Huntington Ingalls Industries (NYSE:HII) reported second quarter
2017 revenues of $1.86 billion, up 9.3 percent from the same period
last year. The increase was driven primarily by higher volume at
Ingalls Shipbuilding and the acquisition of Camber Corporation,
which occurred in the fourth quarter of 2016. Diluted earnings per
share in the quarter was $3.21, compared to $2.80 in the same
period of 2016.
Operating income in the second quarter was $237 million,
compared to $217 million in the same period last year. The increase
was primarily driven by the FAS/CAS adjustment and improved
performance at Ingalls Shipbuilding. Operating margin in the
quarter was 12.8 percent, similar to second quarter 2016.
Second quarter cash from operations was $186 million, compared
to $169 million in the second quarter of 2016, and free cash flow1
was $107 million.
New business awards for the quarter were approximately $3.4
billion, bringing total backlog to approximately $21.1 billion as
of June 30. Major awards in the second quarter included
Bougainville (LHA 8) construction and LPD 29 (unnamed) advanced
procurement.
“We achieved several significant operational milestones at both
Ingalls and Newport News this quarter, most notably the delivery of
CVN 78, USS Gerald R. Ford,” said Mike Petters, HII’s president and
CEO. “Marking a great accomplishment for HII and the Navy, this
first in a class of next-generation aircraft carriers provides our
sailors with the most technologically advanced platform to carry
out their missions.”
1Free cash flow is a non-GAAP measure. See exhibit B for
definition and reconciliation.
Results of Operations
|
Three Months Ended June 30 |
|
|
|
Six Months Ended June 30 |
|
|
(in
millions, except per share amounts) |
2017 |
2016 |
$ Change |
% Change |
|
2017 |
2016 |
$ Change |
% Change |
Sales and service
revenues |
$ |
1,858 |
|
$ |
1,700 |
|
$ |
158 |
|
9.3% |
|
$ |
3,582 |
|
$ |
3,463 |
|
$ |
119 |
|
3.4% |
Operating income
(loss) |
237 |
|
217 |
|
20 |
|
9.2% |
|
401 |
|
415 |
|
(14 |
) |
(3.4)% |
Operating
margin % |
12.8 |
% |
12.8 |
% |
|
(1)
bps |
|
11.2 |
% |
12.0 |
% |
|
(79)
bps |
Segment operating
income (loss)1 |
187 |
|
184 |
|
3 |
|
1.6% |
|
307 |
|
350 |
|
(43 |
) |
(12.3)% |
Segment
operating margin %1 |
10.1 |
% |
10.8 |
% |
|
(76)
bps |
|
8.6 |
% |
10.1 |
% |
|
(154)
bps |
Net earnings
(loss) |
147 |
|
133 |
|
14 |
|
10.5% |
|
266 |
|
269 |
|
(3 |
) |
(1.1)% |
Diluted earnings (loss)
per share |
$ |
3.21 |
|
$ |
2.80 |
|
$ |
0.41 |
|
14.6% |
|
$ |
5.77 |
|
$ |
5.68 |
|
$ |
0.09 |
|
1.6% |
|
|
|
|
|
|
|
|
|
|
Weighted-average
diluted shares outstanding |
45.8 |
|
47.5 |
|
|
|
|
46.1 |
|
47.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net
Earnings (Loss) |
|
|
|
|
|
|
|
|
|
Net earnings
(loss) |
$ |
147 |
|
$ |
133 |
|
$ |
14 |
|
10.5% |
|
$ |
266 |
|
$ |
269 |
|
$ |
(3 |
) |
(1.1)% |
