EX-99.1 2 hii2015q1earningsrelease.htm EXHIBIT 99.1 HII 2015 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 2015 Results

•
Revenues were $1.57 billion for the quarter
•
Segment operating margin was 8.2 percent
•
Total operating margin was 9.9 percent
•
Diluted earnings per share was $1.79 for the quarter
•
Cash and cash equivalents at the end of the quarter were $904 million

NEWPORT NEWS, Va. (May 7, 2015) - Huntington Ingalls Industries (NYSE:HII) reported first quarter 2015 revenues of $1.57 billion, down 1.5 percent compared to the same period last year. Diluted earnings per share in the quarter was $1.79, compared to diluted earnings per share of $1.81 in the same period of 2014.
Segment operating income was $128 million and segment operating margin was 8.2 percent in the first quarter of 2015, compared to $137 million and 8.6 percent in the same period last year. Total operating income was $156 million and total operating margin was 9.9 percent in the first quarter of 2015, compared to $159 million and 10.0 percent in the same period last year. These decreases were primarily driven by operating performance in the Other segment.
New business awards for the quarter were approximately $1.6 billion, which included contracts for construction of the eighth National Security Cutter (NSC) Midgett, continued construction for CVN-78 Gerald R. Ford and advance planning for the CVN-73 USS George Washington refueling and complex overhaul (RCOH). Total backlog as of March 31, 2015, was approximately $21.5 billion, of which $14.1 billion was funded.
“During the quarter, solid operating performance at both Ingalls and Newport News was impacted by underperformance in the Other segment due to continued weakness in the oil and gas market,” said HII President and CEO Mike Petters. “We've taken decisive actions to right-size the Other segment for the current environment, and these actions will position it to be stronger when the market rebounds.”


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


First Quarter 2015 Highlights
 
Three Months Ended


 
March 31


($ In millions, except per share amounts)
2015
2014
$ Change
% Change
Revenues
$
1,570

$
1,594

$
(24
)
(1.5
)%
Segment operating income1
128

137

(9
)
(6.6
)%
  Segment operating margin %1
8.2
%
8.6
%

-44 bps

Total operating income
156

159

(3
)
(1.9
)%
  Total operating margin %
9.9
%
10.0
%

-4 bps
Net earnings
87

90

(3
)
(3.3
)%
Diluted earnings per share
$
1.79

$
1.81

$
(0.02
)
(1.1
)%
Weighted-average diluted shares outstanding
48.7

49.7



 




Pension-adjusted Operating Highlights




Total operating income
156

159

(3
)
(1.9
)%
FAS/CAS Adjustment
(27
)
(22
)
(5
)
22.7
 %
Pension-adjusted operating income2
129

137

(8
)
(5.8
)%
  Pension-adjusted operating margin %2
8.2
%
8.6
%

-38 bps
 




Adjusted Net Earnings




Net earnings
87

90

(3
)
(3.3
)%
After-tax FAS/CAS Adjustment3
(18
)
(14
)
(4
)
28.6
 %
Adjusted net earnings2
69

76

(7
)
(9.2
)%
Weighted-average diluted shares outstanding
48.7

49.7



Adjusted diluted earnings per share2
$
1.42

$
1.53

$
(0.11
)
(7.2
)%
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.
 
 
 
 


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)
2015
2014
$ Change
% Change
Revenues
$
469

$
547

$
(78
)
(14.3
)%
Operating income (loss)
45

43

2

4.7
 %
Operating margin %
9.6
%
7.9
%
 
173 bps

Ingalls revenues for the quarter decreased $78 million, or 14.3 percent, from the same period in 2014, driven by lower volumes in amphibious assault ships and the NSC program, partially offset by higher volumes in surface combatants. The decrease in amphibious assault ships revenues was due to lower volumes on LHA-6 USS America, LPD-27 Portland and LPD-26 John P. Murtha, partially offset by higher volumes on LHA-7 Tripoli. The decrease in NSC program revenues was due to lower volume on NSC-4 USCGC Hamilton, partially offset by higher volume on NSC-7 Kimball. The increase in surface combatants revenues was due to higher volumes on DDG-119 Delbert D. Black and DDG-113 John Finn, partially offset by lower volumes on the DDG-1000 Zumwalt-class destroyer program.
Ingalls operating income for the quarter was $45 million, a $2 million increase from the same period in 2014. Ingalls operating margin was 9.6 percent for the quarter, compared to 7.9 percent in Q1 2014. These increases were primarily due to risk retirement on LHA-6 USS America, partially offset by lower revenues.
Key Ingalls highlights for the quarter:

•
Christened LPD-26 John P. Murtha
•
Began construction on NSC-7 Kimball
•
Launched John Finn (DDG 113)
•
Received a $604.3 million contract modification to fund construction of the Arleigh Burke-class guided missile destroyer DDG-121
•
Received a $499.8 million contract to fund construction of NSC-8 Midgett



