Huntington Ingalls Industries (NYSE:HII) reported second quarter
2020 revenues of $2.0 billion, down 7.4% from the second quarter of
2019. Operating income in the quarter was $57 million and operating
margin was 2.8%, compared to $175 million and 8.0%, respectively,
in the second quarter of 2019.
The decreases in the quarter were primarily driven by
unfavorable cumulative catch-up adjustments totaling $167 million
resulting from updated cost and schedule assumptions across all
programs. This includes $61 million resulting from discrete
COVID-19 related delay and disruption estimates across all
programs, including impacts from lower employee attendance,
availability of critical skills, and out-of-sequence work,
attributable to, among other things, orders of civil authorities
associated with COVID-19 and steps taken to mitigate the effects of
COVID-19.
The majority of the unfavorable adjustments were related to
Block IV boats of the Virginia-class submarine program, totaling
$111 million, for unfavorable cost and schedule performance and
updates to our assumptions for future program efficiencies and
performance as a result of cost and schedule trends, and includes
impacts of COVID-19 delay and disruption totaling $16 million.
Net earnings in the quarter were $53 million, compared to $128
million in the second quarter of 2019. The decrease in net earnings
for the quarter was the result of lower operating income, partially
offset by a more favorable operating FAS/CAS adjustment and FAS
(non-service) pension benefit.
Diluted earnings per share in the quarter was $1.30, compared to
$3.07 in the same period of 2019.
Second quarter cash from operations was $201 million and free
cash flow1 was $126 million, compared to negative $44 million and
negative $135 million, respectively, in the second quarter of
2019.
New contract awards in the quarter were approximately $2.9
billion, bringing total backlog to approximately $46.1 billion as
of June 30, 2020.
COVID-19 Update
"We continue to aggressively manage our response to the ongoing
COVID-19 pandemic. The health and safety of our employees remains
paramount as we continue our important work to support the nation’s
defense,” said Mike Petters, HII president and CEO. "As we
discussed when we provided our first quarter results, staffing at
our shipyards has been significantly impacted by the pandemic as we
worked to preserve the significant investments in human capital
that we have made over the past five years. As a result of the
pandemic and our response, hourly production workforce attendance
at our shipyards averaged approximately 65% during the second
quarter." Petters continued, "The delay and disruption from lower
attendance, availability of critical skills, and out-of-sequence
work caused by COVID-19 has impacted our ability to complete work
as efficiently as initially planned and has added incremental
program cost and pushed schedules and milestones to the right,
which is incorporated in our results and updated outlook for
2020."
Virginia-class Submarine Program
Update
"Our assumptions on Block IV of the Virginia-class submarine
program called for boat-to-boat cost and schedule improvements as
we worked down the learning curve," said Petters. "As we conducted
our regular quarterly program status reviews, it became clear that
performance trends, exacerbated by the COVID-19 pandemic
environment, now make those improvements less likely to occur. As a
result, we are resetting our risk registers to reflect the
performance trends we experienced in the quarter, including the
impacts of COVID-19."
In the quarter, the $111 million unfavorable cumulative catch-up
adjustments on the Block IV boats of the Virginia-class submarine
program included $95 million for cost and schedule performance and
updates to our assumptions for future program efficiencies and
performance as a result of cost and schedule trends, as well as $16
million from delay and disruption directly attributable to
COVID-19.
“There is no doubt that this quarter was challenging,” said
Petters. “However, when I look at the leadership team we have in
place, the workforce we have hired, trained and certified over the
past few years and the record backlog of work we have in front of
us, I am very excited about the future of the shipbuilding
business.”
Updated Financial Outlook
“We have revised our 2020 outlook for updated cost and schedule
assumptions across our programs,” said Chris Kastner, HII chief
financial officer. "Regarding COVID-19, we have assumed limited
relief for costs directly related to our pandemic response but have
made no assumption for equitable adjustments for the delay and
disruption caused by COVID-19. Our guidance also assumes an orderly
recovery to normalized attendance levels at both shipyards."
