UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________

FORM 10-Q

_____________________________________



ý☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2017~~2019



¨☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-34910

_____________________________________

HUNTINGTON INGALLS INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

_____________________________________



~~DELAWARE~~Delaware		90-0607005
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4101 Washington AvenueNewport News, Virginia23607

(Address of principal executive offices and zip code)

~~(757)~~ (757) 380-2000

(Registrant’s telephone number, including area code)

~~_____________________________________~~ Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	HII	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesý☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yesý☒ No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large ~~accelerated filer~~Accelerated Filer	ý☒		Accelerated ~~filer~~Filer	¨☐
~~Non-accelerated filer~~Non-Accelerated Filer	¨☐	~~(Do not check if a smaller reporting company)~~	Smaller ~~reporting company~~Reporting Company	¨☐
			Emerging ~~growth company~~Growth Company	¨☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒

~~Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.~~

As of November ~~2, 2017, 45,261,255~~1, 2019, 40,900,357 shares of the registrant's common stock were outstanding.

Table of Contents

TABLE OF CONTENTS




	PART I – FINANCIAL INFORMATION	Page

Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations and Comprehensive Income ~~(Loss)~~	1
	Condensed Consolidated Statements of Financial Position	2
	Condensed Consolidated Statements of Cash Flows	3
	Condensed Consolidated Statements of Changes in Equity	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1924
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3843
Item 4.	Controls and Procedures	3843

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	3944
Item 1A.	Risk Factors	3944
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3944
Item 3.	Defaults Upon Senior Securities	3944
Item 4.	Mine Safety Disclosures	4044
Item 5.	Other Information	4044
Item 6.	Exhibits	4145

Signatures		4246

Table of Contents

HUNTINGTON INGALLS INDUSTRIES, INC.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME ~~(LOSS)~~ (UNAUDITED)


	Three Months Ended September 30						Nine Months Ended September 30						Three Months Ended September 30						Nine Months Ended September 30
(in millions, except per share amounts)	2017			2016			2017			2016			2019			2018			2019			2018
Sales and service revenues
Product sales	$	1,391		$	1,327		$	4,088		$	4,120		$	1,545		$	1,547		$	4,555		$	4,416
Service revenues	472			356			1,357			1,026			674			536			1,932			1,561
Sales and service revenues	1,863			1,683			5,445			5,146			2,219			2,083			6,487			5,977
Cost of sales and service revenues
Cost of product sales	1,105			1,059			3,279			3,241			1,246			1,159			3,754			3,369
Cost of service revenues	393			308			1,141			887			556			434			1,634			1,287
Income (loss) from operating investments, net	7			6			10			7
Income from operating investments, net													6			8			15			12
Other income and gains													—			—			—			14
General and administrative expenses	135			147			397			435			209			208			564			609
Operating income (loss)	237			175			638			590
Operating income													214			290			550			738
Other income (expense)
Interest expense	(18		)	(19		)	(53		)	(56		)	(18		)	(14		)	(52		)	(44		)
Non-operating retirement benefit													3			19			8			56
Other, net	1			1			—			(1		)	(1		)	—			5			2
Earnings (loss) before income taxes	220			157			585			533
Earnings before income taxes													198			295			511			752
Federal and foreign income taxes	71			50			170			157			44			66			111			128
Net earnings (loss)	$	149		$	107		$	415		$	376
Net earnings													$	154		$	229		$	400		$	624

Basic earnings (loss) per share	$	3.28		$	2.28		$	9.06		$	8.00
Basic earnings per share													$	3.74		$	5.29		$	9.66		$	14.15
Weighted-average common shares outstanding	45.4			46.9			45.8			47.0			41.2			43.3			41.4			44.1

Diluted earnings (loss) per share	$	3.27		$	2.27		$	9.04		$	7.93
Diluted earnings per share													$	3.74		$	5.29		$	9.66		$	14.15
Weighted-average diluted shares outstanding	45.5			47.2			45.9			47.4			41.2			43.3			41.4			44.1

Dividends declared per share	$	0.60		$	0.50		$	1.80		$	1.50		$	0.86		$	0.72		$	2.58		$	2.16

Net earnings (loss) from above	$	149		$	107		$	415		$	376
Other comprehensive income (loss)
Net earnings from above													$	154		$	229		$	400		$	624
Other comprehensive income
Change in unamortized benefit plan costs	(52		)	20			(7		)	59			25			20			74			61
Other	3			1			10			1			1			—			1			(2		)
Tax benefit (expense) for items of other comprehensive income	19			(8		)	(1		)	(23		)
Other comprehensive income (loss), net of tax	(30		)	13			2			37
Comprehensive income (loss)	$	119		$	120		$	417		$	413
Tax expense for items of other comprehensive income													(7		)	(5		)	(19		)	(16		)
Other comprehensive income, net of tax													19			15			56			43
Comprehensive income													$	173		$	244		$	456		$	667

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

Table of Contents

HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)


($ in millions)	September 30 2017			December 31 2016			September 30 2019			December 31 2018
Assets
Current Assets
Cash and cash equivalents	$	499		$	720		$	32		$	240
Accounts receivable, net of allowance for doubtful accounts of $15 million as of 2017 and $4 million as of 2016	1,200			1,164
Accounts receivable, net of allowance for doubtful accounts of $4 million as of 2019 and $9 million as of 2018							489			252
Contract assets							1,218			1,003
Inventoried costs, net	183			210			139			128
Prepaid expenses and other current assets	57			48			147			122
Total current assets	1,939			2,142			2,025			1,745
Property, plant, and equipment, net of accumulated depreciation of $1,730 million as of 2017 and $1,627 million as of 2016	2,093			1,986
Property, plant, and equipment, net of accumulated depreciation of $1,935 million as of 2019 and $1,829 million as of 2018							2,700			2,517
Operating lease assets							208			—
Goodwill	1,217			1,234			1,402			1,263
Other intangible assets, net of accumulated amortization of $518 million as of 2017 and $488 million as of 2016	518			548
Other intangible assets, net of accumulated amortization of $599 million as of 2019 and $564 million as of 2018							506			492
Deferred tax assets	288			314			102			163
Miscellaneous other assets	117			128			241			203
Total assets	$	6,172		$	6,352		$	7,184		$	6,383
Liabilities and Stockholders' Equity
Current Liabilities
Trade accounts payable	$	318		$	316		$	616		$	562
Accrued employees’ compensation	258			241			299			248
Current portion of postretirement plan liabilities	147			147			131			131
Current portion of workers’ compensation liabilities	220			217			228			225
Advance payments and billings in excess of revenues	92			166
Contract liabilities							344			331
Other current liabilities	240			256			332			332
Total current liabilities	1,275			1,343			1,950			1,829
Long-term debt	1,282			1,278			1,549			1,283
Pension plan liabilities	926			1,116			749			764
Other postretirement plan liabilities	430			431			345			348
Workers’ compensation liabilities	448			441			455			454
Long-term operating lease liabilities							172			—
Other long-term liabilities	99			90			259			189
Total liabilities	4,460			4,699			5,479			4,867
Commitments and Contingencies (Note 15)
Commitments and Contingencies (Note 16)
Stockholders’ Equity
Common stock, $0.01 par value; 150 million shares authorized; 53.0 million shares issued and 45.3 million shares outstanding as of September 30, 2017, and 52.6 million shares issued and 46.2 million shares outstanding as of December 31, 2016	1			1
Common stock, $0.01 par value; 150 million shares authorized; 53.2 million shares issued and 41.0 million shares outstanding as of September 30, 2019, and 53.1 million shares issued and 41.9 million shares outstanding as of December 31, 2018							1			1
Additional paid-in capital	1,935			1,964			1,950			1,954
Retained earnings (deficit)	1,656			1,323
Retained earnings							2,902			2,609
Treasury stock	(931		)	(684		)	(1,916		)	(1,760		)
Accumulated other comprehensive income (loss)	(949		)	(951		)
Accumulated other comprehensive loss							(1,232		)	(1,288		)
Total stockholders’ equity	1,712			1,653			1,705			1,516
Total liabilities and stockholders’ equity	$	6,172		$	6,352		$	7,184		$	6,383

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

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HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine Months Ended September 30						Nine Months Ended September 30
($ in millions)	2017			2016			2019			2018
Operating Activities
Net earnings (loss)	$	415		$	376
Net earnings							$	400		$	624
Adjustments to reconcile to net cash provided by (used in) operating activities
Depreciation	123			123			126			129
Amortization of purchased intangibles	30			16			35			28
Amortization of debt issuance costs	4			4			2			3
Provision for doubtful accounts	10			—			(5		)	(4		)
Stock-based compensation	27			22			19			27
Deferred income taxes	26			59			42			(1		)
Change in
Accounts receivable	(47		)	28			(223		)	(33		)
Contract assets							(197		)	(280		)
Inventoried costs	18			17			(14		)	3
Prepaid expenses and other assets	12			(51		)	(62		)	5
Accounts payable and accruals	(41		)	(42		)	147			230
Retiree benefits	(198		)	(75		)	56			(468		)
Other non-cash transactions, net	1			—			4			3
Net cash provided by (used in) operating activities	380			477
Net cash provided by operating activities							330			266
Investing Activities
Additions to property, plant, and equipment	(228		)	(145		)
Capital expenditures
Capital expenditure additions							(349		)	(293		)
Grant proceeds for capital expenditures							71			33
Acquisitions of businesses, net of cash received	3			—			(195		)	—
Investment in affiliates							—			(10		)
Proceeds from disposition of assets	9			4			—			3
Net cash provided by (used in) investing activities	(216		)	(141		)
Other investing activities, net							3			—
Net cash used in investing activities							(470		)	(267		)
Financing Activities
Proceeds from revolving credit facility borrowings							5,048			—
Repayment of revolving credit facility borrowings							(4,784		)	—
Dividends paid	(82		)	(70		)	(107		)	(95		)
Repurchases of common stock	(247		)	(152		)	(202		)	(512		)
Employee taxes on certain share-based payment arrangements	(56		)	(51		)	(23		)	(25		)
Net cash provided by (used in) financing activities	(385		)	(273		)
Net cash used in financing activities							(68		)	(632		)
Change in cash and cash equivalents	(221		)	63			(208		)	(633		)
Cash and cash equivalents, beginning of period	720			894			240			701
Cash and cash equivalents, end of period	$	499		$	957		$	32		$	68
Supplemental Cash Flow Disclosure
Cash paid for income taxes	$	173		$	198		$	124		$	77
Cash paid for interest	$	37		$	36		$	40		$	32
Non-Cash Investing and Financing Activities
Capital expenditures accrued in accounts payable	$	3		$	11		$	12		$	7
Accrued repurchases of common stock							$	2		$	2

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

Table of Contents

HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

Nine Months Ended September 30, 2017 and 2016
($ in millions) Common Stock Additional Paid-in Capital Retained Earnings (Deficit) Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity
Balance as of December 31, 2015 $ 1
$ 1,978
$ 848
$ (492 ) $ (845 ) $ 1,490
Net earnings (loss) —
—
376
—
—
376
Dividends declared ($1.50 per share) —
—
(70 ) —
—
(70 )
Additional paid-in capital —
(29 ) —
—
—
(29 )
Other comprehensive income (loss), net of tax —
—
—
—
37
37
Treasury stock activity —
—
—
(152 ) —
(152 )
Balance as of September 30, 2016 $ 1
$ 1,949
$ 1,154
$ (644 ) $ (808 ) $ 1,652

Balance as of December 31, 2016 $ 1
$ 1,964
$ 1,323
$ (684 ) $ (951 ) $ 1,653
Net earnings (loss) —
—
415
—
—
415
Dividends declared ($1.80 per share) —
—
(82 ) —
—
(82 )
Additional paid-in capital —
(29 ) —
—
—
(29 )
Other comprehensive income (loss), net of tax —
—
—
—
2
2
Treasury stock activity —
—
—
(247 ) —
(247 )
Balance as of September 30, 2017 $ 1
$ 1,935
$ 1,656
$ (931 ) $ (949 ) $ 1,712



Three Months Ended September 30, 2019 and 2018 ($ in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
Balance as of June 30, 2018	$	1	$	1,932	$	2,236		$	(1,385	)	$	(1,085	)	$	1,699
Net earnings	—		—		229			—			—			229
Dividends declared ($0.72 per share)	—		—		(31		)	—			—			(31		)
Stock compensation	—		12		—			—			—			12
Other comprehensive income, net of tax	—		—		—			—			15			15
Treasury stock activity	—		—		—			(99		)	—			(99		)
Balance as of September 30, 2018	$	1	$	1,944	$	2,434		$	(1,484	)	$	(1,070	)	$	1,825

Balance as of June 30, 2019	$	1	$	1,943	$	2,783		$	(1,848	)	$	(1,251	)	$	1,628
Net earnings	—		—		154			—			—			154
Dividends declared ($0.86 per share)	—		—		(35		)	—			—			(35		)
Stock compensation	—		7		—			—			—			7
Other comprehensive income, net of tax	—		—		—			—			19			19
Treasury stock activity	—		—		—			(68		)	—			(68		)
Balance as of September 30, 2019	$	1	$	1,950	$	2,902		$	(1,916	)	$	(1,232	)	$	1,705



Nine Months Ended September 30, 2019 and 2018 ($ in millions)	Common Stock		Additional Paid-in Capital			Retained Earnings (Deficit)			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
Balance as of December 31, 2017	$	1	$	1,942		$	1,687		$	(972	)	$	(900	)	$	1,758
Net earnings	—		—			624			—			—			624
Dividends declared ($2.16 per share)	—		—			(95		)	—			—			(95		)
Stock compensation	—		2			—			—			—			2
Other comprehensive income, net of tax	—		—			—			—			43			43
Treasury stock activity	—		—			—			(512		)	—			(512		)
Effect of Accounting Standards Update 2014-09	—		—			5			—			—			5
Effect of Accounting Standards Update 2016-01	—		—			11			—			(11		)	—
Effect of Accounting Standards Update 2018-02	—		—			202			—			(202		)	—
Balance as of September 30, 2018	$	1	$	1,944		$	2,434		$	(1,484	)	$	(1,070	)	$	1,825

Balance as of December 31, 2018	$	1	$	1,954		$	2,609		$	(1,760	)	$	(1,288	)	$	1,516
Net earnings	—		—			400			—			—			400
Dividends declared ($2.58 per share)	—		—			(107		)	—			—			(107		)
Stock compensation	—		(4		)	—			—			—			(4		)
Other comprehensive income, net of tax	—		—			—			—			56			56
Treasury stock activity	—		—			—			(156		)	—			(156		)
Balance as of September 30, 2019	$	1	$	1,950		$	2,902		$	(1,916	)	$	(1,232	)	$	1,705

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

Table of Contents

HUNTINGTON INGALLS INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. DESCRIPTION OF BUSINESS

Huntington Ingalls Industries, Inc. ("HII" or the "Company") is one of America’s largest military shipbuilding companies and a provider of professional services to partners in government and industry. HII is organized into ~~three~~3 reportable segments: Ingalls Shipbuilding ("Ingalls"), Newport News Shipbuilding ("Newport News"), and Technical Solutions. For more than a century, the Company's Ingalls segment in Mississippi and Newport News ~~segments~~segment in ~~Mississippi and~~ Virginia have built more ships in more ship classes than any other U.S. naval shipbuilder. The Technical Solutions segment ~~established in the fourth quarter of 2016,~~ provides a range of services to the governmental, energy, and oil and gas markets.

HII conducts most of its business with the U.S. Government, ~~principally~~primarily the Department of Defense ("DoD"). As prime contractor, principal subcontractor, team member, or partner, the Company participates in many high-priority U.S. defense technology programs. Through its Ingalls segment, HII is a builder of amphibious assault and expeditionary ships for the U.S. Navy, the sole builder of National Security Cutters for the U.S. Coast Guard, and one of only two companies that builds the Navy's current fleet of Arleigh Burke class (DDG 51) destroyers. Through its Newport News segment, HII is the nation's sole designer, builder, and refueler of nuclear-powered aircraft carriers, and one of only two companies currently designing and building nuclear-powered submarines for the U.S. Navy. The Technical Solutions segment provides a wide range of professional services, including fleet support, ~~integrated~~ mission driven innovative solutions ("MDIS"), nuclear and environmental, and oil and gas services.

2. BASIS OF PRESENTATION

Principles of Consolidation - The unaudited condensed consolidated financial statements of HII and its subsidiaries have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the instructions to Form 10-Q promulgated by the Securities and Exchange Commission ("SEC"). All intercompany transactions and balances are eliminated in consolidation. For classification of current assets and liabilities related to its long-term production contracts, the Company uses the duration of these contracts as its operating cycle, which is generally longer than one year. Additionally, certain prior year amounts have been reclassified to conform to the current year presentation. ~~See Note 9: Segment Information.~~

These unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature considered necessary by management for a fair presentation of the unaudited condensed consolidated financial position, results of operations, and cash flows and should be read in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018.

The quarterly information is labeled using a calendar convention; that is, first quarter is consistently labeled as ending on March 31, second quarter as ending on June 30, and third quarter as ending on September 30. It is management's long-standing practice to establish interim closing dates using a "fiscal" calendar, which requires the businesses to close their books on a Friday near these quarter-end dates in order to normalize the potentially disruptive effects of quarterly closings on business processes. The effects of this practice only exist for interim periods within a reporting year.

~~Accounting Estimates~~ Government Grants - The preparation of the Company's unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Estimates have been prepared on the basis of the most current and best available information, and actual results could differ materially from those estimates.

The Bipartisan Budget Act of 2015 established limits on U.S. Government discretionary spending, including defense spending, and provided sequestration relief for 2016 and 2017. Sequestration remains in effect for 2018 through 2021 and could result in significant decreases in DoD spending that could negatively impact the Company's consolidated financial position, results of operations, or cash flows, as well as its estimated recovery of goodwill and other long-lived assets.

~~Revenue Recognition~~ - The majority of the Company's business is derived from long-term contracts for the construction of naval vessels, production of goods, and provision of services, principally for the U.S. Government. In accounting for these contracts, the Company extensively utilizes the cost-to-cost measure of the percentage-of-completion method of accounting, principally based upon total costs incurred. Under this method, sales, including estimated earned fees or profits, are recorded as costs are incurred, generally based on the percentage that total costs incurred bear to total estimated costs at completion. Certain contracts contain provisions for price redetermination or for cost and/or performance incentives. Such redetermined amounts or incentives are included in sales when the amounts can reasonably be determined and estimated. Amounts representing contract change orders, claims, requests for equitable adjustment, or limitations in funding are included in sales only when they can be reliably estimated and realization is probable. The Company estimates profit as the difference between total estimated revenues and total estimated cost of a contract and recognizes that profit over the life of the contract based on progress toward completion. If the Company estimates a contract will result in a loss, the full amount of the estimated loss is recognized against income in the period in which the loss is identified. The Company classifies contract revenues as product sales or service revenues depending upon the predominant attributes of the relevant underlying contracts.

The Company recognizes ~~changes~~incentive grants, inclusive of transfers of depreciable assets, from federal, state, and local governments at fair value upon compliance with the conditions of their receipt and reasonable assurance that the grants will be received or the depreciable assets will be transferred. Grants in ~~estimates~~recognition of ~~contract sales, costs, and profits using the cumulative catch-up method of accounting. This method recognizes~~specific expenses are recognized in the ~~current~~same period as an offset to those related expenses. Grants related to depreciable assets are recognized over the ~~cumulative effect of~~periods and in the ~~changes~~proportions in which depreciation expense on ~~current and prior periods. Accordingly, the effect of the changes on future periods of contract performance~~those assets is recognized as if the revised estimate had been the original estimate. For the three months ended September 30, 2017 and 2016, net cumulative catch-up adjustments increased operating income by $56 million and $24 million, respectively, and increased diluted earnings per share by $0.79 and $0.33, respectively. recognized.

For the nine months ended September 30, ~~2017 and 2016, net cumulative catch-up adjustments increased operating income by $142~~2019, the Company recognized cash grant benefits of approximately $71 million ~~and $167 million, respectively, and increased diluted earnings per share by $2.01 and $2.29, respectively. No individual adjustment was material to~~in other long-term liabilities in the ~~Company's~~ unaudited condensed consolidated statements of ~~operations and comprehensive income for the three and nine months ended September 30, 2017, or the three months ended September 30, 2016. Cumulative catch-up adjustments for~~financial position. For the nine months ended September 30, ~~2016, included favorable adjustments~~2018, the Company recognized cash grant benefits of ~~$67~~approximately $33 million ~~on a contract at~~in other long-term liabilities in the ~~Ingalls segment, which increased diluted earnings per share by $0.92.~~unaudited condensed consolidated statements of financial position.

~~For services contracts not associated with the design, development, manufacture, or modification~~

Table of complex equipment, revenues are recognized upon delivery or as services are rendered once persuasive evidence of an arrangement exists, the price is fixed or determinable, and collectibility is reasonably assured. Costs related to these contracts are expensed as incurred.Contents

Fair Value of Financial Instruments - Except for the Company's long-term debt, the carrying amounts of the Company's financial instruments recorded at historical cost approximate fair value due to the short-term nature of the instruments and low credit risk associated with the respective counterparties.

The Company maintains multiple grantor trusts ~~established~~ to fund certain non-qualified pension plans. These trusts were valued at ~~$90~~$136 million and ~~$82~~$109 million as of September 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, respectively, and are presented within miscellaneous other assets within the unaudited condensed consolidated statements of financial position. These trusts consist primarily of ~~available-for-sale~~ investments in marketable securities, which are held at fair value within Level 1 of the fair value hierarchy.

~~Accounts Receivable~~Leases - The Company ~~has limited exposure~~determines if an arrangement is a lease at contract inception. A lease exists when a contract conveys to ~~credit losses and maintains~~a party the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The Company recognizes a lease liability at the lease commencement date, as the present value of future lease payments, using an ~~allowance for anticipated losses considered necessary under~~estimated rate of interest that the ~~circumstances~~Company would pay to borrow equivalent funds on a collateralized basis. A lease asset is recognized based on ~~historical experience with uncollected customer accounts~~the lease liability value and ~~a review of its currently outstanding accounts receivable. As of September 30, 2017, and December 31, 2016,~~adjusted for any prepaid lease payments, initial direct costs, or lease incentive amounts. The lease term at the commencement date includes any renewal options or termination options when it is reasonably certain that the Company ~~had~~will exercise or not exercise those options, respectively.

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

Rent expense for operating leases is recognized on a straight-line basis over the lease term and included in cost of sales and service revenues on the unaudited condensed consolidated statements of operations and comprehensive income. Variable lease payments are recognized as incurred and include lease operating expenses, which are based on contractual lease terms.

