Huntington Ingalls Industries (NYSE:HII) reported third quarter
2020 revenues of $2.3 billion, up 4.3% from the third quarter of
2019. The increase was driven by growth at both HII's Newport News
and Ingalls Shipbuilding divisions.
Operating income in the quarter was $222 million and operating
margin was 9.6%, compared to $214 million and 9.6%, respectively,
in the third quarter of 2019. The increase in operating income was
mainly the result of a higher operating FAS/CAS adjustment,
partially offset by lower segment operating income, compared to the
prior year.
Net earnings in the quarter were $222 million, compared to $154
million in the third quarter of 2019. The increase in net earnings
was the result of lower federal income taxes due to a claim for
higher research and development tax credits for prior years and a
favorable change in the non-operating portion of retirement
benefits, as well as higher operating income, partially offset by
higher interest expense. Diluted earnings per share in the quarter
was $5.45, compared to $3.74 in the same period of 2019.
Third quarter cash from operations was $222 million and free
cash flow1 was $160 million, compared to $363 million and $250
million, respectively, in the third quarter of 2019.
New contract awards in the quarter were approximately $1.6
billion, bringing total backlog to approximately $45.3 billion as
of Sept. 30, 2020.
“We are very pleased with shipbuilding program execution in the
quarter, particularly as we continue to navigate our way through
the challenges posed by COVID-19,” said Mike Petters, HII’s
president and CEO. “In addition to achieving a number of key
shipbuilding program milestones during the quarter, we also broke
ground on our Unmanned Systems Center of Excellence, a facility
purpose-built for unmanned systems prototyping, production and
testing as we continue to invest in and expand our unmanned
capabilities."
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 Petters. "The rate of new cases has stabilized in
our shipyards, and we are maintaining a sustainable and manageable
level of attendance. This has been driven by our ability to start
rapid testing of employees and move them out of quarantine and back
to work in a prudent way. While this has proven to be successful,
the dynamic nature of this virus will force us to continue refining
our policies to adapt to changing circumstances."
Financial Outlook
- Expect FY20 shipbuilding revenue of approximately $7.9 billion;
shipbuilding operating margin1 between 5.5% and 6.5%
- Expect FY20 Technical Solutions revenue of approximately $1.25
billion and segment operating margin1 of approximately 2.6%
- Expect FY20 free cash flow1 of >$500 million
- Expect cumulative FY20 and FY21 free cash flow1 of
approximately $900 million
- Expect cumulative FY20-FY24 free cash flow1 of approximately $3
billion
1Non-GAAP measures. See Exhibit B for definitions and
reconciliations.
Results of Operations
|
Three Months Ended |
|
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
|
September 30 |
|
|
($ in
millions, except per share amounts) |
2020 |
2019 |
$ Change |
% Change |
|
2020 |
2019 |
$ Change |
% Change |
Sales and service
revenues |
$ |
2,314 |
|
$ |
2,219 |
|
$ |
95 |
|
|
4.3% |
|
$ |
6,604 |
|
$ |
6,487 |
|
$ |
117 |
|
|
1.8% |
Operating income |
222 |
|
214 |
|
8 |
|
|
3.7% |
|
494 |
|
550 |
|
(56 |
) |
|
(10.2)% |
Operating margin % |
9.6 |
% |
9.6 |
% |
|
(5) bps |
|
7.5 |
% |
8.5 |
% |
|
(100) bps |
Segment operating income1 |
162 |
|
191 |
|
(29 |
) |
|
(15.2)% |
|
313 |
|
458 |
|
(145 |
) |
|
(31.7)% |
Segment operating
margin %1 |
7.0 |
% |
8.6 |
% |
|
(161) bps |
|
4.7 |
% |
7.1 |
% |
|
(232) bps |
Net earnings |
222 |
|
154 |
|
68 |
|
|
44.2% |
|
447 |
|
400 |
|
47 |
|
|
11.8% |
Diluted earnings per
share |
$ |
5.45 |
|
$ |
3.74 |
