NEWPORT NEWS, Va., Aug.05, 2021(GLOBE NEWSWIRE) -- Huntington Ingalls Industries (NYSE:HII) reported second quarter 2021 revenues of $2.2 billion, up 10.1% from the second quarter of 2020.
Operating income in the second quarter of 2021 was $128 million and operating margin was 5.7%, compared to $57 million and 2.8%, respectively, in the second quarter of 2020. The increases in operating income and operating margin were primarily the result of stronger segment operating results compared to the prior year, partially offset by a less favorable operating FAS/CAS adjustment. The prior year period included unfavorable segment operating income1 impacts related to Virginia-class submarine program performance and COVID-19.
Segment operating income1 in the second quarter of 2021 was $169 million and segment operating margin1 was 7.6%, compared to a segment operating loss of $5 million and (0.2)%, respectively, in the second quarter of 2020. The increases in segment operating income1 and segment operating margin1 were primarily the result of the unfavorable segment operating income1 impacts related to Virginia-class submarine program performance and COVID-19 in the prior year period.
Net earnings in the second quarter of 2021 were $129 million, compared to $53 million in the second quarter of 2020. Diluted earnings per share in the second quarter of 2021 was $3.20, compared to $1.30 in the same period of 2020. Excluding the impacts of pension, adjusted earnings per share1 in the quarter was $3.05, compared to $(0.49) in the same period of 2020.
Second quarter cash from operations was $96 million and free cash flow1 was $23 million, compared to $201 million and $126 million, respectively, in the second quarter of 2020.
New contract awards in the second quarter of 2021 were approximately $1.2 billion, bringing total backlog to approximately $47.7 billion as of June 30, 2021.
“We are pleased with second quarter results that demonstrate another quarter of consistent program execution,” said Mike Petters, HII’s president and CEO. “We recently announced the agreement to acquire Alion Science and Technology, which we believe is a perfect complement to our existing capabilities in the technology-driven defense solutions space. We believe Alion offers significant growth potential and represents an investment in capabilities that are critical to national security now and into the future and will generate significant value for our stakeholders over the long term.”
Results of Operations
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||
| June 30 | June 30 | |||||||||||||||||||||||
| ($ in millions, except per share amounts) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | ||||||||||||||||
| Sales and service revenues | $ | 2,231 | $ | 2,027 | $ | 204 | 10.1 | % | $ | 4,509 | $ | 4,290 | $ | 219 | 5.1 | % | ||||||||
| Operating income | 128 | 57 | 71 | 124.6 | % | 275 | 272 | 3 | 1.1 | % | ||||||||||||||
| Operating margin % | 5.7 | % | 2.8 | % | 293 bps | 6.1 | % | 6.3 | % | (24) bps | ||||||||||||||
| Segment operating income (loss)1 | 169 | (5 | ) | 174 | 3,480.0 | % | 360 | 151 | 209 | 138.4 | % | |||||||||||||
| Segment operating margin %1 | 7.6 | % | (0.2 | ) | % | 782 bps | 8.0 | % | 3.5 | % | 446 bps | |||||||||||||
| Net earnings | 129 | 53 | 76 | 143.4 | % | 277 | 225 | 52 | 23.1 | % | ||||||||||||||
| Diluted earnings per share | $ | 3.20 | $ | 1.30 | $ | 1.90 | 146.2 | % | $ | 6.87 | $ | 5.54 | $ | 1.33 | 24.0 | % | ||||||||
| Pension Adjusted Figures | ||||||||||||||||||||||||
| Net earnings2 | 123 | (20 | ) | 143 | 715.0 | % | 267 | 78 | 189 | 242.3 | % | |||||||||||||
| Diluted earnings per share2 | $ | 3.05 | $ | (0.49 | ) | $ | 3.54 | 722.4 | % | $ | 6.62 | $ | 1.92 | $ | 4.70 | 244.8 | % | |||||||