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

Loan Receivable - The Company holds a loan receivable in connection with a seller financed transaction involving its previously owned Avondale shipyard facility. The receivable is carried at amortized cost in the amount of $39 million, net of a $9 million loan discount, which approximates fair value and is recorded in miscellaneous other assets on the unaudited condensed consolidated statements of financial position. Interest income is recognized on an ~~allowance for doubtful accounts of $15 million and $4 million, respectively. During~~accrual basis using the ~~three months ended March 31, 2017,~~effective yield method. The discount is accreted into income using the ~~Company recorded a $29 million allowance for doubtful accounts within~~effective yield method over the ~~Technical Solutions segment related to a commercial customer’s petition for bankruptcy protection under Chapter 11~~estimated life of the U.S. Bankruptcy Code. During each of the three months ended June 30, 2017, and September 30, 2017, the Company released $7 million and $13 million, respectively, of the allowance for doubtful accounts following its receipt of bankruptcy related payments from its commercial customer. Additionally, certain payments totaling $28 million received from this customer may be reclaimed if any such payment is determined to have been a preferential payment or similar transaction under applicable bankruptcy laws.loan receivable.

Related Party Transactions - On March 29, 2011, HII entered into a Separation and Distribution Agreement (the "Separation Agreement") with its former parent company, Northrop Grumman Corporation ("Northrop Grumman"), and Northrop Grumman's subsidiaries (Northrop Grumman Shipbuilding, Inc. and Northrop Grumman Systems Corporation), pursuant to

which HII was legally and structurally separated from Northrop Grumman. ~~As of September 30, 2017, and~~For the year ended December 31, ~~2016,~~2018, the Company ~~was due $9~~received $8 million ~~and $33 million, respectively,~~ from Northrop Grumman under ~~spin-off related agreements. As of each of September 30, 2017, and December 31, 2016,~~ the Separation Agreement. The Company had $84 million outstanding under Industrial Revenue Bonds issued by the Mississippi Business Finance ~~Corporation.~~Corporation as of each of September 30, 2019, and December 31, 2018. Prior to the spin-off, repayment of principal and interest was guaranteed by Northrop Grumman Systems Corporation. The guaranty remains in effect, and the Company has agreed to indemnify Northrop Grumman Systems Corporation for any losses related to the guaranty.

3. ACCOUNTING STANDARDS UPDATES

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which will replace existing requirements in U.S. GAAP, including industry-specific requirements, significantly expand the disclosure requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. In July 2015, the FASB approved the deferral of the new standard's effective date by one year. The new standard is effective for annual reporting periods beginning after December 15, 2017. The FASB permitted companies to adopt the new standard early, but not before the original effective date of annual reporting periods beginning after December 15, 2016.

As part of the Company's corporate governance structure, the Company established an implementation team comprised of key stakeholders across the Company's businesses. The Company developed a plan to identify and implement applicable changes to its business processes, systems, and controls. These changes are necessary to support recognition and disclosure under the new standard. In the first quarter of 2017, the Company reached a point in its assessment to support a transition decision based on information obtained to date. Based on its evaluation, the Company will adopt the requirements of the new standard in the first quarter of 2018 utilizing the modified retrospective method. As a result, the Company will present the cumulative effect of applying the standard at the date of initial application, January 1, 2018.

In the third quarter of 2017, the Company substantially completed its evaluation of the impact of the accounting and disclosure changes on its business processes, controls, and systems and, as a result, has redefined its accounting policies affected by this standard and enhanced internal controls over financial reporting related to the standard. The assessment of the majority of the Company's contracts under the new standard supports the recognition of revenue over time using the cost-to-cost measurement under the percentage of completion method, which is consistent with the Company's current revenue recognition practices. As such, the revenue on the majority of the Company's contracts will continue to be recognized over time considering the continuous transfer of control to the customer. Under U.S. Government contracts, this continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay the Company for costs incurred plus a reasonable profit, and take control of any work in process. ASU 2014-09 also requires expanded disclosures regarding the nature, timing, and uncertainty of revenue and customer contract balances, including how and when the Company satisfies its performance obligations and the relationship between revenue recognized and changes in contract balances during a reporting period. The Company has evaluated these disclosure requirements and is incorporating the collection of relevant data into its business processes. The Company does not expect the new standard to have a material effect on its consolidated financial position, results of operations, or cash flows.

In February 2016, the FASB issued ASU 2016-02, ~~“Leases~~"Leases (Topic 842)”," which ~~establishes~~established a right-of-use model that requires a lessee to record the right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. ~~Leases will be classified as either finance or operating, with classification affecting~~Expense is recognized in the ~~pattern~~income statement similar to the recognition of expense ~~recognition in the statement of operations~~under previous accounting guidance. Additional qualitative and ~~comprehensive income. This guidance is~~quantitative disclosures are required. ASU 2016-02 was effective for fiscal years beginning after December 15, 2018, including interim periods within those ~~reporting periods. Early adoption is permitted and should be applied using~~ fiscal years. Prior to the FASB issuing ASU 2018-11 “Leases (Topic 842): Targeted Improvements,” entities were required to use

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a modified retrospective ~~approach. The Company is~~approach upon adoption to recognize and measure leases at the beginning of the earliest comparative period presented in the ~~process of evaluating the potential impacts of ASU 2016-02 on its consolidated~~ financial ~~statements and disclosures, contracting and accounting processes, internal controls, and information technology systems.~~

statements. In January ~~2017,~~2018, the FASB issued ASU ~~2017-04, “Intangibles - Goodwill and Other~~2018-01 "Leases (Topic ~~350)~~842): ~~Simplifying~~Land Easement Practical Expedient for Transition to Topic 842," which permitted entities to forgo the ~~Test for Goodwill Impairment”, which eliminates the performance~~evaluation of ~~Step 2 from the goodwill impairment test. In performing its annual or interim impairment testing, an entity will instead compare the fair value~~existing land easement arrangements to determine if they contain a lease as part of the ~~reporting unit with its carrying amount and recognize~~adoption of ASU 2016-02 issued in February 2016. Accordingly, the Company’s accounting treatment of any impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. The standard is effective for fiscal years beginning after December 15, 2019.existing land easement arrangements has not changed. The Company ~~does not expect~~adopted this standard update concurrently with ASU ~~2017-04 to have a material impact on its consolidated financial statements and disclosures, accounting processes, or internal controls.~~

2016-02. In ~~March 2017,~~July 2018, the FASB issued ASU ~~2017-07, “Retirement Benefits (Topic 715): Improving~~2018-11, which provides entities the ~~Presentation~~option to initially apply ASU 2016-02 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of ~~Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”. The update requires employers to present the service cost component of the net periodic benefit cost~~retained earnings in the ~~same income statement line item as other employee compensation costs arising from services rendered during~~period of adoption. Consequently, the period. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are to becomparative periods presented outside of any subtotal of operating income. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the ~~income statement. ASU 2017-07 is effective for fiscal years and interim periods beginning after December 15, 2017, and early adoption is permitted.~~ financial statements would continue to comply with current GAAP.

The Company ~~expects adoption of~~adopted ASU 2017-07 to result in a change in its FAS/CAS Adjustment within operating income, which will be offset by a corresponding change in Other, net to reflect the impact of presenting the interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects of net periodic benefit costs outside of operating income. The Company expects to adopt ASU 2017-072016-02 on January 1, ~~2018~~2019, using the ~~retrospective method~~optional transition method. In addition, the Company elected practical expedients permitted under the transition guidance within the new standard, which, among other things, allows it to carry forward historical lease classifications. The Company also elected the hindsight practical expedient to determine the reasonably certain lease term for existing leases. The Company's election of the hindsight practical expedient resulted in lengthening lease terms for certain existing leases. The Company made an accounting policy election not to recognize leases with an initial term of 12 months or less in the unaudited condensed consolidated statements of financial position and ~~does not expect ASU 2017-07~~ to ~~have~~recognize the lease payments in the unaudited condensed consolidated statements of operations and comprehensive income on a straight-line basis over the lease terms. The impact upon adoption was an increase to operating lease assets of $215 million, an increase to short-term operating lease liabilities of $36 million, an increase to long-term operating lease liabilities of $179 million, and no material impact ~~on its consolidated financial statements and disclosures, accounting processes, or internal controls.~~to retained earnings.

In ~~May 2017,~~August 2018, the FASB issued ASU ~~2017-10, "Service Concession Arrangements~~2018-13, "Fair Value Measurement (Topic ~~853)~~820): ~~Determining~~Disclosure Framework—Changes to the ~~Customer~~Disclosure Requirements for Fair Value Measurement," which changes the fair value measurement disclosure requirements of ~~the Operation Services", which addresses how an operating entity should determine the customer for operations under a service concession arrangement.~~ASC 820. The update ~~clarifies that the grantor is the customer of the operation services~~includes changes to disclosures regarding valuation techniques and inputs, uncertainty, judgments, and assumptions in ~~all cases for these arrangements. This standard~~fair value measurements, and how changes in fair value measurements affect performance and cash flows. The update is effective for annual reporting periods beginning after December 15, ~~2017. The FASB~~2019, including interim periods therein. Early adoption is permitted ~~companies to adopt the new standard early, but not before the original effective date of annual reporting periods beginning after December 15, 2016.~~for any eliminated or modified disclosures. The Company is currently evaluating the impact of ASU ~~2017-10~~2018-13 on its consolidated financial statements and disclosures, accounting processes, orand internal controls.

In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans,” which reduces disclosure requirements of Subtopic 715-20 and requires additional disclosure related to weighted-average interest crediting rates and significant gains and losses related to changes in the benefit obligation for the reporting period. The update is effective on a retrospective basis for fiscal years ending after December 15, 2020, with early adoption allowed. The Company is currently evaluating the impact of ASU 2018-14 on its consolidated financial statements and disclosures, accounting processes, and internal controls.

Other accounting pronouncements issued but not effective until after December 31, ~~2017,~~2019, are not expected to have a material impact on the Company's consolidated financial position, results of operations, or cash flows.

4. AVONDALE AND GULFPORT

In 2010, plans were announced to consolidate the Company's Ingalls shipbuilding operations by winding down shipbuilding at the Avondale, Louisiana facility in 2013 after completion of LPD-class ships that were under construction at this facility. InAugust and October 2014, the Company completed closure of its Gulfport Composite Center of Excellence in Gulfport, Mississippi and ceased shipbuilding construction operations at ~~the~~its Avondale, facility. Effective July 31, 2017, the Company entered into a Purchase and Sale Agreement with a potential buyer of the Avondale facility. After conducting due diligence on the property, the potential buyer has the right to determine whether or not to proceed to closing. As of September 30, 2017, the assets related to the AvondaleLouisiana facility, were recorded at $23 million in land within property, plant, and equipment, net and $124 million in contract working capital within inventoried costs, accounts receivable and advance payments and billings in excess of revenues in the unaudited condensed consolidated statements of financial position.respectively.

In connection with ~~and as a result of the decision to wind~~winding down shipbuilding at ~~the~~its Avondale facility, the Company ~~began incurring~~incurred and ~~paying~~paid related ~~costs, including, but not limited to, severance expense, relocation expense, and asset write-downs related to the Avondale facilities. The Company’s current estimated net~~ restructuring and shutdown costs are $276 million, comprised of $308 million of restructuring and shutdown costs, partially offset by $32 million from the anticipated disposition of assets. As of September 30, 2017, and December 31, 2016, the Company had incurred restructuring and shutdown related costs net of proceeds of $283 million and $287 million, respectively. Substantially all of these costs were incurred from 2010 through 2014. None of the recoverable costs relatedcosts. Pursuant to ~~the wind down of the Avondale facility have been included in billings to the U.S. Government. These~~

recoverable costs are recorded in contract working capital within inventoried costs, accounts receivable and advance payments and billings in excess of revenues. The Company believes such costs are recoverable under existing flexibly-priced contracts or future negotiated contracts in accordance with applicable provisions of the ~~Federal Acquisition Regulation ("FAR")~~FAR and ~~Cost Accounting Standards~~CAS for the treatment of restructuring and shutdown related costs, ~~which permit contractors to defer such costs and amortize~~ the ~~amounts over a period not to exceed five years. The~~ Company ~~has been~~began amortizing the deferred costs over a five ~~year period since 2014, when~~years in 2014. In November 2017, the U.S. Government and the Company ~~ceased shipbuilding construction operations at the Avondale facility.~~

~~The Company has engaged in communications and negotiations with the U.S. Navy since 2010 regarding the amount and recovery~~reached a settlement to treat $251 million of ~~the Company's restructuring and shutdown~~these costs ~~including submitting revised proposals to address the concerns~~as allowable costs, a majority of the Defense Contract Audit Agency in 2011 and 2014. In June 2016, the Company submitted to the contracting officer a request for a final decision regarding the Avondale facility restructuring costs. In December 2016, the contracting officer denied the Company’s claim, on the purported basis that the Company had not adequately shown savings and other benefits that would accruewhich were billed to the U.S. Government ~~from~~and collected by the ~~closing~~end of ~~Avondale~~2018. The settlement was consistent with management’s cost recovery expectations and ~~consolidation~~did not have a material effect on the Company’s statements of ~~Ingalls shipbuilding to the Pascagoula facility. While~~financial position or results of operations. In October 2018, the Company ~~is continuing~~completed a sale of the Avondale facility. In addition to ~~engage~~cash proceeds, the Company financed a portion of the transaction over nine years, resulting in ~~negotiations~~a net gain of $7 million, recognized as a reduction to cost of sales in the fourth quarter of 2018.

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In connection with the closure of its Gulfport facility, the Company incurred restructuring related costs of $54 million, including $52 million of accelerated depreciation of fixed assets. The Company reached a resolution with the U.S. ~~Navy,~~Government in December 2018 regarding the ~~Company is pursuing its claim through the Civilian~~treatment and ~~Armed Services Boards of Contract Appeals, seeking recovery~~allocation of the ~~Avondale~~ restructuring related costs, ~~pursuant to the Contract Disputes Act. The Company continues to believe its claim is reasonably based and supported by law. Accordingly, the Company anticipates an ultimate resolution that is~~which was substantially in accordance with management's cost recovery ~~expectations. Any subsequent inability to recover costs substantially in accordance with management’s cost recovery~~ expectations ~~could result in~~and did not have a material effect on the Company's consolidated financial position, results of operations, or cash flows.

5. ~~GULFPORT~~

In September 2013, the Company announced the closure of its Gulfport Composite Center of Excellence in Gulfport, Mississippi, part of the Ingalls reportable segment, which it completed in August 2014. In connection with this closure, the Company incurred total costs of $54 million, consisting of $52 million in accelerated depreciation of fixed assets and $2 million in personnel, facility shutdown, and other related costs. In March 2015, the Company sold the Gulfport Composite Center of Excellence to the Mississippi State Port Authority for $32 million, resulting in a gain on disposition of $9 million, recorded as a reduction to contract costs in accordance with the terms of the Company’s contracts with the U.S. Government.

The Company has received communications from the Supervisor of Shipbuilding questioning the Company's treatment and proposed allocation of the Gulfport closure costs. The Company has responded to such communications with the position that its proposed accounting and allocation of the closure costs complies with applicable law, and the Company and the U.S. Government remain in discussions about the proper accounting and allocation of such costs. While the Company anticipates a resolution that is substantially in accordance with management's cost recovery expectations, any inability to recover such costs substantially in accordance with the Company's cost recovery expectations could result in a material effect on the Company’s consolidated financial position, results of operations, or cash flows.

6. ACQUISITIONS

On ~~December 1, 2016,~~February 25, 2019, the Company acquired Fulcrum IT Services, LLC ("Fulcrum"), an information technology and government consulting company, for approximately ~~$369~~$195 million in cash, net of ~~$27~~$1 million of ~~cash~~ acquired ~~Camber Holding Corporation ("Camber"), a provider of mission-based and information technology solutions to the U.S. Government.~~cash. The acquisition was consistent with the Company's strategy to optimize and expand its services portfolio. ~~For the three and nine months ended September 30, 2017, Camber contributed revenues of $74 million and $239 million, respectively, and operating income of $1 million and $5 million, respectively.~~ In connection with this acquisition, the Company recorded ~~$261~~$133 million of goodwill, which includes the value of Fulcrum's workforce, all of which was allocated to its Technical Solutions segment, ~~primarily related to the value of Camber's workforce, and $76~~as well as $49 million of intangible assets related to existing contract backlog. For the nine months ended September 30, 2019, the Company recorded a decrease in goodwill of $1 million, primarily driven by the finalization of a net working capital adjustment. The Company has not completed the purchase price allocation, because the fair value calculations for certain assets and liabilities have not been finalized. See Note 11: Goodwill and Other Intangible Assets. During the three and nine months ended September 30, 2017, the Company recorded a goodwill adjustment of $1 million and $17 million, respectively, primarily driven by the finalization of fair value calculations for certain assets and liabilities, as well as the net working capital adjustment. The assets, liabilities, and results of operations of ~~Camber~~Fulcrum are not material to the Company’s consolidated financial position, results of operations, or cash flows.

On December 3, 2018, the Company acquired G2, Inc. ("G2"), a provider of cybersecurity solutions to the U.S. Government, for approximately $77 million in cash, net of $2 million of acquired cash. The acquisition was consistent with the Company's strategy to optimize and expand its services portfolio. In connection with this acquisition, the Company recorded $46 million of goodwill, which includes the value of G2's workforce, all of which was allocated to its Technical Solutions segment, as well as $20 million of intangible assets related to existing contract backlog. For the nine months ended September 30, 2019, the Company recorded an increase in goodwill of $7 million, primarily driven by the finalization of a net working capital adjustment and the fair value calculations for certain assets and liabilities. See Note 11: Goodwill and Other Intangible Assets. The assets, liabilities, and results of operations of G2 are not material to the Company’s consolidated financial position, results of operations, or cash flows.

The Company funded each of these acquisitions using cash on hand and borrowings on its revolving credit facility. The acquisition costs incurred in connection with these acquisitions were not material. The operating results of these businesses have been included in the Company’s consolidated results as of the respective closing dates of the acquisitions. In allocating the purchase prices of these businesses, the Company considered the estimated fair value of net tangible and intangible assets acquired, with any excess purchase price recorded as goodwill. The total amount of goodwill resulting from these acquisitions is expected to be amortizable for tax purposes. These acquisitions are not material either individually or in the aggregate, and pro forma revenues and results of operations have therefore not been provided.

6. STOCKHOLDERS' EQUITY

Treasury Stock - In ~~October 2015, the Company's board of directors authorized an increase in the Company's stock repurchase program from~~ ~~$600 million to $1.2 billion. On~~ November 7, 2017, the Company's board of directors authorized an increase in the Company's stock repurchase program from $1.2 billion to $2.2 billion. On November 5, 2019, the Company's board of directors authorized an increase in the Company's stock repurchase program from $2.2 billion to $3.2 billion and an extension of the term of the program to October 31, ~~2022.~~ 2024. Repurchases are made from time to time at management's discretion in accordance with applicable federal securities laws. For the nine months ended September 30, ~~2017,~~2019, the Company repurchased ~~1,244,105~~751,497 shares at an aggregate cost of ~~$247 million. For the nine months ended September 30, 2016, the Company repurchased 1,013,426 shares at an aggregate cost of $152~~$156 million, of which approximately $2 million was not yet settled for cash as of September 30, ~~2016~~2019. For the nine months ended September 30, ~~2016~~2019, the Company also settled for cash $48 million of shares repurchased in the prior year. For the nine months ended September 30, 2018, the Company repurchased 2,217,629 shares at an aggregate cost of $512 million, of which approximately $2 million was not yet settled for cash as of September 30, 2018. For the nine months ended September 30, 2018, the Company also settled for cash $2 million of shares repurchased in the prior year. The cost of purchased shares is recorded as treasury stock in the unaudited condensed consolidated statements of financial ~~position and the unaudited condensed consolidated statements of changes in equity.~~position.

Dividends - The Company declared cash dividends per share of ~~$0.60~~$0.86 and ~~$0.50~~$0.72 for the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. The Company declared cash dividends per share of ~~$1.80~~$2.58 and ~~$1.50~~ $2.16

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for the nine months ended September 30, ~~2017~~2019 and ~~2016~~2018, respectively. The Company paid cash dividends totaling ~~$82~~$107 million and ~~$70~~$95 million for thenine months endedSeptember 30, ~~2017~~2019 and ~~2016~~,2018, respectively.

Accumulated Other Comprehensive ~~Income (Loss)~~ Loss - Other comprehensive income (loss) refers to gains and losses recorded as an element of stockholders' equity but excluded from net ~~earnings (loss).~~earnings. The accumulated other comprehensive loss as of September 30, ~~2017,~~2019, was comprised of unamortized benefit plan costs of ~~$953~~$1,228 million and other comprehensive ~~income~~loss items of $4 million. The accumulated other comprehensive loss as of December 31, ~~2016,~~2018, was comprised of unamortized benefit plan costs of ~~$948~~$1,283 million and other comprehensive loss items of $3$5 million.

The changes in accumulated other comprehensive income (loss) by component for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~2018, were as follows:

($ in millions) Benefit Plans Other Total
Balance as of June 30, 2016 $ (819 ) $ (2 ) $ (821 )
Other comprehensive income (loss) before reclassifications —
1
1
Amounts reclassified from accumulated other comprehensive income (loss)

Amortization of net actuarial loss (gain)¹
20
—
20
Tax benefit (expense) for items of other comprehensive income (8 ) —
(8 )
Net current period other comprehensive income (loss) 12
1
13
Balance as of September 30, 2016 (807 ) (1 ) (808 )

Balance as of June 30, 2017 (921 ) 2
(919 )
Other comprehensive income (loss) before reclassifications²
(76 ) 3
(73 )
Amounts reclassified from accumulated other comprehensive income (loss)

Amortization of net actuarial loss (gain)¹
24
—
24
Tax benefit (expense) for items of other comprehensive income 20
(1 ) 19
Net current period other comprehensive income (loss) (32 ) 2
(30 )
Balance as of September 30, 2017 $ (953 ) $ 4
$ (949 )

($ in millions) Benefit Plans Other Total
Balance as of December 31, 2015 $ (843 ) $ (2 ) $ (845 )
Other comprehensive income (loss) before reclassifications —
1
1
Amounts reclassified from accumulated other comprehensive income (loss)
Amortization of net actuarial loss (gain)¹
59
—
59
Tax benefit (expense) for items of other comprehensive income (23 ) —
(23 )
Net current period other comprehensive income (loss) 36
1
37
Balance as of September 30, 2016 (807 ) (1 ) (808 )

Balance as of December 31, 2016 (948 ) (3 ) (951 )
Other comprehensive income (loss) before reclassifications²
(76 ) 10
(66 )
Amounts reclassified from accumulated other comprehensive income (loss)
Amortization of prior service cost (credit)¹
(1 ) —
(1 )
Amortization of net actuarial loss (gain)¹
70
—
70
Tax benefit (expense) for items of other comprehensive income 2
(3 ) (1 )
Net current period other comprehensive income (loss) (5 ) 7
2
Balance as of September 30, 2017 $ (953 ) $ 4
$ (949 )



($ in millions)	Benefit Plans			Other			Total
Balance as of June 30, 2018	$	(1,080	)	$	(5	)	$	(1,085	)
Other comprehensive income (loss) before reclassifications	—			—			—
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost¹	1			—			1
Amortization of net actuarial loss¹	19			—			19
Tax expense for items of other comprehensive income	(5		)	—			(5		)
Net current period other comprehensive income	15			—			15
Balance as of September 30, 2018	$	(1,065	)	$	(5	)	$	(1,070	)

Balance as of June 30, 2019	(1,246		)	(5		)	(1,251		)
Other comprehensive income (loss) before reclassifications	—			1			1
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service credit¹	(1		)	—			(1		)
Amortization of net actuarial loss¹	26			—			26
Tax expense for items of other comprehensive income	(7		)	—			(7		)
Net current period other comprehensive income	18			1			19
Balance as of September 30, 2019	$	(1,228	)	$	(4	)	$	(1,232	)

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($ in millions)	Benefit Plans			Other			Total
Balance as of December 31, 2017	$	(906	)	$	6		$	(900	)
Other comprehensive income (loss) before reclassifications				(2		)	(2		)
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost¹	2			—			2
Amortization of net actuarial loss¹	59			—			59
Tax expense for items of other comprehensive income	(16		)	—			(16		)
Net current period other comprehensive income	45			(2		)	43
Effect of Accounting Standards Update 2016-01²	—			(11		)	(11		)
Effect of Accounting Standards Update 2018-02³	(204		)	2			(202		)
Balance as of September 30, 2018	(1,065		)	(5		)	(1,070		)

Balance as of December 31, 2018	(1,283		)	(5		)	(1,288		)
Other comprehensive income (loss) before reclassifications	—			1			1
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service credit¹	(3		)	—			(3		)
Amortization of net actuarial loss¹	77			—			77
Tax expense for items of other comprehensive income	(19		)	—			(19		)
Net current period other comprehensive income	55			1			56
Balance as of September 30, 2019	$	(1,228	)	$	(4	)	$	(1,232	)

¹ These accumulated comprehensive ~~income (loss)~~loss components are included in the computation of net periodic benefit cost. See Note ~~16:~~17: Employee Pension and Other Postretirement Benefits. The tax benefit associated with amounts reclassified from accumulated other comprehensive ~~income (loss)~~loss for the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, was $9$7 million and $8$5 million, respectively. The tax benefit associated with amounts reclassified from accumulated other comprehensive ~~income (loss)~~loss for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, was ~~$27~~$19 million and ~~$23~~$16 million, respectively.

