical Services segment from the date of acquisition. The assets, liabilities and results of operations for the acquired business were not material to the Company.

Other Intangible Assets, Net

Information regarding our other intangible assets was as follows:

	September 30, 2013							December 31, 2012
	Gross Carrying Amount		Accumulated Amortization			Net Intangibles		Gross Carrying Amount		Accumulated Amortization			Net Intangibles
Customer and distributor relationships	$	525	$	(366	)	$	159	$	524	$	(348	)	$	176
Proprietary technology	30		(20		)	10		25		(18		)	7
Trademark, patents and other	9		(5		)	4		5		(4		)	1
Total other intangible assets	$	564	$	(391	)	$	173	$	554	$	(370	)	$	184

Amortization expense related to other intangible assets for the three and nine months ended September 30, 2013 was $7 and $20, respectively, and $10 and $29 for the three and nine months ended September 30, 2012, respectively.

Estimated amortization expense for the remaining three months of 2013 and each of the five succeeding years and thereafter is as follows:

Remaining 2013	$	7
2014	24
2015	21
2016	19
2017	17
2018 and thereafter	85
Total	$	173

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NOTE 11

DEBT

Debt consisted of the following:

	September 30, 2013			December 31, 2012
Long-term debt	$	650		$	650
Unamortized debt discount	(1		)	(1		)
Total long-term debt	$	649		$	649

The following table provides a summary of interest rates, carrying amounts and estimated fair values of outstanding long-term debt:

			September 30, 2013				December 31, 2012
	Interest rate		Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt
Senior notes (due 2016)	4.25	%	$	250	$	264	$	250	$	262
Senior notes (due 2021)	5.55	%	400		405		400		437
Total			$	650	$	669	$	650	$	699

The fair value of our notes was determined using prices in secondary markets for identical and similar securities (Level 2 inputs) obtained from external pricing sources.

Commercial Paper

The Company’s commercial paper program generally enables the Company to borrow short-term funds at competitive rates. The commercial paper program is fully supported by available borrowing capacity under our Credit Facility. As of September 30, 2013 and December 31, 2012, there was no commercial paper outstanding under our commercial paper program.

Credit Facility

The Company has a competitive advance and revolving credit facility agreement (“Credit Facility”) with a consortium of lenders, which is available for working capital, capital expenditures and other general corporate purposes. The Credit Facility provides for a four year maturity, expiring October 25, 2015, with a one year extension option upon satisfaction of certain conditions, and comprises an aggregate principal amount of up to $600 of revolving loans, competitive advances and letters of credit in a face amount up to $100. Borrowings under the Credit Facility bear interest at rates based, at our option, on a Eurodollar rate or an alternate base rate, as defined in the Credit Facility. As of September 30, 2013 and December 31, 2012, there were no borrowings or letters of credit outstanding under the Credit Facility.

The Credit Facility contains customary affirmative and negative covenants that, among other things, limit or restrict our ability to: incur additional debt or issue guarantees of indebtedness; create liens; enter into certain sale and lease-back transactions; merge or consolidate with another person; sell, transfer, lease or otherwise dispose of assets; liquidate or dissolve; and enter into restrictive covenants. Additionally, the Credit Facility requires us not to permit the ratio of combined total indebtedness to combined EBITDA (leverage ratio) to exceed 3.50 to 1.00 at any time.

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Senior Notes

The Company has outstanding long-term debt of $250 aggregate principal amount of 4.25% senior notes due October 1, 2016 and $400 aggregate principal amount of 5.55% senior notes due October 1, 2021 (together the “Notes”). As of September 30, 2013 and December 31, 2012, accrued interest payable on the Notes, included in other accrued liabilities, was $16 and $8, respectively, and is payable on April 1 and October 1 of each year.

The Notes have covenants that restrict our ability to, subject to exceptions, incur indebtedness secured by liens or engage in sale and leaseback transactions. The Notes also have customary events of default, including, but not limited to, non-payment of principal and interest, and certain events of bankruptcy, insolvency or reorganization of the Company. Under the terms of the Notes, we have the option to redeem the Notes prior to maturity, and we will be required to make an offer to purchase the Notes if a change of control triggering event (as defined in the Notes indenture) occurs.

NOTE 12

POSTRETIREMENT BENEFIT PLANS

The following table provides the components of net periodic benefit cost for our defined benefit plans, including defined benefit pension plans and other postretirement defined benefit plans:

	Three Months Ended September 30,
	2013									2012
	Pension			Other Benefits			Total			Pension			Other Benefits			Total
Net periodic benefit cost
Service cost	$	16		$	—		$	16		$	19		$	—		$	19
Interest cost	60			5			65			65			6			71
Expected return on plan assets	(83		)	(5		)	(88		)	(96		)	(5		)	(101		)
Amortization of net actuarial loss	25			3			28			19			3			22
Amortization of prior service cost (credit)	—			—			—			1			—			1
Net periodic benefit cost	$	18		$	3		$	21		$	8		$	4		$	12

	Nine Months Ended September 30,
	2013									2012
	Pension			Other Benefits			Total			Pension			Other Benefits			Total
Net periodic benefit cost
Service cost	$	54		$	1		$	55		$	57		$	2		$	59
Interest cost	180			14			194			197			17			214
Expected return on plan assets	(254		)	(16		)	(270		)	(287		)	(16		)	(303		)
Amortization of net actuarial loss	79			9			88			55			10			65
Amortization of prior service cost (credit)	2			—			2			2			(1		)	1
Net periodic benefit cost	$	61		$	8		$	69		$	24		$	12		$	36

We contributed $114 and $265 to our qualified defined benefit pension plans during the nine months ended September 30, 2013 and 2012, respectively. We currently anticipate making additional contributions to our qualified defined benefit pension plans of approximately $32 during the remainder of 2013.

During the second quarter of 2013, the U.S. Salaried Retirement Plan (U.S. SRP) and related Excess Pension Plans were amended to freeze all future benefit accruals effective December 31, 2016. As a result, the assets and liabilities of the U.S. SRP and related plans were re-measured as of May 31, 2013, improving the funded status of the plans by approximately $190 due to a reduced projected benefit obligation primarily caused by the use of a higher discount rate and lower projected actuarial loss. The re-measurement will reduce net periodic benefit costs by approximately $14 in 2013 primarily due to lower service costs.

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NOTE 13

STOCK-BASED COMPENSATION

The Company maintains an equity incentive plan to govern awards granted to Exelis employees and directors, including awards of non-qualified stock options (NQOs), restricted stock units (RSUs), total shareholder return (TSR) awards, and other awards.

The following table provides the impact of stock-based compensation costs in our unaudited Condensed Consolidated Statements of Operations:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Compensation cost for equity-based awards	$	7	$	4	$	20	$	16
Compensation cost for liability-based awards	2		1		5		2
Total compensation costs, pre-tax	$	9	$	5	$	25	$	18
Future tax benefit	$	3	$	2	$	8	$	7

At September 30, 2013, total unrecognized compensation costs related to equity-based awards and liability-based awards were $24 and $6, respectively, which are expected to be recognized ratably over a weighted-average period of 1.97 years and 1.86 years, respectively.

The following table provides a summary of the activities for NQOs and restricted stock, including RSUs and restricted stock awards, for the nine months ended September 30, 2013:

	Stock Options				Restricted Stock
	Shares		Weighted  Average Exercise Price(a)		Shares		Weighted  Average Grant Date Fair value (a)
Outstanding at January 1, 2013	11.36		$	11.06	3.56		$	11.67
Granted	2.89		11.11		1.14		11.16
Exercised	(1.12	)	9.97		—		—
Vested	—		—		(0.80	)	12.00
Forfeited, canceled or expired	(0.58	)	11.98		(0.20	)	11.32
Outstanding at September 30, 2013	12.55		$	11.13	3.70		$	11.45

(a) In whole dollars.

During the nine months ended September 30, 2013, we granted long-term incentive awards to employees consisting of 2.9 NQOs and 1.1 RSUs with respective weighted average grant date fair values (in whole dollars) of $1.93 and $11.16. The NQOs vest annually in three equal installments and have a ten-year expiration period. RSUs vest on the completion of a three-year service period. We also granted TSR awards with an aggregate target value of $4 that are cash settled at the end of a three-year performance period.

The fair values of NQOs are estimated on the date of grant using the Black-Scholes model. The fair values of RSUs are determined based on the closing price of Exelis common stock on the date of grant. The fair values of TSR awards are measured quarterly based on the Company’s performance relative to the performance of a concentrated group of our peer companies and the S&P 1500 Aerospace and Defense index. Depending on the Company’s performance during the three-year performance period, payment can range from 0% to 200% of the target value.

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The following table details the weighted average assumptions utilized in determining the fair value of the NQOs granted during the first nine months of 2013.

Dividend yield	3.72		%
Expected volatility	27.0		%
Expected life (in years)	7.0
Risk-free rates	1.40		%
Grant date fair value (in whole dollars)	$	1.93

NOTE 14

RELATED PARTY TRANSACTIONS

Separation Agreements

On October 31, 2011, ITT Corporation ("ITT") completed the spin-off (the “Spin-off”) of Exelis and Exelis began operating as a stand-alone publicly traded corporation. Prior to the Spin-off, Exelis operated as the Defense and Information Solutions Segment of ITT.

In order to govern certain ongoing relationships between Exelis and ITT following the Spin-off and to provide mechanisms for an orderly transition, on October 25, 2011, Exelis, ITT, and Xylem Inc. executed the various agreements that govern the ongoing relationships between and among the three companies after the Spin-off and provide for the allocation of employee benefits, income taxes, and certain other liabilities and obligations attributable to periods prior to the Spin-off. The executed agreements include the Distribution Agreement, Benefits and Compensation Matters Agreement, Tax Matters Agreement, several real estate matters agreements, and Master Transition Services Agreement.

The Distribution Agreement provides for certain indemnifications and cross-indemnifications among Exelis, ITT and Xylem Inc. The indemnifications address a variety of subjects, including indemnification by ITT of Exelis in respect of certain asserted and unasserted asbestos or silica liability claims. Certain intercompany work orders and/or informal intercompany commercial arrangements were converted into third-party contracts based on ITT’s standard terms and conditions.

For the three and nine months ended September 30, 2013, charges incurred for services provided to Exelis by ITT and Xylem Inc. under the separation agreements, net of costs passed through to third parties, were zero and $1, respectively, and $1 and $2, for the three and nine months ended September 30, 2012, respectively. For the three and nine months ended September 30, 2013, charges related to these agreements for services provided by Exelis to ITT and Xylem Inc., net of costs passed through to third parties, were zero and $1, respectively, and $1 and $2, for the three and nine months ended September 30, 2012, respectively. At September 30, 2013 and December 31, 2012, total payables due from Exelis to ITT and Xylem Inc. were $5 and $3, respectively and total receivables due to Exelis from ITT and Xylem Inc. were $7 and $7, respectively.

NOTE 15

COMMITMENTS AND CONTINGENCIES

General

From time to time, we are involved in legal proceedings that are incidental to the operation of our businesses. Some of these proceedings seek remedies relating to environmental matters, personal injury claims, employment and pension matters, and commercial or contractual disputes, sometimes related to acquisitions or divestitures.

Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including our assessment of the merits of the particular claim, we do not expect that any asserted or unasserted legal claims or proceedings, individually or in the aggregate, will have a material adverse effect on our cash flow, results of operations, or financial condition.

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Environmental

In the ordinary course of business, we are subject to federal, state, local, and foreign environmental laws and regulations. We are responsible, or are alleged to be responsible, for ongoing environmental investigation and remediation of multiple sites. These sites are in various stages of investigation and/or remediation and in many of these proceedings our liability is considered de minimis. We have received notification from the U.S. Environmental Protection Agency, and from similar environmental agencies, that a number of sites formerly or currently owned and/or operated by Exelis, and other properties or water supplies that may be or have been impacted from those operations, contain disposed or recycled materials or wastes and require environmental investigation and/or remediation. These sites include instances where we have been identified as a potentially responsible party under federal and state environmental laws and regulations.

Accruals for environmental matters are recorded on a site by site basis when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies available to us. Our accrued liabilities for these environmental matters represent our best estimates related to the investigation and remediation of environmental media such as water, soil, soil vapor, air and structures, as well as related legal fees. These estimates, and related accruals, are reviewed quarterly and updated for progress of investigation and remediation efforts and changes in facts and legal circumstances. Liabilities for these environmental expenditures are recorded on an undiscounted basis.

It is difficult to estimate the final costs of investigation and remediation due to various factors, including incomplete information regarding particular sites and other potentially responsible parties, uncertainty regarding the extent of investigation or remediation and our share, if any, of liability for such conditions, the selection of alternative remedial approaches, and changes in environmental standards and regulatory requirements. We have estimated and accrued $27 and $27 as of September 30, 2013 and December 31, 2012, respectively, for environmental matters. In our opinion, the total amount accrued is appropriate based on existing facts and circumstances.

The following table illustrates the range of estimated loss and number of active sites for these environmental matters:

	September 30, 2013		December 31, 2012
Low-end range	$	24	$	24
High-end range	$	45	$	47
Number of active environmental investigations and remediation sites	23		22

U.S. Government Contracts, Investigations and Claims

The Company has U.S. Government contracts that are funded incrementally on a year-to-year basis. Changes in government policies, priorities or funding levels through agency or program budget reductions by the U.S. Congress or executive agencies could have a material adverse effect on the Company’s financial condition or results of operations. Furthermore, contracts with the U.S. Government may be terminated or suspended by the U.S. Government at any time, with or without cause. Such contract suspensions or terminations could result in un-reimbursable expenses or charges or otherwise adversely affect the Company’s financial condition and/or results of operations.

Departments and agencies of the U.S. Government have the authority to investigate various transactions and operations of the Company, and the results of such investigations may lead to administrative, civil or criminal proceedings, the ultimate outcome of which could be fines, penalties, repayments or compensatory or treble damages. U.S. Government regulations provide that certain findings against a contractor may lead to suspension or debarment from future U.S. Government contracts or the loss of export privileges for a company or an operating division or subdivision. Suspension or debarment could have a material adverse effect on the Company because of its reliance on government contracts.

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U.S. Government agencies, including the Defense Contract Audit Agency (DCAA) and others, routinely audit and review a contractor’s performance on government contracts, indirect rates and pricing practices, and compliance with applicable contracting and procurement laws, regulations and standards. Accordingly, costs billed or billable to the U.S. Government customers are subject to potential adjustment upon audit by such agencies. They also review the adequacy of the contractor’s compliance with government standards for its accounting and management internal control systems, including: control environment and accounting system, general information technology system, budget and planning system, purchasing system, material management and accounting system, compensation system, labor system, indirect and other direct costs system, billing system and estimating system. Audits currently underway include the Company’s control environment and accounting, billing, purchasing, and indirect and other direct cost systems, as well as reviews of the Company’s compliance with certain U.S. Government Cost Accounting Standards.

