Form 8-K HUNTINGTON INGALLS INDUS For: Nov 04
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)
November 5, 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 November 5, 2015, Huntington Ingalls Industries, Inc. issued a press release announcing its financial results for the quarter ended September 30, 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 third quarter 2015 earnings release conference call.
Item 9.01. | Financial Statements and Exhibits. |
(d) | Exhibits. |
Exhibit No. | Description | ||
99.1 | Press Release dated November 5, 2015. | ||
99.2 | Earnings Presentation dated November 5, 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: November 5, 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 Third Quarter Results
• | Revenues were $1.8 billion for the third quarter of 2015 |
• | Segment operating margin was 9.6 percent, up from 8.8 percent in Q3 2014 |
• | Total operating margin was 11.1 percent, up from 10.0 percent in Q3 2014 |
• | Diluted earnings per share was $2.29 for the quarter |
• | Cash and cash equivalents at the end of the quarter were $671 million |
NEWPORT NEWS, Va. (Nov. 5, 2015) - Huntington Ingalls Industries (NYSE: HII) reported third quarter 2015 revenues of $1.8 billion, up 4.8 percent compared to the same period last year. Third quarter diluted earnings per share was $2.29, compared to diluted earnings per share of $1.96 in the same period of 2014. Adjusted diluted earnings per share for the quarter was $1.98, compared to $1.67 in the same period of 2014.
Segment operating income for the third quarter was $172 million, compared to $151 million in the same period last year. Total operating income for the quarter was $200 million, compared to $171 million in the same period last year. The increase in operating income was primarily attributable to higher performance at Ingalls on the LHA-6 America-class and the LPD-17 San Antonio-class programs, as well as a favorable FAS/CAS Adjustment.
New contract awards were approximately $0.8 billion for the quarter, bringing total backlog at the end of Q3 2015 to $23.3 billion, of which $12.5 billion was funded.
"Strong execution at Ingalls resulted in solid operating performance during the quarter," said HII President and CEO Mike Petters. "We remain on track to achieve our 9-plus percent shipbuilding operating margin target for 2015."
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Third Quarter 2015 Highlights
Three Months Ended | |||||||||||
September 30 | |||||||||||
(In millions, except per share amounts) | 2015 | 2014 | $ Change | % Change | |||||||
Revenues | $ | 1,800 | $ | 1,717 | $ | 83 | 4.8 | % | |||
Segment operating income1 | 172 | 151 | 21 | 13.9 | % | ||||||
Segment operating margin %1 | 9.6 | % | 8.8 | % | 76 bps | ||||||
Total operating income | 200 | 171 | 29 | 17.0 | % | ||||||
Total operating margin % | 11.1 | % | 10.0 | % | 115 bps | ||||||
Net earnings | 111 | 96 | 15 | 15.6 | % | ||||||
Diluted earnings per share | $ | 2.29 | $ | 1.96 | $ | 0.33 | 16.8 | % | |||
Weighted-average diluted shares outstanding | 48.4 | 49.0 | |||||||||
Adjusted Net Earnings | |||||||||||
Net earnings | 111 | 96 | 15 | 15.6 | % | ||||||
After-tax FAS/CAS Adjustment2 | (18 | ) | (14 | ) | (4 | ) | 28.6 | % | |||
After-tax loss on early extinguishment of debt2 | 3 | — | 3 | — | % | ||||||
Adjusted net earnings3 | 96 | 82 | 14 | 17.1 | % | ||||||
Weighted-average diluted shares outstanding | 48.4 | 49.0 | |||||||||
Adjusted diluted earnings per share3 | $ | 1.98 | $ | 1.67 | $ | 0.31 | 18.6 | % | |||
1 Non-GAAP metric that excludes non-segment factors affecting operating income. See Exhibit B for definition and reconciliation. | |||||||||||
