Huntington Ingalls Industries (NYSE: HII) reported fourth quarter
2019 revenues of $2.4 billion, up 9.7% from the fourth quarter of
2018. Operating income in the quarter was $186 million and
operating margin was 7.7%, compared to $213 million and 9.7%,
respectively, in the fourth quarter of 2018. Diluted earnings per
share in the quarter was $3.61, compared to $4.94 in the same
period of 2018.
For the full year, revenues of $8.9 billion increased 8.8% over
2018. Operating income in 2019 was $736 million and operating
margin was 8.3%, compared to $951 million and 11.6%, respectively,
in 2018. Diluted earnings per share for the full year was $13.26,
compared to $19.09 in 2018.
Non-cash asset impairment charges totaling $35 million,
primarily related to goodwill, were recorded in the fourth quarter
of 2019 as a result of the company's decision to divest its oil and
gas business. Excluding these charges, adjusted diluted earnings
per share1 in the quarter was $4.36 and $14.01 for 2019. The oil
and gas business is reflected as an asset held for sale on the
company's balance sheet.
Cash from operations in 2019 was $896 million and free cash
flow1 was $460 million, compared to $914 million and $512 million,
respectively, in 2018.
New contract awards in the fourth quarter of 2019 totaled $9.7
billion, bringing total backlog to $46.5 billion as of Dec. 31,
2019. Awards in the fourth quarter included a $7.7 billion contract
for the construction of Block V boats of the Virginia-class
submarine (VCS) program. Other major contract awards in 2019
included the $15.2 billion contract for the detail design and
construction of two Gerald R. Ford-class aircraft carriers, and the
$1.5 billion contract for the detail design and construction of the
amphibious transport dock Harrisburg (LPD 30).
“Our 2019 shipbuilding results were in line with our
expectations, and we have entered 2020 with very positive operating
momentum after achieving a number of key program milestones across
both shipyards. Additionally, we are continuing to refine our focus
in Technical Solutions as we invest in markets that are aligned
with Navy and broader customer priorities,” said Mike Petters, HII
president and CEO. “With an unprecedented backlog of shipbuilding
work serving as a strong foundation, we are actively shaping our
business portfolio to optimize long-term value creation for our
shareholders, customers and employees.”
1 Non-GAAP measure. See Exhibit B for definition and
reconciliation.
Results of Operations
|
Three Months Ended |
|
|
|
Year Ended |
|
|
|
December 31 |
|
|
|
December 31 |
|
|
(in millions, except per share
amounts) |
2019 |
2018 |
$ Change |
% Change |
|
2019 |
2018 |
$ Change |
% Change |
Sales and service revenues |
$ |
2,412 |
|
$ |
2,199 |
|
$ |
213 |
|
9.7 |
% |
|
$ |
8,899 |
|
$ |
8,176 |
|
$ |
723 |
|
8.8 |
% |
Operating income |
186 |
|
213 |
|
(27) |
|
(12.7) |
% |
|
|
736 |
|
|
951 |
|
|
(215) |
|
(22.6) |
% |
Operating margin % |
7.7 |
% |
9.7 |
% |
|
|
|
(197) bps |
|
|
8.3 |
% |
|
11.6 |
% |
|
|
|
(336) bps |
Segment operating income1 |
173 |
|
148 |
|
|
25 |
|
16.9 |
% |
|
|
631 |
|
|
663 |
|
|
(32) |
|
(4.8) |
% |
Segment operating
margin %1 |
7.2 |
% |
6.7 |
% |
|
|
|
44 bps |
|
|
7.1 |
% |
|
8.1 |
% |
|
|
|
(102) bps |
Net earnings |
149 |
|
212 |
|
|
(63) |
|
(29.7) |
% |
|
|
549 |
|
|
836 |
|
|
(287) |
|
(34.3) |
% |
Diluted earnings per
share |
$ |
3.61 |
|
$ |
4.94 |
|
$ |
(1.33) |
|
(26.9) |
% |
|
$ |
13.26 |
|
$ |
19.09 |
|
$ |
(5.83) |
|
(30.5) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
Figures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and service
revenues |
$ |
2,412 |
|
$ |
2,199 |
|
$ |
213 |
|
9.7 |
% |
|
$ |
8,899 |
|
$ |
8,176 |
|
$ |
723 |
|
8.8 |
% |
Operating income2 |
215 |
|
213 |
|
|
2 |
|
0.9 |
% |
|
|
765 |
|
|
951 |
|
|
(186) |
|
(19.6) |
% |
Operating margin %2 |
8.9 |
% |
9.7 |
% |
|
|
|
(77) bps |
|
|
8.6 |
% |
|
11.6 |
% |
|
|
|
(304) bps |
Segment operating
income1,2 |
202 |
|
148 |
|
|
54 |
|
36.5 |
% |
|
|
660 |
|
|
663 |
|
|
(3) |
|
(0.5) |
% |
Segment operating margin %1,2 |
8.4 |
% |
6.7 |
% |
|
|
|
164 bps |
|
|
7.4 |
% |
|
8.1 |
% |
|
|
|
(69) bps |
Net earnings3 |
180 |
|
212 |
|
|
(32) |
|
(15.1) |
% |
|
|
580 |
|
|
836 |
|
|
(256) |
|
(30.6) |
% |
Diluted earnings per
share3 |
$ |
4.36 |
|
$ |
4.94 |
|
$ |
(0.58) |
|
(11.7) |
% |
|
$ |
14.01 |
|
$ |
19.09 |
|
$ |
(5.08) |
|
(26.6) |
% |
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 impact of non-cash goodwill impairment
charges in the fourth quarter of 2019. See Exhibit B for
reconciliation. |
3 Non-GAAP
measures that exclude the impacts of non-cash goodwill and
long-lived asset impairment charges in the fourth quarter of 2019.
