Huntington Ingalls Industries Reports Third Quarter Results

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  • Revenues were $1.8 billion for the third quarter of 2015
  • Segment operating margin was 9.6 percent, up from 8.8 percent in Q3 2014
  • Total operating margin was 11.1 percent, up from 10.0 percent in Q3 2014
  • Diluted earnings per share was $2.29 for the quarter
  • Cash and cash equivalents at the end of the quarter were $671 million

NEWPORT NEWS, Va. (Nov. 5, 2015)—Huntington Ingalls Industries (NYSE:HII) reported third quarter 2015 revenues of $1.8 billion, up 4.8 percent compared to the same period last year. Third quarter diluted earnings per share was $2.29, compared to diluted earnings per share of $1.96 in the same period of 2014. Adjusted diluted earnings per share for the quarter was $1.98, compared to $1.67 in the same period of 2014.

Segment operating income for the third quarter was $172 million, compared to $151 million in the same period last year. Total operating income for the quarter was $200 million, compared to $171 million in the same period last year. The increase in operating income was primarily attributable to higher performance at Ingalls on the LHA-6 America-class and the LPD-17 San Antonio-class programs, as well as a favorable FAS/CAS Adjustment.

New contract awards were approximately $0.8 billion for the quarter, bringing total backlog at the end of Q3 2015 to $23.3 billion, of which $12.5 billion was funded.

"Strong execution at Ingalls resulted in solid operating performance during the quarter," said HII President and CEO Mike Petters. "We remain on track to achieve our 9-plus percent shipbuilding operating margin target for 2015."

Third Quarter 2015 Highlights

 

Three Months Ended

 

 

 

September 30

 

 

(In millions, except per share amounts)

2015

2014

$ Change

% Change

Revenues

$

1,800

 

$

1,717

 

$

83

 

4.8

%

Segment operating income1

172

 

151

 

21

 

13.9

%

  Segment operating margin %1

9.6

%

8.8

%

 

76 bps

Total operating income

200

 

171

 

29

 

17.0

%

  Total operating margin %

11.1

%

10.0

%

 

115 bps

Net earnings

111

 

96

 

15

 

15.6

%

Diluted earnings per share

$

2.29

 

$

1.96

 

$

0.33

 

16.8

%

Weighted-average diluted shares outstanding

48.4

 

49.0

 

 

 

 

 

 

 

 

Adjusted Net Earnings

 

 

 

 

Net earnings

111

 

96

 

15

 

15.6

%

After-tax FAS/CAS Adjustment2

(18

)

(14

)

(4

)

28.6

%

After-tax loss on early extinguishment of debt2

3

 

 

3

 

%

Adjusted net earnings3

96

 

82

 

14

17.1

%

Weighted-average diluted shares outstanding

48.4

 

49.0

 

 

 

Adjusted diluted earnings per share3

$

1.98

 

$

1.67

 

$

0.31

 

18.6

%

1 Non-GAAP metric that excludes non-segment factors affecting operating income. See Exhibit B for definition and reconciliation.

2 Tax effected at 35% federal statutory tax rate.

 

 

 

 

3 Non-GAAP metrics - see Exhibit B for definitions and reconciliations.

 

 

 

 

 

 

 

Operating Segment Results

 

Ingalls Shipbuilding

 

Three Months Ended

 

 

 

September 30

 

 

($ in millions)

2015

2014

$ Change

% Change

Revenues

$

593

 

$

559

 

$

34

 

6.1

%

Operating income (loss)

77

 

55

 

22

 

40.0

%

Operating margin %

13.0

%

9.8

%

 

315 bps

Ingalls revenues for the third quarter increased $34 million, or 6.1 percent, from the same period in 2014, driven by higher revenues in Surface Combatants, partially offset by lower revenues in Amphibious Assault Ships and the National Security Cutter (NSC) program. The increase in Surface Combatants revenues was due to higher volumes on DDG-121 (unnamed) and DDG-119 Delbert D. Black. The decrease in Amphibious Assault Ships revenues was due to lower volumes on LPD-26 John P. Murtha and LPD-27 Portland, partially offset by higher volume on LHA-7 Tripoli. The decrease in the NSC program revenues was due to lower volumes on NSC-4 USCGC Hamilton and NSC-5 USCGC James, partially offset by higher volumes on NSC-8 Midgett and NSC-7 Kimball.

