Huntington Ingalls Industries Reports Third Quarter Results

Share
  --  Sales were $1.59 billion for the third quarter 2011
  --  Adjusted total operating margin, which excludes a non-cash goodwill
      impairment charge, was 6.9 percent
  --  Adjusted diluted earnings per share, which excludes a non-cash goodwill
      impairment charge, was $1.05
  --  Cash provided by operating activities was $232 million


NEWPORT NEWS, Va., Nov. 10, 2011 (GLOBE NEWSWIRE) -- Huntington Ingalls Industries (NYSE:HII) reported third quarter 2011 sales of $1.59 billion, down 4.3 percent from the same period last year. The impact of a $300 million non-cash goodwill impairment charge resulted in a reported net loss of $248 million for the quarter and a $5.07 loss per share on a GAAP basis. Adjusted for the charge, total operating margin was 6.9 percent, up from 4.6 percent last year, and diluted earnings per share was $1.05 for the quarter, up from $0.86 in 2010.

Cash provided by operating activities in the third quarter of 2011 was $232 million, up $59 million, or 34 percent, over the same period last year. New business awards for the 2011 third quarter were $2.1 billion, bringing total backlog to $17.3 billion as of Sept. 30, 2011.

"Our strong operating performance for the third quarter clearly demonstrates the momentum we've generated since becoming an independent company last March," said Mike Petters, HII's president and chief executive officer. "During the third quarter, HII received $2.1 billion of new awards, delivered the submarine USS California and National Security Cutter WMSL-752 Stratton, completed the stern section of CVN-78 Gerald R. Ford, began construction of DDG 113 and began ramping up to two submarines per year with initial fabrication for SSN-787, the 14th ship of the class."

Third Quarter Highlights

                                                            Three
                                                           Months
                                                            Ended

                                                          September
                                                             30,
  ------------------------------------------------------  ---------  --------------------------

                                                  As         As
                                                Reported  Adjusted1               $        %
  (In millions, except per share amounts)         2011       2011      2010    Change2  Change2
  -------------------------------------------  ---------  ---------  --------  -------  -------
  Sales                                          $ 1,593    $ 1,593   $ 1,665   $ (72)    -4.3%
  Total segment operating income (loss)1           (187)        113        89       24    27.0%
   Segment operating margin %1                        nm       7.1%      5.3%           175 bps
  Total operating income (loss)                    (190)        110        77       33    42.9%
   Operating margin %                                 nm       6.9%      4.6%           228 bps
  Net earnings (loss)                              (248)         52        42       10    23.8%
  Diluted earnings per share                    $ (5.07)     $ 1.05    $ 0.86   $ 0.19    22.1%

  Weighted average diluted shares outstanding       48.9       49.5      48.8
  -------------------------------------------  ---------  ---------  --------  ----------------

  1 Non-GAAP metric which excludes the non-cash goodwill impairment charge. See Exhibit B for
   reconciliation.
  2 Comparison of "2010" to "As Adjusted 2011" figures. On a GAAP basis, total segment
   operating income (loss) declined by $276 million, total operating income (loss) declined by
   $267 million, net earnings (loss) declined by $290 million and diluted earnings per share
   declined by $5.93.

Third quarter consolidated sales decreased $72 million from the same period in 2010, driven by lower sales volume following the delivery of DDG-107 USS Gravely in the third quarter 2010 and DDG-110 USS William P. Lawrence in the first quarter 2011 and lower sales volume on the CVN-71 USS Theodore Roosevelt Refueling and Complex Overhaul (RCOH) and CVN-78 Gerald R. Ford. These decreases were partially offset by higher sales on DDG-113, the advanced construction contract for CVN-79 John F. Kennedy, and the advanced planning contract for the CVN-72 USS Abraham Lincoln RCOH.

Due to adverse equity market conditions that occurred over the last fiscal quarter and the resultant decline in industry market multiples and the company's market capitalization, the company recorded a non-cash goodwill impairment charge for the Ingalls segment during the third quarter 2011 of $300 million. This amount represents the company's preliminary estimate of the impairment charge. The company expects to finalize the goodwill impairment analysis during the fourth quarter of 2011 and may adjust the goodwill impairment charge based on the final analysis. "As adjusted" figures have excluded the charge for comparison purposes.

Adjusted segment operating income in the quarter was $113 million, up $24 million from the 2010 period. Adjusted total operating income was $110 million, up from $77 million last year. Adjusted total operating margin was 6.9 percent for the quarter, compared with 4.6 percent in 2010. The increase was primarily driven by lower net unfavorable performance adjustments period over period, offset by lower sales volume.