|
$ |
1.71 |
|
|
45.7% |
|
$ |
10.98 |
|
$ |
9.66 |
|
$ |
1.32 |
|
|
13.7% |
|
|
|
|
|
|
|
|
|
|
Pension Adjusted
Figures |
|
|
|
|
|
|
|
|
|
Net earnings2 |
152 |
|
133 |
|
19 |
|
|
14.3% |
|
230 |
|
319 |
|
(89 |
) |
|
(27.9)% |
Diluted
earnings per share2 |
$ |
3.73 |
|
$ |
3.23 |
|
$ |
0.50 |
|
|
15.5% |
|
$ |
5.65 |
|
$ |
7.71 |
|
$ |
(2.06 |
) |
|
(26.7)% |
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 |
|
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
|
September 30 |
|
|
($ in
millions) |
2020 |
2019 |
$ Change |
% Change |
|
2020 |
2019 |
$ Change |
% Change |
Revenues |
$ |
675 |
|
$ |
647 |
|
$ |
28 |
|
4.3% |
|
$ |
1,926 |
|
$ |
1,853 |
|
$ |
73 |
|
3.9% |
Segment operating income1 |
62 |
|
61 |
|
1 |
|
1.6% |
|
185 |
|
176 |
|
9 |
|
5.1% |
Segment operating margin
%1 |
9.2 |
% |
9.4 |
% |
|
(24) bps |
|
9.6 |
% |
9.5 |
% |
|
11 bps |
1 Non-GAAP
measures. See Exhibit B for definitions and reconciliations. |
|
Ingalls Shipbuilding revenues for the third quarter of 2020 were
$675 million, an increase of $28 million from the same period in
2019, primarily driven by higher revenues in surface combatants and
the Legend-class National Security Cutter (NSC) program, partially
offset by lower revenues in amphibious assault ships. Surface
combatant revenues increased due to higher volumes on Ted Stevens
(DDG 128), Jeremiah Denton (DDG 129), Thad Cochran (DDG 135), and
George M. Neal (DDG 131), partially offset by lower volumes on USS
Fitzgerald (DDG 62) restoration and modernization. Revenues on the
Legend-class NSC program increased due to higher volumes on Stone
(NSC 9) and Calhoun (NSC 10), partially offset by lower volume on
Friedman (NSC 11). Amphibious assault ship revenues decreased as a
result of lower volumes on Tripoli (LHA 7) and Richard M. McCool
Jr. (LPD 29), partially offset by higher volume on Harrisburg (LPD
30).
Ingalls Shipbuilding segment operating income for the third
quarter was $62 million, an increase of $1 million from the same
period last year. Segment operating margin in the quarter was 9.2%,
compared to 9.4% in the same period last year.
Key Ingalls Shipbuilding milestones for the quarter:
- Completed sea trials for Legend-class National Security Cutter
Stone (NSC 9)
- Achieved electronic systems light-off for Fort Lauderdale (LPD
28)
Newport News Shipbuilding
|
Three Months Ended |
|
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
|
September 30 |
|
|
($ in
millions) |
2020 |
2019 |
$ Change |
% Change |
|
2020 |
2019 |
$ Change |
% Change |
Revenues |
$ |
1,358 |
|
$ |
1,274 |
|
$ |
84 |
|
|
6.6% |
|
$ |
3,821 |
|
$ |
3,832 |
|
$ |
(11 |
) |
|
(0.3)% |
Segment operating income1 |
79 |
|
121 |
|
(42 |
) |
|
(34.7)% |
|
105 |
|
273 |
|
(168 |
) |
|
(61.5)% |
Segment
operating margin %1 |
5.8 |
% |
9.5 |
% |
|
(368) bps |
|
2.7 |
% |
7.1 |
% |
|
(438) bps |
1 Non-GAAP
measures. See Exhibit B for definitions and reconciliations. |
|
Newport News Shipbuilding revenues for the third quarter of 2020
were $1.4 billion, an increase of $84 million, or 6.6%, from the
same period in 2019, driven by higher revenues in submarine and
aircraft carrier construction, as well as fleet support services.
Submarine revenues increased primarily as a result of higher
volumes on Block V boats of the Virginia-class program and the
Columbia-class program, partially offset by lower volumes on Block
III boats of the Virginia-class program. Aircraft carrier
revenues increased primarily as a result of higher volumes on
Enterprise (CVN 80) and the advance planning contract for the
refueling and complex overhaul (RCOH) of USS John C. Stennis (CVN
74), as well as higher volume on Doris Miller (CVN 81), partially
offset by lower volumes on the RCOH of USS George Washington (CVN
73), John F. Kennedy (CVN 79) and USS Gerald R. Ford (CVN 78).
