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Item 7. Management’s Discussion and Analysis

2023-02-09 compared with 2022-02-10 · 236 added, 292 removed, 584 unchanged (47% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Huntington Ingalls Industries, Inc.

is America’s largest military shipbuilding company and a provider of professional services to partners in government and industry.

For more than a century, our Ingalls segment in Mississippi and Newport News segment in Virginia have built more ships in more ship classes than any other U.S.

naval shipbuilder.

Our Technical Solutions segment provides a range of services to government and commercial customers.

Headquartered in Newport News, Virginia, HII employs approximately 44,000 people domestically and internationally.

We conduct most of our business with the U.S.

Government, primarily the DoD.

As prime contractor, principal subcontractor, team member, or partner, we participate in many high-priority U.S.

defense programs.

Ingalls includes our non-nuclear ship design, construction, repair, and maintenance businesses.

Newport News includes all of our nuclear ship design, construction, overhaul, refueling, and repair and maintenance businesses.

Our Technical Solutions segment provides a wide range of professional services, including DFS, nuclear and environmental services, and unmanned systems.

The following discussion should be read along with the audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

The following discussion should be read along with the audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K, as well as Part II, “Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021.

Business Environment

COVID-19 Pandemic - The COVID-19 global pandemic has had wide-ranging effects on the global health environment and disrupted the global and U.S.

economies and financial markets, including impacts to our employees, customers, suppliers, and communities (collectively, “COVID-19 Events”).

COVID-19 Events have also

impacted our operations, and the extent of future impacts are uncertain.

The most significant areas of impact have been the disruption of our employees’ ability to work effectively, disruption in our supply chain, disruption of the U.S.

Government's and our other customers' abilities to perform their obligations, and impact on pension assets and other investment performance.

In September 2021, President Biden issued an executive order requiring certain employers with U.S.

Government contracts to ensure that their U.S.-based employees, contractors, and subcontractors that work on or in support of U.S.

Government contracts are fully vaccinated in accordance with the guidelines of the Safer Federal Workforce Task Force.

In November 2021, OSHA issued an Emergency Temporary Standard (“ETS”) requiring that all employers with 100 or more employees mandate vaccines for covered employees or, in the alternative, weekly testing and masks.

federal contractor mandate was preliminarily enjoined by several U.S.

federal district courts, the U.S.

Supreme Court preliminarily stayed the OSHA ETS in January 2022, and OSHA subsequently withdrew the ETS.

While we are not currently subject to any vaccine mandate, it continues to be our policy to encourage each of our employees to be fully vaccinated against COVID-19.

To the extent we become subject to a vaccine mandate in the future, our implementation of the mandate could result in employee attrition, including attrition of critical skilled labor, and difficulty meeting future labor requirements.

See Risk Factors in Item 1A for a discussion of COVID-19-related risks.

We have aggressively managed our response to the uncertainties regarding COVID-19 Events, and we have incurred costs to respond to COVID-19 Events, including paid leave, quarantining employees, vaccinations, and recurring facility cleaning.

Our shipyards and other facilities have remained open and productive, but we continue to experience decreases in workforce attendance and challenges meeting our hiring requirements, which has impacted our operations due to delay and disruption from a shortage of critical skills and out-of-sequence work.

Under Section 3610 of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), contractors may submit claims for employee paid time off caused by restrictions from COVID-19 Events in circumstances where the employee could not work remotely.

Such instances may include paid time off for employees to allow for plant decontamination, idle time due to social distancing restrictions, paid time off to take care of dependents impacted by government-ordered school or day care closures, paid time for employee vaccinations or responding to side effects from vaccination, and employee quarantines due to travel restrictions or coming into contact, being diagnosed, or taking care of someone diagnosed with COVID-19.

We have taken steps to preserve our rights to pursue such claims for HII and our subcontractors, and we submitted an initial Section 3610 Reimbursement Request to the DoD for Ingalls and Newport News Shipbuilding.

Section 3610 under the CARES Act was not extended past September 30, 2021.

We anticipate submitting supplemental requests for Section 3610 reimbursement for HII and our subcontractors into 2022.

Reimbursements of our requests are contingent upon contracting officers making funding available, and most DoD contracting officers are awaiting supplemental appropriations from Congress before approving such reimbursement requests.

We have no assurance that Congress will appropriate sufficient funds to cover the reimbursement of costs contemplated by the CARES Act.

While costs related to COVID-19 Events are allowable under U.S.

Government contracts, our contract estimates reflect margin impact uncertainty, because such costs may not result in equitable adjustments, particularly on firm fixed-price and fixed-price incentive contracts, or may not be adequately covered by insurance.

Our reinsurers have failed to acknowledge coverage for various losses related to COVID-19, and we filed a complaint in state court in Vermont seeking a judgment declaring that our business interruption and other losses associated with COVID-19 are covered by our property insurance program.

We also initiated arbitration proceedings against other reinsurers seeking similar relief.

The Vermont court dismissed our complaint in response to a motion of the reinsurers for judgment on the pleadings, and we have appealed the decision.

Although we continue to believe that our position is well-founded, no assurance can be provided regarding the ultimate resolution of this matter.

Investigations, Claims, and Litigation in Item 8.

We have also focused on actively supporting our customers, suppliers, and communities.

We have been proactive in engaging with our U.S.

Government customers regarding future contract adjustments.

While there has been no change in contract terms or substantial degradation in timely payments from customers, we have experienced delays in decisions on certain contract awards.

We are unable to predict how our customers will allocate resources in the future as they react to the evolving demands of the COVID-19 response.

We also accelerated payments to small business suppliers in an effort to minimize supply chain disruption.

We temporarily halted stock repurchases in the first quarter of 2020, but we resumed share repurchases during the first quarter of 2021.

We also deferred certain payroll taxes in 2020 pursuant to the CARES Act, which increased our cash from operations in 2020, but will reduce cash from operations in 2021 and 2022.

We continue to see uncertainty in the economy, our industry, and our company, with challenges for customers and suppliers, labor shortages, supply chain challenges, and inflation, among other impacts.

Government Contracts - Long-term uncertainty exists with respect to overall levels of defense spending across the future years' defense plan, and it is likely that U.S.

Government discretionary spending levels will continue to be subject to significant pressure.

The National Defense Authorization Act for Fiscal Year 2022 was enacted in December 2021 and broadly supports our shipbuilding programs, including increased funding authority for Arleigh Burke -class destroyers (DDG-51), LHA and LPD Flight II amphibious ships, and submarine supplier development assistance.

However, more than one quarter into the fiscal year, Congressional appropriations for the federal government have yet to be finalized.

Consequently, the U.S.

Government is currently operating under a Continuing Resolution ("CR") that funds government operations through February 18, 2022.

It remains uncertain at this point whether fiscal year 2022 government operations will require additional short-term funding or annual appropriations measures will be finalized prior to the expiration of the CR.

Appropriations measures must be passed by Congress and enacted by the President, and we cannot predict the outcome of the fiscal year 2022 budget process.

Long-term funding for certain programs in which we participate may be reduced, delayed, or canceled.

In addition, spending cuts and/or reprioritization of defense investment could adversely affect the viability of our suppliers, subcontractors, and employee base.

Our contracts or subcontracts under programs in which we participate may be terminated or adjusted by the U.S.

Government or the prime contractor as a result of lack of government funding or reductions or delays in government funding.

Significant reductions in the number of ships procured by the U.S.

Navy or significant delays in funding our ship programs would have a material effect on our financial position, results of operations, or cash flows.

The fiscal year 2023 budget cycle concluded with the enactment of the National Defense Authorization Act ("NDAA") for fiscal year 2023 on December 23, 2022 and the Consolidated Appropriations Act, 2023 on December 29, 2022.

The NDAA broadly supported our shipbuilding programs, including multiyear procurement authority for up to 15 DDG Flight III destroyers, a fleet requirement of no less than 31 operational amphibious warships (LPD/LHD/LHA), including a minimum of 10 amphibious assault ships (LHD/LHA), and bundle acquisition authority for LPD/LHA amphibious warship procurement.

Final defense appropriations were included in the Consolidated Appropriations Act and provided funding for three Arleigh Burke class (DDG 51) destroyers, two Virginia class (SSN 774) attack submarines and continued funding for LPD 32 (unnamed) and Fallujah (LHA 9).

Additionally, the appropriations measure provided advance procurement funding for LPD 33, LHA 10, and a third Arleigh Burke class (DDG 51) destroyer in fiscal year 2024.

The bill also provided funding for the Columbia class (SSBN 826) ballistic-missile submarine program, Gerald R.

Ford class (CVN 78) nuclear aircraft carrier programs, and the refueling and complex overhaul ("RCOH") of USS John C.

Stennis (CVN 74), as well as funding to support large surface combatant shipyard infrastructure and the submarine industrial base.

The federal budget environment remains a significant long-term risk.

Considerable uncertainty exists regarding how future budget and program decisions will develop and what challenges budget changes will present for the defense industry.

We believe continued budget pressures will have serious implications for defense discretionary spending, the defense industrial base, including HII, and the customers, employees, suppliers, subcontractors, investors, and communities that rely on companies in the defense industrial base.

Considerable uncertainty exists regarding how future budget and program decisions will develop and what challenges budget changes will present for the defense

We believe continued budget pressures could have serious implications for defense discretionary spending, the defense industrial base, including HII, and the customers, employees, suppliers, subcontractors, investors, and communities that rely on companies in the defense industrial base.

Although it is difficult to determine specific impacts, we expect that over the longer term, the budget environment may result in fewer contract awards and lower revenues, profits, and cash flows from our U.S.

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It is likely budget and program decisions made in this environment will have long-term impacts on HII and the entire defense industry.

Political and Economic Environment – The global geopolitical and economic environment continues to be impacted by uncertainty, heightened tensions, and instability.

Geopolitical relationships have changed, and are continuing to change, and the U.S.

and its allies face a global security environment that includes threats from state and non-state actors, including major global powers, as well as terrorist organizations, emerging nuclear tensions, diverse regional security concerns, and political instability.

These global threats persist across all domains, from undersea to space to cyber, and the global market for defense products, services, and solutions is driven by these complex and evolving security challenges.

Our current operating environment exists in the broader context of political and socioeconomic priorities and reflects, among other things, the continued impact of and uncertainty surrounding geopolitical tensions, financial market volatility, inflation, a challenging labor market, and the continued threat posed by COVID-19.

In February 2022, Russian forces invaded Ukraine, and the conflict is continuing.

In response, the United States and other countries imposed economic and trade sanctions, export controls, and other restrictions.