- Expect shipbuilding revenue between $7.6 and $7.9 billion;
shipbuilding operating margin1 between 5.5% and 6.5%
- Expect Technical Solutions revenue between $1.2 and $1.25
billion and operating margin between 2.0% and 2.4% ° Assumes
San Diego Shipyard closing occurs in Q3 2020, and UPI closing
occurs in Q4 2020
- Expect 2020 free cash flow1 in excess of $500 million
1Non-GAAP measure. See Exhibit B for definition and
reconciliation
Results of Operations
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
|
June 30 |
|
|
June 30 |
|
|
|
($ in millions, except per share amounts) |
2020 |
2019 |
$ Change |
% Change |
2020 |
2019 |
$ Change |
% Change |
|
Sales and service revenues |
$ |
2,027 |
|
$ |
2,188 |
|
$ |
(161 |
) |
(7.4 |
)% |
|
$ |
4,290 |
|
$ |
4,268 |
|
$ |
22 |
|
0.5 |
% |
|
Operating income |
57 |
|
175 |
|
(118 |
) |
(67.4 |
)% |
|
272 |
|
336 |
|
(64 |
) |
(19.0 |
)% |
|
Operating margin % |
2.8 |
% |
8.0 |
% |
|
(519) bps |
|
6.3 |
% |
7.9 |
% |
|
(153) bps |
|
Segment operating income (loss)1 |
(5 |
) |
138 |
|
(143 |
) |
(103.6 |
)% |
|
151 |
|
267 |
|
(116 |
) |
(43.4 |
)% |
|
Segment operating margin %1 |
(0.2 |
)% |
6.3 |
% |
|
(655) bps |
|
3.5 |
% |
6.3 |
% |
|
(274) bps |
|
Net earnings |
53 |
|
128 |
|
(75 |
) |
(58.6 |
)% |
|
225 |
|
246 |
|
(21 |
) |
(8.5 |
)% |
|
Diluted earnings per share |
$ |
1.30 |
|
$ |
3.07 |
|
$ |
(1.77 |
) |
(57.7 |
)% |
|
$ |
5.54 |
|
$ |
5.91 |
|
$ |
(0.37 |
) |
(6.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Pension Adjusted Figures |
|
|
|
|
|
|
|
|
|
Net earnings2 |
(20 |
) |
97 |
|
(117 |
) |
(120.6 |
)% |
|
78 |
|
186 |
|
(108 |
) |
(58.1 |
)% |
|
Diluted earnings per share2 |
$ |
(0.49 |
) |
$ |
2.33 |
|
$ |
(2.82 |
) |
(121.0 |
)% |
|
$ |
1.92 |
|
$ |
4.47 |
|
$ |
(2.55 |
) |
(57.0 |
)% |
|
1 Non-GAAP measures that exclude non-segment factors affecting
operating income. See Exhibit B for definitions and
reconciliations. |
|
2 Non-GAAP measures that exclude the impacts of the FAS/CAS
Adjustment. See Exhibit B for reconciliation. |
|
|
Segment Operating Results
Ingalls Shipbuilding
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
|
June 30 |
|
|
June 30 |
|
|
|
($ in millions) |
2020 |
2019 |
$ Change |
% Change |
2020 |
2019 |
$ Change |
% Change |
|
Revenues |
$ |
622 |
|
$ |
622 |
|
$ |
— |
|
— |
% |
|
$ |
1,251 |
|
$ |
1,206 |
|
$ |
45 |
|
3.7 |
% |
|
Segment operating income1 |
55 |
|
69 |
|
(14 |
) |
(20.3 |
)% |
|
123 |
|
115 |
|
8 |
|
7.0 |
% |
|
Segment operating margin %1 |
8.8 |
% |
11.1 |
% |
|
(225) bps |
|
9.8 |
% |
9.5 |
% |
|
30 bps |
|
1 Non-GAAP measures. See Exhibit B for definitions and
reconciliations. |
|
|
Ingalls Shipbuilding revenues for the second quarter of 2020
were $622 million, flat from the same period in 2019, driven by
higher revenues on the Legend-class National Security Cutter (NSC)
program, the San Antonio-class LPD program and the America-class
LHA program, offset by lower revenues on the Arleigh Burke-class
DDG program. Higher NSC program revenues were primarily due to
higher volumes on Calhoun (NSC 10) and Friedman (NSC 11), partially
offset by lower volume on Midgett (NSC 8). Higher LPD and LHA
program revenues were primarily due to higher volumes on Harrisburg
(LPD 30), Richard M. McCool Jr. (LPD 29), and LHA 9 (unnamed),
partially offset by lower volumes on Tripoli (LHA 7) and
Bougainville (LHA 8). Lower DDG program revenues were primarily due
to lower volumes on USS Fitzgerald (DDG 62) restoration and
modernization, Jack H. Lucas (DDG 125), and Frank E. Petersen Jr.
(DDG 121), partially offset by higher volumes on Ted Stevens (DDG
128), Delbert D. Black (DDG 119), and Sam Nunn (DDG 133).
