Huntington Ingalls Industries, Inc 8-K, filed Nov 5, 2020
Huntington Ingalls Industries, Inc. (HII)
8-K
2020-11-05
For: 2020-11-05
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Added on
April 08, 2026
About this 8-K
Huntington Ingalls Industries, Inc filed this 8-K on November 5, 2020.
Items reported
- Item 2.02: Financial results
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________
FORM 8-K
_____________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
_____________________________________
(Exact name of registrant as specified in its charter)
_____________________________________
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
(757 ) 380-2000
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |||||
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |||||
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |||||
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02. | Results of Operations and Financial Condition. | ||||
On November 5, 2020, Huntington Ingalls Industries, Inc. issued a press release announcing its financial results for the quarter ended September 30, 2020. A copy of the press release is furnished as Exhibit 99.1 hereto. Also furnished as Exhibit 99.2 is the corporation’s earnings presentation for the third quarter 2020 earnings release conference call.
| Item 9.01. | Financial Statements and Exhibits. | ||||
| (d) | Exhibits. | ||||
| Exhibit No. | Description | |||||||
| 99.1 | ||||||||
| 99.2 | ||||||||
| 104 | Cover Page Interactive Data File (embedded within Inline XBRL document) | |||||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| HUNTINGTON INGALLS INDUSTRIES, INC. | ||||||||||||||||||||
| Date: November 5, 2020 | By: | /s/ Christopher D. Kastner | ||||||||||||||||||
| Christopher D. Kastner | ||||||||||||||||||||
| Executive Vice President and Chief Financial Officer | ||||||||||||||||||||
 | Exhibit 99.1 News Release | |||||||
Contacts:
Jerri Fuller Dickseski (Media)
jerri.dickseski@hii-co.com
757-380-2341
Dwayne Blake (Investors)
dwayne.blake@hii-co.com
757-380-2104
Huntington Ingalls Industries Reports Third Quarter 2020 Results
•Revenues were $2.3 billion in the quarter
•Operating margin was 9.6%
•Diluted earnings per share was $5.45
•Cash from operations was $222 million, and free cash flow1 was $160 million
•Backlog of $45.3 billion
NEWPORT NEWS, Va. (Nov. 5, 2020) - Huntington Ingalls Industries (NYSE:HII) reported third quarter 2020 revenues of $2.3 billion, up 4.3% from the third quarter of 2019. The increase was driven by growth at both HII's Newport News and Ingalls Shipbuilding divisions.
Operating income in the quarter was $222 million and operating margin was 9.6%, compared to $214 million and 9.6%, respectively, in the third quarter of 2019. The increase in operating income was mainly the result of a higher operating FAS/CAS adjustment, partially offset by lower segment operating income, compared to the prior year.
Net earnings in the quarter were $222 million, compared to $154 million in the third quarter of 2019. The increase in net earnings was the result of lower federal income taxes due to a claim for higher research and development tax credits for prior years and a favorable change in the non-operating portion of retirement benefits, as well as higher operating income, partially offset by higher interest expense. Diluted earnings per share in the quarter was $5.45, compared to $3.74 in the same period of 2019.
Third quarter cash from operations was $222 million and free cash flow1 was $160 million, compared to $363 million and $250 million, respectively, in the third quarter of 2019.
New contract awards in the quarter were approximately $1.6 billion, bringing total backlog to approximately $45.3 billion as of Sept. 30, 2020.
“We are very pleased with shipbuilding program execution in the quarter, particularly as we continue to navigate our way through the challenges posed by COVID-19,” said Mike Petters, HII’s president and CEO. “In addition to achieving a number of key shipbuilding program milestones during the quarter, we also broke ground on our Unmanned Systems Center of Excellence, a facility purpose-built for unmanned systems prototyping, production and testing as we continue to invest in and expand our unmanned capabilities."
1Non-GAAP measure. See Exhibit B for definition and reconciliation.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 1 of 15
| Exhibit 99.1 News Release | |||||||
COVID-19 Update
"We continue to aggressively manage our response to the ongoing COVID-19 pandemic. The health and safety of our employees remains paramount as we continue our important work to support the nation’s defense,” said Petters. "The rate of new cases has stabilized in our shipyards, and we are maintaining a sustainable and manageable level of attendance. This has been driven by our ability to start rapid testing of employees and move them out of quarantine and back to work in a prudent way. While this has proven to be successful, the dynamic nature of this virus will force us to continue refining our policies to adapt to changing circumstances."