| 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 | Six Months Ended | ||||||||||||||||||||||
| June 30 | June 30 | ||||||||||||||||||||||
| ($ in millions) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | |||||||||||||||
| Revenues | $ | 670 | $ | 622 | $ | 48 | 7.7 | % | $ | 1,319 | $ | 1,251 | $ | 68 | 5.4 | % | |||||||
| Segment operating income1 | 80 | 55 | 25 | 45.5 | % | 171 | 123 | 48 | 39.0 | % | |||||||||||||
| Segment operating margin %1 | 11.9 | % | 8.8 | % | 310 bps | 13.0 | % | 9.8 | % | 313 bps | |||||||||||||
| 1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. |
Ingalls Shipbuilding revenues for the second quarter of 2021 were $670 million, an increase of $48 million, or 7.7%, from the same period in 2020, primarily driven by higher revenues in the Arleigh Burke-class guided missile (DDG) program and amphibious assault ships, partially offset by lower revenues in the Legend-class National Security Cutter (NSC) program. DDG program revenues increased due to higher volumes on Jack H. Lucas (DDG 125), Jeremiah Denton (DDG 129) and Ted Stevens (DDG 128), partially offset by lower volumes on USS Delbert D. Black (DDG 119) following its delivery and USS Fitzgerald (DDG 62) restoration and modernization following its redelivery. Amphibious assault ship revenues increased due to higher volumes on Pittsburgh (LPD 31), LHA 9 (unnamed) and Bougainville (LHA 8), partially offset by lower volume on Fort Lauderdale (LPD 28). Revenues on the NSC program decreased due to lower volumes on Stone (NSC 9) following its delivery and Calhoun (NSC 10).
Ingalls Shipbuilding segment operating income1 for the second quarter of 2021 was $80 million, an increase of $25 million from the same period last year. Segment operating margin1 in the second quarter of 2021 was 11.9%, compared to 8.8% in the same period last year. The increases were primarily driven by the recognition of a capital investment related incentive for the DDG program on Jack H. Lucas (DDG 125) and higher risk retirement on Bougainville (LHA 8), Richard M. McCool Jr. (LPD 29) and Fort Lauderdale (LPD 28), partially offset by lower risk retirement on USS Delbert D. Black (DDG 119) following its delivery.
1Non-GAAP measure. See Exhibit B for definition and reconciliation.
Key Ingalls Shipbuilding milestones for the quarter:
Newport News Shipbuilding
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30 | June 30 | ||||||||||||||||||||||
| ($ in millions) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | |||||||||||||||
| Revenues | $ | 1,363 | $ | 1,122 | $ | 241 | 21.5 | % | $ | 2,770 | $ | 2,463 | $ | 307 | 12.5 | % | |||||||
| Segment operating income (loss)1 | 76 | (69 | ) | 145 | 210.1 | % | 169 | 26 | 143 | 550.0 | % | ||||||||||||
| Segment operating margin %1 | 5.6 | % | (6.1 | ) | % | 1173 bps | 6.1 | % | 1.1 | % | 505 bps | ||||||||||||
| 1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. |
Newport News Shipbuilding revenues for the second quarter of 2021 were $1.4 billion, an increase of $241 million, or 21.5%, from the same period in 2020, driven primarily by higher revenues in submarine and aircraft carrier construction. Submarine revenues increased primarily as a result of higher volumes on Block IV and Block V boats of the Virginia-class submarine program and the Columbia-class submarine program. Aircraft carrier revenues increased primarily as a result of higher volumes on Enterprise (CVN 80), the refueling and complex overhaul (RCOH) of USS John C. Stennis (CVN 74) and Doris Miller (CVN 81), partially offset by lower volumes on the John F. Kennedy (CVN 79) and the RCOH of USS George Washington (CVN 73).
