NEWPORT NEWS, Va., Nov.04, 2021(GLOBE NEWSWIRE) -- Huntington Ingalls Industries (NYSE:HII) reported third quarter 2021 revenues of $2.3 billion, up 1.0% from the third quarter of 2020.
Operating income in the third quarter of 2021 was $118 million and operating margin was 5.0%, compared to $222 million and 9.6%, respectively, in the third quarter of 2020. The decreases in operating income and operating margin were primarily the result of a less favorable operating FAS/CAS adjustment.
Segment operating income1 in the third quarter of 2021 was $163 million and segment operating margin1 was 7.0%, compared to segment operating income1 of $162 million and segment operating margin1 of 7.0% in the third quarter of 2020.
Net earnings in the third quarter of 2021 were $147 million, compared to $222 million in the third quarter of 2020. Diluted earnings per share in the third quarter of 2021 was $3.65, compared to $5.45 in the same period of 2020. Third quarter 2021 results included approximately $15 million of non-recurring, pre-tax transaction expenses related to the acquisition of Alion. Excluding the impacts of pension, adjusted earnings per share1 in the quarter was $3.58, compared to $3.73 in the same period of 2020.
Third quarter cash from operations was $350 million and free cash flow1 was $277 million, compared to $222 million and $160 million, respectively, in the third quarter of 2020.
New contract awards in the third quarter of 2021 were approximately $600 million, bringing total backlog to approximately $50.1 billion as of Sept. 30, 2021.
“We are pleased with the third quarter results that represent another quarter of consistent shipbuilding program execution while we continue to navigate the challenges posed by the COVID-19 pandemic,” said Mike Petters, HII’s president and CEO. "During the quarter we closed the acquisition of Alion Science and Technology, and as we work to integrate it into our Technical Solutions division, we remain very excited about the significant growth avenues across the combined business that we believe will drive significant long-term value creation."
1 Non-GAAP measure. See Exhibit B for definitions and reconciliations.
| Results of Operations | |||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||
| September 30 | September 30 | ||||||||||||||||||||||||||
| ($ in millions, except per share amounts) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | |||||||||||||||||||
| Sales and service revenues | $ | 2,338 | $ | 2,314 | $ | 24 | 1.0 | % | $ | 6,847 | $ | 6,604 | $ | 243 | 3.7 | % | |||||||||||
| Operating income | 118 | 222 | (104 | ) | (46.8 | ) | % | 393 | 494 | (101 | ) | (20.4 | ) | % | |||||||||||||
| Operating margin % | 5.0 | % | 9.6 | % | (455) bps | 5.7 | % | 7.5 | % | (174) bps | |||||||||||||||||
| Segment operating income1 | 163 | 162 | 1 | 0.6 | % | 523 | 313 | 210 | 67.1 | % | |||||||||||||||||
| Segment operating margin %1 | 7.0 | % | 7.0 | % | (3) bps | 7.6 | % | 4.7 | % | 290 bps | |||||||||||||||||
| Net earnings | 147 | 222 | (75 | ) | (33.8 | ) | % | 424 | 447 | (23 | ) | (5.1 | ) | % | |||||||||||||
| Diluted earnings per share | $ | 3.65 | $ | 5.45 | $ | (1.80 | ) | (33.0 | ) | % | $ | 10.52 | $ | 10.98 | $ | (0.46 | ) | (4.2 | ) | % | |||||||
| Pension Adjusted Earnings | |||||||||||||||||||||||||||
| Adjusted Net earnings2 | 144 | 152 | (8 | ) | (5.3 | ) | % | 411 | 230 | 181 | 78.7 | % | |||||||||||||||
| Adjusted Diluted earnings per share2 | $ | 3.58 | $ | 3.73 | $ | (0.15 | ) | (4.0 | ) | % | $ | 10.20 | $ | 5.65 | $ | 4.55 | 80.5 | % | |||||||||
| 1 Non-GAAP measures that exclude non-segment factors affecting operating income. See Exhibit B for definitions and reconciliations. | |||||||||||||||||||||||||||
| 2 Non-GAAP measures that exclude the impacts of the FAS/CAS Adjustment. See Exhibit B for definition and reconciliation. |
| Segment Operating Results | |||||||||||||||||||||||||
| Ingalls Shipbuilding | |||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||
| September 30 | September 30 | ||||||||||||||||||||||||
| ($ in millions) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | |||||||||||||||||
| Revenues | $ | 628 | $ | 675 | $ | (47 | ) | (7.0 | ) | % | $ | 1,947 | $ | 1,926 | $ | 21 | 1.1 | % | |||||||
| Segment operating income1 | 62 | 62 | — | — | % | 233 | 185 | 48 | 25.9 | % | |||||||||||||||
| Segment operating margin %1 | 9.9 | % | 9.2 | % | 69 bps | 12.0 | % | 9.6 | % | 236 bps | |||||||||||||||
| 1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. | |||||||||||||||||||||||||
Ingalls Shipbuilding revenues for the third quarter of 2021 were $628 million, a decrease of $47 million, or 7.0%, from the same period in 2020, primarily driven by lower revenues in the Legend-class National Security Cutter (NSC) program, the Arleigh Burke-class guided missile (DDG) program and amphibious assault ships. Revenues on the NSC program decreased due to lower volumes on Stone (NSC 9) following its delivery. DDG program revenues decreased due to lower volumes on Ted Stevens (DDG 128) and USS Delbert D. Black (DDG 119) following its delivery, partially offset by higher volumes on Jack H. Lucas (DDG 125). Revenues on amphibious assault ships decreased due to lower volumes on Bougainville (LHA 8), partially offset by higher volumes on LHA 9 (unnamed).
Ingalls Shipbuilding segment operating income1 for the third quarter of 2021 was $62 million, in line with segment operating income1 of $62 million from the same period in 2020. Segment operating margin1 in the third quarter of 2021 was 9.9%, compared to 9.2% in the same period last year. The increase in segment operating margin1 was primarily driven by the recognition of an incentive on the DDG program, as well as higher risk retirement on the San Antonio-class amphibious transport dock (LPD) program, partially offset by lower risk retirement on the NSC program.
1Non-GAAP measure. See Exhibit B for definitions and reconciliations.
Key Ingalls Shipbuilding milestones for the quarter:
| Newport News Shipbuilding | |||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||
| September 30 | September 30 | ||||||||||||||||||||||||
| ($ in millions) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | |||||||||||||||||
| Revenues | $ | 1,354 | $ | 1,358 | $ | (4 | ) | (0.3 | ) | % | $ | 4,124 | $ | 3,821 | $ | 303 | 7.9 | % | |||||||
| Segment operating income1 | 88 | 79 | 9 | 11.4 | % | 257 | 105 | 152 | 144.8 | % | |||||||||||||||
| Segment operating margin %1 | 6.5 | % | 5.8 | % | 68 bps | 6.2 | % | 2.7 | % | 348 bps | |||||||||||||||
| 1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. | |||||||||||||||||||||||||
Newport News Shipbuilding revenues for the third quarter of 2021 were $1.4 billion, a decrease of $4 million, or 0.3%, from the same period in 2020, primarily driven by lower revenues in naval nuclear support services, partially offset by higher revenues in submarines and aircraft carriers. Naval nuclear support service revenues decreased primarily as a result of lower volumes in submarine fleet support services and facility maintenance services, partially offset by higher volumes in carrier fleet support services. Submarine revenues increased due to higher volumes in Block V boats of the Virginia-class submarine (VCS) program, submarine support services and the Columbia-class submarine program, partially offset by lower volumes in Block IV boats of the VCS program. 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) and Enterprise (CVN 80), partially offset by lower volumes on the RCOH of USS George Washington (CVN 73) and the construction of John F. Kennedy (CVN 79).
Newport News Shipbuilding segment operating income1 for the third quarter of 2021 was $88 million, an increase of $9 million from the same period in 2020. Segment operating margin1 in the third quarter of 2021 was 6.5%, compared to 5.8% in the same period last year. The increases were primarily due to higher risk retirement on the RCOH of USS George Washington (CVN 73), and Block IV boats of the VCS program, partially offset by lower risk retirement on naval nuclear support services.
Key Newport News Shipbuilding milestones for the quarter:
1Non-GAAP measure. See Exhibit B for definitions and reconciliations.
| Technical Solutions | ||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30 | September 30 | |||||||||||||||||||||||||
| ($ in millions) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||
| Revenues | $ | 394 | $ | 320 | $ | 74 | 23.1 | % | $ | 890 | $ | 957 | (67 | ) | (7.0 | ) | % | |||||||||
| Segment operating income1 | 13 | 21 | $ | (8 | ) | (38.1 | ) | % | 33 | 23 | 10 | 43.5 | % | |||||||||||||
| Segment operating margin %1 | 3.3 | % | 6.6 | % | (326) bps | 3.7 | % | 2.4 | % | 130 bps | ||||||||||||||||
| 1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. | ||||||||||||||||||||||||||
Technical Solutions revenues for the third quarter of 2021 were $394 million, an increase of $74 million from the same period in 2020. The increase was due primarily to the acquisition of Alion, partially offset by the divestiture of our oil and gas business and contribution of the San Diego Shipyard to a joint venture in the first quarter of this year. The acquisition of Alion closed on Aug. 19, 2021, and third quarter 2021 results include approximately $163 million of revenue attributable to Alion.
Technical Solutions segment operating income1 for the third quarter of 2021 was $13 million, compared to $21 million in the third quarter of 2020. Segment operating margin1 in the third quarter of 2021 was 3.3%, compared to6.6% in the same period last year. The decrease was primarily driven by the inclusion of approximately $8 million of Alion related purchase intangible amortization, as well as lower performance in Defense and Federal Solutions, the divestiture of our oil and gas business, and the contribution of our San Diego Shipyard to a joint venture in the first quarter of this year. Third quarter 2021 results include approximately $4 million of segment operating income1 attributable to Alion, net of the aforementioned purchase intangible amortization.
Key Technical Solutions milestones for the quarter:
1Non-GAAP measure. See Exhibit B for definitions and reconciliations.
2021 Outlook1
| PriorOutlook3 | CurrentOutlook4 | ||
| Shipbuilding Revenue2 | $8.2B - $8.4B | ~$8.2B | |
| Shipbuilding Operating Margin2 | 7.5% - 8.0% | 7.5% - 8.0% | |
| Technical Solutions Revenue | ~$1.0B | ~1.4B | |
| Technical Solutions Segment Operating Margin2 | 3.0% - 5.0% | ~2.5% | |
| Technical Solutions EBITDA Margin2 | 7.0% - 9.0% | ~8.0% | |
| Operating FAS/CAS Adjustment | ($163M) | ($157M) | |
| Non-current State Income Tax Expense | ~($5M) | ~($15M) | |
| Interest Expense | ($72M) | ($87M) | |
| Non-operating Retirement Benefit | $181M | $181M | |
| Effective Tax Rate | ~22% | ~13% | |
| Depreciation & Amortization | ~$260M | ~$302M | |
| Capital Expenditures | ~3.5% of Sales | ~3.5% of Sales | |
| Free Cash Flow2 | $150M - $250M | $300M - $350M |
1The financial outlook, expectations and other forward looking statements provided by the company for 2021 and beyond reflect the company's judgment based on the information available at the time of this release.2 Non-GAAP measures. See Exhibit B for definitions.3 Prior outlook for Technical Solutions includes results for the month of January 2021 for Universal Pegasus International and the San Diego Shipyard, and excludes results for Alion Science and Technology.4 Current outlook for Technical Solutions includes results for the month of January 2021 for Universal Pegasus International and the San Diego Shipyard, and includes results for Alion Science and Technology as of the close of the acquisition on Aug. 19, 2021, inclusive of incremental purchase intangible amortization.
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 mission-critical national security solutions to government and commercial customers worldwide. Headquartered in Newport News, Virginia, HII employs about 44,000 people operating both domestically and internationally. For more information, please visit www.huntingtoningalls.com.
Conference Call Information
Huntington Ingalls Industries will webcast its earnings conference call at 9 a.m. Eastern time today. A live audio broadcast of the conference call and supplemental presentation will be available on the investor relations page of the company’s website: www.huntingtoningalls.com. A telephone replay of the conference call will be available from noon today through Thursday, Nov. 11 by calling toll-free (877) 344-7529 or (412) 317-0088 and using conference ID 10160786.
Forward-Looking Statements
Statements in this release, other than statements of historical fact, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements. Factors that may cause such differences include: changes in government and customer priorities and requirements (including government budgetary constraints, shifts in defense spending, and changes in customer short-range and long-range plans); our ability to estimate our future contract costs and perform our contracts effectively; changes in procurement processes and government regulations and our ability to comply with such requirements; our ability to deliver our products and services at an affordable life cycle cost and compete within our markets; natural and environmental disasters and political instability; our ability to execute our strategic plan, including with respect to share repurchases, dividends, capital expenditures and strategic acquisitions; adverse economic conditions in the United States and globally; health epidemics, pandemics and similar outbreaks, including the COVID-19 pandemic, and the impacts of vaccination mandates on our workforce; our ability to effectively integrate the operations of Alion Science and Technology into our business; 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 (UNAUDITED) | ||||||||||||||||
| Three Months EndedSeptember 30 | Nine Months Ended September 30 | |||||||||||||||
| (in millions, except per share amounts) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Sales and service revenues | ||||||||||||||||
| Product sales | $ | 1,701 | $ | 1,699 | $ | 5,185 | $ | 4,743 | ||||||||
| Service revenues | 637 | 615 | 1,662 | 1,861 | ||||||||||||
| Sales and service revenues | 2,338 | 2,314 | 6,847 | 6,604 | ||||||||||||
| Cost of sales and service revenues | ||||||||||||||||
| Cost of product sales | 1,453 | 1,388 | 4,402 | 3,931 | ||||||||||||
| Cost of service revenues | 554 | 490 | 1,450 | 1,550 | ||||||||||||
| Income from operating investments, net | 11 | 6 | 31 | 19 | ||||||||||||
| Other income and gains | 2 | — | 3 | — | ||||||||||||
| General and administrative expenses | 226 | 220 | 636 | 648 | ||||||||||||
| Operating income | 118 | 222 | 393 | 494 | ||||||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | (24 | ) | (27 | ) | (63 | ) | (68 | ) | ||||||||
| Non-operating retirement benefit | 45 | 29 | 135 | 89 | ||||||||||||
| Other, net | 2 | 2 | 10 | (8 | ) | |||||||||||
| Earnings before income taxes | 141 | 226 | 475 | 507 | ||||||||||||
| Federal and foreign income tax expense (benefit) | (6 | ) | 4 | 51 | 60 | |||||||||||
| Net earnings | $ | 147 | $ | 222 | $ | 424 | $ | 447 | ||||||||
| Basic earnings per share | $ | 3.65 | $ | 5.47 | $ | 10.52 | $ | 11.01 | ||||||||
| Weighted-average common shares outstanding | 40.3 | 40.6 | 40.3 | 40.6 | ||||||||||||
| Diluted earnings per share | $ | 3.65 | $ | 5.45 | $ | 10.52 | $ | 10.98 | ||||||||
| Weighted-average diluted shares outstanding | 40.3 | 40.7 | 40.3 | 40.7 | ||||||||||||
| Dividends declared per share | $ | 1.14 | $ | 1.03 | $ | 3.42 | $ | 3.09 | ||||||||
| Net earnings from above | $ | 147 | $ | 222 | $ | 424 | $ | 447 | ||||||||
| Other comprehensive income | ||||||||||||||||
| Change in unamortized benefit plan costs | 43 | 24 | 102 | 70 | ||||||||||||
| Other | (1 | ) | 1 | 1 | — | |||||||||||
| Tax expense for items of other comprehensive income | (11 | ) | (6 | ) | (26 | ) | (18 | ) | ||||||||
| Other comprehensive income , net of tax | 31 | 19 | 77 | 52 | ||||||||||||
| Comprehensive income | $ | 178 | $ | 241 | $ | 501 | $ | 499 |
| HUNTINGTON INGALLS INDUSTRIES, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) | ||||||||
| ($ in millions) | September 30,2021 | December 31,2020 | ||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 555 | $ | 512 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $2 million as of 2021 and 2020 | 446 | 397 | ||||||
| Contract assets | 1,363 | 1,049 | ||||||
| Inventoried costs, net | 143 | 137 | ||||||
| Income taxes receivable | 221 | 171 | ||||||
| Assets held for sale | — | 133 | ||||||
| Prepaid expenses and other current assets | 66 | 45 | ||||||
| Total current assets | 2,794 | 2,444 | ||||||
| Property, Plant, and Equipment, net of accumulated depreciation of $2,105 million as of 2021 and $2,024 million as of 2020 | 3,043 | 2,978 | ||||||
| Other Assets | ||||||||
| Operating lease assets | 246 | 192 | ||||||
| Goodwill | 2,684 | 1,617 | ||||||
| Other intangible assets, net of accumulated amortization of $702 million as of 2021 and $655 million as of 2020 | 1,187 | 512 | ||||||
| Deferred tax assets | 10 | 133 | ||||||
| Miscellaneous other assets | 436 | 281 | ||||||
| Total other assets | 4,563 | 2,735 | ||||||
| Total assets | $ | 10,400 | $ | 8,157 |
| HUNTINGTON INGALLS INDUSTRIES, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) (continued) | ||||||||
| ($ in millions) | September 30,2021 | December 31,2020 | ||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current Liabilities | ||||||||
| Trade accounts payable | $ | 508 | $ | 460 | ||||
| Accrued employees’ compensation | 367 | 293 | ||||||
| Current portion of postretirement plan liabilities | 131 | 133 | ||||||
| Current portion of workers’ compensation liabilities | 231 | 225 | ||||||
| Contract liabilities | 674 | 585 | ||||||
| Liabilities held for sale | — | 68 | ||||||
| Other current liabilities | 533 | 462 | ||||||
| Total current liabilities | 2,444 | 2,226 | ||||||
| Long-term debt | 3,321 | 1,686 | ||||||
| Pension plan liabilities | 833 | 960 | ||||||
| Other postretirement plan liabilities | 379 | 401 | ||||||
| Workers’ compensation liabilities | 522 | 511 | ||||||
| Long-term operating lease liabilities | 198 | 157 | ||||||
| Deferred tax liabilities | 154 | — | ||||||
| Other long-term liabilities | 360 | 315 | ||||||
| Total liabilities | 8,211 | 6,256 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock, $0.01 par value; 150 million shares authorized; 53.4 million shares issued and 40.1 million shares outstanding as of September 30, 2021, and 53.3 million shares issued and 40.5 million shares outstanding as of December 31, 2020 | 1 | 1 | ||||||
| Additional paid-in capital | 1,984 | 1,972 | ||||||
| Retained earnings | 3,819 | 3,533 | ||||||
| Treasury stock | (2,145 | ) | (2,058 | ) | ||||
| Accumulated other comprehensive loss | (1,470 | ) | (1,547 | ) | ||||
| Total stockholders’ equity | 2,189 | 1,901 | ||||||
| Total liabilities and stockholders’ equity | $ | 10,400 | $ | 8,157 |
| HUNTINGTON INGALLS INDUSTRIES, INC. | |||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | |||||||
| Nine Months Ended September 30 | |||||||
| ($ in millions) | 2021 | 2020 | |||||
| Operating Activities | |||||||
| Net earnings | $ | 424 | $ | 447 | |||
| Adjustments to reconcile to net cash provided by (used in) operating activities | |||||||
| Depreciation | 154 | 136 | |||||
| Amortization of purchased intangibles | 48 | 41 | |||||
| Amortization of debt issuance costs | 6 | 5 | |||||
| Provision for doubtful accounts | — | (2 | ) | ||||
| Stock-based compensation | 19 | 16 | |||||
| Deferred income taxes | 74 | (7 | ) | ||||
| Loss (gain) on investments in marketable securities | (12 | ) | (3 | ) | |||
| Asset impairments | — | 13 | |||||
| Change in | |||||||
| Accounts receivable | 52 | (164 | ) | ||||
| Contract assets | (179 | ) | (63 | ) | |||
| Inventoried costs | (7 | ) | (5 | ) | |||
| Prepaid expenses and other assets | (116 | ) | (60 | ) | |||
| Accounts payable and accruals | 93 | 315 | |||||
| Retiree benefits | (73 | ) | (183 | ) | |||
| Other non-cash transactions, net | 6 | 5 | |||||
| Net cash provided by operating activities | 489 | 491 | |||||
| Investing Activities | |||||||
| Capital expenditures | |||||||
| Capital expenditure additions | (216 | ) | (220 | ) | |||
| Grant proceeds for capital expenditures | 11 | 17 | |||||
| Acquisitions of businesses, net of cash received | (1,636 | ) | (377 | ) | |||
| Investment in affiliates | (22 | ) | — | ||||
| Proceeds from disposition of business | 20 | — | |||||
| Other investing activities, net | 1 | (6 | ) | ||||
| Net cash used in investing activities | (1,842 | ) | (586 | ) |
| HUNTINGTON INGALLS INDUSTRIES, INC. | |||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued) | |||||||
| Nine Months Ended September 30 | |||||||
| ($ in millions) | 2021 | 2020 | |||||
| Financing Activities | |||||||
| Proceeds from issuance of long-term debt | 1,650 | 1,000 | |||||
| Proceeds from revolving credit facility borrowings | — | 385 | |||||
| Repayment of revolving credit facility borrowings | — | (385 | ) | ||||
| Debt issuance costs | (22 | ) | (13 | ) | |||
| Dividends paid | (138 | ) | (126 | ) | |||
| Repurchases of common stock | (87 | ) | (84 | ) | |||
| Employee taxes on certain share-based payment arrangements | (7 | ) | (13 | ) | |||
| Net cash provided by (used in) financing activities | 1,396 | 764 | |||||
| Change in cash and cash equivalents | 43 | 669 | |||||
| Cash and cash equivalents, beginning of period | 512 | 75 | |||||
| Cash and cash equivalents, end of period | $ | 555 | $ | 744 | |||
| Supplemental Cash Flow Disclosure | |||||||
| Cash paid for income taxes (net of refunds) | $ | 31 | $ | 106 | |||
| Cash paid for interest | $ | 39 | $ | 33 | |||
| Non-Cash Investing and Financing Activities | |||||||
| Capital expenditures accrued in accounts payable | $ | 4 | $ | 8 | |||
Exhibit B: Non-GAAP Measures Definitions & Reconciliations
We make reference to “segment operating income,” “segment operating margin,” “pension adjusted diluted earnings per share,” “shipbuilding revenue,” “shipbuilding operating margin,” “Technical Solutions 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, Technical Solutions EBITDA margin and pension adjusted diluted earnings per share are not measures recognized under GAAP. They are measures that we use to evaluate our core operating performance. We believe that shipbuilding revenue, shipbuilding operating margin, Technical Solutions EBITDA margin and pension adjusted diluted earnings per share 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, 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.
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.
Technical Solutions EBITDA margin is defined as Technical Solutions segment operating income before interest expense, income taxes, depreciation, and amortization as a percentage of Technical Solutions revenues.
Pension adjusted net earnings is defined as net earnings adjusted for the after-tax impact of the FAS/CAS Adjustment.
Pension adjusted diluted earnings per share is defined as adjusted net earnings divided by the weighted-average diluted common shares outstanding.
Free cash flow is defined as net cash provided by (used in) operating activities less capital expenditures net of related grant proceeds.
FAS/CAS Adjustment is defined as the difference between expenses for pension and other postretirement benefits determined in accordance with GAAP (FAS) and the expenses determined in accordance with U.S. Cost Accounting Standards (CAS).
Operating FAS/CAS Adjustment is defined as the difference between the service cost component of our pension and other postretirement expense determined in accordance with GAAP (FAS) and our pension and other postretirement expense under U.S. Cost Accounting Standards (CAS).
Non-current state income taxes are defined as deferred state income taxes, which reflect the change in deferred state tax assets and liabilities and the tax expense or benefit associated with changes in state uncertain tax positions in the relevant period. These amounts are recorded within operating income. Current period state income tax expense is charged to contract costs and included in cost of sales and service revenues in segment operating income.
We present financial measures adjusted for the Operating FAS/CAS Adjustment and non-current state income taxes to reflect the company’s performance based upon the pension costs and state tax expense charged to our contracts under CAS. We use these adjusted measures as internal measures of operating performance and for performance-based compensation decisions.
| Reconciliations of Segment Operating Income and Segment Operating Margin | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30 | September 30 | |||||||||||||||
| ($ in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Ingalls revenues | $ | 628 | $ | 675 | $ | 1,947 | $ | 1,926 | ||||||||
| Newport News revenues | 1,354 | 1,358 | 4,124 | 3,821 | ||||||||||||
| Technical Solutions revenues | 394 | 320 | 890 | 957 | ||||||||||||
| Intersegment eliminations | (38 | ) | (39 | ) | (114 | ) | (100 | ) | ||||||||
| Sales and Service Revenues | 2,338 | 2,314 | 6,847 | 6,604 | ||||||||||||
| Operating Income | 118 | 222 | 393 | 494 | ||||||||||||
| Operating FAS/CAS Adjustment | 41 | (60 | ) | 118 | (186 | ) | ||||||||||
| Non-current state income taxes | 4 | — | 12 | 5 | ||||||||||||
| Segment Operating Income | 163 | 162 | 523 | 313 | ||||||||||||
| As a percentage of sales and service revenues | 7.0 | % | 7.0 | % | 7.6 | % | 4.7 | % | ||||||||
| Ingalls segment operating income | 62 | 62 | 233 | 185 | ||||||||||||
| As a percentage of Ingalls revenues | 9.9 | % | 9.2 | % | 12.0 | % | 9.6 | % | ||||||||
| Newport News segment operating income | 88 | 79 | 257 | 105 | ||||||||||||
| As a percentage of Newport News revenues | 6.5 | % | 5.8 | % | 6.2 | % | 2.7 | % | ||||||||
| Technical Solutions segment operating income | 13 | 21 | 33 | 23 | ||||||||||||
| As a percentage of Technical Solutions revenues | 3.3 | % | 6.6 | % | 3.7 | % | 2.4 | % |
| Reconciliation of Pension Adjusted Net Earnings and Pension Adjusted Diluted Earnings Per Share | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30 | September 30 | |||||||||||||||
| (in millions, except per share amounts) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Net earnings | $ | 147 | $ | 222 | $ | 424 | $ | 447 | ||||||||
| After-tax FAS/CAS Adjustment(1) | (3 | ) | (70 | ) | (13 | ) | (217 | ) | ||||||||
| Pension Adjusted Net Earnings | $ | 144 | $ | 152 | $ | 411 | $ | 230 | ||||||||
| Diluted earnings per share | $ | 3.65 | $ | 5.45 | $ | 10.52 | $ | 10.98 | ||||||||
| After-tax FAS/CAS Adjustment per share(1) | (0.07 | ) | (1.72 | ) | (0.32 | ) | (5.33 | ) | ||||||||
| Adjusted Diluted EPS** | $ | 3.58 | $ | 3.73 | $ | 10.20 | $ | 5.65 | ||||||||
| (1) FAS/CAS Adjustment | $ | (4 | ) | $ | (89 | ) | $ | (17 | ) | $ | (275 | ) | ||||
| Tax effect* | (1 | ) | (19 | ) | (4 | ) | (58 | ) | ||||||||
| After-tax impact | $ | (3 | ) | $ | (70 | ) | $ | (13 | ) | $ | (217 | ) | ||||
| Weighted-average diluted shares outstanding | 40.3 | 40.7 | 40.3 | 40.7 | ||||||||||||
| Per share after-tax impact** | $ | (0.07 | ) | $ | (1.72 | ) | $ | (0.32 | ) | $ | (5.33 | ) | ||||
| *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 | ||||||||
| Nine Months Ended | ||||||||
| September 30 | ||||||||
| ($ in millions) | 2021 | 2020 | ||||||
| Net cash provided by operating activities | $ | 489 | $ | 491 | ||||
| Less capital expenditures: | ||||||||
| Capital expenditure additions | (216 | ) | (220 | ) | ||||
| Grant proceeds for capital expenditures | 11 | 17 | ||||||
| Free cash flow | $ | 284 | $ | 288 | ||||
Contacts:
Brooke Hart (Media)brooke.hart@hii-co.com202-264-7108
Dwayne Blake (Investors)dwayne.blake@hii-co.com 757-380-2104
