Huntington Ingalls Industries Reports Third Quarter Results; Reaches Significant Milestones on Path to 2015 Financial Targets
NEWPORT NEWS, Va., Nov. 8, 2012 (GLOBE NEWSWIRE) -- Huntington Ingalls Industries (NYSE:HII) reported third quarter 2012 revenues of $1.60 billion, up 0.2 percent from the same period last year. Third quarter diluted earnings per share was $0.26, compared with a $5.07 loss per share in the same period of 2011.
Segment operating income in the quarter was $89 million, with a segment operating margin of 5.6 percent, compared to a loss of $187 million in the same period last year. Total operating income for the quarter was $66 million, compared to a loss of $190 million in the same period of 2011. The increase was primarily attributable to the absence in 2012 of the goodwill impairment charge recorded in 2011. Total operating margin was 4.1 percent for the quarter.
Cash provided by operating activities in the third quarter was $137 million, down $95 million from the same period last year. New business awards for the quarter were $1.7 billion, bringing total backlog to $16.4 billion as of Sept. 30, of which $12.9 billion is funded.
"Core operating performance at HII continues to improve, and the company remains on pace to deliver 9 percent plus operating margins by 2015," said Mike Petters, HII's president and chief executive officer. "Although the underperforming ships at Ingalls continue to prove challenging, we delivered LPD-23 Anchorage during the third quarter, and we expect to deliver LPD-24 Arlington by the end of this year. Our backlog remains healthy at $16.4 billion and we are working diligently with our Navy and Coast Guard customers to provide affordable and high-quality warships."
Results of Operations
The company maintains self-insured workers' compensation plans that require an estimation of liabilities for such claims based on certain actuarial and discount rate assumptions that are evaluated at least annually. During Q3 2012, the decline in discount rates from 2011 resulted in a $24 million non-cash workers' compensation charge to segment operating income.
Adjusting for the 2012 non-cash workers' compensation charge and a non-cash goodwill impairment charge in 2011, adjusted segment operating income was $113 million in Q3 2012, flat compared to Q3 2011 on an adjusted basis. Adjusted segment operating margin was 7.1 percent in the third quarter, flat compared with the same period in 2011 on an adjusted basis.
Operating income in Q3 2012 was $66 million, whereas adjusted total operating income was $90 million, a decrease of $20 million, or 18.2 percent, from the same period of 2011 on an adjusted basis, primarily as a result of a higher FAS/CAS Adjustment. Operating margin in the third quarter was 4.1 percent, while adjusted total operating margin was 5.6 percent, a decline of 127 basis points from Q3 2011 on an adjusted basis.
Additionally, excluding an $8 million non-cash tax expense in 2012 related to the spin-off Tax Matters Agreement with Northrop Grumman, adjusted diluted earnings per share was $0.74 in the third quarter, compared with $1.05 in the same period of 2011 on an adjusted basis. Reported diluted earnings per share was $0.26 for Q3 2012.
The value of new contract awards during the three months ended Sept. 30 was approximately $1.7 billion. Significant new awards during this period included the construction contract for LPD-27 (unnamed) and continued long-lead-time procurement and construction preparation for CVN-79 John F. Kennedy.
Operating Segment Results
Ingalls revenues for the third quarter decreased $70 million, or 9.5 percent, from the same period in 2011, driven by lower sales in amphibious assault ships, partially offset by higher sales in surface combatants and the National Security Cutter (NSC) program. The decrease in amphibious assault ships was primarily attributable to the deliveries of LPD-22 USS San Diego in 2011 and LPD-23 Anchorage in 2012, partially offset by higher sales on LPD-26 John P. Murtha, LPD-27 (unnamed) and LHA-7 Tripoli. Surface combatants sales were higher, primarily driven by increased sales on DDG-114 Ralph Johnson. NSC program sales were higher due to higher sales on NSC-4 Hamilton and NSC-5 Joshua James and the advance procurement contract on NSC-6 (unnamed).
Ingalls operating income for the third quarter was $1 million, compared with a loss of $281 million in Q3 2011. Excluding the $9 million non-cash workers' compensation charge in 2012 and the 2011 non-cash goodwill impairment charge, Ingalls adjusted operating income for the third quarter 2012 was $10 million, compared with $19 million in the same period in 2011. Ingalls adjusted operating margin was 1.5 percent for the quarter, a decline of 108 basis points from the same period prior year on an adjusted basis. The decrease in adjusted operating income was primarily a result of unfavorable cumulative adjustments on the LPD-22 through LPD-25 contract, mainly related to LPD-24 Arlington.
Key Ingalls program milestones for the quarter:
Newport News Shipbuilding
Newport News revenues for the third quarter increased $68 million, or 7.8 percent, from the same period in 2011, primarily driven by higher sales in aircraft carriers. The increase in aircraft carriers sales was primarily driven by higher sales on the construction of CVN-78 Gerald R. Ford, construction preparation for CVN-79 John F. Kennedy, and advance planning for the CVN-72 USS Abraham Lincoln refueling and complex overhaul (RCOH) and a favorable resolution of an outstanding contract adjustment on the CVN-65 USS Enterprise extended dry-docking selected restricted availability (EDSRA) that was completed in 2010. These increases were partially offset by lower sales on the CVN-71 USS Theodore Roosevelt RCOH and engineering for CVN-78 Gerald R. Ford. Submarines sales were steady as higher sales on Block III SSN-774 Virginia-class submarines (VCS) were offset by lower sales on Block II. Energy-related service revenues were higher due to maintenance services at the Kesselring site.
Newport News operating income for the third quarter was $88 million, compared with $94 million in the same period of 2011, and operating margin was 9.3 percent, down 141 basis points from prior year. Excluding the $15 million non-cash workers' compensation charge in 2012, adjusted operating income was $103 million, an increase of $9 million over Q3 2011. The increase was primarily due to the higher sales volume and the favorable contract resolution described above. Newport News adjusted operating margin was 10.9 percent in Q3 2012, up 18 basis points from the same period prior year.
Key Newport News program milestones for the quarter:
Huntington Ingalls Industries (HII) designs, builds and maintains nuclear and non-nuclear ships for the U.S. Navy and Coast Guard and provides after-market services for military ships around the globe. For more than a century, HII has built more ships in more ship classes than any other U.S. naval shipbuilder. Employing more than 37,000 in Virginia, Mississippi, Louisiana and California, its primary business divisions are Newport News Shipbuilding and Ingalls Shipbuilding. For more information, please visit www.huntingtoningalls.com.
Huntington Ingalls Industries will webcast its earnings conference call at 9 a.m. EST on Nov. 8. 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.
The Huntington Ingalls Industries, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=9418
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 costs and perform effectively; risks related to our spin-off from Northrop Grumman (including our increased costs and leverage); our ability to realize the expected benefits from consolidation of our Ingalls facilities; natural disasters; adverse economic conditions in the United States and globally; 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.
Exhibit A: Financial Statements
Exhibit B: Reconciliations
We make reference to "segment operating income," "segment operating margin," "adjusted segment operating income," "adjusted segment operating margin," "adjusted operating income," adjusted operating margin," "adjusted net earnings," and "adjusted diluted earnings per share."
Segment operating income is defined as operating income before the FAS/CAS Adjustment and deferred state income taxes.
Segment operating margin is segment operating income as a percentage of total sales and service revenues.
Adjusted segment operating income is defined as segment operating income as adjusted for the impact of the workers' compensation charge in 2012 and the impact of the goodwill impairment charge in 2011.
Adjusted segment operating margin is defined as adjusted segment operating income as a percentage of segment sales and service revenues.
Adjusted operating income is defined as operating income adjusted for the impact of the workers' compensation charge in 2012 and the impact of the goodwill impairment charge in 2011.
Adjusted operating margin is defined as adjusted operating income as a percentage of total sales and service revenues.
Adjusted net earnings is defined as net income adjusted for the tax-adjusted impact of the workers' compensation charge and the tax expense related to the spin-off Tax Matters Agreement with Northrop Grumman in 2012, and the impact of the goodwill impairment charge in 2011.
Adjusted diluted earnings per share is defined as adjusted net earnings divided by the adjusted 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 adjusted segment operating income, adjusted segment operating margin, adjusted operating income, adjusted operating margin, adjusted net earnings and 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
Reconciliation of Adjusted Segment Operating Income, Adjusted Segment Operating Margin, Adjusted Operating Income and Adjusted Operating Margin
Reconciliation of Adjusted Net Earnings and Adjusted Diluted Earnings per Share
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