Huntington Ingalls Industries Reports Fourth Quarter and Full Year 2020 Results
· Revenues were $2.8 billion in the quarter; $9.4 billion in 2020
· Operating margin was 11.1% in the quarter; 8.5% in 2020
· Diluted earnings per share was $6.15 in the quarter, $17.14 in 2020
· Cash from operations was $1.1 billion, and free cash flow^1 was $757 million in 2020
· Backlog of $46.0 billion at year endNEWPORT NEWS, Va., Feb. 11, 2021 (GLOBE NEWSWIRE) -- Huntington Ingalls Industries (NYSE:HII) reported fourth quarter 2020 revenues of $2.8 billion, up 14.3% from the fourth quarter of 2019. Operating income in the quarter was $305 million and operating margin was 11.1%, compared to $186 million and 7.7%, respectively, in the fourth quarter of 2019. Diluted earnings per share in the quarter was $6.15, compared to $3.61 in the same period of 2019.
For the full year, revenues of $9.4 billion increased 5.2% over 2019. Operating income in 2020 was $799 million and operating margin was 8.5%, compared to $736 million and 8.3%, respectively, in 2019. Diluted earnings per share for the full year was $17.14, compared to $13.26 in 2019.
Cash from operations in 2020 was $1.1 billion and free cash flow^1 was $757 million, compared to $896 million and $460 million, respectively, in 2019.
New contract awards in the quarter were approximately $3.5 billion, bringing total backlog to approximately $46.0 billion as of Dec. 31, 2020.
“2020 will be remembered as one of the most challenging business environments that we have ever had to navigate. Throughout the COVID-19 pandemic, we have made decisions that are focused on the safety and well being of our employees, and I could not be prouder of the way our team responded to the challenges. We enter 2021 as a stronger and more agile company with positive momentum and an enormous opportunity in front of us to leverage our $46 billion backlog to drive long-term, sustainable value creation,” said Mike Petters, HII’s president and CEO.
*2021 Financial Outlook*
· Expect FY21 shipbuilding revenue^1 between $8.2 and $8.4 billion; and shipbuilding operating margin^1 between 7.0% and 8.0%
· Expect FY21 Technical Solutions revenue of approximately $1.0 billion and segment operating margin^1 between 3.0% and 5.0%
· Expect FY21 free cash flow^1 between $150 and $250 million
· Expect cumulative FY20-FY24 free cash flow^1 of approximately $3 billion
*Results of Operations*
*Three Months Ended* *Year Ended* *December 31* *December 31*
($ in millions, except per share amounts) *2020* *2019* *$ Change* *% Change* *2020* *2019* *$ Change* *% Change*
Sales and service revenues *$* *2,757* $ 2,412 $ 345 14.3 % *$* *9,361* $ 8,899 $ 462 5.2 %
Operating income *305* 186 119 64.0 % *799* 736 63 8.6 %
Operating margin % *11.1* *%* 7.7 % 335 bps *8.5* *%* 8.3 % 26 bps
Segment operating income^1 *242* 173 69 39.9 % *555* 631 (76 ) (12.0 ) %
Segment operating margin %^1 *8.8* *%* 7.2 % 161 bps *5.9* *%* 7.1 % (116) bps
Net earnings *249* 149 100 67.1 % *696* 549 147 26.8 %
Diluted earnings per share *$* *6.15* $ 3.61 $ 2.54 70.4 % *$* *17.14* $ 13.26 $ 3.88 29.3 %
*Pension Adjusted Figures*
Net earnings^2 *176* 122 54 44.3 % *406* 442 (36 ) (8.1 ) %
Diluted earnings per share^2 *$* *4.35* $ 2.96 $ 1.39 47.0 % *$* *10.00* $ 10.66 $ (0.66 ) (6.2 ) %
^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 reconciliation.
