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Item 1. Financial Statements

2024-05-02 compared with 2023-11-02 · 116 added, 221 removed, 341 unchanged (50% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

Three Months Ended September 30 Nine Months Ended September 30

Three Months Ended

(in millions, except per share amounts) 2024 2023

7 unchanged sentences

Income from operating investments, net 12 12

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

General and administrative expenses 232 220

13 unchanged sentences

Net earnings from above $ 153 $ 129

Other comprehensive income (loss)

Other comprehensive income

Change in unamortized benefit plan costs 5 4

Other — ( 1 ) — ( 2 )

Tax benefit (expense) for items of other comprehensive income ( 2 ) ( 3 ) ( 4 ) 16

Other comprehensive income (loss), net of tax 2 8 9 ( 47 )

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

Other comprehensive income, net of tax 3 3

Comprehensive income $ 156 $ 132

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

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

($ in millions) March 31, 2024 December 31, 2023

Current Assets

Cash and cash equivalents $ 10 $ 430

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

Accounts receivable, net of allowance for expected credit losses of $ 5 million as of 2024 and $ 8 million as of 2023

Contract assets 1,661 1,537

14 unchanged sentences

Accrued employees’ compensation 342 382

Current portion of long-term debt 255 399

Short-term debt and current portion of long-term debt 203 231

Current portion of postretirement plan liabilities 129 129

15 unchanged sentences

150,000,000 shares authorized;

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

53,709,837 shares issued and 39,509,640 shares outstanding as of March 31, 2024, and 53,595,748 shares issued and 39,618,880 shares outstanding as of December 31, 2023

Additional paid-in capital 2,038 2,045

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended September 30

Three Months Ended

($ in millions) 2024 2023

5 unchanged sentences

Amortization of debt issuance costs 2 2

Provision for doubtful accounts — ( 7 )

Provision for expected credit losses ( 3 ) —

Stock-based compensation 14 12

8 unchanged sentences

Other non-cash transactions, net 3 2

Net cash provided by operating activities 408 165

Net cash used in operating activities ( 202 ) ( 9 )

Investing Activities

3 unchanged sentences

Investment in affiliates — ( 20 )

Proceeds from equity method investments 61 6

Other investing activities, net 1 —

2 unchanged sentences

Repayment of long-term debt ( 145 ) ( 10 )

Proceeds from revolving credit facility borrowings 42 —

Repayment of revolving credit facility borrowings ( 20 ) —

Net borrowings on commercial paper 117 —

Dividends paid ( 51 ) ( 49 )

7 unchanged sentences

Supplemental Cash Flow Disclosure

Cash paid for income taxes (net of refunds) $ 227 $ 107

Cash paid for interest $ 10 $ 12

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

Three Months Ended September 30, 2023 and 2022

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

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

Net earnings — — 138 — — 138

Dividends declared ($ 1.18 per share)

— — ( 48 ) — — ( 48 )

Stock-based compensation — 12 — — — 12

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

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

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

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

Net earnings — — 148 — — 148

Dividends declared ($ 1.24 per share)

— — ( 50 ) — — ( 50 )

Stock-based compensation — 8 — — — 8

Other comprehensive income, net of tax — — — — 2 2

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

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

Nine Months Ended September 30, 2023 and 2022

Three Months Ended March 31, 2024 and 2023

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

4 unchanged sentences

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

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

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

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

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

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

Balance as of December 31, 2023 $ 1 $ 2,045 $ 4,755 $ ( 2,286 ) $ ( 422 ) $ 4,093

5 unchanged sentences

Treasury stock activity — — — ( 63 ) — ( 63 )

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

Balance as of March 31, 2024 $ 1 $ 2,038 $ 4,855 $ ( 2,349 ) $ ( 419 ) $ 4,126

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

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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.

These unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature considered necessary by management for a fair presentation of the unaudited condensed consolidated financial position, results of operations, and cash flows and should be read in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Annual Report on Form 10-K").

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It is management's long-standing practice to establish interim closing dates using a "fiscal" calendar, which requires the businesses to close their books on a Friday near these quarter-end dates in order to normalize the potentially disruptive effects of quarterly closings on business processes.

The effects of this practice only exist for interim periods within a reporting year.

This practice only exists for interim periods within a reporting year.

Accounting Estimates - The preparation of the Company's unaudited condensed 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.

2 unchanged sentences

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

These trusts were valued at $ 211 million and $ 209 million as of September 30, 2023, and December 31, 2022, respectively, and are presented within miscellaneous other assets within the unaudited condensed consolidated statements of financial position.

These trusts were valued at $ 226 million and $ 220 million as of March 31, 2024, and December 31, 2023, respectively, and are presented within miscellaneous other assets within the unaudited condensed consolidated statements of financial position.

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

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

The estimated fair values of the current portion of the Company's long-term debt were $ 253 million and $ 390 million as of September 30, 2023 and December 31, 2022, respectively.

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

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

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

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

The estimated fair values of the Company's total long-term debt (including current portion), excluding finance lease liabilities, as of March 31, 2024, and December 31, 2023, were $ 2,178 million and $ 2,309 million, respectively.

The estimated fair values of the current portion of the Company's long-term debt, excluding finance lease liabilities, were $ 84 million and $ 229 million as of March 31, 2024, and December 31, 2023, 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 of the fair value hierarchy.

Debt - In January 2024, the Company prepaid the remaining balance of $ 145 million on its term loan due August 19, 2024.

For further information on the Company's debt, see the Company's 2023 Annual Report on Form 10-K.

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

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

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

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

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

ACCOUNTING STANDARDS UPDATES

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

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 and related disclosures.

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 and related disclosures.

Other accounting pronouncements issued but not effective until after December 31, 2024, are not expected to have a material impact on the Company's consolidated financial position, results of operations, and cash flows.

STOCKHOLDERS' EQUITY

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.

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

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

For the three months ended March 31, 2024, the Company repurchased 223,329 shares at an aggregate cost of $ 63 million, including $ 1 million of accrued excise tax.

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

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

Dividends - The Company paid cash dividends totaling $ 149 million and $ 142 million for the nine months ended September 30, 2023 and 2022, respectively.

Dividends - The Company paid cash dividends totaling $ 51 million and $ 49 million for the three months ended March 31, 2024 and 2023, respectively.

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

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

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

The accumulated other comprehensive loss was comprised of unamortized benefit plan costs of $ 419 million and $ 422 million as of March 31, 2024, and December 31, 2023, respectively.

The changes in accumulated other comprehensive loss by component for the three months ended March 31, 2024 and 2023, were as follows:

($ in millions) Benefit Plans Other Total

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

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

Amounts reclassified from accumulated other comprehensive loss

Amortization of prior service cost 1

Amortization of net actuarial loss 1

Settlement gain 1

( 4 ) — ( 4 )

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

Net current period other comprehensive income 8 — 8

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

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

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

Amounts reclassified from accumulated other comprehensive loss

3 unchanged sentences

Net current period other comprehensive income 3 — 3

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

($ in millions) Benefit Plans Other Total

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

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

Amounts reclassified from accumulated other comprehensive loss

Amortization of prior service credit 1

Amortization of net actuarial loss 1

Settlement gain 1

( 4 ) — ( 4 )

Tax benefit for items of other comprehensive loss 15 1 16

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

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

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

Balance as of December 31, 2023 $ ( 422 ) $ — $ ( 422 )

4 unchanged sentences

Net current period other comprehensive income 3 — 3

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

Balance as of March 31, 2024 $ ( 419 ) $ — $ ( 419 )

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

Employee Pension and Other Postretirement Benefits.

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

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

The tax expense recorded in stockholders' equity for the amounts reclassified from accumulated other comprehensive loss for the three months ended March 31, 2024 and 2023, was $ 2 million and $ 1 million, respectively.

EARNINGS PER SHARE

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

Three Months Ended September 30 Nine Months Ended September 30

Three Months Ended

(in millions, except per share amounts) 2024 2023

5 unchanged sentences

Earnings per share - diluted $ 3.87 $ 3.23

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

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") and 0.1 million Restricted Stock Rights ("RSRs") for the three months ended March 31, 2024, and 0.5 million RPSRs for the three months ended March 31, 2023.

Disaggregation of Revenue

1 unchanged sentence

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

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

The Company believes that this level of disaggregation provides investors with information to evaluate the Company’s financial performance and provides the Company with information to make capital

allocation decisions in the most appropriate manner.

For more information on the Company's contracts, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company's 2023 Annual Report on Form 10-K.

The following tables present revenues on a disaggregated basis:

Three Months Ended September 30, 2023

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

Product sales $ 637 $ 1,170 $ 28 $ — $ 1,835

Service revenues 73 281 627 — 981

Intersegment 1 2 30 ( 33 ) —

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

Customer Type

Federal $ 710 $ 1,451 $ 647 $ — $ 2,808

Commercial — — 7 — 7

State and local government agencies — — 1 — 1

Intersegment 1 2 30 ( 33 ) —

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

Contract Type

Firm fixed-price $ — $ 1 $ 77 $ — $ 78

Fixed-price incentive 637 779 3 — 1,419

Cost-type 73 671 521 — 1,265

Time and materials — — 54 — 54

Intersegment 1 2 30 ( 33 ) —

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

Three Months Ended September 30, 2022

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

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

Service revenues 41 259 552 — 852

Intersegment 5 1 31 ( 37 ) —

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

Customer Type

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

Commercial — — 9 — 9

State and local government agencies — — 1 — 1

Intersegment 5 1 31 ( 37 ) —

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

Contract Type

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

Fixed-price incentive 577 723 — — 1,300

Cost-type 40 720 437 — 1,197

Time and materials — — 68 — 68

Intersegment 5 1 31 ( 37 ) —

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

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

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

6 unchanged sentences

Commercial — — 2 — 2

State and local government agencies — — 1 — 1

Intersegment 2 1 31 ( 34 ) —

7 unchanged sentences

Sales and service revenues $ 655 $ 1,434 $ 750 $ ( 34 ) $ 2,805

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

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

6 unchanged sentences

Commercial — — 13 — 13

State and local government agencies — — 1 — 1

Intersegment 2 1 30 ( 33 ) —

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

Three Months Ended September 30 Nine Months Ended September 30

Three Months Ended

($ in millions) 2024 2023

2 unchanged sentences

Surface combatants and coast guard cutters 300 253

Other 2 7 6 12

Total Ingalls 655 577

3 unchanged sentences

Total Newport News 1,434 1,506

Mission based solutions 567 493 1,609 1,472

C5ISR, CEW&S, LVC 626 518

Other 124 106

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Sales and service revenues $ 2,805 $ 2,674

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

As of March 31, 2024, the Company had $ 48.4 billion of remaining performance obligations.

The Company expects to recognize approximately 40 % of its remaining performance obligations as revenue through 2025, an additional 30 % through 2027, and the balance thereafter.

Cumulative Catch-up Revenue Adjustments

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

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

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

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

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

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

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

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

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

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

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

Three Months Ended

($ in millions, except per share amounts) 2024 2023

Effect on operating income $ 2 $ 9

Effect on diluted earnings per share $ 0.03 $ 0.17

For the three months ended March 31, 2024, no individual favorable cumulative catch-up revenue adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.

For the three months ended March 31, 2024, no individual unfavorable cumulative catch-up revenue adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.

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

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

Contract Balances

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

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

Net contract assets were comprised as follows:

($ in millions) March 31, 2024 December 31, 2023

Contract assets $ 1,661 $ 1,537

Contract liabilities 936 1,063

Net contract assets $ 725 $ 474

The Company’s net contract assets increased $ 251 million from December 31, 2023, to March 31, 2024, primarily resulting from an increase in contract assets related to revenue on certain U.S.

Navy contracts.

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

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

For the three months ended March 31, 2024, the Company recognized revenue of $ 641 million related to its contract liabilities as of December 31, 2023.

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

SEGMENT INFORMATION

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

Three Months Ended September 30 Nine Months Ended September 30

The following table presents segment results for the three months ended March 31, 2024 and 2023:

Three Months Ended

($ in millions) 2024 2023

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

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

($ in millions) March 31, 2024 December 31, 2023

Ingalls $ 1,674 $ 1,619

3 unchanged sentences

Total assets $ 11,167 $ 11,215

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

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

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

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

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

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

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

The Company's unrecognized tax benefits increased by $ 2 million and $ 6 million during the three and nine months ended September 30, 2023, respectively.

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

The Company's earnings are primarily domestic, and its effective income tax rates on earnings from operations for the three months ended March 31, 2024 and 2023, were 16.8 % and 20.9 %, respectively.

The lower effective tax rate differed from the federal statutory corporate income tax rate of 21% for the three months ended March 31, 2024, primarily due to research and development tax credits and income tax benefits associated with stock award settlement activity.

The Company's unrecognized tax benefits increased by $ 2 million during the three months ended March 31, 2024.

As of March 31, 2024, the estimated amounts of the Company's unrecognized tax benefits, excluding interest and

penalties, were liabilities of $ 100 million.

Assuming a sustainment of these tax positions, a reversal of $ 78 million of the accrued amounts would favorably affect the Company's effective federal income tax rate in future periods.

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

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

For the three months ended March 31, 2024, interest resulting from the unrecognized tax benefits noted above increased income tax expense by $ 1 million.

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

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District Court for the Eastern District of Virginia.

The lawsuit names several HII companies,

among other companies, as defendants.

The lawsuit names several HII companies, among other companies, as defendants.

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

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

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

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

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

False Claims Act Complaint - In 2016, the Company was made aware that it is a defendant in a qui tam False Claims Act lawsuit pending in the U.S.

District Court for the Middle District of Florida related to the Company’s purchases of allegedly non-conforming parts from a supplier for use in connection with U.S.

Government contracts.

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.

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

The District Court dismissed the lawsuit against all defendants in April 2024.

COVID Insurance Claim - In September 2020, the Company filed a complaint against 32 reinsurers in the Superior Court, State of Vermont, Franklin Unit, seeking a judgment declaring that the Company's business interruption and other losses associated with COVID-19 are covered by the Company's property insurance program.

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

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

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

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.

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

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

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

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

The costs to resolve these cases during the three months ended March 31, 2024 and 2023, were not material individually or in the aggregate.

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

Although the Company believes the ultimate resolution of current cases will not have a material effect on its condensed consolidated financial position, results of operations, or cash flows, it cannot predict what new or revised claims or litigation might be asserted or what information might come to light and can, therefore, give no assurances regarding the ultimate outcome of asbestos related litigation.

Other Litigation - The Company and its predecessor-in-interest have been in litigation with the Bolivarian Republic of Venezuela (the "Republic") since 2002 over a contract for the repair, refurbishment, and modernization at Ingalls of two foreign-built frigates.

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.

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 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.

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

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

Management estimates that as of September 30, 2023, the probable estimable future cost for environmental remediation was not material.

Management estimates that as of March 31, 2024, the probable estimable future cost for environmental remediation was not material.

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

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

As of September 30, 2023, the Company had $ 12 million in issued but undrawn letters of credit and $ 360 million of surety bonds outstanding.

As of March 31, 2024, the Company had $ 12 million in issued but undrawn letters of credit and $ 360 million of surety bonds outstanding.

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

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

Other 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.

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

The resolution did not have a material effect on the Company’s consolidated financial position, results of operations, or cash flows.

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

The Company 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.

Other Matters - The Company has been in negotiations with a Mission Technologies customer since January 2023 to address issues related to a manufacturing contract, and the parties reached an agreement to settle the matter.

The Company has recorded losses relating to the contract that were not material to the Company's consolidated financial position, results of operations, or cash flows.

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

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The Company does not expect the final resolution of the matter to have a material impact to the Company's consolidated financial position, results of operations, or cash flows.

Collective Bargaining Agreements - Of the Company's approximately 44,000 employees, approximately 45 % are covered by a total of nine collective bargaining agreements and one site stabilization agreement.

Collective Bargaining Agreements - Of the Company's more than 44,000 employees, approximately 45 % are covered by a total of nine collective bargaining agreements and one site stabilization agreement.

The Company believes its relationship with its employees is satisfactory.

EMPLOYEE PENSION AND OTHER POSTRETIREMENT BENEFITS

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

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

Three Months Ended September 30 Nine Months Ended September 30

Pension Benefits Other Benefits Pension Benefits Other Benefits

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

The costs of the Company's defined benefit pension plans and other postretirement benefit plans for the three months ended March 31, 2024 and 2023, were as follows:

Three Months Ended

Pension Benefits Other Benefits

($ in millions) 2024 2023 2024 2023

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Amortization of net actuarial loss (gain) 5 4 ( 3 ) ( 3 )

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

Net periodic benefit (income) cost $ ( 18 ) $ ( 10 ) $ 2 $ 2

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

Nine Months Ended September 30

The Company made the following contributions to its defined benefit pension plans and other postretirement benefit plans for the three months ended March 31, 2024 and 2023:

Three Months Ended

($ in millions) 2024 2023

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Total contributions $ 10 $ 10

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

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

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

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

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

As of March 31, 2024, the Company anticipates no further significant cash contributions to its qualified defined benefit pension plans in 2024.

STOCK COMPENSATION PLANS

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

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

During the three months ended March 31, 2024 and 2023, the Company issued new stock awards as follows:

Restricted Performance Stock Rights - For the three months ended March 31, 2024, the Company granted approximately 0.1 million RPSRs at a weighted average share price of $ 288.33 .

These rights are subject to cliff vesting on December 31, 2026.

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

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

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

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

For the nine months ended September 30, 2023 and 2022, awards of approximately 0.1 million and 0.2 million shares of stock vested, respectively, of which less than 0.1 million for each period were transferred to the Company from employees in satisfaction of minimum tax withholding obligations.

The following table summarizes the status of the Company's outstanding stock awards as of September 30, 2023:

Restricted Stock Rights - For the three months ended March 31, 2024, the Company granted approximately 0.1 million compensation RSRs at a weighted average share price of $ 288.33 .

These rights vest 33 1/3% upon each of the first, second, and third anniversaries of the grant date.

No compensation RSRs were granted for the three months ended March 31, 2023.

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

For the three months ended March 31, 2024, the Company granted approximately 1,200 retention RSRs at a weighted average share price of $ 288.53 , with cliff vesting one to two years from the grant date.

For the three months ended March 31, 2023, the Company granted approximately 5,000 retention RSRs at a weighted average share price of $ 211.66 , with cliff vesting two to three years from the grant date.

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

Because the stock awards are surrendered in lieu of payments of cash to settle tax obligations and the stock is not issued, the Company does not account for these transfers as treasury stock.

The following table summarizes the status of the Company's outstanding stock awards as of March 31, 2024:

(in thousands) Weighted-Average

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Compensation Expense

The Company recorded stock-based compensation for the value of awards granted to Company employees and non-employee members of the board of directors of $ 9 million and $ 12 million for the three months ended September 30, 2023 and 2022, respectively.

The Company recorded stock-based compensation for the value of awards granted to the Company's employees and non-employee members of the board of directors of $ 27 million and $ 28 million for the nine months ended September 30, 2023 and 2022, respectively.

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

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

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

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

The Company recorded stock-based compensation for the value of awards granted to Company employees and non-employee members of the board of directors of $ 14 million and $ 12 million for the three months ended March 31, 2024 and 2023, respectively.

The Company recorded tax benefits related to stock awards of $ 3 million and $ 2 million for the three months ended March 31, 2024 and 2023, respectively.

The Company recognized tax benefits associated with the issuance of stock in settlement of stock awards of $ 8 million and $ 3 million for the three months ended March 31, 2024 and 2023, respectively.

Unrecognized Compensation Expense

As of September 30, 2023, the Company had $ 2 million of unrecognized compensation expense associated with Restricted Stock Rights granted in 2023, 2022, and 2021, which will be recognized over a weighted average period of approximately one year , and $ 39 million of unrecognized compensation expense associated with RPSRs granted in 2023, 2022, and 2021, which will be recognized over a weighted average period of 1.3 years.

As of March 31, 2024, the Company had $ 21 million of unrecognized compensation expense associated with RSRs granted in 2024, 2023, and 2022, which will be recognized over a weighted average period of approximately 1.8 years, and $ 51 million of unrecognized compensation expense associated with RPSRs granted in 2024, 2023, and 2022, which will be recognized over a weighted average period of 1.6 years.

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

What changed 10-Q

Item 1. Financial Statements