HII (NYSE:HII) reported first quarter 2023 revenues of $2.7
billion, up 3.8% from the first quarter of 2022, driven by growth
at Newport News Shipbuilding and Mission Technologies.
Operating income in the first quarter of 2023 was $141 million
and operating margin was 5.3%, compared to $138 million and 5.4%,
respectively, in the first quarter of 2022. The increase in
operating income was primarily driven by favorable changes to the
operating FAS/CAS adjustment and non-current state income taxes
compared to the prior year, partially offset by lower segment
operating income2.
Segment operating income2 in the first quarter of 2023 was $156
million and segment operating margin2 was 5.8%, compared to $176
million and 6.8%, respectively, in the first quarter of 2022. The
decrease in segment operating income2 was driven primarily by lower
risk retirement at Ingalls Shipbuilding following the delivery of
USS Fort Lauderdale (LPD 28) in the first quarter of 2022.
Net earnings in the quarter were $129 million, compared to $140
million in the first quarter of 2022. Diluted earnings per share in
the quarter was $3.23, compared to $3.50 in the first quarter of
2022. The decrease in diluted earnings per share was driven by a
less favorable non-operating retirement benefit in the current
quarter.
Net cash used in operating activities in the quarter was $9
million and free cash flow2 was negative $49 million, compared to
cash used in operating activities of $83 million and negative free
cash flow2 of $126 million in the first quarter of 2022.
New contract awards in the first quarter of 2023 were
approximately $2.6 billion, bringing total backlog to approximately
$47.0 billion as of March 31, 2023.
“First quarter results reflect a good start to the year, as we
stay on course executing our nearly $50 billion of backlog and
growing our Mission Technologies business in markets that support
our customers,” said Chris Kastner, HII’s president and CEO. "Our
priority continues to be a focus on the fundamentals in
shipbuilding and delivery of critically needed assets to the fleet.
Our shipbuilding milestones for 2023 and 2024 remain on track as we
work closely with the Navy to optimize the delivery schedule for
aircraft carrier John F. Kennedy."
1The financial outlook, expectations and other forward looking
statements provided by the company for 2023 and beyond reflect the
company's judgement based on information available at the time of
this release.2Non-GAAP measures. See Exhibit B for definitions and
reconciliations.
Results of Operations
|
Three Months Ended |
|
|
|
March 31 |
|
|
($ in
millions, except per share amounts) |
2023 |
2022 |
$ Change |
% Change |
Sales and service revenues |
$ |
2,674 |
|
$ |
2,576 |
|
$ |
98 |
|
3.8% |
Operating income |
|
141 |
|
|
138 |
|
|
3 |
|
2.2% |
Operating margin % |
|
5.3 |
% |
|
5.4 |
% |
|
(8) bps |
Segment operating income1 |
|
156 |
|
|
176 |
|
|
(20 |
) |
(11.4)% |
Segment operating margin %1 |
|
5.8 |
% |
|
6.8 |
% |
|
(100) bps |
Net earnings |
|
129 |
|
|
140 |
|
|
(11 |
) |
(7.9)% |
Diluted earnings per
share |
$ |
3.23 |
|
$ |
3.50 |
|
$ |
(0.27 |
) |
(7.7)% |
1Non-GAAP
measures that exclude non-segment factors affecting operating
income. See Exhibit B for definitions and reconciliations. |
|
Segment Operating Results
Ingalls Shipbuilding
|
Three Months Ended |
|
|
|
March 31 |
|
|
($ in
millions) |
2023 |
2022 |
$ Change |
% Change |
Revenues |
$ |
577 |
|
$ |
631 |
|
$ |
(54 |
) |
(8.6)% |
Segment operating income1 |
|
55 |
|
|
86 |
|
|
(31 |
) |
(36.0)% |
Segment operating margin
%1 |
|
9.5 |
% |
|
13.6 |
% |
|
(410) bps |
1Non-GAAP
measures. See Exhibit B for definitions and reconciliations. |
Ingalls Shipbuilding revenues for the first quarter of 2023 were
$577 million, a decrease of $54 million, or 8.6%, from the same
period in 2022, primarily driven by lower revenues in amphibious
assault ships and the Legend-class National Security Cutter
(NSC) program, partially offset by higher revenues in surface
combatants. Revenues on amphibious assault ships decreased due to
lower volumes on USS Fort Lauderdale (LPD 28), Bougainville (LHA
8), amphibious ship planning yard services contract and Richard M.
