8-K
HUNTINGTON INGALLS INDUSTRIES, INC. (HII)
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)
November 4, 2021
_____________________________________
HUNTINGTON INGALLS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
_____________________________________
| Delaware | 001-34910 | 90-0607005 |
|---|---|---|
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
| 4101 Washington Avenue | ||
| Newport News | Virginia | 23607 |
| (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 |
|---|---|---|
| Common Stock | HII | New York Stock Exchange |
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 4, 2021, Huntington Ingalls Industries, Inc. issued a press release announcing its financial results for the quarter ended September 30, 2021. 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 2021 earnings release conference call.
| Item 9.01. | Financial Statements and Exhibits. |
|---|---|
| (d) | Exhibits. |
| Exhibit No. | Description |
| --- | --- |
| 99.1 | Press Release dated November 4, 2021. |
| 99.2 | Earnings Presentation dated November 4, 2021. |
| 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. | ||
|---|---|---|
| November 4, 2021 | By: | /s/ Thomas E. Stiehle |
| Thomas E. Stiehle | ||
| Executive Vice President and Chief Financial Officer |
Document
| Exhibit 99.1<br><br>News Release |
|---|
Contacts:
Brooke Hart (Media)
brooke.hart@hii-co.com
202-264-7108
Dwayne Blake (Investors)
dwayne.blake@hii-co.com
757-380-2104
Huntington Ingalls Industries Reports Third Quarter 2021 Results
•Revenues were $2.3 billion in the quarter
•Operating margin was 5.0% and segment operating margin1 was 7.0%
•Diluted earnings per share was $3.65
•Pension adjusted diluted earnings per share1 was $3.58
•The acquisition of Alion Science and Technology Corp. ("Alion") closed on Aug. 19, 2021
NEWPORT NEWS, Va. (Nov. 4, 2021) - Huntington Ingalls Industries (NYSE:HII) reported third quarter 2021 revenues of $2.3 billion, up 1.0% from the third quarter of 2020.
Operating income in the third quarter of 2021 was $118 million and operating margin was 5.0%, compared to $222 million and 9.6%, respectively, in the third quarter of 2020. The decreases in operating income and operating margin were primarily the result of a less favorable operating FAS/CAS adjustment.
Segment operating income1 in the third quarter of 2021 was $163 million and segment operating margin1 was 7.0%, compared to segment operating income1 of $162 million and segment operating margin1 of 7.0% in the third quarter of 2020.
Net earnings in the third quarter of 2021 were $147 million, compared to $222 million in the third quarter of 2020. Diluted earnings per share in the third quarter of 2021 was $3.65, compared to $5.45 in the same period of 2020. Third quarter 2021 results included approximately $15 million of non-recurring, pre-tax transaction expenses related to the acquisition of Alion. Excluding the impacts of pension, adjusted earnings per share1 in the quarter was $3.58, compared to $3.73 in the same period of 2020.
Third quarter cash from operations was $350 million and free cash flow1 was $277 million, compared to $222 million and $160 million, respectively, in the third quarter of 2020.
New contract awards in the third quarter of 2021 were approximately $600 million, bringing total backlog to approximately $50.1 billion as of Sept. 30, 2021.
“We are pleased with the third quarter results that represent another quarter of consistent shipbuilding program execution while we continue to navigate the challenges posed by the COVID-19 pandemic,” said Mike Petters, HII’s president and CEO. "During the quarter we closed the acquisition of Alion Science and Technology, and as we work to integrate it into our Technical Solutions division, we remain very excited about the significant growth avenues across the combined business that we believe will drive significant long-term value creation."
1Non-GAAP measure. See Exhibit B for definitions and reconciliations.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 1 of 15
Results of Operations
| Three Months Ended | Nine Months Ended | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30 | September 30 | |||||||||||||||||
| ($ in millions, except per share amounts) | 2021 | 2020 | Change | % Change | 2021 | 2020 | Change | % Change | ||||||||||
| Sales and service revenues | $ | 2,338 | $ | 2,314 | 1.0 | % | $ | 6,847 | $ | 6,604 | 3.7 | % | ||||||
| Operating income | 118 | 222 | (104) | (46.8) | % | 393 | 494 | (101) | (20.4) | % | ||||||||
| Operating margin % | 5.0 | % | 9.6 | % | (455) bps | 5.7 | % | 7.5 | % | (174) bps | ||||||||
| Segment operating income1 | 163 | 162 | 1 | 0.6 | % | 523 | 313 | 210 | 67.1 | % | ||||||||
| Segment operating margin %1 | 7.0 | % | 7.0 | % | (3) bps | 7.6 | % | 4.7 | % | 290 bps | ||||||||
| Net earnings | 147 | 222 | (75) | (33.8) | % | 424 | 447 | (23) | (5.1) | % | ||||||||
| Diluted earnings per share | $ | 3.65 | $ | 5.45 | (33.0) | % | $ | 10.52 | $ | 10.98 | (4.2) | % | ||||||
| Pension Adjusted Earnings | ||||||||||||||||||
| Adjusted Net earnings2 | 144 | 152 | (8) | (5.3) | % | 411 | 230 | 181 | 78.7 | % | ||||||||
| Adjusted Diluted earnings per share2 | $ | 3.58 | $ | 3.73 | (4.0) | % | $ | 10.20 | $ | 5.65 | 80.5 | % | ||||||
| 1 Non-GAAP measures that exclude non-segment factors affecting operating income. See Exhibit B for definitions and reconciliations. | ||||||||||||||||||
| 2 Non-GAAP measures that exclude the impacts of the FAS/CAS Adjustment. See Exhibit B for definition and reconciliation. |
All values are in US Dollars.
Segment Operating Results
Ingalls Shipbuilding
| Three Months Ended | Nine Months Ended | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30 | September 30 | |||||||||||||||||
| ($ in millions) | 2021 | 2020 | Change | % Change | 2021 | 2020 | Change | % Change | ||||||||||
| Revenues | $ | 628 | $ | 675 | (7.0) | % | $ | 1,947 | $ | 1,926 | 1.1 | % | ||||||
| Segment operating income1 | 62 | 62 | — | — | % | 233 | 185 | 48 | 25.9 | % | ||||||||
| Segment operating margin %1 | 9.9 | % | 9.2 | % | 69 bps | 12.0 | % | 9.6 | % | 236 bps | ||||||||
| 1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. |
All values are in US Dollars.
