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Item 1. Financial Statements

2023-05-04 compared with 2022-11-03 · 108 added, 243 removed, 342 unchanged (51% of the section changed)

2 unchanged sentences

Three Months Ended

September 30 Nine Months Ended

(in millions, except per share amounts) 2023 2022

7 unchanged sentences

Income from operating investments, net 12 7

Other income and gains, net — 2 — 3

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

General and administrative expenses 220 217

5 unchanged sentences

Earnings before income taxes 163 176

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

Federal and foreign income tax expense 34 36

Net earnings $ 129 $ 140

7 unchanged sentences

Change in unamortized benefit plan costs 4 ( 86 )

Other ( 1 ) ( 1 ) ( 2 ) 1

Tax benefit (expense) for items of other comprehensive income ( 1 ) 22

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

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

($ in millions) March 31, 2023 December 31, 2022

Current Assets

Cash and cash equivalents $ 318 $ 467

Accounts receivable, net of allowance for doubtful accounts of $ 2 million as of 2022 and $ 9 million as of 2021

Accounts receivable, net of allowance for doubtful accounts of $ 2 million as of 2023 and 2022

Contract assets 1,298 1,240

32 unchanged sentences

150 million shares authorized;

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

53.6 million shares issued and 39.9 million shares outstanding as of March 31, 2023, and 53.5 million shares issued and 39.9 million shares outstanding as of December 31, 2022

Additional paid-in capital 2,024 2,022

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended

Three Months Ended

($ in millions) 2023 2022

1 unchanged sentence

Net earnings $ 129 $ 140

Adjustments to reconcile to net cash provided by (used in) operating activities

Adjustments to reconcile to net cash used in operating activities

Depreciation 55 52

12 unchanged sentences

Other non-cash transactions, net 2 ( 1 )

Net cash provided by operating activities 165 489

Net cash used in operating activities ( 9 ) ( 83 )

Investing Activities

2 unchanged sentences

Grant proceeds for capital expenditures 3 —

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

Investment in affiliates ( 20 ) —

Proceeds from disposition of business — 20

Other investing activities, net 6 1

Net cash used in investing activities ( 60 ) ( 43 )

Financing Activities

Proceeds from issuance of long-term debt — 1,650

Repayment of long-term debt ( 10 ) ( 100 )

Debt issuance costs — ( 22 )

Dividends paid ( 49 ) ( 47 )

1 unchanged sentence

Employee taxes on certain share-based payment arrangements ( 12 ) ( 14 )

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

Net cash used in financing activities ( 80 ) ( 171 )

Change in cash and cash equivalents ( 149 ) ( 297 )

2 unchanged sentences

Supplemental Cash Flow Disclosure

Cash paid for income taxes (net of refunds) $ 107 $ 31

Cash paid for interest $ 12 $ 11

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

Three Months Ended September 30, 2022 and 2021

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

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

Net earnings — — 147 — — 147

Dividends declared ($1.14 per share) — — ( 46 ) — — ( 46 )

Stock-based compensation — 7 — — — 7

Other comprehensive income, net of tax — — — — 31 31

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

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

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

Net earnings — — 138 — — 138

Dividends declared ($1.18 per share) — — ( 48 ) — — ( 48 )

Stock-based compensation — 12 — — — 12

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

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

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

Nine Months Ended September 30, 2022 and 2021

Three Months Ended March 31, 2023 and 2022

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

2 unchanged sentences

Dividends declared ($ 1.18 per share)

— — ( 47 ) — — ( 47 )

Stock-based compensation — ( 3 ) ( 2 ) — — ( 5 )

Other comprehensive income, net of tax — — — — 77 77

Other comprehensive loss, net of tax — — — — ( 64 ) ( 64 )

Treasury stock activity — — — ( 10 ) — ( 10 )

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

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

Balance as of December 31, 2022 $ 1 $ 2,022 $ 4,276 $ ( 2,211 ) $ ( 599 ) $ 3,489

1 unchanged sentence

Dividends declared ($ 1.24 per share)

— — ( 49 ) — — ( 49 )

Stock-based compensation — 2 ( 2 ) — — —

Other comprehensive loss, net of tax — — — — ( 47 ) ( 47 )

Other comprehensive income, net of tax — — — — 3 3

Treasury stock activity — — — ( 9 ) — ( 9 )

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

Balance as of March 31, 2023 $ 1 $ 2,024 $ 4,354 $ ( 2,220 ) $ ( 596 ) $ 3,563

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

5 unchanged sentences

HII is organized into three reportable segments:

Ingalls Shipbuilding ("Ingalls"), Newport News Shipbuilding ("Newport News"), and Mission Technologies (formerly named Technical Solutions).

