- Revenues were $1.72 billion for the second quarter of 2014
- Segment operating margin was 9.5 percent, a 140 bps improvement over Q2 2013
- Total operating margin was 10.5 percent, up from 6.9 percent in the same period last year
- Diluted earnings per share was $2.04 for the quarter
- Pension-adjusted diluted earnings per share was $1.75 for the quarter
- Cash and cash equivalents at the end of the quarter were $592 million
NEWPORT NEWS, Va., Aug. 7, 2014 (GLOBE NEWSWIRE) -- Huntington Ingalls Industries (NYSE:HII) reported second quarter 2014 revenues of $1.72 billion, up 2.1 percent compared to the same period last year. Second quarter diluted earnings per share was $2.04, compared to diluted earnings per share of $1.12 in the same period of 2013. Pension-adjusted diluted earnings per share for the quarter was $1.75, compared to $1.36 in the same period of 2013.
Segment operating income for the second quarter was $163 million, compared to $136 million in the same period last year. Total operating income for the quarter was $181 million, compared to $116 million in the same period last year. The increase in operating income was primarily attributable to risk retirement at Ingalls on the National Security Cutter (NSC) program and ships delivered under the LPD-17 San Antonio-class (LPD) program, a $6 million favorable overhead adjustment at Ingalls resulting from a change in non-income based tax liabilities, as well as the favorable FAS/CAS Adjustment.
New business awards for the quarter were approximately $7.0 billion, consisting primarily of the contract for Block IV of the SSN-774 Virginia-class submarine (VCS) program. Total backlog at the end of Q2 2014 was $24.2 billion, of which $14.4 billion was funded.
On May 30, 2014, HII completed the acquisition of UniversalPegasus International Holdings (UPI). HII reported the post-acquisition results of UPI as part of its newly created Other segment. Revenues of the Other segment were $20 million, and Other operating income was less than $1 million for the quarter, primarily due to the acquisition of UPI.
"With the acquisition of UniversalPegasus, HII is leveraging its engineering and program management core competencies in the energy market, while remaining focused on our Navy program execution to reach 9-plus percent margins in 2015," said Mike Petters, HII's president and chief executive officer.
| Second Quarter 2014 Highlights | ||||
| Three Months Ended | ||||
| June 30 | ||||
| (In millions, except per share amounts) | 2014 | 2013 | $ Change | % Change |
| Revenues | $ 1,719 | $ 1,683 | $ 36 | 2.1% |
| Segment operating income1 | 163 | 136 | 27 | 19.9% |
| Segment operating margin %1 | 9.5% | 8.1% | 140 bps | |
| Total operating income | 181 | 116 | 65 | 56.0% |
| Total operating margin % | 10.5% | 6.9% | 364 bps | |
| Net earnings | 100 | 57 | 43 | 75.4% |
| Diluted earnings per share | $ 2.04 | $ 1.12 | $ 0.92 | 82.1% |
| Weighted-average diluted shares outstanding | 49.1 | 50.7 | ||
| Pension-adjusted Operating Highlights | ||||
| Total operating income | 181 | 116 | 65 | 56.0% |
| FAS/CAS Adjustment | (21) | 18 | (39) | (216.7)% |
| Pension-adjusted operating income2 | 160 | 134 | 26 | 19.4% |
| Pension-adjusted operating margin %2 | 9.3% | 8.0% | 135 bps | |
| Pension-adjusted Net Earnings | ||||
| Net earnings | 100 | 57 | 43 | 75.4% |
| After-tax FAS/CAS Adjustment3 | (14) | 12 | (26) | (216.7)% |
| Pension-adjusted net earnings2 | 86 | 69 | 17 | 24.6% |
| Weighted-average diluted shares outstanding | 49.1 | 50.7 | ||
| Pension-adjusted diluted earnings per share2 | $ 1.75 | $ 1.36 | $ 0.39 | 28.7% |
| 1 Non-GAAP metric that excludes non-segment factors affecting operating income. See Exhibit B for definition and reconciliation. | ||||
| 2 Non-GAAP metric - see Exhibit B for definition. | ||||
| 3 Tax effected at 35% federal statutory tax rate. | ||||
| Operating Segment Results | ||||
| Ingalls Shipbuilding | ||||
| Three Months Ended | ||||
| June 30 | ||||
| ($ in millions) | 2014 | 2013 | $ Change | % Change |
| Revenues | $ 572 | $ 592 | $ (20) | (3.4)% |
| Operating income (loss) | 59 | 31 | 28 | 90.3% |
| Operating margin % | 10.3% | 5.2% | 508 bps | |
Ingalls revenues for the second quarter decreased $20 million, or 3.4 percent, from the same period in 2013, driven by lower sales in amphibious assault ships, partially offset by higher sales in the NSC program and surface combatants. The decrease in amphibious assault ships revenues was due to lower volumes on LHA-6 America and LPD-25 USS Somerset, partially offset by higher volumes on LHA-7 Tripoli. Revenues on the NSC program were higher due to higher volumes on NSC-6 Munro, NSC-7 Kimball, NSC-5 James and NSC-4 Hamilton construction contracts. Surface combatants revenues were higher due to higher volumes on DDG-117 Paul Ignatius, DDG-119 (unnamed) and DDG-114 Ralph Johnson construction contracts, partially offset by lower volumes on the DDG-1000 Zumwalt-class program.