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*Segment Operating Results*
Ingalls Shipbuilding
*Three Months Ended* *Year Ended* *December 31* *December 31*
($ in millions) *2020* *2019* *$ Change* *% Change* *2020* *2019* *$ Change* *% Change*
Revenues *$* *752* $ 702 $ 50 7.1 % *$* *2,678* $ 2,555 $ 123 4.8 %
Segment operating income^1 *96* 59 37 62.7 % *281* 235 46 19.6 %
Segment operating margin %^1 *12.8* *%* 8.4 % 436 bps *10.5* *%* 9.2 % 130 bps
^1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.
Ingalls Shipbuilding revenues for the fourth quarter of 2020 were $752 million, an increase of $50 million, or 7.1%, from the same period in 2019, primarily driven by higher revenues in surface combatants and amphibious assault ships, partially offset by lower revenues in the Legend-class National Security Cutter (NSC) program. Surface combatant revenues increased due to higher volumes on Jeremiah Denton (DDG 129), Ted Stevens (DDG 128), Sam Nunn (DDG 133), and John F. Lehman (DDG 137), partially offset by lower volumes on the re-delivered USS Fitzgerald (DDG 62) restoration and modernization. Amphibious assault ship revenues increased as a result of higher volumes on Pittsburgh (LPD 31) and Harrisburg (LPD 30), partially offset by lower volume on the delivered USS Tripoli (LHA 7). Revenues on the Legend-class NSC program decreased due to lower volumes on Friedman (NSC 11) and Calhoun (NSC 10), partially offset by higher volume on the delivered Stone (NSC 9).Ingalls Shipbuilding segment operating income for the fourth quarter was $96 million, an increase of $37 million from the same period last year. Segment operating margin in the quarter was 12.8%, compared to 8.4% in the same period last year. These increases were primarily driven by higher risk retirement across all programs.
For the full year, Ingalls Shipbuilding revenues were $2.7 billion, an increase of $123 million, or 4.8%, from 2019, primarily driven by higher revenues in surface combatants and amphibious assault ships, partially offset by lower revenues in the Legend-class NSC program. Surface combatant revenues increased due to higher volumes on Ted Stevens (DDG 128), Jeremiah Denton (DDG 129), Delbert D. Black (DDG 119), Sam Nunn (DDG 133), George M. Neal (DDG 131), and Thad Cochran (DDG 135), partially offset by lower volumes on USS Fitzgerald (DDG 62) restoration and modernization, Paul Ignatius (DDG 117), Frank E. Petersen Jr. (DDG 121), and Jack H. Lucas (DDG 125). Amphibious assault ship revenues increased as a result of higher volumes on Harrisburg (LPD 30), Pittsburgh (LPD 31), LHA 9 (unnamed), Fort Lauderdale (LPD 28), and Richard M. McCool Jr. (LPD 29), partially offset by lower volumes on Tripoli (LHA 7), LPD life cycle services, and Bougainville (LHA 8). Revenues on the Legend-class NSC program decreased due to lower volumes on Midgett (NSC 8) and Friedman (NSC 11), partially offset by higher volume on Calhoun (NSC 10).
For the full year, Ingalls Shipbuilding segment operating income was $281 million, compared to $235 million in 2019. The increase was primarily driven by higher risk retirement on Delbert D. Black (DDG 119) in connection with its delivery and a capital expenditure contract incentive, as well as higher risk retirement and improved performance on Tripoli (LHA 7) and Richard M. McCool Jr. (LPD 29), partially offset by unfavorable adjustments across programs, including delay and disruption related to COVID-19.
Key Ingalls Shipbuilding milestones for the quarter:
· Delivered Legend-class National Security Cutter Stone (NSC 9)Newport News Shipbuilding
*Three Months Ended* *Year Ended* *December 31* *December 31*
($ in millions) *2020* *2019* *$ Change* *% Change* *2020* *2019* *$ Change* *% Change*
Revenues *$* *1,750* $ 1,399 $ 351 25.1 % *$* *5,571* $ 5,231 $ 340 6.5 %
Segment operating income^1 *128* 137 (9 ) (6.6 ) % *233* 410 (177 ) (43.2 ) %
Segment operating margin %^1 *7.3* *%* 9.8 % (248) bps *4.2* *%* 7.8 % (366) bps
^1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.
