Huntington Ingalls Industries Reports Strong Second Quarter Results; Significant Progress on Key Programs *Revenues were $1.72 billion for the second quarter 2012 *Segment operating margin improved to 7.4 percent from 6.3 percent in Q2 2011 *Total operating margin rose to 6.2 percent, up from 5.8 percent in the same period 2011 *Diluted earnings per share was $1.00, up 20 cents over second quarter 2011 *Cash provided from operating activities was $151 million for the quarter NEWPORT NEWS, Va., Aug. 8, 2012 (GLOBE NEWSWIRE) -- Huntington Ingalls Industries (NYSE:HII) reported second quarter 2012 revenues of $1.72 billion, up 10.1 percent from the same period last year, and segment operating margin of 7.4 percent, up from 6.3 percent in Q2 2011. Total operating margin was 6.2 percent, up 34 basis points from the second quarter of last year, and second quarter diluted earnings per share was $1.00, compared with $0.80 in the same period of 2011, an increase of $0.20. Cash provided by operating activities in the second quarter of 2012 was $151 million, $35 million less than the same period last year. New business awards for the 2012 second quarter were approximately $2.5 billion, bringing total backlog to $16.2 billion, of which $12.6 billion is funded. "The second quarter reflected the strong execution of our existing contracts and demonstrated the steady progress toward restoring margins at Ingalls," said Mike Petters, HII's president and chief executive officer. "Several of our large programs reached key milestones during the quarter, including the launch of two ships, LPD-25 Somerset and LHA-6 America, and the successful completion of sea trials on LPD-23 Anchorage." Second Quarter Highlights Three Months Ended June 30, (In millions, except per share amounts) 2012 2011 $ Change % Change Revenues $1,721 $1,563 $158 10.1% Total segment operating income^1 127 98 29 29.6% Segment operating margin %^1 7.4% 6.3% 111 bps Total operating income 106 91 15 16.5% Operating margin % 6.2% 5.8% 34 bps Net earnings 50 40 10 25.0% Diluted earnings per share $1.00 $0.80 $0.20 25.0% Weighted average diluted shares 50.1 49.6 outstanding ^1Non-GAAP metric. See Exhibit B for reconciliation. Second quarter consolidated revenues increased $158 million from the same period in 2011, driven by higher sales at the Ingalls and Newport News segments. The increase in Ingalls revenues was primarily attributable to higher sales in amphibious assault ships. Newport News revenues increased due to higher sales in aircraft carriers and submarines, offset by lower fleet support services. Segment operating income in the quarter was $127 million, up $29 million from the same 2011 period. The increase was primarily due to higher sales as well as performance improvements in the Virginia-class submarine construction (VCS) program, lower unfavorable performance adjustments in 2012 on the LPD-17 San Antonio-class (LPD) program and receipt of $7 million in resolution of a contract dispute with a private party. Total operating income was $106 million, up from $91 million in the same period last year. The increase was primarily due to the improvement in segment operating income, offset by a higher FAS/CAS adjustment. Total operating margin was 6.2 percent for the quarter, up 34 basis points from the second quarter of 2011. Awards The value of new contract awards during the three months ended June 30 was approximately $2.5 billion. Significant new awards during this period included contracts for the detail design and construction of LHA-7 Tripoli, advance procurement for construction of LPD-27 (unnamed) and planning efforts for the CVN-72 USS Abraham Lincoln refueling complex overhaul (RCOH). Operating Segment Results Ingalls Shipbuilding Three Months Ended June 30, ($ in millions) 2012 2011 $ Change % Change Revenues $ 756 $ 708 $ 48 6.8% Operating income 38 19 19 100.0% Operating margin % 5.0% 2.7% 234 bps Ingalls revenues for the second quarter increased $48 million from the same period in 2011, driven by higher sales in amphibious assault ships. The increase in amphibious assault ships was due to higher sales on LHA-7 Tripoli, partially offset by lower sales on LHA-6 America. Surface combatants revenue remained stable as a result of higher sales on the DDG-1000 Zumwalt-class destroyer program, offset by lower sales on the DDG-51 Arleigh Burke-class destroyer program. LPD program revenues remained constant as higher sales on LPD-27 (unnamed) and LPD-25 Somerset were offset by lower sales following the delivery of LPD-22 USS San Diego in 2011 and in the construction of LPD-24 Arlington. The National Security Cutter (NSC) program remained flat due to lower sales following the delivery of NSC-3 USCGC Stratton in 2011, offset by higher sales on the construction of NSC-4 Hamilton and NSC-5 Joshua James and the advance procurement contract on NSC-6 (unnamed). Ingalls operating income for the second quarter was $38 million compared with $19 million in the same period in 2011. The increase was