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Item 1. Financial Statements

2023-11-02 compared with 2023-08-03 · 123 added, 98 removed, 439 unchanged (33% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

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

7 unchanged sentences

Income from operating investments, net 9 13 25 47

Other income and gains, net 1 1 — —

General and administrative expenses 253 244 711 688

22 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

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

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

Current Assets

Cash and cash equivalents $ 109 $ 467

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

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

Contract assets 1,300 1,240

31 unchanged sentences

Common stock, $0.01 par value;

150 million shares authorized;

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

150,000,000 shares authorized;

53,595,352 shares issued and 39,779,936 shares outstanding as of September 30, 2023, and 53,503,317 shares issued and 39,863,456 shares outstanding as of December 31, 2022

Additional paid-in capital 2,038 2,022

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended June 30

Nine Months Ended September 30

($ in millions) 2023 2022

30 unchanged sentences

Employee taxes on certain share-based payment arrangements ( 13 ) ( 14 )

Other financing activities, net ( 1 ) —

Net cash used in financing activities ( 655 ) ( 497 )

10 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

Three Months Ended June 30, 2023 and 2022

Three Months Ended September 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

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

Net earnings — — 138 — — 138

4 unchanged sentences

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

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

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

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

Net earnings — — 148 — — 148

4 unchanged sentences

Treasury stock activity — — — ( 21 ) — ( 21 )

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

Six Months Ended June 30, 2023 and 2022

Balance as of September 30, 2023 $ 1 $ 2,038 $ 4,532 $ ( 2,248 ) $ ( 590 ) $ 3,733

Nine Months Ended September 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

6 unchanged sentences

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

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

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

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

5 unchanged sentences

Treasury stock activity — — — ( 37 ) — ( 37 )

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

Balance as of September 30, 2023 $ 1 $ 2,038 $ 4,532 $ ( 2,248 ) $ ( 590 ) $ 3,733

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

24 unchanged sentences

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

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 were valued at $ 211 million and $ 209 million as of September 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 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 estimated fair values of the Company's total long-term debt (including current portion), excluding finance lease liabilities, as of September 30, 2023, and December 31, 2022, were $ 2,264 million and $ 2,703 million, respectively.

The estimated fair values of the current portion of the Company's long-term debt were $ 253 million and $ 390 million as of September 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”).

Debt - In April 2023, the Company amended its existing $ 1.5 billion credit facility (the "Revolving Credit Facility") and 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 %.

4 unchanged sentences

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.

Sale of Equity Method Investment - In June 2023, the Company sold its investment in an 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.

4 unchanged sentences

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

For the six months ended June 30, 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.

For the nine months ended September 30, 2023, the Company repurchased 175,555 shares at an aggregate cost of $ 37 million.

For the nine months ended September 30, 2022, the Company repurchased 196,850 shares at an aggregate cost of $ 41 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 $ 99 million and $ 94 million for the six months ended June 30, 2023 and 2022, respectively.

Dividends - The Company paid cash dividends totaling $ 149 million and $ 142 million for the nine months ended September 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 $ 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:

The accumulated other comprehensive loss was comprised of unamortized benefit plan costs of $ 590 million and $ 599 million as of September 30, 2023 and December 31, 2022, respectively.

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

($ in millions) Benefit Plans Other Total

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

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

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

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

Amounts reclassified from accumulated other comprehensive loss

1 unchanged sentence

Amortization of net actuarial loss 1

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

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

Settlement gain 1

( 4 ) — ( 4 )

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

Net current period other comprehensive income 8 — 8

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

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

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

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 ( 2 ) — ( 2 )

Net current period other comprehensive income 2 — 2

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

Balance as of September 30, 2023 $ ( 590 ) $ — $ ( 590 )

($ in millions) Benefit Plans Other Total

4 unchanged sentences

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 June 30, 2022 $ ( 977 ) $ ( 1 ) $ ( 978 )

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

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

4 unchanged sentences

Net current period other comprehensive income 9 — 9

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

Balance as of September 30, 2023 $ ( 590 ) $ — $ ( 590 )

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 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.

The tax expense recorded in stockholders' equity for the amounts reclassified from accumulated other comprehensive loss for each of the three months ended September 30, 2023 and 2022, was $ 2 million.

The tax expense recorded in stockholders' equity for the amounts reclassified from accumulated other comprehensive loss for the nine months ended September 30, 2023 and 2022, was $ 4 million and $ 8 million, respectively.

EARNINGS PER SHARE

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

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

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

5 unchanged sentences

Earnings per share - diluted $ 3.70 $ 3.44 $ 10.18 $ 11.37

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.

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, 2023, and 2022.

Disaggregation of Revenue

4 unchanged sentences

The following tables present revenues on a disaggregated basis:

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

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

6 unchanged sentences

Commercial — — 7 — 7

State and local government agencies — — 1 — 1

Intersegment 1 2 30 ( 33 ) —

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Sales and service revenues $ 711 $ 1,453 $ 685 $ ( 33 ) $ 2,816

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

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

6 unchanged sentences

Commercial — — 9 — 9

State and local government agencies — — 1 — 1

Intersegment 5 1 31 ( 37 ) —

7 unchanged sentences

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

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

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

6 unchanged sentences

Commercial — — 29 — 29

State and local government agencies — — 1 — 1

Intersegment 6 3 88 ( 97 ) —

7 unchanged sentences

Sales and service revenues $ 1,952 $ 4,468 $ 1,954 $ ( 97 ) $ 8,277

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

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

6 unchanged sentences

Commercial — — 32 — 32

State and local government agencies — — 1 — 1

Intersegment 10 4 87 ( 101 ) —

7 unchanged sentences

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

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

($ in millions) 2023 2022 2023 2022

13 unchanged sentences

Sales and service revenues $ 2,816 $ 2,626 $ 8,277 $ 7,864

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

As of September 30, 2023, the Company had $ 49.4 billion of remaining performance obligations.

The Company expects to recognize approximately 30 % 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 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.

For the three months ended September 30, 2023, net cumulative catch-up revenue adjustments increased operating income and increased diluted earnings per share by $ 21 million and $ 0.41 , respectively.

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

For the nine months ended September 30, 2023, net cumulative catch-up revenue adjustments increased operating income and increased diluted earnings per share by $ 50 million and $ 0.99 , respectively.

For the nine months ended September 30, 2022, net cumulative

catch-up revenue adjustments increased operating income and increased diluted earnings per share by $ 140 million and $ 2.75 , respectively.

For the three and nine months ended September 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 nine months ended September 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 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 cumulative catch-up revenue 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 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 decreased $ 41 million from December 31, 2022, to June 30, 2023, primarily resulting from billings on certain U.S.

The Company’s net contract assets decreased $ 52 million from December 31, 2022, to September 30, 2023, primarily resulting from billings on certain U.S.

Navy contracts.

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.

For the three and nine months ended September 30, 2023, the Company recognized revenue of $ 5 million and $ 678 million, respectively, related to its contract liabilities as of December 31, 2022.

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.

SEGMENT INFORMATION

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

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

Three Months Ended September 30 Nine Months Ended September 30

($ in millions) 2023 2022 2023 2022

18 unchanged sentences

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

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

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

Ingalls $ 1,637 $ 1,633

3 unchanged sentences

Total assets $ 10,621 $ 10,857

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.

The Company's earnings are primarily domestic, and its effective income tax rates on earnings from operations for the three months ended September 30, 2023 and 2022, were 21.7 % and 14.8 %, respectively.

For the nine months ended September 30, 2023 and 2022, the Company's effective income tax rates on earnings from operations were 21.9 % and 18.6 %, respectively.

The higher effective tax rate for the three months ended September 30, 2023, was primarily attributable to prior period research and development tax credits recorded in 2022.

The higher effective tax rate for the nine months ended September 30, 2023, was primarily attributable to prior period research and development tax credits recorded in 2022 and to a tax gain associated with the sale of the Company's interest in Titan.

For the three months ended September 30, 2023, the Company's effective income tax rate differed from the federal statutory corporate income tax rate primarily as a result of expenses that are not deductible for income tax purposes.

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

For the three and nine months ended September 30, 2022, the Company's effective income 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 $ 2 million and $ 6 million during the three and nine months ended September 30, 2023, respectively.

As of September 30, 2023, the estimated amounts of the Company's unrecognized tax benefits, excluding interest and penalties, were liabilities of $ 96 million.

Assuming a sustainment of these tax positions, a reversal of $ 72 million of the accrued amounts would favorably affect the Company's effective federal income tax rate in future periods.

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

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

For the three and nine months ended September 30, 2023, interest resulting from the unrecognized tax benefits noted above increased income tax expense by $ 1 million and $ 3 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.

6 unchanged sentences

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.

Antitrust Complaint - On October 6, 2023, a class action antitrust lawsuit was filed against the Company and other defendants in the U.S.

District Court for the Eastern District of Virginia.

The lawsuit names several HII companies,

among other companies, as defendants.

The named plaintiffs generally allege that the defendant companies have adhered to a “gentlemen’s agreement” that prohibits any defendant from actively recruiting naval engineers from other defendants.

The complaint seeks class certification, treble damages, and any other relief to which the plaintiffs are entitled.

Depending on the outcome of the lawsuit, the Company could be subject to penalties and damages that could have a material adverse effect on its consolidated financial position, results of operations, or cash flows.

The Company has not had an opportunity to respond to the complaint or engage in any discovery related to the issues set forth in the complaint.

As a result, the Company currently is unable to estimate an amount or range of reasonably possible loss or to express an opinion regarding the ultimate outcome of the matter.

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.

2 unchanged sentences

In August 2019, the Department of Justice (“DoJ”) declined to intervene in the lawsuit, and the lawsuit was unsealed.

The court dismissed the complaint in September 2021, and the plaintiff has appealed the dismissal to the United States Court of Appeals for the 11th Circuit.

The court dismissed the complaint in September 2021, and the plaintiff appealed the dismissal to the United States Court of Appeals for the 11th Circuit.

In August 2023, the 11th Circuit confirmed the district court’s dismissal of the complaint.

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.

14 unchanged sentences

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

The costs to resolve cases during the six months ended June 30, 2023 and 2022, were not material individually or in the aggregate.

The costs to resolve cases during the nine months ended September 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.

1 unchanged sentence

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.

Following an arbitration proceeding between the parties, in February 2018, the arbitral tribunal awarded the Company approximately $ 151 million on its claims and awarded the Republic approximately $ 22 million on its counterclaims.

Following an arbitration proceeding between the parties, in February 2018, the arbitral tribunal awarded the Company approximately $ 151 million on its claims and awarded the Republic approximately

$ 22 million on its counterclaims.

The Company is seeking to enforce and execute upon the award in multiple jurisdictions.

7 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.

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

1 unchanged sentence

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.

Management estimates that as of September 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 June 30, 2023, the Company had $ 14 million in issued but undrawn letters of credit and $ 360 million of surety bonds outstanding.

As of September 30, 2023, the Company had $ 12 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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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 Contingencies - In 1985, the Company and the U.S.

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 FAS.

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

In December 2020, a U.S.

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 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.

The Company and the Navy agreed upon a CAS compliant resolution of the matter under which the Company will recover the cumulative billable costs not yet recovered under the 1985 settlement agreement.

The resolution did not have a material effect on the Company’s 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 Company has recorded provisions for contract losses 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 therefore cannot 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).

5 unchanged sentences

EMPLOYEE PENSION AND OTHER POSTRETIREMENT BENEFITS

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

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

Three Months Ended June 30 Six Months Ended June 30

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

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

Three Months Ended September 30 Nine Months Ended September 30

Pension Benefits Other Benefits Pension Benefits Other Benefits

6 unchanged sentences

Amortization of net actuarial loss (gain) 5 8 ( 4 ) — 13 26 ( 11 ) ( 2 )

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

Net periodic benefit (income) cost $ ( 10 ) $ ( 28 ) $ 2 $ 4 $ ( 30 ) $ ( 79 ) $ 7 $ 12

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

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

Nine Months Ended September 30

($ in millions) 2023 2022

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Total contributions $ 32 $ 32

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

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

In 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.

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.

STOCK COMPENSATION PLANS

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 .

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

Restricted Performance Stock Rights - For the nine months ended September 30, 2023, the Company granted approximately 0.2 million RPSRs at a weighted average share price of $ 215.13 .

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

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 .

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

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

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

For the six months ended June 30, 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:

For the nine months ended September 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 September 30, 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 $ 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.

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 $ 9 million and $ 12 million for the three months ended September 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 $ 27 million and $ 28 million for the nine months ended September 30, 2023 and 2022, respectively.

The Company recorded tax benefits related to stock awards of $ 1 million and $ 3 million for the three months ended September 30, 2023 and 2022, respectively.

The Company recorded tax benefits related to stock awards of $ 4 million and $ 5 million for the nine months ended September 30, 2023 and 2022, respectively.

The Company recognized tax benefits associated with the issuance of stock in settlement of stock awards of $ 1 million and less than $ 1 million for the three months ended September 30, 2023 and 2022, respectively.

The Company recognized tax benefits associated with the issuance of stock in settlement of stock awards of $ 4 million for each of the nine months ended September 30, 2023 and 2022.

Unrecognized Compensation Expense

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.

As of September 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 approximately one year , and $ 39 million of unrecognized compensation expense associated with RPSRs granted in 2023, 2022, and 2021, which will be recognized over a weighted average period of 1.3 years.

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

What changed 10-Q

Item 1. Financial Statements