Form 8-K HUNTINGTON INGALLS INDUS For: Aug 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)
August 4, 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 August 4, 2016, Huntington Ingalls Industries, Inc. issued a press release announcing its financial results for the quarter ended June 30, 2016. 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 second quarter 2016 earnings release conference call.
Item 9.01. | Financial Statements and Exhibits. |
(d) | Exhibits. |
Exhibit No. | Description | ||
99.1 | Press Release dated August 4, 2016. | ||
99.2 | Earnings Presentation dated August 4, 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: August 4, 2016 | By: | /s/ Christopher D. Kastner | ||||
Christopher D. Kastner | ||||||
Executive 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 Second Quarter 2016 Results
• | Revenues were $1.70 billion |
• | Operating margin was 12.8% |
• | Segment operating margin was 10.8% |
• | Diluted earnings per share was $2.80 |
• | Cash and cash equivalents at the end of the quarter were $852 million |
NEWPORT NEWS, Va. (Aug. 4, 2016) - Huntington Ingalls Industries (NYSE: HII) reported second quarter 2016 revenues of $1.7 billion, down 2.6 percent from the same period last year. Diluted earnings per share in the quarter was $2.80, compared to $3.20 in the same period of 2015. Diluted earnings per share in the second quarter of 2015 included a favorable insurance litigation settlement of $1.80 per share and a goodwill impairment charge of $0.96 per share.
Operating income in the quarter was $217 million, compared to $269 million in the same period last year. Operating margin in the quarter was 12.8 percent, compared to 15.4 percent in the same period last year. Operating income and margin in the second quarter of 2015 included a favorable insurance litigation settlement of $136 million and a goodwill impairment charge of $59 million. Adjusting for these items, adjusted operating income in the quarter increased $25 million to $217 million from $192 million in the second quarter of last year, and adjusted operating margin in the quarter increased 184 basis points to 12.8 percent, from 10.9 percent in the second quarter of 2015. These increases were primarily driven by strong operating performance at Ingalls Shipbuilding and the favorable FAS/CAS Adjustment.
New business awards for the quarter were approximately $900 million, bringing total backlog to $20.5 billion as of June 30, 2016.
“We delivered another quarter of solid operating results driven by strong program execution at Ingalls,” said Mike Petters, HII’s president and CEO. “We had a very strong first half of the year. However, the second half will be challenging at Newport News as we continue to work through the test program on CVN-78 Gerald R. Ford and get the ship ready for sea trials and delivery, while Ingalls focuses on delivering DDG-113 John Finn and NSC-6 Munro.”
Results of Operations
Three Months Ended | Six Months Ended | ||||||||||||||||
June 30 | June 30 | ||||||||||||||||
(in millions, except per share amounts) | 2016 | 2015 | % Change | 2016 | 2015 | % Change | |||||||||||
Sales and service revenues | $ | 1,700 | $ | 1,745 | (2.6 | )% | $ | 3,463 | $ | 3,315 | 4.5 | % | |||||
Operating income | 217 | 269 | (19.3 | )% | 415 | 425 | (2.4 | )% | |||||||||
Operating margin % | 12.8 | % | 15.4 | % | (265) bps | 12.0 | % | 12.8 | % | (84) bps | |||||||
Segment operating income1 | 184 | 243 | (24.3 | )% | 350 | 371 | (5.7 | )% | |||||||||
Segment operating margin %1 | 10.8 | % | 13.9 | % | (310) bps | 10.1 | % | 11.2 | % | (108) bps | |||||||
Net earnings | 133 | 156 | (14.7 | )% | 269 | 243 | 10.7 | % | |||||||||
Diluted earnings per share | $ | 2.80 | $ | 3.20 | (12.5 | )% | $ | 5.68 | $ | 4.99 | 13.8 | % | |||||
Weighted-average diluted shares outstanding | 47.5 | 48.8 | 47.4 | 48.7 | |||||||||||||
Adjusted sales and service revenues2 | $ | 1,700 | $ | 1,758 | (3.3 | )% | $ | 3,463 | $ | 3,328 | 4.1 | % | |||||
Adjusted operating income2,3 | 217 | 192 | 13.0 | % | 415 | 348 | 19.3 | % | |||||||||
Adjusted operating margin %2,3 | 12.8 | % | 10.9 | % | 184 bps | 12.0 | % | 10.5 | % | 153 bps | |||||||
Adjusted segment operating income1,2,3 | 184 | 166 | 10.8 | % | 350 | 294 | 19.0 | % | |||||||||
Adjusted segment operating margin %1,2,3 | 10.8 | % | 9.4 | % | 138 bps | 10.1 | % | 8.8 | % | 127 bps | |||||||
Adjusted net earnings4 | 110 | 97 | 13.4 | % | 224 | 166 | 34.9 | % | |||||||||
Adjusted diluted earnings per share4 | $ | 2.32 | $ | 1.99 | 16.6 | % | $ | 4.73 | $ | 3.41 | 38.7 | % | |||||
1 Non-GAAP measures that exclude non-segment factors affecting operating income. See Exhibit B for reconciliations. | |||||||||||||||||
2 Non-GAAP measures that exclude the impact of an insurance litigation settlement at the Ingalls segment in second quarter 2015. See Exhibit B for reconciliations. | |||||||||||||||||
3 Non-GAAP measures that exclude the impact of a goodwill impairment charge at the Other segment in second quarter 2015. See Exhibit B for reconciliations. | |||||||||||||||||
4 Non-GAAP measures that exclude the after-tax impacts of the FAS/CAS Adjustment in 2016 and 2015 and the after-tax impacts of the insurance litigation settlement at the Ingalls segment and the goodwill impairment charge at the Other segment in second quarter 2015. See Exhibit B for reconciliations. | |||||||||||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 2 of 14
Segment Operating Results
Ingalls Shipbuilding
Three Months Ended | Six Months Ended | ||||||||||||||||
June 30 | June 30 | ||||||||||||||||
($ in millions) | 2016 | 2015 | % Change | 2016 | 2015 | % Change | |||||||||||
Revenues | $ | 585 | $ | 546 | 7.1 | % | $ | 1,171 | $ | 1,015 | 15.4 | % | |||||
Segment operating income1 | 88 | 198 | (55.6 | )% | 170 | 243 | (30.0 | )% | |||||||||
Segment operating margin %1 | 15.0 | % | 36.3 | % | NM3 | 14.5 | % | 23.9 | % | NM3 | |||||||
Adjusted revenues1,2 | 585 | 559 | 4.7 | % | 1,171 | 1,028 | 13.9 | % | |||||||||
Adjusted segment operating income1,2 | 88 | 62 | 41.9 | % | 170 | 107 | 58.9 | % | |||||||||
Adjusted segment operating margin %1,2 | 15.0 | % | 11.1 | % | 395 bps | 14.5 | % | 10.4 | % | 411 bps | |||||||
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. | |||||||||||||||||
2 Non-GAAP measures that exclude the impact of the insurance litigation settlement in second quarter 2015. See Exhibit B for reconciliations. | |||||||||||||||||
3 NM means the % change is "not meaningful". | |||||||||||||||||
Ingalls revenues for the second quarter increased $39 million, or 7.1 percent, from the same period in 2015, due to higher revenues in Surface Combatants and Amphibious Assault Ships, partially offset by lower revenues in the Legend-class National Security Cutter (NSC) program and an unfavorable $13 million impact in second quarter 2015 from an insurance litigation settlement. Adjusting for the insurance litigation settlement, Ingalls adjusted revenues in the second quarter of 2016 of $585 million increased $26 million, or 4.7 percent, from the same period last year. Higher Surface Combatant revenues were primarily due to increased volumes on DDG-121 Frank E. Petersen Jr., DDG-123 Lenah H. Sutcliffe Higbee and planning yard services, partially offset by lower volume on DDG-113 John Finn. Higher Amphibious Assault Ships revenues were primarily due to increased volumes on LPD-28 Ft. Lauderdale and LHA-7 Tripoli, partially offset by decreased volume on LPD-27 Portland. Lower NSC program revenues were primarily due to the delivery of NSC-5 USCGC James in 2015 and decreased volume on NSC-6 Munro, partially offset by increased volume on NSC-8 Midgett.
