Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - HUNTINGTON INGALLS INDUSTRIES, INC. | q42014earningsrelease8-k.htm |
| EX-99.2 - EXHIBIT 99.2 - HUNTINGTON INGALLS INDUSTRIES, INC. | hiiq42014earningspresent.htm |
 | Exhibit 99.1 News Release | |
Contacts: |
Jerri Fuller Dickseski (Media) |
jerri.dickseski@hii-co.com |
757-380-2341 |
Dwayne Blake (Investors) |
dwayne.blake@hii-co.com |
757-380-2104 |
Huntington Ingalls Industries Reports Fourth Quarter and Full Year 2014 Results
• | Revenues were $1.93 billion for the quarter and $6.96 billion for the year |
• | Segment operating margin was 7.0 percent for the quarter and 8.4 percent for the year |
• | Total operating margin was 7.5 percent for the quarter and 9.4 percent for the year |
• | Excluding a $47 million non-cash goodwill impairment charge: |
◦ | Segment operating margin was 9.4 percent for the quarter and 9.1 percent for the year |
◦ | Total operating margin was 9.9 percent for the quarter and 10.1 percent for the year |
• | Diluted earnings per share was $1.05 for the quarter and $6.86 for the year |
• | Adjusted diluted earnings per share was $2.19 for the quarter and $7.14 for the year |
• | Cash from operations was $402 million for the quarter and $716 million for the year |
NEWPORT NEWS, Va. (Feb. 19, 2015) - Huntington Ingalls Industries (NYSE:HII) reported fourth quarter 2014 revenues of $1.93 billion, compared to $1.94 billion in the same period of 2013. Total operating income was $144 million and total operating margin was 7.5 percent in the fourth quarter of 2014, compared to $174 million and 9.0 percent in the same period last year.
Diluted earnings per share in the fourth quarter of 2014 was $1.05, compared to $1.82 in the same period of 2013. Diluted earnings per share in the fourth quarter of 2014 included $0.75 for the non-cash goodwill impairment charge and $0.49 for the one-time expense for early extinguishment of debt. Diluted earnings per share in the fourth quarter of 2013 included $0.24 for the favorable hurricane insurance recoveries. Fourth quarter 2014 diluted earnings per share included $0.10 of benefit for the FAS/CAS Adjustment, compared to $0.08 of expense in fourth quarter 2013. Adjusting for these items, diluted earnings per share was $2.19 in the fourth quarter of 2014, compared to $1.66 in the fourth quarter of 2013.
Cash provided by operating activities in the fourth quarter of 2014 was $402 million, an increase of $110 million from the same period in 2013. Free cash flow in the fourth quarter was $328 million, an increase of $90 million from the same period last year. These increases were due primarily to decreases in accounts receivable partially offset by increases in capital expenditures.
For the full year, revenues were $6.96 billion, an increase of $137 million or 2.0 percent over 2013. Total operating income was $655 million and total operating margin was 9.4 percent in 2014, compared to $512 million and 7.5 percent in 2013.
Diluted earnings per share in 2014 was $6.86, compared to $5.18 in the prior year. Diluted earnings per share in 2014 included $0.75 for the non-cash goodwill impairment charge and $0.49 for the one-time expense for early extinguishment of debt. Diluted earnings per share in 2013 included $0.83 for the favorable hurricane insurance recoveries and $0.22 for the closure of the Gulfport facility. Diluted earnings per share in 2014 included $0.96 of benefit for the FAS/CAS Adjustment, compared to $0.79 of expense in 2013. Adjusting for these items, diluted earnings per share was $7.14 in 2014, compared to $5.36 in 2013.
Cash from operating activities for 2014 was $716 million, an increase of $480 million from 2013. Free cash flow in 2014 was $551 million, an increase of $454 million from 2013. These increases were due primarily to decreases in accounts receivable and retirement benefit funding, partially offset by increases in capital expenditures.
New business awards for 2014 were approximately $10.1 billion, of which $0.5 billion was awarded in the fourth quarter, bringing total backlog to $21.4 billion as of Dec. 31, 2014.
“Overall, 2014 was a great year for our company,” said Mike Petters, HII’s president and CEO. “Strong execution at Ingalls and Newport News helped us achieve solid operational performance and improved financial results which mitigated the impact of pressure at Universal Pegasus due to the drop in oil prices. We delivered improved margin performance and strong cash flow for the year and are on track to achieve our 2015 segment operating margin goal.”