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.

naval shipbuilder.

naval shipbuilder, making HII America's largest shipbuilder.

The Mission Technologies segment delivers high-value engineering and technology solutions to enable multi-domain distributed operations in the government and commercial services markets.

HII conducts most of its business with the U.S.

Government, primarily the Department of Defense ("DoD").

As prime contractor, principal subcontractor, team member, or partner, the Company participates in many high-priority U.S.

defense programs.

Through its Ingalls segment, HII is a builder of amphibious assault and expeditionary warfare ships for the U.S.

Navy, the sole builder of National Security Cutters for the U.S.

Coast Guard, and one of only two companies that builds the Navy's current fleet of Arleigh Burke class (DDG 51) destroyers.

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

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

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

defensive and offensive cyberspace strategies and electronic warfare;

unmanned autonomous systems;

live, virtual, and constructive training solutions;

platform modernization;

and critical nuclear operations.

BASIS OF PRESENTATION

Principles of Consolidation - The unaudited condensed 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-Q promulgated by the Securities and Exchange Commission ("SEC").

As used in the Notes to the Condensed Consolidated Financial Statements (Unaudited), the terms "HII" and "the Company" refer to HII and its subsidiaries.

All intercompany transactions and balances are eliminated in consolidation.

For classification of current assets and liabilities related to its long-term production contracts, the Company uses the duration of these contracts as its operating cycle, which is generally longer than one year.

These unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature considered necessary by management for a fair presentation of the unaudited condensed consolidated financial position, results of operations, and cash flows and should be read in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

The quarterly information is labeled using a calendar convention;

6 unchanged sentences

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

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

These trusts were valued at $ 215 million and $ 209 million as of March 31, 2023, and December 31, 2022, respectively, and are presented within miscellaneous other assets within the unaudited condensed consolidated statements of financial position.

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

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

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

The estimated fair values of the Company's total long-term debt (including current portion) as of March 31, 2023, and December 31, 2022, were $ 2,747 million and $ 2,703 million, respectively.

The estimated fair values of the current portion of the Company's long-term debt were $ 393 million and $ 390 million as of March 31, 2023 and December 31, 2022, respectively.

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

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

ACCOUNTING STANDARDS UPDATES

Accounting pronouncements issued but not effective until after December 31, 2023, are not expected to have a material impact on the Company's consolidated financial position, results of operations, and cash flows.

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.

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

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

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

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

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

The acquisition accounting was completed at September 30, 2022.

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

Alion provides advanced engineering and research and development 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.

Navy 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, 2021.

Three Months Ended

September 30 Nine Months Ended

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

Sales and service revenues $ 2,626 $ 2,532 $ 7,864 $ 7,687

Net earnings $ 138 $ 142 $ 456 $ 416

Basic earnings per share $ 3.44 $ 3.52 $ 11.37 $ 10.32

Diluted earnings per share $ 3.44 $ 3.52 $ 11.37 $ 10.32

These unaudited pro forma results include adjustments associated with 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.

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.

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.

STOCKHOLDERS' EQUITY

1 unchanged sentence

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

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

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

For the three months ended March 31, 2023, the Company repurchased 39,325 shares at an aggregate cost of $ 9 million.

For the three months ended March 31, 2022, the Company repurchased 50,549 shares at an aggregate cost of $ 10 million.

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

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

Dividends - The Company paid cash dividends totaling $ 49 million and $ 47 million for the three months ended March 31, 2023 and 2022, respectively.

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

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

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

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

The accumulated other comprehensive loss was comprised of unamortized benefit plan costs of $ 596 million and $ 599 million as of March 31, 2023 and December 31, 2022, respectively.

