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We believe that our audits provide a reasonable basis for our opinion.
−Removed: Critical Audit Matter
−Removed: The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.
−Removed: The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
−Removed: Revenue – Long Term Contracts — Refer to Note 2 to the financial statements
+Added: Critical Audit Matters
+Added: The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.
+Added: The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which it relates.
+Added: Revenue – Long Term Shipbuilding Contracts — Refer to Note 2 and 7 to the financial statements
Critical Audit Matter Description
−Removed: The Company recognizes revenue on long-term contracts with U.S.
−Removed: Government customers over time as the work progresses, either as products are produced or as services are rendered, because transfer of control to the customer is continuous.
−Removed: Ordinarily the Company’s contracts represent a single distinct performance obligation due to the highly interdependent and interrelated nature of the underlying goods, services, or both.
−Removed: The use of the cost-to-cost method to measure performance progress over time is supported by clauses in the related contracts that
−Removed: allow the customer to unilaterally terminate the contract for convenience, pay the Company for costs incurred plus a reasonable profit, and take control of any work in process.
−Removed: The accounting for these contracts involves judgment, particularly as it relates to the process of estimating total material costs, labor costs, and profit for the performance obligation.
+Added: The Company recognizes revenue on long-term shipbuilding contracts with U.S.
+Added: Government customers over time as the construction of the ship progresses, because transfer of control to the customer is continuous.
+Added: Ordinarily the Company’s contracts represent a single distinct performance obligation due to the highly interdependent and interrelated nature of the underlying goods.
+Added: The use of the cost-to-cost method to measure performance progress over time is supported by clauses in the related contracts that allow the customer to unilaterally terminate the contract for convenience, pay the Company for costs incurred plus a reasonable profit, and take control of any work in process.
+Added: The accounting for these contracts involves judgment, particularly as it relates to the process of
+Added: estimating total material costs, labor costs, and profit for the performance obligation.
Cost of sales is recognized as incurred, and revenues are determined by adding a proportionate amount of the estimated profit to the amount reported as cost of sales.
−Removed: For the year ended December 31, 2021, revenue was $9.5 billion, most of which was derived from long-term contracts.
−Removed: Given the judgments necessary to estimate total material costs, labor costs, and profit in order to recognize revenue for certain long-term contracts, auditing such estimates required extensive audit effort due to the complexity of long-term contracts and a high degree of auditor judgment, especially given the limited historical data for certain contracts, when performing audit procedures and evaluating the results of those procedures.
+Added: For the year ended of December 31, 2022, revenue from long-term shipbuilding contracts was $8.4 billion as compared to total revenue of $10.7 billion.
+Added: Given the judgments necessary to estimate total material costs, labor costs, and profit in order to recognize revenue for certain long-term shipbuilding contracts, auditing such estimates required extensive audit effort due to the complexity of the contracts and a high degree of auditor judgment, especially given the limited historical data for certain contracts, when performing audit procedures and evaluating the results of those procedures.
How the Critical Audit Matter Was Addressed in the Audit
−Removed: Our audit procedures related to management’s estimates of total material costs, labor costs, and profit in order to recognize revenue for certain long-term contracts included the following, among others:
−Removed: • We tested the effectiveness of controls over long-term contract revenue, including management’s controls over the estimates of total material costs, labor costs, and profit for performance obligations.
+Added: Our audit procedures related to management’s estimates of total material costs, labor costs, and profit in order to recognize revenue for certain long-term shipbuilding contracts included the following, among others:
+Added: • We tested the effectiveness of controls over long-term shipbuilding contract revenue, including management’s controls over the estimates of total material costs, labor costs, and profit for performance obligations.
• We developed independent estimates of revenue based on historical profit margins and current year recorded costs.
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Procedures performed, among others, included:
−Removed: ◦ Read the relevant portions of contracts to understand contract terms, including incentives, fee arrangement, scope of work, and other unusual contract terms.
+Added: ◦ Read the relevant portions of contracts including any recent contract modifications to understand contract terms, including incentives, fee arrangement, scope of work, and any unusual contract terms.
◦ Compared the transaction prices to the consideration expected to be received based on current rights and obligations under the contracts and any modifications that were agreed upon with the customers.
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◦ Tested the accuracy and completeness of the costs incurred to date for the performance obligation.
−Removed: ◦ Evaluated the estimates of total materials costs, labor costs, and profit for the performance obligation by:
−Removed: ▪ Evaluating management’s ability to achieve the estimates of total material costs, labor costs and profit by 1) performing inquiries with the business managers and corroborating the information gained from these inquiries with other parties who have detailed knowledge of the contract’s progress, issues being encountered, and overall production status, 2) considering management’s historical performance against estimates, 3) detail testing the appropriateness of the timing of changes in estimates, and 4) considering any contradictory information.
+Added: ◦ Evaluated the estimates of total costs and profit for the performance obligation by:
+Added: ▪ Evaluating management’s ability to achieve the estimated costs and profit by 1) performing inquiries with the business managers and corroborating the information gained from these inquiries with other parties who have detailed knowledge of the contract’s progress, issues being encountered, and overall production status, 2) considering management’s historical performance against estimates, 3) detail testing the appropriateness of the timing of changes in estimates, and 4) considering any contradictory information.
▪ Comparing materials cost estimates to purchase orders, supplier contracts, or other source documents.
▪ Comparing management’s estimates for the selected contracts to costs and profits of similar performance obligations, when applicable.
+Added: ▪ Evaluate the necessity and appropriateness of any constraints applied against any variable consideration, including consideration provided within the contracts for facilities cost of capital.
+Added: Goodwill Valuation of the Mission Technologies reporting unit – Refer to Note 2 and 11 to the financial statements
+Added: Critical Audit Matter Description
+Added: The Company performed a quantitative impairment evaluation of the goodwill for the Mission Technologies reporting unit by comparing the estimated fair value of the reporting unit to its carrying value.
+Added: The Company’s testing approach utilizes a combination of discounted cash flow analysis and comparative market-based valuation methodologies to determine the fair value of the reporting unit for comparison to its corresponding book value.
+Added: Estimating the fair value of a reporting unit requires the exercise of significant judgment and assumptions including judgments about expected future cash flows, discount rates and expected long-term growth rates.
+Added: Changes in these assumptions could have a significant impact on the fair value of the reporting unit, the amount of any goodwill impairment charge, or both.
+Added: The goodwill balance was $2.6 billion as of December 31, 2022 of which $1.7 billion related to the Mission Technologies reporting unit.
+Added: The Company’s accounting policy is to test for impairment on November 30 of each year.
+Added: As a result of the quantitative assessment, the Company concluded that the fair value of the Mission Technologies reporting unit exceeded the carrying value by approximately 5%, which resulted in no impairment for the year ended December 31, 2022.
+Added: Given the significant judgments made by management to estimate the fair value of the Mission Technologies reporting unit and the difference between its fair value and carrying value, performing audit procedures to test the Company’s estimate of the fair value of the Mission Technologies reporting unit, which included evaluating estimates and assumptions related to forecasted revenues, forecasted earnings before income taxes, depreciation and amortization (“EBITDA”) margins, and the selection of the discount rate and terminal growth rate, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
+Added: How the Critical Audit Matter Was Addressed in the Audit
+Added: Our audit procedures related to the selection of the forecasted revenues, forecasted EBITDA margins, and the selection of the discount rate and terminal growth rate for the Mission Technologies reporting unit included the following, among others:
+Added: • We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the selection of the assumptions used in the fair value models.
+Added: • We evaluated management’s ability to accurately forecast future revenues and EBITDA margins by comparing actual results to management’s historical forecasts.
+Added: • We evaluated the reasonableness of management’s forecasts of revenue and EBITDA margins by comparing the forecasts to internal communications to management and the Board of Directors and comparing the forecasts to third-party economic and industry data.
+Added: • We performed sensitivity analyses to evaluate the risk of impairment if key assumptions are changed.
+Added: • We evaluated, with the assistance of our fair value specialists, the reasonableness of the (1) valuation methodology utilized by management, and (2) the selected terminal growth rate and discount rate by performing certain procedures, including:
+Added: ◦ Comparing the valuation methodologies used to generally accepted valuation practices.
+Added: ◦ Evaluating the appropriateness of the Company’s selection of companies in its industry peer group for comparability to the reporting unit.
+Added: ◦ Evaluating the appropriateness of source information used by management to select the terminal growth rate and discount rate used in their models.
+Added: ◦ Developing an independent estimate and compare it to that used by management to evaluate the appropriateness of the conclusion after recalculating the models.
+Added: • We evaluated the carrying value of the Mission Technologies reporting unit including the corporate allocations .
/s/ Deloitte & Touche LLP
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We have served as the Company’s auditor since 2011.
−Removed: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
+Added: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated February 9, 2023, expressed an unqualified opinion on those financial statements.
−Removed: As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Alion, which was acquired on August 19, 2021, and whose financial statements constitute 5% of total assets, 5% of revenues, and 2% of net income of the consolidated financial statement amounts as of and for the year ended December 31, 2021.
−Removed: Accordingly, our audit did not include the internal control over financial reporting at Alion.
Basis for Opinion
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General and administrative expenses 924 898 904
−Removed: Goodwill impairment — — 29
Operating income 565 513 799
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Income taxes receivable 170 209
−Removed: Assets held for sale — 133
Prepaid expenses and other current assets 50 50
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Pension plan assets 600 281
−Removed: Long-term deferred tax assets — 133
Miscellaneous other assets 394 421
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Accrued employees’ compensation 345 361
+Added: Current portion of long-term debt 399 —
Current portion of postretirement plan liabilities 134 137
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Contract liabilities 766 651
−Removed: Liabilities held for sale — 68
Other current liabilities 380 423
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Net earnings $ 579 $ 544 $ 696
−Removed: Adjustments to reconcile to net cash provided by (used in) operating activities
+Added: Adjustments to reconcile to net cash provided by operating activities
Depreciation 218 207 191
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Deferred income taxes 2 98 23
−Removed: Goodwill impairment — — 29
Loss on early extinguishment of debt — — 21
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Huntington Ingalls Industries, Inc.
−Removed: ("HII" or the "Company") is one of America’s largest military shipbuilding companies and a provider of professional services to partners in government and industry.
+Added: ("HII" or the "Company") is a global, all-domain defense partner, building and delivering the world's most powerful, survivable naval ships and technologies that safeguard America's seas, sky, land, space, and cyber.
HII is organized into three reportable segments:
−Removed: Ingalls Shipbuilding ("Ingalls"), Newport News Shipbuilding ("Newport News"), and Technical Solutions.
+Added: Ingalls Shipbuilding ("Ingalls"), Newport News Shipbuilding ("Newport News"), and Mission Technologies.
For more than a century, the Company's Ingalls segment in Mississippi and Newport News segment in Virginia have built more ships in more ship classes than any other U.S.
−Removed: naval shipbuilder.
−Removed: The Technical Solutions segment provides a range of services to the government and commercial customers.
−Removed: HII conducts most of its business with the U.S.
−Removed: Government, primarily the Department of Defense ("DoD").
−Removed: As prime contractor, principal subcontractor, team member, or partner, the Company participates in many high-priority U.S.
−Removed: defense programs.
−Removed: Through its Ingalls segment, HII is a builder of amphibious assault and expeditionary warfare ships for the U.S.
−Removed: Navy, the sole builder of National Security Cutters for the U.S.
−Removed: Coast Guard, and one of only two companies that builds the Navy's current fleet of Arleigh Burke class (DDG 51) destroyers.
−Removed: Through its Newport News segment, HII is the nation's sole designer, builder and refueler of nuclear-powered aircraft carriers, and one of only two companies currently designing and building nuclear-powered submarines for the U.S.
−Removed: The Technical Solutions segment provides a wide range of professional services and products, including defense and federal solutions ("DFS"), nuclear and environmental services, and unmanned systems.
