Form 8-K HUNTINGTON INGALLS INDUS For: Feb 18
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)
February 18, 2016
_____________________________________
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) | (IRS 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 February 18, 2016, Huntington Ingalls Industries, Inc. issued a press release announcing its financial results for the quarter and year ended December 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 full year and fourth quarter 2015 earnings release conference call.
Item 9.01. | Financial Statements and Exhibits. |
(d) | Exhibits. |
Exhibit No. | Description | ||
99.1 | Press Release dated February 18, 2016. | ||
99.2 | Earnings Presentation dated February 18, 2016. | ||
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: February 18, 2016 | 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 Fourth Quarter and Full Year 2015 Results
• | Revenues were $1.9 billion for the quarter; $7.0 billion for 2015 |
• | Segment operating margin was 6.5% for the quarter; 9.5% for 2015 |
• | Total operating margin was 7.6% for the quarter; 11.0% for 2015 |
• | Diluted earnings per share was $1.06 for the quarter; $8.36 for 2015 |
• | Adjusted diluted earnings per share was $1.95 for the quarter; $7.33 for 2015 |
• | Cash from operations was $411 million for the quarter; $828 million for 2015 |
• | Free cash flow was $309 million for the quarter; $640 million for 2015 |
NEWPORT NEWS, Va. (Feb. 18, 2016) - Huntington Ingalls Industries (NYSE: HII) reported fourth quarter 2015 revenues of $1.9 billion, down 1.1 percent from the same period last year. Total operating income in the quarter of $144 million and total operating margin of 7.6 percent were in line with total operating income and margin in fourth quarter 2014.
Diluted earnings per share in the quarter was $1.06, compared to $1.05 in the same period last year. Diluted earnings per share in the fourth quarters of 2015 and 2014 included the impacts of non-cash goodwill impairment charges, one-time expenses related to the early extinguishment of debt and favorable FAS/CAS Adjustments. Diluted earnings per share in fourth quarter 2015 also included the impact of a non-cash intangible asset impairment charge. Excluding these items, diluted earnings per share in the quarter was $1.95, compared to $2.19 in the same period last year.
For the full year, revenues of $7.0 billion increased 0.9 percent over 2014. Total operating income was $769 million and total operating margin was 11.0 percent for the full year, compared to $655 million and 9.4 percent, respectively, in 2014.
Diluted earnings per share for the year was $8.36, compared to $6.86 in 2014. Diluted earnings per share in 2015 and 2014 included the impacts of non-cash goodwill impairment charges, one-time expenses related to the early extinguishment of debt and favorable FAS/CAS Adjustments. Diluted earnings per share in 2015 also included the impacts of a favorable insurance litigation settlement and a non-cash intangible asset impairment charge. Excluding these items, diluted earnings per share in 2015 was $7.33, compared to $7.14 in 2014.
New business awards for 2015 were approximately $7.6 billion, of which $0.7 billion was awarded in the fourth quarter, bringing total backlog to $22.0 billion as of Dec. 31, 2015.
“2015 was a pivotal year for HII as we achieved the 9-plus percent segment operating margin goal we established when we stood up the company back in 2011,” said Mike Petters, HII’s President and CEO. “I am very pleased with the operational improvements accomplished by the team since we spun and the resulting financial performance.”
Fourth Quarter 2015 Significant Events
Goodwill Impairment Charge
During fourth quarter 2015, the company recorded a non-cash goodwill impairment charge of $16 million related to its Other segment. The impairment was a result of the continued deterioration of market fundamentals in the oil and gas services industry, driven by further declines in oil prices, numerous industry-wide project deferrals and customers' capital spending cuts.
Purchased Intangible Assets Impairment Charge
During fourth quarter 2015, the company recorded a non-cash intangible asset impairment charge of $27 million related to its Other segment. The purchased intangible assets consisted primarily of customer relationships and, to a lesser extent, trade names, and developed technology. Considering current oil and gas market conditions and expectations, the company performed an impairment test in December and determined that the carrying value of the oil and gas asset group was greater than the sum of the asset group undiscounted pre-tax cash flows generated over the useful life of the primary asset, resulting in the impairment.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 2 of 16
Results of Operations
Three Months Ended | Year Ended | ||||||||||||||||
December 31 | December 31 | ||||||||||||||||
($ in millions, except per share amounts) | 2015 | 2014 | % Change | 2015 | 2014 | % Change | |||||||||||
Sales and service revenues | $ | 1,905 | $ | 1,927 | (1.1 | )% | $ | 7,020 | $ | 6,957 | 0.9 | % | |||||
Segment operating income1 | 124 | 134 | (7.5 | )% | 667 | 585 | 14.0 | % | |||||||||
Segment operating margin %1 | 6.5 | % | 7.0 | % | (44) bps | 9.5 | % | 8.4 | % | 109 bps | |||||||
Total operating income | 144 | 144 | — | % | 769 | 655 | 17.4 | % | |||||||||
Operating margin % | 7.6 | % | 7.5 | % | 9 bps | 11.0 | % | 9.4 | % | 154 bps | |||||||
Net earnings | 50 | 52 | (3.8 | )% | 404 | 338 | 19.5 | % | |||||||||
Diluted earnings per share | $ | 1.06 | $ | 1.05 | 1.0 | % | $ | 8.36 | $ | 6.86 | 21.9 | % | |||||
Adjusted Figures | |||||||||||||||||
Sales and service revenues2 | $ | 1,905 | $ | 1,927 | (1.1 | )% | $ | 7,033 | $ | 6,957 | 1.1 | % | |||||
Segment operating income1,2,3 | $ | 167 | $ | 181 | (7.7 | )% | $ | 633 | $ | 632 | 0.2 | % | |||||
Segment operating margin %1,2,3 | 8.8 | % | 9.4 | % | (63) bps | 9.0 | % | 9.1 | % | (8) bps | |||||||
Total operating income2,3 | $ | 187 | $ | 191 | (2.1 | )% | $ | 735 | $ | 702 | 4.7 | % | |||||
Operating margin %2,3 | 9.8 | % | 9.9 | % | (10) bps | 10.5 | % | 10.1 | % | 36 bps | |||||||
Net earnings2,3,4 | 92 | 108 | (14.8 | )% | 354 | 352 | 0.6 | % | |||||||||
Diluted earnings per share2,3,4 | $ | 1.95 | $ | 2.19 | (11.0 | )% | $ | 7.33 | $ | 7.14 | 2.7 | % | |||||
1 Non-GAAP metrics that exclude non-segment factors affecting operating income. See Exhibit B for reconciliation. | |||||||||||||||||
2 Non-GAAP metrics that exclude the impact of the insurance litigation settlement in second quarter 2015. See Exhibit B for reconciliation. | |||||||||||||||||
