Table of Contents

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, 2017March 31, 2023
or
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 001-34910
 _____________________________________ ______________________________________________________________
HUNTINGTON INGALLS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
 _____________________________________
 ______________________________________________________________
DELAWAREDelaware90-0607005
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer

Identification No.)
4101 Washington Avenue Newport News, Virginia 23607
(Address of principal executive offices and zip code)
(757) 380-2000
(Registrant’s telephone number, including area code)
_____________________________________  ______________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockHIINew 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 filerAccelerated Filerý☒Accelerated filerFiler¨☐
Non-accelerated filerNon-Accelerated Filer¨☐(Do not check if a smaller reporting company)Smaller reporting companyReporting Company¨☐
Emerging growth companyGrowth 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, 45,261,255April 28, 2023, 39,890,672 shares of the registrant's common stock were outstanding.



Table of Contents
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATIONPage
PART I – FINANCIAL INFORMATIONPage
Item 1.
1
2
3
4
5
Item 2.
1914
Item 3.
3830
Item 4.
3830
PART II – OTHER INFORMATION
Item 1.
3931
Item 1A.
3931
Item 2.
3931
Item 3.
3931
Item 4.
4031
Item 5.
4031
Item 6.
4132
4233




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
March 31
(in millions, except per share amounts)20232022
Sales and service revenues
Product sales$1,829 $1,724 
Service revenues845 852 
Sales and service revenues2,674 2,576 
Cost of sales and service revenues
Cost of product sales1,568 1,468 
Cost of service revenues756 759 
Income from operating investments, net12 7 
Other income and gains (losses), net(1)(1)
General and administrative expenses220 217 
Operating income141 138 
Other income (expense)
Interest expense(24)(26)
Non-operating retirement benefit37 71 
Other, net9 (7)
Earnings before income taxes163 176 
Federal and foreign income tax expense34 36 
Net earnings$129 $140 
Basic earnings per share$3.23 $3.50 
Weighted-average common shares outstanding39.9 40.0 
Diluted earnings per share$3.23 $3.50 
Weighted-average diluted shares outstanding39.9 40.0 
Dividends declared per share$1.24 $1.18 
Net earnings from above$129 $140 
Other comprehensive income (loss)
Change in unamortized benefit plan costs4 (86)
Tax benefit (expense) for items of other comprehensive income(1)22 
Other comprehensive income (loss), net of tax3 (64)
Comprehensive income$132 $76 
  Three Months Ended
September 30		 Nine Months Ended
September 30
(in millions, except per share amounts) 2017 2016 2017 2016
Sales and service revenues        
Product sales $1,391
 $1,327
 $4,088
 $4,120
Service revenues 472
 356
 1,357
 1,026
Sales and service revenues 1,863
 1,683
 5,445
 5,146
Cost of sales and service revenues        
Cost of product sales 1,105
 1,059
 3,279
 3,241
Cost of service revenues 393
 308
 1,141
 887
Income (loss) from operating investments, net 7
 6
 10
 7
General and administrative expenses 135
 147
 397
 435
Operating income (loss) 237
 175
 638
 590
Other income (expense)     

 

Interest expense (18) (19) (53) (56)
Other, net 1
 1
 —
 (1)
Earnings (loss) before income taxes 220
 157
 585
 533
Federal and foreign income taxes 71
 50
 170
 157
Net earnings (loss) $149
 $107
 $415
 $376
         
Basic earnings (loss) per share $3.28
 $2.28
 $9.06
 $8.00
Weighted-average common shares outstanding 45.4
 46.9
 45.8
 47.0
         
Diluted earnings (loss) per share $3.27
 $2.27
 $9.04
 $7.93
Weighted-average diluted shares outstanding 45.5
 47.2
 45.9
 47.4
         
Dividends declared per share $0.60
 $0.50
 $1.80
 $1.50
         
Net earnings (loss) from above $149
 $107
 $415
 $376
Other comprehensive income (loss)        
Change in unamortized benefit plan costs (52) 20
 (7) 59
Other 3
 1
 10
 1
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


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



1
Table of Contents
HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
($ in millions)March 31, 2023December 31, 2022
Assets
Current Assets
Cash and cash equivalents$318 $467 
Accounts receivable, net of allowance for doubtful accounts of $2 million as of 2023 and 2022755 636 
Contract assets1,298 1,240 
Inventoried costs190 183 
Income taxes receivable113 170 
Prepaid expenses and other current assets78 50 
Total current assets2,752 2,746 
Property, plant, and equipment, net of accumulated depreciation of $2,351 million as of 2023 and $2,319 million as of 20223,182 3,198 
Operating lease assets264 282 
Goodwill2,618 2,618 
Other intangible assets, net of accumulated amortization of $913 million as of 2023 and $881 million as of 2022987 1,019 
Pension plan assets623 600 
Miscellaneous other assets423 394 
Total assets$10,849 $10,857 
Liabilities and Stockholders' Equity
Current Liabilities
Trade accounts payable$505 $642 
Accrued employees’ compensation330 345 
Current portion of long-term debt399 399 
Current portion of postretirement plan liabilities134 134 
Current portion of workers’ compensation liabilities229 229 
Contract liabilities810 766 
Other current liabilities460 380 
Total current liabilities2,867 2,895 
Long-term debt2,498 2,506 
Pension plan liabilities216 214 
Other postretirement plan liabilities259 260 
Workers’ compensation liabilities464 463 
Long-term operating lease liabilities225 246 
Deferred tax liabilities389 418 
Other long-term liabilities368 366 
Total liabilities7,286 7,368 
Commitments and Contingencies (Note 10)
Stockholders’ Equity
Common stock, $0.01 par value; 150 million shares authorized; 53.6 million shares issued and 39.9 million shares outstanding as of March 31, 2023, and 53.5 million shares issued and 39.9 million shares outstanding as of December 31, 20221 1 
Additional paid-in capital2,024 2,022 
Retained earnings4,354 4,276 
Treasury stock(2,220)(2,211)
Accumulated other comprehensive loss(596)(599)
Total stockholders’ equity3,563 3,489 
Total liabilities and stockholders’ equity$10,849 $10,857 
($ in millions) September 30
2017		 December 31
2016
Assets    
Current Assets    
Cash and cash equivalents $499
 $720
Accounts receivable, net of allowance for doubtful accounts of $15 million as of 2017 and $4 million as of 2016 1,200
 1,164
Inventoried costs, net 183
 210
Prepaid expenses and other current assets 57
 48
Total current assets 1,939
 2,142
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
Goodwill 1,217
 1,234
Other intangible assets, net of accumulated amortization of $518 million as of 2017 and $488 million as of 2016 518
 548
Deferred tax assets 288
 314
Miscellaneous other assets 117
 128
Total assets $6,172
 $6,352
Liabilities and Stockholders' Equity    
Current Liabilities    
Trade accounts payable $318
 $316
Accrued employees’ compensation 258
 241
Current portion of postretirement plan liabilities 147
 147
Current portion of workers’ compensation liabilities 220
 217
Advance payments and billings in excess of revenues 92
 166
Other current liabilities 240
 256
Total current liabilities 1,275
 1,343
Long-term debt 1,282
 1,278
Pension plan liabilities 926
 1,116
Other postretirement plan liabilities 430
 431
Workers’ compensation liabilities 448
 441
Other long-term liabilities 99
 90
Total liabilities 4,460
 4,699
Commitments and Contingencies (Note 15) 
 
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
Additional paid-in capital 1,935
 1,964
Retained earnings (deficit) 1,656
 1,323
Treasury stock (931) (684)
Accumulated other comprehensive income (loss) (949) (951)
Total stockholders’ equity 1,712
 1,653
Total liabilities and stockholders’ equity $6,172
 $6,352


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

2
Table of Contents
HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Three Months Ended
March 31
($ in millions)20232022
Operating Activities
Net earnings$129 $140 
Adjustments to reconcile to net cash used in operating activities
Depreciation55 52 
Amortization of purchased intangibles32 35 
Amortization of debt issuance costs2 2 
Provision for doubtful accounts— (7)
Stock-based compensation12 9 
Deferred income taxes(30)2 
Loss (gain) on investments in marketable securities(8)9 
Change in
Accounts receivable(119)(231)
Contract assets(58)(39)
Inventoried costs(7)(27)
Prepaid expenses and other assets30 7 
Accounts payable and accruals(31)— 
Retiree benefits(18)(34)
Other non-cash transactions, net2 (1)
Net cash used in operating activities(9)(83)
Investing Activities
Capital expenditures
Capital expenditure additions(43)(43)
Grant proceeds for capital expenditures3 — 
Investment in affiliates(20)— 
Net cash used in investing activities(60)(43)
Financing Activities
Repayment of long-term debt(10)(100)
Dividends paid(49)(47)
Repurchases of common stock(9)(10)
Employee taxes on certain share-based payment arrangements(12)(14)
Net cash used in financing activities(80)(171)
Change in cash and cash equivalents(149)(297)
Cash and cash equivalents, beginning of period467 627 
Cash and cash equivalents, end of period$318 $330 
Supplemental Cash Flow Disclosure
Cash paid for interest$12 $11 
Non-Cash Investing and Financing Activities
Capital expenditures accrued in accounts payable$8 $1 
  Nine Months Ended
September 30
($ in millions) 2017 2016
Operating Activities    
Net earnings (loss) $415
 $376
Adjustments to reconcile to net cash provided by (used in) operating activities    
Depreciation 123
 123
Amortization of purchased intangibles 30
 16
Amortization of debt issuance costs 4
 4
Provision for doubtful accounts 10
 —
Stock-based compensation 27
 22
Deferred income taxes 26
 59
Change in    
Accounts receivable (47) 28
Inventoried costs 18
 17
Prepaid expenses and other assets 12
 (51)
Accounts payable and accruals (41) (42)
Retiree benefits (198) (75)
Other non-cash transactions, net 1
 —
Net cash provided by (used in) operating activities 380
 477
Investing Activities    
Additions to property, plant, and equipment (228) (145)
Acquisitions of businesses, net of cash received 3
 —
Proceeds from disposition of assets 9
 4
Net cash provided by (used in) investing activities (216) (141)
Financing Activities    
Dividends paid (82) (70)
Repurchases of common stock (247) (152)
Employee taxes on certain share-based payment arrangements (56) (51)
Net cash provided by (used in) financing activities (385) (273)
Change in cash and cash equivalents (221) 63
Cash and cash equivalents, beginning of period 720
 894
Cash and cash equivalents, end of period $499
 $957
Supplemental Cash Flow Disclosure    
Cash paid for income taxes $173
 $198
Cash paid for interest $37
 $36
Non-Cash Investing and Financing Activities    
Capital expenditures accrued in accounts payable $3
 $11


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

3
Table of Contents
HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
Three Months Ended March 31, 2023 and 2022
($ in millions)		Common StockAdditional Paid-in CapitalRetained Earnings (Deficit)Treasury StockAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
Balance as of December 31, 2021$1 $1,998 $3,891 $(2,159)$(923)$2,808 
Net earnings— — 140 — — 140 
Dividends declared ($1.18 per share)— — (47)— — (47)
Stock-based compensation— (3)(2)— — (5)
Other comprehensive loss, net of tax— — — — (64)(64)
Treasury stock activity— — — (10)— (10)
Balance as of March 31, 2022$1 $1,995 $3,982 $(2,169)$(987)$2,822 
Balance as of December 31, 2022$1 $2,022 $4,276 $(2,211)$(599)$3,489 
Net earnings— — 129 — — 129 
Dividends declared ($1.24 per share)— — (49)— — (49)
Stock-based compensation— 2 (2)— — — 
Other comprehensive income, net of tax— — — — 3 3 
Treasury stock activity— — — (9)— (9)
Balance as of March 31, 2023$1 $2,024 $4,354 $(2,220)$(596)$3,563 
Nine Months Ended September 30, 2017 and 2016
($ 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


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



4

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 ofa global, all-domain defense partner, building and delivering the world’s most powerful, survivable naval ships and technologies that safeguard America’s largest military shipbuilding companiesseas, sky, land, space, and a provider of professional services to partners in government and industry.cyber. HII is organized into three reportable segments: Ingalls Shipbuilding ("Ingalls"), Newport News Shipbuilding ("Newport News"), and Technical Solutions.Mission Technologies. For more than a century, the Company's Ingalls segment in Mississippi and Newport News segmentssegment in Mississippi and Virginia have built more ships in more ship classes than any other U.S. naval shipbuilder, making HII America's largest shipbuilder. The Technical SolutionsMission Technologies segment establisheddelivers high-value engineering and technology solutions to enable multi-domain distributed operations in the fourth quarter of 2016, provides a range ofgovernment and commercial services to the governmental, energy, and oil and gas markets.


