Form 8-K HUNTINGTON INGALLS INDUS For: May 07
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________
FORM 8-K
_____________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
May 7, 2015
_____________________________________
HUNTINGTON INGALLS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
_____________________________________
DELAWARE | 1-34910 | 90-0607005 | ||
(State or other jurisdiction of incorporation) | (Commission file number) | (I.R.S. Employer Identification No.) | ||
4101 Washington Avenue, Newport News, Virginia | 23607 | |||
(Address of principal executive offices) | (Zip Code) | |||
(757) 380-2000
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. | Results of Operations and Financial Condition. |
On May 7, 2015, Huntington Ingalls Industries, Inc. issued a press release announcing its financial results for the quarter ended March 31, 2015. A copy of the press release is furnished as Exhibit 99.1 hereto. Also furnished as Exhibit 99.2 is the Corporation’s earnings presentation for its first quarter 2015 earnings release conference call.
Item 9.01. | Financial Statements and Exhibits. |
(d) | Exhibits. |
Exhibit No. | Description | ||
99.1 | Press Release dated May 7, 2015. | ||
99.2 | Earnings Presentation dated May 7, 2015. | ||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
HUNTINGTON INGALLS INDUSTRIES, INC. | ||||||
Date: May 7, 2015 | By: | /s/ Barbara A. Niland | ||||
Barbara A. Niland | ||||||
Corporate Vice President, Business Management and Chief Financial Officer | ||||||
 | Exhibit 99.1 News Release | |
Contacts: |
Jerri Fuller Dickseski (Media) |
757-380-2341 |
Dwayne Blake (Investors) |
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
Q1 2015 Earnings Presentation May 7, 2015 Mike Petters President & Chief Executive Officer Barb Niland Corporate Vice President, Business Management & Chief Financial Officer Exhibit 99.2
Safe Harbor 2 Statements in this presentation, 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 obligation to update any forward-looking statements. You should not place undue reliance on any forward-looking statements that we may make. This presentation also contains non-GAAP financial measures and includes a GAAP reconciliation of these financial measures. Non-GAAP financial measures should be considered supplemental to and not a substitute for GAAP financial information, and may not be comparable to similarly titled measures of other companies.
Highlights from the First Quarter 2015 3 Revenues were ~ $1.6 billion Diluted EPS was $1.79, compared to $1.81 in Q1 2014 Q1 2015 includes ($0.13) for the Other segment Adjusted Diluted EPS* was $1.42, compared to $1.53 in Q1 2014 Segment operating margin** was 8.2%, compared to 8.6% in Q1 2014 Total operating margin was 9.9%, compared to 10.0% in Q1 2014 Excluding UPI: Segment operating margin*** was 9.0%, up 36 bps from Q1 2014 Total operating margin*** was 10.8%, up 81 bps from Q1 2014 Acquired The Columbia Group’s Engineering Solutions Division for ~ $6 million; rebranded as Undersea Solutions Group Received $1.6 billion of new contract awards including: $0.5 billion for the construction contract for NSC-8 Midgett $0.5 billion for continued construction for CVN-78 Gerald R. Ford $0.2 billion contract modification for advance planning for the CVN-73 USS George Washington RCOH * Non-GAAP metric that excludes the tax effected FAS/CAS Adjustment. See appendix for reconciliation. ** Non-GAAP metric that excludes the FAS/CAS Adjustment and deferred state income taxes. See appendix for reconciliation. *** Non-GAAP measures that excludes the impact of UPI. See appendix for reconciliation.