See Exhibit B for reconciliation. |
Segment Operating Results
Ingalls Shipbuilding
|
Three Months Ended |
|
|
|
Year Ended |
|
|
|
December 31 |
|
|
|
December 31 |
|
|
($ in millions) |
2019 |
2018 |
$ Change |
% Change |
|
2019 |
2018 |
$ Change |
% Change |
Revenues |
$ |
702 |
|
$ |
699 |
|
$ |
3 |
|
0.4 |
% |
|
$ |
2,555 |
|
$ |
2,607 |
|
$ |
(52) |
|
(2.0) |
% |
Segment operating income1 |
59 |
|
84 |
|
(25) |
|
(29.8) |
% |
|
235 |
|
313 |
|
(78) |
|
(24.9) |
% |
Segment operating margin
%1 |
8.4 |
% |
12.0 |
% |
|
(361) bps |
|
9.2 |
% |
12.0 |
% |
|
(281) bps |
1 Non-GAAP
measures. See Exhibit B for definitions and reconciliations. |
Ingalls Shipbuilding revenues for the fourth quarter of 2019
were $702 million, an increase of $3 million, or 0.4%, from the
same period in 2018, due to higher revenues on the San
Antonio-class LPD program and Legend-class National Security Cutter
(NSC) program, largely offset by lower revenues on the
America-class LHA program. Higher LPD program revenues were
primarily due to increased volume on Harrisburg (LPD 30), partially
offset by lower volume on Fort Lauderdale (LPD 28). Higher NSC
program revenues were primarily due to increased volumes on Calhoun
(NSC 10) and NSC 11 (unnamed), partially offset by lower volumes on
the delivered USCGC Midgett (NSC 8) and Stone (NSC 9). Lower LHA
program revenues were primarily due to decreased volume on Tripoli
(LHA 7).
Ingalls Shipbuilding segment operating income for the fourth
quarter was $59 million, a decrease of $25 million from the same
period last year. Segment operating margin in the quarter was 8.4%,
compared to 12.0% in the same period last year. These decreases
were primarily due to lower risk retirement on the LHA and LPD
programs, as well as recoveries related to a 2018 settlement
agreement, partially offset by higher risk retirement on the
Arleigh Burke-class DDG program.
For the full year, Ingalls Shipbuilding revenues were $2.6
billion, a decrease of $52 million, or 2.0%, from 2018, primarily
driven by lower revenues in the NSC program, surface combatants,
and amphibious assault ships. Revenues on the NSC program decreased
due to lower volumes on USCGC Kimball (NSC 7), USCGC Midgett (NSC
8), and Stone (NSC 9), partially offset by higher volumes on NSC 11
(unnamed) and Calhoun (NSC 10). Surface combatant revenues
decreased as a result of lower volumes on Delbert D. Black (DDG
119), Paul Ignatius (DDG 117), Frank E. Petersen Jr. (DDG 121), and
Lenah H. Sutcliffe Higbee (DDG 123), partially offset by higher
volumes on Ted Stevens (DDG 128), USS Fitzgerald (DDG 62) repair
and restoration, Jeremiah Denton (DDG 129), Jack H. Lucas (DDG
125), and George M. Neal (DDG 131). Amphibious assault ship
revenues decreased as a result of lower volumes on Tripoli (LHA 7),
Fort Lauderdale (LPD 28), and the delivered USS Portland (LPD 27),
partially offset by higher volumes on Bougainville (LHA 8),
Harrisburg (LPD 30), Richard M. McCool Jr. (LPD 29), and LPD Life
Cycle Engineering and Services.
