Huntington Ingalls Industries, Inc. (HII) Earnings Call Transcript & Summary

Hello and welcome to the Annual Meeting of Shareholders of Huntington Ingalls Industries, Inc. Please note, today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to Admiral Thomas Fargo, Chairman of the Board of Huntington Ingalls Industries, Inc. Admiral Fargo, the floor is yours.

Thank you, and good morning, ladies and gentlemen. Welcome to the Annual Meeting of the Stockholders of Huntington Ingalls Industry, which as you now know, we're holding in a virtual format. I'm Tom Fargo, Chairman of the Board of Directors. First, I'd like to recognize Mike Petters, President and Chief Executive Officer of the company; and the other members of our Board of Directors who are also participating in this meeting virtually. Those directors are Mr. Philip Bilden; General Leon Collins; Admiral Kirk Donald, the Chair of our Cybersecurity Committee; Ms. Victoria Harker, the Chair of our Compensation Committee; Anastasia Kelly; Ms. Tracy McKibben; Mr. Tom Schievelbein, the Chair of our Finance Committee; Mr. John Welch, the Chair of our Governance and Policy Committee; and Mr. Steve Wilson, the Chair of our Audit Committee. The 10 nominees for election to the Board at today's meeting are Mr. Bilden, General Collins, Admiral Donald, Ms. Harker, Ms. Kelly and Ms. McKibben, Mr. Petters, Mr. Schievelbein, Mr. Welch and Mr. Wilson. Now I'd like to invite Mr. Petters to recognize his executive management team.

Thank you, Tom. I would like to recognize the members of our executive management team and elected officers. All of whom are participating in this annual meeting virtually: Chris Kastner, Executive Vice President and Chief Financial Officer; Bharat Amin, Executive Vice President and Chief Information Officer; Chad Boudreaux, Executive Vice President and Chief Legal Officer; Jennifer Boykin, Executive Vice President and President of Newport News Shipbuilding; Brian Cuccias, Executive Vice President and President of Ingalls Shipbuilding; Andy Green, Executive Vice President and President of Technical Solutions; Jerri Dickseski, Executive Vice President of Communications; Bill Ermatinger, Executive Vice President and Chief Human Resources Officer; Mitch Waldman, Executive Vice President, Government and Customer Relations; Scott Stabler, Executive Vice President and Chief Transformation Officer; Nicolas Schuck, Corporate Vice President, Controller and Chief Accounting Officer; Rick Wyatt, Corporate Vice President and Treasurer; Chuck Monroe, Corporate Vice President, Associate General Counsel and Secretary. And I will now turn the meeting back over to our Chairman.

Thank you, Mike. I will preside today as the chairman of the meeting and Chuck Monroe, the Corporate Secretary, who is also participating in the meeting virtually, will act as the secretary of the meeting. [ Paul Amante ], a representative of the company's transfer agent, Computershare Trust Company, has been appointed as the inspector of elections and has taken the oath of office and is participating in the meeting virtually. We also have representatives of the company's independent auditors, Deloitte & Touche LLP, participating in this meeting virtually. They will be available during the question-and-answer periods to respond to appropriate questions from stockholders. Our Board of Directors fixed March 4, 2020, as the record date for determining the stockholders of record who are entitled to receive notice of and who may vote at this meeting. The meeting is for the company's stockholders and guests. The order of business and rules of contact -- conduct for this meeting were made available at the virtual meeting website. The meeting will follow the order of business, and we will vote on the proposals presented to stockholders as described in our proxy statement. I ask that each of you abide by the order of business and the rules of conduct to facilitate an orderly meeting and completion of the business items on today's agenda. We will have 2 question-and-answer periods, one for the proposals on which we are voting at this meeting and a second for general matters relating to Huntington Ingalls Industries. Questions must be submitted through the virtual meeting website, where you can type your question into a text box. The question submission feature at the website was open for submission of questions beginning 15 minutes prior to the meeting and is currently open for submission of questions. If you wish to submit a question, you may submit it now on the virtual meeting website. I hereby call the 2020 annual meeting of stockholders of Huntington Ingalls Industries to order. I will first call on Mr. Monroe, as secretary of the meeting to give the secretary's report.