Awards

The value of new contract awards during the three months ended Sept. 30, 2011, was approximately $2.1 billion. Significant new awards during this period include the construction contract for DDG-114, the construction contract for the U.S. Coast Guard's fifth National Security Cutter and additional contract work for CVN-78 Gerald R. Ford.

Operating Segment Results

Ingalls Shipbuilding

                                            Three
                                           Months
                                            Ended

                                          September
                                             30,
  --------------------------------------  ---------  -----------------------

                                   As        As
                                Reported  Adjusted1            $        %
  ($ in millions)                 2011       2011     2010  Change2  Change2
  ----------------------------  --------  ---------  -----  -------  -------
  Sales                            $ 740      $ 740  $ 759   $ (19)    -2.5%
  Operating income (loss)          (281)         19    (1)       20

  Operating margin %                  nm       2.6%     nm
  ----------------------------  --------  ---------  -----  ----------------

  1 Non-GAAP metric which excludes the non-cash goodwill impairment charge.
   See Exhibit B for reconciliation.
  2 Comparison of "2010" to "As Adjusted 2011" figures. On a GAAP basis,
   operating income (loss) declined by $280 million.

Ingalls revenues for the three months ending Sept. 30, 2011, decreased $19 million from the same period in 2010, primarily driven by lower sales in the DDG-51 program, partially offset by higher sales in the National Security Cutter program. The decrease in the DDG-51 program was primarily due to the deliveries of DDG-107 USS Gravely in the third quarter of 2010 and DDG-110 USS William P. Lawrence in the first quarter of 2011.

Ingalls adjusted operating income for the three months ending Sept. 30, 2011, was $19 million compared with an operating loss of $1 million in the same period in 2010. Ingalls adjusted operating margin was 2.6 percent for the quarter. The increase in adjusted operating income was primarily a result of a third quarter 2010 pre-tax charge on LHD-8 USS Makin Island, offset by positive net performance adjustments on the LPD 22 through LPD 25 contract in 2010.

Key Ingalls program milestones for the quarter:

  --  Began fabrication of the U.S. Coast Guard's fourth National Security
      Cutter
  --  Delivered the third U.S. Coast Guard National Security Cutter (WMSL 752)
  --  Awarded the construction contract for the U.S. Coast Guard's fifth
      National Security Cutter
  --  Began construction of DDG-113, the first destroyer in the restart of the
      DDG-51 program
  --  Awarded the construction contract for DDG-114, HII's second destroyer in
      the restart of the DDG-51 program


Newport News Shipbuilding

                           Three Months
                              Ended

                          September 30,
  ---------------------  ----------------  ---------------

                                              $       %
  ($ in millions)           2011     2010  Change   Change
  ---------------------  ---------  -----  ------  -------
  Sales                      $ 876  $ 928  $ (52)    -5.6%
  Operating income              94     90       4     4.4%

  Operating margin %         10.7%   9.7%          103 bps
  ---------------------  ---------  -----  ------  -------

Newport News revenues for the three months ended Sept. 30, 2011, decreased $52 million, or 5.6 percent, from the same period in 2010, primarily driven by lower sales volume on the CVN-71 USS Theodore Roosevelt RCOH and CVN-78 Gerald R. Ford, partially offset by higher sales volume on the advanced construction contract for CVN-79 John F. Kennedy and the advanced planning contract for the CVN-72 USS Abraham Lincoln RCOH.

Newport News operating income for the three months ended Sept. 30, 2011, was $94 million compared with $90 million in the same period 2010. The increase was primarily due to performance improvements realized on the Virginia-class submarine program in the third quarter 2011, offset by risk retirement in the third quarter 2010 on the SSN-763 USS Toledo Depot Modernization Period (DMP), which was not recurring in the same period 2011. Newport News operating margin was 10.7 percent for the quarter, compared with 9.7 percent in 2010.

Key Newport News program milestones for the quarter:

  --  Delivered SSN-781 USS California
  --  Began fabrication of SSN-787 Virginia-class submarine, marking the
      beginning of the program's two-submarines-per-year build plan
  --  Reached the halfway point on structural work of CVN-78 Gerald R. Ford
  --  Structurally completed the stern of CVN-78 Gerald R. Ford
  --  Awarded key support services contract for the U.S. Navy's nuclear
      propulsion program in upstate New York


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. Employing nearly 38,000 in Virginia, Mississippi, Louisiana and California, its primary business divisions are Newport News Shipbuilding and Ingalls Shipbuilding. For more information, please visit www.huntingtoningalls.com.