McCool Jr. (LPD 29), partially offset by higher volumes on Fallujah
(LHA 9) and LPD 32 (unnamed). Revenues on the NSC program decreased
due to lower volume on Friedman (NSC 11). Revenues on surface
combatants increased due to higher volumes on George M. Neal (DDG
131), Jeremiah Denton (DDG 129), John F. Lehman (DDG 137) and Ted
Stevens (DDG 128), partially offset by lower volumes on Lenah
Sutcliffe Higbee (DDG 123) and USS Jack H. Lucas (DDG 125).
Ingalls Shipbuilding segment operating income1 for the first
quarter of 2023 was $55 million, a decrease of $31 million from the
same period in 2022. Segment operating margin1 in the first quarter
of 2023 was 9.5%, compared to 13.6% in the same period last year.
The decrease was primarily driven by lower risk retirement on USS
Fort Lauderdale (LPD 28), which was delivered in the first quarter
of 2022, and Bougainville (LHA 8).
Key Ingalls Shipbuilding milestones for the quarter:
- Awarded $1.3 billion detail design & construction contract
for LPD 32 (unnamed)
- Awarded $10.5 million modernization planning contract for
Zumwalt-class guided missile destroyers, USS Zumwalt (DDG 1000) and
USS Michael Monsoor (DDG 1001)
1Non-GAAP measures. See Exhibit B for definitions and
reconciliations.
Newport News Shipbuilding
|
Three Months Ended |
|
|
|
March 31 |
|
|
($ in
millions) |
2023 |
2022 |
$ Change |
% Change |
Revenues |
$ |
1,506 |
|
$ |
1,390 |
|
$ |
116 |
8.3% |
Segment operating income1 |
|
84 |
|
|
81 |
|
|
3 |
3.7% |
Segment
operating margin %1 |
|
5.6 |
% |
|
5.8 |
% |
|
(25) bps |
1 Non-GAAP
measures. See Exhibit B for definitions and reconciliations. |
|
Newport News Shipbuilding revenues for the first quarter of 2023
were $1.5 billion, an increase of $116 million, or 8.3%, from the
same period in 2022, primarily driven by higher revenues in
aircraft carriers and submarines, partially offset by lower
revenues in naval nuclear support services. Aircraft carrier
revenues increased primarily as a result of higher volumes on the
refueling and complex overhaul (RCOH) of USS John C. Stennis (CVN
74) and the construction of Doris Miller (CVN 81), Enterprise (CVN
80) and John F. Kennedy (CVN 79), partially offset by lower volume
on the RCOH of USS George Washington (CVN 73). Submarine revenues
increased due to higher volumes on the Block V boats of the
Virginia-class submarine (VCS) program and the Columbia-class
submarine program, partially offset by lower volumes on Block IV
boats of the VCS program. Naval nuclear support services revenue
decreased primarily as a result of lower volumes in carrier fleet
support services.
Newport News Shipbuilding segment operating income1 for the
first quarter of 2023 was $84 million, an increase of $3 million
from the same period in 2022. Segment operating margin1 in the
first quarter of 2023 was 5.6%, compared to 5.8% in the same period
last year. The increase in segment operating income1 was primarily
due to higher sales volume across all programs, partially offset by
unfavorable risk retirement on the Enterprise (CVN 80).
Key Newport News Shipbuilding milestones for the quarter:
- Broke ground on a new multi-class submarine production facility
to support the construction and delivery of Columbia-class and
Virginia-class submarines
- Reached approximate 99% completion of the RCOH of USS George
Washington (CVN 73)
- Reached approximate 89% completion of John F. Kennedy (CVN 79)
based on current scope and schedule
1Non-GAAP measures. See Exhibit B for definitions and
reconciliations.
