HII (NYSE: HII) today reported results for the third quarter of
fiscal 2024 and provided an update on its outlook.
Highlights
- Third quarter revenues were $2.7 billion
- Third quarter net earnings were $101 million or $2.56 diluted
earnings per share
- Third quarter free cash flow1 was $136 million
- Company is providing updated fiscal 2024 outlook
- Company is withdrawing 5-year free cash flow1 outlook
Third Quarter Results
Third quarter 2024 revenues of $2.7 billion were down 2.4% from
the third quarter of 2023, driven by lower volume at Ingalls
Shipbuilding and Newport News Shipbuilding, partially offset by
growth at Mission Technologies.
Operating income in the third quarter of 2024 was $82 million
and operating margin was 3.0%, compared to $172 million and 6.1%,
respectively, in the third quarter of 2023. The decreases were
primarily driven by lower segment operating income1 compared to the
prior year.
Segment operating income1 in the third quarter of 2024 was $97
million and segment operating margin1 was 3.5%, compared to $187
million and 6.6%, respectively, in the third quarter of 2023. The
decreases were driven primarily by performance at Newport News
Shipbuilding, which included a net unfavorable cumulative
adjustment of $78 million, as well as lower performance at Ingalls
Shipbuilding.
Net earnings in the quarter were $101 million, compared to $148
million in the third quarter of 2023. Diluted earnings per share in
the quarter was $2.56, compared to $3.70 in the third quarter of
2023.
Net cash provided by operating activities in the quarter was
$213 million and free cash flow1 was $136 million, compared to net
cash provided by operating activities of $335 million and free cash
flow1 of $293 million in the third quarter of 2023.
New contract awards in the third quarter of 2024 were $3.6
billion, bringing total backlog to approximately $49.4 billion as
of September 30, 2024. Awards in the third quarter of 2024 included
approximately $565 million related to the multi-ship amphibious
award at Ingalls Shipbuilding.
1Non-GAAP measures. See Exhibit B for definitions and
reconciliations.
Commentary on Third Quarter Results
"Two issues have impacted our results and guidance for the
year," said Chris Kastner, HII’s president and CEO.
"First, based on constructive discussions with our Navy partner,
we expected to reach an agreement for Virginia-class Block V and
Block VI and Columbia-class submarines in the second half of
2024.
"Starting this fall, some uncertainty emerged about the timing
of that agreement. While we are confident an agreement will be
reached and discussions continue, we have updated our profitability
and cash flow assumptions based on the uncertain timing and
structure of the award.
"We continue to pursue innovative contracting approaches that
incentivize greater investments in our workforce, facilities and
technology. These investments are critical to yield accelerated
program schedules that meet the urgent needs of the Navy.
"Second, our assumptions of performance improvement and risk
reduction have not been achieved, due to late critical material
deliveries from the supply chain and reduced experience levels
within our teams, both in production touch labor and supervision.
This leads to labor inefficiency, and in some cases to rework,
which can affect program schedules.
"It bears repeating that nearly all of the ships currently under
construction were negotiated prior to COVID, and since those
contracts were signed we have seen a significant loss of
shipbuilding experience in our yards. Those ship contracts, which
we are still operating under at Newport News, did not anticipate in
their cost targets and risk limiting clauses the significant
disruption of our workforce and supply chain, or extended periods
of heightened cost inflation.
"Let me be clear: delays and cost increases on these ships are
unacceptable to me, my team, and all of us at HII. Looking ahead,
we continue to take decisive actions to focus on the fundamentals
of shipbuilding to ensure that we finish these ships, get them
delivered to the Navy, and transition to ships negotiated in the
context of our current economic reality.
"To summarize, we remain focused on optimizing our operations,
improving our cost structure and shipbuilding performance, and
driving higher throughput. We firmly believe the actions we are
taking will enable us to stabilize performance as we continue to
work through these ship contracts."
