Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________________

FORM 10-Q

______________________________________________________________


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

For the quarterly period ended ~~September~~June 30, ~~2022~~2023


☐			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)

______________________________________________________________


Delaware						90-0607005
(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	HII	New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

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

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

As of ~~October~~July 28, ~~2022, 39,903,536~~2023, 39,867,606 shares of the registrant's common stock were outstanding.

Table of Contents

TABLE OF CONTENTS



	PART I – FINANCIAL INFORMATION	Page

Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations and Comprehensive Income	1
	Condensed Consolidated Statements of Financial Position	2
	Condensed Consolidated Statements of Cash Flows	3
	Condensed Consolidated Statements of Changes in Equity	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1716
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3733
Item 4.	Controls and Procedures	3733

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	3834
Item 1A.	Risk Factors	3834
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3834
Item 3.	Defaults Upon Senior Securities	3834
Item 4.	Mine Safety Disclosures	3834
Item 5.	Other Information	3834
Item 6.	Exhibits	3936

Signatures		4037

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HUNTINGTON INGALLS INDUSTRIES, INC.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)


		Three Months Ended September 30				Nine Months Ended September 30					Three Months Ended June 30				Six Months Ended June 30
(in millions, except per share amounts)	(in millions, except per share amounts)	2022		2021		2022		2021		(in millions, except per share amounts)	2023		2022		2023		2022
Sales and service revenues	Sales and service revenues									Sales and service revenues
Product sales	Product sales	$	1,774	$	1,701	$	5,327	$	5,185	Product sales	$	1,879	$	1,829	$	3,708	$	3,553
Service revenues	Service revenues	852		637		2,537		1,662		Service revenues	908		833		1,753		1,685
Sales and service revenues	Sales and service revenues	2,626		2,338		7,864		6,847		Sales and service revenues	2,787		2,662		5,461		5,238
Cost of sales and service revenues	Cost of sales and service revenues									Cost of sales and service revenues
Cost of product sales	Cost of product sales	1,517		1,453		4,511		4,402		Cost of product sales	1,602		1,526		3,170		2,994
Cost of service revenues	Cost of service revenues	747		554		2,252		1,450		Cost of service revenues	796		746		1,552		1,505
Income from operating investments, net	Income from operating investments, net	13		11		47		31		Income from operating investments, net	4		27		16		34
Other income and gains, net	Other income and gains, net	—		2		—		3		Other income and gains, net	1		1		—		—
General and administrative expenses	General and administrative expenses	244		226		688		636		General and administrative expenses	238		227		458		444

Operating income	Operating income	131		118		460		393		Operating income	156		191		297		329
Other income (expense)	Other income (expense)									Other income (expense)
Interest expense	Interest expense	(27)		(24)		(79)		(63)		Interest expense	(24)		(26)		(48)		(52)
Non-operating retirement benefit	Non-operating retirement benefit	71		45		209		135		Non-operating retirement benefit	37		67		74		138
Other, net	Other, net	(13)		2		(30)		10		Other, net	—		(10)		9		(17)
Earnings before income taxes	Earnings before income taxes	162		141		560		475		Earnings before income taxes	169		222		332		398
Federal and foreign income tax expense (benefit)		24		(6)		104		51
Federal and foreign income tax expense										Federal and foreign income tax expense	39		44		73		80
Net earnings	Net earnings	$	138	$	147	$	456	$	424	Net earnings	$	130	$	178	$	259	$	318

Basic earnings per share	Basic earnings per share	$	3.44	$	3.65	$	11.37	$	10.52	Basic earnings per share	$	3.27	$	4.44	$	6.49	$	7.93
Weighted-average common shares outstanding	Weighted-average common shares outstanding	40.1		40.3		40.1		40.3		Weighted-average common shares outstanding	39.8		40.1		39.9		40.1

Diluted earnings per share	Diluted earnings per share	$	3.44	$	3.65	$	11.37	$	10.52	Diluted earnings per share	$	3.27	$	4.44	$	6.49	$	7.93
Weighted-average diluted shares outstanding	Weighted-average diluted shares outstanding	40.1		40.3		40.1		40.3		Weighted-average diluted shares outstanding	39.8		40.1		39.9		40.1

Dividends declared per share	Dividends declared per share	$	1.18	$	1.14	$	3.54	$	3.42	Dividends declared per share	$	1.24	$	1.18	$	2.48	$	2.36

Net earnings from above	Net earnings from above	$	138	$	147	$	456	$	424	Net earnings from above	$	130	$	178	$	259	$	318
Other comprehensive income (loss)	Other comprehensive income (loss)									Other comprehensive income (loss)
Change in unamortized benefit plan costs	Change in unamortized benefit plan costs	12		43		(61)		102		Change in unamortized benefit plan costs	5		13		9		(73)
Other	Other	(1)		(1)		(2)		1		Other	—		(1)		—		(1)
Tax benefit (expense) for items of other comprehensive income	Tax benefit (expense) for items of other comprehensive income	(3)		(11)		16		(26)		Tax benefit (expense) for items of other comprehensive income	(1)		(3)		(2)		19
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	8		31		(47)		77		Other comprehensive income (loss), net of tax	4		9		7		(55)
Comprehensive income	Comprehensive income	$	146	$	178	$	409	$	501	Comprehensive income	$	134	$	187	$	266	$	263

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

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HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)


($ in millions)	($ in millions)	September 30, 2022		December 31, 2021		($ in millions)	June 30, 2023		December 31, 2022
Assets	Assets					Assets
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	117	$	627	Cash and cash equivalents	$	313	$	467
Accounts receivable, net of allowance for doubtful accounts of $2 million as of 2022 and $9 million as of 2021		721		433
Accounts receivable, net of allowance for doubtful accounts of $1 million as of 2023 and $2 million as of 2022						Accounts receivable, net of allowance for doubtful accounts of $1 million as of 2023 and $2 million as of 2022	786		636
Contract assets	Contract assets	1,564		1,310		Contract assets	1,266		1,240
Inventoried costs	Inventoried costs	174		161		Inventoried costs	190		183
Income taxes receivable	Income taxes receivable	180		209		Income taxes receivable	184		170

Prepaid expenses and other current assets	Prepaid expenses and other current assets	61		50		Prepaid expenses and other current assets	78		50
Total current assets	Total current assets	2,817		2,790		Total current assets	2,817		2,746
Property, plant, and equipment, net of accumulated depreciation of $2,283 million as of 2022 and $2,149 million as of 2021		3,136		3,107
Property, plant, and equipment, net of accumulated depreciation of $2,399 million as of 2023 and $2,319 million as of 2022						Property, plant, and equipment, net of accumulated depreciation of $2,399 million as of 2023 and $2,319 million as of 2022	3,196		3,198
Operating lease assets	Operating lease assets	236		241		Operating lease assets	264		282
Goodwill	Goodwill	2,618		2,628		Goodwill	2,618		2,618
Other intangible assets, net of accumulated amortization of $846 million as of 2022 and $741 million as of 2021		1,054		1,159
Other intangible assets, net of accumulated amortization of $945 million as of 2023 and $881 million as of 2022						Other intangible assets, net of accumulated amortization of $945 million as of 2023 and $881 million as of 2022	955		1,019
Pension plan assets	Pension plan assets	355		281		Pension plan assets	646		600

Miscellaneous other assets	Miscellaneous other assets	399		421		Miscellaneous other assets	363		394
Total assets	Total assets	$	10,615	$	10,627	Total assets	$	10,859	$	10,857
Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity					Liabilities and Stockholders' Equity
Current Liabilities	Current Liabilities					Current Liabilities
Trade accounts payable	Trade accounts payable	$	539	$	603	Trade accounts payable	$	519	$	642
Accrued employees’ compensation	Accrued employees’ compensation	355		361		Accrued employees’ compensation	345		345
Current portion of long-term debt	Current portion of long-term debt	399		—		Current portion of long-term debt	484		399
Current portion of postretirement plan liabilities	Current portion of postretirement plan liabilities	137		137		Current portion of postretirement plan liabilities	134		134
Current portion of workers’ compensation liabilities	Current portion of workers’ compensation liabilities	241		252		Current portion of workers’ compensation liabilities	229		229
Contract liabilities	Contract liabilities	768		651		Contract liabilities	833		766

Other current liabilities	Other current liabilities	453		423		Other current liabilities	383		380
Total current liabilities	Total current liabilities	2,892		2,427		Total current liabilities	2,927		2,895
Long-term debt	Long-term debt	2,605		3,298		Long-term debt	2,396		2,506
Pension plan liabilities	Pension plan liabilities	394		351		Pension plan liabilities	218		214
Other postretirement plan liabilities	Other postretirement plan liabilities	360		368		Other postretirement plan liabilities	257		260
Workers’ compensation liabilities	Workers’ compensation liabilities	486		506		Workers’ compensation liabilities	465		463
Long-term operating lease liabilities	Long-term operating lease liabilities	202		194		Long-term operating lease liabilities	224		246
Deferred tax liabilities	Deferred tax liabilities	274		313		Deferred tax liabilities	359		418
Other long-term liabilities	Other long-term liabilities	354		362		Other long-term liabilities	367		366
Total liabilities	Total liabilities	7,567		7,819		Total liabilities	7,213		7,368
Commitments and Contingencies (Note 12)
Commitments and Contingencies (Note 10)						Commitments and Contingencies (Note 10)
Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
Common stock, $0.01 par value; 150 million shares authorized; 53.5 million shares issued and 39.9 million shares outstanding as of September 30, 2022, and 53.4 million shares issued and 40.0 million shares outstanding as of December 31, 2021		1		1
Common stock, $0.01 par value; 150 million shares authorized; 53.6 million shares issued and 39.9 million shares outstanding as of June 30, 2023, and 53.5 million shares issued and 39.9 million shares outstanding as of December 31, 2022						Common stock, $0.01 par value; 150 million shares authorized; 53.6 million shares issued and 39.9 million shares outstanding as of June 30, 2023, and 53.5 million shares issued and 39.9 million shares outstanding as of December 31, 2022	1		1
Additional paid-in capital	Additional paid-in capital	2,014		1,998		Additional paid-in capital	2,030		2,022
Retained earnings	Retained earnings	4,203		3,891		Retained earnings	4,434		4,276
Treasury stock	Treasury stock	(2,200)		(2,159)		Treasury stock	(2,227)		(2,211)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(970)		(923)		Accumulated other comprehensive loss	(592)		(599)
Total stockholders’ equity	Total stockholders’ equity	3,048		2,808		Total stockholders’ equity	3,646		3,489
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	10,615	$	10,627	Total liabilities and stockholders’ equity	$	10,859	$	10,857

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

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HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


		Nine Months Ended September 30					Six Months Ended June 30
($ in millions)	($ in millions)	2022		2021		($ in millions)	2023		2022
Operating Activities	Operating Activities					Operating Activities
Net earnings	Net earnings	$	456	$	424	Net earnings	$	259	$	318
Adjustments to reconcile to net cash provided by (used in) operating activities
Adjustments to reconcile to net cash used in operating activities						Adjustments to reconcile to net cash used in operating activities
Depreciation	Depreciation	158		154		Depreciation	110		104
Amortization of purchased intangibles	Amortization of purchased intangibles	105		48		Amortization of purchased intangibles	64		70
Amortization of debt issuance costs	Amortization of debt issuance costs	6		6		Amortization of debt issuance costs	4		4
Provision for doubtful accounts	Provision for doubtful accounts	(7)		—		Provision for doubtful accounts	—		(7)
Stock-based compensation	Stock-based compensation	28		19		Stock-based compensation	18		16
Deferred income taxes	Deferred income taxes	(14)		74		Deferred income taxes	(62)		(1)

Loss (gain) on investments in marketable securities	Loss (gain) on investments in marketable securities	34		(12)		Loss (gain) on investments in marketable securities	(12)		26

Change in	Change in					Change in
Accounts receivable	Accounts receivable	(281)		52		Accounts receivable	(149)		(241)
Contract assets	Contract assets	(254)		(179)		Contract assets	(27)		(56)
Inventoried costs	Inventoried costs	(13)		(7)		Inventoried costs	(7)		(35)
Prepaid expenses and other assets	Prepaid expenses and other assets	(4)		(116)		Prepaid expenses and other assets	(42)		47
Accounts payable and accruals	Accounts payable and accruals	48		93		Accounts payable and accruals	(57)		8
Retiree benefits	Retiree benefits	(99)		(73)		Retiree benefits	(36)		(65)
Other non-cash transactions, net	Other non-cash transactions, net	2		6		Other non-cash transactions, net	10		(4)
Net cash provided by operating activities	Net cash provided by operating activities	165		489		Net cash provided by operating activities	73		184
Investing Activities	Investing Activities					Investing Activities
Capital expenditures	Capital expenditures					Capital expenditures
Capital expenditure additions	Capital expenditure additions	(179)		(216)		Capital expenditure additions	(111)		(102)
Grant proceeds for capital expenditures	Grant proceeds for capital expenditures	—		11		Grant proceeds for capital expenditures	3		—
Acquisitions of businesses, net of cash received		—		(1,636)

Investment in affiliates	Investment in affiliates	(5)		(22)		Investment in affiliates	(24)		(5)
Proceeds from disposition of business		—		20
Proceeds from equity method investments						Proceeds from equity method investments	61		6

Other investing activities, net	Other investing activities, net	6		1		Other investing activities, net	1		—
Net cash used in investing activities	Net cash used in investing activities	(178)		(1,842)		Net cash used in investing activities	(70)		(101)
Financing Activities	Financing Activities					Financing Activities
Proceeds from issuance of long-term debt		—		1,650

Repayment of long-term debt	Repayment of long-term debt	(300)		—		Repayment of long-term debt	(30)		(200)

Debt issuance costs		—		(22)

Dividends paid	Dividends paid	(142)		(138)		Dividends paid	(99)		(94)
Repurchases of common stock	Repurchases of common stock	(41)		(87)		Repurchases of common stock	(16)		(27)
Employee taxes on certain share-based payment arrangements	Employee taxes on certain share-based payment arrangements	(14)		(7)		Employee taxes on certain share-based payment arrangements	(12)		(14)

Net cash (used in) provided by financing activities		(497)		1,396
Net cash used in financing activities						Net cash used in financing activities	(157)		(335)
Change in cash and cash equivalents	Change in cash and cash equivalents	(510)		43		Change in cash and cash equivalents	(154)		(252)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	627		512		Cash and cash equivalents, beginning of period	467		627
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	117	$	555	Cash and cash equivalents, end of period	$	313	$	375
Supplemental Cash Flow Disclosure	Supplemental Cash Flow Disclosure					Supplemental Cash Flow Disclosure
Cash paid for income taxes (net of refunds)	Cash paid for income taxes (net of refunds)	$	107	$	31	Cash paid for income taxes (net of refunds)	$	172	$	15
Cash paid for interest	Cash paid for interest	$	61	$	39	Cash paid for interest	$	51	$	49
Non-Cash Investing and Financing Activities	Non-Cash Investing and Financing Activities					Non-Cash Investing and Financing Activities
Capital expenditures accrued in accounts payable	Capital expenditures accrued in accounts payable	$	5	$	4	Capital expenditures accrued in accounts payable	$	4	$	6

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

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HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)


Three Months Ended September 30, 2022 and 2021 ($ in millions)		Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
Balance as of June 30, 2021		$	1	$	1,977	$	3,718	$	(2,128)	$	(1,501)	$	2,067
Net earnings		—		—		147		—		—		147
Dividends declared ($1.14 per share)		—		—		(46)		—		—		(46)
Stock-based compensation		—		7		—		—		—		7
Other comprehensive income, net of tax		—		—		—		—		31		31

Treasury stock activity		—		—		—		(17)		—		(17)
Balance as of September 30, 2021		$	1	$	1,984	$	3,819	$	(2,145)	$	(1,470)	$	2,189

Balance as of June 30, 2022		$	1	$	2,002	$	4,113	$	(2,186)	$	(978)	$	2,952
Three Months Ended June 30, 2023 and 2022 ($ in millions)														Three Months Ended June 30, 2023 and 2022 ($ in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
Balance as of March 31, 2022														Balance as of March 31, 2022	$	1	$	1,995	$	3,982	$	(2,169)	$	(987)	$	2,822
Net earnings	Net earnings	—		—		138		—		—		138		Net earnings	—		—		178		—		—		178
Dividends declared ($1.18 per share)	Dividends declared ($1.18 per share)	—		—		(48)		—		—		(48)		Dividends declared ($1.18 per share)	—		—		(47)		—		—		(47)
Stock-based compensation	Stock-based compensation	—		12		—		—		—		12		Stock-based compensation	—		7		—		—		—		7
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—		—		—		—		8		8		Other comprehensive income, net of tax	—		—		—		—		9		9

Treasury stock activity	Treasury stock activity	—		—		—		(14)		—		(14)		Treasury stock activity	—		—		—		(17)		—		(17)
Balance as of September 30, 2022		$	1	$	2,014	$	4,203	$	(2,200)	$	(970)	$	3,048
Balance as of June 30, 2022														Balance as of June 30, 2022	$	1	$	2,002	$	4,113	$	(2,186)	$	(978)	$	2,952

Balance as of March 31, 2023														Balance as of March 31, 2023	$	1	$	2,024	$	4,354	$	(2,220)	$	(596)	$	3,563
Net earnings														Net earnings	—		—		130		—		—		130
Dividends declared ($1.24 per share)														Dividends declared ($1.24 per share)	—		—		(50)		—		—		(50)
Stock-based compensation														Stock-based compensation	—		6		—		—		—		6
Other comprehensive income, net of tax														Other comprehensive income, net of tax	—		—		—		—		4		4

Treasury stock activity														Treasury stock activity	—		—		—		(7)		—		(7)
Balance as of June 30, 2023														Balance as of June 30, 2023	$	1	$	2,030	$	4,434	$	(2,227)	$	(592)	$	3,646


Nine Months Ended September 30, 2022 and 2021 ($ 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, 2020		$	1	$	1,972	$	3,533	$	(2,058)	$	(1,547)	$	1,901
Six Months Ended June 30, 2023 and 2022 ($ in millions)														Six Months Ended June 30, 2023 and 2022 ($ in millions)	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
Balance as of December 31, 2021														Balance as of December 31, 2021	$	1	$	1,998	$	3,891	$	(2,159)	$	(923)	$	2,808
Net earnings	Net earnings	—		—		424		—		—		424		Net earnings	—		—		318		—		—		318
Dividends declared ($3.42 per share)		—		—		(138)		—		—		(138)
Dividends declared ($2.36 per share)														Dividends declared ($2.36 per share)	—		—		(94)		—		—		(94)
Stock-based compensation														Stock-based compensation	—		4		(2)		—		—		2
Other comprehensive loss, net of tax														Other comprehensive loss, net of tax	—		—		—		—		(55)		(55)

Treasury stock activity														Treasury stock activity	—		—		—		(27)		—		(27)
Balance as of June 30, 2022														Balance as of June 30, 2022	$	1	$	2,002	$	4,113	$	(2,186)	$	(978)	$	2,952

Balance as of December 31, 2022														Balance as of December 31, 2022	$	1	$	2,022	$	4,276	$	(2,211)	$	(599)	$	3,489
Net earnings														Net earnings	—		—		259		—		—		259
Dividends declared ($2.48 per share)														Dividends declared ($2.48 per share)	—		—		(99)		—		—		(99)
Stock-based compensation	Stock-based compensation	—		12		—		—		—		12		Stock-based compensation	—		8		(2)		—		—		6
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—		—		—		—		77		77		Other comprehensive income, net of tax	—		—		—		—		7		7

Treasury stock activity	Treasury stock activity	—		—		—		(87)		—		(87)		Treasury stock activity	—		—		—		(16)		—		(16)
Balance as of September 30, 2021		$	1	$	1,984	$	3,819	$	(2,145)	$	(1,470)	$	2,189

Balance as of December 31, 2021		$	1	$	1,998	$	3,891	$	(2,159)	$	(923)	$	2,808
Net earnings		—		—		456		—		—		456
Dividends declared ($3.54 per share)		—		—		(142)		—		—		(142)
Stock-based compensation		—		16		(2)		—		—		14
Other comprehensive loss, net of tax		—		—		—		—		(47)		(47)

Treasury stock activity		—		—		—		(41)		—		(41)
Balance as of September 30, 2022		$	1	$	2,014	$	4,203	$	(2,200)	$	(970)	$	3,048
Balance as of June 30, 2023														Balance as of June 30, 2023	$	1	$	2,030	$	4,434	$	(2,227)	$	(592)	$	3,646

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

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HUNTINGTON INGALLS INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. DESCRIPTION OF BUSINESS

Huntington Ingalls Industries, Inc. ("HII" or the "Company") is a global, all-domain defense partner, building and delivering the world’s most powerful, survivable naval ships and technologies that safeguard America’s seas, sky, land, space, and cyber. HII is organized into three reportable segments: Ingalls Shipbuilding ("Ingalls"), Newport News Shipbuilding ("Newport News"), and Mission ~~Technologies (formerly named Technical Solutions).~~Technologies. For more than a century, the Company's Ingalls segment in Mississippi and Newport News segment in Virginia have built more ships in more ship classes than any other U.S. naval shipbuilder, making HII America's largest shipbuilder. The Mission Technologies segment ~~delivers high-value engineering and technology~~develops integrated solutions tothat enable ~~multi-domain distributed operations in the government and commercial services markets.~~

HII conducts most of its business with the U.S. Government, primarily the Department of Defense ("DoD"). As prime contractor, principal subcontractor, team member, or partner, the Company participates in many high-priority U.S. defense programs. Through its Ingalls segment, HII is a builder of amphibious assault and expeditionary warfare 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 Mission Technologies segment provides a wide range of services and products, including command, control, computers, communications, cyber, intelligence, surveillance, and reconnaissance ("C5ISR") systems and operations; the application of Artificial Intelligence and machine learning to battlefield decisions; defensive and offensive cyberspace strategies and electronic warfare; unmanned autonomous systems; live, virtual, and constructive training solutions; platform modernization; and critical nuclear operations.today's connected, all-domain force.

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.

These unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature considered necessary by management for a fair presentation of the unaudited condensed consolidated financial position, results of operations, and cash flows and should be read in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022 (the "2022 Annual Report on Form 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.

Fair Value of Financial Instruments - Except for the Company's long-term debt, the carrying amounts of the Company's financial instruments that are 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.

~~Table of Contents~~

The Company maintains multiple grantor trusts to fund certain non-qualified pension plans. These trusts were valued at ~~$196~~$217 million and ~~$220~~$209 million as of ~~September~~June 30, ~~2022,~~2023, and December 31, ~~2021,~~2022, respectively, and are presented within miscellaneous other assets within the unaudited condensed consolidated statements of financial position. These trusts consist primarily of investments in marketable securities, which are held at fair value within Level 1 of the fair value hierarchy.

The estimated fair values of the Company's total long-term debt (including current portion) as of ~~September~~June 30, ~~2022,~~2023, and December 31, ~~2021,~~2022, were ~~$2,768~~$2,224 million and ~~$3,449~~$2,703 million, respectively. The estimated fair ~~value~~values of the current portion of the Company's long-term debt ~~was $386~~were $482 million and $390 million as of ~~September~~June 30, ~~2022.~~2023 and December 31, 2022, respectively. The fair values of the Company's long-term debt were calculated based on recent trades of the Company's debt instruments in inactive markets, which fall within Level 2 under the fair value hierarchy.

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Debt ~~Prepayment~~ - ~~As of September 30, 2022, $325~~In April 2023, the Company amended its existing $1.5 billion credit facility (the "Revolving Credit Facility") and $650 million ~~of the Company's Term Loan~~term loan due August 19, 2024 ~~has been prepaid, with~~(the "Term Loan") to change the benchmark interest rate from the London Interbank Offered Rate to the Secured Overnight Financing Rate (“SOFR”). The current interest rate is based on SOFR plus an interest spread based on the Company's credit rating, plus an additional 0.10%. The Company does not expect the transition to the SOFR benchmark to materially impact its financial results. For further information on the Company's debt, see the Company's 2022 Annual Report on Form 10-K.

Goodwill Impairment and Annual Assessment Date Change - During the second quarter of 2023, the Company elected to change the measurement date of its annual goodwill impairment test from November 30 to October 31. The change is not material to the consolidated financial statements as it does not result in the delay, acceleration, or avoidance of an impairment charge, and the test is still performed in the fourth quarter. The Company continues to perform a ~~remaining balance~~quarterly assessment for impairment between annual tests for impairment.

Sale of ~~$325 million.~~Equity Method Investment - In June 2023, the Company sold its investment in its unconsolidated ship repair and specialty fabrication joint venture, Titan Acquisition Holdings, L.P. ("Titan"). The Company received $61 million in proceeds and recognized an immaterial loss on sale.

3. ACCOUNTING STANDARDS UPDATES

Accounting pronouncements issued but not effective until after December 31, ~~2022,~~2023, are not expected to have a material impact on the Company's consolidated financial position, results of operations, and cash flows.

4. ~~ACQUISITIONS~~

On August 19, 2021, the Company acquired all of the outstanding common stock of Alion Holding Corp., the parent company of Alion Science and Technology Corporation (“Alion”), a technology-driven solutions provider. The Company accounted for the transaction as a business combination using the acquisition method of accounting in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 805 ~~Business Combinations~~. The purchase price was $1.79 billion, including $148 million of cash received in the acquisition. In connection with the acquisition, the Company originally recorded $1,024 million of goodwill, which included the value of Alion's workforce, and $720 million of intangible assets related to customer relationships and existing contract backlog. The goodwill is attributable to operational synergies and growth opportunities and was allocated to the Company's Mission Technologies segment. For the nine months ended September 30, 2022, the Company recorded a decrease to goodwill of $10 million, resulting from updates to Alion’s tax carryforwards and the true-up of estimated taxes to filed income tax returns for the pre-acquisition period. The acquisition accounting was completed at September 30, 2022. None of the goodwill resulting from this acquisition is expected to be amortizable for tax purposes.

Alion provides advanced engineering and research and development services in the areas of intelligence, surveillance, and reconnaissance, military training and simulation, cyber, data analytics, and other next-generation technology based solutions to the DoD and intelligence community customers, with the U.S. Navy representing about one-third of current annual revenues.

~~Pro Forma Financial Information~~

~~The following unaudited consolidated pro forma summary has been prepared by adjusting the Company's historical data to give effect to the acquisition of Alion as if it had occurred on January 1, 2021.~~

Three Months Ended
September 30 Nine Months Ended
September 30

($ in millions, except per share amounts) 2022 Pro Forma 2021 2022 Pro Forma 2021
Sales and service revenues $ 2,626 $ 2,532 $ 7,864 $ 7,687
Net earnings $ 138 $ 142 $ 456 $ 416
Basic earnings per share $ 3.44 $ 3.52 $ 11.37 $ 10.32
Diluted earnings per share $ 3.44 $ 3.52 $ 11.37 $ 10.32

~~These unaudited pro forma results include adjustments associated with the acquisition, such as the amortization of acquired intangible assets and interest expense on debt financing.~~

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The unaudited consolidated pro forma financial information was prepared in accordance with GAAP and is not necessarily indicative of the results of operations that would have occurred if the acquisition had been completed on the date indicated, nor is it indicative of the future operating results of the Company.

The unaudited pro forma results do not reflect events that either have occurred or may occur after the acquisition date, including, but not limited to, the anticipated realization of operating synergies in subsequent periods. These results also do not give effect to certain charges that the Company incurred in connection with the acquisition, including, but not limited to, additional professional fees and employee integration.

5. STOCKHOLDERS' EQUITY

Treasury Stock - In November 2019, the Company's board of directors authorized an increase in the Company's stock repurchase program from $2.2 billion to $3.2 billion and an extension of the term of the program to October 31, 2024. Repurchases are made from time to time at management's discretion in accordance with applicable federal securities laws. For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company repurchased ~~196,850~~75,849 shares at an aggregate cost of ~~$41~~$16 million. For the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company repurchased ~~469,436~~131,006 shares at an aggregate cost of ~~$87~~$27 million. The cost of purchased shares is recorded as treasury stock in the unaudited condensed consolidated statements of financial position.

Dividends - The Company paid cash dividends totaling ~~$142~~$99 million and ~~$138~~$94 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

Accumulated Other Comprehensive Loss - Other comprehensive income (loss) refers to gains and losses recorded as an element of stockholders' equity but excluded from net earnings. The accumulated other comprehensive loss ~~as of September 30, 2022,~~ was comprised of unamortized benefit plan costs of ~~$969~~$592 million and ~~other comprehensive loss of $1 million. The accumulated other comprehensive loss~~$599 million as of June 30, 2023 and December 31, ~~2021, was comprised of unamortized benefit plan costs of $923 million.~~

~~The changes in accumulated other comprehensive income (loss) by component for the three and nine months ended September 30,~~ 2022, ~~and 2021, were as follows:~~respectively.

($ in millions) Benefit Plans Other Total
Balance as of June 30, 2021 $ (1,502) $ 1 $ (1,501)
Other comprehensive income (loss) before reclassifications 14 (1) 13
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost1
2 — 2
Amortization of net actuarial loss1
27 — 27
Tax expense for items of other comprehensive income (11) — (11)
Net current period other comprehensive income (loss) 32 (1) 31
Balance as of September 30, 2021 $ (1,470) $ — $ (1,470)
Balance as of June 30, 2022 $ (977) $ (1) $ (978)
Other comprehensive income (loss) before reclassifications 3 (1) 2
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost1
5 — 5
Amortization of net actuarial loss1
8 — 8
Settlement gain1
(4) — (4)
Tax (expense) benefit for items of other comprehensive income (loss) (4) 1 (3)
Net current period other comprehensive income 8 — 8
Balance as of September 30, 2022 $ (969) $ (1) $ (970)

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($ in millions) Benefit Plans Other Total
Balance as of December 31, 2020 $ (1,546) $ (1) $ (1,547)
Other comprehensive income before reclassifications 14 1 15
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost1
8 — 8
Amortization of net actuarial loss1
80 — 80
Tax expense for items of other comprehensive income (26) — (26)
Net current period other comprehensive income 76 1 77
Balance as of September 30, 2021 $ (1,470) $ — $ (1,470)
Balance as of December 31, 2021 $ (923) $ — $ (923)
Other comprehensive loss before reclassifications (94) (2) (96)
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost1
13 — 13
Amortization of net actuarial loss1
24 — 24
Settlement gain1
(4) — (4)
Tax benefit for items of other comprehensive loss 15 1 16
Net current period other comprehensive loss (46) (1) (47)
Balance as of September 30, 2022 $ (969) $ (1) $ (970)
The changes in accumulated other comprehensive loss by component for the three and six months ended June 30, 2023 and 2022, were as follows:


($ in millions)	Benefit Plans		Other		Total
Balance as of March 31, 2022	$	(987)	$	—	$	(987)
Other comprehensive loss before reclassifications	—		(1)		(1)
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost1	5		—		5
Amortization of net actuarial loss1	8		—		8


Tax expense for items of other comprehensive income	(3)		—		(3)
Net current period other comprehensive income (loss)	10		(1)		9
Balance as of June 30, 2022	$	(977)	$	(1)	$	(978)

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

Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost1	5		—		5



Tax expense for items of other comprehensive income	(1)		—		(1)
Net current period other comprehensive income	4		—		4
Balance as of June 30, 2023	$	(592)	$	—	$	(592)


($ in millions)	Benefit Plans		Other		Total
Balance as of December 31, 2021	$	(923)	$	—	$	(923)
Other comprehensive loss before reclassifications	(97)		(1)		(98)
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service credit1	8		—		8
Amortization of net actuarial loss1	16		—		16


Tax benefit for items of other comprehensive loss	19		—		19
Net current period other comprehensive loss	(54)		(1)		(55)
Balance as of June 30, 2022	$	(977)	$	(1)	$	(978)

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

Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost1	8		—		8
Amortization of net actuarial loss1	1		—		1


Tax expense for items of other comprehensive income	(2)		—		(2)
Net current period other comprehensive income	7		—		7
Balance as of June 30, 2023	$	(592)	$	—	$	(592)

1 These accumulated comprehensive loss components are included in the computation of net periodic benefit cost. See Note ~~13:~~11: Employee Pension and Other Postretirement Benefits. The tax ~~benefit associated with~~expense recorded in stockholders' equity for the amounts reclassified from accumulated other comprehensive loss for the three months ended ~~September~~June 30, 2023 and 2022, ~~and 2021,~~ was $2$1 million and $8$3 million, respectively. The tax ~~benefit associated with~~expense recorded in stockholders' equity for the amounts reclassified from accumulated other comprehensive loss for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~and 2021,~~ was $8$2 million and ~~$23~~$6 million, respectively.

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5. EARNINGS PER SHARE

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


		Three Months Ended September 30				Nine Months Ended September 30					Three Months Ended June 30				Six Months Ended June 30
(in millions, except per share amounts)	(in millions, except per share amounts)	2022		2021		2022		2021		(in millions, except per share amounts)	2023		2022		2023		2022
Net earnings	Net earnings	$	138	$	147	$	456	$	424	Net earnings	$	130	$	178	$	259	$	318

Weighted-average common shares outstanding	Weighted-average common shares outstanding	40.1		40.3		40.1		40.3		Weighted-average common shares outstanding	39.8		40.1		39.9		40.1
Net dilutive effect of stock awards	Net dilutive effect of stock awards	—		—		—		—		Net dilutive effect of stock awards	—		—		—		—

Dilutive weighted-average common shares outstanding	Dilutive weighted-average common shares outstanding	40.1		40.3		40.1		40.3		Dilutive weighted-average common shares outstanding	39.8		40.1		39.9		40.1

Earnings per share - basic	Earnings per share - basic	$	3.44	$	3.65	$	11.37	$	10.52	Earnings per share - basic	$	3.27	$	4.44	$	6.49	$	7.93
Earnings per share - diluted	Earnings per share - diluted	$	3.44	$	3.65	$	11.37	$	10.52	Earnings per share - diluted	$	3.27	$	4.44	$	6.49	$	7.93

Under the treasury stock method, the Company has excluded from the diluted share amounts presented above the effects of ~~0.4~~0.5 million Restricted Performance Stock Rights ("RPSRs") for each of the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, and ~~2021.~~0.4 million RPSRs for each of the three and six months ended June 30, 2022.

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7.6. REVENUE

Disaggregation of Revenue

The following tables present revenues on a disaggregated basis, in a manner that reconciles with the Company's reportable segment disclosures, for the following categories: product versus service type, customer type, contract type, and major program. The Company believes that this level of disaggregation provides investors with information to evaluate the Company’s financial performance and provides the Company with information to make capital allocation decisions in the most appropriate manner. For more information on the Company's contracts, ~~with customers typically fall into one~~see “Management’s Discussion and Analysis of ~~four categories: firm fixed-price, fixed-price incentive, cost-type,~~Financial Condition and ~~time and materials.~~

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

•~~Fixed-Price Incentive Contracts~~ ~~- Fixed-price incentive contracts provide for reimbursement~~Part II, Item 7 of the contractor's allowable costs, but are subject to a cost-share limit that affects profitability. Fixed-price incentive contracts effectively become firm fixed-price contracts once the cost-share limit is reached.

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

•~~Time and Materials~~ ~~- Time and materials contracts specify a fixed hourly billing rate for each direct labor hour expended and reimbursement for allowable material costs and expenses.~~Company's 2022 Annual Report on Form 10-K.

