- Diluted earnings per share was
$1.36 for the quarter - Adjusted diluted earnings per share, which excludes the impact of hurricane insurance recoveries and the
Gulfport closure and the FAS/CAS Adjustment, was$1.17 - Cash and cash equivalents at the end of the quarter were
$895 million
Segment operating income in the third quarter was
Cash provided by operating activities in the third quarter was
"During this uncertain budget environment, our healthy backlog continues to support our programs, and we remain confident in our ability to deliver 9 plus percent operating margin by 2015," said
Results of Operations
Three Months Ended | ||||
September 30 | ||||
(in millions, except per share amounts) | 2013 | 2012 | $ Change | % Change |
Sales and service revenues | $ 1,637 | $ 1,596 | $ 41 | 2.6% |
Segment operating income1 | 142 | 89 | 53 | 59.6% |
Segment operating margin %1 | 8.7% | 5.6% | 310 bps | |
Total operating income | 127 | 66 | 61 | 92.4% |
Operating margin % | 7.8% | 4.1% | 362 bps | |
Net earnings | 69 | 13 | 56 | 430.8% |
Diluted earnings per share | $ 1.36 | $ 0.26 | $1.10 | 423.1% |
Weighted-average diluted shares outstanding | 50.6 | 50.3 | ||
Adjusted Figures | ||||
Sales and service revenues2 | $ 1,665 | $ 1,596 | $ 69 | 4.3% |
Segment operating income1,3 | $ 113 | $ 113 | — | —% |
Segment operating margin %1,3 | 6.8% | 7.1% | -29 bps | |
Total operating income3 | $ 98 | $ 90 | 8 | 8.9% |
Operating margin %3 | 5.9% | 5.6% | 25 bps | |
Net earnings3,4 | 59 | 49 | 10 | 20.4% |
Diluted earnings per share3,4 | $ 1.17 | $ 0.98 | $ 0.19 | 19.4% |
Weighted-average diluted shares outstanding | 50.6 | 50.3 | ||
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 hurricane insurance recoveries and the Gulfport closure in 2013. See Exhibit B for reconciliation. | ||||
3 Non-GAAP metrics that exclude the impact of hurricane insurance recoveries and the Gulfport closure in 2013 and the impact of the non-cash workers' compensation charge in 2012. See Exhibit B for reconciliation. | ||||
4 Non-GAAP metrics that exclude the non-cash tax expense related to the Tax Matters Agreement in 2012 and the after-tax FAS/CAS Adjustment. See Exhibit B for reconciliation. |
During the third quarter of 2013, the company settled hurricane-related insurance claims for its Ingalls segment and received
Reported revenues for the third quarter were
Adjusted for the hurricane insurance recoveries and the
Total operating income in Q3 2013 was
Reported diluted earnings per share was
Operating Segment Results
Ingalls Shipbuilding
Three Months Ended | ||||||
September 30 | ||||||
($ in millions) | 2013 | As Adjusted1 2013 |
2012 | As Adjusted2 2012 |
$ Change3 | % Change3 |
Sales and service revenues | $ 639 | $ 667 | $ 670 | $ 670 | $ (3) | (0.4)% |
Operating income (loss) | 49 | 20 | 1 | 10 | 10 | 100.0% |
Operating margin % | 7.7% | 3.0% | 0.1% | 1.5% | 151 bps | |
1 Non-GAAP metrics that exclude the impact of hurricane insurance recoveries and the Gulfport closure. See Exhibit B for reconciliation. | ||||||
2 Non-GAAP metrics that exclude the impact of the non-cash workers' compensation charge. See Exhibit B for reconciliation. | ||||||
3 Comparison of "As Adjusted 2013" to "As Adjusted 2012" figures. On an unadjusted basis, revenues decreased by $31 million and operating income increased by $48 million. |
Ingalls revenues for the third quarter decreased
Ingalls operating income for the third quarter was
Key Ingalls program milestones for the quarter:
- Delivered the final aft peripheral vertical launch system (PVLS) assemblies and the composite hangar for DDG-1001 Michael Monsoor
- Launched the fourth U.S. Coast Guard NSC, WMSL-753 Hamilton
- Completed successful builder's sea trials for LPD-25 Somerset, the ninth San Antonio-class ship