HII Financial Outlook1
- FY24 shipbuilding revenue2 expected to be approximately
$8.8B
- FY24 shipbuilding operating margin2 expected to be between 5.0%
and 6.0%
- Increasing FY24 Mission Technologies expected revenue range to
between $2.8B and $2.85B
- Increasing FY24 Mission Technologies expected operating margin2
to approximately 3.75%
- Capital expenditures expected to be approximately 3.4% of
sales
- FY24 free cash flow2,3 expected to be between $0M and
$100M
- Withdrawing previous five-year (2024-2028) free cash flow2
outlook
|
|
Prior FY24 Outlook1 |
Current FY24 Outlook1 |
Shipbuilding Revenue2 |
|
$8.8B - $9.1B |
~$8.8B |
Shipbuilding Operating
Margin2 |
|
7.6% - 7.8% |
5.0% - 6.0% |
Mission Technologies
Revenue |
|
$2.75B - $2.8B |
$2.8B - $2.85B |
Mission Technologies Segment
Operating Margin2 |
|
3.0% - 3.5% |
~3.75% |
Mission Technologies EBITDA
Margin2 |
|
8.0% - 8.5% |
8.0% - 8.5% |
|
|
|
|
Operating FAS/CAS
Adjustment |
|
($63M) |
($61M) |
Non-current State Income Tax
Benefit/Expense2,4 |
|
~$0M |
~$0M |
Interest Expense |
|
($95M) |
($97M) |
Non-operating Retirement
Benefit |
|
$178M |
$180M |
Effective Tax Rate |
|
~21% |
~17% |
|
|
|
|
Depreciation &
Amortization |
|
~$350M |
~$350M |
Capital Expenditures |
|
~5.3% of Sales |
~3.4% of Sales |
Free Cash Flow2,3 |
|
$600M - $700M |
$0M - $100M |
1The financial outlook, expectations and other forward-looking
statements provided by the company for 2024 and beyond reflect the
company's judgment based on the information available at the time
of this release.2Non-GAAP measures. See Exhibit B for definitions.
In reliance upon Item 10(e)(1)(i)(B) of Regulation S-K,
reconciliations of forward–looking GAAP and non–GAAP measures are
not provided because of the unreasonable effort associated with
providing such reconciliations due to the variability in the
occurrence and the amounts of certain components of GAAP and
non-GAAP measures. For the same reasons, we are unable to address
the significance of the unavailable information, which could be
material to future results.3Outlook is based on current tax law and
assumes the provisions requiring capitalization of R&D
expenditures for tax purposes are not deferred or repealed.4Outlook
is based on current tax law. Repeal or deferral of provisions
requiring capitalization of R&D expenditures would result in
elevated non-current state income tax expense.
Results of Operations
|
|
Three Months Ended |
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30 |
|
|
|
|
|
|
September 30 |
|
|
|
|
($ in
millions, except per share amounts) |
|
2024 |
|
2023 |
|
$ Change |
|
% Change |
|
|
2024 |
|
2023 |
|
$ Change |
|
% Change |
Sales and service revenues |
|
$ |
2,749 |
|
|
$ |
2,816 |
|
|
$ |
(67 |
) |
|
(2.4 |
)% |
|
$ |
8,531 |
|
|
$ |
8,277 |
|
|
$ |
254 |
|
|
3.1 |
% |
Operating income |
|
|
82 |
|
|
|
172 |
|
|
|
(90 |
) |
|
(52.3 |
)% |
|
|
425 |
|
|
|
469 |
|
|
|
(44 |
) |
|
(9.4 |
)% |
Operating margin % |
|
|
3.0 |
% |
|
|
6.1 |
% |
|
|
|
(313) bps |
|
|
5.0 |
% |
|
|
5.7 |
% |
|
|
|
(68) bps |
Segment operating income1 |
|
|
97 |
|
|
|
187 |
|
|
|
(90 |
) |
|
(48.1 |
)% |
|
|
470 |
|
|
|
512 |
|
|
|
(42 |
) |
|
(8.2 |
)% |
Segment operating margin %1 |
|
|
3.5 |
% |
|
|
6.6 |
% |
|
|
|
(311) bps |
|
|
5.5 |
% |
|
|
6.2 |
% |
|
|
|
(68) bps |
Net earnings |
|
|
101 |
|
|
|
148 |
|
|
|
(47 |
) |
|
(31.8 |
)% |
|
|
427 |
|
|
|
407 |
|
|
|
20 |
|
|
4.9 |
% |
Diluted earnings per
share |
|
$ |
2.56 |
|
|
$ |
3.70 |
|
|
$ |
(1.14 |
) |
|
(30.8 |
)% |
|
$ |
10.81 |
|
|
$ |
10.18 |
|
|
$ |
0.63 |
|
|
6.2 |
% |
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 |
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30 |
|
|
|
|
|
|
September 30 |
|
|
|
|
($ in
millions) |
|
2024 |
|
2023 |
|
$ Change |
|
% Change |
|
|
2024 |
|
2023 |
|
$ Change |
|
% Change |
Revenues |
|
$ |
664 |
|
|
$ |
711 |
|
|
$ |
(47 |
) |
|
(6.6 |
)% |
|
$ |
2,031 |
|
|
$ |
1,952 |
|
|
$ |
79 |
|
|
4.0 |
% |
Segment operating income1 |
|
|
49 |
|
|
|
73 |
|
|
|
(24 |
) |
|
(32.9 |
)% |
|
|
165 |
|
|
|
193 |
|
|
|
(28 |
) |
|
(14.5 |
)% |
Segment operating margin
%1 |
|
|
7.4 |
% |
|
|
10.3 |
% |
|
|
|
(289) bps |
|
|
8.1 |
% |
|
|
9.9 |
% |
|
|
|
(176) bps |
1 Non-GAAP
measures. See Exhibit B for definitions and reconciliations. |
|
Ingalls Shipbuilding revenues for the third quarter of 2024 were
$664 million, a decrease of $47 million, or 6.6%, from the same
period in 2023, primarily driven by lower volumes in amphibious
assault ships and the Legend-class National Security Cutter
program, partially offset by higher volumes in surface
combatants.