This conflict and the associated sanctions have disrupted the global economy, causing heightened cybersecurity risks, supply chain challenges, higher energy costs, and an exacerbation of existing inflationary pressures.

Additionally, and more broadly, tensions with China and changes in international trade policies, including higher tariffs on imported goods and materials, could impact the global market for defense products, services, and solutions.

In addition to price surges in energy, food, and aluminum, an increase in inflation has led to higher costs of various commodities and supplier products.

In an era of unanticipated cost increases, the inclusion of mitigation mechanisms, such as economic price adjustment clauses, in our contracts help mitigate certain risks attributable to price inflation.

Our bids for longer-term firm fixed-price contracts typically include assumptions for labor and other contract costs that historically have been sufficient to cover cost increases over the period of performance.

If, however, recent inflationary conditions continue over the long-term, our cost assumptions may not be sufficient to cover potential contract cost growth or may impact the availability of resources to execute the respective contracts.

Management is closely monitoring possible cost impacts with our customers .

The macro labor market continues to present significant challenges, and those challenges continue to impact our operations and our financial performance.

We are aggressively responding to the labor market challenges, including utilizing outside leased labor and overtime to mitigate the short-term deficit of employees and implementing aggressive hiring and retention programs.

Labor shortages are also impacting our supply chain, resulting in longer lead times for materials, parts, and other supplies, as well as inflationary pressure.

Our longer term ability to meet contract requirements, as well as our financial performance, are dependent on our ability to attract and retain a stable skilled workforce.

The Inflation Reduction Act of 2022 ("IRA") was signed into law during the third quarter of 2022 and included provisions for an alternative minimum tax and a one percent excise tax on share repurchases.

We anticipate being subject to the excise tax beginning in 2023 and continue to evaluate other provisions of the IRA for their impact on our business.

COVID-19 Pandemic - The COVID-19 pandemic has dramatically impacted the global economic environment, including labor shortages and supply chain challenges.

The COVID-19 crisis initially had a significant impact on the U.S.

labor market, and the resulting challenges and uncertainty have exacerbated already existing workforce trends.

Talent attraction and retention and the ability to maintain a qualified workforce affects not only industry prime contractors but suppliers as well.

Challenges incurred by our suppliers relative to their workforces, access to necessary components, materials, and other supplies at reasonable prices, and access to support services, such as shipping and transportation, may impact the ability of suppliers to provide agreed-upon goods and services in a timely, compliant, and cost-effective manner.

We may in the future incur additional costs and performance challenges, including as a result of higher prices, schedule delays, or the need to identify and develop alternative suppliers.

The COVID-19 pandemic has impacted our employees, customers, suppliers, and communities (collectively, “COVID-19 Events”).

While costs related to COVID-19 Events are allowable under U.S.

Government contracts, our contract financial estimates reflect profit margin impact uncertainty, because such costs may not result in equitable adjustments, particularly on firm fixed-price and fixed-price incentive contracts, or may not be adequately covered by insurance.

Reinsurers under our property insurance have failed to acknowledge coverage for various losses related to COVID-19, and we filed a complaint in state court in Vermont seeking a judgment declaring that our business interruption and other losses associated with COVID-19 are covered by our property insurance program.

We also initiated arbitration proceedings against other reinsurers seeking similar relief.

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

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

Investigations, Claims, and Litigation.

Defense Industry Overview

The United States faces a complex, uncertain, and rapidly changing national security environment.

Upon assuming office in 2021, the Biden Administration released a broad interim National Security Strategy that lays out the contours of U.S.

foreign policy over the next four years.

Under this strategy, the Indo-Pacific region remains at the heart of U.S.

defense planning.

While the United States continues to face security challenges from Russia, North Korea, and non-state extremism, other ‘non-traditional’ threats such as pandemic disease and climate change, are now part of the national security dialogue.

President Biden released his first National Security Strategy (the "NSS") in October 2022.

The NSS, which continues the U.S.

focus on China as the “pacing challenge” and Russia as an “acute” threat, calls for investments in emerging technologies and modernizing the U.S.

military, with a special focus on allies in the Indo-Pacific region and Europe.

The Biden Administration also released in October 2022 the public version of its 2022 National Defense Strategy (the "NDS").

Under the NDS, the Indo-Pacific region remains at the heart of U.S.

defense planning, and primary focus is placed on the need to sustain and strengthen U.S.

deterrence against China.

The NDS also takes into account the challenges posed by Russia, including those connected with its invasion of Ukraine, along with threats posed by North Korea, Iran, and violent extremist organizations.

Additionally, ‘non-traditional’ threats, such as pandemic disease and climate change, are included in the NDS as part of the national security dialogue.

Integrated deterrence, the defining principle of the NDS, seeks to align DoD activities and investments across all theaters, across the full spectrum of conflict, and across all domains, including space and cyberspace, as well as a closer working relationship with the U.S.’s network of allies and partners to deter aggression, exemplified in the Indo-Pacific region by the Australia, U.K., and U.S.

AUKUS agreement and the trilateral cooperation agreement with Japan and Korea.

also faces a more lethal and disruptive battlefield, combined across domains and conducted at increasing speed and reach.

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Technologies are being prioritized that can penetrate and operate inside highly-contested and highly-defended territory, both physical and cyber.

In late December 2020, the U.S.

Navy, Marine Corps, and Coast Guard released a Tri-Service Maritime Strategy titled Advantage at Sea .

The document provides strategic guidance on how the sea services will prevail in day-to-day competition, crisis, and conflict over the next decade.

The strategy directs the services to pursue an agile and aggressive approach to force modernization and experimentation by combining legacy assets with new capabilities

to understand faster, decide faster, and act faster.

The strategy also emphasizes the need to develop new operational concepts for fielded capabilities, employ resilient and integrated networks across the force, leverage the strengths of regional partners, and expand the use of optionally manned and unmanned platforms.

In January 2021, the Chief of Naval Operations released a Navigation Plan to the Fleet that nests under the Tri-Service Maritime Strategy and outlines how the U.S.

Navy will grow its naval power to control the seas and project power across all domains.

It lays out what must be done this decade to deliver the naval power America needs to compete and win, characterized as a ready fleet, a more lethal and better-connected fleet, and a larger more hybrid fleet.

To this end, the Marine Corps is also reshaping its force under the Commandant’s Force Design 2030 guidance to become optimized for modern operations by 2030.

The Marine Corps has already taken action to eliminate legacy capabilities, such as battle tanks, and a future force may feature an expanded assortment of smaller platforms, landing craft, and connectors that are manned, minimally manned, and unmanned, and exploit autonomy and artificial intelligence.

We anticipate the U.S.

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Manned and unmanned technology will be used to expand reach, lethality, and warfighter awareness.

The Navy’s force structure goal of 355 ships, identified in the December 2016 Force Structure Assessment and codified in the fiscal year 2018 National Defense Authorization Act, has remained the fleet objective for five years.

The Navy and the DoD have been working to develop a successor for the 355-ship force-level goal.

In December 2020, the outgoing Administration released its vision for the Navy’s future force structure in a fiscal year 2022 30-year Navy shipbuilding plan.

The plan envisioned achievement of the Navy’s force-level goal through a distributed fleet architecture, including 382 to 446 manned ships and 143 to 242 large unmanned vehicles by 2045.

The new Administration did not submit a new force structure goal or shipbuilding plan in 2021, but is expected to do so with the delivery of the fiscal year 2023 budget in spring 2022.

The Defense Department and Navy not only face difficult tradeoffs between modernization priorities, but also tradeoffs about where to take risk across time.

The Navy submitted a long-range shipbuilding plan with the fiscal year 2023 budget request, but, instead of providing a single

30-year outlook for shipbuilding, the service issued three separate plans for fiscal year 2023.

The Navy crafted low-end and high-end plans based on two separate funding profiles, and a third profile emphasized the building of attack submarines and Columbia class (SSBN 826) nuclear ballistic missile submarines.

In 2022, the Navy also delivered its initial, long-range ship maintenance plan, The Framework for Maintenance and Modernization of Naval Vessels, to Congress.

The maintenance plan provides a long-range look at upcoming maintenance requirements to better prepare Navy and industry partners for projected workloads.

The Navy has struggled with maintenance delays in recent years, and a significant tension exists between maintaining and modernizing the fleet.

The DoD and Navy not only face difficult tradeoffs between modernization priorities, but also tradeoffs about where to take risk across time.

The shipbuilding defense industry is capital heavy and skilled labor intensive.

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Additionally, the U.S.

Navy must compete with other budget priorities, including other defense activities, non-defense discretionary spending, supplemental spending for COVID-19 relief, and entitlement programs for a share of federal budget funding.

Navy must compete with other budget priorities, including other defense activities, non-defense discretionary spending, supplemental spending for COVID-19 relief and natural disasters, entitlement programs, and other mandatory spending, for a share of federal budget funding.

While the impact to our business resulting from these developments remains uncertain, they could have a material impact on current programs, as well as new business opportunities with the DoD.

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We generate most of our revenues from long-term U.S.

Government contracts for design, production, and support activities.

Government contracts for the production of goods and services.

Government contracts typically include the following cost elements:

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The development and selection of these critical accounting policies have been determined by our management.

We have reviewed our critical accounting policies and estimates with the audit committee of our

board of directors.

We have reviewed our critical accounting policies and estimates with the audit committee of our board of directors.

Due to the significant judgment involved in selecting certain of the assumptions used in these policies, it is possible that different parties could choose different assumptions and reach different conclusions.

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• Workers' compensation.

We have incorporated realized and estimated future effects of COVID-19 Events, based upon current conditions and our judgment of the future impacts of COVID-19 Events, with respect to contract costs and revenue recognition, effective income tax rates, and the fair values of our long-lived assets, financial instruments, intangible assets, and goodwill recorded at our reporting units.

Summary of Significant Accounting Policies in Item 8.

Revenue Recognition

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Government, which are generally accounted for by recognizing revenues over time using a cost-to-cost measure of progress.

In estimating contract costs, we utilize a profit-booking rate based upon performance expectations that takes into consideration a number of assumptions and estimates regarding risks related to technical requirements, feasibility, schedule, and contract costs.

In estimating contract costs, we utilize a profit-booking rate based upon performance expectations that incorporate a number of assumptions and estimates regarding risks related to technical requirements, feasibility, schedule, and contract costs.

Management performs periodic reviews of the contracts to evaluate the underlying risks, which may increase the profit-booking rate as we are able to mitigate and retire such risks.