Ingalls operating income for the quarter was $77 million, an increase of $22 million over the same period in 2014. Ingalls operating margin was 13.0 percent for the quarter, compared to 9.8 percent in Q3 2014. These increases were primarily due to improved performance on the LHA-6 America-class and the LPD-17 San Antonio-class programs.

Key Ingalls highlights for the quarter:

  • Launched the sixth National Security Cutter, NSC-6 Munro (WMSL 755)
  • Began construction of Arleigh Burke-class destroyer DDG-119 Delbert D. Black
  • NSC-5 James (WMSL 754) sailed away

Newport News Shipbuilding

 

Three Months Ended

 

 

 

September 30

 

 

($ in millions)

2015

2014

$ Change

% Change

Revenues

$

1,177

 

$

1,097

 

$

80

 

7.3

%

Operating income (loss)

100

 

101

 

(1

)

(1.0)

%

Operating margin %

8.5

%

9.2

%

 

(71) bps

Newport News revenues for the third quarter increased $80 million, or 7.3 percent, from the same period in 2014, driven by higher revenues in Submarines and Fleet Support services, partially offset by lower revenues in Aircraft Carriers. Submarines revenues related to the SSN-774 Virginia-class submarine program were higher due to higher volumes on Block IV boats, partially offset by lower volumes on Block III boats. The increase in Fleet Support services revenues was primarily due to higher volumes associated with Aircraft Carrier support services. The decrease in Aircraft Carrier revenues was due to lower 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 higher volume on the construction contract for CVN-79 John F. Kennedy.

Newport News operating income for the quarter was $100 million, a $1 million decrease from the same period in 2014. Newport News operating margin was 8.5 percent for the quarter, down from 9.2 percent in Q3 2014. These decreases were due to lower performance on the construction contract for CVN-78 Gerald R. Ford and lower volumes on Aircraft Carriers RCOH programs, partially offset by higher volumes on the SSN-774 Virginia-class submarine program and the resolution of outstanding contract changes on the CVN-71 USS Theodore Roosevelt RCOH.

Key Newport News highlights for the quarter:

  • Hosted keel-laying ceremony for CVN-79 John F. Kennedy
  • Crew moved aboard CVN-78 Gerald R. Ford
  • Began final testing of the steam-powered systems aboard CVN-72 USS Abraham Lincoln
  • Achieved "pressure hull complete" construction milestone on the Virginia-class submarine Washington (SSN-787)
  • Awarded a $106 million contract for engineering and design work on the Los Angeles-, Virginia- and Ohio-class submarines, plus work related to submarine support facilities and special mission submersibles
  • Awarded a $57.8 million contract for planning work to upgrade the Los Angeles-class submarine USS Columbus (SSN-762)

Other

 

Three Months Ended

 

 

 

September 30

 

 

($ in millions)

2015

2014

$ Change

% Change

Revenues

$

30

 

$

61

 

$

(31

)

(50.8)

%

Operating income (loss)

(5

)

(5

)

 

%

Operating margin %

(16.7

)%

(8.2

)%

 

(847) bps

Revenues in the Other segment for the third quarter decreased $31 million, or 50.8 percent, from the same period in 2014 due to lower volumes in oil and gas services. Operating loss in the quarter was $5 million, which was consistent with the operating loss in Q3 2014. 

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 approximately 37,000 people operating both domestically and internationally. For more information, visit: www.huntingtoningalls.com.

