2018 Annual Report
Total Page:16
File Type:pdf, Size:1020Kb
HUNTINGTON INGALLS INDUSTRIES INGALLS INDUSTRIES HUNTINGTON 2018 ANNUAL REPORT ANNUAL 2018 ANNUAL REPORT Huntington Ingalls Industries is America’s largest military shipbuilding company and a provider of professional services to partners in government and industry. For more than a century, HII’s Newport News and Ingalls shipbuilding divisions in Virginia and Mississippi have built more ships in more ship classes than any other U.S. naval shipbuilder. HII’s Technical Solutions division provides a wide range of professional services through its Fleet Support, Mission Driven Innovative Solutions, Nuclear & Environmental, and Oil & Gas groups. Headquartered in Newport News, Virginia, HII employs more than 40,000 people operating both domestically and internationally. The Virginia-class submarine Indiana (SSN 789) successfully completed initial sea trials in May 2018 and was delivered to the U.S. Navy one month later. NEWPORT NEWS SHIPBUILDING INGALLS SHIPBUILDING TECHNICAL SOLUTIONS Cover Image: The Arleigh Burke-class destroyer Paul Ignatius (DDG 117) successfully completed sea trials in December 2018. Three months earlier, HII’s Ingalls Shipbuilding division was awarded a $5.1 billion contract for construction of six of the class’ Flight III destroyers. financial highlights ADJUSTED DILUTED EPS(1) ADJUSTED SEGMENT OPERATING MARGIN(1) (% of Sales) 25 $25.00 15.0 % 15 $19.09 20 20.00 12.0 12 11.0% 10.1% 9.1% 9.2% 8.1% 15 15.00 9.0 9 $12.14 $12.14 $10.55 10 10.00 6.0 6 $7.61 5 5.00 3.0 3 0 0 0 0 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 (1) Adjusted Diluted EPS is a non-GAAP financial measure that excludes tax (1) Segment Operating Margin was adjusted in 2014 and 2015 to exclude effected goodwill charges in 2014, goodwill and purchased intangibles goodwill impairment charges of $47 million and $75 million, respectively, impairment charges in 2015 and losses on early extinguishment of debt and adjusted in 2015 to also exclude a purchased intangibles impairment in 2015 and 2017. It also excludes tax expense related to the 2017 Tax charge of $27 million. Act and discretionary pension contributions. OPERATING RESULTS ($ in millions, except per share amounts) 2018 2017 2016 2015 2014 Sales and Service Revenues $ 8,176 $ 7,441 $ 7,068 $ 7,020 $ 6,957 Operating Income 951 881 876 774 661 Operating Margin 11.6% 11.8% 12.4% 11.0% 9.5% Adjusted Segment Operating Income(1) 663 688 715 769 632 Adjusted Segment Operating Margin(1) 8.1% 9.2% 10.1% 11.0% 9.1% Diluted EPS 19.09 10.46 12.14 8.36 6.86 Adjusted Diluted EPS(2) 19.09 12.14 12.14 10.55 7.61 Net Cash Provided by Operating Activities 914 814 822 861 755 (1) Adjusted Segment Operating Income and Adjusted Segment Operating Margin are non-GAAP financial measures that exclude goodwill and purchased intangibles impairment charges. Please see the page that precedes the back cover of this report for information on excluded items and a reconciliation of these measures to GAAP. (2) Adjusted Diluted EPS is a non-GAAP financial measure that excludes tax effected goodwill and purchased intangibles impairment charges and losses on early extinguishment of debt. It also excludes tax expense related to the 2017 Tax Act and discretionary pension contributions. Please see the page that precedes the back cover of this report for information on excluded items and a reconciliation of this measure to GAAP. 1. 40,000 PEOPLE OPERATING BOTH DOMESTICALLY AND INTERNATIONALLY 2. The jointThe jointventure venture between between SN3, SN part3, partof HII of’s HIITechnical’s Technical Solutions Solutions division, division, and BandWX BTWX TechnicalT Technical Services Services Group, Group, Inc.—called Inc.—called N3B —completedN3B—completed the transition the transition period period of the of Caption the description, name and in this style. Los ALlamosos Alamos Legacy Legacy Cleanup Cleanup Contract Contract at the at D theepartment Department of Energy’s of Energy’s Los ALlamosos Alamos National National Laboratory Laboratory in M ayin M2018.ay 2018. Caption description, name and information in this style. to our shareholders, employees, customers and communities: In late 2015, when we launched HII’s “Path to 2020” business strategy, we said we were confident we had a sustainable approach and proven management team in place for long-term value creation. Now that we’ve passed the midway point of our five-year plan, we are proud to report that we are making steady progress that will transform the business well beyond 2020. Here are just a few of the highlights: • Our capital program remains on schedule. Last year’s • We continued to grow our government services business milestones included the beginning of the East Bank through our Technical Solutions division. Noteworthy in reactivation at Ingalls Shipbuilding and continued 2018 were the acquisition of G2 Inc., a nationally recognized outfitting of the Joint Manufacturing Assembly Facility cybersecurity solutions and services company, and at Newport News Shipbuilding. We remain committed new, long-term contract awards for Technical Solutions’ to having our shipyards prepared for current and future Nuclear & Environmental group. Navy programs. • We distributed $920 million to shareholders through dividends and share repurchases. HII Chairman of the Board Thomas B. Fargo (left) Caption description, name and in this style. and HII President and CEO Mike Petters at the National Caption description, name and information in this style. Atomic Testing Museum in Las Vegas. 