Thank you, Mr. Chairman. A list of the stockholders of record who are entitled to vote at this meeting has been prepared in accordance with applicable corporate law and has been made available for inspection by stockholders during the course of this meeting at the virtual meeting website. As Corporate Secretary, I have delivered a certificate of mailing verifying that: number one, a Notice of Internet Availability of Proxy Materials; or number two, a Notice of 2020 Annual Meeting of Stockholders and a proxy statement along with a proxy card and 2019 Annual Report to Stockholders were mailed to each stockholder of record as of the record date. The total number of shares outstanding and entitled to vote at the close of business on the March 4, 2020, record date, was 40,723,878 shares of common stock with each share having one vote. The inspector of elections has informed me that at least 91% of the shares entitled to vote at this meeting are represented at this meeting by proxy. Holders of a majority of the shares entitled to vote at this meeting are represented. I can therefore report we have a quorum and that the meeting is duly and regularly constituted. It is April 28, 2020, at 11:08 a.m. Eastern Time and the voting polls are currently open. If there is any stockholder participating in this virtual meeting, who has not already voted and who would like to vote or who has already voted and would like to change their vote, please submit your vote now on the virtual meeting website. I'll now turn the meeting back over to our Chairman.

Thanks, Chuck. All stockholders participating in this virtual meeting have been able to cast their vote since they logged into the meeting. We will now proceed with a final opportunity to vote on the 4 items of business described in the proxy statement. After we review the items of business and while final voting takes place, there'll be a question-and-answer period with the 4 matters under consideration. If you have not already done so, please submit your question on the virtual meeting website and we'll respond to the questions during the question-and-answer period. After the voting and any questions, we will receive the report of the secretary on the voting results. After which, the official portion of the meeting will be concluded. The items of business before this meeting for a vote by stockholders are described in detail in our proxy statement. They are: first, the election of 10 directors to hold office until the 2021 annual meeting or until their successors are elected and qualified. The nominees are Philip Bilden, Leon Collins, Kirk Donald, Victoria Harker, Stasia Kelly, Tracy McKibben, Mike Petters, and Tom Schievelbein, John Welch and Steve Wilson. Second, the approval of the company's 2019 executive compensation on an advisory basis. Third, ratification of the appointment of Deloitte & Touche as the company's independent auditors for 2020. And fourth, a stockholder proposal to permit stockholders to take action by written consent. With respect to the fourth item of business, we've been notified that [ Jesse Alba ] will present the stockholder proposal on behalf of the stockholder who submitted the proposal. [ Mr. Alba ], you may present the proposal and as described in the rules of conduct for the meeting, you've been allotted 3 minutes to make a statement in support of the proposal, and you may use this time only to address the proposal. You do not need to read the text of the proposal. [ Mr. Alba ]?

Thank you, and good morning. Proposal 4, right to act by written consent, sponsored by John Chevedden. Shareholders request that our Board of Directors take the steps necessary to permit written consent by shareholders entitled to cast the minimum number of votes that would be necessary to authorize an action at a meeting at which all shareholders entitled to vote thereon were present and voting. Hundreds of major companies enable shareholder action by written consent. This proposal topic won majority support at 13 large companies in a single year. This included 67% support at both Allstate and Sprint. This proposal topic also won 63% support at Cigna in 2019. This proposal topic would have received higher votes than 63% and 67% at these companies, if more shareholders had access to independent proxy voting advice. The right for shareholders to act by written consent is gaining acceptance as a more important right than the right to call a special meeting. This seems to be the conclusion of the Intel Corporation shareholder vote at the 2019 Intel Annual Meeting. The directors at Intel apparently thought they could divert shareholder attention away from written consent by making it less difficult for shareholders to call a special meeting. However, Intel shareholders responded with greater support for written consent in 2019 compared to 2018. Written consent also won 45% support at the Bank of New York Mellon in 2018. Following the 45% support, the Bank of New York Mellon said they adopting written consent in 2019. Taking action by written consent is a means shareholders can use to raise important matters outside the normal annual meeting cycle like the election of a new director. Shareholders may have an incentive to elect a new director if they feel management needs better oversight. The stock price was not helped by the troubles of the Gerald R. Ford aircraft carrier. The carrier was slated for delivery in 2015, but was not turned over to the Navy until 2017. The carrier has been plagued by glitches affecting everything from its ammunition elevators to an electromagnetic system for launching jets. Although it was initially capped for cost at $10.5 billion, the price tag ballooned beyond $13 billion according to the Congressional Research Service and because of "continuing technical deficiencies, the Navy still -- may still require more funding to complete this ship," the Congressional Research Service warned. Please vote yes, Right to Act by Written Consent, proposal 4. Thank you.

We will now finalize our voting. There have been deposits with the secretary proxy solicited on behalf of the Board of Directors and signed by stockholders entitled to vote at this meeting. The shares owned by the stockholders have been voted and represent this meeting through the proxies held by our Corporate Secretary, Chuck Monroe. These votes have been tallied by the inspector of elections. If any stockholder participating in this meeting virtually has a vote they wish to cast, please submit your vote now on the virtual meeting site. [Voting]

While we are voting, we'll answer questions that have been submitted concerning the matters on which we're voting. Are there any questions?

Mr. Chairman, we have no questions on the 4 items of business.

Very well. Seeing there are no questions, we will complete the voting. The time is 11:14 a.m. I declare that the polls are now closed. Any votes that were submitted at this meeting will be included in the final tally once the inspector of elections has had an opportunity to verify the shares. I'll now ask the secretary of the meeting, Mr. Monroe, to provide a preliminary report on the results of the voting.

Thank you, Mr. Chairman. I will now report the results of voting on the 4 items of business. Please note that the vote count announced at this meeting is preliminary and the final vote count, including the tabulation of any votes cast today at the website will be reported on a Form 8-K we filed with the Securities and Exchange Commission. Based on the preliminary report of the inspector of elections, each of the 10 nominees for Director has received more than 83% of the number of shares voted and has been duly elected to serve until the 2021 Annual Meeting. Approval of the company's 2019 executive compensation on an advisory basis has received 97% of the total number of shares voted and has been approved on an advisory basis. Ratification of the appointment of Deloitte & Touche as the company's independent auditors for 2020 has been approved by 98% of the total number of shares voted and has been duly ratified. In respect of the stockholder proposal to permit stockholders to take action by written consent, 57% of the total number of shares voted were cast against the proposal, and 43% of the shares voted were cast for the proposal. The stockholder proposal has therefore not been approved. Mr. Chairman?

Thank you, Chuck. This concludes the official portion of the annual meeting. Our stockholders who received copies of our 2019 Annual Report to stockholders in our proxy statement for this meeting or had access to these documents through the Internet, and both were filed with the Securities and Exchange Commission and made available to the company website. We will not be making a formal presentation about the company, but we will address questions submitted by stockholders through the virtual meeting website. Are there any questions?

Mr. Chairman, we have a 3-part COVID-19 question from shareholder, Mr. John Chevedden. First, what percentage of employees are not working this week? Second, what percentage of employees can work mostly from home? And third, what protective steps has the company taken in manufacturing areas?

Mike, would you like to answer that question, please?

Thank you, Mr. Chairman. I would, first of all, say thank you for the question. We appreciate your interest in what we're doing. When we set out on the COVID-19 response, the first thing that we established was that the safety of our employees is paramount and we wanted to give our employees flexibility to respond to the crisis, not just that may be happening around the company, but also in their own personal lives. We instituted a number of policies. All of these can be accessed and seen on our website. We have a dedicated page for the -- that describes all of the things that we've done for our employees, both from a benefit standpoint, liberal leave standpoint as well as a health and safety and what we're doing in the manufacturing of our operation. One of the postures that as our question pointed out, one of the postures that we changed really was that we're going to try to work -- really change our position to have people work remotely as much as possible. And we have -- I can say, we have about 10x as many people working remotely today as we did 6 weeks ago. So overall, we've responded. We continue to meet our near-term production milestones. And if you have a desire for more information, I'd ask you to visit our website.

Thank you, Mike. Are there any other questions?

Mr. Chairman, the final question also comes from Mr. Chevedden, and the question is has the Board transitioned to virtual meetings?

The Board is conducting their normally scheduled meetings virtually right now, and we will go back to in-person meetings as soon as the environment allows it. Any other questions?

No further questions, Mr. Chairman.

Before we adjourn, I'd like to acknowledge that this will be my last annual meeting as the Chairman of the Board of Huntington Ingalls Industries. I've served as a Chairman since we stood up HII as an independent company in March of 2011. It's been a pleasure serving as Chairman over the last 9 years, and I appreciate the support you have given me. The Board of Directors has appointed Admiral Kirk Donald to succeed me as Chairman, and I extend my best wishes to Kirk, Board of Directors and this great company. There being no further business to come before the meeting, I hereby declare the meeting adjourned. We thank all of you for participating in this virtual meeting, and we appreciate your interest in and support of Huntington Ingalls Industries. Paul?

This concludes the meeting. You may now disconnect.