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: 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 September 30

 

Nine Months Ended September 30

(in millions, except per share amounts)

 

2015

 

2014

 

2015

 

2014

Sales and service revenues

 

 

 

 

 

 

 

 

Product sales

 

$

1,461

 

 

$

1,385

 

 

$

4,137

 

 

$

4,150

 

Service revenues

 

339

 

 

332

 

 

978

 

 

880

 

Total sales and service revenues

 

1,800

 

 

1,717

 

 

5,115

 

 

5,030

 

Cost of sales and service revenues

 

 

 

 

 

 

 

 

Cost of product sales

 

1,164

 

 

1,086

 

 

3,121

 

 

3,277

 

Cost of service revenues

 

292

 

 

278

 

 

846

 

 

743

 

Income (loss) from operating investments, net

 

6

 

 

7

 

 

9

 

 

10

 

General and administrative expenses

 

150

 

 

189

 

 

473

 

 

509

 

Goodwill impairment

 

 

 

 

 

59

 

 

 

Operating income (loss)

 

200

 

 

171

 

 

625

 

 

511

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest expense

 

(25

)

 

(27

)

 

(73

)

 

(83

)

Earnings (loss) before income taxes

 

175

 

 

144

 

 

552

 

 

428

 

Federal income taxes

 

64

 

 

48

 

 

198

 

 

142

 

Net earnings (loss)

 

$

111

 

 

$

96

 

 

$

354

 

 

$

286

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

2.31

 

 

$

1.97

 

 

$

7.33

 

 

$

5.85

 

Weighted-average common shares outstanding

 

48.0

 

 

48.7

 

 

48.3

 

 

48.9

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share

 

$

2.29

 

 

$

1.96

 

 

$

7.28

 

 

$

5.80

 

Weighted-average diluted shares outstanding

 

48.4

 

 

49.0

 

 

48.6

 

 

49.3

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.40

 

 

$

0.20

 

 

$

1.20

 

 

$

0.60

 

 

 

 

 

 

 

 

 

 

Net earnings (loss) from above

 

$

111

 

 

$

96

 

 

$

354

 

 

$

286

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

Change in unamortized benefit plan costs

 

21

 

 

8

 

 

65

 

 

24

 

Other

 

(7

)

 

(2

)

 

(7

)

 

 

Tax benefit (expense) for items of other comprehensive income

 

(4

)

 

(3

)

 

(22

)

 

(9

)

Other comprehensive income (loss), net of tax

 

10

 

 

3

 

 

36

 

 

15

 

Comprehensive income (loss)

 

$

121

 

 

$

99

 

 

$

390

 

 

$

301

 

HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

($ in millions)

 

September 30
 2015

 

December 31
 2014

Assets

 

 

 

 

Current Assets

 

 

 

 

Cash and cash equivalents

 

$

671

 

 

$

990

 

Accounts receivable, net

 

1,278

 

 

1,038

 

Inventoried costs, net

 

308

 

 

339

 

Deferred income taxes

 

126

 

 

129

 

Prepaid expenses and other current assets

 

36

 

 

50

 

Total current assets

 

2,419

 

 

2,546

 

Property, plant, and equipment, net of accumulated depreciation of $1,453 million as of 2015 and $1,351 million as of 2014

 

1,750

 

 

1,792

 

Goodwill

 

973

 

 

1,026

 

Other purchased intangibles, net

 

528

 

 

547

 

Pension plan assets

 

28

 

 

17

 

Long-term deferred tax asset

 

188

 

 

212

 

Miscellaneous other assets

 

156

 

 

129

 

Total assets

 

$

6,042

 

 

$

6,269

 

Liabilities and Stockholders' Equity

 

 

 

 

Current Liabilities

 

 

 

 

Trade accounts payable

 

$

296

 

 

$

269

 

Accrued employees’ compensation

 

216

 

 

248

 

Current portion of long-term debt

 

 

 

108

 

Current portion of postretirement plan liabilities

 

143

 

 

143

 

Current portion of workers’ compensation liabilities

 

226

 

 

221

 

