Form 8-K HUNTINGTON INGALLS INDUS For: Nov 07
 | Exhibit 99.1 News Release | |
Contacts: |
Jerri Fuller Dickseski (Media) |
757-380-2341 |
Dwayne Blake (Investors) |
757-380-2104 |
Huntington Ingalls Industries Reports Third Quarter 2019 Results
• | Revenues were $2.2 billion in the quarter |
• | Operating margin was 9.6% |
• | Diluted earnings per share was $3.74 |
• | Cash from operations was $363 million; free cash flow was $250 million1 |
NEWPORT NEWS, Va. (Nov. 7, 2019) - Huntington Ingalls Industries (NYSE: HII) reported third quarter 2019 revenues of $2.2 billion, up 6.5% from the third quarter of 2018. The increase was driven primarily by growth at HII’s Technical Solutions division from recent acquisitions and higher volume at HII’s Newport News Shipbuilding division.
Operating income in the quarter was $214 million and operating margin was 9.6%, compared to $290
million and 13.9%, respectively, in the third quarter of 2018. The decreases in operating income and operating margin were mainly the result of a lower operating FAS/CAS adjustment, as well as lower segment operating income, compared to the prior year.
Diluted earnings per share in the quarter was $3.74, compared to $5.29 in the same period of 2018. The decrease was predominantly due to lower operating income and a lower non-operating retirement benefit compared to the prior year.
Third quarter cash from operations was $363 million and free cash flow1 was $250 million, compared to negative $93 million and negative $195 million, respectively, in the third quarter of 2018.
New contract awards in the quarter were approximately $2.1 billion, bringing total backlog to approximately $39.2 billion as of Sept. 30.
“We are very pleased with shipbuilding program execution in the quarter, most notably completing the undocking of USS George Washington (CVN 73),” said Mike Petters, HII’s president and CEO. “We remain confident that execution of critical shipbuilding program milestones in the fourth quarter will create the momentum to achieve shipbuilding margins of 9 to 10 percent in 2020.”
1 Non-GAAP measure. See Exhibit B for definition and reconciliation.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 1 of 10
Results of Operations
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
September 30 | September 30 | ||||||||||||||||||||||
(in millions, except per share amounts) | 2019 | 2018 | $ Change | % Change | 2019 | 2018 | $ Change | % Change | |||||||||||||||
Sales and service revenues | $ | 2,219 | $ | 2,083 | $ | 136 | 6.5 | % | $ | 6,487 | $ | 5,977 | $ | 510 | 8.5 | % | |||||||
Operating income | 214 | 290 | (76 | ) | (26.2 | )% | 550 | 738 | (188 | ) | (25.5 | )% | |||||||||||
Operating margin % | 9.6 | % | 13.9 | % | (428) bps | 8.5 | % | 12.3 | % | (387) bps | |||||||||||||
Segment operating income1 | 191 | 217 | (26 | ) | (12.0 | )% | 458 | 515 | (57 | ) | (11.1 | )% | |||||||||||
Segment operating margin %1 | 8.6 | % | 10.4 | % | (181) bps | 7.1 | % | 8.6 | % | (156) bps | |||||||||||||
Net earnings | 154 | 229 | (75 | ) | (32.8 | )% | 400 | 624 | (224 | ) | (35.9 | )% | |||||||||||
Diluted earnings per share | $ | 3.74 | $ | 5.29 | $ | (1.55 | ) | (29.3 | )% | $ | 9.66 | $ | 14.15 | $ | (4.49 | ) | (31.7 | )% | |||||
Weighted-average diluted shares outstanding | 41.2 | 43.3 | 41.4 | 44.1 | |||||||||||||||||||
1 Non-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 | Nine Months Ended | ||||||||||||||||||||||
September 30 | September 30 | ||||||||||||||||||||||
($ in millions) | 2019 | 2018 | $ Change | % Change | 2019 | 2018 | $ Change | % Change | |||||||||||||||
Revenues | $ | 647 | $ | 694 | $ | (47 | ) | (6.8 | )% | $ | 1,853 | $ | 1,908 | $ | (55 | ) | (2.9 | )% | |||||
Segment operating income1 | 61 | 82 | (21 | ) | (25.6 | )% | 176 | 229 | (53 | ) | (23.1 | )% | |||||||||||
Segment operating margin %1 | 9.4 | % | 11.8 | % | (239) bps | 9.5 | % | 12.0 | % | (250) bps | |||||||||||||
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. | |||||||||||||||||||||||
Ingalls Shipbuilding revenues for the third quarter were $647 million, a decrease of $47 million from the same period in 2018, primarily driven by lower revenues in the Legend-class National Security Cutter (NSC) program 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). Amphibious assault ship revenues decreased as a result of lower volumes on Tripoli (LHA 7) and Fort Lauderdale (LPD 28), partially offset by higher volumes on Harrisburg (LPD 30) and Bougainville (LHA 8). Surface combatant revenues were consistent with the prior year due to higher volumes on Ted Stevens (DDG 128), USS Fitzgerald (DDG 62) repair and restoration, Jeremiah Denton (DDG 129) and Jack H. Lucas (DDG 125), offset by 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).