Newport News Shipbuilding segment operating income for the third
quarter was $79 million, compared to operating income of $121
million from the same period last year. Segment operating margin
was 5.8% for the quarter, compared to 9.5% in the same period last
year. These decreases were primarily due to lower risk retirement
on the Virginia-class submarine program and the use of lower profit
booking rates following the second quarter reset of cost and
schedule expectations. Additionally, results were impacted by lower
risk retirement on fleet support services compared to the prior
year period, which benefited from contract actions related to work
on Los Angeles-class submarines.
Key Newport News Shipbuilding milestones for the quarter:
- John F. Kennedy (CVN 79) is approximately 76% complete
- Commencement of shore steam testing on USS George Washington
(CVN 73) RCOH, which is approximately 81% complete
- Christened the Virginia-class submarine Montana (SSN 794)
Technical Solutions
|
Three Months Ended |
|
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
|
September 30 |
|
|
($ in
millions) |
2020 |
2019 |
$ Change |
% Change |
|
2020 |
2019 |
$ Change |
% Change |
Revenues |
$ |
320 |
|
$ |
326 |
|
$ |
(6 |
) |
|
(1.8)% |
|
$ |
957 |
|
$ |
887 |
|
70 |
|
7.9% |
Segment operating income1 |
21 |
|
9 |
|
$ |
12 |
|
|
133.3% |
|
23 |
|
9 |
|
14 |
|
155.6% |
Segment operating margin
%1 |
6.6 |
% |
2.8 |
% |
|
380 bps |
|
2.4 |
% |
1.0 |
% |
|
139 bps |
1 Non-GAAP
measures. See Exhibit B for definitions and reconciliations. |
|
|
|
|
|
|
|
|
|
|
|
Technical Solutions revenues for the third quarter of 2020 were
$320 million, a decrease of $6 million from the same period in
2019, primarily driven by lower revenue at the San Diego Shipyard
due to the conclusion of several repair contracts, partially offset
by the acquisition of Hydroid in March 2020.
Technical Solutions segment operating income for the third
quarter was $21 million, compared to segment operating income of $9
million in the third quarter of 2019. The increase was primarily
driven by improved performance in Defense and Federal Solutions
following the successful integration of recent acquisitions and
post-acquisition cost synergies.
Key Technical Solutions milestones for the quarter:
- Nationwide Remediation Partners, a joint venture led by HII
Nuclear, was awarded a contract to provide nationwide deactivation,
decommissioning and removal services at excess DOE facilities. The
multiple award contract has a 10-year ordering period, with a
maximum ordering ceiling of $3 billion
- Awarded a contract by the U.S. Navy to continue providing
logistics support products and services to the Naval Expeditionary
Logistics Support Group
- Broke ground on a new Unmanned Systems Center of Excellence in
Hampton, Virginia, which will be purpose-built for unmanned systems
prototyping, production and testing
- Completed a strategic equity investment in Sea Machines
Robotics, Inc., a Boston-based autonomous technology company that
specializes in advanced software for unmanned surface vessels
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 the lack of 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 third quarter Form 10-Q.
|
|
|
2020 Prior Outlook (Aug.
2020) |
2020 Revised Outlook (Nov.
2020) |
Shipbuilding Revenue1 |
|
$7.6B - $7.9B |
~$7.9B |
Shipbuilding Operating
Margin1 |
|
5.5% - 6.5% |
5.5% - 6.5% |
Technical Solutions
Revenue2Technical Solutions Revenue (Ex. UPI & SDSY) |
|
$1.2B - $1.25B $0.9B - $1.0B |
~$1.25B ~$0.95B |
Technical Solutions Segment
Operating Margin2Technical Solutions Segment Operating Margin (Ex.