Ingalls segment operating income for the second quarter was $88 million, a decrease of $110 million from the same period last year. Segment operating margin in the quarter was 15.0 percent, compared to 36.3 percent in the same period last year. Segment operating income and margin in the second quarter of 2015 included an insurance litigation settlement of $136 million. Adjusting for the insurance litigation settlement, Ingalls adjusted segment operating income in second quarter 2016 of $88 million increased $26 million from the second quarter of 2015, and segment operating margin of 15.0 percent increased 395 basis points from the same period last year. These increases were primarily due to higher risk retirement on the LPD program, partially offset by lower risk retirement on the NSC program.
Key Ingalls milestones for the quarter:
• | Awarded a $272 million planning, advanced engineering and long-lead material contract for the construction of the amphibious assault ship LHA-8 |
• | Awarded the majority of the manhours to perform contract design work for the U.S. Navy's amphibious warfare ship replacement LX(R) |
• | Delivered LPD-26 John P. Murtha to the U.S. Navy |
• | Christened LPD-27 Portland and DDG-114 Ralph Johnson |
• | Authenticated the keel on DDG-119 Delbert D. Black |
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 3 of 14
Newport News Shipbuilding
Three Months Ended | Six Months Ended | ||||||||||||||||
June 30 | June 30 | ||||||||||||||||
($ in millions) | 2016 | 2015 | % Change | 2016 | 2015 | % Change | |||||||||||
Revenues | $ | 1,090 | $ | 1,166 | (6.5 | )% | $ | 2,243 | $ | 2,227 | 0.7 | % | |||||
Segment operating income1 | 102 | 109 | (6.4 | )% | 191 | 202 | (5.4 | )% | |||||||||
Segment operating margin %1 | 9.4 | % | 9.3 | % | NM2 | 8.5 | % | 9.1 | % | (56) bps | |||||||
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. | |||||||||||||||||
2 NM means the % change is "not meaningful". | |||||||||||||||||
Newport News revenues for the second quarter decreased $76 million, or 6.5 percent, from the same period in 2015, primarily driven by lower revenues in Aircraft Carriers, Submarines and Energy. Lower Aircraft Carriers revenues were due to decreased volumes on the construction contract for CVN-78 Gerald R. Ford and the execution contract for the CVN-72 USS Abraham Lincoln refueling and complex overhaul (RCOH), partially offset by increased volumes on the construction contract for CVN-79 John F. Kennedy and the advanced planning contract for the CVN-73 USS George Washington RCOH. Lower Submarines revenues related to the SSN-774 Virginia-class submarine (VCS) program were due to decreased volumes on Block III boats, partially offset by increased volumes on Block IV boats. Lower Energy revenues were due to decreased volumes associated with environmental remediation programs.
Newport News segment operating income for the second quarter was $102 million, a decrease of $7 million from the same period last year. The decrease was primarily due to lower risk retirement on the VCS program and lower volumes on the execution contract for the CVN-72 USS Abraham Lincoln RCOH and CVN-78 Gerald R. Ford, partially offset by higher volume on CVN-79 John F. Kennedy. Segment operating margin was 9.4 percent for the quarter, compared to 9.3 percent in the same period last year.
Key Newport News milestones for the quarter:
• | Performed a turn ship for CVN-78 Gerald R. Ford, rotating the ship 180 degrees and docking it back to the pier |
• | Awarded a $152 million advanced planning contract for the construction of CVN-80 Enterprise |
• | Hosted keel-laying ceremony for Virginia-class submarine SSN-791 Delaware |
• | Placed a 965-ton superlift into the dry dock, continuing construction of CVN-79 Kennedy. The superlift was built with more than twice the amount of the outfitting accomplished on CVN-78 Gerald R. Ford. |
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 4 of 14
Other
Three Months Ended | Six Months Ended | ||||||||||||||||
June 30 | June 30 | ||||||||||||||||
($ in millions) | 2016 | 2015 | % Change | 2016 | 2015 | % Change | |||||||||||
Revenues | $ | 27 | $ | 35 | (22.9 | )% | $ | 51 | $ | 75 | (32.0 | )% | |||||
Segment operating (loss)1 | (6 | ) | (64 | ) | (90.6 | )% | (11 | ) | (74 | ) | (85.1 | )% | |||||
Segment operating margin %1 | (22.2 | )% | (182.9 | )% | NM3 | (21.6 | )% | (98.7 | )% | NM3 | |||||||
Adjusted segment operating (loss)1,2 | (6 | ) | (5 | ) | 20.0 | % | (11 | ) | (15 | ) | (26.7 | )% | |||||
Adjusted segment operating margin %1,2 | (22.2 | )% | (14.3 | )% | NM3 | (21.6 | )% | (20.0 | )% | (157) bps | |||||||
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. | |||||||||||||||||
2 Non-GAAP measures that exclude the impact of a goodwill impairment charge in second quarter 2015. See Exhibit B for reconciliation. | |||||||||||||||||
3 NM means the % change is "not meaningful". | |||||||||||||||||
Revenues in the Other segment for the second quarter decreased $8 million, or 22.9 percent, from the same period last year, primarily due to lower volumes in oil and gas services and contract mix. The segment operating loss for the quarter was $6 million, compared to a segment operating loss of $64 million in the same period last year. The segment operating loss in the second quarter of 2015 included a goodwill impairment charge of $59 million. Adjusting for the goodwill impairment charge, the adjusted segment operating loss in the second quarter of 2015 was $5 million.
