Huntington Ingalls Industries (HII) 8-K Huntington Ingalls Industries Reports Fourth Quarter and 2012 Results; Posts Strong Year-Over-Year Improvement in Segment Performance

Q4 2012 Earnings Presentation

February 27, 2013

Mike Petters

President and Chief Executive Officer

Barb Niland

Corporate Vice President, Business Management

& Chief Financial Officer

Exhibit 99.2

Safe Harbor

2

Statements in this presentation, 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 obligation to

update any forward-looking statements. This presentation 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.

You should not place undue reliance on any forward-looking statements that me may make.

*  Adjusted for the FAS/CAS Adjustment. See Appendix for reconciliation to the comparable GAAP figures.

Highlights from the Quarter and FY 2012

3

Revenues were $1.8 billion for Q4 and $6.7 billion for the year

Diluted EPS of $0.98 for Q4 and $2.91 for the year

Pension-adjusted Diluted EPS* of $1.30 for Q4 and $3.95 for the year

Continued strong segment operating performance

Ingalls operating margin was 5.3% for the quarter and 3.4% for the year

Newport News operating margin was 9.1% for the quarter and the year

Continued progress on underperforming ships in FY 2012

Delivered LPD-23 Anchorage and LPD-24 Arlington

On track to deliver LPD-25 Somerset

and LHA-6 America

in 2013

Announced $6 billion of new contract awards in FY 2012 with a $15.5 billion backlog

Detail

design

and

construction

of

LHA-7

Tripoli

and

LPD-27

(unnamed)

Planning efforts for CVN-72 USS Abraham Lincoln and continued long-lead-

time procurement and construction preparation of CVN-79 John F. Kennedy

Fourth Quarter 2012 Consolidated Results

4

*  Adjusted for the FAS/CAS Adjustment and the non-cash goodwill impairment adjustment in 2011. See Appendix for reconciliation to the comparable GAAP figures.  

$1,735

$1,823

$1,300

$1,400

$1,500

$1,600

$1,700

$1,800

$1,900

Q4 2011

Q4 2012

Consolidated Revenues

$121

$106

$118

$131

$-

$20

$40

$60

$80

$100

$120

$140

Q4 2011

Q4 2012

Operating Income

GAAP

Pension

-

adjusted*

7.0%

5.8%

6.8%

7.2%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Q4 2011

Q4 2012

Operating Margin

GAAP

Pension-adjusted*

$1.35

$0.98

$1.25

$1.30

$-

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

Q4 2011

Q4 2012

Diluted EPS

GAAP

Pension-adjusted*

FY 2012 Consolidated Results

5

*  Adjusted for the FAS/CAS Adjustment and the non-cash goodwill impairment charge in 2011. See Appendix for reconciliation to the comparable GAAP figures.  

$6,575

$6,708

$3,500

$4,000

$4,500

$5,000

$5,500

$6,000

$6,500

$7,000

FY 2011

FY 2012

Consolidated Revenues

$100

$358

$413

$438

$-

$100

$200

$300

$400

$500

FY 2011

FY 2012

Operating Income

GAAP

Pension-adjusted*

1.5%

5.3%

6.3%

6.5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

FY 2011

FY 2012

Operating Margin

GAAP

Pension-adjusted*

$(2.05)

$2.91

$4.15

$3.95

$(3.00)

$(2.00)

$(1.00)

$-

$1.00

$2.00

$3.00

$4.00

$5.00

FY 2011

FY 2012

Diluted EPS

GAAP

Pension-adjusted*

Ingalls Shipbuilding –

Fourth Quarter Results

6

Ingalls Q4 revenues were up YoY due to

higher volume on amphibious assault

ships

Q4 segment operating income and

margin were up YoY due to unfavorable

cumulative adjustments on amphibious

assault ships in 2011

* Adjusted for the non-cash goodwill impairment adjustment in 2011. See Appendix for reconciliation to the unadjusted figures.

$676

$ 722

$300

$350

$400

$450

$500

$550

$600

$650

$700

$750

$25

$38

$15

$-

$5

$10

$15

$20

$25

$30

$35

$40

3.7%

5.3%

2.2%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Q4 2011

Q4 2012

Segment Revenues

Q4 2011

Q4 2012

Operating Income

GAAP

Adjusted*

Q4 2011

Q4 2012

Operating Margin

GAAP

Adjusted*

Ingalls Shipbuilding –

FY 2012 Results

7

Ingalls 2012 revenue decreased due to

lower amphibious assault volume

following deliveries of LPD-23 and -24 in

2012 and LPD-22 in 2011

Ingalls 2012 operating income and

margin increased as a result of improved

overall performance

* Adjusted for the non-cash goodwill impairment adjustment in 2011. See Appendix for reconciliation to the unadjusted figures.

$2,885

$2,840

$2,400

$2,500

$2,600

$2,700

$2,800

$2,900

$3,000

FY 2011

FY 2012

Segment Revenues

$(220)

$97

$70

$(250)

$(200)

$(150)

$(100)

$(50)

$

-

$50

$100

$150

FY 2011

FY 2012

Operating Income

GAAP

Adjusted*

nm

3.4%

2.4%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

FY 2011

FY 2012

Operating Margin

GAAP

Adjusted*

Newport News Shipbuilding

8

Newport News revenues were up in Q4 as

compared to Q4 2011 due to higher

volume on aircraft carriers

Segment operating income increased for

the year due to favorable cumulative

adjustments on the CVN-65 EDSRA and

CVN-71 RCOH

Segment operating margin decrease for

the quarter driven by non-cash workers’

compensation expense

$1,078

$ 3,766

$1,122

$ 3,940

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

Q4 2011   Q4 2012

2011       2012

Segment Revenues

$102

$342

$102

$360

$-

$50

$100

$150

$200

$250

$300

$350

$400

Q4 2011   Q4 2012

2011       2012

Operating Income

9.5%

9.1%

9.1%

9.1%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

Q4 2011   Q4 2012

2011       2012

Operating Margin

2013 Retirement Related Assumptions

9

($ in millions)

2013

2012

Pension Discount Rate

4.24%

5.23%

Expected Return on Assets

7.50%

8.00%

Qualified Pension Contributions

1

$270 –

$330

$236

Cash Contributions, Net of CAS

Recovery

2

$110 –

$185

$122

Net FAS/CAS Adjustment

2

$70 –

$100

$80

CAS Expense

2

$185 –

$200

$148

FAS Expense

2

$270 –

$285

$228

1

2013 amounts are projected and subject to change.

2

Includes pension & other postretirement benefits. 2013 amounts are estimates and will change upon completion of remeasurement.

Appendix

Reconciliations

11

We

make

reference

to

“segment

operating

income,”

“segment

operating

margin,”

“adjusted

segment

operating

income,”

“adjusted

segment

operating

margin,”

“pension-adjusted

total

operating

income,”

“pension-adjusted

operating

margin,”

“pension-adjusted

net

earnings,”

“pension-

adjusted

diluted

earnings

per

share,”

and

“free

cash

flow.”

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

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.

Pension-adjusted

total

operating

income

is

defined

as

total

operating

income

adjusted

for

the

impact

of

the

goodwill

impairment

charge

in

2011 and the FAS/CAS Adjustment. 

Pension-adjusted

operating

margin

is

defined

as

pension-adjusted

total

operating

income

as

a

percentage

of

total

sales

and

service

revenues.

Pension-adjusted

net

earnings

is

defined

as

net

income

adjusted

for

the

impact

of

the

goodwill

impairment

charge

in

2011

and

the

tax

adjusted FAS/CAS Adjustment. 

Pension-adjusted

diluted

earnings

per

share

is

defined

as

pension-adjusted

net

earnings

divided

by

the

adjusted

weighted-average

diluted

common shares outstanding. 

Free

cash

flow

represents

cash

provided

by

operating

activities

less

capital

expenditures.

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,

pension-adjusted total operating income, pension-adjusted operating margin, pension-adjusted net earnings, pension-adjusted diluted earnings

per share, and free cash flow 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 Non-GAAP Measures –

Segment

Operating Income and Segment Operating Margin

12

Three Months Ended

Year Ended

December 31

December 31

$ in millions

2012

2011

2012

2011

Sales and Service Revenues

Ingalls

722

$     

676

$     

2,840

$  

2,885

$  

Newport News

1,122

1,078

3,940

3,766

Intersegment eliminations

(21)

(19)

(72)

(76)

Total sales and service revenues

1,823

$  

1,735

$  

6,708

$  

6,575

$  

Operating Income (Loss)

Ingalls

38

$       

25

$       

97

$       

(220)

$    

  As a percentage of revenues

5.3%

3.7%

3.4%

nm

Newport News

102

102

360

342

  As a percentage of revenues

9.1%

9.5%

9.1%

9.1%

Total Segment Operating Income (Loss)