+Added: naval shipbuilder, making HII America’s largest shipbuilder.
+Added: The Mission Technologies segment delivers high-value engineering and technology solutions to enable multi-domain distributed operations in the government and commercial services markets.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements of HII and its subsidiaries have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the instructions to Form 10-K promulgated by the Securities and Exchange Commission ("SEC").
+Added: As used in the Notes to the Consolidated Financial Statements, the terms "HII", and "the Company" refer to HII and its subsidiaries.
All intercompany transactions and balances are eliminated in consolidation.
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Estimates have been prepared on the basis of the most current and best available information, and actual results could differ materially from those estimates.
−Removed: Additionally, the Company has incorporated realized and estimated future effects of the global outbreak of coronavirus disease 2019 (“COVID-19”), including, among other things, impacts from orders of civil authorities associated with COVID-19 and steps taken to mitigate the effects of COVID-19 (collectively, “COVID-19 Events”), with respect to contract costs and revenue recognition, effective income tax rates, and the fair values of the Company’s long-lived assets, financial instruments, intangible assets, and goodwill recorded at our reporting units.
−Removed: For the year ended December 31, 2020, the Company recognized across all programs an aggregate unfavorable impact on operating margin of $ 61 million for delay and disruption from lower employee attendance, limited availability of critical skills, and out-of-sequence work directly attributable to COVID-19 Events.
−Removed: While costs related to COVID-19 Events are allowable under U.S.
−Removed: Government contracts, the Company's estimates of the effects of COVID-19 Events reflect uncertainty regarding the Company's ability to recover the full costs related to COVID-19 Events under government relief actions such as the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and U.S.
−Removed: Department of Defense ("DoD") guidance.
−Removed: For the year ended December 31, 2021, the Company did not have a material impact on its operating margin directly attributable to COVID-19 Events.
Revenue Recognition - Most of the Company's revenues are derived from long-term contracts for the production of goods and services provided to its U.S.
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The use of the cost-to-cost method to measure performance progress over time is supported by clauses in the related contracts that allow the customer to unilaterally terminate the contract for convenience, pay the Company for costs incurred plus a reasonable profit, and take control of any work in process.
−Removed: The Company utilizes the cost-to-cost method to
−Removed: measure performance progress, because it best reflects the continuous transfer of control over the related goods and services to the customer as the Company satisfies its performance obligations.
+Added: The Company utilizes the cost-to-cost method to measure performance progress, because it best reflects the continuous transfer of control over the related goods and services to the customer as the Company satisfies its performance obligations.
When the customer is not a U.S.
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The cost estimation process requires significant judgment based upon the professional knowledge and experience of the Company’s engineers, program managers, and financial professionals.
−Removed: Factors considered in estimating the work to be completed and ultimate contract recovery include the availability, productivity, and cost of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of
−Removed: materials, the effect of any performance delays, the availability and timing of funding from the customer, and the recoverability of any claims included in the estimates to complete.
+Added: Factors considered in estimating the work to be completed and ultimate contract recovery include the availability, productivity, and cost of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of materials, the effect of any performance delays, the availability and timing of funding from the customer, and the recoverability of any claims included in the estimates to complete.
Changes in estimates of sales, costs, and profits on a performance obligation are recognized using the cumulative catch-up method of accounting, which recognizes in the current period the cumulative effect of the changes in current and prior periods.
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Environmental Costs - Environmental liabilities are accrued when the Company determines remediation costs are probable and such costs are reasonably estimable.
−Removed: When only a range of costs is established and no amount within the range is more probable than another, the minimum amount in the range is accrued.
+Added: When only a range of costs is established and no amount within
+Added: the range is more probable than another, the minimum amount in the range is accrued.
Environmental liabilities are recorded on an undiscounted basis and are not material.
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These trusts consist primarily of investments in marketable securities, which are held at fair value within Level 1 of the fair value hierarchy.
−Removed: Foreign Currency Translation - The Company's international subsidiaries that do not have the U.S.
−Removed: dollar as their functional currency translate assets and liabilities at current rates of exchange in effect at the balance sheet date.
−Removed: Revenues and expenses from these international subsidiaries are translated using the monthly average exchange rates in effect for the periods in which the items occur.
−Removed: The cumulative foreign currency translation gains and losses are included as a component of accumulated other comprehensive loss in stockholders’ equity.
−Removed: Gains and losses from foreign currency transactions are included in other income (expense) in the consolidated statements of operations and comprehensive income.
−Removed: Such amounts are not material.
Asset Retirement Obligations - Environmental remediation and/or asset decommissioning may be required when the Company ceases to utilize certain facilities.
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Asset retirement obligations for which the liability's fair value can be reasonably estimated were immaterial as of December 31, 2022 and 2021.
−Removed: The Company also has known conditional asset retirement obligations related to assets currently in use, including certain asbestos remediation and asset decommissioning activities to be performed in the future, that were not reasonably estimable as of December 31, 2021, due to insufficient information about the timing and method of settlement of the obligation.
−Removed: Accordingly, the fair value of these obligations has not been recorded in the consolidated financial statements.
−Removed: A liability for these obligations is recorded in the period in which sufficient information regarding timing and method of settlement becomes available to make a reasonable estimate of the liability's fair value.
−Removed: In addition, there may be conditional environmental asset retirement obligations that the Company has not yet discovered.
Income Taxes - Income tax expense and other related information are based on the prevailing statutory rates for U.S.
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In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.
−Removed: Based on the Company's evaluation of these deferred tax assets, valuation allowances of $ 22 million were recognized as of each of December 31, 2021 and 2020.
+Added: Based on the Company's evaluation of these deferred tax assets, valuation allowances of $ 28 million and $ 22 million were recognized as of December 31, 2022 and 2021, respectively.
Uncertain tax positions meeting the more-likely-than-not recognition threshold, based on the merits of the position, are recognized in the financial statements.
−Removed: The Company recognizes the amount of tax benefit that is greater than 50 % likely to be realized upon ultimate settlement with the related tax authority.
+Added: The Company recognizes the amount of 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, the Company recognizes an expense for the amount of the penalty in the period the tax position is claimed or expected to be claimed in its tax return.
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The Company places its cash and cash equivalents with reputable financial institutions and limits the amount of credit exposure with any one of them.
−Removed: The Company regularly evaluates the creditworthiness of these financial institutions and minimizes this credit risk by entering into transactions with high-quality counterparties, limiting the exposure to each counterparty, and monitoring the financial condition of its counterparties.
+Added: The Company regularly evaluates the creditworthiness of these financial institutions and mitigates this credit risk by entering into transactions with high-quality counterparties, limiting the exposure to each counterparty, and monitoring the financial condition of its counterparties.
In connection with its U.S.
10 unchanged sentences
Machinery and other equipment 2 - 40
−Removed: The Company evaluates the recoverability of its property, plant, and equipment when there are changes in economic circumstances or business objectives that indicate the carrying value may not be recoverable.
+Added: The Company evaluates the recoverability of its property, plant, and equipment when changes in economic circumstances or business objectives indicate the carrying value may not be recoverable.
The Company's evaluations include estimated future cash flows, profitability, and other factors affecting fair value.
10 unchanged sentences
The Company elected for all asset classes to exclude from its consolidated statements of financial position leases having terms of 12 months or less (short-term leases) and elected not to separate lease and non-lease components in the determination of lease payment obligations for its long-term lease contracts.
−Removed: Assets and Liabilities Held for Sale - Assets and liabilities held for sale represent land, buildings, and other assets and liabilities that have met the criteria of “held for sale” accounting at the lower of carrying value or fair value less costs to sell.
−Removed: Fair value is based on the estimated proceeds from the sale of the assets utilizing recent purchase offers, market comparables, and reliable third-party data.
−Removed: Goodwill and Other Intangible Assets - The Company performs impairment tests for goodwill as of November 30 of each year and between annual impairment tests if evidence of potential impairment exists, by comparing the carrying value of net assets to the fair value of the reporting unit.
+Added: Goodwill and Other Intangible Assets - The Company performs impairment tests for goodwill as of November 30 of each year and between annual impairment tests if evidence of potential impairment exists.
+Added: The Company tests for impairment by assessing qualitative factors to determine whether it is more likely than not that the fair value of other intangible assets or the goodwill allocated to the reporting unit is less than its carrying amount.
+Added: 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, the Company records an impairment charge to the reporting unit.
9 unchanged sentences
These liabilities are recorded in other current liabilities and were immaterial.
−Removed: Self-Insured Workers' Compensation Plan - The operations of the Company are subject to federal and state workers' compensation laws.
+Added: Self-Insured Workers' Compensation Plan - The Company's operations are subject to federal and state workers' compensation laws.
The Company maintains self-insured workers' compensation plans and participates in federally administered second injury workers' compensation funds.
The Company estimates the liability for claims and funding requirements on a discounted basis utilizing actuarial methods based on various assumptions, which include, but are not limited to, the Company's historical loss experience and projected loss development factors as compiled in an annual actuarial study.
−Removed: Self-insurance accruals include amounts related to the liability for reported claims and an estimated accrual for claims incurred but not reported.
+Added: Self-insurance accruals include amounts related to liabilities for reported claims and an estimated accrual for claims incurred but not reported.
The Company's workers' compensation liability was discounted at 3.88 % and 1.47 % as of December 31, 2022 and 2021, respectively.
1 unchanged sentence
Workers' compensation benefit obligations on an undiscounted basis were $ 778 million and $ 785 million as of December 31, 2022 and 2021, respectively.
−Removed: Other Current Liabilities - Other current liabilities were $ 423 million as of December 31, 2021, and $ 462 million as of December 31, 2020.
−Removed: Payroll taxes payable, which is a component of other current liabilities, was $ 125 million as of December 31, 2020.
−Removed: No other component of other current liabilities was more than 5 % of total current liabilities.
Litigation, Commitments, and Contingencies - Amounts associated with litigation, commitments, and contingencies are recorded as charges to earnings when management, after taking into consideration the facts and circumstances of each matter, including any settlement offers and projected loss or claim development factors, has determined it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
−Removed: Restructuring - Restructuring related accruals are reviewed and adjusted when circumstances require.
−Removed: Accruals for restructuring activities include estimates primarily related to facility consolidations and closures, asset retirement obligations, long-lived asset write-downs, employment reductions, and contract termination costs.
−Removed: There were no restructuring accruals or activity as of and for the years ended December 31, 2021, 2020, and 2019.
Loan Receivable - The Company holds a loan receivable in connection with the financing of the sale of its previously owned Avondale Shipyard facility.
8 unchanged sentences
The discount rate assumption is defined under GAAP as the rate at which a plan's obligation could be effectively settled.
−Removed: The discount rate is established for each of the retirement related benefit plans at its respective measurement date.
+Added: A discount rate is established for each of the retirement related benefit plans at its respective measurement date.
The expected return on plan assets component of retirement related costs is used to calculate net periodic expense.
Unless plan assets and benefit obligations are subject to re-measurement during the year, the expected return on assets is based on the fair value of plan assets at the beginning of the year.
−Removed: The costs of plan amendments that
−Removed: provide benefits already earned by plan participants (prior service costs and credits) are deferred in accumulated other comprehensive loss and amortized over the expected future service period of active participants as of the date of amendment.
+Added: The costs of plan amendments that provide benefits already earned by plan participants (prior service costs and credits) are deferred in accumulated other comprehensive loss and amortized over the expected future service period of active participants as of the date of amendment.
Actuarial gains and losses arising from differences between assumptions and actual experience or changes in assumptions are deferred in accumulated other comprehensive loss.
20 unchanged sentences
Application of the guidance in the amendment is optional, is only available in certain situations, and is only available for companies to apply until December 31, 2022.
−Removed: The Company is currently evaluating the impacts of reference rate reform and the new guidance on its consolidated financial statements.
+Added: This standard did not impact the Company's financial results or disclosures.