After-tax FAS/CAS
Adjustment2 |
(32 |
) |
(23 |
) |
(9 |
) |
39.1% |
|
$ |
(64 |
) |
$ |
(45 |
) |
$ |
(19 |
) |
42.2% |
Adjusted Net Earnings
(Loss)3 |
$ |
115 |
|
$ |
110 |
|
$ |
5 |
|
4.5% |
|
$ |
202 |
|
$ |
224 |
|
$ |
(22 |
) |
(9.8)% |
|
|
|
|
|
|
|
|
|
|
Adjusted
Diluted EPS |
|
|
|
|
|
|
|
|
|
Diluted earnings (loss)
per share |
$ |
3.21 |
|
$ |
2.80 |
|
$ |
0.41 |
|
14.6% |
|
$ |
5.77 |
|
$ |
5.68 |
|
$ |
0.09 |
|
1.6% |
After-tax FAS/CAS
Adjustment per share2 |
(0.70 |
) |
(0.48 |
) |
(0.22 |
) |
45.8% |
|
(1.39 |
) |
$ |
(0.95 |
) |
(0.44 |
) |
46.3% |
Adjusted Diluted
EPS3 |
$ |
2.51 |
|
$ |
2.32 |
|
$ |
0.19 |
|
8.2% |
|
$ |
4.38 |
|
$ |
4.73 |
|
$ |
(0.35 |
) |
(7.4)% |
|
|
|
|
|
|
|
|
|
|
1 Non-GAAP
measures that exclude non-segment factors affecting operating
income (loss). See Exhibit B for definitions and
reconciliations. |
2 Tax
effected at 35% federal statutory rate. |
3 Non-GAAP
measures. See Exhibit B for definitions. |
|
Segment Operating Results
Ingalls
Shipbuilding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
|
|
Six Months Ended June 30 |
|
|
($ in millions) |
2017 |
2016 |
$ Change |
% Change |
|
2017 |
2016 |
$ Change |
% Change |
Revenues |
$ |
639 |
|
$ |
585 |
|
$ |
54 |
|
9.2% |
|
$ |
1,189 |
|
$ |
1,171 |
|
$ |
18 |
|
1.5% |
Segment operating
income (loss)1 |
98 |
|
88 |
|
10 |
|
11.4% |
|
164 |
|
170 |
|
(6 |
) |
(3.5)% |
Segment
operating margin %1 |
15.3 |
% |
15.0 |
% |
|
29 bps |
|
13.8 |
% |
14.5 |
% |
|
(72) bps |
1 Non-GAAP
measures. See Exhibit B for definitions and reconciliations. |
|
Ingalls revenues for the second quarter increased $54 million,
or 9.2 percent, from the same period in 2016, due to higher
revenues in amphibious assault ships and the Legend-class National
Security Cutter (NSC) program. Higher amphibious assault ships
revenues were due to increased volumes on Fort Lauderdale (LPD 28),
Bougainville (LHA 8) and Tripoli (LHA 7), partially offset by
decreased volume on the delivered USS John P. Murtha (LPD 26).
Higher NSC program revenues were due to increased volumes on Stone
(NSC 9) and Kimball (NSC 7), partially offset by lower volume on
the delivered USCGC Munro (NSC 6). Surface combatant revenues
remained relatively constant due to decreased volumes on USS John
Finn (DDG 113) following its delivery and Frank E. Petersen Jr.
(DDG 121), partially offset by higher volumes on Lenah H. Sutcliffe
Higbee (DDG 123) and Jack H. Lucas (DDG 125).
Ingalls segment operating income for the second quarter was $98
million, an increase of $10 million from the same period last year.
Segment operating margin in the quarter was 15.3 percent, compared
to 15.0 percent in the same period last year. These increases were
primarily due to higher risk retirement and improved performance on
Tripoli and the NSC program, partially offset by lower risk
retirement on the delivered USS John P. Murtha.