3 Non-GAAP metrics that exclude the impact of non-cash goodwill impairment charges in second and fourth quarters 2015 and in fourth quarter 2014 and the impact of a non-cash intangible asset impairment charge in fourth quarter 2015. See Exhibit B for reconciliation. | |||||||||||||||||
4 Non-GAAP metrics that exclude the after-tax loss on early extinguishment of debt in third and fourth quarters 2015 and in fourth quarter 2014 and the after-tax FAS/CAS Adjustment. See Exhibit B for reconciliation. | |||||||||||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 3 of 16
Segment Operating Results
Ingalls Shipbuilding
Three Months Ended | Year Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
($ in millions) | 2015 | 2014 | % Change | 2015 | 2014 | % Change | ||||||||||
Revenues | $ | 580 | $ | 608 | (4.6 | )% | $ | 2,188 | $ | 2,286 | (4.3 | )% | ||||
Operating income (loss) | 59 | 72 | (18.1 | )% | 379 | 229 | 65.5 | % | ||||||||
Operating margin % | 10.2 | % | 11.8 | % | (167) bps | 17.3 | % | 10.0 | % | 730 bps | ||||||
Adjusted revenues1 | 580 | 608 | (4.6 | )% | 2,201 | 2,286 | (3.7 | )% | ||||||||
Adjusted operating income1 | 59 | 72 | (18.1 | )% | 243 | 229 | 6.1 | % | ||||||||
Adjusted operating margin %1 | 10.2 | % | 11.8 | % | (167) bps | 11.0 | % | 10.0 | % | 102 bps | ||||||
1 Non-GAAP metrics that exclude the impact of the insurance litigation settlement in second quarter of 2015. See Exhibit B for reconciliation. | ||||||||||||||||
Ingalls revenues for the fourth quarter decreased $28 million, or 4.6 percent, from the same period in 2014 due to lower revenues in the Legend-class National Security Cutter (NSC) program and Amphibious Assault Ships, partially offset by higher revenues in Surface Combatants. Lower NSC program revenues were primarily due to the deliveries of NSC-5 USCGC James and NSC-4 USCGC Hamilton, partially offset by increased volumes on NSC-8 Midgett and NSC-7 Kimball contracts. Lower Amphibious Assault Ships revenues were primarily due to decreased volumes on LPD-26 John P. Murtha and on LHA-7 Tripoli, partially offset by increased volume on LPD-27 Portland. Higher Surface Combatant revenues were due to increased volumes on DDG-121 (unnamed) and DDG-119 Delbert D. Black, partially offset by decreased volume on DDG-117 Paul Ignatius.
Ingalls operating income for the fourth quarter was $59 million, a decrease of $13 million from the same period last year. Operating margin was 10.2 percent for the quarter, compared to 11.8 percent in the same period last year. These decreases were due to lower risk retirement on the LPD program.
For the full year, Ingalls revenues decreased $98 million, or 4.3 percent, from 2014 due to lower revenues in Amphibious Assault Ships and the NSC program and an adjustment related to an insurance litigation settlement, partially offset by higher revenues in surface combatants. Lower Amphibious Assault Ships revenues were due to decreased volumes on LPD-26 John P Murtha, LPD-27 Portland and LHA-6 USS America, partially offset by increased volume on LHA-7 Tripoli. Lower NSC program revenues were due to decreased volumes on NSC-4 USCGC Hamilton and NSC-5 USCGC James, partially offset by increased volumes on NSC-7 Kimball and NSC-8 Midgett. Higher Surface Combatants revenues were due to increased volumes on DDG-119 Delbert D. Black and DDG-121 (unnamed), partially offset by decreased volumes on the DDG-1000 Zumwalt-class destroyer program.
For 2015, Ingalls operating income was $379 million, an increase of $150 million from the prior year, and operating margin was 17.3 percent for the year, which included $136 million favorable impact from an insurance litigation settlement. Adjusting for the insurance litigation settlement, operating income was $243 million, an increase of $14 million over the prior year, and operating margin was 11.0 percent, compared to 10.0 percent in 2014. These increases were primarily due to the resolution of outstanding contract changes and higher performance on the LHA-6 America-class program, and on the NSC program.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 4 of 16
Key Ingalls milestones for the quarter:
• | Received $200 million long lead time material procurement contract for amphibious transport dock LPD-28 |
• | Christened NSC-6 Munro (WMSL 755) |
• | Authenticated the keel on DDG-117 Paul Ignatius |
Newport News Shipbuilding
Three Months Ended | Year Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
($ in millions) | 2015 | 2014 | % Change | 2015 | 2014 | % Change | ||||||||||
Revenues | $ | 1,296 | $ | 1,263 | 2.6 | % | $ | 4,700 | $ | 4,536 | 3.6 | % | ||||
Operating income (loss) | 120 | 116 | 3.4 | % | 422 | 415 | 1.7 | % | ||||||||
Operating margin % | 9.3 | % | 9.2 | % | 7 bps | 9.0 | % | 9.1 | % | (17) bps | ||||||
Newport News revenues for the fourth quarter increased $33 million, or 2.6 percent, from the same period in 2014, primarily driven by higher revenues in Submarines and Fleet Support services, partially offset by lower revenues in Aircraft Carriers and Energy services. Higher Submarines revenues related to the SSN-774 Virginia-class submarine (VCS) program were due to increased volumes on Block IV boats, partially offset by decreased volumes on Block III boats. Higher Fleet Support services revenues were primarily due to increased volumes associated with Aircraft Carrier support services. Lower Aircraft Carriers revenues were due to decreased volumes on the execution contract for the CVN-72 USS Abraham Lincoln refueling and complex overhaul (RCOH) and the construction contract for CVN-78 Gerald R. Ford, partially offset by increased volume on the construction contract for CVN-79 John F. Kennedy. Lower Energy services revenues were due to decreased volumes in environmental remediation programs.
Newport News operating income for the fourth quarter was $120 million, an increase of $4 million over the same period last year, due to increased volumes on the VCS program and in Fleet Support services. Operating margin was 9.3 percent for the quarter, compared to 9.2 percent in the same period last year.
For the full year, Newport News revenues increased $164 million, or 3.6 percent, from 2014, primarily driven by higher revenues in Submarines and Fleet Support services, partially offset by lower revenues in Aircraft Carriers and Energy services. Higher Submarines revenues related to the VCS program were due to increased volumes on Block IV boats, partially offset by decreased volumes on Block III boats. Higher Fleet Support services revenues were due to increased volumes associated with Aircraft Carrier support services. Lower Aircraft Carriers revenues were primarily due to decreased 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 increased volume on the construction contract for CVN-79 John F. Kennedy. Lower Energy services revenues were due to decreased volumes in environmental remediation programs.