Newport News Shipbuilding revenues for the fourth quarter of 2020 were $1.8 billion, an increase of $351 million, or 25.1%, from the same period in 2019, driven primarily by higher revenues in aircraft carrier construction and refueling and complex overhaul (RCOH), and submarine construction, as well as fleet support services. Aircraft carrier revenues increased primarily as a result of higher volumes on Enterprise (CVN 80) and Doris Miller (CVN 81), and the advance planning contract for the RCOH of USS John C. Stennis (CVN 74), partially offset by lower volumes on John F. Kennedy (CVN 79), USS Gerald R. Ford (CVN 78), and the RCOH of USS George Washington (CVN 73). Submarine revenues increased primarily as a result of higher volumes on Block V boats of the Virginia-class program (VCS) and the Columbia-class program, partially offset by lower volumes on Block III and Block IV boats of the Virginia-class program.Newport News Shipbuilding segment operating income for the fourth quarter was $128 million, compared to operating income of $137 million for the same period last year. Segment operating margin was 7.3% for the quarter, compared to 9.8% in the same period last year, primarily due to lower risk retirement on the Virginia-class submarine program. Additionally, results in the same period last year benefited from the award of the VCS Block V contract, as well as contract actions related to work on Los Angeles-class submarines.
For the full year, Newport News Shipbuilding revenues were $5.6 billion, an increase of $340 million, or 6.5%, from 2019, primarily driven by higher revenues in aircraft carriers, submarines, and naval nuclear support services. Aircraft carrier revenues increased primarily as a result of higher volumes on Enterprise (CVN 80), the RCOH of USS John C. Stennis (CVN 74), and Doris Miller (CVN 81), partially offset by lower volumes on the RCOH of USS George Washington (CVN 73), John F. Kennedy (CVN 79), and USS Gerald R. Ford (CVN 78). Submarine revenues increased primarily as a result of higher volumes on the Virginia-class submarine program and the Columbia-class submarine program. The higher volume on the Virginia-class submarine program was due to higher volumes on Block V boats, partially offset by lower volumes on Block III and Block IV boats. Naval nuclear support service revenues increased primarily as a result of higher volumes in carrier fleet support services.
For the full year, Newport News Shipbuilding segment operating income was $233 million, a decrease of $177 million from 2019, primarily due to unfavorable cumulative catch-up adjustments in the second quarter on Block IV
boats of the Virginia-class submarine program.
Key Newport News Shipbuilding milestones for the quarter:
· Awarded a $2.2 billion construction contract for six module sections for each of the first two Columbia-class submarines
· Authenticated the keel of Virginia-class submarine Massachusetts (SSN 798)
· John F. Kennedy (CVN 79) is approximately 78% complete
· RCOH of USS George Washington (CVN 73) is approximately 85% complete
Technical Solutions
*Three Months Ended* *Year Ended* *December 31* *December 31*
($ in millions) *2020* *2019* *$ Change* *% Change* *2020* *2019* *$ Change* *% Change*
Revenues *$* *311* $ 350 $ (39 ) (11.1 ) % *$* *1,268* $ 1,237 31 2.5 %
Segment operating income^1 *18* (23 ) $ 41 178.3 % *41* (14 ) 55 (392.9 ) %
Segment operating margin %^1 *5.8* *%* (6.6 ) % 1236 bps *3.2* *%* (1.1 ) % 437 bps
^1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.