Financial Outlook
•Expect FY20 shipbuilding revenue of approximately $7.9 billion; shipbuilding operating margin1 between 5.5% and 6.5%
•Expect FY20 Technical Solutions revenue of approximately $1.25 billion and segment operating margin1 of approximately 2.6%
•Expect FY20 free cash flow1 of >$500 million
•Expect cumulative FY20 and FY21 free cash flow1 of approximately $900 million
•Expect cumulative FY20-FY24 free cash flow1 of approximately $3 billion
1Non-GAAP measures. See Exhibit B for definitions and reconciliations.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 2 of 15
Results of Operations
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 30 | September 30 | ||||||||||||||||||||||||||||
| ($ in millions, except per share amounts) | 2020 | 2019 | $ Change | % Change | 2020 | 2019 | $ Change | % Change | |||||||||||||||||||||
| Sales and service revenues | $ | 2,314 | $ | 2,219 | $ | 95 | 4.3 | % | $ | 6,604 | $ | 6,487 | $ | 117 | 1.8 | % | |||||||||||||
| Operating income | 222 | 214 | 8 | 3.7 | % | 494 | 550 | (56) | (10.2) | % | |||||||||||||||||||
| Operating margin % | 9.6 | % | 9.6 | % | (5) bps | 7.5 | % | 8.5 | % | (100) bps | |||||||||||||||||||
Segment operating income1 | 162 | 191 | (29) | (15.2) | % | 313 | 458 | (145) | (31.7) | % | |||||||||||||||||||
Segment operating margin %1 | 7.0 | % | 8.6 | % | (161) bps | 4.7 | % | 7.1 | % | (232) bps | |||||||||||||||||||
| Net earnings | 222 | 154 | 68 | 44.2 | % | 447 | 400 | 47 | 11.8 | % | |||||||||||||||||||
| Diluted earnings per share | $ | 5.45 | $ | 3.74 | $ | 1.71 | 45.7 | % | $ | 10.98 | $ | 9.66 | $ | 1.32 | 13.7 | % | |||||||||||||
| Pension Adjusted Figures | |||||||||||||||||||||||||||||
Net earnings2 | 152 | 133 | 19 | 14.3 | % | 230 | 319 | (89) | (27.9) | % | |||||||||||||||||||
Diluted earnings per share2 | $ | 3.73 | $ | 3.23 | $ | 0.50 | 15.5 | % | $ | 5.65 | $ | 7.71 | $ | (2.06) | (26.7) | % | |||||||||||||
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. | |||||||||||||||||||||||||||||
Segment Operating Results
Ingalls Shipbuilding
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 30 | September 30 | ||||||||||||||||||||||||||||
| ($ in millions) | 2020 | 2019 | $ Change | % Change | 2020 | 2019 | $ Change | % Change | |||||||||||||||||||||
| Revenues | $ | 675 | $ | 647 | $ | 28 | 4.3 | % | $ | 1,926 | $ | 1,853 | $ | 73 | 3.9 | % | |||||||||||||
Segment operating income1 | 62 | 61 | 1 | 1.6 | % | 185 | 176 | 9 | 5.1 | % | |||||||||||||||||||
Segment operating margin %1 | 9.2 | % | 9.4 | % | (24) bps | 9.6 | % | 9.5 | % | 11 bps | |||||||||||||||||||
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. | |||||||||||||||||||||||||||||
Ingalls Shipbuilding revenues for the third quarter of 2020 were $675 million, an increase of $28 million from the same period in 2019, primarily driven by higher revenues in surface combatants and the Legend-class National Security Cutter (NSC) program, partially offset by lower revenues in amphibious assault ships. Surface combatant revenues increased due to higher volumes on Ted Stevens (DDG 128), Jeremiah Denton (DDG 129), Thad Cochran (DDG 135), and George M. Neal (DDG 131), partially offset by lower volumes on USS Fitzgerald (DDG 62) restoration and modernization. Revenues on the Legend-class NSC program increased due to higher volumes on Stone (NSC 9) and Calhoun (NSC 10), partially offset by lower volume on Friedman (NSC 11). Amphibious assault ship revenues decreased as a result of lower volumes on Tripoli (LHA 7) and Richard M. McCool Jr. (LPD 29), partially offset by higher volume on Harrisburg (LPD 30).
Ingalls Shipbuilding segment operating income for the third quarter was $62 million, an increase of $1 million from the same period last year. Segment operating margin in the quarter was 9.2%, compared to 9.4% in the same period last year.
Key Ingalls Shipbuilding milestones for the quarter:
•Completed sea trials for Legend-class National Security Cutter Stone (NSC 9)
•Achieved electronic systems light-off for Fort Lauderdale (LPD 28)
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 3 of 15
Newport News Shipbuilding
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 30 | September 30 | ||||||||||||||||||||||||||||
| ($ in millions) | 2020 | 2019 | $ Change | % Change | 2020 | 2019 | $ Change | % Change | |||||||||||||||||||||
| Revenues | $ | 1,358 | $ | 1,274 | $ | 84 | 6.6 | % | $ | 3,821 | $ | 3,832 | $ | (11) | (0.3) | % | |||||||||||||
Segment operating income1 | 79 | 121 | (42) | (34.7) | % | 105 | 273 | (168) | (61.5) | % | |||||||||||||||||||
Segment operating margin %1 | 5.8 | % | 9.5 | % | (368) bps | 2.7 | % | 7.1 | % | (438) bps | |||||||||||||||||||
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. | |||||||||||||||||||||||||||||
Newport News Shipbuilding revenues for the third quarter of 2020 were $1.4 billion, an increase of $84 million, or 6.6%, from the same period in 2019, driven by higher revenues in submarine and aircraft carrier construction, as well as fleet support services. Submarine revenues increased primarily as a result of higher volumes on Block V boats of the Virginia-class program and the Columbia-class program, partially offset by lower volumes on Block III boats of the Virginia-class program. Aircraft carrier revenues increased primarily as a result of higher volumes on Enterprise (CVN 80) and the advance planning contract for the refueling and complex overhaul (RCOH) of USS John C. Stennis (CVN 74), as well as higher volume on 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).
Newport News Shipbuilding segment operating income for the third quarter was $79 million, compared to operating income of $121 million from the same period last year. Segment operating margin was 5.8% for the quarter, compared to 9.5% in the same period last year. These decreases were primarily due to lower risk retirement on the Virginia-class submarine program and the use of lower profit booking rates following the second quarter reset of cost and schedule expectations. Additionally, results were impacted by lower risk retirement on fleet support services compared to the prior year period, which benefited from contract actions related to work on Los Angeles-class submarines.