2014 Goodwill Impairment Charge
During the fourth quarter of 2014, the company recorded a non-cash goodwill impairment of $47 million related to its Other segment. The Other segment, established in the second quarter of 2014 following the acquisition of UPI, is sensitive to developments in the oil and gas industry. The impairment was primarily driven by the recent drop in oil prices and the resulting decrease in industry market multiples. The company evaluates goodwill values for impairment annually on November 30, or when evidence of potential impairment exists. The company determined that the estimated fair value of its remaining reporting units exceeded their corresponding carrying values as of November 30, 2014.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 2 of 15
Results of Operations
Three Months Ended | Year Ended | ||||||||||||||||
December 31 | December 31 | ||||||||||||||||
(in millions, except per share amounts) | 2014 | 2013 | % Change | 2014 | 2013 | % Change | |||||||||||
Sales and service revenues | $ | 1,927 | $ | 1,938 | (0.6 | )% | $ | 6,957 | $ | 6,820 | 2.0 | % | |||||
Segment operating income1 | 134 | 169 | (20.7 | )% | 585 | 567 | 3.2 | % | |||||||||
Segment operating margin %1 | 7.0 | % | 8.7 | % | -177 bps | 8.4 | % | 8.3 | % | 10 bps | |||||||
Total operating income | 144 | 174 | (17.2 | )% | 655 | 512 | 27.9 | % | |||||||||
Operating margin % | 7.5 | % | 9.0 | % | -151 bps | 9.4 | % | 7.5 | % | 191 bps | |||||||
Net earnings | 52 | 91 | (42.9 | )% | 338 | 261 | 29.5 | % | |||||||||
Diluted earnings per share | $ | 1.05 | $ | 1.82 | (42.3 | )% | $ | 6.86 | $ | 5.18 | 32.4 | % | |||||
Adjusted Figures | |||||||||||||||||
Sales and service revenues2 | $ | 1,927 | $ | 1,907 | 1.0 | % | $ | 6,957 | $ | 6,817 | 2.1 | % | |||||
Segment operating income1,2,3 | $ | 181 | $ | 151 | 19.9 | % | $ | 632 | $ | 520 | 21.5 | % | |||||
Segment operating margin %1,2,3 | 9.4 | % | 7.9 | % | 147 bps | 9.1 | % | 7.6 | % | 146 bps | |||||||
Total operating income2,3 | $ | 191 | $ | 156 | 22.4 | % | $ | 702 | $ | 465 | 51.0 | % | |||||
Operating margin %2,3 | 9.9 | % | 8.2 | % | 173 bps | 10.1 | % | 6.8 | % | 327 bps | |||||||
Net earnings2,3,4,5 | 108 | 83 | 30.1 | % | 352 | 270 | 30.4 | % | |||||||||
Diluted earnings per share2,3,4,5 | $ | 2.19 | $ | 1.66 | 31.9 | % | $ | 7.14 | $ | 5.36 | 33.2 | % | |||||
1 Non-GAAP metrics that exclude non-segment factors affecting operating income. See Exhibit B for reconciliation. | |||||||||||||||||
2 Non-GAAP metrics that exclude the impact of hurricane insurance recoveries in the third and fourth quarters of 2013 and the Gulfport closure in the third quarter of 2013. See Exhibit B for reconciliation. | |||||||||||||||||
3 Non-GAAP metrics that exclude the impact of the goodwill impairment in 2014. See Exhibit B for reconciliation. | |||||||||||||||||
4 Non-GAAP metrics that exclude the after-tax loss on early extinguishment of debt in 2014. See Exhibit B for reconciliation. | |||||||||||||||||
5 Non-GAAP metrics that exclude the after-tax FAS/CAS Adjustment. See Exhibit B for reconciliation. | |||||||||||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 3 of 15
Operating Segment Results
Ingalls Shipbuilding
Three Months Ended | Year Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
(In millions) | 2014 | 2013 | % Change | 2014 | 2013 | % Change | ||||||||||
Revenues | $ | 608 | $ | 734 | (17.2 | )% | $ | 2,286 | $ | 2,441 | (6.3 | )% | ||||
Operating income (loss) | 72 | 64 | 12.5 | % | 229 | 165 | 38.8 | % | ||||||||
Operating margin % | 11.8 | % | 8.7 | % | 312 bps | 10.0 | % | 6.8 | % | 326 bps | ||||||
Adjusted revenues1 | 608 | 703 | (13.5 | )% | 2,286 | 2,438 | (6.2 | )% | ||||||||
Adjusted operating income1 | 72 | 46 | 56.5 | % | 229 | 118 | 94.1 | % | ||||||||
Adjusted operating margin %1 | 11.8 | % | 6.5 | % | 530 bps | 10.0 | % | 4.8 | % | 518 bps | ||||||
1 Non-GAAP metrics that exclude the impact of hurricane insurance recoveries in the third and fourth quarters of 2013 and the Gulfport closure in the third quarter of 2013. See Exhibit B for reconciliation. | ||||||||||||||||
2013 reflects the realignment of AMSEC and CMSD from Ingalls Shipbuilding to Newport News Shipbuilding | ||||||||||||||||
Ingalls revenues for the fourth quarter decreased $126 million, or 17.2 percent, from the same period in 2013 due to lower volumes in amphibious assault ships, the Legend-class National Security Cutter (NSC) program and surface combatants, as well as the favorable impact in the prior year of hurricane insurance recoveries. Amphibious assault ships revenues were lower due to the deliveries of LHA-6 USS America and LPD-25 Somerset and decreased volumes on LPD-27 Portland. NSC revenues were lower primarily due to the delivery of NSC-4 Hamilton, partially offset by increased volumes on NSC-8 Midgett advance procurement and NSC-7 Kimball construction contracts. Surface combatant revenues were lower due to the delivery of the deckhouse for DDG-1001 Michael Monsoor, partially offset by increased volumes on the advance procurement contracts of DDG-119 (unnamed) and DDG-121 (unnamed) and increased volumes on the construction contract of DDG-117 Paul Ignatius. Adjusting for $31 million of favorable hurricane insurance recoveries in the fourth quarter of 2013, revenues in the fourth quarter of 2014 decreased $95 million, or 13.5 percent, from the same period in 2013.