primarily due to lower unfavorable performance adjustments on LPD-22 USS San Diego and higher favorable performance adjustments on LPD-25 Somerset in 2012 compared to the same period in 2011, as well as receipt of $7 million in resolution of a contract dispute with a private party. This increase was partially offset by higher unfavorable performance adjustments on LPD-24 Arlington and lower favorable performance adjustments on LPD-23 Anchorage in 2012 compared to the same period in 2011. Ingalls operating margin was 5.0 percent for the quarter, up from 2.7 percent in the same quarter of 2011. Key Ingalls program milestones for the quarter: *Launched LPD-25 Somerset at Avondale shipyard *Awarded $133.7 million advance procurement contract for LPD-27 (unnamed) *Awarded $2.38 billion contract for detail design and construction of LHA-7 Tripoli *Launched the U.S. Navy's next amphibious assault ship, LHA-6 America, at Pascagoula shipyard *Successfully completed U.S. Navy acceptance trials for LPD-23 Anchorage Newport News Shipbuilding Three Months Ended June 30, ($ in millions) 2012 2011 $ Change % Change Revenues $ 979 $ 872 $ 107 12.3% Operating income 89 79 10 12.7% Operating margin % 9.1% 9.1% 3 bps Newport News revenues for the second quarter increased $107 million, or 12.3 percent, from the second quarter 2011, primarily driven by higher sales on aircraft carriers and submarines, offset by lower fleet support services. Aircraft carrier revenues increased due to higher sales on the construction contract for CVN-78 Gerald R. Ford, the advance construction contract for CVN-79 John F. Kennedy, the advance planning contract for the CVN-72 USS Abraham Lincoln RCOH and the advance planning contract for CVN-65 USS Enterprise inactivation, offset by lower sales on the execution contract for the CVN-71 USS Theodore Roosevelt RCOH and an engineering contract for CVN-78 Gerald R. Ford. The increase in submarines was primarily a result of higher sales on the VCS construction program, due to the continued transition to a two-boat-per-year production rate, partially offset by lower sales following the delivery of SSN-781 USS California in 2011. The reduction in fleet support services was primarily attributable to the redelivery of the SSN-753 USS Albany in the third quarter 2011. Newport News operating income for the second quarter was $89 million compared with $79 million in the same period in 2011. The increase was due primarily to the higher sales volume and the impact of performance improvements on the VCS construction program in 2012. Newport News operating margin was 9.1 percent for the quarter, flat compared to the same quarter of 2011. Key Newport News program milestones for the quarter: *Reached 80 percent structural completion of CVN-78 Gerald R. Ford *Broke ground on the new Apprentice School, which will include an 80,000-square-foot school, workforce housing, retail space and a parking garage *Achieved "pressure hull complete," a major construction milestone, on the submarine SSN-783 Minnesota; slated for delivery in 2013 The Company 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 nearly 38,000 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. HII will webcast its earnings conference call at 9 a.m. EDT on Aug. 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 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited) Three Months Ended Six Months Ended June 30 June 30 (in millions, except per share amounts) 2012 2011 2012 2011 Sales and service revenues Product sales $1,504 $1,351 $2,857 $2,817 Service revenues 217 212 432 430 Total sales and service revenues 1,721 1,563 3,289 3,247 Cost of sales and service revenues Cost of product sales 1,252 1,124 2,391 2,377 Cost of service revenues 191 183 376 384 Income (loss) from operating investments, 4 4 6 8 net General and administrative expenses 176 169 342 318 Operating income (loss) 106 91 186 176 Other income (expense) Interest expense (29) (30) (59) (45) Earnings (loss) before income taxes 77 61 127 131 Federal income taxes 27 21 44 46 Net earnings (loss) $50 $40 $83 $85 Basic earnings (loss) per share $1.01 $0.81 $1.69 $1.73 Weighted-average common shares outstanding 49.5 48.8 49.2 48.8 Diluted earnings (loss) per share $1.00 $0.80 $1.67 $1.72 Weighted-average diluted shares 50.1 49.6 49.8 49.2 outstanding Net earnings (loss) from above $50 $40 $83 $85 Other comprehensive income (loss) Change in unamortized benefit plan costs 21 11 45 39 Tax benefit (expense) on change in (8) (4) (17) (15) unamortized benefit plan costs Other comprehensive income (loss), net of 13 7 28 24 tax Comprehensive income (loss) $63 $47 $111 $109 CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited) June30 December31 ($ in millions) 2012 2011 Assets Current Assets Cash and cash equivalents $669 $915 Accounts receivable, net 878 711 Inventoried costs, net 357 380 Deferred income taxes 222 232 Prepaid expenses and other current assets 41 30 Total current assets 2,167 2,268 Property, plant, and