What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-01 compared with 2024-10-31 · 135 added, 193 removed, 303 unchanged (52% of the section changed)

12 unchanged sentences

Newport News includes all of our nuclear ship design, construction, overhaul, refueling, and repair and maintenance businesses.

Our Mission Technologies segment provides a wide range of services and products, including command, control, computers, communications, cyber, intelligence, surveillance, and reconnaissance ("C5ISR") systems and operations;

Our Mission Technologies segment is organized into four groups, All-Domain Operations, Warfare Systems, Global Security, and Uncrewed Systems, and specializes in a wide range of services and products across our capabilities, which include command, control, computers, communications, cyber, intelligence, surveillance, and reconnaissance ("C5ISR") systems and operations;

the application of artificial intelligence and machine learning to battlefield decisions;

defensive and offensive cyberspace strategies and electronic warfare ("CEW&S");

unmanned autonomous systems;

live, virtual, and constructive training solutions ("LVC");

defensive and offensive cyber, electronic warfare & space;

uncrewed systems;

live, virtual, and constructive training solutions;

fleet sustainment;

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Business Environment

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.

The federal budget environment remains a significant long-term risk, and we continue to see uncertainty in the economy, our industry, and our company.

Our customers and suppliers continue to face challenges, and we believe

continued budget pressures could have serious implications for defense discretionary spending, the defense industrial base, including HII, and the customers, employees, suppliers, subcontractors, investors, and communities that rely on companies in the defense industrial base.

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.

Additionally, the budget request continues funding for Ford class (CVN 78) nuclear aircraft carriers and the first of three years of full funding for the refueling and complex overhaul of USS Harry S.

Truman (CVN 75).

The budget request continues investment in the submarine industrial base and research and development on next generation large surface combatants (DDG(X)) and nuclear submarines (SSN(X)).

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

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 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.

Defense Spending Environment – The fiscal year 2025 budget cycle ultimately concluded with the passage of the Full-Year Continuing Appropriations and Extensions Act, 2025, signed into law March 15, 2025.

This marks the first time the DoD will operate under a Continuing Resolution ("CR") for the full fiscal year.

While unprecedented, exceptions were made to the Navy Shipbuilding and Conversion account in the full-year CR to provide the authorities and necessary funding levels for program execution.

Final defense appropriations provided by the CR broadly supported shipbuilding programs, including funding for three Arleigh Burke class (DDG 51) guided missile destroyers, one Virginia class (SSN 774) fast attack submarine, one San Antonio class (LPD 17) Amphibious Transport Dock, the RCOH for USS Harry S.

Truman (CVN 75), and funding to support Columbia class (SSBN 826) submarines, CVN, and LHA programs.

The CR also included funding for the Submarine Industrial Base for investment in critical areas including supplier capacity and capability, strategic outsourcing, workforce training and technology and infrastructure, and multi-year procurement authority was provided for the Virginia class (SSN 774) program.

An earlier short-term CR funding the government from December 20, 2024 through March 14, 2025 included additional supplemental funding for expenses necessary for procurement of two fiscal year 2024 Virginia class (SSN 774) submarines, one fiscal year 2025 Virginia class (SSN 774) submarine, and to incrementally fund contract obligations for the improvement of workforce wages and non-executive level salaries on new or existing contracts pertaining to the Virginia class (SSN 774) submarine program or to other nuclear-powered vessel programs.

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

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• Workers' compensation.

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

As of March 31, 2025, there had been no material changes to the foregoing critical accounting policies, estimates, and judgments since December 31, 2024.

Program Descriptions

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The following table presents selected financial highlights:

Three Months Ended September 30 Nine Months Ended September 30

2023 2024 vs.

($ in millions) 2024 2023 Dollars Percent 2024 2023 Dollars Percent

Three Months Ended March 31

($ in millions) 2025 2024 Dollars Percent

Sales and service revenues $ 2,734 $ 2,805 $ (71) (3) %

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Income from operating investments, net 13 12 1 8 %

Other income and gains (losses), net — (1) 1 100 %

General and administrative expenses 246 232 14 6 %

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Therefore, sales tend to fluctuate in concert with costs across our large portfolio of active contracts, with operating income being a critical measure of operating performance.