Key Newport News Shipbuilding milestones for the quarter:
•John F. Kennedy (CVN 79) is approximately 76% complete
•Commencement of shore steam testing on USS George Washington (CVN 73) RCOH, which is approximately 81% complete
•Christened the Virginia-class submarine Montana (SSN 794)
Technical Solutions
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 30 | September 30 | ||||||||||||||||||||||||||||
| ($ in millions) | 2020 | 2019 | $ Change | % Change | 2020 | 2019 | $ Change | % Change | |||||||||||||||||||||
| Revenues | $ | 320 | $ | 326 | $ | (6) | (1.8) | % | $ | 957 | $ | 887 | 70 | 7.9 | % | ||||||||||||||
Segment operating income1 | 21 | 9 | $ | 12 | 133.3 | % | 23 | 9 | 14 | 155.6 | % | ||||||||||||||||||
Segment operating margin %1 | 6.6 | % | 2.8 | % | 380 bps | 2.4 | % | 1.0 | % | 139 bps | |||||||||||||||||||
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. | |||||||||||||||||||||||||||||
Technical Solutions revenues for the third quarter of 2020 were $320 million, a decrease of $6 million from the same period in 2019, primarily driven by 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.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 4 of 15
Technical Solutions segment operating income for the third quarter was $21 million, compared to segment operating income of $9 million in the third quarter of 2019. The increase was primarily driven by improved performance in Defense and Federal Solutions following the successful integration of recent acquisitions and post-acquisition cost synergies.
Key Technical Solutions milestones for the quarter:
•Nationwide Remediation Partners, a joint venture led by HII Nuclear, was awarded a contract to provide nationwide deactivation, decommissioning and removal services at excess DOE facilities. The multiple award contract has a 10-year ordering period, with a maximum ordering ceiling of $3 billion
•Awarded a contract by the U.S. Navy to continue providing logistics support products and services to the Naval Expeditionary Logistics Support Group
•Broke ground on a new Unmanned Systems Center of Excellence in Hampton, Virginia, which will be purpose-built for unmanned systems prototyping, production and testing
•Completed a strategic equity investment in Sea Machines Robotics, Inc., a Boston-based autonomous technology company that specializes in advanced software for unmanned surface vessels
2020 Outlook
The financial outlook, expectations and other forward looking statements provided by the company for 2020 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 2020 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 have experienced a decrease in workforce attendance, which has impacted our operations with delay and disruption from the lack of availability of critical skills and out-of-sequence work. Continued lower staffing levels and lower employee productivity could impact our ability to achieve anticipated milestones and further affect our 2020 financial results and beyond.
Our employees, suppliers, customers, and communities are facing significant challenges, and we cannot predict how the COVID-19 environment will evolve or the impact it will have. For further information on the potential impact of COVID-19 to the company, see “Risk Factors” in our third quarter Form 10-Q.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 5 of 15
| 2020 Prior Outlook (Aug. 2020) | 2020 Revised Outlook (Nov. 2020) | ||||||||||
Shipbuilding Revenue1 | $7.6B - $7.9B | ~$7.9B | |||||||||
Shipbuilding Operating Margin1 | 5.5% - 6.5% | 5.5% - 6.5% | |||||||||
Technical Solutions Revenue2 Technical Solutions Revenue (Ex. UPI & SDSY) | $1.2B - $1.25B $0.9B - $1.0B | ~$1.25B ~$0.95B | |||||||||
Technical Solutions Segment Operating Margin2 Technical Solutions Segment Operating Margin (Ex. UPI & SDSY) | 2.0% - 2.4% 2.8% - 3.2% | ~2.6% ~3.3% | |||||||||
Technical Solutions EBITDA Margin1,2 Technical Solutions EBITDA Margin (Ex. UPI & SDSY)1 | 5.7% - 6.0% 7.7% - 8.0% | ~6.2% ~8.2% | |||||||||