UPI & SDSY) |
|
2.0% - 2.4% 2.8% - 3.2% |
~2.6% ~3.3% |
Technical Solutions EBITDA
Margin1,2Technical Solutions EBITDA Margin (Ex. UPI &
SDSY)1 |
|
5.7% - 6.0% 7.7% - 8.0% |
~6.2% ~8.2% |
|
|
|
|
Operating FAS/CAS
Adjustment |
|
$247M |
$247M |
Non-current State Income Tax
Expense |
|
$10M |
$10M |
Interest Expense3 |
|
$106M |
$112M |
Non-operating Retirement
Benefit |
|
$120M |
$120M |
Effective Tax Rate |
|
~21% |
~15% |
|
|
|
|
Depreciation &
Amortization |
|
~$250M |
~$250M |
Capital Expenditures |
|
~5% of Sales |
~4.5% of Sales |
Free
Cash Flow1 |
|
>$500M |
>$500M |
1 Non-GAAP measures. See Exhibit B for definitions.2 Includes
results from San Diego Shipyard and Universal Pegasus International
through Dec. 2020.3 Includes a $15M call premium for 5.0% senior
notes due 2025, being redeemed in Nov. 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 Thursday,
November 12 by calling toll-free (877) 344-7529 or (412) 317-0088
and using conference ID 10148472.
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.
Exhibit A: Financial Statements
HUNTINGTON INGALLS INDUSTRIES,
INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
|
|
Three Months Ended September
30 |
|
Nine Months Ended September
30 |
(in
millions, except per share amounts) |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Sales and service revenues |
|
|
|
|
|
|
|
|
Product sales |
|
$ |
1,699 |
|
|
|
$ |
1,545 |
|
|
|
$ |
4,743 |
|
|
|
$ |
4,555 |
|
|
Service revenues |
|
615 |
|
|
|
674 |
|
|
|
1,861 |
|
|
|
1,932 |
|
|
Sales and service revenues |
|
2,314 |
|
|
|
2,219 |
|
|
|
6,604 |
|
|
|
6,487 |
|
|
Cost of sales and service
revenues |
|
|
|
|
|
|
|
|
Cost of product sales |
|
1,388 |
|
|
|
1,246 |
|
|
|
3,931 |
|
|
|
3,754 |
|
|
Cost of service revenues |
|
490 |
|
|
|
556 |
|
|
|
1,550 |
|
|
|
1,634 |
|
|
Income from operating investments, net |
|
6 |
|
|
|
6 |
|
|
|
19 |
|
|
|
15 |
|
|
General and administrative expenses |
|
220 |
|
|
|
209 |
|
|
|
648 |
|
|
|
564 |
|
|
Operating income |
|
222 |
|
|
|
214 |
|
|
|
494 |
|
|
|
550 |
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
Interest expense |
|
(27 |
) |
|
|
(18 |
) |
|
|
(68 |
) |
|
|
(52 |
) |
|
Non-operating retirement benefit |
|
29 |
|
|
|
3 |
|
|
|
89 |
|
|
|
8 |
|
|
Other, net |
|
2 |
|
|
|
(1 |
) |
|
|
(8 |
) |
|
|
5 |
|
|
Earnings before income taxes |
|
226 |
|
|
|
198 |
|
|
|
507 |
|
|
|
511 |
|
|
Federal and foreign income
taxes |
|
4 |
|
|
|
44 |
|
|
|
60 |
|
|
|
111 |
|
|
Net earnings |
|
$ |
222 |
|
|
|
$ |
154 |
|
|
|
$ |
447 |
|
|
|
$ |
400 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
5.47 |
|
|
|
$ |
3.74 |
|
|
|
$ |
11.01 |
|
|
|
$ |
9.66 |
|
|
Weighted-average common shares
outstanding |
|
40.6 |
|
|
|
41.2 |
|
|
|
40.6 |
|
|
|
41.4 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
5.45 |
|
|
|
$ |
3.74 |
|
|
|
$ |
10.98 |
|
|
|
$ |
9.66 |
|
|
Weighted-average diluted shares
outstanding |
|
40.7 |
|
|
|
41.2 |
|
|
|
40.7 |
|
|
|
41.4 |
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share |
|
$ |
1.03 |
|
|
|
$ |
0.86 |
|
|
|
$ |
3.09 |
|
|
|
$ |
2.58 |