Ingalls Shipbuilding segment operating income for the second
quarter was $55 million, a decrease of $14 million from the same
period last year. Segment operating margin in the quarter was 8.8%,
compared to 11.1% in the same period last year. The decrease was
primarily driven by unfavorable adjustments, including delay and
disruption from COVID-19 and lower risk retirement on the
Legend-class NSC program, partially offset by higher risk
retirement on Delbert D. Black (DDG 119) in connection with its
delivery and a capital expenditure contract incentive.
Key Ingalls Shipbuilding milestones for the quarter:
- Delivered guided missile destroyer Delbert D. Black (DDG 119)
to the U.S. Navy
- Redelivered USS Fitzgerald (DDG 62) after completion of
restoration and modernization
- Awarded a $1.5 billion contract for the construction of
amphibious transport dock LPD 31
- Awarded a $936 million contract for the construction of an
additional Arleigh Burke-class (DDG 51) Flight III destroyer
- Awarded advance procurement contracts for amphibious assault
ship LHA 9 totaling $332 million
- Awarded LCS planning yard contract worth a potential $108
million
Newport News Shipbuilding
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
|
June 30 |
|
|
June 30 |
|
|
|
($ in millions) |
2020 |
2019 |
$ Change |
% Change |
2020 |
2019 |
$ Change |
% Change |
|
Revenues |
$ |
1,122 |
|
$ |
1,279 |
|
$ |
(157 |
) |
(12.3 |
)% |
|
$ |
2,463 |
|
$ |
2,558 |
|
$ |
(95 |
) |
(3.7 |
)% |
|
Segment operating income (loss)1 |
(69 |
) |
71 |
|
(140 |
) |
(197.2 |
)% |
|
26 |
|
152 |
|
(126 |
) |
(82.9 |
)% |
|
Segment operating margin %1 |
(6.1 |
)% |
5.6 |
% |
|
(1170) bps |
|
1.1 |
% |
5.9 |
% |
|
(489) bps |
|
1 Non-GAAP measures. See Exhibit B for definitions and
reconciliations. |
|
|
Newport News Shipbuilding revenues for the second quarter of
2020 were $1.1 billion, a decrease of $157 million, or 12.3%, from
the same period in 2019, driven by lower revenues in aircraft
carriers and submarine construction, partially offset by higher
revenues in submarine and carrier fleet support services. Aircraft
carrier revenues decreased primarily as a result of lower volumes
on the refueling and complex overhaul (RCOH) of USS George
Washington (CVN 73), USS Gerald R. Ford (CVN 78), and Kennedy (CVN
79), partially offset by higher volumes on the advance planning
contract for the RCOH of USS John C. Stennis (CVN 74) and
Enterprise (CVN 80). Submarine revenues decreased primarily as a
result of lower volumes on the Virginia-class submarine program,
partially offset by higher volume on the Columbia-class submarine
program. The lower volume on the Virginia-class submarine program
was due to lower volumes on Block IV and Block III boats, partially
offset by higher volumes on Block V boats.
Newport News Shipbuilding segment operating loss for the second
quarter was $69 million, compared to operating income of $71
million from the same period last year. Segment operating margin
was (6.1)% for the quarter, compared to 5.6% in the same period
last year. These decreases were primarily due to unfavorable
cumulative catch-up adjustments on Block IV boats of the
Virginia-class submarine program for unfavorable cost and schedule
performance and updates to our assumptions for future program
efficiencies and performance as a result of cost and schedule
trends, as well as the impact of discrete COVID-19 delay and
disruption.
Key Newport News Shipbuilding milestones for the quarter:
- John F. Kennedy (CVN 79) is approximately 74% complete
- The RCOH of USS George Washington (CVN 73) is approximately 78%
complete
Technical Solutions
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
|
June 30 |
|
|
June 30 |
|
|
|
($ in millions) |
2020 |
2019 |
$ Change |
% Change |
2020 |
2019 |
$ Change |
% Change |
|
Revenues |
$ |
320 |
|
$ |
321 |
|
$ |
(1 |
) |
(0.3 |
)% |
|
$ |
637 |
|
$ |
561 |
|
76 |
|
13.5 |
% |
|
Segment operating income (loss)1 |
9 |
|
(2 |
) |
$ |
11 |
|
550.0 |
% |
|
2 |
|
— |
|
2 |
|
— |
% |
|
Segment operating margin %1 |
2.8 |
% |
(0.6 |
)% |
|
344 bps |
|
0.3 |
% |
— |
% |
|
31 bps |
|
1 Non-GAAP measures. See Exhibit B for definitions and
reconciliations. |
|
|
|
|
|
|
|
|
|
|
Technical Solutions revenues for the second quarter of 2020 were
$320 million, a decrease of $1 million from the same period in
2019, primarily driven by lower mission driven innovative solutions
(MDIS), fleet support and nuclear and environmental services
revenues, partially offset by the acquisition of Hydroid in 2020
and higher revenues on oil and gas services.