The following tables present revenues on a disaggregated basis:


		Three Months Ended September 30, 2022											Three Months Ended June 30, 2023
($ in millions)	($ in millions)	Ingalls		Newport News		Mission Technologies		Intersegment Eliminations		Total		($ in millions)	Ingalls		Newport News		Mission Technologies		Intersegment Eliminations		Total
Revenue Type	Revenue Type											Revenue Type
Product sales	Product sales	$	577	$	1,185	$	12	$	—	$	1,774	Product sales	$	604	$	1,247	$	28	$	—	$	1,879
Service revenues	Service revenues	41		259		552		—		852		Service revenues	57		262		589		—		908
Intersegment	Intersegment	5		1		31		(37)		—		Intersegment	3		—		28		(31)		—
Sales and service revenues	Sales and service revenues	$	623	$	1,445	$	595	$	(37)	$	2,626	Sales and service revenues	$	664	$	1,509	$	645	$	(31)	$	2,787
Customer Type	Customer Type											Customer Type
Federal	Federal	$	618	$	1,444	$	554	$	—	$	2,616	Federal	$	661	$	1,509	$	608	$	—	$	2,778
Commercial	Commercial	—		—		9		—		9		Commercial	—		—		9		—		9
State and local government agencies		—		—		1		—		1

Intersegment	Intersegment	5		1		31		(37)		—		Intersegment	3		—		28		(31)		—
Sales and service revenues	Sales and service revenues	$	623	$	1,445	$	595	$	(37)	$	2,626	Sales and service revenues	$	664	$	1,509	$	645	$	(31)	$	2,787
Contract Type	Contract Type											Contract Type
Firm fixed-price	Firm fixed-price	$	1	$	1	$	59	$	—	$	61	Firm fixed-price	$	—	$	2	$	84	$	—	$	86
Fixed-price incentive	Fixed-price incentive	577		723		—		—		1,300		Fixed-price incentive	606		824		1		—		1,431
Cost-type	Cost-type	40		720		437		—		1,197		Cost-type	55		683		476		—		1,214
Time and materials	Time and materials	—		—		68		—		68		Time and materials	—		—		56		—		56
Intersegment	Intersegment	5		1		31		(37)		—		Intersegment	3		—		28		(31)		—
Sales and service revenues	Sales and service revenues	$	623	$	1,445	$	595	$	(37)	$	2,626	Sales and service revenues	$	664	$	1,509	$	645	$	(31)	$	2,787

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	Three Months Ended June 30, 2022
($ in millions)	Ingalls		Newport News		Mission Technologies		Intersegment Eliminations		Total
Revenue Type
Product sales	$	611	$	1,190	$	28	$	—	$	1,829
Service revenues	45		242		546		—		833
Intersegment	2		1		26		(29)		—
Sales and service revenues	$	658	$	1,433	$	600	$	(29)	$	2,662
Customer Type
Federal	$	656	$	1,432	$	564	$	—	$	2,652
Commercial	—		—		10		—		10

Intersegment	2		1		26		(29)		—
Sales and service revenues	$	658	$	1,433	$	600	$	(29)	$	2,662
Contract Type
Firm fixed-price	$	4	$	3	$	69	$	—	$	76
Fixed-price incentive	609		754		—		—		1,363
Cost-type	43		675		437		—		1,155
Time and materials	—		—		68		—		68
Intersegment	2		1		26		(29)		—
Sales and service revenues	$	658	$	1,433	$	600	$	(29)	$	2,662


	Six Months Ended June 30, 2023
($ in millions)	Ingalls		Newport News		Mission Technologies		Intersegment Eliminations		Total
Revenue Type
Product sales	$	1,138	$	2,518	$	52	$	—	$	3,708
Service revenues	98		496		1,159		—		1,753
Intersegment	5		1		58		(64)		—
Sales and service revenues	$	1,241	$	3,015	$	1,269	$	(64)	$	5,461
Customer Type
Federal	$	1,236	$	3,014	$	1,189	$	—	$	5,439
Commercial	—		—		22		—		22

Intersegment	5		1		58		(64)		—
Sales and service revenues	$	1,241	$	3,015	$	1,269	$	(64)	$	5,461
Contract Type
Firm fixed-price	$	2	$	2	$	159	$	—	$	163
Fixed-price incentive	1,139		1,653		1		—		2,793
Cost-type	95		1,359		943		—		2,397
Time and materials	—		—		108		—		108
Intersegment	5		1		58		(64)		—
Sales and service revenues	$	1,241	$	3,015	$	1,269	$	(64)	$	5,461

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		Three Months Ended September 30, 2021											Six Months Ended June 30, 2022
($ in millions)	($ in millions)	Ingalls		Newport News		Mission Technologies		Intersegment Eliminations		Total		($ in millions)	Ingalls		Newport News		Mission Technologies		Intersegment Eliminations		Total
Revenue Type	Revenue Type											Revenue Type
Product sales	Product sales	$	586	$	1,088	$	27	$	—	$	1,701	Product sales	$	1,189	$	2,311	$	53	$	—	$	3,553
Service revenues	Service revenues	38		263		336		—		637		Service revenues	95		509		1,081		—		1,685
Intersegment	Intersegment	4		3		31		(38)		—		Intersegment	5		3		56		(64)		—
Sales and service revenues	Sales and service revenues	$	628	$	1,354	$	394	$	(38)	$	2,338	Sales and service revenues	$	1,289	$	2,823	$	1,190	$	(64)	$	5,238
Customer Type	Customer Type											Customer Type
Federal	Federal	$	624	$	1,351	$	354	$	—	$	2,329	Federal	$	1,284	$	2,820	$	1,111	$	—	$	5,215
Commercial	Commercial	—		—		9		—		9		Commercial	—		—		23		—		23

Intersegment	Intersegment	4		3		31		(38)		—		Intersegment	5		3		56		(64)		—
Sales and service revenues	Sales and service revenues	$	628	$	1,354	$	394	$	(38)	$	2,338	Sales and service revenues	$	1,289	$	2,823	$	1,190	$	(64)	$	5,238
Contract Type	Contract Type											Contract Type
Firm fixed-price	Firm fixed-price	$	5	$	15	$	52	$	—	$	72	Firm fixed-price	$	6	$	11	$	133	$	—	$	150
Fixed-price incentive	Fixed-price incentive	585		686		—		—		1,271		Fixed-price incentive	1,185		1,457		—		—		2,642
Cost-type	Cost-type	34		650		261		—		945		Cost-type	93		1,352		862		—		2,307
Time and materials	Time and materials	—		—		50		—		50		Time and materials	—		—		139		—		139
Intersegment	Intersegment	4		3		31		(38)		—		Intersegment	5		3		56		(64)		—
Sales and service revenues	Sales and service revenues	$	628	$	1,354	$	394	$	(38)	$	2,338	Sales and service revenues	$	1,289	$	2,823	$	1,190	$	(64)	$	5,238

Nine Months Ended September 30, 2022
($ in millions) Ingalls Newport News Mission Technologies Intersegment Eliminations Total
Revenue Type
Product sales $ 1,766 $ 3,496 $ 65 $ — $ 5,327
Service revenues 136 768 1,633 — 2,537
Intersegment 10 4 87 (101) —
Sales and service revenues $ 1,912 $ 4,268 $ 1,785 $ (101) $ 7,864
Customer Type
Federal $ 1,902 $ 4,264 $ 1,665 $ — $ 7,831
Commercial — — 32 — 32
State and local government agencies — — 1 — 1
Intersegment 10 4 87 (101) —
Sales and service revenues $ 1,912 $ 4,268 $ 1,785 $ (101) $ 7,864
Contract Type
Firm fixed-price $ 7 $ 12 $ 192 $ — $ 211
Fixed-price incentive 1,762 2,180 — — 3,942
Cost-type 133 2,072 1,299 — 3,504
Time and materials — — 207 — 207
Intersegment 10 4 87 (101) —
Sales and service revenues $ 1,912 $ 4,268 $ 1,785 $ (101) $ 7,864

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Nine Months Ended September 30, 2021
($ in millions) Ingalls Newport News Mission Technologies Intersegment Eliminations Total
Revenue Type
Product sales $ 1,814 $ 3,300 $ 71 $ — $ 5,185
Service revenues 121 815 726 — 1,662
Intersegment 12 9 93 (114) —
Sales and service revenues $ 1,947 $ 4,124 $ 890 $ (114) $ 6,847
Customer Type
Federal $ 1,935 $ 4,115 $ 760 $ — $ 6,810
Commercial — — 37 — 37
Intersegment 12 9 93 (114) —
Sales and service revenues $ 1,947 $ 4,124 $ 890 $ (114) $ 6,847
Contract Type
Firm fixed-price $ 29 $ 30 $ 132 $ — $ 191
Fixed-price incentive 1,790 2,121 3 — 3,914
Cost-type 116 1,964 492 — 2,572
Time and materials — — 170 — 170
Intersegment 12 9 93 (114) —
Sales and service revenues $ 1,947 $ 4,124 $ 890 $ (114) $ 6,847


		Three Months Ended September 30				Nine Months Ended September 30					Three Months Ended June 30				Six Months Ended June 30
($ in millions)	($ in millions)	2022		2021		2022		2021		($ in millions)	2023		2022		2023		2022
Major Programs	Major Programs									Major Programs
Amphibious assault ships	Amphibious assault ships	$	325	$	326	$	1,060	$	1,032	Amphibious assault ships	$	374	$	372	$	697	$	735
Surface combatants and coast guard cutters	Surface combatants and coast guard cutters	291		286		840		898		Surface combatants and coast guard cutters	287		284		540		549
Other	Other	7		16		12		17		Other	3		2		4		5
Total Ingalls	Total Ingalls	623		628		1,912		1,947		Total Ingalls	664		658		1,241		1,289
Aircraft carriers	Aircraft carriers	762		742		2,318		2,228		Aircraft carriers	828		814		1,665		1,556
Submarines	Submarines	519		490		1,459		1,419		Submarines	537		470		1,077		940
Other	Other	164		122		491		477		Other	144		149		273		327
Total Newport News	Total Newport News	1,445		1,354		4,268		4,124		Total Newport News	1,509		1,433		3,015		2,823
Government and energy services		595		394		1,785		876
Oil and gas services		—		—		—		14
Mission based solutions										Mission based solutions	524		488		1,042		979
Other										Other	121		112		227		211
Total Mission Technologies	Total Mission Technologies	595		394		1,785		890		Total Mission Technologies	645		600		1,269		1,190
Intersegment eliminations	Intersegment eliminations	(37)		(38)		(101)		(114)		Intersegment eliminations	(31)		(29)		(64)		(64)
Sales and service revenues	Sales and service revenues	$	2,626	$	2,338	$	7,864	$	6,847	Sales and service revenues	$	2,787	$	2,662	$	5,461	$	5,238

As of ~~September~~June 30, ~~2022,~~2023, the Company had ~~$46.7~~$46.9 billion of remaining performance obligations. The Company expects to recognize approximately ~~30%~~35% of its remaining performance obligations as revenue through ~~2023,~~2024, an additional ~~35%~~30% through ~~2025,~~2026, and the balance thereafter.

Cumulative Catch-up Revenue Adjustments

For the three months ended ~~September~~June 30, ~~2022,~~2023, net cumulative catch-up revenue adjustments increased operating income and increased diluted earnings per share by ~~$27~~$20 million and ~~$0.53,~~$0.41, respectively. For the three months ended ~~September~~June 30, ~~2021,~~2022, net cumulative catch-up revenue adjustments increased operating income and increased diluted earnings per share by ~~$21~~$68 million and ~~$0.41,~~$1.34, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, net cumulative catch-up revenue adjustments increased operating income and increased diluted earnings per share by ~~$140~~$29 million and ~~$2.75,~~$0.58, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, net cumulative catch-up revenue

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adjustments increased operating income and increased diluted earnings per share by ~~$106~~$113 million and ~~$2.07,~~$2.22, respectively.

~~Cumulative catch-up adjustments for~~For the three and six months ended ~~September~~June 30, 2022, included a favorable adjustment of $41 million on a contract at the Company's Newport News segment, which increased diluted earnings per share by $0.80. For the nine months ended September 30, 2022,2023, no individual favorable cumulative catch-up revenue adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income. For the three and six months ended June 30, 2023, no individual unfavorable cumulative catch-up revenue adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.

Cumulative catch-up revenue adjustments for the three months ended June 30, 2022, included a favorable adjustment of $20 million on a contract at the Company's Ingalls segment, which increased diluted earnings per share by $0.40. For the ~~three and nine~~six months ended ~~September~~June 30, 2022, no individual ~~unfavorable~~favorable cumulative catch-up revenue adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, no individual unfavorable cumulative catch-up revenue adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.

Contract Balances

The Company reports contract balances in a net contract asset or contract liability position on a contract-by-contract basis at the end of each reporting period. The Company’s net contract assets ~~increased $137~~decreased $41 million from December 31, ~~2021,~~2022, to ~~September~~June 30, ~~2022,~~2023, primarily resulting from ~~an increase in contract assets related to revenue~~billings on certain U.S. Navy contracts. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company recognized revenue of ~~$17~~$122 million and ~~$548~~$673 million, respectively, related to its contract liabilities as of December 31, ~~2021.~~2022. For the three and six months ended ~~September~~June 30, ~~2021,~~2022, the Company ~~did not recognize~~recognized revenue of $152 million and $531 million, respectively, related to its contract liabilities as of December 31, ~~2020. For the nine months ended September 30, 2021, the Company recognized revenue of $447 million related to its contract liabilities as of December 31, 2020.~~2021.

8.7. SEGMENT INFORMATION

The following table presents segment results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:


		Three Months Ended September 30				Nine Months Ended September 30					Three Months Ended June 30				Six Months Ended June 30
($ in millions)	($ in millions)	2022		2021		2022		2021		($ in millions)	2023		2022		2023		2022
Sales and Service Revenues	Sales and Service Revenues									Sales and Service Revenues
Ingalls	Ingalls	$	623	$	628	$	1,912	$	1,947	Ingalls	$	664	$	658	$	1,241	$	1,289
Newport News	Newport News	1,445		1,354		4,268		4,124		Newport News	1,509		1,433		3,015		2,823
Mission Technologies	Mission Technologies	595		394		1,785		890		Mission Technologies	645		600		1,269		1,190
Intersegment eliminations	Intersegment eliminations	(37)		(38)		(101)		(114)		Intersegment eliminations	(31)		(29)		(64)		(64)
Sales and service revenues	Sales and service revenues	$	2,626	$	2,338	$	7,864	$	6,847	Sales and service revenues	$	2,787	$	2,662	$	5,461	$	5,238
Operating Income	Operating Income									Operating Income
Ingalls	Ingalls	$	50	$	62	$	242	$	233	Ingalls	$	65	$	106	$	120	$	192
Newport News	Newport News	102		88		277		257		Newport News	95		94		179		175
Mission Technologies	Mission Technologies	14		13		48		33		Mission Technologies	9		25		26		34
Segment operating income	Segment operating income	166		163		567		523		Segment operating income	169		225		325		401
Non-segment factors affecting operating income	Non-segment factors affecting operating income									Non-segment factors affecting operating income
Operating FAS/CAS Adjustment	Operating FAS/CAS Adjustment	(36)		(41)		(108)		(118)		Operating FAS/CAS Adjustment	(17)		(35)		(36)		(72)
Non-current state income taxes	Non-current state income taxes	1		(4)		1		(12)		Non-current state income taxes	4		1		8		—
Operating income	Operating income	$	131	$	118	$	460	$	393	Operating income	$	156	$	191	$	297	$	329

Operating FAS/CAS Adjustment - The Operating FAS/CAS Adjustment represents the difference between the service cost component of our pension and other postretirement benefit plan expense determined in accordance with U.S. GAAP Financial Accounting Standards ("FAS") and our pension and other postretirement expense under ~~CAS.~~U.S. Government Cost Accounting Standards ("CAS").

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


($ in millions)	($ in millions)	September 30, 2022		December 31, 2021		($ in millions)	June 30, 2023		December 31, 2022
Assets	Assets					Assets
Ingalls	Ingalls	$	1,716	$	1,659	Ingalls	$	1,614	$	1,633
Newport News	Newport News	4,558		4,179		Newport News	4,557		4,344
Mission Technologies	Mission Technologies	3,403		3,553		Mission Technologies	3,215		3,347
Corporate	Corporate	938		1,236		Corporate	1,473		1,533
Total assets	Total assets	$	10,615	$	10,627	Total assets	$	10,859	$	10,857

~~9. GOODWILL~~

The Company’s annual goodwill impairment test will be performed as of November 30, 2022, whereby management will test goodwill for each of its three reporting units with goodwill balances to determine whether an event occurred or circumstances changed that would more likely than not reduce the fair values of the Company's reporting units below their respective carrying values. The Company expects that the fair value of the Government Services reporting unit within the Mission Technologies segment will exceed carrying value by less than 10%. The Company expects that the estimated fair values of its remaining reporting units will exceed by more than 10% their corresponding carrying values as of November 30, 2022.

~~10.~~8. INCOME TAXES

The Company's earnings are primarily domestic, and its effective income tax rates on earnings from operations for the three months ended ~~September~~June 30, 2023 and 2022, were 23.1% and ~~2021, were 14.8% and (4.3)%~~19.8%, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, the Company's effective income tax rates on earnings from operations were ~~18.6%~~22.0% and ~~10.7%~~20.1%, respectively. The higher effective tax ~~rates~~rate for each of the three and ~~nine~~six months ended ~~September~~ June 30, ~~2022, were~~2023, was primarily attributable to ~~research and development~~a tax ~~credits for prior periods recorded~~gain associated with the sale of the Company's interest in ~~2021.~~Titan.

For each of the three and ~~nine~~six months ended ~~September~~ June 30, 2023, the Company's effective tax rate differed from the federal statutory corporate income tax rate primarily as a result of the tax gain associated with the sale of the Company’s interest in Titan. For the three months ended June 30, 2022, ~~and 2021,~~ the ~~Company’s~~Company's effective tax ~~rates~~rate differed from the federal statutory corporate income tax rate primarily as a result of research and development tax ~~credits for prior periods.~~credits. For the six months ended June 30, 2022, the Company's effective tax rate did not differ materially from the federal statutory corporate income tax rate of 21%.

The Company's unrecognized tax benefits increased by $5$2 million and ~~$10~~$4 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, respectively. As of ~~September~~June 30, ~~2022,~~2023, the estimated amounts of the Company's unrecognized tax benefits, excluding interest and penalties, were liabilities of ~~$91~~$94 million. Assuming a sustainment of these tax positions, a reversal of ~~$69~~$71 million of the accrued amounts would favorably affect the Company's effective federal income tax rate in future periods.

The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, interest resulting from the unrecognized tax benefits noted above increased income tax expense by ~~less than~~ $1 million and $1$2 million, respectively.

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

~~11.~~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 ASC~~Financial Accounting Standards Board 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. The Company has ~~in certain cases,~~also provided footnote disclosure ~~regarding certain~~for matters for which ~~the Company believes at this time that~~a material loss is reasonably possible but a reserve has not been accrued because the likelihood of a material loss is ~~remote.~~not probable.

