• Revenues were $2.6 billion in the quarter
  • Net earnings of $138 million or $3.44 diluted earnings per share
  • Narrows FY22 revenue guidance ranges
  • Reaffirms shipbuilding operating margin1 guidance, revises Mission Technologies operating margin guidance
  • Increases FY22 free cash flow1 guidance and updates for current R&D tax treatment

NEWPORT NEWS, Va. (Nov. 3, 2022) – HII (NYSE: HII) reported third quarter 2022 revenues of $2.6 billion, up 12.3% from the third quarter of 2021, primarily driven by revenue attributable to the acquisition of Alion Science and Technology (Alion) in the third quarter of 2021, as well as revenue growth at Newport News Shipbuilding.

Operating income in the third quarter of 2022 was $131 million and operating margin was 5.0%, compared to $118 million and 5.0%, respectively, in the third quarter of 2021. The increase in operating income was primarily driven by favorable changes to non-current state income taxes and operating FAS/CAS adjustment compared to the prior year, as well as higher segment operating income1.

Segment operating income1 in the third quarter of 2022 was $166 million and segment operating margin1 was 6.3%, compared to $163 million and 7.0%, respectively, in the third quarter of 2021. The increase in segment operating income1 was driven primarily by improved results at Newport News Shipbuilding.

Net earnings in the quarter were $138 million, compared to $147 million in the third quarter of 2021. Diluted earnings per share in the quarter was $3.44, compared to $3.65 in the third quarter of 2021. The decrease in diluted earnings per share was driven by a significant tax benefit in the prior year, as well as negative impacts related to equity investments in the current quarter, partially offset by a more favorable non-operating retirement benefit in the current quarter.

Net cash used in operating activities in the quarter was $19 million and free cash flow1 was negative $96 million, compared to cash provided by operating activities of $350 million and free cash flow1 of $277 million in the third quarter of 2021.

New contract awards in the third quarter of 2022 were approximately $2.1 billion, bringing total backlog to approximately $46.7 billion as of September 30, 2022.

“Notwithstanding a continued challenging economic environment, we remain focused on consistent shipbuilding program execution and capturing contract awards at our Mission Technologies division,” said Chris Kastner, HII’s president and CEO. “We are confident in the positioning of the business for long-term value creation given the tremendous volume of shipbuilding work we have secured in backlog and a Mission Technologies division that is poised for growth in markets of critical importance to our customers.”

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

Results of Operations

  

Three Months Ended

September 30

 

 

 

Nine Months Ended 

September 30

  

($ in millions, except per share amounts)

2022

2021

$ Change

% Change

2022

2021

$ Change

% Change

Sales and service revenues

$ 2,626

$ 2,338

$ 288

12.3 %

$ 7,864

$ 6,847

$ 1,017

14.9 %

Operating income

131

118

13

11.0 %

460

393

67

17.0 %

Operating margin %

5.0 %

5.0 %

 

(6) bps

5.8 %

5.7 %

 

11 bps

Segment operating income1

166

163

3

1.8 %

567

523

44

8.4 %

Segment operating margin %1

6.3 %

7.0 %

 

(65) bps

7.2 %

7.6 %

 

(43) bps

Net earnings

138

147

(9)

(6.1)%

456

424

32

7.5 %

Diluted earnings per share

$ 3.44

$ 3.65

$ (0.21)

(5.8)%

$ 11.37

$ 10.52

$ 0.85

8.1 %

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

September 30

 

 

 

Nine Months Ended 

September 30

  

($ in millions)

2022

2021

$ Change

% Change

2022

2021

$ Change

% Change

Revenues

$ 623

$ 628

$ (5)

(0.8)%

$ 1,912

$ 1,947

$ (35)

(1.8)%

Segment operating income1

50

62

(12)

(19.4)%

242

233

9

3.9 %

Segment operating margin %1

8.0 %

9.9 %

 

(185) bps

12.7 %

12.0 %

 

69 bps

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

Ingalls Shipbuilding revenues for the third quarter of 2022 were $623 million, a decrease of $5 million, or 0.8%, from the same period in 2021, primarily driven by lower revenues in the Legend-class National Security Cutter (NSC) program and amphibious assault ships, partially offset by higher revenues in surface combatants. Revenues on the NSC program decreased due to lower volumes on Friedman (NSC 11) and Calhoun (NSC 10). Revenues on amphibious assault ships decreased due to lower volumes on USS Fort Lauderdale (LPD 28), partially offset by higher volumes on LHA 9 (unnamed). Revenues on surface combatants increased due to higher volumes on Thad Cochran (DDG 135) and Telesforo Trinidad (DDG 139), partially offset by lower volumes on Frank E. Petersen Jr. (DDG 121), Jeremiah Denton (DDG 129) and Ted Stevens (DDG 128).

Ingalls Shipbuilding segment operating income1 for the third quarter of 2022 was $50 million, a decrease of $12 million from the same period in 2021. Segment operating margin1 in the third quarter of 2022 was 8.0%, compared to 9.9% in the same period last year. The decreases were primarily driven by lower risk retirement on Ted Stevens (DDG 128) and USS Delbert D. Black (DDG 119) related to a capital expenditure incentive received in the third quarter of 2021, partially offset by higher risk retirement on USS Portland (LPD 27).

Key Ingalls Shipbuilding milestones for the quarter:

  • Awarded a design engineering contract for the next-generation guided-missile destroyer – DDG(X)

  • Authenticated the keel of guided-missile destroyer Jeremiah Denton (DDG 129)

  • Awarded a contract to begin combat systems availability for the Zumwalt-class destroyer, Lyndon B. Johnson (DDG 1002)

  • Began fabrication of amphibious transport dock Pittsburgh (LPD 31)

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

     

Newport News Shipbuilding

  

Three Months Ended

September 30

 

 

 

Nine Months Ended 

September 30

  

($ in millions)

2022

2021

$ Change

% Change

2022

2021

$ Change

% Change

Revenues

$ 1,445

$ 1,354

$ 91

6.7 %

$ 4,268

$ 4,124

$ 144

3.5 %

Segment operating income1

102

88

14

15.9 %

277

257

20

7.8 %

Segment operating margin %1

7.1 %

6.5 %

 

56 bps

6.5 %

6.2 %

 

26 bps

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

Newport News Shipbuilding revenues for the third quarter of 2022 were $1.4 billion, an increase of $91 million, or 6.7%, from the same period in 2021, primarily driven by higher revenues in naval nuclear support services, submarines and aircraft carriers. Naval nuclear support services revenues increased primarily as a result of higher volumes in submarine and carrier fleet support services. Submarine revenues increased due to higher volumes on the Columbia-class submarine program and Block V boats of the Virginia-class submarine (VCS) program, partially offset by lower volumes on submarine services and 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), partially offset by lower volumes on the RCOH of USS George Washington (CVN 73).

Newport News Shipbuilding segment operating income1 for the third quarter of 2022 was $102 million, an increase of $14 million from the same period in 2021. Segment operating margin1 in the third quarter of 2022 was 7.1%, compared to 6.5% in the same period last year. The increases were primarily due to contract incentives on the Columbia-class submarine program, partially offset by lower risk retirement on the VCS program.

Key Newport News Shipbuilding milestones for the quarter:

  • Achieved pressure hull complete on Virginia-class submarine Massachusetts (SSN 798)

  • Celebrated the ceremonial keel laying of aircraft carrier Enterprise (CVN 80)

  • Reached approximate 98% completion of the RCOH of USS George Washington (CVN 73)

  • Reached approximate 87% completion of John F. Kennedy (CVN 79)

  • Turned over the 1,000th compartment of 2,615 total spaces to the crew of John F. Kennedy (CVN 79)

Mission Technologies

  

Three Months Ended

September 30

 

 

 

Nine Months Ended 

September 30

  

($ in millions)

2022

2021

$ Change

% Change

2022

2021

$ Change

% Change

Revenues

$ 595

$ 394

$ 201

51.0 %

$ 1,785

$ 890

$895

100.6 %

Segment operating income1

14

13

 1

7.7 %

48

33

15

45.5 %

Segment operating margin %1

2.4 %

3.3 %

 

(95) bps

2.7 %

3.7 %

 

(102) bps

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

Mission Technologies revenues for the third quarter of 2022 were $595 million, an increase of $201 million from the same period in 2021. The increase was primarily due to higher volumes in Defense & Federal Solutions (DFS) attributable to the acquisition of Alion, which was completed on August 19, 2021.

Mission Technologies segment operating income1 for the third quarter of 2022 was $14 million, compared to $13 million in the third quarter of 2021. Segment operating margin1 in the third quarter of 2022 was 2.4%, compared to 3.3% in the same period last year. The increase in segment operating income1 was primarily driven by the acquisition of Alion in the third quarter of 2021 and higher equity income, partially offset by higher amortization of purchased intangible assets in 2022.

The decrease in segment operating margin1 was primarily driven by approximately $24 million of amortization of Alion related purchased intangible assets in the third quarter of 2022, compared to approximately $8 million in the same period last year. Mission Technologies EBITDA margin1 in the third quarter of 2022 was 8.4%.

Key Mission Technologies milestones for the quarter:

  • Awarded a task order to provide spectrum assessments across technical, policy and strategy areas for the U.S. DoD Chief Information Officer

  • Awarded an $826 million task order to provide Decisive Mission Actions and Technology Services (DMATS) to U.S. DoD

  • Awarded a $127 million task order to support the Defense Security Cooperation Agency (DSCA) to perform research, development, test and evaluation of emerging technologies

2022 Financial Outlook1

  • Expect FY22 revenue at lower end of previous guidance ranges given challenging labor environment and timing of material delivery

  • Expect FY22 shipbuilding revenue2 between $8.2 and $8.3 billion, shipbuilding operating margin2 between 8.0% and 8.1%

  • Expect FY22 Mission Technologies revenue of approximately $2.4 billion, segment operating margin2 of approximately 2.3%; and Mission Technologies EBITDA margin2 of approximately 8.3%

  • Expect FY22 free cash flow2 of approximately $350 million4 based on current tax law

  • Expect cumulative FY20-FY24 free cash flow2 of approximately $2.9 billion4

 

Prior Outlook

 

Current Outlook

Shipbuilding Revenue2

$8.2B – $8.5B

 

$8.2B – $8.3B

Shipbuilding Operating Margin2 8.0% – 8.1%

8.0% – 8.1%

Mission Technologies Revenue

$2.4B – $2.6B

 

~$2.4B

Mission Technologies Segment Operating Margin2

~2.5%

 

~2.3%

Mission Technologies EBITDA Margin2

8.0% – 8.5%

 

~8.3%

 

 

 

 

Operating FAS/CAS Adjustment

($143M)

 

($143M)

Non-current State Income Tax Expense3

($5M)

 

($5M)

Interest Expense

($102M)

 

($106M)

Non-operating Retirement Benefit

$273M

 

$276M

Effective Tax Rate

~21%

 

~19%

 

 

 

 

Depreciation & Amortization

$365M

 

$365M

Capital Expenditures

2.5% – 3.0%

of Sales

2.5% – 3.0%

of Sales

Free Cash Flow2 based on current tax law4

$200M – $250M

~$350M

1The financial outlook, expectations and other forward looking statements provided by the company for 2022 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. 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 Outlook 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.

4 Outlook is based on current tax law and assumes the provisions requiring capitalization of R&D expenditures for tax purposes is not deferred or repealed.

About Huntington Ingalls Industries

HII is a global, all-domain defense partner, building and delivering the world’s most powerful, survivable naval ships and technologies that safeguard our seas, sky, land, space and cyber. As America’s largest shipbuilder and with a more than 135-year history of advancing U.S. national defense, we are united by our mission in service of the heroes who protect our freedom. HII’s diverse workforce includes skilled tradespeople; artificial intelligence, machine learning (AI/ML) experts; engineers; technologists; scientists; logistics experts; and business professionals. Headquartered in Virginia, HII’s workforce is 43,000 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 10th by calling (866) 813-9403 or (929) 458-6194 and using access code 083595.

Cautionary Statement Regarding 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. You can generally identify forward-looking statements by words such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” 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, 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 attract and retain a qualified workforce; disruptions impacting the global supply, including those attributable to the ongoing COVID-19 pandemic and the ongoing conflict between Russia and Ukraine; 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.