- Started fabrication of DDG-114 Ralph Johnson, Ingalls' 30th Arleigh Burke-class destroyer
- Approved a new collective bargaining agreement between the company's Avondale subsidiary and the
New Orleans Metal Trades Council (NOMTC) and theMetal Trades Department (MTD)
Newport News Shipbuilding
Three Months Ended | |||||
September 30 | |||||
($ in millions) | 2013 | 2012 | As Adjusted1 2012 |
$ Change2 | % Change2 |
Sales and service revenues | $ 1,018 | $ 944 | $ 944 | $ 74 | 7.8% |
Operating income (loss) | 93 | 88 | 103 | (10) | (9.7)% |
Operating margin % | 9.1% | 9.3% | 10.9% | -178 bps | |
1 Non-GAAP metrics that exclude the impact of the non-cash workers' compensation charge. See Exhibit B for reconciliation. | |||||
2 Comparison of "2013" to "As Adjusted 2012" figures. On an unadjusted basis, operating income increased by $5 million. |
Key
- Installed the third and final aircraft elevator on CVN-78 Gerald R. Ford
- Redelivered CVN-71 USS Theodore Roosevelt following successful sea trials that tested the ship's systems after its RCOH
The Company
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
Exhibit A: Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended | Nine Months Ended | |||
September 30 | September 30 | |||
(in millions, except per share amounts) | 2013 | 2012 | 2013 | 2012 |
Sales and service revenues | ||||
Product sales | $ 1,394 | $ 1,367 | $ 4,138 | $ 4,224 |
Service revenues | 243 | 229 | 744 | 661 |
Total sales and service revenues | 1,637 | 1,596 | 4,882 | 4,885 |
Cost of sales and service revenues | ||||
Cost of product sales | 1,123 | 1,187 | 3,366 | 3,578 |
Cost of service revenues | 210 | 186 | 650 | 562 |
Income (loss) from operating investments, net | 9 | 7 | 13 | 13 |
General and administrative expenses | 186 | 164 | 541 | 506 |
Operating income (loss) | 127 | 66 | 338 | 252 |
Other income (expense) | ||||
Interest expense | (28) | (29) | (87) | (88) |
Earnings (loss) before income taxes | 99 | 37 | 251 | 164 |
Federal income taxes | 30 | 24 | 81 | 68 |
Net earnings (loss) | $ 69 | $ 13 | $ 170 | $ 96 |
Basic earnings (loss) per share | $ 1.38 | $ 0.26 | $ 3.41 | $ 1.95 |
Weighted-average common shares outstanding | 49.9 | 49.6 | 49.9 | 49.3 |
Diluted earnings (loss) per share | $ 1.36 | $ 0.26 | $ 3.37 | $ 1.92 |
Weighted-average diluted shares outstanding | 50.6 | 50.3 | 50.5 | 49.9 |
Dividends declared per share | $ 0.10 | $ — | $ 0.30 | $ — |
Net earnings (loss) from above | $ 69 | $ 13 | $ 170 | $ 96 |
Other comprehensive income (loss) | ||||
Change in unamortized benefit plan costs | 31 | 23 | 246 | 68 |
Other | 2 | — | 3 | — |
Tax benefit (expense) for items of other comprehensive income | (15) | (6) | (101) | (23) |
Other comprehensive income (loss), net of tax | 18 | 17 | 148 | 45 |
Comprehensive income (loss) | $ 87 | $ 30 | $ 318 | $ 141 |
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
September 30 | December 31 | |
($ in millions) | 2013 | 2012 |
Assets | ||
Current Assets | ||
Cash and cash equivalents | $ 895 | $ 1,057 |
Accounts receivable, net | 1,055 | 905 |
Inventoried costs, net | 340 | 288 |
Deferred income taxes | 218 | 213 |
Prepaid expenses and other current assets | 23 | 21 |
Total current assets | 2,531 | 2,484 |
Property, plant, and equipment, net | 1,964 | 2,034 |
Goodwill | 881 | 881 |
Other purchased intangibles, net | 532 | 548 |
Long-term deferred tax asset | 248 | 329 |
Miscellaneous other assets | 123 | 116 |
Total assets | $ 6,279 | $ 6,392 |
Liabilities and Stockholders' Equity | ||
Current Liabilities | ||
Trade accounts payable | $ 287 | $ 377 |
Accrued employees' compensation | 205 | 235 |
Current portion of long-term debt | 65 | 51 |
Current portion of postretirement plan liabilities | 148 | 166 |
Current portion of workers' compensation liabilities | 225 | 216 |
Advance payments and billings in excess of revenues | 139 | 134 |
Income taxes payable | 73 | — |
Other current liabilities | 260 | 205 |
Total current liabilities | 1,402 | 1,384 |
Long-term debt | 1,743 | 1,779 |
Pension plan liabilities | 1,082 | 1,301 |
Other postretirement plan liabilities | 656 | 799 |
Workers' compensation liabilities | 409 | 403 |
Other long-term liabilities | 52 | 59 |
Total liabilities | 5,344 | 5,725 |
Commitments and Contingencies | — | — |
Stockholders' Equity | ||
Common stock | 1 | — |
Additional paid-in capital | 1,914 | 1,894 |
Retained earnings (deficit) | 155 | — |
Treasury stock | (57) | (1) |
Accumulated other comprehensive income (loss) | (1,078) | (1,226) |
Total stockholders' equity | 935 | 667 |
Total liabilities and stockholders' equity | $ 6,279 | $ 6,392 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30 | ||
($ in millions) | 2013 | 2012 |
Operating Activities | ||
Net earnings (loss) | $ 170 | $ 96 |
Adjustments to reconcile to net cash provided by (used in) operating activities | ||
Depreciation | 135 | 122 |
Amortization of purchased intangibles | 16 | 15 |
Amortization of debt issuance costs | 6 | 6 |
Stock-based compensation | 28 | 25 |
Excess tax benefit related to stock-based compensation | (5) | — |
Deferred income taxes | (19) | 44 |
Change in | ||
Accounts receivable | (150) | (172) |
Inventoried costs | (102) | 57 |
Prepaid expenses and other assets | (16) | (8) |
Accounts payable and accruals | 12 | (134) |
Retiree benefits | (134) | (93) |
Other non-cash transactions, net | 3 | 1 |
Net cash provided by (used in) operating activities | (56) | (41) |
Investing Activities | ||
Additions to property, plant, and equipment | (85) | (92) |
Proceeds from insurance settlement | 58 | — |
Net cash provided by (used in) investing activities | (27) | (92) |
Financing Activities | ||
Repayment of long-term debt | (22) | (22) |
Dividends paid | (15) | — |
Repurchases of common stock | (53) | — |
Proceeds from stock option exercises | 6 | 6 |
Excess tax benefit related to stock-based compensation | 5 | — |
Net cash provided by (used in) financing activities | (79) | (16) |
Change in cash and cash equivalents | (162) | (149) |
Cash and cash equivalents, beginning of period | 1,057 | 915 |
Cash and cash equivalents, end of period | $ 895 | $ 766 |
Supplemental Cash Flow Disclosure | ||
Cash paid for income taxes | $ 54 | $ 28 |
Cash paid for interest | $ 101 | $ 102 |
Non-Cash Investing and Financing Activities | ||
Capital expenditures accrued in accounts payable | $ 2 | $ 2 |
Exhibit B: Reconciliations
We make reference to "segment operating income," "segment operating margin," "adjusted sales and service revenues," "adjusted segment operating income," "adjusted segment operating margin," "adjusted total operating income," adjusted operating margin," "adjusted net earnings," and "adjusted diluted earnings per share."
Adjusted sales and service revenues is defined as total sales and service revenues adjusted for the impact of the hurricane insurance recoveries and the
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 segment operating income is defined as segment operating income adjusted for the impact of the hurricane insurance recoveries and the
Adjusted segment operating margin is defined as adjusted segment operating income as a percentage of adjusted segment sales and service revenues.
Adjusted total operating income is defined as total operating income adjusted for the impact of the hurricane insurance recoveries and the
Adjusted operating margin is defined as adjusted total operating income as a percentage of adjusted sales and service revenues.