For 2015, Newport News operating income was $422 million, up $7 million from the prior year. The increase was due to higher performance and volumes on the VCS program and the resolution of outstanding contract changes on the CVN-71 USS Theodore Roosevelt RCOH, partially offset by lower performance on the construction contract for CVN-78 Gerald R. Ford and
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 5 of 16
lower volumes on Aircraft Carriers RCOH programs. Operating margin was 9.0 percent for the year, compared to 9.1 percent in 2014.
Other
Three Months Ended | Year Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
($ in millions) | 2015 | 2014 | % Change | 2015 | 2014 | % Change | ||||||||||
Revenues | $ | 29 | $ | 56 | (48.2 | )% | $ | 134 | $ | 137 | (2.2 | )% | ||||
Operating income (loss) | (55 | ) | (54 | ) | 1.9 | % | (134 | ) | (59 | ) | 127.1 | % | ||||
Operating margin % | (189.7 | )% | (96.4 | )% | NM | (100.0 | )% | (43.1 | )% | NM | ||||||
Adjusted operating income1 | (12 | ) | (7 | ) | 71.4 | % | (32 | ) | (12 | ) | 166.7 | % | ||||
Adjusted operating margin %1 | (41.4 | )% | (12.5 | )% | NM | (23.9 | )% | (8.8 | )% | NM | ||||||
1 Non-GAAP metrics that exclude the impact of non-cash goodwill impairment charges in second and fourth quarters 2015 and in fourth quarter 2014 and the impact of a non-cash intangible asset impairment charge in fourth quarter 2015. See Exhibit B for reconciliation. | ||||||||||||||||
Revenues in the Other segment for the fourth quarter decreased $27 million or 48.2 percent from the same period last year. The operating loss for fourth quarter 2015 was $55 million, compared to the operating loss of $54 million in fourth quarter 2014. The operating loss in fourth quarter 2015 included a $16 million non-cash goodwill impairment charge and a $27 million non-cash intangible asset impairment charge. The operating loss in fourth quarter 2014 included a $47 million non-cash goodwill impairment charge. Adjusting for these items, the operating losses in fourth quarters 2015 and 2014 were $12 million and $7 million, respectively. These losses were due to lower performance in oil and gas services.
Revenues in the Other segment for the full year were $134 million, compared to $137 million in 2014. The operating loss for the full year was $134 million, compared to an operating loss of $59 million in 2014. The operating loss in 2015 included $75 million of non-cash goodwill impairment charges and a $27 million non-cash intangible asset impairment charge. The operating loss in 2014 included a $47 million non-cash goodwill impairment charge. Adjusting for these items, the operating losses in 2015 and 2014 were $32 million and $12 million, respectively. These losses were due to lower performance in oil and gas services.
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 nearly 36,000 people operating both domestically and internationally. For more information, please 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.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 6 of 16
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 procurement processes and government regulations and our ability to comply with such requirements; our ability to deliver our products and services at an affordable life cycle cost and compete within our markets; natural disasters; adverse economic conditions in the United States and globally; changes in key estimates and assumptions regarding our pension and retiree health care costs; security threats, including cyber security threats, and related disruptions; 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 7 of 16
Exhibit A: Financial Statements
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Year Ended December 31 | ||||||||||||
($ in millions, except per share amounts) | 2015 | 2014 | 2013 | |||||||||
Sales and service revenues | ||||||||||||
Product sales | $ | 5,665 | $ | 5,712 | $ | 5,801 | ||||||
Service revenues | 1,355 | 1,245 | 1,019 | |||||||||
Total sales and service revenues | 7,020 | 6,957 | 6,820 | |||||||||
Cost of sales and service revenues | ||||||||||||
Cost of product sales | 4,319 | 4,489 | 4,695 | |||||||||
Cost of service revenues | 1,198 | 1,051 | 888 | |||||||||
Income (loss) from operating investments, net | 10 | 11 | 14 | |||||||||
General and administrative expenses | 669 | 726 | 739 | |||||||||
Goodwill impairment | 75 | 47 | — | |||||||||
Operating income (loss) | 769 | 655 | 512 | |||||||||
Other income (expense) | ||||||||||||
Interest expense | (137 | ) | (149 | ) | (118 | ) | ||||||
Other, net | — | 1 | — | |||||||||
Earnings (loss) before income taxes | 632 | 507 | 394 | |||||||||
Federal income taxes | 228 | 169 | 133 | |||||||||
Net earnings (loss) | $ | 404 | $ | 338 | $ | 261 | ||||||
Basic earnings (loss) per share | $ | 8.43 | $ | 6.93 | $ | 5.25 | ||||||
Weighted-average common shares outstanding | 47.9 | 48.8 | 49.7 | |||||||||
Diluted earnings (loss) per share | $ | 8.36 | $ | 6.86 | $ | 5.18 | ||||||
Weighted-average diluted shares outstanding | 48.3 | 49.3 | 50.4 | |||||||||
Net earnings (loss) from above | $ | 404 | $ | 338 | $ | 261 | ||||||
Other comprehensive income (loss) | ||||||||||||
Change in unamortized benefit plan costs | 34 | (558 | ) | 1,159 | ||||||||
Other | (5 | ) | — | 4 | ||||||||
Tax benefit (expense) for items of other comprehensive income | (12 | ) | 217 | (458 | ) | |||||||
Other comprehensive income (loss), net of tax | 17 | (341 | ) | 705 | ||||||||
Comprehensive income (loss) | $ | 421 | $ | (3 | ) | $ | 966 | |||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 8 of 16
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 31 | ||||||||
($ in millions) | 2015 | 2014 | ||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 894 | $ | 990 | ||||
Accounts receivable, net | 1,074 | 1,038 | ||||||
Inventoried costs, net | 285 | 339 | ||||||
Prepaid expenses and other current assets | 31 | 50 | ||||||
Total current assets | 2,284 | 2,417 | ||||||
Property, Plant, and Equipment | ||||||||
Land and land improvements | 242 | 233 | ||||||
Buildings and leasehold improvements | 1,579 | 1,498 | ||||||
Machinery and other equipment | 1,315 | 1,240 | ||||||
Capitalized software costs | 180 | 172 | ||||||
3,316 | 3,143 | |||||||
Accumulated depreciation and amortization | (1,489 | ) | (1,351 | ) | ||||