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False Claims Act Complaint - In 2016, the Company was made aware that it is a defendant in a qui tam False Claims Act lawsuit pending in the U.S. District Court for the Middle District of Florida related to the Company’s purchases of allegedly non-conforming parts from a supplier for use in connection with U.S. Government contracts. In August 2019, the Department of Justice (“DoJ”) declined to intervene in the lawsuit, and the lawsuit was unsealed. The court dismissed the complaint in September 2021, and the plaintiff has appealed the dismissal to the United States Court of Appeals for the 11th Circuit.

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Insurance Claims - In September 2020, the Company filed a complaint against 32 reinsurers in the Superior Court, State of Vermont, Franklin Unit, seeking a judgment declaring that the Company's business interruption and other losses associated with COVID-19 are covered by the Company's property insurance program. The Company also has initiated arbitration proceedings against six other reinsurers seeking similar relief. 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 provided regarding the ultimate resolution of this matter.

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

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.

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. In some instances, partial or full insurance coverage is available for the Company's liabilities. The costs to resolve cases during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, were not material individually or in the aggregate. The Company’s estimate of asbestos-related liabilities is subject to uncertainty because liabilities are influenced by many variables that are inherently difficult to predict. 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, ~~and~~or cash flows, it cannot predict what new or revised claims or litigation might be asserted or what information might come to light and can, therefore, give no assurances regarding the ultimate outcome of asbestos related litigation.

Other Litigation - The Company and its predecessor-in-interest have been in litigation with the Bolivarian Republic of Venezuela (the "Republic") since 2002 over a contract for the repair, refurbishment, and modernization at Ingalls of two foreign-built frigates. Following an arbitration proceeding between the parties, in February 2018, the arbitral tribunal awarded the Company approximately $151 million on its claims and awarded the Republic approximately $22 million on its counterclaims. The Company is seeking to enforce and execute upon the award in multiple jurisdictions. No assurances can be provided regarding the ultimate resolution of this matter.

The Company is party to various other claims, legal proceedings, and investigations that arise in the ordinary course of business, including U.S. 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 these other claims, legal proceedings, and investigations will not have a material effect on its condensed consolidated financial position, results of operations, ~~and~~or cash flows, the 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.

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~~12.~~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 recognized to the extent of expected recovery based upon contractual entitlements and the probability of successful

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negotiation with the customer. AsThe Company believes its outstanding customer settlements will be resolved without material impact to its financial position, results of ~~September 30, 2022, amounts recognized in connection with claims and requests for equitable adjustment were not material individually~~operations, or ~~in the aggregate.~~cash flows.

Environmental Matters - The estimated cost to complete environmental remediation has been accrued when it is probable that the Company will incur such costs in the future to address environmental conditions at currently or formerly owned or leased operating facilities, or at sites where it has been named a Potentially Responsible Party by the Environmental Protection Agency or similarly designated by another environmental agency, and the related costs can be estimated by management. These accruals do not include any litigation costs related to environmental matters, nor do they include amounts recorded as asset retirement obligations. Management estimates that as of ~~September~~June 30, ~~2022,~~2023, the probable estimable future cost for environmental remediation was not material. Although management cannot predict whether new information gained as remediation progresses or the Company incurs additional remediation obligations will materially affect the estimated liability accrued, management does not believe that future remediation expenditures will have a material effect on the Company's consolidated financial position, results of operations, ~~and~~or cash flows.

Financial Arrangements - In the ordinary course of business, HII uses letters of credit issued by commercial banks to support certain leases, insurance policies, and contractual performance obligations, as well as surety bonds issued by insurance companies principally to support the Company's self-insured workers' compensation plans. As of ~~September~~June 30, ~~2022,~~2023, the Company had $14 million in issued but undrawn letters of credit and $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 the 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, ~~and~~or cash flows, it cannot predict the ultimate outcome of these matters.

Other ~~Matters~~Contingencies - 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 ~~U.S. GAAP Financial Accounting Standards ("FAS").~~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 has submitted to the Navy a proposed draft alternative approach to billing and allocating the cost of workers’ compensation self-insurance, while continuing to reiterate its belief that the 1985 settlement agreement remains binding on the parties. Although the Company believes the 1985 settlement agreement is CAS-compliant and cannot be unilaterally terminated, but the Company is ~~seeking~~continuing to negotiate a resolution of the matter with the Contracting Officer.

~~In August 2022, the Navy Contracting Officer issued~~The Company has been in negotiations with a ~~written determination that the Ingalls Shipbuilding Property Management System had~~Mission Technologies customer since January 2023 to address issues related to a ~~significant deficiency, resulting in a 2% withhold of payments on certain invoices issued under one~~manufacturing contract. The ~~withhold will terminate and withheld funds paid~~Company recorded provisions for contract loss in prior periods that were not material to the Company when the Contracting Officer determines that the significant deficiency has been corrected. Although the Company believes the ultimate resolution of this matter will not have a material effect on itsCompany's consolidated financial position, results of operations, or cash ~~flows, it cannot~~flows. The parties have not agreed upon a resolution of the matter, and the Company could incur additional future losses on the contract. The Company can therefore not predict or give assurances regarding the ultimate outcome of this matter.

The Company previously disclosed an issue regarding the degree of corrosion of certain steel plates used to fabricate Friedman (NSC 11). The Company’s expectation regarding the resolution of the matter with the customer is included in contract cost and profit estimates. Those estimates include management's best assessment of the underlying causal events, contractual entitlements, and the probability of successful resolution with the customer. The Company does not expect the final resolution of the matter to have a material impact to the Company's consolidated financial position, results of operations, or cash flows.

Collective Bargaining Agreements - Of the Company's approximately 43,000 employees, approximately 45% are covered by a total of nine collective bargaining agreements and one site stabilization agreement. The Company believes its relationship with its employees is satisfactory.

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~~13.~~11. EMPLOYEE PENSION AND OTHER POSTRETIREMENT BENEFITS

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

The costs of the Company's defined benefit pension plans and other postretirement benefit plans for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, were as follows:


		Three Months Ended September 30								Nine Months Ended September 30									Three Months Ended June 30								Six Months Ended June 30
		Pension Benefits				Other Benefits				Pension Benefits				Other Benefits					Pension Benefits				Other Benefits				Pension Benefits				Other Benefits
($ in millions)	($ in millions)	2022		2021		2022		2021		2022		2021		2022		2021		($ in millions)	2023		2022		2023		2022		2023		2022		2023		2022
Components of Net Periodic Benefit Cost
Components of net periodic benefit cost																		Components of net periodic benefit cost
Service cost	Service cost	$	45	$	50	$	2	$	2	$	135	$	149	$	7	$	7	Service cost	$	28	$	45	$	2	$	3	$	56	$	90	$	3	$	5
Interest cost	Interest cost	65		60		3		4		194		180		10		11		Interest cost	86		65		5		3		172		129		10		7
Expected return on plan assets	Expected return on plan assets	(148)		(138)		—		—		(446)		(414)		—		—		Expected return on plan assets	(133)		(148)		—		—		(265)		(298)		—		—
Amortization of prior service cost (credit)	Amortization of prior service cost (credit)	6		3		(1)		(1)		16		11		(3)		(3)		Amortization of prior service cost (credit)	5		6		—		(1)		9		10		(1)		(2)
Amortization of net actuarial loss (gain)	Amortization of net actuarial loss (gain)	8		28		—		(1)		26		82		(2)		(2)		Amortization of net actuarial loss (gain)	4		9		(4)		(1)		8		18		(7)		(2)
Settlement gain		(4)		—		—		—		(4)		—		—		—

Net periodic benefit (income) cost	Net periodic benefit (income) cost	$	(28)	$	3	$	4	$	4	$	(79)	$	8	$	12	$	13	Net periodic benefit (income) cost	$	(10)	$	(23)	$	3	$	4	$	(20)	$	(51)	$	5	$	8

The Company made the following contributions to its defined benefit pension plans and other postretirement benefit plans for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:


		Nine Months Ended September 30					Six Months Ended June 30
($ in millions)	($ in millions)	2022		2021		($ in millions)	2023		2022
Pension plans	Pension plans					Pension plans

Discretionary	Discretionary					Discretionary
Qualified	Qualified	$	—	$	60	Qualified	$	—	$	—
Non-qualified	Non-qualified	7		6		Non-qualified	5		5
Other benefit plans	Other benefit plans	25		28		Other benefit plans	16		16
Total contributions	Total contributions	$	32	$	94	Total contributions	$	21	$	21

As of ~~September~~June 30, ~~2022,~~2023, the Company anticipates no further significant cash contributions to its qualified defined benefit pension plans in ~~2022.~~2023.

On September 6, 2022, the Company purchased annuity contracts to transfer $32 million of gross defined benefit pension obligations and related plan assets to an insurance company for approximately 500 retirees and beneficiaries. The annuity contracts were purchased using assets from the pension master trust, and no additional funding contribution was required. This transaction had no impact on the amount, timing, or form of the monthly retirement benefit payments to the affected retirees and beneficiaries. In connection with this transaction, the Company recognized a noncash, non-operating pension settlement gain of $4 million for the affected plan, which represents the accelerated recognition of actuarial losses that were included in accumulated other comprehensive loss within stockholders' equity.

In March 2022, 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 $97 million.

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~~14.~~12. STOCK COMPENSATION PLANS

During the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, the Company issued new stock awards as follows:

Restricted Performance Stock Rights - For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company granted approximately 0.2 million RPSRs at a weighted average share price of ~~$201.48.~~$214.92. These rights are subject to cliff vesting on December 31, ~~2024.~~2025. For the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company granted approximately ~~0.2~~0.1 million RPSRs at a weighted average share price of ~~$180.05.~~$204.10. These rights are subject to cliff vesting on December 31, ~~2023.~~2024. All of the RPSRs are subject to the achievement of performance-based targets at the end of the respective vesting periods and will ultimately vest between 0% and 200% of grant date value.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, awards of approximately ~~0.2~~0.1 million and ~~0.1~~0.2 million shares of stock vested, respectively, of which less than 0.1 million for each period were transferred to the Company from employees in satisfaction of minimum tax withholding obligations.

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The following table summarizes the status of the Company's outstanding stock awards as of ~~September~~June 30, ~~2022:~~2023:
Stock Awards
(in thousands) Weighted-Average
Grant Date Fair
Value Weighted-Average Remaining Contractual Term
(in years)
Total stock awards 509 $ 188.84 1.2


	Stock Awards (in thousands)	Weighted-Average Grant Date Fair Value		Weighted-Average Remaining Contractual Term (in years)
Total stock awards	546	$	189.78	1.3

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~~$6 million and $7 million for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The Company recorded stock-based compensation for the value of awards granted to ~~Company~~The Company's employees and non-employee members of the board of directors of ~~$28~~$18 million and ~~$19~~$16 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

The Company recorded tax benefits related to stock awards of ~~$3 million and~~ $1 million for each of the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021, respectively.~~2022. The Company recorded tax benefits related to stock awards of $5$3 million and $3$2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The Company recognized tax benefits associated with the issuance of stock in settlement of stock awards of less than $1 million for each of the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022. The Company recognized tax benefits associated with the issuance of stock in settlement of stock awards of $4$3 million and $2$4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

Unrecognized Compensation Expense

As of ~~September~~June 30, ~~2022,~~2023, the Company had $3$2 million of unrecognized compensation expense associated with Restricted Stock Rights granted in 2023, 2022, and 2021, which will be recognized over a weighted average period of 11.0 year, and ~~$37~~$49 million of unrecognized compensation expense associated with RPSRs granted in 2023, 2022, ~~2021,~~ and ~~2020,~~2021, which will be recognized over a weighted average period of ~~1.3~~1.5 years.

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 a global, all-domain defense partner, building and delivering the world’s most powerful, survivable naval ships and technologies that safeguard America’s seas, sky, land, space, and cyber. For more than a century, our Ingalls Shipbuilding segment ("Ingalls") in Mississippi and Newport News Shipbuilding segment ("Newport News") in Virginia have built more ships in more ship classes than any other U.S. naval shipbuilder, making us America's largest shipbuilder. Our Mission Technologies ~~(formerly named Technical Solutions)~~ segment ~~provides a range of services and products to government and commercial customers.~~develops integrated solutions that enable today's connected, all-domain force. Headquartered in Newport News, Virginia, HII employs approximately 43,000 people domestically and internationally.

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We conduct most of our business with the U.S. Government, primarily the Department of Defense ("DoD"). As prime contractor, principal subcontractor, team member, or partner, we participate in many high-priority U.S. defense 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 Mission Technologies segment provides a wide range of services and products, including command, control, computers, communications, cyber, intelligence, surveillance, and reconnaissance ("C5ISR") systems and operations; 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 operations.

The following discussion should be read along with the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022 (the "2022 Annual Report on Form 10-K").

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Business Environment

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

U.S. Government Contracts - Long-term uncertainty exists with respect to overall levels of defense spending across the future years' defense plan, and it is likely that U.S. Government discretionary spending levels will continue to be subject to significant pressure.

Congressional consideration of the fiscal year ~~2023~~2024 President’s Budget Request began following its release in March ~~2022,~~2023 and ~~appropriations for the Federal government have yet to be finalized. Consequently, the U.S. Government~~ is currently operating under a Continuing Resolution ("CR") that funds government operations through December 16, 2022. The House Appropriations Committee voted out a defense appropriations measure earlier this year, and the Senate Appropriations Committee released the text of its defense appropriations measure, but a traditional markup process remains uncertain.ongoing. The House and Senate ~~Armed Services Committees~~ have each acted on their respective National Defense Authorization bills for fiscal year ~~2023,~~2024, both of which ~~broadly~~ support our shipbuilding ~~programs.~~programs, including the additional authorization of the LPD 33 Flight II amphibious ship. Both House and Senate appropriations committees fund the procurement of two Virginia class (SSN 774) submarines, one Columbia class (SSBN 826) ballistic missile submarine, and two Arleigh Burke class (DDG 51) destroyers. The ~~full House has approved its authorization~~Senate appropriations bill ~~and awaits Senate floor consideration of its version before the two bills are reconciled to produce a final measure. It remains uncertain at this point whether~~provides advance procurement funding for LPD 33 (unnamed) in fiscal year ~~2023 government operations will require additional short-term funding~~2024 and a third Arleigh Burke class (DDG 51) destroyer in fiscal year 2025, and the House appropriations bill includes language supporting a stable rate of procurement of amphibious warfare ships. All four committees have authorized the U.S. Navy to enter into one or ~~alternatively, annual appropriations measures will be finalized by~~more contracts for the ~~expiration~~multiyear procurement of the ~~CR. Appropriations measures must be passed by Congress and enacted by the President, and we~~next block of Virginia class (SSN 774) submarines. We cannot predict the outcome of the fiscal year ~~2023~~2024 budget ~~process.~~

~~Long-term~~process or whether short-term funding ~~for certain programs~~will be required in ~~which we participate may be reduced, delayed, or canceled. In addition, spending cuts and/or reprioritization of defense investment could adversely affect~~ the ~~viability of our suppliers, subcontractors, and employee base. Our contracts or subcontracts under programs in which we participate may be terminated or adjusted~~event annual appropriations measures are not finalized by the ~~U.S. Government or~~October 1 start of the prime contractor due to lack of government funding or reductions or delays in government funding. Significant reductions in the number of ships procured by the U.S. Navy or significant delays in funding our ship programs would have a material effect on our financial position, results of operations, and cash flows.

fiscal year.

The federal budget environment 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 could have serious implications for defense discretionary spending, the defense industrial base, including HII, and the customers, employees, suppliers, subcontractors, investors, and communities that rely on companies in the defense industrial base. 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. It is likely budget and program decisions made in this environment will have long-term impacts on HII and the entire defense industry.

Political and Economic Environment - – The global geopolitical and economic environment continues to be impacted

by uncertainty, heightened geopolitical tensions, and instability. Geopolitical relationships have changed, and are continuing to change, and the U.S. 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 security concerns, and political instability. These global threats persist across all domains, from undersea to space

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to cyber, and the global market for defense products, services, and solutions is driven by these complex and evolving security challenges. Our current operating environment exists in the broader context of political and socioeconomic priorities and reflects, among other things, the continued impact of and uncertainty surrounding geopolitical tensions, financial market volatility, inflation, and a challenging labor ~~market, and the COVID-19 pandemic.~~market.

~~In February~~For further information on our business environment, see the discussion under Business Environment under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our 2022 Russian forces invaded Ukraine. In response, the United States and other countries imposed economic and trade sanctions, export controls, and other restrictions. The conflict and these sanctions have caused disruptions to global economies and global business, including heightened cybersecurity risks, supply chain challenges, higher energy costs, and an exacerbation of existing inflationary pressures. Additionally, and more broadly, tensions with China and changes in international trade policies, including higher tariffsAnnual Report on ~~imported goods and materials and renegotiation of free trade agreements, could impact the global market for defense products, services, and solutions.~~Form 10-K.

In addition to price surges in energy, food, and aluminum, rising inflation has led to higher costs of various commodities and supplier products. Inflation has also resulted in rising interest rates, raising the cost of borrowing for the federal government, which could impact other spending priorities. In an era of unanticipated cost increases, the inclusion of mitigation mechanisms, such as Economic Price Adjustment clauses, in our contracts help reduce risks from negative price adjustments. Our bids for longer-term firm fixed-price contracts typically include assumptions for labor and other contract costs that historically have been sufficient to cover cost increases over the period of performance. If, however, recent inflationary conditions continue over the long-term, our cost assumptions may not be sufficient to cover potential contract cost growth or may impact the availability of resources to execute the respective contracts. Management is closely monitoring possible cost impacts with our customers.

The macro labor market continues to present significant challenges, and those challenges are continuing to impact our operations and our financial performance. We are aggressively responding to the labor market challenges, including utilizing outside leased labor and overtime to mitigate the short-term deficit of employees and implementing aggressive hiring and retention programs. Labor shortages are also impacting our supply chain, resulting in longer lead times for materials and inflationary pressure. Our longer term ability to meet contract requirements, as well as our financial performance, are dependent on our ability to attract and retain a stable skilled workforce.

The Inflation Reduction Act of 2022 was signed into law during the third quarter of 2022 and included, among other things, provisions for an alternative minimum tax and a one percent excise tax on share repurchases. We anticipate being subject to the excise tax beginning in 2023 and continue to evaluate other provisions of the Act for their impact on our business.