About Huntington Ingalls Industries
Huntington Ingalls Industries is America’s largest military shipbuilding company and a provider of engineering, manufacturing and management services to the nuclear energy, oil and gas markets. For more than a century, HII’s Newport News and Ingalls shipbuilding divisions in Virginia and Mississippi have built more ships in more ship classes than any other U.S. naval shipbuilder. Headquartered in Newport News, Virginia, HII employs nearly 35,000 people operating both domestically and internationally. For more information, please visit www.huntingtoningalls.com.
Conference Call Information
Huntington Ingalls Industries will webcast its earnings conference call at 9 a.m. ET 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. A telephone replay of the conference call will be available from 12 p.m. today through Thursday, Aug. 11 by calling toll-free (855) 859-2056 or (404) 537-3406 and using conference ID 42801557.
Forward-Looking Statements
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
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 5 of 14
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. This release 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.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 6 of 14
Exhibit A: Financial Statements
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||
(in millions, except per share amounts) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Sales and service revenues | ||||||||||||||||
Product sales | $ | 1,364 | $ | 1,426 | $ | 2,793 | $ | 2,676 | ||||||||
Service revenues | 336 | 319 | 670 | 639 | ||||||||||||
Sales and service revenues | 1,700 | 1,745 | 3,463 | 3,315 | ||||||||||||
Cost of sales and service revenues | ||||||||||||||||
Cost of product sales | 1,043 | 972 | 2,182 | 1,957 | ||||||||||||
Cost of service revenues | 290 | 274 | 579 | 554 | ||||||||||||
Income (loss) from operating investments, net | 1 | 2 | 1 | 3 | ||||||||||||
General and administrative expenses | 151 | 173 | 288 | 323 | ||||||||||||
Goodwill impairment | — | 59 | — | 59 | ||||||||||||
Operating income (loss) | 217 | 269 | 415 | 425 | ||||||||||||
Other income (expense) | ||||||||||||||||
Interest expense | (18 | ) | (25 | ) | (37 | ) | (48 | ) | ||||||||
Other, net | — | — | (2 | ) | — | |||||||||||
Earnings (loss) before income taxes | 199 | 244 | 376 | 377 | ||||||||||||
Federal income taxes | 66 | 88 | 107 | 134 | ||||||||||||
Net earnings (loss) | $ | 133 | $ | 156 | $ | 269 | $ | 243 | ||||||||
Basic earnings (loss) per share | $ | 2.83 | $ | 3.22 | $ | 5.72 | $ | 5.02 | ||||||||
Weighted-average common shares outstanding | 47.0 | 48.5 | 47.0 | 48.4 | ||||||||||||
Diluted earnings (loss) per share | $ | 2.80 | $ | 3.20 | $ | 5.68 | $ | 4.99 | ||||||||
Weighted-average diluted shares outstanding | 47.5 | 48.8 | 47.4 | 48.7 | ||||||||||||
Dividends declared per share | $ | 0.50 | $ | 0.40 | $ | 1.00 | $ | 0.80 | ||||||||
Net earnings (loss) from above | $ | 133 | $ | 156 | $ | 269 | $ | 243 | ||||||||
Other comprehensive income (loss) | ||||||||||||||||
Change in unamortized benefit plan costs | 19 | 22 | 39 | 44 | ||||||||||||
Other | — | 2 | — | — | ||||||||||||
Tax benefit (expense) for items of other comprehensive income | (7 | ) | (11 | ) | (15 | ) | (18 | ) | ||||||||
Other comprehensive income (loss), net of tax | 12 | 13 | 24 | 26 | ||||||||||||
Comprehensive income (loss) | $ | 145 | $ | 169 | $ | 293 | $ | 269 | ||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 7 of 14
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
($ in millions) | June 30, 2016 | December 31, 2015 | ||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 852 | $ | 894 | ||||
Accounts receivable, net | 1,022 | 1,074 | ||||||
Inventoried costs, net | 280 | 285 | ||||||
Prepaid expenses and other current assets | 43 | 31 | ||||||
Total current assets | 2,197 | 2,284 | ||||||
Property, plant, and equipment, net of accumulated depreciation of $1,555 million as of 2016 and $1,489 million as of 2015 | 1,813 | 1,827 | ||||||
Goodwill | 956 | 956 | ||||||
Other intangible assets, net of accumulated amortization of $476 million as of 2016 and $465 million as of 2015 | 484 | 495 | ||||||
Deferred tax asset | 282 | 336 | ||||||
Miscellaneous other assets | 127 | 126 | ||||||
Total assets | $ | 5,859 | $ | 6,024 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current Liabilities | ||||||||
Trade accounts payable | $ | 252 | $ | 317 | ||||
Accrued employees’ compensation | 197 | 215 | ||||||
Current portion of postretirement plan liabilities | 142 | 143 | ||||||
Current portion of workers’ compensation liabilities | 228 | 227 | ||||||
Advance payments and billings in excess of revenues | 100 | 125 | ||||||
Other current liabilities | 222 | 247 | ||||||
Total current liabilities | 1,141 | 1,274 | ||||||
Long-term debt | 1,276 | 1,273 | ||||||
Pension plan liabilities | 856 | 1,001 | ||||||
Other postretirement plan liabilities | 424 | 423 | ||||||
Workers’ compensation liabilities | 462 | 460 | ||||||
Other long-term liabilities | 88 | 103 | ||||||
Total liabilities | 4,247 | 4,534 | ||||||
Commitments and Contingencies | ||||||||
Stockholders’ Equity | ||||||||
Common stock, $0.01 par value; 150 million shares authorized; 52.6 million shares issued and 46.9 million shares outstanding as of June 30, 2016, and 52.0 million shares issued and 46.9 million shares outstanding as of December 31, 2015 | 1 | 1 | ||||||
Additional paid-in capital | 1,939 | 1,978 | ||||||
Retained earnings (deficit) | 1,069 | 848 | ||||||
Treasury stock | (576 | ) | (492 | ) | ||||
Accumulated other comprehensive income (loss) | (821 | ) | (845 | ) | ||||
Total stockholders’ equity | 1,612 | 1,490 | ||||||
Total liabilities and stockholders’ equity | $ | 5,859 | $ | 6,024 | ||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 8 of 14
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30 | ||||||||