Property, plant, and equipment, net | 1,827 | 1,792 | ||||||
Other Assets | ||||||||
Goodwill | 956 | 1,026 | ||||||
Other intangible assets, net | 495 | 547 | ||||||
Pension plan assets | — | 17 | ||||||
Long-term deferred tax assets | 336 | 341 | ||||||
Miscellaneous other assets | 126 | 99 | ||||||
Total other assets | 1,913 | 2,030 | ||||||
Total assets | $ | 6,024 | $ | 6,239 | ||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 9 of 16
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION - CONTINUED
December 31 | ||||||||
($ in millions) | 2015 | 2014 | ||||||
Liabilities and Stockholders' Equity | ||||||||
Current Liabilities | ||||||||
Trade accounts payable | $ | 317 | $ | 269 | ||||
Accrued employees’ compensation | 215 | 248 | ||||||
Current portion of long-term debt | — | 108 | ||||||
Current portion of postretirement plan liabilities | 143 | 143 | ||||||
Current portion of workers’ compensation liabilities | 227 | 221 | ||||||
Advance payments and billings in excess of revenues | 125 | 74 | ||||||
Other current liabilities | 247 | 249 | ||||||
Total current liabilities | 1,274 | 1,312 | ||||||
Long-term debt | 1,273 | 1,562 | ||||||
Pension plan liabilities | 1,001 | 939 | ||||||
Other postretirement plan liabilities | 423 | 507 | ||||||
Workers’ compensation liabilities | 460 | 449 | ||||||
Other long-term liabilities | 103 | 105 | ||||||
Total liabilities | 4,534 | 4,874 | ||||||
Commitments and Contingencies | ||||||||
Stockholders’ Equity | ||||||||
Common stock, $0.01 par value; 150 million shares authorized; 52.0 million issued and 46.9 million outstanding as of December 31, 2015, and 51.5 million issued and 48.3 million outstanding as of December 31, 2014 | 1 | 1 | ||||||
Additional paid-in capital | 1,978 | 1,959 | ||||||
Retained earnings (deficit) | 848 | 525 | ||||||
Treasury stock | (492 | ) | (258 | ) | ||||
Accumulated other comprehensive income (loss) | (845 | ) | (862 | ) | ||||
Total stockholders’ equity | 1,490 | 1,365 | ||||||
Total liabilities and stockholders’ equity | $ | 6,024 | $ | 6,239 | ||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 10 of 16
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 | ||||||||||||
($ in millions) | 2015 | 2014 | 2013 | |||||||||
Operating Activities | ||||||||||||
Net earnings (loss) | $ | 404 | $ | 338 | $ | 261 | ||||||
Adjustments to reconcile to net cash provided by (used in) operating activities | ||||||||||||
Depreciation | 154 | 166 | 206 | |||||||||
Amortization of purchased intangibles | 26 | 28 | 20 | |||||||||
Amortization of debt issuance costs | 8 | 11 | 9 | |||||||||
Stock-based compensation | 43 | 34 | 44 | |||||||||
Excess tax benefit related to stock-based compensation | (33 | ) | (39 | ) | (24 | ) | ||||||
Deferred income taxes | (15 | ) | (22 | ) | (28 | ) | ||||||
Proceeds from insurance settlement related to investing activities | (21 | ) | — | (58 | ) | |||||||
Impairment of goodwill and intangible assets | 102 | 47 | — | |||||||||
Loss on early extinguishment of debt | 44 | 37 | — | |||||||||
Change in | ||||||||||||
Accounts receivable | (41 | ) | 140 | (218 | ) | |||||||
Inventoried costs | 54 | 53 | 51 | |||||||||
Prepaid expenses and other assets | (31 | ) | 7 | (15 | ) | |||||||
Accounts payable and accruals | 97 | (86 | ) | 69 | ||||||||
Retiree benefits | 32 | (4 | ) | (86 | ) | |||||||
Other non-cash transactions, net | 5 | 6 | 5 | |||||||||
Net cash provided by (used in) operating activities | 828 | 716 | 236 | |||||||||
Investing Activities | ||||||||||||
Additions to property, plant, and equipment | (188 | ) | (165 | ) | (139 | ) | ||||||
Proceeds from disposition of assets | 32 | — | — | |||||||||
Acquisitions of businesses, net of cash received | (6 | ) | (272 | ) | — | |||||||
Proceeds from insurance settlement related to investing activities | 21 | — | 58 | |||||||||
Net cash provided by (used in) investing activities | (141 | ) | (437 | ) | (81 | ) | ||||||
Financing Activities | ||||||||||||
Proceeds from issuance of long-term debt | 600 | 600 | — | |||||||||
Repayment of long-term debt | (995 | ) | (679 | ) | (51 | ) | ||||||
Debt issuance costs | (21 | ) | (12 | ) | (5 | ) | ||||||
Tender premiums and fees related to early extinguishment of debt | (33 | ) | (31 | ) | — | |||||||
Dividends paid | (81 | ) | (49 | ) | (25 | ) | ||||||
Repurchases of common stock | (232 | ) | (138 | ) | (119 | ) | ||||||
Employee taxes on certain share-based payment arrangements | (54 | ) | (64 | ) | — | |||||||
Proceeds from stock option exercises | — | 2 | 7 | |||||||||
Excess tax benefit related to stock-based compensation | 33 | 39 | 24 | |||||||||
Net cash provided by (used in) financing activities | (783 | ) | (332 | ) | (169 | ) | ||||||
Change in cash and cash equivalents | (96 | ) | (53 | ) | (14 | ) | ||||||
Cash and cash equivalents, beginning of period | 990 | 1,043 | 1,057 | |||||||||
Cash and cash equivalents, end of period | $ | 894 | $ | 990 | $ | 1,043 | ||||||
Supplemental Cash Flow Disclosure | ||||||||||||
Cash paid for income taxes | $ | 242 | $ | 161 | $ | 154 | ||||||
Cash paid for interest | $ | 96 | $ | 113 | $ | 109 | ||||||
Non-Cash Investing and Financing Activities | ||||||||||||
Capital expenditures accrued in accounts payable | $ | 17 | $ | 9 | $ | 12 | ||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 11 of 16
Exhibit B: Reconciliations
We make reference to “segment operating income,” “segment operating margin,” “adjusted sales and service revenues,” “adjusted segment operating income,” “adjusted segment operating margin,” “adjusted total operating income,” “adjusted operating margin,” “adjusted net earnings,” “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 sales and service revenues.
Adjusted sales and service revenues is defined as sales and service revenues adjusted for the impact of the insurance litigation settlement in the second quarter of 2015.
Adjusted segment operating income is defined as segment operating income adjusted for the impacts of the insurance litigation settlement in 2015, the non-cash intangible asset impairment charge in 2015 and the non-cash goodwill impairment charges in 2015 and 2014.
Adjusted segment operating margin is defined as adjusted segment operating income as a percentage of adjusted sales and service revenues.