Ingalls Shipbuilding segment operating income for the third quarter was $61 million, a decrease of $21 million from the same period last year. Segment operating margin in the quarter was 9.4%, compared to 11.8% in the same period last year. The decreases were primarily due to lower risk retirement on the NSC program.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 2 of 10
Key Ingalls Shipbuilding milestones for the quarter:
• | Completed builder’s trials for Tripoli (LHA 7) |
• | Completed external structural work on Stone (NSC 9) |
Newport News Shipbuilding
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
September 30 | September 30 | ||||||||||||||||||||||
($ in millions) | 2019 | 2018 | $ Change | % Change | 2019 | 2018 | $ Change | % Change | |||||||||||||||
Revenues | $ | 1,264 | $ | 1,179 | $ | 85 | 7.2 | % | $ | 3,796 | $ | 3,444 | $ | 352 | 10.2 | % | |||||||
Segment operating income1 | 109 | 119 | (10 | ) | (8.4 | )% | 257 | 261 | (4 | ) | (1.5 | )% | |||||||||||
Segment operating margin %1 | 8.6 | % | 10.1 | % | (147) bps | 6.8 | % | 7.6 | % | (81) bps | |||||||||||||
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. | |||||||||||||||||||||||
Newport News Shipbuilding revenues for the third quarter were $1.3 billion, an increase of $85 million, or 7.2%, from the same period in 2018, primarily driven by higher revenues in aircraft carriers and submarines. Aircraft carrier revenues increased primarily as a result of higher volumes on the advance planning contract for Enterprise (CVN 80) and the advance planning contract for the refueling and complex overhaul (RCOH) of USS John C. Stennis (CVN 74), partially offset by lower volume on the RCOH of USS George Washington (CVN 73). Submarine revenues increased due to higher volumes on Columbia-class and Virginia-class (VCS) submarines. VCS program volumes increased due to higher volumes on Block V boats, partially offset by lower volumes on Block III boats.
Newport News Shipbuilding segment operating income for the third quarter was $109 million, a decrease of $10
million from the same period last year. Segment operating margin was 8.6% for the quarter, compared to 10.1% in the same period last year. These decreases were primarily due to a workers’ compensation benefit of $43 million in the same period last year, partially offset by contract changes in the current period for submarine support services related to work on Los Angeles-class submarines.
Key Newport News Shipbuilding milestones for the quarter:
• | Achieved approximately 96% structural completion on the aircraft carrier John F. Kennedy (CVN 79) |
• | Completed the undocking of USS George Washington (CVN 73) and achieved approximately 64% completion on the RCOH |
Technical Solutions
Three Months Ended | Nine Months Ended | |||||||||||||||||||||
September 30 | September 30 | |||||||||||||||||||||
($ in millions) | 2019 | 2018 | $ Change | % Change | 2019 | 2018 | $ Change | % Change | ||||||||||||||
Revenues | $ | 347 | $ | 245 | $ | 102 | 41.6 | % | $ | 940 | $ | 721 | 219 | 30.4 | % | |||||||
Segment operating income1 | 21 | 16 | $ | 5 | 31.3 | % | 25 | 25 | — | — | % | |||||||||||
Segment operating margin %1 | 6.1 | % | 6.5 | % | (48) bps | 2.7 | % | 3.5 | % | (81) bps | ||||||||||||
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. | ||||||||||||||||||||||
Technical Solutions revenues for the third quarter were $347 million, an increase of $102 million, or 41.6%, from the same period in 2018, driven by the acquisitions of G2, Inc. and Fulcrum IT Services, as well as organic growth in fleet support and oil and gas services revenues.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 3 of 10
Technical Solutions segment operating income for the third quarter was $21 million, an increase of $5 million from the same period last year. Segment operating margin was 6.1% for the quarter, compared to 6.5% in the same period last year. The increase in segment operating income was primarily due to improved performance on nuclear and environmental contracts.