Under FAR rules that govern our business with the U.S.

Under the Federal Acquisition Regulation (the "FAR") rules that govern our business with the U.S.

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.

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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 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.

Sales and service revenues for the three months ended March 31, 2025, decreased $71 million, or 3%, compared to the same period in 2024, primarily due to lower volumes at Newport News, Ingalls, and Mission Technologies.

Net Cumulative Catch-up Revenue Adjustments

For the three months ended March 31, 2025 and 2024, favorable and unfavorable cumulative catch-up revenue adjustments were as follows:

Three Months Ended March 31

($ in millions) 2025 2024

Gross favorable adjustments $ 80 $ 55

Gross unfavorable adjustments (80) (53)

Net adjustments $ — $ 2

For the three months ended March 31, 2025, cumulative catch-up revenue adjustments netted to zero, and did not have an effect on operating income.

The Company’s Newport News segment continues to experience performance challenges in the construction of aircraft carriers and Virginia class (SSN 774) submarines.

For the three months ended March 31, 2025, cumulative catch-up revenue adjustments included significant unfavorable performance adjustments on the construction of Enterprise (CVN 80) and Virginia class (SSN 774) submarines, which were offset by contract incentives.

Revenue and "Segment Operating Results" in this section for additional information on our net cumulative catch-up revenue adjustments.

Cost of Sales and Service Revenues

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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 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.

General and administrative expenses for the three months ended March 31, 2025, increased $14 million from the same period in 2024, primarily due to higher overhead costs, partially offset by lower state income taxes.

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.

Segment Operating Income

We internally manage our operations by reference to "segment operating income," which is a non-GAAP measure and 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 a measure we use to evaluate our core operating performance as it reflects the aggregate performance results of contracts within a segment.

When analyzing our operating performance, investors should use segment operating income in addition to, and not as an alternative for, operating income or any other performance measure presented in accordance with GAAP.

It is a measure we use to evaluate our core operating performance.

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.

"Segment Operating Results" in this section for details related to segment operating income, as well as activity within each segment.

Changes in segment operating income are typically expressed in terms of volume, as discussed in “Sales and Service Revenues” above, or performance.

Performance refers to changes in contract profit margin rates.

These changes typically relate to profit recognition associated with revisions to estimated costs at completion ("EAC"), which reflect improved or deteriorated operating performance on that contract.

Operating income changes are accounted for on a cumulative to date basis at the time an EAC change is recorded.

Segment operating income may also be affected by, among other things, contract performance, inflationary pressures on our supply chain, the effects of workforce stoppages and other labor-related shortfalls, the availability of raw materials, the effects of natural disasters such as hurricanes, resolution of disputed items with the customer, recovery of insurance proceeds, and other discrete events.

At the completion of a long-term contract, any originally estimated costs not incurred or reserves not fully utilized, such as warranty reserves, could also impact contract earnings.

Where such items have occurred and the effects are material, a separate description is provided.

Refer to "Segment Operating Results" in this section for activity within each segment.

The following table reconciles operating income to segment operating income:

Three Months Ended September 30 Nine Months Ended September 30

2023 2024 vs.

($ in millions) 2024 2023 Dollars Percent 2024 2023 Dollars Percent

Three Months Ended March 31

($ in millions) 2025 2024 Dollars Percent

Operating income $ 161 $ 154 $ 7 5 %

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FAS/CAS Adjustment and Operating FAS/CAS Adjustment

The FAS/CAS Adjustment reflects the difference between expenses for pension and other postretirement benefits determined in accordance with U.S.

GAAP Financial Accounting Standards ("FAS") and the expenses for these items included in segment operating income in accordance with U.S.

Government Cost Accounting Standards ("CAS").

The FAS/CAS Adjustment reflects the difference between expenses for pension and other postretirement benefits determined in accordance with GAAP ("FAS") and the expenses for these items included in segment operating income in accordance with U.S.

Cost Accounting Standards ("CAS").

The Operating FAS/CAS Adjustment excludes the following components of net periodic benefit costs:

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

Three Months Ended September 30 Nine Months Ended September 30

2023 2024 vs.