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)

 

2022

 

2021

 

2022

 

2021

Sales and service revenues

 

 

 

 

 

 

 

 

Product sales

 

$ 1,774

 

$ 1,701

 

$ 5,327

 

$ 5,185

Service revenues

 

852

 

637

 

2,537

 

1,662

Sales and service revenues

 

2,626

 

2,338

 

7,864

 

6,847

Cost of sales and service revenues

 

 

 

 

 

 

 

 

Cost of product sales

 

1,517

 

1,453

 

4,511

 

4,402

Cost of service revenues

 

747

 

554

 

2,252

 

1,450

Income from operating investments, net

 

13

 

11

 

47

 

31

Other income and gains, net

 

 

2

 

 

3

General and administrative expenses

 

244

 

226

 

688

 

636

Operating income

 

131

 

118

 

460

 

393

Other income (expense)

 

 

 

 

 

 

 

 

Interest expense

 

(27)

 

(24)

 

(79)

 

(63)

Non-operating retirement benefit

 

71

 

45

 

209

 

135

Other, net

 

(13)

 

2

 

(30)

 

10

Earnings before income taxes

 

162

 

141

 

560

 

475

Federal and foreign income tax expense (benefit)

 

24

 

(6)

 

104

 

51

Net earnings

 

$ 138

 

$ 147

 

$ 456

 

$ 424

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$ 3.44

 

$ 3.65

 

$ 11.37

 

$ 10.52

Weighted-average common shares outstanding

 

40.1

 

40.3

 

40.1

 

40.3

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$ 3.44

 

$ 3.65

 

$ 11.37

 

$ 10.52

Weighted-average diluted shares outstanding

 

40.1

 

40.3

 

40.1

 

40.3

 

 

 

 

 

 

 

 

 

Dividends declared per share

 

$ 1.18

 

$ 1.14

 

$ 3.54

 

$ 3.42

 

 

 

 

 

 

 

 

 

Net earnings from above

 

$ 138

 

$ 147

 

$ 456

 

$ 424

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

Change in unamortized benefit plan costs

 

12

 

43

 

(61)

 

102

Other

 

(1)

 

(1)

 

(2)

 

1

Tax benefit (expense) for items of other comprehensive income

 

(3)

 

(11)

 

16

 

(26)

Other comprehensive income (loss), net of tax

 

8

 

31

 

(47)

 

77

Comprehensive income

 

$ 146

 

$ 178

 

$ 409

 

$ 501

HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

($ in millions)

 

 

 

 

September 30, 2022

 

 

December 31, 2021

  

Assets

 

Current Assets

 

 

Cash and cash equivalents

$ 117

$ 627

Accounts receivable, net of allowance for doubtful accounts of $2 million as of 2022 and $9 million as of 2021

721

433

Contract assets

1,564

1,310

Inventoried costs

174

161

Income taxes receivable

180

209

Prepaid expenses and other current assets

61

50

Total Current Assets

2,817

2,790

Property, Plant, and Equipment, net of accumulated depreciation of $2,283 million as of 2022 and $2,149 million as of 2021

3,136

3,107

Other Assets

 

 

Operating lease assets

236

241

Goodwill

2,618

2,628

Other intangible assets, net of accumulated amortization of $846 million as of 2022 and $741 million as of 2021

1,054

1,159

Pension plan assets

355

281

Miscellaneous other assets

399

421

Total other assets

4,662

4,730

Total assets

$10,615

$10,627

Liabilities and Stockholders’ Equity

 

 

Current Liabilities

 

 

Trade accounts payable

539

603

Accrued employees’ compensation

355

361

Current portion of long-term debt

399

Current portion of postretirement plan liabilities

137

137

Current portion of workers’ compensation liabilities

241

252

Contract liabilities

768

651

Other current liabilities

453

423

Total current liabilities

2,892

2,427

Long-term debt

2,605

3,298

Pension plan liabilities

394

351

Other postretirement plan liabilities

360

368

Workers’ compensation liabilities

486

506

Long-term operating lease liabilities

202

194

Deferred tax liabilities

274

313

Other long-term liabilities

354

362

Total liabilities

7,567

7,819

Commitments and Contingencies

Stockholders’ Equity

Common stock, $0.01 par value; 150 million shares authorized; 53.5 million shares issued and 39.9 million shares outstanding as of September 30, 2022, and 53.4 million shares issued and 40 million shares outstanding as of December 31, 2021

1

1

Additional paid-in capital

2,014

1,998

Retained earnings

4,203

3,891

Treasury stock

(2,200)

(2,159)

Accumulated other comprehensive loss

(970)

(923)

Total stockholders’ equity

3,048

2,808

Total liabilities and stockholders’ equity

$ 10,615

$10,627

HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

 

 

 

 

 

Nine Months Ended September 30

  

($ in millions)

2022

 

 

2021

 

Operating Activities

 

 

 

 

 

Net earnings

$

456

 

$

424

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

 

 

 

 

 

Depreciation

 

158

 

 

154

Amortization of purchased intangibles

 

105

 

 

48

Amortization of debt issuance costs

 

6

 

 

6

Provision for doubtful accounts

 

(7)

 

 

Stock-based compensation

 

28

 

 

19

Deferred income taxes

 

(14)

 

 

74

Loss (gain) on investments in marketable securities

 

34

 

 

(12)

Change in

 

 

 

 

 

Accounts receivable

 

(281)

 

 

52

Contract assets

 

(254)

 

 

(179)

Inventoried costs

 

(13)

 

 

(7)

Prepaid expenses and other assets

 

(4)

 

 

(116)

Accounts payable and accruals

 

48

 

 

93

Retiree benefits

 

(99)

 

 

(73)

Other non-cash transactions, net

 

2

 

 

6

Net cash provided by operating activities

 

165

 

 

489

Investing Activities

 

 

 

 

 

Capital expenditures

Capital expenditure additions

(179)

(216)

Grant proceeds for capital expenditures

11

Acquisitions of businesses, net of cash received

(1,636)

Investment in affiliates

(5)

(22)

Proceeds from disposition of business

20

Other investing activities, net

6

1

Net cash used in investing activities

(178)

(1,842)

Financing Activities

Proceeds from issuance of long-term debt

1,650

Repayment of long-term debt

(300)

Debt issuance costs

(22)

Dividends paid

(142)

(138)

Repurchases of common stock

(41)

(87)

Employee taxes on certain share-based payment arrangements

(14)

(7)

Net cash (used in) provided by financing activities

(497)

1,396

Change in cash and cash equivalents

(510)

43

Cash and cash equivalents, beginning of period

627

512

Cash and cash equivalents, end of period

$ 117

$ 555

Supplemental Cash Flow Disclosure

 

 

Cash paid for income taxes (net of refunds)

$ 107

$ 31

Cash paid for interest

$ 61

$ 39

Non-Cash Investing and Financing Activities

 

 

Capital expenditures accrued in accounts payable

$ 5

$ 4

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 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 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 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 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.

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.

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.

Mission Technologies EBITDA margin is defined as Mission Technologies segment operating income before interest expense, income taxes, depreciation, and amortization 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.

We present financial measures adjusted for the Operating FAS/CAS Adjustment and non-current state income taxes to reflect the company’s performance based upon the pension costs and state tax expense charged to our contracts under CAS. We use these adjusted measures as internal measures of operating performance and for performance-based compensation decisions.

Reconciliations of Segment Operating Income and Segment Operating Margin

  

Three Months Ended

September 30

 

Nine Months Ended 

September 30

($ in millions)

 

2022

2021

 

2022

2021

Ingalls revenues

 

$ 623

$ 628

 

$ 1,912

$ 1,947

Newport News revenues

 

1,445

1,354

 

4,268

4,124

Mission Technologies revenues

 

595

394

 

1,785

890

Intersegment eliminations

 

(37)

(38)

 

(101)

(114)

Sales and Service Revenues

 

2,626

2,338

 

7,864

6,847

 

 

 

 

 

 

 

Operating Income

 

131

118

 

460

393

Operating FAS/CAS Adjustment

 

36

41

 

108

118

Non-current state income taxes

 

(1)

4

 

(1)

12

Segment Operating Income

 

166

163

 

567

523

As a percentage of sales and service revenues

 

6.3 %

7.0 %

 

7.2 %

7.6 %

Ingalls segment operating income

 

50

62

 

242

233

As a percentage of Ingalls revenues

 

8.0 %

9.9 %

 

12.7 %

12.0 %

Newport News segment operating income

 

102

88

 

277

257

As a percentage of Newport News revenues

 

7.1 %

6.5 %

 

6.5 %

6.2 %

Mission Technologies operating income

 

14

13

 

48

33

As a percentage of Mission Technologies revenues

 

2.4 %

3.3 %

 

2.7 %

3.7 %

Reconciliation of Free Cash Flow

 

Three Months Ended

September 30

 

 

Nine Months Ended 

September 30

 

($ in millions)

 

2022

 

2021

 

2022

 

2021

Net cash provided by operating activities

 

$ (19)

 

$ 350

 

$ 165

 

$ 489

Less capital expenditures:

 

 

 

 

 

 

 

 

Capital expenditure additions

 

(77)

 

(82)

 

(179)

 

(216)

Grant proceeds for capital expenditures

 

 

9

 

 

11

Free cash flow

 

$ (96)

 

$ 277

 

$ (14)

 

$ 284

 

Reconciliation of Mission Technologies EBITDA and EBITDA Margin

 

Three Months Ended

September 30

  

Nine Months Ended 

September 30

  
($ in millions) 2022 2021 2022 2021
Mission Technologies sales and service revenues $ 595 $ 394 $ 1,785 $ 890
         
Mission Technologies segment operating income $ 14 $ 13 $ 48 $ 33
Mission Technologies depreciation expense 3 2 8 4
Mission Technologies amortization expense 30 16 90 32
Mission Technologies state tax expense 3 (1) 9 5
Mission Technologies EBITDA $ 50 $ 30 $ 155 $ 74
Mission Technologies EBITDA margin 8.4 % 7.6 % 8.7 % 8.3 %
MEDIA CONTACT
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Brooke Hart (Media)
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NEWPORT NEWS, Va. (Nov. 2, 2022) – HII (NYSE:HII) announced today that its Board of Directors has declared a quarterly cash dividend of $1.24 per share, a $0.06 increase over the $1.18 per share dividend paid in each of the prior four quarters. The $1.24 per share dividend will be payable on Dec. 9, 2022, to shareholders of record as of the close of business on Nov. 25, 2022.

HII is a global, all-domain defense partner, building and delivering the world’s most powerful, survivable naval ships and technologies that safeguard our seas, sky, land, space and cyber.

As America’s largest shipbuilder and with a more than 135-year history of advancing U.S. national defense, we are united by our mission in service of the heroes who protect our freedom. HII’s diverse workforce includes skilled tradespeople; artificial intelligence, machine learning (AI/ML) experts; engineers; technologists; scientists; logistics experts; and business professionals. Headquartered in Virginia, HII’s workforce is 44,000 strong. For more information, visit:

MEDIA CONTACT
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Christie Thomas (Investors)
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NEWPORT NEWS, Va. (Oct. 6, 2022) — HII (NYSE:HII) will release its third quarter 2022 financial results on Thursday, Nov. 3, and host an earnings conference call at 9 a.m. Eastern time the same day. The call will be webcast live on HII’s website: https://www.hii.com/.

HII participants will include Chris Kastner, president and CEO, and Tom Stiehle, executive vice president and chief financial officer. Their remarks will be supplemented by a series of slides appearing on the company website. Listeners are encouraged to view these materials in conjunction with the call. Replays of the call will be available on the website for a limited time.

HII is a global, all-domain defense partner, building and delivering the world’s most powerful, survivable naval ships and technologies that safeguard our seas, sky, land, space and cyber. As America’s largest shipbuilder and with a more than 135-year history of advancing U.S. national defense, we are united by our mission in service of the heroes who protect our freedom. HII’s diverse workforce includes skilled tradespeople; artificial intelligence, machine learning (AI/ML) experts; engineers; technologists; scientists; logistics experts; and business professionals. Headquartered in Virginia, HII’s workforce is 44,000 strong. For more information, visit:

MEDIA CONTACT
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(202) 264-7108
 
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  • Revenues were $2.7 billion in the quarter

  • Net earnings of $178 million or $4.44 diluted earnings per share

  • Free cash flow1 of $208 million in the quarter

  • Reaffirms FY22 shipbuilding revenue1 and segment operating margin1 guidance

  • Revises FY22 Mission Technologies revenue guidance

  • Reaffirms FY22 free cash flow1 guidance

NEWPORT NEWS, Va. (Aug. 4, 2022) – HII (NYSE:HII) reported second quarter 2022 revenues of $2.7 billion, up 19.3% from the second quarter of 2021, primarily driven by revenue attributable to the acquisition of Alion Science and Technology (Alion) in the third quarter of 2021, as well as growth at Newport News Shipbuilding.

