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Item 1. Financial Statements

2022-11-03 compared with 2022-08-04 · 125 added, 114 removed, 460 unchanged (34% of the section changed)

2 unchanged sentences

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

(in millions, except per share amounts) 2022 2021 2022 2021

7 unchanged sentences

Income from operating investments, net 13 11 47 31

Other income and gains (losses), net 1 ( 2 ) — 1

Other income and gains, net — 2 — 3

General and administrative expenses 244 226 688 636

5 unchanged sentences

Earnings before income taxes 162 141 560 475

Federal and foreign income tax expense 44 32 80 57

Federal and foreign income tax expense (benefit) 24 ( 6 ) 104 51

Net earnings $ 138 $ 147 $ 456 $ 424

14 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

($ in millions) June 30, 2022 December 31, 2021

($ in millions) September 30, 2022 December 31, 2021

Current Assets

17 unchanged sentences

Accrued employees’ compensation 355 361

Current portion of long-term debt 399 —

Current portion of postretirement plan liabilities 137 137

15 unchanged sentences

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

53.5 million shares issued and 39.9 million shares outstanding as of September 30, 2022, and 53.4 million shares issued and 40.0 million shares outstanding as of December 31, 2021

Additional paid-in capital 2,014 1,998

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended

Nine Months Ended

($ in millions) 2022 2021

21 unchanged sentences

Grant proceeds for capital expenditures — 11

Acquisitions of businesses, net of cash received — ( 1,636 )

Investment in affiliates ( 5 ) ( 22 )

3 unchanged sentences

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 )

1 unchanged sentence

Employee taxes on certain share-based payment arrangements ( 14 ) ( 7 )

Net cash used in financing activities ( 335 ) ( 169 )

Net cash (used in) provided by financing activities ( 497 ) 1,396

Change in cash and cash equivalents ( 510 ) 43

9 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

Three Months Ended June 30, 2022 and 2021

Three Months Ended September 30, 2022 and 2021

($ in millions) Common Stock Additional Paid-in Capital Retained Earnings (Deficit) Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity

Balance as of March 31, 2021 $ 1 $ 1,974 $ 3,635 $ ( 2,108 ) $ ( 1,523 ) $ 1,979

Balance as of June 30, 2021 $ 1 $ 1,977 $ 3,718 $ ( 2,128 ) $ ( 1,501 ) $ 2,067

Net earnings — — 147 — — 147

3 unchanged sentences

Treasury stock activity — — — ( 17 ) — ( 17 )

Balance as of September 30, 2021 $ 1 $ 1,984 $ 3,819 $ ( 2,145 ) $ ( 1,470 ) $ 2,189

Balance as of June 30, 2022 $ 1 $ 2,002 $ 4,113 $ ( 2,186 ) $ ( 978 ) $ 2,952

Balance as of March 31, 2022 $ 1 $ 1,995 $ 3,982 $ ( 2,169 ) $ ( 987 ) $ 2,822

Net earnings — — 138 — — 138

1 unchanged sentence

Stock-based compensation — 12 — — — 12

Other comprehensive loss, net of tax — — — — 9 9

Other comprehensive income, net of tax — — — — 8 8

Treasury stock activity — — — ( 14 ) — ( 14 )

Balance as of June 30, 2022 $ 1 $ 2,002 $ 4,113 $ ( 2,186 ) $ ( 978 ) $ 2,952

Six Months Ended June 30, 2022 and 2021

Balance as of September 30, 2022 $ 1 $ 2,014 $ 4,203 $ ( 2,200 ) $ ( 970 ) $ 3,048

Nine Months Ended September 30, 2022 and 2021

($ in millions) Common Stock Additional Paid-in Capital Retained Earnings (Deficit) Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity

5 unchanged sentences

Treasury stock activity — — — ( 87 ) — ( 87 )

Balance as of June 30, 2021 $ 1 $ 1,977 $ 3,718 $ ( 2,128 ) $ ( 1,501 ) $ 2,067

Balance as of September 30, 2021 $ 1 $ 1,984 $ 3,819 $ ( 2,145 ) $ ( 1,470 ) $ 2,189

Balance as of December 31, 2021 $ 1 $ 1,998 $ 3,891 $ ( 2,159 ) $ ( 923 ) $ 2,808

4 unchanged sentences

Treasury stock activity — — — ( 41 ) — ( 41 )

Balance as of June 30, 2022 $ 1 $ 2,002 $ 4,113 $ ( 2,186 ) $ ( 978 ) $ 2,952

Balance as of September 30, 2022 $ 1 $ 2,014 $ 4,203 $ ( 2,200 ) $ ( 970 ) $ 3,048

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3 unchanged sentences

Huntington Ingalls Industries, Inc.

