February 18, 2016
NEWPORT NEWS, Va., Feb. 18, 2016 (GLOBE NEWSWIRE) -- Huntington Ingalls Industries (NYSE:HII) reported fourth quarter 2015 revenues of $1.9 billion, down 1.1 percent from the same period last year. Total operating income in the quarter of $144 million and total operating margin of 7.6 percent were in line with total operating income and margin in fourth quarter 2014.
Diluted earnings per share in the quarter was $1.06, compared to $1.05 in the same period last year. Diluted earnings per share in the fourth quarters of 2015 and 2014 included the impacts of non-cash goodwill impairment charges, one-time expenses related to the early extinguishment of debt and favorable FAS/CAS Adjustments. Diluted earnings per share in fourth quarter 2015 also included the impact of a non-cash intangible asset impairment charge. Excluding these items, diluted earnings per share in the quarter was $1.95, compared to $2.19 in the same period last year.
For the full year, revenues of $7.0 billion increased 0.9 percent over 2014. Total operating income was $769 million and total operating margin was 11.0 percent for the full year, compared to $655 million and 9.4 percent, respectively, in 2014.
Diluted earnings per share for the year was $8.36, compared to $6.86 in 2014. Diluted earnings per share in 2015 and 2014 included the impacts of non-cash goodwill impairment charges, one-time expenses related to the early extinguishment of debt and favorable FAS/CAS Adjustments. Diluted earnings per share in 2015 also included the impacts of a favorable insurance litigation settlement and a non-cash intangible asset impairment charge. Excluding these items, diluted earnings per share in 2015 was $7.33, compared to $7.14 in 2014.
New business awards for 2015 were approximately $7.6 billion, of which $0.7 billion was awarded in the fourth quarter, bringing total backlog to $22.0 billion as of Dec. 31, 2015.
“2015 was a pivotal year for HII as we achieved the 9-plus percent segment operating margin goal we established when we stood up the company back in 2011,” said Mike Petters, HII’s President and CEO. “I am very pleased with the operational improvements accomplished by the team since we spun and the resulting financial performance.”
Fourth Quarter 2015 Significant Events
Goodwill Impairment Charge
During fourth quarter 2015, the company recorded a non-cash goodwill impairment charge of $16 million related to its Other segment. The impairment was a result of the continued deterioration of market fundamentals in the oil and gas services industry, driven by further declines in oil prices, numerous industry-wide project deferrals and customers' capital spending cuts.
Purchased Intangible Assets Impairment Charge
During fourth quarter 2015, the company recorded a non-cash intangible asset impairment charge of $27 million related to its Other segment. The purchased intangible assets consisted primarily of customer relationships and, to a lesser extent, trade names and developed technology. Considering current oil and gas market conditions and expectations, the company performed an impairment test in December and determined that the carrying value of the oil and gas asset group was greater than the sum of the asset group undiscounted pre-tax cash flows generated over the useful life of the primary asset, resulting in the impairment.
Results of Operations
Three Months Ended Year Ended December 31 December 31 ($ in millions, except per share amounts)20152014% Change 20152014% ChangeSales and service revenues$1,905 $1,927 (1.1)% $7,020 $6,957 0.9%Segment operating income1124 134 (7.5)% 667 585 14.0% Segment operating margin %16.5%7.0%(44) bps 9.5%8.4%109 bps Total operating income144 144 —% 769 655 17.4% Operating margin %7.6%7.5%9 bps 11.0%9.4%154 bps Net earnings50 52 (3.8)% 404 338 19.5%Diluted earnings per share$1.06 $1.05 1.0% $8.36 $6.86 21.9% Adjusted Figures Sales and service revenues2$1,905 $1,927 (1.1)% $7,033 $6,957 1.1%Segment operating income1,2,3$167 $181 (7.7)% $633 $632 0.2% Segment operating margin %1,2,38.8%9.4%(63) bps 9.0%9.1%(8) bps Total operating income2,3$187 $191 (2.1)% $735 $702 4.7% Operating margin %2,39.8%9.9%(10) bps 10.5%10.1%36 bps Net earnings2,3,492 108 (14.8)% 354 352 0.6%Diluted earnings per share2,3,4$1.95 $2.19 (11.0)% $7.33 $7.14 2.7% 1 Non-GAAP metrics that exclude non-segment factors affecting operating income. See Exhibit B for reconciliation.2 Non-GAAP metrics that exclude the impact of the insurance litigation settlement in second quarter 2015. See Exhibit B for reconciliation.3 Non-GAAP metrics that exclude the impact of non-cash goodwill impairment charges in second and fourth quarters 2015 and in fourth quarter 2014 and the impact of a non-cash intangible asset impairment charge in fourth quarter 2015. See Exhibit B for reconciliation.4 Non-GAAP metrics that exclude the after-tax loss on early extinguishment of debt in third and fourth quarters 2015 and in fourth quarter 2014 and the after-tax FAS/CAS Adjustment. See Exhibit B for reconciliation.