Mission Technologies
|
Three Months Ended |
|
|
|
March 31 |
|
|
($ in
millions) |
2023 |
2022 |
$ Change |
% Change |
Revenues |
$ |
624 |
|
$ |
590 |
|
$ |
34 |
5.8% |
Segment operating income1 |
|
17 |
|
|
9 |
|
|
8 |
88.9% |
Segment operating margin
%1 |
|
2.7 |
% |
|
1.5 |
% |
|
120 bps |
1Non-GAAP
measures. See Exhibit B for definitions and reconciliations. |
|
Mission Technologies revenues for the first quarter of 2023 were
$624 million, an increase of $34 million, or 5.8%, from the same
period in 2022. The increase was primarily due to higher volumes in
Mission Based Solutions, which includes our C5ISR, Cyber and
Electronic Warfare and Live, Virtual, and Constructive Solutions
businesses, as well as higher volumes in Fleet Sustainment.
Mission Technologies segment operating income1 for the first
quarter of 2023 was $17 million, compared to $9 million in the
first quarter of 2022. Segment operating margin1 in the first
quarter of 2023 was 2.7%, compared to 1.5% in the same period last
year. The increases were primarily driven by improved performance
in Mission Based Solutions and Unmanned Systems and higher equity
income from Nuclear and Environmental joint ventures, partially
offset by lower performance in Fleet Sustainment.
Mission Technologies results included approximately $27 million
of amortization of purchased intangible assets in the first quarter
of 2023, compared to approximately $30 million in the same period
last year. Mission Technologies EBITDA margin1 in the first quarter
of 2023 was 8.0%.
Key Mission Technologies milestones for the quarter:
- Awarded a $1.3 billion ASTRO task order for U.S. Africa Command
(USAFRICOM) Personnel Recovery Enterprise Services and Solutions
(PRESS)
- Awarded a $70.8 million follow-on contract with the Air Force
Nuclear Weapons Center to provide professional and engineering
support for key storage, security and infrastructure systems
1Non-GAAP measures. See Exhibit B for definitions and
reconciliations.
2023 Financial Outlook1
- Reaffirming prior 2023 outlook expectations
- Expect FY23 shipbuilding revenue2 between $8.4 and $8.6
billion; expect shipbuilding operating margin2 between 7.7% and
8.0%
- Expect FY23 Mission Technologies revenue of approximately $2.5
billion, Mission Technologies segment operating margin2 between
2.5% and 3.0%, and Mission Technologies EBITDA margin2 between
8.0% and 8.5%
- Expect FY23 free cash flow2 between $400 and $450 million3
- Continue to expect cumulative FY20-FY24 free cash flow2 of
approximately $2.9 billion3
|
FY23 Outlook |
Shipbuilding Revenue2 |
$8.4B - $8.6B |
Shipbuilding Operating
Margin2 |
7.7% - 8.0% |
Mission Technologies Revenue |
~$2.5B |
Mission Technologies Segment
Operating Margin2 |
2.5% - 3.0% |
Mission Technologies EBITDA
Margin2 |
8.0% - 8.5% |
|
|
Operating FAS/CAS Adjustment |
($68M) |
Non-current State Income Tax
Expense4 |
~$0M |
Interest Expense |
($105M) |
Non-operating Retirement
Benefit |
$149M |
Effective Tax Rate |
~21% |
|
|
Depreciation &
Amortization |
~$365M |
Capital Expenditures |
~3.0%of Sales |
Free Cash Flow2based on current
tax law3 |
$400M - $450M |
1The financial outlook, expectations and other forward-looking
statements provided by the company for 2023 and beyond reflect the
company's judgment based on the information available at the time
of this release.2Non-GAAP measures. See Exhibit B for definitions.
In reliance upon Item 10(e)(1)(i)(B) of Regulation S-K,
reconciliations of forward–looking GAAP and non–GAAP measures are
not provided because of the unreasonable effort associated with
providing such reconciliations due to the variability in the
occurrence and the amounts of certain components of GAAP and
non-GAAP measures. For the same reasons, we are unable to address
the significance of the unavailable information, which could be
material to future results.3Outlook is based on current tax law and
assumes the provisions requiring capitalization of R&D
expenditures for tax purposes are not deferred or repealed.4Outlook
is based on current tax law. Repeal or deferral of provisions
requiring capitalization of R&D expenditures would result in
elevated non-current state income tax expense.
About Huntington Ingalls Industries
HII is a global, all-domain defense partner, building and
delivering the world’s most powerful, survivable naval ships and
technologies that safeguard our seas, sky, land, space and cyber.