equipment, net 1,992 2,033 Other Assets Goodwill 844 844 Other purchased intangibles, net of accumulated 557 567 amortization of $382 in 2012 and $372 in 2011 Pension plan assets 64 64 Debt issuance costs 44 48 Long-term deferred tax asset 92 128 Miscellaneous other assets 52 49 Total other assets 1,653 1,700 Total assets $5,812 $6,001 CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited) - CONTINUED June30 December31 ($ in millions, except share amounts) 2012 2011 Liabilities and Stockholders' Equity Current Liabilities Trade accounts payable $314 $380 Current portion of long-term debt 36 29 Current portion of workers' compensation liabilities 201 201 Current portion of postretirement plan liabilities 172 172 Accrued employees' compensation 189 221 Advance payments and billings in excess of costs incurred 70 101 Provision for contract losses 6 19 Other current liabilities 229 249 Total current liabilities 1,217 1,372 Long-term debt 1,808 1,830 Other postretirement plan liabilities 589 581 Pension plan liabilities 791 936 Workers' compensation liabilities 364 361 Other long-term liabilities 49 49 Total liabilities 4,818 5,129 Commitments and Contingencies — — Stockholders' Equity Common stock, $0.01 par value; 150,000,000 shares authorized; 49,494,305issued and outstanding as of June — — 30, 2012; 48,821,563 issued and outstanding as of December 31, 2011 Additional paid-in capital 1,873 1,862 Retained earnings (deficit) (58) (141) Accumulated other comprehensive income (loss) (821) (849) Total stockholders' equity 994 872 Total liabilities and stockholders' equity $5,812 $6,001 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30 ($ in millions) 2012 2011 Operating Activities Net earnings (loss) $83 $85 Adjustments to reconcile to net cash provided by (used in) operating activities Depreciation 82 81 Amortization of purchased intangibles 10 10 Amortization of debt issuance costs 4 2 Stock-based compensation 16 13 Change in Accounts receivable (167) (171) Inventoried costs 25 (114) Prepaid expenses and other assets (11) (40) Accounts payable and accruals (158) (77) Deferred income taxes 29 (19) Retiree benefits (92) 59 Other non-cash transactions, net 1 (7) Net cash provided by (used in) operating activities (178) (178) Investing Activities Additions to property, plant, and equipment (57) (83) Net cash provided by (used in) investing activities (57) (83) Financing Activities Proceeds from issuance of long-term debt — 1,775 Repayment of long-term debt (15) (7) Debt issuance costs — (54) Repayment of notes payable to former parent and accrued — (954) interest Dividend to former parent in connection with spin-off — (1,429) Proceeds from stock option exercises 4 1 Net transfers from (to) former parent — 1,310 Net cash provided by (used in) financing activities (11) 642 Change in cash and cash equivalents (246) 381 Cash and cash equivalents, beginning of period 915 — Cash and cash equivalents, end of period $669 $381 Supplemental Cash Flow Disclosure Cash paid for income taxes $8 $11 Cash paid for interest $55 $8 Non-Cash Investing and Financing Activities Capital expenditures accrued in accounts payable $2 $1 Exhibit B: Reconciliations We make reference to "segment operating income" and "segment operating margin." Segment operating income is defined as operating income before the FAS/CAS Adjustment and deferred state income taxes.Segment operating margin is segment operating income as a percentage of total sales and service revenues. Segment operating income and segment operating margin are some of the key metrics we use to evaluate operating performance because they exclude items that do not affect segment performance. Therefore, we believe it is appropriate to disclose these measures to help investors analyze our operating performance. However, these measures are not measures of financial performance under GAAP and may not be defined or calculated by other companies in the same manner. Reconciliation of Segment Operating Income and Segment Operating Margin Three Months Ended June 30, ($ in millions) 2012 2011 Sales and Service Revenues Ingalls $756 $708 Newport News 979 $872 Intersegment eliminations (14) (17) Total sales and service revenues $1,721 $1,563 Operating Income (Loss) Ingalls $38 $19 As a percentage of sales 5.0% 2.7% Newport News 89 79 As a percentage of sales 9.1% 9.1% Total Segment Operating Income (Loss) 127 98 As a percentage of sales 7.4% 6.3% Non-segment factors affecting operating income FAS/CAS Adjustment (19) (4) Deferred state income taxes (2) (3) Total operating income (loss) $106 $91 As a percentage of sales 6.2% 5.8% Interest expense (29) (30) Federal income taxes (27) (21) Total net earnings (loss) $50 $40 CONTACT: Jerri Fuller Dickseski (Media) firstname.lastname@example.org 757-380-2341 Andy Green (Investors) email@example.com 757-688-5572 company logo
Huntington Ingalls Industries Reports Strong Second Quarter Results; Significant Progress on Key Programs
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