Huntington Ingalls Industries, Inc 10-Q for FY2020 Q1

Huntington Ingalls Industries, Inc. (HII)

10-Q 2020-05-07 For: 2020-03-31

Added on April 08, 2026

About this 10-Q

Huntington Ingalls Industries, Inc filed this 10-Q on May 7, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $2.26B; up 8.8% from $2.08B a year earlier
Net income: $172M; up 45.8% from net income of $118M a year earlier
Diluted EPS: $4.23; up 48.4% from $2.85 a year earlier

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Delaware						90-0607005
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	HII	New York Stock Exchange



	PART I – FINANCIAL INFORMATION	Page

Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations and Comprehensive Income	1
	Condensed Consolidated Statements of Financial Position	2
	Condensed Consolidated Statements of Cash Flows	3
	Condensed Consolidated Statements of Changes in Equity	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4.	Controls and Procedures	39

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42

Signatures		43


	Three Months Ended March 31
(in millions, except per share amounts)	2020		2019
Sales and service revenues
Product sales	$	1,624	$	1,490
Service revenues	639		590
Sales and service revenues	2,263		2,080
Cost of sales and service revenues
Cost of product sales	1,290		1,258
Cost of service revenues	550		494
Income from operating investments, net	6		4

General and administrative expenses	214		171

Operating income	215		161
Other income (expense)
Interest expense	(16)		(16)
Non-operating retirement benefit	30		3
Other, net	(13)		1
Earnings before income taxes	216		149
Federal and foreign income taxes	44		31
Net earnings	$	172	$	118

Basic earnings per share	$	4.23	$	2.85
Weighted-average common shares outstanding	40.7		41.4

Diluted earnings per share	$	4.23	$	2.85
Weighted-average diluted shares outstanding	40.7		41.4

Dividends declared per share	$	1.03	$	0.86

Net earnings from above	$	172	$	118
Other comprehensive income
Change in unamortized benefit plan costs	23		25

Other	(2)		—
Tax expense for items of other comprehensive income	(6)		(6)
Other comprehensive income, net of tax	15		19
Comprehensive income	$	187	$	137


($ in millions)	March 31, 2020		December 31, 2019
Assets
Current Assets
Cash and cash equivalents	$	28	$	75
Accounts receivable, net of allowance for doubtful accounts of $3 million as of 2020 and 2019	418		318
Contract assets	1,211		989
Inventoried costs, net	154		136
Income taxes receivable	108		148
Assets held for sale	178		95
Prepaid expenses and other current assets	40		24
Total current assets	2,137		1,785
Property, plant, and equipment, net of accumulated depreciation of $1,939 million as of 2020 and $1,961 million as of 2019	2,848		2,832
Operating lease assets	185		201
Goodwill	1,648		1,373
Other intangible assets, net of accumulated amortization of $610 million as of 2020 and $599 million as of 2019	481		492

Deferred tax assets	85		108
Miscellaneous other assets	231		240
Total assets	$	7,615	$	7,031
Liabilities and Stockholders' Equity
Current Liabilities
Trade accounts payable	$	536	$	497
Accrued employees’ compensation	265		265
Short-term debt and current portion of long-term debt	88		—
Current portion of postretirement plan liabilities	130		130
Current portion of workers’ compensation liabilities	229		225
Contract liabilities	387		373
Liabilities held for sale	92		77

Other current liabilities	353		323
Total current liabilities	2,080		1,890
Long-term debt	1,667		1,286
Pension plan liabilities	941		975
Other postretirement plan liabilities	378		380
Workers’ compensation liabilities	462		457
Long-term operating lease liabilities	153		164

Other long-term liabilities	291		291
Total liabilities	5,972		5,443
Commitments and Contingencies (Note 16)
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 March 31, 2020, and 53.2 million shares issued and 40.8 million shares outstanding as of December 31, 2019	1		1
Additional paid-in capital	1,955		1,961
Retained earnings	3,139		3,009
Treasury stock	(2,058)		(1,974)
Accumulated other comprehensive loss	(1,394)		(1,409)
Total stockholders’ equity	1,643		1,588
Total liabilities and stockholders’ equity	$	7,615	$	7,031