~~COVID-19 Pandemic -~~ The COVID-19 pandemic has dramatically impacted the global economic environment, including labor shortages and supply chain challenges. The COVID-19 crisis initially had a significant impact on the U.S. labor market, and the resulting challenges and uncertainty have exacerbated already existing workforce trends. Talent attraction and retention and the ability to maintain a qualified workforce affects not only industry prime contractors but suppliers as well. Challenges incurred by our suppliers relative to their workforces, access to necessary components, materials, and other supplies at reasonable prices, and access to support services, such as shipping and transportation, may impact the ability of suppliers to provide agreed-upon goods and services in a timely, compliant, and cost-effective manner. We may in the future incur additional costs and performance challenges, including as a result of higher prices, schedule delays, or the need to identify and develop alternative suppliers.

The COVID-19 pandemic has impacted our employees, customers, suppliers, and communities (collectively, “COVID-19 Events”). While costs related to COVID-19 Events are allowable under U.S. Government contracts, our contract financial estimates reflect profit margin impact uncertainty, because such costs may not result in equitable adjustments, particularly on firm fixed-price and fixed-price incentive contracts, or may not be adequately covered by insurance. Reinsurers under our property insurance have failed to acknowledge coverage for various losses related to COVID-19, and we filed a complaint in state court in Vermont seeking a judgment declaring that our business interruption and other losses associated with COVID-19 are covered by our property insurance program. We also initiated arbitration proceedings against other reinsurers seeking similar relief. The Vermont court dismissed our complaint, and we appealed the decision to the Vermont Supreme Court. That court reversed and remanded the lower court’s decision in September 2022, allowing our claim to proceed. No assurance can be provided regarding the ultimate resolution of this matter. See Note 11: Investigations, Claims, and Litigation.

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Critical Accounting Policies, Estimates, and Judgments

As discussed in our 2022 Annual Report on Form 10-K, ~~for the year ended December 31, 2021,~~ we consider our policies relating to the following matters to be critical accounting policies and estimates:

•Revenue recognition;

•Purchase accounting, goodwill, and intangible assets;

•Litigation, commitments, and contingencies;

•Retirement related benefit plans; and

•Workers' compensation.

As of ~~September~~June 30, ~~2022,~~2023, there had been no material changes to the foregoing critical accounting policies, estimates, and judgments since December 31, ~~2021.~~2022.

We have incorporated realized and estimated future effects of COVID-19 Events, based upon current conditions and our judgment of the future impacts of COVID-19 Events, with respect to contract costs and revenue recognition, effective income tax rates, and the fair values of our long-lived assets, financial instruments, intangible assets, and goodwill recorded at our reporting units.

~~Contracts~~

We generate most of our revenues from multi-year contracts with the U.S. Government for design, production, and support activities. Due to the size, duration, and nature of many of our multi-year contracts, the estimation of sales and services revenues and costs through completion is complicated and subject to many variables. Sales and service revenue estimates are based on negotiated contract prices, modified by our assumptions regarding contract options, change orders, incentive and award provisions associated with schedule, technical performance, and price adjustment clauses (such as inflation or index-based clauses). These multi-year contracts generally have a transaction price that is based on estimated cost to produce the product or service plus margin. Product and service cost estimates are based on negotiated or estimated contract terms, historical performance trends, and other economic projections. Government contracts typically include the following cost elements: direct material, labor and subcontracting costs, and certain indirect costs, including allowable general and administrative expenses. Factors that influence our cost estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, COVID-19 disruptions, and capital costs.

Unless otherwise specified in a contract, costs billed to contracts with the U.S. Government are treated as allowable and allocable costs under the FAR and 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, organizational costs, including certain merger and acquisition costs, and advertising costs.

~~Contract Fees~~ - Negotiated contract fee structures 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. We consider award fees to be variable consideration and generally include these fees in the transaction price using a most likely amount approach. Award fees are limited to the extent of funding allotted by the customer and available for performance and those amounts for which a significant reversal of revenue is not probable.

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Program Descriptions

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

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CONSOLIDATED OPERATING RESULTS

~~The following table presents selected financial highlights:~~
Three Months Ended
September 30 Nine Months Ended
September 30
2022 vs. 2021 2022 vs. 2021
($ in millions) 2022 2021 Dollars Percent 2022 2021 Dollars Percent
Sales and service revenues $ 2,626 $ 2,338 $ 288 12 % $ 7,864 $ 6,847 $ 1,017 15 %
Cost of product sales and service revenues 2,264 2,007 257 13 % 6,763 5,852 911 16 %
Income from operating investments, net 13 11 2 18 % 47 31 16 52 %
Other income and gains, net — 2 (2) (100) % — 3 (3) (100) %
General and administrative expenses 244 226 18 8 % 688 636 52 8 %
Operating income 131 118 13 11 % 460 393 67 17 %
Other income (expense)
Interest expense (27) (24) (3) (13) % (79) (63) (16) (25) %
Non-operating retirement benefit 71 45 26 58 % 209 135 74 55 %
Other, net (13) 2 (15) (750) % (30) 10 (40) (400) %
Federal and foreign income taxes 24 (6) 30 500 % 104 51 53 104 %
Net earnings $ 138 $ 147 $ (9) (6) % $ 456 $ 424 $ 32 8 %

~~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 largely flexibly-priced. 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 by focusing on net sales and operating profit and monitors 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 June 30								Six Months Ended June 30
					2023 vs. 2022								2023 vs. 2022
($ in millions)	2023		2022		Dollars		Percent		2023		2022		Dollars		Percent
Sales and service revenues	$	2,787	$	2,662	$	125	5	%	$	5,461	$	5,238	$	223	4	%
Cost of product sales and service revenues	2,398		2,272		126		6	%	4,722		4,499		223		5	%
Income from operating investments, net	4		27		(23)		(85)	%	16		34		(18)		(53)	%
Other income and gains, net	1		1		—		—	%	—		—		—		—	%
General and administrative expenses	238		227		11		5	%	458		444		14		3	%

Operating income	156		191		(35)		(18)	%	297		329		(32)		(10)	%
Other income (expense)
Interest expense	(24)		(26)		2		8	%	(48)		(52)		4		8	%
Non-operating retirement benefit	37		67		(30)		(45)	%	74		138		(64)		(46)	%
Other, net	—		(10)		10		100	%	9		(17)		26		153	%
Federal and foreign income taxes	39		44		(5)		(11)	%	73		80		(7)		(9)	%
Net earnings	$	130	$	178	$	(48)	(27)	%	$	259	$	318	$	(59)	(19)	%

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 June 30, 2023, increased $125 million, or 5%, compared to the same period in 2022, primarily due to higher volumes at Newport News and Mission Technologies. Sales and service revenues for the six months ended June 30, 2023, increased $223 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.

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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.

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~~Sales~~Refer to "Segment Operating Results" and "Product and Service Revenues

~~Sales~~ and Cost Analysis" in this section for details related to cost of sales for both product sales and service ~~revenues were comprised as follows:~~
Three Months Ended
September 30 Nine Months Ended
September 30
2022 vs. 2021 2022 vs. 2021
($ in millions) 2022 2021 Dollars Percent 2022 2021 Dollars Percent
Product sales $ 1,774 $ 1,701 $ 73 4 % $ 5,327 $ 5,185 $ 142 3 %
Service revenues 852 637 215 34 % 2,537 1,662 875 53 %
Sales and service revenues $ 2,626 $ 2,338 $ 288 12 % $ 7,864 $ 6,847 $ 1,017 15 %

Product sales for the three months ended September 30, 2022, increased $73 million, or 4%, from the same period in 2021. Product sales for the nine months ended September 30, 2022, increased $142 million, or 3%, from the same period in 2021. Ingalls product sales decreased $9 million for the three months ended September 30, 2022, primarily driven by lower volumes in the ~~Legend~~ class National Security Cutter ("NSC") program and amphibious assault ships, partially offset by higher volumes in surface combatants. Ingalls product sales decreased $48 million for the nine months ended September 30, 2022, primarily as a result of lower volumes in surface combatants and the ~~Legend~~ class NSC program, partially offset by higher volumes in amphibious assault ships. Newport News product sales increased $97 million for the three months ended September 30, 2022, primarily as a result of higher volumes in submarines and aircraft carriers. Newport News product sales increased $196 million for the nine months ended September 30, 2022, primarily as a result of higher volumes in aircraft carriers and submarines. Mission Technologies product sales decreased $15 million for the three months ended September 30, 2022, primarily as a result of lower volumes in Unmanned Systems, partially offset by higher volumes in Fleet Sustainment. Mission Technologies product sales decreased $6 million for the nine months ended September 30, 2022, primarily as a result of lower volumes in Unmanned Systems, partially offset by higher volumes in Defense and Federal Solutions (“DFS”) and Fleet Sustainment.

Service revenues for the three months ended September 30, 2022, increased $215 million, or 34%, compared with the same period in 2021. Service revenues for the nine months ended September 30, 2022, increased $875 million, or 53%, compared with the same period in 2021. Ingalls service revenues increased $3 million for the three months ended September 30, 2022, primarily as a result of higher volumes in surface combatant services. Ingalls service revenues increased $15 million for the nine months ended September 30, 2022, primarily as a result of higher volumes in amphibious assault ship services, partially offset by lower volumes in surface combatant services. Newport News service revenues decreased $4 million for the three months ended September 30, 2022, primarily as a result of lower volumes in submarine services, partially offset by higher volumes in naval nuclear support services. Newport News service revenues decreased $47 million for the nine months ended September 30, 2022, primarily as a result of lower volumes in submarine and aircraft carrier services, partially offset by higher volumes in naval nuclear support services. Mission Technologies service revenues increased $216 million and $907 million for the three and nine months ended September 30, 2022, respectively, primarily as a result of higher volumes in DFS services due to the acquisition of Alion in the third quarter of 2021.

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~~Cost of Sales and Service Revenues~~

~~Cost of product sales, cost of service revenues, income from operating investments, net, and general and administrative expenses were as follows:~~
Three Months Ended
September 30 Nine Months Ended
September 30
2022 vs. 2021 2022 vs. 2021
($ in millions) 2022 2021 Dollars Percent 2022 2021 Dollars Percent
Cost of product sales $ 1,517 $ 1,453 $ 64 4 % $ 4,511 $ 4,402 $ 109 2 %
% of product sales 85.5 % 85.4 % 84.7 % 84.9 %
Cost of service revenues 747 554 193 35 % 2,252 1,450 802 55 %
% of service revenues 87.7 % 87.0 % 88.8 % 87.2 %
Income from operating investments, net 13 11 2 18 % 47 31 16 52 %
Other income and gains, net — 2 (2) (100) % — 3 (3) (100) %
General and administrative expenses 244 226 18 8 % 688 636 52 8 %
% of sales and service revenues 9.3 % 9.7 % 8.7 % 9.3 %
Cost of sales and service revenues $ 2,495 $ 2,220 $ 275 12 % $ 7,404 $ 6,454 $ 950 15 %

~~Cost of Product Sales~~revenues.

Cost of product sales for the three months ended September 30, 2022, increased $64 million, or 4%, compared with the same period in 2021. Cost of product sales for the nine months ended September 30, 2022, increased $109 million, or 2%, compared with the same period in 2021. Ingalls cost of product sales increased $8 million for the three months ended September 30, 2022, primarily as a result of lower risk retirement on ~~Arleigh Burke~~ class (DDG 51) destroyers, partially offset by volume decreases described above. Ingalls cost of product sales decreased $30 million for the nine months ended September 30, 2022, primarily as a result of volume decreases described above, partially offset by higher risk retirement on ~~Harrisburg~~ (LPD 30). Newport News cost of product sales increased $70 million and $146 million for the three and nine months ended September 30, 2022, respectively, primarily as a result of volume increases described above. Mission Technologies cost of product sales decreased $11 million for the three months ended September 30, 2022, driven by volume changes described above. Mission Technologies cost of product sales remained flat for the nine months ended September 30, 2022. Cost of product sales related to the Operating FAS/CAS Adjustment decreased $3 million and $7 million for the three and nine months ended September 30, 2022, respectively, as described below.

Cost of product sales as a percentage of product sales increased from 85.4% for the three months ended September 30, 2021, to 85.5% for the three months ended September 30, 2022. The increase was primarily due to lower risk retirement on the ~~Virginia~~ ~~class (SSN 774) submarine program, higher amortization of purchased intangible assets in 2022 due to the Alion acquisition, and lower risk retirement on~~ ~~Ted Stevens~~ ~~(DDG 128) and~~ ~~Delbert D. Black~~ ~~(DDG 119), partially offset by contract incentives on the~~ ~~Columbia~~ ~~class (SSBN 826) submarine program, higher risk retirement on USS~~ ~~Portland~~ (LPD 27), as well as a favorable change in the Operating FAS/CAS Adjustment. Cost of product sales as a percentage of product sales decreased from 84.9% for the nine months ended September 30, 2021, to 84.7% for the nine months ended September 30, 2022. The decrease was primarily due to favorable changes in contract estimates from facilities capital and price adjustment clauses, contract incentives on the ~~Columbia~~ ~~class (SSBN 826) submarine program, higher risk retirement on~~ ~~Harrisburg~~ ~~(LPD 30) and USS~~ ~~Fort Lauderdale~~ ~~(LPD 28) following its delivery, as well as a favorable change in the Operating FAS/CAS Adjustment, partially offset by lower risk retirement on the~~ ~~Virginia~~ ~~class (SSN 774) submarine program, and receipt of a contract incentive on USS~~ ~~Jack H. Lucas~~ ~~(DDG 125) in 2021.~~

~~Cost of Service Revenues~~

Cost of service revenues for the three months ended September 30, 2022, increased $193 million, or 35%, compared with the same period in 2021. Cost of service revenues for the nine months ended September 30, 2022, increased $802 million, or 55%, compared with the same period in 2021. Ingalls cost of service revenues increased $6 million and $18 million for the three and nine months ended September 30, 2022, respectively, primarily as a result of higher volumes described above. Newport News cost of service revenues decreased $8 million and $58

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million for the three and nine months ended September 30, 2022, respectively, primarily as a result of lower volumes described above. Mission Technologies cost of service revenues increased $197 million and $845 million for the three and nine months ended September 30, 2022, respectively, primarily as a result of higher volumes described above. Cost of service revenues related to the Operating FAS/CAS Adjustment decreased $2 million and $3 million for the three and nine months ended September 30, 2022, respectively, as described below.

Cost of service revenues as a percentage of service revenues increased from 87.0% for the three months ended September 30, 2021, to 87.7% for the three months ended September 30, 2022. The increase was primarily driven by higher amortization of purchased intangible assets in 2022 due to the Alion acquisition and year-to-year variances in contract mix, partially offset by improved performance in DFS services due to the acquisition of Alion in the third quarter of 2021, as well as a favorable change in the Operating FAS/CAS Adjustment. Cost of service revenues as a percentage of service revenues increased from 87.2% for the nine months ended September 30, 2021, to 88.8% for the nine months ended September 30, 2022. The increase was primarily driven by higher amortization of purchased intangible assets in 2022 due to the Alion acquisition and year-to-year variances in contract mix, partially offset by improved performance in DFS services due to the acquisition of Alion in the third quarter of 2021, as well as a favorable change in the Operating FAS/CAS Adjustment.

Income from Operating Investments, Net

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

~~Income~~Refer 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, 2022, increased $2 million and $16 million, respectively, from the same periods in 2021, primarily due to higher equity income from our investment in an unconsolidated ship repair and specialty fabrication joint venture and from our nuclear and environmental joint ventures.

~~Other Income and Gains, Net~~

Other income and gains, net for the three months ended September 30, 2022, was $2 million less than the same period in 2021, primarily due to a gain recognized in the third quarter of 2021 as a result of a favorable claim resolution. Other income and gains, net for the nine months ended September 30, 2022, was $3 million less than the prior year period, primarily due to gains recognized as a result of a favorable claim resolution and the sale of our oil and gas business in 2021.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~~June 30, ~~2022,~~2023, increased ~~$18~~$11 million ~~and $52 million, respectively,~~ from the same ~~periods~~period in ~~2021,~~2022, primarily due to higher overhead costs. General and administrative expenses for the six months ended June 30, 2023, increased $14 million from the same period in 2022, primarily due to higher overhead costs ~~as a result of the acquisition of Alion in the third quarter of 2021~~ and ~~current state income tax expense, partially offset by favorable changes in non-current~~ state income taxes.

Operating Income

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

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

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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 operating income to segment operating income:


		Three Months Ended September 30												Nine Months Ended September 30													Three Months Ended June 30												Six Months Ended June 30
							2022 vs. 2021												2022 vs. 2021													2023 vs. 2022												2023 vs. 2022
($ in millions)	($ in millions)			2022			2021			Dollars			Percent			2022			2021			Dollars			Percent	($ in millions)			2023			2022			Dollars			Percent			2023			2022			Dollars			Percent
Operating income	Operating income	$	131		$	118		$	13		11	%		$	460		$	393		$	67		17	%	Operating income		$	156		$	191		$	(35)		(18)	%		$	297		$	329		$	(32)		(10)	%
Operating FAS/CAS Adjustment	Operating FAS/CAS Adjustment	36			41			(5)			(12)	%		108			118			(10)			(8)	%	Operating FAS/CAS Adjustment		17			35			(18)			(51)	%		36			72			(36)			(50)	%
Non-current state income taxes	Non-current state income taxes	(1)			4			(5)			(125)	%		(1)			12			(13)			(108)	%	Non-current state income taxes		(4)			(1)			(3)			(300)	%		(8)			—			(8)			—	%
Segment operating income	Segment operating income	$	166		$	163		$	3		2	%		$	567		$	523		$	44		8	%	Segment operating income		$	169		$	225		$	(56)		(25)	%		$	325		$	401		$	(76)		(19)	%

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~~Segment~~ Operating ~~Income~~

~~Segment operating~~ income for the three months ended ~~September~~June 30, ~~2022, was $166~~2023, decreased $35 million compared with ~~segment operating income of $163 million for~~ the same period in ~~2021. The increase was~~2022, primarily due to ~~contract incentives on the~~ ~~Columbia~~ ~~class (SSBN 826) submarine program, improved performance in DFS services due to the acquisition of Alion in the third quarter of 2021, higher equity~~lower segment operating income, ~~and higher risk retirement on the USS~~ ~~Portland~~ ~~(LPD 27),~~ partially offset by ~~lower risk retirement on~~favorable changes in the ~~Virginia~~ ~~class (SSN 774) submarine program, higher amortization of purchased intangible assets in 2022 due to the Alion acquisition,~~Operating FAS/CAS Adjustment and ~~lower risk retirement on~~ ~~Ted Stevens~~ ~~(DDG 128) and~~ ~~Delbert D. Black~~ ~~(DDG 119).~~

~~Segment operating~~non-current state income taxes. Operating income for the ~~nine~~six months ended ~~September~~June 30, ~~2022, was $567~~2023, decreased $32 million compared with ~~segment operating income of $523 million for~~ the same period in ~~2021. The increase was~~2022, primarily due to ~~favorable changes in contract estimates from facilities capital and price adjustment clauses, contract incentives on the~~ ~~Columbia~~ ~~class (SSBN 826) submarine program, higher risk retirement on~~ ~~Harrisburg~~ ~~(LPD 30) and USS~~ ~~Fort Lauderdale~~ ~~(LPD 28), improved performance in DFS services due to the acquisition of Alion in the third quarter of 2021, and higher equity~~lower segment operating income, partially offset by ~~higher amortization of purchased intangible assets~~favorable changes in ~~2022 due to~~ the ~~Alion acquisition, lower risk retirement on the~~ ~~Virginia~~ ~~class (SSN 774) submarine program,~~Operating FAS/CAS Adjustment and ~~receipt of a contract incentive on USS~~ ~~Jack H. Lucas~~ ~~(DDG 125) in 2021.~~

~~Activity within each segment is discussed in Segment Operating Results below.~~non-current state income taxes.