As America’s largest shipbuilder and with a more than 135-year
history of advancing U.S. national defense, we are united by our
mission in service of the heroes who protect our freedom. HII’s
diverse workforce includes skilled tradespeople; artificial
intelligence, machine learning (AI/ML) experts; engineers;
technologists; scientists; logistics experts; and business
professionals. Headquartered in Virginia, HII’s workforce is 43,000
strong. For more information, please visit www.HII.com.
Conference Call Information
HII 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.HII.com. A telephone
replay of the conference call will be available from noon today
through Thursday, May 11th by calling (866) 813-9403 or (929)
458-6194 and using access code 742643.
Cautionary Statement Regarding 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. You can
generally identify forward-looking statements by words such as
"may," "will," "should," "expects," "intends," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential,"
"continue," and similar words or phrases or the negative of these
words or phrases. These statements relate to future events or our
future financial performance and involve known and unknown risks,
uncertainties, and other factors that may cause our actual results,
levels of activity, performance, or achievements to be materially
different from any future results, levels of activity, performance,
or achievements expressed or implied by these forward-looking
statements. Although we believe the expectations reflected in the
forward-looking statements are reasonable when made, we cannot
guarantee future results, levels of activity, performance, or
achievements. There are a number of important factors that could
cause our actual results to differ materially from the results
anticipated by our forward-looking statements, which include, but
are not limited to: 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, including cost increases due to inflation, 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; our
ability to attract, train and retain a qualified workforce;
disruptions impacting global supply, including those attributable
to ongoing public health issues and the ongoing conflict between
Russia and Ukraine; 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 Annual Report on Form 10-K
for the year ended December 31, 2022 and our other filings with the
U.S. Securities and Exchange Commission. There may be other risks
and uncertainties that we are unable to predict at this time or
that we currently do not expect to have a material adverse effect
on our business, and we undertake no obligation to update any
forward-looking statements. You should not place undue reliance on
any forward-looking statements that we may make. This release also
contains non-GAAP financial measures and includes a GAAP
reconciliation of these financial measures. Non-GAAP financial
measures should not be construed as being more important than
comparable GAAP measures.
Exhibit A: Financial Statements
HUNTINGTON INGALLS INDUSTRIES,
INC.CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
|
|
Three Months Ended March 31 |
(in
millions, except per share amounts) |
|
2023 |
|
2022 |
Sales and service revenues |
|
|
|
|
Product sales |
|
$ |
1,829 |
|
|
$ |
1,724 |
|
Service revenues |
|
|
845 |
|
|
|
852 |
|
Sales and service revenues |
|
|
2,674 |
|
|
|
2,576 |
|
Cost of sales and service
revenues |
|
|
|
|
Cost of product sales |
|
|
1,568 |
|
|
|
1,468 |
|
Cost of service revenues |
|
|
756 |
|
|
|
759 |
|
Income from operating investments, net |
|
|
12 |
|
|
|
7 |
|
Other income and gains (losses), net |
|
|
(1 |