The changes in accumulated other comprehensive loss by component for the three months ended March 31, 2023 and 2022, were as follows:

($ in millions) Benefit Plans Other Total

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

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

Amounts reclassified from accumulated other comprehensive loss

Amortization of prior service cost 1

Amortization of net actuarial loss 1

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

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

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

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

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

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

Other comprehensive loss before reclassifications ( 97 ) — ( 97 )

Amounts reclassified from accumulated other comprehensive loss

1 unchanged sentence

Amortization of net actuarial loss 1

Settlement gain 1

( 4 ) — ( 4 )

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

Net current period other comprehensive income 8 — 8

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

($ in millions) Benefit Plans Other Total

Tax benefit for items of other comprehensive loss 22 — 22

Net current period other comprehensive loss ( 64 ) — ( 64 )

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

Balance as of December 31, 2022 $ ( 599 ) $ — $ ( 599 )

Other comprehensive income before reclassifications 14 1 15

Amounts reclassified from accumulated other comprehensive loss

3 unchanged sentences

Net current period other comprehensive income 3 — 3

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

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

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

Amounts reclassified from accumulated other comprehensive loss

Amortization of prior service cost 1

Amortization of net actuarial loss 1

Settlement gain 1

( 4 ) — ( 4 )

Tax benefit for items of other comprehensive loss 15 1 16

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

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

Balance as of March 31, 2023 $ ( 596 ) $ — $ ( 596 )

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

Employee Pension and Other Postretirement Benefits.

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

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

The tax expense recorded in stockholders' equity for the amounts reclassified from accumulated other comprehensive loss for the three months ended March 31, 2023 and 2022, was $ 1 million and $ 3 million, respectively.

EARNINGS PER SHARE

1 unchanged sentence

Three Months Ended

September 30 Nine Months Ended

(in millions, except per share amounts) 2023 2022

5 unchanged sentences

Earnings per share - diluted $ 3.23 $ 3.50

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

Under the treasury stock method, the Company has excluded from the diluted share amounts presented above the effects of 0.5 million and 0.4 million Restricted Performance Stock Rights ("RPSRs") for the three months ended March 31, 2023 and 2022, respectively.

Disaggregation of Revenue

1 unchanged sentence

firm fixed-price, fixed-price incentive, cost-type, and time and materials.

• Firm Fixed-Price Contracts - A firm fixed-price contract is a contract in which the specified scope of work is agreed to for a price that is predetermined by bid or negotiation and not generally subject to adjustment regardless of costs incurred by the contractor.

• Fixed-Price Incentive Contracts - Fixed-price incentive contracts provide for reimbursement of the contractor's allowable costs, but are subject to a cost-share limit that affects profitability.

Fixed-price incentive contracts effectively become firm fixed-price contracts once the cost-share limit is reached.

• Cost-Type Contracts - Cost-type contracts provide for reimbursement of the contractor's allowable costs plus a fee that represents profit.

Cost-type contracts generally require that the contractor use its reasonable efforts to accomplish the scope of the work within some specified time and some stated dollar limitation.

• Time and Materials - Time and materials contracts specify a fixed hourly billing rate for each direct labor hour expended and reimbursement for allowable material costs and expenses.

For more information on the Company's contracts, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company's 2022 Annual Report on Form 10-K.

The following tables present revenues on a disaggregated basis:

Three Months Ended September 30, 2022

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

Product sales $ 577 $ 1,185 $ 12 $ — $ 1,774

Service revenues 41 259 552 — 852

Intersegment 5 1 31 ( 37 ) —

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

Customer Type

Federal $ 618 $ 1,444 $ 554 $ — $ 2,616

Commercial — — 9 — 9

State and local government agencies — — 1 — 1

Intersegment 5 1 31 ( 37 ) —

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

Contract Type

Firm fixed-price $ 1 $ 1 $ 59 $ — $ 61

Fixed-price incentive 577 723 — — 1,300

Cost-type 40 720 437 — 1,197

Time and materials — — 68 — 68

Intersegment 5 1 31 ( 37 ) —

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

Three Months Ended September 30, 2021

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

Product sales $ 586 $ 1,088 $ 27 $ — $ 1,701

Service revenues 38 263 336 — 637

Intersegment 4 3 31 ( 38 ) —

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

Customer Type

Federal $ 624 $ 1,351 $ 354 $ — $ 2,329

Commercial — — 9 — 9

Intersegment 4 3 31 ( 38 ) —

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

Contract Type

Firm fixed-price $ 5 $ 15 $ 52 $ — $ 72

Fixed-price incentive 585 686 — — 1,271

Cost-type 34 650 261 — 945

Time and materials — — 50 — 50

Intersegment 4 3 31 ( 38 ) —

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

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

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

6 unchanged sentences

Commercial — — 13 — 13

State and local government agencies — — 1 — 1

Intersegment 2 1 30 ( 33 ) —

7 unchanged sentences

Sales and service revenues $ 577 $ 1,506 $ 624 $ ( 33 ) $ 2,674

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

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

16 unchanged sentences

Three Months Ended

September 30 Nine Months Ended

($ in millions) 2023 2022

2 unchanged sentences

Surface combatants and coast guard cutters 253 265

Other 7 16 12 17

Total Ingalls 577 631

3 unchanged sentences

Total Newport News 1,506 1,390

Government and energy services 595 394 1,785 876

Oil and gas services — — — 14

Mission based solutions 518 491

Total Mission Technologies 624 590

1 unchanged sentence

Sales and service revenues $ 2,674 $ 2,576

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

As of March 31, 2023, the Company had $ 47.0 billion of remaining performance obligations.

The Company expects to recognize approximately 40 % of its remaining performance obligations as revenue through 2024, an additional 25 % through 2026, and the balance thereafter.

Cumulative Catch-up Adjustments

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

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

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

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

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

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

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

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

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

Cumulative Catch-up Revenue Adjustments

For the three months ended March 31, 2023, net cumulative catch-up revenue adjustments increased operating income and increased diluted earnings per share by $ 9 million and $ 0.17 , respectively.

For the three months ended March 31, 2022, net cumulative catch-up revenue adjustments increased operating income and increased diluted earnings per share by $ 45 million and $ 0.89 , respectively.

Cumulative catch-up revenue adjustments for the three months ended March 31, 2023, included a favorable adjustment of $ 15 million on a contract at the Company's Newport News segment, which increased diluted earnings per share by $ 0.30 .

Cumulative catch-up revenue adjustments for the three months ended March 31, 2023, included an unfavorable adjustment of $ 14 million on a contract at the Company's Newport News segment, which decreased diluted earnings per share by $ 0.28 .

Cumulative catch-up revenue adjustments for the three months ended March 31, 2022, included a favorable adjustment of $ 17 million on a contract at the Company's Ingalls segment, which increased diluted earnings per share by $ 0.34 .

For the three months ended March 31, 2022, no individual unfavorable cumulative catch-up revenue adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.

Contract Balances

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

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

The Company’s net contract assets increased $ 14 million from December 31, 2022, to March 31, 2023, primarily resulting from an increase in contract assets related to revenue on certain U.S.

Navy contracts.

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

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

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

For the three months ended March 31, 2023, the Company recognized revenue of $ 551 million related to its contract liabilities as of December 31, 2022.

For the three months ended March 31, 2022, the Company recognized revenue of $ 379 million related to its contract liabilities as of December 31, 2021.

SEGMENT INFORMATION

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

The following table presents segment results for the three months ended March 31, 2023 and 2022:

Three Months Ended

September 30 Nine Months Ended

($ in millions) 2023 2022

14 unchanged sentences

Operating income $ 141 $ 138

Operating FAS/CAS Adjustment - The Operating FAS/CAS Adjustment represents the difference between the service cost component of our pension and other postretirement benefit plan expense determined in accordance with GAAP ("FAS") and our pension and other postretirement expense under CAS.

GAAP Financial Accounting Standards ("FAS") and our pension and other postretirement expense under U.S.

Government Cost Accounting Standards ("CAS").

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

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

($ in millions) March 31, 2023 December 31, 2022

Ingalls $ 1,615 $ 1,633

3 unchanged sentences

Total assets $ 10,849 $ 10,857

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

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

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

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

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

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

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

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

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

The Company's earnings are primarily domestic, and its effective income tax rates on earnings from operations for the three months ended March 31, 2023 and 2022, were 20.9 % and 20.5 %, respectively, which did not differ materially from the federal statutory corporate income tax rate of 21 %.

The Company's unrecognized tax benefits increased by $ 2 million during the three months ended March 31, 2023.

As of March 31, 2023, the estimated amounts of the Company's unrecognized tax benefits, excluding interest and penalties, were liabilities of $ 92 million.

Assuming a sustainment of these tax positions, a reversal of $ 70 million of the accrued amounts would favorably affect the Company's effective federal income tax rate in future periods.

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

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

For the three months ended March 31, 2023, interest resulting from the unrecognized tax benefits noted above increased income tax expense by $ 1 million.

Non-current state income taxes include deferred state income taxes, which reflect the change in deferred state tax assets and liabilities, and the tax expense or benefit associated with changes in unrecognized state tax benefits in the relevant period.

3 unchanged sentences

The Company is involved in legal proceedings before various courts and administrative agencies, and is periodically subject to government examinations, inquiries and investigations.

Pursuant to FASB ASC 450 Contingencies, the Company has accrued for losses associated with investigations, claims, and litigation when, and to the extent that, loss amounts related to the investigations, claims, and litigation are probable and can be reasonably estimated.

Pursuant to FASB Accounting Standards Codification 450 Contingencies, the Company has accrued for losses associated with investigations, claims, and litigation when, and to the extent that, loss amounts related to the investigations, claims, and litigation are probable and can be reasonably estimated.

The actual losses that might be incurred to resolve such investigations, claims, and litigation may be higher or lower than the amounts accrued.

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.

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.

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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 initiated arbitration proceedings against six other reinsurers seeking similar relief.

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

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

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

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

The costs to resolve cases during the three months ended March 31, 2023 and 2022, were not material individually or in the aggregate.

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

Although the Company believes the ultimate resolution of current cases will not have a material effect on its consolidated financial position, results of operations, and 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.

Although the Company believes the ultimate resolution of current cases will not have a material effect on its condensed 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.

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Government, and such proceedings can therefore include False Claims Act allegations against the Company.

Although the Company believes that the resolution of these other claims, legal proceedings, and investigations will not have a material effect on its consolidated financial position, results of operations, and cash flows, the Company 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 these matters.

Although the Company believes that the resolution of these other claims, legal proceedings, and investigations will not have a material effect on its condensed consolidated financial position, results of operations, or cash flows, the Company 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 these matters.

COMMITMENTS AND CONTINGENCIES

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

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

As of March 31, 2023, amounts recognized in connection with claims and requests for equitable adjustment were not material individually or in the aggregate.

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

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

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

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

These accruals do not include any litigation costs related to environmental

matters, nor do they include amounts recorded as asset retirement obligations.

Management estimates that as of March 31, 2023, the probable estimable future cost for environmental remediation was not material.

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

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

As of March 31, 2023, the Company had $ 14 million in issued but undrawn letters of credit and $ 360 million of surety bonds outstanding.

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

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Government representatives engage in discussions, from which the Company evaluates the merits of the claims and assesses the amounts being questioned.

Although the Company believes that the resolution of any of these matters will not have a material effect on its consolidated financial position, results of operations, and cash flows, it cannot predict the ultimate outcome of these matters.

Although the Company believes that the resolution of any of these matters will not have a material effect on its consolidated financial position, results of operations, or cash flows, it cannot predict the ultimate outcome of these matters.

Other Matters - In 1985, the Company and the U.S.

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.

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.

GAAP Financial Accounting Standards ("FAS").

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 FAS.

Under the 1985 settlement agreement, these costs would be recovered in future periods.

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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.

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

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

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.

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

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

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

In response, the Company proposed a corrective action plan, which the Navy approved.

Subsequently, the Navy terminated the withhold and released withheld funds to the Company.

In January 2023, the Company entered into discussions with a Mission Technologies' customer to amend an

existing contract to address manufacturing issues.

Although final agreement has not been reached, the Company recorded during the period ended March 31, 2023, a provision for contract loss that was not material to the financial statements as a whole.

National Security Cutter (“NSC”) 11 Steel Plates Issue - After the Company’s Ingalls Shipbuilding segment began fabrication of Friedman (NSC 11) for the U.S.

Coast Guard, the Coast Guard initiated communications with Ingalls about the degree of corrosion of certain steel plates Ingalls was using to fabricate Friedman (NSC 11), as well as the process Ingalls was using to remediate the corrosion.

The Coast Guard subsequently informed Ingalls of its objection to the process Ingalls was using to remediate corrosion in Friedman (NSC 11) steel plates and requested that Ingalls follow a different remediation process or, alternatively, reconstruct affected fabricated units with new steel.

Ingalls and the Coast Guard are continuing to seek a resolution of the matter.

The Company has included estimates of the financial impact of the Friedman (NSC 11) matter into its contract cost estimates and revenue recognition processes.

The variability of the scope of work the Company will perform to resolve the matter and the extent to which the Company will recover increased costs to resolve the matter could impact those estimates in the future.

The ultimate resolution of the Friedman (NSC 11) steel plates issue, including the scope of remediation work and recovery of associated costs, could result in an adverse effect on the Company's condensed consolidated financial position, results of operations, or cash flows.

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.

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

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

The costs of the Company's defined benefit pension plans and other postretirement benefit plans for the three months ended March 31, 2023 and 2022, were as follows:

Three Months Ended

September 30 Nine Months Ended

Pension Benefits Other Benefits Pension Benefits Other Benefits

Pension Benefits Other Benefits

($ in millions) 2023 2022 2023 2022

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Amortization of net actuarial loss (gain) 4 9 ( 3 ) ( 1 )

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

Net periodic benefit (income) cost $ ( 10 ) $ ( 28 ) $ 2 $ 4

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

Nine Months Ended

The Company made the following contributions to its defined benefit pension plans and other postretirement benefit plans for the three months ended March 31, 2023 and 2022:

Three Months Ended

($ in millions) 2023 2022

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Total contributions $ 10 $ 10

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

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

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

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

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

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

As a result of the amendment, the remeasurement of the plan increased the pension liability and pre-tax accumulated other comprehensive loss by approximately $ 97 million.

As of March 31, 2023, the Company anticipates no further significant cash contributions to its qualified defined benefit pension plans in 2023.

STOCK COMPENSATION PLANS

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

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

During the three months ended March 31, 2023 and 2022, the Company issued new stock awards as follows:

Restricted Performance Stock Rights - For the three months ended March 31, 2023, the Company granted approximately 0.1 million RPSRs at a weighted average share price of $ 215.20 .

These rights are subject to cliff vesting on December 31, 2025.

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

For the three months ended March 31, 2022, the Company granted approximately 0.1 million RPSRs at a weighted average share price of $ 204.10 .

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

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

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

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

For the three months ended March 31, 2023 and 2022, awards of approximately 0.1 million and 0.2 million shares of stock vested, respectively, of which less than 0.1 million for each period were transferred to the Company from employees in satisfaction of minimum tax withholding obligations.

The following table summarizes the status of the Company's outstanding stock awards as of March 31, 2023:

(in thousands) Weighted-Average

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Compensation Expense

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

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

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

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

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

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

The Company recorded stock-based compensation for the value of awards granted to Company employees and non-employee members of the board of directors of $ 12 million and $ 9 million for the three months ended March 31, 2023 and 2022, respectively.

The Company recorded tax benefits related to stock awards of $ 2 million and $ 1 million for the three months ended March 31, 2023 and 2022, respectively.

The Company recognized tax benefits associated with the issuance of stock in settlement of stock awards of $ 3 million and $ 4 million for the three months ended March 31, 2023 and 2022, respectively.

Unrecognized Compensation Expense

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

As of March 31, 2023, the Company had $ 2 million of unrecognized compensation expense associated with Restricted Stock Rights granted in 2023, 2022, and 2021, which will be recognized over a weighted average period of 0.9 years, and $ 57 million of unrecognized compensation expense associated with RPSRs granted in 2023, 2022, and 2021, which will be recognized over a weighted average period of 1.7 years.

SUBSEQUENT EVENTS

In April 2023, the Company amended its existing $ 1.5 billion credit facility (the "Revolving Credit Facility") and $ 650 million term loan due August 19, 2024 (the "Term Loan") to change the benchmark interest rate from the London Interbank Offered Rate to the Secured Overnight Financing Rate (“SOFR”).

The new interest rate will be based on SOFR plus an interest spread based on the Company's credit rating, plus an additional 0.10 %.

The Company does not expect the transition to the SOFR benchmark to materially impact its financial results.

For further information on the Company's debt, see the Company's 2022 Annual Report on Form 10-K.

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

What changed 10-Q

Item 1. Financial Statements