HII conducts most of its business with the U.S. Government, principally 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 solutions, 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"). As used in the Notes to the Condensed Consolidated Financial Statements (Unaudited), the terms "HII" and "the Company" refer to HII and its subsidiaries. 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 2022 Annual Report on Form 10-K for the year ended December 31, 2016.10-K.


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- 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 in estimates of contract sales, costs, and profits using the cumulative catch-up method of accounting. This method recognizes in the current period the cumulative effect of the changes on current and prior periods. Accordingly, the effect of the changes on future periods of contract performance 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. For the nine months ended September 30, 2017 and 2016, net cumulative catch-up adjustments increased operating income by $142 million and $167 million, respectively, and increased diluted earnings per share by $2.01 and $2.29, 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 ended September 30, 2017, or the three months ended September 30, 2016. Cumulative catch-up adjustments for the nine months ended September 30, 2016, included favorable adjustments of $67 million on a contract at the Ingalls segment, which increased diluted earnings per share by $0.92.

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

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$215 million and $82$209 million as of September 30, 2017,March 31, 2023, and December 31, 2016,2022, 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 - The Company has limited exposure to credit losses and maintains an allowance for anticipated losses considered necessary underestimated fair values of the circumstances based on historical experience with uncollected customer accounts and a reviewCompany's total long-term debt (including current portion) as of its currently outstanding accounts receivable. As of September 30, 2017,March 31, 2023, and December 31, 2016, the Company had an allowance for doubtful accounts of $152022, were $2,747 million and $4$2,703 million, respectively. DuringThe estimated fair values of the three months endedcurrent portion of the Company's long-term debt were $393 million and $390 million as of March 31, 2017, the Company recorded a $29 million allowance for doubtful accounts within the Technical Solutions segment related to a commercial customer’s petition for bankruptcy protection under Chapter 11 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.

Related Party Transactions - On March 29, 2011, HII entered into a Separation and Distribution 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, 2017,2023 and December 31, 2016,2022, respectively. The fair values of the Company was due $9 million and $33 million, respectively, from Northrop GrummanCompany's long-term debt were calculated based on recent trades of the Company's debt instruments in inactive markets, which fall within Level 2 under spin-off related agreements. Asthe fair value hierarchy.

5
Table of each of September 30, 2017, and December 31, 2016, the Company had $84 million outstanding under Industrial Revenue Bonds issued by the Mississippi Business Finance Corporation. 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.Contents

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 (Topic 842)”, which establishes 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 the pattern of expense recognition in the statement of operations and comprehensive income. This guidance is 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 a modified retrospective approach. The Company is 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.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which eliminates the performance of Step 2 from the goodwill impairment test. In performing its annual or interim impairment testing, an entity will instead compare the fair value of the reporting unit with its carrying amount and recognize 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. The Company does not expect ASU 2017-04 to have a material impact on its consolidated financial statements and disclosures, accounting processes, or internal controls.

In March 2017, the FASB issued ASU 2017-07, “Retirement Benefits (Topic 715): Improving the Presentation 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 in the same income statement line item as other employee compensation costs arising from services rendered during 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 be 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. The Company expects adoption of 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 2017-07 on January 1, 2018 using the retrospective method and does not expect ASU 2017-07 to have a material impact on its consolidated financial statements and disclosures, accounting processes, or internal controls.

In May 2017, the FASB issued ASU 2017-10, "Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services", which addresses how an operating entity should determine the customer for operations under a service concession arrangement. The update clarifies that the grantor is the customer of the operation services in all cases for these arrangements. This 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. The Company is currently evaluating the impact of ASU 2017-10 on its consolidated financial statements and disclosures, accounting processes, or internal controls.
Other pronouncements issued but not effective until after December 31, 2017,2023, are not expected to have a material impact on the Company's consolidated financial position, results of operations, orand cash flows.


4. AVONDALE

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. In October 2014, the Company ceased shipbuilding construction operations at the 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 Avondale 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.

In connection with and as a result of the decision to wind down shipbuilding at the Avondale facility, the Company began incurring and paying 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 related 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") and Cost Accounting Standards 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 amortizing the deferred costs over a five year period since 2014, when 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 of the Company's restructuring and shutdown costs, including submitting revised proposals to address the concerns 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 accrue to the U.S. Government from the closing of Avondale and consolidation of Ingalls shipbuilding to the Pascagoula facility. While the Company is continuing to engage in negotiations with the U.S. Navy, 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. The Company continues to believe its claim is reasonably based and supported by law. Accordingly, the Company anticipates an ultimate resolution that is 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 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, the Company acquired, for approximately $369 million in cash, net of $27 million of cash acquired, Camber Holding Corporation ("Camber"), a provider of mission-based and information technology solutions to the U.S. Government. 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 million of goodwill, all of which was allocated to its Technical Solutions segment, primarily related to the value of Camber's workforce, and $76 million of intangible assets related to existing contract backlog. 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 are not material to the Company’s consolidated financial position, results of operations, or cash flows.


7. STOCKHOLDERS' EQUITY


Treasury Stock - In October 2015,November 2019, the Company's board of directors authorized an increase in the Company's stock repurchase program from $600 million$2.2 billion 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$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 ninethree months ended September 30, 2017,March 31, 2023, the Company repurchased 1,244,10539,325 shares at an aggregate cost of $247$9 million. For the ninethree months ended September 30, 2016,March 31, 2022, the Company repurchased 1,013,42650,549 shares at an aggregate cost of $152 million, of which approximately $2 million was not yet settled for cash as of September 30, 2016. For the nine months ended September 30, 2016, the Company also settled for cash $2 million of shares repurchased in the prior year.$10 million. 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 and $0.50 for the three months ended September 30, 2017 and 2016, respectively. The Company declared cash dividends per share of $1.80 and $1.50 for the nine months ended September 30, 2017 and 2016, respectively. The Company paid cash dividends totaling $82$49 million and $70$47 million for thenine three months endedSeptember 30, 2017 March 31, 2023 and 2016,2022, 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, was comprised of unamortized benefit plan costs of $953$596 million and other comprehensive income items of $4 million. The accumulated other comprehensive loss$599 million as of March 31, 2023 and December 31, 2016, was comprised of unamortized benefit plan costs of $948 million and other comprehensive loss items of $3 million.2022, respectively.

The changes in accumulated other comprehensive income (loss)loss by component for the three and nine months ended September 30, 2017March 31, 2023 and 2016,2022, 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 PlansOtherTotal
Balance as of December 31, 2021$(923)$— $(923)
Other comprehensive loss before reclassifications(97)— (97)
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost1
3 — 3 
Amortization of net actuarial loss1
8 — 8 
Tax benefit for items of other comprehensive loss22 — 22 
Net current period other comprehensive loss(64)— (64)
Balance as of March 31, 2022$(987)$— $(987)
Balance as of December 31, 2022$(599)$— $(599)
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost1
3 — 3 
Amortization of net actuarial loss1
1 — 1 
Tax expense for items of other comprehensive income(1)— (1)
Net current period other comprehensive income3 — 3 
Balance as of March 31, 2023$(596)$— $(596)
($ 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)
1 These accumulated comprehensive income (loss)loss components are included in the computation of net periodic benefit cost. See Note 16:11: Employee Pension and Other Postretirement Benefits. The tax benefit associated withexpense recorded in stockholders' equity for the amounts reclassified from accumulated other comprehensive income (loss)loss for the three months ended September 30, 2017March 31, 2023 and 2016,2022, was $9$1 million and $8$3 million, respectively. The tax benefit associated with amounts reclassified from accumulated other comprehensive income (loss) for the nine months ended September 30, 2017 and 2016, was $27 million and $23 million, respectively.
2 See Note 16: Employee Pension and Other Postretirement Benefits.

6
Table of Contents
8.5. EARNINGS PER SHARE


Basic and diluted earnings per common share were calculated as follows:
 Three Months Ended
March 31
(in millions, except per share amounts)20232022
Net earnings$129 $140 
Weighted-average common shares outstanding39.9 40.0 
Net dilutive effect of stock awards— — 
Dilutive weighted-average common shares outstanding39.9 40.0 
Earnings per share - basic$3.23 $3.50 
Earnings per share - diluted$3.23 $3.50 

  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 0.30.5 million and 0.4 million Restricted Performance Stock Rights ("RPSRs") for each of the three and nine months ended September 30, 2017, respectively. The amounts presented above exclude the impact of 0.1 million stock options and 0.3 million RPSRs for the three months endedSeptember 30, 2016, March 31, 2023 and 0.12022, respectively.

6. REVENUE

Disaggregation of Revenue

The Company's contracts with customers typically fall into one of four categories: firm fixed-price, fixed-price incentive, cost-type, and time and materials. For more information on the Company's contracts, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company's 2022 Annual Report on Form 10-K.

The following tables present revenues on a disaggregated basis:
Three Months Ended March 31, 2023
($ in millions)IngallsNewport NewsMission TechnologiesIntersegment EliminationsTotal
Revenue Type
Product sales$534 $1,271 $24 $— $1,829 
Service revenues41 234 570 — 845 
Intersegment2 1 30 (33)— 
Sales and service revenues$577 $1,506 $624 $(33)$2,674 
Customer Type
Federal$575 $1,505 $581 $— $2,661 
Commercial— — 13 — 13 
Intersegment2 1 30 (33)— 
Sales and service revenues$577 $1,506 $624 $(33)$2,674 
Contract Type
Firm fixed-price$2 $— $75 $— $77 
Fixed-price incentive533 829 — — 1,362 
Cost-type40 676 467 — 1,183 
Time and materials— — 52 — 52 
Intersegment2 1 30 (33)— 
Sales and service revenues$577 $1,506 $624 $(33)$2,674 

7
Table of Contents
Three Months Ended March 31, 2022
($ in millions)IngallsNewport NewsMission TechnologiesIntersegment EliminationsTotal
Revenue Type
Product sales$578 $1,121 $25 $— $1,724 
Service revenues50 267 535 — 852 
Intersegment3 2 30 (35)— 
Sales and service revenues$631 $1,390 $590 $(35)$2,576 
Customer Type
Federal$628 $1,388 $547 $— $2,563 
Commercial— — 13 — 13 
Intersegment3 2 30 (35)— 
Sales and service revenues$631 $1,390 $590 $(35)$2,576 
Contract Type
Firm fixed-price$2 $8 $64 $— $74 
Fixed-price incentive576 703 — — 1,279 
Cost-type50 677 425 — 1,152 
Time and materials— — 71 — 71 
Intersegment3 2 30 (35)— 
Sales and service revenues$631 $1,390 $590 $(35)$2,576 


Three Months Ended
March 31
($ in millions)20232022
Major Programs
Amphibious assault ships$323 $363 
Surface combatants and coast guard cutters253 265 
Other1 3 
Total Ingalls577 631 
Aircraft carriers837 742 
Submarines540 470 
Other129 178 
Total Newport News1,506 1,390 
Mission based solutions518 491 
Other106 99 
Total Mission Technologies624 590 
Intersegment eliminations(33)(35)
Sales and service revenues$2,674 $2,576 

As of March 31, 2023, the Company had $47.0 billion of remaining performance obligations. The Company expects to recognize approximately 40% of its remaining performance obligations as revenue through 2024, an additional 25% through 2026, and the balance thereafter.
Cumulative Catch-up Revenue Adjustments

For the three months ended March 31, 2023, net cumulative catch-up revenue adjustments increased operating income and increased diluted earnings per share by $9 million stock options and 0.4$0.17, respectively. For the three months ended March 31, 2022, net cumulative catch-up revenue adjustments increased operating income and increased diluted earnings per share by $45 million RPSRsand $0.89, respectively.