Adjusted total operating income is defined as total operating income adjusted for the impacts of the insurance litigation settlement in, the non-cash intangible asset impairment charge in 2015 and the non-cash goodwill impairment charges in 2015 and 2014.
Adjusted operating margin is defined as adjusted total operating income as a percentage of adjusted sales and service revenues.
Adjusted net earnings is defined as net earnings adjusted for the tax effected impact of the insurance litigation settlement in 2015, the tax effected impact of the non-cash intangible asset impairment charge in 2015, the tax effected impact of the non-cash goodwill impairment charges in 2015 and 2014, the tax effected impact of the loss on early extinguishment of debt in 2015 and 2014 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
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 12 of 16
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 total operating income, adjusted operating margin, adjusted segment operating income, adjusted segment 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.
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.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 13 of 16
Reconciliation of Segment Operating Income and Segment Operating Margin
Three Months Ended | Year Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
($ in millions) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Sales and Service Revenues | ||||||||||||||||
Ingalls revenues | $ | 580 | $ | 608 | $ | 2,188 | $ | 2,286 | ||||||||
Newport News revenues | 1,296 | 1,263 | 4,700 | 4,536 | ||||||||||||
Other revenues | 29 | 56 | 134 | 137 | ||||||||||||
Intersegment eliminations | — | — | (2 | ) | (2 | ) | ||||||||||
Total Sales and Service Revenues | 1,905 | 1,927 | 7,020 | 6,957 | ||||||||||||
Segment Operating Income | ||||||||||||||||
Ingalls | 59 | 72 | 379 | 229 | ||||||||||||
As a percentage of Ingalls revenues | 10.2 | % | 11.8 | % | 17.3 | % | 10.0 | % | ||||||||
Newport News | 120 | 116 | 422 | 415 | ||||||||||||
As a percentage of Newport News revenues | 9.3 | % | 9.2 | % | 9.0 | % | 9.1 | % | ||||||||
Other | (55 | ) | (54 | ) | (134 | ) | (59 | ) | ||||||||
As a percentage of Other revenues | (189.7 | )% | (96.4 | )% | (100.0 | )% | (43.1 | )% | ||||||||
Total Segment Operating Income | 124 | 134 | 667 | 585 | ||||||||||||
As a percentage of revenues | 6.5 | % | 7.0 | % | 9.5 | % | 8.4 | % | ||||||||
Non-segment factors affecting operating income: | ||||||||||||||||
FAS/CAS Adjustment | 22 | 8 | 104 | 72 | ||||||||||||
Deferred state income taxes | (2 | ) | 2 | (2 | ) | (2 | ) | |||||||||
Total Operating Income | 144 | 144 | 769 | 655 | ||||||||||||
Interest expense | (64 | ) | (66 | ) | (137 | ) | (149 | ) | ||||||||
Other, net | — | 1 | — | 1 | ||||||||||||
Federal income taxes | (30 | ) | (27 | ) | (228 | ) | (169 | ) | ||||||||
Net Earnings | $ | 50 | $ | 52 | $ | 404 | $ | 338 | ||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 14 of 16
Reconciliation of Adjusted Sales and Service Revenues, Adjusted Segment Operating Income, Adjusted Segment Operating Margin, Adjusted Total Operating Income and Adjusted Operating Margin
Three Months Ended | Year Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
($ in millions) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Adjusted Sales and Service Revenues | ||||||||||||||||
Ingalls revenues | $ | 580 | $ | 608 | $ | 2,188 | $ | 2,286 | ||||||||
Adjustment for insurance litigation settlement | — | — | 13 | — | ||||||||||||
Adjusted Ingalls revenues | 580 | 608 | 2,201 | 2,286 | ||||||||||||
Newport News revenues | 1,296 | 1,263 | 4,700 | 4,536 | ||||||||||||
Other revenues | 29 | 56 | 134 | 137 | ||||||||||||
Intersegment eliminations | — | — | (2 | ) | (2 | ) | ||||||||||
Adjusted Sales and Service Revenues | $ | 1,905 | $ | 1,927 | $ | 7,033 | $ | 6,957 | ||||||||
Adjusted Segment Operating Income | ||||||||||||||||
Total operating income | $ | 144 | $ | 144 | $ | 769 | $ | 655 | ||||||||
As a percentage of revenues | 7.6 | % | 7.5 | % | 11.0 | % | 9.4 | % | ||||||||
Non-segment factors affecting operating income: | ||||||||||||||||
FAS/CAS Adjustment | (22 | ) | (8 | ) | (104 | ) | (72 | ) | ||||||||
Deferred state income taxes | 2 | (2 | ) | 2 | 2 | |||||||||||
Unadjusted Segment Operating Income | $ | 124 | $ | 134 | $ | 667 | $ | 585 | ||||||||
As a percentage of revenues | 6.5 | % | 7.0 | % | 9.5 | % | 8.4 | % | ||||||||
Non-recurring items affecting operating income: | ||||||||||||||||
Ingalls operating income | $ | 59 | $ | 72 | $ | 379 | $ | 229 | ||||||||
Adjustment for insurance litigation settlement | — | — | (136 | ) | — | |||||||||||
Adjusted Ingalls operating income | 59 | 72 | 243 | 229 | ||||||||||||
As a percentage of adjusted Ingalls revenues | 10.2 | % | 11.8 | % | 11.0 | % | 10.0 | % | ||||||||
Newport News operating income | 120 | 116 | 422 | 415 | ||||||||||||
As a percentage of Newport News revenues | 9.3 | % | 9.2 | % | 9.0 | % | 9.1 | % | ||||||||
Other operating income | (55 | ) | (54 | ) | (134 | ) | (59 | ) | ||||||||
Adjustment for impairment of goodwill | 16 | 47 | 75 | 47 | ||||||||||||
Adjustment for impairment of intangible assets | 27 | — | 27 | — | ||||||||||||
Adjusted Other operating income | (12 | ) | (7 | ) | (32 | ) | (12 | ) | ||||||||
As a percentage of Other revenues | (41.4 | )% | (12.5 | )% | (23.9 | )% | (8.8 | )% | ||||||||
Adjusted Segment Operating Income | $ | 167 | $ | 181 | $ | 633 | $ | 632 | ||||||||
As a percentage of adjusted revenues | 8.8 | % | 9.4 | % | 9.0 | % | 9.1 | % | ||||||||
Adjusted Total Operating Income | ||||||||||||||||
Total operating income | $ | 144 | $ | 144 | $ | 769 | $ | 655 | ||||||||
As a percentage of revenues | 7.6 | % | 7.5 | % | 11.0 | % | 9.4 | % | ||||||||
Adjustment for insurance litigation settlement | — | — | (136 | ) | — | |||||||||||
Adjustment for impairment of goodwill | 16 | 47 | 75 | 47 | ||||||||||||
Adjustment for impairment of intangible assets | 27 | — | 27 | — | ||||||||||||
Adjusted Total Operating Income | $ | 187 | $ | 191 | $ | 735 | $ | 702 | ||||||||
As a percentage of adjusted revenues | 9.8 | % | 9.9 | % | 10.5 | % | 10.1 | % | ||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 15 of 16
Reconciliation of Adjusted Net Earnings and Adjusted Diluted Earnings per Share
Three Months Ended | Year Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
($ in millions, except for per share amounts) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Adjusted Net Earnings | ||||||||||||||||
Net Earnings | $ | 50 | $ | 52 | $ | 404 | $ | 338 | ||||||||
Adjustment for insurance litigation settlement1 | — | — | (88 | ) | — | |||||||||||
Adjustment for impairment of goodwill2 | 12 | 37 | 59 | 37 | ||||||||||||
Adjustment for impairment of intangible assets1 | 18 | — | 18 | — | ||||||||||||
Adjustment for loss on early extinguishment of debt1 | 26 | 24 | 29 | 24 | ||||||||||||
Adjustment for FAS/CAS Adjustment1 | (14 | ) | (5 | ) | (68 | ) | (47 | ) | ||||||||
Adjusted Net Earnings | $ | 92 | $ | 108 | $ | 354 | $ | 352 | ||||||||
Weighted-Average Diluted Shares Outstanding | 47.3 | 49.3 | 48.3 | 49.3 | ||||||||||||
Adjusted Diluted EPS | ||||||||||||||||
Diluted earnings per share | $ | 1.06 | $ | 1.05 | $ | 8.36 | $ | 6.86 | ||||||||
After-tax insurance litigation settlement per share | — | — | (1.82 | ) | — | |||||||||||
After-tax impairment of goodwill per share | 0.25 | 0.75 | 1.22 | 0.75 | ||||||||||||
After-tax impairment of intangible assets per share | 0.38 | — | 0.37 | — | ||||||||||||
After-tax loss on early extinguishment of debt per share | 0.55 | 0.49 | 0.60 | 0.49 | ||||||||||||
After-tax FAS/CAS Adjustment per share | (0.29 | ) | (0.10 | ) | (1.40 | ) | (0.96 | ) | ||||||||
Adjusted Diluted EPS | $ | 1.95 | $ | 2.19 | $ | 7.33 | $ | 7.14 | ||||||||
1 Tax effected at 35% federal statutory tax rate. | ||||||||||||||||
2 The goodwill impairment charges created $4 million, $16 million and $10 million Federal tax benefits in Q4 2015, 2015 and 2014, respectively. | ||||||||||||||||
Reconciliation of Free Cash Flow
Three Months Ended | Year Ended | |||||||||||
December 31 | December 31 | |||||||||||
($ in millions) | 2015 | 2014 | 2015 | 2014 | ||||||||
Net cash provided by (used in) operating activities | 411 | 402 | 828 | 716 | ||||||||
Less: | ||||||||||||
Capital expenditures | (102 | ) | (74 | ) | (188 | ) | (165 | ) | ||||
Free cash flow | 309 | 328 | 640 | 551 | ||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 16 of 16
Q4 2015 Earnings Presentation February 18, 2016 Mike Petters President and Chief Executive Officer Barb Niland Corporate Vice President, Business Management and Chief Financial Officer Chris Kastner Corporate Vice President and General Manager Corporate Development 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 procurement processes and government regulations and our ability to comply with such requirements; our ability to deliver our products and services at an affordable life cycle cost and compete within our markets; natural disasters; adverse economic conditions in the United States and globally; changes in key estimates and assumptions regarding our pension and retiree health care costs; security threats, including cyber security threats, and related disruptions; 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 not be construed as being more important than comparable GAAP measures.
Highlights from Q4 and FY 2015 3 Revenues were $1.9 billion for the quarter and $7.0 billion for the year Diluted EPS was $1.06 for the quarter and $8.36 for the year Adjusted Diluted EPS* was $1.95 for the quarter and $7.33 for the year Strong segment operating performance: Ingalls operating margin** was 10.2% for the quarter and 11.0% for the year Newport News operating margin** was 9.3% for the quarter and 9.0% for the year Delivered Virginia-class submarine SSN-785 John Warner and NSC-5 James $7.6 billion of new contract awards in FY 2015 bringing total backlog at the end of the year to $22.0 billion * Non-GAAP metric that excludes the after-tax effects of the insurance litigation settlement, the goodwill impairment charges, the intangible asset impairment charge, the loss on early extinguishment of debt and the FAS/CAS Adjustment in 2015 and the after-tax effects of the goodwill impairment charge, the loss on early extinguishment of debt and the FAS/CAS Adjustment in 2014. See appendix for reconciliation. ** Non-GAAP metrics that exclude non-segment factors affecting operating income. See appendix for reconciliation.
Q4 2015 Consolidated Results 4 * Non-GAAP metrics that exclude the impacts of the non-cash goodwill impairment charge and the non-cash intangible asset impairment charge. See appendix for reconciliation. ** Non-GAAP metric that excludes the after-tax effects of the goodwill impairment charge, the intangible asset impairment charge, the loss on early extinguishment of debt and the FAS/CAS Adjustment. See appendix for reconciliation. $1,927 $1,905 $— $500 $1,000 $1,500 $2,000 $2,500 Q4 2014 Q4 2015 ($ In M illi on s) Consolidated Revenues $144 $144 $191 $187 $— $70 $140 $210 Q4 2014 Q4 2015 (S In M illi on s) Operating Income GAAP Adjusted* 7.5% 7.6% 9.9% 9.8% —% 2.0 % 4.0 % 6.0 % 8.0 % 10.0 % 12.0 % Q4 2014 Q4 2015 Operating Margin GAAP Adjusted* $1.05 $1.06 $2.19 $1.95 $— $0.50 $1.00 $1.50 $2.00 $2.50 Q4 2014 Q4 2015 Diluted EPS GAAP Adjusted**
FY 2015 Consolidated Results 5 $6,957 $7,020 $6,957 $7,033 $— $2,000 $4,000 $6,000 $8,000 FY 2014 FY 2015 (S In M illi on s) Consolidated Revenues GAAP Adjusted* $655 $769 $702 $735 $— $300 $600 $900 FY 2014 FY 2015 ($ In M illi on s) Operating Income GAAP Adjusted** 9.4% 11.0% 10.1% 10.5% —% 2.0 % 4.0 % 6.0 % 8.0 % 10.0 % 12.0 % FY 2014 FY 2015 Operating Margin GAAP Adjusted** $6.86 $8.36 $7.14 $7.33 $— $2.50 $5.00 $7.50 $10.00 FY 2014 FY 2015 Diluted EPS GAAP Adjusted*** * Non-GAAP metric that excludes the impact of the insurance litigation settlement in 2015. See appendix for reconciliation. ** Non-GAAP metrics that exclude the impacts of the insurance litigation settlement and the non-cash goodwill and intangible asset impairment charges in 2015 and the non-cash goodwill impairment charge in 2014. See appendix for reconciliation. *** Non-GAAP metric that excludes the after-tax effects of the insurance litigation settlement, the non-cash goodwill and intangible asset impairment charges, the loss on early extinguishment of debt and the FAS/CAS Adjustment in 2015 and the after-tax effects of the non-cash goodwill impairment charge, the loss on early extinguishment of debt and the FAS/CAS Adjustment in 2014. See appendix for reconciliation.
Ingalls Shipbuilding – Q4 2015 Results 6 Ingalls Q4 revenues declined YoY on deliveries of NSC-4 and NSC-5 and lower volumes on LPD 26. Q4 operating income and margin were down YoY due to lower risk retirement on the LPD program. $608 $580 $— $175 $350 $525 $700 Q4 2014 Q4 2015 ($ In M illi on s) Revenues $72 $59 $— $20 $40 $60 $80 Q4 2014 Q4 2015 ($ In M illi on s) Operating Income 11.8% 10.2% —% 3.0 % 6.0 % 9.0 % 12.0 % 15.0 % Q4 2014 Q4 2015 Operating Margin
* Non-GAAP metrics that exclude the impact of the insurance litigation settlement in 2015. See appendix for reconciliation. Ingalls Shipbuilding – FY 2015 Results 7 Ingalls 2015 revenues declined YoY due to lower volumes on amphibious assault ships and the NSC program. Ingalls 2015 operating income and margin increased due to higher performance on both the LHA-6 America-class and the NSC programs as well as the favorable resolution of outstanding contract changes. $2,286 $2,188 $2,286 $2,201 $— $500 $1,000 $1,500 $2,000 $2,500 FY 2014 FY 2015 ($ In M illi on s) Revenues GAAP Adjusted* $229 $379 $229 $243 $— $100 $200 $30 $400 FY 2014 FY 2015 ($ In M illi on s) Operating Income GAAP Adjusted* 10.0% 17.3% 10.0% 11.0% —% 5.0 % 10.0 % 15.0 % 20.0 % FY 2014 FY 2015 Operating Margin GAAP Adjusted*
Newport News Shipbuilding – Q4 and FY 2015 Results 8 Newport News revenues and operating income increased for the quarter and year on higher volumes on the VCS program and in Fleet Support services. Operating margin for the quarter and full year was similar to fourth quarter and full year 2014. $1,263 $4,536 $1,296 $4,700 $— $1,000 $2,000 $3,000 $4,000 $5,000 Q4 2014 Q4 2015 FY 2014 FY 2015 ($ In M illi on s) Revenues $116 $415 $120 $422 $— $100 $200 $300 $400 $500 Q4 2014 Q4 2015 FY 2014 FY 2015 ($ In M illi on s) Operating Income 9.2% 9.1%9.3% 9.0% —% 4.0 % 8.0 % 12.0 % Q4 2014 Q4 2015 FY 2014 FY 2015 Operating Margin
Other Segment – Q4 2015 Results 9 Other Segment Q4 revenue declined YoY on lower volumes in oil and gas services. Operating losses increased YoY due to lower volumes in oil and gas services and restructuring costs. Approximately half of the adjusted operating loss in the quarter was due to restructuring. $56 $29 $— $10 $20 $30 $40 $50 $60 Q4 2014 Q4 2015 ($ In M illi on s) Revenues $(54) $(55) $(7) $(12) $(60) $(40) $(20) $— $20 ($ In M illi on s) Operating Loss GAAP Adjusted* Q4 2015 Q4 2014 * Non-GAAP metric that excludes the impacts of the non-cash intangible asset impairment charge in 2015 and the non-cash goodwill impairment charges in 2015 and 2014. See appendix for reconciliation.
Other – FY 2015 Results 10 $137 $134 $— $40 $80 $120 $160 FY 2014** FY 2015 ($ In M illi on s) Revenues $(59) $(134) $(12) $(32) $(150) $(100) $(50) $— $50 ($ In M illi on s) Operating Loss GAAP Adjusted* FY 2014 FY 2015 * Non-GAAP metric that excludes the impacts of the non-cash intangible asset impairment charge in 2015 and the non-cash goodwill impairment charges in 2015 and 2014. See appendix for reconciliation. ** HII acquired UPI on May 30, 2014. Revenues and operating loss represent the 7 months of ownership in 2014. Other Segment 2015 revenue declined YoY on lower volumes in oil and gas services. Operating losses increased YoY due to lower volumes in oil and gas services and restructuring costs. Approximately one-third of the adjusted operating loss in year was due to restructuring. **
2016 Expectations 11 Revenues Relatively flat to 2015 Segment Operating Margin in Shipbuilding 9+% Deferred State Income Tax $10 - $15 Million Expense Interest Expense ~$75 Million Effective Tax Rate 33.5% - 34.5% Range Capital Expenditures 3.5% - 4.5% of Revenues
2016 FAS/CAS Guidance 12 ($ in millions) 2016 2015 Pension Discount Rate 4.73% 4.34% Expected Long-Term Return on Assets 7.50% 7.50% CAS Recovery in excess of cash contribution1,2 $88 $136 Net FAS/CAS Adjustment1 $137 $104 CAS1 $298 $272 FAS1 ($161) ($168) 1 Includes pension & other postretirement benefits. Projected and subject to change during 2016. 2 2016 cash contribution of $210 million includes $173 million of discretionary pension contributions and $37 million of post retirement benefits contribution.
U n sa ve d Docum e n t / 1 2 /2 9 /1 0 / 1 0 :0 2 Appendix
Reconciliations 14 We make reference to “segment operating income,” “segment operating margin,” “adjusted sales and service revenues,” “adjusted segment operating income,” “adjusted segment operating margin,” “adjusted total operating income,” “adjusted operating margin,” “adjusted net earnings,” “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 sales and service revenues. Adjusted sales and service revenues is defined as sales and service revenues adjusted for the impact of the insurance litigation settlement in the second quarter of 2015. Adjusted segment operating income is defined as segment operating income adjusted for the impacts of the insurance litigation settlement in 2015, the non-cash intangible asset impairment charge in 2015 and the non-cash goodwill impairment charges in 2015 and 2014. Adjusted segment operating margin is defined as adjusted segment operating income as a percentage of adjusted sales and service revenues. Adjusted total operating income is defined as total operating income adjusted for the impacts of the insurance litigation settlement in, the non-cash intangible asset impairment charge in 2015 and the non-cash goodwill impairment charges in 2015 and 2014. Adjusted operating margin is defined as adjusted total operating income as a percentage of adjusted sales and service revenues. Adjusted net earnings is defined as net earnings adjusted for the tax effected impact of the insurance litigation settlement in 2015, the tax effected impact of the non-cash intangible asset impairment charge in 2015, the tax effected impact of the non-cash goodwill impairment charges in 2015 and 2014, the tax effected impact of the loss on early extinguishment of debt in 2015 and 2014 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.