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Purchase Accounting, Goodwill, and Intangible Assets

Purchase Accounting and Goodwill - We allocate the purchase price of acquired businesses to the underlying tangible and intangible assets acquired and liabilities assumed based upon their respective fair values, with the excess recorded as goodwill.

We recognize purchased intangible assets in connection with our business acquisitions at fair value on the acquisition date.

The most significant purchased intangible assets recognized from our acquisitions are generally related to customer contracts, including backlog and recompeted contracts.

We allocate the purchase price of acquired businesses to the underlying tangible and intangible assets acquired and liabilities assumed based upon their respective fair values, with the excess recorded as goodwill.

We recognize purchased intangible assets from our business acquisitions at fair value on the acquisition date.

Our most significant

purchased intangible assets are generally related to customer contracts, including backlog and recompeted contracts.

We determine the fair values of those customer related intangible assets based on estimates and judgments, including the amount and timing of expected future cash flows, long-term growth rates, and discount rates.

Goodwill is tested for impairment on an annual basis at each of our reporting units by comparing the fair value of the reporting unit to its carrying value.

If the fair value of the reporting unit is determined to be less than the carrying value, we record a charge to operations.

Goodwill is tested for impairment on an annual basis at each of our reporting units by assessing qualitative factors to determine whether it is more likely than not that the fair value of other intangible asset or the goodwill allocated to the reporting unit is less than its carrying amount.

If the qualitative assessment indicates a possible impairment, the carrying value of the asset or reporting unit is compared with its fair value.

If the fair value is determined to be less than the carrying value, we record an impairment charge to the reporting unit.

We perform tests for impairment of amortizable intangible assets whenever events or circumstances suggest that amortizable intangible assets may be impaired.

We estimate the fair value of each reporting unit using a combination of discounted cash flow analysis and market-based valuation methodologies.

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Changes in our estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

Other Intangible Assets - We perform tests for impairment of amortizable intangible assets whenever events or

circumstances suggest that amortizable intangible assets may be impaired.

Due to the many variables inherent in the estimation of the fair values of our business and the relative size of our recorded goodwill and other purchased intangible assets, differences in assumptions may have a material effect on the results of our impairment analysis.

For further information on purchase accounting, goodwill, and intangible assets, see Risk Factors in Item 1A and Note 2:

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We establish reserves for uncertain tax positions that do not meet the more-likely-than-not recognition threshold, based on the merits of the position.

We recognize the amount of a tax benefit that is greater than 50% likely to be realized upon ultimate settlement with the related tax authority.

If a tax position does not meet the minimum statutory threshold to avoid payment of penalties, we recognize an expense for the amount of the penalty in the period the tax position is claimed or expected to be claimed in our tax return.

We recognize the amount of a tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority.

If a tax position

does not meet the minimum statutory threshold to avoid payment of penalties, we recognize an expense for the amount of the penalty in the period the tax position is claimed or expected to be claimed in our tax return.

Penalties and accrued interest related to unrecognized tax benefits are recognized as a component of income tax expense.

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FAS prescribes the methodology used to determine retirement related benefit plan expense or income, as well as the liability, for financial reporting purposes.

The CAS requirements for

these costs and their calculation methodologies differ from FAS.

The CAS requirements for these costs and their calculation methodologies differ from FAS.

As a result, while both CAS and FAS use assumptions in their calculation methodologies, each method results in different calculated amounts of retirement related benefit plan costs.

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PPA also introduced a variety of benefit restrictions that apply if a plan falls below certain funded percentages, as defined by the Internal Revenue Code.

In funding our plans, we consider various factors, including the minimum funding requirements, maintaining the funded status needed to avoid potential benefit restrictions and other adverse consequences, maintaining minimum CAS funding requirements, and the current and anticipated funding levels of each plan.

In funding our plans, we consider various factors, including the minimum funding requirements, the funded status needed to avoid potential benefit restrictions and other adverse consequences, minimum CAS funding requirements, and the current and anticipated funding levels of each plan.

Effective January 1, 2021, we adopted the Safe Harbor methodology used in determining CAS pension costs.

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Historical plan asset performance alone has inherent limitations in predicting future returns.

While studies are helpful in understanding past and current trends and performance, the rate of return assumption is based more on long-term prospective

views to avoid short-term market influences.

While studies are helpful in understanding past and current trends and performance, the rate of return assumption is based more on long-term prospective views to avoid short-term market influences.

Unless plan assets and benefit obligations are subject to re-measurement during the year, the expected return on pension assets is based on the fair value of plan assets at the beginning of the year.

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The amortization period for actuarial gains and losses is the estimated average remaining service life of the plan participants.

In 2021, the actual return on assets was approximately 12.7%, which was more than the expected return assumption of 7.25%.

In 2022, the actual return on assets was approximately (16.1)%, which was less than the expected return assumption of 7.25%.

For the year ended December 31, 2022, the weighted average discount rates for our pension and other postretirement benefit plans increased by 247 and 256 basis points, respectively.

These differences in asset returns and discount rates resulted in actuarial gains of $412 million and $289 million, respectively, for the year ended December 31, 2021.

The differences in asset returns resulted in an actuarial loss of $1,943 million, and the differences in discount rates resulted in an actuarial gain of $2,605 million for the year ended December 31, 2022.

An increase or decrease of 25 basis points in the discount rate and the expected long-term rate of return assumptions would have had the following approximate impacts on pension expense and obligations:

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25 basis point increase in expected return on assets (17)

Assuming a 7.25% expected return on assets assumption, a $50 million pension plan contribution is generally expected to favorably impact the current year expected return on assets by approximately $2 million, depending on the timing of the contribution.

Assuming an 8.00% expected return on assets assumption, a $50 million pension plan contribution is generally expected to favorably impact the current year expected return on assets by approximately $2 million, depending on the timing of the contribution.

Sensitivities to assumptions are not necessarily linear and are specific to the time periods noted.

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Investments in equity securities (common and preferred) are valued at the last reported sales price when an active market exists.

Investments in fixed-income

securities are generally valued based on market transactions for comparable securities and various relationships between securities that are generally recognized by institutional traders.

Investments in fixed-income securities are generally valued based on market transactions for comparable securities and various relationships between securities that are generally recognized by institutional traders.

Investments in hedge funds, real estate investment funds, private partnerships, collective trust funds, and commingled funds are generally valued at their Net Asset Values ("NAV") or equivalent, which are based on the current fair values of the fund's underlying assets.

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Employee Pension and Other Postretirement Benefits in Item 8, net pre-tax unrecognized actuarial losses as of December 31, 2022 and 2021 were $678 million and $1,194 million, respectively.

The decrease in actuarial losses in 2021 was primarily driven by asset returns exceeding expected returns by $412 million, lower benefit obligations of $289 million resulting from higher discount rates, and $107 million of amortization of previously unrecognized actuarial losses.

The decrease in actuarial losses in 2022 was primarily driven by lower benefit obligations of $2,605 million resulting from higher discount rates used to determine benefit obligations and amortization of previously unrecognized actuarial losses of $32 million, partially offset by asset returns less than expected returns of $1,943 million.

Net pre-tax unrecognized prior service costs (credits) as of December 31, 2022 and 2021 were $140 million and $60 million, respectively.

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We periodically, and at least annually, update our assumptions based on an actuarial analysis.

For further information on workers’ compensation, see Environmental, Health & Safety in Item 1 and Note 16:

information on workers’ compensation, see Environmental, Health & Safety in Item 1 and Note 16:

Commitments and Contingencies in Item 8.

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General and administrative expenses 924 898 904 26 3 % (6) (1) %

Goodwill impairment — — 29 — — % (29) (100) %

Operating income 565 513 799 52 10 % (286) (36) %

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Government, most types of costs are allowable, and we do not focus on individual cost groupings, such as cost of sales or general and administrative expenses, as much as we do on total contract costs, which are a key factor in determining contract operating income.

As a result, in evaluating our operating performance, we look primarily at changes in sales and service revenues, as well as operating income, including the effects of significant changes in operating income as a result of changes in contract estimates and the use of the cumulative catch-up method of accounting in accordance with GAAP.

As a result, in evaluating our operating performance, we look primarily at changes in sales and service revenues, as well as operating income, including the effects of significant changes in operating income as a result of changes in contract financial estimates and the use of the cumulative catch-up method of accounting in accordance with GAAP.

This approach is consistent with the long-term life cycle of our contracts, as management assesses the bidding of each contract by focusing on net sales and operating profit and monitors performance in a similar manner through contract completion.

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2022 - Product sales in 2022 increased $283 million, or 4%, from 2021.

Product sales at our Ingalls segment increased $15 million in 2022, primarily as a result of higher volumes in amphibious assault ships and surface combatants, partially offset by lower volumes in the Legend class NSC program.

Newport News product sales increased $278 million in 2022, primarily as a result of higher volumes in aircraft carriers and submarines.

Mission Technologies product sales decreased $10 million in 2022, primarily as a result of lower volumes in mission based solutions, unmanned systems, and fleet sustainment.

Service revenues in 2022 increased $869 million, or 34%, from 2021.

Service revenues at our Ingalls segment increased $30 million in 2022, primarily as a result of higher volumes in amphibious assault ship services.

Service revenues at our Newport News segment decreased $83 million in 2022, primarily as a result of lower volumes in aircraft carrier, submarine and naval nuclear support services.

Service revenues at our Mission Technologies segment increased $922 million in 2022, primarily as a result of higher volumes in mission based solutions services due to the acquisition of Alion in 2021.

2021 - Product sales in 2021 increased $150 million, or 2%, from 2020.

Product sales at our Ingalls segment decreased $105 million in 2021, primarily as a result of lower volumes in the Legend class NSC program and amphibious assault ships, partially offset by higher volumes in surface combatants.

Newport News product sales

increased $231 million in 2021, primarily as a result of higher volumes in submarines and aircraft carriers.

Technical Solutions product sales increased $24 million in 2021, primarily as a result of higher volumes in DFS, partially offset by lower volumes in unmanned systems.

Newport News product sales increased $231 million in 2021, primarily as a result of higher volumes in submarines and aircraft carriers.

Mission Technologies product sales increased $24 million in 2021, primarily as a result of higher volumes in mission based solutions, partially offset by lower volumes in unmanned systems.

Service revenues in 2021 increased $13 million, or 1%, from 2020.

Service revenues at our Ingalls segment decreased $56 million in 2021, primarily as a result of lower volumes in surface combatant and amphibious assault ship services.

Service revenues at our Ingalls segment decreased $56 million in 2021, primarily as a result of lower volumes in surface combatants and amphibious assault ship services.

Service revenues at our Newport News segment decreased $138 million in 2021, primarily as a result of lower volumes in naval nuclear support services.