8
Table of Contents
Cumulative catch-up revenue adjustments for the ninethree months ended September 30, 2016, underMarch 31, 2023, included a favorable adjustment of $15 million on a contract at the treasury stock method.Company's Newport News segment, which increased diluted earnings per share by $0.30. Cumulative catch-up revenue adjustments for the three months ended March 31, 2023, included an unfavorable adjustment of $14 million on a contract at the Company's Newport News segment, which decreased diluted earnings per share by $0.28.


Cumulative catch-up revenue adjustments for the three months ended March 31, 2022, included a favorable adjustment of $17 million on a contract at the Company's Ingalls segment, which increased diluted earnings per share by $0.34. For the three months ended March 31, 2022, no individual unfavorable cumulative catch-up revenue adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.
9. SEGMENT INFORMATION

Contract Balances

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

segment was establishedreports contract balances 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 periodsa net contract asset or contract liability position on a retrospective basis. Nonecontract-by-contract basis at the end of these changes impactedeach reporting period. The Company’s net contract assets increased $14 million from December 31, 2022, to March 31, 2023, primarily resulting from an increase in contract assets related to revenue on certain U.S. Navy contracts. For the Company's previously reported consolidated financial position, resultsthree months ended March 31, 2023, the Company recognized revenue of operations, or cash flows.$551 million related to its contract liabilities as of December 31, 2022. For the three months ended March 31, 2022, the Company recognized revenue of $379 million related to its contract liabilities as of December 31, 2021.


7. SEGMENT INFORMATION

The following table presents segment results for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
 Three Months Ended
March 31
($ in millions)20232022
Sales and Service Revenues
Ingalls$577 $631 
Newport News1,506 1,390 
Mission Technologies624 590 
Intersegment eliminations(33)(35)
Sales and service revenues$2,674 $2,576 
Operating Income
Ingalls$55 $86 
Newport News84 81 
Mission Technologies17 9 
Segment operating income156 176 
Non-segment factors affecting operating income
Operating FAS/CAS Adjustment(19)(37)
Non-current state income taxes4 (1)
Operating income$141 $138 

  Three Months Ended
September 30		 Nine Months Ended
September 30
($ in millions) 2017 2016 2017 2016
Sales and Service Revenues        
Ingalls $593
 $577
 $1,782
 $1,748
Newport News 1,053
 978
 3,025
 2,970
Technical Solutions 241
 154
 710
 505
Intersegment eliminations (24) (26) (72) (77)
Sales and service revenues $1,863
 $1,683
 $5,445
 $5,146
Operating Income (Loss)        
Ingalls $74
 $66
 $238
 $236
Newport News 96
 68
 248
 247
Technical Solutions 22
 6
 13
 7
Segment operating income (loss) 192
 140
 499
 490
Non-segment factors affecting operating income (loss)        
FAS/CAS Adjustment 46
 37
 144
 107
Non-current state income taxes (1) (2) (5) (7)
Operating income (loss) $237
 $175
 $638
 $590

Operating FAS/CAS Adjustment - The Operating FAS/CAS Adjustment reflectsrepresents the difference between expenses forthe service cost component of our pension and other postretirement benefitsbenefit plan expense determined in accordance with U.S. GAAP Financial Accounting Standards ("FAS") and the expenses for these items included in segment operating income in accordance withour pension and other postretirement expense under U.S. Government Cost Accounting Standards ("CAS").


9
Table of Contents
The following table presents the Company's assets by segment.segment:
($ in millions)March 31, 2023December 31, 2022
Assets
Ingalls$1,615 $1,633 
Newport News4,566 4,344 
Mission Technologies3,291 3,347 
Corporate1,377 1,533 
Total assets$10,849 $10,857 

($ 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
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 to the wind down of the Avondale facility were capitalized in production costs of contracts in process within inventoried costs. See Note 4: Avondale.

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

For the nine months ended September 30, 2017, the carrying amounts of goodwill changed as follows:
($ 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 million and $5 million for the three months ended September 30, 2017 and 2016, respectively, and $30 million and $16 million for the nine months ended September 30, 2017 and 2016, respectively.

In connection with the Camber acquisition in 2016, the Company recorded $76 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 10 years.

The Company expects amortization expense for purchased intangible assets of approximately $40 million in 2017, $36 million in 2018, $32 million in 2019, $28 million in 2020, and $26 million in 2021.

12.8. INCOME TAXES


The Company's earnings are principallyprimarily domestic, and its effective income tax rates on earnings from operations for the three months ended September 30, 2017March 31, 2023 and 2016,2022, were 32.3%20.9% and 31.8%20.5%, respectively. Forrespectively, which did not differ materially from the ninefederal statutory corporate income tax rate of 21%.

The Company's unrecognized tax benefits increased by $2 million during the three months ended September 30, 2017March 31, 2023. As of March 31, 2023, the estimated amounts of the Company's unrecognized tax benefits, excluding interest and 2016,penalties, were liabilities of $92 million. Assuming a sustainment of these tax positions, a reversal of $70 million of the accrued amounts would favorably affect the Company's effective tax rates on earnings from operations were 29.1% and 29.5%, respectively. The higher effectivefederal income tax rate forin future periods.

The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense. 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 effective tax rate for the nine months ended September 30, 2017, was primarily attributable to an increase in the domestic manufacturing deduction.

For the three and nine months ended September 30, 2017, the Company's effective tax rates differedMarch 31, 2023, interest resulting from the federal statutory rate primarily as a result of the incomeunrecognized tax benefits resulting from stock award settlement activity

and the domestic manufacturing deduction. For the three and nine months ended September 30, 2016, the Company's effective tax rates differed from the federal statutory rate primarily as a result of the adoption of ASU 2016-09, which reducednoted above increased income tax expense by the income tax benefits resulting from stock award settlement activity, and the domestic manufacturing deduction.$1 million.

The Company’s unrecognized tax benefits decreased by $1 million during the three months ended September 30, 2017, as a result of the expiration of applicable statutes of limitation. The remaining unrecognized tax benefits are immaterial and will likely be recognized in the next 12 months as a result of expiration of applicable statutes of limitation.

Non-current state income taxes include deferred state income taxes, which reflect the change in deferred state tax assets and liabilities, and the tax expense or benefit associated with changes in unrecognized state uncertain tax positionsbenefits 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
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”) with third-party lenders. The Amended 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. 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 leverage ratio, which could limit the amount of dividends the Company may pay and shares the Company may repurchase. 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 of the Company and domestic subsidiaries are pledged as collateral under the Amended Credit Facility.

As of September 30, 2017, approximately $15 million in standby letters of credit were issued but undrawn, and the remaining $1,235 million of the revolving credit facility was unutilized. The Company had unamortized debt issuance costs associated with its credit facilities of $6 million and $8 million as of September 30, 2017, and December 31, 2016, 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 senior notes of $17 million and $19 million as of September 30, 2017, and December 31, 2016, respectively.

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

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

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

The estimated fair values of the Company's total long-term debt as of September 30, 2017, and December 31, 2016, were $1,385 million and $1,372 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.

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

14.9. 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. ForThe Company has also provided footnote
disclosure for matters wherefor which 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 doesreserve has 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 been accrued because
the likelihood of a material loss is remote.not probable.


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 sealpending 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. Depending uponDepartment of Justice (“DoJ”) declined to intervene in the outcomelawsuit, and the lawsuit was unsealed. The court dismissed the complaint in September 2021, and the plaintiff has appealed the dismissal to the United States Court of this matter,Appeals for the 11th Circuit.

Insurance Claims - In September 2020, the Company couldfiled a complaint against 32 reinsurers in the Superior Court, State of Vermont, Franklin Unit, seeking a judgment declaring that the Company's business interruption and other losses associated with COVID-19 are covered by the Company's property insurance program. The Company also has initiated arbitration proceedings against six other reinsurers seeking similar relief. In July 2021, the Vermont court granted the reinsurers’ motion for judgment on the pleadings, which would have ended the Company’s claim. The Company appealed the decision to the Vermont Supreme Court, which reversed and remanded the lower court’s decision in September 2022, allowing the Company’s claim to proceed. No assurances can 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 and given the current posture of the matter, the Company is unable to estimate an amount or range of reasonably possible loss or to express an opinionprovided regarding the ultimate outcome.resolution of this matter.

10
Table of Contents
In September 2021, the Company filed a complaint in the Superior Court of Delaware, seeking a judgment against certain insurers for breach of contract and breach of the implied covenant of good faith and fair dealing under three representations and warranties insurance policies purchased in connection with the Company’s acquisition of Hydroid. The policies insure the Company against losses relating to the seller’s breach of certain representations and warranties in the Hydroid acquisition agreement. The coverage limit under the insurance policies is $70 million, and the Company believes it has incurred losses equal to at least that amount as a result of breaches of the acquisition agreement. No assurances can be provided regarding the ultimate resolution of this matter.

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 tofor the Company for its liability and that of its former executive officers.Company's liabilities. The average cost per casecosts to resolve cases during the ninethree months ended September 30, 2017March 31, 2023 and 2016, was immaterial2022, were not material individually andor in the aggregate. The Company’s estimate of asbestos-related liabilities is subject to uncertainty because liabilities are influenced by numerousmany 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 condensed consolidated financial position, results of operations, or cash flows, it cannot predict what new or revised claims or litigation might be asserted or what information might come to light and can, therefore, give no assurances regarding the ultimate outcome of asbestos related litigation.


Other Litigation - The Company and its predecessor-in-interest have been in litigation with the Bolivarian Republic of Venezuela (the “Republic”"Republic") since 2002 over a contract for the repair, refurbishment, and modernization at Ingalls of two foreign-built frigates. The case proceeded towardsFollowing an arbitration then appeared to settle favorably, butproceeding between the settlement was overturnedparties, in court andFebruary 2018, the matter returned to litigation. In March 2014,arbitral tribunal awarded the Company filed an arbitral statement of claim asserting breaches of the contractapproximately $151 million on its claims and $173 million in damages plus substantial interest and litigation expenses. In July 2014,awarded the Republic filedapproximately $22 million on its counterclaims. The Company is seeking to enforce and execute upon the award in the arbitration a statement of defense 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 the Company cannot predict when the arbitration panel will render a decision.multiple jurisdictions. No assurances can be provided regarding the ultimate outcomeresolution 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 variousother claims, and legal proceedings, and investigations will not have a material effect on its condensed 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.


15.10. 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 marginsrecognized 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, theMarch 31, 2023, amounts recognized amounts related to otherin 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 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. Historically, the Company has not incurred any substantial liabilities resulting from these guarantees. As of September 30, 2017, 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 wherewhen 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
11
Table of Contents
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 that as of September 30, 2017,March 31, 2023, the probable estimable future cost for environmental remediation was $1 million, which is accrued in other current liabilities. 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.material. Although management cannot predict whether new information gained as projects progressremediation progresses or the Company incurs additional remediation obligations will materially affect the estimated liability accrued, management does not believe that future remediation expenditures will have a material effect on the Company's consolidated financial position, results of operations, or cash flows.


Financial Arrangements - In the ordinary course of business, HII uses standby letters of credit issued by commercial banks to support certain leases, insurance policies, and contractual performance obligations, as well as surety bonds issued by insurance companies principally to support the Company's self-insured workers' compensation plans. As of September 30, 2017,March 31, 2023, the Company had $15$14 million in standbyissued but undrawn letters of credit issued but undrawn, as indicated in Note 13: Debt, and $260$360 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 HIIthe Company 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.



Other Matters - In 1985, the Company and the U.S. Navy entered into a settlement agreement to resolve disputes associated with billing and allocating to contracts the cost of workers’ compensation self-insurance, among other matters. Consistent with the 1985 settlement agreement, the Company has not recovered cumulative billable costs resulting from the different treatment of workers' compensation costs between CAS and FAS. Under the 1985 settlement agreement, these costs would be recovered in future periods. In December 2020, a U.S. Navy Contracting Officer issued a determination that the 1985 settlement agreement did not comply with CAS and directed the Company to develop and implement a different process to bill and allocate the cost of workers’ compensation self-insurance. The Company believes the 1985 settlement agreement is CAS-compliant and cannot be unilaterally terminated, but the Company is continuing to negotiate a resolution of the matter with the Contracting Officer.