|
|
|
|
|
|
|
|
|
|
|
Net earnings from above |
|
$ |
222 |
|
|
|
$ |
154 |
|
|
|
$ |
447 |
|
|
|
$ |
400 |
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
Change in unamortized benefit plan costs |
|
24 |
|
|
|
25 |
|
|
|
70 |
|
|
|
74 |
|
|
Other |
|
1 |
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
|
Tax expense for items of other comprehensive income |
|
(6 |
) |
|
|
(7 |
) |
|
|
(18 |
) |
|
|
(19 |
) |
|
Other comprehensive income (loss), net of tax |
|
19 |
|
|
|
19 |
|
|
|
52 |
|
|
|
56 |
|
|
Comprehensive income |
|
$ |
241 |
|
|
|
$ |
173 |
|
|
|
$ |
499 |
|
|
|
$ |
456 |
|
|
|
|
HUNTINGTON INGALLS INDUSTRIES,
INC.CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION
($ in
millions) |
|
September 30, 2020 |
|
December 31, 2019 |
Assets |
|
|
|
|
Current
Assets |
|
|
|
|
Cash and cash equivalents |
|
$ |
744 |
|
|
$ |
75 |
|
Accounts receivable, net of
allowance for doubtful accounts of $1 million as of 2020 and $3
million as of 2019 |
|
492 |
|
|
318 |
|
Contract assets |
|
1,134 |
|
|
989 |
|
Inventoried costs, net |
|
152 |
|
|
136 |
|
Income taxes receivable |
|
163 |
|
|
148 |
|
Assets held for sale |
|
154 |
|
|
95 |
|
Prepaid expenses and other
current assets |
|
42 |
|
|
24 |
|
Total current assets |
|
2,881 |
|
|
1,785 |
|
Property, plant, and equipment,
net of accumulated depreciation of $2,009 million as of 2020 and
$1,961 million as of 2019 |
|
2,907 |
|
|
2,832 |
|
Other
Assets |
|
|
|
|
Operating lease assets |
|
187 |
|
|
201 |
|
Goodwill |
|
1,577 |
|
|
1,373 |
|
Other intangible assets, net of
accumulated amortization of $640 million as of 2020 and $599
million as of 2019 |
|
527 |
|
|
492 |
|
Deferred tax assets |
|
97 |
|
|
108 |
|
Miscellaneous other assets |
|
269 |
|
|
240 |
|
Total assets |
|
$ |
8,445 |
|
|
$ |
7,031 |
|
|
|
HUNTINGTON INGALLS INDUSTRIES,
INC.CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(continued)
($ in
millions) |
|
September 30, 2020 |
|
December 31, 2019 |
Liabilities and
Stockholders' Equity |
|
|
|
|
Current
Liabilities |
|
|
|
|
Trade accounts payable |
|
$ |
429 |
|
|
$ |
497 |
|
Accrued employees’
compensation |
|
320 |
|
|
265 |
|
Current portion of postretirement
plan liabilities |
|
130 |
|
|
130 |
|
Current portion of workers’
compensation liabilities |
|
233 |
|
|
225 |
|
Contract liabilities |
|
604 |
|
|
373 |
|
Liabilities held for sale |
|
86 |
|
|
77 |
|
Other current liabilities |
|
431 |
|
|
323 |
|
Total current liabilities |
|
2,233 |
|
|
1,890 |
|
Long-term debt |
|
2,278 |
|
|
1,286 |
|
Pension plan liabilities |
|
728 |
|
|
975 |
|
Other postretirement plan
liabilities |
|
374 |
|
|
380 |
|
Workers’ compensation
liabilities |
|
470 |
|
|
457 |
|
Long-term operating lease
liabilities |
|
153 |
|
|
164 |
|
Other long-term liabilities |
|
329 |
|
|
291 |
|
Total liabilities |
|
6,565 |
|
|
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 September 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 |
|
1,964 |
|
|
1,961 |
|
Retained earnings |
|
3,330 |
|
|
3,009 |
|
Treasury stock |
|
(2,058 |
) |
|
(1,974 |
) |
Accumulated other comprehensive
loss |
|
(1,357 |
) |
|
(1,409 |
) |
Total stockholders’ equity |
|
1,880 |
|
|
1,588 |
|
Total liabilities and stockholders’ equity |
|
$ |
8,445 |
|
|
$ |
7,031 |
|
|
|
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS |
|
Nine Months Ended September
30 |
($ in
millions) |
|
2020 |
|
2019 |
Operating
Activities |
|
|
|
|
Net earnings |
|
$ |
447 |
|
|
$ |
400 |
|
Adjustments to reconcile to net
cash provided by (used in) operating activities |
|
|
|
|
Depreciation |
|
136 |
|
|
126 |
|
Amortization of purchased intangibles |
|
41 |
|
|
35 |
|
Amortization of debt issuance costs |
|
5 |
|
|
2 |
|
Provision for doubtful accounts |
|
(2 |
) |
|
(5 |
) |
Stock-based compensation |
|
16 |
|
|
19 |
|
Deferred income taxes |
|
(7 |
) |
|
42 |
|
Loss (gain) on investments in marketable securities |
|
(3 |
) |
|
(6 |
) |
Asset impairments |
|
13 |
|
|
— |
|
Change in |
|
|
|
|
Accounts receivable |
|
(164 |
) |
|
(223 |
) |
Contract assets |
|
(63 |
) |
|
(197 |
) |
Inventoried costs |
|
(5 |
) |
|
(14 |
) |
Prepaid expenses and other assets |
|
(60 |
) |
|
(56 |
) |
Accounts payable and accruals |
|
315 |
|
|
147 |
|
Retiree benefits |
|
(183 |
) |
|
56 |
|
Other non-cash transactions, net |
|
5 |
|
|
4 |
|
Net cash provided by operating activities |
|
491 |
|
|
330 |
|
Investing
Activities |
|
|
|
|
Capital expenditures |
|
|
|
|
Capital expenditure additions |
|
(220 |
) |
|
(349 |
) |
Grant proceeds for capital expenditures |
|
17 |
|
|
71 |
|
Acquisitions of businesses, net of cash received |
|
(377 |
) |
|
(195 |
) |
Other investing activities, net |
|
(6 |
) |
|
3 |
|
Net cash used in investing activities |
|
(586 |
) |
|
(470 |
) |
Financing
Activities |
|
|
|
|
Proceeds from issuance of long-term debt |
|
1,000 |
|
|
— |
|
Proceeds from revolving credit facility borrowings |
|
385 |
|
|
5,048 |
|
Repayment of revolving credit facility borrowings |
|
(385 |
) |
|
(4,784 |
) |
Debt issuance costs |
|
(13 |
) |
|
— |
|
Dividends paid |
|
(126 |
) |
|
(107 |
) |
Repurchases of common stock |
|
(84 |
) |
|
(202 |
) |
Employee taxes on certain share-based payment arrangements |
|
(13 |
) |
|
(23 |
) |
Net cash provided by (used in) financing activities |
|
764 |
|
|
(68 |
) |
Change in cash and cash equivalents |
|
669 |
|
|
(208 |
) |
Cash and cash equivalents,
beginning of period |
|
75 |
|
|
240 |
|
Cash and cash equivalents, end of
period |
|
$ |
744 |
|
|
$ |
32 |
|
Supplemental Cash Flow
Disclosure |
|
|
|
|
Cash paid for income taxes |
|
$ |
106 |
|
|
$ |
124 |
|
Cash paid for interest |
|
$ |
33 |
|
|
$ |
40 |
|
Non-Cash Investing and
Financing Activities |
|
|
|
|
Capital expenditures accrued in
accounts payable |
|
$ |
8 |
|
|
$ |
12 |
|
Accrued repurchases of common
stock |
|
$ |
— |
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Nine Months Ended |
|
|
September 30 |
|
September 30 |
($ in
millions) |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Ingalls revenues |
|
$ |
675 |
|
|
|
$ |
647 |
|
|
|
$ |
1,926 |
|
|
|
$ |
1,853 |
|
Newport News revenues |
|
1,358 |
|
|
|
1,274 |
|
|
|
3,821 |
|
|
|