Ingalls operating income for the quarter was $59 million, an increase of $28 million over the same period in 2013. Ingalls operating margin was 10.3 percent for the quarter, compared to 5.2 percent in Q2 2013. These increases were primarily due to risk retirement on the NSC program and ships delivered under the LPD program, as well as a $6 million favorable overhead adjustment resulting from a change in non-income based tax liabilities.
Key Ingalls highlights for the quarter:
- Delivered LHA-6 America to the U.S. Navy
- Launched NSC-5 James
- Authenticated the keel for LHA-7 Tripoli
- Received a $76.5 million fixed-price contract to purchase long-lead materials for NSC-8 Midgett
| Newport News Shipbuilding | ||||
| Three Months Ended | ||||
| June 30 | ||||
| ($ in millions) | 2014 | 2013 | $ Change | % Change |
| Revenues | $ 1,129 | $ 1,092 | $ 37 | 3.4% |
| Operating income (loss) | 104 | 105 | (1) | (1.0)% |
| Operating margin % | 9.2% | 9.6% | -40 bps | |
Newport News revenues for the second quarter increased $37 million, or 3.4 percent, from the same period in 2013, primarily driven by the acquisition of The S.M. Stoller Corp., which was completed in January 2014, and higher revenues in submarines and energy, offset by lower revenues in fleet support services. Submarines revenues related to the SSN-774 Virginia-class submarine program were higher due to higher volumes on Block III construction and Block IV advance procurement contracts, partially offset by lower volumes on Block II boats following the delivery of SSN-783 USS Minnesota, the last ship of the block. Higher energy revenues were primarily driven by commercial volumes. Lower revenues in fleet support services were primarily due to the redelivery of SSN-765 USS Montpelier.
Newport News operating income for the quarter was $104 million, a $1 million decrease from the same period in 2013. Newport News operating margin was 9.2 percent for the quarter, down from 9.6 percent in Q2 2013. These decreases were mainly related to lower risk retirement on the VCS program and the execution contract for the CVN-71 USS Theodore Roosevelt refueling and complex overhaul (RCOH), partially offset by higher risk retirement on the construction contract for CVN-78 Gerald R. Ford.
Key Newport News highlights for the quarter:
- Reached pressure hull complete construction milestone on SSN-785 John Warner
- AMSEC received an indefinite-delivery/indefinite-quantity, cost-plus-fixed-fee contract to provide engineering, technical, repair and logistics support to the U.S. Navy's Carrier Engineering Maintenance Assist Team (CEMAT) and Surface Ship Engineering Maintenance Assist Team (SEMAT) programs. The cumulative value of the contract, if all options are exercised, is $187 million.
- Placed the new upper-level structure on CVN-72 USS Abraham Lincoln's island
The Company
Huntington Ingalls Industries designs, builds and manages the life-cycle of the most complex nuclear and conventionally-powered ships for the U.S. Navy and Coast Guard. 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. HII also provides engineering and project management services expertise to the commercial energy industry, the Department of Energy and other government customers. Headquartered in Newport News, Virginia, HII employs more than 39,000 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. ET on August 7. A live audio broadcast of the conference call and supplemental presentation will be available on the investor relations page of the company's website: www.huntingtoningalls.com.
Statements in this release, other than statements of historical fact, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements. Factors that may cause such differences include: changes in government and customer priorities and requirements (including government budgetary constraints, shifts in defense spending, and changes in customer short-range and long-range plans); our ability to obtain new contracts, estimate our future contract costs and perform our contracts effectively; changes in government regulations and procurement processes and our ability to comply with such requirements; our ability to realize the expected benefits from consolidation of our Ingalls facilities; natural disasters; adverse economic conditions in the United States and globally; risks related to our indebtedness and leverage; and other risk factors discussed in our filings with the U.S. Securities and Exchange Commission. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business, and we undertake no obligations to update any forward-looking statements. You should not place undue reliance on any forward-looking statements that we may make.