| Operating FAS/CAS Adjustment | $247M | $247M | |||||||||
| Non-current State Income Tax Expense | $10M | $10M | |||||||||
Interest Expense3 | $106M | $112M | |||||||||
| Non-operating Retirement Benefit | $120M | $120M | |||||||||
| Effective Tax Rate | ~21% | ~15% | |||||||||
| Depreciation & Amortization | ~$250M | ~$250M | |||||||||
| Capital Expenditures | ~5% of Sales | ~4.5% of Sales | |||||||||
Free Cash Flow1 | >$500M | >$500M | |||||||||
1 Non-GAAP measures. See Exhibit B for definitions.
2 Includes results from San Diego Shipyard and Universal Pegasus International through Dec. 2020.
3 Includes a $15M call premium for 5.0% senior notes due 2025, being redeemed in Nov. 2020.
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, November 12 by calling toll-free (877) 344-7529 or (412) 317-0088 and using conference ID 10148472.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 6 of 15
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.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 7 of 15
Exhibit A: Financial Statements
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||||||||||||||
| (in millions, except per share amounts) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||
| Sales and service revenues | ||||||||||||||||||||||||||||||||
| Product sales | $ | 1,699 | $ | 1,545 | $ | 4,743 | $ | 4,555 | ||||||||||||||||||||||||
| Service revenues | 615 | 674 | 1,861 | 1,932 | ||||||||||||||||||||||||||||
| Sales and service revenues | 2,314 | 2,219 | 6,604 | 6,487 | ||||||||||||||||||||||||||||
| Cost of sales and service revenues | ||||||||||||||||||||||||||||||||
| Cost of product sales | 1,388 | 1,246 | 3,931 | 3,754 | ||||||||||||||||||||||||||||
| Cost of service revenues | 490 | 556 | 1,550 | 1,634 | ||||||||||||||||||||||||||||
| Income from operating investments, net | 6 | 6 | 19 | 15 | ||||||||||||||||||||||||||||
| General and administrative expenses | 220 | 209 | 648 | 564 | ||||||||||||||||||||||||||||
| Operating income | 222 | 214 | 494 | 550 | ||||||||||||||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||||||||||
| Interest expense | (27) | (18) | (68) | (52) | ||||||||||||||||||||||||||||
| Non-operating retirement benefit | 29 | 3 | 89 | 8 | ||||||||||||||||||||||||||||
| Other, net | 2 | (1) | (8) | 5 | ||||||||||||||||||||||||||||
| Earnings before income taxes | 226 | 198 | 507 | 511 | ||||||||||||||||||||||||||||
| Federal and foreign income taxes | 4 | 44 | 60 | 111 | ||||||||||||||||||||||||||||
| Net earnings | $ | 222 | $ | 154 | $ | 447 | $ | 400 | ||||||||||||||||||||||||
| Basic earnings per share | $ | 5.47 | $ | 3.74 | $ | 11.01 | $ | 9.66 | ||||||||||||||||||||||||
| Weighted-average common shares outstanding | 40.6 | 41.2 | 40.6 | 41.4 | ||||||||||||||||||||||||||||
| Diluted earnings per share | $ | 5.45 | $ | 3.74 | $ | 10.98 | $ | 9.66 | ||||||||||||||||||||||||
| Weighted-average diluted shares outstanding | 40.7 | 41.2 | 40.7 | 41.4 | ||||||||||||||||||||||||||||
| Dividends declared per share | $ | 1.03 | $ | 0.86 | $ | 3.09 | $ | 2.58 | ||||||||||||||||||||||||
| Net earnings from above | $ | 222 | $ | 154 | $ | 447 | $ | 400 | ||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||||||||
| Change in unamortized benefit plan costs | 24 | 25 | 70 | 74 | ||||||||||||||||||||||||||||
| Other | 1 | 1 | — | 1 | ||||||||||||||||||||||||||||
| Tax expense for items of other comprehensive income | (6) | (7) | (18) | (19) | ||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | 19 | 19 | 52 | 56 | ||||||||||||||||||||||||||||
| Comprehensive income | $ | 241 | $ | 173 | $ | 499 | $ | 456 | ||||||||||||||||||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 8 of 15
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| ($ in millions) | September 30, 2020 | December 31, 2019 | ||||||||||||
| Assets | ||||||||||||||
| Current Assets | ||||||||||||||
| Cash and cash equivalents | $ | 744 | $ | 75 | ||||||||||
| Accounts receivable, net of allowance for doubtful accounts of $1 million as of 2020 and $3 million as of 2019 | 492 | 318 | ||||||||||||
| Contract assets | 1,134 | 989 | ||||||||||||
| Inventoried costs, net | 152 | 136 | ||||||||||||
| Income taxes receivable | 163 | 148 | ||||||||||||
| Assets held for sale | 154 | 95 | ||||||||||||
| Prepaid expenses and other current assets | 42 | 24 | ||||||||||||
| Total current assets | 2,881 | 1,785 | ||||||||||||
| Property, plant, and equipment, net of accumulated depreciation of $2,009 million as of 2020 and $1,961 million as of 2019 | 2,907 | 2,832 | ||||||||||||
| Other Assets | ||||||||||||||
| Operating lease assets | 187 | 201 | ||||||||||||
| Goodwill | 1,577 | 1,373 | ||||||||||||
| Other intangible assets, net of accumulated amortization of $640 million as of 2020 and $599 million as of 2019 | 527 | 492 | ||||||||||||
| Deferred tax assets | 97 | 108 | ||||||||||||
| Miscellaneous other assets | 269 | 240 | ||||||||||||
| Total assets | $ | 8,445 | $ | 7,031 | ||||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 9 of 15
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)
| ($ in millions) | September 30, 2020 | December 31, 2019 | ||||||||||||
| Liabilities and Stockholders' Equity | ||||||||||||||
| Current Liabilities | ||||||||||||||
| Trade accounts payable | $ | 429 | $ | 497 | ||||||||||
| Accrued employees’ compensation | 320 | 265 | ||||||||||||
| Current portion of postretirement plan liabilities | 130 | 130 | ||||||||||||
| Current portion of workers’ compensation liabilities | 233 | 225 | ||||||||||||
| Contract liabilities | 604 | 373 | ||||||||||||
| Liabilities held for sale | 86 | 77 | ||||||||||||
| Other current liabilities | 431 | 323 | ||||||||||||
| Total current liabilities | 2,233 | 1,890 | ||||||||||||
| Long-term debt | 2,278 | 1,286 | ||||||||||||
| Pension plan liabilities | 728 | 975 | ||||||||||||
| Other postretirement plan liabilities | 374 | 380 | ||||||||||||
| Workers’ compensation liabilities | 470 | 457 | ||||||||||||
| Long-term operating lease liabilities | 153 | 164 | ||||||||||||
| Other long-term liabilities | 329 | 291 | ||||||||||||
| Total liabilities | 6,565 | 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 September 30, 2020, and 53.2 million shares issued and 40.8 million shares outstanding as of December 31, 2019 | 1 | 1 | ||||||||||||
| Additional paid-in capital | 1,964 | 1,961 | ||||||||||||
| Retained earnings | 3,330 | 3,009 | ||||||||||||
| Treasury stock | (2,058) | (1,974) | ||||||||||||
| Accumulated other comprehensive loss | (1,357) | (1,409) | ||||||||||||
| Total stockholders’ equity | 1,880 | 1,588 | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 8,445 | $ | 7,031 | ||||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 10 of 15
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine Months Ended September 30 | ||||||||||||||||||||||||||||||||
| ($ in millions) | 2020 | 2019 | ||||||||||||||||||||||||||||||
| Operating Activities | ||||||||||||||||||||||||||||||||
| Net earnings | $ | 447 | $ | 400 | ||||||||||||||||||||||||||||
| Adjustments to reconcile to net cash provided by (used in) operating activities | ||||||||||||||||||||||||||||||||
| Depreciation | 136 | 126 | ||||||||||||||||||||||||||||||
| Amortization of purchased intangibles | 41 | 35 | ||||||||||||||||||||||||||||||
| Amortization of debt issuance costs | 5 | 2 | ||||||||||||||||||||||||||||||
| Provision for doubtful accounts | (2) | (5) | ||||||||||||||||||||||||||||||
| Stock-based compensation | 16 | 19 | ||||||||||||||||||||||||||||||
| Deferred income taxes | (7) | 42 | ||||||||||||||||||||||||||||||
| Loss (gain) on investments in marketable securities | (3) | (6) | ||||||||||||||||||||||||||||||
| Asset impairments | 13 | — | ||||||||||||||||||||||||||||||
| Change in | ||||||||||||||||||||||||||||||||
| Accounts receivable | (164) | (223) | ||||||||||||||||||||||||||||||
| Contract assets | (63) | (197) | ||||||||||||||||||||||||||||||
| Inventoried costs | (5) | (14) | ||||||||||||||||||||||||||||||
| Prepaid expenses and other assets | (60) | (56) | ||||||||||||||||||||||||||||||
| Accounts payable and accruals | 315 | 147 | ||||||||||||||||||||||||||||||
| Retiree benefits | (183) | 56 | ||||||||||||||||||||||||||||||
| Other non-cash transactions, net | 5 | 4 | ||||||||||||||||||||||||||||||
| Net cash provided by operating activities | 491 | 330 | ||||||||||||||||||||||||||||||
| Investing Activities | ||||||||||||||||||||||||||||||||
| Capital expenditures | ||||||||||||||||||||||||||||||||
| Capital expenditure additions | (220) | (349) | ||||||||||||||||||||||||||||||
| Grant proceeds for capital expenditures | 17 | 71 | ||||||||||||||||||||||||||||||
| Acquisitions of businesses, net of cash received | (377) | (195) | ||||||||||||||||||||||||||||||
| Other investing activities, net | (6) | 3 | ||||||||||||||||||||||||||||||
| Net cash used in investing activities | (586) | (470) | ||||||||||||||||||||||||||||||
| Financing Activities | ||||||||||||||||||||||||||||||||
| Proceeds from issuance of long-term debt | 1,000 | — | ||||||||||||||||||||||||||||||
| Proceeds from revolving credit facility borrowings | 385 | 5,048 | ||||||||||||||||||||||||||||||
| Repayment of revolving credit facility borrowings | (385) | (4,784) | ||||||||||||||||||||||||||||||
| Debt issuance costs | (13) | — | ||||||||||||||||||||||||||||||
| Dividends paid | (126) | (107) | ||||||||||||||||||||||||||||||
| Repurchases of common stock | (84) | (202) | ||||||||||||||||||||||||||||||
| Employee taxes on certain share-based payment arrangements | (13) | (23) | ||||||||||||||||||||||||||||||
| Net cash provided by (used in) financing activities | 764 | (68) | ||||||||||||||||||||||||||||||
| Change in cash and cash equivalents | 669 | (208) | ||||||||||||||||||||||||||||||
| Cash and cash equivalents, beginning of period | 75 | 240 | ||||||||||||||||||||||||||||||
| Cash and cash equivalents, end of period | $ | 744 | $ | 32 | ||||||||||||||||||||||||||||
| Supplemental Cash Flow Disclosure | ||||||||||||||||||||||||||||||||
| Cash paid for income taxes | $ | 106 | $ | 124 | ||||||||||||||||||||||||||||
| Cash paid for interest | $ | 33 | $ | 40 | ||||||||||||||||||||||||||||
| Non-Cash Investing and Financing Activities | ||||||||||||||||||||||||||||||||
| Capital expenditures accrued in accounts payable | $ | 8 | $ | 12 | ||||||||||||||||||||||||||||
| Accrued repurchases of common stock | $ | — | $ | 2 | ||||||||||||||||||||||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 11 of 15
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 margin of our Newport News Shipbuilding segment and Ingalls Shipbuilding segment as a percentage of combined sales and service revenues from our Newport News Shipbuilding segment and Ingalls Shipbuilding segment.