Technical Solutions segment operating income for the second
quarter was $9 million, compared to segment operating loss of $2
million in second quarter 2019. The increase was primarily driven
by the loss on a fleet support contract in the prior year
period.
Key Technical Solutions milestones for the quarter:
- Awarded a contract to provide analytical support services to
the U.S. Special Operations Command’s Intelligence Directorate
- One of five companies awarded an indefinite delivery/indefinite
quantity contract with the U.S. Postal Service Office of Inspector
General to provide support services to the Office of the Chief
Information Officer
2020 Outlook
The financial outlook, expectations and other forward looking
statements provided by the company for 2020 and beyond, reflect the
company's judgment based on the information available at the time
of this release.
The COVID-19 global pandemic has had wide ranging effects on the
global health environment and disrupted the global and U.S.
economies and financial markets, including impacts to our
employees, customers, suppliers, and communities. The pandemic is
also impacting our operations, and the full impacts of COVID-19 on
our fiscal year 2020 financial results and beyond are uncertain. We
believe that the most significant elements of uncertainty are the
intensity and duration of the impact on our employees’ ability to
work effectively, disruption in our supply chain, disruption of the
U.S. Government's and our other customers' abilities to perform
their obligations, and impact on pension assets and other
investment performance.
We have incurred and expect to continue incurring costs related
to our COVID-19 response, including paid leave, quarantining
employees and recurring facility cleaning. While our shipyards and
other facilities remain open and productive, we have experienced a
decrease in workforce attendance, which has impacted our operations
with delay and disruption from availability of critical skills and
out-of-sequence work. Continued lower staffing levels and lower
employee productivity could impact our ability to achieve
anticipated milestones and further affect our 2020 financial
results and beyond.
Our employees, suppliers, customers, and communities are facing
significant challenges, and we cannot predict how the COVID-19
environment will evolve or the impact it will have. For further
information on the potential impact of COVID-19 to the company, see
“Risk Factors” in our second quarter Form 10-Q.
|
|
|
2020 Prior Outlook (May
2020) |
2020 RevisedOutlook (Aug.
2020) |
|
Shipbuilding Revenue1 |
|
Lower end of 3% to 5% YoY Growth |
$7.6B - $7.9B |
| Shipbuilding Operating
Margin1 |
|
9% |
5.5% - 6.5% |
| Technical Solutions
Revenue2Technical Solutions Revenue (Ex. UPI & SDSY) |
|
N/A ~$1B |
$1.2B - $1.25B$0.9B - $1.0B |
| Technical Solutions Operating
Margin2Technical Solutions Operating Margin (Ex. UPI &
SDSY) |
|
N/A N/A |
2.0% - 2.4% 2.8% - 3.2% |
| Technical Solutions EBITDA
Margin1,2Technical Solutions EBITDA Margin (Ex. UPI &
SDSY)1 |
|
N/A 7 - 9% |
5.7% - 6.0% 7.7% - 8.0% |
| |
|
|
|
| Operating FAS/CAS
Adjustment |
|
$247M |
$247M |
| Non-current State Income Tax
Expense |
|
$4M |
$10M |
| Interest Expense3 |
|
$104M |
$106M |
| Non-operating Retirement
Benefit |
|
$120M |
$120M |
| Effective Tax Rate |
|
~21% |
~21% |
| |
|
|
|
| Depreciation &
Amortization |
|
~$250M |
~$250M |
| Capital Expenditures |
|
4-5% of Sales |
~5% of Sales |
| Free
Cash Flow1 |
|
>$500M |
>$500M |
1 Non-GAAP measures. See Exhibit B for definition.2 Includes
results from San Diego Shipyard through August 2020 and includes
results from Universal Pegasus International through Dec. 2020.3
Includes a $15M call premium for 5.0% senior notes due 2025, with
first call date in November 2020.
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
supports national security missions around the globe with unmanned
systems, defense and federal solutions, and nuclear and
environmental services. Headquartered in Newport News, Virginia,
HII employs more than 42,000 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. Eastern time 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
Wednesday, August 12 by calling toll-free (855) 859-2056 or (404)
537-3406 and using conference ID 8565843.