Key Ingalls milestones for the quarter:
- Christened Paul Ignatius (DDG 117)
- Launched Tripoli
- Awarded a $3.0 billion contract for the detailed design and
construction of Bougainville
- Awarded a contract modification to incorporate Flight III
upgrades on Jack H. Lucas
- Awarded a $218 million advance procurement contract for LPD 29
(unnamed)
- Completed Builder’s Sea Trials for Portland (LPD 27)
|
|
|
|
|
|
|
|
Newport News
Shipbuilding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
|
|
Six Months Ended June 30 |
|
|
($ in
millions) |
2017 |
2016 |
$ Change |
% Change |
|
2017 |
2016 |
$ Change |
% Change |
Revenues |
$ |
1,001 |
|
$ |
999 |
|
$ |
2 |
|
0.2% |
|
$ |
1,972 |
|
$ |
1,992 |
|
$ |
(20 |
) |
(1.0)% |
Segment operating
income (loss)1 |
80 |
|
98 |
|
(18 |
) |
(18.4)% |
|
152 |
|
179 |
|
(27 |
) |
(15.1)% |
Segment
operating margin %1 |
8.0 |
% |
9.8 |
% |
|
(182) bps |
|
7.7 |
% |
9.0 |
% |
|
(128) bps |
1 Non-GAAP
measures. See Exhibit B for definitions and reconciliations. |
|
Newport News revenues for the second quarter
increased $2 million from the same period in 2016, driven by higher
revenues in naval nuclear support services, partially offset by
lower revenues in submarines and aircraft carriers. Higher revenues
in naval nuclear support services were due to increased volumes in
submarine support and facility maintenance services. Lower
submarines revenues related to the Virginia-class submarine (“VCS”)
program were due to decreased volumes on Block III boats, partially
offset by increased volumes on Block IV boats. Lower aircraft
carriers revenues were due to decreased volumes on the execution
contract for the refueling and complex overhaul (RCOH) of USS
Abraham Lincoln (CVN 72) and the construction contract for USS
Gerald R. Ford (CVN 78), partially offset by increased volumes on
the advance planning contract for the RCOH of USS George Washington
(CVN 73), the advance planning contract for Enterprise (CVN 80) and
the construction contract for John F. Kennedy (CVN 79).
Newport News segment operating income for the second quarter was
$80 million, a decrease of $18 million from the same period last
year. Segment operating margin was 8.0 percent for the quarter,
compared to 9.8 percent in the same period last year. These
decreases were due to lower risk retirement on the VCS program and
lower volume on the RCOH of USS Abraham Lincoln, partially offset
by higher volume on the advance planning contract for the RCOH of
USS George Washington.
Key Newport News milestones for the quarter:
- Delivered Washington (SSN 787) to the Navy
- Redelivered USS Abraham Lincoln to the Navy
- Delivered USS Gerald R. Ford to the Navy
- Christened and launched Indiana (SSN 789)
- Reached 50 percent structural completion on John F.
Kennedy
|
|
|
|
|
|
|
|
Technical
Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
|
|
Six Months Ended June 30 |
|
|
($ in
millions) |
2017 |
2016 |
$ Change |
% Change |
|
2017 |
2016 |
$ Change |
% Change |
Revenues |
$ |
244 |
|
$ |
143 |
|
$ |
101 |
|
70.6% |
|
$ |
469 |
|
$ |
351 |
|
$ |
118 |
|
33.6% |
Segment operating
income (loss)1 |
9 |
|
(2 |
) |
11 |
|
550.0% |
|
(9 |
) |
1 |
|
(10 |
) |
NM2 |
Segment
operating margin %1 |
3.7 |
% |
(1.4 |
)% |
|
509 bps |
|
(1.9 |
)% |
0.3 |
% |
|
(220) bps |
1 Non-GAAP
measures. See Exhibit B for definitions and reconciliations. |
2 NM means
the % of change is “not meaningful”. |
|
Technical Solutions revenues for the second quarter increased
$101 million, or 70.6 percent, from the same period last year,
primarily due to higher volume in integrated mission solutions
services following the acquisition of Camber in the fourth quarter
last year and higher volumes in fleet support and oil and gas
services.
Segment operating income for the second quarter was $9 million,
an increase of $11 million from the same period last year. Segment
operating margin was 3.7 percent for the quarter, compared to (1.4)
percent in the same period last year. The increase was primarily
due to improved performance in oil and gas services and the
acquisition of Camber.