Service revenues at our Technical Solutions segment increased $207 million in 2021, primarily as a result of higher volumes in DFS services due to 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.

2020 - Product sales in 2020 increased $585 million, or 9%, from 2019.

Product sales at our Ingalls segment increased $143 million in 2020, primarily as a result of higher volumes in amphibious assault ships and surface combatants, partially offset by lower volume in the Legend class NSC program.

Newport News product sales increased $366 million in 2020, primarily as a result of higher volumes in aircraft carriers and submarines, partially offset by lower volume on commercial nuclear products.

Technical Solutions product sales increased $76 million in 2020, primarily as a result of the acquisition of Hydroid, Inc.

("Hydroid") in March 2020.

Service revenues in 2020 decreased $123 million, or 5%, from 2019.

Service revenues at our Ingalls segment decreased $21 million in 2020, as a result of lower volumes in amphibious assault ship services.

Service revenues at our Newport News segment decreased $30 million in 2020, primarily as a result of lower volumes in aircraft carrier services, partially offset by higher volumes in naval nuclear support and submarine services.

Service revenues at our Technical Solutions segment decreased $72 million in 2020, primarily as a result of lower volumes at our San Diego Shipyard and on DFS, oil and gas, and nuclear and environmental services, partially offset by the acquisition of Hydroid in March 2020.

Service revenues at our Mission Technologies segment increased $207 million in 2021, primarily as a result of higher volumes in mission based solutions services due to 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.

Cost of Sales and Service Revenues

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% of total sales and service revenues 8.7 % 9.4 % 9.7 %

Goodwill impairment — — 29 — — % (29) (100) %

Cost of sales and service revenues $ 10,111 $ 9,011 $ 8,562 $ 1,100 12 % $ 449 5 %

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2022 - Cost of product sales in 2022 increased $267 million, or 4%, compared to 2021.

Cost of product sales at our Ingalls segment decreased $82 million in 2021, primarily as a result of volume decreases described above.

Cost of product sales at our Newport News segment increased $65 million in 2021, primarily as a result of submarine volume increases described above, partially offset by impacts related to performance on Block IV boats of the Virginia class (SSN 774) submarine program and delay and disruption from discrete COVID-19 Events in 2020.

Cost of product sales at our Technical Solutions segment increased $20 million in 2021, primarily due to the higher volumes described above.

Cost of product sales at our Ingalls segment increased $46 million in 2022, primarily as a result of volume increases described above and receipt of a contract incentive on USS Jack H.

Lucas (DDG 125) in 2021.

Cost of product sales at our Newport News segment increased $241 million in 2022, primarily as a result of volume increases described above.

Cost of product sales at our Mission Technologies segment decreased $12 million in 2022, primarily as a result of volume decreases described above and year-to-year variances in contract mix.

Cost of product sales related to the Operating FAS/CAS Adjustment decreased $8 million from 2021 to 2022.

Cost of product sales as a percentage of product sales increased from 85.1% in 2021 to 85.5% in 2022, primarily due to lower risk retirement on the Virginia class (SSN 774) submarine program and the RCOH of USS George Washington (CVN 73), and receipt of a contract incentive on USS Jack H.

Lucas (DDG 125) in 2021, partially offset by favorable changes in contract estimates from facilities capital and price adjustment clauses, contract incentives on the Columbia class (SSBN 826) submarine program, higher risk retirement on Harrisburg (LPD 30) and USS Fort Lauderdale (LPD 28), as well as a favorable change in the Operating FAS/CAS Adjustment.

2021 - Cost of product sales in 2021 increased $337 million, or 6%, compared to 2020.

Cost of product sales at our Ingalls segment decreased $82 million in 2021, primarily as a result of the volume changes described above.

Cost of product sales at our Newport News segment increased $65 million in 2021, primarily as a result of submarine volume increases described above, partially offset by impacts related to the performance on Block IV boats of the Virginia class (SSN 774) submarine program and delay and disruption from discrete COVID-19 Events in 2020.

Cost of product sales at our Mission Technologies segment increased $20 million in 2021, primarily due to the higher volumes described above.

Cost of product sales related to the Operating FAS/CAS Adjustment increased $334 million from 2020 to 2021.

Cost of product sales as a percentage of product sales increased from 82.1% in 2020 to 85.1% in 2021, primarily due to an unfavorable change in the Operating FAS/CAS Adjustment, lower risk retirement on Delbert D.

Black (DDG 119), and year-to-year variances in contract mix, partially offset by impacts related to performance on Block IV boats of the Virginia class (SSN 774) submarine program and delay and disruption from discrete COVID-19 Events in 2020, higher risk retirement on Bougainville (LHA 8), and a contract incentive on Jack H.

Lucas (DDG 125).

2020 - Cost of product sales in 2020 increased $463 million, or 9%, compared to 2019.

Cost of product sales at our Ingalls segment increased $22 million in 2020, primarily as a result of the volume changes described above, partially offset by higher risk retirement on Delbert D.

Black (DDG 119) in connection with its delivery and a capital expenditure contract incentive.

Cost of product sales at our Newport News segment increased $480 million in 2020, primarily as a result of program cost growth and the volume increases described above.

Cost of product sales at our Technical Solutions segment increased $65 million in 2020, primarily due to the higher volumes described above.

Cost of product sales related to the Operating FAS/CAS Adjustment decreased $104 million from 2019 to 2020.

Cost of product sales as a percentage of product sales decreased from 82.3% in 2019 to 82.1% in 2020, primarily due to a favorable change in the Operating FAS/CAS Adjustment and higher risk retirement on Delbert D.

Black (DDG 119), USS Tripoli (LHA 7), and Richard M.

(LPD 29), as well as year-to-year variances in contract mix, partially offset by unfavorable cumulative catch-up adjustments in the second quarter of 2020 of $111 million on Block IV boats of the Virginia class (SSN 774) submarine program, including $95 million for cost and schedule performance and updates to our assumptions for future program efficiencies and performance as a result of cost and schedule trends, as well as $16 million from delay and disruption directly attributable to COVID-19 Events.

The decrease in cost of product sales as a percentage of product sales was also offset by unfavorable cumulative catch-up adjustments in the second quarter of 2020 aggregating $61 million across all programs, resulting from cost estimates for delay and disruption from discrete COVID-19 Events, including $16 million in relation to the Block IV boats of the Virginia class (SSN 774) submarine program discussed above.

Cost of Service Revenues

2022 - Cost of service revenues in 2022 increased $813 million, or 37%, compared to 2021.

Cost of service revenues at our Ingalls segment decreased $46 million in 2021, primarily as a result of lower volumes described above.

Cost of service revenues at our Ingalls segment increased $30 million in 2022, primarily as a result of higher volumes described above.

Cost of service revenues at our Newport News segment decreased $83 million in 2022, primarily as a result of lower volumes described above.

Cost of service revenues at our Technical Solutions segment increased $177 million in 2021, primarily as a result of higher volumes described above.

Cost of service revenues at our Mission Technologies segment increased $870 million in 2022, primarily as a result of higher volumes described above.

Cost of service revenues related to the Operating FAS/CAS Adjustment decreased $4 million from 2021 to 2022.

Cost of service revenues as a percentage of service revenues increased from 87.1% in 2021 to 88.7% in 2022, primarily driven by higher amortization of purchased intangible assets in 2022 due to the Alion acquisition, partially offset by higher operating income driven by the acquisition of Alion in 2021 and a favorable change in the Operating FAS/CAS Adjustment.

2021 - Cost of service revenues in 2021 increased $128 million, or 6%, compared to 2020.

Cost of service revenues at our Ingalls segment decreased $46 million in 2021, primarily as a result of the lower volumes described above.

Cost of service revenues at our Newport News segment decreased $74 million in 2021, primarily as a result of lower volumes described above.

Cost of service revenues at our Mission Technologies segment increased $177 million in 2021, primarily as a result of higher volumes changes described above.

Cost of service revenues related to the Operating FAS/CAS Adjustment increased $71 million from 2020 to 2021.

Cost of service revenues as a percentage of service revenues increased from 82.4% in 2020 to 87.1% in 2021, primarily driven by an unfavorable change in the Operating FAS/CAS Adjustment, lower risk retirement on submarine support services, and year-to-year variances in contract mix.

2020 - Cost of service revenues in 2020 decreased $140 million, or 6%, compared to 2019.

Cost of service revenues at our Ingalls segment decreased $10 million in 2020, primarily as a result of the volume changes described above, partially offset by recovery of losses on a long-term design contract in 2019.

Cost of service revenues at our Newport News segment decreased $12 million in 2020, primarily as a result of the volume changes described above, partially offset by lower risk retirement on naval nuclear support services.

Cost of service revenues at our Technical Solutions segment decreased $98 million in 2020, primarily as a result of the volume changes described above, partially offset by a loss on a fleet support services contract in 2019.

Cost of service revenues related to the Operating FAS/CAS Adjustment decreased $20 million from 2019 to 2020.

Cost of service revenues as a percentage of service revenues decreased from 83.9% in 2019 to 82.4% in 2020, primarily driven by a favorable change in the Operating FAS/CAS Adjustment, a loss on a fleet support services contract in 2019, and year-to-year variances in contract mix, partially offset by lower risk retirement on naval nuclear support services.

Income from Operating Investments, Net

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2022 - Income from operating investments, net increased $7 million, or 17%, to $48 million in 2022 from $41 million in 2021.

The increase resulted from higher equity income from our ship repair and specialty fabrication joint venture and nuclear and environmental joint ventures.

The increase resulted from higher equity income from our investment in an unconsolidated ship repair and specialty fabrication joint venture.

2021 - Income from operating investments, net increased $9 million, or 28%, to $41 million in 2021 from $32 million in 2020.

The increase resulted from higher equity income from our SRNS and MSTS investments.

Other Income and Gains, Net

2021 - Other income and gains, net in 2021 were flat compared to 2020.

2020 - Other income and gains, net in 2020 were flat compared to 2019.

The increase resulted from higher equity income from our investment in an unconsolidated ship repair and specialty fabrication joint venture and from our unconsolidated nuclear and environmental joint ventures.

General and Administrative Expenses

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These costs are allocated to contracts in progress on a systematic basis, and contract performance factors include this cost component as an element of cost.

2022 - General and administrative expenses in 2022 increased $26 million, or 3%, compared to 2021.

This increase was primarily due to higher overhead costs as a result of the acquisition of Alion in 2021 and current state income tax expense, partially offset by favorable changes in non-current state income tax expense.

2021 - General and administrative expenses in 2021 decreased $6 million, or 1%, compared to 2020.