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; health epidemics, pandemics and similar outbreaks,
including the COVID-19 pandemic; 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.
Contacts:
Jerri Fuller Dickseski
(Media)jerri.dickseski@hii-co.com757-380-2341
Dwayne Blake (Investors)dwayne.blake@hii-co.com757-380-2104
Exhibit A: Financial Statements
HUNTINGTON INGALLS INDUSTRIES,
INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
|
|
|
Three Months Ended June 30 |
|
Six Months Ended June 30 |
|
(in millions, except per share amounts) |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Sales and service revenues |
|
|
|
|
|
|
|
|
|
Product sales |
|
$ |
1,420 |
|
|
$ |
1,520 |
|
|
$ |
3,044 |
|
|
$ |
3,010 |
|
|
Service revenues |
|
607 |
|
|
668 |
|
|
1,246 |
|
|
1,258 |
|
|
Sales and service revenues |
|
2,027 |
|
|
2,188 |
|
|
4,290 |
|
|
4,268 |
|
|
Cost of sales and service revenues |
|
|
|
|
|
|
|
|
|
Cost of product sales |
|
1,253 |
|
|
1,250 |
|
|
2,543 |
|
|
2,508 |
|
|
Cost of service revenues |
|
510 |
|
|
584 |
|
|
1,060 |
|
|
1,078 |
|
|
Income from operating investments, net |
|
7 |
|
|
5 |
|
|
13 |
|
|
9 |
|
|
General and administrative expenses |
|
214 |
|
|
184 |
|
|
428 |
|
|
355 |
|
|
Operating income |
|
57 |
|
|
175 |
|
|
272 |
|
|
336 |
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
Interest expense |
|
(2 |
) |
|
(18 |
) |
|
(41 |
) |
|
(34 |
) |
|
Non-operating retirement benefit |
|
30 |
|
|
2 |
|
|
60 |
|
|
5 |
|
|
Other, net |
|
3 |
|
|
5 |
|
|
(10 |
) |
|
6 |
|
|
Earnings before income taxes |
|
65 |
|
|
164 |
|
|
281 |
|
|
313 |
|
|
Federal and foreign income taxes |
|
12 |
|
|
36 |
|
|
56 |
|
|
67 |
|
|
Net earnings |
|
$ |
53 |
|
|
$ |
128 |
|
|
$ |
225 |
|
|
$ |
246 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
1.30 |
|
|
$ |
3.07 |
|
|
$ |
5.54 |
|
|
$ |
5.91 |
|
|
Weighted-average common shares outstanding |
|
40.7 |
|
|
41.7 |
|
|
40.6 |
|
|
41.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
1.30 |
|
|
$ |
3.07 |
|
|
$ |
5.54 |
|
|
$ |
5.91 |
|
|
Weighted-average diluted shares outstanding |
|
40.7 |
|
|
41.7 |
|
|
40.6 |
|
|
41.6 |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share |
|
$ |
1.03 |
|
|
$ |
0.86 |
|
|
$ |
2.06 |
|
|
$ |
1.72 |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from above |
|
$ |
53 |
|
|
$ |
128 |
|
|
$ |
225 |
|
|
$ |
246 |
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
Change in unamortized benefit plan costs |
|
23 |
|
|
24 |
|
|
46 |
|
|
49 |
|
|
Other |
|
1 |
|
|
— |
|
|
(1 |
) |
|
— |
|
|
Tax expense for items of other comprehensive income |
|
(6 |
) |
|
(6 |
) |
|
(12 |
) |
|
(12 |
) |
|
Other comprehensive income (loss), net of tax |
|
18 |
|
|
18 |
|
|
33 |
|
|
37 |
|
|
Comprehensive income |
|
$ |
71 |
|
|
$ |
146 |
|
|
$ |
258 |
|
|
$ |
283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HUNTINGTON INGALLS INDUSTRIES,
INC.CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION
|
($ in millions) |
|
June 30, 2020 |
|
December 31, 2019 |
|
Assets |
|
|
|
|
|
Current Assets |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
631 |
|
|
$ |
75 |
|
|
Accounts receivable, net of allowance for doubtful accounts of $1
million as of 2020 and $3 million as of 2019 |
|
494 |
|
|
318 |
|
|
Contract assets |
|
1,134 |
|
|
989 |
|
|
Inventoried costs, net |
|
160 |
|
|
136 |
|
|
Income taxes receivable |
|
104 |
|
|
148 |
|
|
Assets held for sale |
|
173 |
|
|
95 |
|
|
Prepaid expenses and other current assets |
|
43 |
|
|
24 |
|
|
Total current assets |
|
2,739 |
|
|
1,785 |
|
|
Property, plant, and equipment, net of accumulated depreciation of
$1,975 million as of 2020 and $1,961 million as of 2019 |