Advance payments and billings in excess of revenues

 

141

 

 

74

 

Other current liabilities

 

272

 

 

249

 

Total current liabilities

 

1,294

 

 

1,312

 

Long-term debt

 

1,305

 

 

1,592

 

Pension plan liabilities

 

879

 

 

939

 

Other postretirement plan liabilities

 

513

 

 

507

 

Workers’ compensation liabilities

 

458

 

 

449

 

Other long-term liabilities

 

103

 

 

105

 

Total liabilities

 

4,552

 

 

4,904

 

Commitments and Contingencies

 

 

 

 

Stockholders’ Equity

 

 

 

 

Common stock, $0.01 par value; 150 million shares authorized; 52.0 million issued and 47.2 million outstanding as of September 30, 2015, and 51.5 million issued and 48.3 million outstanding as of December 31, 2014

 

1

 

 

1

 

Additional paid-in capital

 

1,948

 

 

1,959

 

Retained earnings (deficit)

 

821

 

 

525

 

Treasury stock

 

(454

)

 

(258

)

Accumulated other comprehensive income (loss)

 

(826

)

 

(862

)

Total stockholders’ equity

 

1,490

 

 

1,365

 

Total liabilities and stockholders’ equity

 

$

6,042

 

 

$

6,269

 

HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

Nine Months Ended September 30

($ in millions)

 

2015

 

2014

Operating Activities

 

 

 

 

Net earnings (loss)

 

$

354

 

 

$

286

 

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

 

 

 

 

Depreciation

 

116

 

 

136

 

Amortization of purchased intangibles

 

19

 

 

20

 

Amortization of debt issuance costs

 

6

 

 

8

 

Stock-based compensation

 

29

 

 

22

 

Excess tax benefit related to stock-based compensation

 

(11

)

 

(15

)

Deferred income taxes

 

5

 

 

11

 

Proceeds from insurance settlement related to investing activities

 

(21

)

 

 

Goodwill impairment

 

59

 

 

 

Loss on early extinguishment of debt

 

4

 

 

 

Change in

 

 

 

 

Accounts receivable

 

(245

)

 

34

 

Inventoried costs

 

31

 

 

41

 

Prepaid expenses and other assets

 

(39

)

 

4

 

Accounts payable and accruals

 

108

 

 

(186

)

Retiree benefits

 

(1

)

 

(48

)

Other non-cash transactions, net

 

3

 

 

1

 

Net cash provided by (used in) operating activities

 

417

 

 

314

 

Investing Activities

 

 

 

 

Additions to property, plant, and equipment

 

(86

)

 

(91

)

Acquisitions of businesses, net of cash received

 

(6

)

 

(272

)

Proceeds from disposition of assets

 

32

 

 

 

Proceeds from insurance settlement related to investing activities

 

21

 

 

 

Net cash provided by (used in) investing activities

 

(39

)

 

(363

)

Financing Activities

 

 

 

 

Repayment of long-term debt

 

(395

)

 

(36

)

Debt issuance costs

 

(9

)

 

 

Dividends paid

 

(58

)

 

(30

)

Repurchases of common stock

 

(192

)

 

(112

)

Employee taxes on certain share-based payment arrangements

 

(54

)

 

(64

)

Proceeds from stock option exercises

 

 

 

2

 

Excess tax benefit related to stock-based compensation

 

11

 

 

15

 

Net cash provided by (used in) financing activities

 

(697

)

 

(225

)

Change in cash and cash equivalents

 

(319

)

 

(274

)

Cash and cash equivalents, beginning of period

 

990

 

 

1,043

 

Cash and cash equivalents, end of period

 

$

671

 

 

$

769

 

Supplemental Cash Flow Disclosure

 

 

 

 

Cash paid for income taxes

 

$

210

 

 

$

132

 

Cash paid for interest

 

$

68

 

 

$

96

 

Non-Cash Investing and Financing Activities

 

 

 

 

Capital expenditures accrued in accounts payable

 

$

3

 

 

$

4

 

Exhibit B: Reconciliations

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

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

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

Adjusted net earnings is defined as net earnings adjusted for the tax effected impact of the loss on early extinguishment of debt in the third quarter of 2015 and the tax effected FAS/CAS Adjustment.