Technical Solutions revenues for the fourth quarter of 2020 were $311 million, a decrease of $39 million from the same period in 2019, primarily driven by lower revenue at our oil and gas reporting unit, as well as lower revenue at the San Diego Shipyard due to the conclusion of several repair contracts, partially offset by the acquisition of Hydroid in March 2020.Technical Solutions segment operating income for the fourth quarter was $18 million, compared to a segment operating loss of $23 million in the fourth quarter of 2019. The increase was primarily driven by a goodwill impairment at our oil and gas reporting unit and a loss on a fleet support services contract, both recorded in the prior year period.
For the full year, Technical Solutions revenues were $1.3 billion, an increase of $31 million, or 2.5%, from 2019, primarily due to the acquisition of Hydroid in 2020, partially offset by lower volume at our San Diego Shipyard due to the conclusion of several repair contracts.
For the full year, Technical Solutions segment operating income was $41 million, compared to an operating loss of $14 million in 2019. The increase was primarily due to a goodwill impairment at our oil and gas reporting unit and a loss on a fleet support services contract in 2019, as well as higher equity income from our nuclear and environmental joint ventures and improved performance in our Defense and Federal Solutions business unit.
Key Technical Solutions milestones for the quarter:
· Acquired the autonomy business of Spatial Integrated Systems Inc. The acquisition further expands HII’s unmanned systems capabilities with a highly skilled team and proven unmanned surface vessel solutions
· Delivered new REMUS 100 Unmanned Underwater Vehicles to the German Navy. The vehicles will be used to expand the German Navy’s current fleet of REMUS 100 UUVs used for mine countermeasure operations
*2021 Outlook*
The 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.
The COVID-19 global pandemic has had wide ranging effects on the global health environment and disrupted the global and U.S. economies and financial markets, including impacts to our employees, customers, suppliers, and communities. The pandemic is also impacting our operations, and the full impacts of COVID-19 on our fiscal year 2021 financial results and beyond are uncertain. We believe that the most significant elements of uncertainty are the intensity and duration of the impact on our employees’ ability to work effectively, disruption in our supply chain, disruption of the U.S. Government's and our other customers' abilities to perform their obligations, and impact on pension assets and other investment performance.
We have incurred and expect to continue incurring costs related to our COVID-19 response, including paid leave, quarantining employees and recurring facility cleaning. While our shipyards and other facilities remain
open and productive, we experienced temporary decreases in workforce attendance, which impacted our operations due to delay and disruption from the lack of availability of critical skills and out-of-sequence work. As of December 31, 2020, workforce attendance has returned to standard rates.
For further information on the potential impact of COVID-19 to the company, see “Risk Factors” in our 2020 Form 10-K.
*2021 *
*Outlook*
Shipbuilding Revenue^1 $8.2B - $8.4B
Shipbuilding Operating Margin^1 7.0% - 8.0%
Technical Solutions Revenue^2 ~$1.0B
Technical Solutions Segment Operating Margin^1,2 3.0% - 5.0%
Technical Solutions EBITDA Margin^1,2 7.0% - 9.0%
Operating FAS/CAS Adjustment ($163M)
Non-current State Income Tax Expense ~($5M)
Interest Expense ($72M)
Non-operating Retirement Benefit $181M
Effective Tax Rate ~22%
Depreciation & Amortization ~$260M
Capital Expenditures ~3.5% of Sales
Free Cash Flow^1 $150M - $250M
^1 Non-GAAP measures. See Exhibit B for definitions.
^2 Includes results for the month of January 2021 for Universal Pegasus International and the San Diego Shipyard.
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*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 more than 42,000 people operating both domestically and internationally. For more information, please visit www.huntingtoningalls.com.
*Conference Call Information*
Huntington Ingalls Industries will webcast its earnings conference call at 9 a.m. 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, February 18 by calling toll-free (877) 344-7529 or (412) 317-0088 and using conference ID 10150920.
*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; 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.*
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*Exhibit A: Financial Statements*
*HUNTINGTON INGALLS INDUSTRIES, INC.*
*CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME *
*Year Ended December 31*
(in millions, except per share amounts) *2020* *2019* *2018*
Sales and service revenues
Product sales *$* *6,850* $ 6,265 $ 6,023
Service revenues *2,511* 2,634 2,153
Sales and service revenues *9,361* 8,899 8,176
Cost of sales and service revenues
Cost of product sales *5,621* 5,158 4,627
Cost of service revenues *2,070* 2,210 1,758
Income from operating investments, net *32* 22 17
Other income and gains *1* — 14
General and administrative expenses *904* 788 871
Goodwill impairment *—* 29 —
Operating income *799* 736 951
Other income (expense)
Interest expense *(114* *)* (70 ) (58 )
Non-operating retirement benefit *119* 12 74
Other, net *6* 5 4
Earnings before income taxes *810* 683 971
Federal and foreign income taxes *114* 134 135
Net earnings *$* *696* $ 549 $ 836
Basic earnings per share *$* *17.14* $ 13.26 $ 19.09
Weighted-average common shares outstanding *40.6* 41.4 43.8
Diluted earnings per share *$* *17.14* $ 13.26 $ 19.09
Weighted-average diluted shares outstanding *40.6* 41.4 43.8
Dividends declared per share *$* *4.23* $ 3.61 $ 3.02
Net earnings from above *$* *696* $ 549 $ 836
Other comprehensive income
Change in unamortized benefit plan costs *(187* *)* (167 ) (232 )
Other *2* 3 (2 )
Tax expense for items of other comprehensive income *47* 43 59
Other comprehensive income (loss), net of tax *(138* *)* (121 ) (175 )
Comprehensive income *$* *558* $ 428 $ 661
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*HUNTINGTON INGALLS INDUSTRIES, INC.*
*CONSOLIDATED STATEMENTS OF FINANCIAL POSITION *
($ in millions) *December 31,*
*2020* *December 31,*
*2019*
*Assets*
*Current Assets*
Cash and cash equivalents *$* *512* $ 75
Accounts receivable, net of allowance for doubtful accounts of $2 million as of 2020 and $3 million as of 2019 *397* 318
Contract assets *1,049* 989
Inventoried costs, net *137* 136
Income taxes receivable *171* 148
Assets held for sale *133* 95
Prepaid expenses and other current assets *45* 24
Total current assets *2,444* 1,785
*Property, Plant, and Equipment*
Land and land improvements *309* 282
Buildings and leasehold improvements *2,442* 2,384
Machinery and other equipment *2,017* 1,909
Capitalized software costs *234* 218 *5,002* 4,793
Accumulated depreciation and amortization *(2,024* *)* (1,961 )
Property, Plant, and Equipment *2,978* 2,832
*Other Assets*
Operating lease assets *192* 201
Goodwill *1,617* 1,373
Other intangible assets, net of accumulated amortization of $655 million as of 2020 and $599 million as of 2019 *512* 492
Deferred tax assets *133* 108
Miscellaneous other assets *281* 240
Total other assets *2,735* 2,414
*Total assets* *$* *8,157* $ 7,031
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*HUNTINGTON INGALLS INDUSTRIES, INC.*
*CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)*
($ in millions) *December 31,*
*2020* *December 31,*
*2019*
*Liabilities and Stockholders' Equity*
*Current Liabilities*
Trade accounts payable *$* *460* $ 497
Accrued employees’ compensation *293* 265
Current portion of postretirement plan liabilities *133* 130
Current portion of workers’ compensation liabilities *225* 225
Contract liabilities *585* 373
Liabilities held for sale *68* 77
Other current liabilities *462* 323
Total current liabilities *2,226* 1,890
Long-term debt *1,686* 1,286
Pension plan liabilities *960* 975
Other postretirement plan liabilities *401* 380
Workers’ compensation liabilities *511* 457
Long-term operating lease liabilities *157* 164
Other long-term liabilities *315* 291
Total liabilities *6,256* 5,443
*Commitments and Contingencies*
*Stockholders’ Equity*
Common stock, $0.01 par value; 150 million shares authorized; 53.3 million shares issued and 40.5 million shares outstanding as of December 31, 2020, and 53.2 million shares issued and 40.8 million shares outstanding as of December 31, 2019 *1* 1
Additional paid-in capital *1,972* 1,961
Retained earnings *3,533* 3,009
Treasury stock *(2,058* *)* (1,974 )
Accumulated other comprehensive loss *(1,547* *)* (1,409 )
Total stockholders’ equity *1,901* 1,588
*Total liabilities and stockholders’ equity* *$* *8,157* $ 7,031
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*HUNTINGTON INGALLS INDUSTRIES, INC.*
*CONSOLIDATED STATEMENTS OF CASH FLOWS *
*Year Ended December 31*
($ in millions) *2020* *2019* *2018*
*Operating Activities*
Net earnings *$* *696* $ 549 $ 836
Adjustments to reconcile to net cash provided by (used in) operating activities
Depreciation *191* 180 167
Amortization of purchased intangibles *56* 47 36
Amortization of debt issuance costs *7* 3 4
Provision for doubtful accounts *(1* *)* (6 ) (4 )
Stock-based compensation *23* 30 36
Deferred income taxes *23* 97 10
Goodwill impairment *—* 29 —
Loss on early extinguishment of debt *21* — —
Loss (gain) on investments in marketable securities *(17* *)* (11 ) —
Asset impairments *13* 6 —
Change in
Accounts receivable *(70* *)* (51 ) 195
Contract assets *22* 32 (242 )
Inventoried costs *11* (11 ) 40
Prepaid expenses and other assets *(62* *)* (93 ) (40 )
Accounts payable and accruals *344* 4 335
Retiree benefits *(176* *)* 80 (454 )
Other non-cash transactions, net *12* 11 (5 )
Net cash provided by operating activities *1,093* 896 914
*Investing Activities*
Capital expenditures
Capital expenditure additions *(353* *)* (530 ) (463 )
Grant proceeds for capital expenditures *17* 94 61
Acquisitions of businesses, net of cash received *(417* *)* (195 ) (77 )
Investment in affiliates *—* — (10 )
Proceeds from disposition of assets *—* — 13
Other investing activities, net *(6* *)* 4 —
Net cash used in investing activities *(759* *)* (627 ) (476 )
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*HUNTINGTON INGALLS INDUSTRIES, INC.*
*CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)*
*Year Ended December 31*
($ in millions) *2020* *2019* *2018*
*Financing Activities*
Proceeds from issuance of long-term debt *1,000* — —
Repayment of long-term debt *(600* *)* — —
Proceeds from line of credit borrowings *385* 5,119 95
Repayment of line of credit borrowings *(385* *)* (5,119 ) (95 )
Debt issuance costs *(13* *)* — —
Premiums and fees related to early extinguishment of debt *(15* *)* — —
Dividends paid *(172* *)* (149 ) (132 )
Repurchases of common stock *(84* *)* (262 ) (742 )
Employee taxes on certain share-based payment arrangements *(13* *)* (23 ) (25 )
Net cash provided by (used in) financing activities *103* (434 ) (899 )
Change in cash and cash equivalents *437* (165 ) (461 )
Cash and cash equivalents, beginning of period *75* 240 701
Cash and cash equivalents, end of period *$* *512* $ 75 $ 240
*Supplemental Cash Flow Disclosure*
Cash paid for income taxes *$* *155* $ 137 $ 142
Cash paid for interest *$* *89* $ 75 $ 62
*Non-Cash Investing and Financing Activities*
Capital expenditures accrued in accounts payable *$* *7* $ 22 $ 55
Accrued repurchases of common stock *$* *—* $ — $ 48
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*Exhibit B: Non-GAAP Measures Definitions & Reconciliations*
We make reference to "segment operating income," "segment operating margin," "shipbuilding revenue," "shipbuilding operating margin," "Technical Solutions EBITDA 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, segment operating margin and shipbuilding 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.