Adjusted net earnings is defined as net income adjusted for the 2013 tax effected impact of the hurricane insurance recoveries, the 2013 tax effected impact of the
Adjusted diluted earnings per share is defined as 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 adjusted sales and service revenues, adjusted total operating income, adjusted operating margin, adjusted net earnings and 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 | ||
September 30 | ||
($ in millions) | 2013 | 2012 |
Sales and Service Revenues | ||
Ingalls | $ 639 | $ 670 |
Newport News | 1,018 | 944 |
Intersegment eliminations | (20) | (18) |
Total Sales and Service Revenues | 1,637 | 1,596 |
Segment Operating Income | ||
Ingalls | 49 | 1 |
As a percentage of revenues | 7.7% | 0.1% |
Newport News | 93 | 88 |
As a percentage of revenues | 9.1% | 9.3% |
Total Segment Operating Income | 142 | 89 |
As a percentage of revenues | 8.7% | 5.6% |
Non-segment factors affecting operating income | ||
FAS/CAS Adjustment | (13) | (19) |
Deferred state income taxes | (2) | (4) |
Total Operating Income | 127 | 66 |
Interest expense | (28) | (29) |
Federal income taxes | (30) | (24) |
Net Earnings | $ 69 | $ 13 |
Reconciliation of Adjusted Sales and Service Revenues, Adjusted Segment Operating Income, Adjusted Segment Operating Margin, Adjusted Total Operating Income and Adjusted Operating Margin
Three Months Ended | ||
September 30 | ||
$ in millions | 2013 | 2012 |
Adjusted Sales and Service Revenues | ||
Ingalls | 639 | 670 |
Adjustment for hurricane insurance recoveries | 37 | — |
Adjustment for Gulfport closure impact | (9) | — |
Adjusted Ingalls | 667 | 670 |
Newport News | 1,018 | 944 |
Intersegment eliminations | (20) | (18) |
Adjusted Sales and Service Revenues | 1,665 | 1,596 |
Adjusted Segment Operating Income (Loss) | ||
Total Operating Income (Loss) | $ 127 | $ 66 |
As a percentage of sales | 7.8% | 4.1% |
Non-segment factors affecting operating income | ||
FAS/CAS Adjustment | 13 | 19 |
Deferred state income taxes | 2 | 4 |
Segment Operating Income (Loss) | $ 142 | $ 89 |
As a percentage of sales | 8.7% | 5.6% |
Non-recurring items affecting operating income: | ||
Ingalls | $ 49 | $ 1 |
Adjustment for hurricane insurance recoveries | (46) | — |
Adjustment for Gulfport closure impact | 17 | — |
Adjustment for non-cash workers' compensation charge | — | 9 |
Adjusted Ingalls | 20 | 10 |
As a percentage of sales | 3.0% | 1.5% |
Newport News | 93 | 88 |
Adjustment for non-cash workers' compensation charge | — | 15 |
Adjusted Newport News | 93 | 103 |
As a percentage of sales | 9.1% | 10.9% |
Adjusted Segment Operating Income (Loss) | $113 | $113 |
As a percentage of sales | 6.8% | 7.1% |
Adjusted Total Operating Income (Loss) | ||
Total Operating Income (Loss) | $127 | $66 |
As a percentage of sales | 7.8% | 4.1% |
Adjustment for hurricane insurance recoveries | (46) | — |
Adjustment for Gulfport closure impact | 17 | — |
Adjustment for non-cash workers' compensation charge | — | 24 |
Adjusted Total Operating Income (Loss) | $ 98 | $ 90 |
As a percentage of sales | 5.9% | 5.6% |
Reconciliation of Adjusted Net Earnings and Adjusted Diluted Earnings per Share
Three Months Ended | ||
September 30 | ||
$ in millions | 2013 | 2012 |
Adjusted Net Earnings (Loss) | ||
Net Earnings (Loss) | $ 69 | $ 13 |
Adjustment for hurricane insurance recoveries(1) | (30) | — |
Adjustment for Gulfport closure(1) | 11 | — |
Adjustment for non-cash workers' compensation charge(1) | — | 16 |
Adjustment for non-cash tax expense | — | 8 |
Adjustment for FAS/CAS Adjustment(1) | 9 | 12 |
Adjusted Net Earnings (Loss) | 59 | 49 |
Per Share Amounts | ||
Weighted-Average Diluted Shares Outstanding | 50.6 | 50.3 |
Adjusted Diluted EPS | ||
Diluted earnings (loss) per share | $1.36 | $0.26 |
After-tax hurricane insurance recoveries per share | $ (0.59) | — |
After-tax Gulfport closure per share | $0.22 | — |
After-tax non-cash workers' compensation charge per share | — | $0.32 |
Non-cash tax expense per share | — | $0.16 |
After-tax FAS/CAS Adjustment per share | $0.18 | $0.24 |
Adjusted Diluted EPS | $1.17 | $0.98 |
(1) Tax effected at 35% federal statutory tax rate. |