Operating income in the second quarter of 2022 was $191 million and operating margin was 7.2%, compared to $128 million and 5.7%, respectively, in the second quarter of 2021. The increases in operating income and operating margin were primarily driven by higher segment operating income1, as well as more favorable non-current state income taxes and a more favorable operating FAS/CAS adjustment compared to the prior year.

Segment operating income1 in the second quarter of 2022 was $225 million and segment operating margin1 was 8.5%, compared to $169 million and 7.6%, respectively, in the second quarter of 2021. The increases in segment operating income1 and segment operating margin1 were driven by improved results across all three divisions compared to the prior year.

Net earnings in the quarter were $178 million, compared to $129 million in the second quarter of 2021. Diluted earnings per share in the quarter was $4.44, compared to $3.20 in the second quarter of 2021.

Net cash provided by operating activities in the quarter was $267 million and free cash flow1 was $208 million, compared to cash provided by operating activities of $96 million and free cash flow1 of $23 million in the second quarter of 2021.

New contract awards in the second quarter of 2022 were approximately $2.0 billion, bringing total backlog to approximately $47.2 billion as of June 30, 2022.

“We are pleased with another quarter of consistent shipbuilding program execution and stronger operating income at each of our divisions compared to the prior year,” said Chris Kastner, HII’s president and CEO. “We remain confident in the positioning of the business for long-term value creation given the tremendous volume of shipbuilding work we have secured in backlog and a Mission Technologies division that is poised for robust growth in markets of critical importance to our customers.”

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

 

Results of Operations

 

Three Months Ended

   

Six Months Ended

  
 

June 30

   

June 30

  

($ in millions, except per share amounts)

2022

2021

$ Change

% Change

 

2022

2021

$ Change

% Change

Sales and service revenues

$  2,662   

$  2,231

$         431

19.3 %

 

$  5,238   

$   4,509

$          729

16.2 %

Operating income

        191   

      128

            63

49.2 %

 

       329   

       275

              54

19.6 %

  Operating margin %

7.2 %

5.7 %

 

144 bps

 

6.3 %

6.1 %

 

18 bps

Segment operating income1

        225   

      169

            56

33.1 %

 

       401   

       360

              41

11.4 %

 Segment operating margin %1

8.5 %

7.6 %

 

88 bps

 

7.7 %

8.0 %

 

(33) bps

Net earnings

        178   

      129

            49

38.0 %

 

       318   

       277

              41

14.8 %

Diluted earnings per share

$      4.44   

$    3.20

$        1.24

38.8 %

 

$    7.93   

$    6.87

$          1.06

15.4 %

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

 

Segment Operating Results

Ingalls Shipbuilding

 

Three Months Ended

   

Six Months Ended

  
 

June 30

   

June 30

  

($ in millions)

2022

2021

$ Change

% Change

 

2022

2021

$ Change

% Change

Revenues

$     658   

$     670

$         (12)

(1.8) %

 

$     1,289   

$     1,319

$           (30)

(2.3) %

Segment operating income1

       106   

         80

            26

32.5 %

 

         192   

         171

              21

12.3 %

Segment operating margin %1

16.1 %

11.9 %

 

417 bps

 

14.9 %

13.0 %

 

193 bps

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

 

Ingalls Shipbuilding revenues for the second quarter of 2022 were $658 million, a decrease of $12 million, or 1.8%, from the same period in 2021, primarily driven by lower revenues in the Arleigh Burke-class guided missile destroyer (DDG) program, partially offset by higher revenues in the amphibious transport dock (LPD) and amphibious assault ship (LHA) programs. DDG program revenues decreased due to lower volumes on Jeremiah Denton (DDG 129) and USS Jack H. Lucas (DDG 125), partially offset by higher volume on Thad Cochran (DDG 135). Amphibious ship program revenues increased due to higher volumes on Pittsburgh (LPD 31), Harrisburg (LPD 30), LHA 9 (unnamed) and amphibious class planning yard services, partially offset by lower volume on the recently delivered Fort Lauderdale (LPD 28).

Ingalls Shipbuilding segment operating income1 for the second quarter of 2022 was $106 million, an increase of $26 million from the same period in 2021. Segment operating margin1 in the second quarter of 2022 was 16.1%, compared to 11.9% in the same period last year. The increases were primarily driven by favorable changes in contract estimates from facilities capital and price adjustment clauses and higher risk retirement on Harrisburg (LPD 30), partially offset by lower risk retirement on USS Jack H. Lucas (DDG 125) related to a capital expenditure incentive in 2021.

Key Ingalls Shipbuilding milestones for the quarter:

  • Launched and christened National Security Cutter Calhoun (NSC 10)

  • Christened amphibious transport dock Richard M. McCool Jr. (LPD 29)

  • Awarded advanced procurement contract for LPD 32

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

 

Newport News Shipbuilding

 

Three Months Ended

   

Six Months Ended

  
 

June 30

   

June 30

  

($ in millions)

2022

2021

$ Change

% Change

 

2022

2021

$ Change

% Change

Revenues

$    1,433   

$    1,363

$           70

5.1 %

 

$    2,823   

$    2,770

$            53

1.9 %

Segment operating income1

          94   

          76

             18

23.7 %

 

        175   

        169

                6

3.6 %

Segment operating margin %1

6.6 %

5.6 %

 

98 bps

 

6.2 %

6.1 %

 

10 bps

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

 

Newport News Shipbuilding revenues for the second quarter of 2022 were $1.4 billion, an increase of $70 million, or 5.1%, from the same period in 2021, primarily driven by higher revenues in aircraft carriers, partially offset by lower revenues in naval nuclear support services. 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), John F. Kennedy (CVN 79) and Enterprise (CVN 80), partially offset by lower volume on the RCOH of USS George Washington (CVN 73). 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 were relatively flat compared to the prior year, with lower volumes on Block IV boats of the Virginia-class submarine (VCS) program largely offset by higher volumes on Block V boats of the VCS program and higher volume in the Columbia-class submarine program.

Newport News Shipbuilding segment operating income1 for the second quarter of 2022 was $94 million, an increase of $18 million from the same period in 2021. Segment operating margin1 in the second quarter of 2022 was 6.6%, compared to 5.6% in the same period last year. The increases were primarily due favorable changes in contract estimates from facilities capital and price adjustment clauses, partially offset by lower risk retirement on the VCS program.

Key Newport News Shipbuilding milestones for the quarter:

  • Launched Virginia-class submarine New Jersey (SSN 796)

  • Reached approximate 97% completion of the RCOH of USS George Washington (CVN 73)

  • Reached approximate 86% completion of John F. Kennedy (CVN 79)

  • Recently turned over the 1,000th compartment of the 2,615 total spaces to the crew of John F. Kennedy (CVN 79)

 

Mission Technologies

 

Three Months Ended

   

Six Months Ended

  
 

June 30

   

June 30

  

($ in millions)

2022

2021

$ Change

% Change

 

2022

2021

$ Change

% Change

Revenues

$     600   

$     237

$        363

153.2 %

 

$     1,190   

$        496

            694

139.9 %

Segment operating income1

         25   

         13

$          12

92.3 %

 

           34   

           20

              14

70.0 %

Segment operating margin %1

4.2 %

5.5 %

 

(132) bps

 

2.9 %

4.0 %

 

(118) bps

     

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

 

Mission Technologies revenues for the second quarter of 2022 were $600 million, an increase of $363 million from the same period in 2021. The increase was primarily due to higher volumes in Defense & Federal Solutions (DFS) attributable to the acquisition of Alion in the third quarter of 2021.

Mission Technologies segment operating income1 for the second quarter of 2022 was $25 million, compared to $13 million in the second quarter of 2021. Segment operating margin1 in the second quarter of 2022 was 4.2%, compared to 5.5% in the same period last year. The increase in segment operating income1 was primarily driven by higher equity income from a ship repair and specialty fabrication joint venture of which we are a minority owner.

 The decrease in the segment operating margin1 was primarily driven by approximately $24 million of amortization of Alion related purchased intangible assets. Mission Technologies EBITDA margin1 in the second quarter of 2022 was 10.7%.

 Key Mission Technologies milestones for the quarter:

  • Launched Odyssey, a suite of advanced autonomy solutions

  • Awarded the Mobility Air Forces Distributed Mission Operations prime contract

  • Successfully demonstrated the Pharos system for launching and retrieving unmanned underwater vehicles from amphibious warships

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

 

2022 Financial Outlook1

  • Reaffirming shipbuilding revenue2, shipbuilding operating margin2, Mission Technologies segment operating margin2 and free cash flow2 guidance

  • Revising Mission Technologies revenue guidance to a range given slower overall award and contracting pace in the first half of 2022

  • Expect FY22 shipbuilding revenue2 between $8.2 and $8.5 billion; expect shipbuilding operating margin2 between 8.0% and 8.1%

  • Expect FY22 Mission Technologies revenue between $2.4 and $2.6 billion, segment operating margin2 of approximately 2.5%; and expect Mission Technologies EBITDA margin2 of between 8.0% and 8.5%

  • Expect FY22 free cash flow2 of between $300 and $350 million4

  • Expect cumulative FY20-FY24 free cash flow2 of approximately $3.2 billion4

  

Prior Outlook

 

Current Outlook

Shipbuilding Revenue2

 

$8.2B – $8.5B

 

$8.2B – $8.5B

Shipbuilding Operating Margin2

 

8.0% – 8.1%

 

8.0% – 8.1%

Mission Technologies Revenue

 

~$2.6B

 

$2.4B – $2.6B

Mission Technologies Segment Operating Margin2

 

~2.5%

 

~2.5%

Mission Technologies EBITDA Margin2

 

8.0% – 8.5%

 

8.0% – 8.5%

     

Operating FAS/CAS Adjustment

 

($143M)

 

($143M)

Non-current State Income Tax Expense3

 

($5M)

 

($5M)

Interest Expense

 

($102M)

 

($102M)

Non-operating Retirement Benefit

 

$273M

 

$273M

Effective Tax Rate

 

~21%

 

~21%

     

Depreciation & Amortization

 

$365M

 

$365M

Capital Expenditures

 

2.5% – 3.0%

of Sales

 

2.5% – 3.0%

of Sales

Free Cash Flow2 assuming Sec. 174 Tax Deferral4

 

$300M – $350M

 

$300M – $350M

Free Cash Flow2 based on current tax law5

 

$200M – $250M

 

$200M – $250M

 1The financial outlook, expectations and other forward looking statements provided by the company for 2022 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. 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 Outlook is based on current tax law. Repeal or deferral of legislation requiring capitalization of R&D expenditures would result in elevated non-current state income tax expense.

4 Outlook assumes the legislation requiring capitalization of R&D expenditures for tax purposes is deferred.
See Exhibit B for additional information.

5 Reflects $100 million of projected impact of the current tax law on our free cash flow guidance for 2022. See appendix for additional information.

About Huntington Ingalls Industries

HII is an all-domain defense and technologies partner, recognized worldwide as America’s largest shipbuilder. With a 135-year history of trusted partnerships in advancing U.S. national security, HII delivers critical capabilities ranging from the most powerful and survivable naval ships ever built, to unmanned systems, ISR and AI/ML analytics. HII leads the industry in mission-driven solutions that support and enable an all-domain force. Headquartered in Virginia, HII’s skilled workforce is 44,000 strong. For more information, please visit www.HII.com.

Conference Call Information

 Huntington Ingalls Industries will webcast its earnings conference call at 9 a.m. Eastern time today. A live audio broadcast of the conference call and supplemental presentation will be available on the investor relations page of the company’s website: www.HII.com. A telephone replay of the conference call will be available from noon today through Thursday, August 11th by calling (866) 813-9403 or (929) 458-6194 and using access code 740364.