Ingalls Shipbuilding segment operating income1 for the third
quarter of 2024 was $49 million, a decrease of $24 million from the
same period in 2023. Segment operating margin1 in the third quarter
of 2024 was 7.4%, compared to 10.3% in the same period last year.
The decreases were primarily driven by lower performance on
amphibious assault ships and surface combatants.
Key Ingalls Shipbuilding milestones for the quarter:
- Awarded a $9.6 billion multi-ship procurement contract for the
construction of LPD 33, 34 and 35 and large-deck amphibious ship
LHA 10
1Non-GAAP measures. See Exhibit B for definitions and
reconciliations.
Newport News Shipbuilding
|
|
Three Months Ended |
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
September 30 |
|
|
|
|
|
|
September 30 |
|
|
|
|
|
($ in
millions) |
|
2024 |
|
2023 |
|
$ Change |
|
% Change |
|
2024 |
|
2023 |
|
$ Change |
|
% Change |
Revenues |
|
$ |
1,412 |
|
|
$ |
1,453 |
|
|
$ |
(41 |
) |
|
(2.8 |
)% |
|
$ |
4,381 |
|
|
$ |
4,468 |
|
|
$ |
(87 |
) |
|
(1.9 |
)% |
Segment operating income1 |
|
|
15 |
|
|
|
90 |
|
|
|
(75 |
) |
|
(83.3 |
)% |
|
|
208 |
|
|
|
269 |
|
|
|
(61 |
) |
|
(22.7 |
)% |
Segment
operating margin %1 |
|
|
1.1 |
% |
|
|
6.2 |
% |
|
|
|
(513) bps |
|
|
4.7 |
% |
|
|
6.0 |
% |
|
|
|
(127) bps |
1 Non-GAAP
measures. See Exhibit B for definitions and reconciliations. |
|
|
Newport News Shipbuilding revenues for the third quarter of 2024
were $1.4 billion, a decrease of $41 million, or 2.8%, from the
same period in 2023. The decrease was driven primarily by lower
volumes in naval nuclear support services and unfavorable
cumulative adjustments on the Virginia-class submarine program and
aircraft carriers, partially offset by higher volumes in the
Columbia-class submarine program.
Newport News Shipbuilding segment operating income1 for the
third quarter of 2024 was $15 million, a decrease of $75 million
from the same period in 2023. Segment operating margin1 in the
third quarter of 2024 was 1.1% compared to 6.2% in the same period
last year. The decreases were primarily driven by lower performance
on the Virginia-class submarine program and aircraft carriers.
Newport News Shipbuilding third quarter 2024 results included a net
unfavorable cumulative adjustment totaling $78 million, including
$34 million on Block IV of the Virginia-class submarine
program.
Key Newport News Shipbuilding milestones for the quarter:
- Shipped final module of Virginia-class submarine Utah (SSN
801)
1 Non-GAAP measures. See Exhibit B for definitions and
reconciliations.
Mission Technologies
|
|
Three Months Ended |
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30 |
|
|
|
|
|
September 30 |
|
|
|
|
($ in
millions) |
|
2024 |
|
2023 |
|
$ Change |
|
% Change |
|
2024 |
|
2023 |
|
$ Change |
|
% Change |
Revenues |
|
$ |
709 |
|
|
$ |
685 |
|
|
$ |
24 |
|
3.5 |
% |
|
$ |
2,224 |
|
|
$ |
1,954 |
|
|
$ |
270 |
|
13.8 |
% |
Segment operating income1 |
|
|
33 |
|
|
|
24 |
|
|
|
9 |
|
37.5 |
% |
|
|
97 |
|
|
|
50 |
|
|
|
47 |
|
94.0 |
% |
Segment operating margin
%1 |
|
|
4.7 |
% |
|
|
3.5 |
% |
|
|
|
115 bps |
|
|
4.4 |
% |
|
|
2.6 |
% |
|
|
|
180 bps |
1 Non-GAAP
measures. See Exhibit B for definitions and reconciliations. |
|
|
|
|
|
|
|
|
Mission Technologies revenues for the third quarter of 2024 were
$709 million, an increase of $24 million, or 3.5%, from the
same period in 2023. The increase was primarily due to higher
volumes in cyber, electronic warfare & space.