($ in millions) | 2016 | 2015 | ||||||
Operating Activities | ||||||||
Net earnings (loss) | $ | 269 | $ | 243 | ||||
Adjustments to reconcile to net cash provided by (used in) operating activities | ||||||||
Depreciation | 83 | 77 | ||||||
Amortization of purchased intangibles | 11 | 13 | ||||||
Amortization of debt issuance costs | 3 | 5 | ||||||
Stock-based compensation | 11 | 21 | ||||||
Deferred income taxes | 39 | (12 | ) | |||||
Proceeds from insurance settlement related to investing activities | — | (21 | ) | |||||
Goodwill impairment | — | 59 | ||||||
Change in | ||||||||
Accounts receivable | 52 | (211 | ) | |||||
Inventoried costs | 5 | 20 | ||||||
Prepaid expenses and other assets | (13 | ) | (9 | ) | ||||
Accounts payable and accruals | (130 | ) | 25 | |||||
Retiree benefits | (106 | ) | (33 | ) | ||||
Other non-cash transactions, net | (1 | ) | (1 | ) | ||||
Net cash provided by (used in) operating activities | 223 | 176 | ||||||
Investing Activities | ||||||||
Additions to property, plant, and equipment | (85 | ) | (49 | ) | ||||
Acquisitions of businesses, net of cash received | — | (6 | ) | |||||
Proceeds from disposition of assets | 4 | 32 | ||||||
Proceeds from insurance settlement related to investing activities | — | 21 | ||||||
Net cash provided by (used in) investing activities | (81 | ) | (2 | ) | ||||
Financing Activities | ||||||||
Repayment of long-term debt | — | (21 | ) | |||||
Dividends paid | (48 | ) | (39 | ) | ||||
Repurchases of common stock | (86 | ) | (90 | ) | ||||
Employee taxes on certain share-based payment arrangements | (50 | ) | (54 | ) | ||||
Net cash provided by (used in) financing activities | (184 | ) | (204 | ) | ||||
Change in cash and cash equivalents | (42 | ) | (30 | ) | ||||
Cash and cash equivalents, beginning of period | 894 | 990 | ||||||
Cash and cash equivalents, end of period | $ | 852 | $ | 960 | ||||
Supplemental Cash Flow Disclosure | ||||||||
Cash paid for income taxes | $ | 123 | $ | 131 | ||||
Cash paid for interest | $ | 36 | $ | 45 | ||||
Non-Cash Investing and Financing Activities | ||||||||
Capital expenditures accrued in accounts payable | $ | 2 | $ | 3 | ||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 9 of 14
Exhibit B: Non-GAAP Measures Definitions & Reconciliations
We make reference to “segment operating income (loss),” “segment operating margin,” “adjusted sales and service revenues,” “adjusted segment operating income (loss),” “adjusted segment operating margin,” “adjusted operating income,” “adjusted operating margin,” “adjusted net earnings,” and “adjusted diluted earnings per share."
We internally manage our operations by reference to "segment operating income (loss)" and "segment operating margin," which are not recognized measures under GAAP. When analyzing our operating performance, investors should use segment operating income (loss) and segment operating margin in addition to, and not as alternatives for, operating income and operating margin or any other performance measure presented in accordance with GAAP. They are measures that we use to evaluate our core operating performance. We believe that segment operating income (loss) and segment operating margin reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results, provide 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 (loss) and segment operating margin may not be comparable to similarly titled measures of other companies.
Adjusted sales and service revenues, adjusted operating income, adjusted operating margin, adjusted segment operating income (loss), 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 measures are useful to investors because they exclude items that do not reflect our core operating performance. They may not be comparable to similarly titled measures of other companies.
Segment operating income (loss) is defined as operating income (loss) for the relevant segment(s) before the FAS/CAS Adjustment and deferred state income taxes.
Segment operating margin is defined as segment operating income (loss) 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 at the Ingalls segment in second quarter 2015.
Adjusted segment operating income (loss) is defined as segment operating income (loss) adjusted for the impacts of the insurance litigation settlement at the Ingalls segment and the goodwill impairment charge at the Other segment in second quarter 2015.
Adjusted segment operating margin is defined as adjusted segment operating income (loss) as a percentage of adjusted sales and service revenues.
Adjusted operating income is defined as operating income adjusted for the impacts of the insurance litigation settlement at the Ingalls segment and the goodwill impairment charge at the Other segment in second quarter 2015.
Adjusted operating margin is defined as adjusted operating income as a percentage of adjusted sales and service revenues.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 10 of 14
Adjusted net earnings is defined as net earnings adjusted for the after-tax impacts of the insurance litigation settlement at the Ingalls segment and the goodwill impairment charge at the Other segment in second quarter 2015 and the FAS/CAS Adjustment.
Adjusted diluted earnings per share is defined as adjusted net earnings divided by the weighted-average diluted common shares outstanding.
FAS/CAS Adjustment is defined as the difference between our pension and postretirement plan expense under GAAP Financial Accounting Standards and the same expense under U.S. Cost Accounting Standards (CAS). Our pension and postretirement plan expense is charged to our contracts under CAS.
Deferred state income taxes are defined as the change in deferred state tax assets and liabilities in the relevant period. These amounts are recorded within operating income, while the current period state income tax expenses are charged to contract costs and included in segment operating income.