($ in millions) 2024 2023 Dollars Percent 2024 2023 Dollars Percent

Three Months Ended March 31

($ in millions) 2025 2024 Dollars Percent

FAS benefit $ 25 $ 16 $ 9 56 %

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Operating FAS/CAS Adjustment expense $ (10) $ (17) $ 7 41 %

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.

The Operating FAS/CAS Adjustment was a net expense of $10 million and $17 million for the three months ended March 31, 2025 and 2024, respectively.

The favorable change in the Operating FAS/CAS Adjustment was primarily driven by higher interest rates under FAS.

Non-current State Income Taxes

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These amounts are recorded within operating income.

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 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.

Current period state income taxes are charged to contract costs and included in cost of sales and service revenues in segment operating income.

Non-current state income tax expense for the three months ended March 31, 2025 was less than $1 million, compared to non-current state income tax benefit of $1 million for the three months ended March 31, 2024.

The unfavorable change in non-current state income taxes 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

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The following table presents segment operating results:

Three Months Ended September 30 Nine Months Ended September 30

2023 2024 vs.

($ in millions) 2024 2023 Dollars Percent 2024 2023 Dollars Percent

Three Months Ended March 31

($ in millions) 2025 2024 Dollars Percent

Sales and Service Revenues

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Operating income $ 161 $ 154 $ 7 5 %

Segment Operating Income

Segment operating income reflects the aggregate performance results of contracts within a segment.

Excluded from this measure are certain costs not directly associated with contract performance, such as the Operating FAS/CAS Adjustment and non-current state income taxes.

Changes in segment operating income are typically expressed in terms of volume, as discussed above, or performance.

Performance refers to changes in contract profit margin rates.

These changes typically relate to profit recognition associated with revisions to estimated costs at completion ("EAC") on a contract, which reflect improved or deteriorated operating performance on that contract.

Operating income changes are accounted for on a cumulative to date basis at the time an EAC change is recorded.

Segment operating income may also be affected by, among other things, contract performance, the effects of workforce stoppages, the effects of natural disasters such as hurricanes, resolution of disputed items with the customer, recovery of insurance proceeds, and other discrete events.

At the completion of a long-term contract, any originally estimated costs not incurred or reserves not fully utilized, such as warranty reserves, could also impact contract earnings.

Where such items have occurred and the effects are material, a separate description is provided.

Net Cumulative Catch-up Revenue Adjustments

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

Gross favorable adjustments $ 36 $ 62 $ 174 $ 198

Gross unfavorable adjustments (108) (41) (220) (148)

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

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

Key Segment Financial Measures

Refer to "Consolidated Operating Results" in this section for details related to sales and service revenues and segment operating income.

Net Cumulative Catch-up Revenue Adjustments by Segment

For the three months ended March 31, 2025 and 2024, net cumulative catch-up revenue adjustments by segment were as follows:

Three Months Ended March 31

($ in millions) 2025 2024

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Net adjustments $ — $ 2

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

Three Months Ended September 30 Nine Months Ended September 30

2023 2024 vs.

($ in millions) 2024 2023 Dollars Percent 2024 2023 Dollars Percent

For the three months ended March 31, 2025, cumulative catch-up revenue adjustments netted to zero, and did not have an effect on operating income.

The Company’s Newport News segment continues to experience performance challenges in the construction of aircraft carriers and Virginia class (SSN 774) submarines.

Revenue and "Consolidated Operating Results" in this section for additional information on our net cumulative catch-up revenue adjustments.

Three Months Ended March 31

($ in millions) 2025 2024 Dollars Percent

Sales and service revenues $ 637 $ 655 $ (18) (3) %

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Sales and Service Revenues

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.

Ingalls revenues, including intersegment sales, for the three months ended March 31, 2025, decreased $18 million, or 3%, from the same period in 2024, primarily driven by lower volumes in amphibious assault ships.

Segment Operating Income

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.

($ in millions) 2024 2023 Dollars Percent 2024 2023 Dollars Percent

Ingalls segment operating income for the three months ended March 31, 2025, was $46 million, compared to segment operating income of $60 million for the same period in 2024.

