Huntington Ingalls Industries (NYSE:HII) reported fourth quarter
2017 revenues of $2.0 billion, up 3.9 percent from the fourth
quarter of 2016. Operating income in the quarter was $227 million
and operating margin was 11.4 percent, compared to $268 million and
13.9 percent, respectively, in the fourth quarter of 2016. Diluted
earnings per share in the quarter was $1.41, compared to $4.20 in
the same period of 2016. Diluted earnings per share in fourth
quarter 2017 included a one-time expense related to the early
extinguishment of debt, the tax expense for the revaluation of net
deferred tax assets resulting from the enactment of the Tax Act and
the tax expense associated with a $214 million acceleration of
discretionary pension contributions in 2018. Excluding these items,
adjusted diluted earnings per share1 in the quarter was $3.11.
For the full year, revenues of $7.4 billion increased 5.3
percent over 2016. Operating income in 2017 was $865 million and
operating margin was 11.6 percent, compared to $858 million and
12.1 percent, respectively, in 2016. Diluted earnings per share for
the full year was $10.46, compared to $12.14 in 2016. Excluding the
one time items described in the preceding paragraph, adjusted
diluted earnings per share1 for 2017 was $12.14.
Cash from operations in 2017 was $814 million and free cash
flow1 was $453 million, compared to $822 million and $537 million,
respectively, in 2016.
New contract awards for 2017 were approximately $8.1 billion,
bringing total backlog to $21.4 billion as of Dec. 31, 2017. Major
contract awards in 2017 included Bougainville (LHA 8) construction,
the refueling and complex overhaul (RCOH) of the aircraft carrier
USS George Washington (CVN 73), a contract to begin integrated
product and process development for the U.S. Navy’s new
Columbia-class submarines, USS Boise (SSN 764) overhaul, LPD 29
(unnamed) advanced procurement, special selected restricted
availability on USS Chosin (CG 65), and Jack H. Lucas (DDG 125)
Flight III upgrades.
“Our 2017 results reflect Huntington Ingalls Industries’
continued focus on operational performance,” said Mike Petters,
HII’s president and CEO. “Delivering six ships this year, while
growing backlog and integrating our Technical Solutions business,
demonstrates the commitment of our nearly 38,000 employees.”
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Results of Operations |
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Three MonthsEnded |
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YearEnded |
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December 31 |
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December 31 |
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|
(in
millions, except per share amounts) |
2017 |
2016 |
$Change |
%Change |
|
2017 |
2016 |
$Change |
%Change |
Sales and service
revenues |
$ |
1,996 |
|
$ |
1,922 |
|
$ |
74 |
|
3.9 |
% |
|
$ |
7,441 |
|
$ |
7,068 |
|
$ |
373 |
|
5.3 |
% |
Operating income
(loss) |
227 |
|
268 |
|
(41 |
) |
(15.3 |
)% |
|
865 |
|
858 |
|
7 |
|
0.8 |
% |
Operating margin
% |
11.4 |
% |
13.9 |
% |
|
(257) bps |
|
11.6 |
% |
12.1 |
% |
|
(51) bps |
Segment operating
income (loss)1 |
189 |
|
225 |
|
(36 |
) |
(16.0 |
)% |
|
688 |
|
715 |
|
(27 |
) |
(3.8 |
)% |
Segment
operating margin %1 |
9.5 |
% |
11.7 |
% |
|
(224) bps |
|
9.2 |
% |
10.1 |
% |
|
(87) bps |
Net earnings
(loss) |
64 |
|
197 |
|
(133 |
) |
(67.5 |
)% |
|
479 |
|
573 |
|
(94 |
) |
(16.4 |
)% |
Diluted earnings (loss)
per share |
$ |
1.41 |
|
$ |
4.20 |
|
$ |
(2.79 |
) |
(66.4 |
)% |
|
$ |
10.46 |
|
$ |
12.14 |
|
$ |
(1.68 |
) |
(13.8 |
)% |
|
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|
|
|
|
|
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|
|
Weighted-average
diluted shares outstanding |
45.4 |
|
46.9 |
|
|
|
|
45.8 |
|
47.2 |
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|
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|
Adjusted Net Earnings
(Loss)2 |
$ |
141 |
|
$ |
197 |
|
$ |
(56 |
) |
(28.4 |
)% |
|
$ |
556 |
|
$ |
573 |
|
$ |
(17 |
) |
(3.0 |
)% |
|
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|
|
|
|
|
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|
Adjusted
Diluted EPS2 |
$ |
3.11 |
|
$ |
4.20 |
|
$ |
(1.09 |
) |
(26.0 |
)% |
|
$ |
12.14 |
|
$ |
12.14 |