Huntington Ingalls Industries will webcast its earnings conference call at 9 a.m. EST on Nov. 10. 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.

The Huntington Ingalls Industries, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=9418

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 costs and perform effectively; risks related to our spin-off from Northrop Grumman (including our increased costs and leverage); risks related to the amount of the estimated goodwill impairment charge versus the final amount and any additional impairment charges; our ability to realize the expected benefits from consolidation of our Gulf Coast facilities; natural disasters; adverse economic conditions in the United States and globally; 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.

Exhibit A: Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

                                         Three Months Ended   Nine Months Ended
                                           September 30         September 30
                                        -------------------  -------------------

  $ in millions, except per share
   amounts                                 2011      2010       2011      2010
  ------------------------------------  ---------  --------  ---------  --------
  Sales and service revenues
   Product sales                          $ 1,384   $ 1,441    $ 4,201   $ 4,327

   Service revenues                           209       224        639       660
                                        ---------  --------  ---------  --------

  Total sales and service revenues          1,593     1,665      4,840     4,987
                                        ---------  --------  ---------  --------
  Cost of sales and service revenues
   Cost of product sales                    1,166     1,270      3,543     3,842
   Cost of service revenues                   164       160        540       528
  General and administrative expenses         153       158        471       473

  Goodwill impairment                         300        --        300        --
                                        ---------  --------  ---------  --------
  Operating income (loss)                   (190)        77       (14)       144

  Interest expense                           (30)      (10)       (75)      (30)
                                        ---------  --------  ---------  --------
  Earnings (Loss) from operations
   before income taxes                      (220)        67       (89)       114

  Federal income taxes                         28        25         74        42
                                        ---------  --------  ---------  --------

  Net earnings (loss)                     $ (248)      $ 42    $ (163)      $ 72
                                        =========  ========  =========  ========


                                        ---------  --------  ---------  --------
  Basic earnings (loss) per share        $ (5.07)    $ 0.86   $ (3.34)    $ 1.48
  Weighted-average common shares
   outstanding, in millions                  48.9      48.8       48.8      48.8
                                        =========  ========  =========  ========
  Diluted earnings (loss) per share      $ (5.07)    $ 0.86   $ (3.34)    $ 1.48
  Weighted-average diluted shares
   outstanding, in millions                  48.9      48.8       48.8      48.8
                                        =========  ========  =========  ========

  Net earnings (loss) from above          $ (248)      $ 42    $ (163)      $ 72
  Other comprehensive income
   Change in unamortized benefit plan
    costs                                      12        13         51        37
   Tax expense on change in
    unamortized benefit plan costs            (4)       (6)       (19)       (4)
                                        =========  ========  =========  ========
  Other comprehensive income, net of
   tax                                          8         7         32        33
                                        ---------  --------  ---------  --------

  Comprehensive income (loss)             $ (240)      $ 49    $ (131)     $ 105
                                        =========  ========  =========  ========

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)

                                   September  December
                                      30         31

  $ in millions                       2011      2010
  -------------------------------  ---------  --------
  Assets
  Current Assets
   Cash and cash equivalents           $ 536      $ --
   Accounts receivable, net              781       728
   Inventoried costs, net                463       293
   Deferred income taxes                 268       284
   Prepaid expenses and other
    current assets                        34         8
                                   ---------  --------

   Total current assets                2,082     1,313
                                   ---------  --------
   Property, plant, and
    equipment, net                     1,979     1,997
                                   ---------  --------
  Other Assets
   Goodwill                              834     1,134
   Other purchased intangibles,
    net of accumulated
    amortization of $367
    in 2011 and $352 in 2010             572       587
   Pension plan asset                    143       131
   Debt issuance costs                    50        --

   Miscellaneous other assets             55        41
                                   ---------  --------

   Total other assets                  1,654     1,893
                                   ---------  --------

  Total assets                       $ 5,715   $ 5,203
                                   =========  ========

  Liabilities and Equity
  Current Liabilities
   Notes payable to former parent       $ --     $ 715
   Trade accounts payable                287       274
   Current portion of long-term
    debt                                  29        --
   Current portion of workers'
    compensation liabilities             198       197
   Accrued interest on notes
    payable to former parent              --       239
   Current portion of
    post-retirement plan
    liabilities                          145       146
   Accrued employees'
    compensation                         190       203
   Advance payments and billings
    in excess of costs incurred           85       107
   Provision for contract losses          31        80

   Other current liabilities             242       265
                                   ---------  --------