Key Technical Solutions milestones for the quarter:
- Awarded a contract to provide engineering services and
technical, logistics, maintenance and installation/alteration
support to Naval Sea System Command’s Naval Surface Warfare Center
Philadelphia Division (NSWCPD) for up to $39 million
- Awarded a task order to provide various engineering support
services at Combat Direction Systems Activity, Dam Neck (CDSADN)
for up to $40 million
- Awarded a $38 million task order by the U.S. Navy’s Southwest
Regional Maintenance Center for a Special Selected Restricted
Availability (SSRA) on the guided missile cruiser USS Chosin (CG
65)
About Huntington Ingalls Industries
Huntington Ingalls Industries is America’s largest military
shipbuilding company and a provider of professional services to
partners in government and industry. 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. HII’s Technical Solutions division
provides a wide range of professional services through its Fleet
Support, Integrated Missions Solutions, Nuclear &
Environmental, and Oil & Gas groups. Headquartered in Newport
News, Virginia, HII employs nearly 37,000 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. EDT 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 noon today through Thursday, Aug. 10 by
calling toll-free (855) 859-2056 or (404) 537-3406 and using
conference ID 48389405.
Forward-Looking Statements
Statements in this release, other than statements of historical
fact, may 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 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 and environmental disasters and political instability;
adverse 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.
Exhibit A: Financial Statements
|
HUNTINGTON INGALLS INDUSTRIES, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) |
(UNAUDITED) |
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
Six Months Ended June 30 |
(in
millions, except per share amounts) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Sales and service
revenues |
|
|
|
|
|
|
|
|
Product
sales |
|
$ |
1,397 |
|
|
$ |
1,364 |
|
|
$ |
2,697 |
|
|
$ |
2,793 |
|
Service
revenues |
|
461 |
|
|
336 |
|
|
885 |
|
|
670 |
|
Sales and
service revenues |
|
1,858 |
|
|
1,700 |
|
|
3,582 |
|
|
3,463 |
|
Cost of sales and
service revenues |
|
|
|
|
|
|
|
|
Cost of
product sales |
|
1,104 |
|
|
1,043 |
|
|
2,174 |
|
|
2,182 |
|
Cost of
service revenues |
|
385 |
|
|
290 |
|
|
748 |
|
|
579 |
|
Income
(loss) from operating investments, net |
|
1 |
|
|
1 |
|
|
3 |
|
|
1 |
|
General
and administrative expenses |
|
133 |
|
|
151 |
|
|
262 |
|
|
288 |
|
Operating
income (loss) |
|
237 |
|
|
217 |
|
|
401 |
|
|
415 |
|
Other income
(expense) |
|
|
|
|
|
|
|
|
Interest
expense |
|
(17 |
) |
|
(18 |
) |
|
(35 |
) |
|
(37 |
) |
Other,
net |
|
(2 |
) |
|
— |
|
|
(1 |
) |
|
(2 |
) |
Earnings (loss) before
income taxes |
|
218 |
|
|
199 |
|
|
365 |
|
|
376 |
|
Federal and foreign
income taxes |
|
71 |
|
|
66 |
|
|
99 |
|
|
107 |
|
Net
earnings (loss) |
|
$ |
147 |
|
|
$ |
133 |
|
|
$ |
266 |
|
|
$ |
269 |
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss)
per share |
|
$ |
3.22 |
|
|
$ |
2.83 |
|
|
$ |
5.78 |
|
|
$ |
5.72 |
|
Weighted-average common
shares outstanding |
|
45.7 |
|
|
47.0 |
|
|
46.0 |
|
|