) |
|
|
(1 |
) |
General and administrative expenses |
|
|
220 |
|
|
|
217 |
|
Operating income |
|
|
141 |
|
|
|
138 |
|
Other income (expense) |
|
|
|
|
Interest expense |
|
|
(24 |
) |
|
|
(26 |
) |
Non-operating retirement benefit |
|
|
37 |
|
|
|
71 |
|
Other, net |
|
|
9 |
|
|
|
(7 |
) |
Earnings before income taxes |
|
|
163 |
|
|
|
176 |
|
Federal and foreign income tax
expense |
|
|
34 |
|
|
|
36 |
|
Net earnings |
|
$ |
129 |
|
|
$ |
140 |
|
|
|
|
|
|
Basic earnings per share |
|
$ |
3.23 |
|
|
$ |
3.50 |
|
Weighted-average common shares
outstanding |
|
|
39.9 |
|
|
|
40.0 |
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
3.23 |
|
|
$ |
3.50 |
|
Weighted-average diluted shares
outstanding |
|
|
39.9 |
|
|
|
40.0 |
|
|
|
|
|
|
Dividends declared per share |
|
$ |
1.24 |
|
|
$ |
1.18 |
|
|
|
|
|
|
Net earnings from above |
|
$ |
129 |
|
|
$ |
140 |
|
Other comprehensive income
(loss) |
|
|
|
|
Change in unamortized benefit plan costs |
|
|
4 |
|
|
|
(86 |
) |
Tax benefit (expense) for items of other comprehensive income |
|
|
(1 |
) |
|
|
22 |
|
Other comprehensive income (loss), net of tax |
|
|
3 |
|
|
|
(64 |
) |
Comprehensive income |
|
$ |
132 |
|
|
$ |
76 |
|
HUNTINGTON INGALLS INDUSTRIES,
INC.CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION (UNAUDITED)
($ in
millions) |
|
March 31, 2023 |
|
December 31, 2022 |
Assets |
|
|
|
|
Current
Assets |
|
|
|
|
Cash and cash equivalents |
|
$ |
318 |
|
|
$ |
467 |
|
Accounts receivable, net of
allowance for doubtful accounts of $2 million as of 2023 and
2022 |
|
|
755 |
|
|
|
636 |
|
Contract assets |
|
|
1,298 |
|
|
|
1,240 |
|
Inventoried costs |
|
|
190 |
|
|
|
183 |
|
Income taxes receivable |
|
|
113 |
|
|
|
170 |
|
Prepaid expenses and other
current assets |
|
|
78 |
|
|
|
50 |
|
Total current assets |
|
|
2,752 |
|
|
|
2,746 |
|
Property, Plant, and Equipment,
net of accumulated depreciation of $2,351 million as of 2023 and
$2,319 million as of 2022 |
|
|
3,182 |
|
|
|
3,198 |
|
Other
Assets |
|
|
|
|
Operating lease assets |
|
|
264 |
|
|
|
282 |
|
Goodwill |
|
|
2,618 |
|
|
|
2,618 |
|
Other intangible assets, net of
accumulated amortization of $913 million as of 2023 and $881
million as of 2022 |
|
|
987 |
|
|
|
1,019 |
|
Pension plan assets |
|
|
623 |
|
|
|
600 |
|
Miscellaneous other assets |
|
|
423 |
|
|
|
394 |
|
Total other assets |
|
|
4,915 |
|
|
|
4,913 |
|
Total assets |
|
$ |
10,849 |
|
|
$ |
10,857 |
|
Liabilities and
Stockholders' Equity |
|
|
|
|
Current
Liabilities |
|
|
|
|
Trade accounts payable |
|
|
505 |
|
|
|
642 |
|
Accrued employees’
compensation |
|
|
330 |
|
|
|
345 |
|
Current portion of long-term
debt |
|
|
399 |
|
|
|
399 |
|
Current portion of postretirement
plan liabilities |
|
|
134 |
|
|
|
134 |
|
Current portion of workers’
compensation liabilities |
|
|
229 |
|
|
|
229 |
|
Contract liabilities |
|
|
810 |
|
|
|
766 |
|
Other current liabilities |
|
|
460 |
|
|
|
380 |
|
Total current liabilities |
|
|
2,867 |
|
|
|
2,895 |
|
Long-term debt |
|
|
2,498 |
|
|
|
2,506 |
|
Pension plan liabilities |
|
|
216 |
|
|
|
214 |
|
Other postretirement plan
liabilities |
|
|
259 |
|
|
|
260 |
|
Workers’ compensation
liabilities |
|
|
464 |
|
|
|
463 |
|
Long-term operating lease
liabilities |
|
|
225 |
|
|
|
246 |
|
Deferred tax liabilities |
|
|
389 |
|
|
|
418 |
|
Other long-term liabilities |
|
|
368 |
|
|
|
366 |
|
Total liabilities |
|
|
7,286 |
|
|
|
7,368 |
|
Commitments and
Contingencies |
|
|
|
|
Stockholders’
Equity |
|
|
|
|
Common stock, $0.01 par value;
150 million shares authorized; 53.6 million shares issued and 39.9
million shares outstanding as of March 31, 2023, and 53.5 million
shares issued and 39.9 million shares outstanding as of December
31, 2022 |
|
|
1 |
|
|
|
1 |
|
Additional paid-in capital |
|
|
2,024 |
|
|
|
2,022 |
|
Retained earnings |
|
|
4,354 |
|
|
|
4,276 |
|
Treasury stock |
|
|
(2,220 |
) |
|
|
(2,211 |
) |
Accumulated other comprehensive
loss |
|
|
(596 |
) |
|
|
(599 |
) |
Total stockholders’ equity |
|
|
3,563 |
|
|
|
3,489 |
|
Total liabilities and stockholders’ equity |
|
$ |
10,849 |
|
|
$ |
10,857 |
|
HUNTINGTON INGALLS INDUSTRIES,
INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (UNAUDITED)
|
Three Months Ended March 31 |
($ in
millions) |
2023 |
|
2022 |
Operating Activities |
|
|
|
Net earnings |
$ |
129 |
|
|
$ |
140 |
|
Adjustments to reconcile to
net cash used in operating activities |
|
|
|
Depreciation |
|
55 |
|
|
|
52 |
|
Amortization of purchased intangibles |
|
32 |
|
|
|
35 |
|
Amortization of debt issuance costs |
|
2 |
|
|
|
2 |
|
Provision for doubtful accounts |
|
— |
|
|
|
(7 |
) |
Stock-based compensation |
|
12 |
|
|
|
9 |
|
Deferred income taxes |
|
(30 |
) |
|
|
2 |
|
Loss (gain) on investments in marketable securities |
|
(8 |
) |
|
|
9 |
|
Change in |
|
|
|
Accounts receivable |
|
(119 |
) |
|
|
(231 |
) |
Contract assets |
|
(58 |
) |
|
|
(39 |
) |
Inventoried costs |
|
(7 |
) |
|
|
(27 |
) |
Prepaid expenses and other assets |
|
30 |
|
|
|
7 |
|
Accounts payable and accruals |
|
(31 |
) |
|
|
— |
|
Retiree benefits |
|
(18 |
) |
|
|
(34 |
) |
Other non-cash transactions, net |
|
2 |
|
|
|
(1 |
) |
Net cash used in operating activities |
|
(9 |
) |
|
|
(83 |
) |
Investing
Activities |
|
|
|
Capital expenditures |
|
|
|
Capital expenditure additions |
|
(43 |
) |
|
|
(43 |
) |
Grant proceeds for capital expenditures |
|
3 |
|
|
|
— |
|
Investment in affiliates |
|
(20 |
) |
|
|
— |
|
Net cash used in investing activities |
|
(60 |
) |
|
|
(43 |
) |
Financing
Activities |
|
|
|
Repayment of long-term debt |
|
(10 |
) |
|
|
(100 |
) |
Dividends paid |
|
(49 |
) |
|
|
(47 |
) |
Repurchases of common stock |
|
(9 |
) |
|
|
(10 |
) |
Employee taxes on certain share-based payment arrangements |
|
(12 |
) |
|
|
(14 |
) |
Net cash used in financing activities |
|
(80 |
) |
|
|
(171 |
) |
Change in cash and cash equivalents |
|
(149 |
) |
|
|
(297 |
) |
Cash and cash equivalents,
beginning of period |
|
467 |
|
|
|
627 |
|
Cash and cash equivalents, end
of period |
$ |
318 |
|
|
$ |
330 |
|
Supplemental Cash Flow
Disclosure |
|
|
|
Cash paid for interest |
$ |
12 |
|
|
$ |
11 |
|
Non-Cash Investing and
Financing Activities |
|
|
|
Capital expenditures accrued
in accounts payable |
$ |
8 |
|
|
$ |
1 |
|
Exhibit B: Non-GAAP Measures Definitions &
Reconciliations
We make reference to “segment operating income,” “segment
operating margin,” “shipbuilding revenue,” “shipbuilding operating
margin,” "Mission Technologies EBITDA," “Mission Technologies
EBITDA margin” 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.
Shipbuilding revenue, shipbuilding operating margin, Mission
Technologies EBITDA and Mission Technologies EBITDA margin are not
measures recognized under GAAP. They are measures that we use to
evaluate our core operating performance. When analyzing our
operating performance, investors should use shipbuilding revenue,
shipbuilding operating margin, Mission Technologies EBITDA and
Mission Technologies EBITDA margin in addition to, and not as
alternatives for, operating income and operating margin or any
other performance measure presented in accordance with GAAP. We
believe that shipbuilding revenue, shipbuilding operating margin,
Mission Technologies EBITDA and Mission Technologies EBITDA 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.
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 net earnings
as a measure of our performance or net cash provided or used by
operating activities as a measure of our liquidity. 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.
Reconciliations of forward-looking GAAP and non-GAAP measures
are not provided because we are unable to provide such
reconciliations without unreasonable effort due to the uncertainty
and inherent difficulty of predicting the future occurrence and
financial impact of certain elements of GAAP and non-GAAP
measures.
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.
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 income of our Newport News Shipbuilding
segment and Ingalls Shipbuilding segment as a percentage of
shipbuilding revenue.
Mission Technologies EBITDA is defined as
Mission Technologies segment operating income before interest
expense, income taxes, depreciation, and amortization.
Mission Technologies EBITDA margin is defined
as Mission Technologies EBITDA as a percentage of Mission
Technologies revenues.
Free cash flow is defined as net cash provided
by (used in) operating activities less capital expenditures net of
related grant proceeds.
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 |
|
|
March 31 |
($ in
millions) |
|
2023 |
|
2022 |
Ingalls revenues |
|
$ |
577 |
|
|
$ |
631 |
|
Newport News revenues |
|
|
1,506 |
|
|
|
1,390 |
|
Mission Technologies
revenues |
|
|
624 |
|
|
|
590 |
|
Intersegment eliminations |
|
|
(33 |
) |
|
|
(35 |
) |
Sales and Service
Revenues |
|
|
2,674 |
|
|
|
2,576 |
|
|
|
|
|
|
Operating
Income |
|
|
141 |
|
|
|
138 |
|
Operating FAS/CAS Adjustment |
|
|
19 |
|
|
|
37 |
|
Non-current state income taxes |
|
|
(4 |
) |
|
|
1 |
|
Segment Operating
Income |
|
|
156 |
|
|
|
176 |
|
As a percentage of sales and service revenues |
|
|
5.8 |
% |
|
|
6.8 |
% |
Ingalls segment operating income |
|
|
55 |
|
|
|
86 |
|
As a percentage of Ingalls revenues |
|
|
9.5 |
% |
|
|
13.6 |
% |
Newport News segment operating income |
|
|
84 |
|
|
|
81 |
|
As a percentage of Newport News revenues |
|
|
5.6 |
% |
|
|
5.8 |
% |
Mission Technologies operating income |
|
|
17 |
|
|
|
9 |
|
As a percentage of Mission Technologies revenues |
|
|
2.7 |
% |
|
|
1.5 |
% |
Reconciliation of Free Cash
Flow
|
|
Three Months Ended |
|
|
March 31 |
($ in
millions) |
|
2023 |
|
2022 |
Net cash used in operating activities |
|
$ |
(9 |
) |
|
$ |
(83 |
) |
Less capital
expenditures: |
|
|
|
|
Capital expenditure additions |
|
|
(43 |
) |
|
|
(43 |
) |
Grant proceeds for capital expenditures |
|
|
3 |
|
|
|
— |
|
Free cash flow |
|
$ |
(49 |
) |
|
$ |
(126 |
) |
Reconciliation of Mission Technologies EBITDA and EBITDA
Margin
|
|
Three Months Ended |
|
|
March 31 |
($ in
millions) |
|
2023 |
|
2022 |
Mission Technologies sales and service
revenues |
|
$ |
624 |
|
|
$ |
590 |
|
|
|
|
|
|
Mission Technologies
segment operating income |
|
$ |
17 |
|
|
$ |
9 |
|
Mission Technologies
depreciation expense |
|
|
3 |
|
|
|
2 |
|
Mission Technologies
amortization expense |
|
|
27 |
|
|
|
30 |
|
Mission Technologies state tax
expense |
|
|
3 |
|
|
|
2 |
|
Mission Technologies
EBITDA |
|
$ |
50 |
|
|
$ |
43 |
|
Mission Technologies
EBITDA margin |
|
|
8.0 |
% |
|
|
7.3 |
% |
Contacts:Brooke Hart
(Media) brooke.hart@hii-co.com202-264-7108 |
Christie Thomas
(Investors)christie.thomas@hii-co.com757-380-2104 |
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