EX-99.1 2 hii2014q1earningsrelease.htm EXHIBIT 99.1 HII 2014 Q1 Earnings Release
 
Exhibit 99.1
 
News Release


Contacts:
 
Jerri Fuller Dickseski (Media)
jerri.dickseski@hii-co.com
757-380-2341
 
Dwayne Blake (Investors)
dwayne.blake@hii-co.com
757-380-2104
Huntington Ingalls Industries Reports First Quarter Results

•
Revenues were $1.59 billion for the first quarter of 2014
•
Segment operating margin was 8.6 percent, a 91 bps improvement over Q1 2013
•
Total operating margin was 10.0 percent, up from 6.1 percent in the same period last year
•
Diluted earnings per share was $1.81 for the quarter
•
Adjusted diluted earnings per share, which excludes the FAS/CAS Adjustment, was $1.53 for the quarter
•
Cash and cash equivalents at the end of the quarter were $742 million

NEWPORT NEWS, Va. (May 8, 2014) - Huntington Ingalls Industries (NYSE:HII) reported first quarter 2014 revenues of $1.59 billion, up 2.0 percent compared to the same period last year. First quarter diluted earnings per share was $1.81, compared to diluted earnings per share of $0.87 in the same period of 2013. Adjusted diluted earnings per share for the quarter was $1.53, compared to $1.17 in the comparable period of 2013.
Segment operating income for the first quarter was $137 million, compared to $120 million in the same period last year. Total operating income for the quarter was $159 million, compared to $95 million in the same period last year. Adjusted operating income for the first quarter, which excludes the FAS/CAS Adjustment, was $137 million, or 8.6 percent of revenue, compared to $118 million, or 7.6 percent of revenue, in the comparable period of 2013. The increase in adjusted operating income was primarily attributable to risk retirement at Ingalls on the LPD-17 San Antonio-class (LPD) program and National Security Cutter (NSC) program and at Newport News on the CVN-78 Gerald R. Ford construction contract.
New business awards for the quarter were approximately $2.2 billion, consisting primarily of contracts for continued construction preparation for CVN-79 John F. Kennedy and construction of NSC-7 Kimball. Total backlog at the end of Q1 2014 was $18.7 billion, of which $13.0 billion was funded.
"Notwithstanding continued debate surrounding the defense budget and the impact of sequestration, HII has continued to maintain a healthy backlog and strong operating performance at both segments," said Mike Petters, HII's president and chief executive officer. "With the delivery of LHA-6 America in April 2014, HII has reached a significant milestone on its path to 9 plus percent margins in 2015."

Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com


First Quarter 2014 Highlights
 
Three Months Ended


 
March 31


(In millions, except per share amounts)
2014
2013
$ Change
% Change
Revenues
$
1,594

$
1,562

$
32

2.0
 %
Segment operating income1
137

120

17

14.2
 %
  Segment operating margin %1
8.6
%
7.7
%

91 bps

Total operating income
159

95

64

67.4
 %
  Total operating margin %
10.0
%
6.1
%

389 bps
Net earnings
90

44

46

104.5
 %
Diluted earnings per share
$
1.81

$
0.87

$
0.94

108.0
 %
Weighted-average diluted shares outstanding
49.7

50.3



 




Adjusted Operating Highlights




Total operating income
159

95

64

67.4
 %
FAS/CAS Adjustment
(22
)
23

(45
)
(195.7
)%
Adjusted operating income2
137

118

19

16.1
 %
  Adjusted operating margin %2
8.6
%
7.6
%

104 bps
 




Adjusted Net Earnings




Net earnings
90

44

46

104.5
 %
After-tax FAS/CAS Adjustment3
(14
)
15

(29
)
(193.3
)%
Adjusted net earnings2
76

59

17
28.8
 %
Weighted-average diluted shares outstanding
49.7

50.3



Adjusted diluted earnings per share2
$
1.53

$
1.17

$
0.36

30.8
 %
1 Non-GAAP metric that excludes non-segment factors affecting operating income. See Exhibit B for definition and reconciliation.
2 Non-GAAP metric - see Exhibit B for definition.
 
 
 
 
3 Tax effected at 35% federal statutory tax rate.
 
 
 
 

HII realigned its segments in January to optimize its operating structure. As a result of this realignment, the AMSEC and Continental Maritime of San Diego (CMSD) businesses were transferred from the Ingalls segment to the Newport News segment. This 2014 realignment has been reflected in prior financial reporting periods on an "as-if" basis, which has resulted in the transfer of revenue, operating profit, assets and liabilities between the Ingalls and Newport News segments.

Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 2 of 10



Operating Segment Results

Ingalls Shipbuilding

 
Three Months Ended
 
 
 
March 31
 
 
(In millions)
2014
2013
$ Change
% Change
Revenues
$
547

$
550

$
(3
)
(0.5
)%
Operating income (loss)
43

24

19

79.2
 %
Operating margin %
7.9
%
4.4
%
 
350 bps

Ingalls revenues for the first quarter decreased $3 million, or 0.5 percent, from the same period in 2013, 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 ships revenues was due to lower volumes on LHA-6 America and LPD-25 USS Somerset, partially offset by higher volumes on LPD-27 Portland. Revenues on the NSC program were higher due to higher volumes on NSC-5 James and NSC-6 Munro construction contracts. Surface combatants revenues were higher due to higher volumes on DDG-117 Paul Ignatius and DDG-114 Ralph Johnson construction contracts.
Ingalls operating income for the quarter was $43 million, an increase of $19 million over the same period in 2013. Ingalls operating margin was 7.9 percent for the quarter as compared to 4.4 percent in Q1 2013. These increases were primarily due to risk retirement on the LPD and NSC programs.
Key Ingalls highlights for the quarter:

•
LPD-25 USS Somerset sailed away from the Avondale Shipyard
•
LHA-6 America completed successful acceptance sea trials
•
Received a $602 million contract modification to fund construction of the Arleigh Burke-class guided missile destroyer DDG 119
•
Received a $497 million contract to fund construction of NSC-7 Kimball



Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 3 of 10



Newport News Shipbuilding
 
Three Months Ended
 
 
 
March 31
 
 
(In millions)
2014
2013
$ Change
% Change
Revenues
$
1,047

$
1,012

$
35

3.5
 %
Operating income (loss)
94

96

(2
)
(2.1
)%
Operating margin %
9.0
%
9.5
%
 
-51 bps

Newport News revenues for the first quarter increased $35 million, or 3.5 percent, from the same period in 2013, primarily driven by higher sales in aircraft carriers and the acquisition of The S.M. Stoller Corp. Higher revenues in aircraft carriers were primarily due to increased volumes on the execution contract for the CVN-72 USS Abraham Lincoln refueling and complex overhaul (RCOH) and the inactivation contract for CVN-65 USS Enterprise, partially offset by lower volumes on the execution contract for the CVN-71 USS Theodore Roosevelt RCOH and the construction contract for CVN-78 Gerald R. Ford. Submarine revenues related to the SSN-774 Virginia-class submarine (VCS) program remained stable as lower volumes on Block II boats following the delivery of SSN-783 USS Minnesota were offset by higher volumes on Block III construction and Block IV advance procurement.
Newport News operating income for the quarter was $94 million, a $2 million decrease from the same period in 2013. Newport News operating margin was 9.0 percent for the quarter, down from 9.5 percent in Q1 2013. These decreases were mainly related to lower risk retirement on the VCS program and the execution contract for CVN-71 USS Theodore Roosevelt RCOH, partially offset by risk retirement on the construction contract for CVN-78 Gerald R. Ford.
Key Newport News highlights for the quarter:

•
Acquired The S.M. Stoller Corp., a leading provider of environmental, nuclear, and technical consulting and engineering services to the Department of Energy, Department of Defense and private sector
•
Opened a field office in Aiken, S.C., as part of its continuing efforts to expand the company's business in the Department of Energy and commercial energy markets
•
Received a $1.295 billion contract modification to a previously awarded construction preparation contract for CVN-79 John F. Kennedy



Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 4 of 10



The Company
Huntington Ingalls Industries 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 more than 38,000 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. ET on May 8. 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. 

Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 5 of 10



Exhibit A: Financial Statements

HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
 
 
Three Months Ended March 31
(in millions, except per share amounts)
 
2014
 
2013
Sales and service revenues
 
 
 
 
Product sales
 
$
1,332

 
$
1,321

Service revenues
 
262

 
241

Total sales and service revenues
 
1,594

 
1,562

Cost of sales and service revenues
 
 
 
 
Cost of product sales
 
1,060

 
1,086

Cost of service revenues
 
227

 
213

Income (loss) from operating investments, net
 
2

 
2

General and administrative expenses
 
150

 
170

Operating income (loss)
 
159

 
95

Other income (expense)
 
 
 
 
Interest expense
 
(27
)
 
(30
)
Earnings (loss) before income taxes
 
132

 
65

Federal income taxes
 
42

 
21

Net earnings (loss)
 
$
90

 
$
44

 
 
 
 
 
Basic earnings (loss) per share
 
$
1.83

 
$
0.88

Weighted-average common shares outstanding
 
49.1

 
49.8

 
 
 
 
 
Diluted earnings (loss) per share
 
$
1.81

 
$
0.87

Weighted-average diluted shares outstanding
 
49.7

 
50.3

 
 
 
 
 
Dividends declared per share
 
$
0.20

 
$
0.10

 
 
 
 
 
Net earnings (loss) from above
 
$
90

 
$
44

Other comprehensive income (loss)
 
 
 
 
Change in unamortized benefit plan costs
 
8

 
5

Other
 
1

 
2

Tax benefit (expense) for items of other comprehensive income
 
(3
)
 
(5
)
Other comprehensive income (loss), net of tax
 
6

 
2

Comprehensive income (loss)
 
$
96

 
$
46



Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 6 of 10



HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
($ in millions)
 
March 31
2014
 
December 31
2013
Assets
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
742

 
$
1,043

Accounts receivable, net
 
1,299

 
1,123

Inventoried costs, net
 
315

 
311

Deferred income taxes
 
163

 
170

Prepaid expenses and other current assets
 
25

 
29

Total current assets
 
2,544

 
2,676

Property, plant, and equipment, net of accumulated depreciation of $1,456 million as of 2014 and $1,404 million as of 2013
 
1,856

 
1,897

Goodwill
 
922

 
881

Other purchased intangibles, net
 
528

 
528

Pension plan assets
 
126

 
124

Miscellaneous other assets
 
131

 
119

Total assets
 
$
6,107

 
$
6,225

Liabilities and Stockholders' Equity
 
 
 
 
Current Liabilities
 
 
 
 
Trade accounts payable
 
$
263

 
$
337

Accrued employees’ compensation
 
194

 
230

Current portion of long-term debt
 
79

 
79

Current portion of postretirement plan liabilities
 
139

 
139

Current portion of workers’ compensation liabilities
 
232

 
230

Advance payments and billings in excess of revenues
 
78

 
115

Other current liabilities
 
255

 
262

Total current liabilities
 
1,240

 
1,392

Long-term debt
 
1,700

 
1,700

Pension plan liabilities
 
506

 
529

Other postretirement plan liabilities
 
480

 
477

Workers’ compensation liabilities
 
422

 
419

Deferred tax liabilities
 
92

 
83

Other long-term liabilities
 
106

 
104

Total liabilities
 
4,546

 
4,704

Commitments and Contingencies
 
—

 
—

Stockholders’ Equity
 
 
 
 
Common stock, $0.01 par value; 150 million shares authorized; 51.1 million issued and 49.2 million outstanding as of March 31, 2014, and 50.5 million issued and 48.7 million outstanding as of December 31, 2013
 
1

 
1

Additional paid-in capital
 
1,904

 
1,925

Retained earnings (deficit)
 
316

 
236

Treasury stock
 
(145
)
 
(120
)
Accumulated other comprehensive income (loss)
 
(515
)
 
(521
)
Total stockholders’ equity
 
1,561

 
1,521

Total liabilities and stockholders’ equity
 
$
6,107

 
$
6,225


Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 7 of 10



HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
Three Months Ended March 31
($ in millions)
 
2014
 
2013
Operating Activities
 
 
 
 
Net earnings (loss)
 
$
90

 
$
44

Adjustments to reconcile to net cash provided by (used in) operating activities
 
 
 
 
Depreciation
 
54

 
43

Amortization of purchased intangibles
 
6

 
6

Amortization of debt issuance costs
 
3

 
2

Stock-based compensation
 
5

 
9

Excess tax benefit related to stock-based compensation
 
(2
)
 
(3
)
Deferred income taxes
 
8

 
14

Change in
 
 
 
 
Accounts receivable
 
(162
)
 
(294
)
Inventoried costs
 
(2
)
 
(17
)
Prepaid expenses and other assets
 
(4
)
 
—

Accounts payable and accruals
 
(197
)
 
(194
)
Retiree benefits
 
(13
)
 
28

Net cash provided by (used in) operating activities
 
(214
)
 
(362
)
Investing Activities
 
 
 
 
Additions to property, plant, and equipment
 
(24
)
 
(30
)
Acquisitions of businesses, net of cash received
 
(46
)
 
—

Net cash provided by (used in) investing activities
 
(70
)
 
(30
)
Financing Activities
 
 
 
 
Repayment of long-term debt
 
—

 
(13
)
Dividends paid
 
(10
)
 
(5
)
Repurchases of common stock
 
(10
)
 
—

Proceeds from stock option exercises
 
1

 
2

Excess tax benefit related to stock-based compensation
 
2

 
3

Net cash provided by (used in) financing activities
 
(17
)
 
(13
)
Change in cash and cash equivalents
 
(301
)
 
(405
)
Cash and cash equivalents, beginning of period
 
1,043

 
1,057

Cash and cash equivalents, end of period
 
$
742

 
$
652

Supplemental Cash Flow Disclosure
 
 
 
 
Cash paid for income taxes
 
$
30

 
$
13

Cash paid for interest
 
$
45

 
$
46

Non-Cash Investing and Financing Activities
 
 
 
 
Capital expenditures accrued in accounts payable
 
$
2

 
$
2


Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 8 of 10



Exhibit B: Reconciliations

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

Segment operating income is total 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.

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

Adjusted total operating margin is adjusted operating income as a percentage of total sales and service revenues.

Adjusted net earnings is net earnings adjusted for the tax effected FAS/CAS Adjustment.

Adjusted diluted earnings per share is 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 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.

Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 9 of 10



Reconciliation of Segment Operating Income and Segment Operating Margin
 
 
Three Months Ended
 
 
March 31
($ in millions)
 
2014
 
2013
Sales and Service Revenues
 
 
 
 
Ingalls
 
$
547

 
$
550

Newport News
 
1,047

 
1,012

Total Sales and Service Revenues
 
1,594

 
1,562

Segment Operating Income
 
 
 
 
Ingalls
 
43

 
24

  As a percentage of revenues
 
7.9
%
 
4.4
%
Newport News
 
94

 
96

  As a percentage of revenues
 
9.0
%
 
9.5
%
Total Segment Operating Income
 
137

 
120

  As a percentage of revenues
 
8.6
%
 
7.7
%
Non-segment factors affecting operating income
 
 
 
 
FAS/CAS Adjustment
 
22

 
(23
)
Deferred state income taxes
 
—

 
(2
)
Total Operating Income
 
159

 
95

Interest expense
 
(27
)
 
(30
)
Federal income taxes
 
(42
)
 
(21
)
Net Earnings
 
$
90

 
$
44





Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 10 of 10