("HII" or the "Company") is an all-domain defense and technologies partner, recognized worldwide as America’s largest shipbuilder.

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

HII is organized into three reportable segments:

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Through its Newport News segment, HII is the nation's sole designer, builder, and refueler of nuclear-powered aircraft carriers, and one of only two companies currently designing and building nuclear-powered submarines for the U.S.

The Mission Technologies segment provides a wide range of services and products, including C5ISR systems and operations;

The Mission Technologies segment provides a wide range of services and products, including command, control, computers, communications, cyber, intelligence, surveillance, and reconnaissance ("C5ISR") systems and operations;

the application of Artificial Intelligence and machine learning to battlefield decisions;

1 unchanged sentence

unmanned autonomous systems;

live, virtual, and constructive solutions;

live, virtual, and constructive training solutions;

platform modernization;

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Estimates have been prepared on the basis of the most current and best available information, and actual results could differ materially from those estimates.

Fair Value of Financial Instruments - Except for the Company's long-term debt, the carrying amounts of the Company's financial instruments are recorded at historical cost approximate fair value due to the short-term nature of the instruments and low credit risk associated with the respective counterparties.

Fair Value of Financial Instruments - Except for the Company's long-term debt, the carrying amounts of the Company's financial instruments recorded at historical cost approximate fair value due to the short-term nature of the instruments and low credit risk associated with the respective counterparties.

The Company maintains multiple grantor trusts to fund certain non-qualified pension plans.

These trusts were valued at $ 201 million and $ 220 million as of June 30, 2022, and December 31, 2021, respectively, and are

presented within miscellaneous other assets within the unaudited condensed consolidated statements of financial position.

These trusts were valued at $ 196 million and $ 220 million as of September 30, 2022, and December 31, 2021, respectively, and are presented within miscellaneous other assets within the unaudited condensed consolidated statements of financial position.

These trusts consist primarily of investments in marketable securities, which are held at fair value within Level 1 of the fair value hierarchy.

The estimated fair values of the Company's total long-term debt as of June 30, 2022, and December 31, 2021, were $ 2,954 million and $ 3,449 million, respectively.

The estimated fair values of the Company's total long-term debt (including current portion) as of September 30, 2022, and December 31, 2021, were $ 2,768 million and $ 3,449 million, respectively.

The estimated fair value of the current portion of the Company's long-term debt was $ 386 million as of September 30, 2022.

The fair values of the Company's long-term debt were calculated based on recent trades of the Company's debt instruments in inactive markets, which fall within Level 2 under the fair value hierarchy.

Debt Prepayment - As of June 30, 2022, $ 225 million of the Company's Term Loan due August 19, 2024 has been prepaid, with a remaining balance of $ 425 million.

Debt Prepayment - As of September 30, 2022, $ 325 million of the Company's Term Loan due August 19, 2024 has been prepaid, with a remaining balance of $ 325 million.

ACCOUNTING STANDARDS UPDATES

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The Company accounted for the transaction as a business combination using the acquisition method of accounting in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 805 Business Combinations .

The preliminary purchase price was $ 1.79 billion, including $ 148 million of cash received in the acquisition.

The purchase price was $ 1.79 billion, including $ 148 million of cash received in the acquisition.

In connection with the acquisition, the Company originally recorded $ 1,024 million of goodwill, which included the value of Alion's workforce, and $ 720 million of intangible assets related to customer relationships and existing contract backlog.

The goodwill is attributable to operational synergies and growth opportunities and was allocated to the Company's Mission Technologies segment.

For the six months ended June 30, 2022, the Company recorded an increase to goodwill of $ 6 million, resulting from an adjustment to contingent liabilities for potential information reporting penalties.

For the nine months ended September 30, 2022, the Company recorded a decrease to goodwill of $ 10 million, resulting from updates to Alion’s tax carryforwards and the true-up of estimated taxes to filed income tax returns for the pre-acquisition period.

The acquisition accounting was completed at September 30, 2022.

None of the goodwill resulting from this acquisition is expected to be amortizable for tax purposes.

4 unchanged sentences

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

($ in millions, except per share amounts) 2022 Pro Forma 2021 2022 Pro Forma 2021

10 unchanged sentences

Repurchases are made from time to time at management's discretion in accordance with applicable federal securities laws.

For the six months ended June 30, 2022, the Company repurchased 131,006 shares at an aggregate cost of $ 27 million.

For the six months ended June 30, 2021, the Company repurchased 386,463 shares at an aggregate cost of $ 70 million.