Ingalls Shipbuilding revenues for the third quarter of 2021 were $628 million, a decrease of $47 million, or 7.0%, from the same period in 2020, primarily driven by lower revenues in the Legend-class National Security Cutter (NSC) program, the Arleigh Burke-class guided missile (DDG) program and amphibious assault ships. Revenues on the NSC program decreased due to lower volumes on Stone (NSC 9) following its delivery. DDG program revenues decreased due to lower volumes on Ted Stevens (DDG 128) and USS Delbert D. Black (DDG 119) following its delivery, partially offset by higher volumes on Jack H. Lucas (DDG 125). Revenues on amphibious assault ships decreased due to lower volumes on Bougainville (LHA 8), partially offset by higher volumes on LHA 9 (unnamed).
Ingalls Shipbuilding segment operating income1 for the third quarter of 2021 was $62 million, in line with segment operating income1 of $62 million from the same period in 2020. Segment operating margin1 in the third quarter of 2021 was 9.9%, compared to 9.2% in the same period last year. The increase in segment operating margin1 was primarily driven by the recognition of an incentive on the DDG program, as well as higher risk retirement on the San Antonio-class amphibious transport dock (LPD) program, partially offset by lower risk retirement on the NSC program.
1Non-GAAP measure. See Exhibit B for definitions and reconciliations.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 2 of 15
Key Ingalls Shipbuilding milestones for the quarter:
•Completed acceptance trials for guided missile destroyer Frank E. Petersen Jr. (DDG 121)
•Christened amphibious transport dock Fort Lauderdale (LPD 28)
•Authenticated the keel of National Security Cutter Calhoun (NSC 10)
Newport News Shipbuilding
| Three Months Ended | Nine Months Ended | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30 | September 30 | |||||||||||||||||
| ($ in millions) | 2021 | 2020 | Change | % Change | 2021 | 2020 | Change | % Change | ||||||||||
| Revenues | $ | 1,354 | $ | 1,358 | (0.3) | % | $ | 4,124 | $ | 3,821 | 7.9 | % | ||||||
| Segment operating income1 | 88 | 79 | 9 | 11.4 | % | 257 | 105 | 152 | 144.8 | % | ||||||||
| Segment operating margin %1 | 6.5 | % | 5.8 | % | 68 bps | 6.2 | % | 2.7 | % | 348 bps | ||||||||
| 1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. |
All values are in US Dollars.
Newport News Shipbuilding revenues for the third quarter of 2021 were $1.4 billion, a decrease of $4 million, or 0.3%, from the same period in 2020, primarily driven by lower revenues in naval nuclear support services, partially offset by higher revenues in submarines and aircraft carriers. Naval nuclear support service revenues decreased primarily as a result of lower volumes in submarine fleet support services and facility maintenance services, partially offset by higher volumes in carrier fleet support services. Submarine revenues increased due to higher volumes in Block V boats of the Virginia-class submarine (VCS) program, submarine support services and the Columbia-class submarine program, partially offset by lower volumes in Block IV boats of the VCS program. Aircraft carrier revenues increased primarily as a result of higher volumes on the refueling and complex overhaul (RCOH) of USS John C. Stennis (CVN 74) and the construction of Doris Miller (CVN 81) and Enterprise (CVN 80), partially offset by lower volumes on the RCOH of USS George Washington (CVN 73) and the construction of John F. Kennedy (CVN 79).
Newport News Shipbuilding segment operating income1 for the third quarter of 2021 was $88 million, an increase of $9 million from the same period in 2020. Segment operating margin1 in the third quarter of 2021 was 6.5%, compared to 5.8% in the same period last year. The increases were primarily due to higher risk retirement on the RCOH of USS George Washington (CVN 73), and Block IV boats of the VCS program, partially offset by lower risk retirement on naval nuclear support services.
Key Newport News Shipbuilding milestones for the quarter:
•Commenced the first cut of steel for aircraft carrier Doris Miller (CVN 81)
•Reached approximate 92% completion of RCOH of USS George Washington (CVN 73)
•Reached approximate 84% completion of John F. Kennedy (CVN 79)
1Non-GAAP measure. See Exhibit B for definitions and reconciliations.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 3 of 15
Technical Solutions
| Three Months Ended | Nine Months Ended | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30 | September 30 | |||||||||||||||||
| ($ in millions) | 2021 | 2020 | Change | % Change | 2021 | 2020 | $ Change | % Change | ||||||||||
| Revenues | $ | 394 | $ | 320 | 23.1 | % | $ | 890 | $ | 957 | (67) | (7.0) | % | |||||
| Segment operating income1 | 13 | 21 | (38.1) | % | 33 | 23 | 10 | 43.5 | % | |||||||||
| Segment operating margin %1 | 3.3 | % | 6.6 | % | (326) bps | 3.7 | % | 2.4 | % | 130 bps | ||||||||
| 1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. |
All values are in US Dollars.
Technical Solutions revenues for the third quarter of 2021 were $394 million, an increase of $74 million from the same period in 2020. The increase was due primarily to the acquisition of Alion, partially offset by the divestiture of our oil and gas business and contribution of the San Diego Shipyard to a joint venture in the first quarter of this year. The acquisition of Alion closed on Aug. 19, 2021, and third quarter 2021 results include approximately $163 million of revenue attributable to Alion.
Technical Solutions segment operating income1 for the third quarter of 2021 was $13 million, compared to $21 million in the third quarter of 2020. Segment operating margin1 in the third quarter of 2021 was 3.3%, compared to
6.6% in the same period last year. The decrease was primarily driven by the inclusion of approximately $8 million of Alion related purchase intangible amortization, as well as lower performance in Defense and Federal Solutions, the divestiture of our oil and gas business, and the contribution of our San Diego Shipyard to a joint venture in the first quarter of this year. Third quarter 2021 results include approximately $4 million of segment operating income1 attributable to Alion, net of the aforementioned purchase intangible amortization.
Key Technical Solutions milestones for the quarter:
•Announced and closed the acquisition of Alion Science and Technology
•Awarded a contract with a total potential value of $346 million to support U.S. Africa Command's life-saving operations
•Awarded a 5-year, $273 million contract from the U.S. Navy to support aircraft carrier and surface ship maintenance
1Non-GAAP measure. See Exhibit B for definitions and reconciliations.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 4 of 15
2021 Outlook1
•Timing of material delivery impacting near-term Shipbuilding revenue2
•Shipbuilding operating margin2 in line with prior expectations
•Outlook updated for Alion acquisition
◦~$400 million revenue increase
◦Purchase intangible amortization impacts segment operating margin2 outlook
•Delayed repayment of accelerated progress payments improves 2021 free cash flow2 outlook
| Prior<br><br>Outlook3 | Current Outlook4 | |
|---|---|---|
| Shipbuilding Revenue2 | $8.2B - $8.4B | ~$8.2B |
| Shipbuilding Operating Margin2 | 7.5% - 8.0% | 7.5% - 8.0% |
| Technical Solutions Revenue | ~$1.0B | ~1.4B |
| Technical Solutions Segment Operating Margin2 | 3.0% - 5.0% | ~2.5% |
| Technical Solutions EBITDA Margin2 | 7.0% - 9.0% | ~8.0% |
| Operating FAS/CAS Adjustment | ($163M) | ($157M) |
| Non-current State Income Tax Expense | ~($5M) | ~($15M) |
| Interest Expense | ($72M) | ($87M) |
| Non-operating Retirement Benefit | $181M | $181M |
| Effective Tax Rate | ~22% | ~13% |
| Depreciation & Amortization | ~$260M | ~$302M |
| Capital Expenditures | ~3.5% of Sales | ~3.5% of Sales |
| Free Cash Flow2 | $150M - $250M | $300M - $350M |
1The financial outlook, expectations and other forward looking statements provided by the company for 2021 and beyond reflect the company's judgment based on the information available at the time of this release.
2 Non-GAAP measures. See Exhibit B for definitions.
3 Prior outlook for Technical Solutions includes results for the month of January 2021 for Universal Pegasus International and the San Diego Shipyard, and excludes results for Alion Science and Technology.
4 Current outlook for Technical Solutions includes results for the month of January 2021 for Universal Pegasus International and the San Diego Shipyard, and includes results for Alion Science and Technology as of the close of the acquisition on Aug. 19, 2021, inclusive of incremental purchase intangible amortization.
About Huntington Ingalls Industries
Huntington Ingalls Industries is America’s largest military shipbuilding company and a provider of professional services to partners in government and industry. For more than a century, HII’s Newport News and Ingalls shipbuilding divisions in Virginia and Mississippi have built more ships in more ship classes than any other U.S. naval shipbuilder. HII’s Technical Solutions division provides mission-critical national security solutions to government and commercial customers worldwide. Headquartered in Newport News, Virginia, HII employs about 44,000 people operating both domestically and internationally. For more information, please visit www.huntingtoningalls.com.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 5 of 15
Conference Call Information
Huntington Ingalls Industries will webcast its earnings conference call at 9 a.m. Eastern time today. A live audio broadcast of the conference call and supplemental presentation will be available on the investor relations page of the company’s website: www.huntingtoningalls.com. A telephone replay of the conference call will be available from noon today through Thursday, Nov. 11 by calling toll-free (877) 344-7529 or (412) 317-0088 and using conference ID 10160786.
Forward-Looking Statements
Statements in this release, other than statements of historical fact, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements. Factors that may cause such differences include: changes in government and customer priorities and requirements (including government budgetary constraints, shifts in defense spending, and changes in customer short-range and long-range plans); our ability to estimate our future contract costs and perform our contracts effectively; changes in procurement processes and government regulations and our ability to comply with such requirements; our ability to deliver our products and services at an affordable life cycle cost and compete within our markets; natural and environmental disasters and political instability; our ability to execute our strategic plan, including with respect to share repurchases, dividends, capital expenditures and strategic acquisitions; adverse economic conditions in the United States and globally; health epidemics, pandemics and similar outbreaks, including the COVID-19 pandemic, and the impacts of vaccination mandates on our workforce; our ability to effectively integrate the operations of Alion Science and Technology into our business; changes in key estimates and assumptions regarding our pension and retiree health care costs; security threats, including cyber security threats, and related disruptions; and other risk factors discussed in our filings with the U.S. Securities and Exchange Commission. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business, and we undertake no obligation to update any forward-looking statements. You should not place undue reliance on any forward-looking statements that we may make. This release also contains non-GAAP financial measures and includes a GAAP reconciliation of these financial measures. Non-GAAP financial measures should not be construed as being more important than comparable GAAP measures.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 6 of 15
Exhibit A: Financial Statements
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
| Three Months Ended<br>September 30 | Nine Months Ended<br> September 30 | |||||||
|---|---|---|---|---|---|---|---|---|
| (in millions, except per share amounts) | 2021 | 2020 | 2021 | 2020 | ||||
| Sales and service revenues | ||||||||
| Product sales | $ | 1,701 | $ | 1,699 | $ | 5,185 | $ | 4,743 |
| Service revenues | 637 | 615 | 1,662 | 1,861 | ||||
| Sales and service revenues | 2,338 | 2,314 | 6,847 | 6,604 | ||||
| Cost of sales and service revenues | ||||||||
| Cost of product sales | 1,453 | 1,388 | 4,402 | 3,931 | ||||
| Cost of service revenues | 554 | 490 | 1,450 | 1,550 | ||||
| Income from operating investments, net | 11 | 6 | 31 | 19 | ||||
| Other income and gains | 2 | — | 3 | — | ||||
| General and administrative expenses | 226 | 220 | 636 | 648 | ||||
| Operating income | 118 | 222 | 393 | 494 | ||||
| Other income (expense) | ||||||||
| Interest expense | (24) | (27) | (63) | (68) | ||||
| Non-operating retirement benefit | 45 | 29 | 135 | 89 | ||||
| Other, net | 2 | 2 | 10 | (8) | ||||
| Earnings before income taxes | 141 | 226 | 475 | 507 | ||||
| Federal and foreign income tax expense (benefit) | (6) | 4 | 51 | 60 | ||||
| Net earnings | $ | 147 | $ | 222 | $ | 424 | $ | 447 |
| Basic earnings per share | $ | 3.65 | $ | 5.47 | $ | 10.52 | $ | 11.01 |
| Weighted-average common shares outstanding | 40.3 | 40.6 | 40.3 | 40.6 | ||||
| Diluted earnings per share | $ | 3.65 | $ | 5.45 | $ | 10.52 | $ | 10.98 |
| Weighted-average diluted shares outstanding | 40.3 | 40.7 | 40.3 | 40.7 | ||||
| Dividends declared per share | $ | 1.14 | $ | 1.03 | $ | 3.42 | $ | 3.09 |
| Net earnings from above | $ | 147 | $ | 222 | $ | 424 | $ | 447 |
| Other comprehensive income | ||||||||
| Change in unamortized benefit plan costs | 43 | 24 | 102 | 70 | ||||
| Other | (1) | 1 | 1 | — | ||||
| Tax expense for items of other comprehensive income | (11) | (6) | (26) | (18) | ||||
| Other comprehensive income , net of tax | 31 | 19 | 77 | 52 | ||||
| Comprehensive income | $ | 178 | $ | 241 | $ | 501 | $ | 499 |
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 7 of 15
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
| ($ in millions) | September 30,<br>2021 | December 31,<br>2020 | ||
|---|---|---|---|---|
| Assets | ||||
| Current Assets | ||||
| Cash and cash equivalents | $ | 555 | $ | 512 |
| Accounts receivable, net of allowance for doubtful accounts of $2 million as of 2021 and 2020 | 446 | 397 | ||
| Contract assets | 1,363 | 1,049 | ||
| Inventoried costs, net | 143 | 137 | ||
| Income taxes receivable | 221 | 171 | ||
| Assets held for sale | — | 133 | ||
| Prepaid expenses and other current assets | 66 | 45 | ||
| Total current assets | 2,794 | 2,444 | ||
| Property, Plant, and Equipment, net of accumulated depreciation of $2,105 million as of 2021 and $2,024 million as of 2020 | 3,043 | 2,978 | ||
| Other Assets | ||||
| Operating lease assets | 246 | 192 | ||
| Goodwill | 2,684 | 1,617 | ||
| Other intangible assets, net of accumulated amortization of $702 million as of 2021 and $655 million as of 2020 | 1,187 | 512 | ||
| Deferred tax assets | 10 | 133 | ||
| Miscellaneous other assets | 436 | 281 | ||
| Total other assets | 4,563 | 2,735 | ||
| Total assets | $ | 10,400 | $ | 8,157 |
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 8 of 15
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) (continued)
| ($ in millions) | September 30,<br>2021 | December 31,<br>2020 | ||
|---|---|---|---|---|
| Liabilities and Stockholders' Equity | ||||
| Current Liabilities | ||||
| Trade accounts payable | $ | 508 | $ | 460 |
| Accrued employees’ compensation | 367 | 293 | ||
| Current portion of postretirement plan liabilities | 131 | 133 | ||
| Current portion of workers’ compensation liabilities | 231 | 225 | ||
| Contract liabilities | 674 | 585 | ||
| Liabilities held for sale | — | 68 | ||
| Other current liabilities | 533 | 462 | ||
| Total current liabilities | 2,444 | 2,226 | ||
| Long-term debt | 3,321 | 1,686 | ||
| Pension plan liabilities | 833 | 960 | ||
| Other postretirement plan liabilities | 379 | 401 | ||
| Workers’ compensation liabilities | 522 | 511 | ||
| Long-term operating lease liabilities | 198 | 157 | ||
| Deferred tax liabilities | 154 | — | ||
| Other long-term liabilities | 360 | 315 | ||
| Total liabilities | 8,211 | 6,256 | ||
| Commitments and Contingencies | ||||
| Stockholders’ Equity | ||||
| Common stock, $0.01 par value; 150 million shares authorized; 53.4 million shares issued and 40.1 million shares outstanding as of September 30, 2021, and 53.3 million shares issued and 40.5 million shares outstanding as of December 31, 2020 | 1 | 1 | ||
| Additional paid-in capital | 1,984 | 1,972 | ||
| Retained earnings | 3,819 | 3,533 | ||
| Treasury stock | (2,145) | (2,058) | ||
| Accumulated other comprehensive loss | (1,470) | (1,547) | ||
| Total stockholders’ equity | 2,189 | 1,901 | ||
| Total liabilities and stockholders’ equity | $ | 10,400 | $ | 8,157 |
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 9 of 15
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| ( in millions) | 2021 | 2020 | ||
| Operating Activities | ||||
| Net earnings | $ | 424 | $ | 447 |
| Adjustments to reconcile to net cash provided by (used in) operating activities | ||||
| Depreciation | 154 | 136 | ||
| Amortization of purchased intangibles | 48 | 41 | ||
| Amortization of debt issuance costs | 6 | 5 | ||
| Provision for doubtful accounts | — | (2) | ||
| Stock-based compensation | 19 | 16 | ||
| Deferred income taxes | 74 | (7) | ||
| Loss (gain) on investments in marketable securities | (12) | (3) | ||
| Asset impairments | — | 13 | ||
| Change in | ||||
| Accounts receivable | 52 | (164) | ||
| Contract assets | (179) | (63) | ||
| Inventoried costs | (7) | (5) | ||
| Prepaid expenses and other assets | (116) | (60) | ||
| Accounts payable and accruals | 93 | 315 | ||
| Retiree benefits | (73) | (183) | ||
| Other non-cash transactions, net | 6 | 5 | ||
| Net cash provided by operating activities | 489 | 491 | ||
| Investing Activities | ||||
| Capital expenditures | ||||
| Capital expenditure additions | (216) | (220) | ||
| Grant proceeds for capital expenditures | 11 | 17 | ||
| Acquisitions of businesses, net of cash received | (1,636) | (377) | ||
| Investment in affiliates | (22) | — | ||
| Proceeds from disposition of business | 20 | — | ||
| Other investing activities, net | 1 | (6) | ||
| Net cash used in investing activities | (1,842) | (586) |
All values are in US Dollars.
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 (UNAUDITED) (continued)
| ( in millions) | 2021 | 2020 | ||
| Financing Activities | ||||
| Proceeds from issuance of long-term debt | 1,650 | 1,000 | ||
| Proceeds from revolving credit facility borrowings | — | 385 | ||
| Repayment of revolving credit facility borrowings | — | (385) | ||
| Debt issuance costs | (22) | (13) | ||
| Dividends paid | (138) | (126) | ||
| Repurchases of common stock | (87) | (84) | ||
| Employee taxes on certain share-based payment arrangements | (7) | (13) | ||
| Net cash provided by (used in) financing activities | 1,396 | 764 | ||
| Change in cash and cash equivalents | 43 | 669 | ||
| Cash and cash equivalents, beginning of period | 512 | 75 | ||
| Cash and cash equivalents, end of period | $ | 555 | $ | 744 |
| Supplemental Cash Flow Disclosure | ||||
| Cash paid for income taxes (net of refunds) | $ | 31 | $ | 106 |
| Cash paid for interest | $ | 39 | $ | 33 |
| Non-Cash Investing and Financing Activities | ||||
| Capital expenditures accrued in accounts payable | $ | 4 | $ | 8 |
All values are in US Dollars.
Exhibit B: Non-GAAP Measures Definitions & Reconciliations
We make reference to “segment operating income,” “segment operating margin,” “pension adjusted diluted earnings per share,” “shipbuilding revenue,” “shipbuilding operating margin,” “Technical Solutions EBITDA margin” and “free cash flow.”
We internally manage our operations by reference to segment operating income and segment operating margin, which are not recognized measures under GAAP. When analyzing our operating performance, investors should use segment operating income and segment operating margin in addition to, and not as alternatives for, operating income and operating margin or any other performance measure presented in accordance with GAAP. They are measures that we use to evaluate our core operating performance. We believe that segment operating income and segment operating margin reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. We believe these measures are used by investors and are a useful indicator to measure our performance. Because not all companies use identical calculations, our presentation of segment operating income and segment operating margin may not be comparable to similarly titled measures of other companies.
Shipbuilding revenue, shipbuilding operating margin, Technical Solutions EBITDA margin and pension adjusted diluted earnings per share are not measures recognized under GAAP. They are measures that we use to evaluate our core operating performance. We believe that shipbuilding revenue, shipbuilding operating margin, Technical Solutions EBITDA margin and pension adjusted diluted earnings per share reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. We believe these measures are used by investors and are a useful indicator to measure our performance.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 11 of 15
Free cash flow is not a measure recognized under GAAP. Free cash flow has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, analysis of our results as reported under GAAP. We believe free cash flow is an important measure for our investors because it provides them insight into our current and period-to-period performance and our ability to generate cash from continuing operations. We also use free cash flow as a key operating metric in assessing the performance of our business and as a key performance measure in evaluating management performance and determining incentive compensation. Free cash flow may not be comparable to similarly titled measures of other companies.
Reconciliations of forward-looking GAAP and non-GAAP measures are not provided because we are unable to provide such reconciliations without unreasonable effort due to the uncertainty and inherent difficulty of predicting the future occurrence and financial impact of certain elements of GAAP and non-GAAP measures.
Segment operating income is defined as operating income for the relevant segment(s) before the Operating FAS/CAS Adjustment and non-current state income taxes.
Segment operating margin is defined as segment operating income as a percentage of sales and service revenues.
Shipbuilding revenue is defined as the combined sales and service revenues from our Newport News Shipbuilding segment and Ingalls Shipbuilding segment.
Shipbuilding operating margin is defined as the combined segment operating income of our Newport News Shipbuilding segment and Ingalls Shipbuilding segment as a percentage of shipbuilding revenue.
Technical Solutions EBITDA margin is defined as Technical Solutions segment operating income before interest expense, income taxes, depreciation, and amortization as a percentage of Technical Solutions revenues.
Pension adjusted net earnings is defined as net earnings adjusted for the after-tax impact of the FAS/CAS Adjustment.
Pension adjusted diluted earnings per share is defined as adjusted net earnings divided by the weighted-average diluted common shares outstanding.
Free cash flow is defined as net cash provided by (used in) operating activities less capital expenditures net of related grant proceeds.
FAS/CAS Adjustment is defined as the difference between expenses for pension and other postretirement benefits determined in accordance with GAAP (FAS) and the expenses determined in accordance with U.S. Cost Accounting Standards (CAS).
Operating FAS/CAS Adjustment is defined as the difference between the service cost component of our pension and other postretirement expense determined in accordance with GAAP (FAS) and our pension and other postretirement expense under U.S. Cost Accounting Standards (CAS).
Non-current state income taxes are defined as deferred state income taxes, which reflect the change in deferred state tax assets and liabilities and the tax expense or benefit associated with changes in state uncertain tax positions in the relevant period. These amounts are recorded within operating income. Current period state income tax expense is charged to contract costs and included in cost of sales and service revenues in segment operating income.
We present financial measures adjusted for the Operating FAS/CAS Adjustment and non-current state income taxes to reflect the company’s performance based upon the pension costs and state tax expense charged to our contracts under CAS. We use these adjusted measures as internal measures of operating performance and for performance-based compensation decisions.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 12 of 15
Reconciliations of Segment Operating Income and Segment Operating Margin
| Three Months Ended | Nine Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30 | September 30 | |||||||||||
| ($ in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||
| Ingalls revenues | $ | 628 | $ | 675 | $ | 1,947 | $ | 1,926 | ||||
| Newport News revenues | 1,354 | 1,358 | 4,124 | 3,821 | ||||||||
| Technical Solutions revenues | 394 | 320 | 890 | 957 | ||||||||
| Intersegment eliminations | (38) | (39) | (114) | (100) | ||||||||
| Sales and Service Revenues | 2,338 | 2,314 | 6,847 | 6,604 | ||||||||
| Operating Income | 118 | 222 | 393 | 494 | ||||||||
| Operating FAS/CAS Adjustment | 41 | (60) | 118 | (186) | ||||||||
| Non-current state income taxes | 4 | — | 12 | 5 | ||||||||
| Segment Operating Income | 163 | 162 | 523 | 313 | ||||||||
| As a percentage of sales and service revenues | 7.0 | % | 7.0 | % | 7.6 | % | 4.7 | % | ||||
| Ingalls segment operating income | 62 | 62 | 233 | 185 | ||||||||
| As a percentage of Ingalls revenues | 9.9 | % | 9.2 | % | 12.0 | % | 9.6 | % | ||||
| Newport News segment operating income | 88 | 79 | 257 | 105 | ||||||||
| As a percentage of Newport News revenues | 6.5 | % | 5.8 | % | 6.2 | % | 2.7 | % | ||||
| Technical Solutions segment operating income | 13 | 21 | 33 | 23 | ||||||||
| As a percentage of Technical Solutions revenues | 3.3 | % | 6.6 | % | 3.7 | % | 2.4 | % |
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 13 of 15
Reconciliation of Pension Adjusted Net Earnings and Pension Adjusted Diluted Earnings Per Share
| Three Months Ended | Nine Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| September 30 | September 30 | |||||||
| (in millions, except per share amounts) | 2021 | 2020 | 2021 | 2020 | ||||
| Net earnings | $ | 147 | $ | 222 | $ | 424 | $ | 447 |
| After-tax FAS/CAS Adjustment(1) | (3) | (70) | (13) | (217) | ||||
| Pension Adjusted Net Earnings | $ | 144 | $ | 152 | $ | 411 | $ | 230 |
| Diluted earnings per share | $ | 3.65 | $ | 5.45 | $ | 10.52 | $ | 10.98 |
| After-tax FAS/CAS Adjustment per share(1) | (0.07) | (1.72) | (0.32) | (5.33) | ||||
| Adjusted Diluted EPS** | $ | 3.58 | $ | 3.73 | $ | 10.20 | $ | 5.65 |
| (1) FAS/CAS Adjustment | $ | (4) | $ | (89) | $ | (17) | $ | (275) |
| Tax effect* | (1) | (19) | (4) | (58) | ||||
| After-tax impact | $ | (3) | $ | (70) | $ | (13) | $ | (217) |
| Weighted-average diluted shares outstanding | 40.3 | 40.7 | 40.3 | 40.7 | ||||
| Per share after-tax impact** | $ | (0.07) | $ | (1.72) | $ | (0.32) | $ | (5.33) |
| *The income tax impact is calculated using the tax rate in effect for the relevant non-GAAP adjustment. | ||||||||
| **Amounts may not recalculate exactly due to rounding. |
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 14 of 15
Reconciliation of Free Cash Flow
| ( in millions) | 2021 | 2020 | ||
| Net cash provided by operating activities | $ | 489 | $ | 491 |
| Less capital expenditures: | ||||
| Capital expenditure additions | (216) | (220) | ||
| Grant proceeds for capital expenditures | 11 | 17 | ||
| Free cash flow | $ | 284 | $ | 288 |
All values are in US Dollars.
Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com
Page 15 of 15
hiiq32021earningspresent
Q3 2021 Earnings Presentation November 4, 2021 Mike Petters President and Chief Executive Officer Chris Kastner Executive Vice President and Chief Operating Officer Tom Stiehle Executive Vice President and Chief Financial Officer
HARD STUFF DONE RIGHT Forward-Looking Statements 2 HUNTINGTON INGALLS INDUSTRIES 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, and the impacts of vaccination mandates on our workforce; our ability to effectively integrate the operations of Alion Science and Technology into our business; changes in key estimates and assumptions regarding our pension and retiree health care costs; security threats, including cyber security threats, and related disruptions; and other risk factors discussed in our filings with the U.S. Securities and Exchange Commission. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business, and we undertake no obligation to update any forward-looking statements. You should not place undue reliance on any forward-looking statements that we may make. This 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.
HARD STUFF DONE RIGHT HII Q3 2021 Highlights 3 HUNTINGTON INGALLS INDUSTRIES Revenues were ~$2.3 billion in the quarter Diluted EPS was $3.65 in the quarter; Pension adjusted diluted EPS1 was $3.58 The acquisition of Alion Science and Technology ("Alion") closed on Aug. 19, 2021; quarterly results included approximately $15 million of pre-tax transaction related expenses Total backlog at the end of the quarter was $50.1 billion Ingalls Shipbuilding o Completed acceptance trials for guided missile destroyer Frank E. Petersen Jr. (DDG 121) o Christened amphibious transport dock Fort Lauderdale (LPD 28) o Authenticated the keel of National Security Cutter Calhoun (NSC 10) Newport News Shipbuilding o Commenced the first cut of steel for aircraft carrier Doris Miller (CVN 81) o Reached approximate 92% completion of RCOH of USS George Washington (CVN 73) o Reached approximate 84% completion of John F. Kennedy (CVN 79) Technical Solutions o Announced and closed the acquisition of Alion Science and Technology o Awarded a contract with a total potential value of $346 million to support U.S. Africa Command's life-saving operations o Awarded a 5-year, $273 million contract from the U.S. Navy to support aircraft carrier and surface ship maintenance Backlog ($B) 1Non-GAAP measure. See appendix for definition and reconciliation. Earnings Per Share $5.45 $3.65$3.73 $3.58 $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 Q3 2020 Q3 2021 Diluted EPS Pension Adjusted Diluted EPS1 $45.3 $50.1 $0 $10 $20 $30 $40 $50 $60 Q3 2020 Q3 2021
HARD STUFF DONE RIGHT HII Q3 2021 Consolidated Results 4 HUNTINGTON INGALLS INDUSTRIES Consolidated Revenue ($M) Operating Income ($M) Operating Margin Revenues improved YoY due primarily to revenues attributable to the acquisition of Alion in the quarter, partially offset by lower volume at Ingalls Shipbuilding, as well as the divestiture of UPI and the contribution of the San Diego Shipyard to a joint venture in the first quarter of 2021 Operating income declined YoY due primarily to a less favorable operating FAS/CAS adjustment $2,314 $2,338 $0 $500 $1,000 $1,500 $2,000 $2,500 Q3 2020 Q3 2021 $222 $118 $0 $50 $100 $150 $200 $250 Q3 2020 Q3 2021 9.6% 5.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Q3 2020 Q3 2021
HARD STUFF DONE RIGHT Capital Deployment 5 HUNTINGTON INGALLS INDUSTRIES Shareholder Distributions ($M) 1Non-GAAP measure. See appendix for definition and reconciliation. Cash Flow Generation ($M) Cash balance of $555 million and liquidity of $2.0 billion at quarter-end Net capital expenditures were 3.1% of revenues Cash contributions to pension and other postretirement benefit plans were $10 million o No discretionary contributions to our qualified pension plans in Q3 2021 Distributed $63 million to shareholders in the quarter Repurchased 83 thousand shares at aggregate cost of $17 million Paid dividends of $46 million $222 $350 ($62) ($73) $160 $277 -$100 -$50 $0 $50 $100 $150 $200 $250 $300 $350 $400 Q3 2020 Q3 2021 Cash from Operations CAPEX Free Cash Flow 1 $42 $46 $17 $0 $10 $20 $30 $40 $50 $60 $70 Q3 2020 Q3 2021 Dividends Share Repurchases (at cost) Total $42 Total $63
HARD STUFF DONE RIGHT Ingalls Shipbuilding Q3 2021 Results 6 HUNTINGTON INGALLS INDUSTRIES Revenues ($M) Segment Operating Income1 ($M) Segment Operating Margin1 Revenues declined YoY due primarily to lower volumes on the NSC, DDG and LHA programs Segment operating income1 was in line with results in the prior year period. Segment operating margin1 improved YoY primarily due to an incentive on the DDG program and higher risk retirement on the LPD program, partially offset by lower NSC risk retirement $675 $628 $0 $200 $400 $600 $800 Q3 2020 Q3 2021 $62 $62 $0 $20 $40 $60 $80 Q3 2020 Q3 2021 9.2% 9.9% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Q3 2020 Q3 2021 1Non-GAAP measure. See appendix for definition and reconciliation.
HARD STUFF DONE RIGHT Newport News Shipbuilding Q3 2021 Results 7 HUNTINGTON INGALLS INDUSTRIES Revenues ($M) Segment Operating Income1 ($M) Segment Operating Margin1 Revenues were in line with results in the prior year period with lower revenue YoY in nuclear support services, partially offset by higher revenue in submarines and aircraft carriers Segment operating income1 and segment operating margin1 improved YoY driven by higher risk retirement on the RCOH of USS George Washington and Block IV boats of the VCS program, partially offset by lower risk retirement on naval nuclear support services $1,358 $1,354 $0 $500 $1,000 $1,500 Q3 2020 Q3 2021 $79 $88 $0 $20 $40 $60 $80 $100 Q3 2020 Q3 2021 5.8% 6.5% 0.0% 2.0% 4.0% 6.0% 8.0% Q3 2020 Q3 2021 1Non-GAAP measure. See appendix for definition and reconciliation.
HARD STUFF DONE RIGHT Technical Solutions Q3 2021 Results 8 HUNTINGTON INGALLS INDUSTRIES Revenues ($M) Segment Operating Income1 ($M) Segment Operating Margin1 Revenues improved YoY due primarily to revenue attributable to the acquisition of Alion in the quarter, partially offset by the divestiture of our oil and gas business and the contribution of the San Diego Shipyard to a joint venture in the first quarter of 2021 Segment operating income1 and segment operating margin1 declined YoY driven by approximately $8 million of purchase intangible amortization related to Alion, as well as lower performance in Defense and Federal Solutions, the divestiture of our oil and gas business and the contribution of the San Diego Shipyard to a joint venture in the first quarter of 2021. Third quarter 2021 results include approximately $4 million of segment operating income1 attributable to Alion, net of the aforementioned purchase intangible amortization. $320 $394 $0 $100 $200 $300 $400 $500 Q3 2020 Q3 2021 $21 $13 $0 $5 $10 $15 $20 $25 Q3 2020 Q3 2021 6.6% 3.3% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% Q3 2020 Q3 2021 1Non-GAAP measure. See appendix for definition and reconciliation.
HARD STUFF DONE RIGHT Pension Outlook 9 HUNTINGTON INGALLS INDUSTRIES ($ in millions) 2020 (Actual) 20213 20223 Pension Discount Rate 3.39% 2.80% Change from prior est. N/A 2.89% Change from prior est. 9bps Expected Long-Term Return on Assets 7.25% 7.25% N/A 7.25% N/A CAS Recoveries Over/(Under) Cash Contributions1,2 $191 ($54) $1 $3 $1 FAS Benefit/(Expense)1 ($70) ($28) N/A $3 $15 CAS Expense1 $437 $52 $6 $49 $3 FAS/CAS Adjustment1 $367 $24 $6 $52 $18 Operating FAS/CAS Adjustment1 $248 ($157) $6 ($148) $14 Non-Operating Retirement (Expense)/Income1 $119 $181 N/A $200 $4 Pension and Post-retirement Benefits Cash Contributions2 $246 $106 $5 $46 $2 1 Includes pension & other postretirement benefits. 2 2021 projected cash contributions of $106 million include $68 million of discretionary pension contributions ($60 million qualified; $8 million non-qualified) and $38 million of post retirement benefits contributions. 2022 projected cash contributions of $46 million include $12 million of discretionary pension contributions ($2 million quali fied; $10 million non-qualified) and $34 million of post retirement benefits contributions. 3 Projected and subject to change during 2021 and 2022.
HARD STUFF DONE RIGHT FY21 Outlook 10 HUNTINGTON INGALLS INDUSTRIES Timing of material delivery impacting near-term Shipbuilding revenue2 Shipbuilding operating margin2 in line with prior expectations Outlook updated for Alion acquisition ~$400 million revenue increase Purchase intangible amortization impacts segment operating margin1 outlook Delayed repayment of accelerated progress payments improves 2021 free cash flow2 outlook 2021 Outlook1 1 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 presentation. 2 Non-GAAP measure. See appendix for definition. Reconciliations of forward-looking GAAP and non-GAAP measures are not provided because we are unable to provide such reconciliations without unreasonable effort due to the uncertainty and inherent difficulty of predicting the future occurrence and financial impact of certain elements of GAAP and non-GAAP measures. 3 Technical Solutions outlook includes results for the month of January 2021 for Universal Pegasus International and the San Diego Shipyard; excludes Alion Science and Technology. 4 Technical Solutions outlook includes results for the month of January 2021 for Universal Pegasus International and the San Diego Shipyard, and includes results for Alion Science and Technology as of the close of the acquisition on August 19, 2021, inclusive of incremental purchase intangible amortization. Prior Outlook3 Current Outlook4 Shipbuilding Revenue2 $8.2B - $8.4B ~$8.2B Shipbuilding Operating Margin2 7.5% - 8.0% 7.5% - 8.0% Technical Solutions Revenue ~$1.0B ~$1.4B Technical Solutions Segment Operating Margin2 3.0% - 5.0% ~2.5% Technical Solutions EBITDA Margin2 7.0% - 9.0% ~8.0% Operating FAS/CAS Adjustment ($163M) ($157M) Non-current State Income Tax Expense ~($5M) ~($15M) Interest Expense ($72M) ($87M) Non-operating Retirement Benefit $181M $181M Effective Tax Rate ~22% ~13% Depreciation & Amortization ~$260M ~$302M Capital Expenditures ~3.5% of Sales ~3.5% of Sales Free Cash Flow2 $150M - $250M $300M - $350M
Appendix HUNTINGTON INGALLS INDUSTRIES PROPRIETARY
HARD STUFF DONE RIGHT Non-GAAP Measures Definitions 12 HUNTINGTON INGALLS INDUSTRIES We make reference to “segment operating income,” “segment operating margin,” “pension adjusted diluted earnings per share,” “shipbuilding revenue,” “shipbuilding operating margin,” “Technical Solutions EBITDA margin” and “free cash flow.” We internally manage our operations by reference to segment operating income and segment operating margin, which are not recognized measures under GAAP. When analyzing our operating performance, investors should use segment operating income and segment operating margin in addition to, and not as alternatives for, operating income and operating margin or any other performance measure presented in accordance with GAAP. They are measures that we use to evaluate our core operating performance. We believe that segment operating income and segment operating margin reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. We believe these measures are used by investors and are a useful indicator to measure our performance. Because not all companies use identical calculations, our presentation of segment operating income and segment operating margin may not be comparable to similarly titled measures of other companies. Shipbuilding revenue, shipbuilding operating margin, Technical Solutions EBITDA margin and pension adjusted diluted earnings per share are not measures recognized under GAAP. They are measures that we use to evaluate our core operating performance. We believe that shipbuilding revenue, shipbuilding operating margin, Technical Solutions EBITDA margin and pension adjusted diluted earnings per share reflect additional ways of viewing aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. We believe these measures are used by investors and are a useful indicator to measure our performance. Free cash flow is not a measure recognized under GAAP. Free cash flow has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, analysis of our results as reported under GAAP. We believe free cash flow is an important measure for our investors because it provides them insight into our current and period-to-period performance and our ability to generate cash from continuing operations. We also use free cash flow as a key operating metric in assessing the performance of our business and as a key performance measure in evaluating management performance and determining incentive compensation. Free cash flow may not be comparable to similarly titled measures of other companies. Reconciliations of forward-looking GAAP and non-GAAP measures are not provided because we are unable to provide such reconciliations without unreasonable effort due to the uncertainty and inherent difficulty of predicting the future occurrence and financial impact of certain elements of GAAP and non-GAAP measures.
HARD STUFF DONE RIGHT Non-GAAP Measures Definitions Cont’d 13 HUNTINGTON INGALLS INDUSTRIES Segment operating income is defined as operating income for the relevant segment(s) before the Operating FAS/CAS Adjustment and non-current state income taxes. Segment operating margin is defined as segment operating income as a percentage of sales and service revenues. Shipbuilding revenue is defined as the combined sales and service revenues from our Newport News Shipbuilding segment and Ingalls Shipbuilding segment. Shipbuilding operating margin is defined as the combined segment operating income of our Newport News Shipbuilding segment and Ingalls Shipbuilding segment as a percentage of shipbuilding revenue. Technical Solutions EBITDA margin is defined as Technical Solutions segment operating income before interest expense, income taxes, depreciation, and amortization as a percentage of Technical Solutions revenues. Pension adjusted diluted earnings per share is defined as diluted earnings per share excluding the after-tax impact of the FAS/CAS adjustment. 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.
HARD STUFF DONE RIGHT14 HUNTINGTON INGALLS INDUSTRIES Non-GAAP Reconciliations – Segment Operating Income & Segment Operating Margin ($ in millions) 2021 2020 2021 2020 Ingalls revenues 628 675 1,947 1,926 Newport News revenues 1,354 1,358 4,124 3,821 Technical Solutions revenues 394 320 890 957 Intersegment eliminations (38) (39) (114) (100) Sales and Service Revenues 2,338 2,314 6,847 6,604 Operating Income 118 222 393 494 Operating FAS/CAS Adjustment 41 (60) 118 (186) Non-current state income taxes 4 - 12 5 Segment Operating Income 163 162 523 313 As a percentage of sales and service revenues 7.0 % 7.0 % 7.6 % 4.7 % Ingalls segment operating income 62 62 233 185 As a percentage of Ingalls revenues 9.9 % 9.2 % 12.0 % 9.6 % Newport News segment operating income 88 79 257 105 As a percentage of Newport News revenues 6.5 % 5.8 % 6.2 % 2.7 % Technical Solutions segment operating income 13 21 33 23 As a percentage of Technical Solutions revenues 3.3 % 6.6 % 3.7 % 2.4 % Three Months Ended September 30 September 30 Nine Months Ended
HARD STUFF DONE RIGHT Non-GAAP Reconciliations – Shipbuilding Revenues & Operating Margin 15 HUNTINGTON INGALLS INDUSTRIES ($ in millions) 2021 2020 2021 2020 Sales and service revenues 2,338 2,314 6,847 6,604 Technical Solutions (394) (320) (890) (957) Intersegment eliminations 38 39 114 100 Shipbuilding Revenues 1,982 2,033 6,071 5,747 Operating Income 118 222 393 494 Operating FAS/CAS Adjustment 41 (60) 118 (186) Non-current state income taxes 4 - 12 5 Segment Operating Income 163 162 523 313 Technical Solutions (13) (21) (33) (23) Shipbuilding Operating Income 150 141 490 290 As a percentage of Shipbuilding revenues 7.6 % 6.9 % 8.1 % 5.0 % Three Months Ended September 30 September 30 Nine Months Ended
HARD STUFF DONE RIGHT Non-GAAP Reconciliations – Adjusted Diluted Earnings per Share 16 HUNTINGTON INGALLS INDUSTRIES (in millions, except per share amounts) 2021 2020 2021 2020 Net earnings 147 222 424 447 After-tax FAS/CAS Adjustment(1) (3) (70) (13) (217) Pension Adjusted Net Earnings 144 152 411 230 Diluted earnings per share $ 3.65 $ 5.45 $ 10.52 $ 10.98 After-tax FAS/CAS Adjustment(1) $ (0.07) $ (1.72) $ (0.32) $ (5.33) Pension Adjusted Diluted EPS** $ 3.58 $ 3.73 $ 10.20 $ 5.65 (1) FAS/CAS Adjustment (4) (89) (17) (275) Tax effect* (1) (19) (4) (58) After-tax impact (3) (70) (13) (217) Weighted-Average Diluted Shares Outstanding 40.3 40.7 40.3 40.7 Per share after-tax impact** $ (0.07) $ (1.72) $ (0.32) $ (5.33) **Amounts may not recalculate exactly due to rounding. Three Months Ended September 30 September 30 Nine Months Ended *The income tax impact is calculated using the tax rate in effect for the relevant non-GAAP adjustment.
HARD STUFF DONE RIGHT Non-GAAP Reconciliations – Free Cash Flow 17 HUNTINGTON INGALLS INDUSTRIES ($ in millions) 2021 2020 2021 2020 Net cash provided by operating activities 350 222 489 491 Less capital expenditures: Capital expenditure additions (82) (70) (216) (220) Grant proceeds for capital expenditures 9 8 11 17 Free cash flow 277 160 284 288 Three Months Ended September 30 Nine Months Ended September 30
HARD STUFF DONE RIGHT18 HUNTINGTON INGALLS INDUSTRIES