In August 2022, the Navy Contracting Officer issued a written determination that the Ingalls Shipbuilding Property Management System had a significant deficiency, resulting in a 2% withhold of payments on certain invoices issued under one contract. In response, the Company proposed a corrective action plan, which the Navy approved. Subsequently, the Navy terminated the withhold and released withheld funds to the Company.

In January 2023, the Company entered into discussions with a Mission Technologies' customer to amend an
existing contract to address manufacturing issues. Although final agreement has not been reached, the Company recorded during the period ended March 31, 2023, a provision for contract loss that was not material to the financial statements as a whole.

National Security Cutter (“NSC”) 11 Steel Plates Issue - After the Company’s Ingalls Shipbuilding segment began fabrication of Friedman (NSC 11) for the U.S. Coast Guard, the Coast Guard initiated communications with Ingalls about the degree of corrosion of certain steel plates Ingalls was using to fabricate Friedman (NSC 11), as well as the process Ingalls was using to remediate the corrosion. The Coast Guard subsequently informed Ingalls of its objection to the process Ingalls was using to remediate corrosion in Friedman (NSC 11) steel plates and requested that Ingalls follow a different remediation process or, alternatively, reconstruct affected fabricated units with new steel. Ingalls and the Coast Guard are continuing to seek a resolution of the matter. The Company has included estimates of the financial impact of the Friedman (NSC 11) matter into its contract cost estimates and revenue recognition processes. The variability of the scope of work the Company will perform to resolve the matter and the extent to which the Company will recover increased costs to resolve the matter could impact those estimates in the future. The ultimate resolution of the Friedman (NSC 11) steel plates issue, including the scope of remediation work and recovery of associated costs, could result in an adverse effect on the Company's condensed consolidated financial position, results of operations, or cash flows.

Collective Bargaining Agreements- Of the Company's approximately 37,00043,000 employees, approximately 50%45% are covered by a total of ninecollective bargaining agreements. Newport News has four collective bargaining agreements covering represented employees. In July 2017, Newport News employees represented by the United Steelworkers ratified a new collective bargaining agreement with Newport News. The agreement which 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 collective bargaining agreements covering represented employees, all of which expire in March 2018. Approximately 35 Technical Solutions craft employees at the Hanford Site near Richland, Washington are represented under an indefinite DoEone site stabilization agreement.
Collective bargaining agreements generally expire after three to five years and are subject to renegotiation at that time. The Company does not expect the resultsbelieves its relationship with its employees is satisfactory.

12
Table of these negotiations, either individually or in the aggregate, to have a material effect on the Company's consolidated results of operations.Contents

16.11. EMPLOYEE PENSION AND OTHER POSTRETIREMENT BENEFITS


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


The costs of the Company's defined benefit pension plans and other postretirement benefit plans for the three and nine months ended September 30, 2017March 31, 2023 and 2016,2022, were as follows:
 Three Months Ended
March 31
Pension BenefitsOther Benefits
($ in millions)2023202220232022
Components of net periodic benefit cost
Service cost$28 $45 $1 $2 
Interest cost86 64 5 4 
Expected return on plan assets(132)(150)— — 
Amortization of prior service cost (credit)4 4 (1)(1)
Amortization of net actuarial loss (gain)4 9 (3)(1)
Net periodic benefit (income) cost$(10)$(28)$2 $4 

  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 ninethree months ended September 30, 2017March 31, 2023 and 2016:2022:
 Three Months Ended
March 31
($ in millions)20232022
Pension plans
Discretionary
Qualified$— $— 
Non-qualified2 3 
Other benefit plans8 7 
Total contributions$10 $10 

  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

TheAs of March 31, 2023, the Company anticipates no further significant cash contributions to its qualified defined benefit pension plans in 2017.2023.


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.

17.12. STOCK COMPENSATION PLANS


During the ninethree months endedSeptember 30, 2017 March 31, 2023 and 2016,2022, the Company issued new stock awards as follows:


Restricted Performance Stock Rights - For the ninethree months ended September 30, 2017,March 31, 2023, the Company granted approximately 0.1 million RPSRs at a weighted average share price of $218.36.$215.20. These rights are subject to cliff vesting on December 31, 2019.2025. For the ninethree months ended September 30, 2016,March 31, 2022, the Company granted approximately 0.20.1 million RPSRs at a weighted average share price of $133.08.$204.10. These rights are subject to cliff vesting on December 31, 2018. The2024. 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 ninethree months ended September 30, 2017March 31, 2023 and 2016, 0.42022, awards of approximately 0.1 million and 0.80.2 million shares of stock awards vested, respectively, of which approximately 0.2less than 0.1 million and 0.3 million, respectively,for each period were transferred to the Company from employees in satisfaction of minimum tax withholding obligations.


13
Table of Contents
The following table summarizes the status of the Company's outstanding stock awards as of September 30, 2017.
March 31, 2023:
Stock Awards
(in thousands)		Weighted-Average
Grant Date Fair
Value		Weighted-Average Remaining Contractual Term
(in years)
Total stock awards551 $189.15 1.5
  
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 of $12 million and $9 million for the three months ended September 30, 2017March 31, 2023 and 2016, of $7 million and $11 million,2022, respectively.
The Company recorded stock-based compensation for the valuetax benefits related to stock awards of awards granted to Company employees and non-employee members of the board of directors for the nine months ended September 30, 2017 and 2016, of $27$2 million and $22$1 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 three months ended September 30, 2017March 31, 2023 and 2016,2022, respectively. The Company recognized tax benefits associated with the issuance of stock in settlement of stock awards of $3 million and $4 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 ninethree months ended September 30, 2017March 31, 2023 and 2016, of $35 million and $31 million,2022, respectively.

Unrecognized Compensation Expense


As of September 30, 2017,March 31, 2023, the Company had less than $1$2 million of unrecognized compensation expense associated with Restricted Stock Rights granted in 2017,2023, 2022, and 2021, which will be recognized over a weighted average period of 0.9 years, and $57 million of unrecognized compensation expense associated with RPSRs granted in 2023, 2022, and 2021, which will be recognized over a weighted average period of 1.7 years,years.

13. SUBSEQUENT EVENTS

In April 2023, the Company amended its existing $1.5 billion credit facility (the "Revolving Credit Facility") and $32$650 million of unrecognized compensation expense associated with RPSRs granted in 2017, 2016, and 2015, whichterm loan due August 19, 2024 (the "Term Loan") to change the benchmark interest rate from the London Interbank Offered Rate to the Secured Overnight Financing Rate (“SOFR”). The new interest rate will be recognized over a weighted average period of 1.1 years.based on SOFR plus an interest spread based on the Company's credit rating, plus an additional 0.10%. The Company does not expect the transition to the SOFR benchmark to materially impact its financial results. For further information on the Company's debt, see the Company's 2022 Annual Report on Form 10-K.



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 ofa global, all-domain defense partner, building and delivering the world’s most powerful, survivable naval ships and technologies that safeguard America’s largest military shipbuilding companiesseas, sky, land, space, and a provider of professional services to partners in government and industry.cyber. For more than a century,

our Ingalls Shipbuilding segment ("Ingalls") in Mississippi and Newport News segmentsShipbuilding segment ("Newport News") in Mississippi and Virginia have built more ships in more ship classes than any other U.S. naval shipbuilder, making us America's largest shipbuilder. We also provide a range of servicesOur Mission Technologies segment delivers high-value engineering and technology solutions to enable multi-domain distributed operations in the governmental, energy,government and oilcommercial markets. Headquartered in Newport News, Virginia, HII employs approximately 43,000 people domestically and gas markets through our Technical Solutions segment.internationally.
We conduct most of our business with the U.S. Government, principallyprimarily the DoD.Department of Defense ("DoD"). As prime contractor, principal subcontractor, team member, or partner, we participate in many high-priority U.S. defense technology programs. 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 SolutionsMission Technologies segment was established in December 2016 and provides a wide range of professional services and products, including fleet support, integrated mission solutions,command, control, computers, communications, cyber, intelligence, surveillance, and reconnaissance ("C5ISR") systems and operations; the application of Artificial Intelligence and machine learning to battlefield decisions; defense and offensive cyberspace strategies and electronic warfare; unmanned autonomous systems; live, virtual, and constructive training solutions; platform modernization; and critical nuclear and environmental and oil and gas services.operations.

14
Table of Contents

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 2022 Annual Report on Form 10-K for the year ended December 31, 2016.10-K.


Business Environment


In August 2011,We continue to see uncertainty in the Budget Control Act (the "BCA") established limits on economy, our industry, and our company, with challenges for customers and suppliers, labor shortages, supply chain challenges, and inflation, among other impacts.

U.S. Government discretionary spending, includingContracts - The President submitted the fiscal year 2024 budget request on March 9, 2023, and the request is now under consideration by Congress. The budget request reflects continued investment in shipbuilding, funding the second Columbia class (SSBN 826) submarine, two Virginia class (SSN 774) attack submarines, two Flight III Arleigh Burke class (DDG 51) destroyers, and the final increment of Fallujah (LHA 9). Additionally, the budget request continues funding for USS Gerald R. Ford class (CVN 78) nuclear aircraft carriers and aircraft carrier refueling programs, and includes investment in the submarine industrial base. The U.S. Marine Corps included a reduction of defense spending by approximately $487 billion forLPD Flight II amphibious ship (LPD 33) in its 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,year 2024 unfunded priority list, which was submitted to the extent that discretionary spending limitsCongress shortly after the release of the budget request.

Political and Economic Environment - The global geopolitical and economic environment continues to be impacted
by uncertainty, heightened tensions, and instability. Geopolitical relationships have changed, and are exceeded,continuing to
change, and $500 billion for non-defense discretionary spending, including the U.S. Coast Guard.and its allies face a global security environment that includes threats from state and non-state

actors, including major global powers, as well as terrorist organizations, emerging nuclear tensions, diverse regional
The Bipartisan Budget Actsecurity concerns, and political instability. These global threats persist across all domains, from undersea to space
to cyber, and the global market for defense products, services, and solutions is driven by these complex and
evolving security challenges. Our current operating environment exists in the broader context of 2015 (the "BBA 2015") provided sequestration relief for fiscal years 2016political and 2017, but sequestration remains
socioeconomic priorities and reflects, among other things, the continued impact of and uncertainty surrounding
geopolitical tensions, financial market volatility, inflation, a challenging labor market, and continued public health issues.

For further information on our business environment, see the discussion under Business Environment under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in effect for fiscal years 2018 through 2021. Long-term uncertainty remains with respect to overall levels of defense spending, and it is likely that U.S. Government discretionary spending levels will continue to be subject to significant pressure despite 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 for fiscal year 2017 was finalized and that the President's Budget Request for 2018 continues to fund key shipbuilding programs, the U.S. Government has not yet approved a budget for fiscal year 2018 and is currently operating under a short-term Continuing Resolution, which funds government operations through December 8, 2017. We 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 viabilityPart II, Item 7 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 effect2022 Annual Report on our financial position, results of operations, or cash flows.Form 10-K.

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 for the security of our country, 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 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 2022 Annual Report on Form 10-K, for the year ended December 31, 2016, we consider theour policies relating to the following matters to be critical accounting policies:policies and estimates:


•Revenue recognition;


•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,March 31, 2023, there had been no material changes to the foregoing critical accounting policies, estimates, and judgments since December 31, 2016.2022.

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 categories:

Flexibly-Priced Contracts - Includes both 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.

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 are reasonably assured of collecting and can be reasonably estimated are recorded over the performance period of the contract.


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.


15
Table of Contents
CONSOLIDATED OPERATING RESULTS

Selected financial highlights are presented in the following table:
  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
Sales and service revenues $1,863
 $1,683
 $180
 11 % $5,445
 $5,146
 $299
 6 %
Cost of product sales and service revenues 1,498
 1,367
 131
 10 % 4,420
 4,128
 292
 7 %
Income (loss) from operating investments, net 7
 6
 1
 17 % 10
 7
 3
 43 %
General and administrative expenses 135
 147
 (12) (8)% 397
 435
 (38) (9)%
Operating income (loss) 237
 175
 62
 35 % 638
 590
 48
 8 %
Interest expense 18
 19
 (1) (5)% 53
 56
 (3) (5)%
Other income (expense) 1
 1
 —
 — % —
 (1) 1

100 %
Federal and foreign income taxes 71
 50
 21
 42 % 170
 157
 13
 8 %
Net earnings (loss) $149
 $107
 $42
 39 % $415
 $376
 $39
 10 %
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 primarilylargely 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 financial estimates and the use of the cumulative catch-up method of accounting in accordance with GAAP. This approach is consistent with the long-term life cycle of our contracts, as management assesses the bidding of each contract bid based uponby 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.


Key Financial Measures

The following table presents selected financial highlights:
Three Months Ended
March 31
 2023 vs. 2022
($ in millions)20232022DollarsPercent
Sales and service revenues$2,674 $2,576 $98 4 %
Cost of product sales and service revenues2,324 2,227 97 4 %
Income from operating investments, net12 7 5 71 %
Other income and gains (losses), net(1)(1)— — %
General and administrative expenses220 217 3 1 %
Operating income141 138 3 2 %
Other income (expense)
Interest expense(24)(26)2 8 %
Non-operating retirement benefit37 71 (34)(48)%
Other, net9 (7)16 229 %
Federal and foreign income taxes34 36 (2)(6)%
Net earnings$129 $140 $(11)(8)%

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
profit margin rate for a particular contract.

Sales and service revenues for the three months ended March 31, 2023, increased $98 million, or 4%, compared to the same period in 2022, primarily due to higher volumes at Newport News and Mission Technologies, partially offset by lower volumes at Ingalls.

Cost of Sales and Service Revenues

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.


Sales
16
Table of Contents
Refer to "Segment Operating Results" and "Product and Service Revenues

SalesAnalysis" in this section for details related to cost of sales for both product sales and service revenues were comprised as follows:
revenues.
  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
Product sales $1,391
 $1,327
 $64
 5% $4,088
 $4,120
 $(32) (1)%
Service revenues 472
 356
 116
 33% 1,357
 1,026
 331
 32 %
Sales and service revenues $1,863
 $1,683
 $180
 11% $5,445
 $5,146
 $299
 6 %

Product sales for the three months ended September 30, 2017, increased $64 million, or 5%, compared with the same period in 2016. Product sales for the nine months ended September 30, 2017, decreased $32 million, or 1%, compared with the same period in 2016. Ingalls product sales increased $13 million for the three months ended September 30, 2017, primarily as a result of higher volumes in amphibious assault ships, partially offset by lower volumes in the Legend class NSC program and surface combatants. Ingalls product sales increased $15 million for the nine months ended September 30, 2017, primarily as a result of higher volumes in amphibious assault ships and the Legend class NSC program, offset by lower volumes in surface combatants. Newport News product sales increased $47 million for the three months ended September 30, 2017, 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 million and $19 million for the three and nine months ended September 30, 2017, respectively, as a result of higher volumes in surface combatants services. Newport News service revenues increased $27 million for the three months ended September 30, 2017, primarily as a result of higher volumes in naval nuclear support services and aircraft carriers services. Newport News service revenues increased $40 million for the nine months ended September 30, 2017, primarily as a result of higher volumes in naval nuclear support services and aircraft carriers services, partially offset by lower volumes in submarines services. Technical Solutions service revenues increased $86 million and $272 million for the three and nine months ended September 30, 2017, respectively, primarily as a result of higher volumes in integrated mission solutions services following the acquisition of Camber and higher volumes in fleet support and oil and gas services.


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  
  September 30 2017 over 2016 September 30 2017 over 2016
($ in millions) 2017 2016 Dollars Percent 2017 2016 Dollars Percent
Cost of product sales $1,105
 $1,059
 $46
 4 % $3,279
 $3,241
 $38
 1 %
% of product sales 79.4% 79.8% 

   80.2% 78.7% 

  
Cost of service revenues 393
 308
 85
 28 % 1,141
 887
 254
 29 %
% of service revenues 83.3% 86.5% 

   84.1% 86.5% 

  
Income (loss) from operating investments, net 7
 6
 1
 17 % 10
 7
 3
 43 %
General and administrative expenses 135
 147
 (12) (8)% 397
 435
 (38) (9)%
% of sales and service revenues 7.2% 8.7% 

   7.3% 8.5% 

  
Cost of sales and service revenues $1,626

$1,508
 $118
 8 % $4,807
 $4,556
 $251
 6 %

Cost of Product Sales

Cost of product sales for the three months ended September 30, 2017, increased $46 million, or 4%, compared with the same period in 2016. Cost of product sales for the nine months ended September 30, 2017, increased $38 million, or 1%, compared with the same period in 2016. Ingalls cost of product sales increased $16 million for the three months ended September 30, 2017, 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 million for the nine months ended September 30, 2017, primarily as a result of lower risk retirement in the San Antonio class (LPD 17) program, following delivery of USS John P. Murtha (LPD 26) in 2016, as well as the volume changes described above, partially offset by higher risk retirement on Tripoli (LHA 7) and the Legend class NSC program. Newport News cost of product sales increased $43 million for the three months ended September 30, 2017, primarily as a result of the volume changes described above, partially offset by the resolution of outstanding contract changes on the RCOH of USS Abraham Lincoln (CVN 72). Newport News cost of product sales increased $33 million for the nine months ended September 30, 2017, primarily as a result of lower risk retirement in the Virginia class (SSN 774) submarine program and the volume changes described above, partially offset by the resolution of outstanding contract changes on the RCOH of USS Abraham Lincoln (CVN 72). Technical Solutions cost of product sales decreased $13 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, 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.

Cost of product sales as a percentage of product sales decreased from 79.8% for the three 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. Cost of product sales as a percentage of product sales increased from 78.7% for the nine months ended September 30, 2016, to 80.2% for the nine months ended September 30, 2017. This increase was primarily due to lower risk retirement in the San Antonio class (LPD 17) program, following delivery of USS John P. Murtha (LPD 26) in 2016, and the Virginia class (SSN 774) submarine program, as well as the establishment of an allowance for accounts receivable on a nuclear and environmental commercial contract, partially offset by higher risk retirement in 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).


Cost of Service Revenues

Cost of service revenues for the three months ended September 30, 2017, increased $85 million, or 28%, compared with the same period in 2016. Cost of service revenues for the nine months ended September 30, 2017, increased $254 million, or 29%, compared with the same period in 2016. Ingalls cost of service revenues remained constant for the three months ended September 30, 2017. Ingalls cost of service revenues increased $6 million for the nine months ended September 30, 2017, primarily as a result of the higher volumes described above. Newport News cost of service revenues increased $6 million and $9 million for the three and nine months ended September 30, 2017, respectively, primarily as a result of the volume changes described above, partially offset by the resolution of outstanding contract changes on the inactivation of the decommissioned USS Enterprise (CVN 65). Technical Solutions cost of service revenues increased $79 million and $239 million for the three and nine months ended September 30, 2017, respectively, primarily due to the higher volumes described above.

Cost of service revenues as a percentage of service revenues decreased from 86.5% for the three months ended September 30, 2016, to 83.3% for the three months ended September 30, 2017, primarily driven by the resolution of outstanding 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. Cost of service revenues as a percentage of service revenues decreased from 86.5% for the nine months ended September 30, 2016, to 84.1% for the nine months ended September 30, 2017, primarily driven by the resolution of outstanding 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.


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.


IncomeRefer to "Segment Operating Results" in this section for details related to income from operating investments, net for the three and nine months ended September 30, 2017, increased $1 million and $3 million, respectively, compared to the same periods in 2016, as a result of higher equity income from our Savannah River Nuclear Solutions, LLC investment.investments.


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 and nine months ended September 30, 2017, decreased $12March 31, 2023, increased $3 million and $38 million, respectively, compared withfrom the same periodsperiod in 2016,2022, primarily driven by favorable changes in the FAS/CAS Adjustment and lower non-currentdue to higher state income tax expense, partially offset by higher current state income tax expense.taxes and overhead costs.


Operating Income


We consider operating income to be an important measure for evaluating our operating performance, and, as is typical in theconsistent with industry practice, we define operating income as revenues less the related costcosts 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. Refer to

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

The following table reconciles segment operating income to segment operating income:
Three Months Ended
March 31
 2023 vs. 2022
($ in millions)20232022DollarsPercent
Operating income$141 $138 $3 2 %
Operating FAS/CAS Adjustment19 37 (18)(49)%
Non-current state income taxes(4)1 (5)(500)%
Segment operating income$156 $176 $(20)(11)%
  Three Months Ended   Nine Months Ended  
  September 30 2017 over 2016 September 30 2017 over 2016
($ 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%


Segment Operating Income

Segment operating income for the three months ended September 30, 2017, was $192March 31, 2023, increased $3 million an increase of $52 million fromcompared with the same period in 2016. The increase was2022, primarily due to favorable changes in the resolution of outstanding contract changes on the inactivation of the decommissioned USS Enterprise (CVN 65)Operating FAS/CAS Adjustment 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,non-current state income taxes, partially offset by lower risk retirement in the Legend class NSC program.segment operating income.

Segment operating income for the nine months ended September 30, 2017, was $499 million, an increase of $9 million from the same period in 2016. The increase 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 the Virginia class (SSN 774) submarine program, as well as the establishment of an allowance for accounts receivable on a nuclear and environmental commercial contract in 2017.

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


FAS/CAS Adjustment and Operating FAS/CAS Adjustment


The FAS/CAS Adjustment representsreflects the difference between ourexpenses for pension and other postretirement benefits determined in accordance with U.S. GAAP Financial Accounting Standards ("FAS") and the expenses for these items included in segment operating income in accordance with U.S. Government Cost Accounting Standards
17
Table of Contents
("CAS"). The Operating FAS/CAS Adjustment excludes the following components of net periodic benefit costs: interest cost, expected return on plan expense under FASassets, amortization of prior service cost (credit) and under CAS.actuarial loss (gain), and settlement and curtailment effects.


The components of the Operating FAS/CAS Adjustment were as follows:
Three Months Ended
March 31
 2023 vs. 2022
($ in millions)20232022DollarsPercent
FAS benefit$8 $24 $(16)(67)%
CAS cost10 10 — — %
FAS/CAS Adjustment18 34 (16)(47)%
Non-operating retirement benefit(37)(71)34 48 %
Operating FAS/CAS Adjustment$(19)$(37)$18 49 %

  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
FAS expense $(44) $(40) $(4) (10)% $(128) $(121) $(7) (6)%
CAS cost 90
 77
 13
 17 % 272
 228
 44
 19 %
FAS/CAS Adjustment $46
 $37
 $9
 24 % $144
 $107
 $37
 35 %

The Operating FAS/CAS Adjustment was a net benefitexpense of $46 million and $37 million for the three months ended September 30, 2017 and 2016, respectively. The FAS/CAS Adjustment was a net benefit of $144 million and $107 million for the nine months ended September 30, 2017 and 2016, respectively. The favorable changes in the FAS/CAS Adjustment of $9$19 million and $37 million for the three and nine months ended September 30, 2017, respectively, compared to the same periods in 2016, wereMarch 31, 2023 and 2022, respectively. The favorable change was primarily driven by the continued phase-inmore immediate recognition of Harmonization.higher interest rates under FAS.



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 uncertainunrecognized tax positionsbenefits 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 expensebenefit for the three months ended September 30, 2017,March 31, 2023, was $1$4 million, compared to a non-current state income tax expense of $2$1 million for the same period in 2016. Non-current2022. The favorable change in non-current state income taxes was driven by a decrease in deferred state income tax expense, for the nine months ended September 30, 2017, was $5 million, compared to a non-current state income tax expense of $7 million for the same period in 2016. The decreases in non-current state income tax expense were primarily attributable to changes in pension related adjustments.the timing of long-term contract income for tax purposes.