2 Tax effected at 35% federal statutory tax rate. | |||||||||||
3 Non-GAAP metrics - see Exhibit B for definitions and reconciliations. | |||||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 2 of 11
Operating Segment Results
Ingalls Shipbuilding
Three Months Ended | |||||||||||
September 30 | |||||||||||
($ in millions) | 2015 | 2014 | $ Change | % Change | |||||||
Revenues | $ | 593 | $ | 559 | $ | 34 | 6.1 | % | |||
Operating income (loss) | 77 | 55 | 22 | 40.0 | % | ||||||
Operating margin % | 13.0 | % | 9.8 | % | 315 bps | ||||||
Ingalls revenues for the third quarter increased $34 million, or 6.1 percent, from the same period in 2014, driven by higher revenues in Surface Combatants, partially offset by lower revenues in Amphibious Assault Ships and the National Security Cutter (NSC) program. The increase in Surface Combatants revenues was due to higher volumes on DDG-121 (unnamed) and DDG-119 Delbert D. Black. The decrease in Amphibious Assault Ships revenues was due to lower volumes on LPD-26 John P. Murtha and LPD-27 Portland, partially offset by higher volume on LHA-7 Tripoli. The decrease in the NSC program revenues was due to lower volumes on NSC-4 USCGC Hamilton and NSC-5 USCGC James, partially offset by higher volumes on NSC-8 Midgett and NSC-7 Kimball.
Ingalls operating income for the quarter was $77 million, an increase of $22 million over the same period in 2014. Ingalls operating margin was 13.0 percent for the quarter, compared to 9.8 percent in Q3 2014. These increases were primarily due to improved performance on the LHA-6 America-class and the LPD-17 San Antonio-class programs.
Key Ingalls highlights for the quarter:
• | Launched the sixth National Security Cutter, NSC-6 Munro (WMSL 755) |
• | Began construction of Arleigh Burke-class destroyer DDG-119 Delbert D. Black |
• | NSC-5 James (WMSL 754) sailed away |
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 3 of 11
Newport News Shipbuilding
Three Months Ended | |||||||||||
September 30 | |||||||||||
($ in millions) | 2015 | 2014 | $ Change | % Change | |||||||
Revenues | $ | 1,177 | $ | 1,097 | $ | 80 | 7.3 | % | |||
Operating income (loss) | 100 | 101 | (1 | ) | (1.0 | )% | |||||
Operating margin % | 8.5 | % | 9.2 | % | (71) bps | ||||||
Newport News revenues for the third quarter increased $80 million, or 7.3 percent, from the same period in 2014, driven by higher revenues in Submarines and Fleet Support services, partially offset by lower revenues in Aircraft Carriers. Submarines revenues related to the SSN-774 Virginia-class submarine program were higher due to higher volumes on Block IV boats, partially offset by lower volumes on Block III boats. The increase in Fleet Support services revenues was primarily due to higher volumes associated with Aircraft Carrier support services. The decrease in Aircraft Carrier revenues was due to lower volumes on the execution contract for the CVN-72 USS Abraham Lincoln RCOH and the construction contract for CVN-78 Gerald R. Ford, partially offset by higher volume on the construction contract for CVN-79 John F. Kennedy.
Newport News operating income for the quarter was $100 million, a $1 million decrease from the same period in 2014. Newport News operating margin was 8.5 percent for the quarter, down from 9.2 percent in Q3 2014. These decreases were due to lower performance on the construction contract for CVN-78 Gerald R. Ford and lower volumes on Aircraft Carriers RCOH programs, partially offset by higher volumes on the SSN-774 Virginia-class submarine program and the resolution of outstanding contract changes on the CVN-71 USS Theodore Roosevelt RCOH.