For the full year, Ingalls Shipbuilding segment operating income
was $235 million, compared to $313 million in 2018. Segment
operating margin was 9.2% for 2019, compared to 12.0% in 2018. The
decreases were primarily due to lower risk retirement on the LPD
and LHA programs and recoveries related to a 2018 settlement
agreement.
Key Ingalls Shipbuilding milestones for the quarter:
- Completed acceptance trials for amphibious assault ship Tripoli
(LHA 7)
- Authenticated keel of guided missile destroyer Jack H. Lucas
(DDG 125)
- Began fabrication of National Security Cutter Calhoun (NSC
10)
- Awarded a contract with a potential value of $453 million for
planning yard services in support of in-service Ticonderoga-class
cruisers and Spruance-class destroyers
Newport News Shipbuilding
|
Three Months Ended |
|
|
|
Year Ended |
|
|
|
December 31 |
|
|
|
December 31 |
|
|
($ in millions) |
2019 |
2018 |
$ Change |
% Change |
|
2019 |
2018 |
$ Change |
% Change |
Revenues |
$ |
1,390 |
|
$ |
1,278 |
|
$ |
112 |
|
8.8 |
% |
|
$ |
5,186 |
|
$ |
4,722 |
|
$ |
464 |
|
9.8 |
% |
Segment operating income1 |
133 |
|
57 |
|
76 |
|
133.3 |
% |
|
390 |
|
318 |
|
72 |
|
22.6 |
% |
Segment operating margin
%1 |
9.6 |
% |
4.5 |
% |
|
511 bps |
|
7.5 |
% |
6.7 |
% |
|
79 bps |
1 Non-GAAP
measures. See Exhibit B for definitions and reconciliations. |
Newport News Shipbuilding revenues for the fourth quarter of
2019 were $1.4 billion, an increase of $112 million, or 8.8%, from
the same period in 2018, due to higher revenues in submarine
construction. Higher submarine revenues were primarily due to
higher volumes on Virginia-class submarine (VCS) program Block IV
and Block V boats, as well as higher volume on Columbia-class,
partially offset by lower revenues related to Block III boats of
the VCS program.
Newport News Shipbuilding segment operating income for the
fourth quarter was $133 million, an increase of $76 million from
the same period last year. Segment operating margin was 9.6% for
the quarter, compared to 4.5% in the same period last year. These
increases were primarily due to award of the VCS Block V contract,
as well as contract changes for support services on Los
Angeles-class submarines.
For the full year, Newport News Shipbuilding revenues were $5.2
billion, an increase of $464 million, or 9.8%, from 2018, due to
higher revenues in aircraft carriers, submarines, and naval nuclear
support services. Aircraft carrier revenues increased primarily as
a result of higher volumes on Enterprise (CVN 80), the advance
planning contract for the RCOH of USS John C. Stennis (CVN 74), and
CVN 81 (Doris Miller), partially offset by lower volumes on the
RCOH of USS George Washington (CVN 73) and John F. Kennedy (CVN
79). Submarine revenues related to the VCS program increased as a
result of higher volumes on Block V and Block IV boats, offset by
lower volumes on Block III boats. Naval nuclear support services
revenues increased primarily as a result of contract changes on
submarine support services and higher volume in facility
maintenance services.
For the full year, Newport News Shipbuilding segment operating
income was $390 million, an increase of $72 million from 2018.
Segment operating margin for 2019 was 7.5%, compared to 6.7% in
2018. These increases were primarily due to contract changes on
submarine support services, the higher volumes noted in the
preceding paragraph, and higher risk retirement on the RCOH of USS
George Washington (CVN 73), partially offset by favorable changes
in workers' compensation expense in 2018.
Key Newport News Shipbuilding milestones for the quarter:
- Christened and launched the aircraft carrier John F. Kennedy
(CVN 79)
- Delivered Virginia-class submarine Delaware (SSN 791)
- Achieved pressure hull complete on Virginia-class submarine
Montana (SSN 794)
- Achieved approximately 68% completion of the RCOH of USS George
Washington (CVN 73)
- Awarded a $7.7 billion contract for construction of
Virginia-class Block V submarines
- Awarded a contract with a potential value of $454 million for
planning yard design services for nuclear-powered submarines
Technical Solutions
|
Three Months Ended |
|
|
|
Year Ended |
|
|
|
December 31 |
|
|
|
December 31 |
|
|
($ in millions) |
2019 |
2018 |
$ Change |
% Change |
|
2019 |
2018 |
$ Change |
% Change |
Revenues |
$ |
369 |
|
$ |
267 |
|
$ |
102 |
|
38.2 |
% |
|
$ |
1,309 |
|
$ |
988 |
|
321 |
|
32.5 |
% |
Segment operating income1 |
(19) |
|
7 |
|
$ |
(26) |
|
(371.4) |
% |
|
6 |
|
32 |
|
(26) |
|
(81.3) |
% |
Segment operating margin
%1 |
(5.1) |
% |
2.6 |
% |
|
(777) bps |
|
0.5 |
% |
3.2 |
% |
|
(278) bps |
Adjusted segment operating income1 |
10 |
|
7 |
|
|
3 |
|
42.9 |
% |
|
35 |
|
32 |
|
3 |
|
9.4 |
% |
Adjusted segment operating
margin %1 |
2.7 |
% |
2.6 |
% |
|
9 bps |
|
2.7 |
% |
3.2 |
% |
|
(57) bps |
1 Non-GAAP
measures. See Exhibit B for definitions and reconciliations. |
|
|
|
|
|
Technical Solutions revenues for the fourth quarter of 2019 were
$369 million, an increase of $102 million, or 38.2%, from the same
period in 2018, primarily due to higher mission driven innovative
solutions (MDIS) revenues attributable to the additions of Fulcrum
IT Services (Fulcrum) and G2, Inc. (G2), as well as higher fleet
support and oil and gas revenues.