47.0 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss)
per share |
|
$ |
3.21 |
|
|
$ |
2.80 |
|
|
$ |
5.77 |
|
|
$ |
5.68 |
|
Weighted-average
diluted shares outstanding |
|
45.8 |
|
|
47.5 |
|
|
46.1 |
|
|
47.4 |
|
|
|
|
|
|
|
|
|
|
Dividends declared per
share |
|
$ |
0.60 |
|
|
$ |
0.50 |
|
|
$ |
1.20 |
|
|
$ |
1.00 |
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
from above |
|
$ |
147 |
|
|
$ |
133 |
|
|
$ |
266 |
|
|
$ |
269 |
|
Other comprehensive
income (loss) |
|
|
|
|
|
|
|
|
Change in unamortized
benefit plan costs |
|
23 |
|
|
19 |
|
|
45 |
|
|
39 |
|
Other |
|
3 |
|
|
— |
|
|
7 |
|
|
— |
|
Tax benefit (expense)
for items of other comprehensive income |
|
(10 |
) |
|
(7 |
) |
|
(20 |
) |
|
(15 |
) |
Other
comprehensive income (loss), net of tax |
|
16 |
|
|
12 |
|
|
32 |
|
|
24 |
|
Comprehensive income (loss) |
|
$ |
163 |
|
|
$ |
145 |
|
|
$ |
298 |
|
|
$ |
293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HUNTINGTON INGALLS INDUSTRIES, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED) |
|
|
|
|
|
($ in
millions) |
|
June 30, 2017 |
|
December 31, 2016 |
Assets |
|
|
|
|
Current
Assets |
|
|
|
|
Cash and cash
equivalents |
|
$ |
553 |
|
|
$ |
720 |
|
Accounts receivable,
net of allowance for doubtful accounts of $28 million as of 2017
and $4 million as of 2016 |
|
1,201 |
|
|
1,164 |
|
Inventoried costs,
net |
|
204 |
|
|
210 |
|
Prepaid expenses and
other current assets |
|
75 |
|
|
48 |
|
Total
current assets |
|
2,033 |
|
|
2,142 |
|
Property, plant, and
equipment, net of accumulated depreciation of $1,699 million as of
2017 and $1,627 million as of 2016 |
|
2,034 |
|
|
1,986 |
|
Goodwill |
|
1,218 |
|
|
1,234 |
|
Other intangible
assets, net of accumulated amortization of $508 million as of 2017
and $488 million as of 2016 |
|
528 |
|
|
548 |
|
Deferred tax
assets |
|
267 |
|
|
314 |
|
Miscellaneous other
assets |
|
110 |
|
|
128 |
|
Total assets |
|
$ |
6,190 |
|
|
$ |
6,352 |
|
Liabilities and
Stockholders' Equity |
|
|
|
|
Current
Liabilities |
|
|
|
|
Trade accounts
payable |
|
$ |
325 |
|
|
$ |
316 |
|
Accrued employees’
compensation |
|
244 |
|
|
241 |
|
Current portion of
postretirement plan liabilities |
|
147 |
|
|
147 |
|
Current portion of
workers’ compensation liabilities |
|
218 |
|
|
217 |
|
Advance payments and
billings in excess of revenues |
|
94 |
|
|
166 |
|
Other current
liabilities |
|
219 |
|
|
256 |
|
Total
current liabilities |
|
1,247 |
|
|
1,343 |
|
Long-term debt |
|
1,281 |
|
|
1,278 |
|
Pension plan
liabilities |
|
1,043 |
|
|
1,116 |
|
Other postretirement
plan liabilities |
|
431 |
|
|
431 |
|
Workers’ compensation
liabilities |
|
443 |
|
|
441 |
|
Other long-term
liabilities |
|
95 |
|
|
90 |
|
Total
liabilities |
|
4,540 |
|
|
4,699 |
|
Commitments and
Contingencies |
|
|
|
|
Stockholders’
Equity |
|
|
|
|
Common Stock, $0.01 par
value; 150 million shares authorized; 52.9 million shares issued
and 45.5 million shares outstanding as of June 30, 2017, and 52.6
million shares issued and 46.2 million shares outstanding as of
December 31, 2016 |
|
1 |
|
|
1 |
|
Additional paid-in
capital |
|
1,928 |
|
|
1,964 |
|
Retained earnings
(deficit) |
|
1,534 |
|
|
1,323 |
|
Treasury stock |
|
(894 |
) |
|
(684 |
) |
Accumulated other
comprehensive income (loss) |
|
(919 |
) |
|
(951 |
) |
Total
stockholders’ equity |
|
1,650 |
|
|
1,653 |
|
Total liabilities and stockholders’ equity |
|
$ |
6,190 |
|
|
$ |
6,352 |
|
|
|
|
|
|
|
|
|
|
HUNTINGTON INGALLS INDUSTRIES, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) |
|
|
|
|
|
Six Months Ended June 30 |
($ in
millions) |
|
2017 |
|
2016 |
Operating
Activities |
|
|
|
|
Net earnings
(loss) |
|
$ |
266 |
|
|
$ |
269 |
|
Adjustments to
reconcile to net cash provided by (used in) operating
activities |
|
|
|
|
Depreciation |
|
82 |
|
|
83 |
|
Amortization of purchased intangibles |
|
20 |
|
|
11 |
|
Amortization of debt issuance costs |
|
3 |
|
|
3 |
|
Provision
for doubtful accounts |
|
22 |
|
|
— |
|
Stock-based compensation |
|
20 |
|
|
11 |
|
Deferred
income taxes |
|
28 |
|
|
39 |
|
Change
in: |
|
|
|
|
Accounts
receivable |
|
(60 |
) |
|
52 |
|
Inventoried costs |
|
5 |
|
|
5 |
|
Prepaid
expenses and other assets |
|
(1 |
) |
|
(13 |
) |
Accounts
payable and accruals |
|
(74 |
) |
|
(130 |
) |
Retiree
benefits |
|
(27 |
) |
|
(106 |
) |
Other
non-cash transactions, net |
|
— |
|
|
(1 |
) |
Net cash
provided by (used in) operating activities |
|
284 |
|
|
223 |
|
Investing
Activities |
|
|
|
|
Additions to property,
plant, and equipment |
|
(137 |
) |
|
(85 |
) |
Acquisitions of
businesses, net of cash received |
|
3 |
|
|
— |
|
Proceeds from
disposition of assets |
|
1 |
|
|
4 |
|
Net cash
provided by (used in) investing activities |
|
(133 |
) |
|
(81 |
) |
Financing
Activities |
|
|
|
|
Dividends paid |
|
(55 |
) |
|
(48 |
) |
Repurchases of common
stock |
|
(207 |
) |
|
(86 |
) |
Employee taxes on
certain share-based payment arrangements |
|
(56 |
) |
|
(50 |
) |
Net cash
provided by (used in) financing activities |
|
(318 |
) |
|
(184 |
) |
Change in
cash and cash equivalents |
|
(167 |
) |
|
(42 |
) |
Cash and cash
equivalents, beginning of period |
|
720 |
|
|
894 |
|
Cash and cash
equivalents, end of period |
|
$ |
553 |
|
|
$ |
852 |
|
Supplemental
Cash Flow Disclosure |
|
|
|
|
Cash paid for income
taxes |
|
$ |
100 |
|
|
$ |
123 |
|
Cash paid for
interest |
|
$ |
36 |
|
|
$ |
36 |
|
Non-Cash
Investing and Financing Activities |
|
|
|
|
Capital expenditures
accrued in accounts payable |
|
$ |
3 |
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
Exhibit B: Non-GAAP Measures Definitions &
Reconciliations
We make reference to “segment operating income (loss),” “segment
operating margin,” “adjusted net earnings (loss),” “adjusted
diluted earnings per share,” and “free cash flow.”
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 net earnings (loss) 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.
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.
Segment operating income (loss) is defined as
operating income (loss) for the relevant segment(s) before the
FAS/CAS Adjustment and non-current state income taxes.
Segment operating margin is defined as segment
operating income (loss) as a percentage of sales and service
revenues.
Adjusted net earnings (loss) is defined as net
earnings adjusted for the after-tax impact of the FAS/CAS
Adjustment.
Adjusted diluted earnings per share is defined
as adjusted net earnings (loss) 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.
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 and included in
segment operating income.
