What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-01 compared with 2023-02-09 · 206 added, 244 removed, 1178 unchanged (28% of the section changed)

23 unchanged sentences

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which it relates.

Revenue – Long Term Shipbuilding Contracts — Refer to Note 2 and 7 to the financial statements

Revenue – Shipbuilding Contracts — Refer to Note 2 and 7 to the financial statements

Critical Audit Matter Description

The Company recognizes revenue on long-term shipbuilding contracts with U.S.

The Company recognizes revenue on shipbuilding contracts with U.S.

Government customers over time as the construction of the ship progresses, because transfer of control to the customer is continuous.

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Cost of sales is recognized as incurred, and revenues are determined by adding a proportionate amount of the estimated profit to the amount reported as cost of sales.

For the year ended of December 31, 2022, revenue from long-term shipbuilding contracts was $8.4 billion as compared to total revenue of $10.7 billion.

Given the judgments necessary to estimate total material costs, labor costs, and profit in order to recognize revenue for certain long-term shipbuilding contracts, auditing such estimates required extensive audit effort due to the complexity of the contracts and a high degree of auditor judgment, especially given the limited historical data for certain contracts, when performing audit procedures and evaluating the results of those procedures.

Given the judgments necessary to estimate total material costs, labor costs, and profit in order to recognize revenue for certain shipbuilding contracts, auditing such estimates required extensive audit effort due to the complexity of the contracts and a high degree of auditor judgment, especially for contracts where there is limited historical data.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s estimates of total material costs, labor costs, and profit in order to recognize revenue for certain long-term shipbuilding contracts included the following, among others:

• We tested the effectiveness of controls over long-term shipbuilding contract revenue, including management’s controls over the estimates of total material costs, labor costs, and profit for performance obligations.

• Our audit procedures related to management’s estimates of total material costs, labor costs, and profit in order to recognize revenue for certain shipbuilding contracts included the following, among others:

• We tested the effectiveness of controls over shipbuilding contract revenue, including management’s controls over the estimates of total material costs, labor costs, and profit for performance obligations.

• We developed independent estimates of revenue based on historical profit margins and current year recorded costs.

We compared those estimates to revenue recognized by the Company.

• We obtained the population of active contracts during 2022 and assessed the financial and performance risk of the contracts based on our knowledge gained through prior year audits of the Company, industry experience, and ongoing conversations with members of program management regarding the contract performance to identify contracts that we believe were riskier.

For those contracts selected, we performed further audit procedures that were tailored to address the specific characteristics of audit interest identified.

Procedures performed, among others, included:

◦ Read the relevant portions of contracts including any recent contract modifications to understand contract terms, including incentives, fee arrangement, scope of work, and any unusual contract terms.

◦ Compared the transaction prices to the consideration expected to be received based on current rights and obligations under the contracts and any modifications that were agreed upon with the customers.

◦ Tested management’s identification of distinct performance obligations by evaluating whether the underlying goods, services, or both were highly interdependent and interrelated.

◦ Tested the accuracy and completeness of the costs incurred to date for the performance obligation.

◦ Evaluated the estimates of total costs and profit for the performance obligation by:

▪ Evaluating management’s ability to achieve the estimated costs and profit by 1) performing inquiries with the business managers and corroborating the information gained from these inquiries with other parties who have detailed knowledge of the contract’s progress, issues being encountered, and overall production status, 2) considering management’s historical performance against estimates, 3) detail testing the appropriateness of the timing of changes in estimates, and 4) considering any contradictory information.

▪ Comparing materials cost estimates to purchase orders, supplier contracts, or other source documents.

▪ Comparing management’s estimates for the selected contracts to costs and profits of similar performance obligations, when applicable.

▪ Evaluate the necessity and appropriateness of any constraints applied against any variable consideration, including consideration provided within the contracts for facilities cost of capital.

Goodwill Valuation of the Mission Technologies reporting unit – Refer to Note 2 and 11 to the financial statements

• We obtained the population of contracts during 2023 and assessed the financial and performance risk of the contracts based on our knowledge gained through prior year audits of the Company, industry experience, and ongoing conversations with members of program management regarding the contract performance to identify contracts that we believe were riskier.

For contracts selected, we performed tailored audit procedures to address the specific characteristics of audit interest identified.

Procedures performed, among others, may have included:

◦ Evaluated the estimates of total costs and profit for the performance obligation by performing some combination of the following:

▪ Performed inquiries with the business managers and corroborated the information gained from these inquiries with other parties who have detailed knowledge of the contract’s progress, issues being encountered, and overall production status.

▪ Evaluated management’s material and labor estimates against historical performance, underlying performance metrics, and metrics of similar performance obligations.

▪ Tested the appropriateness of the timing and accuracy of changes in estimates, including inspection of underlying source documentation, and consideration of any contradictory information.

▪ Evaluated the necessity and appropriateness of any constraints applied against any variable consideration.

Goodwill - Mission Technologies reporting unit – Refer to Note 2 and 11 to the financial statements

Critical Audit Matter Description

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The Company’s testing approach utilizes a combination of discounted cash flow analysis and comparative market-based valuation methodologies to determine the fair value of the reporting unit for comparison to its corresponding book value.

Estimating the fair value of a reporting unit requires the exercise of significant judgment and assumptions including judgments about expected future cash flows, discount rates and expected long-term growth rates.

Estimating the fair value of a reporting unit requires the exercise of significant judgment and assumptions including judgments about the forecasted revenue, forecasted earnings before income tax, depreciation, and amortization (“EBITDA”), and the selection of the long-term growth rate and the discount rate.

Changes in these assumptions could have a significant impact on the fair value of the reporting unit, the amount of any goodwill impairment charge, or both.

The goodwill balance was $2.6 billion as of December 31, 2023 of which $1.7 billion related to the Mission Technologies reporting unit.

The Company’s accounting policy is to test for impairment on November 30 of each year.

As a result of the quantitative assessment, the Company concluded that the fair value of the Mission Technologies reporting unit exceeded the carrying value by approximately 5%, which resulted in no impairment for the year ended December 31, 2022.

Given the significant judgments made by management to estimate the fair value of the Mission Technologies reporting unit and the difference between its fair value and carrying value, performing audit procedures to test the Company’s estimate of the fair value of the Mission Technologies reporting unit, which included evaluating estimates and assumptions related to forecasted revenues, forecasted earnings before income taxes, depreciation and amortization (“EBITDA”) margins, and the selection of the discount rate and terminal growth rate, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

The fair value of the Mission Technologies reporting unit exceeded the carrying value by 10.4% as of the measurement date and, therefore, no impairment was recognized.

Given the significant judgments made by management to estimate the fair value of the Mission Technologies reporting unit and the difference between its fair value and carrying value, performing audit procedures to test the Company’s estimate of the fair value of the Mission Technologies reporting unit, which included evaluating estimates and assumptions related to forecasted revenue, forecasted EBITDA, and the selection of the long-term growth rate and the discount rate, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the selection of the forecasted revenues, forecasted EBITDA margins, and the selection of the discount rate and terminal growth rate for the Mission Technologies reporting unit included the following, among others:

Our audit procedures related to the selection of the forecasted revenue, forecasted EBITDA, and the selection of the long-term growth rate and the discount rate for the Mission Technologies reporting unit included the following, among others:

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the selection of the assumptions used in the fair value models.

• We evaluated management’s ability to accurately forecast future revenues and EBITDA margins by comparing actual results to management’s historical forecasts.

• We evaluated the reasonableness of management’s forecasts of revenue and EBITDA margins by comparing the forecasts to internal communications to management and the Board of Directors and comparing the forecasts to third-party economic and industry data.

• We evaluated management’s ability to accurately forecast revenue and EBITDA by comparing actual results to management’s historical forecasts.

• We evaluated the reasonableness of management’s forecasted revenue and EBITDA by comparing the forecasts to internal communications to management and the Board of Directors and comparing the forecasts to third-party economic and industry data.

• We performed sensitivity analyses to evaluate the risk of impairment if key assumptions are changed.

• We evaluated, with the assistance of our fair value specialists, the reasonableness of the (1) valuation methodology utilized by management, and (2) the selected terminal growth rate and discount rate by performing certain procedures, including:

• We evaluated, with the assistance of our fair value specialists, the reasonableness of the (1) valuation methodology utilized by management, and (2) the selected long-term growth rate and discount rate by:

◦ Comparing the valuation methodologies used to generally accepted valuation practices.

◦ Evaluating the appropriateness of the Company’s selection of companies in its industry peer group for comparability to the reporting unit.

◦ Evaluating the appropriateness of source information used by management to select the terminal growth rate and discount rate used in their models.

◦ Developing an independent estimate and compare it to that used by management to evaluate the appropriateness of the conclusion after recalculating the models.

◦ Testing the appropriateness of source information used by management to select the long-term growth rate and discount rate used by management.

◦ Developing a range of independent estimates and comparing those to the discount rate selected by management.

• We evaluated the carrying value of the Mission Technologies reporting unit including the corporate allocations.

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Net earnings from above $ 681 $ 579 $ 544

Other comprehensive income (loss)

Other comprehensive income

Change in unamortized benefit plan costs 238 436 838

Tax benefit (expense) for items of other comprehensive income ( 112 ) ( 214 ) 47

Other comprehensive income (loss), net of tax 324 624 ( 138 )

Tax expense for items of other comprehensive income ( 61 ) ( 112 ) ( 214 )

Other comprehensive income, net of tax 177 324 624

Comprehensive income $ 858 $ 903 $ 1,168

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Cash and cash equivalents $ 430 $ 467

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

Accounts receivable, net 461 636

Contract assets 1,537 1,240

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Common stock, $ 0.01 par value;

150 million shares authorized;

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

150,000,000 shares authorized;

53,595,748 issued and 39,618,880 outstanding as of December 31, 2023, and 53,503,317 issued and 39,863,456 outstanding as of December 31, 2022

Additional paid-in capital 2,045 2,022

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Amortization of debt issuance costs 8 8 8

Provision for doubtful accounts ( 7 ) 7 ( 1 )

Provision for expected credit losses 6 ( 7 ) 7

Stock-based compensation 34 36 33

Deferred income taxes ( 113 ) 2 98

Loss on early extinguishment of debt — — 21

Loss (gain) on investments in marketable securities ( 23 ) 25 ( 19 )

Asset impairments — — 13

Accounts receivable 168 ( 196 ) 58

1 unchanged sentence

Inventoried costs ( 3 ) ( 22 ) ( 25 )

Prepaid expenses and other assets 20 ( 88 ) ( 62 )

Prepaid expenses and other current assets ( 42 ) 20 ( 88 )

Accounts payable and accruals 264 6 45

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Investment in affiliates ( 24 ) ( 5 ) ( 22 )

Proceeds from equity method investment 63 6 —

Proceeds from disposition of business — — 20

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Debt issuance costs — — ( 22 )

Premiums and fees related to early extinguishment of debt — — ( 15 )

Dividends paid ( 200 ) ( 192 ) ( 186 )

1 unchanged sentence

Employee taxes on certain share-based payment arrangements ( 13 ) ( 14 ) ( 7 )

Other financing activities, net ( 3 ) — —

Net cash provided by (used in) financing activities ( 771 ) ( 658 ) 1,309

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Stock compensation — 26 — — — 26

Other comprehensive loss, net of tax — — — — ( 138 ) ( 138 )

Other comprehensive income, net of tax — — — — 624 624

Treasury stock activity — — — ( 101 ) — ( 101 )

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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.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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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 .

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

Accounting Estimates - The preparation of the Company's consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period.

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

Accounts Receivable - Accounts receivable include amounts related to any unconditional Company right to receive consideration and are presented as receivables in the consolidated statement of financial position, separate from other contract balances.

Accounts Receivable - Accounts receivable include amounts related to any unconditional Company right to receive consideration and are presented as accounts receivable, net in the consolidated statements of financial position, separate from other contract balances.

Accounts receivable are comprised of amounts billed and currently due from customers.

The Company reports accounts receivable net of an allowance for doubtful accounts.

The Company reports accounts receivable net of an allowance for expected credit losses.

Because the Company's accounts receivable are primarily with the U.S.

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In accordance with industry practice, inventoried costs are classified as current assets and include amounts related to contracts having production cycles longer than one year.

Costs to Obtain or Fulfill a Contract - Costs to obtain a contract are incremental direct costs incurred to obtain a contract with a customer and are capitalized if material.

Costs to fulfill a contract include costs directly related to a contract or a specific anticipated contract (for example, mobilization and set-up) that generate or enhance our ability to satisfy our performance obligations under a contract.

These costs are capitalized to the extent they are expected to be recovered from the associated contract.

Capitalized costs to obtain or fulfill a contract are amortized to expense over the expected period of benefit.

As of December 31, 2023, capitalized costs to obtain or fulfill a contract were $ 24 million, included in prepaid expenses and other current assets in the consolidated statements of financial position.

Warranty Costs - Certain of the Company’s contracts contain assurance-type warranty provisions, which generally promise that the service or vessel will comply with agreed upon specifications.

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Government Grants - The Company recognizes incentive grants, inclusive of transfers of depreciable assets, from federal, state, and local governments at fair value upon compliance with the conditions of their receipt and reasonable assurance that the grants will be received or the depreciable assets will be transferred.

Grants in recognition of specific expenses are recognized in the same period as an offset to those related expenses.

Grants related to specific expenses are recognized in the period in which the expenses are incurred as an offset to the related expenses.

Grants related to depreciable assets are recognized over the periods and in the proportions in which depreciation expense on those assets is recognized.

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Environmental Costs - Environmental liabilities are accrued when the Company determines remediation costs are probable and such costs are reasonably estimable.

When only a range of costs is established and no amount within

the range is more probable than another, the minimum amount in the range is accrued.

When only a range of costs is established and no amount within the range is more probable than another, the minimum amount in the range is accrued.

Environmental liabilities are recorded on an undiscounted basis and are not material.

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Unobservable inputs supported by little or no market activity that are significant to the fair value of the assets and liabilities.

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.

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.

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Deferred income taxes are recorded when revenues and expenses are recognized in different periods for financial statement purposes and for tax return purposes.

Deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates expected to be in effect when the deferred tax items reverse in future periods.

Deferred tax asset or liability account balances are calculated at

the balance sheet date using current tax laws and rates expected to be in effect when the deferred tax items reverse in future periods.

The Company recognizes deferred tax assets to the extent it believes these assets are more likely than not to be realized.

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The Company recognizes a lease liability at the lease commencement date, as the present value of future lease payments, using an estimated rate of interest that the Company would pay to borrow equivalent funds over an equivalent term on a collateralized basis.

A lease asset is recognized based on the lease liability value and adjusted for any prepaid lease payments, initial direct costs, or lease incentive amounts.

A lease asset is recognized based on the lease

liability value and adjusted for any prepaid lease payments, initial direct costs, or lease incentive amounts.

The lease term at the commencement date includes any renewal options or termination options when it is reasonably certain that the Company will exercise or not exercise those options, respectively.

1 unchanged sentence

Lease liabilities associated with operating leases are recognized in long-term operating lease liabilities, with short-term lease liability amounts included in other current liabilities in the consolidated statements of financial position.

Right of use assets associated with finance leases are included in miscellaneous other assets in the consolidated statements of financial position.

Finance lease liabilities are included in the current portion of long-term debt and long-term debt in the consolidated statements of financial position.

Rent expense for operating leases is recognized on a straight-line basis over the lease term and included in cost of sales and service revenues in the consolidated statements of operations and comprehensive income.

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The Company elected for all asset classes to exclude from its consolidated statements of financial position leases having terms of 12 months or less (short-term leases) and elected not to separate lease and non-lease components in the determination of lease payment obligations for its long-term lease contracts.

Goodwill and Other Intangible Assets - The Company performs impairment tests for goodwill as of November 30 of each year and between annual impairment tests if evidence of potential impairment exists.

Goodwill and Other Intangible Assets - The Company performs impairment tests for goodwill annually each year and between annual impairment tests if evidence of potential impairment exists.

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 tests for impairment by assessing qualitative factors to determine whether it is more likely than not that the fair value of other intangible assets or the goodwill allocated to the reporting unit is less than its carrying amount.

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Purchased intangible assets are amortized on a straight-line basis or a method based on the pattern of benefits over their estimated useful lives, and the carrying value of these assets is reviewed for impairment when events indicate that a potential impairment may have occurred.

Equity Method Investments - Investments in which the Company has the ability to exercise significant influence over the investee but does not own a majority interest or otherwise control are accounted for under the equity method of accounting and included in other assets in its consolidated statements of financial position.

Equity Method Investments - Investments in which the Company has the ability to exercise significant influence over the investee but does not own a majority interest or otherwise control are accounted for under the equity method of accounting and included in miscellaneous other assets in its consolidated statements of financial position.

The Company's equity investments align strategically and are integrated with the Company's operations.

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ACCOUNTING STANDARDS UPDATES

In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20):

Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which reduces disclosure requirements of Subtopic 715-20 and requires additional disclosure related to weighted-average interest crediting rates and significant gains and losses related to changes in the benefit obligation for the reporting period.

The update was effective on a retrospective basis for fiscal years ending after December 15, 2020, with early adoption allowed.

The adoption did not result in a material impact to the Company's financial results or disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which amends and simplifies the requirements for income taxes.

The ASU was effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted.

The adoption did not result in a material impact to the Company's financial results or disclosures.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional exceptions to GAAP for certain transactions related to the transition away from The London Interbank Offered Rate (“LIBOR”).

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This standard did not impact the Company's financial results or disclosures.

In October 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”).

The update requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606).

Generally, this new guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree.

Historically, such amounts were recognized by the acquirer at fair value in accordance with acquisition accounting.

The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted.

The Company early adopted this standard in fiscal year 2021, and it did not have a material impact on the Company's consolidated financial statements.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), which requires business entities to disclose information about transactions with a government that are accounted for by applying a grant or contribution model by analogy (“ASU 2021-10”).

For transactions within scope, the new standard requires the disclosure of information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction.

The new guidance was effective for annual reporting periods beginning after December 15, 2021, with early adoption permitted.

The adoption did not have a material impact on the Company's financial results or disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

The new guidance requires new tabular and narrative segment disclosures of significant

expenses that are regularly reported to the chief operating decision maker and the nature of segment expense information used to manage operations.

The new guidance is effective for annual reporting periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

The Company is currently evaluating the impacts of the new guidance on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

The new guidance requires disaggregated information about the effective tax rate reconciliation and additional information on taxes paid that meet a quantitative threshold.

The new guidance is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impacts of the new guidance on its consolidated financial statements.

Other 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, or cash flows.

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In August 2021, the Company acquired all of the outstanding common stock of Alion Holding Corp., the parent company of Alion Science and Technology Corporation (“Alion”), a technology-driven solutions provider.

The Company accounted for the transaction as a business combination using the acquisition method of accounting in accordance with ASC 805 – “Business Combinations.” The purchase price was $ 1.79 billion, including $ 148 million of cash received in the acquisition.

In connection with the acquisition, the Company recorded $ 1,014 million of goodwill, which included the value of Alion's workforce, and $ 720 million of intangible assets related to customer relationships and existing contract backlog.

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

The acquisition accounting was completed in the third quarter of 2022.

Goodwill and Other Intangible Assets.

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

Alion provides advanced engineering and R&D services in the areas of intelligence, surveillance, and reconnaissance, military training and simulation, cyber, data analytics and other next-generation technology based solutions to the DoD and intelligence community customers, with the DoD representing about one-third of current annual revenues.

The Company accounted for the transaction as a business combination using the acquisition method of accounting in accordance with Accounting Standards Codification ("ASC") 805 – “Business Combinations.” The purchase price was $ 1.79 billion, including $ 148 million of cash received in the acquisition.

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.

Year Ended Pro Forma (Unaudited)

December 31 Year Ended December 31

Pro Forma (Unaudited)

Year Ended December 31

($ in millions, except per share amounts) 2023 2022 2021

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No gain or loss was recognized in the transaction.

The Company transferred $ 22 million to Titan as part of the exchange.

The Company's investment in Titan, inclusive of equity earnings and distributions, of $ 70 million and $ 87 million as of December 31, 2022, and 2021, respectively, is recorded in miscellaneous other assets in the consolidated statements of financial position.

In February 2021, the Company completed the sale of its oil and gas business.

The divestiture was completed as part of the Company’s plan to exit this part of the oil and gas industry and focus on its core services and customers.

In connection with the sale, the Company received $ 25 million net cash and recorded a net pre-tax gain of $ 1 million in other income and gains, net within operating income in the consolidated statements of operations.

The Company transferred

$ 22 million to Titan as part of the exchange.

The Company's investment in Titan, inclusive of equity earnings and distributions, of $ 70 million as of December 31, 2022, is recorded in miscellaneous other assets in the consolidated statements of financial position.

In June 2023, the Company sold its investment in Titan.

For the year ended December 31, 2023, the Company received $ 63 million in proceeds and recognized an immaterial loss on sale.

STOCKHOLDERS' EQUITY

Common Stock - Changes in the Company's number of outstanding shares for the year ended December 31, 2022, resulted from shares purchased in the open market under the Company's stock repurchase program and share activity under its stock compensation plans.

Common Stock - Changes in the number of Company outstanding shares for the year ended December 31, 2023, resulted from shares purchased in the open market under the Company's stock repurchase program and share activity under its stock compensation plans.

Stock Compensation Plans.

Treasury Stock - In November 2019, the Company's board of directors authorized an increase in the Company's stock repurchase program from $ 2.2 billion to $ 3.2 billion and an extension of the term of the program to October 31, 2024.

Treasury Stock - In January 2024, the Company's board of directors authorized an increase in the Company's stock repurchase program from $ 3.2 billion to $ 3.8 billion and an extension of the term of the program to December 31, 2028.

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

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Balance as of December 31, 2020 $ ( 1,546 ) $ ( 1 ) $ ( 1,547 )

Other comprehensive income (loss) before reclassifications ( 279 ) 2 ( 277 )

Other comprehensive income before reclassifications 720 — 720

Amounts reclassified from accumulated other comprehensive loss

Amortization of prior service (credit) 1

( 10 ) — ( 10 )

Amortization of prior service cost 1

Amortization of net actuarial loss 1

Tax benefit (expense) for items of other comprehensive income ( 215 ) 1 ( 214 )

Net current period other comprehensive income (loss) ( 139 ) 1 ( 138 )

Net current period other comprehensive income 623 1 624

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

3 unchanged sentences

Amortization of net actuarial loss 1

Tax benefit (expense) for items of other comprehensive income ( 215 ) 1 ( 214 )

Settlement gain 1

( 4 ) — ( 4 )

Tax expense for items of other comprehensive income ( 112 ) — ( 112 )

Net current period other comprehensive income 324 — 324

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Amortization of net actuarial loss 1

Settlement gain 1

( 4 ) — ( 4 )

Tax expense for items of other comprehensive income ( 61 ) — ( 61 )

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Employee Pension and Other Postretirement Benefits.

The tax expense associated with amounts reclassified from accumulated other comprehensive loss for the years ended December 31, 2022, 2021, and 2020, was $ 12 million, $ 30 million, and $ 23 million, respectively.

The tax expense recorded in stockholders' equity for the amounts reclassified from accumulated other comprehensive loss for the years ended December 31, 2023, 2022, and 2021, was $ 4 million, $ 12 million, and $ 30 million, respectively.

EARNINGS PER SHARE

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The Company's calculation of diluted earnings per common share includes the dilutive effects of the assumed exercise of stock options and vesting of restricted stock based on the treasury stock method.

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 years ended December 31, 2022, and 2021, and 0.3 million RPSRs for the year ended December 31, 2020.

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 years ended December 31, 2023, 2022, and 2021.

The following is a description of principal activities from which the Company generates its revenues.

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The Company considers incentive and award fees to be variable consideration and includes in the transaction price at inception the consideration to which the Company expects to be entitled under the terms and conditions of the contract, generally estimated using a most likely amount approach.

Transaction price is limited to the extent of funding allotted by the customer and available for performance, and estimated revenues represent those amounts for which the Company believes a significant reversal of revenue is not probable.

Estimated revenues represent those amounts for which the Company believes a significant reversal of revenue is not probable.

The Company recognizes revenues related to shipbuilding contracts as it satisfies the related performance obligations over time using a cost-to-cost input method to measure performance progress, which best reflects the transfer of control to the customer.

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The Company generally recognizes revenue as it satisfies the related performance obligations over time using a cost-to-cost input method to measure performance progress, because, even when the Company has identified a series of services, its cost incurrence pattern generally is not ratable given the complex nature of the services the Company provides.

Invoices are issued and related payments are received, on the basis of performance progress, no less frequently than monthly.

Invoices are issued and related payments are received, on the basis of performance progress,

no less frequently than monthly.

In addition, many of the Company's U.S.

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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.

The following tables present revenues on a disaggregated basis:

Year Ended December 31, 2023

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Total Newport News 6,133 5,852 5,663

Mission based solutions 1,950 1,034 540

C5ISR, CEW&S, LVC 2,232 1,950 1,034

Oil and gas services — — 14

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Cumulative Catch-up Revenue Adjustments

For the year ended December 31, 2022, net cumulative catch-up revenue adjustments increased operating income by $ 113 million and increased diluted earnings per share by $ 2.22 .

For the year ended December 31, 2021, net cumulative catch-up revenue adjustments increased operating income by $ 115 million and increased diluted earnings per share by $ 2.26 .

For the year ended December 31, 2020, net cumulative catch-up revenue adjustments decreased operating income by $ 29 million and decreased diluted earnings per share by $ 0.56 .

No individual cumulative adjustment was material to the Company's consolidated statements of operations and comprehensive income for either of the years ended December 31, 2022 and 2021.

Cumulative catch-up revenue adjustments for the year ended December 31, 2020, included unfavorable adjustments of $ 148 million, relating to Block IV of the Virginia class (SSN 774) submarine program at the Company's Newport News segment, which decreased diluted earnings per share by $ 2.88 .

While other unfavorable cumulative catch-up revenue adjustments for the year ended December 31, 2020, were not individually material, cost estimates for discrete delay and disruption from COVID-19 Events drove $ 61 million of unfavorable cumulative catch-up revenue adjustments across our contracts, including $ 16 million relating to Block IV of the Virginia class (SSN 774) submarine program, which is included in the $ 148 million unfavorable adjustments discussed above.

For the year ended December 31, 2020, no individual favorable cumulative catch-up revenue adjustment was material to the Company's consolidated statements of operations and comprehensive income.

The following table presents the effect of net cumulative catch-up revenue adjustments on operating income and diluted earnings per share:

Year Ended December 31

($ in millions, except per share amounts) 2023 2022 2021

Effect on operating income $ 118 $ 113 $ 115

Effect on diluted earnings per share $ 2.33 $ 2.22 $ 2.26

For each of the years ended December 31, 2023, 2022, and 2021, no individual favorable cumulative catch-up revenue adjustment was material to the Company's consolidated statements of operations and comprehensive income.

For each of the years ended December 31, 2023, 2022, and 2021, no individual unfavorable cumulative catch-up revenue adjustment was material to the Company's consolidated statements of operations and comprehensive income.

Contract Balances

Contract balances include accounts receivable, contract assets, and contract liabilities from contracts with customers.

Accounts receivable represent an unconditional right to consideration and include amounts billed and currently due from customers.

Contract assets primarily relate to the Company's rights to consideration for work completed but not billed as of the reporting date when the right to payment is not just subject to the passage of time.

Fixed-price contracts are generally billed to the customer using either progress payments, whereby amounts are billed monthly as costs are incurred or work is completed, or performance-based payments, which are based upon the achievement of specific, measurable events or milestones defined and valued at contract inception.

Cost-type contracts are typically billed to the customer on a monthly or semi-monthly basis.

Contract liabilities relate to

advance payments, billings in excess of revenues, and deferred revenue amounts.

Contract liabilities relate to advance payments, billings in excess of revenues, and deferred revenue amounts.

Contract assets include retention amounts, substantially all of which were under U.S.

Government contracts, and were comprised of the following:

($ in millions) 2023 2022

Due from U.S.

Government $ 1,471 $ 1,165

Due from other customers 66 75

Total contract assets $ 1,537 $ 1,240

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 $ 185 million from December 31, 2021 to December 31, 2022, primarily resulting from an increase in billings on certain U.S.

Navy contracts.

Net contract assets were comprised as follows:

($ in millions) 2023 2022 2023 over 2022

Contract assets $ 1,537 $ 1,240 $ 297

Contract liabilities 1,063 766 297

Net contract assets $ 474 $ 474 $ —

For the year ended December 31, 2023, the Company recognized revenue of $ 690 million related to its contract liabilities as of December 31, 2022.

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Total depreciation and amortization $ 347 $ 358 $ 293

(1) Excluding amortization of debt issuance costs

ACCOUNTS RECEIVABLE AND CONTRACT ASSETS

ACCOUNTS RECEIVABLE

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Substantially all amounts included in accounts receivable as of December 31, 2023, are expected to be collected in 2024.

Because the Company's accounts receivable are primarily with the U.S.

Government or with companies acting as a contractor to the U.S.

Government, the Company does not have material exposure to accounts receivable credit risk.

The Company's accounts receivable are primarily with the U.S.

Government and include balance amounts from companies acting as a prime contractor to the U.S.

The Company does not have material exposure to accounts receivable credit risk.

Accounts receivable were comprised of the following:

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Total accounts receivable 469 638

Allowances for doubtful accounts ( 2 ) ( 9 )

Allowance for expected credit losses ( 8 ) ( 2 )

Total accounts receivable, net $ 461 $ 636

Contract Assets

Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed as of the reporting date when the right to payment is not subject solely to the passage of time.

Contract assets include retention amounts, substantially all of which were under U.S.

Government contracts.

Contract assets were comprised of the following:

($ in millions) 2022 2021

Due from U.S.

Government $ 1,165 $ 1,218

Due from other customers 75 92

Total contract assets $ 1,240 $ 1,310

INVENTORIED COSTS, NET

Inventoried costs are principally associated with contracts for which the U.S.

government is the primary customer.

As a result, the Company does not believe it has significant exposure to recoverability risk related to inventoried costs.

Inventoried costs were comprised of the following:

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Total inventoried costs, net $ 186 $ 183

(1) Includes amounts capitalized pursuant to applicable provisions of the FAR and CAS.

GOODWILL AND OTHER INTANGIBLE ASSETS

HII performs impairment tests for goodwill as of November 30 of each year and between annual impairment tests if an event occurs or circumstances change that would more likely than not reduce the fair values of the Company's reporting units below their carrying values.

HII performs impairment tests for goodwill each year and between annual impairment tests if an event occurs or circumstances change that would more likely than not reduce the fair values of the Company's reporting units below their carrying values.

Reporting units are aligned with the Company's businesses.

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If the qualitative assessment indicates a possible impairment, then the Company utilizes a combination of discounted cash flow analysis and comparative market multiples to determine the fair values of its businesses for comparison to their corresponding book values.

In connection with the Company’s annual goodwill impairment test as of November 30, 2022, management tested goodwill for each of its three reporting units with goodwill balances.

As a result of the Company's annual goodwill impairment analysis, it estimated that the fair value of the Mission Technologies segment exceeded carrying value by approximately 5 %.

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

Accumulated goodwill impairment losses were $ 2,755 million as of each of December 31, 2022 and 2021.

The accumulated goodwill impairment losses for Ingalls as of each of December 31, 2022 and 2021, were $ 1,568 million.

The accumulated goodwill impairment losses for Newport News as of each of December 31, 2022 and 2021,

were $ 1,187 million.

Mission Technologies did not have accumulated goodwill impairment losses as of each of December 31, 2022 and 2021.

For the year ended December 31, 2021, the Company recorded $ 1,024 million of goodwill related to its acquisition of Alion.

For the year ended December 31, 2022, the Company recorded goodwill adjustments of $ 10 million related to the acquisition of Alion, resulting from updates to Alion's tax carryforwards and the true-up of estimated taxes to filed income tax returns for the pre-acquisition period.

For the year ended December 31, 2021, the Company recorded goodwill adjustments of $ 13 million relating to the acquisition of Spatial Integrated Systems, Inc.

in 2020, primarily related to allocations to other intangible assets.

In connection with the Company’s annual goodwill impairment test as of October 31, 2023, management tested goodwill for each of its three reporting units with goodwill balances.

Based on the annual goodwill impairment

analysis, the Company estimated that the fair value of the Mission Technologies segment exceeded its carrying value by approximately 10 %.

The Company determined that the estimated fair values of its remaining reporting units exceeded by more than 10 % their corresponding carrying values as of October 31, 2023.

As of each of December 31, 2023 and 2022, accumulated goodwill impairment losses were $ 2,755 million, comprised of $ 1,568 million and $ 1,187 million at Ingalls and Newport News, respectively.

For the year ended December 31, 2022, the Company recorded goodwill adjustments of $ 10 million related to the acquisition of Alion in 2021, 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.

For the years ended December 31, 2023 and 2022, the carrying amounts of goodwill changed as follows:

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Balance as of December 31, 2021 $ 175 $ 721 $ 1,732 $ 2,628

Acquisitions — — 1,024 1,024

Adjustments — — ( 10 ) ( 10 )

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The Company performs tests for impairment of long-lived assets whenever events or circumstances suggest that long-lived assets may be impaired.

In connection with the acquisition of Alion in 2021, the Company recorded $ 720 million of intangible assets pertaining to customer relationships and existing contract backlog, which is being amortized using the pattern of benefits method over a weighted-average life of 15 years.

The Company's purchased intangible assets are being amortized on a straight-line basis or a method based on the pattern of benefits over their estimated useful lives.

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The Company's earnings are primarily domestic, and its effective tax rate on earnings from operations for the year ended December 31, 2023, was 20.2 %, compared with 19.5 % and 12.5 % for 2022 and 2021, respectively.

For the year ended December 31, 2022, the Company's effective tax rate differed from the federal statutory tax rate primarily as a result of estimated research and development tax credits for 2022 and prior years.

For the year ended December 31, 2021, the Company's effective tax rate differed from the federal statutory tax rate primarily as a result of a tax loss associated with the sale of the Company's oil and gas business and estimated research and development tax credits for 2021 and prior years.

For the year ended December 31, 2020, the Company’s effective tax rate differed from the federal statutory tax rate primarily as a result of estimated research and development tax credits for prior years.

For the year ended December 31, 2023, the Company's effective tax rate differed from the statutory federal corporate income tax rate primarily as a result of estimated research and development tax credits for 2023 and prior years.

For the year ended December 31, 2022, the Company's effective tax rate differed from the statutory federal corporate income tax rate primarily as a result of estimated research and development tax credits for 2022 and prior years.

For the year ended December 31, 2021, the Company’s effective tax rate differed from the statutory federal corporate income tax rate primarily as a result of a tax loss associated with the sale of the Company's oil and gas business and estimated research and development tax credits for 2021 and prior years.

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

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Earnings and income tax from foreign operations are not material for any periods presented.

The following table reconciles our actual income tax expense to income tax expense based on the statutory federal income tax rate:

The following table reconciles our actual income tax expense to income tax expense based on the statutory federal corporate income tax rate:

Year Ended December 31

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Tax benefit - sale of business — — ( 11 )

Stock compensation - net excess tax (benefits)/ shortfall — — 1

Unrecognized tax benefits 7 7 30

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Total federal and foreign income taxes $ 172 $ 140 $ 78

Unrecognized Tax Benefits - Unrecognized tax benefits represent the gross value of the Company's uncertain tax positions that have not been reflected in the consolidated statements of operations.

Unrecognized Tax Benefits - Unrecognized tax benefits represent the gross value of the Company's uncertain tax positions that have not been reflected in the consolidated statements of operations and comprehensive income.

If the income tax benefits from federal tax positions are ultimately realized, such realization would affect the Company's income tax expense, while the realization of state tax benefits would be recorded in general and administrative expenses.

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Additions based on tax positions related to prior years — 3 27

Reductions based on tax positions related to prior years — — ( 7 )

Reductions based on settlement with taxing authorities — — ( 7 )

Lapse of statute of limitations ( 3 ) ( 2 ) —

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As of December 31, 2023 and 2022, the estimated amounts of the Company's uncertain tax positions, excluding interest and penalties, were liabilities of $ 98 million and $ 90 million, respectively.

Assuming sustainment of these positions, as of December 31, 2022 and 2021, the reversal of $ 70 million and $ 63 million, respectively, of the amounts accrued would favorably affect the Company's effective federal income tax rate in future periods.

Assuming sustainment of these positions, as of December 31, 2023 and 2022, the reversal of $ 76 million and $ 70 million, respectively, 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.

As a result of the unrecognized tax benefits noted above, income tax expense increased by $ 2 million in 2022 for interest and penalties, resulting in a liability of $ 5 million for interest and penalties as of December 31, 2022.

In 2021, there was an increase in income tax expense of $ 1 million for interest and penalties, resulting in a liability of $ 3 million for interest and penalties as of December 31, 2021.

In 2020, there was a net decrease in income tax expense of less

than $ 1 million for interest and penalties, resulting in a liability of $ 2 million for interest and penalties as of December 31, 2020.

The 2020 changes in interest expense related to a settlement with taxing authorities.

As a result of the unrecognized tax benefits noted above, income tax expense increased by $ 4 million in 2023 for interest, resulting in an interest liability of $ 9 million as of December 31, 2023.

In 2022, income tax expense increased $ 2 million for interest, resulting in an interest liability of $ 5 million as of December 31, 2022.

In 2021, income tax expense increased $ 1 million for interest, resulting in an interest liability of $ 3 million as of December 31, 2021.

The following table summarizes the tax years that are either currently under examination or remain open under the applicable statute of limitations and subject to examination by the major tax jurisdictions in which the Company operates:

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Conversely, the Company could settle positions with tax authorities for amounts lower than have been accrued.

No material change to the Company's unrecognized tax benefits is reasonably expected in the next 12 months.

It is reasonably possible that within the next 12 months the amount of unrecognized tax benefits could decrease by $ 17 million due to the lapse of the statute of limitations.

During 2013 the Company entered into the pre-Compliance Assurance Process with the IRS for years 2011 and 2012.

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Net deferred tax liabilities are classified as long-term deferred tax liabilities in the consolidated statements of financial position.

The tax effects of significant temporary differences and carry-forwards that gave rise to year-end deferred tax balances, as presented in the consolidated statements of financial position, were as follows:

The tax effects of significant temporary differences and carry-forwards that resulted in year-end deferred tax balances, as presented in the consolidated statements of financial position, were as follows:

($ in millions) 2023 2022

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Operating lease assets 72 73

Retirement benefits 54 —

Gross deferred tax liabilities 885 890

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As of December 31, 2023, the Company had state income tax credit carry-forwards of approximately $ 20 million, which expire from 2024 through 2026.

A deferred tax asset of approximately $ 16 million (net of federal benefit) related to these state income tax credit carry-forwards has been established, with a valuation allowance of $ 9 million against such deferred tax asset as of December 31, 2022.

The Company also had state net operating loss carry-forwards of $ 123 million from the Alion acquisition, which expire from 2031 through 2037.

A deferred tax asset of approximately $ 7 million (net of federal benefit) has been established for these carry-forwards, with a valuation allowance of $ 4 million against such deferred tax asset as of December 31, 2022.

Other federal and state net operating loss carry-forwards are individually and cumulatively immaterial to the Company’s deferred tax balances.

A deferred tax asset of approximately $ 16 million (net of federal benefit) related to these state income tax credit carry-forwards has been recorded, with a valuation allowance of $ 12 million against such deferred tax asset as of December 31, 2023.

State net operating loss carry-forwards are individually and cumulatively immaterial to the Company’s deferred tax balances and expire from 2030 through 2042.

The Company's long-term debt consisted of the following:

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Gulf opportunity zone industrial development revenue bonds due December 1, 2028, 4.55% 21 21

Finance lease obligations 12 —

Less unamortized debt issuance costs ( 17 ) ( 25 )

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Long-term debt, net of current portion $ 2,214 $ 2,506

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

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

The Revolving Credit Facility has a variable interest rate on outstanding borrowings based on LIBOR, plus a spread based upon the Company's credit rating, which may vary between 1.125 % and 2.000 %.

As of December 31, 2022, the interest rate spread on drawn amounts was 1.375 % based on the Company's current credit rating.

The revolving credit facility also has a commitment fee rate on the unutilized balance based on the Company’s credit rating.

The commitment fee rate as of December 31, 2022 was 0.200 % and may vary between 0.125 % and 0.300 %.

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

The Term Loan must be repaid prior to or on August 19, 2024.

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

As of December 31, 2022, the annual interest rate spread was 1.375 % based on the Company's current credit rating, and the outstanding balance was $ 225 million.

Debt Facilities - In April 2023, the Company amended its existing $ 1.5 billion credit facility, which includes a letter of credit subfacility of $ 300 million (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 interest rate on both facilities is based on SOFR plus an interest spread, currently 1.475 %, based on the Company's credit rating, which may vary between 1.225 % and 2.100 %.

The commitment fee rate on the Revolving Credit Facility as of December 31, 2023, was 0.200 % and may vary between 0.125 % and 0.300 %.

The Company does not expect the transition to the SOFR benchmark to materially impact its consolidated financial position, results of operations, or cash flows.

As of December 31, 2023, the Company had $ 12 million in issued but undrawn letters of credit and $ 1,488 million unutilized under the Revolving Credit Facility.

The Company had unamortized debt issuance costs associated with its credit facilities of $ 10 million and $ 13 million as of December 31, 2022 and 2021, respectively.

The Company had unamortized debt issuance costs associated with its debt facilities of $ 6 million and $ 10 million as of December 31, 2023 and 2022, respectively.

The Revolving Credit Facility and the Term Loan contain customary affirmative and negative covenants, as well as a financial covenant based on a maximum total leverage ratio.

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As of December 31, 2023, the Company had no outstanding debt under the commercial paper program.

Senior Notes - I n August 2021, the Company issued $ 400 million aggregate principal amount of callable 0.670 % senior notes due 2023 and $ 600 million aggregate principal amount of 2.043 % senior notes due 2028.

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

Interest on these senior notes is payable semiannually.

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

The Company also has outstanding $ 600 million aggregate principal amount of 3.483 % senior notes due 2027.

The net proceeds of these senior notes

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

Interest on these senior notes is payable semiannually.

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

The terms of the Company's senior notes limit the Company’s ability and the ability of certain of its subsidiaries to create liens, enter into sale and leaseback transactions, sell assets, and effect consolidations or mergers.

Senior Notes - The terms of the Company's senior notes limit the Company’s ability and the ability of certain of its subsidiaries to create liens, enter into sale and leaseback transactions, sell assets, and effect consolidations or mergers.

Interest on the senior notes is payable semiannually.

The Company had unamortized debt issuance costs associated with the senior notes of $ 11 million and $ 15 million as of December 31, 2023 and 2022, respectively.

Early Extinguishment of Debt - Components of the loss on early extinguishment of debt related to the Company's redemption of senior notes in 2020, which was included in interest expense, were as follows:

($ in millions) December 31, 2020

Redemption and tender premiums and fees $ 15

Write-off of unamortized debt issuance costs 6

Total loss on early extinguishment of debt $ 21

Mississippi Economic Development Revenue Bonds - As of each of December 31, 2022 and 2021, the Company had $ 84 million outstanding under Industrial Revenue Bonds issued by the Mississippi Business Finance Corporation.

These bonds accrue interest at a fixed rate of 7.81 % per annum (payable semi-annually) and mature in 2024.

Gulf Opportunity Zone Industrial Development Revenue Bonds - As of each of December 31, 2022 and 2021, the Company had $ 21 million outstanding under Gulf Opportunity Zone Industrial Development Revenue Bonds issued by the Mississippi Business Finance Corporation.

These bonds accrue interest at a fixed rate of 4.55 % per annum (payable semi-annually) and mature in 2028.

I n August 2023, the Company repaid $ 400 million aggregate principal amount of 0.670 % senior notes upon their maturity.

Interest on the Mississippi Economic Development Revenue Bonds and Gulf Opportunity Zone Industrial Development Revenue Bonds is payable semiannually.

The agreements governing the Company's debt contain customary affirmative and negative covenants.

The Company was in compliance with all debt covenants during the year ended December 31, 2023.

The estimated fair values of the Company's total long-term debt (including current portion) as of December 31, 2022, and December 31, 2021, were $ 2,703 million and $ 3,449 million, respectively.

The estimated fair value of the current portion of the Company's long-term debt was $ 390 million as of December 31, 2022.

The estimated fair values of the Company's total long-term debt, including the current portion of long-term debt and excluding finance lease liabilities, as of December 31, 2023, and December 31, 2022, were $ 2,309 million and $ 2,703 million, respectively.

The estimated fair values of the current portion of the Company's long-term debt, excluding finance lease liabilities, were $ 229 million and $ 390 million as of December 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.

As of December 31, 2022, the aggregate amounts of principal payments due on long-term debt within the next five years consisted of $ 400 million due in 2023, $ 309 million due in 2024, $ 500 million due in 2025, and $ 600 million due in 2027.

As of December 31, 2023, the aggregate amounts of principal payments due on long-term debt, excluding finance lease liabilities, within the next five years consisted of $ 229 million due in 2024, $ 500 million due in 2025, $ 600 million due in 2027, and $ 621 million due in 2028.

In January 2024, the Company prepaid the remaining $ 145 million balance of the Term Loan.

INVESTIGATIONS, CLAIMS, AND LITIGATION

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 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.

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.

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 case is at an early stage, and, 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.

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Government contracts.

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

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

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 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.

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In September 2021, the Company filed a complaint in the Superior Court of Delaware, seeking a judgment against certain insurers for breach of contract and breach of the implied covenant of good faith and fair dealing under three representations and warranties insurance policies purchased in connection with the Company’s acquisition of Hydroid.

The policies insure the Company against losses relating to the seller’s breach of certain representations and warranties in the Hydroid acquisition agreement.

The coverage limit under the insurance policies is $ 70 million, and the Company believes it has incurred losses equal to at least that amount as a result of breaches of the acquisition agreement.

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

The policies insured the Company against losses relating to the seller’s breach of certain representations and warranties in the Hydroid acquisition agreement.

In December 2023, the Company and the insurers settled the matter for a payment of $ 49.5 million to the Company, recognized in the Mission Technologies segment's other income and gains, net in the consolidated statements of operations and comprehensive income.

Government Investigations and Claims - Departments and agencies of the U.S.

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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.

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

In November 2023, the Company sold its judgment against the Republic to a third party in exchange for an initial cash payment of $ 70.5 million, recognized in the Ingalls segment's other income and gains, net in the consolidated statements of operations and comprehensive income.

The Company's consideration also includes a contingent participating interest in the final amount recovered.

The Company is party to various other claims, legal proceedings, and investigations that arise in the ordinary course of business, including U.S.

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The Company's lease agreements do not generally contain material residual value guarantees, material restrictive covenants, or purchase options.

The Company's lease portfolio consists primarily of operating leases.

The Company's lease portfolio consists primarily of operating leases and an immaterial finance lease included in the consolidated financial statements.

Summary of Significant Accounting Policies and Note:

The following table presents costs and other information related to the Company's leases:

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imputed interest 74

Present value of lease liabilities $ 298

Present value of operating lease liabilities $ 279

Lease liabilities included in the Company's consolidated statements of financial position as of December 31, 2023 and 2022, were as follows:

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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 December 31, 2022, 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 ("PRP") by the Environmental Protection Agency or similarly designated by another environmental agency, and the related costs can be estimated by management.

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 December 31, 2022, the probable estimable future cost of environmental remediation was not material.

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

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

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.

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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 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").

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.

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 January 2023, the Company entered into discussions with a Mission Technologies' customer to amend an existing contract addressing manufacturing issues.

An agreement has not been reached, but based on the current status of discussions, an amendment to the contract may result in the Company incurring future losses of up to $ 25 million.

Collective Bargaining Agreements - Of the Company's approximately 43,000 employees, approximately 45 % are covered by a total of nine collective bargaining agreements and one site stabilization agreement.

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

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 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).

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 over 44,000 employees, approximately 45 % are covered by a total of nine collective bargaining agreements and one site stabilization agreement.

Newport News has three collective bargaining agreements covering represented employees, which expire in April 2024, February 2027, and December 2027.

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Settlement gain — ( 4 ) — — — —

Net periodic benefit cost $ ( 102 ) $ 11 $ 73 $ 16 $ 17 $ ( 3 )

Net periodic benefit (income) cost $ ( 40 ) $ ( 102 ) $ 11 $ 10 $ 16 $ 17

The funded status of these plans as of December 31, 2023 and 2022, was as follows:

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(2) Included in pension plan liabilities and other postretirement plan liabilities, respectively.

On November 3, 2023, the Company purchased an annuity contract to transfer $ 411 million of gross defined benefit pension obligations and related plan assets to an insurance company for approximately 10,000 retirees and beneficiaries.

The annuity contract was 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.

The transaction did not trigger settlement accounting under ASC 715 – “Compensation – Retirement Benefits.”

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.

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.

The Projected Benefit Obligation ("PBO"), Accumulated Benefit Obligation ("ABO"), and asset values for the Company's qualified pension plans were $ 6,040 million, $ 5,820 million, and $ 6,873 million, respectively, as of December 31, 2023, and $ 6,246 million, $ 6,017 million, and $ 6,781 million, respectively, as of December 31, 2022.

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Amortization of prior service cost (credit) 17 22 15 ( 2 ) ( 4 ) ( 4 )

Net actuarial gain (loss) 384 704 ( 222 ) 103 2 ( 31 )

Net actuarial gain 202 384 704 19 103 2

Amortization of net actuarial loss (gain) 17 35 110 ( 15 ) ( 3 ) ( 3 )

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As of December 31, 2023, unfunded commitments to private partnerships were $ 595 million.

Management reviews independently appraised values, audited financial statements, and additional pricing information to evaluate the net asset values.

Management reviews independently appraised values, audited financial statements, and additional pricing information to evaluate the NAVs.

For the very limited group of investments for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value, additional information is obtained from the investment manager and evaluated internally to determine whether any adjustments are required to reflect fair value.

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Group annuity contract 3 — 3 —

Cash and cash equivalents, net 28 28 — —

Net plan assets subject to leveling $ 3,643 $ 1,723 $ 1,920 $ —

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Restricted Stock Rights - Retention stock awards are granted to key employees primarily to ensure business continuity.

In 2023, the Company granted approximately 9,500 RSRs at a weighted average share price of $ 213.37 , with cliff vesting two to three years from the grant date.

In 2022, the Company granted approximately 2,400 RSRs at a weighted average share price of $ 208.81 , with cliff vesting one to three years from the grant date.

In 2021, the Company granted approximately 31,400 RSRs at a weighted average share price of $ 187.59 , with cliff vesting one to three years from the grant date.

In 2020, the Company granted less than 1,000 RSRs at a weighted average share price of $ 192.26 , with cliff vesting two to three years from the grant date.

As of December 31, 2023, approximately 13,600 RSRs were outstanding.

For the year ended December 31, 2022, 0.2 million stock awards vested, of which less than 0.1 million were transferred to the Company from employees in satisfaction of minimum tax withholding obligations.

For the year ended December 31, 2021, 0.1 million stock awards vested, of which less than 0.1 million were transferred to the Company from employees in satisfaction of minimum tax withholding obligations.

For the year ended December 31, 2020, 0.1 million stock awards vested, of which less than 0.1 million were transferred to the Company from employees in satisfaction of minimum tax withholding obligations.

The Company also received transfers of stock awards from employees in satisfaction of minimum tax withholding obligations associated with the vesting of stock awards during the period.

The Company does not consider these transfers as treasury stock because the stock is not issued;

rather, the award is surrendered in lieu of payments of cash to settle tax obligations.

Stock Rights and Stock Issuances - The Company granted stock rights to its non-employee directors on a quarterly basis in 2023, with each grant less than 10,000 shares.

All stock rights granted to non-employee directors are fully vested on the grant date.

If a non-employee director has met certain stock ownership guidelines, the non-employee director may elect under the terms of the Amended and Restated Directors’ Compensation Policy and Amended and Restated Board Deferred Compensation Policy to receive their annual equity award for the following calendar year in the form of either shares of the Company’s common stock or stock units that are payable in the fifth calendar year after the year in which the annual equity award is earned, or, if earlier, upon termination of the director’s board service.

If a non-employee director has met certain stock ownership requirements, the non-employee director may elect under the terms of the Amended and Restated Directors’ Compensation Policy and Amended and Restated Board Deferred Compensation Policy to receive their annual equity award for the following calendar year in the form of either shares of the Company’s common stock or stock units that are payable in the fifth calendar year after the year in which the annual equity award is earned, or, if earlier, upon termination of the director’s board service.

Non-employee directors may also elect to receive their annual cash retainers in the form of stock units that become payable upon termination of the director’s board service.

Non-employee directors who elect to receive their annual cash retainers in the form of stock units and have met their stock ownership guidelines may elect under the terms of the Amended and Restated Directors’ Compensation Policy and Amended and Restated Board Deferred Compensation Policy to receive in the following calendar year either shares of the Company's common stock or stock units that are payable in the fifth calendar year after the year in which the stock units are earned, or, if earlier, upon termination of the director’s board service.

Non-employee directors who elect to receive their annual cash retainers in the form of stock units and have met their stock ownership requirements may elect under the terms of the Amended and Restated Directors’ Compensation Policy and Amended and Restated Board Deferred Compensation Policy to receive in the following calendar year either shares of the Company's common stock or stock units that are payable in the fifth calendar year after the year in which the stock units are earned, or, if earlier, upon termination of the director’s board service.

Stock award activity for the years ended December 31, 2023, 2022, and 2021, was as follows:

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Contractual Term

Outstanding as of December 31, 2019 374 $ 201.92 0.9 years

Outstanding as of December 31, 2020 381 $ 211.77 1.0 year

Granted 213 181.66

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earnings before interest, taxes, depreciation, amortization, and pension ("EBITDAP"), weighted at 40 %, pension-adjusted return on invested capital ("ROIC"), weighted at 40 %, and relative EBITDAP growth, weighted at 20 %.

The Company's EBITDAP growth will be measured against EBITDAP growth of the S&P Aerospace and Defense Select Index.

The Company's EBITDAP growth is measured against EBITDAP growth of the S&P Aerospace and Defense Select Index.

Compensation Expense

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Unrecognized Compensation Expense

As of December 31, 2022, the Company had $ 2 million of unrecognized compensation expense associated with RSRs granted in 2022 and 2021, which will be recognized over a weighted average period of 1.0 year, and $ 31 million of unrecognized expense associated with RPSRs granted in 2022 and 2021, which will be recognized over a weighted average period of 1.1 years.

As of December 31, 2023, the Company had $ 2 million of unrecognized compensation expense associated with RSRs granted in 2023, 2022, and 2021, which will be recognized over a weighted average period of 1.1 years, and $ 33 million of unrecognized expense associated with RPSRs granted in 2023 and 2022, which will be recognized over a weighted average period of 1 year.

SUBSIDIARY GUARANTORS

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data