Key Technical Solutions milestones for the quarter:
• | Captured a multiple award contract to continue providing U.S. Navy installation and support services for command, control, communications, computer, intelligence, surveillance and reconnaissance (C4ISR) and supporting systems to the Naval Information Warfare Systems Command (NAVWAR) |
• | Captured a multiple award contract by the Defense Intelligence Agency to provide a wide range of analytic and operational support services |
About Huntington Ingalls Industries
Huntington Ingalls Industries is America’s largest military shipbuilding company and a provider of professional services to partners in government and industry. For more than a century, HII’s Newport News and Ingalls shipbuilding divisions in Virginia and Mississippi have built more ships in more ship classes than any other U.S. naval shipbuilder. HII’s Technical Solutions division provides a wide range of professional services through its Fleet Support, Mission Driven Innovative Solutions, Nuclear & Environmental, and Oil & Gas groups. Headquartered in Newport News, Virginia, HII employs more than 41,000 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, Nov. 13 by calling toll-free (855) 859-2056 or (404) 537-3406 and using conference ID 7276908.
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.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 4 of 10
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) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Sales and service revenues | ||||||||||||||||
Product sales | $ | 1,545 | $ | 1,547 | $ | 4,555 | $ | 4,416 | ||||||||
Service revenues | 674 | 536 | 1,932 | 1,561 | ||||||||||||
Sales and service revenues | 2,219 | 2,083 | 6,487 | 5,977 | ||||||||||||
Cost of sales and service revenues | ||||||||||||||||
Cost of product sales | 1,246 | 1,159 | 3,754 | 3,369 | ||||||||||||
Cost of service revenues | 556 | 434 | 1,634 | 1,287 | ||||||||||||
Income from operating investments, net | 6 | 8 | 15 | 12 | ||||||||||||
Other income and gains | — | — | — | 14 | ||||||||||||
General and administrative expenses | 209 | 208 | 564 | 609 | ||||||||||||
Operating income | 214 | 290 | 550 | 738 | ||||||||||||
Other income (expense) | ||||||||||||||||
Interest expense | (18 | ) | (14 | ) | (52 | ) | (44 | ) | ||||||||
Non-operating retirement benefit | 3 | 19 | 8 | 56 | ||||||||||||
Other, net | (1 | ) | — | 5 | 2 | |||||||||||
Earnings before income taxes | 198 | 295 | 511 | 752 | ||||||||||||
Federal and foreign income taxes | 44 | 66 | 111 | 128 | ||||||||||||
Net earnings | $ | 154 | $ | 229 | $ | 400 | $ | 624 | ||||||||
Basic earnings per share | $ | 3.74 | $ | 5.29 | $ | 9.66 | $ | 14.15 | ||||||||
Weighted-average common shares outstanding | 41.2 | 43.3 | 41.4 | 44.1 | ||||||||||||
Diluted earnings per share | $ | 3.74 | $ | 5.29 | $ | 9.66 | $ | 14.15 | ||||||||
Weighted-average diluted shares outstanding | 41.2 | 43.3 | 41.4 | 44.1 | ||||||||||||
Dividends declared per share | $ | 0.86 | $ | 0.72 | $ | 2.58 | $ | 2.16 | ||||||||
Net earnings from above | $ | 154 | $ | 229 | $ | 400 | $ | 624 | ||||||||
Other comprehensive income | ||||||||||||||||
Change in unamortized benefit plan costs | 25 | 20 | 74 | 61 | ||||||||||||
Other | 1 | — | 1 | (2 | ) | |||||||||||
Tax expense for items of other comprehensive income | (7 | ) | (5 | ) | (19 | ) | (16 | ) | ||||||||
Other comprehensive income, net of tax | 19 | 15 | 56 | 43 | ||||||||||||
Comprehensive income | $ | 173 | $ | 244 | $ | 456 | $ | 667 | ||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 5 of 10
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
($ in millions) | September 30 2019 | December 31 2018 | ||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 32 | $ | 240 | ||||
Accounts receivable, net of allowance for doubtful accounts of $4 million as of 2019 and $9 million as of 2018 | 489 | 252 | ||||||
Contract assets | 1,218 | 1,003 | ||||||
Inventoried costs, net | 139 | 128 | ||||||
Prepaid expenses and other current assets | 147 | 122 | ||||||
Total current assets | 2,025 | 1,745 | ||||||
Property, plant, and equipment, net of accumulated depreciation of $1,935 million as of 2019 and $1,829 million as of 2018 | 2,700 | 2,517 | ||||||
Operating lease assets | 208 | — | ||||||
Goodwill | 1,402 | 1,263 | ||||||