Non-current state income taxes are defined as
deferred state income taxes, which reflect the change in deferred
state tax assets and liabilities and the tax expense or benefit
associated with changes in state uncertain tax positions in the
relevant period. These amounts are recorded within operating
income. Current period state income tax expense is charged to
contract costs and included in cost of sales and service revenues
in segment operating income.
We present financial measures adjusted for the FAS/CAS
Adjustment and non-current state income taxes 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.
|
Reconciliation of Segment Operating Income (Loss) and
Segment Operating Margin |
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
Six Months Ended June 30 |
($ in
millions) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Ingalls revenues |
|
$ |
639 |
|
|
$ |
585 |
|
|
$ |
1,189 |
|
|
$ |
1,171 |
|
Newport News
revenues |
|
1,001 |
|
|
999 |
|
|
1,972 |
|
|
1,992 |
|
Technical Solutions
revenues |
|
244 |
|
|
143 |
|
|
469 |
|
|
351 |
|
Intersegment
eliminations |
|
(26 |
) |
|
(27 |
) |
|
(48 |
) |
|
(51 |
) |
Sales and
Service Revenues |
|
1,858 |
|
|
1,700 |
|
|
3,582 |
|
|
3,463 |
|
Segment
Operating Income (Loss) |
|
|
|
|
|
|
|
|
Ingalls |
|
98 |
|
|
88 |
|
|
164 |
|
|
170 |
|
As a percentage
of Ingalls revenues |
|
15.3 |
% |
|
15.0 |
% |
|
13.8 |
% |
|
14.5 |
% |
Newport News |
|
80 |
|
|
98 |
|
|
152 |
|
|
179 |
|
As a percentage
of Newport News revenues |
|
8.0 |
% |
|
9.8 |
% |
|
7.7 |
% |
|
9.0 |
% |
Technical
Solutions |
|
9 |
|
|
(2 |
) |
|
(9 |
) |
|
1 |
|
As a percentage
of Technical Solutions revenues |
|
3.7 |
% |
|
(1.4 |
)% |
|
(1.9 |
)% |
|
0.3 |
% |
Segment
Operating Income (Loss) |
|
187 |
|
|
184 |
|
|
307 |
|
|
350 |
|
As a percentage
of sales and service revenues |
|
10.1 |
% |
|
10.8 |
% |
|
8.6 |
% |
|
10.1 |
% |
Non-segment factors
affecting operating income (loss): |
|
|
|
|
|
|
|
|
FAS/CAS
Adjustment |
|
49 |
|
|
35 |
|
|
98 |
|
|
70 |
|
Non-current state income taxes |
|
1 |
|
|
(2 |
) |
|
(4 |
) |
|
(5 |
) |
Operating
Income (Loss) |
|
237 |
|
|
217 |
|
|
401 |
|
|
415 |
|
Interest expense |
|
(17 |
) |
|
(18 |
) |
|
(35 |
) |
|
(37 |
) |
Other, net |
|
(2 |
) |
|
— |
|
|
(1 |
) |
|
(2 |
) |
Federal and foreign
income taxes |
|
(71 |
) |
|
(66 |
) |
|
(99 |
) |
|
(107 |
) |
Net Earnings
(Loss) |
|
$ |
147 |
|
|
$ |
133 |
|
|
$ |
266 |
|
|
$ |
269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Free Cash Flow |
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
Six Months Ended June 30 |
($ in millions) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Net cash provided by (used in) operating activities |
|
186 |
|
|
169 |
|
|
284 |
|
|
223 |
|
Less: |
|
|
|
|
|
|
|
|
Capital
expenditures |
|
(79 |
) |
|
(48 |
) |
|
(137 |
) |
|
(85 |
) |
Free cash flow |
|
107 |
|
|
121 |
|
|
147 |
|
|
138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contacts:
Jerri Fuller Dickseski (Media)
jerri.dickseski@hii-co.com
757-380-2341
Dwayne Blake (Investors)
dwayne.blake@hii-co.com
757-380-2104
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