Technical Solutions EBITDA margin is defined as Technical Solutions segment operating income before interest expense, income taxes, depreciation, and amortization as a percentage of 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.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 12 of 15
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) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Ingalls revenues | $ | 675 | $ | 647 | $ | 1,926 | $ | 1,853 | ||||||||||||||||||
| Newport News revenues | 1,358 | 1,274 | 3,821 | 3,832 | ||||||||||||||||||||||
| Technical Solutions revenues | 320 | 326 | 957 | 887 | ||||||||||||||||||||||
| Intersegment eliminations | (39) | (28) | (100) | (85) | ||||||||||||||||||||||
| Sales and Service Revenues | 2,314 | 2,219 | 6,604 | 6,487 | ||||||||||||||||||||||
| Operating Income | 222 | 214 | 494 | 550 | ||||||||||||||||||||||
| Operating FAS/CAS Adjustment | (60) | (23) | (186) | (94) | ||||||||||||||||||||||
| Non-current state income taxes | — | — | 5 | 2 | ||||||||||||||||||||||
| Segment Operating Income | 162 | 191 | 313 | 458 | ||||||||||||||||||||||
| As a percentage of sales and service revenues | 7.0 | % | 8.6 | % | 4.7 | % | 7.1 | % | ||||||||||||||||||
| Ingalls operating income | 62 | 61 | 185 | 176 | ||||||||||||||||||||||
| As a percentage of Ingalls revenues | 9.2 | % | 9.4 | % | 9.6 | % | 9.5 | % | ||||||||||||||||||
| Newport News operating income | 79 | 121 | 105 | 273 | ||||||||||||||||||||||
| As a percentage of Newport News revenues | 5.8 | % | 9.5 | % | 2.7 | % | 7.1 | % | ||||||||||||||||||
| Technical Solutions operating income | 21 | 9 | 23 | 9 | ||||||||||||||||||||||
| As a percentage of Technical Solutions revenues | 6.6 | % | 2.8 | % | 2.4 | % | 1.0 | % | ||||||||||||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 13 of 15
Reconciliation of Adjusted Net Earnings and Adjusted Diluted Earnings Per Share
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30 | September 30 | |||||||||||||||||||||||||
| (in millions, except per share amounts) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Net earnings | $ | 222 | $ | 154 | $ | 447 | $ | 400 | ||||||||||||||||||
After-tax FAS/CAS adjustment(1) | (70) | (21) | (217) | (81) | ||||||||||||||||||||||
| Adjusted Net Earnings | $ | 152 | $ | 133 | $ | 230 | $ | 319 | ||||||||||||||||||
| Diluted earnings per share | $ | 5.45 | $ | 3.74 | $ | 10.98 | $ | 9.66 | ||||||||||||||||||
After-tax FAS/CAS adjustment per share(1) | (1.72) | (0.51) | (5.33) | (1.95) | ||||||||||||||||||||||
| Adjusted Diluted EPS** | $ | 3.73 | $ | 3.23 | $ | 5.65 | $ | 7.71 | ||||||||||||||||||
| (1) FAS/CAS Adjustment | $ | (89) | $ | (26) | $ | (275) | $ | (102) | ||||||||||||||||||
| Tax effect* | (19) | (5) | (58) | (21) | ||||||||||||||||||||||
| After-tax impact | (70) | (21) | $ | (217) | $ | (81) | ||||||||||||||||||||
| Weighted-average diluted shares outstanding | 40.7 | 41.2 | 40.7 | 41.4 | ||||||||||||||||||||||
| Per share impact** | $ | (1.72) | $ | (0.51) | $ | (5.33) | $ | (1.95) | ||||||||||||||||||
| *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. | ||||||||||||||||||||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 14 of 15
Reconciliation of Free Cash Flow
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30 | September 30 | |||||||||||||||||||||||||
| (in millions) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Net cash provided by operating activities | $ | 222 | $ | 363 | $ | 491 | $ | 330 | ||||||||||||||||||
| Less capital expenditures: | ||||||||||||||||||||||||||
| Capital expenditure additions | (70) | (115) | (220) | (349) | ||||||||||||||||||||||
| Grant proceeds for capital expenditures | 8 | 2 | 17 | 71 | ||||||||||||||||||||||
| Free cash flow | $ | 160 | $ | 250 | $ | 288 | $ | 52 | ||||||||||||||||||
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 15 of 15
Exhibit 99.2 Q3 2020 Earnings Presentation November 5, 2020 Mike Petters President and Chief Executive Officer Chris Kastner Executive Vice President and Chief Financial Officer
Forward-Looking Statements Exhibit 99.2 Statements in this presentation, other than statements of historical fact, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements. Factors that may cause such differences include: changes in government and customer priorities and requirements (including government budgetary constraints, shifts in defense spending, and changes in customer short-range and long-range plans); our ability to estimate our future contract costs and perform our contracts effectively; changes in procurement processes and government regulations and our ability to comply with such requirements; our ability to deliver our products and services at an affordable life cycle cost and compete within our markets; natural and environmental disasters and political instability; our ability to execute our strategic plan, including with respect to share repurchases, dividends, capital expenditures, and strategic acquisitions; adverse economic conditions in the United States and globally; 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 presentation also contains non-GAAP financial measures and includes a GAAP reconciliation of these financial measures. Non-GAAP financial measures should not be construed as being more important than comparable GAAP measures. 2 HUNTINGTON INGALLS INDUSTRIES HARD STUFF DONE RIGHT
COVID-19 Update Exhibit 99.2 . Rate of new cases has stabilized in our shipyards and we are maintaining a sustainable and manageable level of attendance o Rapid testing is enabling us to prudently move employees out of quarantine and back to work . Continue to adjust and refine policies and procedures to protect our workforce . Continue to work proactively with our customers to pursue all opportunities for potential cost reimbursement . Actively supporting customers, suppliers and communities o Accelerated over $320M in payments to critical supply chain partners to date 3 HUNTINGTON INGALLS INDUSTRIES HARD STUFF DONE RIGHT