Reconciliations Cont’d 15 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 sales and service revenues, adjusted total operating income, adjusted operating margin, adjusted segment operating income, adjusted segment 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. 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 – Segment Operating Income and Segment Operating Margin 16 ($ in millions) 2015 2014 2015 2014 Sales and Service Revenues Ingalls revenues 580$ 608$ 2,188$ 2,286$ Newport News revenues 1,296 1,263 4,700 4,536 Other revenues 29 56 134 137 Intersegment eliminations — — (2) (2) Total Sales and Service Revenues 1,905 1,927 7,020 6,957 Segment Operating Income Ingalls 59 72 379 229 As a percentage of Ingalls revenues 10.2 % 11.8 % 17.3 % 10.0 % Newport News 120 116 422 415 As a percentage of Newport News revenues 9.3 % 9.2 % 9.0 % 9.1 % Other (55) (54) (134) (59) As a percentage of Other revenues (189.7)% (96.4)% (100.0)% (43.1)% Total Segment Operating Income 124 134 667 585 As a percentage of revenues 6.5 % 7.0 % 9.5 % 8.4 % Non-segment factors affecting operating income: FAS/CAS Adjustment 22 8 104 72 Deferred state income taxes (2) 2 (2) (2) Total Operating Income 144 144 769 655 Interest expense (64) (66) (137) (149) Other, net — 1 — 1 Federal income taxes (30) (27) (228) (169) Net Earnings 50$ 52$ 404$ 338$ Three Months Ended Year Ended December 31 December 31
17 Reconciliation – Adjusted Sales and Services Revenues ($ in millions) 2015 2014 2015 2014 Adjusted Sales and Service Revenues Ingalls revenues 580$ 608$ 2,188$ 2,286$ Adjustment for insurance litigation settlement — — 13 — Adjusted Ingalls revenues 580 608 2,201 2,286 Newport News revenues 1,296 1,263 4,700 4,536 Other revenues 29 56 134 137 Intersegment eliminations — — (2) (2) Adjusted Sales and Service Revenues 1,905$ 1,927$ 7,033$ 6,957$ Three Months Ended Year Ended December 31 December 31
Reconciliation – Adjusted Segment Operating Income & Adjusted Segment Operating Margin 18 ($ in millions) 2015 2014 2015 2014 Adjusted Segment Operating Income Total operating income 144$ 144$ 769$ 655$ As a percentage of revenues 7.6 % 7.5 % 11.0 % 9.4 % Non-segment factors affecting operating income: FAS/CAS Adjustment (22) (8) (104) (72) Deferred state income taxes 2 (2) 2 2 Unadjusted Segment Operating Income 124$ 134$ 667$ 585$ As a percentage of revenues 6.5 % 7.0 % 9.5 % 8.4 % Non-recurring items affecting operating income: Ingalls operating income 59$ 72$ 379$ 229$ Adjustment for insurance litigation settlement — — (136) — Adjusted Ingalls operating income 59 72 243 229 As a percentage of adjusted Ingalls revenues 10.2 % 11.8 % 11.0 % 10.0 % Newport News operating income 120 116 422 415 As a percentage of Newport News revenues 9.3 % 9.2 % 9.0 % 9.1 % Other operating income (55) (54) (134) (59) Adjustment for impairment of goodwill 16 47 75 47 Adjustment for impairment of intangible assets 27 — 27 — Adjusted Other operating income (12) (7) (32) (12) As a percentage of Other revenues (41.4)% (12.5)% (23.9)% (8.8)% Adjusted Segment Operating Income 167$ 181$ 633$ 632$ Three Months Ended Year Ended December 31 December 31
Reconciliation – Adjusted Total Operating Income & Adjusted Total Operating Margin 19 ($ in millions) 2015 2014 2015 2014 Total operating income 144$ 144$ 769$ 655$ As a percentage of revenues 7.6 % 7.5 % 11.0 % 9.4 % Adjustment for insurance litigation settlement — — (136) — Adjustment for impairment of goodwill 16 47 75 47 Adjustment for impairment of intangible assets 27 — 27 — Adjusted Total Operating Income 187$ 191$ 735$ 702$ As a percentage of adjusted revenues 9.8 % 9.9 % 10.5 % 10.1 % Three Months Ended Year Ended December 31 December 31
Reconciliation – Adjusted Net Earnings and Adjusted Diluted EPS 20 1 Tax effected at 35% federal statutory tax rate. 2 The goodwill impairment charges created $4 million, $16 million and $10 million Federal tax benefit for Q4 2015, 2015 and 2014, respectively. ($ in millions) 2015 2014 2015 2014 Adjusted Net Earnings Net Earnings 50$ 52$ 404$ 338$ Adjustment for insurance litigation settlement1 — — (88) — Adjustment for impairment of goodwill2 12 37 59 37 Adjustment for impairment of intangible assets1 18 — 18 — Adjustment for loss on early extinguishment of debt1 26 24 29 24 Adjustment for FAS/CAS Adjustment1 (14) (5) (68) (47) Adjusted Net Earnings 92$ 108$ 354$ 352$ Weighted-Average Diluted Shares Outstanding 47.3 49.3 48.3 49.3 Adjusted Diluted EPS Diluted earnings per share 1.06$ 1.05$ 8.36$ 6.86$ After-tax insurance litigation settlement per share — — (1.82) — After-tax impairment of goodwill per share 0.25 0.75 1.22 0.75 After-tax impairment of intangible assets per share 0.38 — 0.37 — After-tax loss on early extinguishment of debt per share 0.55 0.49 0.60 0.49 After-tax FAS/CAS Adjustment per share (0.29) (0.10) (1.40) (0.96) Adjusted Diluted EPS 1.95$ 2.19$ 7.33$ 7.14$ Three Months Ended Year Ended December 31 December 31
Reconciliation – Free Cash Flow 21 $ in millions 2015 2014 2015 2014 Net cash provided by (used in) operating activities 411$ 402$ 828$ 716$ Less: Capital expenditures (102) (74) (188) (165) Free cash flow 309$ 328$ 640$ 551$ Three Months Ended Year Ended December 31 December 31