   Total current liabilities           1,207     2,226
                                   ---------  --------
  Long-term debt                       1,837       105
  Other post-retirement plan
   liabilities                           579       567
  Pension plan liabilities               420       381
  Workers' compensation
   liabilities                           353       351
  Deferred tax liabilities               113        99

  Other long-term liabilities             51        56
                                   ---------  --------

   Total liabilities                   4,560     3,785
                                   ---------  --------
  Commitments and Contingencies
  Shareholders' Equity
   Common stock, $0.01 par value;
    150,000,000 shares
    authorized; issued and
    outstanding as of September
    30, 2011: 48,808,341                  --        --
   Additional paid-in capital          1,848        --
   Former parent's equity in unit         --     1,933
   Accumulated deficit                 (210)        --
   Accumulated other
    comprehensive loss                 (483)     (515)
                                   ---------  --------

   Total shareholders' equity          1,155     1,418
                                   ---------  --------
  Total liabilities and
   shareholders' equity              $ 5,715   $ 5,203
                                   =========  ========

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

                                         Nine Months Ended
                                            September 30
                                         -----------------

  $ in millions                             2011     2010
  -------------------------------------  ---------  ------
  Operating Activities
   Net earnings (loss)                     $ (163)    $ 72
   Adjustments to reconcile to net cash
    provided by operating activities
     Depreciation                              123     124
     Amortization of purchased
      intangibles                               15      19
     Amortization of debt issuance cost          4      --
     Stock-based compensation                   22      --
     Impairment of goodwill                    300      --
     (Increase) decrease in
       Accounts receivable                    (53)   (218)
       Inventoried costs                     (173)    (10)
       Prepaid expenses and other
        current assets                        (36)       3
     Increase (decrease) in
       Accounts payable and accruals          (74)      79
       Deferred income taxes                    --      24
       Retiree benefits                         89      79

     Other non-cash transactions, net           --    (21)
                                         ---------  ------
     Net cash provided by operating
      activities                                54     151
                                         =========  ======
  Investing Activities
     Additions to property, plant, and
      equipment                              (119)    (96)
                                         ---------  ------
     Net cash used in investing
      activities                             (119)    (96)
                                         =========  ======
  Financing Activities
   Proceeds from issuance of long-term
    debt                                     1,775      --
   Repayment of long-term debt                (14)      --
   Debt issuance costs                        (54)      --
   Repayment of notes payable to former
    parent and accrued interest              (954)      --
   Dividend to former parent in
    connection with spin-off               (1,429)      --
   Proceeds from stock option exercises
    and issuance of common stock                 1      --

   Net transfers from former parent          1,276    (55)
                                         ---------  ------
     Net cash provided by (used in)
      financing activities                     601    (55)
                                         =========  ======
  Increase in cash and cash equivalents        536      --
  Cash and cash equivalents, beginning
   of period                                    --      --
                                         ---------  ------
  Cash and cash equivalents, end of
   period                                    $ 536    $ --
                                         =========  ======

  Supplemental Cash Flow Disclosure
   Cash paid for income taxes                 $ 34    $ --

   Cash paid for interest                     $ 55    $ 12
                                         =========  ======
  Non-Cash Investing and Financing
   Activities
   Capital expenditures accrued in
    accounts payable                           $ 3    $ 29
                                         =========  ======

Exhibit B: Reconciliations

We make reference to "segment operating income," "adjusted segment operating income," "adjusted segment operating margin," "adjusted operating income," adjusted operating margin," "adjusted net earnings" and "adjusted diluted earnings per share." Segment operating income is defined as operating income before net pension and post-retirement benefits adjustment and deferred state income taxes. Adjusted segment operating income is defined as segment operating income as adjusted for the impact of the goodwill impairment charge, and adjusted segment operating margin is defined as adjusted segment operating income as a percentage of segment sales and service revenues. Adjusted operating income is defined as operating income adjusted for the impact of the goodwill impairment charge, and adjusted operating margin is defined as adjusted operating income as a percentage of total sales and service revenues. Adjusted net earnings is defined as net income adjusted for the impact of the goodwill impairment charge. Adjusted diluted earnings per share is defined as diluted earnings per share adjusted for the impact of the goodwill impairment charge.