Key Newport News highlights for the quarter:
• | Hosted keel-laying ceremony for CVN-79 John F. Kennedy |
• | Crew moved aboard CVN-78 Gerald R. Ford |
• | Began final testing of the steam-powered systems aboard CVN-72 USS Abraham Lincoln |
• | Achieved "pressure hull complete" construction milestone on the Virginia-class submarine Washington (SSN-787) |
• | Awarded a $106 million contract for engineering and design work on the Los Angeles-, Virginia- and Ohio-class submarines, plus work related to submarine support facilities and special mission submersibles |
• | Awarded a $57.8 million contract for planning work to upgrade the Los Angeles-class submarine USS Columbus (SSN-762) |
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 4 of 11
Other
Three Months Ended | |||||||||||
September 30 | |||||||||||
($ in millions) | 2015 | 2014 | $ Change | % Change | |||||||
Revenues | $ | 30 | $ | 61 | $ | (31 | ) | (50.8 | )% | ||
Operating income (loss) | (5 | ) | (5 | ) | — | — | % | ||||
Operating margin % | (16.7 | )% | (8.2 | )% | (847) bps | ||||||
Revenues in the Other segment for the third quarter decreased $31 million, or 50.8 percent, from the same period in 2014 due to lower volumes in oil and gas services. Operating loss in the quarter was $5 million, which was consistent with the operating loss in Q3 2014.
The Company
Huntington Ingalls Industries is America’s largest military shipbuilding company and a provider of manufacturing, engineering 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 37,000 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. EST today. 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 11
Exhibit A: Financial Statements
HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
(in millions, except per share amounts) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Sales and service revenues | ||||||||||||||||
Product sales | $ | 1,461 | $ | 1,385 | $ | 4,137 | $ | 4,150 | ||||||||
Service revenues | 339 | 332 | 978 | 880 | ||||||||||||
Total sales and service revenues | 1,800 | 1,717 | 5,115 | 5,030 | ||||||||||||
Cost of sales and service revenues | ||||||||||||||||
Cost of product sales | 1,164 | 1,086 | 3,121 | 3,277 | ||||||||||||
Cost of service revenues | 292 | 278 | 846 | 743 | ||||||||||||
Income (loss) from operating investments, net | 6 | 7 | 9 | 10 | ||||||||||||
General and administrative expenses | 150 | 189 | 473 | 509 | ||||||||||||
Goodwill impairment | — | — | 59 | — | ||||||||||||
Operating income (loss) | 200 | 171 | 625 | 511 | ||||||||||||
Other income (expense) | ||||||||||||||||
Interest expense | (25 | ) | (27 | ) | (73 | ) | (83 | ) | ||||||||
Earnings (loss) before income taxes | 175 | 144 | 552 | 428 | ||||||||||||
Federal income taxes | 64 | 48 | 198 | 142 | ||||||||||||
Net earnings (loss) | $ | 111 | $ | 96 | $ | 354 | $ | 286 | ||||||||
Basic earnings (loss) per share | $ | 2.31 | $ | 1.97 | $ | 7.33 | $ | 5.85 | ||||||||
Weighted-average common shares outstanding | 48.0 | 48.7 | 48.3 | 48.9 | ||||||||||||
Diluted earnings (loss) per share | $ | 2.29 | $ | 1.96 | $ | 7.28 | $ | 5.80 | ||||||||
Weighted-average diluted shares outstanding | 48.4 | 49.0 | 48.6 | 49.3 | ||||||||||||
Dividends declared per share | $ | 0.40 | $ | 0.20 | $ | 1.20 | $ | 0.60 | ||||||||
Net earnings (loss) from above | $ | 111 | $ | 96 | $ | 354 | $ | 286 | ||||||||
Other comprehensive income (loss) | ||||||||||||||||
Change in unamortized benefit plan costs | 21 | 8 | 65 | 24 | ||||||||||||
Other | (7 | ) | (2 | ) | (7 | ) | — | |||||||||
Tax benefit (expense) for items of other comprehensive income | (4 | ) | (3 | ) | (22 | ) | (9 | ) | ||||||||