Cautionary Statement Regarding 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. You can generally identify forward-looking statements by words such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” 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, 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; disruptions impacting the global supply, including those attributable to the ongoing COVID-19 pandemic and the ongoing conflict between Russia and Ukraine; 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.

Exhibit A: Financial Statements

 

HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

  

Three Months Ended

June 30

 

Six Months Ended

June 30

(in millions, except per share amounts)

 

2022

 

2021

 

2022

 

2021

Sales and service revenues

        

Product sales

 

$        1,829

 

$        1,763

 

$            3,553

 

$            3,484

Service revenues

 

            833

 

            468

 

             1,685

 

             1,025

Sales and service revenues

 

         2,662

 

         2,231

 

             5,238

 

             4,509

Cost of sales and service revenues

        

Cost of product sales

 

         1,526

 

         1,495

 

             2,994

 

             2,949

Cost of service revenues

 

            746

 

            414

 

             1,505

 

                896

Income from operating investments, net

 

              27

 

              12

 

                  34

 

                  20

Other income and gains (losses), net

 

                1

 

               (2)

 

                  —

 

                    1

General and administrative expenses

 

            227

 

            204

 

                444

 

                410

Operating income

 

            191

 

            128

 

                329

 

                275

Other income (expense)

        

Interest expense

 

             (26)

 

             (18)

 

                 (52)

 

                 (39)

Non-operating retirement benefit

 

              67

 

              44

 

                138

 

                  90

Other, net

 

             (10)

 

                7

 

                 (17)

 

                    8

Earnings before income taxes

 

            222

 

            161

 

                398

 

                334

Federal and foreign income tax expense

 

              44

 

              32

 

                  80

 

                  57

Net earnings

 

$          178

 

$          129

 

$              318

 

$              277

         

Basic earnings per share

 

$          4.44

 

$          3.20

 

$             7.93

 

$             6.87

Weighted-average common shares outstanding

 

           40.1

 

           40.3

 

               40.1

 

               40.3

         

Diluted earnings per share

 

$          4.44

 

$          3.20

 

$             7.93

 

$             6.87

Weighted-average diluted shares outstanding

 

           40.1

 

           40.3

 

               40.1

 

               40.3

         

Dividends declared per share

 

$          1.18

 

$          1.14

 

$             2.36

 

$             2.28

         

Net earnings from above

 

$          178

 

$          129

 

$              318

 

$              277

Other comprehensive income (loss)

        

Change in unamortized benefit plan costs

 

              13

 

              30

 

                 (73)

 

                  59

Other

 

               (1)

 

              —

 

                   (1)

 

                    2

Tax benefit (expense) for items of other comprehensive income

 

               (3)

 

               (8)

 

                  19

 

                 (15)

Other comprehensive income (loss), net of tax

 

                9

 

              22

 

                 (55)

 

                  46

Comprehensive income

 

$          187

 

$          151

 

$              263

 

$              323

 

HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

($ in millions)

 

June 30,

2022

 

December 31,

2021

Assets

    

Current Assets

    

Cash and cash equivalents

 

$                375

 

$                627

Accounts receivable, net of allowance for doubtful accounts of $2 million as of 2022 and $9 million as of 2021

 

                  681

 

                  433

Contract assets

 

               1,366

 

               1,310

Inventoried costs

 

                  196

 

                  161

Income taxes receivable

 

                  128

 

                  209

Prepaid expenses and other current assets

 

                    74

 

                    50

Total current assets

 

               2,820

 

               2,790

Property, Plant, and Equipment, net of accumulated depreciation of $2,234 million as of 2022 and $2,149 million as of 2021

 

               3,102

 

               3,107

Other Assets

    

Operating lease assets

 

                  226

 

                  241

Goodwill

 

               2,634

 

               2,628

Other intangible assets, net of accumulated amortization of $811 million as of 2022 and $741 million as of 2021

 

               1,089

 

               1,159

Pension plan assets

 

                  314

 

                  281

Miscellaneous other assets

 

                  401

 

                  421

Total other assets

 

               4,664

 

               4,730

Total assets

 

$            10,586

 

$            10,627

 

HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) (continued) 

($ in millions)

 

June 30,

2022

 

December 31,

2021

Liabilities and Stockholders’ Equity

    

Current Liabilities

    

Trade accounts payable

 

$                528

 

$                603

Accrued employees’ compensation

 

                  339

 

                  361

Current portion of postretirement plan liabilities

 

                  137

 

                  137

Current portion of workers’ compensation liabilities

 

                  255

 

                  252

Contract liabilities

 

                  757

 

                  651

Other current liabilities

 

                  431

 

                  423

Total current liabilities

 

               2,447

 

               2,427

Long-term debt

 

               3,102

 

               3,298

Pension plan liabilities

 

                  396

 

                  351

Other postretirement plan liabilities

 

                  363

 

                  368

Workers’ compensation liabilities

 

                  496

 

                  506

Long-term operating lease liabilities

 

                  181

 

                  194

Deferred tax liabilities

 

                  293

 

                  313

Other long-term liabilities

 

                  356

 

                  362

Total liabilities

 

               7,634

 

               7,819

Commitments and Contingencies

    

Stockholders’ Equity

    

Common stock, $0.01 par value; 150 million shares authorized; 53.5  million shares issued and 40.0 million shares outstanding as of June 30, 2022, and 53.4 million shares issued and 40.0 million shares outstanding as of December 31, 2021

 

                      1

 

                      1

Additional paid-in capital

 

               2,002

 

               1,998

Retained earnings

 

               4,113

 

               3,891

Treasury stock

 

              (2,186)

 

              (2,159)

Accumulated other comprehensive loss

 

                 (978)

 

                 (923)

Total stockholders’ equity

 

               2,952

 

               2,808

Total liabilities and stockholders’ equity

 

$            10,586

 

$            10,627

 

 HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

Six Months Ended

June 30

($ in millions)

2022

 

2021

Operating Activities

   

Net earnings

$                318

 

$                277

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

   

Depreciation

                  104

 

                  102

Amortization of purchased intangibles

                    70

 

                    26

Amortization of debt issuance costs

                      4

 

                      3

Provision for doubtful accounts

                     (7)

 

                    —

Stock-based compensation

                    16

 

                    12

Deferred income taxes

                     (1)

 

                    31

Loss (gain) on investments in marketable securities

                    26

 

                   (12)

Change in

   

Accounts receivable

                 (241)

 

                   (45)

Contract assets

                   (56)

 

                 (127)

Inventoried costs

                   (35)

 

                     (3)

Prepaid expenses and other assets

                    47

 

                   (29)

Accounts payable and accruals

                      8

 

                   (32)

Retiree benefits

                   (65)

 

                   (70)

Other non-cash transactions, net

                     (4)

 

                      6

Net cash provided by operating activities

                  184

 

                  139

Investing Activities

   

Capital expenditures

 

   

Capital expenditure additions

 

                 (102)

 

                 (134)

Grant proceeds for capital expenditures

 

                    —

 

                      2

Investment in affiliates

                     (5)

 

                   (22)

Proceeds from disposition of business

                    —

 

                    20

Other investing activities, net

                      6

 

                    —

Net cash used in investing activities

                 (101)

 

                 (134)

 

HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued) 

 

Six Months Ended

June 30

($ in millions)

2022

 

2021

Financing Activities

   

Repayment of long-term debt

                 (200)

 

                    —

Dividends paid

                   (94)

 

                   (92)

Repurchases of common stock

                   (27)

 

                   (70)

Employee taxes on certain share-based payment arrangements

                   (14)

 

                     (7)

Net cash used in financing activities

                 (335)

 

                 (169)

Change in cash and cash equivalents

                 (252)

 

                 (164)

Cash and cash equivalents, beginning of period

                  627

 

                  512

Cash and cash equivalents, end of period

$                375

 

$                348

Supplemental Cash Flow Disclosure

   

Cash paid for income taxes (net of refunds)

$                  15

 

$                  21

Cash paid for interest

$                  49

 

$                  37

Non-Cash Investing and Financing Activities

   

Capital expenditures accrued in accounts payable

$                    6

 

$                    5

 

 

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 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 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 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 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.

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.

A provision of the Tax Cuts and Jobs Act of 2017 that was effective January 1, 2022 requires companies to capitalize and amortize research and development costs over five years rather than deducting such costs in the year incurred for tax purposes. Unless the provision is deferred, modified, or repealed, we currently estimate that this change could have a $100 million impact on our free cash flow guidance for 2022, which currently assumes the legislation will be deferred, modified or repealed. Unless the provision is deferred, modified, or repealed, we currently estimate that this change could have a $250 million impact on our free cash flow guidance for 2022 through 2024, which currently assumes the legislation will be deferred, modified or repealed.

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.

Mission Technologies EBITDA margin is defined as Mission Technologies segment operating income before interest expense, income taxes, depreciation, and amortization 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.

We present financial measures adjusted for the Operating FAS/CAS Adjustment and non-current state income taxes to reflect the company’s performance based upon the pension costs and state tax expense charged to our contracts under CAS. We use these adjusted measures as internal measures of operating performance and for performance-based compensation decisions.

 

Reconciliations of Segment Operating Income and Segment Operating Margin

  

Three Months Ended

 

Six Months Ended

  

June 30

 

June 30

($ in millions)

 

2022

 

2021

 

2022

 

2021

Ingalls revenues

 

$              658   

 

$              670

 

$           1,289   

 

$           1,319

Newport News revenues

 

             1,433   

 

             1,363

 

             2,823   

 

             2,770

Mission Technologies revenues

 

               600   

 

               237

 

             1,190   

 

               496

Intersegment eliminations

 

                (29)  

 

                (39)

 

                (64)  

 

                (76)

Sales and Service Revenues

 

             2,662   

 

             2,231

 

             5,238   

 

             4,509

         

Operating Income

 

               191   

 

               128

 

               329   

 

               275

Operating FAS/CAS Adjustment

 

                 35   

 

                 37

 

                 72   

 

                 77

Non-current state income taxes

 

                  (1)  

 

                   4

 

                  —   

 

                   8

Segment Operating Income

 

               225   

 

               169

 

               401   

 

               360

  As a percentage of sales and service revenues

 

8.5 %

 

7.6 %

 

7.7 %

 

8.0 %

Ingalls segment operating income

 

               106   

 

                 80

 

               192   

 

               171

  As a percentage of Ingalls revenues

 

16.1 %

 

11.9 %

 

14.9 %

 

13.0 %

Newport News segment operating income

 

                 94   

 

                 76

 

               175   

 

               169

  As a percentage of Newport News revenues

 

6.6 %

 

5.6 %

 

6.2 %

 

6.1 %

Mission Technologies operating income

 

                 25   

 

                 13

 

                 34   

 

                 20

  As a percentage of Mission Technologies revenues

 

4.2 %

 

5.5 %

 

2.9 %

 

4.0 %

 

Reconciliation of Free Cash Flow

  

Six Months Ended

  

June 30

($ in millions)

 

2022

 

2021

Net cash provided by operating activities

 

$                184

 

$                139

Less capital expenditures:

    

Capital expenditure additions

 

                 (102)

 

                 (134)

Grant proceeds for capital expenditures

 

                    —

 

                      2

Free cash flow

 

$                  82

 

$                    7

 

Reconciliation of Mission Technologies EBITDA and EBITDA Margin

  

Three Months Ended

 

Six Months Ended

  

June 30

 

June 30

($ in millions)

 

2022

 

2021

 

2022

 

2021

Mission Technologies sales and service revenues

 

$              600   

 

$              237

 

$           1,190   

 

$              496

         

Mission Technologies segment operating income

 

$               25   

 

$               13

 

$               34   

 

$               20

Mission Technologies depreciation expense

 

                   3   

 

                   1

 

                   5   

 

                   2

Mission Technologies amortization expense

 

                 30   

 

                   8

 

                 60   

 

                 16

Mission Technologies state tax expense

 

                   4   

 

                   5

 

                   6   

 

                   6

Mission Technologies other, net

 

                   2   

 

                  —

 

                   2   

 

                  —

Mission Technologies EBITDA

 

$               64   

 

$               27

 

$              107   

 

$               44

Mission Technologies EBITDA margin

 

10.7 %

 

11.4 %

 

9.0 %

 

8.9 %

 

 

MEDIA CONTACT
Brooke Hart (Media)
202-264-7108
 
Christie Thomas (Investors)
757-380-2104 
General Inquiries:
Sign Up For Email Alerts

NEWPORT NEWS, Va. (Aug. 2, 2022) — HII (NYSE:HII) announced today that its Board of Directors has declared a quarterly cash dividend of $1.18 per share, payable on Sept. 9, 2022, to shareholders of record as of the close of business on Aug. 26, 2022.

