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 $ 0.12 9.7%
1 Non-GAAP metrics that exclude non-segment factors affecting operating income. See Exhibit B for definition and reconciliation.
2 Non-GAAP metrics - see Exhibit B for definition.
3 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

Contact information

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