Other comprehensive income (loss), net of tax | 10 | 3 | 36 | 15 | ||||||||||||
Comprehensive income (loss) | $ | 121 | $ | 99 | $ | 390 | $ | 301 | ||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 6 of 11
HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
($ in millions) | September 30 2015 | December 31 2014 | ||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 671 | $ | 990 | ||||
Accounts receivable, net | 1,278 | 1,038 | ||||||
Inventoried costs, net | 308 | 339 | ||||||
Deferred income taxes | 126 | 129 | ||||||
Prepaid expenses and other current assets | 36 | 50 | ||||||
Total current assets | 2,419 | 2,546 | ||||||
Property, plant, and equipment, net of accumulated depreciation of $1,453 million as of 2015 and $1,351 million as of 2014 | 1,750 | 1,792 | ||||||
Goodwill | 973 | 1,026 | ||||||
Other purchased intangibles, net | 528 | 547 | ||||||
Pension plan assets | 28 | 17 | ||||||
Long-term deferred tax asset | 188 | 212 | ||||||
Miscellaneous other assets | 156 | 129 | ||||||
Total assets | $ | 6,042 | $ | 6,269 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current Liabilities | ||||||||
Trade accounts payable | $ | 296 | $ | 269 | ||||
Accrued employees’ compensation | 216 | 248 | ||||||
Current portion of long-term debt | — | 108 | ||||||
Current portion of postretirement plan liabilities | 143 | 143 | ||||||
Current portion of workers’ compensation liabilities | 226 | 221 | ||||||
Advance payments and billings in excess of revenues | 141 | 74 | ||||||
Other current liabilities | 272 | 249 | ||||||
Total current liabilities | 1,294 | 1,312 | ||||||
Long-term debt | 1,305 | 1,592 | ||||||
Pension plan liabilities | 879 | 939 | ||||||
Other postretirement plan liabilities | 513 | 507 | ||||||
Workers’ compensation liabilities | 458 | 449 | ||||||
Other long-term liabilities | 103 | 105 | ||||||
Total liabilities | 4,552 | 4,904 | ||||||
Commitments and Contingencies | — | — | ||||||
Stockholders’ Equity | ||||||||
Common stock, $0.01 par value; 150 million shares authorized; 52.0 million issued and 47.2 million outstanding as of September 30, 2015, and 51.5 million issued and 48.3 million outstanding as of December 31, 2014 | 1 | 1 | ||||||
Additional paid-in capital | 1,948 | 1,959 | ||||||
Retained earnings (deficit) | 821 | 525 | ||||||
Treasury stock | (454 | ) | (258 | ) | ||||
Accumulated other comprehensive income (loss) | (826 | ) | (862 | ) | ||||
Total stockholders’ equity | 1,490 | 1,365 | ||||||
Total liabilities and stockholders’ equity | $ | 6,042 | $ | 6,269 | ||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 7 of 11
HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30 | ||||||||
($ in millions) | 2015 | 2014 | ||||||
Operating Activities | ||||||||
Net earnings (loss) | $ | 354 | $ | 286 | ||||
Adjustments to reconcile to net cash provided by (used in) operating activities | ||||||||
Depreciation | 116 | 136 | ||||||
Amortization of purchased intangibles | 19 | 20 | ||||||
Amortization of debt issuance costs | 6 | 8 | ||||||
Stock-based compensation | 29 | 22 | ||||||
Excess tax benefit related to stock-based compensation | (11 | ) | (15 | ) | ||||
Deferred income taxes | 5 | 11 | ||||||
Proceeds from insurance settlement related to investing activities | (21 | ) | — | |||||
Goodwill impairment | 59 | — | ||||||
Loss on early extinguishment of debt | 4 | — | ||||||
Change in | ||||||||
Accounts receivable | (245 | ) | 34 | |||||
Inventoried costs | 31 | 41 | ||||||
Prepaid expenses and other assets | (39 | ) | 4 | |||||
Accounts payable and accruals | 108 | (186 | ) | |||||
Retiree benefits | (1 | ) | (48 | ) | ||||