From time to time, customers advise the Company of claims and penalties concerning certain potential disallowed costs. When such findings are presented, Exelis and the U.S. Government representatives engage in discussions to enable Exelis to evaluate the merits of these claims as well as to assess the amounts being claimed. Where appropriate, provisions are made to reflect the expected exposure to the matters raised by the U.S. Government representatives and such provisions are reviewed on a quarterly basis for sufficiency based on the most recent information available.

Indemnifications

As part of the Spin-off, Exelis, ITT and Xylem Inc. indemnify one another with respect to such parties’ assumed or retained liabilities under the Distribution Agreement and breaches of the Distribution Agreement or related Spin-off agreements. Exelis expects ITT and Xylem Inc. to fully perform under the terms of the Distribution Agreement and therefore we have not recorded a liability for matters for which we are indemnified. In addition, we are not aware of any claims or other circumstances that would give rise to material payments to ITT or Xylem Inc. under the indemnity that we provide to them.

Letters of Credit

In the ordinary course of business, we use standby letters of credit, guarantees issued by commercial banks and surety bonds issued by insurance companies, as well as self-guarantees, principally to guarantee our performance on certain contracts and to support our self-insured workers’ compensation plans. At September 30, 2013, there was an aggregate of approximately $107 in surety bonds, guarantees and stand-by letters of credit outstanding.

Rabbi Trust

The Company maintains a grantor trust (“Rabbi Trust”) for the purpose of assisting the Company with the payment of certain nonqualified deferred compensation obligations in the event of a change in control of the Company. The Company is obligated to contribute an amount equal to 110 percent of the Company’s obligations under eight nonqualified deferred compensation plans at the time of an “Acceleration Event,” as defined in such plans and the Rabbi Trust.

NOTE 16

SEGMENT INFORMATION

The Company’s segments are reported on the same basis used internally for evaluating performance and for allocating resources. We operate in two segments: C4ISR Electronics and Systems, and Information and Technical Services. Assets of the business segments exclude general corporate assets, which principally consist of cash, deferred tax assets, certain plant, property, and equipment, and certain other assets.

C4ISR Electronics and Systems

This segment provides communications, sensing and surveillance, space and advanced engineering equipment and systems for government and commercial customers around the world.

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Information and Technical Services

This segment provides a broad range of systems integration, operations, sustainment, advanced engineering, logistics, space launch and range-support solutions for a wide variety of U.S. military and government agency customers.

Segment financial results were as follows:

	Three Months Ended September 30,
	2013						2012
	Product Revenue		Service Revenue		Total Revenue		Product Revenue		Service Revenue		Total Revenue
C4ISR Electronics and Systems	$	498	$	—	$	498	$	611	$	—	$	611
Information and Technical Services	—		643		643		—		750		750
Total	$	498	$	643	$	1,141	$	611	$	750	$	1,361
	Nine Months Ended September 30,
	2013						2012
	Product Revenue		Service Revenue		Total Revenue		Product Revenue		Service Revenue		Total Revenue
C4ISR Electronics and Systems	$	1,515	$	—	$	1,515	$	1,884	$	—	$	1,884
Information and Technical Services	—		2,062		2,062		—		2,277		2,277
Total	$	1,515	$	2,062	$	3,577	$	1,884	$	2,277	$	4,161

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Operating Income
C4ISR Electronics and Systems	$	69		$	84		$	128		$	261
Information and Technical Services	64			59			206			165
Total Operating Income	$	133		$	143		$	334		$	426
Operating Margin
C4ISR Electronics and Systems	13.9		%	13.7		%	8.4		%	13.9		%
Information and Technical Services	10.0		%	7.9		%	10.0		%	7.2		%
Total Operating Margin	11.7		%	10.5		%	9.3		%	10.2		%

	September 30, 2013		December 31, 2012
Assets
C4ISR Electronics and Systems	$	3,047	$	3,078
Information and Technical Services	1,210		1,186
Corporate and Other	836		948
Total Assets	$	5,093	$	5,212

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(In millions, except per share amounts, unless otherwise stated)

You should read the following discussion of our results of operations and financial condition together with the unaudited Condensed Consolidated Financial Statements and notes thereto included in this quarterly report on Form 10-Q, as well as the audited Consolidated and Combined Financial Statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012, which provides additional information regarding the Company, our products and services, industry outlook and forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward looking statements.

OVERVIEW

Exelis is a leader in Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) related products and systems and information and technical services, which it supplies to military, government and commercial customers in the United States and globally. Exelis provides mission-critical systems in the areas of networked communications, sensing and surveillance, electronic warfare, navigation, air traffic solutions and information systems, with growing positions in cyber-security, composite aerostructures, logistics and technical services. The Company’s customers include the U.S. Department of Defense (DoD), including the U.S. Army, Navy, Marines and Air Force, and its prime contractors, U.S. Government intelligence agencies, National Aeronautics and Space Administration (NASA), Federal Aviation Administration (FAA), allied foreign governments and domestic and foreign commercial customers. As a prime contractor, subcontractor, or preferred supplier, Exelis participates in many high priority defense and non-defense programs in the United States. Exelis conducts most of its business with the U.S. Government, principally the DoD.

Our business is reported in two segments: C4ISR Electronics and Systems, and Information and Technical Services. Our C4ISR Electronics and Systems segment provides engineered electronic systems and equipment, including force protection, electronic warfare systems, reconnaissance and surveillance systems, and integrated structures. Our Information and Technical Services segment is a provider of logistics, infrastructure, and sustainment support, while also providing a diverse set of technical services.

Economic Opportunities, Challenges, and Risks

The United States continues to face significant economic and fiscal challenges, which affect funding for defense and other discretionary budgets, while concerns over fiscal deficits and the national debt continue to drive political debate. The Budget Control Act of 2011 (Budget Control Act) provided for a reduction in planned defense budgets and mandated substantial additional spending reductions through a process known as "sequestration," which took effect on March 1, 2013. On March 26, 2013, the President signed into law a continuing resolution and several appropriations bills as part of the Consolidated and Further Continuing Appropriations Act, 2013 (the Appropriations Act), which included specific appropriations for our major U.S. Government customers. The Appropriations Act is subject to sequestration spending reductions under the Budget Control Act. The sequestration spending reductions required for defense were approximately $43 billion for fiscal year 2013, increasing to approximately $55 billion for fiscal year 2014.

The budget and appropriations for fiscal year 2014 remain unclear with no 2014 budget and appropriations bills finalized by the September 30, 2013 federal fiscal year end. Following a 16 day partial U.S. government shutdown, on October 16, 2013, a continuing resolution was approved that maintains defense funding and sequestration spending reductions at prior-year levels through January 15, 2014 and suspended the statutory limit on the amount of permissible federal debt (the debt ceiling) through February 7, 2014. It is unclear how and to what extent any additional sequestration spending reductions required for fiscal year 2014 by the Budget Control Act would be applied to future fiscal year 2014 continuing resolutions or appropriations bills. Neither the President’s proposed fiscal year 2014 defense budget, nor the pending House of Representatives and Senate defense appropriations bills, conforms

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to the reductions mandated by the Budget Control Act. If Congress does not take legislative action, the sequestration spending reductions will increase in fiscal year 2014 as required by the Budget Control Act.

Companies which derive substantial revenues from federal contracting will benefit from comprehensive legislation which implements fundamental multi-year changes that would prevent sequestration from continuing. The debate over how and when a solution may be reached over the as-yet unresolved sequestration matter remains a significant issue for the defense industry.

We believe that spending on recapitalization, modernization and maintenance of defense and security assets will continue despite possible reductions to some defense programs in which we participate or for which we expect to compete. We expect ongoing DoD emphasis to be placed on our areas of strength, such as intelligence, surveillance and reconnaissance (ISR) and data analytics, critical network development and operation, electronic warfare, precision navigation and timing, and cyber solutions. However, we believe it is likely that discretionary spending by the U.S. Government will remain constrained for a number of years. Uncertainty related to potential changes in appropriations and strategic priorities and continued spending reductions from sequestration could materially impact our business.

The information provided above does not represent a complete list of known trends and uncertainties that could impact our business in either the near or long-term. It should, however, be considered along with the risk factors identified in Part 1, Item 1A under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012 and our disclosure under the caption “Forward-Looking and Cautionary Statements” at the end of this section.

Executive Summary

Exelis reported revenue of $1.1 billion for the quarter ended September 30, 2013, a decrease of 16% compared to the corresponding period in 2012. The decrease in revenue was driven by a revenue decline of 18% in our C4ISR Electronics and Systems segment primarily due to lower demand for counter-IED jammer products and Night Vision products. Revenue also declined 14% within our Information and Technical Services segment primarily due to lower revenue on a network operations and maintenance contract and lower activity on our Afghanistan programs.

Operating income for the three months ended September 30, 2013 was $133, reflecting a decrease of $10 or 7% compared to the corresponding prior year period primarily due to lower revenue. Overall, operating margin increased quarter-over-quarter to 11.7% from 10.5% primarily due to a decrease in the cost of service revenue as a percentage of service revenue.

Further details related to the quarter are contained in the Discussion of Financial Results section.

Key Performance Indicators and Non-GAAP Measures

Management reviews key performance indicators including revenue, segment operating income and margins, orders growth, and backlog, among others 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 measure, which may not be comparable to similarly titled measures reported by other companies, to be a key performance indicator:

• “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.

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	Three Months Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013		2012
Net income	$	80	$	88		$	202	$	244
Separation costs, net of tax	—		4			—		19
Reversal of separation related tax receivable write-down	—		(4		)	—		(4		)
Reversal of separation related tax items	—		(4		)	—		—
Adjusted net income	$	80	$	84		$	202	$	259

DISCUSSION OF FINANCIAL RESULTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 COMPARED TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012

Selected financial highlights are presented in the table below:

	Three Months Ended September 30,								Nine Months Ended September 30,
	2013			2012			Change		2013			2012			Change
Product and service revenue	$	1,141		$	1,361		(16.2	)%	$	3,577		$	4,161		(14.0	)%
Cost of product and service revenue	891			1,083			(17.7	)%	2,799			3,305			(15.3	)%
Operating expense	117			135			(13.3	)%	444			430			3.3	%
Operating income	133			143			(7.0	)%	334			426			(21.6	)%
Operating margin	11.7		%	10.5		%			9.3		%	10.2		%
Interest expense, net	10			9			11.1	%	28			29			(3.4	)%
Other expense (income), net	3			(4		)	175	%	2			3			(33.3	)%
Income tax expense	40			50			(20.0	)%	102			150			(32.0	)%
Effective income tax rate	33.3		%	36.2		%			33.6		%	38.1		%
Net income	$	80		$	88		(9.1	)%	$	202		$	244		(17.2	)%

Revenue

Revenue for the three and nine months ended September 30, 2013 decreased $220 or 16.2% and $584 or 14.0%, respectively, as compared to the same prior year periods. The following table illustrates revenue for our segments:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013		2012		Change		2013		2012		Change
C4ISR Electronics and Systems	$	498	$	611	(18.5	)%	$	1,515	$	1,884	(19.6	)%
Information and Technical Services	643		750		(14.3	)%	2,062		2,277		(9.4	)%
Total Revenue	$	1,141	$	1,361	(16.2	)%	$	3,577	$	4,161	(14.0	)%

Revenue from our C4ISR Electronics and Systems segment decreased $113 and $369 for the three and nine months ended September 30, 2013, respectively, as compared with the same periods in 2012. The decrease in revenue for the three and nine months ended September 30, 2013 was primarily due to volume declines in counter-IED jammer products, including CREW related products and other counter-IED systems, of approximately $51 and $137, respectively, and Night Vision products of approximately $24 and $128, respectively. Additionally, for the three and nine months ended September 30, 2013, revenue decreased on our Worldview-3 satellite imaging program by approximately $15 and $49, respectively, as this program nears completion. For the nine months ended September 30, 2013, revenue also decreased due to lower volume in Integrated Defensive Electronic Countermeasures (IDECM) products for military aircraft of approximately $37. The decrease in revenue for the three and nine months ended September 30, 2013 was partially offset by higher revenue on our Single Channel Ground and Airborne Radio Systems (SINCGARS) products of approximately $7 and our Advance Integrated Defensive Electronic Warfare Suite (AIDEWS) products for international military aircraft of approximately $19, respectively.

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Revenue from our Information and Technical Services segment decreased $107 and $215 for the three and nine months ended September 30, 2013, respectively, as compared with the same periods in 2012. The decrease in revenue for the three and nine months ended September 30, 2013 was primarily due to lower activity on our Middle East programs of approximately $22 and $71, respectively, our Operations Maintenance and Defense of Army Communications in Southwest Asia and Central Asia (OMDAC-SWACA) contract, formerly our Total Army Communications for Southwest Asia, Central Asia and Africa (TACSWACAA) contract, of approximately $28 and $56, respectively, our U.S. and Europe base operating support programs of approximately $20 and $39, respectively, and our Afghanistan programs of approximately $27 and $18, respectively. The decrease in revenue for the three and nine months ended September 30, 2013 was partially offset by higher revenue on our Automated Dependent Surveillance-Broadcast (ADS-B) contract of approximately $9 and $23, respectively.

Cost of Revenue and Operating Expenses

Cost of product and service revenue and other operating expenses are comprised of the following:

	Three Months Ended September 30,								Nine Months Ended September 30,
	2013			2012			Change		2013			2012			Change
Cost of product revenue	$	354		$	434		(18.4	)%	$	1,091		$	1,328		(17.8	)%
% of product revenue	71.1		%	71.0		%			72.0		%	70.5		%
Cost of service revenue	537			649			(17.3	)%	1,708			1,977			(13.6	)%
% of service revenue	83.5		%	86.5		%			82.8		%	86.8		%
Selling, general and administrative expenses	100			114			(12.3	)%	337			377			(10.6	)%
% of total revenue	8.8		%	8.4		%			9.4		%	9.1		%
Research and development expenses	11			18			(38.9	)%	39			48			(18.8	)%
% of total revenue	1.0		%	1.3		%			1.1		%	1.2		%
Restructuring and asset impairment charges, net	6			3			100	%	68			5			1,260	%
% of total revenue	0.5		%	0.2		%			1.9		%	0.1		%

Cost of Product and Service Revenue

The decrease in cost of product revenue of $80 or 18.4% and $237 or 17.8% for the three and nine months ended September 30, 2013, respectively, as compared to the same periods in 2012 was primarily due to volume declines within our C4ISR Electronics and Systems segment. There was no significant change to the cost of product revenue as a percentage of product revenue for the three months ended September 30, 2013 as compared to the corresponding period in 2012. The cost of product revenue as a percentage of product revenue increased for the nine months ended September 30, 2013 as compared to the corresponding period in 2012 primarily due to a net sales mix of lower margin products.