²~~See Note 16: Employee Pension and Other Postretirement Benefits.~~ The Company adopted ASU 2016-01 "Financial Statements - Overall (Subtopic 825-10)" as of January 1, 2018. Accordingly, accumulated other comprehensive income of $11 million related to available-for-sale securities, net of $4 million tax expense, was reclassified to retained earnings.

³The Company adopted ASU 2018-02 "Income Statement - Reporting Comprehensive Income (Topic 220)" as of January 1, 2018. Accordingly, stranded tax effects of $202 million related to the Tax Act were reclassified to retained earnings.

8.7. EARNINGS PER SHARE

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



	Three Months Ended September 30				Nine Months Ended September 30
(in millions, except per share amounts)	2019		2018		2019		2018
Net earnings	$	154	$	229	$	400	$	624

Weighted-average common shares outstanding	41.2		43.3		41.4		44.1
Net dilutive effect of stock awards	—		—		—		—
Dilutive weighted-average common shares outstanding	41.2		43.3		41.4		44.1

Earnings per share - basic	$	3.74	$	5.29	$	9.66	$	14.15
Earnings per share - diluted	$	3.74	$	5.29	$	9.66	$	14.15

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Three Months Ended
September 30 Nine Months Ended
September 30
(in millions, except per share amounts) 2017 2016 2017 2016
Net earnings (loss) $ 149
$ 107
$ 415
$ 376

Weighted-average common shares outstanding 45.4
46.9
45.8
47.0
Net dilutive effect of stock options and awards 0.1
0.3
0.1
0.4
Dilutive weighted-average common shares outstanding 45.5
47.2
45.9
47.4

Earnings (loss) per share - basic $ 3.28
$ 2.28
$ 9.06
$ 8.00
Earnings (loss) per share - diluted $ 3.27
$ 2.27
$ 9.04
$ 7.93

Under the treasury stock method, the Company has excluded from the diluted share amounts presented above the effects of 0.3 million Restricted Performance Stock Rights ("RPSRs") for ~~each~~the three and nine months ended September 30, 2019 and 2018.

8. REVENUE

The following is a description of principal activities from which the Company generates its revenues. For more detailed information regarding reportable segments, see Note 9: Segment Information. For more detailed information regarding the Company's significant accounting policy for revenue, see Note 2: Basis of Presentation.

U.S. Government Contracts

The Ingalls and Newport News segments generate revenue primarily from performance under multi-year contracts with the U.S. Government, generally the U.S. Navy and U.S. Coast Guard, or prime contractors to contracts with the U.S. Government, relating to the advance planning, design, construction, repair, maintenance, refueling, overhaul, or inactivation of nuclear-powered ships and non-nuclear ships. The period over which the Company performs may extend past five years. The Technical Solutions segment also generates the majority of its revenue from contracts with the U.S. Government, including U.S. Government agencies. The Company generally invoices and receives related payments based upon performance progress no less frequently than monthly.

Shipbuilding - For most of the Company's shipbuilding contracts, the customer contracts with the Company to provide a comprehensive service of designing, procuring long-lead-time materials, manufacturing, and integrating complex equipment and technologies into a single ship or project, often resulting in a single performance obligation. Contract modifications to account for changes in specifications and requirements are recognized when approved by the customer. In the majority of circumstances, modifications do not result in additional performance obligations that are distinct from the existing performance obligations in the contract and the effects of the modifications are recognized as an adjustment to revenue on a cumulative catch-up basis. Alternatively, in instances where the performance obligations in the modifications are deemed distinct, contract modifications are accounted for prospectively.

The Company considers incentive and award fees to be variable consideration and includes in the transaction price at inception the consideration to which the Company expects to be entitled under the terms and conditions of the contract, generally estimated using a most likely amount approach. Transaction price is limited to the extent of funding allotted by the customer and available for performance, and estimated revenues represent those amounts for which the Company believes a significant reversal of revenue is not probable.

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

Services - The Technical Solutions segment generates revenue primarily under U.S. Government contracts from the provision of fleet support and MDIS services. Contracts generally are structured using either an Indefinite Delivery/Indefinite Quantity ("IDIQ") vehicle, under which orders are issued, or a standalone contract. Contracts may be fixed-price or cost-type, include variable consideration such as incentives and awards, and structured as task orders under an IDIQ contract vehicle or requirements contract vehicle. In either case, the Company generally performs over the course of a short-duration period and may continue to perform upon exercise of related period of performance options that are also short in duration, generally one year. The Company’s performance obligations vary in nature and may be stand-ready, in which case the Company responds to the customer’s needs on the basis of its demand, a recurring service, typically recurring maintenance services, or a single performance obligation that does not comprise a series of distinct services.

In determining transaction price, the Company considers incentives and other contingencies to be variable consideration and includes in the initial transaction price the consideration to which the Company expects to be entitled under the terms and conditions of the contract, generally estimated using a most likely amount approach. Transaction price is limited to the extent of funding allotted by the customer and available for performance, and estimated revenues represent those amounts for which the Company believes a significant reversal of revenue is not probable. Where a series of distinct services has been identified, the Company generally allocates variable consideration to distinct time increments of service.

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The Company generally recognizes revenue as it satisfies the related performance obligations over time using a cost-to-cost input method to measure performance progress, because, even where the Company has identified a series of services, its cost incurrence pattern generally is not ratable given the complex nature of the services the Company provides. Invoices are issued and related payments are received, on the basis of performance progress, no less frequently than monthly. In addition, many of the Company's U.S. Government services contracts are time and material arrangements. As a result, the Company often utilizes the practical expedient allowing the recognition of revenue in the amount the Company invoices, which corresponds with the value provided to the customer and to which the Company is entitled to payment for performance to date.

Non-U.S. Government Contracts

Revenues generated under commercial and state and local government agency contracts are primarily derived from the provision of nuclear and environmental and oil and gas services. Non-U.S. Government contracts typically are one or two years in duration.

In determining transaction price, the Company considers incentives and other contingencies to be variable consideration and includes in the initial transaction price the consideration to which the Company expects to be entitled under the terms and conditions of the contract, generally estimated using a most likely amount approach. In the context of variable consideration, the Company limits the transaction price to amounts for which the Company believes a significant reversal of revenue is not probable. Such amounts may relate to transaction price in excess of funding, a lack of history with the customer, a lack of history with the goods or services being provided, or other items.

Revenue generally is recognized over time given the terms and conditions of the related contracts. The Company generally utilizes a cost-to-cost input method to measure performance progress, which best depicts the transfer of control to the customer. The Company’s non-U.S. Government contract portfolio is comprised of a large number of time and material arrangements. As a result, the Company often utilizes the practical expedient allowing the recognition of revenue in the amount the Company invoices, which corresponds with the value provided to the customer and to which the Company is entitled to payment for performance to date.

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Disaggregation of Revenue

The following tables present revenues on a disaggregated basis, in a manner that reconciles with the Company's reportable segment disclosures, for the following categories: product versus service type, customer type, contract type, and major program. See Note 9: Segment Information. The Company believes that this level of disaggregation provides investors with information to evaluate the Company’s financial performance and provides the Company with information to make capital allocation decisions in the most appropriate manner.



	Three Months Ended September 30, 2019
($ in millions)	Ingalls		Newport News		Technical Solutions		Intersegment Eliminations			Total
Revenue Type
Product sales	$	584	$	952	$	9	$	—		$	1,545
Service revenues	62		310		302		—			674
Intersegment	1		2		36		(39		)	—
Sales and service revenues	$	647	$	1,264	$	347	$	(39	)	$	2,219
Customer Type
Federal	$	646	$	1,262	$	233	$	—		$	2,141
Commercial	—		—		78		—			78
Intersegment	1		2		36		(39		)	—
Sales and service revenues	$	647	$	1,264	$	347	$	(39	)	$	2,219
Contract Type
Firm fixed-price	$	21	$	2	$	66	$	—		$	89
Fixed-price incentive	519		578		—		—			1,097
Cost-type	106		682		125		—			913
Time and materials	—		—		120		—			120
Intersegment	1		2		36		(39		)	—
Sales and service revenues	$	647	$	1,264	$	347	$	(39	)	$	2,219



	Three Months Ended September 30, 2018
($ in millions)	Ingalls		Newport News		Technical Solutions		Intersegment Eliminations			Total
Revenue Type
Product sales	$	636	$	891	$	20	$	—		$	1,547
Service revenues	56		286		194		—			536
Intersegment	2		2		31		(35		)	—
Sales and service revenues	$	694	$	1,179	$	245	$	(35	)	$	2,083
Customer Type
Federal	$	692	$	1,177	$	155	$	—		$	2,024
Commercial	—		—		59		—			59
Intersegment	2		2		31		(35		)	—
Sales and service revenues	$	694	$	1,179	$	245	$	(35	)	$	2,083
Contract Type
Firm fixed-price	$	31	$	2	$	33	$	—		$	66
Fixed-price incentive	569		472		—		—			1,041
Cost-type	92		703		90		—			885
Time and materials	—		—		91		—			91
Intersegment	2		2		31		(35		)	—
Sales and service revenues	$	694	$	1,179	$	245	$	(35	)	$	2,083

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	Nine Months Ended September 30, 2019
($ in millions)	Ingalls		Newport News		Technical Solutions		Intersegment Eliminations			Total
Revenue Type
Product sales	$	1,678	$	2,842	$	35	$	—		$	4,555
Service revenues	173		950		809		—			1,932
Intersegment	2		4		96		(102		)	—
Sales and service revenues	$	1,853	$	3,796	$	940	$	(102	)	$	6,487
Customer Type
Federal	$	1,851	$	3,792	$	629	$	—		$	6,272
Commercial	—		—		215		—			215
Intersegment	2		4		96		(102		)	—
Sales and service revenues	$	1,853	$	3,796	$	940	$	(102	)	$	6,487
Contract Type
Firm fixed-price	$	61	$	5	$	159	$	—		$	225
Fixed-price incentive	1,487		1,591		1		—			3,079
Cost-type	303		2,196		375		—			2,874
Time and materials	—		—		309		—			309
Intersegment	2		4		96		(102		)	—
Sales and service revenues	$	1,853	$	3,796	$	940	$	(102	)	$	6,487



	Nine Months Ended September 30, 2018
($ in millions)	Ingalls		Newport News		Technical Solutions		Intersegment Eliminations			Total
Revenue Type
Product sales	$	1,747	$	2,616	$	53	$	—		$	4,416
Service revenues	159		823		579		—			1,561
Intersegment	2		5		89		(96		)	—
Sales and service revenues	$	1,908	$	3,444	$	721	$	(96	)	$	5,977
Customer Type
Federal	$	1,906	$	3,439	$	447	$	—		$	5,792
Commercial	—		—		184		—			184
State and local government agencies	—		—		1		—			1
Intersegment	2		5		89		(96		)	—
Sales and service revenues	$	1,908	$	3,444	$	721	$	(96	)	$	5,977
Contract Type
Firm fixed-price	$	73	$	6	$	114	$	—		$	193
Fixed-price incentive	1,583		1,369		1		—			2,953
Cost-type	250		2,064		275		—			2,589
Time and materials	—		—		242		—			242
Intersegment	2		5		89		(96		)	—
Sales and service revenues	$	1,908	$	3,444	$	721	$	(96	)	$	5,977

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	Three Months Ended September 30			Three Months Ended September 30			Nine Months Ended September 30			Nine Months Ended September 30
($ in millions)	2019			2018			2019			2018
Major Programs
Amphibious assault ships	$	349		$	356		$	971		$	971
Surface combatants and coast guard cutters	294			336			875			934
Other	4			2			7			3
Total Ingalls	647			694			1,853			1,908
Aircraft carriers	707			647			2,166			1,888
Submarines	390			369			1,121			1,114
Other	167			163			509			442
Total Newport News	1,264			1,179			3,796			3,444
Government and energy services	284			194			772			589
Oil and gas services	63			51			168			132
Total Technical Solutions	347			245			940			721
Intersegment eliminations	(39		)	(35		)	(102		)	(96		)
Sales and service revenues	$	2,219		$	2,083		$	6,487		$	5,977

As of September 30, 2019, the Company had $39.2 billion of remaining performance obligations. The Company expects to recognize approximately 20% of its remaining performance obligations as revenue through 2020, an additional 30% through 2022, and the balance thereafter.

Cumulative Catch-up Adjustments

For the three months ended September 30, 2019, net cumulative catch-up adjustments increased operating income and diluted earnings per share by $44 million and $0.86, respectively. For the three months ended September 30, 2018, net cumulative catch-up adjustments increased operating income and diluted earnings per share by $34 million and $0.62, respectively. For the nine months ended September 30, 2019, net cumulative catch-up adjustments increased operating income and diluted earnings per share by $57 million and $1.09, respectively. For the nine months ended September 30, 2018, net cumulative catch-up adjustments increased operating income and diluted earnings per share by $99 million and $1.78, respectively. No individual adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income for the three and nine months endedSeptember 30, ~~2017, respectively.~~ 2019 and 2018.

Contract Balances

Contract balances include accounts receivable, contract assets, and contract liabilities from contracts with customers. Accounts receivable represent an unconditional right to consideration and include amounts billed and currently due from customers. Contract assets primarily relate to the Company's rights to consideration for work completed but not billed as of the reporting date when the right to payment is not just subject to the passage of time. Fixed-price contracts are generally billed to the customer using either progress payments, whereby amounts are billed monthly as costs are incurred or work is completed, or performance based payments, which are based upon the achievement of specific, measurable events or accomplishments defined and valued at contract inception. Cost-type contracts are typically billed to the customer on a monthly or semi-monthly basis. Contract liabilities relate to advance payments, billings in excess of revenues, and deferred revenue amounts.

The ~~amounts presented above exclude~~Company reports contract balances in a net contract asset or contract liability position on a contract-by-contract basis at the ~~impact~~end of ~~0.1~~each reporting period. The Company’s net contract assets increased $202 million ~~stock options and 0.3 million RPSRs for~~from December 31, 2018, to September 30, 2019, primarily due to an increase in contract assets as a result of revenue on certain U.S. Navy contracts. For the three and nine months ended September 30, ~~2016~~2019, the Company recognized revenue of $17 million and ~~0.1~~$261 million, ~~stock options and 0.4 million RPSRs for~~respectively, related to its contract liabilities as of December 31, 2018. For the nine months ended September 30, ~~2016, under~~2018, the ~~treasury stock method.~~

Company recognized revenue of $87 million related to its contract liabilities as of December 31, 2017.

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9. SEGMENT INFORMATION

The Company is organized into ~~three~~3 reportable segments: Ingalls, Newport News, and Technical Solutions, consistent with how management makes operating decisions and assesses performance. ~~The Technical Solutions~~

segment was established in the fourth quarter of 2016 in conjunction with the Company's acquisition of Camber and realignment of management oversight to enhance strategic and operational alignment among the Company's services businesses. The Company has reflected the 2016 segment realignment in prior reporting periods on a retrospective basis. None of these changes impacted the Company's previously reported consolidated financial position, results of operations, or cash flows.

The following table presents segment results for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~2018:


	Three Months Ended September 30						Nine Months Ended September 30						Three Months Ended September 30						Nine Months Ended September 30
($ in millions)	2017			2016			2017			2016			2019			2018			2019			2018
Sales and Service Revenues
Ingalls	$	593		$	577		$	1,782		$	1,748		$	647		$	694		$	1,853		$	1,908
Newport News	1,053			978			3,025			2,970			1,264			1,179			3,796			3,444
Technical Solutions	241			154			710			505			347			245			940			721
Intersegment eliminations	(24		)	(26		)	(72		)	(77		)	(39		)	(35		)	(102		)	(96		)
Sales and service revenues	$	1,863		$	1,683		$	5,445		$	5,146		$	2,219		$	2,083		$	6,487		$	5,977
Operating Income (Loss)
Operating Income
Ingalls	$	74		$	66		$	238		$	236		$	61		$	82		$	176		$	229
Newport News	96			68			248			247			109			119			257			261
Technical Solutions	22			6			13			7			21			16			25			25
Segment operating income (loss)	192			140			499			490
Segment operating income													191			217			458			515
Non-segment factors affecting operating income (loss)
FAS/CAS Adjustment	46			37			144			107
Operating FAS/CAS Adjustment													23			73			94			218
Non-current state income taxes	(1		)	(2		)	(5		)	(7		)	—			—			(2		)	5
Operating income (loss)	$	237		$	175		$	638		$	590
Operating income													$	214		$	290		$	550		$	738

Operating FAS/CAS Adjustment - The Operating FAS/CAS Adjustment ~~reflects~~represents the difference between ~~expenses for~~the service cost component of our pension and other postretirement ~~benefits~~expense 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").~~our pension and other postretirement expense under CAS.

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



($ in millions)	September 30 2019		December 31 2018
Assets
Ingalls	$	1,712	$	1,448
Newport News	3,945		3,572
Technical Solutions	1,134		734
Corporate	393		629
Total assets	$	7,184	$	6,383

($ in millions) September 30
2017 December 31
2016
Assets
Ingalls $ 1,290
$ 1,362
Newport News 3,337
3,169
Technical Solutions 650
692
Corporate 895
1,129
Total assets $ 6,172
$ 6,352

10. INVENTORIED COSTS, NET

Inventoried costs were comprised of the following:



($ in millions)	September 30 2019		December 31 2018
Production costs of contracts in process¹	$	37	$	34
Raw material inventory	102		94
Total inventoried costs, net	$	139	$	128

($ in millions) September 30
2017 December 31
2016
Production costs of contracts in process $ 88
$ 116
Raw material inventory 95
94
Total inventoried costs, net $ 183
$ 210

~~As of September 30, 2017, and December 31, 2016, $60 million and $94 million, respectively, of costs related~~¹Includes amounts capitalized pursuant to ~~the wind down~~applicable provisions of the ~~Avondale facility were capitalized in production costs of contracts in process within inventoried costs. See Note 4: Avondale.~~FAR and CAS.

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11. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

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

Accumulated goodwill impairment losses as of each of September 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, were $2,877 million. The accumulated goodwill impairment losses for Ingalls as of each of September 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, were $1,568 million. The accumulated goodwill impairment losses for Newport News as of each of September 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, were $1,187 million. The accumulated goodwill impairment losses for Technical Solutions as of each of September 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, were $122 million.

For the nine months ended September 30, ~~2017,~~2019, the carrying amounts of goodwill changed as follows:



($ in millions)	Ingalls		Newport News		Technical Solutions		Total
Balance as of December 31, 2018	175		721		367		1,263
Acquisitions	—		—		133		133
Adjustments	—		—		6		6
Balance as of September 30, 2019	$	175	$	721	$	506	$	1,402

($ in millions) Ingalls Newport News Technical Solutions Total
Balance as of December 31, 2016 $ 175
$ 721
$ 338
$ 1,234
Adjustments —
—
(17 ) (17 )
Balance as of September 30, 2017 $ 175
$ 721
$ 321
$ 1,217

During the nine months ended September 30, 2017, the Company recorded a goodwill adjustment of $17 million in the Technical Solutions segment, primarily driven by the finalization of fair value calculations for certain assets and liabilities, as well as the net working capital adjustment related to the acquisition of Camber.

Other Intangible Assets

The Company's purchased intangible assets are ~~being~~ amortized on a straight-line basis or a method based on the pattern of benefits over their estimated useful lives. Net intangible assets consist principally of amounts pertaining to nuclear-powered aircraft carrier and submarine program intangible assets, with an aggregate weighted-average useful life of 40 years based on the long life cycle of the related programs. Aggregate amortization expense was ~~$10~~$12 million and $5$10 million for the three months ended September 30, ~~2017~~2019 and ~~2016, respectively, and $30~~2018, respectively. Aggregate amortization expense was $35 million and ~~$16~~$28 million for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively.

In connection with the ~~Camber acquisition~~Fulcrum purchase in ~~2016,~~2019, the Company recorded ~~$76~~$49 million of intangible assets pertaining to existing contract backlog and customer relationships, to be amortized using the pattern of benefits method over a weighted-average life of 10seven years. In connection with the G2 purchase in 2018, the Company recorded $20 million of intangible assets pertaining to existing contract backlog and customer relationships, to be amortized using the pattern of benefits method over a weighted-average life of seven years.

The Company expects amortization expense for purchased intangible assets of approximately $47 million in 2019, $44 million in 2020, $40 million in ~~2017, $36~~2021, $37 million in ~~2018, $32~~2022, and $27 million in ~~2019, $28 million in 2020, and $26 million in 2021.~~2023.

12. INCOME TAXES

The Company's earnings are ~~principally~~primarily domestic, and its effective income tax rates on earnings from operations for the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, were ~~32.3%~~22.2% and ~~31.8%~~22.4%, respectively. For the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, the Company's effective income tax rates on earnings from operations were ~~29.1%~~21.7% and ~~29.5%~~17.0%, respectively. The higher effective tax rate for the three months ended September 30, 2017, was primarily attributable to a decrease in a non-recurring tax benefit associated with the true-up of estimated taxes to actual filed returns. The lower effectiveincome tax rate for the nine months ended September 30, ~~2017,~~2019, was primarily attributable to ~~an increase~~a claim for higher research and development tax credits for the post-spin-off 2011 through 2015 tax years recorded in ~~the domestic manufacturing deduction.~~2018.