####

About HII

HII is an all-domain defense and technologies partner, recognized worldwide as America’s largest shipbuilder. With a 135-year history of trusted partnerships in advancing U.S. national security, HII delivers critical capabilities ranging from the most powerful and survivable naval ships ever built, to unmanned systems, ISR and AI/ML analytics. HII leads the industry in mission-driven solutions that support and enable an all-domain force. Headquartered in Virginia, HII’s skilled workforce is 44,000 strong. For more information please visit:

MEDIA CONTACT
Brooke Hart (Media)
202-264-7108
 
Christie Thomas (Investors)
757-380-2104
General Inquiries:
Sign Up For Email Alerts

NEWPORT NEWS, Va., July 07, 2022 — HII (NYSE:HII) will release its second quarter 2022 financial results on Thursday, Aug. 4, and host an earnings conference call at 9 a.m. Eastern time the same day. The call will be webcast live on HII’s website: https://www.hii.com/.

HII participants will include Chris Kastner, president and CEO, and Tom Stiehle, executive vice president and chief financial officer. Their remarks will be supplemented by a series of slides appearing on the company website. Listeners are encouraged to view these materials in conjunction with the call. Replays of the call will be available on the website for a limited time.

About Huntington Ingalls Industries 

HII is an all-domain defense and technologies partner, recognized worldwide as America’s largest shipbuilder. With a 135-year history of trusted partnerships in advancing U.S. national security, HII delivers critical capabilities ranging from the most powerful and survivable naval ships ever built, to unmanned systems, ISR and AI/ML analytics. HII leads the industry in mission-driven solutions that support and enable an all-domain force. Headquartered in Virginia, HII’s skilled workforce is 44,000 strong. For more information please visit:

MEDIA CONTACT
Brooke Hart
202-264-7108
Christie Thomas
757-380-2104
  • Revenues were $2.6 billion in the quarter
  • Net earnings of $140 million, $3.50 diluted earnings per share
  • Delivered Virginia-class submarine Montana (SSN 794)
  • Delivered amphibious transport dock Fort Lauderdale (LPD 28)
  • Company reaffirms FY22 revenue, margin and free cash flow1 guidance

NEWPORT NEWS, Va., May 05, 2022 — HII (NYSE:HII) reported first quarter 2022 revenues of $2.6 billion, up 13.1% from the first quarter of 2021, primarily driven by revenue attributable to the acquisition of Alion Science and Technology (Alion) in the third quarter of 2021.

Operating income in the first quarter of 2022 was $138 million and operating margin was 5.4%, compared to $147 million and 6.5%, respectively, in the first quarter of 2021. The decreases in operating income and operating margin were primarily driven by lower segment operating income1, partially offset by more favorable non-current state income taxes and operating FAS/CAS adjustment compared to the prior year.

Segment operating income1 in the first quarter of 2022 was $176 million and segment operating margin1 was 6.8%, compared to $191 million and 8.4%, respectively, in the first quarter of 2021. The decreases in segment operating income1 and segment operating margin1 were primarily driven by lower risk retirement at Newport News Shipbuilding compared to the prior year.

Net earnings in the quarter were $140 million, compared to $148 million in the first quarter of 2021. Diluted earnings per share in the quarter was $3.50, compared to $3.68 in the first quarter of 2021.

Net cash used in operating activities in the quarter was $83 million and free cash flowwas negative $126 million, compared to cash provided by operating activities of $43 million and free cash flow1 of negative $16 million in the first quarter of 2021.

New contract awards in the first quarter of 2022 were approximately $2.0 billion, bringing total backlog to approximately $47.9 billion as of March 31, 2022.

“We are pleased with another quarter of consistent program execution and results that were
slightly ahead of our initial expectations as we continue to navigate through a challenging operational environment,” said Chris Kastner, HII’s president and CEO. “We believe HII is well positioned for long-term value creation with very strong shipbuilding backlog and demand signals, as well as a highly capable Mission Technologies division that has been strategically shaped to address our customers most pressing needs.”

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

Results of Operations

    Three Months Ended   
  March 31  
($ in millions, except per share amounts)  2022  2021 $ Change% Change
Sales and service revenues $2,576 $2,278 $298 13.1% 
Operating income  138  147  (9) (6.1)% 
Operating margin %  5.4%  6.5%  (110) bps
Segment operating income1  176  191  (15) (7.9)% 
Segment operating margin %1  6.8%  8.4%  (155) bps
Net earnings  140  148  (8) (5.4)% 
Diluted earnings per share $3.50 $3.68 $(0.18) (4.9)% 
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)  2022  2021 $ Change% Change 
Revenues $631 $649 $(18) (2.8)% 
Segment operating income1  86  91  (5) (5.5)% 
Segment operating margin %1  13.6%  14.0%  (39) bps
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. 

Ingalls Shipbuilding revenues for the first quarter of 2022 were $631 million, a decrease of $18 million, or 2.8%, from the same period in 2021, primarily driven by lower revenues in the Arleigh Burke-class guided missile destroyer (DDG) program, partially offset by higher revenues in amphibious assault ships. DDG program revenues decreased due to lower volumes on Jeremiah Denton (DDG 129), George M. Neal (DDG 131) and Frank E. Petersen Jr. (DDG 121), partially offset by higher volume on Sam Nunn (DDG 133). Revenues on amphibious assault ships increased due to higher volumes on LHA 9 (unnamed) and amphibious assault ship planning yard services, partially offset by lower volumes on Bougainville (LHA 8).

Ingalls Shipbuilding segment operating income1 for the first quarter of 2022 was $86 million, a decrease of $5 million from the same period in 2021. Segment operating marginin the first quarter of 2022 was 13.6%, compared to 14.0% in the same period last year. The decrease in segment operating margin1 was primarily driven by lower risk retirement on amphibious assault ship Bougainville (LHA 8) and guided missile destroyer Jack H. Lucas (DDG 125), partially offset by higher risk retirement on amphibious transport dock Fort Lauderdale (LPD 28) following its delivery.

Key Ingalls Shipbuilding milestones for the quarter:

  • Delivered amphibious transport dock Fort Lauderdale (LPD 28)
  • Launched amphibious transport dock Richard M. McCool Jr. (LPD 29)
  • Authenticated keel of amphibious transport dock Harrisburg (LPD 30)
  • Christened guided missile destroyer Jack H. Lucas (DDG 125)
  • Authenticated keel of guided missile destroyer Ted Stevens (DDG 128)

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

Newport News Shipbuilding

  Three Months Ended   
  March 31   
($ in millions)  2022  2021 $ Change% Change 
Revenues $1,390 $1,407 $(17) (1.2)% 
Segment operating income1  81  93  (12) (12.9)% 
Segment operating margin %1  5.8%  6.6%  (78) bps
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations. 

Newport News Shipbuilding revenues for the first quarter of 2022 were $1.4 billion, a decrease of $17 million, or 1.2%, from the same period in 2021, primarily driven by lower revenues in aircraft carriers and naval nuclear support services, partially offset by higher revenues in submarines. Aircraft carrier revenues decreased primarily as a result of lower volumes on the refueling and complex overhaul (RCOH) of USS George Washington (CVN 73), the construction of John F. Kennedy (CVN 79) and USS Gerald R. Ford (CVN 78), partially offset by higher volume on the RCOH of USS John C. Stennis (CVN 74). 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 on the Columbia-class submarine program and Block V boats of the Virginia-class submarine (VCS) program, partially offset by lower volumes on Block IV boats of the VCS program.

Newport News Shipbuilding segment operating income1 for the first quarter of 2022 was $81 million, a decrease of $12 million from the same period in 2021. Segment operating margin1 in the first quarter of 2022 was 5.8%, compared to 6.6% in the same period last year. The decreases were primarily due to lower risk retirement on the VCS program, partially offset by higher risk retirement on USS Gerald R. Ford (CVN 78).

Key Newport News Shipbuilding milestones for the quarter:

  • Delivered Virginia-class submarine Montana (SSN 794)
  • Re-delivered USS Helena (SSN 725)
  • Completed inaugural maintenance and modernization period of USS Gerald R. Ford (CVN 78)
  • Reached approximate 95% completion of the RCOH of USS George Washington (CVN 73)
  • Reached approximate 25% completion of the RCOH of USS John C. Stennis (CVN 74)
  • Reached approximate 83% completion of John F. Kennedy (CVN 79)
  • Reached 5-year labor agreement with United Steelworkers

Mission Technologies

  Three Months Ended   
  March 31   
($ in millions)  2022  2021 $ Change% Change
Revenues $590 $259 $331 127.8% 
Segment operating income1  9  7 2 28.6% 
Segment operating margin %1  1.5%  2.7%   (118) bps
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.      

Mission Technologies (formerly “Technical Solutions”) revenues for the first quarter of 2022 were $590 million, an increase of $331 million from the same period in 2021. The increase was primarily due to higher volumes in DFS attributable to the acquisition of Alion in the third quarter of 2021, partially offset by the divestiture of our oil and gas business and contribution of our San Diego Shipyard to a joint venture in the first quarter of 2021, as well as lower volumes in Fleet Sustainment.

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

Mission Technologies segment operating income1 for the first quarter of 2022 was $9 million, compared to $7 million in the first quarter of 2021. Segment operating margin1 in the first quarter of 2022 was 1.5%, compared to 2.7% in the same period last year. The decrease in segment operating margin1 was primarily driven by approximately $24 million of amortization of Alion related purchased intangible assets. Mission Technologies EBITDA marginin the first quarter of 2022 was 7.3%.

Key Mission Technologies milestones for the quarter:

  • REMUS 300 was selected as U.S. Navy’s next generation small UUV (SUUV) program of record
  • Completed the first contractor-owned, contractor-operated air combat training mission with the U.S. Air Force in Europe
  • Launched Odyssey, a suite of advanced autonomy solutions, and demonstrated successful integration with third party autonomy products

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

2022 Financial Outlook1

  • Reaffirming revenue, margin and free cash flowguidance, updating FY22 pension expectations
  • Expect FY22 shipbuilding revenuebetween $8.2 and $8.5 billion; expect shipbuilding operating margin2 between 8.0% and 8.1%
  • Expect FY22 Mission Technologies revenue of approximately $2.6 billion, segment operating margin2 of approximately 2.5%; and expect Mission Technologies EBITDA marginof between 8.0% and 8.5%
  • Expect FY22 free cash flowof between $300 and $350 million3
  • Expect cumulative FY20-FY24 free cash flow2 of approximately $3.2 billion3
  • Updated FY22 pension expectations following ratification of labor agreement
  Prior
Outlook
 Current
Outlook
Shipbuilding Revenue2 $8.2B – $8.5B $8.2B – $8.5B
Shipbuilding Operating Margin2 8.0% – 8.1% 8.0% – 8.1%
Mission Technologies Revenue ~$2.6B ~$2.6B
Mission Technologies Segment Operating Margin2 ~2.5% ~2.5%
Mission Technologies EBITDA Margin2 8.0% – 8.5% 8.0% – 8.5%
     
Operating FAS/CAS Adjustment ($142M) ($143M)
Non-current State Income Tax Expense ($5M) ($5M)
Interest Expense ($102M) ($102M)
Non-operating Retirement Benefit $294M $273M
Effective Tax Rate ~21% ~21%
     
Depreciation & Amortization $365M $365M
Capital Expenditures 2.5% – 3.0%
of Sales
 2.5% – 3.0%
of Sales
Free Cash Flow2,3 $300M – $350M $300M – $350M

1The financial outlook, expectations and other forward looking statements provided by the company for 2022 and beyond reflect the company’s judgment based on the information available at the time of this release.
Non-GAAP measures. See Exhibit B for definitions. 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.
Free cash flow outlook assumes the legislation requiring capitalization of R&D expenditures for tax purposes is deferred. See Exhibit B for additional information.