In October 2021, the FASB issued ASU No.
7 unchanged sentences
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), which requires business entities to disclose information about transactions with a government that are accounted for by applying a grant or contribution model by analogy (“ASU 2021-10”).
−Removed: For transactions within scope, the new standard requires the
−Removed: disclosure of information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction.
−Removed: The new guidance is effective for annual reporting periods beginning after December 15, 2021, with early adoption permitted.
−Removed: The Company is currently evaluating the impacts of the new guidance on its consolidated financial statements.
+Added: For transactions within scope, the new standard requires the disclosure of information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction.
+Added: The new guidance was effective for annual reporting periods beginning after December 15, 2021, with early adoption permitted.
+Added: The adoption did not have a material impact on the Company's financial results or disclosures.
Other accounting pronouncements issued but not effective until after December 31, 2022, are not expected to have a material impact on the Company's consolidated financial position, results of operations, or cash flows.
1 unchanged sentence
Acquisition of Alion
−Removed: On August 19, 2021, the Company acquired all of the outstanding common stock of Alion Holding Corp., the parent company of Alion Science and Technology Corporation (“Alion”), a technology-driven solutions provider.
−Removed: The Company accounted for the transaction as a business combination using the acquisition method of accounting in accordance with ASC 805 – “Business Combinations.” The preliminary purchase price was $ 1.79 billion, including $ 148 million of cash received in the acquisition.
−Removed: The purchase price was paid in cash and funded through the net proceeds of the Company’s issuance of $ 400 million aggregate principal amount of 0.670 % Senior Notes due 2023 and $ 600 million aggregate principal amount of 2.043 % Senior Notes due 2028, together with the proceeds of a $ 650 million term loan.
−Removed: The preliminary purchase price is subject to customary adjustments as provided in the purchase agreement.
−Removed: Alion provides advanced engineering and R&D services in the areas of intelligence, surveillance, and reconnaissance, military training and simulation, cyber, data analytics and other next-generation technology based solutions to the DoD and intelligence community customers, with the U.S.
−Removed: Navy representing about one-third of current annual revenues.
−Removed: The table below summarizes the preliminary fair value estimates of identifiable assets acquired and liabilities assumed in the acquisition.
−Removed: These estimates are subject to revisions, which may result in an adjustment to the preliminary values presented below.
−Removed: ($ in millions) Preliminary 8/19/2021
−Removed: Cash and cash equivalents $ 148
−Removed: Accounts receivable 91
−Removed: Contract assets 137
−Removed: Operating lease assets 46
−Removed: Intangible assets 720
−Removed: Other identifiable assets acquired 20
−Removed: Total identifiable assets acquired 1,162
−Removed: Trade accounts payable 95
−Removed: Accrued employees' compensation 52
−Removed: Deferred tax liabilities - noncurrent 131
−Removed: Operating lease liabilities 49
−Removed: Other identifiable liabilities assumed 68
−Removed: Total identifiable liabilities assumed 395
−Removed: Net identifiable assets acquired 767
−Removed: Transaction price 1,791
−Removed: Goodwill $ 1,024
−Removed: The Company is in various phases of valuing the assets acquired and liabilities assumed in the acquisition, including intangible assets and tax balances, and its estimate of these values was still preliminary as of December 31, 2021.
−Removed: These provisional amounts are therefore subject to change as the Company continues to
−Removed: evaluate information required to complete the valuations through the measurement period, which will not exceed one year from the acquisition date.
−Removed: Goodwill is calculated as the excess of the purchase price over the fair value of the net assets acquired.
−Removed: The recognized goodwill is attributable to operational synergies and growth opportunities and was allocated to the Company's Technical Solutions segment.
+Added: In August 2021, the Company acquired all of the outstanding common stock of Alion Holding Corp., the parent company of Alion Science and Technology Corporation (“Alion”), a technology-driven solutions provider.
+Added: The Company accounted for the transaction as a business combination using the acquisition method of accounting in accordance with ASC 805 – “Business Combinations.” The purchase price was $ 1.79 billion, including $ 148 million of cash received in the acquisition.
+Added: In connection with the acquisition, the Company recorded $ 1,014 million of goodwill, which included the value of Alion's workforce, and $ 720 million of intangible assets related to customer relationships and existing contract backlog.
+Added: The goodwill is attributable to operational synergies and growth opportunities and was allocated to the Company's Mission Technologies segment.
+Added: The acquisition accounting was completed in the third quarter of 2022.
+Added: Goodwill and Other Intangible Assets.
None of the goodwill resulting from this acquisition is expected to be amortizable for tax purposes.
−Removed: Approximately $ 16 million of one-time acquisition-related costs was included in general and administrative expenses in the consolidated statements of operations and comprehensive income for the year ended December 31, 2021.
−Removed: The Company identified Alion’s contract backlog and customer relationships as finite-lived assets with estimated fair values as of the acquisition date of $ 240 million and $ 480 million, respectively.
−Removed: The finite-lived assets are subject to amortization under the pattern of benefits method over six years for backlog and 20 years for customer relationships.
−Removed: Total revenue and operating income for Alion for the period from August 19, 2021, through December 31, 2021, were as follows:
−Removed: ($ in millions) Period from 8/19/2021-12/31/2021
−Removed: Sales and service revenues $ 506
−Removed: Operating income $ 10
+Added: Alion provides advanced engineering and R&D services in the areas of intelligence, surveillance, and reconnaissance, military training and simulation, cyber, data analytics and other next-generation technology based solutions to the DoD and intelligence community customers, with the DoD representing about one-third of current annual revenues.
Pro Forma Financial Information
The following unaudited consolidated pro forma summary has been prepared by adjusting the Company's historical data to give effect to the acquisition of Alion as if it had occurred on January 1, 2020.
−Removed: Pro Forma (Unaudited)
−Removed: Year Ended December 31
+Added: Year Ended Pro Forma (Unaudited)
+Added: December 31 Year Ended December 31
($ in millions, except per share amounts) 2022 2021 2020
3 unchanged sentences
Diluted earnings per share $ 14.44 $ 13.37 $ 15.96
−Removed: These unaudited pro forma results include adjustments, such as the amortization of acquired intangible assets and interest expense on debt financing, in connection with the acquisition.
+Added: These unaudited pro forma results include adjustments related to the acquisition, such as the amortization of acquired intangible assets and interest expense on debt financing.
The unaudited consolidated pro forma financial information was prepared in accordance with GAAP and is not necessarily indicative of the results of operations that would have occurred if the acquisition had been completed on the date indicated, nor is it indicative of the future operating results of the Company.
−Removed: The unaudited pro forma results do not reflect events that either have occurred or may occur after the acquisition date, including, but not limited to, the anticipated realization of operating synergies in subsequent periods.
−Removed: These results also do not give effect to certain charges that the Company expects to incur in connection with the acquisition, including, but not limited to, additional professional fees and employee integration.
−Removed: Other Acquisitions
−Removed: In December 2020, the Company acquired the autonomy business of Spatial Integrated Systems, Inc.
−Removed: ("SIS"), a leading provider of autonomous technology, for approximately $ 40 million in cash.
−Removed: The acquisition further expanded the Company's unmanned systems capabilities.
−Removed: In connection with this acquisition, the Company preliminarily recorded $ 40 million of goodwill, which included the value of SIS's workforce, all of which was allocated to the Company's Technical Solutions segment.
−Removed: For the year ended December 31, 2021, the Company recorded a
−Removed: decrease in goodwill of $ 13 million, due to a reallocation of purchase price to intangible assets related to technology and existing contract backlog.
−Removed: Goodwill and Other Intangible Assets.
−Removed: The assets, liabilities, and results of operations of SIS are not material to the Company’s consolidated financial position, results of operations, or cash flows.
−Removed: In March 2020, the Company acquired Hydroid, Inc.
−Removed: ("Hydroid"), a leading provider of advanced marine robotics to the defense and maritime markets, for approximately $ 377 million in cash, net of $ 2 million of acquired cash.
−Removed: The acquisition expanded the Company's capabilities in the strategically important and rapidly growing autonomous and unmanned maritime systems market.
−Removed: In connection with this acquisition, the Company recorded $ 239 million of goodwill, which included the value of Hydroid's workforce, and $ 76 million of intangible assets related to technology and existing contract backlog.
−Removed: Goodwill and Other Intangible Assets.
−Removed: The assets, liabilities, and results of operations of Hydroid are not material to the Company’s consolidated financial position, results of operations, or cash flows.
−Removed: The Company funded the SIS and Hydroid acquisitions using cash on hand, issuances of commercial paper, and borrowings on its revolving credit facility.
−Removed: The acquisition costs incurred in connection with these acquisitions were not material.
−Removed: The operating results of these businesses have been included in the Company’s consolidated results as of the respective closing dates of the acquisitions.
−Removed: In allocating the purchase prices of these businesses, the Company considered the estimated fair values of net tangible and intangible assets acquired, with any excess purchase price recorded as goodwill.
−Removed: The total amount of goodwill resulting from these acquisitions is expected to be amortizable for tax purposes.
−Removed: These acquisitions are not material either individually or in the aggregate, and pro forma revenues and results of operations have therefore not been provided.
−Removed: In February 2021, the Company contributed its San Diego Shipyard (“SDSY”) business to a joint venture, Titan Acquisition Holdings, L.P.
+Added: The unaudited pro forma results do not reflect events that either have occurred or may occur in the future, including, but not limited to, the anticipated realization of operating synergies in subsequent periods.
+Added: These results also do not give effect to certain charges that the Company incurred in connection with the acquisition, including, but not limited to, additional professional fees and employee integration.
+Added: In February 2021, the Company contributed its San Diego Shipyard business to a joint venture, Titan Acquisition Holdings, L.P.
("Titan"), in exchange for a 10 % non-controlling interest.
3 unchanged sentences
No gain or loss was recognized in the transaction.
−Removed: The contributed assets and liabilities were previously reported in assets and liabilities held for sale.
The Company transferred $ 22 million to Titan as part of the exchange.
−Removed: As of December 31, 2021, the Company's investment in Titan of $ 87 million, inclusive of equity earnings, is recorded in miscellaneous other assets in the consolidated statements of financial position.
+Added: The Company's investment in Titan, inclusive of equity earnings and distributions, of $ 70 million and $ 87 million as of December 31, 2022, and 2021, respectively, is recorded in miscellaneous other assets in the consolidated statements of financial position.
In February 2021, the Company completed the sale of its oil and gas business.
The divestiture was completed as part of the Company’s plan to exit this part of the oil and gas industry and focus on its core services and customers.
−Removed: The divested assets and liabilities were previously reported in assets and liabilities held for sale.
In connection with the sale, the Company received $ 25 million net cash and recorded a net pre-tax gain of $ 1 million in other income and gains, net within operating income in the consolidated statements of operations.
10 unchanged sentences
In November 2020, the Company's board of directors authorized an increase in the Company's quarterly cash dividend from $ 1.03 per share to $ 1.14 per share.
−Removed: The Company paid cash dividends totaling $ 186 million ($ 4.60 per share),
−Removed: $ 172 million ($ 4.23 per share), and $ 149 million ($ 3.61 per share) in the years ended December 31, 2021, 2020, and 2019, respectively.
−Removed: Accumulated Other Comprehensive Loss - Other comprehensive income (loss) refers to gains and losses recorded as an element of stockholders' equity but excluded from net earnings.
−Removed: The accumulated other comprehensive loss was comprised of unamortized benefit plan costs of $ 923 million as of December 31, 2021, and unamortized benefit plan costs of $ 1,546 million and other comprehensive loss items of $ 1 million as of December 31, 2020.
+Added: The Company paid cash dividends totaling $ 192 million ($ 4.78 per share), $ 186 million ($ 4.60 per share), and $ 172 million ($ 4.23 per share) in the years ended December 31, 2022, 2021, and 2020, respectively.