The decrease in cost of service revenue of $112 or 17.3% and $269 or 13.6% for the three and nine months ended September 30, 2013, respectively, as compared to the same periods in 2012 was primarily due to lower activity within our Information and Technical Services segment. The cost of service revenue as a percentage of service revenue decreased for the three and nine months ended September 30, 2013 as compared to the corresponding periods in 2012 primarily due to productivity improvements that decreased the cost of service revenue and contract pricing adjustments, including improved incentive and award fees and contract modifications, that increased revenue on several contracts within our Air Traffic Management, Afghanistan and Middle East program areas.

Selling, General & Administrative (SG&A) Expenses

SG&A expenses as a percent of total revenue were 8.8% and 9.4%for the three and nine months ended September 30, 2013, respectively, compared to 8.4% and 9.1%, respectively, during the same periods in 2012. The increase in SG&A expenses as a percent of total revenue as compared to the same periods in 2012 was due to lower revenue, partially offset by lower SG&A expenses. For the three and nine months ended September 30, 2013, SG&A expenses decreased as compared to the same periods in 2012 primarily due to cost reductions resulting from current and prior year restructuring actions in our C4ISR Electronics and Systems segment and other cost saving initiatives, partially offset by higher net periodic benefit costs.

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Research and Development (R&D) Expenses

The decrease in R&D expenses of $7 or 38.9% and $9 or 18.8% for the three and nine months ended September 30, 2013, respectively, as compared to the same periods in 2012 was primarily due to more narrowly focusing R&D expenses in strategic growth areas.

Restructuring and Asset Impairment Charges, Net

The increase in restructuring and asset impairment charges, net, of $3 and $63 for the three and nine months ended September 30, 2013, respectively, as compared to the same periods in 2012 was primarily due to a restructuring action started in the first quarter of 2013 to reduce the size of our workforce and consolidate our facilities footprint to align our cost structure more closely to customer and market conditions, which is expected to be completed by the end of 2013. Through voluntary and involuntary employee reductions, we are eliminating approximately 1,136 positions. For the year ended December 31, 2013, we expect to incur aggregate restructuring charges of approximately $85 related to this action. During the three and nine months ended September 30, 2013, charges incurred under this action primarily related to employee severance, and to a lesser extent, lease cancellation and other costs associated with the consolidation of certain facilities.

Operating Income

The following table illustrates the operating income results of our business segments, including operating margin results.

	Three Months Ended September 30,								Nine Months Ended September 30,
	2013			2012			Change		2013			2012			Change
C4ISR Electronics and Systems	$	69		$	84		(17.9	)%	$	128		$	261		(51.0	)%
Operating margin	13.9		%	13.7		%			8.4		%	13.9		%
Information and Technical Services	64			59			8.5	%	206			165			24.8	%
Operating margin	10.0		%	7.9		%			10.0		%	7.2		%
Total operating income	$	133		$	143		(7.0	)%	$	334		$	426		(21.6	)%
Total operating margin	11.7		%	10.5		%			9.3		%	10.2		%

Operating income at our C4ISR Electronics and Systems segment for the three and nine months ended September 30, 2013 decreased $15 or 17.9% and $133 or 51.0%, respectively, as compared to the same periods in 2012. Operating income as a percentage of revenue for the three and nine months ended September 30, 2013 was 13.9% and 8.4%, respectively, as compared to 13.7% and 13.9%, respectively, for the same periods in 2012. There was no significant change in operating margin for the three months ended September 30, 2013 as compared to the same period in 2012. The decrease in operating margin for the nine months ended September 30, 2013 as compared to the same period in 2012 was primarily due to higher restructuring charges.

Operating income at our Information and Technical Services segment for the three and nine months ended September 30, 2013 increased $5 or 8.5% and $41 or 24.8%, respectively, as compared to the same periods in 2012. Operating income as a percentage of revenue for the three and nine months ended September 30, 2013 was 10.0% and 10.0%, respectively, as compared to 7.9% and 7.2%, respectively, for the same periods in 2012. The increase in operating margin was primarily due to lower cost of service revenue as a percentage of service revenue for the three and nine months ended September 30, 2013 as compared to the same periods in 2012.

During the performance of long-term sale contracts, estimated final contract prices and costs are reviewed periodically and revisions are made as required and recorded in income in the period in which they are determined. Changes in estimated revenues, cost of revenue and the related effect to operating income are recognized using a cumulative catch-up adjustment which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a contract’s percent complete. Net favorable cumulative catch-up adjustments related to prior periods increased operating income by approximately $16 and $83 for the three and nine months ended September 30, 2013, respectively, and by approximately $26 and $79 for the three and nine months ended

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September 30, 2012, respectively. Productivity improvements and contract pricing adjustments primarily contributed to the net favorable cumulative catch-up adjustments in the current three and nine month periods.

Impact to Operating Income from Defined Benefit Plan Expense

The Company recorded net periodic benefit costs of $21 and $69 for the three and nine months ended September 30, 2013, respectively, as compared to $12 and $36 in the same periods in 2012. The increase in net periodic benefit costs was primarily attributable to the effect of a lower expected long-term rate of return on plan assets and higher amortization of net actuarial losses, partially offset by lower interest costs due to a decrease in the discount rate, for the three and nine months ended September 30, 2013 as compared to the same periods in 2012.

During the second quarter of 2013, the U.S. Salaried Retirement Plan (U.S. SRP) and related Excess Pension Plans were amended to freeze all future benefit accruals effective December 31, 2016. As a result, the assets and liabilities of the U.S. SRP and related plans were re-measured as of May 31, 2013. The re-measurement will reduce net periodic benefit costs by approximately $14 in 2013 primarily due to lower service costs.

Interest Expense, Net

The Company recorded interest expense, net, of $10 and $28 for the three and nine months ended September 30, 2013, respectively, as compared to $9 and $29, respectively, during the same periods in 2012. Interest expense, net, is primarily related to our senior notes.

Other Expense (Income), Net

The Company recorded other expense, net, of $3 for the three months ended September 30, 2013 as compared to other income, net, of $4 in the same period in 2012. The Company recorded other expense, net, of $2 for the nine months ended September 30, 2013 as compared to $3, during the same period in 2012. The period-over-period changes were not significant.

Income Tax Expense

For the three and nine months ended September 30, 2013, the Company recorded income tax provisions of $40 and $102, respectively, which represents effective tax rates of 33.3% and 33.6%, respectively, as compared to $50 or 36.2% and $150 or 38.1%, respectively, during the same prior year periods. The decrease in the 2013 quarterly and year-to-date effective income tax rates as compared to the same periods in 2012 was primarily due to an increase in the U.S. manufacturing deduction. The decrease in the 2013 year-to-date effective income tax rate was also due to the favorable impact of a discrete item related to the renewal of the 2012 federal research and development tax credit.

Backlog

Total backlog includes both funded backlog (firm orders for which funding is contractually obligated by the customer) and unfunded backlog (firm orders for which funding is not currently contractually obligated by the customer) and represents firm orders and potential options on multi-year contracts, excluding potential orders under indefinite delivery / indefinite quantity (IDIQ) contracts. Backlog is converted into revenue as work is performed or deliveries are made. The level of order activity related to defense programs can be affected by the timing of government funding authorizations and project evaluation cycles. Year-over-year comparisons could, at times, be impacted by these factors, among others.

Funded orders received increased $0.8 billion, to $4.5 billion, during the nine months ended September 30, 2013 as compared to the same period in 2012, primarily due to awards on our K-BOSSS Middle East program within our Information and Technical Services segment. Funded orders also increased due to higher international orders for Space Systems and Surveillance and Reconnaissance Systems and higher orders for composite aerostructure products within our C4ISR Electronics and Systems segment. At September 30, 2013 and December 31, 2012, total backlog was $9.5 billion.

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Backlog consisted of the following:

(In billions)	September 30, 2013		December 31, 2012
Funded backlog	$	3.7	$	2.9
Unfunded backlog	5.8		6.6
Total backlog	$	9.5	$	9.5

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

We expect to fund our ongoing working capital, capital expenditures, strategic investments, and financing requirements through cash flows from operations, cash on hand and access to capital markets. If our cash flows from operations are less than we expect, we may need to access the short or long-term capital markets. We believe our $600 credit facility and commercial paper program will permit us to finance our operations on acceptable terms and conditions.

Our access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including: (i) our credit ratings or absence of a credit rating, (ii) the liquidity of the overall capital markets, and (iii) the current state of the economy. We cannot assure that such financing will be available to us on acceptable terms or that such financing will be available at all.

A significant portion of our cash is held by our foreign subsidiaries. We manage our cash requirements considering available funds among our subsidiaries and the cost effectiveness with which those funds can be accessed. We continue to look for opportunities to access cash balances in excess of local operating requirements to meet liquidity needs in a cost-efficient manner.

Funding of Pension Plans

Funding requirements under applicable laws and regulations are a major consideration in making contributions to our U.S. pension plans. While the Company has significant discretion in making voluntary contributions, the Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006 and further amended by the Worker, Retiree, and Employer Recovery Act of 2008, the Moving Ahead for Progress in the 21st Century Act and applicable Internal Revenue Code regulations, mandate minimum funding thresholds. Failure to satisfy the minimum funding thresholds could result in restrictions on our ability to amend the plan or make benefit payments. With respect to U.S. qualified pension plans, we intend to contribute annually not less than the required minimum funding thresholds.

At December 31, 2012, our defined benefit pension plans were underfunded by $2.0 billion. During the nine months ended September 30, 2013, we made total contributions of $114 to our qualified pension plans. We currently anticipate making additional contributions to our qualified pension plans of approximately $32 during the remainder of 2013.

Future required contributions will depend primarily on the actual annual return on assets and the discount rate used to measure the benefit obligation at the end of each year. Depending on these factors, and the resulting funded status of our pension plans, the level of future statutory minimum contributions could be material.

Dividends

Our Board of Directors will review and approve the declaration and distribution of any future dividends based on an analysis of many factors, including our operating performance and outlook, financial condition, available liquidity, and expected future requirements for cash and capital resources. Moreover, if we determine to pay any dividend in the future, there can be no assurance that we will continue to pay such dividends.

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On August 12, 2013, the Board of Directors declared a cash dividend of $0.10 per share, payable on October 1, 2013 to shareholders of record on August 30, 2013. During the nine months ended September 30, 2013, we declared three quarterly dividends totaling $59 or $0.31 per share.

Sources and Uses of Liquidity

The following table provides the net cash provided by or used in operating activities, investing activities and financing activities.

	Nine Months Ended September 30,
	2013			2012
Operating Activities	$	118		$	97
Investing Activities	(64		)	(127		)
Financing Activities	(35		)	102
Foreign Exchange	(2		)	6
Net change in cash and cash equivalents	$	17		$	78

Net cash provided by operating activities increased $21 for the nine months ended September 30, 2013 as compared to the same period in 2012, primarily due to a $157 decrease in defined benefit plans payments, partially offset by changes in deferred taxes of $116. Payments to our defined benefit plans decreased due to lower required minimum funding thresholds resulting from provisions of the Moving Ahead for Progress in the 21st Century Act.

Net cash used in investing activities decreased $63 for the nine months ended September 30, 2013 as compared to the same period in 2012, primarily due to lower capital expenditures of $29 and lower net cash paid for acquisitions of $26.

Net cash used in financing activities increased $137 for the nine months ended September 30, 2013 as compared to the same period in 2012, primarily due to net proceeds from the issuance of commercial paper of $134 during the first nine months of 2012 that did not reoccur during the same period in 2013. Cash on hand at December 31, 2012 was adequate to fund operating and investing activities during the nine months ended September 30, 2013.

Capital Resources

At September 30, 2013, the Company held cash and cash equivalents of $309, which included $132 held by foreign subsidiaries, and had a $600 revolving credit facility which expires in October 2015. There were no borrowings outstanding under the credit facility and there was no commercial paper outstanding under our commercial paper program as of September 30, 2013.

Borrowings under the credit facility would be unsecured and bear interest at rates based, at our option, on the Eurodollar rate or a bank defined alternative base rate. Each bank’s obligation to make loans under the credit facility is subject to, among other things, our compliance with various representations, warranties and covenants.

We expect to continue to issue commercial paper periodically. The Company’s commercial paper program generally enables the Company to borrow short-term funds at competitive rates. The commercial paper program is fully supported by available borrowing capacity under our credit facility. As with all other financing programs, our access to the commercial paper market will be impacted by many factors, including our credit ratings, liquidity of the capital markets, and state of the economy. As such, we cannot assure that we will have continued access to the commercial paper market or that the terms of the commercial paper will be acceptable to us.

We have outstanding long-term debt of $250 of 4.25% senior notes due in 2016 and $400 of 5.55% senior notes due in 2021. Interest on the senior notes is payable on April 1 and October 1 of each year. The senior notes are senior unsecured obligations and rank equally with all of our existing and future senior unsecured indebtedness. The senior notes have covenants that restrict our ability to, subject to exceptions, incur indebtedness secured by liens or engage in sale and leaseback transactions and the senior notes are subject to customary events of default.

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The credit facility, commercial paper and senior notes are discussed further in Note 11, “Debt,” in the notes to the unaudited Condensed Consolidated Financial Statements.

Contractual Obligations

There have been no material changes to our contractual obligations from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2012.

Off-Balance Sheet Arrangements

At September 30, 2013, we had no significant off-balance sheet arrangements other than operating leases and certain indemnifications. We do not have a liability recorded for our historic indemnifications and are not aware of any claims or other information that we believe would give rise to material payments under such indemnities. We are not aware of any claims or other circumstances that would give rise to material payments to ITT or Xylem Inc. under the indemnities that we provide to them pursuant to various separation arrangements entered into in connection with the Spin-off.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Estimates are revised as additional information becomes available. Management believes that the accounting estimates employed and the resulting balances are reasonable; however, actual results in these areas could differ from management’s estimates under different assumptions or conditions.

There have been no significant changes in our critical accounting policies, estimates and judgments as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.

Recent Accounting Pronouncements and Accounting Standards Updates

See Note 2, “Recent Accounting Pronouncements,” to the unaudited Condensed Consolidated Financial Statements for information related to recent accounting pronouncements.

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

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, those described in Item 1A, “Risk Factors,” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2012, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant changes in our market risk as discussed in our Annual Report on Form 10-K for the year ended December 31, 2012.

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ITEM 4. CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of September 30, 2013. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2013, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in reports the Company files or submits under the Exchange Act are (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) accumulated and communicated to management to allow their timely decisions regarding required disclosure.

We have evaluated the changes in our internal control over financial reporting that occurred during the three months ended September 30, 2013 and concluded that no change occurred in our internal control over financial reporting that materially affected, or is likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in legal proceedings that are incidental to the operation of our businesses. Some of these proceedings seek remedies relating to environmental matters, personal injury claims, employment and pension matters, and commercial or contractual disputes, sometimes related to acquisitions or divestitures.

Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including our assessment of the merits of the particular claim, we do not expect that any asserted or unasserted legal claims or proceedings, individually or in the aggregate, will have a material adverse effect on our cash flow, results of operations, or financial condition.

See Note 15, “Commitments and Contingencies,” to the unaudited Condensed Consolidated Financial Statements for further information.

ITEM 1A. RISK FACTORS

The “Risk Factors” section, under Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2012 describes risks and uncertainties associated with our business. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results, and future prospects. We do not believe that there have been any material changes to the risk factors previously disclosed.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(In millions, except per share amounts, unless otherwise stated)

There were no sales of unregistered equity securities during the quarter ended September 30, 2013.

On December 11, 2012, our Board of Directors approved a share repurchase program for the repurchase of our outstanding common stock, from time-to-time, up to an authorized amount of $100. Under the program, management has discretion to determine the dollar amount of shares to be repurchased and the timing of any repurchases in compliance with applicable law and regulation. The share repurchase program expires on December 31, 2015. As of September 30, 2013, we had repurchased a total of 0.4 shares of our common stock under the program for $5 (average price of $12.62 per share), and had remaining authorization of $95 for future share repurchases. There were no repurchases of our common stock under the share repurchase program during the quarter ended September 30, 2013.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

See the Exhibit Index for a list of exhibits filed herewith.

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SIGNATURE

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 thereunto duly authorized.

	EXELIS INC.
	(Registrant)
November 1, 2013	/s/    GREGORY P. KUDLA
(Date)	Gregory P. Kudla
	Chief Accounting Officer
	(Principal Accounting Officer)

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EXHIBIT INDEX

EXHIBIT NUMBER	DESCRIPTION	LOCATION
(3.1)	Amended and Restated Articles of Incorporation of Exelis Inc.	Incorporated by reference to Exhibit 3.1 of Exelis Inc.’s Form 8-K Current Report filed on October 14, 2011 (CIK No. 1524471, File No. 1-35228).
(3.2)	Amended and Restated By-laws of Exelis Inc.	Incorporated by reference to Exhibit 3.1 of Exelis Inc.’s Form 8-K Current Report filed on May 11, 2012 (CIK No. 1524471, File No. 1-35228).
(4.1)	Indenture, dated as of September 20, 2011, between Exelis Inc., ITT Corporation, as initial guarantor, and Union Bank, N.A., as trustee	Incorporated by reference to Exhibit 4.1 of ITT Corporation’s Form 8-K Current Report filed on September 21, 2011 (CIK No. 216228, File No. 1-5672).
(4.2)	Form of Exelis Inc. 4.250% Senior Notes due 2016	Incorporated by reference to Exhibit 4.5 of Exelis Inc.’s Form S-4 Registration Statement filed on May 25, 2012 (CIK No. 1524471, File No. 333-181682).
(4.3)	Form of Exelis Inc. 5.550% Senior Notes due 2021	Incorporated by reference to Exhibit 4.5 of Exelis Inc.’s Form S-4 Registration Statement filed on May 25, 2012 (CIK No. 1524471, File No. 333-181682).
(11)	Statement re computation of per share earnings	Information required to be presented in Exhibit 11 is provided under “Earnings Per Share” in Note 4 to the Condensed Consolidated Financial Statements in Part I, Item 1 “Financial Statements” of Exelis Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2013 in accordance with the provisions of Financial Accounting Standards Board Accounting Standards Codification 260, Earnings Per Share.
(12)	Statement re computation of ratios	Filed herewith.
(31.1)	Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.
(31.2)	Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.
(32.1)	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	This Exhibit is intended to be furnished in accordance with Regulation S-K Item 601(b) (32) (ii) and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference.

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EXHIBIT NUMBER	DESCRIPTION	LOCATION
(32.2)	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	This Exhibit is intended to be furnished in accordance with Regulation S-K Item 601(b) (32) (ii) and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference.
(101)	The following materials from Exelis Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements.	Submitted electronically with this Report.

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EX-12

EXHIBIT 12

EXELIS INC.

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

	Nine months ended September 30,		Year Ended December 31,
(IN MILLIONS, EXCEPT RATIO)	2013		2012		2011		2010		2009		2008
Earnings
Income from continuing operations before income tax expense	$	304	$	521	$	537	$	696	$	700	$	657
Add Fixed Charges
Interest expense	28		38		10		—		1		2
Interest component of rental expense (a)	12		16		15		14		14		13
Total earnings available for fixed charges	$	344	$	575	$	562	$	710	$	715	$	672
Total Fixed Charges	$	40	$	54	$	25	$	14	$	15	$	15
Ratio of earnings to fixed charges	8.6		10.6		22.5		50.7		47.7		44.8

(a) Represents the portion of operating leases which management believes is a reasonable representation of an interest factor.

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF DAVID F. MELCHER PURSUANT TO SEC. 302

OF THE SARBANES-OXLEY ACT OF 2002

I, David F. Melcher, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2013;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its combined subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 1, 2013	/S/ DAVID F. MELCHER
(Date)	David F. Melcher
	Chief Executive Officer and President

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PETER J. MILLIGAN PURSUANT TO SEC. 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Peter J. Milligan, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2013;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its combined subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 1, 2013	/S/ PETER J. MILLIGAN
(Date)	Peter J. Milligan
	Senior Vice President
	and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Exelis Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David F. Melcher, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

November 1, 2013	/S/ DAVID F. MELCHER
(Date)	David F. Melcher
	Chief Executive Officer and President

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Exelis Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter J. Milligan, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

November 1, 2013	/S/ PETER J. MILLIGAN
(Date)	Peter J. Milligan
	Senior Vice President
	and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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Postretirement Benefit Plans

9 Months Ended

Sep. 30, 2013

Compensation and Retirement Disclosure [Abstract]

Postretirement Benefit Plans

POSTRETIREMENT BENEFIT PLANS

The following table provides the components of net periodic benefit cost for our defined benefit plans, including defined benefit pension plans and other postretirement defined benefit plans:

	Three Months Ended September 30,
	2013									2012
	Pension			Other Benefits			Total			Pension			Other Benefits			Total
Net periodic benefit cost
Service cost	$	16		$	—		$	16		$	19		$	—		$	19
Interest cost	60			5			65			65			6			71
Expected return on plan assets	(83		)	(5		)	(88		)	(96		)	(5		)	(101		)
Amortization of net actuarial loss	25			3			28			19			3			22
Amortization of prior service cost (credit)	—			—			—			1			—			1
Net periodic benefit cost	$	18		$	3		$	21		$	8		$	4		$	12

	Nine Months Ended September 30,
	2013									2012
	Pension			Other Benefits			Total			Pension			Other Benefits			Total
Net periodic benefit cost
Service cost	$	54		$	1		$	55		$	57		$	2		$	59
Interest cost	180			14			194			197			17			214
Expected return on plan assets	(254		)	(16		)	(270		)	(287		)	(16		)	(303		)
Amortization of net actuarial loss	79			9			88			55			10			65
Amortization of prior service cost (credit)	2			—			2			2			(1		)	1
Net periodic benefit cost	$	61		$	8		$	69		$	24		$	12		$	36

We contributed $114 and $265 to our qualified defined benefit pension plans during the nine months ended September 30, 2013 and 2012, respectively. We currently anticipate making additional contributions to our qualified defined benefit pension plans of approximately $32 during the remainder of 2013.

During the second quarter of 2013, the U.S. Salaried Retirement Plan (U.S. SRP) and related Excess Pension Plans were amended to freeze all future benefit accruals effective December 31, 2016. As a result, the assets and liabilities of the U.S. SRP and related plans were re-measured as of May 31, 2013, improving the funded status of the plans by approximately $190 due to a reduced projected benefit obligation primarily caused by the use of a higher discount rate and lower projected actuarial loss. The re-measurement will reduce net periodic benefit costs by approximately $14 in 2013 primarily due to lower service costs.

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Debt - Additional Information (Details) (USD $)									9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2013 Senior Notes	Dec. 31, 2012 Senior Notes	Sep. 30, 2013 Senior Notes Senior notes (due 2016)	Dec. 31, 2012 Senior Notes Senior notes (due 2016)	Sep. 30, 2013 Senior Notes Senior notes (due 2021)	Dec. 31, 2012 Senior Notes Senior notes (due 2021)	Sep. 30, 2013 Line of Credit	Sep. 30, 2013 Line of Credit Revolving Credit Facility	Dec. 31, 2012 Line of Credit Revolving Credit Facility	Sep. 30, 2013 Line of Credit Letter of Credit	Dec. 31, 2012 Line of Credit Letter of Credit
Debt Instrument [Line Items]
Credit facility, maturity									4 years
Credit facility, expiration date									Oct. 25, 2015
Credit facility, extension period									1 year
Credit facility, current borrowing capacity										$ 600,000,000		$ 100,000,000
Credit facility, amount outstanding										0	0	0	0
Ratio of total indebtedness to combined EBITDA									3.50
Long-term debt	650,000,000	650,000,000			250,000,000	250,000,000	400,000,000	400,000,000
Interest rate					4.25%		5.55%
Accrued interest payable, included in other accrued liabilities			$ 16,000,000	$ 8,000,000

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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (USD $) In Millions, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
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
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)	0
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

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Shareholders' Equity

9 Months Ended

Sep. 30, 2013

Equity [Abstract]

Shareholders' Equity

SHAREHOLDERS’ EQUITY

Capital Stock

Authorized capital was comprised of 750 shares of common stock ($0.01 par value per share (in whole dollars)) and 50 shares of preferred stock (no par value) on September 30, 2013 and December 31, 2012. There were 189.2 and 188.3 shares of common stock issued at September 30, 2013 and December 31, 2012, respectively, and 188.8 and 188.3 shares of common stock outstanding at September 30, 2013 and December 31, 2012, respectively. No preferred stock was issued and outstanding at September 30, 2013 and December 31, 2012.

During the nine months ended September 30, 2013, we repurchased a total of 0.4 shares of our common stock under our share repurchase program for $5, and as of September 30, 2013 the Company had remaining authorization of $95 for future share repurchases through December 31, 2015. We account for shares repurchased as treasury stock under the cost method.

Dividends

On August 12, 2013, our Board of Directors declared a cash dividend of $0.10 per share, payable on October 1, 2013 to shareholders of record on August 30, 2013. During the nine months ended September 30, 2013, we declared three quarterly cash dividends totaling $59 or $0.31 per share (in whole dollars).

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2013

Earnings Per Share [Abstract]

Reconciliation of Basic and Diluted Earnings (Loss) Per Share

The following table sets forth the reconciliation of basic and diluted weighted average shares outstanding for our earnings per share calculations:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2013	2012	2013	2012
Weighted average common shares outstanding	188.5	186.8	188.1	186.3
Add: Weighted average restricted stock awards outstanding(a)	—	0.8	0.2	1.0
Basic weighted average common shares outstanding	188.5	187.6	188.3	187.3
Add: Dilutive impact of stock options	2.2	0.4	0.9	0.5
Add: Dilutive impact of restricted stock units	2.1	0.7	1.8	0.5
Diluted weighted average common shares outstanding	192.8	188.7	191.0	188.3

(a) Restricted stock awards containing rights to non-forfeitable dividends which participate in undistributed earnings with common shareholders are considered participating securities for purposes of computing earnings per share.

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Stock-Based Compensation - Schedule of Compensation Costs (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Compensation cost for awards	$ 9	$ 5	$ 25	$ 18
Future tax benefit	3	2	8	7
Compensation cost for equity-based awards
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Compensation cost for awards	7	4	20	16
Compensation cost for liability-based awards
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Compensation cost for awards	$ 2	$ 1	$ 5	$ 2

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Stock-Based Compensation

9 Months Ended

Sep. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

STOCK-BASED COMPENSATION

The Company maintains an equity incentive plan to govern awards granted to Exelis employees and directors, including awards of non-qualified stock options (NQOs), restricted stock units (RSUs), total shareholder return (TSR) awards, and other awards.

The following table provides the impact of stock-based compensation costs in our unaudited Condensed Consolidated Statements of Operations:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Compensation cost for equity-based awards	$	7	$	4	$	20	$	16
Compensation cost for liability-based awards	2		1		5		2
Total compensation costs, pre-tax	$	9	$	5	$	25	$	18
Future tax benefit	$	3	$	2	$	8	$	7

At September 30, 2013, total unrecognized compensation costs related to equity-based awards and liability-based awards were $24 and $6, respectively, which are expected to be recognized ratably over a weighted-average period of 1.97 years and 1.86 years, respectively.

The following table provides a summary of the activities for NQOs and restricted stock, including RSUs and restricted stock awards, for the nine months ended September 30, 2013:

	Stock Options				Restricted Stock
	Shares		Weighted  Average Exercise Price(a)		Shares		Weighted  Average Grant Date Fair value (a)
Outstanding at January 1, 2013	11.36		$	11.06	3.56		$	11.67
Granted	2.89		11.11		1.14		11.16
Exercised	(1.12	)	9.97		—		—
Vested	—		—		(0.80	)	12.00
Forfeited, canceled or expired	(0.58	)	11.98		(0.20	)	11.32
Outstanding at September 30, 2013	12.55		$	11.13	3.70		$	11.45

(a) In whole dollars.

During the nine months ended September 30, 2013, we granted long-term incentive awards to employees consisting of 2.9 NQOs and 1.1 RSUs with respective weighted average grant date fair values (in whole dollars) of $1.93 and $11.16. The NQOs vest annually in three equal installments and have a ten-year expiration period. RSUs vest on the completion of a three-year service period. We also granted TSR awards with an aggregate target value of $4 that are cash settled at the end of a three-year performance period.

The fair values of NQOs are estimated on the date of grant using the Black-Scholes model. The fair values of RSUs are determined based on the closing price of Exelis common stock on the date of grant. The fair values of TSR awards are measured quarterly based on the Company’s performance relative to the performance of a concentrated group of our peer companies and the S&P 1500 Aerospace and Defense index. Depending on the Company’s performance during the three-year performance period, payment can range from 0% to 200% of the target value.

The following table details the weighted average assumptions utilized in determining the fair value of the NQOs granted during the first nine months of 2013.

Dividend yield	3.72		%
Expected volatility	27.0		%
Expected life (in years)	7.0
Risk-free rates	1.40		%
Grant date fair value (in whole dollars)	$	1.93

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Goodwill and Other Intangible Assets, Net - Schedule of Other Intangible Assets (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 564	$ 554
Accumulated Amortization	(391)	(370)
Net Intangibles	173	184
Customer and distributor relationships
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	525	524
Accumulated Amortization	(366)	(348)
Net Intangibles	159	176
Proprietary technology
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	30	25
Accumulated Amortization	(20)	(18)
Net Intangibles	10	7
Trademark, patents and other
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	9	5
Accumulated Amortization	(5)	(4)
Net Intangibles	$ 4	$ 1

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Stock-Based Compensation - Summary of Non-Qualified Stock Options and Restricted Stock Activity (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Stock Options
Stock Options, Outstanding [Roll Forward]
Outstanding at beginning of period	11.36
Granted	2.89
Exercised	(1.12)
Forfeited, canceled or expired	(0.58)
Outstanding at end of period	12.55
Stock Options, Outstanding, Weighted Average Exercise Price [Roll Forward]
Outstanding at beginning of period	$ 11.06	[1]
Granted	$ 11.11	[1]
Exercised	$ 9.97	[1]
Forfeited, canceled or expired	$ 11.98	[1]
Outstanding at end of period	$ 11.13	[1]
Restricted Stock (including RSUs)
Restricted Stock (including RSUs), Outstanding [Roll Forward]
Outstanding at beginning of period	3.56
Granted	1.14
Vested	(0.80)
Forfeited, canceled or expired	(0.20)
Outstanding at September 30, 2013	3.70
Restricted Stock (including RSUs), Outstanding, Weighted Average Exercise Price [Roll Forward]
Outstanding at January 1, 2013	$ 11.67	[1]
Granted	$ 11.16	[1]
Vested	$ 12.00	[1]
Forfeited, canceled or expired	$ 11.32	[1]
Outstanding at end of period	$ 11.45	[1]

[1] In whole dollars.

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Restructuring And Asset Impairment Charges, Net - Additional Information (Details) (Employee Severance, USD $) In Millions, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013
Restructuring Cost and Reserve [Line Items]
Expected number of positions eliminated due to restructuring (in employee positions)		1,136
Expected aggregate restructuring costs		$ 85
New Action
Restructuring Cost and Reserve [Line Items]
Net restructuring charges recorded during period	5	67
Prior Actions
Restructuring Cost and Reserve [Line Items]
Net restructuring charges recorded during period	$ 1	$ 1

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Inventories, Net (Tables)

9 Months Ended

Sep. 30, 2013

Inventory Disclosure [Abstract]

Schedule of Inventories, Net

Inventories, net were comprised of the following:

	September 30, 2013			December 31, 2012
Production costs of contracts in process	$	260		$	253
Less progress payments	(17		)	(22		)
Production costs of contracts in process, net	243			231
Product inventory	45			52
Inventories, net	$	288		$	283

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Receivables, Net (Tables)

9 Months Ended

Sep. 30, 2013

Receivables [Abstract]

Schedule of Receivables, Net

Receivables, net were comprised of the following:

	September 30, 2013			December 31, 2012
Billed receivables	$	477		$	429
Unbilled contract receivables	530			562
Other	9			7
Receivables, gross	1,016			998
Allowance for doubtful accounts	(4		)	(3		)
Receivables, net	$	1,012		$	995

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Receivables, Net - Additional Information (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Billed receivables due, total	$ 477	$ 429
Government
Accounts, Notes, Loans and Financing Receivable [Line Items]
Billed receivables due, total	$ 397	$ 340

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Background, Basis of Presentation and Use of Estimates - Additional Information (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Increase in operating income due to cumulative catch up adjustments	$ 16	$ 26	$ 83	$ 79
Increase in diluted earnings per share due to cumulative catch-up adjustments (in dollars per share)	$ 0.06	$ 0.09	$ 0.29	$ 0.26

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Earnings Per Share - Additional Information (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Stock Options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive shares excluded (in shares)	100,000	10,000,000	2,600,000	9,300,000
Restricted Stock Units (RSUs)
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive shares excluded (in shares)	0	100,000	100,000	100,000

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Goodwill and Other Intangible Assets, Net - Estimated Amortization Expense (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Goodwill and Intangible Assets Disclosure [Abstract]
Remaining 2013	$ 7
2014	24
2015	21
2016	19
2017	17
2018 and thereafter	85
Net Intangibles	$ 173	$ 184

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Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Compensation Costs

The following table provides the impact of stock-based compensation costs in our unaudited Condensed Consolidated Statements of Operations:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Compensation cost for equity-based awards	$	7	$	4	$	20	$	16
Compensation cost for liability-based awards	2		1		5		2
Total compensation costs, pre-tax	$	9	$	5	$	25	$	18
Future tax benefit	$	3	$	2	$	8	$	7

Schedule of Stock Option Activity and Restricted Stock Activity

The following table provides a summary of the activities for NQOs and restricted stock, including RSUs and restricted stock awards, for the nine months ended September 30, 2013:

	Stock Options				Restricted Stock
	Shares		Weighted  Average Exercise Price(a)		Shares		Weighted  Average Grant Date Fair value (a)
Outstanding at January 1, 2013	11.36		$	11.06	3.56		$	11.67
Granted	2.89		11.11		1.14		11.16
Exercised	(1.12	)	9.97		—		—
Vested	—		—		(0.80	)	12.00
Forfeited, canceled or expired	(0.58	)	11.98		(0.20	)	11.32
Outstanding at September 30, 2013	12.55		$	11.13	3.70		$	11.45

(a) In whole dollars.

Schedule of Weighted Average Assumptions

The following table details the weighted average assumptions utilized in determining the fair value of the NQOs granted during the first nine months of 2013.

Dividend yield	3.72		%
Expected volatility	27.0		%
Expected life (in years)	7.0
Risk-free rates	1.40		%
Grant date fair value (in whole dollars)	$	1.93

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Segment Information - Segment Operating Margins (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Operating Income	$ 133	$ 143	$ 334	$ 426
Operating Margin	11.70%	10.50%	9.30%	10.20%
C4ISR Electronics and Systems
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Operating Income	69	84	128	261
Operating Margin	13.90%	13.70%	8.40%	13.90%
Information and Technical Services
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Operating Income	$ 64	$ 59	$ 206	$ 165
Operating Margin	10.00%	7.90%	10.00%	7.20%

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Segment Information - Segment Revenue (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Segment Reporting, Revenue Reconciling Item [Line Items]
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
C4ISR Electronics and Systems
Segment Reporting, Revenue Reconciling Item [Line Items]
Product revenue	498	611	1,515	1,884
Service revenue	0	0	0	0
Total Revenue	498	611	1,515	1,884
Information and Technical Services
Segment Reporting, Revenue Reconciling Item [Line Items]
Product revenue	0	0	0	0
Service revenue	643	750	2,062	2,277
Total Revenue	$ 643	$ 750	$ 2,062	$ 2,277

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Accumulated Other Comprehensive Loss - Additional Information (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Equity [Abstract]
Net actuarial loss, net of tax included in unamortized defined benefit plan costs	$ 1,676		$ 1,676		$ 1,845
Unamortized defined benefit plan costs included in accumulated other comprehensive loss, tax	1,100		1,100		1,211
Changes in defined benefit plan cost included in other comprehensive income, tax	$ 11	$ 9	$ 111	$ 26

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Accumulated Other Comprehensive Loss (Tables)

9 Months Ended

Sep. 30, 2013

Equity [Abstract]

Components of Accumulated Other Comprehensive Loss

The following table presents changes in accumulated other comprehensive loss, net of tax, by component, for the nine months ended September 30, 2013:

	Net Foreign Currency Translation Adjustments			Unamortized Defined Benefit Plan Costs				Accumulated Other Comprehensive Loss
Balance at January 1, 2013	$	15		$	(1,850	)		$	(1,835	)
Other comprehensive income (loss) before reclassifications	(3		)	116				113
Amounts reclassified from accumulated other comprehensive loss	—			54			(a)	54
Net current period other comprehensive income (loss)	(3		)	170				167
Balance at September 30, 2013	$	12		$	(1,680	)		$	(1,668	)

(a) This accumulated other comprehensive loss component primarily relates to the amortization of net actuarial loss. For the three and nine months ended September 30, 2013, the amortization of net actuarial loss was $17 (net of tax of $11) and $53 (net of tax of $35), respectively, which are included in the computation of net periodic benefit cost (Note 12).

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Background, Basis of Presentation and Use of Estimates

9 Months Ended

Sep. 30, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Background, Basis of Presentation and Use of Estimates

BACKGROUND, BASIS OF PRESENTATION AND USE OF ESTIMATES

Background

Exelis Inc. (“Exelis” or the “Company”) is a leader in Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) related products and systems and information and technical services, which it supplies to military, government and commercial customers in the United States and globally. Exelis provides mission-critical systems in the areas of networked communications, sensing and surveillance, electronic warfare, navigation, air traffic solutions and information systems, with growing positions in cyber-security, composite aerostructures, logistics and technical services. The Company’s customers include the U.S. Department of Defense (DoD), including the U.S. Army, Navy, Marines and Air Force, and its prime contractors, U.S. Government intelligence agencies, National Aeronautics and Space Administration (NASA), Federal Aviation Administration (FAA), allied foreign governments and domestic and foreign commercial customers. As a prime contractor, subcontractor, or preferred supplier, Exelis participates in many high priority defense and non-defense programs in the United States. Exelis conducts most of its business with the U.S. Government, principally the DoD.

Unless the context otherwise requires, references in these notes to “Exelis”, “we,” “us,” “our,” “the Company” and “our Company” refer to Exelis Inc. and its subsidiaries.

Basis of Presentation

The unaudited Condensed Consolidated Financial Statements included in this Form 10-Q have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and, in the opinion of management, reflect all adjustments (which include normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. Certain information and note disclosures normally included in financial statements prepared annually in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such SEC rules. These financial statements should be read in conjunction with the audited Consolidated and Combined Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2012. We believe that the disclosures included in this Form 10-Q are adequate to make the information presented not misleading.

Our quarterly financial periods end on the Saturday closest to the last day of the calendar quarter, except for the last quarterly period of the fiscal year, which ends on December 31^st. For ease of presentation, the quarterly financial statements included herein are described as ending on the last day of the calendar quarter. The results reported in these financial statements are not necessarily indicative of results that may be expected for the entire year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Estimates are revised as additional information becomes available. Estimates and assumptions are used for, but not limited to, revenue recognition, income taxes, contingency accruals and valuation allowances, fair value measurements, impairment of goodwill and other intangibles, postretirement obligations and certain contingent liabilities. Actual results could differ from these estimates.

During the performance of long-term sale contracts, estimated final contract prices and costs are reviewed periodically and revisions are made as required and recorded in income in the period in which they are determined. Changes in estimated revenues, cost of revenue and the related effect to operating income are recognized using a cumulative catch-up adjustment which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a contract’s percent complete. For the three and nine months ended September 30, 2013, net favorable cumulative catch-up adjustments related to prior periods increased operating income by approximately $16 and $83, respectively, and diluted earnings per share by approximately $0.06 and $0.29, respectively. For the three and nine months ended September 30, 2012, net favorable cumulative catch-up adjustments related to prior periods increased operating income by approximately $26 and $79, respectively, and diluted earnings per share by approximately $0.09 and $0.26, respectively.

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Restructuring Charges, Net

9 Months Ended

Sep. 30, 2013

Restructuring and Related Activities [Abstract]

Restructuring and Asset Impairment Charges, Net

RESTRUCTURING AND ASSET IMPAIRMENT CHARGES, NET

During the first quarter of 2013, we initiated an action to reduce the size of our workforce and consolidate our facilities footprint to align our cost structure more closely to customer and market conditions, which is expected to be completed by the end of 2013. Through voluntary and involuntary employee reductions, we are eliminating approximately 1,136 positions related to this action, which includes factory workers, administrative personnel and management employees. For the year ended December 31, 2013, we expect to incur aggregate restructuring charges of approximately $85 related to this action. During the three and nine months ended September 30, 2013, charges incurred under this action primarily related to employee severance, and to a lesser extent, lease cancellation and other costs associated with the consolidation of certain facilities. During the three and nine months ended September 30, 2013, we recorded net restructuring charges of $5 and $67, respectively, related to this action and $1 in both periods related to prior actions. We did not have any individually significant restructuring activities during the three and nine months ended September 30, 2012.

The components of restructuring and asset impairment charges, net, are summarized in the table below.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013			2012
By component
Severance charges	$	5		$	2	$	57		$	4
Other restructuring charges	3			—		13			—
Reversal of restructuring charges	(2		)	—		(2		)	—
Total restructuring charges	$	6		$	2	$	68		$	4
Asset impairment charges	—			1		—			1
Restructuring and asset impairment charges, net	6			3		68			5
By segment
C4ISR Electronics and Systems	$	4		$	3	$	54		$	5
Information and Technical Services	2			—		14			—
Restructuring and asset impairment charges, net	$	6		$	3	$	68		$	5

The following table displays a roll-forward of restructuring accruals for the nine months ended September 30, 2013 and details, by type and segment, the restructuring accruals balance at September 30, 2013, which is presented on our Condensed Consolidated Balance Sheets within other accrued liabilities.

Balance at January 1, 2013	$	9
Charges for plans initiated during the year	69
Charges for plans initiated in prior years	1
Cash payments	(42		)
Reversal of accruals and other	(6		)
Balance at September 30, 2013	$	31
By accrual type
Severance accrual	$	22
Facility carrying and other costs accrual	9
By segment
C4ISR Electronics and Systems	$	23
Information and Technical Services	8

The following table displays a roll-forward of the number of employee reductions associated with all restructuring activities for the nine months ended September 30, 2013.

Planned reductions at January 1, 2013	46
Additional planned reductions	1,136
Actual reductions	(1,146	)
Planned reductions at September 30, 2013	36

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Accumulated Other Comprehensive Loss

9 Months Ended

Sep. 30, 2013

Equity [Abstract]

Accumulated Other Comprehensive Loss

ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table presents changes in accumulated other comprehensive loss, net of tax, by component, for the nine months ended September 30, 2013:

	Net Foreign Currency Translation Adjustments			Unamortized Defined Benefit Plan Costs				Accumulated Other Comprehensive Loss
Balance at January 1, 2013	$	15		$	(1,850	)		$	(1,835	)
Other comprehensive income (loss) before reclassifications	(3		)	116				113
Amounts reclassified from accumulated other comprehensive loss	—			54			(a)	54
Net current period other comprehensive income (loss)	(3		)	170				167
Balance at September 30, 2013	$	12		$	(1,680	)		$	(1,668	)

(a) This accumulated other comprehensive loss component primarily relates to the amortization of net actuarial loss. For the three and nine months ended September 30, 2013, the amortization of net actuarial loss was $17 (net of tax of $11) and $53 (net of tax of $35), respectively, which are included in the computation of net periodic benefit cost (Note 12).

Unamortized defined benefit plan costs consist primarily of net actuarial loss totaling $1,676 and $1,845, net of tax, as of September 30, 2013 and December 31, 2012, respectively. Net actuarial gains or losses principally arise from gains or losses on plan assets due to variations in the fair market value of the underlying assets and changes in the benefit obligation due to changes in actuarial assumptions.

Unamortized defined benefit plan costs included in accumulated other comprehensive loss in the unaudited Condensed Consolidated Balance Sheets were reduced by taxes of $1,100 and $1,211 as of September 30, 2013 and December 31, 2012, respectively. The changes in defined benefit plan costs included in other comprehensive income (loss) in the unaudited Condensed Consolidated Statements of Comprehensive Income were reduced by taxes of $11 and $111 for the three and nine months ended September 30, 2013, respectively, and $9 and $26 for the three and nine months ended September 30, 2012, respectively.

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Earnings Per Share

9 Months Ended

Sep. 30, 2013

Earnings Per Share [Abstract]

Earnings Per Share

EARNINGS PER SHARE

The following table sets forth the reconciliation of basic and diluted weighted average shares outstanding for our earnings per share calculations:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2013	2012	2013	2012
Weighted average common shares outstanding	188.5	186.8	188.1	186.3
Add: Weighted average restricted stock awards outstanding(a)	—	0.8	0.2	1.0
Basic weighted average common shares outstanding	188.5	187.6	188.3	187.3
Add: Dilutive impact of stock options	2.2	0.4	0.9	0.5
Add: Dilutive impact of restricted stock units	2.1	0.7	1.8	0.5
Diluted weighted average common shares outstanding	192.8	188.7	191.0	188.3

(a) Restricted stock awards containing rights to non-forfeitable dividends which participate in undistributed earnings with common shareholders are considered participating securities for purposes of computing earnings per share.

For the three and nine months ended September 30, 2013, we excluded from our diluted share calculation 0.1 and 2.6 shares, respectively, related to stock options and zero and less than 0.1shares, respectively, related to restricted stock units, and for the three and nine months ended September 30, 2012, we excluded 10.0 and9.3shares, respectively, related to stock options and less than 0.1shares for both periods related to restricted stock units, as their effect would have been antidilutive.

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Shareholders' Equity - Additional Information (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013 Quarterly_Cash_Dividend	Sep. 30, 2012	Aug. 12, 2013	Dec. 31, 2012
Equity [Abstract]
Common stock, shares authorized	750,000,000		750,000,000			750,000,000
Common stock, par value (in dollars per share)	$ 0.01		$ 0.01			$ 0.01
Preferred stock, shares authorized	50,000,000		50,000,000			50,000,000
Preferred stock, par value (in dollars per share)	$ 0		$ 0			$ 0
Common stock, shares issued	189,200,000		189,200,000			188,300,000
Common stock. shares outstanding	188,800,000		188,800,000			188,300,000
Preferred stock, shares issued	0		0			0
Preferred stock, shares outstanding	0		0			0
Share repurchase program, number of shares repurchased during period			400,000
Share repurchase program, value of shares repurchased during period			$ 5,000,000
Share repurchase program, remaining authorized amount			95,000,000
Cash dividends payable (in dollars per share)					$ 0.1033
Number of quarterly cash dividends declared during the period			3
Cash dividends declared during period			$ 59,400,000.0
Cash dividends declared per common share (in dollars per share)	$ 0.10	$ 0.10	$ 0.31	$ 0.31

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Goodwill and Other Intangible Assets, Net (Tables)

9 Months Ended

Sep. 30, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Other Intangible Assets, Net

Information regarding our other intangible assets was as follows:

	September 30, 2013							December 31, 2012
	Gross Carrying Amount		Accumulated Amortization			Net Intangibles		Gross Carrying Amount		Accumulated Amortization			Net Intangibles
Customer and distributor relationships	$	525	$	(366	)	$	159	$	524	$	(348	)	$	176
Proprietary technology	30		(20		)	10		25		(18		)	7
Trademark, patents and other	9		(5		)	4		5		(4		)	1
Total other intangible assets	$	564	$	(391	)	$	173	$	554	$	(370	)	$	184

Estimated Amortization Expense

Estimated amortization expense for the remaining three months of 2013 and each of the five succeeding years and thereafter is as follows:

Remaining 2013	$	7
2014	24
2015	21
2016	19
2017	17
2018 and thereafter	85
Total	$	173

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Schedule of Range of Estimated Loss and Number of Active Sites

The following table illustrates the range of estimated loss and number of active sites for these environmental matters:

	September 30, 2013		December 31, 2012
Low-end range	$	24	$	24
High-end range	$	45	$	47
Number of active environmental investigations and remediation sites	23		22

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Restructuring And Asset Impairment Charges, Net - Schedule of Roll-forward of Employee Position Eliminations Associated with Restructuring Activities (Details) (Employee Severance)	9 Months Ended
	Sep. 30, 2013 employee_position
Employee Severance
Restructuring and Related Cost, Positions Eliminated [Roll Forward]
Planned reductions at January 1, 2013	46
Additional planned reductions	1,136
Actual reductions	(1,146)
Planned reductions at September 30, 2013	36

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Postretirement Benefit Plans - Additional Information (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended			3 Months Ended
	Sep. 30, 2013 Pension	Sep. 30, 2012 Pension	Sep. 30, 2013 Pension Minimum	Sep. 30, 2013 U.S. Salaried Retirement Plan and related Excess Pension Plans Benefit Plan Remeasurement
Defined Benefit Plan Disclosure [Line Items]
Defined benefit plan, contributions by employer	$ 114	$ 265
Defined benefit plan, estimated future employer contributions in remaining fiscal year			32
Defined benefit plan, increase (decrease) in funded status related to projected benefit obligation				(190)
Defined benefit plan, estimated increase (decrease) in net periodic benefit costs for remainder of fiscal year				$ (14)

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Goodwill and Other Intangible Assets, Net - Additional Information (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended			3 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012	Mar. 31, 2013 C4i Pty. Ltd.	Sep. 30, 2013 C4ISR Electronics and Systems	Dec. 31, 2012 C4ISR Electronics and Systems	Sep. 30, 2013 Information and Technical Services	Dec. 31, 2012 Information and Technical Services
Goodwill [Line Items]
Goodwill	$ 2,184		$ 2,184		$ 2,180	$ 7	$ 1,800	$ 1,802	$ 384	$ 378
Aggregate purchase price, net of cash acquired			16	42		16
Other intangible assets						7
Amortization expense related to other intangible assets	$ 7	$ 10	$ 20	$ 29

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Receivables, Net - Schedule of Receivables, Net (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Receivables [Abstract]
Billed receivables	$ 477	$ 429
Unbilled contract receivables	530	562
Other	9	7
Receivables, gross	1,016	998
Allowance for doubtful accounts	(4)	(3)
Receivables, net	$ 1,012	$ 995

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Net income	$ 80	$ 88	$ 202	$ 244
Other comprehensive income (loss), net of tax
Net foreign currency translation adjustments	9	5	(3)	4
Defined benefit plans
Net actuarial gain arising during the period	0	0	116	0
Amortization of actuarial loss included in net periodic benefit cost	17	13	53	39
Amortization of prior service cost included in net periodic benefit cost	0	0	1	0
Other comprehensive income (loss), net of tax	26	18	167	43
Total comprehensive income	$ 106	$ 106	$ 369	$ 287

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Inventories, Net

9 Months Ended

Sep. 30, 2013

Inventory Disclosure [Abstract]

Inventories, Net

INVENTORIES, NET

Inventories, net were comprised of the following:

	September 30, 2013			December 31, 2012
Production costs of contracts in process	$	260		$	253
Less progress payments	(17		)	(22		)
Production costs of contracts in process, net	243			231
Product inventory	45			52
Inventories, net	$	288		$	283

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 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	0	(1)
Net cash used in investing activities	(64)	(127)
Financing activities
Proceeds from commercial paper, net	0	134
Dividends paid	(39)	(39)
Common stock repurchased	(5)	0
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

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Stock-Based Compensation - Weighted Average Assumptions (Details) (USD $)	9 Months Ended
	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions and Methodology [Abstract]
Dividend yield	3.72%
Expected volatility	27.00%
Expected life (in years)	7 years
Risk-free rates	1.40%
Grant date fair value (in whole dollars)	$ 1.93

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 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
Basic
Net income (in dollars per share)	$ 0.42	$ 0.47	$ 1.07	$ 1.30
Diluted
Net income (in dollars per share)	$ 0.41	$ 0.47	$ 1.06	$ 1.30
Weighted average common shares outstanding - basic (in shares)	188.5	187.6	188.3	187.3
Weighted average common shares outstanding - diluted (in shares)	192.8	188.7	191.0	188.3
Cash dividends declared per common share (in dollars per share)	$ 0.10	$ 0.10	$ 0.31	$ 0.31

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Debt - Summary of Debt (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Debt Disclosure [Abstract]
Long-term debt	$ 650	$ 650
Unamortized debt discount	(1)	(1)
Total long-term debt	$ 649	$ 649

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Debt (Tables)

9 Months Ended

Sep. 30, 2013

Debt Disclosure [Abstract]

Schedule of Debt

Debt consisted of the following:

	September 30, 2013			December 31, 2012
Long-term debt	$	650		$	650
Unamortized debt discount	(1		)	(1		)
Total long-term debt	$	649		$	649

Schedule of Carrying Values and Estimated Fair Values of Long-Term Debt

The following table provides a summary of interest rates, carrying amounts and estimated fair values of outstanding long-term debt:

			September 30, 2013				December 31, 2012
	Interest rate		Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt
Senior notes (due 2016)	4.25	%	$	250	$	264	$	250	$	262
Senior notes (due 2021)	5.55	%	400		405		400		437
Total			$	650	$	669	$	650	$	699

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Restructuring And Asset Impairment Charges, Net (Tables)

9 Months Ended

Sep. 30, 2013

Restructuring and Related Activities [Abstract]

Components of All Restructurings Charges

The components of restructuring and asset impairment charges, net, are summarized in the table below.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013			2012
By component
Severance charges	$	5		$	2	$	57		$	4
Other restructuring charges	3			—		13			—
Reversal of restructuring charges	(2		)	—		(2		)	—
Total restructuring charges	$	6		$	2	$	68		$	4
Asset impairment charges	—			1		—			1
Restructuring and asset impairment charges, net	6			3		68			5
By segment
C4ISR Electronics and Systems	$	4		$	3	$	54		$	5
Information and Technical Services	2			—		14			—
Restructuring and asset impairment charges, net	$	6		$	3	$	68		$	5

Schedule of Roll-forward of Restructuring Accruals Presented in Consolidated Balance Sheets

The following table displays a roll-forward of restructuring accruals for the nine months ended September 30, 2013 and details, by type and segment, the restructuring accruals balance at September 30, 2013, which is presented on our Condensed Consolidated Balance Sheets within other accrued liabilities.

Balance at January 1, 2013	$	9
Charges for plans initiated during the year	69
Charges for plans initiated in prior years	1
Cash payments	(42		)
Reversal of accruals and other	(6		)
Balance at September 30, 2013	$	31
By accrual type
Severance accrual	$	22
Facility carrying and other costs accrual	9
By segment
C4ISR Electronics and Systems	$	23
Information and Technical Services	8

Schedule of Roll-forward of Employee Position Eliminations Associated with Restructuring Activities

The following table displays a roll-forward of the number of employee reductions associated with all restructuring activities for the nine months ended September 30, 2013.

Planned reductions at January 1, 2013	46
Additional planned reductions	1,136
Actual reductions	(1,146	)
Planned reductions at September 30, 2013	36

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Income Taxes - Additional Information (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Income Tax Disclosure [Abstract]
Income tax provision	$ 40,000,000	$ 50,000,000	$ 102,000,000	$ 150,000,000
Percentage of provision for income tax	33.30%	36.20%	33.60%	38.10%
Federal statutory income tax rate			35.00%
Unrecognized tax benefits	12,000,000		12,000,000		56,000,000
Interest accrued for tax matters	0		0		0
Penalties accrued for tax matters	$ 2,000,000		$ 2,000,000		$ 9,000,000

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Postretirement Benefit Plans - Net Periodic Benefit Cost (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 16	$ 19	$ 55	$ 59
Interest cost	65	71	194	214
Expected return on plan assets	(88)	(101)	(270)	(303)
Amortization of net actuarial loss	28	22	88	65
Amortization of prior service cost (credit)	0	1	2	1
Net periodic benefit cost	21	12	69	36
Pension
Defined Benefit Plan Disclosure [Line Items]
Service cost	16	19	54	57
Interest cost	60	65	180	197
Expected return on plan assets	(83)	(96)	(254)	(287)
Amortization of net actuarial loss	25	19	79	55
Amortization of prior service cost (credit)	0	1	2	2
Net periodic benefit cost	18	8	61	24
Other Benefits
Defined Benefit Plan Disclosure [Line Items]
Service cost	0	0	1	2
Interest cost	5	6	14	17
Expected return on plan assets	(5)	(5)	(16)	(16)
Amortization of net actuarial loss	3	3	9	10
Amortization of prior service cost (credit)	0	0	0	(1)
Net periodic benefit cost	$ 3	$ 4	$ 8	$ 12

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Segment Information - Segment Assets (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Segment Reporting, Asset Reconciling Item [Line Items]
Total Assets	$ 5,093	$ 5,212
Operating Segments | C4ISR Electronics and Systems
Segment Reporting, Asset Reconciling Item [Line Items]
Total Assets	3,047	3,078
Operating Segments | Information and Technical Services
Segment Reporting, Asset Reconciling Item [Line Items]
Total Assets	1,210	1,186
Corporate, Non-Segment | Corporate and Other
Segment Reporting, Asset Reconciling Item [Line Items]
Total Assets	$ 836	$ 948

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Earnings Per Share - Reconciliation of Basic and Diluted Weighted Average Shares Outstanding for Earnings Per Share (Details) In Millions, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2013		Sep. 30, 2012		Sep. 30, 2013		Sep. 30, 2012
Weighted Average Number of Shares Outstanding Reconciliation [Line Items]
Weighted average common shares outstanding (in shares)	188.5		186.8		188.1		186.3
Add: Weighted average restricted stock awards outstanding (in shares)	0	[1]	0.8	[1]	0.2	[1]	1.0	[1]
Basic weighted average common shares outstanding (in shares)	188.5		187.6		188.3		187.3
Diluted weighted average common shares outstanding (in shares)	192.8		188.7		191.0		188.3
Stock Options
Weighted Average Number of Shares Outstanding Reconciliation [Line Items]
Add: Dilutive impact of share-based payment arrangements (in shares)	2.2		0.4		0.9		0.5
Restricted Stock Units (RSUs)
Weighted Average Number of Shares Outstanding Reconciliation [Line Items]
Add: Dilutive impact of share-based payment arrangements (in shares)	2.1		0.7		1.8		0.5

[1] Restricted stock awards containing rights to non-forfeitable dividends which participate in undistributed earnings with common shareholders are considered participating securities for purposes of computing earnings per share.

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Restructuring And Asset Impairment Charges, Net - Components of All Restrucuturing Charges, Net (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Restructuring Cost and Reserve [Line Items]
Severance charges	$ 5	$ 2	$ 57	$ 4
Other restructuring charges	3	0	13	0
Reversal of restructuring charges	(2)	0	(2)	0
Total restructuring charges	6	2	68	4
Asset impairment charges	0	1	0	1
Restructuring and asset impairment charges, net	6	3	68	5
C4ISR Electronics and Systems
Restructuring Cost and Reserve [Line Items]
Restructuring and asset impairment charges, net	4	3	54	5
Information and Technical Services
Restructuring Cost and Reserve [Line Items]
Restructuring and asset impairment charges, net	$ 2	$ 0	$ 14	$ 0

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Restructuring And Asset Impairment Charges, Net - Schedule of Roll-forward of Restructuring Accruals Presented in Consolidated Balance Sheets (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Restructuring Reserve [Roll Forward]
Restructuring accrual	$ 9
Charges for plans initiated during the year	69
Charges for plans initiated in prior years	1
Cash payments	(42)	(14)
Reversal of accruals and other	(6)
Restructuring accrual	31
C4ISR Electronics and Systems
Restructuring Reserve [Roll Forward]
Restructuring accrual	23
Information and Technical Services
Restructuring Reserve [Roll Forward]
Restructuring accrual	8
Severance Accrual
Restructuring Reserve [Roll Forward]
Restructuring accrual	22
Facility Carrying and Other Costs Accrual
Restructuring Reserve [Roll Forward]
Restructuring accrual	$ 9

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Receivables, Net

9 Months Ended

Sep. 30, 2013

Receivables [Abstract]

Receivables, Net

RECEIVABLES, NET

Receivables, net were comprised of the following:

	September 30, 2013			December 31, 2012
Billed receivables	$	477		$	429
Unbilled contract receivables	530			562
Other	9			7
Receivables, gross	1,016			998
Allowance for doubtful accounts	(4		)	(3		)
Receivables, net	$	1,012		$	995

Total billed receivables due from the U.S. Government, either directly or as a subcontractor with the U.S. Government, were $397 and $340 at September 30, 2013 and December 31, 2012, respectively. Because the Company’s receivables are primarily with the U.S. Government, the Company does not have a material credit risk exposure.

Unbilled contract receivables represent revenue recognized on long-term contracts in excess of amounts billed as of the balance sheet date. We expect to bill and collect substantially all of the September 30, 2013 unbilled contract receivables during the next twelve months as scheduled performance milestones are completed or units are delivered.

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Commitments and Contingencies - Additional Information (Details) (USD $) In Millions, unless otherwise specified			9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2013 Rabbi Trust plan
Commitments and Contingencies Disclosure [Abstract]
Estimated and accrued environmental matters	$ 27	$ 27
Aggregate amount of surety bonds, guarantees, and stand-by letters of credit	$ 107
Deferred Compensation Arrangement with Individual, Excluding Share-based Payments and Postretirement Benefits [Line Items]
Deferred compensation, employer contribution requirement, percentage			110.00%
Deferred compensation, number of plans			8

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Postretirement Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2013

Compensation and Retirement Disclosure [Abstract]

Components of Net Periodic Benefit Cost

The following table provides the components of net periodic benefit cost for our defined benefit plans, including defined benefit pension plans and other postretirement defined benefit plans:

	Three Months Ended September 30,
	2013									2012
	Pension			Other Benefits			Total			Pension			Other Benefits			Total
Net periodic benefit cost
Service cost	$	16		$	—		$	16		$	19		$	—		$	19
Interest cost	60			5			65			65			6			71
Expected return on plan assets	(83		)	(5		)	(88		)	(96		)	(5		)	(101		)
Amortization of net actuarial loss	25			3			28			19			3			22
Amortization of prior service cost (credit)	—			—			—			1			—			1
Net periodic benefit cost	$	18		$	3		$	21		$	8		$	4		$	12

	Nine Months Ended September 30,
	2013									2012
	Pension			Other Benefits			Total			Pension			Other Benefits			Total
Net periodic benefit cost
Service cost	$	54		$	1		$	55		$	57		$	2		$	59
Interest cost	180			14			194			197			17			214
Expected return on plan assets	(254		)	(16		)	(270		)	(287		)	(16		)	(303		)
Amortization of net actuarial loss	79			9			88			55			10			65
Amortization of prior service cost (credit)	2			—			2			2			(1		)	1
Net periodic benefit cost	$	61		$	8		$	69		$	24		$	12		$	36

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Accumulated Other Comprehensive Loss - Schedule of Activity in Accumulated Other Comprehensive Income (Loss) During Period (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013		Sep. 30, 2012
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Balance at beginning of period			$ (1,835)
Other comprehensive income (loss) before reclassifications			113
Amounts reclassified from accumulated other comprehensive loss			54
Net current period other comprehensive income (loss)			167
Balance at end of period	(1,668)		(1,668)
Amortization of actuarial loss included in net periodic benefit cost, net of tax	17	13	53		39
Amortization of actuarial loss included in net periodic benefit cost, tax	11		35
Net Foreign Currency Translation Adjustments
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Balance at beginning of period			15
Other comprehensive income (loss) before reclassifications			(3)
Amounts reclassified from accumulated other comprehensive loss			0
Net current period other comprehensive income (loss)			(3)
Balance at end of period	12		12
Unamortized Defined Benefit Plan Costs
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Balance at beginning of period			(1,850)
Other comprehensive income (loss) before reclassifications			116
Amounts reclassified from accumulated other comprehensive loss			54	[1]
Net current period other comprehensive income (loss)			170
Balance at end of period	$ (1,680)		$ (1,680)

[1] This accumulated other comprehensive loss component primarily relates to the amortization of net actuarial loss. For the three and nine months ended September 30, 2013, the amortization of net actuarial loss was $17 (net of tax of $11) and $53 (net of tax of $35), respectively, which are included in the computation of net periodic benefit cost (Note 12).

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Debt

9 Months Ended

Sep. 30, 2013

Debt Disclosure [Abstract]

Debt

DEBT

Debt consisted of the following:

	September 30, 2013			December 31, 2012
Long-term debt	$	650		$	650
Unamortized debt discount	(1		)	(1		)
Total long-term debt	$	649		$	649

The following table provides a summary of interest rates, carrying amounts and estimated fair values of outstanding long-term debt:

			September 30, 2013				December 31, 2012
	Interest rate		Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt
Senior notes (due 2016)	4.25	%	$	250	$	264	$	250	$	262
Senior notes (due 2021)	5.55	%	400		405		400		437
Total			$	650	$	669	$	650	$	699

The fair value of our notes was determined using prices in secondary markets for identical and similar securities (Level 2 inputs) obtained from external pricing sources.

Commercial Paper

The Company’s commercial paper program generally enables the Company to borrow short-term funds at competitive rates. The commercial paper program is fully supported by available borrowing capacity under our Credit Facility. As of September 30, 2013 and December 31, 2012, there was no commercial paper outstanding under our commercial paper program.

Credit Facility

The Company has a competitive advance and revolving credit facility agreement (“Credit Facility”) with a consortium of lenders, which is available for working capital, capital expenditures and other general corporate purposes. The Credit Facility provides for a four year maturity, expiring October 25, 2015, with a one year extension option upon satisfaction of certain conditions, and comprises an aggregate principal amount of up to $600 of revolving loans, competitive advances and letters of credit in a face amount up to $100. Borrowings under the Credit Facility bear interest at rates based, at our option, on a Eurodollar rate or an alternate base rate, as defined in the Credit Facility. As of September 30, 2013 and December 31, 2012, there were no borrowings or letters of credit outstanding under the Credit Facility.

The Credit Facility contains customary affirmative and negative covenants that, among other things, limit or restrict our ability to: incur additional debt or issue guarantees of indebtedness; create liens; enter into certain sale and lease-back transactions; merge or consolidate with another person; sell, transfer, lease or otherwise dispose of assets; liquidate or dissolve; and enter into restrictive covenants. Additionally, the Credit Facility requires us not to permit the ratio of combined total indebtedness to combined EBITDA (leverage ratio) to exceed 3.50 to 1.00 at any time.

Senior Notes

The Company has outstanding long-term debt of $250 aggregate principal amount of 4.25% senior notes due October 1, 2016 and $400 aggregate principal amount of 5.55% senior notes due October 1, 2021 (together the “Notes”). As of September 30, 2013 and December 31, 2012, accrued interest payable on the Notes, included in other accrued liabilities, was $16 and $8, respectively, and is payable on April 1 and October 1 of each year.

The Notes have covenants that restrict our ability to, subject to exceptions, incur indebtedness secured by liens or engage in sale and leaseback transactions. The Notes also have customary events of default, including, but not limited to, non-payment of principal and interest, and certain events of bankruptcy, insolvency or reorganization of the Company. Under the terms of the Notes, we have the option to redeem the Notes prior to maturity, and we will be required to make an offer to purchase the Notes if a change of control triggering event (as defined in the Notes indenture) occurs.

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Income Taxes

9 Months Ended

Sep. 30, 2013

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Effective Tax Rate

Our quarterly income tax expense is measured using an estimated annual effective income tax rate, adjusted for discrete items within the period. The comparison of effective income tax rates between periods is significantly affected by discrete items recognized during the periods, the level and mix of earnings by tax jurisdiction and permanent differences.

For the three months ended September 30, 2013, the Company recorded an income tax provision of $40 or 33.3% of income from continuing operations before income tax expense as compared to $50 or 36.2% during the same prior year period. For the nine months ended September 30, 2013, the Company recorded an income tax provision of $102 or 33.6% of income from continuing operations before income tax expense as compared to $150 or 38.1% during the same prior year period. The effective income tax rate varies from the federal statutory rate of 35% primarily due to the unfavorable impact of state taxes offset by the favorable impacts from the U.S. manufacturing deduction. The effective income tax rate for the nine months ended September 30, 2013 also included the favorable impact of a discrete item related to the renewal of the 2012 federal research and development tax credit.

Uncertain Tax Positions

As of September 30, 2013 and December 31, 2012, unrecognized tax benefits were $12 and $56, respectively. Unrecognized tax benefits are primarily related to the timing of certain income and deductions and we anticipate that these unrecognized tax benefits will significantly decrease within twelve months of the reporting date due to the expected filing and acceptance of accounting method changes, which will not impact income tax expense.

We classify interest relating to tax matters as a component of interest expense and tax penalties as a component of income tax expense in our unaudited Condensed Consolidated Statements of Operations. As of September 30, 2013 and December 31, 2012, we had no interest accrued for tax matters and $2 and $9, respectively, accrued for tax penalties.

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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2013

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

Recent Accounting Pronouncements

RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Pronouncements

In February 2013, the Financial Accounting Standards Board (FASB) issued guidance intended to update the disclosure requirements for accumulated other comprehensive income (AOCI). This guidance does not change the current requirements for reporting net income or other comprehensive income in the financial statements. The updated guidance requires an entity to disclose additional information about changes in AOCI balances by component and significant amounts reclassified out of AOCI by component. This guidance is effective prospectively for reporting periods beginning after December 15, 2012. We adopted this guidance on January 1, 2013 and have provided the additional required disclosures in the notes to these financial statements.

Pronouncements Not Yet Adopted

New pronouncements issued but not effective until after September 30, 2013 are not expected to have a material impact on our financial position, results of operations or cash flows.

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Debt - Summary of Long-Term Debt (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Debt Instrument [Line Items]
Carrying Value	$ 650	$ 650
Fair Value	669	699
Senior Notes | Senior notes (due 2016)
Debt Instrument [Line Items]
Interest rate	4.25%
Carrying Value	250	250
Fair Value	264	262
Senior Notes | Senior notes (due 2021)
Debt Instrument [Line Items]
Interest rate	5.55%
Carrying Value	400	400
Fair Value	$ 405	$ 437

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Inventories, Net - Schedule of Inventories, Net (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Inventory Disclosure [Abstract]
Production costs of contracts in process	$ 260	$ 253
Less progress payments	(17)	(22)
Production costs of contracts in process, net	243	231
Product inventory	45	52
Inventories, net	$ 288	$ 283

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2013

Segment Reporting [Abstract]

Summary of Segment Revenue

Segment financial results were as follows:

	Three Months Ended September 30,
	2013						2012
	Product Revenue		Service Revenue		Total Revenue		Product Revenue		Service Revenue		Total Revenue
C4ISR Electronics and Systems	$	498	$	—	$	498	$	611	$	—	$	611
Information and Technical Services	—		643		643		—		750		750
Total	$	498	$	643	$	1,141	$	611	$	750	$	1,361
	Nine Months Ended September 30,
	2013						2012
	Product Revenue		Service Revenue		Total Revenue		Product Revenue		Service Revenue		Total Revenue
C4ISR Electronics and Systems	$	1,515	$	—	$	1,515	$	1,884	$	—	$	1,884
Information and Technical Services	—		2,062		2,062		—		2,277		2,277
Total	$	1,515	$	2,062	$	3,577	$	1,884	$	2,277	$	4,161

Summary of Segment Operating Income and Operating Margin

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Operating Income
C4ISR Electronics and Systems	$	69		$	84		$	128		$	261
Information and Technical Services	64			59			206			165
Total Operating Income	$	133		$	143		$	334		$	426
Operating Margin
C4ISR Electronics and Systems	13.9		%	13.7		%	8.4		%	13.9		%
Information and Technical Services	10.0		%	7.9		%	10.0		%	7.2		%
Total Operating Margin	11.7		%	10.5		%	9.3		%	10.2		%

Summary of Segment Reporting Assets

	September 30, 2013		December 31, 2012
Assets
C4ISR Electronics and Systems	$	3,047	$	3,078
Information and Technical Services	1,210		1,186
Corporate and Other	836		948
Total Assets	$	5,093	$	5,212

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Segment Information - Additional Information (Details)	9 Months Ended
	Sep. 30, 2013 Segment
Segment Reporting [Abstract]
Number of operating segments	2

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Stock-Based Compensation - Additional Information (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average grant date fair value, options (in dollars per share)	$ 1.93
Non-Qualified Stock Options (NQOs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted long-term incentives to employees, options	2.89
Weighted average grant date fair value, options (in dollars per share)	$ 1.93
Award vesting period	3 years
Award expiration period	10 years
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted long-term incentives to employees, equity instruments other than options	1.10
Weighted average grant date fair value, equity instruments other than options (in dollars per share)	$ 11.16
Award vesting period	3 years
Total Shareholder Return Awards (TSRs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	3 years
Aggregate target value of award, settled in cash	$ 4
Total Shareholder Return Awards (TSRs) | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Estimated cash settlement, percentage of target award	0.00%
Total Shareholder Return Awards (TSRs) | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Estimated cash settlement, percentage of target award	200.00%
Compensation cost for equity-based awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation costs	24
Unrecognized compensation costs, weighted average period for recognition	1 year 11 months 19 days
Compensation cost for liability-based awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation costs	$ 6
Unrecognized compensation costs, weighted average period for recognition	1 year 10 months 10 days

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Related Party Transactions

9 Months Ended

Sep. 30, 2013

Related Party Transactions [Abstract]

Related Party Transactions

RELATED PARTY TRANSACTIONS

Separation Agreements

On October 31, 2011, ITT Corporation ("ITT") completed the spin-off (the “Spin-off”) of Exelis and Exelis began operating as a stand-alone publicly traded corporation. Prior to the Spin-off, Exelis operated as the Defense and Information Solutions Segment of ITT.