Other non-cash transactions, net | 3 | 1 | ||||||
Net cash provided by (used in) operating activities | 417 | 314 | ||||||
Investing Activities | ||||||||
Additions to property, plant, and equipment | (86 | ) | (91 | ) | ||||
Acquisitions of businesses, net of cash received | (6 | ) | (272 | ) | ||||
Proceeds from disposition of assets | 32 | |||||||
Proceeds from insurance settlement related to investing activities | 21 | — | ||||||
Net cash provided by (used in) investing activities | (39 | ) | (363 | ) | ||||
Financing Activities | ||||||||
Repayment of long-term debt | (395 | ) | (36 | ) | ||||
Debt issuance costs | (9 | ) | — | |||||
Dividends paid | (58 | ) | (30 | ) | ||||
Repurchases of common stock | (192 | ) | (112 | ) | ||||
Employee taxes on certain share-based payment arrangements | (54 | ) | (64 | ) | ||||
Proceeds from stock option exercises | — | 2 | ||||||
Excess tax benefit related to stock-based compensation | 11 | 15 | ||||||
Net cash provided by (used in) financing activities | (697 | ) | (225 | ) | ||||
Change in cash and cash equivalents | (319 | ) | (274 | ) | ||||
Cash and cash equivalents, beginning of period | 990 | 1,043 | ||||||
Cash and cash equivalents, end of period | $ | 671 | $ | 769 | ||||
Supplemental Cash Flow Disclosure | ||||||||
Cash paid for income taxes | $ | 210 | $ | 132 | ||||
Cash paid for interest | $ | 68 | $ | 96 | ||||
Non-Cash Investing and Financing Activities | ||||||||
Capital expenditures accrued in accounts payable | $ | 3 | $ | 4 | ||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 8 of 11
Exhibit B: Reconciliations
We make reference to “segment operating income,” “segment operating margin,” “adjusted net earnings,” and “adjusted diluted earnings per share.”
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 net earnings is defined as net earnings adjusted for the tax effected impact of the loss on early extinguishment of debt in the third quarter of 2015 and the tax effected FAS/CAS Adjustment.
Adjusted diluted earnings per share is defined as 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 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 11
Reconciliation of Segment Operating Income and Segment Operating Margin
Three Months Ended | ||||||||
September 30 | ||||||||
($ in millions) | 2015 | 2014 | ||||||
Sales and Service Revenues | ||||||||
Ingalls | $ | 593 | $ | 559 | ||||
Newport News | 1,177 | 1,097 | ||||||
Other | 30 | 61 | ||||||
Total Sales and Service Revenues | 1,800 | 1,717 | ||||||
Segment Operating Income | ||||||||
Ingalls | 77 | 55 | ||||||
As a percentage of revenues | 13.0 | % | 9.8 | % | ||||
Newport News | 100 | 101 | ||||||
As a percentage of revenues | 8.5 | % | 9.2 | % | ||||
Other | (5 | ) | (5 | ) | ||||
As a percentage of revenues | (16.7 | )% | (8.2 | )% | ||||
Total Segment Operating Income | 172 | 151 | ||||||
As a percentage of revenues | 9.6 | % | 8.8 | % | ||||
Non-segment factors affecting operating income | ||||||||
FAS/CAS Adjustment | 27 | 21 | ||||||
Deferred state income taxes | 1 | (1 | ) | |||||
Total Operating Income | 200 | 171 | ||||||
Interest expense | (25 | ) | (27 | ) | ||||
Federal income taxes | (64 | ) | (48 | ) | ||||
Net Earnings | $ | 111 | $ | 96 | ||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 10 of 11
Reconciliation of Adjusted Net Earnings and Adjusted Diluted Earnings per Share
Three Months Ended | ||||||||
September 30 | ||||||||
(in millions, except per share amounts) | 2015 | 2014 | ||||||
Adjusted Net Earnings | ||||||||
Net Earnings | $ | 111 | $ | 96 | ||||
Adjustment for loss on early extinguishment of debt1 | 3 | — | ||||||