For the nine months ended September 30, 2022, the Company repurchased 196,850 shares at an aggregate cost of $ 41 million.

For the nine months ended September 30, 2021, the Company repurchased 469,436 shares at an aggregate cost of $ 87 million.

The cost of purchased shares is recorded as treasury stock in the unaudited condensed consolidated statements of financial position.

Dividends - The Company paid cash dividends totaling $ 94 million and $ 92 million for the six months ended June 30, 2022 and 2021, respectively.

Dividends - The Company paid cash dividends totaling $ 142 million and $ 138 million for the nine months ended September 30, 2022 and 2021, respectively.

Accumulated Other Comprehensive Loss - Other comprehensive income (loss) refers to gains and losses recorded as an element of stockholders' equity but excluded from net earnings.

The accumulated other comprehensive loss as of June 30, 2022, was comprised of unamortized benefit plan costs of $ 977 million and other comprehensive loss of $ 1 million.

The accumulated other comprehensive loss as of September 30, 2022, was comprised of unamortized benefit plan costs of $ 969 million and other comprehensive loss of $ 1 million.

The accumulated other comprehensive loss as of December 31, 2021, was comprised of unamortized benefit plan costs of $ 923 million.

The changes in accumulated other comprehensive income (loss) by component for the three and six months ended June 30, 2022 and 2021, were as follows:

The changes in accumulated other comprehensive income (loss) by component for the three and nine months ended September 30, 2022 and 2021, were as follows:

($ in millions) Benefit Plans Other Total

Balance as of March 31, 2021 $ ( 1,524 ) $ 1 $ ( 1,523 )

Other comprehensive income before reclassifications — — —

Balance as of June 30, 2021 $ ( 1,502 ) $ 1 $ ( 1,501 )

Other comprehensive income (loss) before reclassifications 14 ( 1 ) 13

Amounts reclassified from accumulated other comprehensive loss

2 unchanged sentences

Tax expense for items of other comprehensive income ( 11 ) — ( 11 )

Net current period other comprehensive income 22 — 22

Net current period other comprehensive income (loss) 32 ( 1 ) 31

Balance as of September 30, 2021 $ ( 1,470 ) $ — $ ( 1,470 )

Balance as of June 30, 2022 $ ( 977 ) $ ( 1 ) $ ( 978 )

Balance as of March 31, 2022 $ ( 987 ) $ — $ ( 987 )

Other comprehensive loss before reclassifications — ( 1 ) ( 1 )

Other comprehensive income (loss) before reclassifications 3 ( 1 ) 2

Amounts reclassified from accumulated other comprehensive loss

1 unchanged sentence

Amortization of net actuarial loss 1

Tax benefit for items of other comprehensive (loss) income ( 3 ) — ( 3 )

Net current period other comprehensive loss 10 ( 1 ) 9

Balance as of June 30, 2022 $ ( 977 ) $ ( 1 ) $ ( 978 )

Settlement gain 1

( 4 ) — ( 4 )

Tax (expense) benefit for items of other comprehensive income (loss) ( 4 ) 1 ( 3 )

Net current period other comprehensive income 8 — 8

Balance as of September 30, 2022 $ ( 969 ) $ ( 1 ) $ ( 970 )

($ in millions) Benefit Plans Other Total

6 unchanged sentences

Net current period other comprehensive income 76 1 77

Balance as of June 30, 2021 $ ( 1,502 ) $ 1 $ ( 1,501 )

Balance as of September 30, 2021 $ ( 1,470 ) $ — $ ( 1,470 )

Balance as of December 31, 2021 $ ( 923 ) $ — $ ( 923 )

Other comprehensive income before reclassifications ( 97 ) ( 1 ) ( 98 )

Other comprehensive loss before reclassifications ( 94 ) ( 2 ) ( 96 )

Amounts reclassified from accumulated other comprehensive loss

1 unchanged sentence

Amortization of net actuarial loss 1

Tax expense for items of other comprehensive income 19 — 19

Net current period other comprehensive income ( 54 ) ( 1 ) ( 55 )

Balance as of June 30, 2022 $ ( 977 ) $ ( 1 ) $ ( 978 )

Settlement gain 1

( 4 ) — ( 4 )

Tax benefit for items of other comprehensive loss 15 1 16

Net current period other comprehensive loss ( 46 ) ( 1 ) ( 47 )

Balance as of September 30, 2022 $ ( 969 ) $ ( 1 ) $ ( 970 )

1 These accumulated comprehensive loss components are included in the computation of net periodic benefit cost.

Employee Pension and Other Postretirement Benefits.