3. Our many successes in 2018 are also reflected in our strong the Commonwealth of Virginia our intent to hire as many as financial results. We recorded record-high revenues of 7,000 new shipbuilders over the next five years. Likewise, $8.2 billion in 2018, an increase of approximately 10 percent Technical Solutions partnered with Kellogg Brown & Root over 2017. Operating income was $951 million and operating in 2018 to establish and manage Australia’s new Naval margin was 11.6 percent. Cash from operations in 2018 Shipbuilding College, and Ingalls announced a partnership in was $914 million, and free cash flow was $512 million, 2018 to construct talent development labs at high schools compared to $814 million and $453 million, respectively, in Mississippi and Alabama. in 2017. Diluted earnings per share was $19.09, compared We strongly believe that HII’s employees have the best to $10.46 in 2017. New contract awards for the year were jobs on the planet, and we’re empowering them to make approximately $9.8 billion, bringing total backlog to $23 their jobs even better. Also, we are proud to be ranked billion as of Dec. 31, 2018. No. 21 on Forbes’ first list of the best employers for new All of these accomplishments are a credit to our workforce— college graduates. now more than 40,000 strong and spread across 42 states Our “Healthy Body, Healthy Wallet, Healthy Mind” benefits and 13 countries. While HII is only eight years old, we have a and wellness strategy is also paying dividends for our 133-year legacy of workforce development at Newport News, employees and their dependents. In 2018, we opened and we were proud to build on that in 2018, announcing with Caption description, name and 4. information in this style. Caption HII will deliver the America-class amphibious assault ship Tripoli (LHA 7) in 2019. description, name and information in this style. HII Family Vision Centers in Virginia and Mississippi, and we Our response following those storms—indeed, the way established on-site employee assistance program counselors we achieved every accomplishment in 2018—is a testament at the existing HII Family Health Centers. We also launched to our “Hard Stuff Done Right” trademark and our the Financial Wellbeing Portal online and the SmartPath commitment to persistent and sustainable value creation financial education program, giving employees the tools and for all of our stakeholders. know-how to make smart money decisions—in most cases, Like so many other things in HII’s culture, the “Path to 2020” decades before retirement planning becomes a priority. is a journey—not a destination. We’re proud of how far we’ve Unfortunately, some of our employees will remember 2018 come over the last three years and excited to see what else as a year of hardship. In September, Hurricane Florence we will accomplish. dumped record amounts of rain on North Carolina and South Thank you, as always, for your investment in HII and for Carolina, including more than 1,200 HII employees who call helping us shape the future. those states home. A few weeks later, Hurricane Michael made landfall just a few miles from a Technical Solutions facility in Florida. While we made two donations totaling $150,000 to the American Red Cross’ Disaster Relief Fund, we were most proud of the way HII’s employees rallied to protect and recover our facilities in Panama City Beach and support our Adm. Thomas B. Fargo C. Michael Petters colleagues who work there. U.S. Navy (Ret.) President and CEO Chairman of the Board 5. our suppliers ALABAMA $507M ALASKA $3M ARIZONA $182M ARKANSAS $3M california $791M 4,469 COLORADO $181M CONNECTICUT $320M suppliers across 49 states District of columbia $26M DELAWARE $8M florida $233M GEORGIA $216M HAWAII $1M IOWA $29M IDAHO $6M ILLINOIS $212M INDIANA $129M KANSAS $5M KENTUCKY $32M LOUISIANA $303M MARYLAND $405M MASSACHUSETTS $546M MAINE $17M MICHIGAN $215M MINNESOTA $27M MISSISSIPPI $644M MISSOURI $112M TOTAL FIVE-YEAR SPEND: MONTANA $94k NORTH CAROLINA $199M NORTH DAKOTA $46K NEBRASKA $1M NEVADA $2M $12,655,320,448 NEW HAMPSHIRE $51M new jersey $396M NEW MEXICO $78k NEW YORK $284M OUR SUPPLY CHAIN OHIO $586M IS VITAL TO NATIONAL SECURITY OKLAHOMA $84M OREGON $19M HII is proud to partner with an industry base of more than PENNSYLVANIA $1.2B 4,400 suppliers in 49 states.