What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-03 compared with 2023-05-04 · 181 added, 94 removed, 356 unchanged (44% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

Three Months Ended

Three Months Ended June 30 Six Months Ended June 30

(in millions, except per share amounts) 2023 2022 2023 2022

7 unchanged sentences

Income from operating investments, net 4 27 16 34

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

Other income and gains, net 1 1 — —

General and administrative expenses 238 227 458 444

15 unchanged sentences

Change in unamortized benefit plan costs 5 13 9 ( 73 )

Other — ( 1 ) — ( 1 )

Tax benefit (expense) for items of other comprehensive income ( 1 ) ( 3 ) ( 2 ) 19

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

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

($ in millions) June 30, 2023 December 31, 2022

Current Assets

Cash and cash equivalents $ 313 $ 467

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

Accounts receivable, net of allowance for doubtful accounts of $ 1 million as of 2023 and $ 2 million as of 2022

Contract assets 1,266 1,240

32 unchanged sentences

150 million shares authorized;

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

53.6 million shares issued and 39.9 million shares outstanding as of June 30, 2023, and 53.5 million shares issued and 39.9 million shares outstanding as of December 31, 2022

Additional paid-in capital 2,030 2,022

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended

Six Months Ended June 30

($ in millions) 2023 2022

16 unchanged sentences

Other non-cash transactions, net 10 ( 4 )

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

Net cash provided by operating activities 73 184

Investing Activities

3 unchanged sentences

Investment in affiliates ( 24 ) ( 5 )

Proceeds from equity method investments 61 6

Other investing activities, net 1 —

Net cash used in investing activities ( 70 ) ( 101 )

9 unchanged sentences

Supplemental Cash Flow Disclosure

Cash paid for income taxes (net of refunds) $ 172 $ 15

Cash paid for interest $ 51 $ 49

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

Three Months Ended March 31, 2023 and 2022

Three Months Ended June 30, 2023 and 2022

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

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

Net earnings — — 178 — — 178

Dividends declared ($ 1.18 per share)

— — ( 47 ) — — ( 47 )

Stock-based compensation — 7 — — — 7

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

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

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

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

Net earnings — — 130 — — 130

Dividends declared ($ 1.24 per share)

— — ( 50 ) — — ( 50 )

Stock-based compensation — 6 — — — 6

Other comprehensive income, net of tax — — — — 4 4

Treasury stock activity — — — ( 7 ) — ( 7 )

Balance as of June 30, 2023 $ 1 $ 2,030 $ 4,434 $ ( 2,227 ) $ ( 592 ) $ 3,646

Six Months Ended June 30, 2023 and 2022

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

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

5 unchanged sentences

Treasury stock activity — — — ( 27 ) — ( 27 )

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

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

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

5 unchanged sentences

Treasury stock activity — — — ( 16 ) — ( 16 )

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

Balance as of June 30, 2023 $ 1 $ 2,030 $ 4,434 $ ( 2,227 ) $ ( 592 ) $ 3,646

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

8 unchanged sentences

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.

The Mission Technologies segment develops integrated solutions that enable today's connected, all-domain force.

BASIS OF PRESENTATION

3 unchanged sentences

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 2022 Annual Report on Form 10-K.

Additionally, certain prior year amounts have been reclassified to conform to the current year presentation.

The quarterly information is labeled using a calendar convention;

4 unchanged sentences

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

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

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

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

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 were valued at $ 217 million and $ 209 million as of June 30, 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 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 estimated fair values of the Company's total long-term debt (including current portion) as of June 30, 2023, and December 31, 2022, were $ 2,224 million and $ 2,703 million, respectively.

The estimated fair values of the current portion of the Company's long-term debt were $ 482 million and $ 390 million as of June 30, 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 - 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 current interest rate is 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.

Goodwill Impairment and Annual Assessment Date Change - During the second quarter of 2023, the Company elected to change the measurement date of its annual goodwill impairment test from November 30 to October 31.

The change is not material to the consolidated financial statements as it does not result in the delay, acceleration, or avoidance of an impairment charge, and the test is still performed in the fourth quarter.

The Company continues to perform a quarterly assessment for impairment between annual tests for impairment.

Sale of Equity Method Investment - In June 2023, the Company sold its investment in its unconsolidated ship repair and specialty fabrication joint venture, Titan Acquisition Holdings, L.P.

The Company received $ 61 million in proceeds and recognized an immaterial loss on sale.

ACCOUNTING STANDARDS UPDATES

3 unchanged sentences

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

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.

For the six months ended June 30, 2023, the Company repurchased 75,849 shares at an aggregate cost of $ 16 million.

For the six months ended June 30, 2022, the Company repurchased 131,006 shares at an aggregate cost of $ 27 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 $ 49 million and $ 47 million for the three months ended March 31, 2023 and 2022, respectively.

Dividends - The Company paid cash dividends totaling $ 99 million and $ 94 million for the six months ended June 30, 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 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:

The accumulated other comprehensive loss was comprised of unamortized benefit plan costs of $ 592 million and $ 599 million as of June 30, 2023 and December 31, 2022, respectively.

The changes in accumulated other comprehensive loss by component for the three and six months ended June 30, 2023 and 2022, were as follows:

($ in millions) Benefit Plans Other Total

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

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

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

2 unchanged sentences

Amortization of net actuarial loss 1

Tax expense for items of other comprehensive income ( 3 ) — ( 3 )

Net current period other comprehensive income (loss) 10 ( 1 ) 9

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

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

Amounts reclassified from accumulated other comprehensive loss

Amortization of prior service cost 1

Tax expense for items of other comprehensive income ( 1 ) — ( 1 )

Net current period other comprehensive income 4 — 4

Balance as of June 30, 2023 $ ( 592 ) $ — $ ( 592 )

($ in millions) Benefit Plans Other Total

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

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

Amounts reclassified from accumulated other comprehensive loss

Amortization of prior service credit 1

Amortization of net actuarial loss 1

Tax benefit for items of other comprehensive loss 19 — 19

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

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

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

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

4 unchanged sentences

Net current period other comprehensive income 7 — 7

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

Balance as of June 30, 2023 $ ( 592 ) $ — $ ( 592 )

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

Employee Pension and Other Postretirement Benefits.

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.

The tax expense recorded in stockholders' equity for the amounts reclassified from accumulated other comprehensive loss for the three months ended June 30, 2023 and 2022, was $ 1 million and $ 3 million, respectively.

The tax expense recorded in stockholders' equity for the amounts reclassified from accumulated other comprehensive loss for the six months ended June 30, 2023 and 2022, was $ 2 million and $ 6 million, respectively.

EARNINGS PER SHARE

Basic and diluted earnings per common share were calculated as follows:

Three Months Ended

Three Months Ended June 30 Six Months Ended June 30

(in millions, except per share amounts) 2023 2022 2023 2022

5 unchanged sentences

Earnings per share - diluted $ 3.27 $ 4.44 $ 6.49 $ 7.93

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.

Under the treasury stock method, the Company has excluded from the diluted share amounts presented above the effects of 0.5 million Restricted Performance Stock Rights ("RPSRs") for each of the three and six months ended June 30, 2023, and 0.4 million RPSRs for each of the three and six months ended June 30, 2022.

Disaggregation of Revenue

The Company's contracts with customers typically fall into one of four categories:

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

The following tables present revenues on a disaggregated basis, in a manner that reconciles with the Company's reportable segment disclosures, for the following categories:

product versus service type, customer type, contract type, and major program.

The Company believes that this level of disaggregation provides investors with information to evaluate the Company’s financial performance and provides the Company with information to make capital allocation decisions in the most appropriate manner.

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 March 31, 2023

Three Months Ended June 30, 2023

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

15 unchanged sentences

Sales and service revenues $ 664 $ 1,509 $ 645 $ ( 31 ) $ 2,787

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

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

15 unchanged sentences

Sales and service revenues $ 658 $ 1,433 $ 600 $ ( 29 ) $ 2,662

Three Months Ended

Six Months Ended June 30, 2023

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

Product sales $ 1,138 $ 2,518 $ 52 $ — $ 3,708

Service revenues 98 496 1,159 — 1,753

Intersegment 5 1 58 ( 64 ) —

Sales and service revenues $ 1,241 $ 3,015 $ 1,269 $ ( 64 ) $ 5,461

Customer Type

Federal $ 1,236 $ 3,014 $ 1,189 $ — $ 5,439

Commercial — — 22 — 22

Intersegment 5 1 58 ( 64 ) —

Sales and service revenues $ 1,241 $ 3,015 $ 1,269 $ ( 64 ) $ 5,461

Contract Type

Firm fixed-price $ 2 $ 2 $ 159 $ — $ 163

Fixed-price incentive 1,139 1,653 1 — 2,793

Cost-type 95 1,359 943 — 2,397

Time and materials — — 108 — 108

Intersegment 5 1 58 ( 64 ) —

Sales and service revenues $ 1,241 $ 3,015 $ 1,269 $ ( 64 ) $ 5,461

Six Months Ended June 30, 2022

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

Product sales $ 1,189 $ 2,311 $ 53 $ — $ 3,553

Service revenues 95 509 1,081 — 1,685

Intersegment 5 3 56 ( 64 ) —

Sales and service revenues $ 1,289 $ 2,823 $ 1,190 $ ( 64 ) $ 5,238

Customer Type

Federal $ 1,284 $ 2,820 $ 1,111 $ — $ 5,215

Commercial — — 23 — 23

Intersegment 5 3 56 ( 64 ) —

Sales and service revenues $ 1,289 $ 2,823 $ 1,190 $ ( 64 ) $ 5,238

Contract Type

Firm fixed-price $ 6 $ 11 $ 133 $ — $ 150

Fixed-price incentive 1,185 1,457 — — 2,642

Cost-type 93 1,352 862 — 2,307

Time and materials — — 139 — 139

Intersegment 5 3 56 ( 64 ) —

Sales and service revenues $ 1,289 $ 2,823 $ 1,190 $ ( 64 ) $ 5,238

Three Months Ended June 30 Six Months Ended June 30

($ in millions) 2023 2022 2023 2022

2 unchanged sentences

Surface combatants and coast guard cutters 287 284 540 549

Other 3 2 4 5

Total Ingalls 664 658 1,241 1,289

4 unchanged sentences

Mission based solutions 524 488 1,042 979

Other 121 112 227 211

Total Mission Technologies 645 600 1,269 1,190

1 unchanged sentence

Sales and service revenues $ 2,787 $ 2,662 $ 5,461 $ 5,238

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

As of June 30, 2023, the Company had $ 46.9 billion of remaining performance obligations.

The Company expects to recognize approximately 35 % of its remaining performance obligations as revenue through 2024, an additional 30 % through 2026, and the balance thereafter.

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.

For the three months ended June 30, 2023, net cumulative catch-up revenue adjustments increased operating income and increased diluted earnings per share by $ 20 million and $ 0.41 , respectively.

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

For the six months ended June 30, 2023, net cumulative catch-up revenue adjustments increased operating income and increased diluted earnings per share by $ 29 million and $ 0.58 , respectively.

For the six months ended June 30, 2022, net cumulative catch-up revenue

adjustments increased operating income and increased diluted earnings per share by $ 113 million and $ 2.22 , respectively.

For the three and six months ended June 30, 2023, no individual favorable cumulative catch-up revenue adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.

For the three and six months ended June 30, 2023, no individual unfavorable cumulative catch-up revenue 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 June 30, 2022, included a favorable adjustment of $ 20 million on a contract at the Company's Ingalls segment, which increased diluted earnings per share by $ 0.40 .

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

For the three and six months ended June 30, 2022, no individual unfavorable 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 $ 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.

The Company’s net contract assets decreased $ 41 million from December 31, 2022, to June 30, 2023, primarily resulting from billings on certain U.S.

Navy contracts.

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.

For the three and six months ended June 30, 2023, the Company recognized revenue of $ 122 million and $ 673 million, respectively, related to its contract liabilities as of December 31, 2022.

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

SEGMENT INFORMATION

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

Three Months Ended

The following table presents segment results for the three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30 Six Months Ended June 30

($ in millions) 2023 2022 2023 2022

18 unchanged sentences

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

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

($ in millions) June 30, 2023 December 31, 2022

Ingalls $ 1,614 $ 1,633

3 unchanged sentences

Total assets $ 10,859 $ 10,857

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.

The Company's earnings are primarily domestic, and its effective income tax rates on earnings from operations for the three months ended June 30, 2023 and 2022, were 23.1 % and 19.8 %, respectively.

For the six months ended June 30, 2023 and 2022, the Company's effective income tax rates on earnings from operations were 22.0 % and 20.1 %, respectively.

The higher effective tax rate for each of the three and six months ended June 30, 2023, was primarily attributable to a tax gain associated with the sale of the Company's interest in Titan.

For each of the three and six months ended June 30, 2023, the Company's effective tax rate differed from the federal statutory corporate income tax rate primarily as a result of the tax gain associated with the sale of the Company’s interest in Titan.

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

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

The Company's unrecognized tax benefits increased by $ 2 million and $ 4 million during the three and six months ended June 30, 2023, respectively.

As of June 30, 2023, the estimated amounts of the Company's unrecognized tax benefits, excluding interest and penalties, were liabilities of $ 94 million.

Assuming a sustainment of these tax positions, a reversal of $ 71 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 months ended March 31, 2023, interest resulting from the unrecognized tax benefits noted above increased income tax expense by $ 1 million.

For the three and six months ended June 30, 2023, interest resulting from the unrecognized tax benefits noted above increased income tax expense by $ 1 million and $ 2 million, respectively.

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

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 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.

Pursuant to Financial Accounting Standards Board 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 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.

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.

19 unchanged sentences

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

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

The costs to resolve cases during the six months ended June 30, 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.

11 unchanged sentences

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

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

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

negotiation with the customer.

The Company believes its outstanding customer settlements will be resolved without material impact to its financial position, results of operations, or cash flows.

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 March 31, 2023, the probable estimable future cost for environmental remediation was not material.

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

Management estimates that as of June 30, 2023, 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, or cash flows.

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

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

As of June 30, 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.

4 unchanged sentences

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.

Other Contingencies - 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.

4 unchanged sentences

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.

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.

The Company has been in negotiations with a Mission Technologies customer since January 2023 to address issues related to a manufacturing contract.

The Company recorded provisions for contract loss in prior periods that were not material to the Company's consolidated financial position, results of operations, or cash flows.

The parties have not agreed upon a resolution of the matter, and the Company could incur additional future losses on the contract.

The Company can therefore not predict or give assurances regarding the ultimate outcome of this matter.

The Company previously disclosed an issue regarding the degree of corrosion of certain steel plates used to fabricate Friedman (NSC 11).

The Company’s expectation regarding the resolution of the matter with the customer is included in contract cost and profit estimates.

Those estimates include management's best assessment of the underlying causal events, contractual entitlements, and the probability of successful resolution with the customer.

The Company does not expect the final resolution of the matter to have a material impact to the Company's 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.

2 unchanged sentences

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 months ended March 31, 2023 and 2022, were as follows:

Three Months Ended

Pension Benefits Other Benefits

The costs of the Company's defined benefit pension plans and other postretirement benefit plans for the three and six months ended June 30, 2023 and 2022, were as follows:

Three Months Ended June 30 Six Months Ended June 30

Pension Benefits Other Benefits Pension Benefits Other Benefits

($ in millions) 2023 2022 2023 2022 2023 2022 2023 2022

6 unchanged sentences

Net periodic benefit (income) cost $ ( 10 ) $ ( 23 ) $ 3 $ 4 $ ( 20 ) $ ( 51 ) $ 5 $ 8

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

The Company made the following contributions to its defined benefit pension plans and other postretirement benefit plans for the six months ended June 30, 2023 and 2022:

Six Months Ended June 30

($ in millions) 2023 2022

5 unchanged sentences

Total contributions $ 21 $ 21

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

As of June 30, 2023, the Company anticipates no further significant cash contributions to its qualified defined benefit pension plans in 2023.

STOCK COMPENSATION PLANS

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 .

During the six months ended June 30, 2023 and 2022, the Company issued new stock awards as follows:

Restricted Performance Stock Rights - For the six months ended June 30, 2023, the Company granted approximately 0.2 million RPSRs at a weighted average share price of $ 214.92 .

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

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 .

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

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 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:

For the six months ended June 30, 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 June 30, 2023:

(in thousands) Weighted-Average

3 unchanged sentences

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 $ 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.

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 $ 6 million and $ 7 million for the three months ended June 30, 2023 and 2022, respectively.

The Company recorded stock-based compensation for the value of awards granted to The Company's employees and non-employee members of the board of directors of $ 18 million and $ 16 million for the six months ended June 30, 2023 and 2022, respectively.

The Company recorded tax benefits related to stock awards of $ 1 million for each of the three months ended June 30, 2023 and 2022.

The Company recorded tax benefits related to stock awards of $ 3 million and $ 2 million for the six months ended June 30, 2023 and 2022, 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 June 30, 2023 and 2022.

The Company recognized tax benefits associated with the issuance of stock in settlement of stock awards of $ 3 million and $ 4 million for the six months ended June 30, 2023 and 2022, respectively.

Unrecognized Compensation Expense

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.

As of June 30, 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 1.0 year, and $ 49 million of unrecognized compensation expense associated with RPSRs granted in 2023, 2022, and 2021, which will be recognized over a weighted average period of 1.5 years.

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

What changed 10-Q

Item 1. Financial Statements