Shipbuilding revenue, shipbuilding operating margin and Technical Solutions EBITDA margin are not measures recognized under GAAP. They should be considered supplemental to and not a substitute for financial information prepared in accordance with GAAP. 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.
*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.
*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.
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*Reconciliations of Segment Operating Income and Segment Operating Margin* *Three Months Ended* *Year Ended* *December 31* *December 31*
($ in millions) *2020* *2019* *2020* *2019*
Ingalls revenues *$* *752* $ 702 *$* *2,678* $ 2,555
Newport News revenues *1,750* 1,399 *5,571* 5,231
Technical Solutions revenues *311* 350 *1,268* 1,237
Intersegment eliminations *(56* *)* (39 ) *(156* *)* (124 )
*Sales and Service Revenues* *2,757* 2,412 *9,361* 8,899
*Operating Income* *305* 186 *799* 736
Operating FAS/CAS Adjustment *(62* *)* (30 ) *(248* *)* (124 )
Non-current state income taxes *(1* *)* 17 *4* 19
*Segment Operating Income* *242* 173 *555 * 631
As a percentage of sales and service revenues 8.8 % 7.2 % 5.9 % 7.1 %
Ingalls segment operating income *96* 59 *281* 235
As a percentage of Ingalls revenues 12.8 % 8.4 % 10.5 % 9.2 %
Newport News segment operating income *128* 137 *233* 410
As a percentage of Newport News revenues 7.3 % 9.8 % 4.2 % 7.8 %
Technical Solutions segment operating income *18* (23 ) *41* (14 )
As a percentage of Technical Solutions revenues 5.8 % (6.6 ) % 3.2 % (1.1 ) %
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*
*Reconciliation of Adjusted Net Earnings and Adjusted Diluted Earnings Per Share*
*Three Months Ended* *Year Ended* *December 31* *December 31*
($ in millions, except per share amounts) *2020* *2019* *2020* *2019*
Net earnings *$* *249* $ 149 *$* *696* $ 549
After-tax FAS/CAS adjustment^(1) *(73* *)* (27 ) *(290* *)* (107 )
*Adjusted Net Earnings * *$* *176* $ 122 *$* *406* $ 442
Diluted earnings per share *$* *6.15* $ 3.61 *$* *17.14* $ 13.26
After-tax FAS/CAS adjustment per share^(1) *(1.80* *)* (0.65 ) *(7.14* *)* (2.60 )
*Adjusted Diluted EPS*** *$* *4.35* $ 2.96 *$* *10.00* $ 10.66
*(1) FAS/CAS Adjustment* *$* *(92* *)* $ (34 ) *$* *(367* *)* $ (136 )
Tax effect* *(19* *)* (7 ) *(77* *)* (29 )
After-tax impact *(73* *)* (27 ) *$* *(290* *)* $ (107 )
Weighted-average diluted shares outstanding *40.5* 41.3 *40.6* 41.4
Per share impact** *$* *(1.80* *)* $ (0.65 ) *$* *(7.14* *)* $ (2.60 )
*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.
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*Reconciliation of Free Cash Flow*
*Three Months Ended* *Year Ended* *December 31* *December 31*
($ in millions) *2020* *2019* *2020* *2019*
Net cash provided by operating activities *$* *602* $ 566 *$* *1,093* $ 896
Less capital expenditures:
Capital expenditure additions *(133* *)* (181 ) *(353* *)* (530 )
Grant proceeds for capital expenditures *—* 23 *17* 94
Free cash flow *$* *469* $ 408 *$* *757* $ 460
Contacts:
Jerri Fuller Dickseski (Media)
jerri.dickseski@hii-co.com
757-380-2341
Dwayne Blake (Investors)
dwayne.blake@hii-co.com
757-380-2104