+Added: Accumulated Other Comprehensive Loss - Other comprehensive loss refers to gains and losses recorded as an element of stockholders' equity but excluded from net earnings.
+Added: The accumulated other comprehensive loss was comprised of unamortized benefit plan costs of $ 599 million and $ 923 million as of December 31, 2022 and 2021, respectively.
The changes in accumulated other comprehensive loss by component for the years ended December 31, 2022, 2021, and 2020, were as follows:
6 unchanged sentences
Amortization of net actuarial loss 1
−Removed: Tax expense for items of other comprehensive income 43 — 43
+Added: Tax benefit (expense) for items of other comprehensive income 48 ( 1 ) 47
Net current period other comprehensive income (loss) ( 139 ) 1 ( 138 )
Balance as of December 31, 2020 ( 1,546 ) ( 1 ) ( 1,547 )
−Removed: Other comprehensive income (loss) before reclassifications ( 279 ) 2 ( 277 )
+Added: Other comprehensive income before reclassifications 720 — 720
Amounts reclassified from accumulated other comprehensive loss
−Removed: Amortization of prior service (credit) 1
−Removed: ( 10 ) — ( 10 )
+Added: Amortization of prior service cost 1
Amortization of net actuarial loss 1
−Removed: Tax expense (benefit) for items of other comprehensive income 48 ( 1 ) 47
−Removed: Net current period other comprehensive income (loss) ( 139 ) 1 ( 138 )
+Added: Tax benefit (expense) for items of other comprehensive income ( 215 ) 1 ( 214 )
+Added: Net current period other comprehensive income 623 1 624
Balance as of December 31, 2021 ( 923 ) — ( 923 )
3 unchanged sentences
Amortization of net actuarial loss 1
−Removed: Tax expense (benefit) for items of other comprehensive income ( 215 ) 1 ( 214 )
+Added: Settlement gain 1
+Added: ( 4 ) — ( 4 )
+Added: Tax expense for items of other comprehensive income ( 112 ) — ( 112 )
Net current period other comprehensive income 324 — 324
14 unchanged sentences
The Company's calculation of diluted earnings per common share includes the dilutive effects of the assumed exercise of stock options and vesting of restricted stock based on the treasury stock method.
−Removed: Under the treasury stock method, the Company has excluded from the diluted share amounts presented above the effects of 0.4 million Restricted Performance Stock Rights ("RPSRs") for the year ended December 31, 2021, and 0.3 million RPSRs for each of the years ended December 31, 2020 and 2019.
+Added: Under the treasury stock method, the Company has excluded from the diluted share amounts presented above the effects of 0.4 million
+Added: Restricted Performance Stock Rights ("RPSRs") for each of the years ended December 31, 2022, and 2021, and 0.3 million RPSRs for the year ended December 31, 2020.
The following is a description of principal activities from which the Company generates its revenues.
10 unchanged sentences
The period over which the Company performs may extend past five years.
−Removed: The Technical Solutions segment also generates the majority of its revenue from contracts with the U.S.
+Added: The Mission Technologies segment also generates the majority of its revenue from contracts with the U.S.
Government, including U.S.
4 unchanged sentences
In the majority of circumstances, modifications do not result in additional performance obligations that are distinct from the existing performance obligations in the contract, and the effects of the modifications are recognized as an adjustment to revenue on a cumulative catch-up basis.
−Removed: Alternatively, in instances where the performance obligations in the modifications are deemed distinct, contract modifications are accounted for prospectively.
+Added: Alternatively, in instances in which the performance obligations in the modifications are deemed distinct, contract modifications are accounted for prospectively.
The Company considers incentive and award fees to be variable consideration and includes in the transaction price at inception the consideration to which the Company expects to be entitled under the terms and conditions of the contract, generally estimated using a most likely amount approach.
1 unchanged sentence
The Company recognizes revenues related to shipbuilding contracts as it satisfies the related performance obligations over time using a cost-to-cost input method to measure performance progress, which best reflects the transfer of control to the customer.
−Removed: Services - The Technical Solutions segment generates revenue primarily under U.S.
+Added: Services - The Mission Technologies segment generates revenue primarily under U.S.
Government contracts.
6 unchanged sentences
Where a series of distinct services has been identified, the Company generally allocates variable consideration to distinct time increments of service.
−Removed: The Company generally recognizes revenue as it satisfies the related performance obligations over time using a cost-to-cost input method to measure performance progress, because, even where the Company has identified a series of services, its cost incurrence pattern generally is not ratable given the complex nature of the services the Company provides.
+Added: The Company generally recognizes revenue as it satisfies the related performance obligations over time using a cost-to-cost input method to measure performance progress, because, even when the Company has identified a series of services, its cost incurrence pattern generally is not ratable given the complex nature of the services the Company provides.
Invoices are issued and related payments are received, on the basis of performance progress, no less frequently than monthly.
1 unchanged sentence
Government services contracts are time and material arrangements.
−Removed: As a result, the Company often utilizes the practical expedient of allowing the recognition of revenue in the amount the Company invoices, which corresponds with the value provided to the customer and to which the Company is entitled to payment for performance to date.
+Added: As a result, the Company often utilizes the practical expedient allowing the recognition of revenue in the amount the Company invoices, which corresponds with the value provided to the customer and to which the Company is entitled to payment for performance to date.
Government Contracts
15 unchanged sentences
Year Ended December 31, 2022
−Removed: ($ in millions) Ingalls Newport News Technical Solutions Intersegment Eliminations Total
+Added: ($ in millions) Ingalls Newport News Mission Technologies Intersegment Eliminations Total
Product sales $ 2,372 $ 4,821 $ 90 $ — $ 7,283
16 unchanged sentences
Year Ended December 31, 2021
−Removed: ($ in millions) Ingalls Newport News Technical Solutions Intersegment Eliminations Total
+Added: ($ in millions) Ingalls Newport News Mission Technologies Intersegment Eliminations Total
Product sales $ 2,357 $ 4,543 $ 100 $ — $ 7,000
16 unchanged sentences
Year Ended December 31, 2020
−Removed: ($ in millions) Ingalls Newport News Technical Solutions Intersegment Eliminations Total
+Added: ($ in millions) Ingalls Newport News Mission Technologies Intersegment Eliminations Total
Product sales $ 2,462 $ 4,312 $ 76 $ — $ 6,850
26 unchanged sentences
Total Newport News 5,852 5,663 5,571
−Removed: Government and energy services 1,462 1,033 996
+Added: Mission based solutions 1,950 1,034 540
Oil and gas services — 14 235
−Removed: Total Technical Solutions 1,476 1,268 1,237
+Added: Other 437 428 493
+Added: Total Mission Technologies 2,387 1,476 1,268
Intersegment eliminations ( 133 ) ( 143 ) ( 156 )
2 unchanged sentences
The Company expects to recognize approximately 22 % of its remaining performance obligations as revenue through 2023, an additional 35 % through 2025, and the balance thereafter.
−Removed: Cumulative Catch-up Adjustments
−Removed: For the year ended December 31, 2021, net cumulative catch-up adjustments increased operating income by $ 115 million and increased diluted earnings per share by $ 2.26 .
−Removed: For the year ended December 31, 2020, net cumulative catch-up adjustments decreased operating income by $ 29 million and decreased diluted earnings per share by $ 0.56 .
−Removed: For the year ended December 31, 2019, net cumulative catch-up adjustments increased operating income by $ 96 million and increased diluted earnings per share by $ 1.84 .
−Removed: No individual adjustment was material to the Company's consolidated statements of operations and comprehensive income for the year ended December 31, 2021.
−Removed: Cumulative catch-up adjustments for the year ended December 31, 2020, included unfavorable adjustments of $ 148 million, relating to Block IV of the Virginia class (SSN 774) submarine program at the Company's Newport News segment, which decreased diluted earnings per share by $ 2.88 .
−Removed: While other unfavorable cumulative catch-up adjustments for the year ended December 31, 2020, were not individually material, cost estimates for discrete delay and disruption from COVID-19 Events drove $ 61 million of unfavorable cumulative catch-up adjustments across our contracts, including $ 16 million relating to Block IV of the Virginia class (SSN 774) submarine program, which is included in the $ 148 million unfavorable adjustments discussed above.
−Removed: For the year ended December 31, 2020, no individual favorable cumulative catch-up adjustment was material to the Company's consolidated statements of operations and comprehensive income.
−Removed: No individual adjustment was material to the Company's consolidated statements of operations and comprehensive income for the year ended December 31, 2019.
+Added: Cumulative Catch-up Revenue Adjustments
+Added: For the year ended December 31, 2022, net cumulative catch-up revenue adjustments increased operating income by $ 113 million and increased diluted earnings per share by $ 2.22 .
+Added: For the year ended December 31, 2021, net cumulative catch-up revenue adjustments increased operating income by $ 115 million and increased diluted earnings per share by $ 2.26 .
+Added: For the year ended December 31, 2020, net cumulative catch-up revenue adjustments decreased operating income by $ 29 million and decreased diluted earnings per share by $ 0.56 .
+Added: No individual cumulative adjustment was material to the Company's consolidated statements of operations and comprehensive income for either of the years ended December 31, 2022 and 2021.
+Added: Cumulative catch-up revenue adjustments for the year ended December 31, 2020, included unfavorable adjustments of $ 148 million, relating to Block IV of the Virginia class (SSN 774) submarine program at the Company's Newport News segment, which decreased diluted earnings per share by $ 2.88 .
+Added: While other unfavorable cumulative catch-up revenue adjustments for the year ended December 31, 2020, were not individually material, cost estimates for discrete delay and disruption from COVID-19 Events drove $ 61 million of unfavorable cumulative catch-up revenue adjustments across our contracts, including $ 16 million relating to Block IV of the Virginia class (SSN 774) submarine program, which is included in the $ 148 million unfavorable adjustments discussed above.
+Added: For the year ended December 31, 2020, no individual favorable cumulative catch-up revenue adjustment was material to the Company's consolidated statements of operations and comprehensive income.
Contract Balances
2 unchanged sentences
Contract assets primarily relate to the Company's rights to consideration for work completed but not billed as of the reporting date when the right to payment is not just subject to the passage of time.
−Removed: Fixed-price contracts are generally billed to the customer using either progress payments, whereby amounts are billed monthly as costs are incurred or work is completed, or performance-based payments, which are based upon
−Removed: the achievement of specific, measurable events or accomplishments defined and valued at contract inception.
+Added: Fixed-price contracts are generally billed to the customer using either progress payments, whereby amounts are billed monthly as costs are incurred or work is completed, or performance-based payments, which are based upon the achievement of specific, measurable events or milestones defined and valued at contract inception.
Cost-type contracts are typically billed to the customer on a monthly or semi-monthly basis.
−Removed: Contract liabilities relate to advance payments, billings in excess of revenues, and deferred revenue amounts.
+Added: Contract liabilities relate to
+Added: advance payments, billings in excess of revenues, and deferred revenue amounts.
The Company reports contract balances in a net contract asset or contract liability position on a contract-by-contract basis at the end of each reporting period.
−Removed: The Company’s net contract assets increased $ 195 million from December 31, 2020 to December 31, 2021, primarily resulting from favorable cumulative catch-up adjustments and revenue on certain U.S.
+Added: The Company’s net contract assets decreased $ 185 million from December 31, 2021 to December 31, 2022, primarily resulting from an increase in billings on certain U.S.
Navy contracts.
4 unchanged sentences
The Company is organized into three reportable segments:
−Removed: Ingalls, Newport News, and Technical Solutions, consistent with how management makes operating decisions and assesses performance.
+Added: Ingalls, Newport News, and Mission Technologies, consistent with how management makes operating decisions and assesses performance.
Government Sales - Revenues from the U.S.