About Huntington Ingalls Industries

HII is an all-domain defense and technologies partner, recognized worldwide as America’s largest shipbuilder. With a 135-year history of trusted partnerships in advancing U.S. national security, HII delivers critical capabilities ranging from the most powerful and survivable naval ships ever built, to unmanned systems, ISR and AI/ML analytics. HII leads the industry in mission-driven solutions that support and enable an all-domain force. Headquartered in Virginia, HII’s skilled workforce is 44,000 strong. For more information, please visit www.HII.com.

Conference Call Information

Huntington Ingalls Industries will webcast its earnings conference call at 9 a.m. Eastern time today. A live audio broadcast of the conference call and supplemental presentation will be available on the investor relations page of the company’s website: www.HII.com. A telephone replay of the conference call will be available from noon today through Thursday, May 12 by calling (866) 813-9403 or (929) 458-6194 and using access code 415160.

Cautionary Statement Regarding 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. You can generally identify forward-looking statements by words such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” 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 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; disruptions impacting the global supply, including those attributable to the ongoing COVID-19 pandemic and the ongoing conflict between Russia and Ukraine; 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.

Exhibit A: Financial Statements

HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

  Three Months Ended
March 31
(in millions, except per share amounts)  2022   2021 
Sales and service revenues    
Product sales $1,724  $1,721 
Service revenues  852   557 
Sales and service revenues  2,576   2,278 
Cost of sales and service revenues    
Cost of product sales  1,468   1,454 
Cost of service revenues  759   482 
Income from operating investments, net  7   8 
Other income and gains (losses), net  (1)   3 
General and administrative expenses  217   206 
Operating income  138   147 
Other income (expense)    
Interest expense  (26)   (21) 
Non-operating retirement benefit  71   46 
Other, net  (7)   1 
Earnings before income taxes  176   173 
Federal and foreign income tax expense  36   25 
Net earnings $140  $148 
     
Basic earnings per share $3.50  $3.68 
Weighted-average common shares outstanding  40.0   40.2 
     
Diluted earnings per share $3.50  $3.68 
Weighted-average diluted shares outstanding  40.0   40.2 
     
Dividends declared per share $1.18  $1.14 
     
Net earnings from above $140  $148 
Other comprehensive income    
Change in unamortized benefit plan costs  (86)   29 
Other     2 
Tax benefit (expense) for items of other comprehensive income  22   (7) 
Other comprehensive (loss) income, net of tax  (64)   24 
Comprehensive income $76  $172 

HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

($ in millions) March 31,
2022
 December 31
2021
Assets    
Current Assets    
Cash and cash equivalents $330  $627 
Accounts receivable, net of allowance for doubtful accounts of $2 million as of 2022 and $9 million as of 2021  671   433 
Contract assets  1,349   1,310 
Inventoried costs, net  188   161 
Income taxes receivable  171   209 
Prepaid expenses and other current assets  77   50 
Total current assets  2,786   2,790 
Property, Plant, and Equipment, net of accumulated depreciation of $2,193 million as of 2022 and $2,149 million as of 2021  3,094   3,107 
Other Assets    
Operating lease assets  235   241 
Goodwill  2,628   2,628 
Other intangible assets, net of accumulated amortization of $776 million as of 2022 and $741 million as of 2021  1,124   1,159 
Pension plan assets  275   281 
Miscellaneous other assets  415   421 
Total other assets  4,677   4,730 
Total assets $10,557  $10,627 

HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) (continued)

($ in millions) March 31,    2022 December, 31   2021
Liabilities and Stockholders’ Equity    
Current Liabilities    
Trade accounts payable $544  $603 
Accrued employees’ compensation  336   361 
Current portion of postretirement plan liabilities  137   137 
Current portion of workers’ compensation liabilities  254   252 
Contract liabilities  685   651 
Other current liabilities  465   423 
Total current liabilities  2,421   2,427 
Long-term debt  3,200   3,298 
Pension plan liabilities  398   351 
Other postretirement plan liabilities  365   368 
Workers’ compensation liabilities  509   506 
Long-term operating lease liabilities  189   194 
Deferred tax liabilities  293   313 
Other long-term liabilities  360   362 
Total liabilities  7,735   7,819 
Commitments and Contingencies    
Stockholders’ Equity    
Common stock, $0.01 par value; 150 million shares authorized; 53.5 million shares issued and 40.1 million shares outstanding as of March 31, 2022, and 53.4 million shares issued and 40.0 million shares outstanding as of December 31, 2021  1   1 
Additional paid-in capital  1,995   1,998 
Retained earnings  3,982   3,891 
Treasury stock  (2,169)   (2,159) 
Accumulated other comprehensive loss  (987)   (923) 
Total stockholders’ equity  2,822   2,808 
Total liabilities and stockholders’ equity $10,557  $10,627 

HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 Three Months Ended
March 31
($ in millions) 2022   2021 
Operating Activities   
Net earnings$140  $148 
Adjustments to reconcile to net cash provided by (used in) operating activities   
Depreciation 52   52 
Amortization of purchased intangibles 35   13 
Amortization of debt issuance costs 2   2 
Provision for doubtful accounts (7)    
Stock-based compensation 9   9 
Deferred income taxes 2   31 
Gain on disposition of business    (3) 
Loss (gain) on investments in marketable securities 9   (4) 
Change in   
Accounts receivable (231)   (10) 
Contract assets (39)   (239) 
Inventoried costs (27)   (5) 
Prepaid expenses and other assets 7   (6) 
Accounts payable and accruals    116 
Retiree benefits (34)   (65) 
Other non-cash transactions, net (1)   4 
Net cash (used in) provided by operating activities (83)   43 
Investing Activities   
Capital expenditures   
Capital expenditure additions (43)   (60) 
Grant proceeds for capital expenditures    1 
Investment in affiliates    (12) 
Proceeds from disposition of business    25 
Net cash used in investing activities (43)   (46) 

HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)

 Three Months Ended
March 31
($ in millions) 2022   2021 
Financing Activities   
Repayment of long-term debt (100)    
Dividends paid (47)   (46) 
Repurchases of common stock (10)   (49) 
Employee taxes on certain share-based payment arrangements (14)   (7) 
Net cash used in financing activities (171)   (102) 
Change in cash and cash equivalents (297)   (105) 
Cash and cash equivalents, beginning of period 627   512 
Cash and cash equivalents, end of period$330  $407 
Supplemental Cash Flow Disclosure   
Cash paid for income taxes (net of refunds)$  $(42) 
Cash paid for interest$11  $1 
Non-Cash Investing and Financing Activities   
Capital expenditures accrued in accounts payable$1  $12 
Accrued repurchases of common stock$  $1 

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 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 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 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 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.

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.

A provision of the Tax Cuts and Jobs Act of 2017 went into effect on Jan. 1, 2022 that requires companies to capitalize and amortize research and development costs over five years rather than deducting such costs in the year incurred for tax purposes. Unless the provision is deferred, modified, or repealed, we currently estimate that this change could have a $100 million impact on our free cash flow guidance for 2022, which currently assumes the legislation will be deferred, modified or repealed. Unless the provision is deferred, modified, or repealed, we currently estimate that this change could have a $250 million impact on our free cash flow guidance for 2022 through 2024, which currently assumes the legislation will be deferred, modified or repealed.

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.

Mission Technologies EBITDA margin is defined as Mission Technologies segment operating income before interest expense, income taxes, depreciation, and amortization 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.

We present financial measures adjusted for the Operating FAS/CAS Adjustment and non-current state income taxes to reflect the company’s performance based upon the pension costs and state tax expense charged to our contracts under CAS. We use these adjusted measures as internal measures of operating performance and for performance-based compensation decisions.

Reconciliations of Segment Operating Income and Segment Operating Margin

  Three Months Ended
  March 31
($ in millions)  2022   2021 
Ingalls revenues $631  $649 
Newport News revenues  1,390   1,407 
Mission Technologies revenues  590   259 
Intersegment eliminations  (35)   (37) 
Sales and Service Revenues  2,576   2,278 
     
Operating Income  138   147 
Operating FAS/CAS Adjustment  37   40 
Non-current state income taxes  1   4 
Segment Operating Income  176   191 
As a percentage of sales and service revenues  6.8%   8.4% 
Ingalls segment operating income  86   91 
As a percentage of Ingalls revenues  13.6%   14.0% 
Newport News segment operating income  81   93 
As a percentage of Newport News revenues  5.8%   6.6% 
Mission Technologies operating income  9   7 
As a percentage of Mission Technologies revenues  1.5%   2.7% 

Reconciliation of Free Cash Flow

  Three Months Ended
  March 31
($ in millions)  2022   2021 
Net cash provided by (used in) operating activities $(83)  $43 
Less capital expenditures:    
Capital expenditure additions  (43)   (60) 
Grant proceeds for capital expenditures     1 
Free cash flow $(126)  $(16) 

Reconciliation of Mission Technologies EBITDA and EBITDA Margin

  Three Months Ended
  March 31
($ in millions)  2022   2021 
Mission Technologies sales and service revenues $590  $259 
     
Mission Technologies segment operating income $9  $7 
Mission Technologies depreciation expense  2   1 
Mission Technologies amortization expense  30   8 
Mission Technologies state tax expense  2   1 
Mission Technologies other, net      
Mission Technologies EBITDA $43  $17 
Mission Technologies EBITDA margin  7.3%   6.6% 

NEWPORT NEWS, Va., May 03, 2022 — HII (NYSE:HII) announced today that its Board of Directors has declared a quarterly cash dividend of $1.18 per share, payable on June 10, 2022, to shareholders of record as of the close of business on May 27, 2022.

HII is an all-domain defense and technologies partner, recognized worldwide as America’s largest shipbuilder. With a 135-year history of trusted partnerships in advancing U.S. national security, HII delivers critical capabilities ranging from the most powerful and survivable naval ships ever built, to unmanned systems, ISR and AI/ML analytics. HII leads the industry in mission-driven solutions that support and enable an all-domain force. Headquartered in Virginia, HII’s skilled workforce is 44,000 strong. For more information please visit:

MEDIA CONTACT
Brooke Hart
202-264-7108
Christie Thomas
757-380-2104

NEWPORT NEWS, Va., April 07, 2022 -- HII (NYSE:HII) will release its first quarter 2022 financial results on Thursday, May 5, and host an earnings conference call at 9 a.m. Eastern time the same day. The call will be webcast live on HII’s website: https://www.hii.com/.

HII participants will include Chris Kastner, president and CEO, and Tom Stiehle, executive vice president and chief financial officer. Their remarks will be supplemented by a series of slides appearing on the company website. Listeners are encouraged to view these materials in conjunction with the call. Replays of the call will be available on the website for a limited time.

HII is an all-domain defense and technologies partner, recognized worldwide as America’s largest shipbuilder. With a 135-year history of trusted partnerships in advancing U.S. national security, HII delivers critical capabilities ranging from the most powerful and survivable naval ships ever built, to unmanned systems, ISR and AI/ML analytics. HII leads the industry in mission-driven solutions that support and enable an all-domain force. Headquartered in Virginia, HII’s skilled workforce is 44,000 strong. For more information please visit:

MEDIA CONTACT
Christie Thomas
757-380-2104
 
Brooke Hart
202-264-7108

  • Revenues were $2.7 billion in the fourth quarter, $9.5 billion in 2021
  • Operating margin was 4.5% in the fourth quarter, 5.4% in 2021
  • Segment operating margin1 was 6.0% in the fourth quarter, 7.2% in 2021
  • Diluted earnings per share was $2.99 in the fourth quarter, $13.50 in 2021
  • Pension adjusted diluted earnings per share1 was $2.84 in the fourth quarter, $13.03 in 2021

NEWPORT NEWS, Va., Feb. 10, 2022 —  Huntington Ingalls Industries (NYSE:HII) reported fourth quarter 2021 revenues of $2.7 billion, down 2.9% from the fourth quarter of 2020. Operating income in the fourth quarter of 2021 was $120 million and operating margin was 4.5%, compared to $305 million and 11.1%, respectively, in the fourth quarter of 2020. Diluted earnings per share in the quarter was $2.99, compared to $6.15 in the fourth quarter of 2020. Pension adjusted earnings per share1 in the quarter was $2.84, compared to $4.35 in the fourth quarter of 2020.

For the full year, revenues of $9.5 billion increased 1.7% over 2020. Operating income in 2021 was $513 million and operating margin was 5.4%, compared to $799 million and 8.5%, respectively, in 2020. Segment operating income1 in 2021 was $683 million and segment operating margin1 was 7.2%, compared to $555 million and 5.9%, respectively, in 2020. Diluted earnings per share for the full year was $13.50, compared to $17.14 in 2020. Pension adjusted earnings per share1 in 2021 was $13.03, compared to $10.00 in 2020.

Net cash provided by operating activities in 2021 was $760 million and free cash flowwas $449 million, compared to $1.1 billion and $757 million, respectively, in 2020.

New contract awards in the fourth quarter of 2021 were approximately $1.0 billion, bringing total backlog to approximately $48.5 billion as of Dec. 31, 2021.

1Non-GAAP measures. See Exhibit B for definitions and reconciliations. 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.
2 Free cash flow outlook assumes the legislation requiring capitalization of R&D expenditures for tax purposes is deferred. See Exhibit B for additional information.

“We are pleased with another year of consistent program execution in the face of a challenging operational environment on multiple fronts,” said Mike Petters, HII’s president and CEO. “Over the course of 2021 we completed transformational changes in our Technical Solutions division, and we believe we have positioned the enterprise for sustainable, long-term value creation as we move forward.”

2022 Financial Outlook

  • Expect FY22 shipbuilding revenuebetween $8.2 and $8.5 billion; expect shipbuilding operating margin1 between 8.0% and 8.1%
  • Expect FY22 Technical Solutions revenue of approximately $2.6 billion, segment operating margin1 of approximately 2.5%; and EBITDA marginof between 8.0% and 8.5%
  • Expect FY22 free cash flowof between $300 and $350 million2
  • Expect cumulative FY20-FY24 free cash flow1 of approximately $3.2 billion2

Results of Operations

 Three Months Ended    Year Ended  
 December 31    December 31  
($ in millions, except per share amounts) 2021  2020 $ Change% Change   2021  2020 $ Change% Change
Sales and service revenues$2,677 $2,757 $(80)(2.9)% $9,524 $9,361 $163 1.7%
Operating income 120  305  (185)(60.7)%  513  799  (286)(35.8)%
Operating margin % 4.5% 11.1% (658) bps   5.4% 8.5% (315) bps
Segment operating income1 160  242  (82)(33.9)%  683  555  128 23.1%
Segment operating margin %1 6.0% 8.8% (280) bps   7.2% 5.9% 124 bps
Net earnings 120  249  (129)(51.8)%  544  696  (152)(21.8)%
Diluted earnings per share$2.99 $6.15 $(3.16)(51.4)% $13.50 $17.14 $(3.64)(21.2)%
           
Pension Adjusted Earnings          
Adjusted Net earnings2 114  176  (62)(35.2)%  525  406  119 29.3%
Adjusted Diluted earnings per share2$2.84 $4.35 $(1.51)(34.7)% $13.03 $10.00 $3.03 30.3%
Non-GAAP measures that exclude non-segment factors affecting operating income. See Exhibit B for definitions and reconciliations. 
Non-GAAP measures that exclude the impacts of the FAS/CAS Adjustment. See Exhibit B for definitions and reconciliations. 

Segment Operating Results

Ingalls Shipbuilding

 Three Months Ended   Year Ended  
 December 31   December 31  
($ in millions) 2021  2020 $ Change% Change  2021  2020 $ Change% Change
Revenues$581 $752 $(171)(22.7)% $2,528 $2,678 $(150)(5.6)%
Segment operating income1 48  96  (48)(50.0)%  281  281   —%
Segment operating margin %1 8.3% 12.8% (450) bps  11.1% 10.5% 62 bps
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.

Ingalls Shipbuilding revenues for the fourth quarter of 2021 were $581 million, a decrease of $171 million, or 22.7%, from the same period in 2020, primarily driven by lower revenues in amphibious assault ships, the Arleigh Burke-class guided missile destroyer (DDG) program and the Legend-class National Security Cutter (NSC) program. Revenues on amphibious assault ships decreased due to lower volumes on Bougainville (LHA 8), Fort Lauderdale (LPD 28) and Harrisburg (LPD 30), partially offset by higher volume on LHA 9 (unnamed). DDG program revenues decreased due to lower volumes on Ted Stevens (DDG 128) and Frank E. Petersen Jr. (DDG 121), partially offset by higher volume on George M. Neal (DDG 131). Revenues on the NSC program decreased due to lower volume on USCGC Stone (NSC 9) following its delivery in the prior year, partially offset by higher volume on Friedman (NSC 11).

Ingalls Shipbuilding segment operating income1 for the fourth quarter of 2021 was $48 million, a decrease of $48 million from the same period in 2020. Segment operating marginin the fourth quarter of 2021 was 8.3%, compared to 12.8% in the same period last year. The decrease in segment operating margin1 was primarily driven by the recognition of a contract action and incentive on the DDG program in the prior year period, lower risk retirement on the NSC program following the delivery of USCGC Stone (NSC 9) in the prior year, as well as lower risk retirement on the amphibious assault ship programs.

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

For the full year, Ingalls Shipbuilding revenues were $2.5 billion, a decrease of $150 million, or 5.6%, from 2020,
primarily driven by lower revenues in the NSC program and amphibious assault ships, partially offset by higher revenues in the DDG program. Revenues on the NSC program decreased due to lower volume on Stone (NSC 9) following its delivery. Amphibious assault ship revenues decreased due to lower volumes on Fort Lauderdale (LPD 28), Richard M. McCool Jr. (LPD 29), Harrisburg (LPD 30) and USS Tripoli (LHA 7), partially offset by higher volumes on Pittsburgh (LPD 31) and LHA 9 (unnamed). DDG program revenues increased due to higher volumes on Jack H. Lucas (DDG 125), George M. Neal (DDG 131), Jeremiah Denton (DDG 129) and Sam Nunn (DDG 133), partially offset by lower volumes on USS Delbert D. Black (DDG 119) following its delivery and USS Fitzgerald (DDG 62) following its redelivery.

For the full year, Ingalls Shipbuilding segment operating income1 was $281 million, flat with 2020 results. Higher risk retirement on Bougainville (LHA 8) and a contract incentive on Jack H. Lucas (DDG 125) were offset by lower risk retirement on USCGC Stone (NSC 9) and USS Delbert D. Black (DDG 119) following their deliveries.

Key Ingalls Shipbuilding milestones for the quarter:

  • Completed builder’s trials for amphibious transport dock Fort Lauderdale (LPD 28)
  • Delivered guided missile destroyer Frank E. Petersen Jr. (DDG 121)
  • Began fabrication of guided missile destroyer George M. Neal (DDG 131)
  • Awarded incremental $114 million advance procurement contract for amphibious assault ship LHA 9

Newport News Shipbuilding

 Three Months Ended   Year Ended  
 December 31   December 31  
($ in millions) 2021  2020 $ Change% Change  2021  2020 $ Change% Change
Revenues$1,539 $1,750 $(211)(12.1)% $5,663 $5,571 $921.7%
Segment operating income1 95  128  (33)(25.8)%  352  233  11951.1%
Segment operating margin %1 6.2% 7.3% (114) bps  6.2% 4.2% 203 bps
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.

Newport News Shipbuilding revenues for the fourth quarter of 2021 were $1.5 billion, a decrease of $211 million, or 12.1%, from the same period in 2020, primarily driven by lower revenues in aircraft carriers and submarines. Aircraft carrier revenues decreased primarily as a result of lower volumes on the refueling and complex overhaul (RCOH) of USS George Washington (CVN 73), the construction of John F. Kennedy (CVN 79), as well as lower material volume related to the construction of Enterprise (CVN 80) and Doris Miller (CVN 81), partially offset by higher volume on the RCOH of USS John C. Stennis (CVN 74). Submarine revenues decreased due to lower volumes on Block IV boats of the Virginia-class submarine (VCS) program, partially offset by higher volumes on Block V boats of the VCS program and the Columbia-class submarine program.

Newport News Shipbuilding segment operating income1 for the fourth quarter of 2021 was $95 million, a decrease of $33 million from the same period in 2020. Segment operating margin1 in the fourth quarter of 2021 was 6.2%, compared to 7.3% in the same period last year. The decreases were primarily due to lower risk retirement on naval nuclear support services, including submarine fleet support.    

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

For the full year, Newport News Shipbuilding revenues were $5.7 billion, an increase of $92 million, or 1.7%, from 2020, primarily driven by higher revenues in submarines and aircraft carriers, partially offset by lower revenues in
naval nuclear support services. Submarine revenues increased primarily as a result of higher volumes on Block V
boats of the VCS program and the Columbia-class submarine program, partially offset by lower volumes on Block IV boats of the VCS program. Aircraft carrier revenues increased primarily as a result of higher volumes on the RCOH of USS John C. Stennis (CVN 74), the construction of Enterprise (CVN 80) and the construction of Doris Miller (CVN 81), partially offset by lower volumes on the construction of John F. Kennedy (CVN 79) and the RCOH of USS George Washington (CVN 73). 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.

For the full year, Newport News Shipbuilding segment operating income1 was $352 million, an increase of $119 million from 2020. The increase was primarily due to impacts related to VCS program performance and COVID-19 in the prior year.

Key Newport News Shipbuilding milestones for the quarter:

  • Christened Virginia-class submarine New Jersey (SSN 796)
  • Reached approximate 94% completion of RCOH of USS George Washington (CVN 73)
  • Reached approximate 83% completion of John F. Kennedy (CVN 79), which now includes single-phase delivery SOW

Technical Solutions

 Three Months Ended   Year Ended  
 December 31   December 31  
($ in millions) 2021  2020 $ Change% Change  2021  2020 $ Change% Change
Revenues$586 $311 $275 88.4% $1,476 $1,268 20816.4%
Segment operating income1 17  18 $(1)(5.6)%  50  41 922.0%
Segment operating margin %1 2.9% 5.8% (289) bps  3.4% 3.2% 15 bps
1 Non-GAAP measures. See Exhibit B for definitions and reconciliations.     

Technical Solutions revenues for the fourth quarter of 2021 were $586 million, an increase of $275 million from the same period in 2020. The increase was due primarily to the acquisition of Alion Science and Technology (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 2021. Fourth quarter 2021 results include approximately $343 million of revenue attributable to Alion.

Technical Solutions segment operating income1 for the fourth quarter of 2021 was $17 million, compared to $18 million in the fourth quarter of 2020. Segment operating margin1 in the fourth quarter of 2021 was 2.9%, compared to 5.8% in the same period last year. The decrease in segment operating margin1 was primarily driven by approximately $25 million of amortization of Alion related purchased intangible assets, lower equity income from nuclear and environmental joint ventures, as well as the divestiture of our oil and gas business and contribution of our San Diego Shipyard to a joint venture in the first quarter of 2021. Fourth quarter 2021 results include approximately $6 million of segment operating income1 attributable to Alion, net of the purchased intangible asset amortization. Technical Solutions EBITDA marginin the fourth quarter of 2021 was 9.0%.

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

For the full year, Technical Solutions revenues were $1.5 billion, an increase of $208 million, or 16.4%, from 2020, driven primarily by the acquisition of Alion, partially offset by the divestiture of our oil and gas business and contribution of our San Diego Shipyard to a joint venture. Technical Solutions results for full year 2021 include approximately $506 million of revenue attributable to Alion.

For the full year, Technical Solutions segment operating income1 was $50 million, an increase of $9 million, or 22.0%, from 2020, driven primarily by the acquisition of Alion, as well as equity income from our nuclear and environmental joint ventures and our ship repair and specialty fabrication joint venture, partially offset by lower performance in unmanned systems. 2021 results included approximately $33 million of amortization of purchased intangible assets related to Alion. Technical Solutions results for full year 2021 include approximately $10 million of segment operating income1 attributable to Alion, net of the purchased intangible asset amortization. Technical Solutions EBITDA marginin 2021 was 8.6%.

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

2022 Outlook1

  • Anticipate continued, steady shipbuilding operating margin2 expansion
  • Anticipate strong organic revenue growth in Technical Solutions
  • Free cash flow2,3 includes non-recurring items
    • ~$160M advance progress repayment
    • ~$70M payroll tax (FICA) repayment
  • Continue to expect cumulative FY20-FY24 free cash flow2 of approximately $3.2B3
  2022
Outlook
Shipbuilding Revenue2 $8.2B – $8.5B
Shipbuilding Operating Margin2 8.0% – 8.1%
Technical Solutions Revenue ~$2.6B
Technical Solutions Segment Operating Margin2 ~2.5%
Technical Solutions EBITDA Margin2 8.0% – 8.5%
   
Operating FAS/CAS Adjustment ($142M)
Non-current State Income Tax Expense ($5M)
Interest Expense ($102M)
Non-operating Retirement Benefit $294M
Effective Tax Rate ~21%
   
Depreciation & Amortization $365M
Capital Expenditures 2.5% – 3.0%
of Sales
Free Cash Flow2,3 $300M – $350M

1The financial outlook, expectations and other forward looking statements provided by the company for 2022 and beyond reflect the company’s judgment based on the information available at the time of this release.
Non-GAAP measures. See Exhibit B for definitions. 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.
Free cash flow outlook assumes the legislation requiring capitalization of R&D expenditures for tax purposes is deferred. See Exhibit B for additional information.

About Huntington Ingalls Industries

HII is a global engineering and defense technologies provider. With a 135-year history of trusted partnerships in advancing U.S. national security, HII delivers critical capabilities ranging from the most powerful and survivable naval ships ever built, to unmanned systems, ISR and AI/ML analytics. HII leads the industry in mission-driven solutions that support and enable a networked, all-domain force. Headquartered in Virginia, HII’s skilled workforce is 44,000 strong. For more information please visit HII.com.

Conference Call Information

Huntington Ingalls Industries will webcast its earnings conference call at 9 a.m. Eastern time today. A live audio broadcast of the conference call and supplemental presentation will be available on the investor relations page of the company’s website: www.huntingtoningalls.com. A telephone replay of the conference call will be available from noon today through Thursday, Feb. 17 by calling toll-free (877) 344-7529 or (412) 317-0088 and using access code 8128939.

Cautionary Statement Regarding 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 important 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.

Exhibit A: Financial Statements

HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

  Three Months Ended
December 31
 Year Ended
December 31
(in millions, except per share amounts)  2021   2020   2021   2020 
Sales and service revenues        
Product sales $1,815  $2,107  $7,000  $6,850 
Service revenues  862   650   2,524   2,511 
Sales and service revenues  2,677   2,757   9,524   9,361 
Cost of sales and service revenues        
Cost of product sales  1,556   1,690   5,958   5,621 
Cost of service revenues  748   520   2,198   2,070 
Income from operating investments, net  10   13   41   32 
Other income and gains  (1)  1   2   1 
General and administrative expenses  262   256   898   904 
Operating income  120   305   513   799 
Other income (expense)        
Interest expense  (26)  (46)  (89)  (114)
Non-operating retirement benefit  46   30   181   119 
Other, net  7   14   17   6 
Earnings before income taxes  147   303   622   810 
Federal and foreign income tax expense (benefit)  27   54   78   114 
Net earnings $120  $249  $544  $696 
         
Basic earnings per share $2.99  $6.15  $13.50  $17.14 
Weighted-average common shares outstanding  40.1   40.5   40.3   40.6 
         
Diluted earnings per share $2.99  $6.15  $13.50  $17.14 
Weighted-average diluted shares outstanding  40.1   40.5   40.3   40.6 
         
Dividends declared per share $1.18  $1.14  $4.60  $4.23 
         
Net earnings from above $120  $249  $544  $696 
Other comprehensive income        
Change in unamortized benefit plan costs  736   (257)  838   (187)
Other  (1)  2      2 
Tax expense for items of other comprehensive income  (188)  65   (214)  47 
Other comprehensive income (loss), net of tax  547   (190)  624   (138)
Comprehensive income $667  $59  $1,168  $558 

HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

($ in millions) December 31,
2021
 December 31,
2020
Assets    
Current Assets    
Cash and cash equivalents $627 $512
Accounts receivable, net of allowance for doubtful accounts of $9 million as of 2021 and $2 million as of 2020  433  397
Contract assets  1,310  1,049
Inventoried costs, net  161  137
Income taxes receivable  209  171
Assets held for sale    133
Prepaid expenses and other current assets  50  45
Total current assets  2,790  2,444
Property, Plant, and Equipment, net of accumulated depreciation of $2,149 million as of 2021 and $2,024 million as of 2020  3,107  2,978
Other Assets    
Operating lease assets  241  192
Goodwill  2,628  1,617
Other intangible assets, net of accumulated amortization of $741 million as of 2021 and $655 million as of 2020  1,159  512
Pension plan assets  281  
Deferred tax assets    133
Miscellaneous other assets  421  281
Total other assets  4,730  2,735
Total assets $10,627 $8,157

HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) (continued)

($ in millions) December 31,
2021
 December 31,
2020
Liabilities and Stockholders’ Equity    
Current Liabilities    
Trade accounts payable $603  $460 
Accrued employees’ compensation  361   293 
Current portion of postretirement plan liabilities  137   133 
Current portion of workers’ compensation liabilities  252   225 
Contract liabilities  651   585 
Liabilities held for sale     68 
Other current liabilities  423   462 
Total current liabilities  2,427   2,226 
Long-term debt  3,298   1,686 
Pension plan liabilities  351   960 
Other postretirement plan liabilities  368   401 
Workers’ compensation liabilities  506   511 
Long-term operating lease liabilities  194   157 
Deferred tax liabilities  313    
Other long-term liabilities  362   315 
Total liabilities  7,819   6,256 
Commitments and Contingencies    
Stockholders’ Equity    
Common stock, $0.01 par value; 150 million shares authorized; 53.4 million shares issued and 40.0 million shares outstanding as of December 31, 2021, and 53.3 million shares issued and 40.5 million shares outstanding as of December 31, 2020  1   1 
Additional paid-in capital  1,998   1,972 
Retained earnings  3,891   3,533 
Treasury stock  (2,159)  (2,058)
Accumulated other comprehensive loss  (923)  (1,547)
Total stockholders’ equity  2,808   1,901 
Total liabilities and stockholders’ equity $10,627  $8,157 

HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 Year Ended
December 31
($ in millions) 2021   2020 
Operating Activities   
Net earnings$544  $696 
Adjustments to reconcile to net cash provided by (used in) operating activities   
Depreciation 207   191 
Amortization of purchased intangibles 86   56 
Amortization of debt issuance costs 8   7 
Provision for doubtful accounts 7   (1)
Stock-based compensation 33   23 
Deferred income taxes 98   23 
Loss on early extinguishment of debt    21 
Loss (gain) on investments in marketable securities (19)  (17)
Asset impairments    13 
Change in   
Accounts receivable 58   (70)
Contract assets (126)  22 
Inventoried costs (25)  11 
Prepaid expenses and other assets (88)  (62)
Accounts payable and accruals 45   344 
Retiree benefits (78)  (176)
Other non-cash transactions, net 10   12 
Net cash provided by operating activities 760   1,093 
Investing Activities   
Capital expenditures
 
   
Capital expenditure additions
 
 (331)  (353)
Grant proceeds for capital expenditures
 
 20   17 
Acquisitions of businesses, net of cash received (1,643)  (417)
Investment in affiliates (22)   
Proceeds from disposition of business 20    
Other investing activities, net 2   (6)
Net cash used in investing activities (1,954)  (759)

HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)

 Year Ended
December 31
($ in millions) 2021   2020 
Financing Activities   
Proceeds from issuance of long-term debt 1,650   1,000 
Repayment of long-term debt (25)  (600)
Proceeds from revolving credit facility borrowings
 
    385 
Repayment of revolving credit facility borrowings    (385)
Debt issuance costs (22)  (13)
Premiums and fees related to early extinguishment of debt    (15)
Dividends paid (186)  (172)
Repurchases of common stock (101)  (84)
Employee taxes on certain share-based payment arrangements (7)  (13)
Net cash provided by (used in) financing activities 1,309   103 
Change in cash and cash equivalents 115   437 
Cash and cash equivalents, beginning of period 512   75 
Cash and cash equivalents, end of period$627  $512 
Supplemental Cash Flow Disclosure   
Cash paid for income taxes (net of refunds)$33  $155 
Cash paid for interest$76  $89 
Non-Cash Investing and Financing Activities   
Capital expenditures accrued in accounts payable$6  $7 

Exhibit B: Non-GAAP Measures Definitions & Reconciliations

We make reference to “segment operating income,” “segment operating margin,” “pension adjusted net earnings,” “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, pension adjusted net earnings 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. When analyzing our operating performance, investors should use shipbuilding revenue, shipbuilding operating margin, Technical Solutions EBITDA margin and pension adjusted diluted earnings per share 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, 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.

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 income as a measure of our performance or net cash provided 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.

A provision of the Tax Cuts and Jobs Act of 2017 went into effect on Jan. 1, 2022 that requires companies to capitalize and amortize research and development costs over five years rather than deducting such costs in the year incurred for tax purposes. Unless the provision is deferred, modified, or repealed, we currently estimate that this change could have a $100 million impact on our free cash flow guidance for 2022, which currently assumes the legislation will be deferred, modified or repealed. Unless the provision is deferred, modified, or repealed, we currently estimate that this change could have a $250 million impact on our free cash flow guidance for 2022 through 2024, which currently assumes the legislation will be deferred, modified or repealed.

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.

Reconciliations of Segment Operating Income and Segment Operating Margin

  Three Months Ended Year Ended
  December 31 December 31
($ in millions)  2021   2020   2021   2020 
Ingalls revenues $581  $752  $2,528  $2,678 
Newport News revenues  1,539   1,750   5,663   5,571 
Technical Solutions revenues  586   311   1,476   1,268 
Intersegment eliminations  (29)  (56)  (143)  (156)
Sales and Service Revenues  2,677   2,757   9,524   9,361 
         
Operating Income  120   305   513   799 
Operating FAS/CAS Adjustment  39   (62)  157   (248)
Non-current state income taxes  1   (1)  13   4 
Segment Operating Income  160   242   683   555 
As a percentage of sales and service revenues  6.0%  8.8%  7.2%  5.9%
Ingalls segment operating income  48   96   281   281 
As a percentage of Ingalls revenues  8.3%  12.8%  11.1%  10.5%
Newport News segment operating income  95   128   352   233 
As a percentage of Newport News revenues  6.2%  7.3%  6.2%  4.2%
Technical Solutions segment operating income  17   18   50   41 
As a percentage of Technical Solutions revenues  2.9%  5.8%  3.4%  3.2%

Reconciliation of Pension Adjusted Net Earnings and Pension Adjusted Diluted Earnings Per Share

  Three Months Ended Year Ended
  December 31 December 31
(in millions, except per share amounts)  2021   2020   2021   2020 
         
Net earnings $120  $249  $544  $696 
After-tax FAS/CAS Adjustment(1)  (6)  (73)  (19)  (290)
Pension Adjusted Net Earnings $114  $176  $525  $406 
         
Diluted earnings per share $2.99  $6.15  $13.50  $17.14 
After-tax FAS/CAS Adjustment per share(1)  (0.15)  (1.80)  (0.47)  (7.14)
Pension Adjusted Diluted EPS** $2.84  $4.35  $13.03  $10.00 
         
(1) FAS/CAS Adjustment $(7) $(92) $(24) $(367)
Tax effect*  (1)  (19)  (5)  (77)
After-tax impact $(6) $(73) $(19) $(290)
Weighted-average diluted shares outstanding  40.1   40.5   40.3   40.6 
Per share after-tax impact** $(0.15) $(1.80) $(0.47) $(7.14)
         
*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.        

Reconciliation of Free Cash Flow

  Year Ended
  December 31
($ in millions)  2021   2020 
Net cash provided by operating activities $760  $1,093 
Less capital expenditures:    
Capital expenditure additions  (331)  (353)
Grant proceeds for capital expenditures  20   17 
Free cash flow $449  $757 

Reconciliation of Technical Solutions EBITDA and EBITDA Margin

  Three Months Ended Year Ended
  December 31 December 31
($ in millions)  2021   2020   2021   2020 
Technical Solutions sales and service revenues $586  $311  $1,476  $1,268 
         
Technical Solutions segment operating income $17  $18  $50  $41 
Technical Solutions depreciation expense  2   2   6   4 
Technical Solutions amortization expense  34   10   66   36 
Technical Solutions state tax expense     1   5   7 
Technical Solutions other, net     2      (4)
Technical Solutions EBITDA $53  $33  $127  $84 
Technical Solutions EBITDA margin
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