Mission Technologies segment operating income1 for the third
quarter of 2024 was $33 million, compared to $24 million in the
third quarter of 2023. Segment operating margin1 in the third
quarter of 2024 was 4.7%, compared to 3.5% in the same period last
year. The increases were primarily driven by higher volumes
described above and higher equity income from nuclear and
environmental joint ventures.
Mission Technologies results included approximately $25 million
of amortization of purchased intangible assets in the third quarter
of 2024, compared to approximately $27 million in the same period
last year.
Mission Technologies EBITDA margin1 in the third quarter of 2024
was 8.9%, an increase from 8.2% in the third quarter of 2023.
Key Mission Technologies milestones for the quarter:
- Awarded $6.7 billion contract to provide electronic warfare
engineering and technical services support for the U.S. Air
Force
- Awarded $3 billion Federal Government task order for national
security services and new and emerging technology
- Awarded $458 million contract to modernize communications and
information technology (IT) networks for the U.S. Department of
Defense
- Awarded $209 million contract to support U.S. Air Force weapons
systems development and sustainment
- Awarded $197 million contract to research and develop
technology enhancements for U.S. Army ground combat vehicles
- Awarded $75 million task order to provide systems engineering
support for integrated training systems used onboard ships to
enhance combat preparedness for sailors
- Awarded task order to support U.S. Air Force sustainment of
special-purpose aircraft
- Delivered advanced REMUS 620 UUVs to NOAA less than 24 months
after unveiling
- Awarded five-year contract to provide global supply chain
services to the Australian Government’s Department of Defence
- Achieved funded book-to-bill of 2.2x in the third quarter and
1.3x year to date
1Non-GAAP measures. See Exhibit B for definitions and
reconciliations
About HII
HII is a global, all-domain defense provider. HII’s mission is
to deliver the world’s most powerful ships and all-domain solutions
in service of the nation, creating the advantage for our customers
to protect peace and freedom around the world.
As the nation’s largest military shipbuilder, and with a more
than 135-year history of advancing U.S. national security, HII
delivers critical capabilities extending from ships to unmanned
systems, cyber, ISR, AI/ML and synthetic training. Headquartered in
Virginia, HII’s workforce is 44,000 strong. For more information,
please visit www.HII.com.
Conference Call Information
HII 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.HII.com. A telephone
replay of the conference call will be available from noon today
through Thursday, November 7th by calling (866) 813-9403 or (929)
458-6194 and using access code 916957.
Cautionary Statement Regarding Forward-Looking
Statements and Projections
Statements in this earnings release, other than statements of
historical fact, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. In
some cases, you can identify forward-looking statements by words
such as "may," "will," "should," "expects," "intends," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential,"
"continue," “guidance,” “projections,” “outlook,” and similar words
or phrases or the negative of these words or phrases. These
statements relate to future events or our future financial
performance and involve known and unknown risks, uncertainties, and
other factors that may cause our actual results, levels of
activity, performance, or achievements to be materially different
from any future results, levels of activity, performance, or
achievements expressed or implied by these forward-looking
statements. Although we believe the expectations reflected in the
forward-looking statements are reasonable when made, we cannot
guarantee future results, levels of activity, performance, or
achievements. There are a number of important factors that could
cause our actual results to differ materially from the results
anticipated by our forward-looking statements, which include, but
are not limited to: 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, including cost increases due to inflation, labor challenges
or other factors and our efforts to recover or offset such costs
and/or changes in estimated contract costs, and perform our
contracts effectively; the adequacy and sufficiency of our
resources, including labor and facilities, to allow us to meet our
production schedules and timelines and achieve desired performance
improvement and risk reduction targets over time; 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; the availability and pricing of raw
materials and components from our suppliers; adverse economic
conditions in the United States and globally; health epidemics,
pandemics, and similar outbreaks; our ability to attract, retain,
and train a qualified workforce; disruptions impacting global
supply, including those resulting from the ongoing conflict between
Russia and Ukraine and in the Middle East; changes in key estimates
and assumptions regarding our pension and retiree health care
costs; investigations, claims, disputes, enforcement actions,
litigation (including criminal, civil and administrative) and/or
other legal proceedings, including the impact that any such
proceedings may have on our reputation or ability to do business;
improper conduct of employees, agents, subcontractors, suppliers,
business partners, or joint ventures in which we participate;
security threats, including cyber security threats, and related
disruptions; and other risk factors discussed herein and in our
other filings with the SEC. Additional factors include those
described in our 2023 Annual Report on Form 10-K, including under
the captions “Risk Factors,” “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” and “Business,”
in our subsequent quarterly reports on Form 10-Q, including under
the captions “Risk Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” and in
our subsequent filings with the SEC. 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 or revise 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.