10 unchanged sentences
Newport News 5,852 5,663 5,571
−Removed: Technical Solutions 1,476 1,268 1,237
+Added: Mission Technologies 2,387 1,476 1,268
Intersegment eliminations ( 133 ) ( 143 ) ( 156 )
Total sales and service revenues $ 10,676 $ 9,524 $ 9,361
−Removed: Operating Income (Loss)
+Added: Operating Income
Ingalls $ 292 $ 281 $ 281
Newport News 357 352 233
−Removed: Technical Solutions 50 41 ( 14 )
+Added: Mission Technologies 63 50 41
Total segment operating income 712 683 555
9 unchanged sentences
Newport News 4,344 4,179 4,124
−Removed: Technical Solutions 3,553 1,379 1,022
+Added: Mission Technologies 3,347 3,553 1,379
Corporate 1,533 1,236 1,042
5 unchanged sentences
Newport News 182 201 212
−Removed: Technical Solutions 38 20 9
+Added: Mission Technologies 20 38 20
Corporate 1 — —
6 unchanged sentences
Newport News 148 146 133
−Removed: Technical Solutions 72 40 32
+Added: Mission Technologies 130 72 40
Corporate 1 1 1
36 unchanged sentences
Reporting units are aligned with the Company's businesses.
−Removed: The Company’s testing approach utilizes a combination of discounted cash flow analysis and comparative market multiples to determine the fair values of its businesses for comparison to their corresponding book values.
+Added: The Company assesses qualitative factors to determine whether it is more likely than not that the fair value of the goodwill allocated to the reporting unit is less than its carrying amount.
+Added: If the qualitative assessment indicates a possible impairment, then the Company utilizes a combination of discounted cash flow analysis and comparative market multiples to determine the fair values of its businesses for comparison to their corresponding book values.
In connection with the Company’s annual goodwill impairment test as of November 30, 2022, management tested goodwill for each of its three reporting units with goodwill balances.
−Removed: As a result of the Company's annual goodwill impairment analysis, it estimated that the fair value of the Government Services reporting unit within the Technical Solutions segment exceeded carrying value by less than 10 %.
+Added: As a result of the Company's annual goodwill impairment analysis, it estimated that the fair value of the Mission Technologies segment exceeded carrying value by approximately 5 %.
The Company determined that the estimated fair values of its remaining reporting units exceeded by more than 10 % their corresponding carrying values as of November 30, 2022.
−Removed: As a result of slower than expected growth in operating margin, a revised future outlook for the business, and less favorable market conditions, the Company concluded the fair value of its oil and gas reporting unit was less than its carrying value as of November 30, 2019.
−Removed: The Company recorded the resulting goodwill impairment charge of $ 29 million at the oil and gas reporting unit in its Technical Solutions segment in the fourth quarter of 2019.
−Removed: Accumulated goodwill impairment losses as of each of December 31, 2021 and 2020, were $ 2,906 million.
+Added: Accumulated goodwill impairment losses were $ 2,755 million as of each of December 31, 2022 and 2021.
The accumulated goodwill impairment losses for Ingalls as of each of December 31, 2022 and 2021, were $ 1,568 million.
−Removed: The accumulated goodwill impairment losses for Newport News as of each of December 31, 2021 and 2020, were $ 1,187 million.
−Removed: The accumulated goodwill impairment losses for the Technical Solutions segment as of each of December 31, 2021 and 2020, were $ 151 million.
+Added: The accumulated goodwill impairment losses for Newport News as of each of December 31, 2022 and 2021,
+Added: were $ 1,187 million.
+Added: Mission Technologies did not have accumulated goodwill impairment losses as of each of December 31, 2022 and 2021.
For the year ended December 31, 2021, the Company recorded $ 1,024 million of goodwill related to its acquisition of Alion.
−Removed: For the year ended December 31, 2020, the Company recorded $ 350 million of goodwill related to its acquisitions of Hydroid and SIS.
−Removed: For the year ended December 31, 2021, the Company recorded goodwill adjustments of $ 13 million relating to the acquisition of SIS, primarily related to allocations to other intangible
−Removed: For the year ended December 31, 2020, the Company recorded goodwill adjustments of $ 71 million relating to the acquisition of Hydroid, primarily related to allocations to other intangible assets.
−Removed: For the year ended December 31, 2020, the Company allocated $ 35 million of goodwill at its Technical Solutions segment to an asset group that was classified as held for sale.
+Added: For the year ended December 31, 2022, the Company recorded goodwill adjustments of $ 10 million related to the acquisition of Alion, resulting from updates to Alion's tax carryforwards and the true-up of estimated taxes to filed income tax returns for the pre-acquisition period.
+Added: For the year ended December 31, 2021, the Company recorded goodwill adjustments of $ 13 million relating to the acquisition of Spatial Integrated Systems, Inc.
+Added: in 2020, primarily related to allocations to other intangible assets.
For the years ended December 31, 2022 and 2021, the carrying amounts of goodwill changed as follows:
−Removed: ($ in millions) Ingalls Newport News Technical Solutions Total
+Added: ($ in millions) Ingalls Newport News Mission Technologies Total
Balance as of December 31, 2020 $ 175 $ 721 $ 721 $ 1,617
2 unchanged sentences
Balance as of December 31, 2021 175 721 1,732 2,628
−Removed: Acquisitions — — 1,024 1,024
Adjustments — — ( 10 ) ( 10 )
2 unchanged sentences
The Company performs tests for impairment of long-lived assets whenever events or circumstances suggest that long-lived assets may be impaired.
−Removed: In connection with the Alion purchase in 2021, the Company recorded $ 720 million of intangible assets pertaining to customer relationships and existing contract backlog, which is being amortized using the pattern of benefits method over a weighted-average life of 15 years.
−Removed: In connection with the SIS purchase in 2020, the Company recorded $ 13 million of intangible assets pertaining to technology and existing contract backlog, which is being amortized using the pattern of benefits method over a weighted-average life of ten years .
−Removed: In connection with the Hydroid purchase in 2020, the Company recorded $ 76 million of intangible assets pertaining to existing contract backlog, customer relationships, and technology, which is being amortized using the pattern of benefits method over a weighted-average life of nine years .
+Added: In connection with the acquisition of Alion in 2021, the Company recorded $ 720 million of intangible assets pertaining to customer relationships and existing contract backlog, which is being amortized using the pattern of benefits method over a weighted-average life of 15 years.
The Company's purchased intangible assets are being amortized on a straight-line basis or a method based on the pattern of benefits over their estimated useful lives.
−Removed: Net intangible assets consist primarily of amounts relating to customer relationships and existing contract backlog within Technical Solutions, as well as nuclear-powered aircraft carrier and submarine program intangible assets, with an aggregate weighted-average useful life of 29 years based on the long life cycle of the related programs.
+Added: Net intangible assets consist primarily of amounts relating to customer relationships and existing contract backlog within Mission Technologies, as well as nuclear-powered aircraft carrier and submarine program intangible assets, with an aggregate weighted-average useful life of 29 years based on the long life cycle of the related programs.
Aggregate amortization expense for the years ended December 31, 2022, 2021, and 2020, was $ 140 million, $ 86 million, and $ 56 million, respectively.
−Removed: The Company expects amortization for purchased intangible assets of $ 141 million in 2022, $ 129 million in 2023, $ 108 million in 2024, $ 98 million in 2025, and $ 80 million in 2026.
+Added: The Company expects amortization for currently recorded purchased intangible assets of $ 128 million in 2023, $ 109 million in 2024, $ 99 million in 2025, $ 80 million in 2026, and $ 60 million in 2027.
The Company's earnings are primarily domestic, and its effective tax rate on earnings from operations for the year ended December 31, 2022, was 19.5 %, compared with 12.5 % and 14.1 % for 2021 and 2020, respectively.
+Added: For the year ended December 31, 2022, the Company's effective tax rate differed from the federal statutory tax rate primarily as a result of estimated research and development tax credits for 2022 and prior years.
For the year ended December 31, 2021, the Company's effective tax rate differed from the federal statutory tax rate primarily as a result of a tax loss associated with the sale of the Company's oil and gas business and estimated research and development tax credits for 2021 and prior years.
For the year ended December 31, 2020, the Company’s effective tax rate differed from the federal statutory tax rate primarily as a result of estimated research and development tax credits for prior years.
−Removed: For the year ended December 31, 2019, the Company’s effective tax rate differed from the federal statutory tax rate primarily as a result of estimated research and development tax credits for 2019 and prior years.
Non-current state income taxes include deferred state income taxes, which reflect the change in deferred state tax assets and liabilities and the tax expense or benefit associated with changes in state unrecognized tax benefits in the relevant period.
9 unchanged sentences
Earnings and income tax from foreign operations are not material for any periods presented.
−Removed: Income tax expense differed from the amount based on the statutory federal income tax rate applied to earnings (loss) before income taxes due to the following:
+Added: The following table reconciles our actual income tax expense to income tax expense based on the statutory federal income tax rate:
Year Ended December 31
16 unchanged sentences
Reductions based on settlement with taxing authorities — — ( 7 )
+Added: Lapse of statute of limitations ( 2 ) — —
Net change in unrecognized tax benefits 9 34 11
4 unchanged sentences
As a result of the unrecognized tax benefits noted above, income tax expense increased by $ 2 million in 2022 for interest and penalties, resulting in a liability of $ 5 million for interest and penalties as of December 31, 2022.
−Removed: In 2020, there was a net decrease in income tax expense of less than $ 1 million for interest and penalties, resulting in a liability of $ 2 million for interest and penalties as of December 31, 2020.
−Removed: The 2020 changes in interest expense related to a
−Removed: settlement with taxing authorities.
−Removed: In 2019, there was a net increase in income tax expense of $ 1 million for interest and penalties, resulting in a liability of $ 2 million for interest and penalties as of December 31, 2019.
+Added: In 2021, there was an increase in income tax expense of $ 1 million for interest and penalties, resulting in a liability of $ 3 million for interest and penalties as of December 31, 2021.
+Added: In 2020, there was a net decrease in income tax expense of less
+Added: than $ 1 million for interest and penalties, resulting in a liability of $ 2 million for interest and penalties as of December 31, 2020.
+Added: The 2020 changes in interest expense related to a settlement with taxing authorities.
The following table summarizes the tax years that are either currently under examination or remain open under the applicable statute of limitations and subject to examination by the major tax jurisdictions in which the Company operates:
3 unchanged sentences
Mississippi 2018 - 2021
−Removed: (1) The 2016 tax year is closed except for the research and development tax credit, and the 2017 tax year is closed except for the manufacturing deduction and research and development tax credit.
−Removed: (2) The 2016 and 2017 tax years have been closed in this jurisdiction.
−Removed: Although the Company believes it has adequately provided for all unrecognized tax benefits, amounts asserted by tax authorities could be greater than the Company's accrued position.
+Added: Virginia 2019 - 2021
+Added: (1) The 2016, 2018, 2019, and 2021 tax years are closed except for the research and development tax credits, and the 2017 tax year is closed except for the manufacturing deduction and research and development tax credit.
+Added: Although the Company believes it has adequately provided for all unrecognized tax benefits, positions asserted by tax authorities could result in amounts greater than the Company's accrued position.
Accordingly, additional provisions for federal and state income tax related matters could be recorded in the future as revised estimates are made or the underlying matters are effectively settled or otherwise resolved.
17 unchanged sentences
Net operating losses, tax credit and other carry-forwards 37 55
+Added: Capitalized research and development expenses 122 —
Gross deferred tax assets 500 550
7 unchanged sentences
Gross deferred tax liabilities 890 841
−Removed: Total net deferred tax assets (liabilities) $ ( 313 ) $ 133
+Added: Total net deferred tax liabilities $ ( 418 ) $ ( 313 )
As of December 31, 2022, the Company had state income tax credit carry-forwards of approximately $ 20 million, which expire from 2023 through 2025.
−Removed: A deferred tax asset of approximately $ 16 million (net of federal benefit) has been established related to these state income tax credit carry-forwards, with a valuation allowance of $ 10 million against such deferred tax asset as of December 31, 2021.