We present financial measures adjusted for the FAS/CAS Adjustment and deferred state income tax to reflect the company’s performance based upon the pension costs and state tax expense charged to our contracts under CAS. We use these adjusted measures as internal measures of operating performance and for performance-based compensation decisions.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 11 of 14
Reconciliation of Segment Operating Income and Segment Operating Margin
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||
($ in millions) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Sales and Service Revenues | ||||||||||||||||
Ingalls revenues | $ | 585 | $ | 546 | $ | 1,171 | $ | 1,015 | ||||||||
Newport News revenues | 1,090 | 1,166 | 2,243 | 2,227 | ||||||||||||
Other revenues | 27 | 35 | 51 | 75 | ||||||||||||
Intersegment eliminations | (2 | ) | (2 | ) | (2 | ) | (2 | ) | ||||||||
Sales and Service Revenues | 1,700 | 1,745 | 3,463 | 3,315 | ||||||||||||
Segment Operating Income | ||||||||||||||||
Ingalls | 88 | 198 | 170 | 243 | ||||||||||||
As a percentage of Ingalls revenues | 15.0 | % | 36.3 | % | 14.5 | % | 23.9 | % | ||||||||
Newport News | 102 | 109 | 191 | 202 | ||||||||||||
As a percentage of Newport News revenues | 9.4 | % | 9.3 | % | 8.5 | % | 9.1 | % | ||||||||
Other | (6 | ) | (64 | ) | (11 | ) | (74 | ) | ||||||||
As a percentage of Other revenues | (22.2 | )% | (182.9 | )% | (21.6 | )% | (98.7 | )% | ||||||||
Segment Operating Income | 184 | 243 | 350 | 371 | ||||||||||||
As a percentage of sales and service revenues | 10.8 | % | 13.9 | % | 10.1 | % | 11.2 | % | ||||||||
Non-segment factors affecting operating income: | ||||||||||||||||
FAS/CAS Adjustment | 35 | 28 | 70 | 55 | ||||||||||||
Deferred state income taxes | (2 | ) | (2 | ) | (5 | ) | (1 | ) | ||||||||
Operating Income | 217 | 269 | 415 | 425 | ||||||||||||
Interest expense | (18 | ) | (25 | ) | (37 | ) | (48 | ) | ||||||||
Other, net | — | — | (2 | ) | — | |||||||||||
Federal income taxes | (66 | ) | (88 | ) | (107 | ) | (134 | ) | ||||||||
Net Earnings | $ | 133 | $ | 156 | $ | 269 | $ | 243 | ||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 12 of 14
Reconciliation of Adjusted Sales and Service Revenues, Adjusted Segment Operating Income, Adjusted Segment Operating Margin, Adjusted Operating Income and Adjusted Operating Margin
Three Months Ended | Six Months Ended | |||||||||||||||
June 30 | June 30 | |||||||||||||||
($ in millions) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Adjusted Sales and Service Revenues | ||||||||||||||||
Ingalls revenues | $ | 585 | $ | 546 | $ | 1,171 | $ | 1,015 | ||||||||
Adjustment for insurance litigation settlement | — | 13 | — | 13 | ||||||||||||
Ingalls adjusted revenues | 585 | 559 | 1,171 | 1,028 | ||||||||||||
Newport News revenues | 1,090 | 1,166 | 2,243 | 2,227 | ||||||||||||
Other revenues | 27 | 35 | 51 | 75 | ||||||||||||
Intersegment eliminations | (2 | ) | (2 | ) | (2 | ) | (2 | ) | ||||||||
Adjusted Sales and Service Revenues | $ | 1,700 | $ | 1,758 | $ | 3,463 | $ | 3,328 | ||||||||
Adjusted Segment Operating Income | ||||||||||||||||
Operating Income | $ | 217 | $ | 269 | $ | 415 | $ | 425 | ||||||||
As a percentage of sales and service revenues | 12.8 | % | 15.4 | % | 12.0 | % | 12.8 | % | ||||||||
Non-segment factors affecting operating income: | ||||||||||||||||
FAS/CAS Adjustment | (35 | ) | (28 | ) | (70 | ) | (55 | ) | ||||||||
Deferred state income taxes | 2 | 2 | 5 | 1 | ||||||||||||
Unadjusted Segment Operating Income | $ | 184 | $ | 243 | $ | 350 | $ | 371 | ||||||||
As a percentage of sales and service revenues | 10.8 | % | 13.9 | % | 10.1 | % | 11.2 | % | ||||||||
Adjustments affecting segment operating income (loss): | ||||||||||||||||
Ingalls segment operating income | $ | 88 | $ | 198 | $ | 170 | $ | 243 | ||||||||
Adjustment for insurance litigation settlement | — | (136 | ) | — | (136 | ) | ||||||||||
Ingalls adjusted segment operating income | 88 | 62 | 170 | 107 | ||||||||||||
As a percentage of Ingalls adjusted revenues | 15.0 | % | 11.1 | % | 14.5 | % | 10.4 | % | ||||||||
Newport News segment operating income | 102 | 109 | 191 | 202 | ||||||||||||
As a percentage of Newport News revenues | 9.4 | % | 9.3 | % | 8.5 | % | 9.1 | % | ||||||||
Other segment operating (loss) | (6 | ) | (64 | ) | (11 | ) | (74 | ) | ||||||||
Adjustment for goodwill impairment | — | 59 | — | 59 | ||||||||||||
Other adjusted segment operating (loss) | (6 | ) | (5 | ) | (11 | ) | (15 | ) | ||||||||
As a percentage of Other revenues | (22.2 | )% | (14.3 | )% | (21.6 | )% | (20.0 | )% | ||||||||
Adjusted Segment Operating Income | $ | 184 | $ | 166 | $ | 350 | $ | 294 | ||||||||
As a percentage of adjusted sales and service revenues | 10.8 | % | 9.4 | % | 10.1 | % | 8.8 | % | ||||||||
Adjusted Operating Income | ||||||||||||||||
Operating Income | $ | 217 | $ | 269 | $ | 415 | $ | 425 | ||||||||
As a percentage of sales and service revenues | 12.8 | % | 15.4 | % | 12.0 | % | 12.8 | % | ||||||||
Adjustment for insurance litigation settlement | — | (136 | ) | — | (136 | ) | ||||||||||
Adjustment for goodwill impairment | — | 59 | — | 59 | ||||||||||||
Adjusted Operating Income | $ | 217 | $ | 192 | $ | 415 | $ | 348 | ||||||||