|
2,879 |
|
|
2,832 |
|
|
Other Assets |
|
|
|
|
|
Operating lease assets |
|
174 |
|
|
201 |
|
|
Goodwill |
|
1,576 |
|
|
1,373 |
|
|
Other intangible assets, net of accumulated amortization of $625
million as of 2020 and $599 million as of 2019 |
|
542 |
|
|
492 |
|
|
Deferred tax assets |
|
78 |
|
|
108 |
|
|
Miscellaneous other assets |
|
245 |
|
|
240 |
|
|
Total assets |
|
$ |
8,233 |
|
|
$ |
7,031 |
|
|
|
|
|
|
|
|
|
|
|
HUNTINGTON INGALLS INDUSTRIES,
INC.CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(continued)
|
($ in millions) |
|
June 30, 2020 |
|
December 31, 2019 |
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
Trade accounts payable |
|
$ |
437 |
|
|
$ |
497 |
|
|
Accrued employees’ compensation |
|
301 |
|
|
265 |
|
|
Current portion of postretirement plan liabilities |
|
130 |
|
|
130 |
|
|
Current portion of workers’ compensation liabilities |
|
230 |
|
|
225 |
|
|
Contract liabilities |
|
573 |
|
|
373 |
|
|
Liabilities held for sale |
|
93 |
|
|
77 |
|
|
Other current liabilities |
|
350 |
|
|
323 |
|
|
Total current liabilities |
|
2,114 |
|
|
1,890 |
|
|
Long-term debt |
|
2,276 |
|
|
1,286 |
|
|
Pension plan liabilities |
|
882 |
|
|
975 |
|
|
Other postretirement plan liabilities |
|
376 |
|
|
380 |
|
|
Workers’ compensation liabilities |
|
464 |
|
|
457 |
|
|
Long-term operating lease liabilities |
|
147 |
|
|
164 |
|
|
Other long-term liabilities |
|
296 |
|
|
291 |
|
|
Total liabilities |
|
6,555 |
|
|
5,443 |
|
|
Commitments and Contingencies |
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
Common stock, $0.01 par value; 150 million shares authorized; 53.3
million shares issued and 40.5 million shares outstanding as of
June 30, 2020, and 53.2 million shares issued and 40.8 million
shares outstanding as of December 31, 2019 |
|
1 |
|
|
1 |
|
|
Additional paid-in capital |
|
1,961 |
|
|
1,961 |
|
|
Retained earnings |
|
3,150 |
|
|
3,009 |
|
|
Treasury stock |
|
(2,058 |
) |
|
(1,974 |
) |
|
Accumulated other comprehensive loss |
|
(1,376 |
) |
|
(1,409 |
) |
|
Total stockholders’ equity |
|
1,678 |
|
|
1,588 |
|
|
Total liabilities and stockholders’ equity |
|
$ |
8,233 |
|
|
$ |
7,031 |
|
|
|
|
|
|
|
|
|
|
|
HUNTINGTON INGALLS INDUSTRIES,
INC.CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
|
|
Six Months Ended June 30 |
|
($ in millions) |
|
2020 |
|
2019 |
|
Operating Activities |
|
|
|
|
|
Net earnings |
|
$ |
225 |
|
|
$ |
246 |
|
|
Adjustments to reconcile to net cash provided by (used in)
operating activities |
|
|
|
|
|
Depreciation |
|
92 |
|
|
83 |
|
|
Amortization of purchased intangibles |
|
26 |
|
|
23 |
|
|
Amortization of debt issuance costs |
|
3 |
|
|
1 |
|
|
Provision for doubtful accounts |
|
6 |
|
|
(2 |
) |
|
Stock-based compensation |
|
13 |
|
|
12 |
|
|
Deferred income taxes |
|
21 |
|
|
30 |
|
|
Loss (gain) on investments in marketable securities |
|
5 |
|
|
(4 |
) |
|
Change in |
|
|
|
|
|
Accounts receivable |
|
(167 |
) |
|
(301 |
) |
|
Contract assets |
|
(63 |
) |
|
(238 |
) |
|
Inventoried costs |
|
(13 |
) |
|
(1 |
) |
|
Prepaid expenses and other assets |
|
(4 |
) |
|
(39 |
) |
|
Accounts payable and accruals |
|
172 |
|
|
107 |
|
|
Retiree benefits |
|
(50 |
) |
|
46 |
|
|
Other non-cash transactions, net |
|
3 |
|
|
4 |
|
|
Net cash provided by (used in) operating activities |
|
269 |
|
|
(33 |
) |
|
Investing Activities |
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
Capital expenditure additions |
|
(150 |
) |
|
(234 |
) |
|
Grant proceeds for capital expenditures |
|
9 |
|
|
69 |
|
|
Acquisitions of businesses, net of cash received |
|
(378 |
) |
|
(196 |
) |
|
Net cash used in investing activities |