Technical Solutions segment operating loss for the fourth
quarter was $19 million, compared to segment operating income of $7
million in fourth quarter 2018. The decrease was primarily due to a
goodwill impairment at our oil and gas reporting unit.
For the full year, Technical Solutions revenues were $1.3
billion, an increase of $321 million, or 32.5%, from 2018,
primarily due to higher MDIS revenues attributable to the additions
of Fulcrum and G2, as well as higher fleet support and oil and gas
revenues.
For the full year, Technical Solutions segment operating income
was $6 million, compared to $32 million in 2018. The decrease was
primarily due to a goodwill impairment at our oil and gas reporting
unit and a loss on a fleet support services contract, partially
offset by higher equity income from our nuclear and environmental
joint ventures and one time employee bonus payments in 2018 related
to the U.S. Tax Cuts and Jobs Act of 2017.
Key Technical Solutions milestones for the quarter:
- Awarded a contract to provide broad analytical and technical
services to the U.S. Air Force in areas such as network
architecture and cybersecurity
About Huntington Ingalls IndustriesHuntington
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,
Mission Driven Innovative Solutions, Nuclear & Environmental,
and Oil & Gas groups. 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. 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 noon today through Wednesday, Feb. 19
by calling toll-free (855) 859-2056 or (404) 537-3406 and using
conference ID 9379325.
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
HUNTINGTON INGALLS INDUSTRIES,
INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
|
|
Year Ended December 31 |
(in millions, except per share
amounts) |
|
2019 |
|
2018 |
|
2017 |
Sales and service revenues |
|
|
|
|
|
|
Product sales |
|
$ |
6,265 |
|
|
|
$ |
6,023 |
|
|
|
$ |
5,573 |
|
|
Service revenues |
|
2,634 |
|
|
|
2,153 |
|
|
|
1,868 |
|
|
Sales and service revenues |
|
8,899 |
|
|
|
8,176 |
|
|
|
7,441 |
|
|
Cost of sales and service
revenues |
|
|
|
|
|
|
Cost of product sales |
|
5,158 |
|
|
|
4,627 |
|
|
|
4,277 |
|
|
Cost of service revenues |
|
2,210 |
|
|
|
1,758 |
|
|
|
1,536 |
|
|
Income from operating investments, net |
|
22 |
|
|
|
17 |
|
|
|
12 |
|
|
Other income and gains |
|
— |
|
|
|
14 |
|
|
|
— |
|
|
General and administrative expenses |
|
788 |
|
|
|
871 |
|
|
|
759 |
|
|
Goodwill impairment |
|
29 |
|
|
|
— |
|
|
|
— |
|
|
Operating income |
|
736 |
|
|
|
951 |
|
|
|
881 |
|
|
Other income (expense) |
|
|
|
|
|
|
Interest expense |
|
(70 |
) |
|
|
(58 |
) |
|
|
(94 |
) |
|
Non-operating retirement benefit |
|
12 |
|
|
|
74 |
|
|
|
(16 |
) |
|
Other, net |
|
5 |
|
|
|
4 |
|
|
|
1 |
|
|
Earnings before income taxes |
|
683 |
|
|
|
971 |
|
|
|
772 |
|
|
Federal and foreign income
taxes |
|
134 |
|
|
|
135 |
|
|
|
293 |
|
|
Net earnings |
|
$ |
549 |
|
|
|
$ |
836 |
|
|
|
$ |
479 |
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
13.26 |
|
|
|
$ |
19.09 |
|
|
|
$ |
10.48 |
|
|
Weighted-average common shares
outstanding |
|
41.4 |
|
|
|
43.8 |
|
|
|
45.7 |
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
13.26 |
|
|
|
$ |
19.09 |
|
|
|
$ |
10.46 |
|
|
Weighted-average diluted shares
outstanding |
|
41.4 |
|
|
|
43.8 |
|
|
|
45.8 |
|
|
|
|
|
|
|
|
|
Dividends declared per share |
|
$ |
3.61 |
|
|
|
$ |
3.02 |
|
|
|
$ |
2.52 |
|
|
|
|
|
|
|
|
|
Net earnings from above |
|
$ |
549 |
|
|
|