This decrease was primarily driven by favorable changes in current state income tax expense, partially offset by unfavorable changes in non-current state income tax expense and higher overhead costs driven by the acquisition of Alion.

2020 - General and administrative expenses in 2020 increased $116 million, or 15%, compared to 2019.

This increase was primarily driven by the acquisition of Hydroid and higher overhead costs and current state income tax expense, partially offset by favorable changes in non-current state income tax expense.

Goodwill Impairment

As discussed above in Critical Accounting Policies, Estimates and Judgments, we perform impairment tests for

goodwill as of November 30 each year, or when evidence of potential impairment exists.

We record a charge to operations when we determine that an impairment has occurred.

Operating Income

We consider operating income to be an important measure for evaluating our operating performance, and, consistent with industry practice, we define operating income as revenues less the related costs of producing the revenues and general and administrative expenses.

We consider operating income an important measure for evaluating our operating performance, and, consistent with industry practice, we define operating income as revenues less the related costs of producing the revenues and general and administrative expenses.

We internally manage our operations by reference to "segment operating income," which is defined as operating income before the Operating FAS/CAS Adjustment and non-current state income taxes, neither of which affects segment performance.

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2022 - Segment operating income in 2022 was $712 million, compared to $683 million in 2021.

The increase was driven by impacts related to performance on Block IV boats of the Virginia class (SSN 774) submarine program and delay and disruption from discrete COVID-19 Events in 2020.

The increase was primarily due to favorable changes in contract estimates from facilities capital and price adjustment clauses, contract incentives on the Columbia class (SSBN 826) submarine program, higher risk retirement on Harrisburg (LPD 30) and USS Fort Lauderdale (LPD 28), higher operating income driven by the acquisition of Alion in 2021, and higher equity income from our investment in an unconsolidated ship repair and specialty fabrication joint venture, partially offset by higher amortization of purchased intangible assets in 2022 due to the Alion acquisition, lower risk retirement on the Virginia class (SSN 774) submarine program and the RCOH of USS George Washington (CVN 73), and receipt of a contract incentive on USS Jack H.

Lucas (DDG 125) in 2021.

2021 - Segment operating income in 2021 was $683 million, compared to $555 million in 2020.

The decrease was driven by unfavorable cumulative catch-up adjustments in the second quarter of 2020 totaling $167 million from updated cost and schedule assumptions across all programs.

Included in the $167 million of unfavorable adjustments was $111 million related to Block IV boats of the Virginia class (SSN 774) submarine program for unfavorable cost and schedule performance and updates to our assumptions for future program efficiencies and performance as a result of cost and schedule trends.

Our risk retirement assumptions on Block IV boats anticipated boat-to-boat cost and schedule improvements working down the learning curve, but performance trends, exacerbated by COVID-19 Events, made those improvements less likely to occur.

Also included in the $167 million of unfavorable adjustments was $61 million for the margin impact of delay and disruption cost estimates across all programs from discrete COVID-19 Events, including $16 million relating to Block IV boats of the Virginia class (SSN 774) submarine program, which was included in the $111 million unfavorable adjustments noted above.

These unfavorable margin adjustments were partially offset by higher risk retirement on USS Delbert D.

Black (DDG 119) in connection with its delivery and a capital expenditure contract incentive, higher risk retirement and improved performance on USS Tripoli (LHA 7) and Richard M.

(LPD 29), and a loss on a fleet support services contract in 2019.

The increase was driven by impacts related to performance on Block IV boats of the Virginia class (SSN 774) submarine program and delay and disruption from discrete COVID-19 Events in 2020.

Activity within each segment is discussed under Segment Operating Results below.

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Effective January 1, 2021, we adopted the Safe Harbor methodology for determining CAS pension costs.

Under the new methodology, the interest rates used to calculate pension liabilities under CAS are consistent with those used in the determination of minimum funding requirements under the Employee Retirement Income Security Act of 1974 ("ERISA").

Under this methodology, the interest rates used to calculate pension liabilities under CAS are consistent with those used in the determination of minimum funding requirements under the Employee Retirement Income Security Act of 1974 ("ERISA").

The components of the Operating FAS/CAS Adjustment were as follows:

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($ in millions) 2022 2021 2020 Dollars Percent Dollars Percent

FAS expense $ (28) $ (70) $ (139) $ 42 60 % $ 69 50 %

FAS benefit (expense) $ 86 $ (28) $ (70) $ 114 407 % $ 42 60 %

CAS cost 45 52 437 (7) (13) % (385) (88) %

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Operating FAS/CAS Adjustment (expense) benefit $ (145) $ (157) $ 248 $ 12 8 % $ (405) (163) %

2022 - The Operating FAS/CAS Adjustment in 2022 was a net expense of $145 million, compared to a net expense of $157 million in 2021.

The favorable change was primarily driven by higher interest rates under FAS.

2021 - The Operating FAS/CAS Adjustment in 2021 was a net expense of $157 million, compared to a net benefit of $248 million in 2020.

The unfavorable change was primarily driven by the more immediate recognition of higher interest rates under CAS.

2020 - The Operating FAS/CAS Adjustment in 2020 was a net benefit of $248 million, compared to a net benefit of $124 million in 2019.

The favorable change was primarily driven by the more immediate recognition of lower interest rates under CAS.

We expect the FAS/CAS Adjustment in 2022 to be a net benefit of approximately $152 million (($105) million FAS and $47 million CAS), primarily driven by the more immediate recognition of the 2021 asset returns under FAS.

We expect the Operating FAS/CAS Adjustment in 2022 to be a net expense of approximately $142 million ($189 million FAS and $47 million CAS).

We expect the FAS/CAS Adjustment in 2023 to be a net benefit of approximately $81 million (($31) million FAS and $50 million CAS), primarily driven by higher interest rates offset by 2022 asset returns.

We expect the Operating FAS/CAS Adjustment in 2023 to be a net expense of approximately $68 million ($118 million FAS and $50 million CAS), primarily driven by the more immediate recognition of higher interest rates under FAS.

The expected FAS/CAS Adjustment is subject to change during 2023, when we remeasure our actuarial estimate of the unfunded benefit obligation for CAS with updated census data and other items later in the year.

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2022 - Non-current state income tax expense in 2022 was $2 million, compared to $13 million in 2021.

The unfavorable change in non-current state income taxes was driven by an increase in deferred state income tax expense, primarily attributable to a decrease in expenses not currently deductible for income tax purposes.

The favorable change in non-current state income taxes was primarily driven by a decrease in deferred state income tax expense, largely attributable to research and development expenses that are capitalized and amortized for tax purposes.

2021 - Non-current state income tax expense in 2021 was $13 million, compared to $4 million in 2020.

The decrease in non-current state income tax expense was driven by a decrease in deferred state income tax expense.

The decrease in deferred state income tax expense was primarily attributable to an increase in expenses that are not currently deductible for income tax purposes and pension related adjustments.

Interest Expense

2022 - Interest expense in 2022 was $102 million, compared to $89 million in 2021.

The decrease was primarily a result of costs associated with the early redemption in 2020 of $600 million aggregate principal amount of our 5.000% senior notes due in 2025, partially offset by increased borrowing to fund the acquisition of Alion with the issuance of $400 million aggregate principal amount of 0.670% senior notes due 2023, $600 million aggregate principal amount of 2.043% senior notes due 2028, and a $650 million three-year Term Loan.

The increase was primarily due to the issuance of senior notes and borrowing under the Term Loan in 2021 to partially fund the Alion acquisition.

2021 - Interest expense in 2021 was $89 million, compared to $114 million in 2020.

The increase was primarily a result of costs associated with the early redemption of $600 million aggregate principal amount of our 5.000% senior notes due 2025 and the issuance in 2020 of $500 million aggregate principal amount of 3.844% senior notes due 2025 and $500 million aggregate principal amount of 4.200% senior notes due 2030, partially offset by reduced borrowing on our credit facilities.

The decrease was primarily a result of costs associated with the early redemption in 2020 of $600 million aggregate principal amount of our 5.000% senior notes due 2025, partially offset by increased borrowing to fund the acquisition of Alion with the issuance of $400 million aggregate principal amount of 0.670% senior notes due 2023, $600 million aggregate principal amount of 2.043% senior notes due 2028, and a $650 million three-year Term Loan.

Non-Operating Retirement Benefit

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2021 - A favorable change in the non-operating retirement benefit of $62 million from 2020 to 2021 was primarily driven by higher 2020 returns on plan assets.

2021 - Other, net income in 2021 was $17 million, compared to $6 million in 2020.

2022 - Other, net expense in 2022 was $20 million, compared to other, net income of $17 million in 2021.

The decrease was primarily driven by realized and unrealized net investment losses.

2021 - Other, net income in 2021 was $17 million, compared to $6 million with 2020.

The increase was primarily driven by an impairment of a loan receivable in 2020.

2020 - Other, net income in 2020 was consistent with 2019.

Federal and Foreign Income Taxes

2022 - Our effective tax rate on earnings from continuing operations was 19.5% in 2022, compared to 12.5% in 2021.

The decrease in our effective tax rate for 2021 was primarily attributable to an increase in research and development tax credits for prior periods and a tax loss associated with the sale of our oil and gas business, partially offset by an increase in unrecognized tax benefits.

The increase in our effective tax rate for 2022 was primarily attributable to income tax benefits recorded in 2021 relating to research and development tax credits for prior periods and a tax loss associated with the sale of our oil and gas business.

2021 - Our effective tax rate on earnings from continuing operations was 12.5% in 2021, compared to 14.1% in 2020.

The decrease in our effective tax rate for 2020 was primarily attributable to favorable adjustments related to research and development tax credits for prior tax years.

SEGMENT OPERATING RESULTS

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We are aligned into three reportable segments:

Ingalls, Newport News, and Technical Solutions.

Ingalls, Newport News, and Mission Technologies.

The following table presents segment operating results:

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Newport News 5,852 5,663 5,571 189 3 % 92 2 %

Technical Solutions 1,476 1,268 1,237 208 16 % 31 3 %

Mission Technologies 2,387 1,476 1,268 911 62 % 208 16 %

Intersegment eliminations (133) (143) (156) 10 7 % 13 8 %

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Newport News 357 352 233 5 1 % 119 51 %

Technical Solutions 50 41 (14) 9 22 % 55 393 %

Mission Technologies 63 50 41 13 26 % 9 22 %

Segment operating income 712 683 555 29 4 % 128 23 %

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Unless otherwise described, volume generally refers to increases (or decreases) in reported revenues due to varying production activity levels, delivery rates, or service levels on individual contracts.