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

Three Months Ended March 31

($ in millions) 2025 2024 Dollars Percent

Sales and service revenues $ 1,396 $ 1,434 $ (38) (3) %

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As a percentage of segment sales 6.1 % 5.7 %

The Company’s Newport News segment continues to experience performance challenges in the construction of aircraft carriers and the Virginia class (SSN 774) submarine program.

Sales and Service Revenues

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.

Newport News revenues, including intersegment sales, for the three months ended March 31, 2025, decreased $38 million, or 3%, from the same period in 2024, primarily driven by lower volumes in aircraft carriers and naval nuclear support services, partially offset by higher volumes in the Columbia class (SSBN 826) submarine program.

Segment Operating Income

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.

Newport News segment operating income for the three months ended March 31, 2025, was $85 million, compared to segment operating income of $82 million for the same period in 2024.

The increase was primarily driven by contract incentives on the Virginia class (SSN 774) submarine program and higher volumes on the Columbia class (SSBN 826) submarine program, partially offset by lower performance on aircraft carrier construction.

Mission Technologies

Three Months Ended September 30 Nine Months Ended September 30

2023 2024 vs.

($ in millions) 2024 2023 Dollars Percent 2024 2023 Dollars Percent

Three Months Ended March 31

($ in millions) 2025 2024 Dollars Percent

Sales and service revenues $ 735 $ 750 $ (15) (2) %

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Sales and Service Revenues

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.

Mission Technologies revenues, including intersegment sales, for the three months ended March 31, 2025, decreased $15 million, or 2%, from the same period in 2024, primarily due to lower volumes in C5ISR, partially offset by higher volumes in cyber, electronic warfare & space.

Segment Operating Income

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.

Mission Technologies segment operating income for the three months ended March 31, 2025, was $40 million, compared to segment operating income of $28 million for the same period in 2024.

The increase was primarily driven by higher performance in cyber, electronic warfare & space and uncrewed systems.

PRODUCT AND SERVICE REVENUES AND COST ANALYSIS

The following tables present segment sales and service revenues and segment cost of sales and service revenues by both product and service:

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

($ 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

Product $ 569 $ 637 $ (68) (11) % $ 485 $ 514 $ (29) (6) %

Service 93 73 20 27 % 83 62 21 34 %

Intersegment 2 1 1 100 % 2 1 1 100 %

Total Ingalls 664 711 (47) (7) % 570 577 (7) (1) %

Product 1,163 1,170 (7) (1) % 1,036 987 49 5 %

Service 249 281 (32) (11) % 208 231 (23) (10) %

Intersegment — 2 (2) (100) % — 2 (2) (100) %

Total Newport News 1,412 1,453 (41) (3) % 1,244 1,220 24 2 %

Mission Technologies

Product 29 28 1 4 % 22 24 (2) (8) %

Service 646 627 19 3 % 577 563 14 2 %

Intersegment 34 30 4 13 % 34 30 4 13 %

Total Mission Technologies 709 685 24 4 % 633 617 16 3 %

Segment Totals

Product $ 1,761 $ 1,835 $ (74) (4) % $ 1,543 $ 1,525 $ 18 1 %

Service 988 981 7 1 % 868 856 12 1 %

Total Segment 1

$ 2,749 $ 2,816 $ (67) (2) % $ 2,411 $ 2,381 $ 30 1 %

1 Operating FAS/CAS Adjustment is excluded from segment cost of product sales and service revenues.

The following table presents segment sales and service revenues and segment cost of sales and service revenues by both product and service:

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

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

2023 Nine Months Ended September 30 2024 vs.

($ in millions) Three Months Ended March 31 2025 vs.

2024 Three Months Ended March 31 2025 vs.

Segment Information 2025 2024 Dollars Percent 2025 2024 Dollars Percent

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Product Sales and Segment Cost of Product Sales

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.

Product sales for the three months ended March 31, 2025, decreased $74 million, or 4%, from the same period in 2024, primarily due to lower volumes in surface combatants and amphibious assault ships at Ingalls, and lower volumes in aircraft carriers, partially offset by higher volumes in the Columbia class (SSBN 826) submarine program at Newport News.

Segment cost of product sales for the three months ended March 31, 2025, decreased $80 million, or 5%, compared with the same period in 2024, primarily due to lower volumes described above.