$ |
836 |
|
|
|
$ |
479 |
|
|
Other comprehensive income |
|
|
|
|
|
|
Change in unamortized benefit plan costs |
|
(167 |
) |
|
|
(232 |
) |
|
|
59 |
|
|
Other |
|
3 |
|
|
|
(2 |
) |
|
|
14 |
|
|
Tax benefit (expense) for items of other comprehensive income |
|
43 |
|
|
|
59 |
|
|
|
(22 |
) |
|
Other comprehensive income (loss), net of tax |
|
(121 |
) |
|
|
(175 |
) |
|
|
51 |
|
|
Comprehensive income |
|
$ |
428 |
|
|
|
$ |
661 |
|
|
|
$ |
530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HUNTINGTON INGALLS INDUSTRIES,
INC.CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION
($ in millions) |
|
December 31 2019 |
|
December 31 2018 |
Assets |
|
|
|
|
Current
Assets |
|
|
|
|
Cash and cash equivalents |
|
$ |
75 |
|
|
|
$ |
240 |
|
|
Accounts receivable, net of
allowance for doubtful accounts of $3 million as of 2019 and $9
million as of 2018 |
|
318 |
|
|
|
252 |
|
|
Contract assets |
|
989 |
|
|
|
1,003 |
|
|
Inventoried costs, net |
|
136 |
|
|
|
128 |
|
|
Income taxes receivable |
|
148 |
|
|
|
94 |
|
|
Assets held for sale |
|
95 |
|
|
|
1 |
|
|
Prepaid expenses and other
current assets |
|
24 |
|
|
|
27 |
|
|
Total current assets |
|
1,785 |
|
|
|
1,745 |
|
|
Property, Plant, and
Equipment |
|
|
|
|
Land and land improvements |
|
282 |
|
|
|
321 |
|
|
Buildings and leasehold
improvements |
|
2,384 |
|
|
|
2,043 |
|
|
Machinery and other
equipment |
|
1,909 |
|
|
|
1,771 |
|
|
Capitalized software costs |
|
218 |
|
|
|
211 |
|
|
|
|
4,793 |
|
|
|
4,346 |
|
|
Accumulated depreciation and
amortization |
|
(1,961 |
) |
|
|
(1,829 |
) |
|
Property, Plant, and Equipment |
|
2,832 |
|
|
|
2,517 |
|
|
Other
Assets |
|
|
|
|
Operating lease assets |
|
201 |
|
|
|
— |
|
|
Goodwill |
|
1,373 |
|
|
|
1,263 |
|
|
Other intangible assets, net of
accumulated amortization of $599 million as of 2019 and $564
million as of 2018 |
|
492 |
|
|
|
492 |
|
|
Long-term deferred tax
assets |
|
108 |
|
|
|
163 |
|
|
Miscellaneous other assets |
|
240 |
|
|
|
203 |
|
|
Total other assets |
|
2,414 |
|
|
|
2,121 |
|
|
Total assets |
|
$ |
7,031 |
|
|
|
$ |
6,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
HUNTINGTON INGALLS INDUSTRIES,
INC.CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(continued)
($ in millions) |
|
December 31 2019 |
|
December 31 2018 |
Liabilities and Stockholders' Equity |
|
|
|
|
Current
Liabilities |
|
|
|
|
Trade accounts payable |
|
$ |
497 |
|
|
|
$ |
562 |
|
|
Accrued employees’
compensation |
|
265 |
|
|
|
248 |
|
|
Current portion of postretirement
plan liabilities |
|
130 |
|
|
|
131 |
|
|
Current portion of workers’
compensation liabilities |
|
225 |
|
|
|
225 |
|
|
Contract liabilities |
|
373 |
|
|
|
331 |
|
|
Liabilities held for sale |
|
77 |
|
|
|
— |
|
|
Other current liabilities |
|
323 |
|
|
|
332 |
|
|
Total current liabilities |
|
1,890 |
|
|
|
1,829 |
|
|
Long-term debt |
|
1,286 |
|
|
|
1,283 |
|
|
Pension plan liabilities |
|
975 |
|
|
|
764 |
|
|
Other postretirement plan
liabilities |
|
380 |
|
|
|
348 |
|
|
Workers’ compensation
liabilities |
|
457 |
|
|
|
454 |
|
|
Long-term operating lease
liabilities |
|
164 |
|
|
|
— |
|
|
Other long-term liabilities |
|
291 |
|
|
|
189 |
|
|
Total liabilities |
|
5,443 |
|
|
|
4,867 |
|
|
Commitments and
Contingencies |
|
|
|
|
Stockholders’
Equity |
|
|
|
|
Common stock, $0.01 par value;
150 million shares authorized; 53.2 million shares issued and 40.8
million shares outstanding as of December 31, 2019, and 53.1
million shares issued and 41.9 million shares outstanding as of
December 31, 2018 |
|
1 |
|
|
|
1 |
|
|
Additional paid-in capital |
|
1,961 |
|
|
|
1,954 |
|
|
Retained earnings |
|
3,009 |
|
|
|
2,609 |
|
|
Treasury stock |
|
(1,974 |
) |
|
|
(1,760 |
) |
|
Accumulated other comprehensive
loss |
|
(1,409 |
) |
|
|
(1,288 |
) |
|
Total stockholders’ equity |
|
1,588 |
|
|
|
1,516 |
|
|
Total liabilities and stockholders’ equity |
|
$ |
7,031 |
|
|
|
$ |
6,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
HUNTINGTON INGALLS INDUSTRIES,
INC.CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
|
Year Ended December 31 |
($ in millions) |
|
2019 |
|
2018 |
|
2017 |
Operating Activities |
|
|
|
|
|
|
Net earnings |
|
$ |
549 |
|
|
|
$ |
836 |
|
|
|
$ |
479 |
|
|
Adjustments to reconcile to net
cash provided by (used in) operating activities |
|
|
|
|
|
|
Depreciation |
|
180 |
|
|
|
167 |
|
|
|
165 |
|
|
Amortization of purchased intangibles |
|
47 |
|
|
|
36 |
|
|
|
40 |
|
|
Amortization of debt issuance costs |
|
3 |
|
|
|
4 |
|
|
|
6 |
|
|
Provision for doubtful accounts |
|
(6 |
) |
|
|
(4 |
) |
|
|
10 |
|
|
Stock-based compensation |
|
30 |
|
|
|
36 |
|
|
|
34 |
|
|
Deferred income taxes |
|
97 |
|
|
|
10 |
|
|
|
184 |
|
|
Goodwill impairment |
|
29 |
|
|
|
— |
|
|
|
— |
|
|
Loss on early extinguishment of debt |
|
— |
|
|
|
— |
|
|
|
22 |
|
|
Change in |
|
|
|
|
|
|
Accounts receivable |
|
(51 |
) |
|
|
195 |
|
|
|
(126 |
) |
|
Contract assets |
|
32 |
|
|
|
(242 |
) |
|
|
91 |
|
|
Inventoried costs |
|
(11 |
) |
|
|
40 |
|
|
|
18 |
|
|
Prepaid expenses and other assets |
|
(93 |
) |
|
|
(40 |
) |
|
|
(52 |
) |
|
Accounts payable and accruals |
|
4 |
|
|
|
335 |
|
|
|
102 |
|
|
Retiree benefits |
|
80 |
|
|
|
(454 |
) |
|
|
(163 |
) |
|
Other non-cash transactions, net |
|
6 |
|
|
|
(5 |
) |
|
|
4 |
|
|
Net cash provided by operating activities |
|
896 |
|
|
|
914 |
|
|
|
814 |
|
|
Investing
Activities |
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
Capital expenditure additions |
|
(530 |
) |
|
|
(463 |
) |
|
|
(382 |
) |
|
Grant proceeds for capital expenditures |
|
94 |
|
|
|
61 |
|
|
|
21 |
|
|
Acquisitions of businesses, net of cash received |
|
(195 |
) |
|
|
(77 |
) |
|
|
3 |
|
|
Investment in affiliates |
|
— |
|
|
|
(10 |
) |
|
|
— |
|
|
Proceeds from disposition of assets |
|
— |
|
|
|
13 |
|
|
|
9 |
|
|
Other investing activities, net |
|
4 |
|
|
|
— |
|
|
|
|
0 |
|
|
Net cash used in investing activities |
|
(627 |
) |
|
|
(476 |
) |
|
|
(349 |
) |
|
Financing
Activities |
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
— |
|
|
|
— |
|
|
|
600 |
|
|
Repayment of long-term debt |
|
— |
|
|
|
— |
|
|
|
(600 |
) |
|
Proceeds from revolving credit facility borrowings |
|
5,119 |
|
|
|
95 |
|
|
|
— |
|
|
Repayment of revolving credit facility borrowings |
|
(5,119 |
) |
|
|
(95 |
) |
|
|
— |
|
|
Debt issuance costs |
|
— |
|
|
|
— |
|
|
|
(12 |
) |
|
Premiums and fees related to early extinguishment of debt |
|
— |
|
|
|
— |
|
|
|
(15 |
) |
|
Dividends paid |
|
(149 |
) |
|
|
(132 |
) |
|
|
(115 |
) |
|
Repurchases of common stock |
|
(262 |
) |
|
|
(742 |
) |
|
|
(286 |
) |
|
Employee taxes on certain share-based payment arrangements |
|
(23 |
) |
|
|
(25 |
) |
|
|
(56 |
) |
|
Net cash used in financing activities |
|
(434 |
) |
|
|
(899 |
) |
|
|
(484 |
) |
|
Change in cash and cash equivalents |
|
(165 |
) |
|
|
(461 |
) |
|
|
(19 |
) |
|
Cash and cash equivalents,
beginning of period |
|
240 |
|
|
|
701 |
|
|
|
720 |
|
|
Cash and cash equivalents, end of
period |
|
$ |
75 |
|
|
|
$ |
240 |
|
|
|
$ |
701 |
|
|
Supplemental Cash Flow
Disclosure |
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
137 |
|
|
|
$ |
142 |
|
|
|
$ |
223 |
|
|
Cash paid for interest |
|
$ |
75 |
|
|
|
$ |
62 |
|
|
|
$ |
72 |
|
|
Non-Cash Investing and
Financing Activities |
|
|
|
|
|
|
Capital expenditures accrued in
accounts payable |
|
$ |
22 |
|
|
|
$ |
55 |
|
|
|
$ |
33 |
|
|
Accrued repurchases of common
stock |
|
$ |
— |
|
|
|
$ |
48 |
|
|
|
$ |
2 |
|
|
Exhibit B: Non-GAAP Measures Definitions &
Reconciliations
We make reference to “segment operating income,” “segment
operating margin,” "adjusted operating income," "adjusted operating
margin," "adjusted segment operating income," "adjusted segment
operating 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 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 and
segment operating margin may not be comparable to similarly titled
measures of other companies.
Adjusted operating income, adjusted operating margin, adjusted
segment operating income, adjusted segment operating margin,
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.
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 is defined as
operating income 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 as a percentage of sales and service revenues.
Adjusted operating income is defined as
operating income adjusted for the impact of the goodwill impairment
in the fourth quarter of 2019.
Adjusted operating margin is defined as
adjusted operating income as a percentage of sales and service
revenues.
Adjusted segment operating income is defined as
segment operating income adjusted for the impact of the goodwill
impairment in the fourth quarter of 2019.
Adjusted segment operating margin is defined as
adjusted segment operating income as a percentage of sales and
service revenues.
Adjusted net earnings is defined as net
earnings adjusted for the impacts of the goodwill and long-lived
asset impairments in the fourth quarter of 2019.
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, Segment
Operating Margin, Adjusted Segment Operating Income and Adjusted
Segment Operating Margin
|
|
Three Months Ended |
|
Year Ended |
|
|
December 31 |
|
December 31 |
($ in millions) |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
Ingalls revenues |
|
$ |
702 |
|
|
$ |
699 |
|
|
$ |
2,555 |
|
|
$ |
2,607 |
|
Newport News revenues |
|
1,390 |
|
|
1,278 |
|
|
5,186 |
|
|
4,722 |
|
Technical Solutions
revenues |
|
369 |
|
|
267 |
|
|
1,309 |
|
|
988 |
|
Intersegment eliminations |
|
(49) |
|
|
(45) |
|
|
(151) |
|
|
(141) |
|
Sales and Service Revenues |
|
$ |
2,412 |
|
|
$ |
2,199 |
|
|
$ |
8,899 |
|
|
$ |
8,176 |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Year Ended |
|
|
December 31 |
|
December 31 |
($ in millions) |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
186 |
|
|
$ |
213 |
|
|
$ |
736 |
|
|
$ |
951 |
|
As a percentage of sales and
service revenues |
|
7.7 |
% |
|
9.7 |
% |
|
8.3 |
% |
|
11.6 |
% |
Non-segment factors affecting
operating income: |
|
|
|
|
|
|
|
|
Operating FAS/CAS adjustment |
|
(30) |
|
|
(72) |
|
|
(124) |
|
|
(290) |
|
Non-current state income taxes |
|
17 |
|
|
7 |
|
|
19 |
|
|
2 |
|
Segment Operating Income |
|
$ |
173 |
|
|
$ |
148 |
|
|
$ |
631 |
|
|
$ |
663 |
|
As a percentage of total sales
and service revenues |
|
7.2 |
% |
|
6.7 |
% |
|
7.1 |
% |
|
8.1 |
% |
|
|
|
|
|
|
|