Exhibit A: Financial Statements
HUNTINGTON INGALLS INDUSTRIES,
INC.CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
|
|
Three Months Ended September 30 |
|
Nine Months Ended September 30 |
(in millions, except per share amounts) |
|
|
2024 |
|
|
|
2023 |
|
|
|
2024 |
|
|
|
2023 |
|
Sales and service revenues |
|
|
|
|
|
|
|
|
Product sales |
|
$ |
1,761 |
|
|
$ |
1,835 |
|
|
$ |
5,474 |
|
|
$ |
5,543 |
|
Service revenues |
|
|
988 |
|
|
|
981 |
|
|
|
3,057 |
|
|
|
2,734 |
|
Sales and service revenues |
|
|
2,749 |
|
|
|
2,816 |
|
|
|
8,531 |
|
|
|
8,277 |
|
Cost of sales and service
revenues |
|
|
|
|
|
|
|
|
Cost of product sales |
|
|
1,556 |
|
|
|
1,541 |
|
|
|
4,720 |
|
|
|
4,711 |
|
Cost of service revenues |
|
|
871 |
|
|
|
859 |
|
|
|
2,682 |
|
|
|
2,411 |
|
Income from operating investments, net |
|
|
12 |
|
|
|
9 |
|
|
|
35 |
|
|
|
25 |
|
General and administrative expenses |
|
|
252 |
|
|
|
253 |
|
|
|
739 |
|
|
|
711 |
|
Operating income |
|
|
82 |
|
|
|
172 |
|
|
|
425 |
|
|
|
469 |
|
Other income (expense) |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(23 |
) |
|
|
(22 |
) |
|
|
(68 |
) |
|
|
(70 |
) |
Non-operating retirement benefit |
|
|
44 |
|
|
|
37 |
|
|
|
134 |
|
|
|
111 |
|
Other, net |
|
|
9 |
|
|
|
2 |
|
|
|
21 |
|
|
|
11 |
|
Earnings before income
taxes |
|
|
112 |
|
|
|
189 |
|
|
|
512 |
|
|
|
521 |
|
Federal and foreign income tax
expense |
|
|
11 |
|
|
|
41 |
|
|
|
85 |
|
|
|
114 |
|
Net earnings |
|
$ |
101 |
|
|
$ |
148 |
|
|
$ |
427 |
|
|
$ |
407 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
2.56 |
|
|
$ |
3.70 |
|
|
$ |
10.81 |
|
|
$ |
10.18 |
|
Weighted-average common shares
outstanding |
|
|
39.5 |
|
|
|
40.0 |
|
|
|
39.5 |
|
|
|
40.0 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share |
|
$ |
2.56 |
|
|
$ |
3.70 |
|
|
$ |
10.81 |
|
|
$ |
10.18 |
|
Weighted-average diluted
shares outstanding |
|
|
39.5 |
|
|
|
40.0 |
|
|
|
39.5 |
|
|
|
40.0 |
|
|
|
|
|
|
|
|
|
|
Dividends declared per
share |
|
$ |
1.30 |
|
|
$ |
1.24 |
|
|
$ |
3.90 |
|
|
$ |
3.72 |
|
|
|
|
|
|
|
|
|
|
Net earnings from above |
|
$ |
101 |
|
|
$ |
148 |
|
|
$ |
427 |
|
|
$ |
407 |
|
Other comprehensive income
(loss) |
|
|
|
|
|
|
|
|
Change in unamortized benefit plan costs |
|
|
5 |
|
|
|
4 |
|
|
|
14 |
|
|
|
13 |
|
Tax expense for items of other comprehensive income |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
Other comprehensive income, net of tax |
|
|
3 |
|
|
|
2 |
|
|
|
10 |
|
|
|
9 |
|
Comprehensive income |
|
$ |
104 |
|
|
$ |
150 |
|
|
$ |
437 |
|
|
$ |
416 |
|
HUNTINGTON INGALLS INDUSTRIES,
INC.CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION (UNAUDITED)
($ in
millions) |
|
September 30,2024 |
|
December 31, 2023 |
Assets |
|
|
|
|
Current
Assets |
|
|
|
|
Cash and cash equivalents |
|
$ |
10 |
|
|
$ |
430 |
|
Accounts receivable, net of
allowance for expected credit losses of $2 million as of 2024 and
$8 million as of 2023 |
|
|
436 |
|
|
|
461 |
|
Contract assets |
|
|
1,714 |
|
|
|
1,537 |
|
Inventoried costs |
|
|
205 |
|
|
|
186 |
|
Income taxes receivable |
|
|
173 |
|
|
|
183 |
|
Prepaid expenses and other
current assets |
|
|
91 |
|
|
|
83 |
|
Total current assets |
|
|
2,629 |
|
|
|
2,880 |
|
Property, Plant, and
Equipment, net of accumulated depreciation of $2,544 million as of
2024 and $2,467 million as of 2023 |
|
|
3,384 |
|
|
|
3,296 |
|
Operating lease assets |
|
|
249 |
|
|
|
262 |
|
Goodwill |
|
|
2,618 |
|
|
|
2,618 |
|
Other intangible assets, net
of accumulated amortization of $1,091 million as of 2024 and $1,009
million as of 2023 |
|
|
809 |
|
|
|
891 |
|
Pension plan assets |
|
|
985 |
|
|
|
888 |
|
Miscellaneous other
assets |
|
|
408 |
|
|
|
380 |
|
Total assets |
|
$ |
11,082 |
|
|
$ |
11,215 |
|
Liabilities and
Stockholders' Equity |
|
|
|
|
Current
Liabilities |
|
|
|
|
Trade accounts payable |
|
|
579 |
|
|
|
554 |
|
Accrued employees’
compensation |
|
|
345 |
|
|
|
382 |
|
Short-term debt and current
portion of long-term debt |
|
|
898 |
|
|
|
231 |
|
Current portion of
postretirement plan liabilities |
|
|
129 |
|
|
|
129 |
|
Current portion of workers’
compensation liabilities |
|
|
224 |
|
|
|
224 |
|
Contract liabilities |
|
|
743 |
|
|
|
1,063 |
|
Other current liabilities |
|
|
418 |
|
|
|
449 |
|
Total current liabilities |
|
|
3,336 |
|
|
|
3,032 |
|
Long-term debt |
|
|
1,709 |
|
|
|
2,214 |
|
Pension plan liabilities |
|
|
219 |
|
|
|
212 |
|
Other postretirement plan
liabilities |
|
|
232 |
|
|
|
241 |
|
Workers’ compensation
liabilities |
|
|
448 |
|
|
|
449 |
|
Long-term operating lease
liabilities |
|
|
213 |
|
|
|
228 |
|
Deferred tax liabilities |
|
|
316 |
|
|
|
367 |
|
Other long-term
liabilities |
|
|
406 |
|
|
|
379 |
|
Total liabilities |
|
|
6,879 |
|
|
|
7,122 |
|
Commitments and
Contingencies |
|
|
|
|
Stockholders’
Equity |
|
|
|
|
Common stock, $0.01 par value;
150,000,000 shares authorized; 53,713,746 shares issued and
39,129,037 shares outstanding as of 2024, and 53,595,748 shares
issued and 39,618,880 shares outstanding as of 2023 |
|
|
1 |
|
|
|
1 |
|
Additional paid-in
capital |
|
|
2,037 |
|
|
|
2,045 |
|
Retained earnings |
|
|
5,026 |
|
|
|
4,755 |
|
Treasury stock |
|
|
(2,449 |
) |
|
|
(2,286 |
) |
Accumulated other
comprehensive loss |
|
|
(412 |
) |
|
|
(422 |
) |
Total stockholders’ equity |
|
|
4,203 |
|
|
|
4,093 |
|
Total liabilities and stockholders’ equity |
|
$ |
11,082 |
|
|
$ |
11,215 |
|
HUNTINGTON INGALLS INDUSTRIES, INC.CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
Nine Months Ended September 30 |
($ in millions) |
|
2024 |
|
|
|
2023 |
|
Operating Activities |
|
|
|
Net earnings |
$ |
427 |
|
|
$ |
407 |
|
Adjustments to reconcile net
cash provided by operating activities: |
|
|
|
Depreciation |
|
160 |
|
|
|
163 |
|
Amortization of purchased intangibles |
|
82 |
|
|
|
96 |
|
Other non-cash transactions, net |
|
7 |
|
|
|
16 |
|
Stock-based compensation |
|
15 |
|
|
|
27 |
|
Deferred income taxes |
|
(55 |
) |
|
|
(81 |
) |
Gain on investments in marketable securities |
|
(22 |
) |
|
|
(10 |
) |
Change in |
|
|
|
Accounts receivable |
|
31 |
|
|
|
(62 |
) |
Contract assets |
|
(177 |
) |
|
|
(60 |
) |
Inventoried costs |
|
(19 |
) |
|
|
(12 |
) |
Prepaid expenses and other assets |
|
(9 |
) |
|
|
(66 |
) |
Accounts payable and accruals |
|
(354 |
) |
|
|
45 |
|
Retiree benefits |
|
(84 |
) |
|
|
(55 |
) |
Net cash provided by operating activities |
|
2 |
|
|
|
408 |
|
Investing
Activities: |
|
|
|
Capital expenditures |
|
|
|
Capital expenditure additions |
|
(253 |
) |
|
|
(164 |
) |
Grant proceeds for capital expenditures |
|
14 |
|
|
|
14 |
|
Investment in affiliates |
|
— |
|
|
|
(24 |
) |
Proceeds from disposition of
equity method investments |
|
— |
|
|
|
61 |
|
Other investing activities,
net |
|
1 |
|
|
|
2 |
|
Net cash used in investing activities |
|
(238 |
) |
|
|
(111 |
) |
Financing
Activities: |
|
|
|
Repayment of long-term
debt |
|
(229 |
) |
|
|
(455 |
) |
Proceeds from revolving credit
facility borrowings |
|
42 |
|
|
|
— |
|
Repayment of revolving credit
facility borrowings |
|
(42 |
) |
|
|
— |
|
Net borrowings on commercial
paper |
|
396 |
|
|
|
— |
|
Debt issuance costs |
|
(7 |
) |
|
|
— |
|
Dividends paid |
|
(154 |
) |
|
|
(149 |
) |
Repurchases of common
stock |
|
(162 |
) |
|
|
(37 |
) |
Employee taxes on certain
share-based payment arrangements |
|
(25 |
) |
|
|
(13 |
) |
Other financing activities,
net |
|
(3 |
) |
|
|
(1 |
) |
Net cash used in financing activities |
|
(184 |
) |
|
|
(655 |
) |
Change in cash and cash equivalents |
|
(420 |
) |
|
|
(358 |
) |
Cash and cash equivalents,
beginning of period |
|
430 |
|
|
|
467 |
|
Cash and cash
equivalents, end of period |
$ |
10 |
|
|
$ |
109 |
|
Supplemental Cash Flow
Disclosure |
|
|
|
Cash paid for income taxes
(net of refunds) |
$ |
170 |
|
|
$ |
227 |
|
Cash paid for interest |
$ |
66 |
|
|
$ |
63 |
|
Non-Cash Investing and
Financing Activities |
|
|
|
Capital expenditures accrued
in accounts payable |
$ |
12 |
|
|
$ |
6 |
|
Exhibit B: Non-GAAP Measures Definitions &
Reconciliations
We make reference to “segment operating income,” “segment
operating margin,” “shipbuilding revenue,” “shipbuilding operating
margin,” "Mission Technologies EBITDA," “Mission Technologies
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
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. 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, Mission
Technologies EBITDA and Mission Technologies EBITDA margin are not
measures recognized under GAAP. They are measures that we use to
evaluate our core operating performance. When analyzing our
operating performance, investors should use shipbuilding revenue,
shipbuilding operating margin, Mission Technologies EBITDA and
Mission Technologies EBITDA margin in addition to, and not as
alternatives for, operating income and operating margin or any
other performance measure presented in accordance with GAAP. We
believe that shipbuilding revenue, shipbuilding operating margin,
Mission Technologies EBITDA and Mission Technologies EBITDA 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 shipbuilding revenue,
shipbuilding operating margin, Mission Technologies EBITDA and
Mission Technologies EBITDA 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 net earnings
as a measure of our performance or net cash provided or used by
operating activities as a measure of our liquidity. 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.
In reliance upon Item 10(e)(1)(i)(B) of Regulation S-K,
reconciliations of forward-looking GAAP and non-GAAP measures are
not provided because of the unreasonable effort associated with
providing such reconciliations due to the variability in the
occurrence and the amounts of certain components of GAAP and
non-GAAP measures. For the same reasons, we are unable to address
the significance of the unavailable information, which could be
material to future results.
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.
Mission Technologies EBITDA is defined as
Mission Technologies segment operating income before interest
expense, income taxes, depreciation, and amortization.
Mission Technologies EBITDA margin is defined
as Mission Technologies EBITDA as a percentage of Mission
Technologies revenues.
Free cash flow is defined as net cash provided
by (used in) operating activities less capital expenditures net of
related grant proceeds.
Operating FAS/CAS Adjustment is defined as the
difference between the service cost component of our pension and
other postretirement expense determined in accordance with GAAP
(FAS) and our pension and other postretirement expense under U.S.
Cost Accounting Standards (CAS).
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.
Certain of the financial measures we present are adjusted for
the Operating FAS/CAS Adjustment and non-current state income taxes
to reflect the company’s performance based upon the pension costs
and state tax expense charged to our contracts under CAS. We use
these adjusted measures as internal measures of operating
performance and for performance-based compensation decisions.