For the three ~~and nine~~ months ended September 30, ~~2017,~~2019, the Company's effective income tax ~~rates~~rate differed from the federal statutory rate primarily as a result of a non-recurring increase in tax expense for the true-up of estimated income ~~tax benefits resulting from stock award settlement activity~~

~~and~~taxes to the ~~domestic manufacturing deduction.~~actual filed return. For the ~~three and~~ nine months ended September 30, ~~2016,~~2019, the ~~Company's~~Company’s effective income tax ~~rates~~rate differed from the federal statutory rate primarily as a result of ~~the adoption of ASU 2016-09, which reduced income~~an unfavorable adjustment to claims for research and development tax credits for prior tax years and a non-recurring increase in tax expense for the true-up of estimated income taxes to the actual filed return, partially offset by ~~the~~ income tax benefits resulting from stock award settlement ~~activity,~~activity. For the three and nine months ended September 30, 2018, the ~~domestic manufacturing deduction.~~Company’s effective

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income tax rate differed from the federal statutory rate primarily as a result of a claim for higher research and development tax credits for the post-spin-off 2011 through 2015 tax years.

The ~~Company’s~~Company's unrecognized tax benefits ~~decreased~~changed by less than $1 million during the three and nine months ended September 30, ~~2017, as a result~~2019. As of September 30, 2019, the estimated amounts of the ~~expiration of applicable statutes of limitation. The remaining~~Company's unrecognized tax benefits, ~~are immaterial~~excluding interest and ~~will likely be recognized~~penalties, were liabilities of $24 million. Assuming a sustainment of these tax positions, the reversal of the $24 million accrual would favorably affect the Company's effective federal income tax rate in future periods.

The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense. For the ~~next 12~~three and nine months ~~as a result of expiration of applicable statutes of limitation.~~ended September 30, 2019, interest resulting from the unrecognized tax benefits noted above increased income tax expense less than $1 million.

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

13. DEBT

Long-term debt consisted of the following:



($ in millions)	September 30 2019			December 31 2018
Senior notes due November 15, 2025, 5.000%	600			600
Senior notes due December 1, 2027, 3.483%	600			600
Mississippi economic development revenue bonds due May 1, 2024, 7.81%	84			84
Gulf opportunity zone industrial development revenue bonds due December 1, 2028, 4.55%	21			21
Revolving credit facility borrowings	264			—
Less unamortized debt issuance costs	(20		)	(22		)
Total long-term debt	$	1,549		$	1,283

($ in millions) September 30
2017 December 31
2016
Senior notes due December 15, 2021, 5.000% $ 600
$ 600
Senior notes due November 15, 2025, 5.000% 600
600
Mississippi economic development revenue bonds due May 1, 2024, 7.81% 84
84
Gulf opportunity zone industrial development revenue bonds due December 1, 2028, 4.55% 21
21
Less unamortized debt issuance costs (23 ) (27 )
Total long-term debt $ 1,282
$ 1,278

Credit Facility - ~~In July 2015, the Company entered into a Second Amended and Restated Credit Agreement (the “Amended Credit Facility”)~~The Company's credit facility with third-party ~~lenders. The Amended Credit Facility~~lenders (the "Credit Facility") includes a revolving credit facility of $1,250 million, which may be drawn upon during a period of five years from ~~July 2015.~~November 22, 2017. The revolving credit facility includes a letter of credit subfacility of $500 million. The revolving credit facility has a variable interest rate on outstanding borrowings based on the London Interbank Offered Rate ("LIBOR") plus a spread based upon the Company's leverage ratio, which may vary between 1.25% and 2.0%. The revolving credit facility also has a commitment fee rate on the unutilized balance based on the Company’s leverage ratio. The commitment fee rate as of September 30, 2017, was 0.25% and may vary between 0.25% and 0.35%.

The ~~Amended~~ Credit Facility contains customary affirmative and negative covenants, as well as a financial covenant based on a maximum total leverage ~~ratio, which could limit the amount of dividends the Company may pay and shares the Company may repurchase.~~ratio. Each of the Company's existing and future material wholly owned domestic subsidiaries, except those that are specifically designated as unrestricted subsidiaries, are and will be guarantors under the ~~Amended~~ Credit Facility. ~~Substantially all tangible and intangible material assets~~

As ofSeptember 30, 2019, the Company ~~and domestic subsidiaries are pledged as collateral under the Amended Credit Facility.~~

Ashad $264 million of ~~September 30, 2017, approximately $15~~outstanding borrowings, $22 million in ~~standby~~issued but undrawn letters of credit, ~~were issued but undrawn,~~ and $964 million unutilized under the ~~remaining $1,235 million of the revolving credit facility was unutilized.~~Credit Facility. The Company had unamortized debt issuance costs associated with its credit facilities of $6$7 million and $8 million as of September 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, respectively.

~~Senior Notes~~ - In December 2014, the Company issued $600 million aggregate principal amount of unregistered 5.000% senior notes due December 2021. In November 2015, the Company issued $600 million aggregate principal amount of unregistered 5.000% senior notes due November 2025. Interest on the Company's senior notes is payable semi-annually.

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

unamortized debt issuance costs associated with ~~the~~its senior notes of ~~$17~~$13 million and ~~$19~~$14 million as of September 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, respectively.

~~Mississippi Economic Development Revenue Bonds~~ ~~- As of each of September 30, 2017, and December 31, 2016,~~In October 2019, the Company ~~had $84 million outstanding~~established an unsecured commercial paper note program, under ~~Industrial Revenue Bonds issued by the Mississippi Business Finance Corporation. These bonds accrue interest at a fixed rate of 7.81% per annum (payable semi-annually) and mature in 2024.~~

~~Gulf Opportunity Zone Industrial Development Revenue Bonds~~ ~~- As of each of September 30, 2017, and December 31, 2016,~~which the Company ~~had $21 million outstanding under Gulf Opportunity Zone Industrial Development Revenue Bonds issued by the Mississippi Business Finance Corporation. These bonds accrue interest at a fixed rate~~may issue up to $1 billion of ~~4.55% per annum (payable semi-annually) and mature in 2028.~~unsecured commercial paper notes.

The Company's debt arrangements contain customary affirmative and negative ~~covenants, including a maximum leverage ratio.~~covenants. The Company was in compliance with all debt covenants during the nine months ended September 30, ~~2017.~~2019.

The estimated fair values of the Company's total long-term debt as of September 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, were ~~$1,385~~$1,642 million and ~~$1,372~~$1,292 million, respectively. The fair values of the Company's long-term debt were calculated based on ~~either~~ recent trades of the Company's debt instruments in inactive markets, ~~or yields available on debt with substantially similar risks, terms and maturities,~~ which fall within Level 2 under the fair value hierarchy.

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~~The Company has $600 million in principal payments due on long-term debt in 2021.~~

14. INVESTIGATIONS, CLAIMS, AND LITIGATION

The Company is involved in legal proceedings before various courts and administrative agencies, and is periodically subject to government examinations, inquiries and investigations. Pursuant to FASB Accounting Standards Codification 450 Contingencies, the Company has accrued for losses associated with investigations, claims, and litigation when, and to the extent that, loss amounts related to the investigations, claims, and litigation are probable and can be reasonably estimated. The actual losses that might be incurred to resolve such investigations, claims, and litigation may be higher or lower than the amounts accrued. For matters where a material loss is probable or reasonably possible and the amount of loss cannot be reasonably estimated, but the Company is able to reasonably estimate a range of possible losses, the Company will disclose such estimated range in these notes. This estimated range is based on information currently available to the Company and involves elements of judgment and significant uncertainties. Any estimated range of possible loss does not represent the Company's maximum possible loss exposure. For matters as to which the Company is not able to reasonably estimate a possible loss or range of loss, the Company will indicate the reasons why it is unable to estimate the possible loss or range of loss. For matters not specifically described in these notes, the Company does not believe, based on information currently available to it, that it is reasonably possible that the liabilities, if any, arising from such investigations, claims, and litigation will have a material effect on its consolidated financial position, results of operations, or cash flows. The Company has, in certain cases, provided disclosure regarding certain matters for which the Company believes at this time that the likelihood of material loss is remote.

False Claims Act Complaint - In 2015, the Company received a Civil Investigative Demand from the DoJ relating to an investigation of certain allegedly non-conforming parts the Company purchased from one of its suppliers for use in connection with U.S. Government contracts. The Company has cooperated with the DoJ in connection with its investigation. In 2016, the Company was made aware that it is a defendant in a qui tamFalse Claims Act lawsuit ~~filed under seal~~pending in the U.S. District Court for the Middle District of Florida related to the Company’s purchases of ~~the~~ allegedly non-conforming parts from a supplier for use in connection with U.S. Government contracts. In August 2019, the ~~supplier.~~Department of Justice (“DoJ”) declined to intervene in the lawsuit, and the lawsuit was unsealed. Depending ~~upon~~on the outcome of ~~this matter,~~the lawsuit, the Company could be subject to civil penalties, damages, and/or suspension or debarment from future U.S. Government contracts, which could have a material adverse effect on its consolidated financial position, results of operations, or cash flows. The ~~matter remains sealed~~Company has not yet been served with the lawsuit and ~~given~~therefore has not had an opportunity to respond to the ~~current posture of~~complaint or engage in any discovery related to the ~~matter,~~issues set forth in the complaint. As a result, the Company currently is unable to estimate an amount or range of reasonably possible loss or to express an opinion regarding the ultimate outcome.

In September 2019, the Company became aware that it is a defendant in a qui tam False Claims Act lawsuit pending in the U.S. District Court for the Middle District of Florida related to allegations about the Company’s application of a material to the exterior surface of Virginia class (SSN 774) submarines. The DoJ declined to intervene in the lawsuit, and the lawsuit was unsealed. Depending on the outcome of the lawsuit, the Company could be subject to civil penalties, damages, and/or suspension or debarment from future U.S. Government contracts, which could have a material adverse effect on its consolidated financial position, results of operations, or cash flows. The Company has not yet been served with the lawsuit and therefore has not had an opportunity to respond to the complaint or engage in any discovery related to the issues set forth in the complaint. As a result, the Company currently is unable to estimate an amount or range of reasonably possible loss or to express an opinion regarding the ultimate outcome.

U.S. Government Investigations and Claims - Departments and agencies of the U.S. Government have the authority to investigate various transactions and operations of the Company, and the results of such investigations may lead to administrative, civil, or criminal proceedings, the ultimate outcome of which could be fines, penalties, repayments or compensatory, treble, or other damages. U.S. Government regulations provide that certain findings

against a contractor may also lead to suspension or debarment from future U.S. Government contracts or the loss of export privileges. Any suspension or debarment would have a material effect on the Company because of its reliance on government contracts.

In January 2013, the Company disclosed to the DoD, including the U.S. Navy, and the U.S. Department of Homeland Security, including the U.S. Coast Guard, pursuant to the FAR, that it had initiated an internal investigation regarding whether certain employees at Ingalls mischarged time or misstated progress on Navy and Coast Guard contracts. The Company conducted an internal investigation, led by external counsel, and took remedial actions, including the termination of employees in instances where the Company believed grounds for termination existed. The Company provided information regarding its investigation to the relevant government agencies, and agreed with the U.S. Navy and U.S. Coast Guard that they would initially withhold $24 million in payments on existing contracts pending receipt of additional information from the Company's internal investigation. The U.S. Navy subsequently reduced its portion of the withhold from $18.2 million to $4.7 million, and the U.S. Coast Guard reduced its withhold from $5.8 million to $3.6 million. In September 2017, the U.S. Navy and the U.S. Coast Guard paid the Company the respective remaining amounts they were withholding.

In June 2015, the DoJ informed the Company that it was investigating the matters disclosed by the Company to the DoD in January 2013. In August 2017, the Company settled the matters with the DoJ. This settlement did not have a material effect on the Company’s consolidated financial position, results of operations, or cash flows.

Asbestos Related Claims - HII and its predecessors-in-interest are defendants in a longstanding series of cases that have been and continue to be filed in various jurisdictions around the country, wherein former and current employees and various third parties allege exposure to asbestos containing materials while on or associated with HII premises or while working on vessels constructed or repaired by HII. The cases allege various injuries, including those associated with pleural plaque disease, asbestosis, cancer, mesothelioma, and other alleged asbestos related conditions. In some cases, several of HII's former executive officers are also named as defendants. In some instances, partial or full insurance coverage is available to the Company for its liability and that of its former executive officers. The ~~average cost per case~~costs to resolve cases during the nine months ended September 30, ~~2017~~2019 and ~~2016, was~~ 2018, were

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immaterial individually and in the aggregate. The Company’s estimate of asbestos-related liabilities is subject to uncertainty because liabilities are influenced by numerous variables that are inherently difficult to predict. Key variables include the number and type of new claims, the litigation process from jurisdiction to jurisdiction and from case to case, reforms made by state and federal courts, and the passage of state or federal tort reform legislation. Although the Company believes the ultimate resolution of current cases will not have a material effect on its consolidated financial position, results of operations, or cash flows, it cannot predict what new or revised claims or litigation might be asserted or what information might come to light and can, therefore, give no assurances regarding the ultimate outcome of asbestos related litigation.

Other Litigation - In March 2019, a new dry dock being transported for delivery to Ingalls by a heavy lift ship struck an Ingalls work barge, which in turn was pushed into Delbert D. Black (DDG 119) causing damage to Delbert D. Black (DDG 119), the work barge, and the new dry dock. At the time of the incident, responsibility for the new dry dock remained with the builder and the transport company. Repair work on Delbert D. Black (DDG 119) is in process at U.S. Navy direction. The Company is working with the U.S. Navy to ascertain whether third parties will pay for the repairs to Delbert D. Black (DDG 119) or whether the repairs will be paid under the builder's risk insurance included in the Delbert D. Black (DDG 119) contract. Claims have been tendered to the Company's insurers, and HII is continuing to receive claim proceeds. In April 2019, the Company filed suit in the U.S. District Court for the Southern District of Mississippi seeking, among other relief, damages from negligent third parties. Based on information currently available, management believes it will collect sufficient funds from one or more third parties to compensate for the resulting direct and consequential damages, but failure to collect sufficient funds or the length of time required to collect such funds could result in a material effect on the Company’s financial position, results of operations, or cash flows.

The Company and its predecessor-in-interest have been in litigation with the Bolivarian Republic of Venezuela (the ~~“Republic”~~"Republic") since 2002 over a contract for the repair, refurbishment, and modernization at Ingalls of ~~two~~2 foreign-built frigates. The case proceeded towards arbitration, then appeared to settle favorably, but the settlement was overturned in court and the matter returned to litigation. In March 2014, the Company filed an arbitral statement of claim asserting breaches of the ~~contract and $173 million in damages plus substantial interest and litigation expenses.~~contract. In July 2014, the Republic filed ~~in the arbitration~~ a statement of defense in the arbitration denying all the Company’s allegations and a counterclaim alleging late redelivery of the frigates, unfinished work, and breach of ~~warranty and asserting damages of $61 million plus interest. An arbitration hearing was held in January 2015, and~~warranty. In February 2018, the arbitral tribunal awarded the Company ~~cannot predict when~~approximately $151 million on its claims and awarded the ~~arbitration panel will render a decision.~~Republic approximately $22 million on its counterclaims. The Company is seeking to enforce and execute upon the award in multiple jurisdictions. No assurances can be provided regarding the ultimate ~~outcome~~resolution of this matter.

The Company is party to various other claims, ~~and~~ legal proceedings and investigations that arise in the ordinary course of ~~business.~~business, including U.S. Government investigations that could result in administrative, civil, or criminal proceedings involving the Company. The Company is a contractor with the U.S. Government, and such proceedings can therefore include False Claims Act allegations against the Company. Although the Company believes that the resolution of ~~any of~~ these ~~various~~other claims, ~~and~~ legal proceedings and investigations will not have a material effect on its consolidated financial position, results of operations, or cash flows, itthe Company cannot predict what new or revised claims or litigation might be asserted or what information might come to light and can, therefore, give no assurances regarding the ultimate outcome of these matters.

15. LEASES

The Company leases certain land, warehouses, office space, and production, office, and technology equipment, among other items. Most equipment is leased on a monthly basis. Many land, warehouse, and office space leases include renewal terms that can extend the lease term. The exercise of lease renewal options is at our sole discretion. The depreciable life of assets and leasehold improvements are generally limited by the expected lease term. Our lease agreements do not generally contain material residual value guarantees, material restrictive covenants, or purchase options. Our lease portfolio consists primarily of operating leases. Amounts prior to January 1, 2019, are reported under Topic 840, and amounts after January 1, 2019, are reported under Topic 842 in accordance with ASU 2016-02.

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Lease costs and related information were as follows:



	Three Months Ended September 30			Nine Months Ended September 30
($ in millions)	2019			2019
Operating lease costs	$	12		$	35
Short-term operating lease costs	$	9		$	21
Variable operating lease costs	$	2		$	5
Operating cash flows from operating leases	$	(12	)	$	(34	)
Right-of-use assets obtained in exchange for new operating lease liabilities	$	4		$	21
Weighted-average remaining lease term (years) - operating leases	11 years			11 years
Weighted-average discount rate - operating leases	4.5		%	4.5		%

The undiscounted future non-cancellable lease payments under our operating leases were as follows:



Year:	September 30 2019		December 31 2018
2019	$	11	$	41
2020	42		36
2021	36		30
2022	29		20
2023	22		13
Thereafter	127		56
Total lease payments	267		196
Less: imputed interest	59		—
Present value of lease liabilities	$	208	$	—

Lease liabilities included in the Company's consolidated balance sheet as of September 30, 2019, were as follows:



($ in millions)
Short-term operating lease liabilities	$	36
Long-term operating lease liabilities	172
Total operating lease liabilities	$	208

16. COMMITMENTS AND CONTINGENCIES

Contract Performance Contingencies - Contract profit margins may include estimates of revenues for matters on which the customer and the Company have not reached agreement, such as settlements in the process of negotiation, contract changes, claims, and requests for equitable adjustment for unanticipated contract costs. These

estimates are based upon management's best assessment of the underlying causal events and circumstances and are included in ~~determining~~ contract profit margins to the extent of expected recovery based onupon contractual entitlements and the probability of successful negotiation with the customer. In June 2016, the Company submitted to the contracting officer a request for a final decision regarding the Avondale restructuring costs the Company has incurred, and in December 2016, the contracting officer denied the Company’s claim. The Company is pursuing its claim through the Civilian and Armed Services Boards of Contract Appeals, seeking recovery of the Avondale restructuring costs pursuant to the Contract Disputes Act. See Note 4: Avondale. As of September 30, ~~2017, the~~2019, amounts recognized ~~amounts related to other~~in connection with claims and requests for equitable adjustment were not material individually or in ~~the~~ aggregate.

Guarantees of Performance Obligations - From time to time in the ordinary course of business, HII may enter into joint ventures, teaming, and other business arrangements to support the Company's products and services. The Company ~~generally strives~~attempts to limit its exposure under these arrangements to its investment ~~in the arrangement,~~ or to the extent of obligations under the applicable contract. In some cases, however, HII may be required to guarantee performance of the arrangement's obligations and, in such cases, generally obtains cross-indemnification from the other members of the arrangement.

In the ordinary course of business, the Company may guarantee obligations of its subsidiaries under certain contracts. Generally, the Company is liable under such an arrangement only if its subsidiary is unable to perform ~~under~~ its ~~contract.~~

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obligations. Historically, the Company has not incurred any substantial liabilities resulting from these guarantees. As of September 30, ~~2017,~~2019, the Company was not aware of any existing event of default that would require it to satisfy any of these guarantees.

Environmental Matters ~~-The~~- The estimated cost to complete environmental remediation has been accrued ~~where~~when it is probable that the Company will incur such costs in the future to address environmental conditions at currently or formerly owned or leased operating facilities, or at sites where it has been named a Potentially Responsible Party ("PRP") by the Environmental Protection Agency or similarly designated by another environmental agency, and the related costs can be estimated by management. These accruals do not include any litigation costs related to environmental matters, nor do they include amounts recorded as asset retirement obligations. To assess the potential impact on the Company's consolidated financial statements, management estimates the range of reasonably possible remediation costs that could be incurred by the Company, taking into account currently available facts on each site, as well as the current state of technology and prior experience in remediating contaminated sites. These estimates are reviewed periodically and adjusted to reflect changes in facts and technical and legal circumstances. Management ~~estimates~~estimated that as of September 30, ~~2017,~~2019, the probable estimable future cost for environmental remediation was ~~$1 million, which is accrued in other current liabilities.~~immaterial. Factors that could result in changes to the Company's estimates include: modification of planned remedial actions, increases or decreases in the estimated time required to remediate, changes to the determination of legally responsible parties, discovery of more extensive contamination than anticipated, changes in laws and regulations affecting remediation requirements, and improvements in remediation technology. Should other PRPs not pay their allocable share of remediation costs, the Company may incur costs exceeding those already estimated and accrued. In addition, there are certain potential remediation sites where the costs of remediation cannot be reasonably estimated. Although management cannot predict whether new information gained as ~~projects progress~~remediation progresses will materially affect the estimated liability accrued, management does not believe that future remediation expenditures will have a material effect on the Company's consolidated financial position, results of operations, or cash flows.

Financial Arrangements - In the ordinary course of business, HII uses standby letters of credit issued by commercial banks and surety bonds issued by insurance companies ~~principally~~primarily to support the Company's self-insured workers' compensation plans. As of September 30, ~~2017,~~2019, the Company had ~~$15~~$22 million in issued but undrawn standby letters of credit, ~~issued but undrawn,~~ as indicated in Note 13: Debt, and ~~$260~~$273 million of surety bonds outstanding.

U.S. Government Claims - From time to time, the U.S. Government communicates to the Company potential claims, disallowed costs, and penalties concerning prior costs incurred by the Company with which the U.S. Government disagrees. When such preliminary findings are presented, the Company and U.S. Government representatives engage in discussions, from which HII evaluates the merits of the claims and assesses the amounts being questioned. Although the Company believes that the resolution of any of these matters will not have a material effect on its consolidated financial position, results of operations, or cash flows, it cannot predict the ultimate outcome of these matters.

Collective Bargaining Agreements - Of the Company's approximately ~~37,000~~41,000 employees, approximately 50% are covered by a total of ~~nine~~9collective bargaining agreements and two site stabilization agreements. Newport News has ~~four~~4 collective bargaining agreements covering represented ~~employees. In July 2017, Newport News~~ employees, ~~represented by the United Steelworkers ratified a new~~which expire in December 2019, November 2020, November 2021, and December 2022. The collective bargaining agreement ~~with Newport News. The agreement which~~that expires in November 2021 covers approximately 50% of Newport News employees. In May 2017, Newport News reached agreement with the International Association of Machinists on a new collective bargaining agreement expiring in November 2020. The remaining two collective bargaining agreements at Newport News expire August 2018 and December 2018. Newport News craft workers employed at the Kesselring Site near Saratoga Springs, New York are represented under an indefinite Department of Energy ("DoE") site agreement. Ingalls has ~~five~~5 collective bargaining agreements covering represented employees, all of which expire in March ~~2018.~~2022. Approximately 3550 Technical Solutions ~~craft~~ employees at ~~the Hanford Site near Richland, Washington~~various locations are represented by unions and perform work under ~~an indefinite DoE site stabilization agreement.~~collective bargaining agreements. The Company believes its relationship with its employees is satisfactory.