As a percentage of adjusted sales and service revenues | 12.8 | % | 10.9 | % | 12.0 | % | 10.5 | % | ||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 13 of 14
Reconciliation of Adjusted Net Earnings
Three Months Ended | Six Months Ended | |||||||||||||||
June 30 | June 30 | |||||||||||||||
($ in millions) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Adjusted Net Earnings | ||||||||||||||||
Net Earnings | $ | 133 | $ | 156 | $ | 269 | $ | 243 | ||||||||
After-tax adjustment for insurance litigation settlement (1) | — | (88 | ) | — | (88 | ) | ||||||||||
After-tax adjustment for goodwill impairment charge (2) | — | 47 | — | 47 | ||||||||||||
After-tax adjustment for FAS/CAS Adjustment (3) | (23 | ) | (18 | ) | (45 | ) | (36 | ) | ||||||||
Adjusted Net Earnings | $ | 110 | $ | 97 | $ | 224 | $ | 166 | ||||||||
Reconciliation of Adjusted Diluted Earnings per Share
Three Months Ended | Six Months Ended | |||||||||||||||
June 30 | June 30 | |||||||||||||||
(in millions, except for per share amounts) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Adjusted Diluted EPS | ||||||||||||||||
Diluted earnings per share | $ | 2.80 | $ | 3.20 | $ | 5.68 | $ | 4.99 | ||||||||
After-tax insurance litigation settlement per share (1) | — | (1.80 | ) | — | (1.81 | ) | ||||||||||
After-tax impairment of goodwill per share (2) | — | 0.96 | — | 0.97 | ||||||||||||
After-tax FAS/CAS Adjustment per share (3) | (0.48 | ) | (0.37 | ) | (0.95 | ) | (0.74 | ) | ||||||||
Adjusted Diluted EPS | $ | 2.32 | $ | 1.99 | $ | 4.73 | $ | 3.41 | ||||||||
(1) Insurance litigation settlement | — | (136 | ) | — | (136 | ) | ||||||||||
Tax effect at 35% statutory rate* | — | 48 | — | 48 | ||||||||||||
After-tax effect | — | (88 | ) | — | (88 | ) | ||||||||||
Weighted-Average Diluted Shares Outstanding | 47.5 | 48.8 | 47.4 | 48.7 | ||||||||||||
Per share impact** | — | (1.80 | ) | — | (1.81 | ) | ||||||||||
(2) Goodwill impairment charge | — | 59 | — | 59 | ||||||||||||
Discrete federal tax impact* | — | (12 | ) | — | (12 | ) | ||||||||||
After-tax effect | — | 47 | — | 47 | ||||||||||||
Weighted-Average Diluted Shares Outstanding | 47.5 | 48.8 | 47.4 | 48.7 | ||||||||||||
Per share impact** | — | 0.96 | — | 0.97 | ||||||||||||
(3) FAS/CAS Adjustment | (35 | ) | (28 | ) | (70 | ) | (55 | ) | ||||||||
Tax effect at 35% statutory rate* | 12 | 10 | 25 | 19 | ||||||||||||
After-tax effect | (23 | ) | (18 | ) | (45 | ) | (36 | ) | ||||||||
Weighted-Average Diluted Shares Outstanding | 47.5 | 48.8 | 47.4 | 48.7 | ||||||||||||
Per share impact** | (0.48 | ) | (0.37 | ) | (0.95 | ) | (0.74 | ) | ||||||||
*The income tax impact is calculated using the tax rate in effect for the relevant non-GAAP adjustment. | ||||||||||||||||
**Amounts may not recalculate exactly due to rounding. | ||||||||||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 14 of 14
Q2 2016 Earnings Presentation
August 4, 2016
Mike Petters
President and Chief Executive Officer
Chris Kastner
Executive Vice President, Business Management and Chief Financial Officer
Exhibit 99.2
2
Forward-Looking Statements
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.
3
Q2 2016 Highlights
3
*Non-GAAP measure. See appendix for definition and reconciliation.
Revenues were $1.7 billion in the quarter
Diluted EPS was $2.80 in the quarter, compared to $3.20 in Q2 2015. Diluted EPS in
Q2 2015 included the after-tax impacts of the following items:
o Favorable insurance litigation settlement of $1.80 per share
o Goodwill impairment charge of $0.96 per share
Strong cash flow generation in the quarter and YTD
o Cash from operations was $169 million in the quarter; $223 million YTD
o Free cash flow* was $121 million in the quarter; $138 million YTD
Total backlog at the end of the quarter was $20.5 billion
o New contract awards in the quarter totaled $900 million
4
Q2 2016 Consolidated Results
4
*Non-GAAP measures. See appendix for definitions and reconciliations.
$1,745
$1,700
$1,758
$1,500
$1,550
$1,600
$1,650
$1,700
$1,750
$1,800
Q2 2015 Q2 2016
($
in
m
illi
on
s)
Revenues
GAAP Adjusted*
$269
$217
$192
$—
$50
$100
$150
$200
$250
$300
Q2 2015 Q2 2016
($
in
m
illi
on
s)
Operating Income
GAAP Adjusted*
15.4 %
12.8 %
10.9 %
—%
3.0 %
6.0 %
9.0 %
12.0 %
15.0 %
18.0 %
Q2 2015 Q2 2016
Operating Margin
GAAP Adjusted*
$3.20
$2.80
$1.99
$2.32
$—
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
Q2 2015 Q2 2016
Diluted EPS
GAAP Adjusted*
5
$24
$48
$36
$84
$—
$25
$50
$75
$100
$125
$150
Q2 2016 Q2 2016
YTD
($
in
m
illi
on
s)
Shareholder Distribution
Dividends Share Repurchases ($ at cost)
Capital Deployment
*Non-GAAP measure. See appendix for definition and reconciliation.
Completed the planned $167 million discretionary contributions to our qualified pension
plans for 2016.
Capital expenditures were 2.8% of revenues in the quarter; 2.5% YTD.
We continue to expect CAPEX for FY 2016 to be between 3.5% and 4.5% of revenues.
Distributed $132 million of the free cash flow* generated YTD to shareholders.
$121
$138
$48
$85
$169
$223
$—
$50
$100
$150
$200
$250
Q2 2016 Q2 2016
YTD
($
in
m
illi
on
s)
Cash Flow Generation
Cash from Operations CAPEX Fre Cash Flow*
Total
$60
Total
$132
6
Q2 2016 Ingalls Shipbuilding Results
6
Ingalls revenues up 4.7% YoY from the Q2
2015 adjusted revenues due to increased
volumes on DDG, LPD and LHA programs.
Segment operating income* and margin* up
YoY due to higher risk retirement on the LPD
program, partially offset by lower risk
retirement on the NSC program.
$546
$585 $559
$—
$100
$200
$300
$400
$500
$600
$700
Q2 2015 Q2 2016
($
in
m
illi
on
s)
Revenues
Unadjusted Adjusted*
$198
$88
$62
$—
$40
$80
$120
$160
$200
$240
Q2 2015 Q2 2016
($
in
m
illi
on
s)
Segment Operating Income*
Unadjusted Adjusted*
36.3 %
15.0 %
11.1 %
—%
10.0 %
20.0 %
30.0 %
40.0 %
Q2 2015 Q2 2016
Segment Operating Margin*
Unadjusted Adjusted*
*Non-GAAP measures. See appendix for definitions and reconciliations.
7
Q2 2016 Newport News Shipbuilding Results
7
Newport News revenues down 6.5% YoY due
to lower volumes in Aircraft Carriers,
Submarines and Energy.
Segment operating income* down YoY due to
lower risk retirement on the VCS program and
lower volumes on CVN-72 and CVN-78,
partially offset by higher volume on CVN-79.
Segment operating margin* relatively flat YoY.
$1,166
$1,090
$—
$200
$400
$600
$800
$1,000
$1,200
$1,400
Q2 2015 Q2 2016
($
in
m
illi
on
s)
Revenues
$109
$102
$—
$25
$50
$75
$100
$125
Q2 2015 Q2 2016
($
in
m
illi
on
s)
Segment Operating Income*
9.3 % 9.4 %
—%
1.5 %
3.0 %
4.5 %
6.0 %
7.5 %
9.0 %
10.5 %
Q2 2015 Q2 2016
Segment Operating Margin*
*Non-GAAP measures. See appendix for definitions and reconciliations.
8
(182.9)%
(22.2)%(14.3)%
(200.0)%
(150.0)%
(100.0)%
(50.0)%
(0.0)%
50.0 %
Segment Operating Margin*
Unadjusted Adjusted*
$(64)
$(6) $(5)
$(70)
$(55)
$(40)
$(25)
$(10)
$5
$20
($
in
m
illi
on
s)
Segment Operati g Loss*
Unadjusted Adjusted*
Q2 2016 Other Segment Results
8
Q2 2015 Q2 2016 Q2 2016 Q2 2015
Other revenues down ~23% YoY due to
continued decline in oil and gas services and
contract mix.
Segment operating loss* in the quarter of $6
million included $1 million of restructuring
cost.
$35
$27
$—
$10
$20
$30
$40
Q2 2015 Q2 2016
($
in
m
illi
on
s)
Revenues
*Non-GAAP measures. See appendix for definitions and reconciliations.
9
9
Appendix
10
Non-GAAP Measures Definitions &
Reconciliations
10
We make reference to “segment operating income (loss),” “segment operating margin,” “adjusted sales and service revenues,”
“adjusted segment operating income (loss),” “adjusted segment operating margin,” “adjusted operating income,” “adjusted
operating margin,” “adjusted net earnings,” “adjusted diluted earnings per share,” and "free cash flow."
We internally manage our operations by reference to "segment operating income (loss)" and "segment operating margin," which
are not recognized measures under GAAP. When analyzing our operating performance, investors should use segment operating
income (loss) and segment operating margin in addition to, and not as alternatives for, operating income and operating margin or
any other performance measure presented in accordance with GAAP. They are measures that we use to evaluate our core
operating performance. We believe that segment operating income (loss) 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
(loss) and segment operating margin may not be comparable to similarly titled measures of other companies.
Adjusted sales and service revenues, adjusted operating income, adjusted operating margin, adjusted segment operating
income (loss), 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 measures are useful to investors because they exclude 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.
11
Non-GAAP Measures Definitions &
Reconciliations Cont’d
11
Segment operating income (loss) is defined as operating income (loss) for the relevant segment(s) before the FAS/CAS Adjustment and
deferred state income taxes.
Segment operating margin is defined as segment operating income (loss) 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 at
the Ingalls segment in second quarter 2015.
Adjusted segment operating income (loss) is defined as segment operating income (loss) adjusted for the impacts of the insurance litigation
settlement at the Ingalls segment and the goodwill impairment charge at the Other segment in second quarter 2015.
Adjusted segment operating margin is defined as adjusted segment operating income (loss) as a percentage of adjusted sales and service
revenues.
Adjusted operating income is defined as operating income adjusted for the impacts of the insurance litigation settlement at the Ingalls segment
and the goodwill impairment charge at the Other segment in second quarter 2015.
Adjusted operating margin is defined as adjusted operating income as a percentage of adjusted sales and service revenues.
Adjusted net earnings is defined as net earnings adjusted for the after-tax impacts of the insurance litigation settlement at the Ingalls segment
and the goodwill impairment charge at the Other segment in second quarter 2015 and the 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.
FAS/CAS Adjustment is defined as the difference between our pension and postretirement plan expense under GAAP Financial Accounting
Standards and the same expense under U.S. Cost Accounting Standards (CAS). Our pension and postretirement plan expense is charged to our
contracts under CAS.
Deferred state income taxes are defined as the change in deferred state tax assets and liabilities in the relevant period. These amounts are
recorded within operating income, while the current period state income tax expenses are charged to contract costs and included in segment
operating income.
We present financial measures adjusted for the FAS/CAS Adjustment and deferred state income tax to reflect the company’s performance based
upon the pension costs and state tax expense charged to our contracts under CAS. We use these adjusted measures as internal measures of
operating performance and for performance-based compensation decisions.
12
Reconciliation – Segment Operating Income &
Segment Operating Margin
12
$ in millions 2016 2015 2016 2015
Ingalls revenues 585$ 546$ 1,171$ 1,015$
Newport News revenues 1,090 1,166 2,243 2,227
Other revenues 27 35 51 75
Intersegment eliminations (2) (2) (2) (2)
Sales and Service Revenues 1,700 1,745 3,463 3,315
Segment Operating Income
Ingalls 88 198 170 243
As a percentage of Ingalls revenues 15.0 % 36.3 % 14.5 % 23.9 %
Newport News 102 109 191 202
As a percentage of Newport News revenues 9.4 % 9.3 % 8.5 % 9.1 %
Other (6) (64) (11) (74)
As a percentage of Other revenues (22.2)% (182.9)% (21.6)% (98.7)%
Segment Operating Income 184 243 350 371
As a percentage of sales and service revenues 10.8 % 13.9 % 10.1 % 11.2 %
Non-segment factors affecting operating income:
FAS/CAS Adjustment 35 28 70 55
Deferred state income taxes (2) (2) (5) (1)
Operating Income 217 269 415 425
Interest expense (18) (25) (37) (48)
Other, net — — (2) —
Federal income taxes (66) (88) (107) (134)
Net Earnings 133$ 156$ 269$ 243$
Three Months Ended Six Months Ended
June 30 June 30
13
Reconciliation – Adjusted Sales and Service
Revenues
13
$ in millions 2016 2015 2016 2015
Ingalls revenues 585$ 546$ 1,171$ 1,015$
Adjustment for insurance litigation settlement — 13 — 13
Ingalls adjusted revenues 585 559 1,171 1,028
Newport News revenues 1,090 1,166 2,243 2,227
Other revenues 27 35 51 75
Intersegment eliminations (2) (2) (2) (2)
Adjusted Sales and Service Revenues 1,700$ 1,758$ 3,463$ 3,328$
Three Months Ended Six Months Ended
June 30 June 30
14
Reconciliation – Adjusted Segment Operating
Income & Adjusted Segment Operating Margin
14
$ in millions 2016 2015 2016 2015
Operating income 217$ 269$ 415$ 425$
As a percentage of sales and service revenues 12.8 % 15.4 % 12.0 % 12.8 %
Non-segment factors affecting operating income:
FAS/CAS Adjustment (35) (28) (70) (55)
Deferred state income taxes 2 2 5 1
Unadjusted Segment Operating Income 184$ 243$ 350$ 371$
As a percentage of sales and service revenues 10.8 % 13.9 % 10.1 % 11.2 %
Ingalls segment operating income 88$ 198$ 170$ 243$
Adjustment for insurance litigation settlement — (136) — (136)
Ingalls adjusted segment operating income 88 62 170 107
As a percentage of Ingalls adjusted revenues 15.0 % 11.1 % 14.5 % 10.4 %
Newport News segment operating income 102 109 191 202
As a percentage of Newport News revenues 9.4 % 9.3 % 8.5 % 9.1 %
Other segment operating (loss) (6) (64) (11) (74)
Adjustmen for impairment of goodwill — 59 — 59
Other adjusted segment operating (loss) (6) (5) (11) (15)
As a percentage of Other revenues (22.2)% (14.3)% (21.6)% (20.0)%
Adjusted Segment Operating Income 184$ 166$ 350$ 294$
As a percentage of adjusted sales and service revenues 10.8 % 9.4 % 10.1 % 8.8 %
June 30 June 30
Three Months Ended Six Months Ended
15
Reconciliation – Adjusted Operating Income &
Adjusted Operating Margin
15
$ in millions 2016 2015 2016 2015
Operating income 217$ 269$ 415$ 425$
As a percentage of sales and service revenues 12.8 % 15.4 % 12.0 % 12.8 %
Adjustment for insurance litigation settlement — (136) — (136)
Adjustment for impairment of goodwill — 59 — 59
Adjusted Operating Income 217$ 192$ 415$ 348$
As a percentage of adjusted sales and services revenues 12.8 % 10.9 % 12.0 % 10.5 %
Three Months Ended Six Months Ended
June 30 June 30
16
Reconciliation – Adjusted Net Earnings & Adjusted
Diluted EPS
16
$ in millions, except per share amounts 2016 2015 2016 2015
Net Earnings (Loss) 133$ 156$ 269$ 243$
After-tax adjustment for insurance litigation settlement (1) — (88) — (88)
After-tax adjustment for impairment of goodwill (2) — 47 — 47
After-tax adjustment for FAS/CAS Adjustment (3) (23) (18) (45) (36)
Adjusted Net Earnings (Loss) 110$ 97$ 224$ 166$
Adjusted Diluted EPS
Diluted earnings per share 2.80$ 3.20$ 5.68$ 4.99$
After-tax insurance litigation settlement per share (1) — (1.80) — (1.81)
After-tax impairment of goodwill per share (2) — 0.96 — 0.97
After-tax FAS/CAS Adjustment per share (3) (0.48) (0.37) (0.95) (0.74)
Adjusted Diluted EPS 2.32$ 1.99$ 4.73$ 3.41$
Three Months Ended Six Months Ended
June 30 June 30
17
Reconciliation – Adjusted Net Earnings & Adjusted
Diluted EPS Cont’d
17 *The income tax impact is calculated using the tax rate in effect for the relevant non-GAAP adjustment.
**Amounts may not recalculate exactly due to rounding.
$ in millions, except per share amounts 2016 2015 2016 2015
(1) Insurance litigation settlement — (136)$ — (136)$
Tax effect at 35% statutory rate* — 48 — 48
After-tax effect — (88)$ — (88)$
Weighted-Average Diluted Shares Outstanding 47.5 48.8 47.4 48.7
Per share impact** — (1.80)$ — (1.81)$
(2) Goodwill impairment charge — 59$ — 59$
Discrete federal tax impact* — (12) — (12)
After-tax effect — 47$ — 47$
Weighted-Average Diluted Shares Outstanding 47.5 48.8 47.4 48.7
Per share impact** — 0.96$ — 0.97$
(3) FAS/CAS Adjustment (35)$ (28)$ (70)$ (55)$
Tax effect at 35% statutory rate* 12 10 25 19
After-tax effect (23)$ (18)$ (45)$ (36)$
Weighted-Average Diluted Shares Outstanding 47.5 48.8 47.4 48.7
Per share impact** (0.48)$ (0.37)$ (0.95)$ (0.74)$
Three Months Ended Six Months Ended
June 30 June 30
18
Reconciliation – Free Cash Flow
18
($ in millions) 2016 2015 2016 2015
Net cash provided by (used in) operating activities 169$ 166$ 223$ 176$
Less:
Capital expenditures (48) (29) (85) (49)
Free cash flow 121$ 137$ 138$ 127$
Six Months Ended
June 30
Three Months Ended
June 30