Adjusted diluted earnings per share is defined as adjusted net earnings divided by the weighted-average diluted common shares outstanding.

We internally manage our operations by reference to "segment operating income" and "segment operating margin," which are not recognized measures under GAAP. When analyzing our operating performance, investors should use segment operating income and segment operating margin in addition to, and not as alternatives for, total operating income and total operating margin or any other performance measure presented in accordance with GAAP. They are metrics we use to evaluate our core operating performance. We believe segment operating income and segment operating margin reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our business. We believe these measures are used by investors and are a useful indicator to measure our performance. Because not all companies use identical calculations, our presentation of segment operating income and segment operating margin may not be comparable to similarly titled measures of other companies.

Adjusted net earnings and adjusted diluted earnings per share are not measures recognized under GAAP. They should be considered supplemental to and not a substitute for financial information prepared in accordance with GAAP. We believe these metrics are useful to investors because they normalize our operating performance by excluding non-recurring items or items that do not reflect our core operating performance. They may not be comparable to similarly titled measures of other companies.

Reconciliation of Segment Operating Income and Segment Operating Margin

 

 

Three Months Ended

 

 

September 30

($ in millions)

 

2015

 

2014

Sales and Service Revenues

 

 

 

 

Ingalls

 

$

593

 

 

$

559

 

Newport News

 

1,177

 

 

1,097

 

Other

 

30

 

 

61

 

Total Sales and Service Revenues

 

1,800

 

 

1,717

 

Segment Operating Income

 

 

 

 

Ingalls

 

77

 

 

55

 

  As a percentage of revenues

 

13.0

%

 

9.8

%

Newport News

 

100

 

 

101

 

  As a percentage of revenues

 

8.5

%

 

9.2

%

Other

 

(5

)

 

(5

)

  As a percentage of revenues

 

(16.7

)%

 

(8.2

)%

Total Segment Operating Income

 

172

 

 

151

 

  As a percentage of revenues

 

9.6

%

 

8.8

%

Non-segment factors affecting operating income

 

 

 

 

FAS/CAS Adjustment

 

27

 

 

21

 

Deferred state income taxes

 

1

 

 

(1

)

Total Operating Income

 

200

 

 

171

 

Interest expense

 

(25

)

 

(27

)

Federal income taxes

 

(64

)

 

(48

)

Net Earnings

 

$

111

 

 

$

96

 

Reconciliation of Adjusted Net Earnings and Adjusted Diluted Earnings per Share

 

 

Three Months Ended

 

 

September 30

(in millions, except per share amounts)

 

2015

 

2014

Adjusted Net Earnings

 

 

 

 

Net Earnings

 

$

111

 

 

$

96

 

Adjustment for loss on early extinguishment of debt1

 

3

 

 

 

Adjustment for FAS/CAS Adjustment1

 

(18

)

 

(14

)

Adjusted Net Earnings

 

$

96

 

 

$

82

 

 

 

 

 

 

Adjusted Diluted EPS

 

 

 

 

Weighted-Average Diluted Shares Outstanding

 

48.4

 

 

49.0

 

Diluted earnings per share

 

$

2.29

 

 

$

1.96

 

After-tax loss on early extinguishment of debt per share

 

0.06

 

 

 

After-tax FAS/CAS Adjustment per share

 

(0.37

)

 

(0.29

)

Adjusted Diluted EPS

 

$

1.98

 

 

$

1.67

 

 

 

 

 

 

1Tax effected at 35% federal statutory tax rate.

 

 

 

 

Contact information

Jerri Fuller Dickseski
(Media)
(757) 380-2341
Dwayne Blake
(Investors)
(757) 380-2104
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