Collective bargaining agreements generally expire after three years to five years and are subject to renegotiation at that time. The Company does not expect the results of these negotiations, either individually or in the aggregate, to have a material effect on the Company's consolidated results of operations.

~~16.~~17. EMPLOYEE PENSION AND OTHER POSTRETIREMENT BENEFITS

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

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The costs of the Company's defined benefit pension plans and other postretirement benefit plans for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~2018, were as follows:



	Three Months Ended September 30												Nine Months Ended September 30
	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
($ in millions)	2019			2018			2019			2018			2019			2018			2019			2018
Components of Net Periodic Benefit Cost
Service cost	$	36		$	39		$	2		$	2		$	108		$	118		$	5		$	6
Interest cost	69			63			5			5			208			190			15			15
Expected return on plan assets	(102		)	(107		)	—			—			(305		)	(322		)	—			—
Amortization of prior service cost (credit)	4			6			(5		)	(5		)	13			18			(16		)	(16		)
Amortization of net actuarial loss (gain)	29			20			(3		)	(1		)	85			61			(8		)	(2		)
Net periodic benefit cost	$	36		$	21		$	(1	)	$	1		$	109		$	65		$	(4	)	$	3

Three Months Ended
September 30 Nine Months Ended
September 30
Pension Benefits Other Benefits Pension Benefits Other Benefits
($ in millions) 2017 2016 2017 2016 2017 2016 2017 2016
Components of Net Periodic Benefit Cost
Service cost $ 37
$ 34
$ 3
$ 2
$ 108
$ 100
$ 8
$ 7
Interest cost 67
65
6
6
200
196
18
19
Expected return on plan assets (93 ) (87 ) —
—
(275 ) (260 ) —
—
Amortization of prior service cost (credit) 6
5
(6 ) (5 ) 14
14
(15 ) (14 )
Amortization of net actuarial loss (gain) 25
21
(1 ) (1 ) 73
63
(3 ) (4 )
Net periodic benefit cost $ 42
$ 38
$ 2
$ 2
$ 120

$ 113

$ 8

$ 8

The Company made the following contributions to its defined benefit pension plans and other postretirement benefit plans for the nine months ended September 30, ~~2017~~2019 and ~~2016~~2018:



	Nine Months Ended September 30
($ in millions)	2019		2018
Pension plans
Qualified minimum	$	—	$	—
Discretionary
Qualified	21		508
Non-qualified	5		6
Other benefit plans	23		23
Total contributions	$	49	$	537

Nine Months Ended
September 30
($ in millions) 2017 2016
Pension plans
Qualified minimum $ —
$ —
Discretionary
Qualified 294
167
Non-qualified 5
4
Other benefit plans 27
26
Total contributions $ 326
$ 197

~~The~~As of September 30, 2019, the Company anticipates no further significant cash contributions to its qualified defined benefit pension plans in ~~2017.~~2019.

In July 2017, the Company concluded negotiations on one of its collective bargaining agreements, which required an amendment to one of the Company's pension plans. As a result of the amendment, the remeasurement of the plan increased the pension liability and pre-tax accumulated other comprehensive loss by approximately ~~$76 million~~.

~~17.~~18. STOCK COMPENSATION PLANS

During the nine months endedSeptember 30, ~~2017~~2019 and ~~2016~~2018, the Company issued new stock awards as follows:

Restricted Performance Stock Rights - For the nine months ended September 30, ~~2017,~~2019, the Company granted approximately 0.1 million RPSRs at a weighted average share price of ~~$218.36.~~$210.24. These rights are subject to cliff vesting on December 31, ~~2019.~~2021. For the nine months ended September 30, ~~2016,~~2018, the Company granted approximately ~~0.2~~0.1 million RPSRs at a weighted average share price of ~~$133.08.~~$261.89. These rights are subject to cliff vesting on December 31, ~~2018. The~~2020. All of the RPSRs are subject to the achievement of performance-based targets at the end of the respective vesting periods and will ultimately vest between 0% and 200% of grant date value.

For the nine months ended September 30, ~~2017~~2019 and ~~2016, 0.4~~2018, 0.3 million and ~~0.8~~0.2 million stock awards vested, respectively, of which approximately ~~0.2~~0.1 million ~~and 0.3 million, respectively,~~for each year were transferred to the Company from employees in satisfaction of minimum tax withholding obligations.

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The following table summarizes the status of the Company's outstanding stock awards as of September 30, ~~2017~~.2019:



	Stock Awards (in thousands)	Weighted-Average Grant Date Fair Value		Weighted-Average Remaining Contractual Term (in years)
Total stock awards	371	$	201.91	1.1

Stock Awards
(in thousands)

Weighted-Average
Grant Date Fair
Value

Weighted-Average Remaining Contractual Term
(in years)
Total stock awards 446
$ 146.83
1.0

Compensation Expense

The Company recorded stock-based compensation for the value of awards granted to Company employees and non-employee members of the board of directors for the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, of $7 million and $11 million, respectively. The Company recorded stock-based compensation for the value of awards granted to Company employees and non-employee members of the board of directors for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, of $19 million and $27 million, ~~and $22 million,~~ respectively.

The Company ~~recognized total~~recorded tax benefits ~~for stock-based compensation in the unaudited condensed consolidated statements~~related to stock awards of ~~operations~~$1 million and ~~comprehensive income (loss)~~$3 million for the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. The Company recorded tax benefits related to stock awards of $3 million and $4$6 million ~~respectively. The Company recognized total tax benefits for stock-based compensation in the unaudited condensed consolidated statements of operations and comprehensive income (loss)~~ for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. The Company recognized tax benefits associated with the issuance of ~~$35~~stock in settlement of stock awards for the three months ended September 30, 2019 and 2018, of less than $1 million. The Company recognized tax benefits associated with the issuance of stock in settlement of stock awards for the nine months ended September 30, 2019 and 2018, of $5 million and ~~$31~~$7 million, respectively.

Unrecognized Compensation Expense

As of September 30, ~~2017~~2019, the Company had less than $1 million of unrecognized compensation expense associated with Restricted Stock Rights granted in 2018, which will be recognized over a weighted average period of 1.4 years, and $33 million of unrecognized compensation expense associated with RPSRs granted in 2019, 2018, and 2017, which will be recognized over a weighted average period of ~~1.7 years, and $32 million of unrecognized compensation expense associated with RPSRs granted in 2017, 2016, and 2015, which will be recognized over a weighted average period of 1.1~~1.4 years.

19. SUBSIDIARY GUARANTORS

As described in Note 13: Debt, the Company issued senior notes through the consolidating parent company, HII. Performance of the Company's obligations under its senior notes outstanding as of September 30, 2019, and December 31, 2018, including any repurchase obligations resulting from a change of control, is fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by each of HII's existing and future material domestic subsidiaries ("Subsidiary Guarantors"). The Subsidiary Guarantors are 100% owned by HII. Under SEC Regulation S-X Rule 3-10, each HII subsidiary that did not provide a guarantee ("Non-Guarantors") is minor and HII, as the parent company issuer, did not have independent assets or operations. There are no significant restrictions on the ability of the parent company and the Subsidiary Guarantors to obtain funds from their respective subsidiaries by dividend or loan, except those imposed by applicable law.

Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

Our Business

Huntington Ingalls Industries, Inc. ("HII", "we", "us", or "our") is ~~one of~~ America’s largest military shipbuilding ~~companies~~company and a provider of professional services to partners in government and industry. For more than a century,

our Ingalls segment in Mississippi and Newport News ~~segments~~segment in ~~Mississippi and~~ Virginia have built more ships in more ship classes than any other U.S. naval shipbuilder. We also provide a range of services to the governmental, energy, and oil and gas markets through our Technical Solutions segment. Headquartered in Newport News, Virginia, HII employs approximately 41,000 people domestically and internationally.

We conduct most of our business with the U.S. Government, ~~principally~~primarily the DoD. As prime contractor, principal subcontractor, team member, or partner, we participate in many high-priority U.S. defense technology programs.

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Ingalls includes our non-nuclear ship design, construction, repair, and maintenance businesses. Newport News includes all of our nuclear ship design, construction, overhaul, refueling, and repair and maintenance businesses. Our Technical Solutions segment ~~was established in December 2016 and~~ provides a wide range of professional services, including fleet support, ~~integrated mission solutions, and~~MDIS, nuclear and environmental, and oil and gas services.

The following discussion should be read along with the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

Business Environment

In August 2011, the Budget Control Act (the "BCA") established limits on U.S. Government discretionary spending, including a reduction of defense spending by approximately $487 billion for fiscal years 2012 through 2021. The BCA also provided that the defense budget would face “sequestration” cuts of up to an additional $500 billion during that same period, to the extent that discretionary spending limits are exceeded, and $500 billion for non-defense discretionary spending, including the U.S. Coast Guard.

The ~~Bipartisan~~Bi-Partisan Budget Act ("BBA") of ~~2015 (the "BBA 2015")~~2018 provided sequestration relief for fiscal years ~~2016~~2018 and ~~2017, but~~2019 and raised the budget topline for defense and non-defense discretionary spending. Subsequently, the BBA of 2019 provided sequestration ~~remains in effect~~relief for fiscal years ~~2018~~2020 and 2021, and once again raised the topline for defense and non-defense discretionary spending. Even though the 2019 BBA provides budgetary relief through ~~2021. Long-term~~2021, the final year of sequestration, long-term uncertainty remains with respect to overall levels of defense spending across the future years' defense plan, and it is likely that U.S. Government discretionary spending levels will continue to be subject to significant ~~pressure despite the~~pressure.

The President's ~~January 2017 executive order indicating the new Administration's desire to increase investment in readiness and modernization.~~

~~While we are encouraged that an Omnibus Appropriations package~~budget request for fiscal year ~~2017~~2020 was ~~finalized~~released on March 11, 2019, and is under consideration by Congress. While the budget request reflects continued investment in submarines, destroyers, aircraft carriers, amphibious warships, and autonomous platforms, the budget request proposed canceling the refueling and complex overhaul of USS Harry S. Truman (CVN 75). The Administration subsequently announced in April 2019 that USS Harry S. Truman (CVN 75) would be refueled.

While the ~~President's Budget Request~~2019 BBA established new funding levels for ~~2018 continues to fund key shipbuilding programs, the U.S. Government has not yet approved a budget~~defense and non-defense discretionary spending for fiscal year ~~2018~~2020, respective appropriations measures must still be passed by Congress and ~~is currently operating under a short-term Continuing Resolution, which funds government operations through December 8, 2017.~~enacted by the President. We cannot predict the outcome of the fiscal year 2020 budget process. We also cannot predict the impact ~~that sequestration cuts or~~ reprioritization of readiness and modernization investment may have on funding for our individual programs. Long-term funding for certain programs in which we participate may be reduced, delayed, or canceled. In addition, spending cuts and/or reprioritization of defense investment could adversely affect the viability of our suppliers, ~~and~~ subcontractors, and employee base. Our contracts or subcontracts under programs in which we participate may be terminated or adjusted by the U.S. Government or the prime contractor as a result of lack of government funding or reductions or delays in government funding. Significant reductions in the number of ships procured by the U.S. Navy or significant delays in funding our ship programs would have a material effect on our financial position, results of operations, or cash flows.

The budget environment ~~including sequestration as currently mandated,~~ remains a significant long-term risk. Considerable uncertainty exists regarding how future budget and program decisions will develop and what challenges budget changes will present for the defense industry. We believe continued budget pressures ~~that result from sequestration~~ will have serious ~~negative consequences~~implications for ~~the security of our country,~~defense discretionary spending, the defense industrial base, including us, and the customers, employees, suppliers, subcontractors, investors, and communities that rely on companies in the defense industrial base. Although it is difficult to determine specific impacts, we expect that over the longer term, the budget environment may result in fewer contract awards and lower revenues, profits, and cash flows from our U.S. Government contracts. ~~Congress and the new Administration continue to discuss various options to address sequestration in future budget planning, but we cannot predict the outcome of these efforts.~~ It is likely that budget and program decisions made in this environment will have long-term impacts on us and the entire defense industry.

Critical Accounting Policies, Estimates, and Judgments

As discussed in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2018, we consider ~~the~~our policies relating to the following matters to be critical accounting policies:

Revenue recognition;

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Purchase accounting, goodwill, and intangible assets;

Litigation, commitments, and contingencies;

Retirement related benefit plans; and

Workers' compensation.

Most of our revenues are derived from long-term contracts for the production of goods and services provided to the federal government, which are accounted for in conformity with accounting principles generally accepted in the United States of America ("GAAP") for construction-type and production-type contracts and federal government contractors. We also have other types of contracts, such as services or commercial arrangements, for which revenues are recognized upon delivery or as services are rendered once persuasive evidence of an arrangement exists, the price is fixed or determinable, and collectibility is reasonably assured. Costs related to these contracts are expensed as incurred.

As of September 30, ~~2017~~,2019, there had been no material changes to the foregoing critical accounting policies, estimates, and judgments since December 31, ~~2016~~.2018.

Contracts

We generate most of our revenues from long-term U.S. Government contracts for design, production, and support activities. Government contracts typically include the following cost elements: direct material, labor and subcontracting costs, and certain indirect costs, including allowable general and administrative expenses. Unless otherwise specified in a contract, costs billed to contracts with the U.S. Government are treated as allowable and allocable costs under the Federal Acquisition Regulation ("FAR") and the U.S. Cost Accounting Standards ("CAS") regulations. Examples of costs incurred by us that are not allowable under the FAR and CAS regulations include certain legal costs, lobbying costs, charitable donations, interest expense, and advertising costs.

We monitor our policies and procedures with respect to our contracts on a regular basis to ensure consistent application under similar terms and conditions, as well as compliance with all applicable government regulations. In addition, the Defense Contract Audit Agency routinely audits the costs we incur that are allocated to contracts with the U.S. Government.

Our ~~long-term~~ contracts typically fall into one of ~~two broad~~four categories:

~~Flexibly-Priced Contracts~~ ~~- Includes both~~ firm fixed-price, fixed-price incentive, cost-type, and fixed-price incentive contracts. Cost-type contracts provide for reimbursement of the contractor's allowable costs plus a fee that represents profit. Cost-type contracts generally require that the contractor use its reasonable efforts to accomplish the scope of the work within some specified time and some stated dollar limitation. Fixed-price incentive contracts also provide for reimbursement of the contractor's allowable costs, but are subject to a cost-share limit that affects profitability. Fixed-price incentive contracts effectively become firm fixed-price contracts once the cost-share limit is reached. Approximately 93% and 97% of our revenues for the three months ended September 30, 2017 and 2016, respectively, were generated from flexibly-priced contracts. Approximately 93% and 97% of our revenues for the nine months ended September 30, 2017 and 2016, respectively, were generated from flexibly-priced contracts.

materials. See Note 8: Revenue.


•	Firm Fixed-Price Contracts - A firm fixed-price contract is a contract in which the specified scope of work is agreed to for a price that is predetermined by bid or negotiation and not generally subject to adjustment regardless of costs incurred by the contractor.


•	Fixed-Price Incentive Contracts - Fixed-price incentive contracts provide for reimbursement of the contractor's allowable costs, but are subject to a cost-share limit that affects profitability. Fixed-price incentive contracts effectively become firm fixed-price contracts once the cost-share limit is reached.


•	Cost-Type Contracts - Cost-type contracts provide for reimbursement of the contractor's allowable costs plus a fee that represents profit. Cost-type contracts generally require that the contractor use its reasonable efforts to accomplish the scope of the work within some specified time and some stated dollar limitation.


•	Time and Materials - Time and materials contracts specify a fixed hourly billing rate for each direct labor hour expended and reimbursement for allowable material costs and expenses.

~~Firm Fixed-Price Contracts~~ - A firm fixed-price contract is a contract in which the specified scope of work is agreed to for a price that is predetermined by bid or negotiation and not generally subject to adjustment regardless of costs incurred by the contractor. Time and materials contracts, which specify a fixed hourly rate for each labor hour charged, are considered firm fixed-price contracts. Approximately 7% and 3% of our revenues for the three months ended September 30, 2017 and 2016, respectively, were generated from

~~firm fixed-price arrangements. Approximately 7% and 3% of our revenues for the nine months ended September 30, 2017 and 2016, respectively, were generated from firm fixed-price arrangements.~~

Contract Fees - Negotiated contract fee structures ~~for both flexibly-priced and firm fixed-price contracts~~ include: fixed fee amounts, cost sharing arrangements to reward or penalize contractors for under or over cost target performance, respectively, positive award fees, and negative penalty arrangements. Profit margins may vary materially depending on the negotiated contract fee arrangements, percentage-of-completion of the contract, the achievement of performance objectives, and the stage of performance at which the right to receive fees, particularly under incentive and award fee contracts, is finally determined.

Award Fees - Certain contracts contain award fees based on performance criteria such as cost, schedule, quality, and technical performance. Award fees are determined and earned based on an evaluation by the customer of our performance against such negotiated criteria. ~~Fees that we~~We consider award fees to be variable consideration and generally include these fees in the transaction price using a most likely amount approach. Award fees are ~~reasonably assured~~limited to the extent of ~~collecting~~funding allotted by the customer and ~~can be reasonably estimated are recorded over the~~available for performance ~~period~~and those amounts for which a significant reversal of ~~the contract.~~revenue is not probable.

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Program Descriptions

For convenience, a brief description of certain programs discussed in this Quarterly Report on Form 10-Q is included in the "Glossary of Programs" in this section.

CONSOLIDATED OPERATING RESULTS

~~Selected~~The following table presents selected financial ~~highlights are presented in the following table:~~highlights:


	Three Months Ended									Nine Months Ended										Three Months Ended											Nine Months Ended
	September 30				2017 over 2016					September 30					2017 over 2016					September 30						2019 over 2018					September 30						2019 over 2018
($ in millions)	2017		2016		Dollars			Percent		2017		2016			Dollars			Percent		2019			2018			Dollars			Percent		2019			2018			Dollars			Percent
Sales and service revenues	$	1,863	$	1,683	$	180		11	%	$	5,445	$	5,146		$	299		6	%	$	2,219		$	2,083		$	136		7	%	$	6,487		$	5,977		$	510		9	%
Cost of product sales and service revenues	1,498		1,367		131			10	%	4,420		4,128			292			7	%	1,802			1,593			209			13	%	5,388			4,656			732			16	%
Income (loss) from operating investments, net	7		6		1			17	%	10		7			3			43	%
Income from operating investments, net																				6			8			(2		)	(25	)%	15			12			3			25	%
Other income and gains																				—			—			—			—	%	—			14			(14		)	(100	)%
General and administrative expenses	135		147		(12		)	(8	)%	397		435			(38		)	(9	)%	209			208			1			—	%	564			609			(45		)	(7	)%
Operating income (loss)	237		175		62			35	%	638		590			48			8	%
Operating income																				214			290			(76		)	(26	)%	550			738			(188		)	(25	)%
Other income (expense)
Interest expense	18		19		(1		)	(5	)%	53		56			(3		)	(5	)%	(18		)	(14		)	(4		)	(29	)%	(52		)	(44		)	(8		)	(18	)%
Other income (expense)	1		1		—			—	%	—		(1		)	1			100	%
Non-operating retirement benefit																				3			19			(16		)	(84	)%	8			56			(48		)	(86	)%
Other, net																				(1		)	—			(1		)	—	%	5			2			3			150	%
Federal and foreign income taxes	71		50		21			42	%	170		157			13			8	%	44			66			(22		)	(33	)%	111			128			(17		)	(13	)%
Net earnings (loss)	$	149	$	107	$	42		39	%	$	415	$	376		$	39		10	%
Net earnings																				$	154		$	229		$	(75	)	(33	)%	$	400		$	624		$	(224	)	(36	)%

Operating Performance Assessment and Reporting

We manage and assess the performance of our business based on our performance on individual contracts and programs using the financial measures referred to below, with consideration given to the Critical Accounting Policies, Estimates, and Judgments referred to in this section. Our portfolio of long-term contracts is ~~primarily~~largely flexibly-priced. ~~As a result,~~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. 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 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 ~~bid based upon~~by focusing on net sales and operating profit and monitors ~~contract~~ performance in a similar manner through contract completion. Consequently, our discussion of business segment performance focuses on net sales and operating profit, consistent with our approach for managing our business.

Cost of sales for both product sales and service revenues consists of materials, labor, and subcontracting costs, as well as an allocation of indirect costs for overhead. We manage the type and amount of costs at the contract level, which is the basis for estimating our total costs at completion of our contracts. Unusual fluctuations in operating performance driven by changes in a specific cost element across multiple contracts are described in our analysis.

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Sales and Service Revenues

Sales and service revenues were comprised as follows:


	Three Months Ended								Nine Months Ended									Three Months Ended									Nine Months Ended
	September 30				2017 over 2016				September 30				2017 over 2016					September 30				2019 over 2018					September 30				2019 over 2018
($ in millions)	2017		2016		Dollars		Percent		2017		2016		Dollars			Percent		2019		2018		Dollars			Percent		2019		2018		Dollars		Percent
Product sales	$	1,391	$	1,327	$	64	5	%	$	4,088	$	4,120	$	(32	)	(1	)%	$	1,545	$	1,547	$	(2	)	—	%	$	4,555	$	4,416	$	139	3	%
Service revenues	472		356		116		33	%	1,357		1,026		331			32	%	674		536		138			26	%	1,932		1,561		371		24	%
Sales and service revenues	$	1,863	$	1,683	$	180	11	%	$	5,445	$	5,146	$	299		6	%	$	2,219	$	2,083	$	136		7	%	$	6,487	$	5,977	$	510	9	%

Product sales for the three months ended September 30, ~~2017, increased $64~~2019, decreased $2 million, ~~or 5%,~~ compared with the same period in ~~2016.~~2018. Product sales for the nine months ended September 30, ~~2017, decreased $32~~2019, increased $139 million, or 1%3%, compared with the same period in ~~2016.~~2018. Ingalls product sales ~~increased $13~~decreased $52 million for the three months ended September 30, ~~2017,~~2019, primarily as a result of ~~higher~~lower volumes in the Legend class NSC program and amphibious assault ships, partially offset by ~~lower volumes~~higher volume in ~~the~~ ~~Legend~~ ~~class NSC program and~~ surface combatants. Ingalls product sales ~~increased $15~~decreased $69 million for the nine months ended September 30, ~~2017,~~2019, primarily as a result of ~~higher~~lower volumes in the Legend class NSC program, amphibious assault ships, and ~~the~~ ~~Legend~~ ~~class NSC program, offset by lower volumes in~~ surface combatants. Newport News product sales increased ~~$47~~$61 million and $226 million for the three and nine months ended September 30, ~~2017,~~2019, respectively, primarily as a result of higher volumes in aircraft carriers and submarines. Newport News product sales increased $15 million for the nine months ended September 30, 2017, primarily as a result of higher volumes in aircraft carriers, partially offset by lower volumes in submarines. Technical Solutions product sales increased $4 million for the three months ended September 30, 2017, primarily as a result of higher volumes on nuclear and environmental products. Technical Solutions product sales decreased $62 million for the nine months ended September 30, 2017, primarily as a result of higher volumes in 2016 due to the resolution of outstanding contract changes on a nuclear and environmental commercial contract.