The tax benefit associated with amounts reclassified from accumulated other comprehensive loss for the three months ended June 30, 2022 and 2021, was $ 3 million and $ 8 million, respectively.

The tax benefit associated with amounts reclassified from accumulated other comprehensive loss for the six months ended June 30, 2022 and 2021, was $ 6 million and $ 15 million, respectively.

The tax benefit associated with amounts reclassified from accumulated other comprehensive loss for the three months ended September 30, 2022 and 2021, was $ 2 million and $ 8 million, respectively.

The tax benefit associated with amounts reclassified from accumulated other comprehensive loss for the nine months ended September 30, 2022 and 2021, was $ 8 million and $ 23 million, respectively.

EARNINGS PER SHARE

1 unchanged sentence

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

(in millions, except per share amounts) 2022 2021 2022 2021

5 unchanged sentences

Earnings per share - diluted $ 3.44 $ 3.65 $ 11.37 $ 10.52

Under the treasury stock method, the Company has excluded from the diluted share amounts presented above the effects of 0.4 million Restricted Performance Stock Rights ("RPSRs") for each of the three and six months ended June 30, 2022 and 2021.

Disaggregation of Revenue

8 unchanged sentences

The following tables present revenues on a disaggregated basis:

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

($ in millions) Ingalls Newport News Mission Technologies Intersegment Eliminations Total

6 unchanged sentences

Commercial — — 9 — 9

State and local government agencies — — 1 — 1

Intersegment 5 1 31 ( 37 ) —

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Sales and service revenues $ 623 $ 1,445 $ 595 $ ( 37 ) $ 2,626

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

($ in millions) Ingalls Newport News Mission Technologies Intersegment Eliminations Total

15 unchanged sentences

Sales and service revenues $ 628 $ 1,354 $ 394 $ ( 38 ) $ 2,338

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

($ in millions) Ingalls Newport News Mission Technologies Intersegment Eliminations Total

6 unchanged sentences

Commercial — — 32 — 32

State and local government agencies — — 1 — 1

Intersegment 10 4 87 ( 101 ) —

7 unchanged sentences

Sales and service revenues $ 1,912 $ 4,268 $ 1,785 $ ( 101 ) $ 7,864

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

($ in millions) Ingalls Newport News Mission Technologies Intersegment Eliminations Total

16 unchanged sentences

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

($ in millions) 2022 2021 2022 2021

13 unchanged sentences

Sales and service revenues $ 2,626 $ 2,338 $ 7,864 $ 6,847

As of June 30, 2022, the Company had $ 47.2 billion of remaining performance obligations.

As of September 30, 2022, the Company had $ 46.7 billion of remaining performance obligations.

The Company expects to recognize approximately 30 % of its remaining performance obligations as revenue through 2023, an additional 35 % through 2025, and the balance thereafter.

Cumulative Catch-up Adjustments

For the three months ended June 30, 2022, net cumulative catch-up adjustments increased operating income and increased diluted earnings per share by $ 68 million and $ 1.34 , respectively.

For the three months ended June 30, 2021, net cumulative catch-up adjustments increased operating income and increased diluted earnings per share by $ 35 million and $ 0.68 , respectively.

For the six months ended June 30, 2022, net cumulative catch-up adjustments increased operating income and increased diluted earnings per share by $ 113 million and $ 2.22 , respectively.

For the six months ended June 30, 2021, net cumulative catch-up adjustments increased operating income and

increased diluted earnings per share by $ 85 million and $ 1.66 , respectively.

Cumulative catch-up adjustments for the three months ended June 30, 2022, included a favorable adjustment of $ 20 million on a contract at the Company's Ingalls segment, which increased diluted earnings per share by $ 0.40 .

Cumulative catch-up adjustments for the three months ended June 30, 2021, included a favorable adjustment of $ 14 million on a contract at the Company's Ingalls segment, which increased diluted earnings per share by $ 0.28 .

For the six months ended June 30, 2022 and 2021, no individual favorable adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.

For the three and six months ended June 30, 2022, no individual unfavorable adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.

For the three and six months ended June 30, 2021, no individual unfavorable adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.

For the three months ended September 30, 2022, net cumulative catch-up adjustments increased operating income and increased diluted earnings per share by $ 27 million and $ 0.53 , respectively.

For the three months ended September 30, 2021, net cumulative catch-up adjustments increased operating income and increased diluted earnings per share by $ 21 million and $ 0.41 , respectively.

For the nine months ended September 30, 2022, net cumulative catch-up adjustments increased operating income and increased diluted earnings per share by $ 140 million and $ 2.75 , respectively.