Segment Operating Results
Ingalls Shipbuilding
Three Months Ended Year Ended December 31 December 31 ($ in millions)20152014% Change20152014% ChangeRevenues$580 $608 (4.6)%$2,188 $2,286 (4.3)%Operating income (loss)59 72 (18.1)%379 229 65.5%Operating margin %10.2%11.8%(167) bps 17.3%10.0%730 bps Adjusted revenues1580 608 (4.6)%2,201 2,286 (3.7)%Adjusted operating income159 72 (18.1)%243 229 6.1%Adjusted operating margin %110.2%11.8%(167) bps 11.0%10.0%102 bps 1 Non-GAAP metrics that exclude the impact of the insurance litigation settlement in second quarter of 2015. See Exhibit B for reconciliation.
Ingalls revenues for the fourth quarter decreased $28 million, or 4.6 percent, from the same period in 2014 due to lower revenues in the Legend-class National Security Cutter (NSC) program and Amphibious Assault Ships, partially offset by higher revenues in Surface Combatants. Lower NSC program revenues were primarily due to the deliveries of NSC-5 USCGC James and NSC-4 USCGC Hamilton, partially offset by increased volumes on NSC-8 Midgett and NSC-7 Kimball contracts. Lower Amphibious Assault Ships revenues were primarily due to decreased volumes on LPD-26 John P. Murtha and on LHA-7 Tripoli, partially offset by increased volume on LPD-27 Portland. Higher Surface Combatant revenues were due to increased volumes on DDG-121 (unnamed) and DDG-119 Delbert D. Black, partially offset by decreased volume on DDG-117 Paul Ignatius.
Ingalls operating income for the fourth quarter was $59 million, a decrease of $13 million from the same period last year. Operating margin was 10.2 percent for the quarter, compared to 11.8 percent in the same period last year. These decreases were due to lower risk retirement on the LPD program.
For the full year, Ingalls revenues decreased $98 million, or 4.3 percent, from 2014 due to lower revenues in Amphibious Assault Ships and the NSC program and an adjustment related to an insurance litigation settlement, partially offset by higher revenues in surface combatants. Lower Amphibious Assault Ships revenues were due to decreased volumes on LPD-26 John P Murtha, LPD-27 Portland and LHA-6 USS America, partially offset by increased volume on LHA-7 Tripoli. Lower NSC program revenues were due to decreased volumes on NSC-4 USCGC Hamilton and NSC-5 USCGC James, partially offset by increased volumes on NSC-7 Kimball and NSC-8 Midgett. Higher Surface Combatants revenues were due to increased volumes on DDG-119 Delbert D. Black and DDG-121 (unnamed), partially offset by decreased volumes on the DDG-1000 Zumwalt-class destroyer program.
For 2015, Ingalls operating income was $379 million, an increase of $150 million from the prior year, and operating margin was 17.3 percent for the year, which included $136 million favorable impact from an insurance litigation settlement. Adjusting for the insurance litigation settlement, operating income was $243 million, an increase of $14 million over the prior year, and operating margin was 11.0 percent, compared to 10.0 percent in 2014. These increases were primarily due to the resolution of outstanding contract changes and higher performance on the LHA-6 America-class program, and on the NSC program.
Key Ingalls milestones for the quarter:
Newport News Shipbuilding
Newport News revenues for the fourth quarter increased $33 million, or 2.6 percent, from the same period in 2014, primarily driven by higher revenues in Submarines and Fleet Support services, partially offset by lower revenues in Aircraft Carriers and Energy services. Higher Submarines revenues related to the SSN-774 Virginia-class submarine (VCS) program were due to increased volumes on Block IV boats, partially offset by decreased volumes on Block III boats. Higher Fleet Support services revenues were primarily due to increased volumes associated with Aircraft Carrier support services. Lower Aircraft Carriers revenues were due to decreased volumes on the execution contract for the CVN-72 USS Abraham Lincoln refueling and complex overhaul (RCOH) and the construction contract for CVN-78 Gerald R. Ford, partially offset by increased volume on the construction contract for CVN-79 John F. Kennedy. Lower Energy services revenues were due to decreased volumes in environmental remediation programs.
Newport News operating income for the fourth quarter was $120 million, an increase of $4 million over the same period last year, due to increased volumes on the VCS program and in Fleet Support services. Operating margin was 9.3 percent for the quarter, compared to 9.2 percent in the same period last year.
For the full year, Newport News revenues increased $164 million, or 3.6 percent, from 2014, primarily driven by higher revenues in Submarines and Fleet Support services, partially offset by lower revenues in Aircraft Carriers and Energy services. Higher Submarines revenues related to the VCS program were due to increased volumes on Block IV boats, partially offset by decreased volumes on Block III boats. Higher Fleet Support services revenues were due to increased volumes associated with Aircraft Carrier support services. Lower Aircraft Carriers revenues were primarily due to decreased volumes on the execution contract for the CVN-72 USS Abraham Lincoln RCOH and the construction contract for CVN-78 Gerald R. Ford, partially offset by increased volume on the construction contract for CVN-79 John F. Kennedy. Lower Energy services revenues were due to decreased volumes in environmental remediation programs.
For 2015, Newport News operating income was $422 million, up $7 million from the prior year. The increase was due to higher performance and volumes on the VCS program and the resolution of outstanding contract changes on the CVN-71 USS Theodore Roosevelt RCOH, partially offset by lower performance on the construction contract for CVN-78 Gerald R. Ford and lower volumes on Aircraft Carriers RCOH programs. Operating margin was 9.0 percent for the year, compared to 9.1 percent in 2014.
Other
Revenues in the Other segment for the fourth quarter decreased $27 million or 48.2 percent from the same period last year. The operating loss for fourth quarter 2015 was $55 million, compared to the operating loss of $54 million in fourth quarter 2014. The operating loss in fourth quarter 2015 included a $16 million non-cash goodwill impairment charge and a $27 million non-cash intangible asset impairment charge. The operating loss in fourth quarter 2014 included a $47 million non-cash goodwill impairment charge. Adjusting for these items, the operating losses in fourth quarters 2015 and 2014 were $12 million and $7 million, respectively. These losses were due to lower performance in oil and gas services.
Revenues in the Other segment for the full year were $134 million, compared to $137 million in 2014. The operating loss for the full year was $134 million, compared to an operating loss of $59 million in 2014. The operating loss in 2015 included $75 million of non-cash goodwill impairment charges and a $27 million non-cash intangible asset impairment charge. The operating loss in 2014 included a $47 million non-cash goodwill impairment charge. Adjusting for these items, the operating losses in 2015 and 2014 were $32 million and $12 million, respectively. These losses were due to lower performance in oil and gas services.
The Company
Huntington Ingalls Industries is America’s largest military shipbuilding company and a provider of manufacturing, engineering and management services to the nuclear energy, oil and gas markets. For more than a century, HII’s Newport News and Ingalls shipbuilding divisions in Virginia and Mississippi have built more ships in more ship classes than any other U.S. naval shipbuilder. Headquartered in Newport News, Virginia, HII employs nearly 36,000 people operating both domestically and internationally. For more information, please visit
Huntington Ingalls Industries will webcast its earnings conference call at 9 a.m. EST today. A live audio broadcast of the conference call and supplemental presentation will be available on the investor relations page of the company's website:
HII is America’s largest shipbuilder, delivering the world’s most powerful ships and all-domain mission technologies, including unmanned systems, to U.S. and allied defense customers. HII is the largest producer of unmanned underwater vehicles for the U.S. Navy and the world.
With a more than 140-year history of advancing U.S. national security, HII builds and integrates defense capabilities extending from the core fleet to C6ISR, AI/ML, EW and synthetic training. Headquartered in Virginia, HII’s workforce is 44,000 strong.
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