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)
2015
2014
$ Change
% Change
Revenues
$
1,061

$
1,047

$
14

1.3
 %
Operating income (loss)
93

94

(1
)
(1.1
)%
Operating margin %
8.8
%
9.0
%
 
-21 bps

Newport News revenues for the first quarter increased $14 million, or 1.3 percent, from the same period in 2014, primarily driven by higher volumes in submarines and fleet support services, partially offset by lower volumes in aircraft carriers. The increase in submarines revenues related to the SSN-774 Virginia-class submarine (VCS) program was due to higher volumes on Block IV boats, partially offset by lower volumes on the Block II and Block III boats. The increase in fleet support services revenues was primarily due to higher volumes on aircraft carrier maintenance. The decrease in aircraft carrier revenues was due to lower volumes on the execution contract for CVN-72 USS Abraham Lincoln RCOH and the construction contract for CVN-78 Gerald R. Ford, partially offset by higher volumes on the construction preparation contract for CVN-79 John F. Kennedy.
Newport News operating income for the quarter was $93 million, a $1 million decrease from the same period in 2014. Newport News operating margin was 8.8 percent for the quarter, down from 9.0 percent in Q1 2014. These decreases were primarily due to lower risk retirement on CVN-78 Gerald R. Ford and lower volumes on aircraft carrier RCOH programs, partially offset by higher risk retirement on the VCS program.
Key Newport News highlights for the quarter:

•
Received a $224 million contract modification for advanced planning of the CVN-73 USS George Washington RCOH
•
Crew moved aboard Virginia-class submarine John Warner (SSN 785)
•
Acquired The Columbia Group's Engineering Solutions Division, a leading designer and builder of unmanned underwater vehicles for domestic and international customers



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

Page 4 of 10


Other
Revenues in the Other segment were $40 million in the quarter and the operating loss was $10 million. The operating loss was primarily driven by lower volumes due to project delays and work scope reductions as well as higher operating costs associated with cost measures taken during the quarter.


The Company
Huntington Ingalls Industries is America’s largest military shipbuilding company and a provider of engineering, manufacturing 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 38,000 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. ET on May 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. 

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)
 
2015
 
2014
Sales and service revenues
 
 
 
 
Product sales
 
$
1,250

 
$
1,332

Service revenues
 
320

 
262

Total sales and service revenues
 
1,570

 
1,594

Cost of sales and service revenues
 
 
 
 
Cost of product sales
 
985

 
1,060

Cost of service revenues
 
280

 
227

Income (loss) from operating investments, net
 
1

 
2

General and administrative expenses
 
150

 
150

Operating income (loss)
 
156

 
159

Other income (expense)
 
 
 
 
Interest expense
 
(23
)
 
(27
)
Earnings (loss) before income taxes
 
133

 
132

Federal income taxes
 
46

 
42

Net earnings (loss)
 
$
87

 
$
90

 
 
 
 
 
Basic earnings (loss) per share
 
$
1.80

 
$
1.83

Weighted-average common shares outstanding
 
48.4

 
49.1

 
 
 
 
 
Diluted earnings (loss) per share
 
$
1.79

 
$
1.81

Weighted-average diluted shares outstanding
 
48.7

 
49.7

 
 
 
 
 
Dividends declared per share
 
$
0.40

 
$
0.20

 
 
 
 
 
Net earnings (loss) from above
 
$
87

 
$
90

Other comprehensive income (loss)
 
 
 
 
Change in unamortized benefit plan costs
 
22

 
8

Other
 
(2
)
 
1

Tax benefit (expense) for items of other comprehensive income
 
(7
)
 
(3
)
Other comprehensive income (loss), net of tax
 
13

 
6

Comprehensive income (loss)
 
$
100

 
$
96



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
2015
 
December 31
2014
Assets
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
904

 
$
990

Accounts receivable, net
 
1,219

 
1,038

Inventoried costs, net
 
336

 
339

Deferred income taxes
 
132

 
129

Prepaid expenses and other current assets
 
37

 
50

Total current assets
 
2,628

 
2,546

Property, plant, and equipment, net of accumulated depreciation of $1,388 million as of 2015 and $1,351 million as of 2014
 
1,768

 
1,792

Goodwill
 
1,032

 
1,026

Other purchased intangibles, net
 
540

 
547

Pension plan assets
 
21

 
17

Long-term deferred tax asset
 
203

 
212

Miscellaneous other assets
 
127

 
129

Total assets
 
$
6,319

 
$
6,269

Liabilities and Stockholders' Equity
 
 
 
 
Current Liabilities
 
 
 