FAS/CAS Adjustment and Operating FAS/CAS Adjustment

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

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


		Three Months Ended September 30												Nine Months Ended September 30													Three Months Ended June 30												Six Months Ended June 30
							2022 vs. 2021												2022 vs. 2021													2023 vs. 2022												2023 vs. 2022
($ in millions)	($ in millions)			2022			2021			Dollars			Percent			2022			2021			Dollars			Percent	($ in millions)			2023			2022			Dollars			Percent			2023			2022			Dollars			Percent
FAS benefit (expense)		$	24		$	(7)		$	31		443	%		$	67		$	(21)		$	88		419	%
FAS benefit																									FAS benefit		$	7		$	19		$	(12)		(63)	%		$	15		$	43		$	(28)		(65)	%
CAS cost	CAS cost	11			11			—			—	%		34			38			(4)			(11)	%	CAS cost		13			13			—			—	%		23			23			—			—	%
FAS/CAS Adjustment	FAS/CAS Adjustment	35			4			31			775	%		101			17			84			494	%	FAS/CAS Adjustment		20			32			(12)			(38)	%		38			66			(28)			(42)	%
Non-operating retirement benefit	Non-operating retirement benefit	(71)			(45)			(26)			(58)	%		(209)			(135)			(74)			(55)	%	Non-operating retirement benefit		(37)			(67)			30			45	%		(74)			(138)			64			46	%
Operating FAS/CAS Adjustment	Operating FAS/CAS Adjustment	$	(36)		$	(41)		$	5		12	%		$	(108)		$	(118)		$	10		8	%	Operating FAS/CAS Adjustment		$	(17)		$	(35)		$	18		51	%		$	(36)		$	(72)		$	36		50	%

The Operating FAS/CAS Adjustment was a net expense of ~~$36~~$17 million and ~~$41~~$35 million for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The Operating FAS/CAS Adjustment was a net expense of ~~$108~~$36 million

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and ~~$118~~$72 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The favorable changes in the Operating FAS/CAS Adjustment of $5$18 million and ~~$10~~$36 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, respectively, were primarily driven by the more immediate recognition of 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 unrecognized tax benefits in the relevant period. These amounts are recorded within operating income. Current period state income tax expense is charged to contract costs and included in cost of sales and service revenues in segment operating income.

Non-current state income tax benefit was $4 million and $1 million for the three months ended ~~September~~June 30, 2023 and 2022, ~~was $1 million, compared to non-current~~respectively. Non-current state income tax ~~expense of $4~~benefit was $8 million and less than $1 million for the ~~same period in 2021.~~six months ended June 30, 2023 and 2022, respectively. The favorable change in non-current state income taxes for each period was driven by a decrease in deferred state income tax expense, primarily attributable to ~~an increase in expenses that are not currently deductible~~the timing of long-term contract income for income tax purposes. Non-current state income tax benefit for the nine months ended September 30, 2022, was $1 million, compared to non-current state income tax expense of $12 million for the same period in 2021. The favorable change in non-current state income taxes was driven by a decrease in deferred state income tax expense, primarily attributable to an increase in expenses that are not currently deductible for income tax purposes.

~~Interest Expense~~

Interest expense for the three and nine months ended September 30, 2022, increased $3 million and $16 million, respectively, compared with the same periods in 2021, primarily due to the issuance of senior notes and borrowing under the Term Loan in the third quarter of 2021.

~~Non-Operating Retirement Benefit~~

The non-operating retirement benefit includes the following components of net periodic benefit costs: interest cost, expected return on plan assets, amortization of prior service cost (credit) and actuarial loss (gain), and settlement and curtailment effects. For the three and nine months ended September 30, 2022, the favorable change in the non-operating retirement benefit of $26 million and $74 million was primarily driven by higher 2021 returns on plan assets.

~~Other, Net~~

Other, net expense increased $15 million and $40 million for the three and nine months ended September 30, 2022, respectively, compared with the same periods in 2021, primarily driven by realized and unrealized net losses in investments.

~~Federal and Foreign Income Taxes~~

Our effective income tax rates on earnings from operations for the three months ended September 30, 2022 and 2021, were 14.8% and (4.3)%, respectively. Our effective income tax rates on earnings from operations for the nine months ended September 30, 2022 and 2021, were 18.6% and 10.7%, respectively. The higher effective tax rates for the three and nine months ended September 30, 2022, were primarily attributable to research and development tax credits for prior periods recorded in 2021.

~~For each of the~~ ~~three and nine months ended~~ September 30, 2022 and 2021, our effective tax rates differed from the federal statutory corporate income tax rate primarily as a result of research and development tax credits for prior periods. See Note 10: Income Taxes.

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SEGMENT OPERATING RESULTS

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

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

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The following table presents segment sales and segment operating results:
Three Months Ended
September 30 Nine Months Ended
September 30
2022 vs. 2021 2022 vs. 2021
($ in millions) 2022 2021 Dollars Percent 2022 2021 Dollars Percent
Sales and Service Revenues
Ingalls $ 623 $ 628 $ (5) (1) % $ 1,912 $ 1,947 $ (35) (2) %
Newport News 1,445 1,354 91 7 % 4,268 4,124 144 3 %
Mission Technologies 595 394 201 51 % 1,785 890 895 101 %
Intersegment eliminations (37) (38) 1 3 % (101) (114) 13 11 %
Sales and service revenues $ 2,626 $ 2,338 $ 288 12 % $ 7,864 $ 6,847 $ 1,017 15 %
Operating Income
Ingalls $ 50 $ 62 $ (12) (19) % $ 242 $ 233 $ 9 4 %
Newport News 102 88 14 16 % 277 257 20 8 %
Mission Technologies 14 13 1 8 % 48 33 15 45 %
Segment operating income 166 163 3 2 % 567 523 44 8 %
Non-segment factors affecting operating income
Operating FAS/CAS Adjustment (36) (41) 5 12 % (108) (118) 10 8 %
Non-current state income taxes 1 (4) 5 125 % 1 (12) 13 108 %
Operating income $ 131 $ 118 $ 13 11 % $ 460 $ 393 $ 67 17 %

~~KEY SEGMENT FINANCIAL MEASURES~~

~~Sales and Service Revenues~~

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


	Three Months Ended June 30								Six Months Ended June 30
					2023 vs. 2022								2023 vs. 2022
($ in millions)	2023		2022		Dollars		Percent		2023		2022		Dollars		Percent
Sales and Service Revenues
Ingalls	$	664	$	658	$	6	1	%	$	1,241	$	1,289	$	(48)	(4)	%
Newport News	1,509		1,433		76		5	%	3,015		2,823		192		7	%
Mission Technologies	645		600		45		8	%	1,269		1,190		79		7	%
Intersegment eliminations	(31)		(29)		(2)		(7)	%	(64)		(64)		—		—	%
Sales and service revenues	$	2,787	$	2,662	$	125	5	%	$	5,461	$	5,238	$	223	4	%
Operating Income
Ingalls	$	65	$	106	$	(41)	(39)	%	$	120	$	192	$	(72)	(38)	%
Newport News	95		94		1		1	%	179		175		4		2	%
Mission Technologies	9		25		(16)		(64)	%	26		34		(8)		(24)	%
Segment operating income	169		225		(56)		(25)	%	325		401		(76)		(19)	%
Non-segment factors affecting operating income
Operating FAS/CAS Adjustment	(17)		(35)		18		51	%	(36)		(72)		36		50	%
Non-current state income taxes	4		1		3		300	%	8		—		8		—	%
Operating income	$	156	$	191	$	(35)	(18)	%	$	297	$	329	$	(32)	(10)	%

Segment Operating Income

Segment operating income reflects the aggregate performance results of contracts within a segment. Excluded from this measure are certain costs not directly associated with contract performance, such as the Operating FAS/CAS Adjustment and non-current state income taxes. Changes in segment operating income are typically expressed in terms of volume, as discussed above, or performance. Performance refers to changes in contract profit margin rates. These changes typically relate to profit recognition associated with revisions to estimated costs at completion ("EAC") that reflect improved or deteriorated operating performance on that contract. Operating income changes are accounted for on a cumulative to date basis at the time an EAC change is recorded. Segment operating income may also be affected by, among other things, contract performance, the effects of workforce stoppages, the effects of natural disasters such as hurricanes, resolution of disputed items with the customer, recovery of insurance proceeds, and other discrete events. At the completion of a long-term contract, any originally estimated costs not incurred or reserves not fully utilized, such as warranty reserves, could also impact contract earnings. Where such items have occurred and the effects are material, a separate description is provided.

Cumulative Catch-up Revenue Adjustments

For the three and six months ended June 30, 2023 and 2022, favorable and unfavorable cumulative catch-up revenue adjustments were as follows:


	Three Months Ended June 30				Six Months Ended June 30

($ in millions)	2023		2022		2023		2022
Gross favorable adjustments	$	72	$	106	$	136	$	213
Gross unfavorable adjustments	(52)		(38)		(107)		(100)
Net adjustments	$	20	$	68	$	29	$	113

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~~Cumulative Adjustments~~

For the three and ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~and 2021, favorable and unfavorable~~net cumulative catch-up ~~margin~~revenue adjustments by segment were as follows:
Three Months Ended
September 30 Nine Months Ended
September 30

($ in millions) 2022 2021 2022 2021
Gross favorable adjustments $ 84 $ 51 $ 297 $ 199
Gross unfavorable adjustments (57) (30) (157) (93)
Net adjustments $ 27 $ 21 $ 140 $ 106

~~For the three months ended September 30, 2022, favorable cumulative catch-up margin adjustments were related to contract incentives on the~~ ~~Columbia~~ ~~class (SSBN 826) submarine program. During the same period, the unfavorable cumulative catch-up margin adjustments were related to lower risk retirement on the~~ ~~Virginia~~ ~~class (SSN 774) submarine program.~~

~~For the nine months ended September 30, 2022, favorable cumulative catch-up margin adjustments were related to contract incentives on the Columbia~~ ~~class (SSBN 826) submarine program and higher risk retirement on USS~~ ~~Fort Lauderdale~~ ~~(LPD 28),~~ ~~Bougainville~~ ~~(LHA 8), and~~ ~~Harrisburg~~ ~~(LPD 30). During the same period, the unfavorable cumulative catch-up margin adjustments were related to lower risk retirement on the RCOH of USS~~ ~~George Washington~~ ~~(CVN 73)~~.

~~For the three months ended September 30, 2021, no favorable or unfavorable cumulative catch-up margin adjustments were individually significant.~~

~~For the nine months ended September 30, 2021, favorable cumulative catch-up margin adjustments included risk retirement on~~ ~~Bougainville~~ ~~(LHA 8), a contract incentive on USS~~ ~~Jack H. Lucas~~ ~~(DDG 125), and risk retirement on USS~~ ~~Fort Lauderdale~~ ~~(LPD 28). During the same period, no unfavorable cumulative catch-up margin adjustments were individually significant.~~


	Three Months Ended June 30				Six Months Ended June 30

($ in millions)	2023		2022		2023		2022
Ingalls	$	17	$	56	$	31	$	97
Newport News	—		9		(9)		9
Mission Technologies	3		3		7		7
Net adjustments	$	20	$	68	$	29	$	113

Ingalls


		Three Months Ended September 30														Nine Months Ended September 30															Three Months Ended June 30														Six Months Ended June 30
									2022 vs. 2021														2022 vs. 2021															2023 vs. 2022														2023 vs. 2022
($ in millions)	($ in millions)				2022				2021			Dollars			Percent				2022				2021			Dollars			Percent	($ in millions)				2023				2022			Dollars			Percent				2023				2022			Dollars			Percent
Sales and service revenues	Sales and service revenues	$	623			$	628			$	(5)		(1)	%		$	1,912			$	1,947			$	(35)		(2)	%	Sales and service revenues		$	664			$	658			$	6		1	%		$	1,241			$	1,289			$	(48)		(4)	%
Segment operating income	Segment operating income	50				62				(12)			(19)	%		242				233				9			4	%	Segment operating income		65				106				(41)			(39)	%		120				192				(72)			(38)	%
As a percentage of segment sales	As a percentage of segment sales	8.0		%		9.9		%								12.7		%		12.0		%							As a percentage of segment sales		9.8		%		16.1		%								9.7		%		14.9		%

Sales and Service Revenues

Ingalls revenues, including intersegment sales, for the three months ended ~~September~~June 30, ~~2022, decreased $5~~2023, increased $6 million, or 1%, from the same period in ~~2021,~~2022, primarily driven by higher revenues in surface combatants, partially offset by lower revenues in the Legend class National Security Cutter ("NSC") program.

Ingalls revenues, including intersegment sales, for the six months ended June 30, 2023, decreased $48 million, or 4%, from the same period in 2022, primarily driven by lower revenues in the~~Legend~~ ~~class~~ NSC program and amphibious assault ships, partially offset by higher revenues in surface combatants. ~~Revenues on the~~ ~~Legend~~ ~~class NSC program decreased due to lower volumes on~~ ~~Friedman~~ ~~(NSC 11) and~~ ~~Calhoun (NSC 10). Revenues on amphibious assault ships decreased due to lower volumes on USS~~ ~~Fort Lauderdale~~ ~~(LPD 28), partially offset by higher volumes on LHA 9 (unnamed). Revenues on surface combatants increased due to higher volumes on~~ ~~Thad Cochran~~ ~~(DDG 135) and~~ ~~Telesforo Trinidad~~ ~~(DDG 139), partially offset by lower volumes on~~ ~~Frank E. Petersen Jr.~~ ~~(DDG 121),~~ ~~Jeremiah Denton~~ ~~(DDG 129), and~~ ~~Ted Stevens~~ ~~(DDG 128).~~

~~Ingalls revenues for the nine months ended September 30, 2022, decreased $35 million, or 2%, from the same period in 2021, primarily driven by lower revenues in surface combatants and the~~ ~~Legend~~ ~~class NSC program, partially offset by higher revenues in amphibious assault ships. Revenues on surface combatants decreased due to lower volumes on~~ ~~Jeremiah Denton~~ ~~(DDG 129),~~ ~~Frank E. Petersen Jr.~~ ~~(DDG 121), and USS~~ ~~Jack H. Lucas~~ ~~(DDG 125), partially offset by higher volume on~~ ~~Thad Cochran~~ ~~(DDG 135). Revenues on the~~ ~~Legend~~ ~~class NSC program decreased due to lower volumes on~~ ~~Friedman~~ ~~(NSC 11) and~~ ~~Calhoun (NSC 10). Revenues on amphibious assault~~

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~~ships increased due to higher volumes on LHA 9 (unnamed), partially offset by lower volumes on USS~~ ~~Fort Lauderdale~~ ~~(LPD 28) and~~ ~~Bougainville~~ ~~(LHA 8).~~

Segment Operating Income

Ingalls segment operating income for the three months ended ~~September~~June 30, ~~2022,~~2023, was ~~$50~~$65 million, compared ~~with~~to segment operating income of ~~$62~~$106 million for the same period in ~~2021.~~2022. The decrease was primarily driven by lower favorable changes in contract estimates from facilities capital and economic price adjustment clauses and lower risk retirement on ~~Ted Stevens~~ ~~(DDG 128) and~~ ~~Delbert D. Black~~ ~~(DDG 119), partially offset by higher risk retirement on USS~~ ~~Portland~~Harrisburg (LPD ~~27)~~30).

Ingalls segment operating income for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, was ~~$242~~$120 million, compared ~~with~~to segment operating income of ~~$233~~$192 million for the same period in ~~2021.~~2022. The ~~increase~~decrease was primarily ~~due to~~driven by lower favorable changes in contract estimates from facilities capital and economic price adjustment clauses and ~~higher~~lower risk retirement on~~Harrisburg~~ ~~(LPD 30) and~~ USS Fort Lauderdale (LPD 28)~~, partially offset by receipt of a contract incentive on USS~~ and ~~Jack H. Lucas~~Harrisburg ~~(DDG 125) in 2021.~~(LPD 30).

Newport News


		Three Months Ended September 30														Nine Months Ended September 30															Three Months Ended June 30														Six Months Ended June 30
									2022 vs. 2021														2022 vs. 2021															2023 vs. 2022														2023 vs. 2022
($ in millions)	($ in millions)				2022				2021			Dollars			Percent				2022				2021			Dollars			Percent	($ in millions)				2023				2022			Dollars			Percent				2023				2022			Dollars			Percent
Sales and service revenues	Sales and service revenues	$	1,445			$	1,354			$	91		7	%		$	4,268			$	4,124			$	144		3	%	Sales and service revenues		$	1,509			$	1,433			$	76		5	%		$	3,015			$	2,823			$	192		7	%
Segment operating income	Segment operating income	102				88				14			16	%		277				257				20			8	%	Segment operating income		95				94				1			1	%		179				175				4			2	%
As a percentage of segment sales	As a percentage of segment sales	7.1		%		6.5		%								6.5		%		6.2		%							As a percentage of segment sales		6.3		%		6.6		%								5.9		%		6.2		%

Sales and Service Revenues

Newport News revenues, including intersegment sales, for the three months ended ~~September~~June 30, ~~2022,~~2023, increased ~~$91~~$76 million, or 7%5%, from the same period in ~~2021,~~2022, primarily driven by higher revenues in ~~naval nuclear support services, submarines, and~~ aircraft ~~carriers. Naval nuclear support services revenues increased primarily as a result of higher volumes in submarine and~~ carrier ~~fleet support services. Submarine revenues increased due to higher volumes on~~construction, the Columbia class (SSBN 826) submarine program, and ~~Block V boats of~~ the Virginia class (SSN 774) submarine program, partially offset by lower ~~volumes on submarine services~~revenues in aircraft carrier refueling and ~~Block IV boats of the~~ ~~Virginia~~ ~~class (SSN 774) submarine program. Aircraft carrier revenues increased primarily as a result of higher volumes on the RCOH of USS~~ ~~John C. Stennis~~ ~~(CVN 74), partially offset by lower volumes on the RCOH of USS~~ ~~George Washington~~ ~~(CVN 73)~~complex overhaul ("RCOH").

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Newport News revenues, including intersegment sales, for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, increased ~~$144~~$192 million, or 3%7%, from the same period in ~~2021,~~2022, primarily driven by higher revenues in aircraft ~~carriers, submarines, and naval nuclear support services. Aircraft~~ carrier ~~revenues increased primarily as a result of higher volumes on the RCOH of USS~~ ~~John C. Stennis~~ ~~(CVN 74), partially offset by lower volumes on the RCOH of USS~~ ~~George Washington~~ ~~(CVN 73).~~

~~Submarine revenues increased due to higher volumes on~~construction, the Columbia class (SSBN 826) submarine program, and ~~Block V boats of~~ the Virginiaclass (SSN 774) submarine program, partially offset by lower ~~volumes on Block IV boats of the~~ ~~Virginia~~ ~~class (SSN 774) submarine program. Naval~~revenues in naval nuclear support ~~services revenues increased primarily as a result of higher volumes in carrier fleet support services, partially offset by lower volumes in facility maintenance~~ services.

Segment Operating Income

Newport News segment operating income for the three months ended ~~September~~June 30, ~~2022,~~2023, was ~~$102~~$95 million, compared ~~with~~to segment operating income of ~~$88~~$94 million for the same period in ~~2021. The increase was primarily due to contract incentives on~~2022. Current year results were consistent with the ~~Columbia~~ ~~class (SSBN 826) submarine program, partially offset by lower risk retirement on the~~prior year, as favorable Virginia class (SSN 774) submarine ~~program.~~program revenue adjustments were offset by lower favorable changes in contract estimates from facilities capital and economic price adjustment clauses.

Newport News segment operating income for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, was ~~$277~~$179 million, compared ~~with~~to segment operating income of ~~$257~~$175 million for the same period in ~~2021.~~2022. The increase was primarily due to ~~contract incentives on the~~favorable ~~Columbia~~Virginia class ~~(SSBN 826)~~(SSN 774) submarine program revenue adjustments, partially offset by lower risk retirement on Enterprise (CVN 80) and lower favorable changes in contract estimates from facilities capital and economic price adjustment ~~clauses, partially offset by lower risk retirement on the~~ ~~Virginia~~ ~~class (SSN 774) submarine program.~~clauses.

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Mission Technologies


		Three Months Ended September 30														Nine Months Ended September 30															Three Months Ended June 30														Six Months Ended June 30
									2022 vs. 2021														2022 vs. 2021															2023 vs. 2022														2023 vs. 2022
($ in millions)	($ in millions)				2022				2021			Dollars			Percent				2022				2021			Dollars			Percent	($ in millions)				2023				2022			Dollars			Percent				2023				2022			Dollars			Percent
Sales and service revenues	Sales and service revenues	$	595			$	394			$	201		51	%		$	1,785			$	890			$	895		101	%	Sales and service revenues		$	645			$	600			$	45		8	%		$	1,269			$	1,190			$	79		7	%
Segment operating income	Segment operating income	14				13				1			8	%		48				33				15			45	%	Segment operating income		9				25				(16)			(64)	%		26				34				(8)			(24)	%
As a percentage of segment sales	As a percentage of segment sales	2.4		%		3.3		%								2.7		%		3.7		%							As a percentage of segment sales		1.4		%		4.2		%								2.0		%		2.9		%

Sales and Service Revenues

Mission Technologies revenues, including intersegment sales, for the three months ended ~~September~~June 30, ~~2022,~~2023, increased ~~$201~~$45 million, or ~~51%~~8%, from the same period in ~~2021,~~2022, primarily due to higher volumes in ~~DFS attributable to the acquisition of Alion in the third quarter of 2021.~~mission based solutions.

Mission Technologies revenues, including intersegment sales, for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, increased ~~$895~~$79 million, or ~~101%~~7%, from the same period in ~~2021,~~2022, primarily due to higher volumes in ~~DFS attributable to the acquisition of Alion in the third quarter of 2021.~~mission based solutions.

Segment Operating Income

Mission Technologies segment operating income for the three months ended ~~September~~June 30, ~~2022,~~2023, was ~~$14~~$9 million, compared ~~with~~to segment operating income of ~~$13~~$25 million for the same period in ~~2021.~~2022. The ~~increase~~decrease was primarily driven by ~~improved performance in DFS due to the acquisition of Alion in the third quarter of 2021, as well as higher~~lower equity income ~~partially offset by higher amortization~~from our investment in an unconsolidated ship repair and specialty fabrication joint venture, which was sold in June 2023. The results for the three and six months ended June 30, 2023, include a $6 million loss on the sale of ~~purchased intangible assets in 2022 due to~~ the ~~Alion acquisition.~~unconsolidated ship repair and specialty fabrication joint venture.

Mission Technologies segment operating income for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, was ~~$48~~$26 million, compared ~~with~~to segment operating income of ~~$33~~$34 million for the same period in ~~2021.~~2022. The ~~increase~~decrease was primarily driven by ~~improved~~lower equity income from our investment in an unconsolidated ship repair and specialty fabrication joint venture, which was sold in June 2023, and lower performance in ~~DFS due to the acquisition of Alion in the third quarter of 2021, as well as higher equity income,~~fleet sustainment, partially offset by higher equity income from nuclear and environmental joint ventures, higher performance in unmanned systems, and higher volumes in mission based solutions.

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PRODUCT AND SERVICE REVENUES AND COST ANALYSIS

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


	Sales and Service Revenues								Segment Cost of Product Sales and Service Revenues
($ in millions)	Three Months Ended June 30				2023 vs. 2022				Three Months Ended June 30				2023 vs. 2022
Segment Information	2023		2022		Dollars		Percent		2023		2022		Dollars		Percent
Ingalls
Product	$	604	$	611	$	(7)	(1)	%	$	496	$	462	$	34	7	%
Service	57		45		12		27	%	49		41		8		20	%
Intersegment	3		2		1		50	%	3		2		1		50	%
Total Ingalls	664		658		6		1	%	548		505		43		9	%
Newport News
Product	1,247		1,190		57		5	%	1,056		1,008		48		5	%
Service	262		242		20		8	%	222		202		20		10	%
Intersegment	—		1		(1)		(100)	%	—		1		(1)		(100)	%
Total Newport News	1,509		1,433		76		5	%	1,278		1,211		67		6	%
Mission Technologies
Product	28		28		—		—	%	35		26		9		35	%
Service	589		546		43		8	%	523		498		25		5	%
Intersegment	28		26		2		8	%	28		26		2		8	%
Total Mission Technologies	645		600		45		8	%	586		550		36		7	%
Segment Totals
Product	$	1,879	$	1,829	$	50	3	%	$	1,587	$	1,496	$	91	6	%
Service	908		833		75		9	%	794		741		53		7	%
Total Segment (1)	$	2,787	$	2,662	$	125	5	%	$	2,381	$	2,237	$	144	6	%

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

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	Sales and Service Revenues								Segment Cost of Product Sales and Service Revenues
($ in millions)	Six Months Ended June 30				2023 vs. 2022				Six Months Ended June 30				2023 vs. 2022
Segment Information	2023		2022		Dollars		Percent		2023		2022		Dollars		Percent
Ingalls
Product	$	1,138	$	1,189	$	(51)	(4)	%	$	936	$	919	$	17	2	%
Service	98		95		3		3	%	83		84		(1)		(1)	%
Intersegment	5		5		—		—	%	5		5		—		—	%
Total Ingalls	1,241		1,289		(48)		(4)	%	1,024		1,008		16		2	%
Newport News
Product	2,518		2,311		207		9	%	2,148		1,967		181		9	%
Service	496		509		(13)		(3)	%	420		427		(7)		(2)	%
Intersegment	1		3		(2)		(67)	%	1		3		(2)		(67)	%
Total Newport News	3,015		2,823		192		7	%	2,569		2,397		172		7	%
Mission Technologies
Product	52		53		(1)		(2)	%	55		47		8		17	%
Service	1,159		1,081		78		7	%	1,044		983		61		6	%
Intersegment	58		56		2		4	%	58		56		2		4	%
Total Mission Technologies	1,269		1,190		79		7	%	1,157		1,086		71		7	%
Segment Totals
Product	$	3,708	$	3,553	$	155	4	%	$	3,139	$	2,933	$	206	7	%
Service	1,753		1,685		68		4	%	1,547		1,494		53		4	%
Total Segment (1)	$	5,461	$	5,238	$	223	4	%	$	4,686	$	4,427	$	259	6	%

(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 June 30, 2023, increased $50 million, or 3%, from the same period in 2022, primarily as a result of higher volumes at Newport News in aircraft carrier construction, the Columbia class (SSBN 826) submarine program, and the Virginia class (SSN 774) submarine program, partially offset by lower volumes in aircraft carrier refueling and complex overhaul ("RCOH").

Segment cost of product sales for the three months ended June 30, 2023, increased $91 million, or 6%, compared with the same period in 2022, consistent with higher product sales described above and higher costs at Ingalls.

Product sales for the six months ended June 30, 2023, increased $155 million, or 4%, from the same period in 2022, primarily as a result of higher volumes at Newport News in aircraft carrier construction, the Columbia class (SSBN 826) submarine program, and the Virginia class (SSN 774) submarine program, partially offset by lower volumes at Ingalls in theNSC program and amphibious assault ships.

Segment cost of product sales for the six months ended June 30, 2023, increased $206 million, or 7%, compared with the same period in 2022, consistent with higher product sales described above.

Service Revenues and Segment Cost of Service Revenues

Service revenues for the three months ended June 30, 2023, increased $75 million, or 9%, compared with the same period in 2022, primarily as a result of higher volumes at Mission Technologies in mission based solutions and higher volumes at Newport News in aircraft carrier services.

Segment cost of service revenues for the three months ended June 30, 2023, increased $53 million, or 7%, compared with the same period in 2022, consistent with higher service revenues described above.

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Service revenues for the six months ended June 30, 2023, increased $68 million, or 4%, compared with the same period in 2022, primarily as a result of higher volumes at Mission Technologies in mission based solutions services.

Segment cost of service revenues for the six months ended June 30, 2023, increased $53 million, or 4%, compared with the same period in 2022, consistent with higher service revenues described above.

OTHER FINANCIAL INFORMATION

Interest Expense

Interest expense for the three months ended June 30, 2023, was $24 million, compared with $26 million for the same period in 2022. Interest expense for the six months ended June 30, 2023, was $48 million, compared with $52 million for the same period in 2022. The decreases in interest expense of $2 million and $4 million for the three and six months ended June 30, 2023, respectively, were driven by a decrease in outstanding long-term debt from the prior year periods.

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 ~~purchased intangible assets~~prior service cost (credit) and actuarial loss (gain), and settlement and curtailment effects.

For the three months ended June 30, 2023, the non-operating retirement benefit was $37 million, compared with $67 million for the same period in 2022. For the six months ended June 30, 2023, the non-operating retirement benefit was $74 million, compared with $138 million for the same period in 2022. The decreases in the non-operating retirement benefit of $30 million and $64 million for the three and six months ended June 30, 2023, respectively, were primarily driven by lower 2022 ~~due~~returns on plan assets.

Other, Net

Other, net for the three months ended June 30, 2023, was zero, compared with other, net expense of $10 million for the same period in 2022. Other, net income for the six months ended June 30, 2023, was $9 million, compared with other, net expense of $17 million for the same period in 2022. The increases in other, net of $10 million and $26 million for the three and six months ended June 30, 2023, respectively, were primarily driven by unrealized net gains in investments.

Federal and Foreign Income Taxes

Our effective income tax rates on earnings from operations for the three months ended June 30, 2023 and 2022, were 23.1% and 19.8%, respectively. For the six months ended June 30, 2023 and 2022, our effective income tax rates on earnings from operations were 22.0% and 20.1%, respectively. The higher effective tax rate for each of the three and six months ended June 30, 2023, was primarily attributable to a tax gain associated with the ~~Alion acquisition.~~sale of our interest in an unconsolidated ship repair and specialty fabrication joint venture.

For each of the three and six months ended June 30, 2023, our effective tax rate differed from the federal statutory rate primarily as a result of the tax gain associated with the sale of our interest in an unconsolidated ship repair and specialty fabrication joint venture. For the three months ended June 30, 2022, our effective tax rate differed from the federal statutory rate primarily as a result of research and development tax credits. For the six months ended June 30, 2022, our effective tax rate did not differ materially from the federal statutory rate.

BACKLOG

Total backlog as of ~~September~~June 30, ~~2022,~~2023, and December 31, ~~2021,~~2022, was approximately ~~$46.7~~$46.9 billion and ~~$48.5~~$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.

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The following table presents funded and unfunded backlog by segment as of ~~September~~June 30, ~~2022,~~2023, and December 31, ~~2021:~~2022:


		September 30, 2022						December 31, 2021							June 30, 2023						December 31, 2022
						Total						Total							Total						Total
($ in millions)	($ in millions)	Funded		Unfunded		Backlog		Funded		Unfunded		Backlog		($ in millions)	Funded		Unfunded		Backlog		Funded		Unfunded		Backlog
Ingalls	Ingalls	$	9,698	$	1,028	$	10,726	$	10,216	$	792	$	11,008	Ingalls	$	10,345	$	3,157	$	13,502	$	9,231	$	3,546	$	12,777
Newport News	Newport News	11,914		18,675		30,589		11,121		21,198		32,319		Newport News	12,632		16,251		28,883		11,665		17,742		29,407
Mission Technologies	Mission Technologies	1,600		3,746		5,346		1,334		3,789		5,123		Mission Technologies	1,466		3,004		4,470		1,317		3,622		4,939
Total backlog	Total backlog	$	23,212	$	23,449	$	46,661	$	22,671	$	25,779	$	48,450	Total backlog	$	24,443	$	22,412	$	46,855	$	22,213	$	24,910	$	47,123

~~Approximately 18%~~We expect approximately 21% of the ~~$48.5~~$47.1 billion total backlog as of December 31, ~~2021, is expected~~2022, to be converted into sales in ~~2022.~~2023. U.S. Government orders comprised substantially all of the backlog as of ~~September~~June 30, ~~2022,~~2023, and December 31, ~~2021.~~2022.

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Contract Awards

The value of new contract awards during the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, was approximately ~~$6.1~~$5.2 billion, including an award modification for the detail design and construction of LPD 32 (unnamed), an award modification for long-lead-time material and advance construction activities on the ~~Telesforo Trinidad~~Columbia ~~(DDG 139).~~class (SSBN 826) submarine program, an award modification to the construction contract for John F. Kennedy (CVN 79), and an award modification for long-lead-time material for additional Block V boats of the Virginia class (SSN 774) submarine program.

LIQUIDITY AND CAPITAL RESOURCES

We seek to efficiently 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 operating activities:


		Nine Months Ended September 30					2022 vs. 2021					Six Months Ended June 30				2023 vs. 2022

($ in millions)	($ in millions)					2022			2021		Dollars				($ in millions)	2023		2022	Dollars
Net earnings	Net earnings	$	456	$	424		$	32		Net earnings		$	259	$	318	$	(59)
Depreciation and amortization	Depreciation and amortization	269		208			61			Depreciation and amortization		178		178		—
Provision for doubtful accounts	Provision for doubtful accounts	(7)		—			(7)			Provision for doubtful accounts		—		(7)		7
Stock-based compensation	Stock-based compensation	28		19			9			Stock-based compensation		18		16		2

Deferred income taxes	Deferred income taxes	(14)		74			(88)			Deferred income taxes		(62)		(1)		(61)

Loss (gain) on investments in marketable securities	Loss (gain) on investments in marketable securities	34		(12)			46			Loss (gain) on investments in marketable securities		(12)		26		(38)

Retiree benefits	Retiree benefits	(99)		(73)			(26)			Retiree benefits		(36)		(65)		29

Trade working capital increase	Trade working capital increase	(502)		(151)			(351)			Trade working capital increase		(272)		(281)		9
Net cash provided by operating activities	Net cash provided by operating activities	$	165	$	489		$	(324)		Net cash provided by operating activities		$	73	$	184	$	(111)

We have historically maintained a capital structure ~~comprising~~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 significant operating, investing, and financing activities affecting cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, as classified on our unaudited condensed consolidated statements of cash flows.

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Operating Activities

Cash provided by operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, was ~~$165~~$73 million, compared with ~~$489~~$184 million provided by operating activities for the same period in ~~2021.~~2022. The unfavorable change in operating cash flow was primarily due to ~~an unfavorable change in trade working capital, as well as~~ higher ~~payments for~~ income ~~taxes and interest, partially offset by lower contributions to retiree benefit plans. The change in trade working capital was primarily driven by the timing of receipts of accounts receivable.~~tax payments.