Shipbuilding Revenue1Exhibit 99.2 HII Q3 2020 Highlights ($M) . Revenues were ~$2.3 billion in the quarter $2,500 $2,033 . Diluted EPS was $5.45 in the quarter $1,921 +5.8% $2,000 . Total backlog at the end of the quarter was $45.3 billion . Ingalls Shipbuilding $1,500 o Completed sea trials for Legend-class National Security Cutter Stone (NSC 9) $1,000 o Achieved electronic systems light-off for Fort Lauderdale (LPD 28) $500 . Newport News Shipbuilding o John F. Kennedy (CVN 79) is approximately 76% complete $0 Q3 2019 Q3 2020 o Commencement of shore steam testing on USS George Washington (CVN 73) RCOH, which is approximately 81% complete Backlog o Christened the Virginia-class submarine Montana (SSN 794) ($B) . Technical Solutions $50 $45.3 o A joint venture led by HII Nuclear was awarded a contract to provide nationwide deactivation, $39.2 decommissioning and removal services at excess DOE facilities $40 o Awarded a contract by the U.S. Navy to continue providing logistics support products and $30 services to the Naval Expeditionary Logistics Support Group o Broke ground on a new Unmanned Systems Center of Excellence in Hampton, VA, which will be $20 purpose-built for unmanned systems prototyping, production and testing o Completed a strategic equity investment in Sea Machines Robotics, Inc., a Boston-based $10 autonomous technology company that specializes in advanced software for unmanned surface vessels $0 Q3 2019 Q3 2020 . Maintaining a sustainable and manageable level of attendance at shipyards and executing to plan 1Non-GAAP measure. See appendix for definition and reconciliation. 4 HUNTINGTON INGALLS INDUSTRIES HARD STUFF DONE RIGHT
HII Q3 2020 Consolidated Results Exhibit 99.2 Consolidated Revenues Operating Income ($M) ($M) $2,500 $250 $2,314 $222 $2,219 $214 $2,000 $200 $1,500 $150 $1,000 $100 $500 $50 $0 $0 Q3 2019 Q3 2020 Q3 2019 Q3 2020 Operating Margin 9.6% 9.6% 10.0% . Revenues improved YoY due to growth at Newport 8.0% News and Ingalls Shipbuilding . Operating income improved YoY due to a more 6.0% favorable FAS/CAS adjustment, partially offset by 4.0% lower segment operating income 2.0% 0.0% Q3 2019 Q3 2020 5 HUNTINGTON INGALLS INDUSTRIES HARD STUFF DONE RIGHT
Capital Deployment Exhibit 99.2 Cash Flow Generation Shareholder Distributions ($M) ($M) $400 $363 $120 Total $103 $300 $100 $250 $222 $200 $160 $80 $68 $100 $60 Total $42 $0 $40 ($100) ($62) $20 $35 $42 ($113) ($200) $0 Q3 2019 Q3 2020 Q3 2019 Q3 2020 Cash from Operations CAPEX Free Cash Flow 1 Dividends Share Repurchases (at cost) . Cash balance of $744 million and liquidity of $2.5 billion at Q3 2020 quarter-end . Capital expenditures, net of related grant proceeds, totaled $62 million in Q3 2020 and were 2.7% of Q3 revenues . Cash contributions to pension and postretirement benefit plans were $150 million in Q3 2020 o $140 million were discretionary contributions to our qualified pension plans . Distributed $42 million to shareholders in Q3 2020 via dividends . No shares repurchased during Q3 2020; plan to resume share repurchases once we see sustained normalization of operations . Returned 97% of free cash flow1 to shareholders from 2016 through Q3 2020 1Non-GAAP measure. See appendix for definition and reconciliation. 6 HUNTINGTON INGALLS INDUSTRIES HARD STUFF DONE RIGHT
2020-2021 Pension Outlook Table Exhibit 99.2 3 3 ($ in millions) 2019 (Actual) 2020 2021 Pension Discount Rate 4.34% 3.39% 2.93% Change from prior est. N/A Change from prior est. (46)bps 7.25% Expected Long-Term Return on Assets 7.25% 7.25% N/A N/A CAS Recoveries over/(under) Cash $189 ($54) 1,2 $216 Contributions $16 ($14) ($69) FAS Expense1 ($139) ($111) N/A ($50) CAS Expense1 $275 $436 $47 N/A ($1) FAS/CAS Adjustment1 $136 $367 ($64) N/A ($51) Operating FAS/CAS Adjustment1 $124 $247 ($158) N/A ($19) $120 Non-Operating Retirement (Expense)/Income1 $12 $94 N/A ($32) Pension and Post-retirement Benefits Cash $247 $101 2 $59 Contributions ($16) $13 1 Includes pension & other postretirement benefits. 2 2020 projected cash contributions of $247 million include $213 million of discretionary pension contributions ($205 million qualified; $8 million non-qualified) and $34 million of post retirement benefits contributions. 2021 projected cash contributions of $101 million include $69 million of discretionary pension contributions ($60 million qualified; $9 million non-qualified) and $32 million of post retirement benefits contributions. 3 Projected and subject to change during 2020 and 2021. 7 HUNTINGTON INGALLS INDUSTRIES HARD STUFF DONE RIGHT