|
$ |
— |
|
— |
% |
1 Non-GAAP
measures that exclude non-segment factors affecting operating
income. See Exhibit B for definitions and reconciliations. |
2 Non-GAAP
measures. See Exhibit B for definitions and
reconciliations. |
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Segment Operating ResultsIngalls Shipbuilding |
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Three Months Ended |
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Year Ended |
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December 31 |
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December 31 |
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|
($ in millions) |
2017 |
2016 |
$Change |
%Change |
|
2017 |
2016 |
$Change |
%Change |
Revenues |
$ |
638 |
|
$ |
641 |
|
$ |
(3 |
) |
(0.5 |
)% |
|
$ |
2,420 |
|
$ |
2,389 |
|
$ |
31 |
|
1.3 |
% |
Segment operating
income (loss)1 |
75 |
|
85 |
|
(10 |
) |
(11.8 |
)% |
|
313 |
|
321 |
|
(8 |
) |
(2.5 |
)% |
Segment operating
margin %1 |
11.8 |
% |
13.3 |
% |
|
(151) bps |
|
12.9 |
% |
13.4 |
% |
|
(50) bps |
1 Non-GAAP
measures. See Exhibit B for definitions and reconciliations. |
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Ingalls Shipbuilding revenues for the fourth quarter were $638
million, a decrease of $3 million, or 0.5 percent, from the same
period in 2016, due to lower revenues in the Legend-class National
Security Cutter (NSC) program and surface combatants, partially
offset by higher revenues in amphibious assault ships. Lower NSC
program revenues were primarily due to decreased volumes on the
delivered USCGC Munro (NSC 6) and Kimball (NSC 7), partially offset
by increased volumes on Stone (NSC 9) and Midgett (NSC 8) in the
quarter. Lower surface combatant revenues were primarily due to
decreased volumes on the delivered Ralph Johnson (DDG 114), the
delivered USS John Finn (DDG 113) and Lenah H. Sutcliffe Higbee
(DDG 123), partially offset by increased volume on Jack H. Lucas
(DDG 125). Higher amphibious assault ship revenues were due to
increased volumes on Bougainville (LHA 8), Fort Lauderdale (LPD 28)
and LPD 29 (unnamed), partially offset by decreased volume on the
delivered USS Portland (LPD 27).
Ingalls Shipbuilding segment operating income for the fourth
quarter was $75 million, a decrease of $10 million from the same
period last year. Segment operating margin in the quarter was 11.8
percent, compared to 13.3 percent in the same period last year.
These decreases were primarily due to lower risk retirement on the
NSC and DDG programs, partially offset by higher risk retirement on
the LPD program.
For the full year, Ingalls Shipbuilding revenues were $2.4
billion, an increase of $31 million, or 1.3 percent, from the same
period in 2016, due to higher revenues in amphibious assault ships,
partially offset by lower revenues in surface combatants and the
Legend-class NSC program. Higher amphibious assault ship revenues
were primarily due to increased volumes on Bougainville and Fort
Lauderdale, partially offset by decreased volumes on the delivered
USS John P. Murtha (LPD 26) and USS Portland. Lower surface
combatant revenues were primarily due to decreased volumes on the
delivered USS John Finn, Ralph Johnson, Frank E. Peterson Jr. (DDG
121), Paul Ignatius (DDG 117) and Delbert D. Black (DDG 119),
partially offset by higher volumes on Jack H. Lucas and Lenah H.
Sutcliffe Higbee and the extended selected restricted availability
contract for USS Ramage (DDG 61). Revenues on the Legend-class NSC
program decreased due to lower volume on the delivered USCGC Munro,
partially offset by higher volumes on Stone and Midgett.
For the full year, Ingalls Shipbuilding segment operating income
was $313 million, compared to $321 million in 2016. Segment
operating margin was 12.9 percent for 2017, compared to 13.4
percent in 2016. These decreases were primarily due to lower risk
retirement on the delivered USS John P. Murtha and surface
combatants, partially offset by higher risk retirement on Tripoli
(LHA 7) and the delivered USS Portland.
Key Ingalls Shipbuilding milestones for the quarter:
- Authenticated keel for amphibious transport dock Fort
Lauderdale (LPD 28)
- Christened guided missile destroyer Delbert D. Black (DDG
119)
- Authenticated keel for guided missile destroyer Lenah H.