Adjustment for FAS/CAS Adjustment1 | (18 | ) | (14 | ) | ||||
Adjusted Net Earnings | $ | 96 | $ | 82 | ||||
Adjusted Diluted EPS | ||||||||
Weighted-Average Diluted Shares Outstanding | 48.4 | 49.0 | ||||||
Diluted earnings per share | $ | 2.29 | $ | 1.96 | ||||
After-tax loss on early extinguishment of debt per share | 0.06 | — | ||||||
After-tax FAS/CAS Adjustment per share | (0.37 | ) | (0.29 | ) | ||||
Adjusted Diluted EPS | $ | 1.98 | $ | 1.67 | ||||
1Tax effected at 35% federal statutory tax rate. | ||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 11 of 11
Q3 2015 Earnings Presentation November 5, 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 Third Quarter 2015 3 Revenues were $1.8 billion compared to ~$1.7 billion in Q3 2014 Segment operating margin* was 9.6% compared to 8.8% in Q3 2014 Total operating margin was 11.1% compared to 10.0% in Q3 2014 Diluted EPS was $2.29 compared to $1.96 in Q3 2014 Diluted EPS in Q3 2015 included $0.06 for the loss on early extinguishment of debt Cash from operations was $254 million; Free cash flow* was $217 million Total backlog at $23.3 billion, with $12.5 billion funded * Non-GAAP metrics. See appendix for definitions and reconciliations.
$1.96 $2.29 $1.67 $1.98 $— $0.50 $1.00 $1.50 $2.00 $2.50 Q3 2014 Q3 2015 Diluted EPS GAAP Adjusted* Third Quarter 2015 Consolidated Results 4 * Non-GAAP metrics. See appendix for definitions and reconciliations. $1,717 $1,800 $— $400 $800 $1,200 $1,600 $2,000 Q3 2014 Q3 2015 ($ in m illi on s) Revenues $171 $200 $— $50 $100 $150 $200 $250 Q3 2014 Q3 2015 ($ in m illi on s) Operating Income 10.0 % 11.1 % —% 2.0 % 4.0 % 6.0 % 8.0 % 10.0 % 12.0 % Q3 2014 Q3 2015 Operating Margin * *
Ingalls Shipbuilding 5 Ingalls revenues up 6% YoY due to increased volumes on the DDG program. Segment operating income and margin up YoY due to improved performance on the LHA, NSC and LPD programs $559 $593 $300 $350 $400 $450 $500 $550 $600 Q3 2014 Q3 2015 ($ in m illi on s) Revenues $55 $77 $— $20 $40 $60 $80 Q3 2014 Q3 2015 ($ in m illi on s) Segment Operating Income 9.8 % 13.0 % —% 2.0 % 4.0 % 6.0 % 8.0 % 10.0 % 12.0 % 14.0 % Q3 2014 Q3 2015 Segment Operating Margin
6 Newport News revenues up 7% YoY due to increased volumes on the VCS program and fleet support services. Segment operating income and margin down YoY due to lower performance on CVN-78 Gerald R. Ford and lower volumes on aircraft carriers RCOH programs. Newport News Shipbuilding $1,097 $1,177 $— $200 $400 $600 $800 $1,000 $1,200 $1,400 Q3 2014 Q3 2015 ($ in m illi on s) Revenues $101 $100 $— $20 $40 $60 $80 $100 $120 Q3 2014 Q3 2015 ($ in m illi on s) Segment Operating Income 9.2 % 8.5 % —% 2.0 % 4.0 % 6.0 % 8.0 % 10.0 % Q3 2014 Q3 2015 Segment Operating Margin
2016 FAS/CAS Adjustment Sensitivities 7 As of September 30, 2015, YTD actual return on plan assets was (3.3%) and the FAS discount rate was approximately 4.59%, 25 bps higher than year end 2014. The FAS/CAS Adjustment is equal to the pension and other post-retirement benefits cost recorded under U.S. Government Cost Accounting Standards (CAS) less the pension and other post-retirement benefits cost required to be recognized in accordance with the Financial Accounting Standards (FAS) under US GAAP. The above chart shows the impact of changes in the FAS discount rate assumption and 2015 actual plan asset rates of return on the 2016 FAS/CAS Adjustment. The final FAS discount rate and the actual rate of return on plan assets will be determined at 12/31/15. The above is not meant to represent the range of all possible outcomes. Additional factors, including changes in census data, will impact the actual 2016 FAS/CAS Adjustment. 4.00% 4.25% 4.50% 4.75% 5.00% 5.25% -4.00% 114 109 105 100 97 94 -2.00% 128 122 118 113 110 107 0.00% 141 135 130 127 123 121 2.00% 154 148 143 139 136 133 4.00% 166 161 156 152 149 146 12/31/2015 FAS Discount Rates Actual 2015 Asset Return 2016 FAS/CAS Adjustment Sensitivities ($M)