 
Trade accounts payable
 
$
307

 
$
269

Accrued employees’ compensation
 
183

 
248

Current portion of long-term debt
 
108

 
108

Current portion of postretirement plan liabilities
 
143

 
143

Current portion of workers’ compensation liabilities
 
223

 
221

Advance payments and billings in excess of revenues
 
78

 
74

Other current liabilities
 
290

 
249

Total current liabilities
 
1,332

 
1,312

Long-term debt
 
1,592

 
1,592

Pension plan liabilities
 
949

 
939

Other postretirement plan liabilities
 
509

 
507

Workers’ compensation liabilities
 
453

 
449

Other long-term liabilities
 
104

 
105

Total liabilities
 
4,939

 
4,904

Commitments and Contingencies
 
—

 
—

Stockholders’ Equity
 
 
 
 
Common stock, $0.01 par value; 150 million shares authorized; 52.0 million issued and 48.6 million outstanding as of March 31, 2015, and 51.5 million issued and 48.3 million outstanding as of December 31, 2014
 
1

 
1

Additional paid-in capital
 
1,922

 
1,959

Retained earnings (deficit)
 
593

 
525

Treasury stock
 
(287
)
 
(258
)
Accumulated other comprehensive income (loss)
 
(849
)
 
(862
)
Total stockholders’ equity
 
1,380

 
1,365

Total liabilities and stockholders’ equity
 
$
6,319

 
$
6,269


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)
 
2015
 
2014
Operating Activities
 
 
 
 
Net earnings (loss)
 
$
87

 
$
90

Adjustments to reconcile to net cash provided by (used in) operating activities
 
 
 
 
Depreciation
 
39

 
54

Amortization of purchased intangibles
 
7

 
6

Amortization of debt issuance costs
 
3

 
3

Stock-based compensation
 
4

 
5

Excess tax benefit related to stock-based compensation
 
(13
)
 
(2
)
Deferred income taxes
 
(1
)
 
8

Change in
 
 
 
 
Accounts receivable
 
(189
)
 
(162
)
Inventoried costs
 
3

 
(2
)
Prepaid expenses and other assets
 
(11
)
 
(4
)
Accounts payable and accruals
 
39

 
(197
)
Retiree benefits
 
30

 
(13
)
Other non-cash transactions, net
 
(1
)
 
—

Net cash provided by (used in) operating activities
 
(3
)
 
(214
)
Investing Activities
 
 
 
 
Additions to property, plant, and equipment
 
(20
)
 
(24
)
Acquisitions of businesses, net of cash received
 
(6
)
 
(46
)
Proceeds from disposition of assets
 
32

 
—

Net cash provided by (used in) investing activities
 
6

 
(70
)
Financing Activities
 
 
 
 
Dividends paid
 
(19
)
 
(10
)
Repurchases of common stock
 
(29
)
 
(10
)
Employee taxes on certain share-based payment arrangements
 
(54
)
 
—

Proceeds from stock option exercises
 
—

 
1

Excess tax benefit related to stock-based compensation
 
13

 
2

Net cash provided by (used in) financing activities
 
(89
)
 
(17
)
Change in cash and cash equivalents
 
(86
)
 
(301
)
Cash and cash equivalents, beginning of period
 
990

 
1,043

Cash and cash equivalents, end of period
 
$
904

 
$
742

Supplemental Cash Flow Disclosure
 
 
 
 
Cash paid for income taxes
 
$
26

 
$
30

Cash paid for interest
 
$
23

 
$
45

Non-Cash Investing and Financing Activities
 
 
 
 
Capital expenditures accrued in accounts payable
 
$
3

 
$
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,” “pension-adjusted operating income,” “pension-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.

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.

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.

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.


Pension-adjusted operating income, pension-adjusted operating margin, 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.








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)
 
2015
 
2014
Sales and Service Revenues
 
 
 
 
Ingalls
 
$
469

 
$
547

Newport News
 
1,061

 
1,047

Other
 
40

 
—

Total Sales and Service Revenues
 
1,570

 
1,594

Segment Operating Income
 
 
 
 
Ingalls
 
45

 
43

  As a percentage of revenues
 
9.6
 %
 
7.9
%
Newport News
 
93

 
94

  As a percentage of revenues
 
8.8
 %
 
9.0
%
Other
 
(10
)
 
—

  As a percentage of revenues
 
(25.0
)%
 
—

Total Segment Operating Income
 
128

 
137

  As a percentage of revenues
 
8.2
 %
 
8.6
%
Non-segment factors affecting operating income
 
 
 
 
FAS/CAS Adjustment
 
27

 
22

Deferred state income taxes
 
1

 
—

Total Operating Income
 
156

 
159

Interest expense
 
(23
)
 
(27
)
Federal income taxes
 
(46
)
 
(42
)
Net Earnings
 
$
87

 
$
90





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

Page 10 of 10