140

127

457

122

As a percentage of revenues

7.7%

7.3%

6.8%

1.9%

Non-segment factors affecting operating income

FAS/CAS Adjustment

(25)

(7)

(80)

(23)

Deferred state income taxes

(9)

1

(19)

1

Total operating income (loss)

106

$     

121

$     

358

$     

100

$     

Interest expense

(29)

(29)

(117)

(104)

Federal income taxes

(27)

(25)

(95)

(96)

Total net earnings (loss)

50

$       

67

$       

146

$     

(100)

$    

Reconciliation of Non-GAAP Measures –

Adjusted

Figures

13

Three Months Ended

Year Ended

December 31

December 31

$ in millions

2012

2011

2012

2011

Adjusted Segment Operating Income (Loss)

Operating Income (Loss)

106

$     

121

$     

358

$     

100

$     

As a percentage of revenues

5.8%

7.0%

5.3%

1.5%

Non-segment factors affecting operating income

FAS/CAS Adjustment

25

7

80

23

Deferred state income taxes

9

(1)

19

(1)

Total Segment Operating Income (Loss)

140

$     

127

$     

457

$     

122

$     

As a percentage of revenues

7.7%

7.3%

6.8%

1.9%

Ingalls

38

$       

25

$       

97

$       

(220)

$    

Adjustment for non-cash goodwill impairment

-

(10)

-

290

Adjusted Ingalls

38

15

97

70

As a percentage of revenues

5.3%

2.2%

3.4%

2.4%

Newport News

102

102

360

342

As a percentage of revenues

9.1%

9.5%

9.1%

9.1%

Adjusted Segment Operating Income (Loss)

140

117

457

412

As a percentage of revenues

7.7%

6.7%

6.8%

6.3%

Pension-adjusted Total Operating Income (Loss)

Operating Income (Loss)

106

$     

121

$     

358

$     

100

$     

As a percentage of revenues

5.8%

7.0%

5.3%

1.5%

Adjustment for non-cash goodwill impairment

-

(10)

-

290

FAS/CAS Adjustment

25

7

80

23

Pension-adjusted Total Operating Income (Loss)

131

$     

118

$     

438

$     

413

$     

As a percentage of revenues

7.2%

6.8%

6.5%

6.3%

Reconciliation of Non-GAAP Measures –

Adjusted

Figures (continued)

14

Three Months Ended

Year Ended

December 31

December 31

$ in millions

2012

2011

2012

2011

Pension-adjusted Net Earnings (Loss)

Net Earnings (Loss)

50

$      

67

$      

146

$    

(100)

$   

Adjustment for non-cash goodwill impairment

-

(10)

-

290

After-tax FAS/CAS Adjustment

1

16

5

52

15

Pension-adjusted Net Earnings (Loss)

66

62

198

205

Per Share Amounts

Weighted-Average Diluted Shares Outstanding

50.8

49.7

50.1

48.8

Dilutive impact excluded due to net loss position

-

-

-

0.6

Adjusted Weighted-Average Diluted Shares Outstanding

2

50.8

49.7

50.1

49.4

Pension-adjusted Diluted EPS

Diluted earnings (loss) per share

0.98

$   

1.35

$   

2.91

$   

(2.05)

$  

Non-cash goodwill impairment per share

-

(0.20)

-

5.94

After-tax FAS/CAS Adjustment per share

0.32

0.10

1.04

0.31

Impact of Adjusted Weighted-Average Diluted Shares Outstanding

-

-

-

(0.05)

Pension-adjusted Diluted EPS

1.30

$   

1.25

$   

3.95

$   

4.15

$   

1

Tax effected at 35% federal statutory tax rate.

2

Adjusted diluted average common shares outstanding is a non-GAAP measure defined as weighted average common shares outstanding plus the

dilutive effect of stock options and stock awards. This measure has been provided for consistency and comparability of the 2011 results with earnings

per share from 2012.

Reconciliation of Non-GAAP Measures –

Free Cash

Flow

15

Three Months Ended

Year Ended

December 31

December 31

$ in millions

2012

2011

2012

2011

Net cash provided by (used in) operating activities

373

$     

474

$     

332

$     

528

$     

Less: Capital expenditures

(70)

(78)

$      

(162)

(197)

$    

Free cash flow

303

$     

396

$     

170

$     

331

$