Newport News Shipbuilding segment operating income1 for the second quarter of 2021 was $76 million, compared to a segment operating loss1 of $69 million for the same period last year. Segment operating margin1 in the second quarter of 2021 was 5.6%, compared to (6.1)% in the same period last year. The increases were primarily due to impacts related to Virginia-class submarine program performance and COVID-19 in the prior year period.
Key Newport News Shipbuilding milestones for the quarter:
1Non-GAAP measure. See Exhibit B for definition and reconciliation.
Technical Solutions
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 30 | June 30 | |||||||||||||||||||||||||
| ($ in millions) | 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||
| Revenues | $ | 237 | $ | 320 | $ | (83 | ) | (25.9 | ) | % | $ | 496 | $ | 637 | (141 | ) | (22.1 | ) | % | |||||||
| Segment operating income1 | 13 | 9 | $ | 4 | 44.4 | % | 20 | 2 | 18 | 900.0 | % | |||||||||||||||
| Segment operating margin %1 | 5.5 | % | 2.8 | % | 267 bps | 4.0 | % | 0.3 | % | 372 bps | ||||||||||||||||
| 1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. |
Technical Solutions revenues for the second quarter of 2021 were $237 million, a decrease of $83 million from the same period in 2020, due to the divestiture of our oil and gas business and contribution of the San Diego Shipyard to a joint venture earlier this year, as well as lower volumes in Unmanned Systems, partially offset by higher volumes in Defense & Federal Solutions.
Technical Solutions segment operating income1 for the second quarter of 2021 was $13 million, compared to $9 million in the second quarter of 2020. Segment operating margin1 in the second quarter of 2021 was 5.5%, compared to 2.8% in the same period last year. The increases were primarily driven by higher equity income related to our ship repair joint venture with Titan, as well as improved performance at Defense & Federal Solutions and Nuclear & Environmental Services, partially offset by the lower volume in Unmanned Systems.
Key Technical Solutions milestones for the quarter:
About Huntington Ingalls Industries
Huntington Ingalls Industries is America’s largest military shipbuilding company and a provider of professional services to partners in government and industry. For more than a century, HII’s Newport News and Ingalls shipbuilding divisions in Virginia and Mississippi have built more ships in more ship classes than any other U.S. naval shipbuilder. HII’s Technical Solutions division supports national security missions around the globe with unmanned systems, defense and federal solutions, and nuclear and environmental services. Headquartered in Newport News, Virginia, HII employs approximately 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. 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, Aug. 12 by calling toll-free (877) 344-7529 or (412) 317-0088 and using conference ID 10158203.
1Non-GAAP measure. See Exhibit B for definition and reconciliation.
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; our ability to complete the acquisition of Alion Science and Technology and integrate its operations 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 EndedJune 30 | Six Months Ended June 30 | |||||||||||||||
| (in millions, except per share amounts) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Sales and service revenues | ||||||||||||||||
| Product sales | $ | 1,763 | $ | 1,420 | $ | 3,484 | $ | 3,044 | ||||||||
| Service revenues | 468 | 607 | 1,025 | 1,246 | ||||||||||||
| Sales and service revenues | 2,231 | 2,027 | 4,509 | 4,290 | ||||||||||||
| Cost of sales and service revenues | ||||||||||||||||
| Cost of product sales | 1,495 | 1,253 | 2,949 | 2,543 | ||||||||||||
| Cost of service revenues | 414 | 510 | 896 | 1,060 | ||||||||||||
| Income from operating investments, net | 12 | 7 | 20 | 13 | ||||||||||||
| Other income and gains | (2 | ) | — | 1 | — | |||||||||||
| General and administrative expenses | 204 | 214 | 410 | 428 | ||||||||||||
| Operating income | 128 | 57 | 275 | 272 | ||||||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | (18 | ) | (25 | ) | (39 | ) | (41 | ) | ||||||||
| Non-operating retirement benefit | 44 | 30 | 90 | 60 | ||||||||||||
| Other, net | 7 | 3 | 8 | (10 | ) | |||||||||||
| Earnings before income taxes | 161 | 65 | 334 | 281 | ||||||||||||
| Federal and foreign income taxes | 32 | 12 | 57 | 56 | ||||||||||||
| Net earnings | $ | 129 | $ | 53 | $ | 277 | $ | 225 | ||||||||
| Basic earnings per share | $ | 3.20 | $ | 1.30 | $ | 6.87 | $ | 5.54 | ||||||||
| Weighted-average common shares outstanding | 40.3 | 40.7 | 40.3 | 40.6 | ||||||||||||
| Diluted earnings per share | $ | 3.20 | $ | 1.30 | $ | 6.87 | $ | 5.54 | ||||||||
| Weighted-average diluted shares outstanding | 40.3 | 40.7 | 40.3 | 40.6 | ||||||||||||
| Dividends declared per share | $ | 1.14 | $ | 1.03 | $ | 2.28 | $ | 2.06 | ||||||||
| Net earnings from above | $ | 129 | $ | 53 | $ | 277 | $ | 225 | ||||||||
| Other comprehensive income | ||||||||||||||||
| Change in unamortized benefit plan costs | 30 | 23 | 59 | 46 | ||||||||||||
| Other | — | 1 | 2 | (1 | ) | |||||||||||
| Tax expense for items of other comprehensive income | (8 | ) | (6 | ) | (15 | ) | (12 | ) | ||||||||
| Other comprehensive income , net of tax | 22 | 18 | 46 | 33 | ||||||||||||
| Comprehensive income | $ | 151 | $ | 71 | $ | 323 | $ | 258 |
HUNTINGTON INGALLS INDUSTRIES, INC.CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
| ($ in millions) | June 30,2021 | December 31,2020 | ||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 348 | $ | 512 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $2 million as of 2021 and 2020 | 443 | 397 | ||||||
| Contract assets | 1,182 | 1,049 | ||||||
| Inventoried costs, net | 139 | 137 | ||||||
| Income taxes receivable | 141 | 171 | ||||||
| Assets held for sale | — | 133 | ||||||
| Prepaid expenses and other current assets | 64 | 45 | ||||||
| Total current assets | 2,317 | 2,444 | ||||||
| Property, Plant, and Equipment, net of accumulated depreciation of $2,075 million as of 2021 and$2,024 million as of 2020 | 3,004 | 2,978 | ||||||
| Other Assets | ||||||||
| Operating lease assets | 208 | 192 | ||||||
| Goodwill | 1,604 | 1,617 | ||||||
| Other intangible assets, net of accumulated amortization of $681 million as of 2021 and $655 million asof 2020 | 499 | 512 | ||||||
| Deferred tax assets | 86 | 133 | ||||||
| Miscellaneous other assets | 414 | 281 | ||||||
| Total other assets | 2,811 | 2,735 | ||||||
| Total assets | $ | 8,132 | $ | 8,157 |
HUNTINGTON INGALLS INDUSTRIES, INC.CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) (continued)
| ($ in millions) | June 30,2021 | December 31,2020 | ||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current Liabilities | ||||||||
| Trade accounts payable | $ | 349 | $ | 460 | ||||
| Accrued employees’ compensation | 305 | 293 | ||||||
| Current portion of postretirement plan liabilities | 133 | 133 | ||||||
| Current portion of workers’ compensation liabilities | 229 | 225 | ||||||
| Contract liabilities | 660 | 585 | ||||||
| Liabilities held for sale | — | 68 | ||||||
| Other current liabilities | 447 | 462 | ||||||
| Total current liabilities | 2,123 | 2,226 | ||||||
| Long-term debt | 1,689 | 1,686 | ||||||
| Pension plan liabilities | 853 | 960 | ||||||
| Other postretirement plan liabilities | 393 | 401 | ||||||
| Workers’ compensation liabilities | 519 | 511 | ||||||
| Long-term operating lease liabilities | 170 | 157 | ||||||
| Other long-term liabilities | 318 | 315 | ||||||
| Total liabilities | 6,065 | 6,256 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock, $0.01 par value; 150 million shares authorized; 53.4 million shares issued and 40.2million shares outstanding as of June 30, 2021, and 53.3 million shares issued and 40.5 million sharesoutstanding as of December 31, 2020 | 1 | 1 | ||||||
| Additional paid-in capital | 1,977 | 1,972 | ||||||
| Retained earnings | 3,718 | 3,533 | ||||||
| Treasury stock | (2,128 | ) | (2,058 | ) | ||||
| Accumulated other comprehensive loss | (1,501 | ) | (1,547 | ) | ||||
| Total stockholders’ equity | 2,067 | 1,901 | ||||||
| Total liabilities and stockholders’ equity | $ | 8,132 | $ | 8,157 |
HUNTINGTON INGALLS INDUSTRIES, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Six Months Ended June 30 | |||||||
| ($ in millions) | 2021 | 2020 | |||||
| Operating Activities | |||||||
| Net earnings | $ | 277 | $ | 225 | |||
| Adjustments to reconcile to net cash provided by (used in) operating activities | |||||||
| Depreciation | 102 | 92 | |||||
| Amortization of purchased intangibles | 26 | 26 | |||||
| Amortization of debt issuance costs | 3 | 3 | |||||
| Provision for doubtful accounts | — | 6 | |||||
| Stock-based compensation | 12 | 13 | |||||
| Deferred income taxes | 31 | 21 | |||||
| Loss (gain) on investments in marketable securities | (12 | ) | 5 | ||||
| Change in | |||||||
| Accounts receivable | (45 | ) | (167 | ) | |||
| Contract assets | (127 | ) | (63 | ) | |||
| Inventoried costs | (3 | ) | (13 | ) | |||
| Prepaid expenses and other assets | (29 | ) | (4 | ) | |||
| Accounts payable and accruals | (32 | ) | 172 | ||||
| Retiree benefits | (70 | ) | (50 | ) | |||
| Other non-cash transactions, net | 6 | 3 | |||||
| Net cash provided by operating activities | 139 | 269 | |||||
| Investing Activities | |||||||
| Capital expenditures | |||||||
| Capital expenditure additions | (134 | ) | (150 | ) | |||
| Grant proceeds for capital expenditures | 2 | 9 | |||||
| Acquisitions of businesses, net of cash received | — | (378 | ) | ||||
| Investment in affiliates | (22 | ) | — | ||||
| Proceeds from disposition of business | 20 | — | |||||
| Net cash used in investing activities | (134 | ) | (519 | ) |
HUNTINGTON INGALLS INDUSTRIES, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)
| Six Months Ended June 30 | |||||||
| ($ in millions) | 2021 | 2020 | |||||
| Financing Activities | |||||||
| Proceeds from issuance of long-term debt | — | 1,000 | |||||
| Proceeds from revolving credit facility borrowings | — | 385 | |||||
| Repayment of revolving credit facility borrowings | — | (385 | ) | ||||
| Debt issuance costs | — | (13 | ) | ||||
| Dividends paid | (92 | ) | (84 | ) | |||
| Repurchases of common stock | (70 | ) | (84 | ) | |||
| Employee taxes on certain share-based payment arrangements | (7 | ) | (13 | ) | |||
| Net cash provided by (used in) financing activities | (169 | ) | 806 | ||||
| Change in cash and cash equivalents | (164 | ) | 556 | ||||
| Cash and cash equivalents, beginning of period | 512 | 75 | |||||
| Cash and cash equivalents, end of period | $ | 348 | $ | 631 | |||
| Supplemental Cash Flow Disclosure | |||||||
| Cash paid for income taxes (net of refunds) | $ | 21 | $ | 23 | |||
| Cash paid for interest | $ | 37 | $ | 32 | |||
| Non-Cash Investing and Financing Activities | |||||||
| Capital expenditures accrued in accounts payable | $ | 5 | $ | 5 |
Exhibit B: Non-GAAP Measures Definitions & Reconciliations
We make reference to "segment operating income (loss)," "segment operating margin," "adjusted net earnings," "adjusted diluted earnings per share" and "free cash flow."
We internally manage our operations by reference to segment operating income and segment operating margin, which are not recognized measures under GAAP. When analyzing our operating performance, investors should use segment operating income and segment operating margin in addition to, and not as alternatives for, operating income and operating margin or any other performance measure presented in accordance with GAAP. They are measures that we use to evaluate our core operating performance. We believe that segment operating income and segment operating margin reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. We believe these measures are used by investors and are a useful indicator to measure our performance. Because not all companies use identical calculations, our presentation of segment operating income and segment operating margin may not be comparable to similarly titled measures of other companies.
Adjusted net earnings and adjusted diluted earnings per share are not measures recognized under GAAP. They should be considered supplemental to and not a substitute for financial information prepared in accordance with GAAP. We believe these measures are useful to investors because they exclude items that do not reflect our core operating performance. They may not be comparable to similarly titled measures of other companies.
Free cash flow is not a measure recognized under GAAP. Free cash flow has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, analysis of our results as reported under GAAP. We believe free cash flow is an important measure for our investors because it provides them insight into our current and period-to-period performance and our ability to generate cash from continuing operations. We also use free cash flow as a key operating metric in assessing the performance of our business and as a key performance measure in evaluating management performance and determining incentive compensation. Free cash flow may not be comparable to similarly titled measures of other companies.
Segment operating income (loss) is defined as operating income (loss) for the relevant segment(s) before the Operating FAS/CAS Adjustment and non-current state income taxes.
Segment operating margin is defined as segment operating income (loss) as a percentage of sales and service revenues.
Adjusted net earnings is defined as net earnings adjusted for the after-tax impact of the FAS/CAS Adjustment.
Adjusted diluted earnings per share is defined as adjusted net earnings divided by the weighted-average diluted common shares outstanding.
Free cash flow is defined as net cash provided by (used in) operating activities less capital expenditures net of related grant proceeds.
FAS/CAS Adjustment is defined as the difference between expenses for pension and other postretirement benefits determined in accordance with GAAP (FAS) and the expenses determined in accordance with U.S. Cost Accounting Standards (CAS).
Operating FAS/CAS Adjustment is defined as the difference between the service cost component of our pension and other postretirement expense determined in accordance with GAAP (FAS) and our pension and other postretirement expense under U.S. Cost Accounting Standards (CAS).
Non-current state income taxes are defined as deferred state income taxes, which reflect the change in deferred state tax assets and liabilities and the tax expense or benefit associated with changes in state uncertain tax positions in the relevant period. These amounts are recorded within operating income. Current period state income tax expense is charged to contract costs and included in cost of sales and service revenues in segment operating income.
We present financial measures adjusted for the Operating FAS/CAS Adjustment and non-current state income taxes to reflect the company’s performance based upon the pension costs and state tax expense charged to our contracts under CAS. We use these adjusted measures as internal measures of operating performance and for performance-based compensation decisions.
Reconciliations of Segment Operating Income (Loss) and Segment Operating Margin
| Three Months Ended | Six Months Ended | |||||||||||||||||||
| June 30 | June 30 | |||||||||||||||||||
| ($ in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||
| Ingalls revenues | $ | 670 | $ | 622 | $ | 1,319 | $ | 1,251 | ||||||||||||
| Newport News revenues | 1,363 | 1,122 | 2,770 | 2,463 | ||||||||||||||||
| Technical Solutions revenues | 237 | 320 | 496 | 637 | ||||||||||||||||
| Intersegment eliminations | (39 | ) | (37 | ) | (76 | ) | (61 | ) | ||||||||||||
| Sales and Service Revenues | 2,231 | 2,027 | 4,509 | 4,290 | ||||||||||||||||
| Operating Income | 128 | 57 | 275 | 272 | ||||||||||||||||
| Operating FAS/CAS Adjustment | 37 | (63 | ) | 77 | (126 | ) | ||||||||||||||
| Non-current state income taxes | 4 | 1 | 8 | 5 | ||||||||||||||||
| Segment Operating Income (Loss) | 169 | (5 | ) | 360 | 151 | |||||||||||||||
| As a percentage of sales and service revenues | 7.6 | % | (0.2 | ) | % | 8.0 | % | 3.5 | % | |||||||||||
| Ingalls segment operating income | 80 | 55 | 171 | 123 | ||||||||||||||||
| As a percentage of Ingalls revenues | 11.9 | % | 8.8 | % | 13.0 | % | 9.8 | % | ||||||||||||
| Newport News segment operating income (loss) | 76 | (69 | ) | 169 | 26 | |||||||||||||||
| As a percentage of Newport News revenues | 5.6 | % | (6.1 | ) | % | 6.1 | % | 1.1 | % | |||||||||||
| Technical Solutions segment operating income | 13 | 9 | 20 | 2 | ||||||||||||||||
| As a percentage of Technical Solutions revenues | 5.5 | % | 2.8 | % | 4.0 | % | 0.3 | % |
Reconciliation of Adjusted Net Earnings and Adjusted Diluted Earnings Per Share
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30 | June 30 | |||||||||||||||
| ($ in millions, except per share amounts) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Net earnings | $ | 129 | $ | 53 | $ | 277 | $ | 225 | ||||||||
| After-tax FAS/CAS Adjustment(1) | (6 | ) | (73 | ) | (10 | ) | (147 | ) | ||||||||
| Adjusted Net Earnings | $ | 123 | $ | (20 | ) | $ | 267 | $ | 78 | |||||||
| Diluted earnings per share | $ | 3.20 | $ | 1.30 | $ | 6.87 | $ | 5.54 | ||||||||
| After-tax FAS/CAS Adjustment per share(1) | (0.15 | ) | (1.79 | ) | (0.25 | ) | (3.62 | ) | ||||||||
| Adjusted Diluted EPS** | $ | 3.05 | $ | (0.49 | ) | $ | 6.62 | $ | 1.92 | |||||||
| (1) FAS/CAS Adjustment | $ | (7 | ) | $ | (93 | ) | $ | (13 | ) | $ | (186 | ) | ||||
| Tax effect* | (1 | ) | (20 | ) | (3 | ) | (39 | ) | ||||||||
| After-tax impact | (6 | ) | (73 | ) | $ | (10 | ) | $ | (147 | ) | ||||||
| Weighted-average diluted shares outstanding | 40.3 | 40.7 | 40.3 | 40.6 | ||||||||||||
| Per share impact after tax-impact** | $ | (0.15 | ) | $ | (1.79 | ) | $ | (0.25 | ) | $ | (3.62 | ) | ||||
| *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
| Six Months Ended | ||||||||
| June 30 | ||||||||
| ($ in millions) | 2021 | 2020 | ||||||
| Net cash provided by operating activities | $ | 139 | $ | 269 | ||||
| Less capital expenditures: | ||||||||
| Capital expenditure additions | (134 | ) | (150 | ) | ||||
| Grant proceeds for capital expenditures | 2 | 9 | ||||||
| Free cash flow | $ | 7 | $ | 128 |
Contacts:
Jerri Fuller Dickseski (Media)jerri.dickseski@hii-co.com757-380-2341
Dwayne Blake (Investors)dwayne.blake@hii-co.com757-380-2104