|
|
Ingalls segment operating
income |
|
$ |
59 |
|
|
$ |
84 |
|
|
$ |
235 |
|
|
$ |
313 |
|
As a percentage of Ingalls
revenues |
|
8.4 |
% |
|
12.0 |
% |
|
9.2 |
% |
|
12.0 |
% |
Newport News segment operating
income |
|
133 |
|
|
57 |
|
|
390 |
|
|
318 |
|
As a percentage of Newport
News revenues |
|
9.6 |
% |
|
4.5 |
% |
|
7.5 |
% |
|
6.7 |
% |
Technical Solutions segment
operating Income (loss) |
|
(19) |
|
|
7 |
|
|
6 |
|
|
32 |
|
Adjustment for goodwill impairment |
|
29 |
|
|
— |
|
|
29 |
|
|
— |
|
Adjusted Technical Solutions
segment operating Income (loss) |
|
10 |
|
|
7 |
|
|
35 |
|
|
32 |
|
As a percentage of Technical
Solutions revenues |
|
2.7 |
% |
|
2.6 |
% |
|
2.7 |
% |
|
3.2 |
% |
Adjusted Segment Operating Income |
|
$ |
202 |
|
|
$ |
148 |
|
|
$ |
660 |
|
|
$ |
663 |
|
As a percentage of total sales
and service revenues |
|
8.4 |
% |
|
6.7 |
% |
|
7.4 |
% |
|
8.1 |
% |
|
|
|
|
|
|
|
|
|
Reconciliation of Adjusted Operating
Income and Adjusted Operating Margin
|
|
Three Months Ended |
|
Year Ended |
|
|
December 31 |
|
December 31 |
($ in millions) |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
186 |
|
|
$ |
213 |
|
|
$ |
736 |
|
|
$ |
951 |
|
As a percentage of sales and
service revenues |
|
7.7 |
% |
|
9.7 |
% |
|
8.3 |
% |
|
11.6 |
% |
Adjustment for goodwill impairment |
|
29 |
|
|
— |
|
|
29 |
|
|
— |
|
Adjusted Operating
Income |
|
$ |
215 |
|
|
$ |
213 |
|
|
$ |
765 |
|
|
$ |
951 |
|
As a
percentage of total sales and service revenues |
|
8.9 |
% |
|
9.7 |
% |
|
8.6 |
% |
|
11.6 |
% |
Reconciliation of Adjusted Net Earnings
and Adjusted Diluted Earnings Per Share
|
|
Three Months Ended |
|
Year Ended |
|
|
December 31 |
|
December 31 |
(in millions, except per share
amounts) |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
149 |
|
|
$ |
212 |
|
|
$ |
549 |
|
|
$ |
836 |
|
After-tax adjustment for
goodwill and long-lived asset impairments(1) |
|
31 |
|
|
— |
|
|
31 |
|
|
— |
|
Adjusted Net Earnings |
|
$ |
180 |
|
|
$ |
212 |
|
|
$ |
580 |
|
|
$ |
836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share |
|
$ |
3.61 |
|
|
$ |
4.94 |
|
|
$ |
13.26 |
|
|
$ |
19.09 |
|
After-tax adjustment for
goodwill and long-lived asset impairments per share(1) |
|
0.75 |
|
|
— |
|
|
0.75 |
|
|
— |
|
Adjusted Diluted EPS |
|
$ |
4.36 |
|
|
$ |
4.94 |
|
|
$ |
14.01 |
|
|
$ |
19.09 |
|
|
|
|
|
|
|
|
|
|
(1) Goodwill and
long-lived asset impairments |
|
$ |
35 |
|
|
$ |
— |
|
|
$ |
35 |
|
|
$ |
— |
|
Tax effect* |
|
4 |
|
|
— |
|
|
4 |
|
|
— |
|
After-tax effect |
|
31 |
|
|
— |
|
|
31 |
|
|
— |
|
Weighted-Average Diluted
Shares Outstanding |
|
41.3 |
|
|
42.9 |
|
|
41.4 |
|
|
43.8 |
|
Per share impact** |
|
$ |
0.75 |
|
|
$ |
— |
|
|
$ |
0.75 |
|
|
$ |
— |
|
*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 |
|
Year Ended |
|
|
December 31 |
|
December 31 |
($ in millions) |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Net cash provided by (used in) operating activities |
|
$ |
566 |
|
|
|
$ |
648 |
|
|
|
$ |
896 |
|
|
|
$ |
914 |
|
|
Less capital
expenditures: |
|
|
|
|
|
|
|
|
Capital expenditure additions |
|
(181 |
) |
|
|
(170 |
) |
|
|
(530 |
) |
|
|
(463 |
) |
|
Grant proceeds for capital expenditures |
|
23 |
|
|
|
28 |
|
|
|
94 |
|
|
|
61 |
|
|
Free cash flow |
|
$ |
408 |
|
|
|
$ |
506 |
|
|
|
$ |
460 |
|
|
|
$ |
512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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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