Service revenues for the three months ended September 30, 2017, increased $116 million, or 33%, compared with the same period in 2016. Service revenues for the nine months ended September 30, 2017, increased $331 million, or 32%, compared with the same period in 2016. Ingalls service revenues increased $3$11 million and ~~$19~~$18 million for the three and nine months ended September 30, ~~2017,~~2019, respectively, primarily as a result of ~~higher~~lower volumes ~~in surface combatants services. Newport News service~~on nuclear and environmental products.

Service revenues ~~increased $27 million~~ for the three months ended September 30, ~~2017, primarily as a result of higher volumes~~2019, increased $138 million, or 26%, compared with the same period in ~~naval nuclear support services and aircraft carriers services. Newport News service~~2018. Service revenues ~~increased $40 million~~ for the nine months ended September 30, ~~2017, primarily as a result of higher volumes~~2019, increased $371 million, or 24%, compared with the same period in ~~naval nuclear support services and aircraft carriers services, partially offset by lower volumes in submarines services. Technical Solutions~~2018. Ingalls service revenues increased ~~$86~~$6 million and ~~$272~~$14 million for the three and nine months ended September 30, ~~2017,~~2019, respectively, as a result of higher volumes in amphibious assault ship services, partially offset by lower volume in surface combatant services. Newport News service revenues increased $24 million for the three months ended September 30, 2019, primarily as a result of higher volumes in ~~integrated mission solutions~~aircraft carrier, submarine, and naval nuclear support services. Newport News service revenues increased $127 million for the nine months ended September 30, 2019, primarily as a result of higher volumes in aircraft carrier and naval nuclear support services, ~~following~~partially offset by lower volume in submarine services. Technical Solutions service revenues increased $108 million and $230 million for the ~~acquisition~~three and nine months ended September 30, 2019, respectively, primarily as a result of ~~Camber~~the addition of Fulcrum and G2, as well as higher volumes in fleet support and oil and gas services.

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Cost of Sales and Service Revenues

Cost of product sales, cost of service revenues, income from operating investments, net, and general and administrative expenses were as follows:


	Three Months Ended											Nine Months Ended											Three Months Ended											Nine Months Ended
	September 30						2017 over 2016					September 30						2017 over 2016					September 30						2019 over 2018					September 30						2019 over 2018
($ in millions)	2017			2016			Dollars			Percent		2017			2016			Dollars			Percent		2019			2018			Dollars			Percent		2019			2018			Dollars			Percent
Cost of product sales	$	1,105		$	1,059		$	46		4	%	$	3,279		$	3,241		$	38		1	%	$	1,246		$	1,159		$	87		8	%	$	3,754		$	3,369		$	385		11	%
% of product sales	79.4		%	79.8		%						80.2		%	78.7		%						80.6		%	74.9		%						82.4		%	76.3		%
Cost of service revenues	393			308			85			28	%	1,141			887			254			29	%	556			434			122			28	%	1,634			1,287			347			27	%
% of service revenues	83.3		%	86.5		%						84.1		%	86.5		%						82.5		%	81.0		%						84.6		%	82.4		%
Income (loss) from operating investments, net	7			6			1			17	%	10			7			3			43	%
Income from operating investments, net																							6			8			(2		)	(25	)%	15			12			3			25	%
Other income and gains																							—			—			—			—	%	—			14			(14		)	(100	)%
General and administrative expenses	135			147			(12		)	(8	)%	397			435			(38		)	(9	)%	209			208			1			—	%	564			609			(45		)	(7	)%
% of sales and service revenues	7.2		%	8.7		%						7.3		%	8.5		%						9.4		%	10.0		%						8.7		%	10.2		%
Cost of sales and service revenues	$	1,626		$	1,508		$	118		8	%	$	4,807		$	4,556		$	251		6	%	$	2,005		$	1,793		$	212		12	%	$	5,937		$	5,239		$	698		13	%

Cost of Product Sales

Cost of product sales for the three months ended September 30, ~~2017,~~2019, increased ~~$46~~$87 million, or 4%8%, compared with the same period in ~~2016.~~2018. Cost of product sales for the nine months ended September 30, ~~2017,~~2019, increased ~~$38~~$385 million, or 1%11%, compared with the same period in ~~2016.~~2018. Ingalls cost of product sales ~~increased $16~~decreased $27 million for the three months ended September 30, ~~2017,~~2019, primarily as a result of ~~lower risk retirement in the~~ ~~Legend~~ ~~class NSC program and~~ the volume changes described above. Ingalls cost of product sales increased ~~$56~~$13 million for the nine months ended September 30, ~~2017,~~2019, primarily as a result of lower risk retirement in amphibious assault ships, partially offset by the ~~San Antonio~~ ~~class (LPD 17) program, following delivery of USS~~ ~~John P. Murtha~~ ~~(LPD 26) in 2016,~~lower volumes described above, as well as one time employee bonus payments in 2018 related to the ~~volume changes described above, partially offset by higher risk retirement on~~ ~~Tripoli~~ ~~(LHA 7) and the~~ ~~Legend~~ ~~class NSC program.~~Tax Act. Newport News cost of product sales increased ~~$43~~$89 million for the three months ended September 30, ~~2017,~~2019, primarily as a result of the volume ~~changes~~increases described ~~above, partially offset by the resolution of outstanding contract changes on the RCOH of USS~~ ~~Abraham Lincoln~~ ~~(CVN 72).~~above. Newport News cost of product sales increased ~~$33~~$296 million for the nine months ended September 30, ~~2017,~~2019, primarily as a result of the volume increases described above and lower ~~risk retirement in~~performance on the Virginia class (SSN 774) submarine program, ~~and the volume changes described above,~~ partially offset by one time employee bonus payments in 2018 related to the ~~resolution of outstanding contract changes on the RCOH of USS~~ ~~Abraham Lincoln~~ ~~(CVN 72).~~Tax Act. Technical Solutions cost of product sales decreased ~~$13~~$15 million and $23 million for the three ~~months ended September 30, 2017, primarily due to the release of a portion of an accounts receivable allowance on a nuclear~~ and ~~environmental commercial contract. Technical Solutions cost of product sales decreased $51 million for the~~ nine months ended September 30, ~~2017,~~2019, respectively, primarily due to the resolution in 2016 of outstanding contract changes on a nuclear and environmental commercial contract, partially offset by the establishment of an allowance for accounts receivable on a nuclear and environmental commercial contract in 2017.

lower volumes described above. Cost of product sales ~~as a percentage of product sales decreased from 79.8%~~related to the Operating FAS/CAS Adjustment increased $40 million and $99 million for the three and nine months ended September 30, ~~2016, to 79.4% for the three months ended September 30, 2017. This decrease was primarily due to the resolution of outstanding contract changes on the RCOH of USS~~ ~~Abraham Lincoln~~ ~~(CVN 72) and the release of a portion of an accounts receivable allowance on a nuclear and environmental commercial contract, partially offset by lower risk retirement in the~~ ~~Legend~~ ~~class NSC program and year-to-year variances in contract mix.~~ 2019, respectively, as described below.

Cost of product sales as a percentage of product sales increased from ~~78.7%~~74.9% for the three months ended September 30, 2018, to 80.6% for the three months ended September 30, 2019. This increase was primarily due to an unfavorable change in the Operating FAS/CAS Adjustment, a workers' compensation benefit in 2018, lower risk retirement on the Legend class NSC program, and year-to-year variances in contract mix, partially offset by improved performance on nuclear and environmental contracts. Cost of product sales as a percentage of product sales increased from 76.3% for the nine months ended September 30, ~~2016,~~2018, to ~~80.2%~~82.4% for the nine months ended September 30, ~~2017.~~2019. This increase was primarily due to an unfavorable change in the Operating FAS/CAS Adjustment, a workers' compensation benefit in 2018, lower risk retirement inon the San Antonio class ~~(LPD~~(LPD 17) program, ~~following delivery of USS~~ ~~John P. Murtha~~ ~~(LPD 26) in 2016, and~~lower performance on the Virginia class (SSN 774) submarine program, ~~as well as the establishment of an allowance for accounts receivable on a nuclear~~ and ~~environmental commercial~~year-to-year variances in contract mix, partially offset by ~~higher risk retirement~~one time employee bonus payments in 2018 related to the ~~Legend~~ ~~class NSC program and on~~ ~~Tripoli~~ ~~(LHA 7) and the resolution of outstanding contract changes on the RCOH of USS~~ ~~Abraham Lincoln~~ ~~(CVN 72).~~Tax Act.

Cost of Service Revenues

Cost of service revenues for the three months ended September 30, ~~2017,~~2019, increased ~~$85~~$122 million, or 28%, compared with the same period in ~~2016.~~2018. Cost of service revenues for the nine months ended September 30, ~~2017,~~2019, increased ~~$254~~$347 million, or ~~29%~~27%, compared with the same period in ~~2016.~~2018. Ingalls cost of service revenues ~~remained constant~~ for the

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three months ended September 30, ~~2017.~~2019, were consistent with the prior year primarily as a result of improved performance on surface combatant services, offset by the volume changes described above. Ingalls cost of service revenues ~~increased $6~~decreased $1 million for the nine months ended September 30, ~~2017,~~2019, primarily as a result of improved performance on surface combatant services and the ~~higher volumes~~recognition in 2018 of a loss on a long-term design contract, partially offset by the volume changes described above. Newport News cost of service revenues increased $6$14 million and $9$90 million for the three and nine months ended September 30, ~~2017, respectively,~~2019, primarily as a result of the volume changes described above. Technical Solutions cost of service revenues increased $98 million for the three months ended September 30, 2019, primarily as a result of the higher volume described above. Technical Solutions cost of service revenues increased $233 million for the nine months ended September 30, 2019, primarily as a result of the volume changes described above and a loss on a fleet support services contract, partially offset by one time employee bonus payments in 2018 related to the ~~resolution of outstanding contract changes on the inactivation of the decommissioned USS~~ ~~Enterprise~~ ~~(CVN 65). Technical Solutions cost~~Tax Act. Cost of service revenues related to the Operating FAS/CAS Adjustment increased ~~$79~~$10 million and ~~$239~~$25 million for the three and nine months ended September 30, ~~2017,~~2019, respectively, ~~primarily due to the higher volumes~~as described ~~above.~~below.

Cost of service revenues as a percentage of service revenues ~~decreased~~increased from ~~86.5% for the~~ ~~three months ended~~ ~~September 30, 2016, to 83.3%~~81.0% for the three months ended September 30, ~~2017,~~2018, to 82.5% for the three months ended September 30, 2019, primarily driven by unfavorable change in the ~~resolution of outstanding~~Operating FAS/CAS Adjustment, partially offset by contract changes on ~~the inactivation of the decommissioned USS~~ ~~Enterprise~~ ~~(CVN 65),~~submarine support services, improved performance ~~in oil and gas~~on surface combatant services, and year-to-year variances in contract mix. Cost of service revenues as a percentage of service revenues ~~decreased~~increased from ~~86.5%~~82.4% for the nine months ended September 30, ~~2016,~~2018, to ~~84.1%~~84.6% for the nine months ended September 30, ~~2017,~~2019, primarily driven by an unfavorable change in the ~~resolution of outstanding~~Operating FAS/CAS Adjustment, a loss on a fleet support services contract, ~~changes on the inactivation of the decommissioned USS~~ ~~Enterprise~~ ~~(CVN 65), improved performance in oil and gas services,~~ and year-to-year variances in contract ~~mix.~~mix, partially offset by contract changes on submarine support services, one time employee bonus payments in 2018 related to the Tax Act, and the recognition in 2018 of a loss on a long-term design contract.

Income (Loss) from Operating Investments, Net

The activities of our operating investments are closely aligned with the operations of the segments holding the investments. We therefore record income related to earnings from equity method investments in our operating income.

Income from operating investments, net for the three months ended September 30, 2019, decreased $2 million, primarily due to lower equity income from our nuclear and environmental joint ventures. Income from operating investments, net for the nine months ended September 30, ~~2017,~~2019, increased ~~$1 million and~~ $3 million, ~~respectively, compared~~primarily due to ~~the same periods in 2016, as a result of~~ higher equity income from our ~~Savannah River Nuclear Solutions, LLC investment.~~nuclear and environmental joint ventures.

Other Income and Gains

Other income and gains for the nine months ended September 30, 2019, decreased $14 million from the same period in 2018, primarily as a result of recoveries related to a settlement agreement at our Ingalls segment in 2018.

General and Administrative Expenses

In accordance with industry practice and the regulations that govern the cost accounting requirements for government contracts, most general and administrative expenses are considered allowable and allocable costs on government contracts. 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, 2019, increased $1 million from the same period in 2018, primarily driven by the addition of Fulcrum and G2, partially offset by lower current state income tax expense and overhead costs. General and administrative expenses for the nine months ended September 30, ~~2017,~~2019, decreased ~~$12~~$45 million ~~and $38 million, respectively, compared with~~from the same ~~periods~~period in ~~2016,~~2018, primarily driven by ~~favorable~~lower current state income tax expense and overhead costs, partially offset by the addition of Fulcrum and G2 and unfavorable changes in ~~the FAS/CAS Adjustment and lower~~ non-current state income tax ~~expense, partially offset by higher current state income tax~~ expense.

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Operating Income

We consider operating income to be an important measure for evaluating our operating performance, and, as is typical in the industry, we define operating income as revenues less the related cost 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 segment ~~performance because neither is an allowable cost under our contracts with the U.S. Government.~~performance. Segment operating income is not a recognized measure under GAAP. 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.

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

The following table reconciles ~~segment~~ operating income to segment operating income:

Three Months Ended Nine Months Ended
September 30 2017 over 2016 September 30 2017 over 2016
($ in millions) 2017 2016 Dollars Percent 2017 2016 Dollars Percent
Segment operating income (loss) $ 192
$ 140
$ 52
37 % $ 499
$ 490
$ 9
2 %
FAS/CAS Adjustment 46
37
9
24 % 144
107
37
35 %
Non-current state income taxes (1 ) (2 ) 1
50 % (5 ) (7 ) 2
29 %
Operating income (loss) $ 237
$ 175
$ 62
35 % $ 638
$ 590
$ 48
8 %



	Three Months Ended											Nine Months Ended
	September 30						2019 over 2018					September 30						2019 over 2018
($ in millions)	2019			2018			Dollars			Percent		2019			2018			Dollars			Percent
Operating income	$	214		$	290		$	(76	)	(26	)%	$	550		$	738		$	(188	)	(25	)%
Operating FAS/CAS Adjustment	(23		)	(73		)	50			68	%	(94		)	(218		)	124			57	%
Non-current state income taxes	—			—			—			—	%	2			(5		)	7			140	%
Segment operating income	$	191		$	217		$	(26	)	(12	)%	$	458		$	515		$	(57	)	(11	)%

Segment Operating Income

Segment operating income for the three months ended September 30, ~~2017,~~2019, was ~~$192~~$191 million, ~~an increase~~a decrease of ~~$52~~$26 million from the same period in ~~2016.~~2018. The ~~increase~~decrease was primarily due to a workers' compensation benefit in 2018 and lower risk retirement on the ~~resolution of outstanding~~Legend class NSC program, partially offset by contract changes on ~~the inactivation of the decommissioned USS~~ ~~Enterprise~~ ~~(CVN 65) and the RCOH of USS~~ ~~Abraham Lincoln~~ ~~(CVN 72), higher risk retirement on~~ ~~Portland~~ ~~(LPD 27), and the release of a portion of an accounts receivable allowance on a nuclear and environmental commercial contract, partially offset by lower risk retirement in the~~ ~~Legend~~ ~~class NSC program.~~

submarine support services. Segment operating income for the nine months ended September 30, ~~2017,~~2019, was ~~$499~~$458 million, ~~an increase~~a decrease of $9$57 million from the same period in ~~2016.~~2018. The ~~increase~~decrease was primarily due to ~~higher risk retirement on~~ ~~Tripoli~~ ~~(LHA 7), the~~ ~~Legend~~ ~~class NSC program, and~~ ~~Portland~~ ~~(LPD 27), the resolution of outstanding contract changes on the inactivation of the decommissioned USS~~ ~~Enterprise~~ ~~(CVN 65) and the RCOH of USS~~ ~~Abraham Lincoln~~ ~~(CVN 72), and improved performance in oil and gas services, partially offset by~~ lower risk retirement on the ~~delivered USS~~ ~~John P. Murtha~~ ~~(LPD 26) and~~San Antonio class(LPD 17) program, a workers' compensation benefit in 2018, lower performance on the Virginia class (SSN 774) submarine program, as well as ~~the establishment of an allowance for accounts receivable~~a loss on a fleet support services contract, and recoveries related to a settlement agreement in 2018, partially offset by higher volume at our Newport News segment, contract changes on submarine support services, higher equity income from our nuclear and environmental ~~commercial contract~~joint ventures, and one time employee bonus payments in ~~2017~~.2018 related to the Tax Act.

Activity within each segment is discussed in Segment Operating Results below.

FAS/CAS Adjustment and Operating FAS/CAS Adjustment

The FAS/CAS Adjustment ~~represents~~reflects the difference between ~~our~~expenses for pension and other postretirement benefits determined in accordance with GAAP ("FAS") and the expenses determined in accordance with U.S. Cost Accounting Standards ("CAS"). The Operating FAS/CAS Adjustment excludes the following components of net periodic benefit costs: interest cost, expected return on plan ~~expense under FAS~~assets, amortization of prior service cost (credit) and ~~under CAS.~~actuarial loss (gain), and settlement and curtailment effects.

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


	Three Months Ended											Nine Months Ended											Three Months Ended											Nine Months Ended
	September 30						2017 over 2016					September 30						2017 over 2016					September 30						2019 over 2018					September 30						2019 over 2018
($ in millions)	2017			2016			Dollars			Percent		2017			2016			Dollars			Percent		2019			2018			Dollars			Percent		2019			2018			Dollars			Percent
FAS expense	$	(44	)	$	(40	)	$	(4	)	(10	)%	$	(128	)	$	(121	)	$	(7	)	(6	)%	$	(35	)	$	(22	)	$	(13	)	(59	)%	$	(105	)	$	(68	)	$	(37	)	(54	)%
CAS cost	90			77			13			17	%	272			228			44			19	%	61			114			(53		)	(46	)%	207			342			(135		)	(39	)%
FAS/CAS Adjustment	$	46		$	37		$	9		24	%	$	144		$	107		$	37		35	%	26			92			(66		)	(72	)%	102			274			(172		)	(63	)%
Non-operating retirement benefit																							(3		)	(19		)	16			84	%	(8		)	(56		)	48			86	%
Operating FAS/CAS Adjustment																							$	23		$	73		$	(50	)	(68	)%	$	94		$	218		$	(124	)	(57	)%

The Operating FAS/CAS Adjustment was a net benefit of ~~$46~~$23 million and ~~$37~~$73 million for the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. The Operating FAS/CAS Adjustment was a net benefit of ~~$144~~$94 million and ~~$107~~$218 million for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. The ~~favorable~~unfavorable changes in the Operating FAS/CAS Adjustment of $9$50 million and ~~$37~~$124 million for the three and nine months ended September 30, ~~2017,~~2019, respectively, compared towith the same periods in ~~2016,~~2018, were primarily driven by the ~~continued phase-in~~more immediate recognition of ~~Harmonization.~~higher interest rates under CAS.

Non-current State Income Taxes

Non-current state income taxes include deferred state income taxes, which reflect the change in deferred state tax assets and liabilities, and the tax expense or benefit associated with changes in state ~~uncertain~~unrecognized tax ~~positions~~benefits in the relevant period. 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 expense for the three months ended September 30, ~~2017,~~2019, was less than $1 million, compared to a non-current state income tax ~~expense~~benefit of $2less than $1 million for the same period in ~~2016.~~2018. The unfavorable change in non-current state income taxes was driven by an increase in deferred state income tax expense primarily attributable to changes in the timing of contract taxable income. Non-current state income tax expense for the nine months ended September 30, ~~2017,~~2019, was $5$2 million, compared to a non-current state income tax ~~expense~~benefit of $7$5 million for the same period in ~~2016.~~2018. The ~~decreases~~unfavorable change in non-current state income taxes was driven by an increase in deferred state income tax expense ~~were~~ primarily attributable to changes in ~~pension related adjustments.~~the timing of contract taxable income.

Interest Expense

Interest expense for the three and nine months ended September 30, ~~2017, decreased $1~~2019, increased $4 million and $3$8 million, respectively, compared with the same periods in ~~2016.~~2018, primarily due to an increase in borrowings under our revolving credit facility.

Non-Operating Retirement Benefit

The non-operating retirement benefit includes the following components of net periodic benefit costs: 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 and nine months ended September 30, 2019, the unfavorable changes in the non-operating retirement benefit of $16 million and $48 million, respectively, were primarily driven by lower 2018 returns on plan assets.

Federal and Foreign Income Taxes

Our effective income tax rate on earnings from operations for the three months ended September 30, ~~2017,~~2019, was ~~32.3%~~22.2%, compared with ~~31.8%~~22.4% for the same period in ~~2016.~~2018. Our effective income tax rate on earnings from operations for the nine months ended September 30, ~~2017,~~2019, was ~~29.1%~~21.7%, compared with ~~29.5%~~17.0% for the same period in ~~2016.~~2018. The higher effective tax rate for the three months ended September 30, 2017, was primarily attributable to a decrease in the non-recurring tax benefit associated with the true-up of estimated taxes to actual filed returns. The lower effectiveincome tax rate for the nine months ended September 30, ~~2017,~~2019, was primarily attributable to ~~an increase in the domestic manufacturing deduction. Our effective~~a claim for higher research and development tax ~~rates~~credits for the post-spin-off 2011 through 2015 tax years recorded in 2018.

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For the three ~~and nine~~ months ended September 30, ~~2017,~~2019, our effective income tax rate differed from the federal statutory rate primarily as a result of a non-recurring increase in tax expense for the true-up of estimated income taxes to the actual filed return. For the nine months ended September 30, 2019, our effective income tax rate differed from the federal statutory rate primarily as a result of an unfavorable adjustment to claims for research and development tax credits for prior tax years and a non-recurring increase in tax expense for the true-up of estimated income taxes to the actual filed return, partially offset by income tax benefits resulting from stock award settlement ~~activity~~activity. For the three and nine months ended September 30, 2018, our effective income tax rates differed from the ~~domestic manufacturing deduction.~~federal statutory rate primarily as a result of a claim for higher research and development tax credits for the post-spin-off 2011 through 2015 tax years. See Note 12: Income ~~Taxes and Note 17: Stock Compensation Plans.~~Taxes.

SEGMENT OPERATING RESULTS

Basis of Presentation

We are ~~aligned~~organized into three reportable segments: Ingalls, Newport News, and Technical Solutions.

~~Segment~~The following table presents segment operating ~~results are presented in the following table:~~results:


	Three Months Ended										Nine Months Ended										Three Months Ended											Nine Months Ended
	September 30						2017 over 2016				September 30						2017 over 2016				September 30						2019 over 2018					September 30						2019 over 2018
($ in millions)	2017			2016			Dollars		Percent		2017			2016			Dollars		Percent		2019			2018			Dollars			Percent		2019			2018			Dollars			Percent
Sales and Service Revenues
Ingalls	$	593		$	577		$	16	3	%	$	1,782		$	1,748		$	34	2	%	$	647		$	694		$	(47	)	(7	)%	$	1,853		$	1,908		$	(55	)	(3	)%
Newport News	1,053			978			75		8	%	3,025			2,970			55		2	%	1,264			1,179			85			7	%	3,796			3,444			352			10	%
Technical Solutions	241			154			87		56	%	710			505			205		41	%	347			245			102			42	%	940			721			219			30	%
Intersegment eliminations	(24		)	(26		)	2		8	%	(72		)	(77		)	5		6	%	(39		)	(35		)	(4		)	(11	)%	(102		)	(96		)	(6		)	(6	)%
Sales and service revenues	$	1,863		$	1,683		$	180	11	%	$	5,445		$	5,146		$	299	6	%	$	2,219		$	2,083		$	136		7	%	$	6,487		$	5,977		$	510		9	%
Operating Income (Loss)
Operating Income
Ingalls	$	74		$	66		$	8	12	%	$	238		$	236		$	2	1	%	$	61		$	82		$	(21	)	(26	)%	$	176		$	229		$	(53	)	(23	)%
Newport News	96			68			28		41	%	248			247			1		—	%	109			119			(10		)	(8	)%	257			261			(4		)	(2	)%
Technical Solutions	22			6			16		267	%	13			7			6		86	%	21			16			5			31	%	25			25			—			—	%
Segment operating income (loss)	192			140			52		37	%	499			490			9		2	%
Segment operating income																					191			217			(26		)	(12	)%	458			515			(57		)	(11	)%
Non-segment factors affecting operating income (loss)
FAS/CAS Adjustment	46			37			9		24	%	144			107			37		35	%
Operating FAS/CAS Adjustment																					23			73			(50		)	(68	)%	94			218			(124		)	(57	)%
Non-current state income taxes	(1		)	(2		)	1		50	%	(5		)	(7		)	2		29	%	—			—			—			—	%	(2		)	5			(7		)	(140	)%
Operating income (loss)	$	237		$	175		$	62	35	%	$	638		$	590		$	48	8	%
Operating income																					$	214		$	290		$	(76	)	(26	)%	$	550		$	738		$	(188	)	(25	)%

KEY SEGMENT FINANCIAL MEASURES

Sales and Service Revenues

Period-to-period revenues reflect performance under new and ongoing contracts. Changes in sales and service revenues are typically expressed in terms of volume. Unless otherwise described, volume generally refers to increases (or decreases) in reported revenues due to varying production activity levels, delivery rates, or service levels on individual contracts. Volume changes will typically carry a corresponding income change based on the margin rate for a particular contract.

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, ~~including~~such as the Operating FAS/CAS Adjustment and non-current state income taxes. Changes in segment operating income are typically expressed in

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terms of volume, as discussed above, or performance. Performance refers to changes in contract margin rates. These changes typically relate to profit recognition associated with revisions to ~~total~~ estimated costs at completion ("EAC") ~~of a contract~~ that reflect improved ~~(or deteriorated)~~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.

Cumulative Adjustments

For the three and nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, favorable and unfavorable cumulative catch-up adjustments were as follows:


	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30						September 30						September 30						September 30
($ in millions)	2017			2016			2017			2016			2019			2018			2019			2018
Gross favorable adjustments	$	78		$	41		$	223		$	208		$	64		$	61		$	158		$	163
Gross unfavorable adjustments	(22		)	(17		)	(81		)	(41		)	(20		)	(27		)	(101		)	(64		)
Net adjustments	$	56		$	24		$	142		$	167		$	44		$	34		$	57		$	99

For the three months ended September 30, ~~2017,~~2019, favorable cumulative catch-up adjustments ~~were related to the resolution of outstanding~~included contract changes on ~~the inactivation of the decommissioned USS~~ ~~Enterprise~~ ~~(CVN 65) and the RCOH of USS~~ ~~Abraham Lincoln~~ ~~(CVN 72), risk retirement on~~ ~~Portland~~ ~~(LPD 27),~~submarine support services and other individually insignificant adjustments. During the same period, none of the unfavorable cumulative catch-up adjustments were individually significant. For the nine months ended September 30, ~~2017,~~2019, favorable cumulative catch-up adjustments were related to risk retirement on the Legendclass NSC program, ~~Tripoli~~ ~~(LHA 7),~~ ~~Portland~~ ~~(LPD 27), and the delivered USS~~ ~~John Finn~~ ~~(DDG 113), the resolution of outstanding~~ contract changes on ~~the inactivation of the decommissioned USS~~ ~~Enterprise~~ ~~(CVN 65) and the RCOH of USS~~ ~~Abraham Lincoln~~ ~~(CVN 72),~~submarine support services and other individually insignificant adjustments. During the same period, ~~none of the~~ unfavorable cumulative catch-up adjustments ~~were~~included recognition of a forward loss on a fleet support services contract and other individually ~~significant.~~insignificant adjustments.

For the three months ended September 30, ~~2016,~~2018, favorable cumulative catch-up adjustments were ~~primarily~~ related to risk retirement on the Legend classNSC program and ~~the~~ ~~San Antonio~~ ~~class (LPD 17) program.~~other individually insignificant adjustments. During the same period, none of the unfavorable cumulative catch-up adjustments were individually significant. For the nine months ended September 30, ~~2016,~~2018, favorable cumulative catch-up adjustments were ~~primarily~~ related to risk retirement on ~~USS~~ ~~John P. Murtha~~ ~~(LPD 26),~~ the San Antonio class (LPD 17) program, the Legend class NSC program, and the Virginia class (SSN 774) submarine program, ~~Portland~~ ~~(LPD 27), and the~~ ~~Legend~~ ~~class NSC program.~~as well as other individually insignificant adjustments. During the same period, none of the unfavorable cumulative catch-up adjustments were individually significant.

Ingalls


	Three Months Ended										Nine Months Ended										Three Months Ended											Nine Months Ended
	September 30						2017 over 2016				September 30						2017 over 2016				September 30						2019 over 2018					September 30						2019 over 2018
($ in millions)	2017			2016			Dollars		Percent		2017			2016			Dollars		Percent		2019			2018			Dollars			Percent		2019			2018			Dollars			Percent
Sales and service revenues	$	593		$	577		$	16	3	%	$	1,782		$	1,748		$	34	2	%	$	647		$	694		$	(47	)	(7	)%	$	1,853		$	1,908		$	(55	)	(3	)%
Segment operating income (loss)	74			66			8		12	%	238			236			2		1	%
Segment operating income																					61			82			(21		)	(26	)%	176			229			(53		)	(23	)%
As a percentage of segment sales	12.5		%	11.4		%					13.4		%	13.5		%					9.4		%	11.8		%						9.5		%	12.0		%

Sales and Service Revenues

Ingalls revenues for the three months ended September 30, ~~2017, increased $16~~2019, decreased $47 million ~~or 3%,~~ from the same period in ~~2016,~~2018, primarily driven ~~by higher revenues in amphibious assault ships and surface combatants, partially offset~~ by lower revenues in the Legend class NSC ~~program. Amphibious~~program and amphibious assault ~~ships revenues increased due to higher volumes on~~ ~~Bougainville~~ ~~(LHA 8) and~~ ~~Fort Lauderdale~~ ~~(LPD 28), partially offset by lower volumes on~~ ~~Tripoli~~ ~~(LHA 7), the delivered USS~~ ~~John P. Murtha~~ ~~(LPD 26) and~~ ~~Portland~~ ~~(LPD 27)~~. ~~Surface combatants revenues increased due to higher volumes on~~ ~~Jack H. Lucas~~ ~~(DDG 125) and~~ ~~Lenah H. Sutcliffe Higbee~~ ~~(DDG 123), partially offset by lower volumes on~~ ~~Frank E. Petersen Jr.~~ ~~(DDG 121), the delivered USS~~ ~~John Finn~~ ~~(DDG 113), and~~ ~~Ralph Johnson~~ ~~(DDG 114).~~ships. Revenues on the Legend class NSC program decreased due to lower volumes on ~~the delivered USCGC~~ ~~Munro~~ ~~(NSC 6)and~~ Kimball (NSC 7), Midgett (NSC 8), and Stone (NSC 9), partially offset by higher ~~volume~~volumes on ~~Stone~~ ~~(NSC 9)~~NSC 11 (unnamed). Amphibious assault ship revenues decreased as a result of lower volumes on Tripoli (LHA 7) and Fort Lauderdale (LPD 28), partially offset by higher volumes on Harrisburg (LPD 30) and Bougainville (LHA 8). Surface combatant revenues were consistent with the prior year due to higher volumes on Ted Stevens (DDG 128), USS Fitzgerald (DDG 62) repair and restoration,

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Jeremiah Denton (DDG 129), and Jack H. Lucas (DDG 125), offset by lower volumes on Delbert D. Black (DDG 119), Paul Ignatius (DDG 117), Frank E. Petersen Jr. (DDG 121), and Lenah H. Sutcliffe Higbee (DDG 123).

Ingalls revenues for the nine months ended September 30, ~~2017, increased $34~~2019, decreased $55 million ~~or 2%,~~ from the same period in ~~2016,~~2018, primarily driven ~~by higher revenues in amphibious assault ships and the~~ ~~Legend~~ ~~class NSC program, offset~~ by lower revenues in the Legend class NSC program and surface combatants. ~~Amphibious assault ships revenues increased as a result of higher volumes on~~ ~~Bougainville~~ ~~(LHA 8) and~~ ~~Fort Lauderdale~~ ~~(LPD 28), partially offset by lower volume on the~~

~~delivered USS~~ ~~John P. Murtha~~ ~~(LPD 26) and~~ ~~Portland~~ ~~(LPD 27)~~. Revenues on the Legend class NSC program ~~increased due to higher volumes on~~ ~~Stone~~ ~~(NSC 9),~~ ~~Midgett~~ ~~(NSC 8), and~~ ~~Kimball~~ ~~(NSC 7), partially offset by lower volume on the delivered USCGC~~ ~~Munro~~ ~~(NSC 6). Surface combatants revenues~~ decreased due to lower volumes on ~~Frank E. Petersen Jr.~~ Stone (~~DDG 121)~~NSC 9), ~~the delivered USS~~ ~~John Finn~~ ~~(DDG 113),~~ ~~Ralph Johnson~~ ~~(DDG 114),~~ ~~Paul Ignatius~~ ~~(DDG 117)~~Kimball (NSC 7), and ~~Delbert D. Black~~ Midgett (~~DDG 119)~~NSC 8), partially offset by higher volumes on NSC 11 (unnamed) and NSC 10 (unnamed). Surface combatant revenues decreased as a result of lower volumes on Delbert D. Black (DDG 119), Paul Ignatius (DDG 117), Frank E. Petersen Jr. (DDG 121), andLenah H. Sutcliffe Higbee (DDG 123), partially offset by higher volumes on USS Fitzgerald (DDG 62) repair and restoration, Ted Stevens (DDG 128), Jeremiah Denton (DDG ~~123)~~129), Jack H. Lucas (DDG 125), and George M. Neal (DDG 131). Amphibious assault ship revenues were consistent with the ~~extended selected restricted availability contract for~~prior year due to higher volumes on Bougainville (LHA 8), Harrisburg (LPD 30), Richard M. McCool Jr. (LPD 29), and LPD Planning Yard and Life Cycle Engineering and Services, offset by lower volumes on Tripoli (LHA 7), Fort Lauderdale (LPD 28), and the delivered USS ~~Ramage~~ Portland (LPD 27), as well as lower risk retirement on the San Antonio class(~~DDG 61)~~LPD 17) program.

Segment Operating Income

Ingalls segment operating income for the three months ended September 30, ~~2017,~~2019, was ~~$74~~$61 million, compared with ~~$66~~$82 million for the same period in ~~2016.~~2018. The ~~increase~~decrease was primarily due to ~~higher~~lower risk retirement on ~~Portland~~ ~~(LPD 27), partially offset by lower risk retirement in~~ the Legend class NSC program.

Ingalls segment operating income for the nine months ended September 30, ~~2017,~~2019, was ~~$238~~$176 million, compared with ~~$236~~$229 million for the same period in ~~2016.~~2018. The ~~increase~~decrease was primarily due to ~~higher risk retirement on~~ ~~Tripoli~~ ~~(LHA 7), the~~ ~~Legend~~ ~~class NSC program, and~~ ~~Portland~~ ~~(LPD 27), partially offset by~~ lower risk retirement on the ~~delivered USS~~ ~~John P. Murtha~~ ~~(LPD 26).~~San Antonio class(LPD 17) program, as well as recoveries related to a settlement agreement in 2018, partially offset by one time employee bonus payments in 2018 related to the Tax Act.

Newport News


	Three Months Ended										Nine Months Ended										Three Months Ended											Nine Months Ended
	September 30						2017 over 2016				September 30						2017 over 2016				September 30						2019 over 2018					September 30						2019 over 2018
($ in millions)	2017			2016			Dollars		Percent		2017			2016			Dollars		Percent		2019			2018			Dollars			Percent		2019			2018			Dollars			Percent
Sales and service revenues	$	1,053		$	978		$	75	8	%	$	3,025		$	2,970		$	55	2	%	$	1,264		$	1,179		$	85		7	%	$	3,796		$	3,444		$	352		10	%
Segment operating income (loss)	96			68			28		41	%	248			247			1		—	%
Segment operating income																					109			119			(10		)	(8	)%	257			261			(4		)	(2	)%
As a percentage of segment sales	9.1		%	7.0		%					8.2		%	8.3		%					8.6		%	10.1		%						6.8		%	7.6		%

Sales and Service Revenues

Newport News revenues for the three months ended September 30, ~~2017,~~2019, increased ~~$75~~$85 million, or 7%, from the same period in ~~2016,~~2018, primarily driven by higher revenues in aircraft carriers ~~naval nuclear support services,~~ and submarines. Aircraft ~~carriers~~carrier revenues increased primarily as a result of higher volumes on Enterprise (CVN 80) and the advance planning contract for the RCOH of USS John C. Stennis (CVN 74), partially offset by lower volumes on the RCOH of USS George Washington (CVN 73).Submarine revenues increased primarily as a result of higher volumes on the ~~advance planning contract for the RCOH of USS~~ ~~George Washington~~ ~~(CVN 73), the construction contract for~~ ~~John F. Kennedy~~ ~~(CVN 79),~~Columbia class and ~~the advance planning contract for~~ ~~Enterprise~~ ~~(CVN 80), partially offset by lower volumes~~Virginia class (SSN 774) submarine programs. The higher volume on the ~~execution contract for the RCOH of USS~~ ~~Abraham Lincoln~~ ~~(CVN 72), and the construction contract for the delivered USS~~ ~~Gerald R. Ford~~ ~~(CVN 78).~~Naval nuclear support services revenues increased primarily as a result of higher volumes in submarine support and facility maintenance services, partially offset by lower volumes in aircraft carriers support. Submarines revenues related to the Virginia class (SSN 774) submarine program ~~increased~~was due to higher volumes on Block IVV boats, partially offset by lower volumes on Block III boats.

Newport News revenues for the nine months ended September 30, ~~2017,~~2019, increased ~~$55~~$352 million, or 2%10%, from the same period in ~~2016,~~2018, primarily driven by higher revenues in aircraft carriers and naval nuclear support ~~services, partially offset by lower revenues in submarines.~~services. Aircraft ~~carriers~~carrier revenues increased primarily as a result of higher volumes on Enterprise (CVN 80) and the advance planning contract for the RCOH of USS ~~George Washington~~ John C. Stennis (CVN ~~73), the construction contract for~~ ~~John F. Kennedy~~ ~~(CVN 79), and the advance planning contract for~~ ~~Enterprise~~ ~~(CVN 80)~~74), partially offset by lower volumes on ~~the execution contract for~~John F. Kennedy (CVN 79) and the RCOH of USS ~~Abraham Lincoln~~ ~~(CVN 72), the construction contract for the delivered USS~~ ~~Gerald R. Ford~~ ~~(CVN 78)~~, ~~and the inactivation of the decommissioned USS~~ ~~Enterprise~~ ~~(CVN 65)~~George Washington (CVN 73). Naval nuclear support services revenues increased primarily as a result of ~~higher volumes in~~contract changes on submarine support services and higher volume in facility maintenance ~~services, partially offset by lower volumes in aircraft carrier support. Submarines~~services. Submarine revenues related to the Virginia class (SSN 774) submarine program ~~decreased~~were consistent with the prior year due to higher volumes on Block V and Block IV boats, offset by lower volumes on Block III ~~boats, partially offset by higher volumes on Block IV~~ boats.

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Segment Operating Income

Newport News segment operating income for the three months ended September 30, ~~2017,~~2019, was ~~$96~~$109 million, compared with ~~$68~~$119 million for the same period in ~~2016.~~2018. The ~~increase~~decrease was primarily due to ~~the resolution of~~

~~outstanding~~a workers' compensation benefit in 2018, partially offset by contract changes on ~~the inactivation of the decommissioned USS~~ ~~Enterprise~~ ~~(CVN 65) and the RCOH of USS~~ ~~Abraham Lincoln~~ ~~(CVN 72).~~submarine support services.

Newport News segment operating income for the nine months ended September 30, ~~2017,~~2019, was ~~$248~~$257 million, compared with ~~$247~~$261 million for the same period in ~~2016.~~2018. The ~~increase~~decrease was primarily due to ~~the resolution of outstanding contract changes~~a workers' compensation benefit in 2018 and lower performance on the ~~inactivation of the decommissioned USS~~ ~~Enterprise~~ ~~(CVN 65) and the RCOH of USS~~ ~~Abraham Lincoln~~ ~~(CVN 72), partially offset by lower risk retirement in the~~ Virginia class (SSN 774) submarine ~~program.~~program, partially offset by contract changes on submarine support services and the higher volumes described above.

Technical Solutions


	Three Months Ended										Nine Months Ended										Three Months Ended										Nine Months Ended
	September 30						2017 over 2016				September 30						2017 over 2016				September 30						2019 over 2018				September 30						2019 over 2018
($ in millions)	2017			2016			Dollars		Percent		2017			2016			Dollars		Percent		2019			2018			Dollars		Percent		2019			2018			Dollars		Percent
Sales and service revenues	$	241		$	154		$	87	56	%	$	710		$	505		$	205	41	%	$	347		$	245		$	102	42	%	$	940		$	721		$	219	30	%
Segment operating income (loss)	22			6			16		267	%	13			7			6		86	%	21			16			5		31	%	25			25			—		—	%
As a percentage of segment sales	9.1		%	3.9		%					1.8		%	1.4		%					6.1		%	6.5		%					2.7		%	3.5		%

Sales and Service Revenues

Technical Solutions revenues for the three months ended September 30, ~~2017,~~2019, increased ~~$87~~$102 million, or ~~56%~~42%, from the same period in ~~2016, primarily~~2018, due to higher ~~volume in integrated mission solutions services following~~MDIS revenues primarily attributable to the ~~acquisition~~additions of ~~Camber~~Fulcrum and G2, as well as higher ~~volumes in~~ fleet support ~~services.~~and oil and gas revenues.

Technical Solutions revenues for the nine months ended September 30, ~~2017,~~2019, increased ~~$205~~$219 million, or ~~41%~~30%, from the same period in ~~2016,~~2018, primarily due to higher ~~volume in integrated mission solutions services following~~MDIS revenues primarily attributable to the ~~acquisition~~additions of ~~Camber~~Fulcrum and G2, as well as higher ~~volumes in fleet support and~~ oil and gas ~~services, partially offset by higher volumes in 2016 due to the resolution of outstanding contract changes on a nuclear~~ and ~~environmental commercial contract.~~fleet support revenues.

Segment Operating Income

Technical Solutions segment operating income for the three months ended September 30, ~~2017,~~2019, was ~~$22~~$21 million, compared with $6$16 million for the same period in ~~2016.~~2018. The increase was primarily due to ~~the release of a portion of an accounts receivable allowance~~improved performance on a nuclear and environmental ~~commercial contract and improved performance in oil and gas services.~~contracts.

Technical Solutions segment operating income for the nine months ended September 30, ~~2017,~~2019, was ~~$13~~$25 million, compared with $7$25 million for the same period in ~~2016. The increase~~2018. Operating income was consistent with the prior year primarily due to ~~improved performance in oil and gas services and~~ higher ~~volume in integrated mission solutions services following the acquisition of Camber, partially offset by the establishment of an allowance for accounts receivable on a~~equity income from our nuclear and environmental ~~commercial contract~~joint ventures and one time employee bonus payments in ~~2017 and~~2018 related to the ~~resolution in 2016 of outstanding contract changes~~Tax Act, offset by a loss on a ~~nuclear and environmental commercial~~fleet support services contract.

BACKLOG

Total backlog as of ~~each of~~ September 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, was approximately $39 billion and $23 billion, ~~and $21 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~~IDIQ orders. For contracts having no stated contract values, backlog includes only the amounts committed by the customer.

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The following table presents funded and unfunded backlog by segment as of September 30, ~~2017~~2019, and December 31, ~~2016~~2018:


	September 30, 2017						December 31, 2016						September 30, 2019						December 31, 2018
					Total						Total						Total						Total
($ in millions)	Funded		Unfunded		Backlog		Funded		Unfunded		Backlog		Funded		Unfunded		Backlog		Funded		Unfunded		Backlog
Ingalls	$	6,472	$	1,627	$	8,099	$	6,033	$	692	$	6,725	$	9,712	$	1,677	$	11,389	$	9,943	$	1,422	$	11,365
Newport News	7,682		5,974		13,656		5,799		7,127		12,926		7,570		19,179		26,749		6,767		4,144		10,911
Technical Solutions	335		518		853		712		372		1,084		520		570		1,090		339		380		719
Total backlog	$	14,489	$	8,119	$	22,608	$	12,544	$	8,191	$	20,735	$	17,802	$	21,426	$	39,228	$	17,049	$	5,946	$	22,995

As a result of integration efforts following the acquisition of Camber, the Company corrected the Technical Solutions segment's total backlog and unfunded backlog as of December 31, 2016, reducing the balances by $289 million.

Approximately ~~30%~~31% of the ~~$21~~$23 billion total backlog as of December 31, ~~2016,~~2018, is expected to be converted into sales in ~~2017.~~2019. U.S. Government orders comprised substantially all of the total backlog as of September 30, ~~2017,~~2019, and December 31, ~~2016.~~2018.

Awards

The value of new contract awards during the nine months ended September 30, ~~2017,~~2019, was approximately $7$22.6 billion. Significant new awards during the period included contracts for the ~~detailed~~detail design and construction ~~contract for~~ ~~Bougainville~~ ~~(LHA 8)~~of the Gerald R. Ford class (CVN 78) aircraft carriers Enterprise (CVN 80) and CVN 81 (unnamed) and the ~~execution contract for the RCOH of USS~~ ~~George Washington~~ ~~(CVN 73)~~San Antonio class (LPD 17) amphibious transport dock Harrisburg (LPD 30).

LIQUIDITY AND CAPITAL RESOURCES

We endeavor to ensure the most efficient conversion of operating results into cash for deployment in operating our businesses, implementing our business strategy, and maximizing stockholder value. We use various financial measures to assist in capital deployment decision making, including net cash provided by operating activities and free cash flow. 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:


	Nine Months Ended						2017 over			Nine Months Ended						2019 over
	September 30						2016			September 30						2018
($ in millions)	2017			2016			Dollars			2019			2018			Dollars
Net earnings (loss)	$	415		$	376		$	39
Net earnings										$	400		$	624		$	(224	)
Depreciation and amortization	157			143			14			163			160			3
Provision for doubtful accounts	10			—			10			(5		)	(4		)	(1		)
Stock-based compensation	27			22			5			19			27			(8		)
Deferred income taxes	26			59			(33		)	42			(1		)	43
Retiree benefit funding less than (in excess of) expense	(198		)	(75		)	(123		)	56			(468		)	524
Trade working capital decrease (increase)	(57		)	(48		)	(9		)	(345		)	(72		)	(273		)
Net cash provided by (used in) operating activities	$	380		$	477		$	(97	)
Net cash provided by operating activities										$	330		$	266		$	64

Cash Flows

We discuss below our major operating, investing, and financing activities for the nine months endedSeptember 30, ~~2017~~2019 and ~~2016,~~2018, as classified on our unaudited condensed consolidated statements of cash flows.

Operating Activities

Cash provided by operating activities for the nine months ended September 30, ~~2017,~~2019, was ~~$380~~$330 million, compared with ~~$477~~$266 million provided by operating activities for the same period in ~~2016.~~2018. The ~~unfavorable~~favorable change in operating cash flow was primarily due to ~~increased funding of~~lower contributions to retiree benefit plans, ~~and a change~~partially offset by changes in trade working capital ~~partially offset by lower payments~~and higher cash paid for income taxes. The change in trade working capital was primarily driven by the timing of receipts of accounts ~~receivable.~~receivable and payments of accounts payable.

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For the nine months ended September 30, ~~2017,~~2019, we made discretionary contributions to our qualified defined benefit pension plans totaling ~~$294~~$21 million, compared with ~~$167~~$508 million of discretionary contributions for the same period in ~~2016. We~~2018. As of September 30, 2019, we anticipate no further significant cash contributions to our qualified defined benefit pension plans in ~~2017.~~2019.

We expect cash generated from operations in combination with our current cash and cash equivalents, as well as existing credit facilities, to be more than sufficient to service debt, meet contractual obligations, and finance capital expenditures for at least the next 12 months.

Investing Activities

Cash used in investing activities for the nine months ended September 30, ~~2017,~~2019, was ~~$216~~$470 million, compared with ~~$141~~$267 million used in investing activities for the same period in ~~2016.~~2018. The ~~increase~~change in investing cash used was driven by ~~higher capital expenditures in 2017.~~the acquisition of Fulcrum. For ~~2017,~~2019, we expect our capital expenditures for maintenance and sustainment to be approximately 2% to 2.5% and our discretionary capital expenditures to be approximately ~~2.5%~~3% to 3%3.5% of annual revenues.

Financing Activities

Cash used in financing activities for the nine months ended September 30, ~~2017,~~2019, was ~~$385~~$68 million, compared with ~~$273~~$632 million used in financing activities for the same period in ~~2016.~~2018. The ~~increase~~change in financing cash ~~used~~ was primarily due to ~~an additional $95~~a decrease of $310 million ofin common stock repurchases, ~~an additional $12~~$264 million of ~~cash dividend payments,~~net proceeds from revolving credit facility borrowings, and ~~an additional $5~~a decrease of $2 million ofin employee taxes on certain share-based payment ~~arrangements.~~arrangements, partially offset by a $12 million increase in cash dividend payments.

Free Cash Flow

Free cash flow represents cash provided by (used in) operating activities less capital ~~expenditures.~~expenditures net of related grant proceeds. Free cash flow is not a measure recognized under GAAP. Free cash flow has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, analysis of our results as reported under GAAP. We believe free cash flow is an important measure for our investors because it provides them insight into our current and period-to-period performance and our ability to generate cash from continuing operations. We also use free cash flow as a key operating metric in assessing the performance of our business and as a key performance measure in evaluating management performance and determining incentive compensation. 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 2017 over
September 30 2016
($ in millions) 2017 2016 Dollars
Net cash provided by (used in) operating activities $ 380
$ 477
$ (97 )
Less:
Capital expenditures (228 ) (145 ) (83 )
Free cash flow provided by (used in) operations $ 152
$ 332
$ (180 )



	Nine Months Ended						2019 over
	September 30						2018
($ in millions)	2019			2018			Dollars
Net cash provided by operating activities	$	330		$	266		$	64
Less capital expenditures:
Capital expenditure additions	(349		)	(293		)	(56		)
Grant proceeds for capital expenditures	71			33			38
Free cash flow	$	52		$	6		$	46

Free cash flow for the nine months ended September 30, ~~2017, decreased $180~~2019, increased $46 million ~~compared with~~from the same period in ~~2016,~~2018, primarily due to ~~increased funding of~~lower contributions to retiree benefit plans, partially offset by changes in trade working capital, higher capital expenditures, and ~~a change in trade working capital, partially offset by lower payments~~higher cash paid for income taxes.

Governmental Regulation and Supervision

The U.S. 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

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September 30, ~~2017~~2019 and ~~2016,~~2018, 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 standby letters of credit issued by commercial banks and surety bonds issued by insurance companies principally to support our self-insured workers' compensation plans. As of September 30, ~~2017,~~2019, we had ~~$15~~$22 million in issued but undrawn standby letters of credit ~~issued but undrawn~~ and ~~$260~~$273 million of surety bonds outstanding.

ACCOUNTING STANDARDS UPDATES

See Note 3: Accounting Standards Updates in Part I, Item 1 for information related to accounting standards updates.

FORWARD-LOOKING STATEMENTS AND PROJECTIONS

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. Forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements. Factors that may cause such differences include:

~~changes~~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~~Our ability to estimate our future contract costs and perform our contracts effectively;

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

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

~~natural~~Natural and environmental disasters and political instability;

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

Adverse economic conditions in the United States and globally;

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

~~security~~Security threats, including cyber security threats, and related disruptions; and

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

There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business, and we undertake no obligation to update or revise any forward-looking statements. You should not place undue reliance on any forward looking statements that we may make.

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GLOSSARY OF PROGRAMS

Included below are brief descriptions of some of the programs discussed in this Quarterly Report on Form 10-Q.



Program Name		Program Description

America class (LHA 6) amphibious assault ships		Design and build large deck amphibious assault ships that provide forward presence and power projection as an integral part of joint, interagency and multinational maritime expeditionary forces. The America class (LHA 6) ships, together with the Wasp class (LHD 1) ships, are the successors to the decommissioned Tarawa class (LHA 1) ships. The America class (LHA 6) ships optimize aviation operations and support capabilities. We delivered USS America (LHA 6) in April 2014, Tripoli (LHA 7) is ~~currently under construction,~~scheduled for delivery in 2019, and we ~~were awarded a construction contract for~~ are currently constructing Bougainville (LHA 8) ~~in 2017.~~.

Arleigh Burke class (DDG 51) destroyers		Build guided missile destroyers designed for conducting anti-air, anti-submarine, anti-surface, and strike operations. The Aegis-equipped Arleigh Burke class (DDG 51) destroyers are the U.S. Navy's primary surface combatant, and have been constructed in variants, allowing technological advances during construction. In 2016 we delivered USS John Finn (DDG 113), ~~and~~in 2017 we ~~are currently constructing~~ delivered Ralph Johnson (DDG 114), and in 2019 we delivered Paul Ignatius (DDG 117). ~~In June 2013, we were awarded a multi-year contract for construction of five additional~~ We have contracts to construct the following Arleigh Burke class (DDG 51) destroyers: ~~Paul Ignatius~~ ~~(DDG 117),~~ Delbert D. Black (DDG 119), Frank E. Petersen Jr. (DDG 121), Lenah H. Sutcliffe Higbee (DDG 123), ~~and~~ Jack H. Lucas (DDG 125), Ted Stevens (DDG 128), Jeremiah Denton (DDG 129), George M. Neal (DDG 131), Sam Nunn (DDG 133), DDG 135 (unnamed), and DDG 137 (unnamed).

Carrier RCOH		Perform refueling and complex overhaul ("RCOH") of nuclear-powered aircraft carriers, which is required at the mid-point of their 50-year life cycle. USS Abraham Lincoln (CVN 72) was redelivered to the U.S. Navy in the second quarter of 2017 and USS George Washington (CVN 73) arrived at Newport News for the start of its RCOH in August 2017.

Columbia class (SSBN 826) submarines		~~The U.S. Navy has committed to~~Newport News is participating in designing the Columbia class submarine as a replacement for the current aging Ohio class nuclear ballistic missile submarines, which were first introduced into service in 1981. The Ohio class SSBN includes 14 nuclear ballistic missile submarines and four nuclear cruise missile submarines. The Columbiaclass program plan of record is to construct 12 new ballistic missile submarines. The U.S. Navy has initiated the design process for the new class of submarines, and, in early 2017, the ~~DOD~~DoD signed the acquisition decision memorandum approving the Columbia class program’s Milestone B, which formally authorizes the program’s entry into the engineering and manufacturing development phase. We ~~continue to~~ perform design work as a subcontractor to Electric Boat, and we have entered into a ~~team~~teaming agreement with Electric Boat to build modules for the entire Columbia class submarine program that leverages our Virginiaclass (SSN 774) experience. ~~The team agreement is subject~~We have been awarded contracts from Electric Boat to begin integrated product and process development and provide long-lead-time material and advance construction for the ~~U.S. Navy's concurrence.~~Columbia class (SSBN 826) program. Construction of the first Columbiaclass (SSBN 826) submarine is expected to begin in ~~2021, with procurement of long-lead-time materials and advance construction beginning prior to that time.~~2021.

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Fleet support services		Provide comprehensive life-cycle sustainment services to the U.S. Navy fleet and other DoD and commercial maritime customers. We provide services including maintenance, modernization, and repair on all ship classes; naval architecture, marine engineering, and design; integrated logistics support; technical documentation development; warehousing, asset management, and material readiness; operational and maintenance training development and delivery; software design and development; IT infrastructure support and data delivery and management; and cyber security and information assurance. We provide undersea vehicle and specialized craft development and prototyping services.

USS Gerald R. Ford class (CVN 78) aircraft carriers		Design and construction for the Ford class program, which is the aircraft carrier replacement program for the decommissioned ~~USS~~ Enterprise (CVN 65) and Nimitz class (CVN 68) aircraft carriers. USS Gerald R. Ford (CVN 78), the first ship of the Ford class, was delivered to the U.S. Navy in the second quarter of 2017. In June 2015, we were awarded a contract for the detail design and construction of John F. Kennedy (CVN 79), following several years of engineering, advance construction, and purchase of long-lead time components and material. In ~~February 2017,~~addition, we ~~were awarded a contract~~have received awards for ~~advance planning~~detail design and construction of Enterprise (CVN 80)~~, the third~~ ~~Ford~~ ~~class aircraft carrier.~~ and CVN 81 (unnamed.) This category also includes the class' non-recurring engineering. The class is expected to bring improved warfighting capability, quality of life improvements for sailors, and reduced life cycle costs.

~~Integrated mission solutions services~~		Provide services including high-end information technology and mission-based solutions to DoD, intelligence, and federal civilian customers. Services include agile software engineering, development, and integration; Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance ("C4ISR") engineering and software integration; mobile application development and network engineering; modeling, simulation, and training; force protection and emergency management training and exercises; unmanned systems development, integration, operations, and maintenance; and mission-oriented intelligence, surveillance, and reconnaissance analytics.

Legend class National Security Cutter		Design and build the U.S. Coast Guard's National Security Cutters ("NSCs"), the largest and most technically advanced class of cutter in the U.S. Coast Guard. The NSC is equipped to carry out maritime homeland security, maritime safety, protection of natural resources, maritime mobility, and national defense missions. The plan is for a total of ~~nine~~11 ships, of which the first ~~six~~eight ships have been delivered. ~~Kimball~~ Stone (NSC 7)9), NSC 10 (unnamed), and ~~Midgett~~ (NSC 8)11 (unnamed) are currently under construction.

MDIS services		Provide services to DoD, intelligence, and federal civilian customers. Services are performed in six major portfolio areas: modeling, simulation and training, information technology and software application, artificial intelligence and data analytics, mission engineering and operations support, logistics and life cycle management, and cyber space operations.

Naval nuclear support services		Provide services to and in support of the U.S. Navy, ranging from services supporting the Navy's carrier and submarine fleets to maintenance services at U.S. Navy training facilities. Naval nuclear support services include design, construction, maintenance, and disposal activities for in service U.S. Navy nuclear ships worldwide through mobile and in-house capabilities. Services include maintenance services on nuclear reactor prototypes.

Nuclear and environmental services		Provide services in nuclear management and operations, and nuclear and non-nuclear fabrication and repair. We provide site management, nuclear and industrial facilities operations and maintenance, decontamination and decommissioning, and radiological and hazardous waste management services. We provide services, including fabrication, equipment repair, and technical engineering services. ~~Participate~~We participate in several joint ventures, including N3B, MSTS, and SRNS. 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 ~~joint venture, Savannah River Nuclear Solutions, LLC, which~~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.

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Oil and gas services		Deliver engineering, procurement, and construction management services to the oil and gas industry for major pipeline, production, and treatment facilities. These services include full life-cycle services for domestic and international projects, from concept identification through detail design, execution and construction, and decommissioning. Related field services include survey, inspection, commissioning and start-up, operations and maintenance, and optimization and debottlenecking.

San Antonio class (LPD 17) amphibious transport dock ships		Design and build amphibious transport dock ships, which are warships that embark, transport, and land elements of a landing force for a variety of expeditionary warfare missions, and also serve as the secondary aviation platform for Amphibious Readiness Groups. The San Antonio class (LPD 17) is the newest addition to the U.S. Navy's 21st century amphibious assault force, and these ships are a key element of the U.S. Navy's seabase transformation. In 2013, we delivered USS Somerset (LPD 25), ~~and~~ in 2016, we delivered USS John P. Murtha (LPD 26), and, in 2017, we delivered USS Portland (LPD 27). We are currently constructing ~~Portland~~Fort Lauderdale (LPD ~~27)~~28), Richard M. McCool Jr. (LPD 29), and ~~Fort Lauderdale~~Harrisburg (LPD ~~28)~~30). ~~The~~ ~~San Antonio~~ ~~class (LPD 17) currently includes a total of 11 ships.~~

The decommissioned ~~USS~~ Enterprise (CVN 65)		Defuel and inactivate the world's first nuclear-powered aircraft carrier, which began in 2013. The inactivation was completed in the second quarter of 2018.

Virginia class (SSN 774) fast attack submarines		Construct attack submarines as the principal subcontractor to Electric Boat. The Virginia class (SSN 774) is a post-Cold War design tailored to excel in a wide range of warfighting missions, including anti-submarine and surface ship warfare; special operation forces; strike; intelligence, surveillance, and reconnaissance; carrier and expeditionary strike group support; and mine warfare.

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Item 3.Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk, primarily related to interest rates and foreign currency exchange rates.

Interest Rates - Our financial instruments subject to interest rate risk include floating rate borrowings under our ~~Amended Credit Facility. Our~~credit facility. As of September 30, 2019, we had $264 million of floating rate debt outstanding under our $1,250 million revolving credit facility. Based on the amounts outstanding under our credit facility ~~remained undrawn~~ as of September 30, ~~2017.~~2019, an increase of 1% in interest rates would increase the interest expense on our debt by approximately $3 million on an annual basis.

Foreign Currency - We currently have, and in the future may enter into, foreign currency forward contracts to manage foreign currency exchange rate risk related to payments to suppliers denominated in foreign currencies. As of September 30, ~~2017,~~2019, the fair values of our outstanding foreign currency forward contracts were not significant.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of September 30, ~~2017~~2019. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, ~~2017~~2019, the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed in reports the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) accumulated and communicated to management to allow their timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the three months ended September 30, ~~2017~~2019, no change occurred in the Company's internal control over financial reporting that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

The Company implemented a new Enterprise Resource Planning ("ERP") system at its Ingalls segment in the first quarter of 2019. The Company followed a system implementation process that required significant pre-implementation planning, design, and testing. The Company also conducted and will continue to conduct extensive post-implementation monitoring and process modifications to ensure that internal controls over financial reporting are properly designed. The Company does not expect this system implementation to have a material effect on its internal controls over financial reporting.

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PART II – OTHER INFORMATION

Item 1.Legal Proceedings

We have provided information about legal proceedings in which we are involved in the unaudited condensed consolidated financial statements in Part I, Item 1, which is incorporated herein by reference. In addition to the matters disclosed in Part I, Item 1, we are a party to various investigations, lawsuits, claims, and other legal proceedings that arise in the ordinary course of our business. Based on information available to us, we do not believe at this time that any of such other matters will individually, or in the aggregate, have a material adverse effect on our financial condition, results of operations, or cash flows. For further information on the risks we face from existing and future investigations, lawsuits, claims, and other legal proceedings, please see "Risk Factors" in Item 1A below.

Item 1A. Risk Factors

The Company has no material changes to report from the risk factors described in "Risk Factors" in its Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In ~~October 2015, our board of directors authorized an increase in our stock repurchase program from $600 million~~ ~~to $1.2 billion. On~~ November 7, 2017, the Company's board of directors authorized an increase in the Company's stock repurchase program from~~$1.2~~ $1.2 billion to ~~2.2~~$2.2 billion. On November 5, 2019, the Company's board of directors authorized an increase in the Company's stock repurchase program from $2.2 billion to $3.2 billion and an extension of the term of the program to October 31, ~~2022.~~ 2024. Repurchases are made from time to time at management's discretion in accordance with applicable federal securities laws. All repurchases of HII common stock have been recorded as treasury stock. The following table summarizes information relating to purchases made by or on behalf of the Company of shares of the Company's common stock during the quarter ended September 30, ~~2017~~2019.

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in millions)¹
July 1, 2017 to July 31, 2017 66,300
$ 196.07
66,300
$ 293.1
August 1, 2017 to August 31, 2017 17,008
209.64
17,008
289.5
September 1, 2017 to September 30, 2017 95,060
213.22
95,060
269.3
Total 178,368
$ 206.50
178,368
$ 269.3



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in millions)¹
July 1, 2019 to July 31, 2019	29,872	$	230.15	29,872	$	345.1
August 1, 2019 to August 31, 2019	155,799	206.96		155,799	312.8
September 1, 2019 to September 30, 2019	135,886	211.88		135,886	284.0
Total	321,557	$	211.19	321,557	$	284.0

¹ From the stock repurchase program's inception through September 30, ~~2017,~~2019, we purchased ~~7,659,575~~12,205,691 shares at an average price of ~~$121.51~~$156.97 per share for a total of ~~$930.7 million.~~$1.9 billion.

The Huntington Ingalls Industries Savings Plan, Huntington Ingalls Industries Financial Security and Savings Program, and Huntington Ingalls Industries, Inc. Newport News Operations Savings (401(k)) Plan for Union Eligible Employees (collectively, the “Plans”) include shares of the Company’s common stock as an investment choice for participants. The trustees of the Plans manage Company stock funds, which purchase shares of the Company’s common stock on the open market, and interests in the stock funds are allocated to participant Plan accounts at the election of participants. We became aware that participants in the Plans purchased more shares of the Company’s common stock than were registered under the Securities Act of 1933, as amended. The Company did not receive any consideration in connection with such purchases, which were funded with participant and employer contributions to the Plan.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

None.

Item 5.Other Information

None.

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Item 6. Exhibits



3.1			Restated Certificate of Incorporation of Huntington Ingalls Industries, Inc., filed March 30, 2011 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on April 4, 2011).

3.2			Certificate of Amendment to the Restated Certificate of Incorporation of Huntington Ingalls Industries, Inc., dated May 28, 2014 (incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed on August 7, 2014).

3.3			Certificate of Amendment to the Restated Certificate of Incorporation of Huntington Ingalls Industries, Inc., dated May 21, 2015 (incorporated by reference to Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q filed on August 6, 2015).

3.4			Restated Bylaws of Huntington Ingalls Industries, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on February 1, 2016).

4.1			~~First~~Second supplemental indenture, dated as of ~~February 17, 2017, to the indenture dated as of December 2, 2014, among Huntington Ingalls Industries, Inc., the guarantors party thereto, and The Bank of New York Mellon, as trustee.~~

~~4.2~~			~~First supplemental indenture, dated as of February 17, 2017,~~August 27, 2019, to the indenture, dated as of November 17, 2015, among Huntington Ingalls Industries, Inc., the guarantors party thereto, and The Bank of New York Mellon, as trustee.

~~10.1~~4.2			First ~~Amendment~~supplemental indenture, dated as of August 27, 2019, to the indenture, dated as of December 1, 2017, among Huntington Ingalls Industries, ~~Savings Excess Plan (incorporated by reference to Exhibit 10.1 to~~Inc., the ~~Company's Quarterly Report on Form 10-Q filed on August 3, 2017).~~guarantors party thereto, and Wells Fargo Bank, National Association, as trustee.

11			~~Computation of Per Share Earnings (provided in Note 8 "Earnings Per Share" of the Notes to the Unaudited Condensed Consolidated Financial Statements included in this Report).~~

~~12.1~~			~~Ratio of Earnings to Fixed Charges.~~

31.1			Certification of the Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of the Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1			Certificate of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2			Certificate of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101			The following financial information for the ~~company,~~Company, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations and Comprehensive Income, (ii) the Condensed Consolidated Statements of Financial Position, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statements of Changes in Equity, and (v) the Notes to Condensed Consolidated Financial Statements.

104			The cover page from the Company’s Quarterly Report on Form 10-Q, formatted in Inline XBRL and contained in Exhibit 101.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Date:	November ~~8, 2017~~7, 2019	Huntington Ingalls Industries, Inc.
		(Registrant)

		By:	/s/ Nicolas Schuck
			Nicolas Schuck
			Corporate Vice President, Controller and Chief Accounting Officer
			(Duly Authorized Officer and Principal Accounting Officer)

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