We expect cash generated from operations in combination with our current cash and cash equivalents, as well as existing ~~credit~~borrowing facilities, to be sufficient to service debt and retiree benefit plans, meet contractual obligations, and ~~finance~~fund capital expenditures for at least the next 12 calendar months beginning ~~October~~July 1, ~~2022,~~2023, and beyond such 12-month period based on our current business ~~plan.~~plans.

Investing Activities

Cash used in investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, was ~~$178~~$70 million, compared with ~~$1,842~~$101 million used in investing activities for the same period in ~~2021.The~~2022. The change in investing cash was primarily driven by the ~~acquisition~~sale of ~~Alion~~an unconsolidated ship repair and specialty fabrication joint venture, partially offset by increased investment in ~~2021.~~one of our unconsolidated nuclear and environmental joint ventures. For ~~2022,~~2023, we expect our capital expenditures for maintenance and sustainment to

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be approximately 1.0% of annual revenues and our discretionary capital expenditures to be approximately ~~1.5% to~~ 2.0% of annual revenues.

Financing Activities

Cash used in financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, was ~~$497~~$157 million, compared with ~~$1,396~~$335 million ~~provided by~~used in financing activities for the same period in ~~2021.~~2022. The change in cash used in financing ~~cash~~activities was primarily due to ~~$1,650~~a $170 million decrease in prepayments of proceeds from the incurrence of long term debt in 2021, an increase in the repayment of long-term debt of $300 million, an increase of $7 million in employee taxes on certain share-based payment arrangements, and a $4 million increase in cash dividend payments, partially offset by a decrease of $46 million in common stock repurchases and a decrease of $22 million in debt issuance costs. our Term Loan.

Free Cash Flow

Free cash flow represents cash provided by (used in) operating activities less capital 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, net earnings as a measure of our performance or net cash provided by operating activities as 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 by operating activities to free cash flow:


		Nine Months Ended September 30					2022 vs. 2021			Six Months Ended June 30						2023 vs. 2022

($ in millions)	($ in millions)					2022			2021		Dollars	($ in millions)			2023			2022	Dollars
Net cash provided by operating activities	Net cash provided by operating activities	$	165	$	489		$	(324)	Net cash provided by operating activities	$	73		$	184		$	(111)
Less capital expenditures:	Less capital expenditures:								Less capital expenditures:
Capital expenditure additions	Capital expenditure additions	(179)		(216)			37		Capital expenditure additions	(111)			(102)			(9)
Grant proceeds for capital expenditures	Grant proceeds for capital expenditures	—		11			(11)		Grant proceeds for capital expenditures	3			—			3
Free cash flow	Free cash flow	$	(14)	$	284		$	(298)	Free cash flow	$	(35)		$	82		$	(117)

Free cash flow for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, decreased ~~$298~~$117 million from the same period in ~~2021,~~2022, primarily due to ~~an unfavorable change in trade working capital, as well as~~ higher income tax payments ~~for income taxes~~ and ~~interest, partially offset by lower contributions to retiree benefit plans and lower~~increased capital expenditures.

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~~June 30, ~~2022~~2023 and ~~2021,~~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.

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Off-Balance Sheet Arrangements

In the ordinary course of business, we use letters of credit issued by commercial banks to support certain leases, insurance policies, and contractual performance obligations, as well as surety bonds issued by insurance companies principally to support our self-insured workers' compensation plans. As of ~~September~~June 30, ~~2022,~~2023, $14 million in letters of credit were issued but undrawn and $360 million of surety bonds were outstanding. As of ~~September~~June 30, ~~2022,~~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.

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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. You 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 other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. 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 the results anticipated by our forward-looking statements, which include, but are not limited to:

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

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

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

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

•Natural and environmental disasters and political instability;

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

•Adverse economic conditions in the United States and globally;

•Health epidemics, pandemics, and similar ~~outbreaks, including the COVID-19 pandemic, and the impacts of vaccination mandates on our workforce;~~outbreaks;

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

•Disruptions impacting global supply, including ~~those attributable to the ongoing COVID-19 pandemic 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 threats, including cyber security threats, and related disruptions; and

•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.

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GLOSSARY OF PROGRAMS

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


Program Name						Program Description

America class (LHA 6) amphibious assault ships						Design and build large deck amphibious assault ships that provide forward presence and power projection as an integral part of joint, interagency and multinational maritime expeditionary forces. The America class (LHA 6) ships, together with the Wasp class (LHD 1) ships, are the successors to the decommissioned Tarawa class (LHA 1) ships. The America class (LHA 6) ships optimize aviation operations and support capabilities. In 2020, we delivered USS Tripoli ~~(LHA~~(LHA 7), and we ~~were awarded a long-lead-time material and construction contract for LHA 9 (unnamed). We~~ are currently constructing Bougainville (LHA 8) 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. We delivered USS Paul Ignatius (DDG 117), USS Delbert D. Black~~(DDG~~ (DDG 119), ~~and~~USS Frank E. Petersen Jr. ~~(DDG121)~~(DDG 121), USS Lenah H. Sutcliffe Higbee (DDG 123), and Jack H. Lucas (DDG 125) in 2019, 2020, 2021, 2022, and ~~2021,~~2023, respectively. We have contracts to construct the following Arleigh Burke class (DDG 51) destroyers: ~~Lenah H. Sutcliffe Higbee~~ ~~(DDG 123), USS~~ ~~Jack H. Lucas~~ ~~(DDG 125),~~ Ted Stevens (DDG 128), J~~eremiah~~Jeremiah Denton (DDG 129), George M. Neal (DDG 131),Sam Nunn (DDG 133), Thad Cochran (DDG 135),John F. Lehman ~~(DDG~~(DDG 137), and Telesforo Trinidad (~~DDG~~ (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 ~~George Washington~~ ~~(CVN 73) arrived at Newport News for the start of its RCOH in August 2017, and USS~~ John C. Stennis (CVN 74) arrived at Newport News for the start of its RCOH in May ~~2021.~~2021, and USS George Washington (CVN 73) was redelivered to the U.S. Navy in May 2023.

Columbia class (SSBN 826) submarines						~~Newport News is participating in 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. The~~("SSBNs") as a subcontractor to Electric Boat. SSBNs are the most secure and survivable of our nation’s nuclear deterrent triad. ~~Ohio~~Columbia class ~~SSBN includes 14~~SSBNs will carry approximately 70 percent of the nation’s nuclear ~~ballistic missile submarines and four nuclear cruise missile submarines.~~arsenal. The Columbia class (SSBN 826) program plan of record is to construct 12 new ~~ballistic missile submarines. The U.S. Navy has initiated~~SSBNs to replace the ~~design process for the new class of submarines, and, in early 2017, the DoD signed the acquisition decision memorandum approving the~~current aging ~~Columbia~~Ohio ~~class program’s Milestone B, which formally authorizes the program’s entry into the engineering and manufacturing development phase.~~class. We ~~perform design work as a subcontractor to Electric Boat, and we~~ have ~~entered into~~ a teaming agreement with Electric Boat to build modules for the entire Columbia class (SSBN 826) submarine program that leverages our Virginia class (SSN 774) experience. We 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 first two boats of the Columbia class (SSBN 826) submarine program. Construction of the first Columbia class (SSBN 826) submarine began in 2020. In 2023, we received an award modification for long-lead-time material and advance construction for the next five boats.

~~Defense and federal solutions ("DFS")~~						Develops 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 ("AI") and machine learning to battlefield decisions; defensive and offensive cyberspace strategies and electronic warfare ("EW"); and live, virtual, and constructive ("LVC") solutions.

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Fleet sustainment

Maintains and modernizes a significant majority of the U.S. Navy fleet, from small watercraft to submarines, combatants, and aircraft carriers, our systems and maintenance experts help the Navy maintain a high state of readiness. Ensures effective system operation and sustainment by actively supporting design and decision–making processes through studies, analyses, and reviews of program documents, and provides a wide range of logistics products.

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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 Enterprise (CVN 65) and Nimitz class (CVN 68) aircraft carriers. USS Gerald R. Ford (CVN 78), the first ship of the Ford class, was delivered to the U.S. Navy in the second quarter of 2017. In June 2015, we were awarded a contract for the detail design and construction of John F. Kennedy (CVN 79), following several years of engineering, advance construction, and purchase of long-lead-time components and material. In addition, we have received awards for detail design and construction of Enterprise (CVN 80) 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.

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 11 ships, of which the first nine ships have been delivered. Calhoun (NSC 10) and Friedman (NSC 11) are currently under construction.

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

Nuclear and environmental services						Supports the national security mission of the Department of Energy ("DoE") through the management and operation of ~~its~~DOE sites, as well as the safe cleanup of legacy waste across the country. We meet our clients' toughest nuclear and environmental challenges and are positioned to serve the growing commercial nuclear power plant decommissioning market. We participate in several joint ventures, including Newport News Nuclear BWXT Los Alamos, LLC (" N3B"), Mission Support and Test Services, LLC ("MSTS"), and Savannah River Nuclear Solutions, LLC ("SRNS"), and we are an integrated subcontractor to Triad National Security. N3B was awarded the Los Alamos Legacy Cleanup Contract at the DoE/National Nuclear Security Administration’s Los Alamos National Laboratory. MSTS was awarded a contract for site management and operations at the Nevada National Security Site. SRNS provides site management and operations at the DoE’s Savannah River Site near Aiken, South Carolina. Triad provides site management and operations at the DoE’s Los Alamos National Laboratory.

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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 2022, we delivered USS Fort Lauderdale (LPD 28), and we 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 Richard M. McCool Jr. (LPD 29), Harrisburg (LPD 30), and Pittsburgh (LPD 31).

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Unmanned systems

Creates 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.

Virginia class (SSN 774) fast attack submarines

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

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to certain market ~~risk, primarily related~~risks, including those relating to interest ~~rates.~~rates and inflation.

Interest Rates - Our floating rate financial instruments subject to interest rate risk include a $650 million Term Loan, a $1.5 billion Revolving Credit Facility, and a $1 billion commercial paper program. As of ~~September~~June 30, ~~2022,~~2023, we had ~~$325~~$195 million outstanding on the Term Loan and no indebtedness outstanding under our Revolving Credit Facility or our commercial paper program. Based on the amounts outstanding under our Term Loan as of ~~September~~June 30, ~~2022,~~2023, an increase of 1% in interest rates would increase the interest expense on our debt by approximately $3$2 million on an annual basis.

Inflation - Macroeconomic factors have contributed, and we expect will continue to contribute, to cost inflation for raw materials, components, and supplies. We mitigate some cost inflation risk by negotiating long-term agreements with certain raw material suppliers and incorporating price escalation protection in customer contracts to the extent possible. We include assumptions of anticipated cost growth in the development of our cost of completion estimates, but our cost assumptions may not 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~~June 30, ~~2022.~~2023. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that, as of ~~September~~June 30, ~~2022,~~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

~~As of September 30, 2022, the Company completed the integration of Alion, acquired on August 19, 2021, into its internal controls over financial reporting. Other than the foregoing, there~~There have been no changes in the Company's internal control over financial reporting that occurred in the quarterly period covered by this report that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10–Q, carefully consider the factors discussed in Part I, Item 1A Risk Factors in the ~~2021~~2022 Annual Report on Form 10–K, which could materially affect our business, financial condition, or future results.

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

Repurchases under our stock repurchase program 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~~June 30, ~~2022.~~2023.
Period
Total Number of Shares Purchased1
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)2, 3
July 1, 2022 to July 31, 2022 30,654 $ 210.14 30,654 $ 1,007.7
August 1, 2022 to August 31, 2022 10,794 232.13 10,794 1,005.2
September 1, 2022 to September 30, 2022 24,774 231.14 24,396 999.6
Total 66,222 $ 221.58 65,844 $ 999.6


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)1,2
April 1, 2023 to April 30, 2023	14,739	$	207.35	14,739	$	977.3
May 1, 2023 to May 31, 2023	14,257	197.50		14,257	974.5
June 1, 2023 to June 30, 2023	7,528	214.95		7,528	972.8
Total	36,524	$	205.07	36,524	$	972.8

1We purchased an aggregate of 65,844 shares of our common stock in the open market pursuant to our repurchase program and 378 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.

2 From the stock repurchase program's inception through ~~September~~June 30, ~~2022,~~2023, we have purchased ~~13,592,150~~13,715,710 shares at an average price of ~~$161.89~~$162.38 per share for a total of $2.2 billion.

32 In October 2012, we commenced our stock repurchase program. In November 2019, we announced an increase in the stock repurchase program to $3.2 billion and an extension of the term to October 31, 2024.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

~~None.~~(a) Compensatory Arrangements of Certain Officers

In connection with the transition of C. Michael Petters from his position as the Company’s President and Chief Executive Officer to Executive Vice Chairman of the Board of Directors in 2022, the Compensation Committee (the “Compensation Committee”) of the Company’s Board of Directors (the “Board”) approved a grant of restricted performance stock rights (“RPSRs”) under the Company’s 2012 Long-Term Incentive Plan (the “2012 Plan”) to Mr. Petters (the “2022 RPSR Award”). The terms of the 2022 RPSR Award approved by the Compensation Committee provide for full time-based vesting of the 2022 RPSR Award upon Mr. Petters’ retirement from the Company, subject

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to continuation of the performance-based vesting requirements over the three-year performance period (which period ends on December 31, 2024) of the 2022 RPSR Award.

The terms of the RPSRs granted to Mr. Petters in 2021 under the 2012 Plan (the “2021 RPSR Award”) provided that, in the event of Mr. Petters’ retirement from the Company prior to the end of the applicable three-year performance period (which period ends on December 31, 2023), the number of RPSRs that could vest and become earned RPSRs upon achievement of the applicable performance criteria would be prorated based on the number of full months during the applicable three-year performance period that Mr. Petters was actually employed by the Company. As a result, on December 31, 2022, the effective date of Mr. Petters’ retirement from the Company, Mr. Petters’ 2021 RPSR Award was prorated to time vest two-thirds of the 2021 RPSR Award.

Consistent with the Compensation Committee’s intent for the 2021 RPSR Award to match the time-based vesting terms of the 2022 RPSR Award but recognizing that the 2021 RPSR Award was already prorated, on July 31, 2023, the Compensation Committee approved a cash payment from the Company to Mr. Petters, which will be paid following the end of the 2021 RPSR Award performance period in an amount equal to (x) the value of the number of shares of the Company’s common stock that he would have otherwise been entitled to receive under the 2021 RPSR Award without proration of the award, less (y) the value of the number of shares of the Company’s common stock that Mr. Petters actually receives upon settlement of the prorated 2021 RPSR Award.

None.

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Item 6. Exhibits


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

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

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

3.4						Certificate of Amendment to the Restated Certificate of Incorporation of Huntington Ingalls Industries, Inc., dated May 12, 2021 (incorporated by reference to Annex B to the Proxy Statement filed on March 19, 2021).

3.5						Restated Bylaws of Huntington Ingalls Industries, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on ~~March 30, 2021)~~November 8, 2022).

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

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

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

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

10.1						Amended and Restated Revolving Credit Agreement, dated as of April 24, 2023, among Huntington Ingalls Industries, Inc., the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent and an Issuing Bank (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 28, 2023).

10.2						Amended and Restated Credit Agreement, dated as of April 24, 2023, among Huntington Ingalls Industries, Inc., the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on April 28, 2023).

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

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

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SIGNATURES

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


Date:	~~November~~August 3, ~~2022~~2023	Huntington Ingalls Industries, Inc.
		(Registrant)

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

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	Three Months Ended September 30				Nine Months Ended September 30

($ in millions, except per share amounts)	2022		Pro Forma 2021		2022		Pro Forma 2021
Sales and service revenues	$	2,626	$	2,532	$	7,864	$	7,687
Net earnings	$	138	$	142	$	456	$	416
Basic earnings per share	$	3.44	$	3.52	$	11.37	$	10.32
Diluted earnings per share	$	3.44	$	3.52	$	11.37	$	10.32


	Nine Months Ended September 30, 2022
($ in millions)	Ingalls		Newport News		Mission Technologies		Intersegment Eliminations		Total
Revenue Type
Product sales	$	1,766	$	3,496	$	65	$	—	$	5,327
Service revenues	136		768		1,633		—		2,537
Intersegment	10		4		87		(101)		—
Sales and service revenues	$	1,912	$	4,268	$	1,785	$	(101)	$	7,864
Customer Type
Federal	$	1,902	$	4,264	$	1,665	$	—	$	7,831
Commercial	—		—		32		—		32
State and local government agencies	—		—		1		—		1
Intersegment	10		4		87		(101)		—
Sales and service revenues	$	1,912	$	4,268	$	1,785	$	(101)	$	7,864
Contract Type
Firm fixed-price	$	7	$	12	$	192	$	—	$	211
Fixed-price incentive	1,762		2,180		—		—		3,942
Cost-type	133		2,072		1,299		—		3,504
Time and materials	—		—		207		—		207
Intersegment	10		4		87		(101)		—
Sales and service revenues	$	1,912	$	4,268	$	1,785	$	(101)	$	7,864


	Nine Months Ended September 30, 2021
($ in millions)	Ingalls		Newport News		Mission Technologies		Intersegment Eliminations		Total
Revenue Type
Product sales	$	1,814	$	3,300	$	71	$	—	$	5,185
Service revenues	121		815		726		—		1,662
Intersegment	12		9		93		(114)		—
Sales and service revenues	$	1,947	$	4,124	$	890	$	(114)	$	6,847
Customer Type
Federal	$	1,935	$	4,115	$	760	$	—	$	6,810
Commercial	—		—		37		—		37

Intersegment	12		9		93		(114)		—
Sales and service revenues	$	1,947	$	4,124	$	890	$	(114)	$	6,847
Contract Type
Firm fixed-price	$	29	$	30	$	132	$	—	$	191
Fixed-price incentive	1,790		2,121		3		—		3,914
Cost-type	116		1,964		492		—		2,572
Time and materials	—		—		170		—		170
Intersegment	12		9		93		(114)		—
Sales and service revenues	$	1,947	$	4,124	$	890	$	(114)	$	6,847


Period	Total Number of Shares Purchased1	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)2, 3
July 1, 2022 to July 31, 2022	30,654	$	210.14	30,654	$	1,007.7
August 1, 2022 to August 31, 2022	10,794	232.13		10,794	1,005.2
September 1, 2022 to September 30, 2022	24,774	231.14		24,396	999.6
Total	66,222	$	221.58	65,844	$	999.6