Segment operating income is one of the key metrics we use to evaluate operating performance because it excludes items that do not affect segment performance. We believe adjusted segment operating income, adjusted segment operating margin, adjusted operating income, adjusted operating margin, adjusted net earnings and adjusted diluted earnings per share are useful because they exclude the goodwill impairment charge, a non-recurring item 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

                                   Three Months Ended

                                     September 30
                                  -------------------

  $ in millions                      2011      2010
  ------------------------------  ---------  --------
  Sales and Service Revenues
   Ingalls                            $ 740     $ 759
   Newport News                       $ 876     $ 928

   Intersegment eliminations           (23)      (22)
  ------------------------------  ---------  --------

  Total sales and service
   revenues                         $ 1,593   $ 1,665
  ------------------------------  ---------  --------
  Operating Income (Loss)
   Ingalls                          $ (281)     $ (1)
    As a percentage of sales         -38.0%     -0.1%
   Newport News                          94        90

    As a percentage of sales          10.7%      9.7%
  ------------------------------  ---------  --------
  Total Segment Operating Income
   (Loss)                             (187)        89
  As a percentage of sales           -11.7%      5.3%
   Non-segment factors affecting
    operating income
    Net pension and
     post-retirement benefits
     adjustment                         (1)       (7)

    Deferred state income taxes         (2)       (5)
  ------------------------------  ---------  --------

  Total operating income (loss)     $ (190)      $ 77
  ------------------------------  ---------  --------
    Interest expense                   (30)      (10)

    Federal income taxes               (28)      (25)
  ------------------------------  ---------  --------

  Total net earnings (loss)         $ (248)      $ 42
  ------------------------------  ---------  --------

Reconciliation of Adjusted Operating Income, Adjusted Segment Operating Income, Adjusted Net Income and Adjusted Diluted Earnings per Share

                                          Three Months Ended

                                            September 30
                                         -------------------

  $ in millions                             2011      2010
  -------------------------------------  ---------  --------
  Sales and Service Revenues
   Ingalls                                   $ 740     $ 759
   Newport News                                876     $ 928

   Intersegment eliminations                  (23)      (22)
  -------------------------------------  ---------  --------

  Total sales and service revenues         $ 1,593   $ 1,665
  -------------------------------------  ---------  --------
  Adjusted Operating Income (Loss)
    Ingalls                                $ (281)     $ (1)

     Adjustment for goodwill impairment        300        --
                                         ---------  --------
   Adjusted Ingalls                             19       (1)
     As a % of sales                          2.6%     -0.1%

   Newport News                                 94        90
  -------------------------------------  ---------  --------
  Total Adjusted Segment Operating
   Income (Loss)                               113        89
     As a % of sales                          7.1%      5.3%
   Non-segment factors affecting
    adjusted operating income
    Net pension and post-retirement
     benefits adjustment                       (1)       (7)

    Deferred state income taxes                (2)       (5)
  -------------------------------------  ---------  --------
  Total adjusted operating income
   (loss)                                    $ 110      $ 77
   As a % of sales                            6.9%      4.6%
   Non-operating factors affecting
    adjusted net income
    Interest expense                          (30)      (10)

    Federal income taxes                      (28)      (25)
  -------------------------------------  ---------  --------
  Total adjusted net earnings (loss)          $ 52      $ 42

  Per Share Amounts
  Weighted average common shares
   outstanding                                48.9      48.8

  Dilutive effect of stock options and
   stock awards                                0.6        --
  -------------------------------------  ---------  --------

  Adjusted diluted average common
   shares outstanding (1)                     49.5      48.8
  -------------------------------------  ---------  --------

  Earnings Per Share (EPS) Calculations
  Adjusted net earnings from above            $ 52      $ 42
  Adjusted diluted average common
   shares outstanding (1)                     49.5      48.8
  Adjusted diluted EPS (2)                  $ 1.05    $ 0.86

  Reported net loss                        $ (248)
  Weighted average common shares
   outstanding (3)                            48.9
  Net loss per share                      $ (5.07)

  (1) Adjusted diluted average common shares outstanding is
   a non-GAAP measure defined as weighted average common
   shares outstanding plus the dilutive effect of stock
   options and stock awards. This measure has been provided
   for consistency and comparability of the 2011 results
   with earnings per share from prior periods.
  (2) Adjusted diluted EPS is a non-GAAP measure defined as
   earnings per share before the per share 2011 goodwill
   impairment charge impact. Adjusted diluted EPS from
   continuing operations has been provided for consistency
   and comparability of the results with results of
   operations from prior periods.
  (3) Per share amounts are based on basic weighted average
   shares outstanding, as use of dilutive securities (ie.
   stock options and stock awards) would result in a lesser
   per share loss.

This news release was distributed by GlobeNewswire, www.globenewswire.com

SOURCE: Huntington Ingalls Industries, Inc.

CONTACT: Jerri Fuller Dickseski (Media)
jerri.dickseski@hii-co.com
757-380-2341
Andy Green (Investors)
andy.green@hii-co.com
757-688-5572

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Huntington Ingalls Industries
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