Other intangible assets, net of accumulated amortization of $599 million as of 2019 and $564 million as of 2018 | 506 | 492 | ||||||
Deferred tax assets | 102 | 163 | ||||||
Miscellaneous other assets | 241 | 203 | ||||||
Total assets | $ | 7,184 | $ | 6,383 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current Liabilities | ||||||||
Trade accounts payable | $ | 616 | $ | 562 | ||||
Accrued employees’ compensation | 299 | 248 | ||||||
Current portion of postretirement plan liabilities | 131 | 131 | ||||||
Current portion of workers’ compensation liabilities | 228 | 225 | ||||||
Contract liabilities | 344 | 331 | ||||||
Other current liabilities | 332 | 332 | ||||||
Total current liabilities | 1,950 | 1,829 | ||||||
Long-term debt | 1,549 | 1,283 | ||||||
Pension plan liabilities | 749 | 764 | ||||||
Other postretirement plan liabilities | 345 | 348 | ||||||
Workers’ compensation liabilities | 455 | 454 | ||||||
Long-term operating lease liabilities | 172 | — | ||||||
Other long-term liabilities | 259 | 189 | ||||||
Total liabilities | 5,479 | 4,867 | ||||||
Commitments and Contingencies | ||||||||
Stockholders’ Equity | ||||||||
Common stock, $0.01 par value; 150 million shares authorized; 53.2 million shares issued and 41.0 million shares outstanding as of September 30, 2019, and 53.1 million shares issued and 41.9 million shares outstanding as of December 31, 2018 | 1 | 1 | ||||||
Additional paid-in capital | 1,950 | 1,954 | ||||||
Retained earnings | 2,902 | 2,609 | ||||||
Treasury stock | (1,916 | ) | (1,760 | ) | ||||
Accumulated other comprehensive loss | (1,232 | ) | (1,288 | ) | ||||
Total stockholders’ equity | 1,705 | 1,516 | ||||||
Total liabilities and stockholders’ equity | $ | 7,184 | $ | 6,383 | ||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 6 of 10
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30 | ||||||||
($ in millions) | 2019 | 2018 | ||||||
Operating Activities | ||||||||
Net earnings | $ | 400 | $ | 624 | ||||
Adjustments to reconcile to net cash provided by (used in) operating activities | ||||||||
Depreciation | 126 | 129 | ||||||
Amortization of purchased intangibles | 35 | 28 | ||||||
Amortization of debt issuance costs | 2 | 3 | ||||||
Provision for doubtful accounts | (5 | ) | (4 | ) | ||||
Stock-based compensation | 19 | 27 | ||||||
Deferred income taxes | 42 | (1 | ) | |||||
Change in | ||||||||
Accounts receivable | (223 | ) | (33 | ) | ||||
Contract assets | (197 | ) | (280 | ) | ||||
Inventoried costs | (14 | ) | 3 | |||||
Prepaid expenses and other assets | (62 | ) | 5 | |||||
Accounts payable and accruals | 147 | 230 | ||||||
Retiree benefits | 56 | (468 | ) | |||||
Other non-cash transactions, net | 4 | 3 | ||||||
Net cash provided by operating activities | 330 | 266 | ||||||
Investing Activities | ||||||||
Capital expenditures | ||||||||
Capital expenditure additions | (349 | ) | (293 | ) | ||||
Grant proceeds for capital expenditures | 71 | 33 | ||||||
Acquisitions of businesses, net of cash received | (195 | ) | — | |||||
Investment in affiliates | — | (10 | ) | |||||
Proceeds from disposition of assets | — | 3 | ||||||
Other investing activities, net | 3 | — | ||||||
Net cash used in investing activities | (470 | ) | (267 | ) | ||||
Financing Activities | ||||||||
Proceeds from revolving credit facility borrowings | 5,048 | — | ||||||
Repayment of revolving credit facility borrowings | (4,784 | ) | — | |||||
Dividends paid | (107 | ) | (95 | ) | ||||
Repurchases of common stock | (202 | ) | (512 | ) | ||||
Employee taxes on certain share-based payment arrangements | (23 | ) | (25 | ) | ||||
Net cash used in financing activities | (68 | ) | (632 | ) | ||||
Change in cash and cash equivalents | (208 | ) | (633 | ) | ||||
Cash and cash equivalents, beginning of period | 240 | 701 | ||||||
Cash and cash equivalents, end of period | $ | 32 | $ | 68 | ||||
Supplemental Cash Flow Disclosure | ||||||||
Cash paid for income taxes | $ | 124 | $ | 77 | ||||
Cash paid for interest | $ | 40 | $ | 32 | ||||
Non-Cash Investing and Financing Activities | ||||||||
Capital expenditures accrued in accounts payable | $ | 12 | $ | 7 | ||||
Accrued repurchases of common stock | $ | 2 | $ | 2 | ||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 7 of 10
Exhibit B: Non-GAAP Measures Definitions & Reconciliations
We make reference to “segment operating income,” “segment operating 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.
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 percent of sales and service revenues.
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.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 8 of 10
Reconciliation of Segment Operating Income and Segment Operating Margin
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
($ in millions) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Ingalls revenues | $ | 647 | $ | 694 | $ | 1,853 | $ | 1,908 | ||||||||
Newport News revenues | 1,264 | 1,179 | 3,796 | 3,444 | ||||||||||||
Technical Solutions revenues | 347 | 245 | 940 | 721 | ||||||||||||
Intersegment eliminations | (39 | ) | (35 | ) | (102 | ) | (96 | ) | ||||||||
Sales and Service Revenues | 2,219 | 2,083 | 6,487 | 5,977 | ||||||||||||
Operating Income | 214 | 290 | 550 | 738 | ||||||||||||
Operating FAS/CAS Adjustment | (23 | ) | (73 | ) | (94 | ) | (218 | ) | ||||||||
Non-current state income taxes | — | — | 2 | (5 | ) | |||||||||||
Segment Operating Income | 191 | 217 | 458 | 515 | ||||||||||||
As a percentage of sales and service revenues | 8.6 | % | 10.4 | % | 7.1 | % | 8.6 | % | ||||||||
Ingalls operating income | 61 | 82 | 176 | 229 | ||||||||||||
As a percentage of Ingalls revenues | 9.4 | % | 11.8 | % | 9.5 | % | 12.0 | % | ||||||||
Newport News operating income | 109 | 119 | 257 | 261 | ||||||||||||
As a percentage of Newport News revenues | 8.6 | % | 10.1 | % | 6.8 | % | 7.6 | % | ||||||||
Technical Solutions operating income | 21 | 16 | 25 | 25 | ||||||||||||
As a percentage of Technical Solutions revenues | 6.1 | % | 6.5 | % | 2.7 | % | 3.5 | % | ||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 9 of 10
Reconciliation of Free Cash Flow
Three Months Ended | Nine Months Ended | |||||||||||
September 30 | September 30 | |||||||||||
($ in millions) | 2019 | 2018 | 2019 | 2018 | ||||||||
Net cash provided by (used in) operating activities | 363 | (93 | ) | 330 | 266 | |||||||
Less capital expenditures: | ||||||||||||
Capital expenditure additions | (115 | ) | (116 | ) | (349 | ) | (293 | ) | ||||
Grant proceeds for capital expenditures | 2 | 14 | 71 | 33 | ||||||||
Free cash flow | 250 | (195 | ) | 52 | 6 | |||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 10 of 10
Exhibit 99.2 Q3 2019 Earnings Presentation November 7, 2019 Mike Petters President and Chief Executive Officer Chris Kastner Executive Vice President, Business Management and Chief Financial Officer
2 Forward-Looking Statements Exhibit 99.2 Statements in this presentation, 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 presentation 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.
3 HII Q3 2019 Highlights Exhibit 99.2 Revenues were $2.2 billion in the quarter Diluted EPS was $3.74 in the quarter Total backlog at the end of the quarter was $39.2 billion Total Backlog Operating cash flow was $363 million in the quarter; free cash flow was $250 million1 $50 Increased quarterly dividend by 20% to $1.03 per share $39.2 Increased share repurchase authorization by $1.0 billion $40 Ingalls Shipbuilding $30 o Completed builder’s trials for Tripoli (LHA 7) $23.0 o Completed external structural work on Stone (NSC 9) $20.7 $21.4 (in (in billions) Newport News Shipbuilding $20 o Achieved 96% structural completion on John F. Kennedy (CVN 79) o Completed the undocking of USS George Washington (CVN 73) $10 Technical Solutions o Awarded U.S. Navy contract to install and provide support for C4ISR and supporting $0 systems to Naval Information Warfare Systems Command 2016 2017 2018 Q3 2019 o Fulcrum IT Services captured a multiple award IDIQ contract from the Defense Intelligence Agency to provide a wide range of analytic and operational support services Focused on executing historic backlog 1 Non-GAAP measure. See appendix for definition and reconciliation.
4 HII Q3 2019 Consolidated Results Exhibit 99.2 Revenues HII’s revenues up 6.5% YOY due to growth at Technical $2,500 $2,219 Solutions driven by recent acquisitions and higher $2,083 volume at Newport News Shipbuilding $2,000 $1,500 HII’s operating income and margin declined YOY due to a lower operating FAS/CAS adjustment and lower $1,000 (in (in millions) segment operating income, primarily due to a $43 million $500 benefit in the prior year related to workers’ compensation $0 Q3 2018 Q3 2019 Operating Income Operating Margin $350 13.9% $290 14.0% $300 12.0% $250 9.6% $214 10.0% $200 8.0% $150 6.0% (in (in millions) $100 4.0% $50 2.0% $0 0.0% Q3 2018 Q3 2019 Q3 2018 Q3 2019
5 HII Q3 2019 Capital Deployment Exhibit 99.2 Cash Flow Generation Shareholder Distributions $363 $400 $160 Total $130 $300 $140 $250 Total $120 $200 $103 $100 $100 $80 $99 $0 $68 $60 (in (in millions) (in millions) ($100) $40 ($93) ($102) ($113) ($200) $20 ($195) $31 $35 ($300) $0 Q3 2018 Q3 2019 Q3 2018 Q3 2019 Cash from Operations CAPEX Free Cash Flow1 Dividends Share Repurchases (at cost) 2 Made capital expenditures, net of related grant proceeds, of $113 million or 5.1% of revenues in the quarter Made cash contributions of $25 million to pension and postretirement benefit plans in the quarter o $16 million were discretionary contributions to our qualified pension plans Distributed $103 million to shareholders in the quarter o Repurchased 322 thousand shares at a cost of $68 million o Paid dividends of $35 million 1Non-GAAP measure. See appendix for definition and reconciliation. 2Includes $2 million for share repurchases not settled as of Sept. 30, 2019.
6 Ingalls Shipbuilding Q3 2019 Results Exhibit 99.2 Revenues Ingalls revenues down YOY due to lower volumes $800 on the NSC and LHA programs $694 $647 $600 Ingalls segment operating income and margin down YOY due to lower risk retirement on the $400 NSC program (in (in millions) $200 $0 Q3 2018 Q3 2019 Segment Operating Income1 Segment Operating Margin1 $90 $82 14.0% $80 11.8% 12.0% $70 $61 9.4% $60 10.0% $50 8.0% $40 6.0% (in (in millions) $30 4.0% $20 $10 2.0% $0 0.0% Q3 2018 Q3 2019 Q3 2018 Q3 2019 1Non-GAAP measure. See appendix for definition and reconciliation.
7 Newport News Shipbuilding Q3 2019 Results Exhibit 99.2 Revenues Newport News revenues up 7.2% YOY due to $1,500 higher volumes in aircraft carriers and submarines $1,264 $1,179 Newport News segment operating income and $1,000 margin down YOY due to a workers’ compensation benefit of $43 million in the prior year, partially $500 (in (in millions) offset by contract changes in the current period for submarine support services $0 Q3 2018 Q3 2019 Segment Operating Income1 Segment Operating Margin1 $140 12.0% $119 10.1% $120 $109 10.0% 8.6% $100 8.0% $80 6.0% $60 (in (in millions) 4.0% $40 $20 2.0% $0 0.0% Q3 2018 Q3 2019 Q3 2018 Q3 2019 1Non-GAAP measure. See appendix for definition and reconciliation.
8 Technical Solutions Q3 2019 Results Exhibit 99.2 Revenues Technical Solutions revenues up 41.6% YOY due $400 to higher mission driven innovative solutions $347 $350 revenues following the acquisitions of G2, Inc. and $300 $245 Fulcrum, as well as higher fleet support and oil $250 and gas services revenues $200 $150 (in (in millions) Technical Solutions segment operating income up $100 YOY primarily due to improved performance on $50 nuclear and environmental contracts $0 Q3 2018 Q3 2019 Segment Operating Income1 Segment Operating Margin1 $25 7.0% 6.5% $21 6.1% 6.0% $20 $16 5.0% $15 4.0% $10 3.0% (in (in millions) 2.0% $5 1.0% $0 0.0% Q3 2018 Q3 2019 Q3 2018 Q3 2019 1Non-GAAP measure. See appendix for definition and reconciliation.
9 2019-2020 Pension Outlook Exhibit 99.2 3 3,4 ($ in millions) 2018 (Actual) 2019 2020 Pension Discount Rate 3.82% 4.34% 3.23% Change from prior N/A Change from prior (111)bps 7.25% 7.25% 7.25% Expected Long-Term Return on Assets N/A N/A CAS Recoveries over/(under) Cash ($91) $217 $193 1,2 Contributions ($20) $90 1 ($91) ($139) ($169) FAS Expense N/A ($54) CAS Expense1 $455 $278 $445 ($20) $169 $364 $139 $276 FAS/CAS Adjustment1 ($20) $115 Operating FAS/CAS Adjustment1 $290 $127 $263 ($20) $135 Non-Operating Retirement $74 $12 $13 (Expense)/Income1 N/A ($20) Pension and Post-retirement Benefits $546 $61 $252 2 Cash Contributions N/A $79 1 Includes pension & other postretirement benefits. 2 2019 projected cash contributions of $61 million include $28 million of discretionary pension contributions ($21 million qualified; $7 million non-qualified) and $33 million of post retirement benefits contributions. 2020 projected cash contributions of $252 million include $216 million of discretionary pension contributions ($212 million qualified; $4 million non-qualified) and $36 million of post retirement benefits contributions. 3 Projected and subject to change during 2019 and 2020. 4 Pension Discount Rate as of August 2019. Assumes 2019 asset returns of approximately 14%.
10 Exhibit 99.2 Appendix
11 Non-GAAP Measures Definitions Exhibit 99.2 We make reference to “segment operating income,” “segment operating 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. 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.
12 Non-GAAP Measures Definitions Cont’d Exhibit 99.2 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. 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.
13 Non-GAAP Reconciliations – Segment Operating Income & Segment Operating Margin Exhibit 99.2 Three Months Ended Nine Months Ended September 30 September 30 ($ in millions) 2019 2018 2019 2018 Ingalls revenues 647 694 1,853 1,908 Newport News revenues 1,264 1,179 3,796 3,444 Technical Solutions revenues 347 245 940 721 Intersegment eliminations (39) (35) (102) (96) Sales and Service Revenues 2,219 2,083 6,487 5,977 Operating Income 214 290 550 738 Operating FAS/CAS Adjustment (23) (73) (94) (218) Non-current state income taxes — — 2 (5) Segment Operating Income 191 217 458 515 As a percentage of sales and service revenues 8.6 % 10.4 % 7.1 % 8.6 % Ingalls operating income 61 82 176 229 As a percentage of Ingalls revenues 9.4 % 11.8 % 9.5 % 12.0 % Newport News operating income 109 119 257 261 As a percentage of Newport News revenues 8.6 % 10.1 % 6.8 % 7.6 % Technical Solutions operating income 21 16 25 25 As a percentage of Technical Solutions revenues 6.1 % 6.5 % 2.7 % 3.5 %
14 Non-GAAP Reconciliations – Free Cash Flow Exhibit 99.2 Three Months Ended Nine Months Ended September 30 September 30 ($ in millions) 2019 2018 2019 2018 Net cash provided by (used in) operating activities 363 (93) 330 266 Less capital expenditures: Capital expenditure additions (115) (116) (349) (293) Grant proceeds for capital expenditures 2 14 71 33 Free cash flow 250 (195) 52 6
Exhibit 99.2