Interest Expense

Interest expense for the three and nine months ended September 30, 2017, decreased $1 million and $3 million, respectively, compared with the same periods in 2016.

Federal and Foreign Income Taxes

Our effective tax rate on earnings from operations for the three months ended September 30, 2017, was 32.3%, compared with 31.8% for the same period in 2016. Our effective tax rate on earnings from operations for the nine months ended September 30, 2017, was 29.1%, compared with 29.5% for the same period in 2016. 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 effective tax rate for the nine months ended September 30, 2017, was primarily attributable to an increase in the domestic manufacturing deduction. Our effective tax rates for the three and nine months ended September 30, 2017, differed from the federal statutory rate primarily as a result of the income tax benefits resulting from stock award settlement activity and the domestic manufacturing deduction. See Note 12: Income Taxes and Note 17: Stock Compensation Plans.


SEGMENT OPERATING RESULTS


BasisOur discussion of Presentationbusiness segment performance focuses on sales and service revenues and operating income,

consistent with our approach for managing our business. We are aligned into three reportable segments: Ingalls, Newport News, and Technical Solutions.Mission Technologies.

Segment operating results are presented in the following table:
18
Table of Contents
  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
Sales and Service Revenues                
Ingalls $593
 $577
 $16
 3% $1,782
 $1,748
 $34
 2%
Newport News 1,053
 978
 75
 8% 3,025
 2,970
 55
 2%
Technical Solutions 241
 154
 87
 56% 710
 505
 205
 41%
Intersegment eliminations (24) (26) 2
 8% (72) (77) 5
 6%
Sales and service revenues $1,863
 $1,683
 $180
 11% $5,445
 $5,146
 $299
 6%
Operating Income (Loss)                
Ingalls $74
 $66
 $8
 12% $238
 $236
 $2
 1%
Newport News 96
 68
 28
 41% 248
 247
 1
 —%
Technical Solutions 22
 6
 16
 267% 13
 7
 6
 86%
Segment operating income (loss) 192
 140
 52
 37% 499
 490
 9
 2%
Non-segment factors affecting operating income (loss)                
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%

KEY SEGMENT FINANCIAL MEASURES

Sales and Service Revenues

Period-to-period revenues reflect performance under new and ongoing contracts. Changes inThe following table presents segment 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 results:
Three Months Ended
March 31
 2023 vs. 2022
($ in millions)20232022DollarsPercent
Sales and Service Revenues
Ingalls$577 $631 $(54)(9)%
Newport News1,506 1,390 116 8 %
Mission Technologies624 590 34 6 %
Intersegment eliminations(33)(35)2 6 %
Sales and service revenues$2,674 $2,576 $98 4 %
Operating Income
Ingalls$55 $86 $(31)(36)%
Newport News84 81 3 4 %
Mission Technologies17 9 8 89 %
Segment operating income156 176 (20)(11)%
Non-segment factors affecting operating income
Operating FAS/CAS Adjustment(19)(37)18 49 %
Non-current state income taxes4 (1)5 500 %
Operating income$141 $138 $3 2 %


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, includingsuch as the Operating FAS/CAS Adjustment and non-current state income taxes. Changes in segment operating income are typically expressed in terms of volume, as discussed above, or performance. Performance refers to changes in contract profit margin rates. These changes typically relate to profit recognition associated with revisions to 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 Catch-up Revenue Adjustments
Cumulative Adjustments

For the three and nine months ended September 30, 2017March 31, 2023 and 2016,2022, favorable and unfavorable cumulative catch-up revenue adjustments were as follows:
Three Months Ended
March 31
 
($ in millions)20232022
Gross favorable adjustments$64 $107 
Gross unfavorable adjustments(55)(62)
Net adjustments$9 $45 

19
Table of Contents
  Three Months Ended Nine Months Ended
  September 30 September 30
($ in millions) 2017 2016 2017 2016
Gross favorable adjustments $78
 $41
 $223
 $208
Gross unfavorable adjustments (22) (17) (81) (41)
Net adjustments $56
 $24
 $142
 $167

For the three months ended September 30, 2017, favorableMarch 31, 2023 and 2022, net cumulative catch-up revenue adjustments by segment were related to 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), risk retirement on Portland (LPD 27), 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, favorable cumulative catch-up adjustments were related to risk retirement on the Legend class 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), and other individually insignificant adjustments. During the same period, none of the unfavorable cumulative catch-up adjustments were individually significant.as follows:

Three Months Ended
March 31
 
($ in millions)20232022
Ingalls$14 $41 
Newport News(9)— 
Mission Technologies4 4 
Net adjustments$9 $45 
For the three months ended September 30, 2016, favorable cumulative catch-up adjustments were primarily related to risk retirement on the Legend classNSC program and the San Antonio class (LPD 17) program. During the same period, none of the unfavorable cumulative catch-up adjustments were individually significant. For the nine months ended September 30, 2016, favorable cumulative catch-up adjustments were primarily related to risk retirement on USS John P. Murtha (LPD 26), the Virginia class (SSN 774) submarine program, Portland (LPD 27), and the Legend class NSC program. During the same period, none of the unfavorable cumulative catch-up adjustments were individually significant.

Ingalls
Three Months Ended
March 31
 2023 vs. 2022
($ in millions)20232022DollarsPercent
Sales and service revenues$577 $631 $(54)(9)%
Segment operating income55 86 (31)(36)%
As a percentage of segment sales9.5 %13.6 %
Ingalls
  Three Months Ended   Nine Months Ended  
  September 30 2017 over 2016 September 30 2017 over 2016
($ in millions) 2017 2016 Dollars Percent 2017 2016 Dollars Percent
Sales and service revenues $593
 $577
 $16
 3% $1,782
 $1,748
 $34
 2%
Segment operating income (loss) 74
 66
 8
 12% 238
 236
 2
 1%
As a percentage of segment sales 12.5% 11.4%     13.4% 13.5%    

Sales and Service Revenues


Ingalls revenues, including intersegment sales, for the three months ended September 30, 2017, increased $16March 31, 2023, decreased $54 million, or 3%9%, from the same period in 2016,2022, primarily driven by higherlower revenues in amphibious assault ships and surface combatants,the Legend class National Security Cutter ("NSC") program, partially offset by lowerhigher revenues in the Legend class NSC program. Amphibioussurface combatants. Revenues on amphibious assault ships revenues increaseddecreased due to higherlower volumes on USS Fort Lauderdale (LPD 28) following its delivery, Bougainville(LHA (LHA 8), L-Class planning yard services contract, and Fort LauderdaleRichard M. McCool Jr. (LPD 28)29), 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)Fallujah (LHA 9) 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)LPD 32 (unnamed). Revenues on theLegendclass NSC program decreased due to lower volumes on the delivered USCGC Munro (NSC 6)and Kimball (NSC 7), partially offset by higher volume on StoneFriedman (NSC 9).

Ingalls revenues for the nine months ended September 30, 2017, increased $34 million, or 2%, from the same period in 2016, primarily driven by higher revenues in amphibious assault ships and the Legend class NSC program, offset by lower revenues in 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)11). Revenues on the Legend class NSC programsurface combatants increased due to higher volumes on Stone (NSC 9)George M. Neal (DDG 131), Midgett (NSC 8)Jeremiah Denton (DDG 129), John F. Lehman (DDG 137), and Kimball (NSC 7)Ted Stevens (DDG 128), 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. (DDG 121), the delivered USS John Finn (DDG 113), Ralph Johnson (DDG 114), Paul Ignatius (DDG 117), and Delbert D. Black (DDG 119), partially offset by higher volumes on Lenah H. Sutcliffe Higbee (DDG 123), and USS Jack H. Lucas (DDG 125), and the extended selected restricted availability contract for USS Ramage (DDG 61).


Segment Operating Income


Ingalls segment operating income for the three months ended September 30, 2017,March 31, 2023, was $74$55 million, compared with $66to segment operating income of $86 million for the same period in 2016.2022. The increasedecrease was primarily due to higher 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, was $238 million, compared with $236 million for the same period in 2016. The increase was primarily due to higher risk retirement on Tripoli (LHA 7), the Legend class NSC program, and Portland (LPD 27), partially offsetdriven by lower risk retirement on the delivered USS John P. MurthaFort Lauderdale (LPD 26)28) and Bougainville (LHA 8).


Newport News
Three Months Ended
March 31
 2023 vs. 2022
($ in millions)20232022DollarsPercent
Sales and service revenues$1,506 $1,390 $116 8 %
Segment operating income84 81 3 4 %
As a percentage of segment sales5.6 %5.8 %
  Three Months Ended   Nine Months Ended  
  September 30 2017 over 2016 September 30 2017 over 2016
($ in millions) 2017 2016 Dollars Percent 2017 2016 Dollars Percent
Sales and service revenues $1,053
 $978
 $75
 8% $3,025
 $2,970
 $55
 2%
Segment operating income (loss) 96
 68
 28
 41% 248
 247
 1
 —%
As a percentage of segment sales 9.1% 7.0%     8.2% 8.3%    


Sales and Service Revenues


Newport News revenues, including intersegment sales, for the three months ended September 30, 2017,March 31, 2023, increased $75$116 million, or 8%, from the same period in 2016,2022, primarily driven by higher revenues in aircraft carriers and submarines, partially offset by lower revenues in naval nuclear support services, and submarines.services. Aircraft carrierscarrier revenues increased primarily as a result of higher volumes on the advance planning contract for the RCOHrefueling and complex overhaul ("RCOH") of USS George Washington (CVN 73),John C. Stennis (CVN 74) and the construction contract for of Doris Miller (CVN 81), Enterprise (CVN 80), and John F. Kennedy(CVN (CVN 79), and the advance planning contract for Enterprise (CVN 80), partially offset by lower volumes on the execution contract for the RCOH of USS Abraham LincolnGeorge Washington (CVN 72), and the construction contract for the delivered USS Gerald R. Ford (CVN 78)73).Naval nuclear support services Submarine 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 due to higher volumes on Block IVV boats of the Virginia class (SSN 774) submarine program and the Columbia class (SSBN 826) submarine program, partially offset by lower volumes on Block III boats.IV boats of the Virginia class (SSN 774) submarine

20
Table of Contents
Newport News revenues for the nine months ended September 30, 2017, increased $55 million, or 2%, from the same period in 2016, primarily driven by higher revenues in aircraft carriers and navalprogram. Naval nuclear support services partially offset by lower revenues in submarines. Aircraft carriers revenues increaseddecreased 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), and the advance planning contract for Enterprise (CVN 80), partially offset by lower volumes on the execution contract for 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). 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 carrier support. Submarines revenues related to the Virginia class (SSN 774) submarine program decreased due to lower volumes on Block III boats, partially offset by higher volumes on Block IV boats.fleet support services.

Segment Operating Income


Newport News segment operating income for the three months ended September 30, 2017,March 31, 2023, was $96$84 million, compared with $68to segment operating income of $81 million for the same period in 2016.2022. The increase was primarily due to 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).

Newport News segment operating income for the nine months ended September 30, 2017, was $248 million, compared with $247 million for the same period in 2016. The increase was primarily due to 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),higher sales volumes, partially offset by lowerunfavorable risk retirement inon the Virginia class (SSN 774) submarine program.Enterprise(CVN 80).


Technical SolutionsMission Technologies
Three Months Ended
March 31
 2023 vs. 2022
($ in millions)20232022DollarsPercent
Sales and service revenues$624 $590 $34 6 %
Segment operating income17 9 8 89 %
As a percentage of segment sales2.7 %1.5 %
  Three Months Ended   Nine Months Ended  
  September 30 2017 over 2016 September 30 2017 over 2016
($ in millions) 2017 2016 Dollars Percent 2017 2016 Dollars Percent
Sales and service revenues $241
 $154
 $87
 56% $710
 $505
 $205
 41%
Segment operating income (loss) 22
 6
 16
 267% 13
 7
 6
 86%
As a percentage of segment sales 9.1% 3.9% 

 

 1.8% 1.4% 

 



Sales and Service Revenues


Technical SolutionsMission Technologies revenues, including intersegment sales, for the three months ended September 30, 2017,March 31, 2023, increased $87$34 million, or 56%6%, from the same period in 2016,2022, primarily due to higher volume in integrated mission solutions services following the acquisition of Camber and higher volumes in mission based solutions and fleet support services.sustainment.

Technical Solutions revenues for the nine months ended September 30, 2017, increased $205 million, or 41%, from the same period in 2016, primarily due to higher volume in integrated mission solutions services following the acquisition of Camber and 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.


Segment Operating Income


Technical SolutionsMission Technologies segment operating income for the three months ended September 30, 2017,March 31, 2023, was $22$17 million, compared with $6to segment operating income of $9 million for the same period in 2016.2022. The increase was primarily due to the release of a portion of an accounts receivable allowance on adriven by improved performance in mission based solutions and unmanned systems, and higher equity income from nuclear and environmental commercial contract and improvedjoint ventures, partially offset by lower performance in oilfleet sustainment.

21
Table of Contents
PRODUCT AND SERVICE ANALYSIS

The following table presents segment sales and gasservice revenues and segment cost of sales and service revenues by both product and service:
Three Months Ended March 31
($ in millions)20232022
Segment InformationSales and service revenuesSegment cost of product sales and service revenuesSales and service revenuesSegment cost of product sales and service revenues
Ingalls
Product$534 $440 $578 $457 
Service41 34 50 43 
Intersegment2 2 3 3 
Total Ingalls577 476 631 503 
Newport News
Product1,271 1,092 1,121 959 
Service234 198 267 225 
Intersegment1 1 2 2 
Total Newport News1,506 1,291 1,390 1,186 
Mission Technologies
Product24 20 25 21 
Service570 521 535 485 
Intersegment30 30 30 30 
Total Mission Technologies624 571 590 536 
Segment Totals
Product1,829 1,552 1,724 1,437 
Service845 753 852 753 
Total Segment (1)
$2,674 $2,305 $2,576 $2,190 
(1) Operating FAS/CAS Adjustment is excluded from segment cost of product sales and service revenues.

Product Sales and Segment Cost of Product Sales

Product sales for the three months ended March 31, 2023, increased $105 million, or 6%, from the same period in 2022. Product sales at our Ingalls segment decreased $44 million in 2023, primarily as a result of lower volumes in amphibious assault ships and the Legend class NSC program, partially offset by higher volumes in surface combatants. Newport News product sales increased $150 million in 2023, primarily as a result of higher volumes in aircraft carriers and submarines. Mission Technologies product sales decreased $1 million in 2023, primarily as a result of lower volumes in mission based solutions and unmanned systems, partially offset by higher volumes in fleet sustainment.

Segment cost of product sales for the three months ended March 31, 2023, increased $115 million, or 8%, compared with the same period in 2022. Cost of product sales at our Ingalls segment decreased $17 million in 2023, primarily as a result of lower volumes described above, partially offset by lower risk retirement on USS Fort Lauderdale (LPD 28) following its delivery. Cost of product sales at our Newport News segment increased $133 million in 2023, primarily as a result of higher volumes described above. Cost of product sales at our Mission Technologies segment decreased $1 million in 2023, primarily as a result of lower volumes described above.

Service Revenues and Segment Cost of Service Revenues

Service revenues for the three months ended March 31, 2023, decreased $7 million, or 1%, compared with the same period in 2022. Service revenues at our Ingalls segment decreased $9 million in 2023, primarily as a result of
22
Table of Contents
lower volumes in amphibious assault ship services. Service revenues at our Newport News segment decreased $33 million in 2023, primarily as a result of lower volumes in naval nuclear support services, partially offset by higher volumes in aircraft carrier and submarine services. Service revenues at our Mission Technologies segment increased $35 million in 2023, primarily as a result of higher volumes in mission based solutions services and fleet sustainment.


Technical SolutionsSegment cost of service revenues for the three months ended March 31, 2023, were flat compared with the same period in 2022. Cost of service revenues at our Ingalls segment operatingdecreased $9 million in 2023, primarily as a result of lower volumes described above. Cost of service revenues at our Newport News segment decreased $27 million in 2023, primarily as a result of lower volumes described above. Cost of service revenues at our Mission Technologies segment increased $36 million in 2023, primarily as a result of higher volumes described above and year-to-year variances in contract mix.

OTHER FINANCIAL INFORMATION

Interest Expense

Interest expense for the three months ended March 31, 2023, was $24 million, compared with $26 million for the same period in 2022. The decrease was primarily driven by a decrease in outstanding long-term debt from the prior year period.

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 months ended March 31, 2023, the non-operating retirement benefit was $37 million, compared with $71 million for the same period in 2022. The decrease was primarily driven by lower 2022 returns on plan assets.

Other, Net

Other, net income for the ninethree months ended September 30, 2017,March 31, 2023 was $13$9 million, compared with other, net expense of $7 million for the same period in 2016.2022. The increasefavorable change was primarily due to improved performancedriven by realized and unrealized net gains in oilinvestments.

Federal and gas servicesForeign Income Taxes

Our effective income tax rates on earnings from operations for the three months ended March 31, 2023 and higher volume in integrated mission solutions services following2022, were 20.9% and 20.5%, respectively, which did not differ materially from the acquisitionfederal statutory corporate income tax rate of Camber, partially offset by the establishment of an allowance for accounts receivable on a nuclear and environmental commercial contract in 2017 and the resolution in 2016 of outstanding contract changes on a nuclear and environmental commercial contract.21%.


BACKLOG


Total backlog as of each of September 30, 2017,March 31, 2023, and December 31, 2016,2022, was approximately $23$47.0 billion and $21 billion.$47.1 billion, respectively. Total backlog includes both funded backlog (firm orders for which funding is contractually obligated by the customer) and unfunded backlog (firm orders for which funding is not currently contractually obligated by the customer). Backlog excludes unexercised contract options and unfunded Indefinite Delivery/Indefinite Quantity orders. For contracts having no stated contract values, backlog includes only the amounts committed by the customer.



23
Table of Contents
The following table presents funded and unfunded backlog by segment as of September 30, 2017,March 31, 2023, and December 31, 2016: 2022: 
 March 31, 2023December 31, 2022
   Total  Total
($ in millions)FundedUnfundedBacklogFundedUnfundedBacklog
Ingalls$10,852 $2,786 $13,638 $9,231 $3,546 $12,777 
Newport News13,579 15,069 28,648 11,665 17,742 29,407 
Mission Technologies1,332 3,390 4,722 1,317 3,622 4,939 
Total backlog$25,763 $21,245 $47,008 $22,213 $24,910 $47,123 
  September 30, 2017 December 31, 2016
      Total     Total
($ in millions) Funded Unfunded Backlog Funded Unfunded Backlog
Ingalls $6,472
 $1,627
 $8,099
 $6,033
 $692
 $6,725
Newport News 7,682
 5,974
 13,656
 5,799
 7,127
 12,926
Technical Solutions 335
 518
 853
 712
 372
 1,084
Total backlog $14,489
 $8,119
 $22,608
 $12,544
 $8,191
 $20,735


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%We expect approximately 21% of the $21$47.1 billion total backlog as of December 31, 2016, is expected2022, to be converted into sales in 2017.2023. U.S. Government orders comprised substantially all of the total backlog as of September 30, 2017,March 31, 2023, and December 31, 2016.2022.


Contract Awards


The value of new contract awards during the ninethree months ended September 30, 2017,March 31, 2023, was approximately $7 billion. Significant new awards during$2.6 billion, including an award modification for the period included the detaileddetail design and construction contract for Bougainville (LHA 8) and the execution contract for the RCOH of USS George Washington (CVN 73)LPD 32 (unnamed).


LIQUIDITY AND CAPITAL RESOURCES


We endeavorseek to ensure the most efficient conversion ofefficiently convert 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:
Three Months Ended
March 31		2023 vs. 2022
($ in millions)20232022Dollars
Net earnings$129 $140 $(11)
Depreciation and amortization89 89 — 
Provision for doubtful accounts— (7)7 
Stock-based compensation12 9 3 
Deferred income taxes(30)2 (32)
Loss (gain) on investments in marketable securities(8)9 (17)
Retiree benefits(18)(34)16 
Trade working capital increase(183)(291)108 
Net cash used in operating activities$(9)$(83)$74 
  Nine Months Ended 2017 over
  September 30 2016
($ in millions) 2017 2016 Dollars
Net earnings (loss) $415
 $376
 $39
Depreciation and amortization 157
 143
 14
Provision for doubtful accounts 10
 —
 10
Stock-based compensation 27
 22
 5
Deferred income taxes 26
 59
 (33)
Retiree benefit funding less than (in excess of) expense (198) (75) (123)
Trade working capital decrease (increase) (57) (48) (9)
Net cash provided by (used in) operating activities $380
 $477
 $(97)
We have historically maintained a capital structure comprised of a mix of equity and debt financing. We vary our
leverage both to optimize our equity return and to pursue acquisitions. We expect to meet our current debt
obligations as they come due through internally generated funds from current levels of operations and/or through refinancing in the debt markets prior to the maturity dates of our debt.

Cash Flows


We discuss below our majorsignificant operating, investing, and financing activities affecting cash flows for the ninethree months endedSeptember 30, 2017 March 31, 2023 and 2016,2022, as classified on our unaudited condensed consolidated statements of cash flows.



24
Table of Contents
Operating Activities


Cash provided byused in operating activities for the ninethree months ended September 30, 2017,March 31, 2023, was $380$9 million, compared with $477$83 million provided byused in operating activities for the same period in 2016.2022. The unfavorablefavorable change in operating cash flow was primarily due to increased funding of retiree benefit plans and a favorable change in trade working capital, partially offset by lower payments for income taxes.capital. The change in trade working capital was primarily driven by the timing of receipts of accounts receivable.

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


We expect cash generated from operations in combination with our current cash and cash equivalents, as well as existing creditborrowing facilities, to be more than sufficient to service debt and retiree benefit plans, meet contractual obligations, and financefund capital expenditures for at least the next 12 months.calendar months beginning April 1, 2023, and beyond such 12-month period based on our current business plans.


Investing Activities


Cash used in investing activities for the ninethree months ended September 30, 2017,March 31, 2023, was $216$60 million, compared with $141$43 million used in investing activities for the same period in 2016.2022. The increasechange in investing cash used was primarily driven by higher capital expendituresincreased investment in 2017.one of our unconsolidated nuclear and environmental joint ventures. For 2017,2023, we expect our capital expenditures for maintenance and sustainment to be approximately 2% to 2.5%1.0% of annual revenues and our discretionary capital expenditures to be approximately 2.5% to 3%2.0% of annual revenues.


Financing Activities


Cash used in financing activities for the ninethree months ended September 30, 2017,March 31, 2023, was $385$80 million, compared with $273$171 million used in financing activities for the same period in 2016.2022. The increasechange in financing cash used was primarily due to an additional $95a $90 million decrease in the prepayments of common stock repurchases, an additional $12 million of cash dividend payments, and an additional $5 million of employee taxes on certain share-based payment arrangements.our Term Loan.     


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, analysisnet earnings as a measure of our resultsperformance or net cash provided by operating activities as reported under GAAP.a measure of our liquidity. We believe free cash flow is an important liquidity 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 byused in operating activities to free cash flow:
Three Months Ended
March 31		2023 vs. 2022
($ in millions)20232022Dollars
Net cash used in operating activities$(9)$(83)$74 
Less capital expenditures:
Capital expenditure additions(43)(43)— 
Grant proceeds for capital expenditures3 — 3 
Free cash flow$(49)$(126)$77 
  Nine Months Ended 2017 over
  September 30 2016
($ 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)



Free cash flow for the ninethree months ended September 30, 2017, decreased $180March 31, 2023, increased $77 million compared withfrom the same period in 2016,2022, primarily due to increased funding of retiree benefit plans, higher capital expenditures, and a favorable change in trade working capital, partially offset by lower payments for income taxes.capital.


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 September 30, 2017March 31, 2023 and 2016,2022, 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.