Ingalls operating income for the fourth quarter was $72 million, an increase of $8 million over the same period last year. Operating margin was 11.8 percent for the quarter, an increase of 312 basis points over the same period last year. These increases were primarily driven by performance improvement and risk retirement on the LPD program, partially offset by the net favorable impact in the prior year of hurricane insurance recoveries. Adjusting for $18 million of favorable hurricane insurance recoveries in the fourth quarter of 2013, operating income for the fourth quarter of 2014 increased $26 million and operating margin increased 530 basis points over the same period last year.
For the full year, Ingalls revenues decreased $155 million, or 6.3 percent, from 2013 due to lower volumes in amphibious assault ships, partially offset by higher volumes in the NSC program and surface combatants. The decrease in amphibious assault ships revenue was due to lower volumes on LHA-6 USS America and LPD-25 USS Somerset, partially offset by higher volumes on LHA-7 Tripoli and LPD-26 John P. Murtha. Revenues on the NSC program increased due to higher volumes on NSC-6 Munro, NSC-7 Kimball and NSC-5 James, partially offset by lower volumes on NSC-4 Hamilton. Surface combatants revenues increased due to higher volumes on the construction contracts of DDG-117 Paul Ignatius, DDG-119 (unnamed) and DDG-114 Ralph Johnson, partially offset by lower volumes on the DDG-1000 Zumwalt-class destroyer program.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 4 of 15
For 2014, Ingalls operating income was $229 million, up $64 million from the prior year. Operating margin was 10.0 percent for the year, compared to 6.8 percent in 2013. These increases were primarily due to performance improvement and risk retirement on the LPD and NSC programs, partially offset by the net favorable impact in the prior year of hurricane insurance recoveries and the Gulfport closure. Adjusting for $64 million of favorable hurricane insurance recoveries and $17 million of unfavorable Gulfport closure costs in 2013, 2014 operating income increased $111 million and operating margin increased 518 basis points over 2013.
Key Ingalls milestones for the quarter:
• | Authenticated the keel on NSC-6 Munro (WMSL-755) |
• | Launched the 10th amphibious transport dock LPD-26 John P. Murtha |
• | NSC-4 Hamilton (WMSL-753) sailed away |
Newport News Shipbuilding
Three Months Ended | Year Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
(In millions) | 2014 | 2013 | % Change | 2014 | 2013 | % Change | ||||||||||
Revenues | $ | 1,263 | $ | 1,205 | 4.8 | % | $ | 4,536 | $ | 4,382 | 3.5 | % | ||||
Operating income (loss) | 116 | 105 | 10.5 | % | 415 | 402 | 3.2 | % | ||||||||
Operating margin % | 9.2 | % | 8.7 | % | 47 bps | 9.1 | % | 9.2 | % | (2) bps | ||||||
2013 reflects the realignment of AMSEC and CMSD from Ingalls Shipbuilding to Newport News Shipbuilding | ||||||||||||||||
Newport News revenues for the fourth quarter increased $58 million, or 4.8 percent, from the same period in 2013, primarily driven by higher revenues in submarines and energy, partially offset by lower revenues in aircraft carriers. Higher submarines revenues related to the SSN-774 Virginia-class submarine (VCS) program were due to increased volumes on Block IV advance procurement and Block III construction contracts. Higher energy revenues were driven by the acquisition of The S.M. Stoller Corp. (Stoller) in January 2014 and increased commercial volumes. Lower aircraft carriers revenues were due to decreased volumes on CVN-78 Gerald R. Ford, CVN-72 USS Abraham Lincoln refueling and complex overhaul (RCOH) and CVN-71 USS Theodore Roosevelt RCOH.
Newport News operating income for the fourth quarter was $116 million, an increase of $11 million over the same period last year. Operating margin was 9.2 percent for the quarter, compared to 8.7 percent in the same period last year. These increases were primarily due to performance improvement and higher risk retirement on the VCS program and improved commercial performance, partially offset by lower risk retirement on the CVN-71 USS Theodore Roosevelt RCOH.
For the full year, Newport News revenues increased $154 million, or 3.5 percent, from 2013, primarily driven by the Stoller acquisition, as well as higher revenues in submarines and energy, partially offset by lower revenues in aircraft carriers and fleet support services. Submarines revenues related to the VCS program were higher due to increased volumes on Block IV advance procurement and Block III construction contracts, partially offset by lower volumes on Block II boats following the delivery of SSN-783 USS Minnesota. Energy revenues were higher primarily driven by increased commercial volumes. Aircraft carriers revenues were lower primarily due to
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 5 of 15
decreased volumes on the execution contract for the CVN-71 USS Theodore Roosevelt RCOH and the construction contract for CVN-78 Gerald R. Ford, partially offset by higher volumes on the execution contract for CVN-72 USS Abraham Lincoln RCOH and the inactivation contract for the CVN-65 USS Enterprise. Fleet support services revenues were lower primarily due to decreased volumes associated with repair work on SSN-765 USS Montpelier.
For 2014, Newport News operating income was $415 million, up $13 million from the prior year. The increase was primarily due to higher volumes and higher risk retirement on the construction contract for CVN-78 Gerald R. Ford and the VCS program, partially offset by lower risk retirement on the CVN-71 USS Theodore Roosevelt RCOH. Operating margin was 9.1 percent for the year, compared to 9.2 percent in 2013.
Key Newport News milestones for the quarter:
• | Undocked CVN-72 USS Abraham Lincoln |
• | Hosted keel laying ceremony for Virginia-class submarine SSN-787 USS Washington |
Other
Three Months Ended | Year Ended | |||||||||||||||||
December 31 | December 31 | |||||||||||||||||
(In millions) | 2014 | 2013 | $ Change | 2014 | 2013 | $ Change | ||||||||||||
Revenues | $ | 56 | $ | — | $ | 56 | $ | 137 | $ | — | $ | 137 | ||||||
Operating income (loss) | (54 | ) | — | (54 | ) | (59 | ) | — | (59 | ) | ||||||||
Operating margin % | (96.4 | )% | — | (43.1 | )% | — | ||||||||||||
Adjusted operating income1 | (7 | ) | — | (7 | ) | (12 | ) | — | (12 | ) | ||||||||
Adjusted operating margin %1 | (12.5 | )% | — | (8.8 | )% | — | ||||||||||||
1 Non-GAAP metrics that exclude the impact of the goodwill impairment in 2014. See Exhibit B for reconciliation. | ||||||||||||||||||
Revenues in the Other segment were $56 million in the fourth quarter. The operating loss for the quarter was $54 million, which included $47 million of non-cash goodwill impairment charge. Adjusting for the non-cash goodwill impairment charge, the operating loss in the quarter was $7 million.
Revenues in the Other segment were $137 million for the year. The operating loss for the full year was $59 million, which included $47 million of non-cash goodwill impairment charge. Adjusting for the non-cash goodwill impairment charge, operating loss was $12 million for the full year.
The Company
Huntington Ingalls Industries is America’s largest military shipbuilding company and a provider of manufacturing, engineering and management services to the commercial and non-commercial oil, gas and energy 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, Va., HII employs approximately 38,000 people operating both domestically and internationally. For more information, please visit www.huntingtoningalls.com.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 6 of 15
Huntington Ingalls Industries will webcast its earnings conference call at 9 a.m. EST on Feb. 19. 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.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 7 of 15
Exhibit A: Financial Statements
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Year Ended December 31 | ||||||||||||
(in millions, except per share amounts) | 2014 | 2013 | 2012 | |||||||||
Sales and service revenues | ||||||||||||
Product sales | $ | 5,712 | $ | 5,801 | $ | 5,755 | ||||||
Service revenues | 1,245 | 1,019 | 953 | |||||||||
Total sales and service revenues | 6,957 | 6,820 | 6,708 | |||||||||
Cost of sales and service revenues | ||||||||||||
Cost of product sales | 4,489 | 4,695 | 4,827 | |||||||||
Cost of service revenues | 1,051 | 888 | 802 | |||||||||
Income (loss) from operating investments, net | 11 | 14 | 18 | |||||||||
General and administrative expenses | 726 | 739 | 739 | |||||||||
Goodwill impairment | 47 | — | — | |||||||||
Operating income (loss) | 655 | 512 | 358 | |||||||||
Other income (expense) | ||||||||||||
Interest expense | (149 | ) | (118 | ) | (117 | ) | ||||||
Other, net | 1 | — | — | |||||||||
Earnings (loss) before income taxes | 507 | 394 | 241 | |||||||||
Federal income taxes | 169 | 133 | 95 | |||||||||
Net earnings (loss) | $ | 338 | $ | 261 | $ | 146 | ||||||
Basic earnings (loss) per share | $ | 6.93 | $ | 5.25 | $ | 2.96 | ||||||
Weighted-average common shares outstanding | 48.8 | 49.7 | 49.4 | |||||||||
Diluted earnings (loss) per share | $ | 6.86 | $ | 5.18 | $ | 2.91 | ||||||
Weighted-average diluted shares outstanding | 49.3 | 50.4 | 50.1 | |||||||||
Net earnings (loss) from above | $ | 338 | $ | 261 | $ | 146 | ||||||
Other comprehensive income (loss) | ||||||||||||
Change in unamortized benefit plan costs | (558 | ) | 1,159 | (605 | ) | |||||||
Other | — | 4 | — | |||||||||
Tax benefit (expense) for items of other comprehensive income | 217 | (458 | ) | 241 | ||||||||
Other comprehensive income (loss), net of tax | (341 | ) | 705 | (364 | ) | |||||||
Comprehensive income (loss) | $ | (3 | ) | $ | 966 | $ | (218 | ) | ||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 8 of 15
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 31 | ||||||||
($ in millions) | 2014 | 2013 | ||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 990 | $ | 1,043 | ||||
Accounts receivable, net | 1,038 | 1,123 | ||||||
Inventoried costs, net | 339 | 311 | ||||||
Deferred income taxes | 129 | 170 | ||||||
Prepaid expenses and other current assets | 50 | 29 | ||||||
Total current assets | 2,546 | 2,676 | ||||||
Property, Plant, and Equipment | ||||||||
Land and land improvements | 233 | 319 | ||||||
Buildings and leasehold improvements | 1,498 | 1,531 | ||||||
Machinery and other equipment | 1,240 | 1,235 | ||||||
Capitalized software costs | 172 | 216 | ||||||
3,143 | 3,301 | |||||||
Accumulated depreciation and amortization | (1,351 | ) | (1,404 | ) | ||||
Property, plant, and equipment, net | 1,792 | 1,897 | ||||||
Other Assets | ||||||||
Goodwill | 1,026 | 881 | ||||||
Other purchased intangibles, net | 547 | 528 | ||||||
Pension plan assets | 17 | 124 | ||||||
Long-term deferred tax assets | 212 | — | ||||||
Miscellaneous other assets | 129 | 119 | ||||||
Total other assets | 1,931 | 1,652 | ||||||
Total assets | $ | 6,269 | $ | 6,225 | ||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 9 of 15
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION - CONTINUED
December 31 | ||||||||
($ in millions) | 2014 | 2013 | ||||||
Liabilities and Stockholders' Equity | ||||||||
Current Liabilities | ||||||||
Trade accounts payable | $ | 269 | $ | 337 | ||||
Accrued employees’ compensation | 248 | 230 | ||||||
Current portion of long-term debt | 108 | 79 | ||||||
Current portion of postretirement plan liabilities | 143 | 139 | ||||||
Current portion of workers’ compensation liabilities | 221 | 230 | ||||||
Advance payments and billings in excess of revenues | 74 | 115 | ||||||
Other current liabilities | 249 | 262 | ||||||
Total current liabilities | 1,312 | 1,392 | ||||||
Long-term debt | 1,592 | 1,700 | ||||||
Pension plan liabilities | 939 | 529 | ||||||
Other postretirement plan liabilities | 507 | 477 | ||||||
Workers’ compensation liabilities | 449 | 419 | ||||||
Deferred tax liabilities | — | 83 | ||||||
Other long-term liabilities | 105 | 104 | ||||||
Total liabilities | 4,904 | 4,704 | ||||||
Commitments and Contingencies | ||||||||
Stockholders’ Equity | ||||||||
Common stock, $0.01 par value; 150 million shares authorized; 51.5 million issued and 48.3 million outstanding as of December 31, 2014, and 50.5 million issued and 48.7 million outstanding as of December 31, 2013 | 1 | 1 | ||||||
Additional paid-in capital | 1,959 | 1,925 | ||||||
Retained earnings (deficit) | 525 | 236 | ||||||
Treasury stock | (258 | ) | (120 | ) | ||||
Accumulated other comprehensive income (loss) | (862 | ) | (521 | ) | ||||
Total stockholders’ equity | 1,365 | 1,521 | ||||||
Total liabilities and stockholders’ equity | $ | 6,269 | $ | 6,225 | ||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 10 of 15
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 | ||||||||||||
($ in millions) | 2014 | 2013 | 2012 | |||||||||
Operating Activities | ||||||||||||
Net earnings (loss) | $ | 338 | $ | 261 | $ | 146 | ||||||
Adjustments to reconcile to net cash provided by (used in) operating activities | ||||||||||||
Depreciation | 166 | 206 | 165 | |||||||||
Amortization of purchased intangibles | 28 | 20 | 19 | |||||||||
Amortization of debt issuance costs | 11 | 9 | 9 | |||||||||
Stock-based compensation | 34 | 44 | 41 | |||||||||
Excess tax benefit related to stock-based compensation | (39 | ) | (24 | ) | — | |||||||
Deferred income taxes | (22 | ) | (28 | ) | 79 | |||||||
Proceeds from insurance settlement related to investing activities | — | (58 | ) | — | ||||||||
Goodwill impairment | 47 | — | — | |||||||||
Loss on early extinguishment of debt | 37 | — | — | |||||||||
Change in | ||||||||||||
Accounts receivable | 140 | (218 | ) | (194 | ) | |||||||
Inventoried costs | 53 | 51 | 116 | |||||||||
Prepaid expenses and other assets | 7 | (15 | ) | 6 | ||||||||
Accounts payable and accruals | (86 | ) | 69 | (14 | ) | |||||||
Retiree benefits | (4 | ) | (86 | ) | (43 | ) | ||||||
Other non-cash transactions, net | 6 | 5 | 2 | |||||||||
Net cash provided by (used in) operating activities | 716 | 236 | 332 | |||||||||
Investing Activities | ||||||||||||
Additions to property, plant, and equipment | (165 | ) | (139 | ) | (162 | ) | ||||||
Acquisitions of businesses, net of cash received | (272 | ) | — | — | ||||||||
Proceeds from insurance settlement related to investing activities | — | 58 | — | |||||||||
Net cash provided by (used in) investing activities | (437 | ) | (81 | ) | (162 | ) | ||||||
Financing Activities | ||||||||||||
Proceeds from issuance of long-term debt | 600 | — | — | |||||||||
Repayment of long-term debt | (679 | ) | (51 | ) | (29 | ) | ||||||
Debt issuance costs | (12 | ) | (5 | ) | — | |||||||
Tender premiums and fees related to early extinguishment of debt | (31 | ) | — | — | ||||||||
Dividends paid | (49 | ) | (25 | ) | (5 | ) | ||||||
Repurchases of common stock | (138 | ) | (119 | ) | (1 | ) | ||||||
Employee taxes on certain share-based payment arrangements | (64 | ) | — | — | ||||||||
Proceeds from stock option exercises | 2 | 7 | 7 | |||||||||
Excess tax benefit related to stock-based compensation | 39 | 24 | — | |||||||||
Net cash provided by (used in) financing activities | (332 | ) | (169 | ) | (28 | ) | ||||||
Change in cash and cash equivalents | (53 | ) | (14 | ) | 142 | |||||||
Cash and cash equivalents, beginning of period | 1,043 | 1,057 | 915 | |||||||||
Cash and cash equivalents, end of period | $ | 990 | $ | 1,043 | $ | 1,057 | ||||||
Supplemental Cash Flow Disclosure | ||||||||||||
Cash paid for income taxes | $ | 161 | $ | 154 | $ | 28 | ||||||
Cash paid for interest | $ | 113 | $ | 109 | $ | 111 | ||||||
Non-Cash Investing and Financing Activities | ||||||||||||
Capital expenditures accrued in accounts payable | $ | 9 | $ | 12 | $ | 20 | ||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 11 of 15
Exhibit B: Reconciliations
We make reference to “segment operating income,” “segment operating margin,” “adjusted sales and service revenues,” “adjusted segment operating income,” “adjusted segment operating margin,” “adjusted total operating income,” “adjusted operating margin,” “adjusted net earnings,” “adjusted diluted earnings per share,” and "free cash flow."
Segment operating income is defined as total operating income before the FAS/CAS Adjustment and deferred state income taxes.
Segment operating margin is defined as segment operating income as a percentage of total sales and service revenues.
Adjusted sales and service revenues is defined as total sales and service revenues adjusted for the impacts of the hurricane insurance recoveries in the third and fourth quarters of 2013 and the Gulfport closure in the third quarter of 2013.
Adjusted segment operating income is defined as segment operating income adjusted for the impacts of the hurricane insurance recoveries in the third and fourth quarters of 2013, the Gulfport closure in the third quarter of 2013 and the non-cash goodwill impairment charge in the fourth quarter of 2014.
Adjusted segment operating margin is defined as adjusted segment operating income as a percentage of adjusted segment sales and service revenues.
Adjusted total operating income is defined as total operating income adjusted for the impacts of the hurricane insurance recoveries in the third and fourth quarters of 2013, the Gulfport closure in the third quarter of 2013 and the non-cash goodwill impairment charge in the fourth quarter of 2014.
Adjusted operating margin is defined as adjusted total operating income as a percentage of adjusted sales and service revenues.
Adjusted net earnings is defined as net earnings adjusted for the tax effected impacts of the hurricane insurance recoveries in the third and fourth quarters of 2013, the Gulfport closure in the third quarter of 2013, the tax effected impact of the loss on early extinguishment of debt in the fourth quarter of 2014, the net effect of the non-cash goodwill impairment charge in the fourth quarter of 2014 and the tax effected FAS/CAS Adjustment.
Adjusted diluted earnings per share is defined as adjusted net earnings divided by the weighted-average diluted common shares outstanding.
Free cash flow is defined as net cash provided by (used in) operating activities less capital expenditures.
We internally manage our operations by reference to "segment operating income," which is not a recognized measure under GAAP. When analyzing our operating performance, investors should use segment operating income in addition to, and not as an alternative for, total operating income or any other performance measure presented in accordance with GAAP. It is a metric that we use to evaluate our core operating performance. We believe that segment operating income reflects 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
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 12 of 15
the measure is used by investors and is a useful indicator to measure our performance. Because not all companies use identical calculations, our presentation of segment operating income may not be comparable to similarly titled measures of other companies.
Free cash flow is not a measure recognized under GAAP. Free cash flow has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, analysis of our results as reported under GAAP. We believe free cash flow is an important measure for our investors because it provides them insight into our current and period-to-period performance and our ability to generate cash from continuing operations. We also use free cash flow as a key operating metric in assessing the performance of our business and as a key performance measure in evaluating management performance and determining incentive compensation. Free cash flow may not be comparable to similarly titled measures of other companies.
Reconciliation of Segment Operating Income and Segment Operating Margin
Three Months Ended | Year Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
($ in millions) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Sales and Service Revenues | ||||||||||||||||
Ingalls | $ | 608 | $ | 734 | $ | 2,286 | $ | 2,441 | ||||||||
Newport News | 1,263 | 1,205 | 4,536 | 4,382 | ||||||||||||
Other | 56 | — | 137 | — | ||||||||||||
Intersegment eliminations | — | (1 | ) | (2 | ) | (3 | ) | |||||||||
Total Sales and Service Revenues | 1,927 | 1,938 | 6,957 | 6,820 | ||||||||||||
Segment Operating Income | ||||||||||||||||
Ingalls | 72 | 64 | 229 | 165 | ||||||||||||
As a percentage of revenues | 11.8 | % | 8.7 | % | 10.0 | % | 6.8 | % | ||||||||
Newport News | 116 | 105 | 415 | 402 | ||||||||||||
As a percentage of revenues | 9.2 | % | 8.7 | % | 9.1 | % | 9.2 | % | ||||||||
Other | (54 | ) | — | (59 | ) | — | ||||||||||
As a percentage of revenues | (96.4 | )% | — | % | (43.1 | )% | — | % | ||||||||
Total Segment Operating Income | 134 | 169 | 585 | 567 | ||||||||||||
As a percentage of revenues | 7.0 | % | 8.7 | % | 8.4 | % | 8.3 | % | ||||||||
Non-segment factors affecting operating income | ||||||||||||||||
FAS/CAS Adjustment | 8 | (7 | ) | 72 | (61 | ) | ||||||||||
Deferred state income taxes | 2 | 12 | (2 | ) | 6 | |||||||||||
Total Operating Income | 144 | 174 | 655 | 512 | ||||||||||||
Interest expense | (66 | ) | (31 | ) | (149 | ) | (118 | ) | ||||||||
Other, net | 1 | — | 1 | — | ||||||||||||
Federal income taxes | (27 | ) | (52 | ) | (169 | ) | (133 | ) | ||||||||
Net Earnings | $ | 52 | $ | 91 | $ | 338 | $ | 261 | ||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 13 of 15
Reconciliation of Adjusted Sales and Service Revenues, Adjusted Segment Operating Income, Adjusted Segment Operating Margin, Adjusted Total Operating Income and Adjusted Operating Margin
Three Months Ended | Year Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
($ in millions) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Adjusted Sales and Service Revenues | ||||||||||||||||
Ingalls revenues | $ | 608 | $ | 734 | $ | 2,286 | $ | 2,441 | ||||||||
Adjustment for hurricane insurance recoveries | — | (31 | ) | — | 6 | |||||||||||
Adjustment for Gulfport closure impact | — | — | — | (9 | ) | |||||||||||
Adjusted Ingalls revenues | 608 | 703 | 2,286 | 2,438 | ||||||||||||
Newport News revenues | 1,263 | 1,205 | 4,536 | 4,382 | ||||||||||||
Other revenues | 56 | — | 137 | — | ||||||||||||
Intersegment eliminations | — | (1 | ) | (2 | ) | (3 | ) | |||||||||
Adjusted Sales and Service Revenues | $ | 1,927 | $ | 1,907 | $ | 6,957 | $ | 6,817 | ||||||||
Adjusted Segment Operating Income | ||||||||||||||||
Total Operating Income | $ | 144 | $ | 174 | $ | 655 | $ | 512 | ||||||||
As a percentage of revenues | 7.5 | % | 9.0 | % | 9.4 | % | 7.5 | % | ||||||||
Non-segment factors affecting operating income: | ||||||||||||||||
FAS/CAS Adjustment | (8 | ) | 7 | (72 | ) | 61 | ||||||||||
Deferred state income taxes | (2 | ) | (12 | ) | 2 | (6 | ) | |||||||||
Unadjusted Segment Operating Income | $ | 134 | $ | 169 | $ | 585 | $ | 567 | ||||||||
As a percentage of revenues | 7.0 | % | 8.7 | % | 8.4 | % | 8.3 | % | ||||||||
Non-recurring items affecting operating income: | ||||||||||||||||
Ingalls operating income | $ | 72 | $ | 64 | $ | 229 | $ | 165 | ||||||||
Adjustment for hurricane insurance recoveries | — | (18 | ) | — | (64 | ) | ||||||||||
Adjustment for Gulfport closure impact | — | — | — | 17 | ||||||||||||
Adjusted Ingalls operating income | 72 | 46 | 229 | 118 | ||||||||||||
As a percentage of adjusted revenues | 11.8 | % | 6.5 | % | 10.0 | % | 4.8 | % | ||||||||
Newport News operating income | 116 | 105 | 415 | 402 | ||||||||||||
As a percentage of adjusted revenues | 9.2 | % | 8.7 | % | 9.1 | % | 9.2 | % | ||||||||
Other operating income | (54 | ) | — | (59 | ) | — | ||||||||||
Adjustment for goodwill impairment | 47 | — | 47 | — | ||||||||||||
Adjusted Other operating income | (7 | ) | — | (12 | ) | — | ||||||||||
As a percentage of adjusted revenues | (12.5 | )% | — | % | (8.8 | )% | — | % | ||||||||
Adjusted Segment Operating Income | $ | 181 | $ | 151 | $ | 632 | $ | 520 | ||||||||
As a percentage of adjusted revenues | 9.4 | % | 7.9 | % | 9.1 | % | 7.6 | % | ||||||||
Adjusted Total Operating Income | ||||||||||||||||
Total Operating Income | $ | 144 | $ | 174 | $ | 655 | $ | 512 | ||||||||
As a percentage of revenues | 7.5 | % | 9.0 | % | 9.4 | % | 7.5 | % | ||||||||
Adjustment for hurricane insurance recoveries | — | (18 | ) | — | (64 | ) | ||||||||||
Adjustment for Gulfport closure impact | — | — | — | 17 | ||||||||||||
Adjustment for goodwill impairment | 47 | — | 47 | — | ||||||||||||
Adjusted Total Operating Income | $ | 191 | $ | 156 | $ | 702 | $ | 465 | ||||||||
As a percentage of adjusted revenues | 9.9 | % | 8.2 | % | 10.1 | % | 6.8 | % | ||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 14 of 15
Reconciliation of Adjusted Net Earnings and Adjusted Diluted Earnings per Share
Three Months Ended | Year Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
($ in millions, except for per share amounts) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Adjusted Net Earnings | ||||||||||||||||
Net Earnings | $ | 52 | $ | 91 | $ | 338 | $ | 261 | ||||||||
Adjustment for hurricane insurance recoveries(1) | — | (12 | ) | — | (42 | ) | ||||||||||
Adjustment for Gulfport closure impact(1) | — | — | — | 11 | ||||||||||||
Adjustment for goodwill impairment(2) | 37 | — | 37 | — | ||||||||||||
Adjustment for loss on early extinguishment of debt(1) | 24 | — | 24 | — | ||||||||||||
Adjustment for FAS/CAS Adjustment(1) | (5 | ) | 4 | (47 | ) | 40 | ||||||||||
Adjusted Net Earnings | $ | 108 | $ | 83 | $ | 352 | $ | 270 | ||||||||
Per Share Amounts | ||||||||||||||||
Weighted-Average Diluted Shares Outstanding | 49.3 | 50.1 | 49.3 | 50.4 | ||||||||||||
Adjusted Diluted EPS | ||||||||||||||||
Diluted earnings per share | $ | 1.05 | $ | 1.82 | $ | 6.86 | $ | 5.18 | ||||||||
After-tax hurricane insurance recoveries per share | — | (0.24 | ) | — | (0.83 | ) | ||||||||||
After-tax Gulfport closure per share | — | — | — | 0.22 | ||||||||||||
After-tax goodwill impairment impact per share | 0.75 | — | 0.75 | — | ||||||||||||
After-tax loss on early extinguishment of debt per share | 0.49 | — | 0.49 | — | ||||||||||||
After-tax FAS/CAS Adjustment per share | (0.10 | ) | 0.08 | (0.96 | ) | 0.79 | ||||||||||
Adjusted Diluted EPS | $ | 2.19 | $ | 1.66 | $ | 7.14 | $ | 5.36 | ||||||||
(1) Tax effected at 35% federal statutory tax rate. | ||||||||||||||||
(2) The goodwill impairment charge created a $10 million Federal tax benefit. | ||||||||||||||||
Reconciliation of Free Cash Flow
Three Months Ended | Year Ended | |||||||||||
December 31 | December 31 | |||||||||||
($ in millions) | 2014 | 2013 | 2014 | 2013 | ||||||||
Net cash provided by (used in) operating activities | 402 | 292 | 716 | 236 | ||||||||
Less: | ||||||||||||
Capital expenditures | (74 | ) | (54 | ) | (165 | ) | (139 | ) | ||||
Free cash flow | 328 | 238 | 551 | 97 | ||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 15 of 15