Volume changes will typically carry a corresponding income change based on the margin rate for a particular contract.

Volume changes will typically carry a corresponding income change based on the profit margin rate for a particular contract.

Segment Operating Income

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Changes in segment operating income are typically expressed in terms of volume, as discussed above, or performance.

Performance refers to changes in contract margin rates.

Performance refers to changes in contract profit margin rates.

These changes typically relate to profit recognition associated with revisions to estimated costs at completion ("EAC") that reflect improved or deteriorated operating performance on that contract.

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Cumulative Adjustments

For the years ended December 31, 2021, 2020, and 2019, favorable and unfavorable cumulative catch-up adjustments were as follows:

For the years ended December 31, 2022, 2021, and 2020, favorable and unfavorable cumulative catch-up revenue adjustments were as follows:

Year Ended December 31

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Net adjustments $ 113 $ 115 $ (29)

For the year ended December 31, 2021, favorable cumulative catch-up adjustments included risk retirement on Bougainville (LHA 8), a contract incentive on Jack H.

2022 - Favorable cumulative catch-up revenue adjustments included contract incentives on the C olumbia class (SSBN 826) submarine program and higher risk retirement on USS Fort Lauderdale (LPD 28), Bougainville (LHA 8), and Harrisburg (LPD 30).

Unfavorable cumulative catch-up revenue adjustments included lower risk retirement on the Virginia class (SSN 774) submarine program, the RCOH of USS George Washington (CVN 73), and the construction of John F.

Kennedy (CVN 79).

2021 - Favorable cumulative catch-up revenue adjustments included risk retirement on Bougainville (LHA 8), a contract incentive on Jack H.

Lucas (DDG 125), and risk retirement on Fort Lauderdale (LPD 28).

During the same period, no unfavorable cumulative catch-up margin adjustments were individually significant.

For the year ended December 31, 2020, favorable cumulative catch-up adjustments included risk retirement on Delbert D.

No unfavorable cumulative catch-up revenue adjustments were individually significant.

2020 - Favorable cumulative catch-up revenue adjustments included risk retirement on USS Delbert D.

Black (DDG 119) in connection with its delivery and a capital expenditure contract incentive, naval nuclear support services, the San Antonio class (LPD 17) program, and other individually insignificant adjustments.

During the same period, unfavorable cumulative catch-up adjustments were primarily driven by $111 million in the second quarter of 2020 on the Block IV boats of the Virginia class (SSN 774) submarine program, including $95 million for cost and schedule performance and updates to our assumptions for future program efficiencies and performance as a result of cost and schedule trends.

Unfavorable cumulative catch-up revenue adjustments were primarily driven by $111 million in the second quarter of 2020 on the Block IV boats of the Virginia class (SSN 774) submarine program, including $95 million for cost and schedule performance and updates to our assumptions for future program efficiencies and performance as a result of cost and schedule trends.

Our risk retirement assumptions on Block IV boats anticipated boat-to-boat cost and schedule improvements working down the learning curve, but performance trends, exacerbated by the COVID-19 Events, made those improvements less likely to occur.

Unfavorable cumulative catch-up adjustments on the Block IV boats of the Virginia class (SSN 774) submarine program also included $16 million from delay and disruption directly attributable to COVID-19 Events due to lower employee attendance, decreased availability of critical skills, and out-of-sequence work.

Unfavorable cumulative catch-up adjustments across all programs resulting from delay and disruption cost estimates for discrete COVID-19 Events were $61 million, including $16 million in relation to the Block IV boats of the Virginia class (SSN 774) submarine program discussed above.

For the year ended December 31, 2019, favorable cumulative catch-up adjustments were related to contract changes on submarine support services, risk retirement on the Legend class NSC program, surface combatants, and the RCOH of USS George Washington (CVN 73), as well as other individually insignificant adjustments.

During the same period, unfavorable cumulative catch-up adjustments included recognition of a forward loss on a fleet support services contract and schedule delays on USS Tripoli (LHA 7), as well as other individually insignificant adjustments.

Unfavorable cumulative catch-up revenue adjustments on the Block IV boats of the Virginia class (SSN 774) submarine program also included $16 million from delay and disruption directly attributable to COVID-19 Events due to lower employee attendance, decreased availability of critical skills, and out-of-sequence work.

Unfavorable cumulative catch-up revenue adjustments across all programs resulting from delay and disruption cost estimates for discrete COVID-19 Events were $61 million, including $16 million in relation to the Block IV boats of the Virginia class (SSN 774) submarine program discussed above.

When estimates of total costs to be incurred exceed estimates of total revenue to be earned on a performance obligation related to a complex, construction-type contract, we recognize the entire loss on the performance obligation in the period the loss is determined.

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Sales and Service Revenues

2022 - Ingalls revenues, including intersegment sales, increased $42 million, or 2%, in 2022 compared to 2021, primarily driven by higher revenues in amphibious assault ships and surface combatants, partially offset by lower revenues in the Legend class NSC program.

Revenues on amphibious assault ships increased due to higher volumes on Fallujah (LHA 9) and Pittsburgh (LPD 31), partially offset by lower volume on USS Fort Lauderdale (LPD 28) following its delivery.

Revenues on surface combatants increased due to higher volumes on Thad Cochran (DDG 135), Sam Nunn (DDG 133), and Telesforo Trinidad (DDG 139), partially offset by lower volumes on

Jeremiah Denton (DDG 129) and USS Frank E.

Revenues on the Legend class NSC program decreased due to lower volumes on Friedman (NSC 11) and Calhoun ( NSC 10).

2021 - Ingalls revenues, including intersegment sales, decreased $150 million, or 6%, in 2021 compared to 2020, primarily driven by lower revenues in the Legend class NSC program and amphibious assault ships, partially offset by higher revenues in surface combatants.

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Amphibious assault ship revenues decreased due to lower volumes on Fort Lauderdale (LPD 28), Richard M.

(LPD 29), Harrisburg (LPD 30), and USS Tripoli (LHA 7), partially offset by higher volumes on Pittsburgh (LPD 31) and LHA 9 (unnamed).

(LPD 29), Harrisburg (LPD 30), and USS Tripoli (LHA 7), partially offset by higher volumes on Pittsburgh (LPD 31) and Fallujah (LHA 9).

Surface combatant revenues increased due to higher volumes on Jack H.

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Black (DDG 119) following its delivery and USS Fitzgerald (DDG 62) following its redelivery.

2020 - Ingalls revenues, including intersegment sales, increased $123 million, or 5%, in 2020 compared to 2019, primarily driven by higher revenues in surface combatants and amphibious assault ships, partially offset by lower revenues in the Legend class NSC program.

Surface combatant revenues increased due to higher volumes on Ted Stevens (DDG 128), Jeremiah Denton (DDG 129), USS Delbert D.

Black (DDG 119), Sam Nunn (DDG 133), George M.

Neal (DDG 131), and Thad Cochran (DDG 135), partially offset by lower volumes on USS Fitzgerald (DDG 62) restoration and modernization, USS Paul Ignatius (DDG 117), Frank E.

(DDG 121), and Jack H.

Lucas (DDG 125).

Amphibious assault ship revenues increased as a result of higher volumes on Harrisburg (LPD 30), Pittsburgh (LPD 31), LHA 9 (unnamed), Fort Lauderdale (LPD 28), and Richard M.

(LPD 29), partially offset by lower volumes on USS Tripoli (LHA 7), LPD life cycle services, and Bougainville (LHA 8).

Revenues on the Legend class NSC program decreased due to lower volumes on USCGC Midgett (NSC 8) and Friedman (NSC 11), partially offset by higher volume on Calhoun (NSC 10).

Segment Operating Income

2021 - Ingalls segment operating income in 2021 was flat compared to 2020.

2022 - Ingalls segment operating income in 2022 was $292 million, compared to segment operating income of $281 million in 2021.

The increase was primarily driven by higher risk retirement on USS Delbert D.

Black (DDG 119) in connection with its delivery and a capital expenditure contract incentive, as well as higher risk retirement and improved performance on USS Tripoli (LHA 7) and Richard M.

(LPD 29), partially offset by unfavorable adjustments across programs, including delay and disruption from COVID-19 Events.

The increase was primarily due to favorable changes in contract estimates from facilities capital and price adjustment clauses and higher risk retirement on Harrisburg (LPD 30) and USS Fort Lauderdale (LPD 28), partially offset by receipt of a contract incentive on USS Jack H.

Lucas (DDG 125) in 2021.

2021 - Ingalls segment operating income in 2021 was flat compared to 2020.

Year Ended December 31 2022 over 2021 2021 over 2020

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Sales and Service Revenues

2022 - Newport News revenues, including intersegment sales, increased $189 million, or 3%, in 2022 compared to 2021, primarily driven by higher revenues in aircraft carriers and submarines, partially offset by lower revenues in naval nuclear support services.

Aircraft carrier revenues increased primarily as a result of higher volumes on the RCOH of USS John C.

Stennis (CVN 74) and the construction of Doris Miller (CVN 81) and Enterprise (CVN 80), partially offset by lower volumes on the RCOH of USS George Washington (CVN 73) and USS Gerald R.

Ford (CVN 78).

Submarine revenues increased due to higher volumes on the Columbia class (SSBN 826) submarine program and Block V boats of the Virginia class (SSN 774) submarine program, partially offset by lower volumes on Block IV boats of the Virginia class (SSN 774) submarine program.

Naval nuclear support service revenues decreased primarily as a result of lower volumes in facility maintenance services, partially offset by higher volumes in submarine fleet support services.

2021 - Newport News revenues, including intersegment sales, increased $92 million, or 2%, in 2021 compared to 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 Virginia class (SSN 774) submarine program and the Columbia class (SSBN 826) submarine program, partially offset by lower volumes on Block IV boats of the Virginia class (SSN 774) submarine program.

carrier revenues increased primarily as a result of higher volumes on the RCOH of USS John C.

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.

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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.

2020 - Newport News revenues, including intersegment sales, increased $340 million, or 6%, in 2020 compared to 2019, primarily driven by higher revenues in aircraft carriers, submarines, and naval nuclear support services.

Aircraft carrier revenues increased primarily as a result of higher volumes on the construction of Enterprise (CVN 80), the RCOH of USS John C.

Stennis (CVN 74), and Doris Miller (CVN 81), partially offset by lower volumes on the RCOH of USS George Washington (CVN 73), John F.

Kennedy (CVN 79), and USS Gerald R.

Ford (CVN 78).