Service Revenues and Segment Cost of Service Revenues

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.

Service revenues for the three months ended March 31, 2025, increased $3 million from the same period in 2024, primarily as a result of higher volumes in surface combatant services at Ingalls, and higher volumes in cyber, electronic warfare & space at Mission Technologies, partially offset by lower volumes in naval nuclear support services at Newport News, and lower volumes in C5ISR at Mission Technologies.

Segment cost of service revenues for the three months ended March 31, 2025, decreased $3 million compared with the same period in 2024, primarily as a result of lower volumes in naval nuclear support service at Newport News, and lower volumes in C5ISR at Mission Technologies, partially offset by higher volumes in cyber, electronic warfare & space at Mission Technologies and higher volumes in surface combatant services at Ingalls.

OTHER FINANCIAL INFORMATION

Interest Expense

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.

Interest expense for the three months ended March 31, 2025, was $28 million, compared with $21 million for the same period in 2024.

The increase in interest expense for the three months ended March 31, 2025, was driven by an increase in outstanding long-term debt from the prior year period.

Non-Operating Retirement Benefit

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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 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.

For the three months ended March 31, 2025, the non-operating retirement benefit was $48 million, compared with $44 million for the same period in 2024.

The increase in the non-operating retirement benefit was primarily driven by the amortization of net actuarial costs.

Other, net income for the three months ended March 31, 2025, was $6 million, compared with other, net income of $7 million for the same period in 2024.

Federal and Foreign Income Taxes

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.

Our effective income tax rates on earnings from operations for the three months ended March 31, 2025 and 2024, were 20.3 % and 16.8 %, respectively.

The higher effective tax rate for the three months ended March 31, 2025, was primarily attributable to excess tax benefits recognized on stock-based compensation recorded in the prior period.

For the three months ended March 31, 2025, 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 period.

Total backlog as of March 31, 2025, and December 31, 2024, was $48.0 billion and $48.7 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).

Backlog excludes unexercised contract options and unfunded indefinite delivery/indefinite quantity orders.

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 September 30, 2024, and December 31, 2023:

September 30, 2024 December 31, 2023

For contracts having no stated contract values, backlog includes only the amounts committed by the customer as of March 31, 2025 and December 31, 2024, respectively.

The following table presents funded and unfunded backlog by segment as of March 31, 2025, and December 31, 2024:

March 31, 2025 December 31, 2024

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

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We expect approximately 22% of the $48.7 billion total backlog as of December 31, 2024, to be converted into sales in 2025.

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

Government orders comprised substantially all of the backlog as of March 31, 2025 and December 31, 2024.

Contract Awards

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.

Danzig (DDG 143).

The value of new contract awards during the three months ended March 31, 2025, was approximately $2.1 billion, primarily driven by awards at Newport News.

LIQUIDITY AND CAPITAL RESOURCES

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

Nine Months Ended September 30 2024 vs.

Three Months Ended March 31 2025 vs.

($ in millions) 2025 2024 Dollars

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Trade working capital increase (598) (399) (199)

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

Net cash used in operating activities $ (395) $ (202) $ (193)

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

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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.

We discuss below our significant operating, investing, and financing activities affecting cash flows for the three months ended March 31, 2025 and 2024, as classified in our unaudited condensed consolidated statements of cash flows.

Operating Activities

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.

Cash used in operating activities for the three months ended March 31, 2025, was $395 million, compared with cash used in operating activities of $202 million for the same period in 2024.

The change in operating cash flow was primarily due to an unfavorable change in trade working capital driven by the timing of billings across programs.

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 April 1, 2025, and beyond such 12-month period based on our current business plans.

Investing Activities

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.

Cash used in investing activities for the three months ended March 31, 2025, was $199 million, compared to $71 million used in investing activities for the same period in 2024.

The change in investing cash was primarily driven by the acquisition of W International.

For 2025, we expect our capital expenditures for maintenance and sustainment to be approximately 1.0% to 1.5% of annual revenues and our discretionary capital expenditures to be approximately 2.0% to 2.5% of annual revenues.

Our capital expenditures are increasing compared to the past few years due to investments to expand our shipbuilding capacity.

Our capital expenditures are expected to increase due to investments to expand our shipbuilding capacity.

Financing Activities

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.

Cash used in financing activities for the three months ended March 31, 2025, was $70 million, compared with $147 million used in financing activities for the same period in 2024.

The change in cash used in financing activities was primarily due to a decrease of $62 million in common stock repurchases.

Free Cash Flow

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

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

Nine Months Ended September 30 2024 vs.

The following table reconciles net cash used in operating activities to free cash flow:

Three Months Ended March 31 2025 vs.

($ in millions) 2025 2024 Dollars

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

Net cash used in operating activities $ (395) $ (202) $ (193)

Less capital expenditures:

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Free cash flow $ (462) $ (274) $ (188)

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.

Free cash flow for the three months ended March 31, 2025, decreased $188 million from the same period in 2024, primarily due to an unfavorable change in trade working capital driven by the timing of billings across programs.

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

As of March 31, 2025 and 2024, 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.

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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 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.

As of March 31, 2025, $12 million in letters of credit were issued but undrawn and $389 million of surety bonds were outstanding.

As of March 31, 2025, we had no other significant off-balance sheet arrangements.

ACCOUNTING STANDARDS UPDATES

Accounting Standards Updates in Part I, Item 1 for information related to accounting standards updates.

Accounting Standards Updates in Part I, Item 1 for further information.

FORWARD-LOOKING STATEMENTS AND PROJECTIONS

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There are a number of important factors that could cause our actual results to differ materially from the results anticipated by our forward-looking statements, which include, but are not limited to:

• 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, 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;

• our ability to deliver our products and services at an affordable life cycle cost and compete within our markets;

• natural and environmental disasters and political instability;

• our ability to execute our strategic plan, including with respect to share repurchases, dividends, capital expenditures, and strategic acquisitions;

• our dependence on the U.S.

Government for substantially all of our business;

• significant delays or reductions in appropriations for our programs and/or changes in 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, labor challenges, changes in trade policy, 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 business practices, procurement processes and government regulations and our ability to comply with such requirements;

• adverse economic conditions in the United States and globally;

• health epidemics, pandemics, and similar outbreaks;

• our level of indebtedness and ability to service our indebtedness;

• our ability to deliver our products and services at an affordable life cycle cost and compete within our markets;

• our ability to attract, retain, and train a qualified workforce;

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

• subcontractor and supplier performance and the availability and pricing of raw materials and components;

• our ability to execute our strategic plan, including with respect to share repurchases, dividends, capital expenditures, and strategic acquisitions;

• 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;

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• security threats, including cyber security threats, and related disruptions;

• natural and environmental disasters and political instability;

• health epidemics, pandemics and similar outbreaks;

• other risk factors discussed herein and in our other filings with the SEC.

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The NSC is equipped to carry out maritime homeland security, maritime safety, protection of natural resources, maritime mobility, and national defense missions.

There were 11 ships planned for this program, of which the first ten ships have been delivered, and Friedman (NSC 11) is currently under construction.

There were 11 ships planned for this program, of which the first ten ships have been delivered.

Naval nuclear support services Provide services to and in support of the U.S.

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Services include maintenance services on nuclear reactor prototypes.

Nuclear and environmental services Supports the national security mission of the Department of Energy ("DoE") through the management and operation of DoE sites, as well as the safe cleanup of legacy waste across the country.

We meet our clients' toughest nuclear and environmental challenges and are positioned to serve the growing commercial nuclear power plant decommissioning market.

We participate in several joint ventures, including Newport News Nuclear BWXT Los Alamos, LLC (" N3B"), Mission Support and Test Services, LLC ("MSTS"), and Savannah River Nuclear Solutions, LLC ("SRNS"), and we are an integrated subcontractor to Triad National Security.

N3B was awarded the Los Alamos Legacy Cleanup Contract at the DoE/National Nuclear Security Administration’s Los Alamos National Laboratory.

MSTS was awarded a contract for site management and operations at the Nevada National Security Site.

SRNS provides site management and operations at the DoE’s Savannah River Site near Aiken, South Carolina.

Triad provides site management and operations at the DoE’s Los Alamos National Laboratory.

San Antoni o class (LPD 17) amphibious transport dock ships

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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).

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

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis