EX-99.1 2 hii2016q3earningsrelease.htm EXHIBIT 99.1 Exhibit
image0a03.jpg
 
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 Third Quarter 2016 Results

•
Revenues were $1.68 billion
•
Total operating margin was 10.4%
•
Segment operating margin was 8.3%
•
Diluted earnings per share was $2.27
•
Cash and cash equivalents at the end of the quarter were $957 million

NEWPORT NEWS, Va. (Nov. 3, 2016) - Huntington Ingalls Industries (NYSE:HII) reported third quarter 2016 revenues of $1.68 billion, down 6.5 percent from the same period last year. Diluted earnings per share in the quarter was $2.27, compared to $2.29 in the same period of 2015.
Operating income in the quarter was $175 million, compared to $200 million in the same period last year. Operating margin in the quarter was 10.4 percent, compared to 11.1 percent in the same period last year. These decreases were driven by lower volumes and lower risk retirements in shipbuilding, partially offset by the favorable FAS/CAS Adjustment.
New business awards for the quarter were approximately $1.2 billion, bringing total backlog to $20.0 billion as of Sept. 30, 2016.

“Our third quarter financial results reflect solid overall operating performance, driven by program execution at Ingalls,” said Mike Petters, HII’s president and CEO. “Given our strong year-to-date performance, and despite challenges at Newport News, we expect 2016 revenues and operating margin to be relatively similar to 2015.”




Results of Operations
 
Three Months Ended
 
 
Nine Months Ended
 
 
September 30
 
 
September 30
 
(in millions, except per share amounts)
2016
2015
% Change
 
2016
2015
% Change
Sales and service revenues
$
1,683

$
1,800

(6.5
)%
 
$
5,146

$
5,115

0.6
 %
Operating income
175

200

(12.5
)%
 
590

625

(5.6
)%
  Operating margin %
10.4
%
11.1
%
(71) bps
 
11.5
%
12.2
%
(75) bps
Segment operating income1
140

172

(18.6
)%
 
490

543

(9.8
)%
  Segment operating margin %1
8.3
%
9.6
%
(124) bps
 
9.5
%
10.6
%
(109) bps
Net earnings
107

111

(3.6
)%
 
376

354

6.2
 %
Diluted earnings per share
$
2.27

$
2.29

(0.9
)%
 
$
7.93

$
7.28

8.9
 %
 
 
 
 
 
 
 
 
Weighted-average diluted shares outstanding
47.2

48.4

 
 
47.4

48.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted sales and service revenues2
$
1,683

$
1,800

(6.5
)%
 
$
5,146

$
5,128

0.4
 %
Adjusted operating income2,3
175

200

(12.5
)%
 
590

548

7.7
 %
  Adjusted operating margin %2,3
10.4
%
11.1
%
(71) bps
 
11.5
%
10.7
%
78 bps
Adjusted segment operating income1,2,3
140

172

(18.6
)%
 
490

466

5.2
 %
  Adjusted segment operating margin %1,2,3
8.3
%
9.6
%
(124) bps
 
9.5
%
9.1
%
43 bps
Adjusted net earnings4
83

96

(13.5
)%
 
306

263

16.3
 %
Adjusted diluted earnings per share4
$
1.76

$
1.98

(11.1
)%
 
$
6.45

$
5.41

19.2
 %
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 impact of the FAS/CAS Adjustment in 2016 and 2015, the after-tax impact of the insurance litigation settlement at the Ingalls segment and the goodwill impairment charge at the Other segment, each in second quarter 2015, and the after-tax impact of the loss on the early extinguishment of debt in the third quarter of 2015. See Exhibit B for reconciliations.








Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 2 of 15





Segment Operating Results
Ingalls Shipbuilding
 
Three Months Ended
 
 
Nine Months Ended
 
 
September 30
 
 
September 30
 
($ in millions)
2016
2015
% Change
 
2016
2015
% Change
Revenues
$
577

$
593

(2.7
)%
 
$
1,748

$
1,608

8.7
 %
Segment operating income1
66

77

(14.3
)%
 
236

320

(26.3
)%
Segment operating margin %1
11.4
%
13.0
%
(155) bps
 
13.5
%
19.9
%
(640) bps
Adjusted revenues1,2
577

593

(2.7
)%
 
1,748

1,621

7.8
 %
Adjusted segment operating income1,2
66

77

(14.3
)%
 
236

184

28.3
 %
Adjusted segment operating margin %1,2
11.4
%
13.0
%
(155) bps
 
13.5
%
11.4
%
215 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.

Ingalls revenues for the third quarter decreased $16 million, or 2.7 percent, from the same period in 2015, due to lower revenues in Amphibious Assault Ships and the Legend-class National Security Cutter (NSC) program, partially offset by higher revenues in Surface Combatants. Lower Amphibious Assault Ships revenues were due to the delivery of LPD-26 USS John P. Murtha in the second quarter of 2016 and decreased volume on LPD-27 Portland, partially offset by increased volume on LPD-28 Fort Lauderdale. Lower NSC program revenues were due to the delivery of NSC-5 USCGC James in 2015 and decreased volume on NSC-6 Munro. Higher Surface Combatant revenues were primarily due to increased volumes on DDG-121 Frank E. Petersen Jr. and DDG-123 Lenah H. Sutcliffe Higbee, partially offset by decreased volume on DDG-113 John Finn.
Ingalls segment operating income for the third quarter was $66 million, a decrease of $11 million from the same period last year. Segment operating margin in the quarter was 11.4 percent, compared to 13.0 percent in the same period last year. These decreases were primarily due to lower risk retirement on the LHA-6 America-class program.

Key Ingalls milestones for the quarter:
•
Awarded an $88.2 million contract to purchase long-lead material for a ninth NSC
•
Awarded two contracts totaling $32.8 million for design work on the amphibious warfare ship replacement known as LX(R)
•
Awarded a $14 million contract to overhaul DDG-61 USS Ramage
•
Completed builder's sea trials for NSC-6 Munro


Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 3 of 15





Newport News Shipbuilding
 
Three Months Ended
 
 
Nine Months Ended
 
 
September 30
 
 
September 30
 
($ in millions)
2016
2015
% Change
 
2016
2015
% Change
Revenues
$
1,072

$
1,177

(8.9
)%
 
$
3,315

$
3,404

(2.6
)%
Segment operating income1
79

100

(21.0
)%
 
270

302

(10.6
)%
Segment operating margin %1
7.4
%
8.5
%
(113) bps
 
8.1
%
8.9
%
(73) bps
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.
Newport News revenues for the third quarter decreased $105 million, or 8.9 percent, from the same period in 2015, primarily driven by lower revenues in Aircraft Carriers and Submarines. 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 advance 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.
Newport News segment operating income for the third quarter was $79 million, a decrease of $21 million from the same period last year. Segment operating margin was 7.4 percent for the quarter, compared to 8.5 percent in the same period last year. These decreases were due to lower risk retirement on the VCS program, as well as the resolution of outstanding contract changes on the CVN-71 USS Theodore Roosevelt RCOH in the third quarter of 2015.

Key Newport News milestones for the quarter:
•
Awarded a contract with a potential value of $400 million over the next five years to perform repair work on in-service nuclear-powered submarines, special mission submersibles, moored training ships and submarine support facilities
•
Awarded a $195 million contract modification to continue advance planning for the RCOH of CVN-73 USS George Washington
•
Awarded a $109 million contract to provide engineering, design, logistics and other support for the U.S. Navy's Los Angeles-class, Seawolf-class, Virginia-class and Ohio-class submarines
•
Awarded a $52 million contract for repair and modernization work on CVN-75 USS Harry S. Truman
•
Awarded a $17.7 million contract for planning and maintenance work on SSN-725 USS Helena
•
Redelivered SSN-785 USS John Warner to the U.S. Navy following its post-shakedown availability (PSA), the first PSA for a Virginia-class submarine conducted by Newport News

Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 4 of 15





Other
 
Three Months Ended
 
 
Nine Months Ended
 
 
September 30
 
 
September 30
 
($ in millions)
2016
2015
% Change
 
2016
2015
% Change
Revenues
$
33

$
30

10.0
%
 
$
84

$
105

(20.0
)%
Segment operating (loss)1
(5
)
(5
)
—
%
 
(16
)
(79
)
(79.7
)%
Segment operating margin %1
(15.2
)%
(16.7
)%
152 bps

 
(19.0
)%
(75.2
)%
NM3

Adjusted segment operating (loss)1,2
(5
)
(5
)
—
%
 
(16
)
(20
)
(20.0
)%
Adjusted segment operating margin %1,2
(15.2
)%
(16.7
)%
152 bps

 
(19.0
)%
(19.0
)%
0 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 third quarter increased $3 million, or 10.0 percent, from the same period last year, due to higher volumes in oil and gas services. Segment operating loss for the quarter was $5 million, which was consistent with third quarter 2015.


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 noon today through Thursday, Nov. 10 by calling toll-free (855) 859-2056 or (404) 537-3406 and using conference ID 91634496.
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 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

Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 5 of 15





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 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 15





Exhibit A: Financial Statements

HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
 
 
Three Months Ended
September 30
 
Nine Months Ended
September 30
(in millions, except per share amounts)
 
2016
 
2015
 
2016
 
2015
Sales and service revenues
 
 
 
 
 


 

Product sales
 
$
1,327

 
$
1,461

 
$
4,120

 
$
4,137

Service revenues
 
356

 
339

 
1,026

 
978

Sales and service revenues
 
1,683

 
1,800

 
5,146

 
5,115

Cost of sales and service revenues
 
 
 
 
 

 

Cost of product sales
 
1,059

 
1,164

 
3,241

 
3,121

Cost of service revenues
 
308

 
292

 
887

 
846

Income (loss) from operating investments, net
 
6

 
6

 
7

 
9

General and administrative expenses
 
147

 
150

 
435

 
473

Goodwill impairment
 
—

 
—

 
—

 
59

Operating income (loss)
 
175

 
200

 
590

 
625

Other income (expense)
 
 
 
 
 


 


Interest expense
 
(19
)
 
(25
)
 
(56
)
 
(73
)
Other, net
 
1

 
—

 
(1
)
 
—

Earnings (loss) before income taxes
 
157

 
175

 
533

 
552

Federal income taxes
 
50

 
64

 
157

 
198

Net earnings (loss)
 
$
107

 
$
111

 
$
376

 
$
354

 
 
 
 
 
 


 


Basic earnings (loss) per share
 
$
2.28

 
$
2.31

 
$
8.00

 
$
7.33

Weighted-average common shares outstanding
 
46.9

 
48.0

 
47.0

 
48.3

 
 
 
 
 
 


 


Diluted earnings (loss) per share
 
$
2.27

 
$
2.29

 
$
7.93

 
$
7.28

Weighted-average diluted shares outstanding
 
47.2

 
48.4

 
47.4

 
48.6

 
 
 
 
 
 


 


Dividends declared per share
 
$
0.50

 
$
0.40

 
$
1.50

 
$
1.20

 
 
 
 
 
 


 


Net earnings (loss) from above
 
$
107

 
$
111

 
$
376

 
$
354

Other comprehensive income (loss)
 
 
 
 
 

 

Change in unamortized benefit plan costs
 
20

 
21

 
59

 
65

Other
 
1

 
(7
)
 
1

 
(7
)
Tax benefit (expense) for items of other comprehensive income
 
(8
)
 
(4
)
 
(23
)
 
(22
)
Other comprehensive income (loss), net of tax
 
13

 
10

 
37

 
36

Comprehensive income (loss)
 
$
120

 
$
121

 
$
413

 
$
390



Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 7 of 15





HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
($ in millions)
 
September 30,
2016
 
December 31, 2015
Assets
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
957

 
$
894

Accounts receivable, net
 
1,046

 
1,074

Inventoried costs, net
 
268

 
285

Prepaid expenses and other current assets
 
73

 
31

Total current assets
 
2,344

 
2,284

Property, plant, and equipment, net of accumulated depreciation of $1,592 million as of 2016 and $1,489 million as of 2015
 
1,841

 
1,827

Goodwill
 
956

 
956

Other intangible assets, net of accumulated amortization of $481 million as of 2016 and $465 million as of 2015
 
479

 
495

Deferred tax asset
 
253

 
336

Miscellaneous other assets
 
135

 
126

Total assets
 
$
6,008

 
$
6,024

Liabilities and Stockholders' Equity
 
 
 
 
Current Liabilities
 
 
 
 
Trade accounts payable
 
$
293

 
$
317

Accrued employees’ compensation
 
211

 
215

Current portion of postretirement plan liabilities
 
143

 
143

Current portion of workers’ compensation liabilities
 
227

 
227

Advance payments and billings in excess of revenues
 
99

 
125

Other current liabilities
 
255

 
247

Total current liabilities
 
1,228

 
1,274

Long-term debt
 
1,277

 
1,273

Pension plan liabilities
 
866

 
1,001

Other postretirement plan liabilities
 
424

 
423

Workers’ compensation liabilities
 
462

 
460

Other long-term liabilities
 
99

 
103

Total liabilities
 
4,356

 
4,534

Commitments and Contingencies
 
 
 
 
Stockholders’ Equity
 
 
 
 
Common stock, $0.01 par value; 150 million shares authorized; 52.6 million shares issued and 46.5 million shares outstanding as of September 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
 
1,949

 
1,978

Retained earnings (deficit)
 
1,154

 
848

Treasury stock
 
(644
)
 
(492
)
Accumulated other comprehensive income (loss)
 
(808
)
 
(845
)
Total stockholders’ equity
 
1,652

 
1,490

Total liabilities and stockholders’ equity
 
$
6,008

 
$
6,024


Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 8 of 15





HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
Nine Months Ended
September 30
($ in millions)
 
2016
 
2015
Operating Activities
 

 

Net earnings (loss)
 
$
376

 
$
354

Adjustments to reconcile to net cash provided by (used in) operating activities
 

 

Depreciation
 
123

 
116

Amortization of purchased intangibles
 
16

 
19

Amortization of debt issuance costs
 
4

 
6

Stock-based compensation
 
22

 
29

Deferred income taxes
 
59

 
5

Proceeds from insurance settlement related to investing activities
 
—

 
(21
)
Goodwill impairment
 
—

 
59

Loss on early extinguishment of debt
 
—

 
4

Change in
 

 

Accounts receivable
 
28

 
(245
)
Inventoried costs
 
17

 
31

Prepaid expenses and other assets
 
(51
)
 
(39
)
Accounts payable and accruals
 
(42
)
 
108

Retiree benefits
 
(75
)
 
(1
)
Other non-cash transactions, net
 
—

 
3

Net cash provided by (used in) operating activities
 
477

 
428

Investing Activities
 
 
 
 
Additions to property, plant, and equipment
 
(145
)
 
(86
)
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
 
(141
)
 
(39
)
Financing Activities
 
 
 
 
Repayment of long-term debt
 
—

 
(395
)
Debt issuance costs
 
—

 
(9
)
Dividends paid
 
(70
)
 
(58
)
Repurchases of common stock
 
(152
)
 
(192
)
Employee taxes on certain share-based payment arrangements
 
(51
)
 
(54
)
Net cash provided by (used in) financing activities
 
(273
)
 
(708
)
Change in cash and cash equivalents
 
63

 
(319
)
Cash and cash equivalents, beginning of period
 
894

 
990

Cash and cash equivalents, end of period
 
$
957

 
$
671

Supplemental Cash Flow Disclosure
 
 
 
 
Cash paid for income taxes
 
$
198

 
$
210

Cash paid for interest
 
$
36

 
$
68

Non-Cash Investing and Financing Activities
 
 
 
 
Capital expenditures accrued in accounts payable
 
$
11

 
$
3


Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 9 of 15





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, each 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 15





Adjusted net earnings is defined as net earnings adjusted for the after-tax impacts of: the loss on early extinguishment of debt in third quarter 2015, the insurance litigation settlement at the Ingalls segment and the goodwill impairment charge at the Other segment, each 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 15





Reconciliation of Segment Operating Income and Segment Operating Margin
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30
 
September 30
($ in millions)
 
2016
 
2015
 
2016
 
2015
Ingalls revenues
 
$
577

 
$
593

 
$
1,748

 
$
1,608

Newport News revenues
 
1,072

 
1,177

 
3,315

 
3,404

Other revenues
 
33

 
30

 
84

 
105

Intersegment eliminations
 
1

 
—

 
(1
)
 
(2
)
Sales and Service Revenues
 
1,683

 
1,800

 
5,146

 
5,115

Segment Operating Income
 
 
 
 
 
 
 
 
Ingalls
 
66

 
77

 
236

 
320

  As a percentage of Ingalls revenues
 
11.4
 %
 
13.0
 %
 
13.5
 %
 
19.9
 %
Newport News
 
79

 
100

 
270

 
302

  As a percentage of Newport News revenues
 
7.4
 %
 
8.5
 %
 
8.1
 %
 
8.9
 %
Other
 
(5
)
 
(5
)
 
(16
)
 
(79
)
  As a percentage of Other revenues
 
(15.2
)%
 
(16.7
)%
 
(19.0
)%
 
(75.2
)%
Segment Operating Income
 
140

 
172

 
490

 
543

As a percentage of sales and service revenues
 
8.3
 %
 
9.6
 %
 
9.5
 %
 
10.6
 %
Non-segment factors affecting operating income:
 
 
 
 
 
 
 
 
FAS/CAS Adjustment
 
37

 
27

 
107

 
82

Deferred state income taxes
 
(2
)
 
1

 
(7
)
 
—

Operating Income
 
175

 
200

 
590

 
625

Interest expense
 
(19
)
 
(25
)
 
(56
)
 
(73
)
Other, net
 
1

 
—

 
(1
)
 
—

Federal income taxes
 
(50
)
 
(64
)
 
(157
)
 
(198
)
Net Earnings
 
$
107

 
$
111

 
$
376

 
$
354



Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 12 of 15





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
 
Nine Months Ended
 
 
September 30
 
September 30
($ in millions)
 
2016
 
2015
 
2016
 
2015
Ingalls revenues
 
$
577

 
$
593

 
$
1,748

 
$
1,608

Adjustment for insurance litigation settlement
 
—

 
—

 
—

 
13

Adjusted Ingalls revenues
 
577

 
593

 
1,748

 
1,621

Newport News revenues
 
1,072

 
1,177

 
3,315

 
3,404

Other revenues
 
33

 
30

 
84

 
105

Intersegment eliminations
 
1

 
—

 
(1
)
 
(2
)
Adjusted Sales and Service Revenues
 
$
1,683

 
$
1,800

 
$
5,146

 
$
5,128

 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
Operating income
 
$
175

 
$
200

 
$
590

 
$
625

As a percentage of sales and service revenues
 
10.4
 %
 
11.1
 %
 
11.5
 %
 
12.2
 %
Non-segment factors affecting operating income:
 

 

 

 

FAS/CAS Adjustment
 
(37
)
 
(27
)
 
(107
)
 
(82
)
Deferred state income taxes
 
2

 
(1
)
 
7

 
—

Unadjusted Segment Operating Income
 
$
140

 
$
172

 
$
490

 
$
543

As a percentage of sales and service revenues
 
8.3
 %
 
9.6
 %
 
9.5
 %
 
10.6
 %
 
 
 
 
 
 
 
 
 
Adjustments affecting segment operating income (loss):
 
 
 
 
 
 
 
 
Ingalls segment operating income
 
$
66

 
$
77

 
$
236

 
$
320

Adjustment for insurance litigation settlement
 
—

 
—

 
—

 
(136
)
Adjusted Ingalls segment operating income
 
66

 
77

 
236

 
184

As a percentage of Ingalls adjusted revenues
 
11.4
 %
 
13.0
 %
 
13.5
 %
 
11.4
 %
Newport News segment operating income
 
79

 
100

 
270

 
302

As a percentage of Newport News revenues
 
7.4
 %
 
8.5
 %
 
8.1
 %
 
8.9
 %
Other segment operating (loss)
 
(5
)
 
(5
)
 
(16
)
 
(79
)
Adjustment for goodwill impairment
 
—

 
—

 
—

 
59

Adjusted Other segment operating (loss)
 
(5
)
 
(5
)
 
(16
)
 
(20
)
As a percentage of Other revenues
 
(15.2
)%
 
(16.7
)%
 
(19.0
)%
 
(19.0
)%
Adjusted Segment Operating Income
 
$
140

 
$
172

 
$
490

 
$
466

As a percentage of adjusted sales and service revenues
 
8.3
 %
 
9.6
 %
 
9.5
 %
 
9.1
 %
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
Operating income
 
$
175

 
$
200

 
$
590

 
$
625

As a percentage of sales and service revenues
 
10.4
 %
 
11.1
 %
 
11.5
 %
 
12.2
 %
Adjustment for insurance litigation settlement
 
—

 
—

 
—

 
(136
)
Adjustment for goodwill impairment
 
—

 
—

 
—

 
59

Adjusted Operating Income
 
$
175

 
$
200

 
$
590

 
$
548

As a percentage of adjusted sales and service revenues
 
10.4
 %
 
11.1
 %
 
11.5
 %
 
10.7
 %


Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 13 of 15





Reconciliation of Adjusted Net Earnings
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30
 
September 30
($ in millions)
 
2016
 
2015
 
2016
 
2015

 
 
 
 
 
 
 
 
Net Earnings
 
$
107

 
$
111

 
$
376

 
$
354

After-tax adjustment for insurance litigation settlement (1)
 
—

 
—

 
—

 
(88
)
After-tax adjustment for goodwill impairment charge (2)
 
—

 
—

 
—

 
47

After-tax adjustment for loss on early extinguishment of debt (3)
 
—

 
3

 
—

 
3

After-tax adjustment for FAS/CAS Adjustment (4)
 
(24
)
 
(18
)
 
(70
)
 
(53
)
Adjusted Net Earnings
 
$
83

 
$
96

 
$
306

 
$
263



Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 14 of 15





Reconciliation of Adjusted Diluted Earnings per Share
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30
 
September 30
(in millions, except for per share amounts)
 
2016
 
2015
 
2016
 
2015

 
 
 
 
 
 
 
 
Diluted earnings per share
 
$
2.27

 
$
2.29

 
$
7.93

 
$
7.28

After-tax insurance litigation settlement per share (1)
 
—

 
—

 
—

 
(1.81
)
After-tax impairment of goodwill per share (2)
 
—

 
—

 
—

 
0.97

After-tax loss on early extinguishment of debt per share (3)
 
—

 
0.06

 
—

 
0.06

After-tax FAS/CAS Adjustment per share (4)
 
(0.51
)
 
(0.37
)
 
(1.48
)
 
(1.09
)
Adjusted Diluted EPS
 
$
1.76

 
$
1.98

 
$
6.45

 
$
5.41

 
 
 
 
 
 
 
 
 
(1) Insurance litigation settlement
 
—

 
—

 
—

 
(136
)
Tax effect at 35% statutory rate*
 
—

 
—

 
—

 
48

After-tax effect 
 
—

 
—

 
—

 
(88
)
Weighted-Average Diluted Shares Outstanding
 
47.2

 
48.4

 
47.4

 
48.6

Per share impact**
 
—

 
—

 
—

 
(1.81
)

 
 
 
 
 
 
 
 
(2) Goodwill impairment charge
 
—

 
—

 
—

 
59

Discrete federal tax impact*
 
—

 
—

 
—

 
(12
)
After-tax effect 
 
—

 
—

 
—

 
47

Weighted-Average Diluted Shares Outstanding
 
47.2

 
48.4

 
47.4

 
48.6

Per share impact**
 
—

 
—

 
—

 
0.97


 
 
 
 
 
 
 
 
(3) Loss on early extinguishment of debt
 
—

 
5

 
—

 
5

Tax effect at 35% statutory rate*
 
—

 
(2
)
 
—

 
(2
)
After-tax effect 
 
—

 
3

 
—

 
3

Weighted-Average Diluted Shares Outstanding
 
47.2

 
48.4

 
47.4

 
48.6

Per share impact**
 
—

 
0.06

 
—

 
0.06


 

 

 

 

(4) FAS/CAS Adjustment
 
(37
)
 
(27
)
 
(107
)
 
(82
)
Tax effect at 35% statutory rate*
 
13

 
9

 
37

 
29

After-tax effect
 
(24
)
 
(18
)
 
(70
)
 
(53
)
Weighted-Average Diluted Shares Outstanding
 
47.2

 
48.4

 
47.4

 
48.6

Per share impact**
 
(0.51
)
 
(0.37
)
 
(1.48
)
 
(1.09
)
*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 15 of 15