25
Table of Contents

Off-Balance Sheet Arrangements


In the ordinary course of business, we use standby letters of credit issued by commercial banks to support certain leases, insurance policies, and contractual performance obligations, as well as surety bonds issued by insurance companies principally to support our self-insured workers' compensation plans. As of September 30, 2017, we had $15March 31, 2023, $14 million in standby letters of credit were issued but undrawn and $260$360 million of surety bonds were outstanding. As of March 31, 2023, we had no other significant off-balance sheet arrangements.


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-lookingYou can generally identify forward-looking statements by words such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," and similar words or phrases or the negative of these words or phrases. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties, and uncertaintiesother factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. Although we believe the expectations reflected in the forward-looking statements are reasonable when made, we cannot guarantee future results, levels of activity, performance, or achievements. There are a number of important factors that could cause our actual results to differ materially from those expressed in these statements. Factors that may cause such differences include:the results anticipated by our forward-looking statements, which include, but are not limited to:


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, including cost increases due to inflation, 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•Health epidemics, pandemics, and similar outbreaks;
•Our ability to attract, train, and retain a qualified workforce;
•Disruptions impacting global supply, including those attributable to ongoing public health issues and those resulting from the ongoing conflict between Russia and Ukraine;
•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.


Additional factors include those described in our 2022 Annual Report on Form 10-K, including under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business,” in our subsequent quarterly reports on Form 10-Q, including under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in our subsequent filings with the Securities and Exchange Commission.

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.

26
Table of Contents

GLOSSARY OF PROGRAMS
Included below are brief descriptions of some of the programs discussed in this Quarterly Report on Form 10-Q.
Program NameProgram 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. WeIn 2020, we delivered USS America (LHA 6)Tripoli (LHA 7), and, in April 2014, Tripoli (LHA 7) is currently under construction, and2022, we were awarded a long-lead-time material and construction contract for Fallujah (LHA 9). We are currently constructing Bougainville (LHA 8) in 2017.and Fallujah (LHA 9).
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 weWe delivered USS John FinnPaul Ignatius (DDG 113)117), USS Delbert D. Black (DDG 119), USS Frank E. Petersen Jr. (DDG 121), and we are currently constructing Ralph Johnson (DDG 114). In June 2013, we were awarded a multi-year contract for construction of five additional Lenah H. Sutcliffe Higbee (DDG 123) in 2019, 2020, 2021, and 2022, respectively. 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 USS Jack H. Lucas (DDG 125), Ted Stevens (DDG 128), Jeremiah Denton (DDG 129), George M. Neal (DDG 131), Sam Nunn (DDG 133), Thad Cochran (DDG 135), John F. Lehman (DDG 125)137), and Telesforo Trinidad (DDG 139).
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 2017.2017, and USS John C. Stennis (CVN 74) arrived at Newport News for the start of its RCOH in May 2021.
Columbia class (SSBN 826) submarines
The U.S. Navy has committed to designing the Design and construct modules for Columbia class submarine as a replacement for the current aging Ohio class(SSBN 826) nuclear ballistic missile submarines which were first introduced into service in 1981.("SSBNs") as a subcontractor to Electric Boat. SSBNs are the most secure and survivable of our nation’s nuclear deterrent triad. Columbia class SSBNs will carry approximately 70 percent of the nation’s nuclear arsenal. The OhioColumbia class SSBN includes 14 nuclear ballistic missile submarines and four nuclear cruise missile submarines. The Columbia class(SSBN 826) program plan of record is to construct 12 new ballistic missile submarines. The U.S. Navy has initiatedSSBNs to replace the design process for the new class of submarines, and, in early 2017, the 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.current aging Ohio class. We continue to perform design work ashave a subcontractor to Electric Boat, and we have entered into a teamteaming agreement with Electric Boat to build modules for the entire Columbiaclass (SSBN 826) submarine program that leverages our Virginia class (SSN 774) experience. The team agreement is subject toWe have been awarded contracts from Electric Boat for integrated product and process development, providing long–lead–time material and advance construction, and construction of the U.S. Navy's concurrence.first two boats of the Columbia class (SSBN 826) submarine program. Construction of the first Columbiaclass (SSBN 826) submarine is expectedbegan in 2020. In 2023, we received initial authorization to begin in 2021, withadvance procurement of long-lead-time materials and advance construction beginning prior to that time.for the third and fourth boats.

Fleet support servicessustainmentProvide comprehensive life-cycle sustainment services toMaintains and modernizes a significant majority of the U.S. Navy fleet, from small watercraft to submarines, combatants, 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; operationalaircraft carriers, our systems and maintenance training developmentexperts help the Navy maintain a high state of readiness. Ensures effective system operation and delivery; softwaresustainment by actively supporting design and development; IT infrastructure supportdecision–making processes through studies, analyses, and data deliveryreviews of program documents, and management; and cyber security and information assurance. We provide undersea vehicle and specialized craft development and prototyping services.provides a wide range of logistics products.
27
Table of Contents
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 timelong-lead-time components and material. In February 2017,addition, we were awarded a contracthave received awards for advance planningdetail design and construction of Enterprise (CVN(CVN 80), the third Ford class aircraft carrier. and Doris Miller (CVN 81). 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 servicesProvide 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 nine11 ships, of which the first sixnine ships have been delivered. Kimball (NSC 7)Calhoun (NSC 10) and Midgett (NSC 8)Friedman (NSC 11) are currently under construction.
Mission based solutionsDevelops integrated solutions that enable today's connected, all–
domain force. Capabilities include: command, control, computers,
communications, cyber, intelligence, surveillance, and
reconnaissance ("C5ISR") systems and operations; the
application of artificial intelligence and machine learning to
battlefield decisions; defensive and offensive cyberspace
strategies and electronic warfare ("CEWS"); and live, virtual, and
constructive ("LVC") solutions.
Naval nuclear support servicesProvide 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 servicein-service U.S. Navy nuclear ships worldwide through mobile and in-house capabilities. Services include maintenance services on nuclear reactor prototypes.
Nuclear and environmental servicesProvide services in nuclearSupports the national security mission of the Department of Energy ("DoE") through the management and operations, andoperation of DOE sites, as well as the safe cleanup of legacy waste across the country. We meet our clients' toughest nuclear and non-nuclear fabricationenvironmental challenges and repair.are positioned to serve the growing commercial nuclear power plant decommissioning market. We provide site management, nuclearparticipate in several joint ventures, including Newport News Nuclear BWXT Los Alamos, LLC (" N3B"), Mission Support and industrial facilities operationsTest Services, LLC ("MSTS"), and maintenance, decontamination and decommissioning, and radiological and hazardous waste management services. We provide services, including fabrication, equipment repair, and technical engineering services. Participate in a joint venture, Savannah River Nuclear Solutions, LLC which("SRNS"), and we are an integrated subcontractor to Triad National Security. N3B was awarded the Los Alamos Legacy Cleanup Contract at the DoE/National Nuclear Security Administration’s Los Alamos National Laboratory. MSTS was awarded a contract for site management and operations at the Nevada National Security Site. SRNS provides site management and operations at the DoE'sDoE’s Savannah River Site near Aiken, South Carolina.

Triad provides site management and operations at the DoE’s Los Alamos National Laboratory.
28
Table of Contents
Oil and gas servicesDeliver 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 2013,2022, we delivered USS Somerset (LPD 25)Fort Lauderdale (LPD 28), and in 2016, we delivered USS John P. Murtha (LPD 26)were awarded a long-lead-time material contract for LPD 32 (unnamed). In 2023, we received an award modification for the detail design and construction of LPD 32 (unnamed). We are currently constructing PortlandRichard M. McCool Jr. (LPD 27)29), Harrisburg (LPD 30), and Fort LauderdalePittsburgh (LPD 28)31). The San Antonio class (LPD 17) currently includes a total of 11 ships.
Unmanned systemsCreates advanced unmanned maritime solutions for defense, marine research, and commercial applications. Serving customers in more than 30 countries, unmanned systems provides design, autonomy, manufacturing, testing, operations, and sustainment of unmanned systems, including unmanned underwater vehicles and unmanned surface vessels.
The decommissioned USS Enterprise (CVN 65)
Defuel and inactivate the world's first nuclear-powered aircraft carrier, which began in 2013.
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.



29
Table of Contents
Item 3.Quantitative and Qualitative Disclosures about Market Risk


We are exposed to certain market risk, primarily relatedrisks, including those relating to interest rates and foreign currency exchange rates.inflation.


Interest Rates - Our floating rate financial instruments subject to interest rate risk include floating rate borrowingsa $650 million Term Loan, a $1.5 billion Revolving Credit Facility, and a $1 billion commercial paper program. As of March 31, 2023, we had $215 million outstanding on the Term Loan and no indebtedness outstanding under our AmendedRevolving Credit Facility. Our $1,250 million revolving credit facility remained undrawnFacility or our commercial paper program. Based on the amounts outstanding under our Term Loan as of September 30, 2017.March 31, 2023, an increase of 1% in interest rates would increase the interest expense on our debt by approximately $2 million on an annual basis.


Foreign CurrencyInflation - Macroeconomic factors have contributed, and we expect will continue to contribute, to increasing cost inflation for raw materials, components, and supplies. We currently have,mitigate some cost inflation risk by negotiating long-term agreements with certain raw material suppliers and incorporating price escalation provisions in customer contracts to the extent possible. We include assumptions of anticipated cost growth 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, the fair valuesdevelopment of our outstanding foreign currency forward contracts werecost of completion estimates, but if inflationary conditions continue over the long-term, our cost assumptions may not significant.be sufficient to cover all cost escalation or may impact the availability of resources to execute the respective contracts. Persistent cost inflation over the long-term may have an adverse impact on our financial position, results of operations, or cash flows.


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.March 31, 2023. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2017,March 31, 2023, 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,There have been no change occurredchanges in the Company's internal control over financial reporting that occurred in the quarterly period covered by this report that materially affected, or isare reasonably likely to materially affect, the Company'sits internal control over financial reporting.



30
Table of Contents
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 changesIn addition to report from the riskother information set forth in this Quarterly Report on Form 10–Q, carefully consider the factors describeddiscussed in "Risk Factors"Part I, Item 1A Risk Factors in itsthe 2022 Annual Report on Form 10-K for the year ended December 31, 2016.10–K, which could materially affect our business, financial condition, or future results.


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


In October 2015, our board of directors authorized an increase inRepurchases under 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 billion to 2.2 billion and an extension of the term of the program to October 31, 2022. 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.March 31, 2023.
Period
Total Number of Shares Purchased1
Average Price Paid per ShareTotal 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)2, 3
January 1, 2023 to January 31, 20237,837 $221.11 7,570 $987.0 
February 1, 2023 to February 28, 20236,005 217.59 6,005 985.7 
March 1, 2023 to March 31, 202381,548 212.53 25,750 980.3 
Total95,390 $213.55 39,325 $980.3 
1We purchased an aggregate of 39,325 shares of our common stock in the open market pursuant to our repurchase program, and 56,065 shares were transferred to us from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock rights during the period.
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
12 From the stock repurchase program's inception through September 30, 2017,March 31, 2023, we have purchased 7,659,57513,679,186 shares at an average price of $121.51$162.27 per share for a total of $930.7 million.$2.2 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 common3 In October 2012, we commenced our stock asrepurchase program. In November 2019, we announced 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 interestsincrease in the stock funds are allocatedrepurchase program to participant Plan accounts at the election of participants. We became aware that participants in the Plans purchased more shares$3.2 billion and an extension 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 contributionsterm to the Plan.October 31, 2024.


Item 3.Defaults Upon Senior Securities


None.



Item 4.Mine Safety Disclosures


None.


Item 5.Other Information


None.



31
Table of Contents
Item 6. Exhibits
3.1
3.2
3.3
3.4
3.5
4.131.1

4.2
First supplemental indenture, dated as of February 17, 2017, 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
First Amendment to the Huntington Ingalls Industries Savings Excess Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on August 3, 2017).
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
32.1
32.2
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.
104The cover page from the Company’s Quarterly Report on Form 10-Q, formatted in Inline XBRL and contained in Exhibit 101.



32
Table of Contents

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, 2017May 4, 2023Huntington 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)



42
33