Reconciliations of Segment Operating Income and Segment
Operating Margin
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30 |
|
September 30 |
($ in
millions) |
|
2024 |
|
2023 |
|
2024 |
|
2023 |
Ingalls revenues |
|
$ |
664 |
|
|
$ |
711 |
|
|
$ |
2,031 |
|
|
$ |
1,952 |
|
Newport News revenues |
|
|
1,412 |
|
|
|
1,453 |
|
|
|
4,381 |
|
|
|
4,468 |
|
Mission Technologies
revenues |
|
|
709 |
|
|
|
685 |
|
|
|
2,224 |
|
|
|
1,954 |
|
Intersegment eliminations |
|
|
(36 |
) |
|
|
(33 |
) |
|
|
(105 |
) |
|
|
(97 |
) |
Sales and Service
Revenues |
|
|
2,749 |
|
|
|
2,816 |
|
|
|
8,531 |
|
|
|
8,277 |
|
|
|
|
|
|
|
|
|
|
Operating
Income |
|
|
82 |
|
|
|
172 |
|
|
|
425 |
|
|
|
469 |
|
Operating FAS/CAS Adjustment |
|
|
16 |
|
|
|
19 |
|
|
|
48 |
|
|
|
55 |
|
Non-current state income taxes |
|
|
(1 |
) |
|
|
(4 |
) |
|
|
(3 |
) |
|
|
(12 |
) |
Segment Operating
Income |
|
|
97 |
|
|
|
187 |
|
|
|
470 |
|
|
|
512 |
|
As a percentage of sales and service revenues |
|
|
3.5 |
% |
|
|
6.6 |
% |
|
|
5.5 |
% |
|
|
6.2 |
% |
Ingalls segment operating income |
|
|
49 |
|
|
|
73 |
|
|
|
165 |
|
|
|
193 |
|
As a percentage of Ingalls revenues |
|
|
7.4 |
% |
|
|
10.3 |
% |
|
|
8.1 |
% |
|
|
9.9 |
% |
Newport News segment operating income |
|
|
15 |
|
|
|
90 |
|
|
|
208 |
|
|
|
269 |
|
As a percentage of Newport News revenues |
|
|
1.1 |
% |
|
|
6.2 |
% |
|
|
4.7 |
% |
|
|
6.0 |
% |
Mission Technologies segment operating income |
|
|
33 |
|
|
|
24 |
|
|
|
97 |
|
|
|
50 |
|
As a percentage of Mission Technologies revenues |
|
|
4.7 |
% |
|
|
3.5 |
% |
|
|
4.4 |
% |
|
|
2.6 |
% |
Reconciliation of Free Cash
Flow
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30 |
|
September 30 |
($ in millions) |
|
|
2024 |
|
|
|
2023 |
|
|
|
2024 |
|
|
|
2023 |
|
Net cash provided by operating activities |
|
$ |
213 |
|
|
$ |
335 |
|
|
$ |
2 |
|
|
$ |
408 |
|
Less capital
expenditures: |
|
|
|
|
|
|
|
|
Capital expenditure additions |
|
|
(88 |
) |
|
|
(53 |
) |
|
|
(253 |
) |
|
|
(164 |
) |
Grant proceeds for capital expenditures |
|
|
11 |
|
|
|
11 |
|
|
|
14 |
|
|
|
14 |
|
Free cash flow |
|
$ |
136 |
|
|
$ |
293 |
|
|
$ |
(237 |
) |
|
$ |
258 |
|
Reconciliation of Mission Technologies EBITDA and EBITDA
Margin
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30 |
|
September 30 |
($ in
millions) |
|
2024 |
|
2023 |
|
2024 |
|
2023 |
Mission Technologies sales and service
revenues |
|
$ |
709 |
|
|
$ |
685 |
|
|
$ |
2,224 |
|
|
$ |
1,954 |
|
|
|
|
|
|
|
|
|
|
Mission Technologies
segment operating income |
|
$ |
33 |
|
|
$ |
24 |
|
|
$ |
97 |
|
|
$ |
50 |
|
Mission Technologies
depreciation expense |
|
|
3 |
|
|
|
2 |
|
|
|
8 |
|
|
|
8 |
|
Mission Technologies
amortization expense |
|
|
25 |
|
|
|
27 |
|
|
|
75 |
|
|
|
82 |
|
Mission Technologies state tax
expense |
|
|
2 |
|
|
|
3 |
|
|
|
6 |
|
|
|
9 |
|
Mission Technologies
EBITDA |
|
$ |
63 |
|
|
$ |
56 |
|
|
$ |
186 |
|
|
$ |
149 |
|
Mission Technologies
EBITDA margin |
|
|
8.9 |
% |
|
|
8.2 |
% |
|
|
8.4 |
% |
|
|
7.6 |
% |
Contacts: Brooke Hart
(Media)brooke.hart@hii-co.com202-264-7108
Christie Thomas
(Investors)christie.thomas@hii-co.com757-380-2104
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