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Three Months Ended March 31, 2020 and 2019 ($ in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
Balance as of December 31, 2018	$	1	$	1,954	$	2,609	$	(1,760)	$	(1,288)	$	1,516
Net earnings	—		—		118		—		—		118
Dividends declared ($0.86 per share)	—		—		(36)		—		—		(36)
Stock compensation	—		(18)		—		—		—		(18)
Other comprehensive income, net of tax	—		—		—		—		19		19

Treasury stock activity	—		—		—		(36)		—		(36)



Balance as of March 31, 2019	$	1	$	1,936	$	2,691	$	(1,796)	$	(1,269)	$	1,563

Balance as of December 31, 2019	$	1	$	1,961	$	3,009	$	(1,974)	$	(1,409)	$	1,588
Net earnings	—		—		172		—		—		172
Dividends declared ($1.03 per share)	—		—		(42)		—		—		(42)
Stock compensation	—		(6)		—		—		—		(6)
Other comprehensive income, net of tax	—		—		—		—		15		15

Treasury stock activity	—		—		—		(84)		—		(84)



Balance as of March 31, 2020	$	1	$	1,955	$	3,139	$	(2,058)	$	(1,394)	$	1,643


($ in millions)	Benefit Plans		Other		Total
Balance as of December 31, 2018	$	(1,283)	$	(5)	$	(1,288)

Amounts reclassified from accumulated other comprehensive loss

Amortization of net actuarial loss¹	25		—		25


Tax expense for items of other comprehensive income	(6)		—		(6)
Net current period other comprehensive income	19		—		19
Balance as of March 31, 2019	$	(1,264)	$	(5)	$	(1,269)

Balance as of December 31, 2019	(1,407)		(2)		(1,409)
Other comprehensive income (loss) before reclassifications	—		(2)		(2)
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service credit¹	(2)		—		(2)
Amortization of net actuarial loss¹	25		—		25


Tax expense for items of other comprehensive income	(6)		—		(6)
Net current period other comprehensive income (loss)	17		(2)		15
Balance as of March 31, 2020	$	(1,390)	$	(4)	$	(1,394)


	Three Months Ended March 31, 2020
($ in millions)	Ingalls		Newport News		Technical Solutions		Intersegment Eliminations		Total
Revenue Type
Product sales	$	578	$	1,046	$	—	$	—	$	1,624
Service revenues	50		293		296		—		639
Intersegment	1		2		21		(24)		—
Sales and service revenues	$	629	$	1,341	$	317	$	(24)	$	2,263
Customer Type
Federal	$	628	$	1,339	$	228	$	—	$	2,195
Commercial	—		—		68		—		68

Intersegment	1		2		21		(24)		—
Sales and service revenues	$	629	$	1,341	$	317	$	(24)	$	2,263
Contract Type
Firm fixed-price	$	15	$	2	$	59	$	—	$	76
Fixed-price incentive	523		638		—		—		1,161
Cost-type	90		699		133		—		922
Time and materials	—		—		104		—		104
Intersegment	1		2		21		(24)		—
Sales and service revenues	$	629	$	1,341	$	317	$	(24)	$	2,263


	Three Months Ended March 31, 2019
($ in millions)	Ingalls		Newport News		Technical Solutions		Intersegment Eliminations		Total
Revenue Type
Product sales	$	538	$	952	$	—	$	—	$	1,490
Service revenues	46		327		217		—		590
Intersegment	—		—		23		(23)		—
Sales and service revenues	$	584	$	1,279	$	240	$	(23)	$	2,080
Customer Type
Federal	$	584	$	1,265	$	165	$	—	$	2,014
Commercial	—		14		52		—		66

Intersegment	—		—		23		(23)		—
Sales and service revenues	$	584	$	1,279	$	240	$	(23)	$	2,080
Contract Type
Firm fixed-price	$	17	$	3	$	35	$	—	$	55
Fixed-price incentive	478		453		—		—		931
Cost-type	89		823		99		—		1,011
Time and materials	—		—		83		—		83
Intersegment	—		—		23		(23)		—
Sales and service revenues	$	584	$	1,279	$	240	$	(23)	$	2,080


Year:	March 31, 2020		December 31, 2019
2020	$	34	$	45
2021	39		38
2022	31		30
2023	25		24
2024	23		22
Thereafter	121		114
Total lease payments	273		273
Less: imputed interest	57		58
Present value of lease liabilities	$	216	$	215