Sutcliffe Higbee (DDG 123)
- Delivered guided missile destroyer Ralph Johnson (DDG 114) to
the U.S. Navy
- Launched and christened National Security Cutter Midgett (NSC
8)
- Completed union contract extension via union member
ratification
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Newport
News Shipbuilding |
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Three Months Ended |
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Year Ended |
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December 31 |
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|
December 31 |
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|
($ in
millions) |
2017 |
2016 |
$Change |
%Change |
|
2017 |
2016 |
$Change |
%Change |
Revenues |
$ |
1,139 |
|
$ |
1,119 |
|
$ |
20 |
|
1.8 |
% |
|
$ |
4,164 |
|
$ |
4,089 |
|
$ |
75 |
|
1.8 |
% |
Segment operating
income (loss)1 |
106 |
|
139 |
|
(33 |
) |
(23.7 |
)% |
|
354 |
|
386 |
|
(32 |
) |
(8.3 |
)% |
Segment
operating margin %1 |
9.3 |
% |
12.4 |
% |
|
(312) bps |
|
8.5 |
% |
9.4 |
% |
|
(94) bps |
1 Non-GAAP
measures. See Exhibit B for definitions and reconciliations. |
|
Newport News Shipbuilding revenues for the fourth quarter were
$1.1 billion, an increase of $20 million, or 1.8 percent, from the
same period in 2016, due to higher revenues in naval nuclear
support services and aircraft carriers, partially offset by lower
revenues in submarines. Higher naval nuclear support services
revenues were primarily due to increased volumes in submarine
support services, partially offset by lower volume in aircraft
carrier support services. Higher aircraft carrier revenues were
primarily due to increased volumes on the advance planning and
execution 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), partially
offset by decreased volumes on the execution contract for the RCOH
of USS Abraham Lincoln (CVN 72), the construction contract for the
delivered USS Gerald R. Ford (CVN 78) and the inactivation of the
decommissioned Enterprise (CVN 65). Lower submarines revenues
related to the Virginia-class (SSN 774) submarine (VCS) program
were due to decreased volumes on Block III boats.
Newport News Shipbuilding segment operating income for the
fourth quarter was $106 million, a decrease of $33 million from the
same period last year. Segment operating margin was 9.3 percent for
the quarter, compared to 12.4 percent in the same period last year.
These decreases were primarily due to favorable changes in overhead
costs in fourth quarter 2016 and the receipt of a $15 million local
government incentive grant in fourth quarter 2016, partially offset
by higher risk retirement on the aircraft carrier RCOH program in
fourth quarter 2017.
For the full year, Newport News Shipbuilding revenues were $4.2
billion, an increase of $75 million, or 1.8 percent, from 2016, due
to higher revenues in aircraft carriers and naval nuclear support
services, partially offset by lower revenues in submarines. Higher
aircraft carrier revenues were primarily due to increased volumes
on the advance planning and execution contract for the RCOH of USS
George Washington, the construction contract for John F. Kennedy
and the advance planning contract for Enterprise (CVN 80),
partially offset by decreased volumes on the execution contract for
the RCOH of USS Abraham Lincoln, the construction contract for the
delivered Gerald R. Ford and the inactivation of the decommissioned
Enterprise (CVN 65). Higher naval nuclear support services revenues
were primarily due to increased volume in submarine support
services and facility maintenance services, partially offset by
decreased volume in aircraft carrier support services. Lower
submarines revenues related to the VCS program were due to
decreased volumes on Block III boats, partially offset by increased
volumes on Block IV boats.
For the full year, Newport News Shipbuilding segment operating
income was $354 million, a decrease of $32 million from 2016. The
decrease was primarily due to favorable changes in overhead costs
in fourth quarter 2016, the receipt of a $15 million local
government incentive grant in fourth quarter 2016, and lower volume
and risk retirement in the VCS program. These decreases were
partially offset by the resolution of outstanding contract changes
on the inactivation of the decommissioned Enterprise and the RCOH
of USS Abraham Lincoln. Segment operating margin for 2017 was 8.5
percent, compared to 9.4 percent in 2016.
Key Newport News Shipbuilding milestones for the quarter:
- Awarded a $60 million contract to overhaul USS Boise (SSN 764),
which includes options that, if exercised, would bring the total
value of the contract to $385 million
- Awarded a contract from General Dynamics Electric Boat worth up
to $468 million to begin integrated product and process development
for the U.S. Navy’s new Columbia-class submarines
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Technical
Solutions |
|
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|
|
Three Months Ended |
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|
Year Ended |
|
|
|
December 31 |
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|
December 31 |
|
|
($ in
millions) |
2017 |
2016 |
$Change |
%Change |
|
2017 |
2016 |
%Change |
%Change |
Revenues |
$ |
242 |
|
$ |
186 |
|
$ |
56 |
|
30.1 |
% |
|
$ |
952 |
|
$ |
691 |
|
261 |
|
37.8 |
% |
Segment operating
income (loss)1 |
8 |
|
1 |
|
$ |
7 |
|
700.0 |
% |
|
21 |
|
8 |
|
13 |
|
162.5 |
% |
Segment
operating margin %1 |
3.3 |
% |
0.5 |
% |
|
277 bps |
|
2.2 |
% |
1.2 |
% |
|
105 bps |
1 Non-GAAP
measures. See Exhibit B for definitions and reconciliations. |
|
Technical Solutions revenues for the fourth
quarter were $242 million, an increase of $56 million, or 30.1
percent, from the same period in 2016, primarily due to higher
revenues in integrated missions solutions services and fleet
support. Higher revenues in integrated missions solutions services
were due to the acquisition of Camber in December 2016.
Technical Solutions segment operating income for the fourth
quarter was $8 million, compared to $1 million in fourth quarter
2016, driven primarily by improved performance in nuclear and
environmental services and increased volume in integrated missions
solutions services, due to the acquisition of Camber in December
2016.
For the full year, Technical Solutions revenues were $952
million, an increase of $261 million, or 37.8 percent, from 2016,
primarily due to higher volumes in integrated missions solutions
services following the December 2016 acquisition of Camber, and
higher volumes in fleet support and oil and gas services, partially
offset by lower volumes in nuclear and environmental services due
to the resolution in 2016 of outstanding contract changes on a
nuclear and environmental commercial contract.
For the full year, Technical Solutions segment operating income
was $21 million, compared to $8 million in 2016. This increase was
primarily due to improved performance in oil and gas services and
higher volume in integrated missions solutions services following
the December 2016 acquisition of Camber, partially offset by the
establishment of an allowance for accounts receivable on a nuclear
and environmental commercial contract in 2017 and the resolution in
2016 of outstanding contract changes on a nuclear and environmental
commercial contract.
Key Technical Solutions milestones for the quarter:
- Awarded a U.S. Department of Energy contract for the Los Alamos
Legacy Cleanup, as part of Newport News Nuclear BWXT Los Alamos,
LLC (N3B), a joint venture led by Stoller Newport News Nuclear
(SN3), with partner BWX Technologies, Inc.
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 and Environmental,
and Oil and Gas operations. Headquartered in Newport News,
Virginia, HII employs nearly 38,000 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, Feb. 22
by calling toll-free (855) 859-2056 or (404) 537-3406 and using
conference ID 1284447.
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 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; our
ability to execute our strategic plan, including with respect to
share repurchases, dividends, capital expenditures and strategic
acquisitions; 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
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HUNTINGTON INGALLS INDUSTRIES,
INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
Year Ended December 31 |
(in
millions, except per share amounts) |
|
2017 |
|
2016 |
|
2015 |
Sales and service
revenues |
|
|
|
|
|
|
Product
sales |
|
$ |
5,573 |
|
|
$ |
5,631 |
|
|
$ |
5,665 |
|
Service
revenues |
|
1,868 |
|
|
1,437 |
|
|
1,355 |
|
Sales and
service revenues |
|
7,441 |
|
|
7,068 |
|
|
7,020 |
|
Cost of sales and
service revenues |
|
|
|
|
|
|
Cost of
product sales |
|
4,444 |
|
|
4,380 |
|
|
4,319 |
|
Cost of
service revenues |
|
1,574 |
|
|
1,228 |
|
|
1,198 |
|
Income
(loss) from operating investments, net |
|
12 |
|
|
6 |
|
|
10 |
|
Other
income and gains |
|
— |
|
|
15 |
|
|
— |
|
General
and administrative expenses |
|
570 |
|
|
623 |
|
|
669 |
|
Goodwill
impairment |
|
— |
|
|
— |
|
|
75 |
|
Operating
income (loss) |
|
865 |
|
|
858 |
|
|
769 |
|
Other income
(expense) |
|
|
|
|
|
|
Interest
expense |
|
(94 |
) |
|
(74 |
) |
|
(137 |
) |
Other,
net |
|
1 |
|
|
— |
|
|
— |
|
Earnings (loss) before
income taxes |
|
772 |
|
|
784 |
|
|
632 |
|
Federal and foreign
income taxes |
|
293 |
|
|
211 |
|
|
228 |
|
Net
earnings (loss) |
|
$ |
479 |
|
|
$ |
573 |
|
|
$ |
404 |
|
|
|
|
|
|
|
|
Basic earnings (loss)
per share |
|
$ |
10.48 |
|
|
$ |
12.24 |
|
|
$ |
8.43 |
|
Weighted-average common
shares outstanding |
|
45.7 |
|
|
46.8 |
|
|
47.9 |
|
|
|
|
|
|
|
|
Diluted earnings (loss)
per share |
|
$ |
10.46 |
|
|
$ |
12.14 |
|
|
$ |
8.36 |
|
Weighted-average
diluted shares outstanding |
|
45.8 |
|
|
47.2 |
|
|
48.3 |
|
|
|
|
|
|
|
|
Net earnings (loss)
from above |
|
$ |
479 |
|
|
$ |
573 |
|
|
$ |
404 |
|
Other comprehensive
income (loss) |
|
|
|
|
|
|
Change in unamortized
benefit plan costs |
|
59 |
|
|
(172 |
) |
|
34 |
|
Other |
|
14 |
|
|
(1 |
) |
|
(5 |
) |
Tax benefit (expense)
for items of other comprehensive income |
|
(22 |
) |
|
67 |
|
|
(12 |
) |
Other
comprehensive income (loss), net of tax |
|
51 |
|
|
(106 |
) |
|
17 |
|
Comprehensive income (loss) |
|
$ |
530 |
|
|
$ |
467 |
|
|
$ |
421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HUNTINGTON
INGALLS INDUSTRIES, INC.CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION |
|
|
|
|
December 31 |
($ in
millions) |
|
2017 |
|
2016 |
Assets |
|
|
|
|
Current
Assets |
|
|
|
|
Cash and cash
equivalents |
|
$ |
701 |
|
|
$ |
720 |
|
Accounts receivable,
net of allowance for doubtful accounts of $15 million as of 2017
and $4 million as of 2016 |
|
1,188 |
|
|
1,164 |
|
Inventoried costs,
net |
|
183 |
|
|
210 |
|
Prepaid expenses and
other current assets |
|
123 |
|
|
48 |
|
Total
current assets |
|
2,195 |
|
|
2,142 |
|
Property, plant, and
equipment, net of accumulated depreciation of $1,770 million as of
2017 and $1,627 million as of 2016 |
|
2,215 |
|
|
1,986 |
|
Other
Assets |
|
|
|
|
Goodwill |
|
1,217 |
|
|
1,234 |
|
Other intangible
assets, net of accumulated amortization of $528 million as of 2017
and $488 million as of 2016 |
|
508 |
|
|
548 |
|
Long-term deferred tax
assets |
|
114 |
|
|
314 |
|
Miscellaneous other
assets |
|
125 |
|
|
128 |
|
Total
other assets |
|
1,964 |
|
|
2,224 |
|
Total assets |
|
$ |
6,374 |
|
|
$ |
6,352 |
|
Liabilities and
Stockholders' Equity |
|
|
|
|
Current
Liabilities |
|
|
|
|
Trade accounts
payable |
|
$ |
375 |
|
|
$ |
316 |
|
Accrued employees’
compensation |
|
245 |
|
|
241 |
|
Current portion of
postretirement plan liabilities |
|
139 |
|
|
147 |
|
Current portion of
workers’ compensation liabilities |
|
250 |
|
|
217 |
|
Advance payments and
billings in excess of revenues |
|
146 |
|
|
166 |
|
Other current
liabilities |
|
236 |
|
|
256 |
|
Total
current liabilities |
|
1,391 |
|
|
1,343 |
|
Long-term debt |
|
1,279 |
|
|
1,278 |
|
Pension plan
liabilities |
|
922 |
|
|
1,116 |
|
Other postretirement
plan liabilities |
|
414 |
|
|
431 |
|
Workers’ compensation
liabilities |
|
509 |
|
|
441 |
|
Other long-term
liabilities |
|
101 |
|
|
90 |
|
Total
liabilities |
|
4,616 |
|
|
4,699 |
|
Commitments and
Contingencies |
|
|
|
|
Stockholders’
Equity |
|
|
|
|
Common stock, $0.01 par
value; 150 million shares authorized; 53.0 million shares issued
and 45.1 million shares outstanding as of December 31, 2017, and
52.6 million shares issued and 46.2 million shares outstanding as
of December 31, 2016 |
|
1 |
|
|
1 |
|
Additional paid-in
capital |
|
1,942 |
|
|
1,964 |
|
Retained earnings
(deficit) |
|
1,687 |
|
|
1,323 |
|
Treasury stock |
|
(972 |
) |
|
(684 |
) |
Accumulated other
comprehensive income (loss) |
|
(900 |
) |
|
(951 |
) |
Total
stockholders’ equity |
|
1,758 |
|
|
1,653 |
|
Total liabilities and stockholders’ equity |
|
$ |
6,374 |
|
|
$ |
6,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
HUNTINGTON INGALLS INDUSTRIES,
INC.CONSOLIDATED STATEMENTS OF CASH
FLOWS |
|
|
Year Ended December 31 |
($ in
millions) |
|
2017 |
|
2016 |
|
2015 |
Operating
Activities |
|
|
|
|
|
|
Net earnings
(loss) |
|
$ |
479 |
|
|
$ |
573 |
|
|
$ |
404 |
|
Adjustments to
reconcile to net cash provided by (used in) operating
activities |
|
|
|
|
|
|
Depreciation |
|
165 |
|
|
163 |
|
|
154 |
|
Amortization of purchased intangibles |
|
40 |
|
|
23 |
|
|
26 |
|
Amortization of debt issuance costs |
|
6 |
|
|
5 |
|
|
8 |
|
Provision
for doubtful accounts |
|
10 |
|
|
— |
|
|
— |
|
Stock-based compensation |
|
34 |
|
|
36 |
|
|
43 |
|
Deferred
income taxes |
|
184 |
|
|
85 |
|
|
(15 |
) |
Proceeds
from insurance settlement related to investing activities |
|
— |
|
|
— |
|
|
(21 |
) |
Impairment of goodwill and intangible assets |
|
— |
|
|
— |
|
|
102 |
|
Loss on
early extinguishment of debt |
|
22 |
|
|
— |
|
|
44 |
|
Change
in |
|
|
|
|
|
|
Accounts
receivable |
|
(35 |
) |
|
(22 |
) |
|
(41 |
) |
Inventoried costs |
|
18 |
|
|
75 |
|
|
54 |
|
Prepaid
expenses and other assets |
|
(52 |
) |
|
(17 |
) |
|
(31 |
) |
Accounts
payable and accruals |
|
102 |
|
|
(41 |
) |
|
97 |
|
Retiree
benefits |
|
(163 |
) |
|
(44 |
) |
|
32 |
|
Other
non-cash transactions, net |
|
4 |
|
|
(14 |
) |
|
5 |
|
Net cash
provided by (used in) operating activities |
|
814 |
|
|
822 |
|
|
861 |
|
Investing
Activities |
|
|
|
|
|
|
Capital
Expenditures |
|
|
|
|
|
|
Capital
expenditure additions |
|
(382 |
) |
|
(285 |
) |
|
(188 |
) |
Grant
proceeds for capital expenditures |
|
21 |
|
|
— |
|
|
— |
|
Proceeds
from disposition of assets |
|
9 |
|
|
4 |
|
|
32 |
|
Acquisitions of businesses, net of cash received |
|
3 |
|
|
(372 |
) |
|
(6 |
) |
Proceeds
from insurance settlement related to investing activities |
|
— |
|
|
— |
|
|
21 |
|
Net cash
provided by (used in) investing activities |
|
(349 |
) |
|
(653 |
) |
|
(141 |
) |
Financing
Activities |
|
|
|
|
|
|
Proceeds
from issuance of long-term debt |
|
600 |
|
|
— |
|
|
600 |
|
Repayment
of long-term debt |
|
(600 |
) |
|
— |
|
|
(995 |
) |
Debt
issuance costs |
|
(12 |
) |
|
— |
|
|
(21 |
) |
Premiums
and fees related to early extinguishment of debt |
|
(15 |
) |
|
— |
|
|
(33 |
) |
Dividends
paid |
|
(115 |
) |
|
(98 |
) |
|
(81 |
) |
Repurchases of common stock |
|
(286 |
) |
|
(194 |
) |
|
(232 |
) |
Employee
taxes on certain share-based payment arrangements |
|
(56 |
) |
|
(51 |
) |
|
(54 |
) |
Net cash
provided by (used in) financing activities |
|
(484 |
) |
|
(343 |
) |
|
(816 |
) |
Change in
cash and cash equivalents |
|
(19 |
) |
|
(174 |
) |
|
(96 |
) |
Cash and cash
equivalents, beginning of period |
|
720 |
|
|
894 |
|
|
990 |
|
Cash and cash
equivalents, end of period |
|
$ |
701 |
|
|
$ |
720 |
|
|
$ |
894 |
|
Supplemental
Cash Flow Disclosure |
|
|
|
|
|
|
Cash paid for income
taxes |
|
$ |
223 |
|
|
$ |
229 |
|
|
$ |
242 |
|
Cash paid for
interest |
|
$ |
72 |
|
|
$ |
71 |
|
|
$ |
96 |
|
Non-Cash
Investing and Financing Activities |
|
|
|
|
|
|
Capital expenditures
accrued in accounts payable |
|
$ |
33 |
|
|
$ |
24 |
|
|
$ |
17 |
|
Capital assets received
from government grants |
|
$ |
— |
|
|
$ |
30 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 (loss) adjusted for the after-tax impact of the loss on
early extinguishment of debt in fourth quarter 2017 and for tax
reform.
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 net of
related grant proceeds.
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 |
|
Year Ended |
|
|
December 31 |
|
December 31 |
($ in
millions) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Ingalls revenues |
|
$ |
638 |
|
|
$ |
641 |
|
|
$ |
2,420 |
|
|
$ |
2,389 |
|
Newport News
revenues |
|
1,139 |
|
|
1,119 |
|
|
4,164 |
|
|
4,089 |
|
Technical Solutions
revenues |
|
242 |
|
|
186 |
|
|
952 |
|
|
691 |
|
Intersegment
eliminations |
|
(23 |
) |
|
(24 |
) |
|
(95 |
) |
|
(101 |
) |
Sales and
Service Revenues |
|
1,996 |
|
|
1,922 |
|
|
7,441 |
|
|
7,068 |
|
Segment
Operating Income (Loss) |
|
|
|
|
|
|
|
|
Ingalls |
|
75 |
|
|
85 |
|
|
313 |
|
|
321 |
|
As a percentage
of Ingalls revenues |
|
11.8 |
% |
|
13.3 |
% |
|
12.9 |
% |
|
13.4 |
% |
Newport News |
|
106 |
|
|
139 |
|
|
354 |
|
|
386 |
|
As a percentage
of Newport News revenues |
|
9.3 |
% |
|
12.4 |
% |
|
8.5 |
% |
|
9.4 |
% |
Technical
Solutions |
|
8 |
|
|
1 |
|
|
21 |
|
|
8 |
|
As a percentage
of Technical Solutions revenues |
|
3.3 |
% |
|
0.5 |
% |
|
2.2 |
% |
|
1.2 |
% |
Segment
Operating Income (Loss) |
|
189 |
|
|
225 |
|
|
688 |
|
|
715 |
|
As a percentage
of Sales and Service revenues |
|
9.5 |
% |
|
11.7 |
% |
|
9.2 |
% |
|
10.1 |
% |
Non-segment factors
affecting operating income (loss): |
|
|
|
|
|
|
|
|
FAS/CAS
Adjustment |
|
45 |
|
|
38 |
|
|
189 |
|
|
145 |
|
Non-current state income taxes |
|
(7 |
) |
|
5 |
|
|
(12 |
) |
|
(2 |
) |
Operating
Income |
|
227 |
|
|
268 |
|
|
865 |
|
|
858 |
|
Interest expense |
|
(41 |
) |
|
(18 |
) |
|
(94 |
) |
|
(74 |
) |
Other, net |
|
1 |
|
|
1 |
|
|
1 |
|
|
— |
|
Federal and foreign
income taxes |
|
(123 |
) |
|
(54 |
) |
|
(293 |
) |
|
(211 |
) |
Net
Earnings |
|
$ |
64 |
|
|
$ |
197 |
|
|
$ |
479 |
|
|
$ |
573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Adjusted Net Earnings |
|
|
|
|
|
|
|
Three Months Ended |
|
Year Ended |
|
|
December 31 |
|
December 31 |
(in
millions) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Adjusted Net
Earnings (Loss) |
|
|
|
|
|
|
|
|
Net earnings
(loss) |
|
$ |
64 |
|
|
$ |
197 |
|
|
$ |
479 |
|
|
$ |
573 |
|
After-tax adjustment
for loss on early extinguishment of debt1 |
|
14 |
|
|
— |
|
|
14 |
|
|
— |
|
Tax reform
adjustments: |
|
|
|
|
|
|
|
|
Tax
expense related to 2017 Tax Act2 |
|
56 |
|
|
— |
|
|
56 |
|
|
— |
|
Tax
expense related to discretionary pension contributions3 |
|
7 |
|
— |
|
|
7 |
|
— |
|
Adjusted Net Earnings
(Loss) |
|
$ |
141 |
|
|
$ |
197 |
|
|
$ |
556 |
|
|
$ |
573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Adjusted Diluted Earnings per
Share |
|
|
|
|
|
|
|
Three Months Ended |
|
Year Ended |
|
|
December 31 |
|
December 31 |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Adjusted
Diluted EPS |
|
|
|
|
|
|
|
|
Diluted earnings (loss)
per share |
|
$ |
1.41 |
|
|
$ |
4.20 |
|