In order to govern certain ongoing relationships between Exelis and ITT following the Spin-off and to provide mechanisms for an orderly transition, on October 25, 2011, Exelis, ITT, and Xylem Inc. executed the various agreements that govern the ongoing relationships between and among the three companies after the Spin-off and provide for the allocation of employee benefits, income taxes, and certain other liabilities and obligations attributable to periods prior to the Spin-off. The executed agreements include the Distribution Agreement, Benefits and Compensation Matters Agreement, Tax Matters Agreement, several real estate matters agreements, and Master Transition Services Agreement.

The Distribution Agreement provides for certain indemnifications and cross-indemnifications among Exelis, ITT and Xylem Inc. The indemnifications address a variety of subjects, including indemnification by ITT of Exelis in respect of certain asserted and unasserted asbestos or silica liability claims. Certain intercompany work orders and/or informal intercompany commercial arrangements were converted into third-party contracts based on ITT’s standard terms and conditions.

For the three and nine months ended September 30, 2013, charges incurred for services provided to Exelis by ITT and Xylem Inc. under the separation agreements, net of costs passed through to third parties, were zero and $1, respectively, and $1 and $2, for the three and nine months ended September 30, 2012, respectively. For the three and nine months ended September 30, 2013, charges related to these agreements for services provided by Exelis to ITT and Xylem Inc., net of costs passed through to third parties, were zero and $1, respectively, and $1 and $2, for the three and nine months ended September 30, 2012, respectively. At September 30, 2013 and December 31, 2012, total payables due from Exelis to ITT and Xylem Inc. were $5 and $3, respectively and total receivables due to Exelis from ITT and Xylem Inc. were $7 and $7, respectively.

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Goodwill and Other Intangible Assets, Net

9 Months Ended

Sep. 30, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets, Net

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

As of September 30, 2013 and December 31, 2012, goodwill was $2,184 and $2,180, respectively. As of September 30, 2013 and December 31, 2012, goodwill for our C4ISR Electronics and Systems segment was $1,800 and $1,802, respectively, and goodwill for our Information and Technical Services segment was $384 and $378, respectively.

During the first quarter of 2013, the Company acquired C4i Pty. Ltd. for an aggregate purchase price of approximately $16, net of cash acquired, resulting in an increase to goodwill of $7 and other intangible assets of $7. The operating results of the business are reported in the Information and Technical Services segment from the date of acquisition. The assets, liabilities and results of operations for the acquired business were not material to the Company.

Other Intangible Assets, Net

Information regarding our other intangible assets was as follows:

	September 30, 2013							December 31, 2012
	Gross Carrying Amount		Accumulated Amortization			Net Intangibles		Gross Carrying Amount		Accumulated Amortization			Net Intangibles
Customer and distributor relationships	$	525	$	(366	)	$	159	$	524	$	(348	)	$	176
Proprietary technology	30		(20		)	10		25		(18		)	7
Trademark, patents and other	9		(5		)	4		5		(4		)	1
Total other intangible assets	$	564	$	(391	)	$	173	$	554	$	(370	)	$	184

Amortization expense related to other intangible assets for the three and nine months ended September 30, 2013 was $7 and $20, respectively, and $10 and $29 for the three and nine months ended September 30, 2012, respectively.

Estimated amortization expense for the remaining three months of 2013 and each of the five succeeding years and thereafter is as follows:

Remaining 2013	$	7
2014	24
2015	21
2016	19
2017	17
2018 and thereafter	85
Total	$	173

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Background, Basis of Presentation and Use of Estimates (Policies)

9 Months Ended

Sep. 30, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

The unaudited Condensed Consolidated Financial Statements included in this Form 10-Q have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and, in the opinion of management, reflect all adjustments (which include normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. Certain information and note disclosures normally included in financial statements prepared annually in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such SEC rules. These financial statements should be read in conjunction with the audited Consolidated and Combined Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2012. We believe that the disclosures included in this Form 10-Q are adequate to make the information presented not misleading.

Our quarterly financial periods end on the Saturday closest to the last day of the calendar quarter, except for the last quarterly period of the fiscal year, which ends on December 31^st. For ease of presentation, the quarterly financial statements included herein are described as ending on the last day of the calendar quarter.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Estimates are revised as additional information becomes available. Estimates and assumptions are used for, but not limited to, revenue recognition, income taxes, contingency accruals and valuation allowances, fair value measurements, impairment of goodwill and other intangibles, postretirement obligations and certain contingent liabilities. Actual results could differ from these estimates.

During the performance of long-term sale contracts, estimated final contract prices and costs are reviewed periodically and revisions are made as required and recorded in income in the period in which they are determined. Changes in estimated revenues, cost of revenue and the related effect to operating income are recognized using a cumulative catch-up adjustment which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a contract’s percent complete.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

General

From time to time, we are involved in legal proceedings that are incidental to the operation of our businesses. Some of these proceedings seek remedies relating to environmental matters, personal injury claims, employment and pension matters, and commercial or contractual disputes, sometimes related to acquisitions or divestitures.

Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including our assessment of the merits of the particular claim, we do not expect that any asserted or unasserted legal claims or proceedings, individually or in the aggregate, will have a material adverse effect on our cash flow, results of operations, or financial condition.

Environmental

In the ordinary course of business, we are subject to federal, state, local, and foreign environmental laws and regulations. We are responsible, or are alleged to be responsible, for ongoing environmental investigation and remediation of multiple sites. These sites are in various stages of investigation and/or remediation and in many of these proceedings our liability is considered de minimis. We have received notification from the U.S. Environmental Protection Agency, and from similar environmental agencies, that a number of sites formerly or currently owned and/or operated by Exelis, and other properties or water supplies that may be or have been impacted from those operations, contain disposed or recycled materials or wastes and require environmental investigation and/or remediation. These sites include instances where we have been identified as a potentially responsible party under federal and state environmental laws and regulations.

Accruals for environmental matters are recorded on a site by site basis when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies available to us. Our accrued liabilities for these environmental matters represent our best estimates related to the investigation and remediation of environmental media such as water, soil, soil vapor, air and structures, as well as related legal fees. These estimates, and related accruals, are reviewed quarterly and updated for progress of investigation and remediation efforts and changes in facts and legal circumstances. Liabilities for these environmental expenditures are recorded on an undiscounted basis.

It is difficult to estimate the final costs of investigation and remediation due to various factors, including incomplete information regarding particular sites and other potentially responsible parties, uncertainty regarding the extent of investigation or remediation and our share, if any, of liability for such conditions, the selection of alternative remedial approaches, and changes in environmental standards and regulatory requirements. We have estimated and accrued $27 and $27 as of September 30, 2013 and December 31, 2012, respectively, for environmental matters. In our opinion, the total amount accrued is appropriate based on existing facts and circumstances.

The following table illustrates the range of estimated loss and number of active sites for these environmental matters:

	September 30, 2013		December 31, 2012
Low-end range	$	24	$	24
High-end range	$	45	$	47
Number of active environmental investigations and remediation sites	23		22

U.S. Government Contracts, Investigations and Claims

The Company has U.S. Government contracts that are funded incrementally on a year-to-year basis. Changes in government policies, priorities or funding levels through agency or program budget reductions by the U.S. Congress or executive agencies could have a material adverse effect on the Company’s financial condition or results of operations. Furthermore, contracts with the U.S. Government may be terminated or suspended by the U.S. Government at any time, with or without cause. Such contract suspensions or terminations could result in un-reimbursable expenses or charges or otherwise adversely affect the Company’s financial condition and/or results of operations.

Departments and agencies of the U.S. Government have the authority to investigate various transactions and operations of the Company, and the results of such investigations may lead to administrative, civil or criminal proceedings, the ultimate outcome of which could be fines, penalties, repayments or compensatory or treble damages. U.S. Government regulations provide that certain findings against a contractor may lead to suspension or debarment from future U.S. Government contracts or the loss of export privileges for a company or an operating division or subdivision. Suspension or debarment could have a material adverse effect on the Company because of its reliance on government contracts.

U.S. Government agencies, including the Defense Contract Audit Agency (DCAA) and others, routinely audit and review a contractor’s performance on government contracts, indirect rates and pricing practices, and compliance with applicable contracting and procurement laws, regulations and standards. Accordingly, costs billed or billable to the U.S. Government customers are subject to potential adjustment upon audit by such agencies. They also review the adequacy of the contractor’s compliance with government standards for its accounting and management internal control systems, including: control environment and accounting system, general information technology system, budget and planning system, purchasing system, material management and accounting system, compensation system, labor system, indirect and other direct costs system, billing system and estimating system. Audits currently underway include the Company’s control environment and accounting, billing, purchasing, and indirect and other direct cost systems, as well as reviews of the Company’s compliance with certain U.S. Government Cost Accounting Standards.

From time to time, customers advise the Company of claims and penalties concerning certain potential disallowed costs. When such findings are presented, Exelis and the U.S. Government representatives engage in discussions to enable Exelis to evaluate the merits of these claims as well as to assess the amounts being claimed. Where appropriate, provisions are made to reflect the expected exposure to the matters raised by the U.S. Government representatives and such provisions are reviewed on a quarterly basis for sufficiency based on the most recent information available.

Indemnifications

As part of the Spin-off, Exelis, ITT and Xylem Inc. indemnify one another with respect to such parties’ assumed or retained liabilities under the Distribution Agreement and breaches of the Distribution Agreement or related Spin-off agreements. Exelis expects ITT and Xylem Inc. to fully perform under the terms of the Distribution Agreement and therefore we have not recorded a liability for matters for which we are indemnified. In addition, we are not aware of any claims or other circumstances that would give rise to material payments to ITT or Xylem Inc. under the indemnity that we provide to them.

Letters of Credit

In the ordinary course of business, we use standby letters of credit, guarantees issued by commercial banks and surety bonds issued by insurance companies, as well as self-guarantees, principally to guarantee our performance on certain contracts and to support our self-insured workers’ compensation plans. At September 30, 2013, there was an aggregate of approximately $107 in surety bonds, guarantees and stand-by letters of credit outstanding.

Rabbi Trust

The Company maintains a grantor trust (“Rabbi Trust”) for the purpose of assisting the Company with the payment of certain nonqualified deferred compensation obligations in the event of a change in control of the Company. The Company is obligated to contribute an amount equal to 110 percent of the Company’s obligations under eight nonqualified deferred compensation plans at the time of an “Acceleration Event,” as defined in such plans and the Rabbi Trust.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2013	Oct. 28, 2013
Document Documentand Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3
Trading Symbol	XLS
Entity Registrant Name	Exelis Inc.
Entity Central Index Key	0001524471
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		188,836,826

XML

Segment Information

9 Months Ended

Sep. 30, 2013

Segment Reporting [Abstract]

Segment Information

SEGMENT INFORMATION

The Company’s segments are reported on the same basis used internally for evaluating performance and for allocating resources. We operate in two segments: C4ISR Electronics and Systems, and Information and Technical Services. Assets of the business segments exclude general corporate assets, which principally consist of cash, deferred tax assets, certain plant, property, and equipment, and certain other assets.

C4ISR Electronics and Systems

This segment provides communications, sensing and surveillance, space and advanced engineering equipment and systems for government and commercial customers around the world.

Information and Technical Services

This segment provides a broad range of systems integration, operations, sustainment, advanced engineering, logistics, space launch and range-support solutions for a wide variety of U.S. military and government agency customers.

Segment financial results were as follows:

	Three Months Ended September 30,
	2013						2012
	Product Revenue		Service Revenue		Total Revenue		Product Revenue		Service Revenue		Total Revenue
C4ISR Electronics and Systems	$	498	$	—	$	498	$	611	$	—	$	611
Information and Technical Services	—		643		643		—		750		750
Total	$	498	$	643	$	1,141	$	611	$	750	$	1,361
	Nine Months Ended September 30,
	2013						2012
	Product Revenue		Service Revenue		Total Revenue		Product Revenue		Service Revenue		Total Revenue
C4ISR Electronics and Systems	$	1,515	$	—	$	1,515	$	1,884	$	—	$	1,884
Information and Technical Services	—		2,062		2,062		—		2,277		2,277
Total	$	1,515	$	2,062	$	3,577	$	1,884	$	2,277	$	4,161

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Operating Income
C4ISR Electronics and Systems	$	69		$	84		$	128		$	261
Information and Technical Services	64			59			206			165
Total Operating Income	$	133		$	143		$	334		$	426
Operating Margin
C4ISR Electronics and Systems	13.9		%	13.7		%	8.4		%	13.9		%
Information and Technical Services	10.0		%	7.9		%	10.0		%	7.2		%
Total Operating Margin	11.7		%	10.5		%	9.3		%	10.2		%

	September 30, 2013		December 31, 2012
Assets
C4ISR Electronics and Systems	$	3,047	$	3,078
Information and Technical Services	1,210		1,186
Corporate and Other	836		948
Total Assets	$	5,093	$	5,212

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Commitments and Contingencies - Range of Estimated Loss Environmental Matters (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2013 site	Dec. 31, 2012 site
Range of Estimated Loss and Number of Active Sites for Environmental Matters:
Low-end range	$ 24	$ 24
High-end range	$ 45	$ 47
Number of active environmental investigations and remediation sites	23	22

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Related Party Transactions - Additional Information (Details) (Xylem And ITT, USD $) In Millions, unless otherwise specified			3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2013 Charges for Services Provided to the Company	Sep. 30, 2012 Charges for Services Provided to the Company	Sep. 30, 2013 Charges for Services Provided to the Company	Sep. 30, 2012 Charges for Services Provided to the Company	Sep. 30, 2013 Charges for Servcies Provided by the Company	Sep. 30, 2012 Charges for Servcies Provided by the Company	Sep. 30, 2013 Charges for Servcies Provided by the Company	Sep. 30, 2012 Charges for Servcies Provided by the Company
Related Party Transaction [Line Items]
Charges incurred from transactions with related party			$ 0	$ 1.0	$ 1.0	$ 2.0	$ 0	$ 1.0	$ 1.0	$ 2.0
Total payables due from Exelis to related parties	5	3
Total receivables due to Exelis to related parties	$ 7	$ 7