	Three Months Ended March 31
	Pension Benefits						Other Benefits
($ in millions)	2020		2019		2020		2019
Components of Net Periodic Benefit Cost
Service cost	$	45	$	36	$	2	$	2
Interest cost	64		69		4		5
Expected return on plan assets	(121)		(102)		—		—
Amortization of prior service cost (credit)	3		5		(5)		(5)
Amortization of net actuarial loss (gain)	27		28		(2)		(3)
Net periodic benefit cost	$	18	$	36	$	(1)	$	(1)


	Stock Awards (in thousands)	Weighted-Average Grant Date Fair Value		Weighted-Average Remaining Contractual Term (in years)
Total stock awards	391	$	205.78	1.5


	Three Months Ended March 31
									2020 over 2019
($ in millions)	2020		2019		Dollars		Percent
Sales and service revenues	$	2,263	$	2,080	$	183	9	%
Cost of product sales and service revenues	1,840		1,752		88		5	%
Income from operating investments, net	6		4		2		50	%

General and administrative expenses	214		171		43		25	%

Operating income	215		161		54		34	%
Other income (expense)
Interest expense	(16)		(16)		—		—	%
Non-operating retirement benefit	30		3		27		900	%
Other, net	(13)		1		(14)		(1,400)	%
Federal and foreign income taxes	44		31		13		42	%
Net earnings	$	172	$	118	$	54	46	%


($ in millions)	March 31, 2020		December 31, 2019
Senior notes due November 15, 2025, 5.000%	600		600
Senior notes due December 1, 2027, 3.483%	600		600
Mississippi economic development revenue bonds due May 1, 2024, 7.81%	84		84
Gulf opportunity zone industrial development revenue bonds due December 1, 2028, 4.55%	21		21
Revolving credit facility borrowings	380		—
Less unamortized debt issuance costs	(18)		(19)
Total long-term debt	$	1,667	$	1,286


	Three Months Ended March 31

($ in millions)	2020		2019
Gross favorable adjustments	$	61	$	31
Gross unfavorable adjustments	(29)		(37)
Net adjustments	$	32	$	(6)


	March 31, 2020										December 31, 2019
					Total						Total
($ in millions)	Funded		Unfunded		Backlog		Funded		Unfunded		Backlog
Ingalls	$	9,457	$	1,510	$	10,967	$	9,062	$	1,693	$	10,755
Newport News	10,537		22,407		32,944		8,414		26,352		34,766
Technical Solutions	763		483		1,246		435		538		973
Total backlog	$	20,757	$	24,400	$	45,157	$	17,911	$	28,583	$	46,494


	Three Months Ended
	March 31, 2020								2020 over 2019
($ in millions)	2020			2019			Dollars		Percent
Sales and service revenues	$	317		$	240		$	77	32	%
Segment operating income (loss)	(7)			2			(9)		(450)	%
As a percentage of segment sales	(2.2)		%	0.8		%


	Three Months Ended March 31						2020 over
								2019
($ in millions)	2020		2019		Dollars
Net earnings	$	172	$	118	$	54
Depreciation and amortization	59		53		6
Provision for doubtful accounts	—		(2)		2
Stock-based compensation	7		5		2

Deferred income taxes	18		16		2


Loss (gain) on investments in marketable securities	16		(7)		23
Retiree benefit funding less than (in excess of) expense	(13)		25		(38)

Trade working capital decrease (increase)	(191)		(197)		6
Net cash provided by operating activities	$	68	$	11	$	57


Program Name						Program Description

America class (LHA 6) amphibious assault ships						Design and build large deck amphibious assault ships that provide forward presence and power projection as an integral part of joint, interagency and multinational maritime expeditionary forces. The America class (LHA 6) ships, together with the Wasp class (LHD 1) ships, are the successors to the decommissioned Tarawa class (LHA 1) ships. The America class (LHA 6) ships optimize aviation operations and support capabilities. We delivered USS America (LHA 6) in April 2014 and Tripoli (LHA 7) in February 2020, and we are currently constructing Bougainville (LHA 8).

Arleigh Burke class (DDG 51) destroyers						Build guided missile destroyers designed for conducting anti-air, anti-submarine, anti-surface, and strike operations. The Aegis-equipped Arleigh Burke class (DDG 51) destroyers are the U.S. Navy's primary surface combatant, and have been constructed in variants, allowing technological advances during construction. In 2016 we delivered USS John Finn (DDG 113), in 2017 we delivered Ralph Johnson (DDG 114), in 2019 we delivered Paul Ignatius (DDG 117), and in 2020 we delivered Delbert D. Black (DDG119). We have contracts to construct the following Arleigh Burke class (DDG 51) destroyers: Frank E. Petersen Jr. (DDG 121), Lenah H. Sutcliffe Higbee (DDG 123), Jack H. Lucas (DDG 125), Ted Stevens (DDG 128), Jeremiah Denton (DDG 129), George M. Neal (DDG 131), Sam Nunn (DDG 133), DDG 135 (unnamed), and DDG 137 (unnamed).

Carrier RCOH						Perform refueling and complex overhaul ("RCOH") of nuclear-powered aircraft carriers, which is required at the mid-point of their 50-year life cycle. USS Abraham Lincoln (CVN 72) was redelivered to the U.S. Navy in the second quarter of 2017 and USS George Washington (CVN 73) arrived at Newport News for the start of its RCOH in August 2017.

Columbia class (SSBN 826) submarines						Newport News is participating in designing the Columbia class submarine as a replacement for the current aging Ohio class nuclear ballistic missile submarines, which were first introduced into service in 1981. The Ohio class SSBN includes 14 nuclear ballistic missile submarines and four nuclear cruise missile submarines. The Columbia class program plan of record is to construct 12 new ballistic missile submarines. The U.S. Navy has initiated the design process for the new class of submarines, and, in early 2017, the DoD signed the acquisition decision memorandum approving the Columbia class program’s Milestone B, which formally authorizes the program’s entry into the engineering and manufacturing development phase. We perform design work as a subcontractor to Electric Boat, and we have entered into a teaming agreement with Electric Boat to build modules for the entire Columbia (SSBN 826) class submarine program that leverages our Virginia class (SSN 774) experience. We have been awarded contracts from Electric Boat to begin integrated product and process development and provide long-lead-time material and advance construction for the Columbia class (SSBN 826) program. Construction of the first Columbia class (SSBN 826) submarine is expected to begin in 2021.


Fleet support services						Provide comprehensive life-cycle sustainment services to the U.S. Navy fleet and other DoD and commercial maritime customers. We provide services including maintenance, modernization, and repair on all ship classes; naval architecture, marine engineering, and design; integrated logistics support; technical documentation development; warehousing, asset management, and material readiness; operational and maintenance training development and delivery; software design and development; IT infrastructure support and data delivery and management; and cyber security and information assurance. We provide undersea vehicle and specialized craft development and prototyping services.

USS Gerald R. Ford class (CVN 78) aircraft carriers						Design and construction for the Ford class program, which is the aircraft carrier replacement program for the decommissioned Enterprise (CVN 65) and Nimitz class (CVN 68) aircraft carriers. USS Gerald R. Ford (CVN 78), the first ship of the Ford class, was delivered to the U.S. Navy in the second quarter of 2017. In June 2015, we were awarded a contract for the detail design and construction of John F. Kennedy (CVN 79), following several years of engineering, advance construction, and purchase of long-lead time components and material. In addition, we have received awards for detail design and construction of Enterprise (CVN 80) and Doris Miller (CVN 81). This category also includes the class' non-recurring engineering. The class is expected to bring improved warfighting capability, quality of life improvements for sailors, and reduced life cycle costs.

Legend class National Security Cutter						Design and build the U.S. Coast Guard's National Security Cutters ("NSCs"), the largest and most technically advanced class of cutter in the U.S. Coast Guard. The NSC is equipped to carry out maritime homeland security, maritime safety, protection of natural resources, maritime mobility, and national defense missions. The plan is for a total of 11 ships, of which the first eight ships have been delivered. Stone (NSC 9), Calhoun (NSC 10), and NSC 11 (unnamed) are currently under construction.

MDIS services						Provide services to DoD, intelligence, and federal civilian customers. Services are performed in six major portfolio areas: modeling, simulation and training, information technology and software application, artificial intelligence and data analytics, mission engineering and operations support, logistics and life cycle management, and cyber space operations.

Naval nuclear support services						Provide services to and in support of the U.S. Navy, ranging from services supporting the Navy's carrier and submarine fleets to maintenance services at U.S. Navy training facilities. Naval nuclear support services include design, construction, maintenance, and disposal activities for in service U.S. Navy nuclear ships worldwide through mobile and in-house capabilities. Services include maintenance services on nuclear reactor prototypes.

Nuclear and environmental services						Provide services in nuclear management and operations, and nuclear and non-nuclear fabrication and repair. We provide site management, nuclear and industrial facilities operations and maintenance, decontamination and decommissioning, and radiological and hazardous waste management services. We provide services, including fabrication, equipment repair, and technical engineering services. We participate in several joint ventures, including N3B, MSTS, and SRNS. N3B was awarded the Los Alamos Legacy Cleanup Contract at the DoE/National Nuclear Security Administration’s Los Alamos National Laboratory. MSTS was awarded a contract for site management and operations at the Nevada National Security Site. SRNS provides site management and operations at the DoE's Savannah River Site near Aiken, South Carolina.


Oil and gas services						Deliver engineering, procurement, and construction management services to the oil and gas industry for major pipeline, production, and treatment facilities. These services include full life-cycle services for domestic and international projects, from concept identification through detail design, execution and construction, and decommissioning. Related field services include survey, inspection, commissioning and start-up, operations and maintenance, and optimization and debottlenecking.

San Antonio class (LPD 17) amphibious transport dock ships						Design and build amphibious transport dock ships, which are warships that embark, transport, and land elements of a landing force for a variety of expeditionary warfare missions, and also serve as the secondary aviation platform for Amphibious Readiness Groups. The San Antonio class (LPD 17) is the newest addition to the U.S. Navy's 21st century amphibious assault force, and these ships are a key element of the U.S. Navy's seabase transformation. In 2013, we delivered USS Somerset (LPD 25), in 2016, we delivered USS John P. Murtha (LPD 26), and, in 2017, we delivered USS Portland (LPD 27). We are currently constructing Fort Lauderdale (LPD 28), Richard M. McCool Jr. (LPD 29), and Harrisburg (LPD 30).

The decommissioned Enterprise (CVN 65)						Defuel and inactivate the world's first nuclear-powered aircraft carrier, which began in 2013. The inactivation was completed in the second quarter of 2018.

Virginia class (SSN 774) fast attack submarines						Construct attack submarines as the principal subcontractor to Electric Boat. The Virginia class (SSN 774) is a post-Cold War design tailored to excel in a wide range of warfighting missions, including anti-submarine and surface ship warfare; special operation forces; strike; intelligence, surveillance, and reconnaissance; carrier and expeditionary strike group support; and mine warfare.


Period	Total Number of Shares Purchased¹	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in millions⁾²
January 1, 2020 to January 31, 2020	20,531	$	268.58	20,531	$	1,220.4
February 1, 2020 to February 29, 2020	91,150	229.22		91,150	1,199.5
March 1, 2020 to March 31, 2020	335,595	210.02		279,223	1,142.3
Total	447,276	$	216.63	390,904	$	1,142.3


3.1						Restated Certificate of Incorporation of Huntington Ingalls Industries, Inc., filed March 30, 2011 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on April 4, 2011).

3.2						Certificate of Amendment to the Restated Certificate of Incorporation of Huntington Ingalls Industries, Inc., dated May 28, 2014 (incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed on August 7, 2014).

3.3						Certificate of Amendment to the Restated Certificate of Incorporation of Huntington Ingalls Industries, Inc., dated May 21, 2015 (incorporated by reference to Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q filed on August 6, 2015).

3.4						Restated Bylaws of Huntington Ingalls Industries, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on February 1, 2016).





4.1						Indenture by and among Huntington Ingalls Industries, Inc., the guarantors party thereto, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on March 30, 2020).

31.1						Certification of the Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2						Certification of the Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1						Certificate of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2						Certificate of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101						The following financial information for the Company, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations and Comprehensive Income, (ii) the Condensed Consolidated Statements of Financial Position, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statements of Changes in Equity, and (v) the Notes to Condensed Consolidated Financial Statements.

104						The cover page from the Company’s Quarterly Report on Form 10-Q, formatted in Inline XBRL and contained in Exhibit 101.


			/s/ C. Michael Petters
			C. Michael Petters
			President and Chief Executive Officer


			/s/ Christopher D. Kastner
			Christopher D. Kastner
			Executive Vice President and Chief Financial Officer