First Quarter 2015 Consolidated Results 4 * Non-GAAP metric that excludes the FAS/CAS Adjustment. See appendix for reconciliation. ** Non-GAAP metric that excludes the tax effected FAS/CAS Adjustment. See appendix for reconciliation. $1.81 $1.79 $1.53 $1.42 $— $0.50 $1.00 $1.50 $2.00 Q1 2014 Q1 2015 Diluted EPS GAAP Adjusted** 10.0 % 9.9 % 8.6 % 8.2 % —% 2.0 % 4.0 % 6.0 % 8.0 % 10.0 % 12.0 % Q1 2014 Q1 2015 Operating Margin GAAP Pension-adjusted* $1,594 $1,570 $1,400 $1,450 $1, 00 $1,550 $1,600 $1,650 Q1 2014 Q1 2015 ($ in m illi on s) Revenues $159 $156 $137 $129 $— $50 $100 $150 $200 Q1 2014 Q1 2015 ($ in m illi on s) Operating Income GAAP Pension-adjusted*
Ingalls Shipbuilding 5 Ingalls revenues down 14% YoY due to the deliveries of LHA-6 and NSC-4 as well as lower volumes on LPD-27 and LPD-26 Segment operating income and margin up YoY due to risk retirement on LHA-6, partially offset by lower revenues $547 $469 $350 $400 $450 $500 $550 $600 Q1 2014 Q1 2015 ($ in m illi on s) Revenues $43 $45 $40 $42 $44 $46 Q1 2014 Q1 2015 ($ in m illi on s) Operating Income 7.9 % 9.6 % 4.0 % 6.0 % 8.0 % 10.0 % Q1 2014 Q1 2015 Operating Margin
Newport News Shipbuilding 6 Newport News revenues up 1% YoY due to higher volumes in the VCS program and aircraft carrier maintenance Segment operating income and margin down YoY due to lower risk retirement on CVN-78 and lower volumes on the RCOH programs, partially offset by risk retirement on VCS programs $1,047 $1,061 $1,000 $1,010 $1,020 $1,030 $1,040 $1,050 $1,060 $1,070 Q1 2014 Q1 2015 ($ in m illi on s) Revenues $94 $93 $70 $75 $80 $85 $90 $95 $100 Q1 2014 Q1 2015 ($ in m illi on s) Operating Income 9.0 % 8.8 % 8.0 % 8.2 % 8.4 % 8.6 % 8.8 % 9.0 % 9.2 % Q1 2014 Q1 2015 Operating Margin
U n sa ve d Docum e n t / 1 2 /2 9 /1 0 / 1 0 :0 2 Appendix
Reconciliations 8 We make reference to “segment operating income,” “segment operating margin,” “adjusted sales and service revenues,” “adjusted segment operating income,” “adjusted segment operating margin,” “adjusted operating income,” “adjusted 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. Adjusted sales and service revenues is total sales and service revenues excluding UPI’s revenues. Adjusted segment operating income is segment operating income excluding UPI’s segment operating income. Adjusted segment operating margin is adjusted segment operating income as a percentage of adjusted sales and service revenues. Adjusted operating income is total operating income excluding UPI’s operating income Adjusted operating margin is adjusted operating income as a percentage of adjusted 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. Adjusted sales and service revenues, adjusted segment operating income, adjusted segment operating margin, adjusted operating income, adjusted operating margin, pension-adjusted operating income, pensions-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.
Reconciliation of Non-GAAP Measures – Segment Operating Income and Segment Operating Margin 9 $ 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 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) Total Net Earnings 87$ 90$ Three Months Ended March 31
10 Reconciliation of Non-GAAP Measures – Adjusted Figures ($ in millions) 2015 2014 $ Change % Change Adjusted Sales and Service Revenues Ingalls revenues 469$ 547$ (78)$ (14.3)% Newport News revenues 1,061 1,047 14 1.3 % Other revenues 40 — 40 — Adjustment for UPI revenues (40) — (40) — Adjusted Other revenues — — — — Adjusted Sales and Services Revenues 1,530$ 1,594$ (64)$ (4.0)% Adjusted Segment Operating Income Ingalls operating income 45$ 43$ 2$ 4.7 % As a percentage of Ingalls revenues 9.6 % 7.9 % 173 bps Newport News operating income 93 94 (1) (1.1)% As a percentage of Newport News revenues 8.8 % 9.0 % -21 bps Other operating loss (10) — (10) — Adjustment for UPI operating loss (9) — (9) — Adjusted Other operating income (1) — (1) — As a percentage of adjusted Other revenues —% —% — Adjusted Segment Operating Income 137$ 137$ —$ —% As a percentage of adjusted revenues 9.0 % 8.6 % 36 bps Adjusted Operating Income Total operating income 156$ 159$ (3)$ (1.9)% Adjustment for UPI operating loss (9) — (9) — Adjusted Operating Income 165$ 159$ 6$ 3.8 % As a percentage of adjusted revenues 10.8 % 10.0 % 81 bps Three Months Ended March 31
Reconciliation of Non-GAAP Measures – Adjusted Figures 11 (In millions, except per share amounts) 2015 2014 $ Change % Change Revenues 1,570$ 1,594$ (24)$ (1.5)% Total segment operating income 128 137 (9) (6.6)% Total segment operating margin % 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 total operating income 129 137 (8) (5.8)% Pension-adjusted total operating margin % 8.2 % 8.6 % -38 bps Adjusted Net Earnings Net earnings 87 90 (3) (3.3)% After-tax FAS/CAS Adjustment (18) (14) (4) 28.6 % Adjusted net earnings 69 76 (7) (9.2)% Weighted-average diluted shares outstanding 48.7 49.7 Adjusted diluted earnings per share 1.42$ 1.53$ (0.11)$ (7.2)% Three Months Ended March 31