2020 Outlook1 Exhibit 99.2 Prior Updated Financial Outlook Outlook Outlook (Aug. 2020) (Nov. 2020) 2020 Outlook Shipbuilding Revenue2 $7.6B - $7.9B ~$7.9B . Assumes an orderly recovery to normalized attendance levels at both shipyards Shipbuilding Operating Margin2 5.5% - 6.5% 5.5% - 6.5% . Q4 2020 shipbuilding revenue and operating margin performance will be Technical Solutions Revenue3 $1.2B - $1.25B ~$1.25B modestly stronger than Q3 2020 performance given the timing of milestones Technical Solutions Revenue (Ex. UPI & SDSY) $0.9B - $1.0B ~$0.95B Technical Solutions Segment Operating Margin2,3 2.0% - 2.4% ~2.6% Technical Solutions Segment Operating Margin (Ex. UPI &SDSY)2 2.8% - 3.2% ~3.3% COVID-19 Impacts 2,3 . Assumes limited relief for costs directly related to our pandemic response Technical Solutions EBITDA Margin 5.7% - 6.0% ~6.2% Technical Solutions EBITDA Margin (Ex. UPI & SDSY)2 7.7% - 8.0% ~8.2% . No assumption for equitable adjustments for the delay and disruption caused by COVID-19 . We continue to evaluate these impacts to programs against our contractual Operating FAS/CAS Adjustment $247M $247M terms, and current and pending legislation, for the potential to obtain Non-current State Income Tax Expense $10M $10M equitable adjustments to target cost, target price and program schedules Interest Expense4 $106M $112M Non-operating Retirement Benefit $120M $120M Effective Tax Rate ~21% ~15% 1 The financial outlook, expectations and other forward looking statements provided by the company for 2020 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 Depreciation & Amortization ~$250M ~$250M 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 2020 financial Capital Expenditures ~5% of Sales ~4.5% of Sales 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 Free Cash Flow2 >$500M >$500M 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 2 Non-GAAP measure. See appendix for definition. other facilities remain open and productive, we have experienced a decrease in workforce attendance, which has 3 Includes results from San Diego Shipyard and Universal Pegasus International through Dec. 2020. impacted our operations with delay and disruption from the lack of availability of critical skills and out-of-sequence 4 Includes a $15M call premium for 5.0% senior notes due 2025, with redemption in November 2020. work. Continued lower staffing levels and lower employee productivity could impact our ability to achieve anticipated milestones and further affect our 2020 financial results and beyond. Our employees, suppliers, customers, and communities are facing significant challenges, and we cannot predict how the COVID-19 environment will evolve or the impact it will have. For further information on the potential impact of COVID-19 to the company, see “Risk Factors” in our third quarter Form 10-Q.Factors” in our third quarter Form 10-Q. 8 HUNTINGTON INGALLS INDUSTRIES HARD STUFF DONE RIGHT
Exhibit 99.2 Appendix HUNTINGTON INGALLS INDUSTRIES PROPRIETARY
Non-GAAP Measures Definitions Exhibit 99.2 We make reference to “segment operating income,” “segment operating margin,” “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, 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. 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. 10 HUNTINGTON INGALLS INDUSTRIES HARD STUFF DONE RIGHT
Non-GAAP Measures Definitions Cont’d Exhibit 99.2 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 margin of our Newport News Shipbuilding segment and Ingalls Shipbuilding segment as a percentage of combined sales and service revenues from our Newport News Shipbuilding segment and Ingalls Shipbuilding segment. Technical Solutions EBITDA margin is defined as Technical Solutions segment operating income before interest expense, income taxes, depreciation, and amortization as a percentage of revenues. Free cash flow is defined as net cash provided by (used in) operating activities less capital expenditures net of related grant proceeds. Operating FAS/CAS Adjustment is defined as the difference between the service cost component of our pension and other postretirement expense determined in accordance with GAAP (FAS) and our pension and other postretirement expense under U.S. Cost Accounting Standards (CAS). 11 HUNTINGTON INGALLS INDUSTRIES HARD STUFF DONE RIGHT
Exhibit 99.2 Non-GAAP Reconciliations – Segment Operating Income & Segment Operating Margin Three Months Ended Nine Months Ended September 30 September 30 ($ in millions) 2020 2019 2020 2019 Ingalls revenues 675 $ 647 1,926 $ 1,853 Newport News revenues 1,358 1,274 3,821 3,832 Technical Solutions revenues 320 326 957 887 Intersegment eliminations (39) (28) (100) (85) Sales and Service Revenues 2,314 2,219 6,604 6,487 Operating Income 222 214 494 550 Operating FAS/CAS Adjustment (60) (23) (186) (94) Non-current state income taxes - - 5 2 Segment Operating Income 162 191 313 458 As a percentage of sales and service revenues 7.0 % 8.6 % 4.7 % 7.1 % Ingalls operating income 62 61 185 176 As a percentage of Ingalls revenues 9.2 % 9.4 % 9.6 % 9.5 % Newport News operating income 79 121 105 273 As a percentage of Newport News revenues 5.8 % 9.5 % 2.7 % 7.1 % Technical Solutions operating income 21 9 23 9 As a percentage of Technical Solutions revenues 6.6 % 2.8 % 2.4 % 1.0 % 12 HUNTINGTON INGALLS INDUSTRIES HARD STUFF DONE RIGHT
Exhibit 99.2 Non-GAAP Reconciliations – Shipbuilding Revenues & Operating Margin Three Months Ended Nine Months Ended September 30 September 30 ($ in millions) 2020 2019 2020 2019 Sales and service revenues 2,314 2,219 6,604 6,487 Technical Solutions (320) (326) (957) (887) Intersegment eliminations 39 28 100 85 Shipbuilding Revenues 2,033 1,921 5,747 5,685 Operating Income 222 214 494 550 Operating FAS/CAS Adjustment (60) (23) (186) (94) Non-current state income taxes - - 5 2 Segment Operating Income 162 191 313 458 Technical Solutions (21) (9) (23) (9) Shipbuilding Operating Income 141 182 290 449 As a percentage of Shipbuilding revenues 6.9 % 9.5 % 5.0 % 7.9 % 13 HUNTINGTON INGALLS INDUSTRIES HARD STUFF DONE RIGHT
Exhibit 99.2 Non-GAAP Reconciliations – Free Cash Flow Three Months Ended Nine Months Ended September 30 September 30 ($ in millions) 2020 2019 2020 2019 Net cash provided by operating activities 222 363 491 330 Less capital expenditures: Capital expenditure additions (70) (115) (220) (349) Grant proceeds for capital expenditures 8 2 17 71 Free cash flow 160 250 288 52 14 HUNTINGTON INGALLS INDUSTRIES HARD STUFF DONE RIGHT
Exhibit 99.2 15 HUNTINGTON INGALLS INDUSTRIES HARD STUFF DONE RIGHT