−Removed: The Company also had a federal net operating loss carry-forward of $ 27 million from the Alion acquisition, of which $ 19 million expires in 2034, $ 5 million expires in 2035, and $ 3 million expires in 2036.
−Removed: State net operating loss carry-forwards are individually and cumulatively immaterial to the Company’s deferred tax balances.
−Removed: Long-term debt consisted of the following:
+Added: A deferred tax asset of approximately $ 16 million (net of federal benefit) related to these state income tax credit carry-forwards has been established, with a valuation allowance of $ 9 million against such deferred tax asset as of December 31, 2022.
+Added: The Company also had state net operating loss carry-forwards of $ 123 million from the Alion acquisition, which expire from 2031 through 2037.
+Added: A deferred tax asset of approximately $ 7 million (net of federal benefit) has been established for these carry-forwards, with a valuation allowance of $ 4 million against such deferred tax asset as of December 31, 2022.
+Added: Other federal and state net operating loss carry-forwards are individually and cumulatively immaterial to the Company’s deferred tax balances.
+Added: The Company's long-term debt consisted of the following:
($ in millions) 2022 2021
9 unchanged sentences
Total long-term debt $ 2,905 $ 3,298
+Added: Less current portion 399 —
+Added: Long-term debt, net of current portion $ 2,506 $ 3,298
Credit Facility - In August 2021, the Company amended and restated its 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.
−Removed: Revolving Credit Facility has a variable interest rate on outstanding borrowings based on LIBOR, plus a spread based upon the Company's credit rating, which may vary between 1.125 % and 2.000 %.
+Added: The Revolving Credit Facility has a variable interest rate on outstanding borrowings based on LIBOR, plus a spread based upon the Company's credit rating, which may vary between 1.125 % and 2.000 %.
As of December 31, 2022, the interest rate spread on drawn amounts was 1.375 % based on the Company's current credit rating.
2 unchanged sentences
Term Loan - In August 2021, the Company entered into a $ 650 million 3-year delayed draw term loan (the “Term Loan”) to finance a portion of the purchase price for Alion.
−Removed: The Term Loan must be repaid prior to or at maturity, which is 36 months from the date of the initial draw.
+Added: The Term Loan must be repaid prior to or on August 19, 2024.
The Term Loan has a variable interest rate on outstanding borrowings based on LIBOR, plus a spread based upon the Company's credit rating, which may vary between 1.125 % and 2.000 %.
5 unchanged sentences
Subsidiary Guarantors.
−Removed: In 2019, the Company established an unsecured commercial paper note program, under which the Company may issue up to $ 1 billion of unsecured commercial paper notes.
+Added: The Company maintains an unsecured commercial paper note program, under which the Company may issue up to $ 1 billion of unsecured commercial paper notes.
As of December 31, 2022, the Company had no outstanding debt under the commercial paper program.
−Removed: Senior Notes - I n August 2021, the Company 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.
+Added: Senior Notes - I n August 2021, the Company issued $ 400 million aggregate principal amount of callable 0.670 % senior notes due 2023 and $ 600 million aggregate principal amount of 2.043 % senior notes due 2028.
The net proceeds were used to fund a portion of the purchase price for the acquisition of Alion.
1 unchanged sentence
In 2020, the Company 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.
−Removed: The Company also has outstanding $ 600 million aggregate principal amount of 3.483 % senior notes due December 2027.
−Removed: The net proceeds of these senior notes were intended to be used for general corporate purposes, including debt repayments and working capital.
+Added: The Company also has outstanding $ 600 million aggregate principal amount of 3.483 % senior notes due 2027.
+Added: The net proceeds of these senior notes
+Added: were intended to be used for general corporate purposes, including debt repayments and working capital.
Interest on these senior notes is payable semiannually.
2 unchanged sentences
The Company had unamortized debt issuance costs associated with the senior notes of $ 15 million and $ 19 million as of December 31, 2022 and 2021, respectively.
−Removed: Early Extinguishment of Debt - Details of the loss on early extinguishment of debt related to the Company's redemption of senior notes, which was included in interest expense, were as follows:
+Added: Early Extinguishment of Debt - Components of the loss on early extinguishment of debt related to the Company's redemption of senior notes in 2020, which was included in interest expense, were as follows:
($ in millions) December 31, 2020
6 unchanged sentences
These bonds accrue interest at a fixed rate of 4.55 % per annum (payable semi-annually) and mature in 2028.
−Removed: The Company's debt arrangements contain customary affirmative and negative covenants.
+Added: The agreements governing the Company's debt contain customary affirmative and negative covenants.
The Company was in compliance with all debt covenants during the year ended December 31, 2022.
−Removed: The estimated fair values of the Company's total long-term debt as of December 31, 2021, and December 31, 2020, were $ 3,449 million and $ 1,943 million, respectively.
+Added: The estimated fair values of the Company's total long-term debt (including current portion) as of December 31, 2022, and December 31, 2021, were $ 2,703 million and $ 3,449 million, respectively.
+Added: The estimated fair value of the current portion of the Company's long-term debt was $ 390 million as of December 31, 2022.
The fair values of the Company's long-term debt were calculated based on recent trades of the Company's debt instruments in inactive markets, which fall within Level 2 under the fair value hierarchy.
−Removed: As of December 31, 2021, the aggregate amounts of principal payments due on long-term debt within the next five years consisted of $ 400 million due in 2023, $ 709 million due in 2024, and $ 500 million due in 2025.
+Added: As of December 31, 2022, the aggregate amounts of principal payments due on long-term debt within the next five years consisted of $ 400 million due in 2023, $ 309 million due in 2024, $ 500 million due in 2025, and $ 600 million due in 2027.
INVESTIGATIONS, CLAIMS, AND LITIGATION
2 unchanged sentences
The actual losses that might be incurred to resolve such investigations, claims, and litigation may be higher or lower than the amounts accrued.
−Removed: For matters where a material loss is probable or reasonably possible and the amount of loss cannot be reasonably estimated, but the Company is able to reasonably estimate a range of possible losses, the Company will disclose such estimated range in these notes.
−Removed: This estimated range is based on information currently available to the Company and involves elements of judgment and significant uncertainties.
−Removed: Any estimated range of possible loss does not represent the Company's maximum possible loss exposure.
−Removed: For matters as to which the Company is not able to reasonably estimate a possible loss or range of loss, the Company will indicate the reasons why it is unable to estimate the possible loss or range of loss.
−Removed: For matters not specifically described in these notes, the Company does not believe, based on information currently available to it, that it is reasonably possible that the liabilities, if any, arising from such investigations, claims, and litigation will have a material effect on its consolidated financial position, results of operations, or cash flows.
−Removed: The Company has, in certain cases, provided disclosure regarding certain matters for which the Company believes at this time that the likelihood of material loss is remote.
+Added: The Company has also provided footnote disclosure for matters for which a material loss is reasonably possible but a reserve has not been accrued because the likelihood of a material loss is not probable.
False Claims Act Complaint - In 2016, the Company was made aware that it is a defendant in a qui tam False Claims Act lawsuit pending in the U.S.
1 unchanged sentence
Government contracts.
−Removed: In August 2019, the Department of Justice (“DoJ”) declined to intervene in the lawsuit, and the lawsuit was unsealed.
+Added: In August 2019, the Department of Justice (“DoJ”) declined to intervene in the lawsuit, and the lawsuit was
The court dismissed the complaint in September 2021, and the plaintiff has appealed the dismissal to the United States Court of Appeals for the 11th Circuit.
−Removed: Insurance Claims - In September 2020, the Company filed a complaint in the Superior Court, State of Vermont, Franklin Unit, seeking a judgment declaring that the Company's business interruption and other losses associated with COVID-19 are covered by the Company's property insurance program.
−Removed: A total of 32 reinsurers are named as defendants in the complaint.
+Added: Insurance Claims - In September 2020, the Company filed a complaint against 32 reinsurers in the Superior Court, State of Vermont, Franklin Unit, seeking a judgment declaring that the Company's business interruption and other losses associated with COVID-19 are covered by the Company's property insurance program.
The Company also has initiated arbitration proceedings against six other reinsurers seeking similar relief.
−Removed: Prior to filing the complaint and initiating the arbitration proceedings, the Company provided a notice of loss to the reinsurers, but, to date, none of the reinsurers have acknowledged coverage.
−Removed: The full extent of the Company's losses resulting from COVID-19 have not yet been determined.
−Removed: In July 2021, the Vermont court granted the reinsurers’ motion for judgment on the pleadings, finding that, because the Company continued to operate through the pandemic, the Company’s reduction of business not accompanied by a complete loss of use fell short of the required “direct physical loss or damage to property.” The Company has appealed the decision to the Vermont Supreme Court.
−Removed: Although the Company still believes its position is well-founded, no assurances can be provided regarding the ultimate resolution of this matter.
−Removed: In September 2021, the Company filed a complaint in the Superior Court of Delaware, seeking a judgment against certain insurers for breach of contract and breach of the implied covenant of good faith and fair dealing under three
−Removed: representations and warranties insurance policies purchased in connection with the Company’s acquisition of Hydroid.
+Added: In July 2021, the Vermont court granted the reinsurers’ motion for judgment on the pleadings, which would have ended the Company’s claim.
+Added: The Company appealed the decision to the Vermont Supreme Court, which reversed and remanded the lower court's decision in September 2022, allowing the Company's claim to proceed.
+Added: No assurances can be provided regarding the ultimate resolution of this matter.
+Added: In September 2021, the Company filed a complaint in the Superior Court of Delaware, seeking a judgment against certain insurers for breach of contract and breach of the implied covenant of good faith and fair dealing under three representations and warranties insurance policies purchased in connection with the Company’s acquisition of Hydroid.
The policies insure the Company against losses relating to the seller’s breach of certain representations and warranties in the Hydroid acquisition agreement.
7 unchanged sentences
Asbestos Related Claims - HII and its predecessors-in-interest are defendants in a longstanding series of cases that have been and continue to be filed in various jurisdictions around the country, wherein former and current employees and various third parties allege exposure to asbestos containing materials while on or associated with HII premises or while working on vessels constructed or repaired by HII.
−Removed: The cases allege various injuries, including those associated with pleural plaque disease, asbestosis, cancer, mesothelioma, and other alleged asbestos related conditions.
−Removed: In some cases, several of HII's former executive officers are also named as defendants.
−Removed: In some instances, partial or full insurance coverage is available to the Company for its liability and that of its former executive officers.
−Removed: The costs to resolve cases during the years ended December 31, 2021, 2020, and 2019 were immaterial individually and in the aggregate.
−Removed: The Company’s estimate of asbestos-related liabilities is subject to uncertainty because liabilities are influenced by numerous variables that are inherently difficult to predict.
−Removed: Key variables include the number and type of new claims, the litigation process from jurisdiction to jurisdiction and from case to case, reforms made by state and federal courts, and the passage of state or federal tort reform legislation.
+Added: In some instances, partial or full insurance coverage is available for the Company's liabilities.
+Added: The costs to resolve cases during the years ended December 31, 2022, 2021, and 2020 were not material individually or in the aggregate.
+Added: The Company’s estimate of asbestos-related liabilities is subject to uncertainty because liabilities are influenced by many variables that are inherently difficult to predict.
Although the Company believes the ultimate resolution of current cases will not have a material effect on its consolidated financial position, results of operations, or cash flows, it cannot predict what new or revised claims or litigation might be asserted or what information might come to light and can, therefore, give no assurances regarding the ultimate outcome of asbestos related litigation.
Other Litigation - The Company and its predecessor-in-interest have been in litigation with the Bolivarian Republic of Venezuela (the "Republic") since 2002 over a contract for the repair, refurbishment, and modernization at Ingalls of two foreign-built frigates.
−Removed: In March 2014, the Company filed an arbitral statement of claim asserting breaches of the contract.
−Removed: The Republic denied the Company’s allegations and asserted counterclaims.
−Removed: In February 2018, the arbitral tribunal awarded the Company approximately $ 151 million on its claims and awarded the Republic approximately $ 22 million on its counterclaims.
+Added: Following an arbitration proceeding between the parties, in February 2018 the arbitral tribunal awarded the Company approximately $ 151 million on its claims and awarded the Republic approximately $ 22 million on its counterclaims.
The Company is seeking to enforce and execute upon the award in multiple jurisdictions.
12 unchanged sentences
The Company's lease portfolio consists primarily of operating leases.
−Removed: Lease costs and related information were as follows:
+Added: The following table presents costs and other information related to the Company's leases:
Year Ended December 31
16 unchanged sentences
Short-term operating lease liabilities $ 52 $ 52
−Removed: Lease liabilities included in liabilities held for sale — 27
Long-term operating lease liabilities 246 194
4 unchanged sentences
As of December 31, 2022, amounts recognized in connection with claims and requests for equitable adjustment were not material individually or in the aggregate.
−Removed: Guarantees of Performance Obligations - From time to time in the ordinary course of business, HII enters into joint ventures, teaming agreements, and other business arrangements in connection with the Company's products and services or to pursue strategic objectives.
−Removed: The Company attempts to limit its exposure under these arrangements to its investment or the extent of obligations under the applicable contract.
−Removed: In some cases, however, HII may be required to guarantee performance of the arrangement's obligations and, in such cases, generally obtains cross-indemnification from the other members of the arrangement.
−Removed: In the ordinary course of business, the Company may guarantee obligations of its subsidiaries under certain contracts.
−Removed: Generally, the Company is liable under such guarantees only if its subsidiary is unable to perform its obligations.
−Removed: Historically, the Company has not incurred any substantial liabilities resulting from these guarantees.
−Removed: As of December 31, 2021, the Company was not aware of any existing event of default that would require it to satisfy any of these guarantees.
Environmental Matters - The estimated cost to complete environmental remediation has been accrued when it is probable that the Company will incur such costs in the future to address environmental conditions at currently or formerly owned or leased operating facilities, or at sites where it has been named a Potentially Responsible Party ("PRP") by the Environmental Protection Agency or similarly designated by another environmental agency, and the related costs can be estimated by management.
These accruals do not include any litigation costs related to environmental matters, nor do they include amounts recorded as asset retirement obligations.
−Removed: To assess the potential impact on the Company's consolidated financial statements, management estimates the range of reasonably possible remediation costs that could be incurred by the Company, taking into account currently available facts on each site, as well as the current state of technology and prior experience remediating contaminated sites.
−Removed: These estimates are reviewed periodically and adjusted to reflect changes in facts and technical and legal circumstances.
−Removed: Management estimates that as of December 31, 2021, the probable estimable future cost for environmental remediation was immaterial.
−Removed: Factors that could result in changes to the Company's estimates include:
−Removed: modification of planned remedial actions, increases or decreases in the estimated time required to remediate, changes to the determination of legally responsible parties, discovery of more extensive contamination than anticipated, changes in laws and regulations affecting remediation requirements, and improvements in remediation technology.
−Removed: Should other PRPs not pay their allocable share of remediation costs, the Company may incur costs exceeding those already estimated and accrued.
−Removed: In addition, there are certain potential remediation sites where the costs of remediation cannot be reasonably estimated.
+Added: Management estimates that as of December 31, 2022, the probable estimable future cost of environmental remediation was not material.
Although management cannot predict whether new information gained as remediation progresses or the Company incurs additional remediation obligations will materially affect the estimated liability accrued, management does not believe that future remediation expenditures will have a material effect on the Company's consolidated financial position, results of operations, or cash flows.
10 unchanged sentences
Navy entered into a settlement agreement to resolve disputes associated with billing and allocating to contracts the cost of workers’ compensation self-insurance, among other matters.
−Removed: In 2016, the Defense Contract Audit Agency ("DCAA") opined that the 1985 settlement agreement did not comply with certain CAS standards and referred the matter to a U.S.
−Removed: Navy Contracting Officer.
−Removed: In December 2020, the Contracting Officer issued a determination that the 1985 settlement agreement did not comply with CAS and directed the Company to develop and implement a different process to bill and allocate the cost of workers’ compensation self-insurance.
−Removed: Under the 1985 settlement agreement, the Company has not recognized as allowable cumulative billable costs of approximately $ 120 million resulting from the difference between CAS and U.S.
−Removed: GAAP Financial Accounting Standards ("FAS") treatment of workers’ compensation cost.
−Removed: Under the 1985 settlement agreement, these costs would be recognized as allowable billable costs in future periods.
−Removed: Though the Company believes the 1985 settlement agreement is CAS-compliant and cannot be unilaterally terminated, the Company will seek to negotiate a resolution of the matter with the Contracting Officer.
−Removed: If a resolution results in the use of a different treatment or billing methodology that does not provide for the Company to recognize as allowable the CAS to FAS difference, the resolution could have a material effect on the Company’s consolidated financial position, results of operations, or cash flows, including an inability to recover any or all of the $ 120 million of costs not yet billed to the customer.
−Removed: In January 2022, the Navy Contracting Officer issued a written determination that the Ingalls Shipbuilding Material Management and Accounting System has three significant deficiencies, resulting in a 5% withhold of payments on certain invoices issued under one contract.
−Removed: Ingalls Shipbuilding will submit a corrective action plan, and the withhold will be reduced to 2% if the Contracting Officer determines the corrective action plan has been implemented and is effective.
−Removed: The withhold will terminate and withheld funds returned to the Company when the Contracting Officer determines that the significant deficiencies have been corrected.
+Added: Consistent with the 1985 settlement agreement, the Company has not recovered cumulative billable costs resulting from the different treatment of workers' compensation costs between CAS and U.S.
+Added: GAAP Financial Accounting Standards ("FAS").
+Added: Under the 1985 settlement agreement, these costs would be recovered in future periods.
+Added: In December 2020, a U.S.
+Added: Navy Contracting Officer issued a determination that the 1985 settlement agreement did not comply with CAS and directed the Company to develop and implement a different process to bill and allocate the cost of workers’ compensation self-insurance.
+Added: The Company believes the 1985 settlement agreement is CAS-compliant and cannot be unilaterally terminated, but the Company is continuing to negotiate a resolution of the matter with the Contracting Officer.
+Added: In August 2022, the Navy Contracting Officer issued a written determination that the Ingalls Shipbuilding Property Management System had a significant deficiency, resulting in a 2 % withhold of payments on certain invoices issued under one contract.
+Added: The withhold will terminate and withheld funds paid to the Company when the Contracting Officer determines that the significant deficiency has been corrected.
Although the Company believes the ultimate resolution of this matter will not have a material effect on its consolidated financial position, results of operations, or cash flows, it cannot predict or give assurances regarding the ultimate outcome of this matter.
+Added: In January 2023, the Company entered into discussions with a Mission Technologies' customer to amend an existing contract addressing manufacturing issues.
+Added: An agreement has not been reached, but based on the current status of discussions, an amendment to the contract may result in the Company incurring future losses of up to $ 25 million.
Collective Bargaining Agreements - Of the Company's approximately 43,000 employees, approximately 45 % are covered by a total of nine collective bargaining agreements and one site stabilization agreement.
−Removed: Newport News has two collective bargaining agreements covering represented employees, which expire in December 2022 and April 2024, and one that expired in November 2021, which covers approximately 50 % of Newport News employees.
+Added: Newport News has three collective bargaining agreements covering represented employees, which expire in April 2024, February 2027, and December 2027.
Newport News craft workers employed at the Kesselring Site near Saratoga Springs, New York are represented under an indefinite Department of Energy ("DoE") site agreement.
Ingalls has five collective bargaining agreements covering represented employees, all of which expire in March 2026.
−Removed: Approximately 15 Technical Solutions employees in Klamath Falls, Oregon are covered by one collective bargaining agreement that expires in June 2025.
−Removed: The Company reached a tentative agreement with representatives of United Steelworkers ("USW") Local 8888 (Newport News) members on a new labor agreement in November 2021, but the members of the bargaining unit declined to ratify the contract.
−Removed: The Newport News and USW negotiation teams continued negotiations and reached a tentative agreement on another labor agreement in January 2022.
−Removed: The Company expects the members of the bargaining unit to vote on the new agreement in the near future.
−Removed: The USW Local 8888 members are continuing to work under the terms and conditions of the expired collective bargaining agreement, but the members may call for a strike, or the Company may declare a lock-out, upon 48 hours notice.
−Removed: In the event the Company and USW Local 8888 members fail to reach a collective bargaining agreement and the union calls for a strike or the Company declares a lock-out, the Company's consolidated results of operations could be negatively impacted on a material basis.
+Added: Approximately 15 Mission Technologies employees in Klamath Falls, Oregon are covered by one collective bargaining agreement that expires in June 2025.
Collective bargaining agreements generally expire after three to five years and are subject to renegotiation at that time.
The Company believes its relationship with its employees is satisfactory.
−Removed: Purchase Obligations - Periodically the Company enters into agreements to purchase goods or services that are enforceable and legally binding on the Company and specify all significant terms, including:
−Removed: fixed or minimum quantities to be purchased;
−Removed: fixed, minimum, or variable price provisions;
−Removed: and the approximate timing of the transaction.
−Removed: These obligations are primarily comprised of open purchase order commitments to vendors and subcontractors pertaining to funded contracts.
EMPLOYEE PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company provides eligible employees defined benefit pension plans, defined contribution benefit plans, and other postretirement benefit plans.
−Removed: Non-collectively bargained defined benefit pension benefits accruing under the traditional years of service and compensation formula were amended in 2009 to freeze future service accruals and were replaced with a cash balance benefit for all current non-collectively bargained employees.
+Added: Non-collectively bargained defined benefit pension plans accruing benefits under the traditional years of service and compensation formula were amended in 2009 to freeze future service accruals and were replaced with a cash balance benefit for all current non-collectively bargained employees.
Except for the major collectively bargained plan at Ingalls, the Company's qualified defined benefit pension plans are frozen to new entrants.
1 unchanged sentence
Government regulations.
−Removed: Plan obligations are measured based on the present value of projected future benefit payments to participants for services rendered to date.
+Added: Defined benefit plan obligations are measured based on the present value of projected future benefit payments to participants for services rendered to date.
The measurement of projected future benefits is dependent on the terms of each individual plan, demographics, and valuation assumptions.
3 unchanged sentences
Certain hourly employees are covered under a target benefit plan.
−Removed: In addition to the 401(k) defined contribution pension benefit formula, non-collectively bargained employees hired after June 30, 2008, and certain collectively bargained employees hired after July 10, 2017, are
−Removed: eligible to participate in a defined contribution benefit program in lieu of a defined benefit pension plan.
+Added: In addition to the 401(k) defined contribution pension benefit formula, non-collectively bargained employees hired after June 30, 2008, and certain collectively bargained employees hired after July 10, 2017, are eligible to participate in a defined contribution benefit program in lieu of a defined benefit pension plan.
The Company's contributions to the qualified defined contribution pension plans for the years ended December 31, 2022, 2021, and 2020, were $ 153 million, $ 140 million, and $ 130 million, respectively.
1 unchanged sentence
The liabilities related to these plans as of December 31, 2022, were $ 192 million and $ 38 million, respectively, and as of December 31, 2021, were $ 240 million and $ 45 million, respectively.
−Removed: Assets, primarily in the form of Level 1 marketable securities held in grantor trusts, are intended to fund certain of these obligations.
+Added: Grantor trust assets, primarily in the form of Level 1 marketable securities, are intended to fund certain of these obligations.
The trusts’ fair values supporting these liabilities as of December 31, 2022 and 2021, were $ 209 million and $ 220 million, respectively, of which $ 169 million and $ 173 million, respectively, were related to the non-qualified defined benefit pension plans.
14 unchanged sentences
Amortization of net actuarial loss (gain) 35 110 109 ( 3 ) ( 3 ) ( 7 )
+Added: Settlement gain ( 4 ) — — — — —
Net periodic benefit cost $ ( 102 ) $ 11 $ 73 $ 16 $ 17 $ ( 3 )
11 unchanged sentences
Benefits paid ( 314 ) ( 291 ) ( 42 ) ( 48 )
+Added: Settlement ( 32 ) — — —
Benefit obligation at end of year 6,438 8,569 394 505
5 unchanged sentences
Benefits paid ( 314 ) ( 291 ) ( 42 ) ( 48 )
+Added: Settlement ( 32 ) — — —
Fair value of plan assets at end of year 6,781 8,460 — —
14 unchanged sentences
The ABO is similar to the PBO, but does not provide for future salary increases.
−Removed: The PBO and fair value of plan assets for all qualified and non-qualified pension plans with PBOs in excess of plan assets were $ 1,151 million and $ 761 million, respectively, as of December 31, 2021, and $ 8,706 million and $ 7,710 million, respectively, as of December 31, 2020.
−Removed: There were no qualified or non–qualified pension plans with ABOs in excess of plan assets as of December 31, 2021.
−Removed: The ABO and fair value of plan assets for all qualified and non-qualified pension plans with ABOs in excess of plan assets were $ 6,590 million and $ 6,072 million, respectively, as of December 31, 2020.
−Removed: The ABO for all pension plans was $ 8,120 million and $ 8,221 million as of December 31, 2021 and 2020, respectively.
+Added: The PBOs and fair values of plan assets for all qualified and non-qualified pension plans with PBOs in excess of plan assets were $ 868 million and $ 611 million, respectively, as of December 31, 2022, and $ 1,151 million and $ 761 million, respectively, as of December 31, 2021.
+Added: The ABOs for all qualified and non-qualified pension plans with ABOs in excess of plan assets were $ 176 million and $ 222 million as of December 31, 2022, and 2021, respectively.
+Added: The ABOs for all pension plans were $ 6,193 million and $ 8,120 million as of December 31, 2022 and 2021, respectively.
The changes in amounts recorded in accumulated other comprehensive income (loss) were as follows:
2 unchanged sentences
($ in millions) 2022 2021 2020 2022 2021 2020
−Removed: Prior service cost (credit) $ — $ ( 26 ) $ — $ 14 $ — $ —
+Added: Prior service credit (cost) $ ( 97 ) $ — $ ( 26 ) $ — $ 14 $ —
Amortization of prior service cost (credit) 22 15 12 ( 4 ) ( 4 ) ( 22 )
−Removed: Net actuarial loss (gain) 704 ( 222 ) ( 230 ) 2 ( 31 ) ( 35 )
+Added: Net actuarial gain (loss) 384 704 ( 222 ) 103 2 ( 31 )
Amortization of net actuarial loss (gain) 35 110 109 ( 3 ) ( 3 ) ( 7 )
26 unchanged sentences
As of December 31, 2021, the Company assumed an expected initial health care cost trend rate of 5.50 % and an ultimate health care cost trend rate of 4.50 % to be reached in 2027 .
−Removed: The Employee Retirement Income Security Act of 1974 ("ERISA"), including amendments under pension relief, defines the minimum amount that must be contributed to the Company's qualified defined benefit pension plans.
−Removed: In determining whether to make discretionary contributions to these plans above the minimum required amounts, the Company considers various factors, including attainment of the funded percentage needed to avoid benefit restrictions and other adverse consequences, minimum CAS funding requirements, and the current and anticipated
−Removed: future funding levels of each plan.
+Added: The Employee Retirement Income Security Act of 1974 ("ERISA"), including amendments under pension relief legislation, defines the minimum amount the Company must contribute to its qualified defined benefit pension plans.
+Added: In determining whether to make discretionary contributions to these plans above the minimum required amounts, the Company considers various factors, including attainment of the funded percentage needed to avoid benefit restrictions and other adverse consequences, minimum CAS funding requirements, and the current and anticipated future funding levels of each plan.
The Company's contributions to its qualified defined benefit pension plans are affected by a number of factors, including published IRS interest rates, the actual return on plan assets, actuarial assumptions, and demographic experience.
30 unchanged sentences
Investment objectives for each asset class are determined based on specific risks and investment opportunities identified.
−Removed: Decisions regarding investment policies and asset allocations are made with the understanding of the historical and
−Removed: prospective return and risk characteristics of various asset classes, the effect of asset allocations on funded status, future Company contributions, and projected expenditures, including benefit payments.
+Added: Decisions regarding investment policies and asset allocations are made with the understanding of the historical and prospective return and risk characteristics of various asset classes, the effect of asset allocations on funded status, future Company contributions, and projected expenditures, including benefit payments.
The Company updates its asset allocations periodically.
3 unchanged sentences
The master trust utilizes select investment strategies, which are executed through separate account or fund structures with external investment managers who demonstrate experience and expertise in the appropriate asset classes and styles.
−Removed: The selection of investment managers is done with careful evaluation of all aspects of performance and risk, demonstrated fiduciary responsibility, investment management experience, and a review of the investment managers' policies and processes.
+Added: The selection of investment managers is done with careful evaluation of all aspects of performance and risk, demonstrated fiduciary responsibility, investment management experience, and a review of investment manager policies and processes.
Investment performance is monitored frequently against appropriate benchmarks and tracked to compliance guidelines with the assistance of third-party consultants and performance evaluation tools and metrics.
6 unchanged sentences
Pricing methods are based upon market transactions for comparable securities and various relationships between securities that are generally recognized by institutional traders, and fixed-income securities typically are categorized as Level 2.
−Removed: Investments in collective trust funds and commingled funds that use Net Asset Values (“NAV”) are valued based on the redemption price of units owned by the master trust, which is based on the current fair values of the funds’ underlying assets, as reported by the investment manager.
+Added: Investments in collective trust funds and commingled funds that use Net Asset Values (“NAV”) are valued based on the redemption price of units owned by the master trust, which is based on the current fair values of the fund assets, as reported by the investment manager.
Investments in hedge funds generally do not have readily available market quotations and are estimated at fair value, which primarily utilizes NAV or the equivalent, as a practical expedient, as reported by the investment manager.
67 unchanged sentences
the Huntington Ingalls Industries, Inc.
+Added: 2011 Long-Term Incentive Stock Plan (the "2011 Plan"), the Huntington Ingalls Industries, Inc.
2012 Long-Term Incentive Stock Plan (the "2012 Plan"), and the Huntington Ingalls Industries, Inc.
3 unchanged sentences
Award grants made on or after May 3, 2022, were made under the 2022 Plan.
−Removed: Award grants made prior to May 2, 2012, were made under the 2011 Plan.
−Removed: No future grants will be made under the 2011 Plan.
+Added: Award grants made prior to May 3, 2022, were made under the 2011 Plan or the 2012 Plan.
+Added: No future grants will be made under the 2011 Plan or the 2012 Plan.
The 2022 Plan permits awards of stock options, stock appreciation rights, and other stock awards.
−Removed: Each stock option grant is made with an exercise price of not less than 100% of the closing price of HII's common stock on the date of grant.
Stock awards, in the form of RPSRs, restricted stock rights ("RSRs"), and stock rights, are granted to key employees and members of the board of directors without payment to the Company.
The 2022 Plan authorized (i) 1.3 million new shares;
−Removed: plus (ii) any shares subject to outstanding awards under the 2011 Plan that were subsequently forfeited to the Company;
−Removed: plus (iii) any shares subject to outstanding awards under the 2011 Plan that were subsequently exchanged by the participant as full or partial payment to the Company in connection with any such award or exchanged by a participant or withheld by the Company to satisfy the tax withholding obligations
−Removed: related to any such award.
+Added: plus (ii) any shares subject to outstanding awards under the 2012 Plan or 2011 Plan that were subsequently forfeited to the Company;
+Added: plus (iii) any shares subject to outstanding awards under the 2012 Plan or 2011 Plan that were subsequently exchanged by the participant as full or partial payment to the Company in connection with any such award or exchanged by a participant or withheld by the Company to satisfy the tax withholding obligations related to any such award.
As of December 31, 2022, the remaining aggregate number of shares of the Company's common stock authorized for issuance under the 2022 Plan was 1.3 million.
+Added: The 2012 Plan permitted awards of stock options, stock appreciation rights, and other stock awards.
+Added: Stock awards, in the form of RPSRs, RSRs, and stock rights were granted to key employees and members of the board of directors without payment to the Company.
The 2011 Plan permitted the awards of stock options and other stock awards.
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In 2022, the Company granted approximately 2,400 RSRs at a weighted average share price of $ 208.81 , with cliff vesting one to three years from the grant date.
+Added: In 2021, the Company granted approximately 31,400 RSRs at a weighted average share price of $ 187.59 , with cliff vesting one to three years from the grant date.
In 2020, the Company granted less than 1,000 RSRs at a weighted average share price of $ 192.26 , with cliff vesting two to three years from the grant date.
−Removed: In 2019, no retention stock awards were granted.
As of December 31, 2022, approximately 23,300 RSRs were outstanding.
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For the year ended December 31, 2021, 0.1 million stock awards vested, of which less than 0.1 million were transferred to the Company from employees in satisfaction of minimum tax withholding obligations.
−Removed: For the year ended December 31, 2019, 0.3 million stock awards vested, of which approximately 0.1 million were transferred to the Company from employees in satisfaction of minimum tax withholding obligations.
+Added: For the year ended December 31, 2020, 0.1 million stock awards vested, of which less than 0.1 million were transferred to the Company from employees in satisfaction of minimum tax withholding obligations.
Stock Rights and Stock Issuances - The Company granted stock rights to its non-employee directors on a quarterly basis in 2022, with each grant less than 10,000 shares.
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Non-employee directors may also elect to receive their annual cash retainers in the form of stock units that become payable upon termination of the director’s board service.
−Removed: Non-employee directors who elect to receive their annual cash retainers in the form of stock units and have met their stock ownership guidelines may elect under the terms of the Amended and Restated Directors’ Compensation Policy and Amended and Restated Board Deferred Compensation Policy to receive stock units for the following calendar year that are payable in the fifth calendar year after the year in which the stock units are earned, or, if earlier, upon termination of the director’s board service.
+Added: Non-employee directors who elect to receive their annual cash retainers in the form of stock units and have met their stock ownership guidelines may elect under the terms of the Amended and Restated Directors’ Compensation Policy and Amended and Restated Board Deferred Compensation Policy to receive in the following calendar year either shares of the Company's common stock or stock units that are payable in the fifth calendar year after the year in which the stock units are earned, or, if earlier, upon termination of the director’s board service.
Stock award activity for the years ended December 31, 2022, 2021, and 2020, was as follows:
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Forfeited ( 16 ) 231.06
−Removed: Outstanding as of December 31, 2019 374 201.92 0.9 years
+Added: Outstanding as of December 31, 2020 381 211.77 1.0 year
Granted 213 181.66
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Unrecognized Compensation Expense
−Removed: As of December 31, 2021, the Company had $ 4 million of unrecognized compensation expense associated with RSRs granted in 2021 and 2020, which will be recognized over a weighted average period of 1.6 years, and $ 28 million of unrecognized expense associated with RPSRs granted in 2021 and 2020, which will be recognized over a weighted average period of 1.1 years.
+Added: As of December 31, 2022, the Company had $ 2 million of unrecognized compensation expense associated with RSRs granted in 2022 and 2021, which will be recognized over a weighted average period of 1.0 year, and $ 31 million of unrecognized expense associated with RPSRs granted in 2022 and 2021, which will be recognized over a weighted average period of 1.1 years.
SUBSIDIARY GUARANTORS
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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.