| Exhibit A: Financial Statements | ||||
| HUNTINGTON INGALLS INDUSTRIES, INC. | ||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED) | ||||
| Three Months Ended June 30 | Six Months Ended June 30 | |||
| (in millions, except per share amounts) | 2014 | 2013 | 2014 | 2013 |
| Sales and service revenues | ||||
| Product sales | $ 1,433 | $ 1,423 | $ 2,765 | $ 2,744 |
| Service revenues | 286 | 260 | 548 | 501 |
| Total sales and service revenues | 1,719 | 1,683 | 3,313 | 3,245 |
| Cost of sales and service revenues | ||||
| Cost of product sales | 1,131 | 1,157 | 2,191 | 2,243 |
| Cost of service revenues | 238 | 227 | 465 | 440 |
| Income (loss) from operating investments, net | 1 | 2 | 3 | 4 |
| General and administrative expenses | 170 | 185 | 320 | 355 |
| Operating income (loss) | 181 | 116 | 340 | 211 |
| Other income (expense) | ||||
| Interest expense | (29) | (29) | (56) | (59) |
| Earnings (loss) before income taxes | 152 | 87 | 284 | 152 |
| Federal income taxes | 52 | 30 | 94 | 51 |
| Net earnings (loss) | $ 100 | $ 57 | $ 190 | $ 101 |
| Basic earnings (loss) per share | $ 2.05 | $ 1.14 | $ 3.88 | $ 2.02 |
| Weighted-average common shares outstanding | 48.8 | 50.2 | 49.0 | 50.0 |
| Diluted earnings (loss) per share | $ 2.04 | $ 1.12 | $ 3.84 | $ 2.00 |
| Weighted-average diluted shares outstanding | 49.1 | 50.7 | 49.5 | 50.5 |
| Dividends declared per share | $ 0.20 | $ 0.10 | $ 0.40 | $ 0.20 |
| Net earnings (loss) from above | $ 100 | $ 57 | $ 190 | $ 101 |
| Other comprehensive income (loss) | ||||
| Change in unamortized benefit plan costs | 8 | 210 | 16 | 215 |
| Other | 1 | (1) | 2 | 1 |
| Tax benefit (expense) for items of other comprehensive income | (3) | (81) | (6) | (86) |
| Other comprehensive income (loss), net of tax | 6 | 128 | 12 | 130 |
| Comprehensive income (loss) | $ 106 | $ 185 | $ 202 | $ 231 |
| HUNTINGTON INGALLS INDUSTRIES, INC. | ||
| CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) | ||
| June 30 | December 31 | |
| ($ in millions) | 2014 | 2013 |
| Assets | ||
| Current Assets | ||
| Cash and cash equivalents | $ 592 | $ 1,043 |
| Accounts receivable, net | 1,216 | 1,123 |
| Inventoried costs, net | 294 | 311 |
| Deferred income taxes | 179 | 170 |
| Prepaid expenses and other current assets | 46 | 29 |
| Total current assets | 2,327 | 2,676 |
| Property, plant, and equipment, net of accumulated depreciation of $1,492 million as of 2014 and $1,404 million as of 2013 | 1,850 | 1,897 |
| Goodwill | 1,089 | 881 |
| Other purchased intangibles, net | 557 | 528 |
| Pension plan assets | 127 | 124 |
| Miscellaneous other assets | 130 | 119 |
| Total assets | $ 6,080 | $ 6,225 |
| Liabilities and Stockholders' Equity | ||
| Current Liabilities | ||
| Trade accounts payable | $ 297 | $ 337 |
| Accrued employees' compensation | 210 | 230 |
| Current portion of long-term debt | 86 | 79 |
| Current portion of postretirement plan liabilities | 139 | 139 |
| Current portion of workers' compensation liabilities | 233 | 230 |
| Advance payments and billings in excess of revenues | 58 | 115 |
| Other current liabilities | 244 | 262 |
| Total current liabilities | 1,267 | 1,392 |
| Long-term debt | 1,679 | 1,700 |
| Pension plan liabilities | 437 | 529 |
| Other postretirement plan liabilities | 482 | 477 |
| Workers' compensation liabilities | 424 | 419 |
| Deferred tax liabilities | 112 | 83 |
| Other long-term liabilities | 110 | 104 |
| Total liabilities | 4,511 | 4,704 |
| Commitments and Contingencies | — | — |
| Stockholders' Equity | ||
| Common stock, $0.01 par value; 150 million shares authorized; 51.4 million issued and 48.6 million outstanding as of June 30, 2014, and 50.5 million issued and 48.7 million outstanding as of December 31, 2013 | 1 | 1 |
| Additional paid-in capital | 1,896 | 1,925 |
| Retained earnings (deficit) | 406 | 236 |
| Treasury stock | (225) | (120) |
| Accumulated other comprehensive income (loss) | (509) | (521) |
| Total stockholders' equity | 1,569 | 1,521 |
| Total liabilities and stockholders' equity | $ 6,080 | $ 6,225 |
| HUNTINGTON INGALLS INDUSTRIES, INC. | ||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | ||
| Six Months Ended June 30 | ||
| ($ in millions) | 2014 | 2013 |
| Operating Activities | ||
| Net earnings (loss) | $ 190 | $ 101 |
| Adjustments to reconcile to net cash provided by (used in) operating activities | ||
| Depreciation | 97 | 82 |
| Amortization of purchased intangibles | 12 | 11 |
| Amortization of debt issuance costs | 5 | 4 |
| Stock-based compensation | 11 | 19 |
| Excess tax benefit related to stock-based compensation | (15) | (3) |
| Deferred income taxes | (4) | 28 |
| Change in | ||
| Accounts receivable | (38) | (196) |
| Inventoried costs | 18 | (25) |
| Prepaid expenses and other assets | (14) | (28) |
| Accounts payable and accruals | (131) | (146) |
| Retiree benefits | (73) | (184) |
| Net cash provided by (used in) operating activities | 58 | (337) |
| Investing Activities | ||
| Additions to property, plant, and equipment | (51) | (55) |
| Acquisitions of businesses, net of cash received | (273) | — |
| Net cash provided by (used in) investing activities | (324) | (55) |
| Financing Activities | ||
| Repayment of long-term debt | (14) | (13) |
| Dividends paid | (20) | (10) |
| Repurchases of common stock | (104) | (25) |
| Employee taxes on certain share-based payment arrangements | (64) | — |
| Proceeds from stock option exercises | 2 | 3 |
| Excess tax benefit related to stock-based compensation | 15 | 3 |
| Net cash provided by (used in) financing activities | (185) | (42) |
| Change in cash and cash equivalents | (451) | (434) |
| Cash and cash equivalents, beginning of period | 1,043 | 1,057 |
| Cash and cash equivalents, end of period | $ 592 | $ 623 |
| Supplemental Cash Flow Disclosure | ||
| Cash paid for income taxes | $ 94 | $ 41 |
| Cash paid for interest | $ 52 | $ 55 |
| Non-Cash Investing and Financing Activities | ||
| Capital expenditures accrued in accounts payable | $ 3 | $ 3 |
Exhibit B: Reconciliations
We make reference to "segment operating income," "segment operating margin," "pension-adjusted operating income," "pension-adjusted operating margin," "pension-adjusted net earnings," and "pension-adjusted diluted earnings per share."
Segment operating income is total operating income before the FAS/CAS Adjustment and deferred state income taxes.
Segment operating margin is segment operating income as a percentage of total sales and service revenues.
Pension-adjusted operating income is total operating income adjusted for the FAS/CAS Adjustment.
Pension-adjusted operating margin is pension-adjusted operating income as a percentage of total sales and service revenues.
Pension-adjusted net earnings is net earnings adjusted for the tax effected FAS/CAS Adjustment.
Pension-adjusted diluted earnings per share is pension-adjusted net earnings divided by the weighted-average diluted common shares outstanding.
Segment operating income and segment operating margin are two of the key metrics we use to evaluate operating performance because they exclude items that do not affect segment performance. We believe pension-adjusted operating income, pension-adjusted operating margin, pension-adjusted net earnings and pension-adjusted diluted earnings per share are also useful metrics because they exclude non-operating items that we do not consider indicative of our core operating performance. Therefore, we believe it is appropriate to disclose these measures to help investors analyze our operating performance. However, these measures are not measures of financial performance under GAAP and may not be defined or calculated by other companies in the same manner.
| Reconciliation of Segment Operating Income and Segment Operating Margin | ||
| Three Months Ended | ||
| June 30 | ||
| ($ in millions) | 2014 | 2013 |
| Sales and Service Revenues | ||
| Ingalls | $ 572 | $ 592 |
| Newport News | 1,129 | 1,092 |
| Other | 20 | — |
| Intersegment eliminations | (2) | (1) |
| Total Sales and Service Revenues | 1,719 | 1,683 |
| Segment Operating Income | ||
| Ingalls | 59 | 31 |
| As a percentage of revenues | 10.3% | 5.2% |
| Newport News | 104 | 105 |
| As a percentage of revenues | 9.2% | 9.6% |
| Total Segment Operating Income | 163 | 136 |
| As a percentage of revenues | 9.5% | 8.1% |
| Non-segment factors affecting operating income | ||
| FAS/CAS Adjustment | 21 | (18) |
| Deferred state income taxes | (3) | (2) |
| Total Operating Income | 181 | 116 |
| Interest expense | (29) | (29) |
| Federal income taxes | (52) | (30) |
| Net Earnings | $ 100 | $ 57 |