|
$ |
10.46 |
|
|
$ |
12.14 |
|
After-tax adjustment
for loss on early extinguishment of debt per share1 |
|
0.31 |
|
|
— |
|
|
0.31 |
|
|
— |
|
Tax reform
adjustments: |
|
|
|
|
|
|
|
|
Tax
expense related to 2017 Tax Act per share2 |
|
1.23 |
|
|
— |
|
|
1.22 |
|
|
— |
|
Tax
expense related to discretionary pension contributions per
share3 |
|
0.16 |
|
|
— |
|
|
0.15 |
|
|
— |
|
Adjusted Diluted
EPS |
|
$ |
3.11 |
|
|
$ |
4.20 |
|
|
$ |
12.14 |
|
|
$ |
12.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Footnotes to the Reconciliation of Adjusted Net Earnings
and Adjusted Diluted Earnings per Share |
|
|
|
|
|
|
|
|
Three Months Ended |
|
Year Ended |
|
|
|
December 31 |
|
December 31 |
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
(1) Loss on
early extinguishment of debt |
|
$ |
22 |
|
|
$ |
— |
|
|
$ |
22 |
|
|
$ |
— |
|
|
Tax effect at 35%
statutory rate* |
|
8 |
|
|
— |
|
|
8 |
|
|
— |
|
|
After-tax effect |
|
14 |
|
|
— |
|
|
14 |
|
|
— |
|
|
Weighted-Average
Diluted Shares Outstanding |
|
45.4 |
|
|
46.9 |
|
|
45.8 |
|
|
47.2 |
|
|
Per share impact** |
|
$ |
0.31 |
|
|
$ |
— |
|
|
$ |
0.31 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
(2) Tax expense
related to 2017 Tax Act a |
|
$ |
56 |
|
|
$ |
— |
|
|
$ |
56 |
|
|
$ |
— |
|
|
Weighted-Average
Diluted Shares Outstanding |
|
45.4 |
|
|
46.9 |
|
|
45.8 |
|
|
47.2 |
|
|
Per share impact** |
|
$ |
1.23 |
|
|
$ |
— |
|
|
$ |
1.22 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
(3) Tax expense
related to discretionary pension contributions b |
|
$ |
7 |
|
|
$ |
— |
|
|
$ |
7 |
|
|
$ |
— |
|
|
Weighted-Average
Diluted Shares Outstanding |
|
45.4 |
|
|
46.9 |
|
|
45.8 |
|
|
47.2 |
|
|
Per share
impact** |
|
$ |
0.16 |
|
|
$ |
— |
|
|
$ |
0.15 |
|
|
$ |
— |
|
|
*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. |
|
a Reflects
the impact of the net deferred tax assets write down |
|
b Reflects
the additional income tax expense from the lower manufacturing
deductions available as a result of our planned $214 million
increased pre-tax discretionary pension contribution in 2018 |
|
|
|
|
|
|
|
|
Reconciliation of Free Cash Flow |
|
|
|
|
|
|
|
Three Months Ended |
|
Year Ended |
|
|
December 31 |
|
December 31 |
($ in
millions) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Net cash provided by
(used in) operating activities |
|
434 |
|
|
345 |
|
|
814 |
|
|
822 |
|
Less capital
expenditures: |
|
|
|
|
|
|
|
|
Capital
expenditure additions |
|
(154 |
) |
|
(140 |
) |
|
(382 |
) |
|
(285 |
) |
Grant
proceeds for capital expenditures |
|
21 |
|
|
— |
|
|
21 |
|
|
— |
|
Free cash flow |
|
301 |
|
|
205 |
|
|
453 |
|
|
537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contacts:
Jerri Fuller Dickseski
(Media)jerri.dickseski@hii-co.com757-380-2341
Dwayne Blake (Investors)dwayne.blake@hii-co.com757-380-2104
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