Appendix
Definitions of Non-GAAP Metrics 9 We make reference to “segment operating income,” “segment operating margin,” “adjusted net earnings,” “adjusted diluted earnings per share,” and "free cash flow." 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 net earnings is defined as net earnings adjusted for the tax effected impact of the loss on early extinguishment of debt in the third quarter of 2015 and the tax effected FAS/CAS adjustment. Adjusted diluted earnings per share is defined as adjusted net earnings divided by the weighted-average diluted common shares outstanding. Free cash flow is defined as net cash provided by (used in) operating activities less capital expenditures. 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 that we use to evaluate our core operating performance. We believe that 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 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. Free cash flow is not a measure recognized under GAAP. Free cash flow has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, analysis of our results as reported under GAAP. We believe free cash flow is an important measure for our investors because it provides them insight into our current and period-to-period performance and our ability to generate cash from continuing operations. We also use free cash flow as a key operating metric in assessing the performance of our business and as a key performance measure in evaluating management performance and determining incentive compensation. Free cash flow may not be comparable to similarly titled measures of other companies.
Reconciliation of Non-GAAP Metrics – Segment Operating Income and Segment Operating Margin ($ in millions) 2015 2014 Sales and Service Revenues Ingalls 593$ 559$ Newport News 1,177 1,097 Other 30 61 Total Sales and Service Revenues 1,800 1,717 Operating Income Ingalls 77 55 As a percentage of Ingalls revenues 13.0 % 9.8 % Newport News 100 101 As a percentage of Newport News revenues 8.5 % 9.2 % Other (5) (5) As a percentage of Other revenues (16.7)% (8.2)% Total Segment Operating Income 172 151 As a percentage of revenues 9.6 % 8.8 % Non-segment factors affecting operating income FAS/CAS Adjustment 27 21 Deferred state income taxes 1 (1) Total Operating Income 200 171 Interest expense (25) (27) Federal income taxes (64) (48) Total Net Earnings 111$ 96$ Three Months Ended September 30
Reconciliation of Non-GAAP Metrics – Adjusted Diluted EPS 11 (In millions, except per share amounts) 2015 2014 Adjusted Net Earnings (Loss) Net Earnings (Loss) 111$ 96$ Adjustment for loss on early extinguishment of debt(1) 3 — Adjustment for FAS/CAS Adjustment(1) (18) (14) Adjusted Net Earnings (Loss) 96 82 Adjusted Diluted EPS Weighted-Average Diluted Shares Outstanding 48.4 49.0 Diluted earnings (loss) per share 2.29$ 1.96$ After-tax loss on early extinguishment of debt per share 0.06 — After-tax FAS/CAS Adjustment per share (0.37) (0.29) Adjusted Diluted EPS 1.98$ 1.67$ (1) Tax effected at 35% federal statutory tax rate. Three Months Ended September 30
Reconciliation of Non-GAAP Metrics – Free Cash Flow 12 ($ in millions) 2015 2014 2015 2014 Net cash provided by (used in) operating activities 254 256 417 314 Less: Capital expenditures (37) (40) (86) (91) Free cash flow 217 216 331 223 Three Months Ended Nine Months Ended September 30 September 30