EX-99.1 2 hii2019q1earningsrelease.htm EXHIBIT 99.1 Exhibit
image0a14.jpg
 
 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 First Quarter 2019 Results

•
Revenues were $2.1 billion in the quarter
•
Operating margin was 7.7%
•
Diluted earnings per share was $2.85
•
Record backlog of $40.6 billion

NEWPORT NEWS, Va. (May 2, 2019) - Huntington Ingalls Industries (NYSE:HII) reported first quarter 2019 revenues of $2.1 billion, up 11.0 percent from the first quarter of 2018. The increase was driven primarily by higher volume at HII’s Newport News Shipbuilding division and growth at HII’s Technical Solutions division from recent acquisitions.
Operating income in the quarter was $161 million and operating margin was 7.7 percent, compared to $191
million and 10.2 percent, respectively, in the first quarter of 2018. The decreases in operating income and operating margin were mainly the result of an unfavorable change in the operating FAS/CAS adjustment and lower risk retirement at HII’s Ingalls Shipbuilding division compared to the prior year.

Diluted earnings per share in the quarter was $2.85, compared to $3.48 in the same period of 2018. The decrease was predominantly due to lower operating income and an unfavorable change in the non-operating portion of retirement benefit expense.

First quarter cash from operations was $11 million and free cash flow1 was negative $63 million, compared to $120 million and positive $47 million, respectively, in the first quarter of 2018.

New contract awards in the quarter were approximately $19.6 billion, primarily driven by an award for the detail
design and construction of two Gerald R. Ford-class aircraft carriers, Enterprise (CVN 80) and the unnamed CVN 81, bringing total backlog to approximately $41 billion as of March 31.

“The first quarter was highlighted by the historic $15.2 billion contract for the detail design and construction of two aircraft carriers,” said Mike Petters, HII’s president and CEO. “With the Navy’s commitment to the two-carrier buy and more than $40 billion in contracted backlog overall, HII is well-positioned to continue creating long-term, sustainable value for our shareholders, customers and employees.”



1 Non-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 10







Results of Operations
 
Three Months Ended
 
 
 
March 31
 
 
(in millions, except per share amounts)
2019
2018
$ Change
% Change
Sales and service revenues
$
2,080

$
1,874

$
206

11.0
 %
Operating income
161

191

(30
)
(15.7
)%
  Operating margin %
7.7
%
10.2
%
 
(245) bps
Segment operating income1
129

117

12

10.3
 %
  Segment operating margin %1
6.2
%
6.2
%
 
(4) bps
Net earnings
118

156

(38
)
(24.4
)%
Diluted earnings per share
$
2.85

$
3.48

$
(0.63
)
(18.1
)%
 
 
 
 
 
Weighted-average diluted shares outstanding
41.4

44.8

 
 
 
 
 
 
 
1 Non-GAAP measures that exclude non-segment factors affecting operating income. See Exhibit B for definitions and reconciliations.
 
 
 
 
 

Segment Operating Results
Ingalls Shipbuilding
 
Three Months Ended
 
 
 
March 31
 
 
($ in millions)
2019
2018
$ Change
% Change
Revenues
$
584

$
585

$
(1
)
(0.2
)%
Segment operating income1
46

64

(18
)
(28.1
)%
Segment operating margin %1
7.9
%
10.9
%
 
(306) bps
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.

Ingalls Shipbuilding revenues for the first quarter were $584 million, a decrease of $1 million from the same period in 2018, primarily driven by lower revenues in surface combatants, largely offset by higher revenues in amphibious assault ships and the Legend-class National Security Cutter (NSC) program. Surface combatant revenues decreased due to lower volumes on Delbert D. Black (DDG 119), Paul Ignatius (DDG 117), and Frank E. Petersen Jr. (DDG 121), partially offset by higher volumes on USS Fitzgerald (DDG 62) repair and restoration and Ted Stevens (DDG 128). Amphibious assault ship revenues increased as a result of higher volumes on Bougainville (LHA 8) and Richard M. McCool Jr. (LPD 29), partially offset by lower volumes on Tripoli (LHA 7) and the delivered USS Portland (LPD 27), as well as lower risk retirement on the LPD program. Revenues on the NSC program increased due to higher volumes on NSC 10 (unnamed) and NSC 11 (unnamed), partially offset by lower volume on the delivered Kimball (NSC 7).

Ingalls Shipbuilding segment operating income for the first quarter was $46 million, a decrease of $18 million from the same period last year. Segment operating margin in the quarter was 7.9 percent, compared to 10.9 percent in the same period last year. These decreases were primarily due to lower risk retirement on the LPD program, partially offset by one-time employee bonus payments in 2018 related to the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”).



Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 2 of 10






Key Ingalls Shipbuilding milestones for the quarter:
• Delivered guided missile destroyer Paul Ignatius (DDG 117)
• Authenticated the keel of amphibious assault ship Bougainville (LHA 8)
• Awarded $1.5 billion contract for the detail design and construction of amphibious transport dock LPD 30,
the first Flight II LPD
• Completed acceptance trials of National Security Cutter Midgett (NSC 8)


Newport News Shipbuilding
 
Three Months Ended
 
 
 
March 31
 
 
($ in millions)
2019
2018
$ Change
% Change
Revenues
$
1,265

$
1,082

$
183

16.9
%
Segment operating income1
78

51

27

52.9
%
Segment operating margin %1
6.2
%
4.7
%
 
145 bps
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.
Newport News Shipbuilding revenues for the first quarter were $1.3 billion, an increase of $183 million, or 16.9
percent, from the same period in 2018, primarily driven by higher revenues in aircraft carriers, naval nuclear support services, and submarines. Aircraft carrier revenues increased primarily as a result of higher volumes on the advance planning contract for Enterprise (CVN 80), the execution contract for the refueling and complex overhaul (RCOH) of USS George Washington (CVN 73), and the advance planning contract for the RCOH of USS John C. Stennis (CVN 74). Naval nuclear support service revenues increased primarily as a result of higher volumes in submarine support and facility maintenance services. Submarine revenues related to the Virginia-class submarine (VCS) program increased due to higher volumes on Block IV construction and Block V advanced procurement, partially offset by lower volumes on Block III boats.

Newport News Shipbuilding segment operating income for the first quarter was $78 million, an increase of $27
million from the same period last year. Segment operating margin was 6.2 percent for the quarter, compared to 4.7 percent in the same period last year. The increases are primarily due to the higher volume described above, and one-time employee bonus payments in 2018 related to the Tax Act, partially offset by lower performance on the VCS program.

Key Newport News Shipbuilding milestones for the quarter:
• Awarded $15.2 billion block buy contract for aircraft carrier Enterprise (CVN 80) and CVN 81
• Achieved approximately 91% structural completion on the aircraft carrier John F. Kennedy (CVN 79)
• Authenticated the keel of Virginia-class submarine New Jersey (SSN 796)
• Achieved approximately 50% completion on the RCOH of USS George Washington (CVN 73)



Technical Solutions
 
Three Months Ended
 
 
 
March 31
 
 
($ in millions)
2019
2018
$ Change
% Change
Revenues
$
257

$
233

24

10.3
%
Segment operating income1
5

2

3

150.0
%
Segment operating margin %1
1.9
%
0.9
%
 
109 bps

1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.
 
 
 
 


Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 3 of 10






Technical Solutions revenues for the first quarter were $257 million, an increase of $24 million, or 10.3 percent, from the same period in 2018, primarily due to higher mission driven innovative solutions revenues following the acquisitions of G2 and Fulcrum IT Services (“Fulcrum”), as well as higher oil and gas revenues, partially offset by lower fleet support revenues.

Technical Solutions segment operating income for the first quarter was $5 million, compared to $2 million in the first quarter of 2018. The increase was primarily due to higher equity income from our nuclear and environmental joint ventures and one-time employee bonus payments in 2018 related to the Tax Act.

Key Technical Solutions milestones for the quarter:
• Completed the acquisition of Fulcrum


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 a wide range of professional services through its Fleet Support, Mission Driven Innovative Solutions, Nuclear & Environmental, and Oil & Gas groups. Headquartered in Newport News, Virginia, HII employs more than 40,000 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. ET 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 12 noon today through Thursday, May 8 by calling toll-free (855) 859-2056 or (404) 537-3406 and using conference ID 6747278.
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; 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 4 of 10






Exhibit A: Financial Statements

HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 
 
Three Months Ended
March 31
(in millions, except per share amounts)
 
2019
 
2018
Sales and service revenues
 


 

Product sales
 
$
1,490

 
$
1,370

Service revenues
 
590

 
504

Sales and service revenues
 
2,080

 
1,874

Cost of sales and service revenues
 
 
 
 
Cost of product sales
 
1,258

 
1,063

Cost of service revenues
 
494

 
432

Income from operating investments, net
 
4

 
2

Other income and gains
 
—

 
2

General and administrative expenses
 
171

 
192

Operating income
 
161

 
191

Other income (expense)
 
 
 
 
Interest expense
 
(16
)
 
(15
)
Non-operating retirement benefit
 
3

 
18

Other, net
 
1

 
1

Earnings before income taxes
 
149

 
195

Federal and foreign income taxes
 
31

 
39

Net earnings
 
$
118

 
$
156

 
 


 


Basic earnings per share
 
$
2.85

 
$
3.48

Weighted-average common shares outstanding
 
41.4

 
44.8

 
 


 


Diluted earnings per share
 
$
2.85

 
$
3.48

Weighted-average diluted shares outstanding
 
41.4

 
44.8

 
 


 


Dividends declared per share
 
$
0.86

 
$
0.72

 
 


 


Net earnings from above
 
$
118

 
$
156

Other comprehensive income
 

 

Change in unamortized benefit plan costs
 
25

 
20

Tax expense for items of other comprehensive income
 
(6
)
 
(5
)
Other comprehensive income, net of tax
 
19

 
15

Comprehensive income
 
$
137

 
$
171



Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 5 of 10






HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
($ in millions)
 
March 31
2019
 
December 31
2018
Assets
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
51

 
$
240

Accounts receivable, net of allowance for doubtful accounts of $7 million as of 2019 and $9 million as of 2018
 
375

 
252

Contract assets
 
1,250

 
1,003

Inventoried costs, net
 
127

 
128

Prepaid expenses and other current assets
 
119

 
122

Total current assets
 
1,922

 
1,745

Property, plant, and equipment, net of accumulated depreciation of $1,862 million as of 2019 and $1,829 million as of 2018
 
2,569

 
2,517

Operating lease assets
 
220

 
—

Goodwill
 
1,402

 
1,263

Other intangible assets, net of accumulated amortization of $575 million as of 2019 and $564 million as of 2018
 
530

 
492

Deferred tax assets
 
140

 
163

Miscellaneous other assets
 
217

 
203

Total assets
 
$
7,000

 
$
6,383

Liabilities and Stockholders' Equity
 
 
 
 
Current Liabilities
 
 
 
 
Trade accounts payable
 
$
618

 
$
562

Accrued employees’ compensation
 
264

 
248

Current portion of postretirement plan liabilities
 
131

 
131

Current portion of workers’ compensation liabilities
 
225

 
225

Contract liabilities
 
360

 
331

Other current liabilities
 
362

 
332

Total current liabilities
 
1,960

 
1,829

Long-term debt
 
1,496

 
1,283

Pension plan liabilities
 
765

 
764

Other postretirement plan liabilities
 
348

 
348

Workers’ compensation liabilities
 
459

 
454

Long-term operating lease liabilities
 
184

 
—

Other long-term liabilities
 
225

 
189

Total liabilities
 
5,437

 
4,867

Commitments and Contingencies
 
 
 
 
Stockholders’ Equity
 
 
 
 
Common stock, $0.01 par value; 150 million shares authorized; 53.2 million shares issued and 41.6 million shares outstanding as of March 31, 2019, and 53.1 million shares issued and 41.9 million shares outstanding as of December 31, 2018
 
1

 
1

Additional paid-in capital
 
1,936

 
1,954

Retained earnings
 
2,691

 
2,609

Treasury stock
 
(1,796
)
 
(1,760
)
Accumulated other comprehensive loss
 
(1,269
)
 
(1,288
)
Total stockholders’ equity
 
1,563

 
1,516

Total liabilities and stockholders’ equity
 
$
7,000

 
$
6,383


Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 6 of 10






HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Three Months Ended
March 31
($ in millions)
 
2019
 
2018
Operating Activities
 

 

Net earnings
 
$
118

 
$
156

Adjustments to reconcile to net cash provided by (used in) operating activities
 
 
 
 
Depreciation
 
41

 
41

Amortization of purchased intangibles
 
11

 
9

Amortization of debt issuance costs
 
1

 
1

Provision for doubtful accounts
 
(2
)
 
—

Stock-based compensation
 
5

 
7

Deferred income taxes
 
16

 
5

Change in
 
 
 
 
Accounts receivable
 
(112
)
 
92

Contract assets
 
(229
)
 
(305
)
Inventoried costs
 
(2
)
 
(5
)
Prepaid expenses and other assets
 
(10
)
 
38

Accounts payable and accruals
 
147

 
100

Retiree benefits
 
25

 
(20
)
Other non-cash transactions, net
 
2

 
1

Net cash provided by operating activities
 
11

 
120

Investing Activities
 
 
 
 
Capital expenditures
 
 
 
 
Capital expenditure additions
 
(110
)
 
(75
)
Grant proceeds for capital expenditures
 
36

 
2

Acquisitions of businesses, net of cash received
 
(195
)
 
—

Proceeds from disposition of assets
 
—

 
3

Net cash used in investing activities
 
(269
)
 
(70
)
Financing Activities
 
 
 
 
Proceeds from revolving credit facility borrowings
 
1,179

 
—

Repayment of revolving credit facility borrowings
 
(967
)
 
—

Dividends paid
 
(36
)
 
(32
)
Repurchases of common stock
 
(84
)
 
(166
)
Employee taxes on certain share-based payment arrangements
 
(23
)
 
(25
)
Net cash provided by (used in) financing activities
 
69

 
(223
)
Change in cash and cash equivalents
 
(189
)
 
(173
)
Cash and cash equivalents, beginning of period
 
240

 
701

Cash and cash equivalents, end of period
 
$
51

 
$
528

Supplemental Cash Flow Disclosure
 
 
 
 
Cash paid for income taxes
 
$
—

 
$
1

Cash paid for interest
 
$
—

 
$
1

Non-Cash Investing and Financing Activities
 
 
 
 
Capital expenditures accrued in accounts payable
 
$
34

 
$
4

Accrued repurchases of common stock
 
$
—

 
$
3


Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 7 of 10






Exhibit B: Non-GAAP Measures Definitions & Reconciliations

We make reference to “segment operating income,” “segment operating 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.

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 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.

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 8 of 10






Reconciliation of Segment Operating Income and Segment Operating Margin

 
 
Three Months Ended
 
 
March 31
($ in millions)
 
2019
 
2018
Ingalls revenues
 
$
584

 
$
585

Newport News revenues
 
1,265

 
1,082

Technical Solutions revenues
 
257

 
233

Intersegment eliminations
 
(26
)
 
(26
)
Sales and Service Revenues
 
2,080

 
1,874

 
 
 
 
 
Operating Income
 
161

 
191

Operating FAS/CAS Adjustment
 
(34
)
 
(72
)
Non-current state income taxes
 
2

 
(2
)
Segment Operating Income
 
129

 
117

  As a percentage of sales and service revenues
 
6.2
%
 
6.2
%
Ingalls operating income
 
46

 
64

  As a percentage of Ingalls revenues
 
7.9
%
 
10.9
%
Newport News operating income
 
78

 
51

  As a percentage of Newport News revenues
 
6.2
%
 
4.7
%
Technical Solutions operating income
 
5

 
2

  As a percentage of Technical Solutions revenues
 
1.9
%
 
0.9
%















Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 9 of 10






Reconciliation of Free Cash Flow
 
 
Three Months Ended
 
 
March 31
($ in millions)
 
2019
 
2018
Net cash provided by operating activities
 
11

 
120

Less capital expenditures:
 
 
 
 
Capital expenditure additions
 
(110
)
 
(75
)
Grant proceeds for capital expenditures
 
36

 
2

Free cash flow
 
(63
)
 
47



Huntington Ingalls Industries
4101 Washington Ave. • Newport News, VA 23607
www.huntingtoningalls.com

Page 10 of 10