3,832 |
|
Technical Solutions
revenues |
|
320 |
|
|
|
326 |
|
|
|
957 |
|
|
|
887 |
|
Intersegment eliminations |
|
(39 |
) |
|
|
(28 |
) |
|
|
(100 |
) |
|
|
(85 |
) |
Sales and Service
Revenues |
|
2,314 |
|
|
|
2,219 |
|
|
|
6,604 |
|
|
|
6,487 |
|
|
|
|
|
|
|
|
|
|
Operating
Income |
|
222 |
|
|
|
214 |
|
|
|
494 |
|
|
|
550 |
|
Operating FAS/CAS Adjustment |
|
(60 |
) |
|
|
(23 |
) |
|
|
(186 |
) |
|
|
(94 |
) |
Non-current state income taxes |
|
— |
|
|
|
— |
|
|
|
5 |
|
|
|
2 |
|
Segment Operating
Income |
|
162 |
|
|
|
191 |
|
|
|
313 |
|
|
|
458 |
|
As a percentage of sales and service revenues |
|
7.0 |
% |
|
|
8.6 |
% |
|
|
4.7 |
% |
|
|
7.1 |
% |
Ingalls operating income |
|
62 |
|
|
|
61 |
|
|
|
185 |
|
|
|
176 |
|
As a percentage of Ingalls revenues |
|
9.2 |
% |
|
|
9.4 |
% |
|
|
9.6 |
% |
|
|
9.5 |
% |
Newport News operating income |
|
79 |
|
|
|
121 |
|
|
|
105 |
|
|
|
273 |
|
As a percentage of Newport News revenues |
|
5.8 |
% |
|
|
9.5 |
% |
|
|
2.7 |
% |
|
|
7.1 |
% |
Technical Solutions operating income |
|
21 |
|
|
|
9 |
|
|
|
23 |
|
|
|
9 |
|
As a percentage of Technical Solutions revenues |
|
6.6 |
% |
|
|
2.8 |
% |
|
|
2.4 |
% |
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Adjusted Net Earnings
and Adjusted Diluted Earnings Per Share
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30 |
|
September 30 |
(in
millions, except per share amounts) |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
222 |
|
|
$ |
154 |
|
|
$ |
447 |
|
|
$ |
400 |
|
After-tax FAS/CAS
adjustment(1) |
|
(70 |
) |
|
(21 |
) |
|
(217 |
) |
|
(81 |
) |
Adjusted Net
Earnings |
|
$ |
152 |
|
|
$ |
133 |
|
|
$ |
230 |
|
|
$ |
319 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share |
|
$ |
5.45 |
|
|
$ |
3.74 |
|
|
$ |
10.98 |
|
|
$ |
9.66 |
|
After-tax FAS/CAS adjustment
per share(1) |
|
(1.72 |
) |
|
(0.51 |
) |
|
(5.33 |
) |
|
(1.95 |
) |
Adjusted Diluted
EPS** |
|
$ |
3.73 |
|
|
$ |
3.23 |
|
|
$ |
5.65 |
|
|
$ |
7.71 |
|
|
|
|
|
|
|
|
|
|
(1) FAS/CAS
Adjustment |
|
$ |
(89 |
) |
|
$ |
(26 |
) |
|
$ |
(275 |
) |
|
$ |
(102 |
) |
Tax effect* |
|
(19 |
) |
|
(5 |
) |
|
(58 |
) |
|
(21 |
) |
After-tax impact |
|
(70 |
) |
|
(21 |
) |
|
$ |
(217 |
) |
|
$ |
(81 |
) |
Weighted-average diluted
shares outstanding |
|
40.7 |
|
|
41.2 |
|
|
40.7 |
|
|
41.4 |
|
Per share impact** |
|
$ |
(1.72 |
) |
|
$ |
(0.51 |
) |
|
$ |
(5.33 |
) |
|
$ |
(1.95 |
) |
|
|
|
|
|
|
|
|
|
*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 |
|
Nine Months Ended |
|
|
September 30 |
|
September 30 |
(in
millions) |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Net cash provided by operating
activities |
|
$ |
222 |
|
|
$ |
363 |
|
|
$ |
491 |
|
|
$ |
330 |
|
Less capital
expenditures: |
|
|
|
|
|
|
|
|
Capital expenditure additions |
|
(70 |
) |
|
(115 |
) |
|
(220 |
) |
|
(349 |
) |
Grant proceeds for capital expenditures |
|
8 |
|
|
2 |
|
|
17 |
|
|
71 |
|
Free cash flow |
|
$ |
160 |
|
|
$ |
250 |
|
|
$ |
288 |
|
|
$ |
52 |
|
|
|
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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