|
(519 |
) |
|
(361 |
) |
|
Financing Activities |
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
1,000 |
|
|
— |
|
|
Proceeds from revolving credit facility borrowings |
|
385 |
|
|
3,286 |
|
|
Repayment of revolving credit facility borrowings |
|
(385 |
) |
|
(2,872 |
) |
|
Debt issuance costs |
|
(13 |
) |
|
— |
|
|
Dividends paid |
|
(84 |
) |
|
(72 |
) |
|
Repurchases of common stock |
|
(84 |
) |
|
(136 |
) |
|
Employee taxes on certain share-based payment arrangements |
|
(13 |
) |
|
(23 |
) |
|
Net cash provided by financing activities |
|
806 |
|
|
183 |
|
|
Change in cash and cash equivalents |
|
556 |
|
|
(211 |
) |
|
Cash and cash equivalents, beginning of period |
|
75 |
|
|
240 |
|
|
Cash and cash equivalents, end of period |
|
$ |
631 |
|
|
$ |
29 |
|
|
Supplemental Cash Flow Disclosure |
|
|
|
|
|
Cash paid for income taxes |
|
$ |
23 |
|
|
$ |
89 |
|
|
Cash paid for interest |
|
$ |
32 |
|
|
$ |
35 |
|
|
Non-Cash Investing and Financing Activities |
|
|
|
|
|
Capital expenditures accrued in accounts payable |
|
$ |
5 |
|
|
$ |
9 |
|
|
|
|
|
|
|
|
|
|
|
Exhibit B: Non-GAAP Measures Definitions &
Reconciliations
We make reference to "segment operating income," "segment
operating margin," "shipbuilding revenue," "shipbuilding operating
margin," "Technical Solutions EBITDA margin," "adjusted net
earnings," "adjusted diluted earnings per share" and "free cash
flow."
We internally manage our operations by reference to segment
operating income and segment operating margin, which are not
recognized measures under GAAP. When analyzing our operating
performance, investors should use segment operating income 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, segment operating margin and shipbuilding
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 and segment operating margin may not be comparable
to similarly titled measures of other companies.
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.
Shipbuilding revenue, shipbuilding operating margin and
Technical Solutions EBITDA margin are not measures recognized under
GAAP. They should be considered supplemental to and not a
substitute for financial information prepared in accordance with
GAAP. 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
Operating 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.
Shipbuilding revenue is defined as the combined
sales and service revenues from our Newport News Shipbuilding
segment and Ingalls Shipbuilding segment.
Shipbuilding operating margin is defined as the
combined segment operating margin of our Newport News Shipbuilding
segment and Ingalls Shipbuilding segment as a percentage of
combined sales and service revenues from our Newport News
Shipbuilding segment and Ingalls Shipbuilding segment.
Technical Solutions EBITDA margin is defined as
Technical Solutions segment operating income before interest
expense, income taxes, depreciation, and amortization as a
percentage of revenues.
Adjusted net earnings 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 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 expenses for pension and other postretirement benefits
determined in accordance with GAAP (FAS) and the expenses
determined in accordance with U.S. Cost Accounting Standards
(CAS).
Operating FAS/CAS Adjustment is defined as the
difference between the service cost component of our pension and
other postretirement expense determined in accordance with GAAP
(FAS) and our pension and other postretirement expense under U.S.
Cost Accounting Standards (CAS).
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 Operating 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.
Reconciliations of Segment Operating Income and Segment
Operating Margin
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
June 30 |
|
June 30 |
|
($ in millions) |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Ingalls revenues |
|
$ |
622 |
|
|
$ |
622 |
|
|
$ |
1,251 |
|
|
$ |
1,206 |
|
|
Newport News revenues |
|
1,122 |
|
|
1,279 |
|
|
2,463 |
|
|
2,558 |
|
|
Technical Solutions revenues |
|
320 |
|
|
321 |
|
|
637 |
|
|
561 |
|
|
Intersegment eliminations |
|
(37 |
) |
|
(34 |
) |
|
(61 |
) |
|
(57 |
) |
|
Sales and Service Revenues |
|
2,027 |
|
|
2,188 |
|
|
4,290 |
|
|
4,268 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
57 |
|
|
175 |
|
|
272 |
|
|
336 |
|
|
Operating FAS/CAS Adjustment |
|
(63 |
) |
|
(37 |
) |
|
(126 |
) |
|
(71 |
) |
|
Non-current state income taxes |
|
1 |
|
|
— |
|
|
5 |
|
|
2 |
|
|
Segment Operating Income (Loss) |
|
(5 |
) |
|
138 |
|
|
151 |
|
|
267 |
|
|
As a percentage of sales and service revenues |
|
(0.2 |
)% |
|
6.3 |
% |
|
3.5 |
% |
|
6.3 |
% |
|
Ingalls operating income |
|
55 |
|
|
69 |
|
|
123 |
|
|
115 |
|
|
As a percentage of Ingalls revenues |
|
8.8 |
% |
|
11.1 |
% |
|
9.8 |
% |
|
9.5 |
% |
|
Newport News operating income (loss) |
|
(69 |
) |
|
71 |
|
|
26 |
|
|
152 |
|
|
As a percentage of Newport News revenues |
|
(6.1 |
)% |
|
5.6 |
% |
|
1.1 |
% |
|
5.9 |
% |
|
Technical Solutions operating income (loss) |
|
9 |
|
|
(2 |
) |
|
2 |
|
|
— |
|
|
As a percentage of Technical Solutions revenues |
|
2.8 |
% |
|
(0.6 |
)% |
|
0.3 |
% |
|
— |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Adjusted Net Earnings
and Adjusted Diluted Earnings Per Share
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
June 30 |
|
June 30 |
|
(in millions, except per share amounts) |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
53 |
|
|
$ |
128 |
|
|
$ |
225 |
|
|
$ |
246 |
|
|
After-tax FAS/CAS adjustment(1) |
|
(73 |
) |
|
(31 |
) |
|
(147 |
) |
|
(60 |
) |
|
Adjusted Net Earnings |
|
$ |
(20 |
) |
|
$ |
97 |
|
|
$ |
78 |
|
|
$ |
186 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
1.30 |
|
|
$ |
3.07 |
|
|
$ |
5.54 |
|
|
$ |
5.91 |
|
|
After-tax FAS/CAS adjustment per share(1) |
|
(1.79 |
) |
|
(0.74 |
) |
|
(3.62 |
) |
|
(1.44 |
) |
|
Adjusted Diluted EPS** |
|
$ |
(0.49 |
) |
|
$ |
2.33 |
|
|
$ |
1.92 |
|
|
$ |
4.47 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) FAS/CAS Adjustment |
|
$ |
(93 |
) |
|
$ |
(39 |
) |
|
$ |
(186 |
) |
|
$ |
(76 |
) |
|
Tax effect* |
|
(20 |
) |
|
(8 |
) |
|
(39 |
) |
|
(16 |
) |
|
After-tax impact |
|
(73 |
) |
|
(31 |
) |
|
$ |
(147 |
) |
|
$ |
(60 |
) |
|
Weighted-average diluted shares outstanding |
|
40.7 |
|
|
41.7 |
|
|
40.6 |
|
|
41.6 |
|
|
Per share impact** |
|
$ |
(1.79 |
) |
|
$ |
(0.74 |
) |
|
$ |
(3.62 |
) |
|
$ |
(1.44 |
) |
|
|
|
|
|
|
|
|
|
|
|
*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. |
|
|
Reconciliation of Free Cash
Flow
|
|
|
Three Months Ended |
|
Six Month Ended |
|
|
|
June 30 |
|
June 30 |
|
(in millions) |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Net cash provided by (used in) operating activities |
|
$ |
201 |
|
|
$ |
(44 |
) |
|
$ |
269 |
|
|
$ |
(33 |
) |
|
Less capital expenditures: |
|
|
|
|
|
|
|
|
|
Capital expenditure additions |
|
(79 |
) |
|
(124 |
) |
|
(150 |
) |
|
(234 |
) |
|
Grant proceeds for capital expenditures |
|
4 |
|
|
33 |
|
|
9 |
|
|
69 |
|
|
Free cash flow |
|
$ |
126 |
|
|
$ |
(135 |
) |
|
$ |
128 |
|
|
$ |
(198 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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