For the nine months ended September 30, 2021, net cumulative catch-up

adjustments increased operating income and increased diluted earnings per share by $ 106 million and $ 2.07 , respectively.

Cumulative catch-up adjustments for the three months ended September 30, 2022, included a favorable adjustment of $ 41 million on a contract at the Company's Newport News segment, which increased diluted earnings per share by $ 0.80 .

For the nine months ended September 30, 2022, no individual favorable adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.

For the three and nine months ended September 30, 2022, no individual unfavorable adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.

For the three and nine months ended September 30, 2021, no individual adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.

Contract Balances

The Company reports contract balances in a net contract asset or contract liability position on a contract-by-contract basis at the end of each reporting period.

The Company’s net contract assets decreased $ 50 million from December 31, 2021, to June 30, 2022, primarily resulting from advance billings on certain U.S.

The Company’s net contract assets increased $ 137 million from December 31, 2021, to September 30, 2022, primarily resulting from an increase in contract assets related to revenue on certain U.S.

Navy contracts.

For the three and six months ended June 30, 2022, the Company recognized revenue of $ 152 million and $ 531 million, respectively, related to its contract liabilities as of December 31, 2021.

For the three and six months ended June 30, 2021, the Company recognized revenue of $ 56 million and $ 453 million, respectively, related to its contract liabilities as of December 31, 2020.

For the three and nine months ended September 30, 2022, the Company recognized revenue of $ 17 million and $ 548 million, respectively, related to its contract liabilities as of December 31, 2021.

For the three months ended September 30, 2021, the Company did not recognize revenue related to its contract liabilities as of December 31, 2020.

For the nine months ended September 30, 2021, the Company recognized revenue of $ 447 million related to its contract liabilities as of December 31, 2020.

SEGMENT INFORMATION

The following table presents segment results for the three and six months ended June 30, 2022 and 2021:

The following table presents segment results for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

($ in millions) 2022 2021 2022 2021

16 unchanged sentences

The following table presents the Company's assets by segment:

($ in millions) June 30, 2022 December 31, 2021

($ in millions) September 30, 2022 December 31, 2021

Ingalls $ 1,716 $ 1,659

3 unchanged sentences

Total assets $ 10,615 $ 10,627

The Company's earnings are primarily domestic, and its effective income tax rates on earnings from operations for the three months ended June 30, 2022 and 2021, were 19.8 % and 19.9 %, respectively.

For the six months ended June 30, 2022 and 2021, the Company's effective income tax rates on earnings from operations were 20.1 % and 17.1 %, respectively.

The effective tax rate for the three months ended June 30, 2022, was generally flat compared to the prior year.

The higher effective tax rate for the six months ended June 30, 2022, was primarily attributable to a tax loss associated with the sale of the Company’s oil and gas business recorded in 2021.

For the three months ended June 30, 2022, the Company’s effective tax rate differed from the federal statutory corporate income tax rate primarily as a result of research and development tax credits.

For the six months ended June 30, 2022, the Company’s effective tax rate did not differ materially from the federal statutory corporate income tax rate of 21 %.

For the three months ended June 30, 2021, the Company’s effective tax rate differed from the federal statutory tax rate primarily as a result of research and development tax credits.

For the six months ended June 30, 2021, the Company’s effective tax rate differed from the federal statutory tax rate primarily as a result of a tax loss associated with the sale of its oil and gas business.

The Company's unrecognized tax benefits increased by $ 3 million and $ 5 million during the three and six months ended June 30, 2022, respectively.

As of June 30, 2022, the estimated amounts of the Company's unrecognized tax benefits, excluding interest and penalties, were liabilities of $ 86 million.

The Company’s annual goodwill impairment test will be performed as of November 30, 2022, whereby management will test goodwill for each of its three reporting units with goodwill balances to determine whether an event occurred or circumstances changed that would more likely than not reduce the fair values of the Company's reporting units below their respective carrying values.

The Company expects that the fair value of the Government Services reporting unit within the Mission Technologies segment will exceed carrying value by less than 10 %.

The Company expects that the estimated fair values of its remaining reporting units will exceed by more than 10 % their corresponding carrying values as of November 30, 2022.

The Company's earnings are primarily domestic, and its effective income tax rates on earnings from operations for the three months ended September 30, 2022 and 2021, were 14.8 % and ( 4.3 )%, respectively.

For the nine months ended September 30, 2022 and 2021, the Company's effective income tax rates on earnings from operations were 18.6 % and 10.7 %, respectively.

The higher effective tax rates for the three and nine months ended September 30, 2022, were primarily attributable to research and development tax credits for prior periods recorded in 2021.

For each of the three and nine months ended September 30, 2022 and 2021, the Company’s effective tax rates differed from the federal statutory corporate income tax rate primarily as a result of research and development tax credits for prior periods.

The Company's unrecognized tax benefits increased by $ 5 million and $ 10 million during the three and nine months ended September 30, 2022, respectively.

As of September 30, 2022, the estimated amounts of the Company's unrecognized tax benefits, excluding interest and penalties, were liabilities of $ 91 million.

Assuming a sustainment of these tax positions, a reversal of $ 69 million of the accrued amounts would favorably affect the Company's effective federal income tax rate in future periods.

The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense.

For the three and six months ended June 30, 2022, interest resulting from the unrecognized tax benefits noted above increased income tax expense by less than $ 1 million.

For the three and nine months ended September 30, 2022, interest resulting from the unrecognized tax benefits noted above increased income tax expense by less than $ 1 million and $ 1 million, respectively.

Non-current state income taxes include 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 unrecognized state tax benefits in the relevant period.

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The Company also initiated arbitration proceedings against six other reinsurers seeking similar relief.

In July 2021, the Vermont court granted the reinsurers’ motion for judgment on the pleadings, and the Company has appealed the decision to the Vermont Supreme Court.

Although the Company still believes its position is well-founded, no assurances can be provided regarding the ultimate resolution of this matter.

In July 2021, the Vermont court granted the reinsurers’ motion for judgment on the pleadings, which would have ended the Company’s claim.

The Company appealed the decision to the Vermont Supreme Court, which reversed and remanded the lower court’s decision in September 2022, allowing the Company’s claim to proceed.

No assurances can be provided regarding the ultimate resolution of this matter.

In September 2021, the Company filed a complaint in the Superior Court of Delaware, seeking a judgment against certain insurers for breach of contract and breach of the implied covenant of good faith and fair dealing under three representations and warranties insurance policies purchased in connection with the Company’s acquisition of Hydroid.

9 unchanged sentences

In some instances, partial or full insurance coverage is available for the Company's liabilities.

The costs to resolve cases during the six months ended June 30, 2022 and 2021, were immaterial individually and in the aggregate.

The costs to resolve cases during the nine months ended September 30, 2022 and 2021, were not material individually or in the aggregate.

The Company’s estimate of asbestos-related liabilities is subject to uncertainty because liabilities are influenced by many variables that are inherently difficult to predict.

11 unchanged sentences

Contract Performance Contingencies - Contract profit margins may include estimates of revenues for matters on which the customer and the Company have not reached agreement, such as settlements in the process of negotiation, contract changes, claims, and requests for equitable adjustment for unanticipated contract costs.

These estimates are based upon management's best assessment of the underlying causal events and circumstances and

recognized to the extent of expected recovery based upon contractual entitlements and the probability of successful negotiation with the customer.

As of June 30, 2022, amounts recognized in connection with claims and requests for equitable adjustment were not material individually or in the aggregate.

These estimates are based upon management's best assessment of the underlying causal events and circumstances and recognized to the extent of expected recovery based upon contractual entitlements and the probability of successful negotiation with the customer.

As of September 30, 2022, amounts recognized in connection with claims and requests for equitable adjustment were not material individually or in the aggregate.

Environmental Matters - The estimated cost to complete environmental remediation has been accrued when it is probable that the Company will incur such costs in the future to address environmental conditions at currently or formerly owned or leased operating facilities, or at sites where it has been named a Potentially Responsible Party by the Environmental Protection Agency or similarly designated by another environmental agency, and the related costs can be estimated by management.

These accruals do not include any litigation costs related to environmental matters, nor do they include amounts recorded as asset retirement obligations.

Management estimates that as of June 30, 2022, the probable estimable future cost for environmental remediation was immaterial.

Management estimates that as of September 30, 2022, the probable estimable future cost for environmental remediation was not material.

Although management cannot predict whether new information gained as remediation progresses or the Company incurs additional remediation obligations will materially affect the estimated liability accrued, management does not believe that future remediation expenditures will have a material effect on the Company's consolidated financial position, results of operations, and cash flows.

Financial Arrangements - In the ordinary course of business, HII uses letters of credit issued by commercial banks to support certain leases, insurance policies, and contractual performance obligations, as well as surety bonds issued by insurance companies principally to support the Company's self-insured workers' compensation plans.

As of June 30, 2022, the Company had $ 15 million in issued but undrawn letters of credit and $ 276 million of surety bonds outstanding.

As of September 30, 2022, the Company had $ 14 million in issued but undrawn letters of credit and $ 360 million of surety bonds outstanding.

Government Claims - From time to time, the U.S.

11 unchanged sentences

Navy Contracting Officer issued a determination that the 1985 settlement agreement did not comply with CAS and directed the Company to develop and implement a different process to bill and allocate the cost of workers’ compensation self-insurance.

In July 2022, the Contracting Officer reiterated its direction that the Company submit a cost accounting practice change from the 1985 settlement agreement for Government review and concurrence.

The Company has submitted to the Navy a proposed draft alternative approach to billing and allocating the cost of workers’ compensation self-insurance, while continuing to reiterate its belief that the 1985 settlement agreement remains binding on the parties.

Although the Company believes the 1985 settlement agreement is CAS-compliant and cannot be unilaterally terminated, the Company is seeking to negotiate a resolution of the matter with the Contracting Officer.

In January 2022, a U.S.

Navy Contracting Officer issued a written determination that the Ingalls Shipbuilding Material Management and Accounting System (“MMAS”) had three significant deficiencies (as defined in the Defense Federal Acquisition Regulation Supplement provision relating to MMASs), resulting in a 5 % withhold of payments on certain invoices issued under one contract.

Ingalls subsequently submitted a corrective action plan, which was approved in February 2022, and the withhold was reduced to 2 %.

On May 27, 2022, the Contracting Officer determined that Ingalls had corrected the significant deficiencies, and the Contracting Officer terminated the remaining 2 % withhold and approved the MMAS system.

In August 2022, the Navy Contracting Officer issued a written determination that the Ingalls Shipbuilding Property Management System had a significant deficiency, resulting in a 2 % withhold of payments on certain invoices issued under one contract.

The withhold will terminate and withheld funds paid to the Company when the Contracting Officer determines that the significant deficiency has been corrected.

Although the Company believes the ultimate resolution of this matter will not have a material effect on its consolidated financial position, results of operations, or cash flows, it cannot predict or give assurances regarding the ultimate outcome of this matter.

Collective Bargaining Agreements - Of the Company's approximately 43,000 employees, approximately 45 % are covered by a total of nine collective bargaining agreements and one site stabilization agreement.

Newport News has three collective bargaining agreements covering represented employees, including one with United Steelworkers Local 8888 (Newport News) (the “USWs”), which covers approximately 50 % of Newport News employees.

The collective bargaining agreement with the USWs expired in November 2021, and the Company reached a tentative agreement with representatives of the USWs in February 2022.

The members of the USWs bargaining unit ratified the contract in March 2022.

The Company believes its relationship with its employees is satisfactory.

1 unchanged sentence

The Company provides eligible employees defined benefit pension plans, other postretirement benefit plans, and defined contribution pension plans.

The costs of the Company's defined benefit pension plans and other postretirement benefit plans for the three and six months ended June 30, 2022 and 2021, were as follows:

The costs of the Company's defined benefit pension plans and other postretirement benefit plans for the three and nine months ended September 30, 2022 and 2021, were as follows:

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

Pension Benefits Other Benefits Pension Benefits Other Benefits

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Amortization of net actuarial loss (gain) 8 28 — ( 1 ) 26 82 ( 2 ) ( 2 )

Settlement gain ( 4 ) — — — ( 4 ) — — —

Net periodic benefit (income) cost $ ( 28 ) $ 3 $ 4 $ 4 $ ( 79 ) $ 8 $ 12 $ 13

The Company made the following contributions to its defined benefit pension plans and other postretirement benefit plans for the six months ended June 30, 2022 and 2021:

Six Months Ended

The Company made the following contributions to its defined benefit pension plans and other postretirement benefit plans for the nine months ended September 30, 2022 and 2021:

Nine Months Ended

($ in millions) 2022 2021

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Total contributions $ 32 $ 94

As of June 30, 2022, the Company anticipates no further significant cash contributions to its qualified defined benefit pension plans in 2022.

As of September 30, 2022, the Company anticipates no further significant cash contributions to its qualified defined benefit pension plans in 2022.

On September 6, 2022, the Company purchased annuity contracts to transfer $ 32 million of gross defined benefit pension obligations and related plan assets to an insurance company for approximately 500 retirees and beneficiaries.

The annuity contracts were purchased using assets from the pension master trust, and no additional funding contribution was required.

This transaction had no impact on the amount, timing, or form of the monthly retirement benefit payments to the affected retirees and beneficiaries.

In connection with this transaction, the Company recognized a noncash, non-operating pension settlement gain of $ 4 million for the affected plan, which represents the accelerated recognition of actuarial losses that were included in accumulated other comprehensive loss within stockholders' equity.

In March 2022, the Company concluded negotiations on one of its collective bargaining agreements, which required an amendment to one of the Company's pension plans.

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STOCK COMPENSATION PLANS

During the six months ended June 30, 2022 and 2021, the Company issued new stock awards as follows:

Restricted Performance Stock Rights - For the six months ended June 30, 2022, the Company granted approximately 0.1 million RPSRs at a weighted average share price of $ 204.10 .

During the nine months ended September 30, 2022 and 2021, the Company issued new stock awards as follows:

Restricted Performance Stock Rights - For the nine months ended September 30, 2022, the Company granted approximately 0.2 million RPSRs at a weighted average share price of $ 201.48 .

These rights are subject to cliff vesting on December 31, 2024.

For the six months ended June 30, 2021, the Company granted approximately 0.2 million RPSRs at a weighted average share price of $ 179.21 .

For the nine months ended September 30, 2021, the Company granted approximately 0.2 million RPSRs at a weighted average share price of $ 180.05 .

These rights are subject to cliff vesting on December 31, 2023.

All of the RPSRs are subject to the achievement of performance-based targets at the end of the respective vesting periods and will ultimately vest between 0 % and 200 % of grant date value.

For the six months ended June 30, 2022 and 2021, awards of approximately 0.2 million and 0.1 million shares of stock vested, respectively, of which less than 0.1 million each period were transferred to the Company from employees in satisfaction of minimum tax withholding obligations.

The following table summarizes the status of the Company's outstanding stock awards as of June 30, 2022:

For the nine months ended September 30, 2022 and 2021, awards of approximately 0.2 million and 0.1 million shares of stock vested, respectively, of which less than 0.1 million each period were transferred to the Company from employees in satisfaction of minimum tax withholding obligations.

The following table summarizes the status of the Company's outstanding stock awards as of September 30, 2022:

(in thousands) Weighted-Average

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Compensation Expense

The Company recorded stock-based compensation for the value of awards granted to Company employees and non-employee members of the board of directors of $ 7 million and $ 3 million for the three months ended June 30, 2022 and 2021, respectively.

The Company recorded stock-based compensation for the value of awards granted to Company employees and non-employee members of the board of directors of $ 16 million and $ 12 million for the six months ended June 30, 2022 and 2021, respectively.

The Company recorded tax benefits related to stock awards of $ 1 million and less than $ 1 million for the three months ended June 30, 2022 and 2021, respectively.

The Company recorded tax benefits related to stock awards of $ 2 million for each of the six months ended June 30, 2022 and 2021.

The Company recognized tax benefits associated with the issuance of stock in settlement of stock awards of less than $ 1 million for each of the three months ended June 30, 2022 and 2021.

The Company recognized tax benefits associated with the issuance of stock in settlement of stock awards of $ 4 million and $ 2 million for the six months ended June 30, 2022 and 2021, respectively.

The Company recorded stock-based compensation for the value of awards granted to Company employees and non-employee members of the board of directors of $ 12 million and $ 7 million for the three months ended September 30, 2022 and 2021, respectively.

The Company recorded stock-based compensation for the value of awards granted to Company employees and non-employee members of the board of directors of $ 28 million and $ 19 million for the nine months ended September 30, 2022 and 2021, respectively.

The Company recorded tax benefits related to stock awards of $ 3 million and $ 1 million for the three months ended September 30, 2022 and 2021, respectively.

The Company recorded tax benefits related to stock awards of $ 5 million and $ 3 million for the nine months ended September 30, 2022 and 2021, respectively.

The Company recognized tax benefits associated with the issuance of stock in settlement of stock awards of less than $ 1 million for each of the three months ended September 30, 2022 and 2021.

The Company recognized tax benefits associated with the issuance of stock in settlement of stock awards of $ 4 million and $ 2 million for the nine months ended September 30, 2022 and 2021, respectively.

Unrecognized Compensation Expense

As of June 30, 2022, the Company had $ 3 million of unrecognized compensation expense associated with Restricted Stock Rights granted in 2022 and 2021, which will be recognized over a weighted average period of 1.2 years, and $ 44 million of unrecognized compensation expense associated with RPSRs granted in 2022, 2021, and 2020, which will be recognized over a weighted average period of 1.6 years.

As of September 30, 2022, the Company had $ 3 million of unrecognized compensation expense associated with Restricted Stock Rights granted in 2022 and 2021, which will be recognized over a weighted average period of 1 year, and $ 37 million of unrecognized compensation expense associated with RPSRs granted in 2022, 2021, and 2020, which will be recognized over a weighted average period of 1.3 years.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements