What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-10-31 compared with 2024-08-01 · 114 added, 111 removed, 382 unchanged (37% of the section changed)

21 unchanged sentences

Business Environment

We continue to see uncertainty in the economy, our industry, and our company, with challenges for customers and suppliers, labor and supply chain challenges, and inflation, among other impacts.

Defense Spending Environment - The President submitted the fiscal year 2025 Budget Request on March 11, 2024, which is now under consideration by Congress.

We continue to see uncertainty in the economy, our industry, and our company.

Our customers and suppliers continue to face challenges, and our results for the three months ended September 30, 2024, have been adversely affected as we continue to experience significant challenges relating to labor availability, our supply chain, and inflation, among other challenges.

We cannot clearly predict how long these challenges will continue, whether these challenges will change over time, or whether our actions to address these challenges will be successful.

Defense Spending Environment - The President submitted the fiscal year 2025 Budget Request on March 11, 2024, which is under consideration by Congress.

The budget request reflects continued investment in shipbuilding, funding two Arleigh Burke class (DDG 51) surface combatants, one San Antonio class (LPD 17) amphibious warship, and the lead Block VI Virginia class (SSN 774) submarine, which is proposed to be executed as a multiyear procurement.

3 unchanged sentences

Congressional consideration of the fiscal year 2025 President’s Budget Request began following its release in March 2024 and is continuing.

Each of the House and Senate Armed Services Committees have acted on their respective National Defense Authorization bills for fiscal year 2025.

The full House approved its authorization bill and the Senate version awaits Senate floor consideration before the two bills are reconciled to produce a final authorization measure.

The House and Senate Armed Services Committees have acted on their respective National Defense Authorization bills for fiscal year 2025.

The full House approved its authorization bill, and the full Senate has not yet completed floor consideration of the Senate version.

It is expected that the two bills will be reconciled to produce a final authorization measure.

The full House also approved the fiscal year 2025 defense appropriations bill.

The Senate Appropriations Committee has yet to conduct markups of the Senate defense appropriations bill, and the timing of committee action remains uncertain.

We cannot predict the outcome of the fiscal year 2025 budget process or whether short-term funding will be required in the event annual appropriations measures are not finalized by the October 1, 2024 start of the next fiscal year.

The Senate Appropriations Committee advanced its defense appropriations measure out of committee and awaits further consideration by the full Senate.

Appropriations for the Federal government for fiscal year 2025 have yet to be finalized, and the U.S.

Government is therefore currently operating under a Continuing Resolution ("CR"), which funds government operations through December 20, 2024.

We cannot predict the outcome of the fiscal year 2025 budget process, and it remains uncertain at this point whether fiscal year 2025 government operations will require additional short-term funding or if annual appropriations measures will be finalized by the expiration of the CR.

Global Geopolitical and Economic Environment - The global geopolitical and economic environment continues to be impacted by uncertainty, heightened geopolitical tensions, and instability.

2 unchanged sentences

These global threats persist across all domains, from undersea to space to cyber, and the global market for defense products, services, and solutions is driven by these complex and evolving security challenges.

Our current operating environment exists in the broader context of political and

socioeconomic priorities and reflects, among other things, the continued impact of and uncertainty surrounding geopolitical tensions, financial market volatility, inflation, and a challenging labor market.

Our current operating environment exists in the broader context of political and socioeconomic priorities and reflects, among other things, the continued impact of and uncertainty surrounding geopolitical tensions, financial market volatility, inflation, and a challenging labor market.

For further information on our business environment, see the discussion under Business Environment under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our 2023 Annual Report on Form 10-K.

4 unchanged sentences

• Workers' compensation.

As of June 30, 2024, there had been no material changes to the foregoing critical accounting policies, estimates, and judgments since December 31, 2023.

As of September 30, 2024, there had been no material changes to the foregoing critical accounting policies, estimates, and judgments since December 31, 2023.

Program Descriptions

2 unchanged sentences

The following table presents selected financial highlights:

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2023 2024 vs.

3 unchanged sentences

Income from operating investments, net 12 9 3 33 % 35 25 10 40 %

Other income and gains, net 1 1 — — % — — — — %

General and administrative expenses 252 253 (1) — % 739 711 28 4 %

12 unchanged sentences

Government, most types of costs are allowable, and we do not focus on individual cost groupings, such as cost of sales or general and administrative expenses, as much as we do on total contract costs, which are a key factor in determining contract operating income.

As a result, in evaluating our operating performance, we look

primarily at changes in sales and service revenues, as well as operating income, including the effects of significant changes in operating income as a result of changes in contract financial estimates and the use of the cumulative catch-up method of accounting in accordance with GAAP.

As a result, in evaluating our operating performance, we look primarily at changes in sales and service revenues, as well as operating income, including the effects of significant changes in operating income as a result of changes in contract financial estimates and the use of the cumulative catch-up method of accounting in accordance with GAAP.

This approach is consistent with the long-term life cycle of our contracts, as management assesses the bidding of each contract by focusing on net sales and operating profit and monitors performance in a similar manner through contract completion.

5 unchanged sentences

Volume changes will typically carry a corresponding income change based on the profit margin rate for a particular contract.

Sales and service revenues for the three months ended June 30, 2024, increased $190 million, or 7%, compared to the same period in 2023, primarily due to higher volumes at Mission Technologies, Ingalls, and Newport News.

Sales and service revenues for the six months ended June 30, 2024, increased $321 million, or 6%, compared to the same period in 2023, primarily due to higher volumes at Mission Technologies and Ingalls, partially offset by lower volumes at Newport News.

Sales and service revenues for the three months ended September 30, 2024, decreased $67 million, or 2%, compared to the same period in 2023, primarily due to lower volumes at Ingalls and Newport News, partially offset by higher volumes at Mission Technologies.

Sales and service revenues for the nine months ended September 30, 2024, increased $254 million, or 3%, compared to the same period in 2023, primarily due to higher volumes at Mission Technologies and Ingalls, partially offset by lower volumes at Newport News.

Cost of Sales and Service Revenues

10 unchanged sentences

These costs are allocated to contracts in progress on a systematic basis, and contract performance factors include this cost component as an element of cost.

General and administrative expenses for the three and six months ended June 30, 2024, increased $17 million and $29 million, respectively, from the same periods in 2023, primarily due to higher overhead costs, including bid and proposal costs.

General and administrative expenses for the three months ended September 30, 2024, decreased $1 million from the same period in 2023.

General and administrative expenses for the nine months ended September 30, 2024, increased $28 million from the same period in 2023, primarily due to higher overhead costs.

Operating Income

We consider operating income an important measure for evaluating our operating performance, and, consistent with industry practice, we define operating income as revenues less the related costs of producing the revenues and general and administrative expenses.

We internally manage our operations by reference to "segment operating income," which is defined as operating income before the Operating FAS/CAS Adjustment and non-current state income taxes, neither of which affects

contract performance.

Segment operating income is not a recognized measure under GAAP.

2 unchanged sentences

We believe segment operating income reflects an additional way of viewing aspects of our operations that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our business.

We believe the measure is used by investors and is a useful indicator to measure our performance.

We believe the measure is used by investors and is a

useful indicator to measure our performance.

Because not all companies use identical calculations, our presentation of segment operating income may not be comparable to similarly titled measures of other companies.

1 unchanged sentence

The following table reconciles operating income to segment operating income:

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2023 2024 vs.

11 unchanged sentences

The components of the Operating FAS/CAS Adjustment were as follows:

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2023 2024 vs.

5 unchanged sentences

Operating FAS/CAS Adjustment expense $ (16) $ (19) $ 3 16 % $ (48) $ (55) $ 7 13 %

The Operating FAS/CAS Adjustment was a net expense of $15 million and $17 million for the three months ended June 30, 2024 and 2023, respectively.

The Operating FAS/CAS Adjustment was a net expense of $32 million and $36 million for the six months ended June 30, 2024 and 2023, respectively.

The Operating FAS/CAS Adjustment was a net expense of $16 million and $19 million for the three months ended September 30, 2024 and 2023, respectively.

The Operating FAS/CAS Adjustment was a net expense of $48 million and $55 million for the nine months ended September 30, 2024 and 2023, respectively.

The favorable change in the Operating FAS/CAS Adjustment for each period was primarily driven by demographic assumptions, partially offset by lower interest rates under FAS.

3 unchanged sentences

Current period state income tax expense is charged to contract costs and included in cost of sales and service revenues in segment operating income.

Non-current state income tax benefit was $1 million and $4 million for the three months ended June 30, 2024 and 2023, respectively.

Non-current state income tax benefit was $2 million and $8 million for the six months ended June 30, 2024 and 2023, respectively.

The unfavorable change in non-current state income taxes for each period was

driven by an increase in deferred state income tax expense, primarily attributable to a change in net capitalized research and development expenditures and the timing of long-term contract income for tax purposes.

Non-current state income tax benefit was $1 million and $4 million for the three months ended September 30, 2024 and 2023, respectively.

Non-current state income tax benefit was $3 million and $12 million for the nine months ended September 30, 2024 and 2023, respectively.

The unfavorable change in non-current state income taxes for the three months ended September 30, 2024, was driven by an increase in deferred state income tax expense, primarily attributable to a change in the timing of long-term contract income for tax purposes.

The unfavorable change in non-current state income taxes for the nine months ended September 30, 2024, was driven by an increase in deferred state income tax expense, primarily attributable to a change in net capitalized research and development expenditures and the timing of long-term contract income for tax purposes.

SEGMENT OPERATING RESULTS

Our discussion of business segment performance focuses on sales and service revenues and operating income,

consistent with our approach for managing our business.

Our discussion of business segment performance focuses on sales and service revenues and operating income, consistent with our approach for managing our business.

We are aligned into three reportable segments:

1 unchanged sentence

The following table presents segment operating results:

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2023 2024 vs.

28 unchanged sentences

Net Cumulative Catch-up Revenue Adjustments

For the three and six months ended June 30, 2024 and 2023, favorable and unfavorable cumulative catch-up revenue adjustments were as follows:

Three Months Ended June 30 Six Months Ended June 30

For the three and nine months ended September 30, 2024 and 2023, favorable and unfavorable cumulative catch-up revenue adjustments were as follows:

Three Months Ended September 30 Nine Months Ended September 30

($ in millions) 2024 2023 2024 2023

2 unchanged sentences

Net adjustments $ (72) $ 21 $ (46) $ 50

For the three and six months ended June 30, 2024 and 2023, net cumulative catch-up revenue adjustments by segment were as follows:

Three Months Ended June 30 Six Months Ended June 30

For the three and nine months ended September 30, 2024 and 2023, net cumulative catch-up revenue adjustments by segment were as follows:

Three Months Ended September 30 Nine Months Ended September 30

($ in millions) 2024 2023 2024 2023

4 unchanged sentences

Revenue for additional information on our net cumulative catch-up revenue adjustments.

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2023 2024 vs.

4 unchanged sentences

Sales and Service Revenues

Ingalls revenues, including intersegment sales, for the three months ended June 30, 2024, increased $48 million, or 7%, from the same period in 2023, primarily driven by higher volumes in amphibious assault ships and surface combatants, partially offset by lower volumes in the Legend class National Security Cutter ("NSC") program.

Ingalls revenues, including intersegment sales, for the six months ended June 30, 2024, increased $126 million, or 10%, from the same period in 2023, primarily driven by higher volumes in surface combatants and amphibious assault ships, partially offset by lower volumes in the NSC program.

Ingalls revenues, including intersegment sales, for the three months ended September 30, 2024, decreased $47 million, or 7%, from the same period in 2023, primarily driven by lower volumes in amphibious assault ships and the Legend class National Security Cutter ("NSC") program, partially offset by higher volumes in surface combatants.

Ingalls revenues, including intersegment sales, for the nine months ended September 30, 2024, increased $79 million, or 4%, from the same period in 2023, primarily driven by higher volumes in surface combatants and amphibious assault ships, partially offset by lower volumes in the NSC program.

Segment Operating Income

Ingalls segment operating income for the three and six months ended June 30, 2024, was $56 million and $116 million, respectively, compared to segment operating income of $65 million and $120 million, respectively, for the same periods in 2023.

The decreases were primarily driven by lower performance on surface combatants, partially offset by a delivery contract incentive on Richard M.

Three Months Ended June 30 Six Months Ended June 30

Ingalls segment operating income for the three months ended September 30, 2024, was $49 million, compared to segment operating income of $73 million for the same period in 2023.

The decrease was primarily driven by lower performance on amphibious assault ships and surface combatants.

Ingalls segment operating income for the nine months ended September 30, 2024, was $165 million, compared to segment operating income of $193 million for the same period in 2023.

The decrease was primarily driven by lower performance on surface combatants and amphibious assault ships, partially offset by a delivery contract incentive on USS Richard M.

Three Months Ended September 30 Nine Months Ended September 30

2023 2024 vs.

4 unchanged sentences

Sales and Service Revenues

Newport News revenues, including intersegment sales, for the three months ended June 30, 2024, increased $26 million, or 2%, from the same period in 2023, primarily driven by higher volumes in the Columbia class (SSBN 826) submarine program.

Newport News revenues, including intersegment sales, for the six months ended June 30, 2024, decreased $46 million, or 2%, from the same period in 2023, primarily driven by lower volumes in the Virginia class (SSN 774) submarine program and aircraft carriers, partially offset by higher volumes in the Columbia class (SSBN 826) submarine program.

Newport News revenues, including intersegment sales, for the three months ended September 30, 2024, decreased $41 million, or 3%, from the same period in 2023, primarily driven by lower volumes in naval nuclear support services and cumulative catch-up adjustments on the Virginia class (SSN 774) submarine program and aircraft carriers, partially offset by higher volumes in the Columbia class (SSBN 826) submarine program.

Newport News revenues, including intersegment sales, for the nine months ended September 30, 2024, decreased $87 million, or 2%, from the same period in 2023, primarily driven by cumulative catch-up adjustments on the Virginia class (SSN 774) submarine program and lower volumes on aircraft carriers and naval nuclear support services, partially offset by higher volumes in the Columbia class (SSBN 826) program.

Segment Operating Income

Newport News segment operating income for the three months ended June 30, 2024, was $111 million, compared to segment operating income of $95 million for the same period in 2023.

The increase was primarily driven by contract adjustments, incentives, and volumes on the RCOH program, partially offset by lower performance on aircraft carrier construction and the Virginia class (SSN 774) submarine program.

Newport News segment operating income for the six months ended June 30, 2024, was $193 million, compared to segment operating income of $179 million for the same period in 2023.

The increase was primarily driven by contract adjustments, incentives, and volumes on the RCOH program and higher performance in naval nuclear support services, partially offset by lower performance on the Virginia class (SSN 774) submarine program and aircraft carrier construction.

Newport News segment operating income for the three months ended September 30, 2024, was $15 million, compared to segment operating income of $90 million for the same period in 2023.

The decrease was primarily driven by lower performance on the Virginia class (SSN 774) submarine program and aircraft carriers.

Newport News segment operating income for the nine months ended September 30, 2024, was $208 million, compared to segment operating income of $269 million for the same period in 2023.

The decrease was primarily driven by lower performance on the Virginia class (SSN 774) submarine program and aircraft carriers, partially offset by contract adjustments and incentives on the RCOH program.

Mission Technologies

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2023 2024 vs.

4 unchanged sentences

Sales and Service Revenues

Mission Technologies revenues, including intersegment sales, for the three and six months ended June 30, 2024, increased $120 million, or 19%, and $246 million, or 19%, respectively, from the same periods in 2023, primarily due to higher volumes in C5ISR and CEW&S.

Mission Technologies revenues, including intersegment sales, for the three months ended September 30, 2024, increased $24 million, or 4%, from the same period in 2023, primarily due to higher volumes in CEW&S.

Mission Technologies revenues, including intersegment sales, for the nine months ended September 30, 2024, increased $270 million, or 14%, from the same period in 2023, primarily due to higher volumes in C5ISR and CEW&S.

Segment Operating Income

Mission Technologies segment operating income for the three months ended June 30, 2024, was $36 million, compared to segment operating income of $9 million for the same period in 2023.

The increase was primarily driven by the higher volumes described above, a $6 million loss in 2023 on the sale of our investment in an unconsolidated ship repair and specialty fabrication joint venture, and higher performance in fleet sustainment.

Mission Technologies segment operating income for the six months ended June 30, 2024, was $64 million, compared to segment operating income of $26 million for the same period in 2023.

The increase was primarily

driven by the higher volumes described above, higher performance in fleet sustainment, and a $6 million loss in 2023 on the sale of our investment in an unconsolidated ship repair and specialty fabrication joint venture.

Mission Technologies segment operating income for the three months ended September 30, 2024, was $33 million, compared to segment operating income of $24 million for the same period in 2023.

The increase was primarily driven by higher volumes described above and higher equity income from nuclear and environmental joint ventures.

Mission Technologies segment operating income for the nine months ended September 30, 2024, was $97 million, compared to segment operating income of $50 million for the same period in 2023.

The increase was primarily driven by the higher volumes described above and higher performance in fleet sustainment.

PRODUCT AND SERVICE REVENUES AND COST ANALYSIS

1 unchanged sentence

Sales and Service Revenues Segment Cost of Product Sales and Service Revenues

($ in millions) Three Months Ended June 30 2024 vs.

2023 Three Months Ended June 30 2024 vs.

($ in millions) Three Months Ended September 30 2024 vs.

2023 Three Months Ended September 30 2024 vs.

Segment Information 2024 2023 Dollars Percent 2024 2023 Dollars Percent

19 unchanged sentences

Sales and Service Revenues Segment Cost of Product Sales and Service Revenues

($ in millions) Six Months Ended June 30 2024 vs.

2023 Six Months Ended June 30 2024 vs.

($ in millions) Nine Months Ended September 30 2024 vs.

2023 Nine Months Ended September 30 2024 vs.

Segment Information 2024 2023 Dollars Percent 2024 2023 Dollars Percent

19 unchanged sentences

Product Sales and Segment Cost of Product Sales

Product sales for the three months ended June 30, 2024, increased $47 million, or 3%, from the same period in 2023, primarily as a result of higher volumes at Ingalls in amphibious assault ships and at Newport News in the Columbia class (SSBN 826) program, partially offset by lower volumes in aircraft carriers.

Segment cost of product sales for the three months ended June 30, 2024, increased $27 million, or 2%, compared with the same period in 2023, consistent with product sales described above.

Product sales and segment cost of product sales for the six months ended June 30, 2024, increased $5 million and decreased $2 million, respectively, from the same period in 2023.

The changes were consistent with the respective Ingalls and Newport News drivers discussed in the "Segment Operating Results" of this section.

Product sales for the three months ended September 30, 2024, decreased $74 million, or 4%, from the same period in 2023, primarily due to lower volumes at Ingalls in amphibious assault ships and the Legend class NSC program.

Segment cost of product sales for the three months ended September 30, 2024, increased $18 million, or 1%, compared with the same period in 2023, primarily due to higher volumes in the Columbia class (SSBN 826) program and the Virginia class (SSN 774) submarine program at Newport News, partially offset by the lower volumes described above.

Product sales for the nine months ended September 30, 2024, decreased $69 million, from the same period in 2023, primarily due to lower volumes on aircraft carriers and cumulative catch-up adjustments on the Virginia class (SSN 774) submarine program at Newport News, partially offset by higher volumes in the Columbia class (SSBN 826) program at Newport News and higher volumes at Ingalls in surface combatants and amphibious assault ships.

Segment cost of product sales for the nine months ended September 30, 2024, increased $16 million from the same period in 2023, primarily due to higher volumes in the Columbia class (SSBN 826) program at Newport News and higher volumes at Ingalls in surface combatants and amphibious assault ships, partially offset by lower volumes on aircraft carriers at Newport News.

Service Revenues and Segment Cost of Service Revenues

Service revenues for the three months ended June 30, 2024, increased $143 million, or 16%, from the same period in 2023, primarily as a result of higher volumes at Mission Technologies in C5ISR and CEW&S.

Segment cost of service revenues for the three months ended June 30, 2024, increased $122 million, or 15%, compared with the same period in 2023, consistent with the higher service volumes described above.

Service revenues for the six months ended June 30, 2024, increased $316 million, or 18%, from the same period in 2023, primarily as a result of higher volumes at Mission Technologies in C5ISR and CEW&S.

Segment cost of service revenues for the six months ended June 30, 2024, increased $259 million, or 17%, compared with the same period in 2023, consistent with the higher service volumes described above.

Service revenues for the three months ended September 30, 2024, increased $7 million, or 1%, from the same period in 2023, primarily as a result of higher volumes at Ingalls in surface combatant services and at Mission Technologies in CEW&S, partially offset by lower volumes at Newport News in naval nuclear support services.

Segment cost of service revenues for the three months ended September 30, 2024, increased $12 million, or 1%, compared with the same period in 2023, consistent with the service volumes described above.

Service revenues for the nine months ended September 30, 2024, increased $323 million, or 12%, from the same period in 2023, primarily as a result of higher volumes at Mission Technologies in C5ISR and CEW&S.

Segment cost of service revenues for the nine months ended September 30, 2024, increased $271 million, or 11%, compared with the same period in 2023, consistent with the higher service volumes described above.

OTHER FINANCIAL INFORMATION

Interest Expense

Interest expense for each of the three months ended June 30, 2024 and 2023, was $24 million.

Interest expense for the six months ended June 30, 2024, was $45 million, compared with $48 million for the same period in 2023.

The decrease in interest expense for the six months ended June 30, 2024, was driven by a decrease in outstanding long-term debt from the prior year period, partially offset by an increase in outstanding short-term debt.

Interest expense for the three months ended September 30, 2024, was $23 million, compared with $22 million for the same period in 2023.

Interest expense for the nine months ended September 30, 2024, was $68 million, compared with $70 million for the same period in 2023.

Non-Operating Retirement Benefit

1 unchanged sentence

interest cost, expected return on plan assets, amortization of prior service cost (credit) and actuarial loss (gain), and settlement and curtailment effects.

For the three months ended June 30, 2024, the non-operating retirement benefit was $46 million, compared with $37 million for the same period in 2023.

For the six months ended June 30, 2024, the non-operating retirement benefit was $90 million, compared with $74 million for the same period in 2023.

The increases in the non-operating retirement benefit for the three and six months ended June 30, 2024, were primarily driven by higher 2023 returns on plan assets.

Other, net income for the three months ended June 30, 2024, was $5 million, compared with other, net of zero for the same period in 2023.

Other, net income for the six months ended June 30, 2024, was $12 million, compared with other, net income of $9 million for the same period in 2023.

There were no individually significant drivers for the increases in other, net for the three and six months ended June 30, 2024.

For the three months ended September 30, 2024, the non-operating retirement benefit was $44 million, compared with $37 million for the same period in 2023.

For the nine months ended September 30, 2024, the non-operating retirement benefit was $134 million, compared with $111 million for the same period in 2023.

The increases in the non-operating retirement benefit for the three and nine months ended September 30, 2024, were primarily driven by higher 2023 returns on plan assets.

Other, net income for the three months ended September 30, 2024, was $9 million, compared with other, net income of $2 million for the same period in 2023.

Other, net income for the nine months ended September 30, 2024, was $21 million, compared with other, net income of $11 million for the same period in 2023.

The increases in other, net income for the three and nine months ended September 30, 2024, were primarily driven by higher unrealized net gains on investments.

Federal and Foreign Income Taxes

Our effective income tax rates on earnings from operations for the three months ended June 30, 2024 and 2023, were 19.9 % and 23.1 %, respectively.

Our effective income tax rates on earnings from operations for the six months ended June 30, 2024 and 2023, were 18.5 % and 22.0 %, respectively.

The lower effective tax rate for each of the three and six months ended June 30, 2024, was primarily attributable to a taxable gain associated with the sale of our interest in an unconsolidated ship repair and specialty fabrication joint venture recorded in 2023.

For the three months ended June 30, 2024, our effective tax rate differed from the federal statutory corporate income tax rate of 21 % primarily due to research and development tax credits.

For the six months ended June 30, 2024, our effective tax rate differed from the federal statutory corporate income tax rate primarily due to research and development tax credits and income tax benefits associated with stock award settlement activity.

Total backlog as of June 30, 2024, and December 31, 2023, was $48.5 billion and $48.1 billion, respectively.

Our effective income tax rates on earnings from operations for the three months ended September 30, 2024 and 2023, were 9.8 % and 21.7 %, respectively.

Our effective income tax rates on earnings from operations for the nine months ended September 30, 2024 and 2023, were 16.6 % and 21.9 %, respectively.

The lower effective tax rate for the three months ended September 30, 2024, was primarily attributable to current and prior period research and development tax credits recorded in the current period.

The lower effective tax rate for the nine months ended September 30, 2024, was primarily attributable to current and prior period research and development tax credits recorded in the current period and to a taxable gain associated with the sale of our interest in an unconsolidated ship repair and specialty fabrication joint venture recorded in 2023.

For each of the three and nine months ended September 30, 2024, our effective tax rate differed from the federal statutory corporate income tax rate of 21 % primarily due to research and development tax credits for the current and prior periods.

Total backlog as of September 30, 2024, and December 31, 2023, was $49.4 billion and $48.1 billion, respectively.

Total backlog includes both funded backlog (firm orders for which funding is contractually obligated by the customer) and unfunded backlog (firm orders for which funding is not currently contractually obligated by the customer).

1 unchanged sentence

For contracts having no stated contract values, backlog includes only the amounts committed by the customer.

The following table presents funded and unfunded backlog by segment as of June 30, 2024, and December 31, 2023:

June 30, 2024 December 31, 2023

The following table presents funded and unfunded backlog by segment as of September 30, 2024, and December 31, 2023:

September 30, 2024 December 31, 2023

($ in millions) Funded Unfunded Total Backlog Funded Unfunded Total Backlog

5 unchanged sentences

We expect approximately 22% of the $48.1 billion total backlog as of December 31, 2023, to be converted into sales in 2024.

Government orders comprised substantially all of the backlog as of June 30, 2024, and December 31, 2023.

Government orders comprised substantially all of the backlog as of September 30, 2024, and December 31, 2023.

Contract Awards

The value of new contract awards during the six months ended June 30, 2024, was $6.2 billion, including an award for the maintenance and overhaul of USS Boise (SSN 764), an award for an advanced planning contract for the RCOH of USS Harry S.

The value of new contract awards during the nine months ended September 30, 2024, was $9.8 billion, including an award for the maintenance and overhaul of USS Boise (SSN 764), an award for an advanced planning contract for the RCOH of USS Harry S.

Truman (CVN 75) and an award for construction of USS Richard J.

4 unchanged sentences

We believe these measures are useful to investors in assessing our financial performance.

The following table summarizes key components of cash flow provided by (used in) operating activities:

Six Months Ended June 30 2024 vs.

The following table summarizes key components of cash flow provided by operating activities:

Nine Months Ended September 30 2024 vs.

($ in millions) 2024 2023 Dollars

7 unchanged sentences

Trade working capital increase (528) (155) (373)

Net cash provided by (used in) operating activities $ (211) $ 73 $ (284)

Net cash provided by operating activities $ 2 $ 408 $ (406)

We have historically maintained a capital structure comprised of a mix of equity and debt financing.

leverage both to optimize our equity return and to pursue acquisitions.

We expect to meet our current debt

obligations as they come due through internally generated funds from current levels of operations, existing borrowing facilities, and/or through refinancing in the debt markets prior to the maturity dates of our debt.

We discuss below our significant operating, investing, and financing activities affecting cash flows for the six months ended June 30, 2024 and 2023, as classified in our unaudited condensed consolidated statements of cash flows.

We vary our leverage both to optimize our equity return and to pursue acquisitions.

We expect to meet our current debt obligations as they come due through internally generated funds from current levels of operations, existing borrowing facilities, and/or through refinancing in the debt markets prior to the maturity dates of our debt.

We discuss below our significant operating, investing, and financing activities affecting cash flows for the nine months ended September 30, 2024 and 2023, as classified in our unaudited condensed consolidated statements of cash flows.

Operating Activities

Cash used in operating activities for the six months ended June 30, 2024, was $211 million, compared with cash provided by operating activities of $73 million for the same period in 2023.

The unfavorable change in operating cash flow was primarily due to an unfavorable change in trade working capital driven by the timing of payments of accounts payable and receipts of accounts receivable, partially offset by lower payments for income taxes.

We expect cash generated from operations in combination with our current cash and cash equivalents, as well as existing borrowing facilities, to be sufficient to service debt and retiree benefit plans, meet contractual obligations, and fund capital expenditures for at least the next 12 calendar months beginning July 1, 2024, and beyond such 12-month period based on our current business plans.

Cash provided by operating activities for the nine months ended September 30, 2024, was $2 million, compared with cash provided by operating activities of $408 million for the same period in 2023.

The unfavorable change in operating cash flow was primarily due to an unfavorable change in trade working capital driven by the timing of billings across programs, partially offset by lower payments for income taxes.

We expect cash generated from operations in combination with our current cash and cash equivalents, as well as existing borrowing facilities, to be sufficient to service debt and retiree benefit plans, meet contractual obligations, and fund capital expenditures for at least the next 12 calendar months beginning October 1, 2024, and beyond such 12-month period based on our current business plans.

Investing Activities

Cash used in investing activities for the six months ended June 30, 2024, was $162 million, compared to $70 million used in investing activities for the same period in 2023.

Cash used in investing activities for the nine months ended September 30, 2024, was $238 million, compared to $111 million used in investing activities for the same period in 2023.

The change in investing cash was primarily driven by the sale of our interest in an unconsolidated ship repair and specialty fabrication joint venture in 2023 and an increase in capital expenditures, partially offset by additional investment in one of our unconsolidated nuclear and environmental joint ventures in 2023.

2 unchanged sentences

Financing Activities

Cash used in financing activities for the six months ended June 30, 2024, was $46 million, compared with $157 million used in financing activities for the same period in 2023.

The change in cash used in financing activities was primarily due to a $440 million increase in proceeds from our commercial paper program, partially offset by a $199 million increase in repayments of long term debt, and a $111 million increase in common stock repurchases.

Cash used in financing activities for the nine months ended September 30, 2024, was $184 million, compared with $655 million used in financing activities for the same period in 2023.

The change in cash used in financing activities was primarily due to a $396 million increase in proceeds from our commercial paper program and lower repayment of debt in the current year, partially offset by a $125 million increase in common stock repurchases.

Free Cash Flow

5 unchanged sentences

Free cash flow may not be comparable to similarly titled measures of other companies.

The following table reconciles net cash provided by (used in) operating activities to free cash flow:

Six Months Ended June 30 2024 vs.

The following table reconciles net cash provided by operating activities to free cash flow:

Nine Months Ended September 30 2024 vs.

($ in millions) 2024 2023 Dollars

Net cash provided by (used in) operating activities $ (211) $ 73 $ (284)

Net cash provided by operating activities $ 2 $ 408 $ (406)

Less capital expenditures:

2 unchanged sentences

Free cash flow $ (237) $ 258 $ (495)

Free cash flow for the six months ended June 30, 2024, decreased $338 million from the same period in 2023, primarily due to an unfavorable change in trade working capital and higher capital expenditures, partially offset by lower payments for income taxes.

Free cash flow for the nine months ended September 30, 2024, decreased $495 million from the same period in 2023, primarily due to an unfavorable change in trade working capital driven by the timing of billings across programs and higher capital expenditures, partially offset by lower payments for income taxes.

Governmental Regulation and Supervision

Government has the ability, pursuant to regulations relating to contractor business systems, to decrease or withhold contract payments if it determines significant deficiencies exist in one or more such systems.

As of June 30, 2024 and 2023, the cumulative amounts of payments withheld by the U.S.

As of September 30, 2024 and 2023, the cumulative amounts of payments withheld by the U.S.

Government under our contracts subject to these regulations were not material to our liquidity or cash flows.

Off-Balance Sheet Arrangements

In the ordinary course of business, we use 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 our self-insured workers' compensation plans.

As of June 30, 2024, $11 million in letters of credit were issued but undrawn and $360 million of surety bonds were outstanding.

As of June 30, 2024, we had no other significant off-balance sheet arrangements.

As of September 30, 2024, $11 million in letters of credit were issued but undrawn and $360 million of surety bonds were outstanding.

As of September 30, 2024, we had no other significant off-balance sheet arrangements.

ACCOUNTING STANDARDS UPDATES

2 unchanged sentences

Statements in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission ("SEC"), as well as other statements we may make from time to time, other than statements of historical fact, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.

In some cases, you can identify forward-looking statements by words such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," and similar words or phrases or the negative of these words or phrases.

In some cases, you can identify forward-looking statements by words such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "guidance," "outlook," "predicts," "potential," "continue," and similar words or phrases or the negative of these words or phrases.

These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements.

2 unchanged sentences

• changes in government and customer priorities and requirements (including government budgetary constraints, shifts in defense spending, and changes in customer short-range and long-range plans);

• our ability to estimate our future contract costs, including cost increases due to inflation, and perform our contracts effectively;

• our ability to estimate our future contract costs, including cost increases due to inflation, labor challenges, or other factors and our efforts to recover or offset such costs and/or changes in estimated contract costs, and perform our contracts effectively;

• changes in procurement processes and government regulations and our ability to comply with such requirements;

6 unchanged sentences

• disruptions impacting global supply, including those resulting from the ongoing conflict between Russia and Ukraine and in the Middle East;

• investigations, claims, disputes, enforcement actions, litigation (including criminal, civil, and administrative), and/or other legal proceedings, and improper conduct of employees, agents, subcontractors, suppliers, business partners, or joint ventures in which we participate, including the impact on our reputation or ability to do business;

• changes in key estimates and assumptions regarding our pension and retiree health care costs;

15 unchanged sentences

The America class (LHA 6) ships optimize aviation operations and support capabilities.

In 2023, we were awarded a long-lead-time material contract for Helmand Province (LHA 10), and in 2024, we were awarded a contract modification for the detail design and construction of Helmand Province (LHA 10).

We are currently constructing Bougainville (LHA 8) and Fallujah (LHA 9).

In 2023, we were awarded a long-lead-time material contract for Helmand Province (LHA 10).

Arleigh Burke class (DDG 51) destroyers

58 unchanged sentences

In 2023, we received an award modification for the detail design and construction of Philadelphia (LPD 32).

We are currently constructing Richard M.

(LPD 29), Harrisburg (LPD 30), and Pittsburgh (LPD 31).

In 2024, we delivered USS Richard M.

(LPD 29), and we were awarded a multi-ship procurement contract for the construction of LPD 33 (unnamed), LPD 34 (unnamed), and LPD 35 (unnamed).

We are currently constructing Harrisburg (LPD 30), Pittsburgh (LPD 31), and Philadelphia (LPD 32).

Virginia class (SSN 774) fast attack submarines

6 unchanged sentences

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 2. Management’s Discussion and Analysis