Submarine revenues increased primarily as a result of higher volumes on the Columbia class (SSBN 826) submarine program and the Virginia class (SSN 774) submarine program.

The higher volumes on the Virginia class (SSN 774) submarine program were due to higher volumes on Block V boats, partially offset by lower volumes on Block III and Block IV boats.

Naval nuclear support service revenues increased primarily as a result of higher volumes in carrier fleet support services.

Segment Operating Income

2022 - Newport News segment operating income in 2022 was $357 million, compared to segment operating income of $352 million in 2021.

The increase was primarily due to impacts related to performance on Block IV boats of the Virginia class (SSN 774) submarine program and delay and disruption from discrete COVID-19 Events in 2020.

The increase was primarily due to favorable changes in contract estimates from facilities

capital and price adjustment clauses and contract incentives on the Columbia class (SSBN 826) submarine program, partially offset by lower risk retirement on the Virginia class (SSN 774) submarine program and the RCOH of USS George Washington (CVN 73).

2021 - Newport News segment operating income in 2021 was $352 million, compared to segment operating income of $233 million in 2020.

The decrease was primarily due to unfavorable cumulative catch-up adjustments in the second quarter on Block IV boats of the Virginia class (SSN 774) submarine program for the reasons described above in "Segment Operating Results - Cumulative Adjustments” and 2019 contract changes on submarine support services.

Technical Solutions

The increase was primarily due to impacts related to performance on Block IV boats of the Virginia class (SSN 774) submarine program and delay and disruption from discrete COVID-19 Events in 2020.

Mission Technologies

Year Ended December 31 2022 over 2021 2021 over 2020

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Sales and Service Revenues

2021 - Technical Solutions revenues, including intersegment sales, for the year ended December 31, 2021, increased $208 million, or 16%, compared to 2020, primarily due to higher volumes in DFS from 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.

2020 - Technical Solutions revenues, including intersegment sales, for the year ended December 31, 2020, increased $31 million, or 3%, compared to 2019, primarily due to the acquisition of Hydroid in 2020, partially offset by lower volume at our San Diego Shipyard following the conclusion of several repair contracts.

2022 - Mission Technologies revenues, including intersegment sales, for the year ended December 31, 2022, increased $911 million, or 62%, compared to 2021, primarily due to higher volumes in mission based solutions attributable to the acquisition of Alion in 2021.

2021 - Mission Technologies revenues, including intersegment sales, for the year ended December 31, 2021, increased $208 million, or 16%, compared to 2020, primarily due to higher volumes in mission based solutions from 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.

Segment Operating Income

2021 - Technical Solutions segment operating income for the year ended December 31, 2021, was $50 million, compared to operating segment operating income of $41 million in 2020.

2022 - Mission Technologies segment operating income for the year ended December 31, 2022, was $63 million, compared to segment operating income of $50 million in 2021.

The increase was primarily driven by the acquisition of Alion in 2021 and higher equity income from our investment in an unconsolidated ship repair and specialty fabrication joint venture, partially offset by higher amortization of purchased intangible assets in 2022 due to the Alion acquisition.

2021 - Mission Technologies segment operating income for the year ended December 31, 2021, was $50 million, compared to a segment operating income of $41 million in 2020.

The increase was primarily driven by the acquisition of Alion and equity income from nuclear and environmental joint ventures, partially offset by lower performance in unmanned systems and the amortization of Alion purchased intangible assets.

2020 - Technical Solutions segment operating income for the year ended December 31, 2020, was $41 million, compared to a segment operating loss of $14 million in 2019.

The increase was primarily due to a goodwill

impairment at our oil and gas reporting unit and a loss on a fleet support services contract in 2019, as well as higher equity income from our nuclear and environmental joint ventures and improved performance on DFS services.

Total backlog as of December 31, 2022, was approximately $47.1 billion.

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Newport News 11,665 17,742 29,407 11,121 21,198 32,319

Technical Solutions 1,334 3,789 5,123 502 646 1,148

Mission Technologies 1,317 3,622 4,939 1,334 3,789 5,123

Total backlog $ 22,213 $ 24,910 $ 47,123 $ 22,671 $ 25,779 $ 48,450

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Government orders comprised substantially all of the backlog as of December 31, 2022 and 2021.

Contract Awards

2022 - The value of new contract awards during the year ended December 31, 2022, was approximately $9.3 billion, including awards for the construction of Fallujah (LHA 9) and Telesforo Trinidad (DDG 139).

2021 - The value of new contract awards during the year ended December 31, 2021, was approximately $8.1 billion, comprised primarily of awards for the RCOH of USS John C.

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Lehma n (DDG 137).

2020 - The value of new contract awards during the year ended December 31, 2020, was approximately $8.9 billion, comprised primarily of construction contracts for Pittsburgh (LPD 31), module sections for each of the first two Columbia class (SSBN 826) submarines, Sam Nunn (DDG 133), and Thad Cochran (DDG 135).

LIQUIDITY AND CAPITAL RESOURCES

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Asset impairments — — 13 — — % (13) (100) %

Retiree benefit funding in excess of expense (78) (176) 80 98 56 % (256) (320) %

Goodwill impairment — — 29 — — % (29) (100) %

Retiree benefits (127) (78) (176) (49) (63) % 98 56 %

Loss on early extinguishment of debt — — 21 — — % (21) (100) %

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Net cash provided by operating activities $ 766 $ 760 $ 1,093 $ 6 1 % $ (333) (30) %

We have historically maintained a capital structure comprising a mix of equity and debt financing.

We have historically maintained a capital structure comprised of a mix of equity and debt financing.

We vary our leverage both to optimize our equity return and to pursue acquisitions.

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2022 - Cash provided by operating activities was $766 million in 2022, compared to $760 million in 2021.

The unfavorable change of $333 million in operating cash flow was primarily due to changes in trade working capital, partially offset by lower income tax payments and lower contributions to retiree benefit plans.

The change in trade working capital was primarily driven by the timing of payments of accounts payable and receipts of accounts receivable.

The $6 million favorable change in operating cash flow was primarily due to lower contributions to retiree benefit plans and favorable changes in trade working capital, partially offset by higher income tax and interest payments.

The change in trade working capital was primarily driven by the timing of receipts of accounts receivable.

We expect cash generated from operations in 2023, in combination with our current cash and cash equivalents, as well as existing borrowing facilities, to be sufficient to service debt and retiree benefit plans, meet contractual obligations, and fund capital expenditures for at least the next 12 calendar months beginning January 1, 2023 and beyond such 12-month period based on our current business plans.

2021 - Cash provided by operating activities was $760 million in 2021, compared to $1,093 million in 2020.

The favorable change of $197 million in operating cash flow was primarily due to changes in trade working capital, partially offset by higher contributions to retiree benefit plans, higher income tax payments, and higher interest payments.

The change in trade working capital was primarily driven by deferred payroll tax payments under the CARES Act, as well as the timing of receipts of accounts receivable and payments of accounts payable.

The unfavorable change of $333 million in operating cash flow was primarily due to unfavorable changes in trade working capital, partially offset by lower income tax payments and lower contributions to retiree benefit plans.

The change in trade working capital was primarily driven by the timing of payments of accounts payable and receipts of accounts receivable.

Investing Activities

2021 - Cash used in investing activities was $1,954 million in 2021, an increase of $1,195 million from 2020.

The change in investing cash flow was primarily driven by the acquisitions of Alion and a non-controlling interest in a specialty fabrication and ship repair joint venture in 2021, partially offset by the acquisition of Hydroid in 2020 and lower capital expenditures and the disposition of our oil and gas business in 2021.

2022 - Cash used in investing activities was $268 million in 2022, a decrease of $1,686 million from 2021.

The change in investing cash flow was primarily driven by the acquisition of Alion in 2021.

For 2023, we expect our capital expenditures for maintenance and sustainment to be approximately 1.5% of annual revenues and our discretionary capital expenditures to be approximately 1.5% to 2.5% of annual revenues.

2021 - Cash used in investing activities was $1,954 million in 2021, an increase of $1,195 million from 2020.

The change in investing cash flow was driven by business acquisitions, including Hydroid, partially offset by lower capital expenditures in 2020 and the acquisition of Fulcrum in 2019.

The change in investing cash flow was driven by the acquisitions of Alion and a non-controlling interest in a specialty fabrication and ship repair joint venture in 2021, partially offset by the acquisition of Hydroid in 2020 and lower capital expenditures and the disposition of our oil and gas business in 2021.

Financing Activities

2022 - Cash used in financing activities in 2022 was $658 million, compared to $1,309 million provided by financing activities in 2021.

The change in financing cash was primarily due to a $1,650 million decrease in proceeds from long-term debt, a $375 million increase in the repayment of long-term debt, a $7 million increase in employee taxes on share-based payment arrangements, and a $6 million increase in cash dividend payments, partially offset by a $49 million decrease in common stock repurchases and a $22 million decrease in debt issuance costs.

2021 - Cash provided by financing activities in 2021 was $1,309 million, compared to $103 million provided by financing activities in 2020.

The change in financing cash was primarily due to an increase of $1,225 million in net proceeds from long-term debt, a decrease of $15 million in premiums related to the 2020 early extinguishment of debt, and a decrease of $6 million in employee taxes on share-based payment arrangements, partially offset by an increase of $17 million in common stock repurchases, an increase of $14 million in cash dividend payments, and an increase of $9 million in debt issuance costs.

2020 - Cash provided by financing activities in 2020 was $103 million, compared to $434 million used in financing activities in 2019.

The change in financing cash was primarily due to $1 billion of proceeds from the issuance of senior notes, a decrease of $178 million from common stock repurchases, and a decrease of $10 million in employee tax withholdings on share-based payment arrangements, partially offset by a $600 million increase in repayment of long-term debt, a $23 million increase in cash dividend payments, an increase of $15 million in premiums related to early extinguishment of debt, and an increase of $13 million in debt issuance costs.

The change in financing cash was primarily due to a $1,225 million increase in net proceeds from long-term debt, a $15 million decrease in premiums related to the 2020 early extinguishment of debt, and a $6 million decrease in employee taxes on share-based payment arrangements, partially offset by a $17 million increase in common stock repurchases, a $14 million increase in cash dividend payments, and a $9 million increase in debt issuance costs.

Free Cash Flow

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Free cash flow $ 494 $ 449 $ 757

2021 - Free cash flow decreased $308 million from 2020, primarily due to changes in trade working capital, partially offset by lower income tax payments, lower contributions to retiree benefit plans, and lower capital expenditures.

2020 - Free cash flow increased $297 million from 2019, primarily due to a change in trade working capital and lower capital expenditures, partially offset by higher contributions to retiree benefit plans and higher income tax payments.

