NEWS

NEWS RELEASE

HUNTINGTON INGALLS INDUSTRIES REPORTS SECOND QUARTER RESULTS; PROGRAM EXECUTION GENERATES OPERATING MARGIN AND EPS GROWTH

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Revenues were $1.68 billion for the second quarter of 2013

  • Segment operating margin was 8.1 percent, a 70 bps improvement over Q2 2012

  • Total operating margin was 6.9 percent, up from 6.2 percent in the same period last year

  • Diluted earnings per share was $1.12 for the quarter; pension-adjusted diluted earnings per share was $1.36

  • Cash and cash equivalents at the end of the quarter were $623 million

NEWPORT NEWS, Va., Aug. 7, 2013 (GLOBE NEWSWIRE) — Huntington Ingalls Industries (NYSE:HII) reported second quarter 2013 revenues of $1.68 billion, down 2.2 percent from the same period last year. Segment operating income for the second quarter was $136 million, compared to $127 million in the same period last year. Total operating income for the quarter was $116 million, up 9.4 percent from $106 million in the same period last year. Pension-adjusted operating income for the second quarter was $134 million, or 8.0 percent of revenue, up from $125 million, or 7.3 percent of revenue, in the comparable period of 2012. The income increases were primarily attributable to additional risk retirement on the SSN-774 Virginia-class (VCS) and National Security Cutter (NSC) programs, partially offset by lower volumes on amphibious assault ships and the receipt of $7 million for resolution of a contract dispute with a private party in the same period last year.

Second quarter diluted earnings per share was $1.12, compared to $1.00 in the same period of 2012. Pension-adjusted diluted earnings per share for the quarter was $1.36, compared to $1.24 in the comparable period of 2012.

New business awards for the quarter were $5.3 billion, bringing total backlog at the end of the quarter to $20.7 billion, of which $13.7 billion is funded. Significant new awards during the period included contracts for the construction of five DDG-51 Arleigh Burke-class destroyers, the inactivation of CVN-65 USS Enterprise and the construction of NSC-6 Munro.

“I am very pleased with the program execution at both Ingalls and Newport News as we drive performance toward our 2015 target of 9-plus percent operating margin,” said Mike Petters, HII’s president and chief executive officer. “We also continue to strengthen our backlog and long-term revenue visibility through the receipt of major new contract awards.”

Second Quarter 2013 Highlights

 

Three Months Ended

  
 

June 30

  

($ in millions, except per share amounts)

2013

2012

$ Change

% Change

Revenues

1,683

$ 1,721

$ (38)

(2.2)%

Segment operating income1

136

127

9

7.1%

Segment operating margin %1

8.1%

7.4%

 

70 bps

Total operating income

116

106

10

9.4%

Total operating margin %

6.9%

6.2%

 

73 bps

Net earnings

57

50

7

14.0%

Diluted earnings per share

1.12

$ 1.00

$ 0.12

12.0%

Weighted-average diluted shares outstanding

50.7

50.1

  
     

Pension-adjusted Operating Highlights

    

Total operating income

116

106

  

FAS/CAS Adjustment

18

19

  

Pension-adjusted operating income2

134

125

9

7.2%

Pension-adjusted operating margin %2

8.0%

7.3%

 

70 bps

     

Pension-adjusted Net Earnings

    

Net earnings

57

50

  

After-tax FAS/CAS Adjustment3

12

12

  

Pension-adjusted net earnings2

69

62

  

Weighted-average diluted shares outstanding

50.7

50.1

  

Pension-adjusted diluted earnings per share2

1.36

$ 1.24$ 0.129.7%

Non-GAAP metrics that exclude non-segment factors affecting operating income. See Exhibit B for definition and reconciliation.

Non-GAAP metrics – see Exhibit B for definition.

Tax effected at 35% federal statutory tax rate.

Operating Segment Results

Ingalls Shipbuilding

 

Three Months Ended

  
 

June 30

  

($ in millions)

2013

2012

$ Change

% Change

Revenues

$672

$756

$(84)

(11.1)%

Operating income (loss)

35

38

(3)

(7.9)%

Operating margin %

5.2%

5.0%

 

18 bps

Ingalls revenues for the second quarter decreased $84 million, or 11.1 percent, from the same period in 2012, driven by lower sales in amphibious assault ships, partially offset by higher sales in the NSC program and surface combatants. The decrease in amphibious assault ship revenues was due to lower sales on LPD-23 USS Anchorage, LPD-24 USS Arlington, LPD-25 Somerset and LHA-6 America, partially offset by higher sales on LPD-26 John P. Murtha, LPD-27 Portland and LHA-7 Tripoli. Revenues on the NSC program were higher due to higher sales on the construction contracts of NSC-4 Hamilton, NSC-5 James and NSC-6 Munro. Surface combatants revenues were higher because of higher sales on DDG-113 John Finn and DDG-114 Ralph Johnson, partially offset by lower volumes on the DDG-1000 Zumwalt-class destroyer program.

Ingalls operating income for the quarter was $35 million, a decrease of $3 million from the same period in 2012. Operating margin was 5.2 percent, up 18 bps from the comparable period last year. This increase was primarily due to risk retirement on the amphibious assault ships and NSC program, partially offset by the receipt of $7 million for resolution of a contract dispute with a private party in the same period last year.

Key Ingalls program milestones for the quarter:

  • Awarded a $3.3 billion fixed-price incentive, multi-year contract for construction of five Arleigh Burke-class destroyers (DDG 51s)

  • Awarded a $487 million, fixed-price-incentive fee contract to build NSC-6 Munro

  • Awarded a $76.8 million fixed-price contract for long-lead materials on NSC-7 Kimball

  • Authenticated the keel for NSC-5 James

Newport News Shipbuilding

 

Three Months Ended

  
 

June 30

 

 

($ in millions)

2013

2012

$ Change

% Change

Revenues

$ 1,031

$ 979

$ 52

5.3%

Operating income (loss)

101

89

12

13.5%

Operating margin %

9.8%

9.1%

 

71 bps

Newport News revenues for the second quarter increased $52 million, or 5.3 percent, from the same period in 2012, primarily driven by higher sales in fleet support services, aircraft carriers and submarines. Higher revenues in fleet support services were primarily the result of volume associated with repair work on SSN-765 USS Montpelier. Aircraft carrier revenues were higher from the comparable period in 2012 due to increased volume on the CVN-72 USS Abraham Lincoln refueling and complex overhaul (RCOH), the construction preparation contract for CVN-79 John F. Kennedy and the inactivation of CVN-65 USS Enterprise. These increases were offset by lower volumes on the CVN-71 USS Theodore Roosevelt RCOH and the construction of CVN-78 Gerald R. Ford. Submarine revenues increased due to higher sales on the VCS program, primarily driven by risk retirement and higher volumes on Block III and the advance procurement of Block IV, partially offset by lower volumes on Block II following the delivery of SSN-783 Minnesota.

Newport News operating income for the quarter was $101 million, a $12 million increase over the same period in 2012. Operating margin was 9.8 percent, up 71 bps from the comparable period in the prior year, primarily driven by risk retirement and performance improvement on the VCS program.

Key Newport News program milestones for the quarter:

  • Delivered SSN-783 Minnesota, the last of the Block II Virginia-class submarines, nearly 11 months ahead of schedule

  • Awarded a $745 million cost-plus-incentive fee contract for the inactivation of CVN-65 USS Enterprise

  • CVN-78 Gerald R. Ford‘s primary hull structure reached 100 percent completion

  • Received a $60.8 million modification to a previously awarded construction preparation contract for purchase of materials in support of CVN-79 John F. Kennedy construction

The Company

Huntington Ingalls Industries (HII) designs, builds and maintains nuclear and non-nuclear ships for the U.S. Navy and Coast Guard and provides after-market services for military ships around the globe. For more than a century, HII has built more ships in more ship classes than any other U.S. naval shipbuilder at its Newport News Shipbuilding and Ingalls Shipbuilding divisions. Employing about 37,000 in Virginia, Mississippi, Louisiana and California, HII also provides a wide variety of products and services to the commercial energy industry and other government customers, including the Department of Energy. For more information, please visit www.huntingtoningalls.com.

Huntington Ingalls Industries will webcast its earnings conference call at 9 a.m. EDT on Aug. 7. A live audio broadcast of the conference call and supplemental presentation will be available on the investor relations page of the company’s website: www.huntingtoningalls.com.

Statements in this release, other than statements of historical fact, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements. Factors that may cause such differences include: changes in government and customer priorities and requirements (including government budgetary constraints, shifts in defense spending, and changes in customer short-range and long-range plans); our ability to obtain new contracts, estimate our future contract costs and perform our contracts effectively; changes in government regulations and procurement processes and our ability to comply with such requirements; our ability to realize the expected benefits from consolidation of our Ingalls facilities; natural disasters; adverse economic conditions in the United States and globally; risks related to our indebtedness and leverage; and other risk factors discussed in our filings with the U.S. Securities and Exchange Commission. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business, and we undertake no obligations to update any forward-looking statements. You should not place undue reliance on any forward-looking statements that we may make

Exhibit A: Financial Statements

HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

 
 

Three Months Ended
June 30

Six Months Ended
June 30

(in millions, except per share amounts)

2013

2012

2013

2012

Sales and service revenues

    

Product sales

1,423

$ 1,504

2,744

$ 2,857

Service revenues

260

217

501

432

Total sales and service revenues

1,683

1,721

3,245

3,289

Cost of sales and service revenues

  

 

 

Cost of product sales

1,157

1,252

2,243

2,391

Cost of service revenues

227

191

440

376

Income (loss) from operating investments, net

2

4

4

6

General and administrative expenses

185

176

355

342

Operating income (loss)

116

106

211

186

Other income (expense)

 

 

 

 

Interest expense

(29)

(29)

(59)

(59)

Earnings (loss) before income taxes

87

77

152

127

Federal income taxes

30

27

51

44

Net earnings (loss)

57

$ 50

101

$ 83

 

 

 

 

 

Basic earnings (loss) per share

1.14

$ 1.01

2.02

$ 1.69

Weighted-average common shares outstanding

50.2

49.5

50.0

49.2

 

 

 

 

 

Diluted earnings (loss) per share

1.12

$ 1.00

2.00

$ 1.67

Weighted-average diluted shares outstanding

50.7

50.1

50.5

49.8

 

 

 

 

 

Dividends declared per share

0.10

$ —

0.20

$ —

 

 

 

 

 

Net earnings (loss) from above

57

$ 50

101

$ 83

Other comprehensive income (loss)

  

 

 

Change in unamortized benefit plan costs

210

21

215

45

Other

(1)

1

Tax benefit (expense) for items of other comprehensive income

(81)

(8)

(86)

(17)

Other comprehensive income (loss), net of tax

128

13

130

28

Comprehensive income (loss)

185

$ 63

231

$ 111

 
 

HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

 

($ in millions)

June 30
2013

December 31
2012

Assets

  

Current Assets

  

Cash and cash equivalents

623

$ 1,057

Accounts receivable, net

1,101

905

Inventoried costs, net

321

288

Deferred income taxes

179

213

Prepaid expenses and other current assets

45

21

Total current assets

2,269

2,484

Property, plant, and equipment, net

1,990

2,034

Goodwill

881

881

Other purchased intangibles, net

537

548

Long-term deferred tax asset

253

329

Miscellaneous other assets

117

116

Total assets

6,047

$ 6,392

Liabilities and Stockholders’ Equity

 

 

Current Liabilities

 

 

Trade accounts payable

287

$ 377

Accrued employees’ compensation

193

235

Current portion of long-term debt

52

51

Current portion of postretirement plan liabilities

148

166

Current portion of workers’ compensation liabilities

223

216

Advance payments and billings in excess of revenues

108

134

Other current liabilities

209

205

Total current liabilities

1,220

1,384

Long-term debt

1,765

1,779

Pension plan liabilities

1,065

1,301

Other postretirement plan liabilities

654

799

Workers’ compensation liabilities

406

403

Other long-term liabilities

64

59

Total liabilities

5,174

5,725

Commitments and Contingencies

Stockholders Equity

 

 

Common stock

1

Additional paid-in capital

1,904

1,894

Retained earnings (deficit)

91

Treasury stock

(27)

(1)

Accumulated other comprehensive income (loss)

(1,096)

(1,226)

Total stockholders’ equity

873

667

Total liabilities and stockholders equity

6,047

$ 6,392

 
 

HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

Six Months Ended June 30

($ in millions)

2013

2012

Operating Activities

  

Net earnings (loss)

101

$ 83

Adjustments to reconcile to net cash provided by (used in) operating activities

  

Depreciation

82

82

Amortization of purchased intangibles

11

10

Amortization of debt issuance costs

4

4

Stock-based compensation

19

16

Excess tax benefit related to stock-based compensation

(3)

Deferred income taxes

28

29

Change in

  

Accounts receivable

(196)

(167)

Inventoried costs

(25)

25

Prepaid expenses and other assets

(28)

(11)

Accounts payable and accruals

(146)

(158)

Retiree benefits

(184)

(92)

Other non-cash transactions, net

1

Net cash provided by (used in) operating activities

(337)

(178)

Investing Activities

  

Additions to property, plant, and equipment

(55)

(57)

Net cash provided by (used in) investing activities

(55)

(57)

Financing Activities

  

Repayment of long-term debt

(13)

(15)

Dividends paid

(10)

Repurchases of common stock

(25)

Proceeds from stock option exercises

3

4

Excess tax benefit related to stock-based compensation

3

Net cash provided by (used in) financing activities

(42)

(11)

Change in cash and cash equivalents

(434)

(246)

Cash and cash equivalents, beginning of period

1,057

915

Cash and cash equivalents, end of period

623

$ 669

Supplemental Cash Flow Disclosure

  

Cash paid for income taxes

41

$ 8

Cash paid for interest

55

$ 55

Non-Cash Investing and Financing Activities

 

 

Capital expenditures accrued in accounts payable

3

$ 2

Exhibit B: Reconciliations

We make reference to “segment operating income,” “segment operating margin,” “pension-adjusted operating income,” “pension-adjusted operating margin,” “pension-adjusted net earnings,” and “pension-adjusted diluted earnings per share.” 

Segment operating income is operating income before the FAS/CAS Adjustment and deferred state income taxes.

Segment operating margin is segment operating income as a percentage of total sales and service revenues.    

Pension-adjusted operating income is total operating income adjusted for the FAS/CAS Adjustment. 

Pension-adjusted operating margin is pension-adjusted operating income as a percentage of total sales and service revenues.

Pension-adjusted net earnings is net income adjusted for the tax effected FAS/CAS Adjustment. 

Pension-adjusted diluted earnings per share is pension-adjusted net earnings divided by the weighted-average diluted common shares outstanding. 

Segment operating income and segment operating margin are two of the key metrics we use to evaluate operating performance because they exclude items that do not affect segment performance. We believe pension-adjusted operating income, pension-adjusted operating margin, pension-adjusted net earnings and pension-adjusted diluted earnings per share are also useful metrics because they exclude non-operating items that we do not consider indicative of our core operating performance. Therefore, we believe it is appropriate to disclose these measures to help investors analyze our operating performance. However, these measures are not measures of financial performance under GAAP and may not be defined or calculated by other companies in the same manner.

Reconciliation of Segment Operating Income and Segment Operating Margin

 

Three Months Ended

 

June 30

($ in millions)

2013

2012

Sales and Service Revenues

  

Ingalls

672

$ 756

Newport News

1,031

979

Intersegment eliminations

(20)

(14)

Total Sales and Service Revenues

1,683

1,721

Segment Operating Income

  

Ingalls

35

38

As a percentage of revenues

5.2%

5.0%

Newport News

101

89

As a percentage of revenues

9.8%

9.1%

Total Segment Operating Income

136

127

As a percentage of revenues

8.1%

7.4%

Non-segment factors affecting operating income

  

FAS/CAS Adjustment

(18)

(19)

Deferred state income taxes

(2)

(2)

Total Operating Income

116

106

Interest expense

(29)

(29)

Federal income taxes

(30)

(27)

Total Net Earnings

57

$ 50

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