2022 - Free cash flow increased $45 million from 2021, primarily due to lower contributions to retiree benefit plans, lower capital expenditures, and favorable changes in trade working capital, partially offset by higher income tax and interest payments .

2021 - Free cash flow decreased $308 million from 2020, primarily due to an unfavorable change in trade working capital, partially offset by lower income tax payments, lower contributions to retiree benefit plans, and lower capital expenditures.

Retirement Related Benefit Plan Contributions

ERISA, including amendments under pension relief, defines the minimum amount that must be contributed to our qualified defined benefit pension plans.

ERISA, including amendments under pension relief legislation, defines the minimum amount we must contribute to our qualified defined benefit pension plans.

In determining whether to make discretionary contributions to these plans above the minimum required amounts, we consider various factors, including maintaining the funded status needed to avoid potential benefit restrictions and other adverse consequences, maintaining minimum CAS funding requirements, and the current and anticipated future funding levels of each plan.

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Total contributions $ 41 $ 106 $ 246

We made discretionary contributions to our qualified defined benefit pension plans totaling $60 million, $205 million, and $21 million in the years ended December 31, 2021, 2020, and 2019, respectively.

We made discretionary contributions to our qualified defined benefit pension plans totaling less than $1 million, $60 million, and $205 million in the years ended December 31, 2022, 2021, and 2020, respectively.

As of December 31, 2022 and 2021, our qualified pension plans were funded 109% and 102%, respectively, on a FAS basis.

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

Additional Capital - I n 2021, we issued $ 400 million aggregate principal amount of callable unregistered 0.670 % senior notes due 2023 and $ 600 million aggregate principal amount of unregistered 2.043 % senior notes due 2028, both with registration rights.

Additional Capital - I n 2021, we issued $1 billion aggregate principal amount of senior notes, and we entered into a $ 650 million 3-year delayed draw term loan.

The net proceeds were used to fund a portion of the purchase price for the acquisition of Alion.

Interest on these senior notes is payable semiannually.

In 2021, we amended and restated our existing $ 1.25 billion credit facility, increasing the capacity thereunder to $ 1.5 billion and extending the maturity date to five years from signing (the "Revolving Credit Facility").

The Revolving Credit Facility includes a letter of credit subfacility of $ 300 million.

The Revolving Credit Facility has a variable interest rate on outstanding borrowings based on the London Interbank Offered Rate ("LIBOR"), plus a spread based upon our credit rating, which may vary between 1.125 % and 2.000 %.

As of December 31, 2021, the interest rate spread on drawn amounts was 1.375 % based on our current credit rating.

The Revolving Credit Facility also has a commitment fee rate on the unutilized balance based on our credit ratings.

The commitment fee rate as of December 31, 2021 was 0.200 % and may vary between 0.125 % and 0.300 %.

As of December 31, 2021, we had $ 15 million in issued but undrawn letters of credit and $ 1,485 million unutilized under the Revolving Credit Facility.

In 2021, we entered into a $ 650 million 3-year delayed draw term loan (the “Term Loan”) to finance a portion of the purchase price for Alion.

The Term Loan must be repaid prior to or at maturity, which is 36 months from the date of the initial draw.

The Term Loan has a variable interest rate on outstanding borrowings based on LIBOR, plus a spread based upon our credit rating, which may vary between 1.125 % and 2.000 %.

As of December 31, 2021, the annual interest rate spread was 1.375 % based on our current credit rating, and the outstanding balance was $ 625 million.

In 2020, we issued $500 million aggregate principal amount of 3.844% senior notes due 2025 and $500 million aggregate principal amount of 4.200% senior notes due 2030.

In 2020, we issued $1 billion aggregate principal amount of senior notes.

The net proceeds were intended to be used for general corporate purposes, including debt repayments and working capital.

Interest on these senior notes is payable semiannually.

In 2020, we redeemed $600 million aggregate principal amount of our outstanding 5.000% senior notes due 2025 in accordance with the terms of the indenture governing the notes.

In 2019, we established an unsecured commercial paper note program, under which we may issue up to $1 billion of unsecured commercial paper notes.

As of December 31, 2021, we had no outstanding debt under the commercial paper program.

We were in compliance with all debt-related covenants as of and during the year ended December 31, 2021.

In 2020, we redeemed $ 600 million aggregate principal amount of our outstanding senior notes in accordance with the terms of the indenture governing the notes.

We maintain an unsecured commercial paper note program, under which we may issue up to $ 1 billion of unsecured commercial paper notes.

For a description of our outstanding debt amounts and related restrictive covenants, see Note 13:

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The America class (LHA 6) ships optimize aviation operations and support capabilities.

In 2020, we delivered USS Tripoli (LHA 7), and we were awarded a long-lead-time material and construction contract for LHA 9 (unnamed).

We are currently constructing Bougainville (LHA 8).

In 2020, we delivered USS Tripoli (LHA 7), and, in 2022, we were awarded a long-lead-time material and construction contract for Fallujah (LHA 9).

We are currently constructing Bougainville (LHA 8) and Fallujah (LHA 9).

Arleigh Burke class (DDG 51) destroyers

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We delivered USS Paul Ignatius (DDG 117), USS Delbert D.

Black (DDG 119), and Frank E.

(DDG 121) in 2019, 2020, and 2021, respectively.

Black (DDG 119), USS Frank E.

(DDG 121), and Lenah H.

Sutcliffe Higbee (DDG 123) in 2019, 2020, 2021, and 2022, respectively.

We have contracts to construct the following Arleigh Burke class (DDG 51) destroyers:

Sutcliffe Higbee (DDG 123), Jack H.

Lucas (DDG 125), Ted Stevens (DDG 128), J eremiah Denton (DDG 129), George M.

Neal (DDG 131), Sam Nunn (DDG 133), Thad Cochran (DDG 135), and John F.

Lehman (DDG 137).

Lucas (DDG 125), Ted Stevens (DDG 128), Jeremiah Denton (DDG 129), George M.

Neal (DDG 131), Sam Nunn (DDG 133), Thad Cochran (DDG 135), John F.

Lehman (DDG 137), and Telesforo Trinidad (DDG 139).

Perform refueling and complex overhaul ("RCOH") of nuclear-powered aircraft carriers, which is required at the mid-point of their 50-year life cycle.

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Columbia class (SSBN 826) submarines

Newport News is participating in designing the Columbia class submarine as a replacement for the current aging Ohio class nuclear ballistic missile submarines, which were first introduced into service in 1981.

Participating in designing the Columbia class submarine as a replacement for the current aging Ohio class nuclear ballistic missile submarines, which were first introduced into service in 1981.

The Ohio class SSBN includes 14 nuclear ballistic missile submarines and four nuclear cruise missile submarines.

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We perform design work as a subcontractor to Electric Boat, and we have entered into a teaming agreement with Electric Boat to build modules for the entire Columbia class (SSBN 826) submarine program that leverages our Virginia class (SSN 774) experience.

We have been awarded contracts from Electric Boat for integrated product and process development, providing long–lead–time material and advance construction, and construction of the first two boats of the Columbia class (SSBN 826) program.

Construction of the first Columbia class (SSBN 826) submarine began in 2020.

Defense and federal solutions DFS is focused on solving tough national security challenges for the DoD, the intelligence community, and federal civilian agencies around the globe.

The group provides a wide range of professional services and products, including fleet sustainment, cyber and electronic warfare, intelligence, surveillance, and reconnaissance, and live, virtual, and constructive solutions.

Fleet sustainment Maintains and modernizes a significant majority of the U.S.

Navy fleet, from small watercraft to submarines, combatants, and aircraft carriers, our systems and maintenance experts help the Navy maintain a high state of readiness.

Ensures effective system operation and sustainment by actively supporting design and decision–making processes through studies, analyses, and reviews of program documents, and provides a wide range of logistics products.

USS Gerald R.

Ford class (CVN 78) aircraft carriers

Design and construction for the Ford class program, which is the aircraft carrier replacement program for the decommissioned Enterprise (CVN 65) and Nimitz class (CVN 68) aircraft carriers.

Design and construct the Ford class program, which is the aircraft carrier replacement program for the decommissioned Enterprise (CVN 65) and Nimitz class (CVN 68) aircraft carriers.

USS Gerald R.

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Calhoun (NSC 10) and Friedman (NSC 11) are currently under construction.

Mission based solutions

Develops integrated solutions that enable today's connected, all–domain force.

Capabilities include:

command, control, computers, communications, cyber, intelligence, surveillance, and reconnaissance ("C5ISR") systems and operations;

the application of artificial intelligence and machine learning to battlefield decisions;

defensive and offensive cyberspace strategies and electronic warfare ("CEWS");

and live, virtual, and constructive ("LVC") solutions.

Naval nuclear support services Provide services to and in support of the U.S.

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Services include maintenance services on nuclear reactor prototypes.

Nuclear and environmental services Provide services in nuclear management and operations, including site management, nuclear and industrial facilities operations and maintenance, decontamination and decommissioning, radiological and hazardous waste management services, and technical engineering services.

Nuclear and environmental services Supports the national security mission of the Department of Energy ("DoE") through the management and operation of DoE sites, as well as the safe cleanup of legacy waste across the country.

We meet our clients' toughest nuclear and environmental challenges and are positioned to serve the growing commercial nuclear power plant decommissioning market.

We participate in several joint ventures, including Newport News Nuclear BWXT Los Alamos, LLC (" N3B"), Mission Support and Test Services, LLC ("MSTS"), and Savannah River Nuclear Solutions, LLC ("SRNS"), and we are an integrated subcontractor to Triad National Security.

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Navy's seabase transformation.

We are currently constructing Fort Lauderdale (LPD 28), Richard M.

(LPD 29), and Harrisburg (LPD 30).

In 2020 we were awarded a contract to construct Pittsburgh (LPD 31).

Unmanned systems Our unmanned systems products and services create advanced unmanned maritime solutions for defense, marine research, and commercial applications.

In 2022, we delivered USS Fort Lauderdale (LPD 28), and we were awarded a long-lead-time material contract for LPD 32 (unnamed).

We are currently constructing Richard M.

(LPD 29), Harrisburg (LPD 30), and Pittsburgh (LPD 31).

Unmanned systems Creates advanced unmanned maritime solutions for defense, marine research, and commercial applications.

Serving customers in more than 30 countries, unmanned systems provides design, autonomy, manufacturing, testing, operations, and sustainment of unmanned systems, including unmanned underwater vehicles and unmanned surface vessels.

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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-K

Item 7. Management’s Discussion and Analysis