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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 ~~March 31,~~June 30, 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 ~~April~~July 28, 2023, ~~39,890,672~~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	1416
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3033
Item 4.	Controls and Procedures	3033

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	3134
Item 1A.	Risk Factors	3134
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3134
Item 3.	Defaults Upon Senior Securities	3134
Item 4.	Mine Safety Disclosures	3134
Item 5.	Other Information	3134
Item 6.	Exhibits	3236

Signatures		3337

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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 March 31				Three Months Ended June 30				Six Months Ended June 30
(in millions, except per share amounts)	(in millions, except per share amounts)	2023		2022			(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	$	1,829	$	1,724		Product sales	$	1,879	$	1,829	$	3,708	$	3,553
Service revenues	Service revenues	845		852			Service revenues	908		833		1,753		1,685
Sales and service revenues	Sales and service revenues	2,674		2,576			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	1,568		1,468			Cost of product sales	1,602		1,526		3,170		2,994
Cost of service revenues	Cost of service revenues	756		759			Cost of service revenues	796		746		1,552		1,505
Income from operating investments, net	Income from operating investments, net	12		7			Income from operating investments, net	4		27		16		34
Other income and gains (losses), net		(1)		(1)
Other income and gains, net							Other income and gains, net	1		1		—		—
General and administrative expenses	General and administrative expenses	220		217			General and administrative expenses	238		227		458		444

Operating income	Operating income	141		138			Operating income	156		191		297		329
Other income (expense)	Other income (expense)						Other income (expense)
Interest expense	Interest expense	(24)		(26)			Interest expense	(24)		(26)		(48)		(52)
Non-operating retirement benefit	Non-operating retirement benefit	37		71			Non-operating retirement benefit	37		67		74		138
Other, net	Other, net	9		(7)			Other, net	—		(10)		9		(17)
Earnings before income taxes	Earnings before income taxes	163		176			Earnings before income taxes	169		222		332		398
Federal and foreign income tax expense	Federal and foreign income tax expense	34		36			Federal and foreign income tax expense	39		44		73		80
Net earnings	Net earnings	$	129	$	140		Net earnings	$	130	$	178	$	259	$	318

Basic earnings per share	Basic earnings per share	$	3.23	$	3.50		Basic earnings per share	$	3.27	$	4.44	$	6.49	$	7.93
Weighted-average common shares outstanding	Weighted-average common shares outstanding	39.9		40.0			Weighted-average common shares outstanding	39.8		40.1		39.9		40.1

Diluted earnings per share	Diluted earnings per share	$	3.23	$	3.50		Diluted earnings per share	$	3.27	$	4.44	$	6.49	$	7.93
Weighted-average diluted shares outstanding	Weighted-average diluted shares outstanding	39.9		40.0			Weighted-average diluted shares outstanding	39.8		40.1		39.9		40.1

Dividends declared per share	Dividends declared per share	$	1.24	$	1.18		Dividends declared per share	$	1.24	$	1.18	$	2.48	$	2.36

Net earnings from above	Net earnings from above	$	129	$	140		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	4		(86)			Change in unamortized benefit plan costs	5		13		9		(73)

Other							Other	—		(1)		—		(1)
Tax benefit (expense) for items of other comprehensive income	Tax benefit (expense) for items of other comprehensive income	(1)		22			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	3		(64)			Other comprehensive income (loss), net of tax	4		9		7		(55)
Comprehensive income	Comprehensive income	$	132	$	76		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)	March 31, 2023		December 31, 2022		($ 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	$	318	$	467	Cash and cash equivalents	$	313	$	467
Accounts receivable, net of allowance for doubtful accounts of $2 million as of 2023 and 2022		755		636
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	1,298		1,240		Contract assets	1,266		1,240
Inventoried costs	Inventoried costs	190		183		Inventoried costs	190		183
Income taxes receivable	Income taxes receivable	113		170		Income taxes receivable	184		170

Prepaid expenses and other current assets	Prepaid expenses and other current assets	78		50		Prepaid expenses and other current assets	78		50
Total current assets	Total current assets	2,752		2,746		Total current assets	2,817		2,746
Property, plant, and equipment, net of accumulated depreciation of $2,351 million as of 2023 and $2,319 million as of 2022		3,182		3,198
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	264		282		Operating lease assets	264		282
Goodwill	Goodwill	2,618		2,618		Goodwill	2,618		2,618
Other intangible assets, net of accumulated amortization of $913 million as of 2023 and $881 million as of 2022		987		1,019
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	623		600		Pension plan assets	646		600

Miscellaneous other assets	Miscellaneous other assets	423		394		Miscellaneous other assets	363		394
Total assets	Total assets	$	10,849	$	10,857	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	$	505	$	642	Trade accounts payable	$	519	$	642
Accrued employees’ compensation	Accrued employees’ compensation	330		345		Accrued employees’ compensation	345		345
Current portion of long-term debt	Current portion of long-term debt	399		399		Current portion of long-term debt	484		399
Current portion of postretirement plan liabilities	Current portion of postretirement plan liabilities	134		134		Current portion of postretirement plan liabilities	134		134
Current portion of workers’ compensation liabilities	Current portion of workers’ compensation liabilities	229		229		Current portion of workers’ compensation liabilities	229		229
Contract liabilities	Contract liabilities	810		766		Contract liabilities	833		766

Other current liabilities	Other current liabilities	460		380		Other current liabilities	383		380
Total current liabilities	Total current liabilities	2,867		2,895		Total current liabilities	2,927		2,895
Long-term debt	Long-term debt	2,498		2,506		Long-term debt	2,396		2,506
Pension plan liabilities	Pension plan liabilities	216		214		Pension plan liabilities	218		214
Other postretirement plan liabilities	Other postretirement plan liabilities	259		260		Other postretirement plan liabilities	257		260
Workers’ compensation liabilities	Workers’ compensation liabilities	464		463		Workers’ compensation liabilities	465		463
Long-term operating lease liabilities	Long-term operating lease liabilities	225		246		Long-term operating lease liabilities	224		246
Deferred tax liabilities	Deferred tax liabilities	389		418		Deferred tax liabilities	359		418
Other long-term liabilities	Other long-term liabilities	368		366		Other long-term liabilities	367		366
Total liabilities	Total liabilities	7,286		7,368		Total liabilities	7,213		7,368
Commitments and Contingencies (Note 10)	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; 53.6 million shares issued and 39.9 million shares outstanding as of March 31, 2023, and 53.5 million shares issued and 39.9 million shares outstanding as of December 31, 2022		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	2,024		2,022		Additional paid-in capital	2,030		2,022
Retained earnings	Retained earnings	4,354		4,276		Retained earnings	4,434		4,276
Treasury stock	Treasury stock	(2,220)		(2,211)		Treasury stock	(2,227)		(2,211)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(596)		(599)		Accumulated other comprehensive loss	(592)		(599)
Total stockholders’ equity	Total stockholders’ equity	3,563		3,489		Total stockholders’ equity	3,646		3,489
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	10,849	$	10,857	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)


		Three Months Ended March 31					Six Months Ended June 30
($ in millions)	($ in millions)	2023		2022		($ in millions)	2023		2022
Operating Activities	Operating Activities					Operating Activities
Net earnings	Net earnings	$	129	$	140	Net earnings	$	259	$	318
Adjustments to reconcile to net cash 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	55		52		Depreciation	110		104
Amortization of purchased intangibles	Amortization of purchased intangibles	32		35		Amortization of purchased intangibles	64		70
Amortization of debt issuance costs	Amortization of debt issuance costs	2		2		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	12		9		Stock-based compensation	18		16
Deferred income taxes	Deferred income taxes	(30)		2		Deferred income taxes	(62)		(1)

Loss (gain) on investments in marketable securities	Loss (gain) on investments in marketable securities	(8)		9		Loss (gain) on investments in marketable securities	(12)		26

Change in	Change in					Change in
Accounts receivable	Accounts receivable	(119)		(231)		Accounts receivable	(149)		(241)
Contract assets	Contract assets	(58)		(39)		Contract assets	(27)		(56)
Inventoried costs	Inventoried costs	(7)		(27)		Inventoried costs	(7)		(35)
Prepaid expenses and other assets	Prepaid expenses and other assets	30		7		Prepaid expenses and other assets	(42)		47
Accounts payable and accruals	Accounts payable and accruals	(31)		—		Accounts payable and accruals	(57)		8
Retiree benefits	Retiree benefits	(18)		(34)		Retiree benefits	(36)		(65)
Other non-cash transactions, net	Other non-cash transactions, net	2		(1)		Other non-cash transactions, net	10		(4)
Net cash used in operating activities		(9)		(83)
Net cash provided by operating activities						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	(43)		(43)		Capital expenditure additions	(111)		(102)
Grant proceeds for capital expenditures	Grant proceeds for capital expenditures	3		—		Grant proceeds for capital expenditures	3		—

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

Other investing activities, net						Other investing activities, net	1		—
Net cash used in investing activities	Net cash used in investing activities	(60)		(43)		Net cash used in investing activities	(70)		(101)
Financing Activities	Financing Activities					Financing Activities

Repayment of long-term debt	Repayment of long-term debt	(10)		(100)		Repayment of long-term debt	(30)		(200)

Dividends paid	Dividends paid	(49)		(47)		Dividends paid	(99)		(94)
Repurchases of common stock	Repurchases of common stock	(9)		(10)		Repurchases of common stock	(16)		(27)
Employee taxes on certain share-based payment arrangements	Employee taxes on certain share-based payment arrangements	(12)		(14)		Employee taxes on certain share-based payment arrangements	(12)		(14)

Net cash used in financing activities	Net cash used in financing activities	(80)		(171)		Net cash used in financing activities	(157)		(335)
Change in cash and cash equivalents	Change in cash and cash equivalents	(149)		(297)		Change in cash and cash equivalents	(154)		(252)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	467		627		Cash and cash equivalents, beginning of period	467		627
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	318	$	330	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)	$	172	$	15
Cash paid for interest	Cash paid for interest	$	12	$	11	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	$	8	$	1	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 March 31, 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		$	1	$	1,998	$	3,891	$	(2,159)	$	(923)	$	2,808
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	—		—		140		—		—		140		Net earnings	—		—		178		—		—		178
Dividends declared ($1.18 per share)	Dividends declared ($1.18 per share)	—		—		(47)		—		—		(47)		Dividends declared ($1.18 per share)	—		—		(47)		—		—		(47)
Stock-based compensation	Stock-based compensation	—		(3)		(2)		—		—		(5)		Stock-based compensation	—		7		—		—		—		7
Other comprehensive loss, net of tax		—		—		—		—		(64)		(64)
Other comprehensive income, net of tax														Other comprehensive income, net of tax	—		—		—		—		9		9

Treasury stock activity	Treasury stock activity	—		—		—		(10)		—		(10)		Treasury stock activity	—		—		—		(17)		—		(17)
Balance as of March 31, 2022		$	1	$	1,995	$	3,982	$	(2,169)	$	(987)	$	2,822
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		$	1	$	2,022	$	4,276	$	(2,211)	$	(599)	$	3,489
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	—		—		129		—		—		129		Net earnings	—		—		130		—		—		130
Dividends declared ($1.24 per share)	Dividends declared ($1.24 per share)	—		—		(49)		—		—		(49)		Dividends declared ($1.24 per share)	—		—		(50)		—		—		(50)
Stock-based compensation	Stock-based compensation	—		2		(2)		—		—		—		Stock-based compensation	—		6		—		—		—		6
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—		—		—		—		3		3		Other comprehensive income, net of tax	—		—		—		—		4		4

Treasury stock activity	Treasury stock activity	—		—		—		(9)		—		(9)		Treasury stock activity	—		—		—		(7)		—		(7)
Balance as of March 31, 2023		$	1	$	2,024	$	4,354	$	(2,220)	$	(596)	$	3,563
Balance as of June 30, 2023														Balance as of June 30, 2023	$	1	$	2,030	$	4,434	$	(2,227)	$	(592)	$	3,646


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	$	1	$	1,998	$	3,891	$	(2,159)	$	(923)	$	2,808
Net earnings	—		—		318		—		—		318
Dividends declared ($2.36 per share)	—		—		(94)		—		—		(94)
Stock-based compensation	—		4		(2)		—		—		2
Other comprehensive loss, net of tax	—		—		—		—		(55)		(55)

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

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

Treasury stock activity	—		—		—		(16)		—		(16)
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. 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.~~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 ~~2022~~ Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 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.

The Company maintains multiple grantor trusts to fund certain non-qualified pension plans. These trusts were valued at ~~$215~~$217 million and $209 million as of ~~March 31,~~June 30, 2023, and December 31, 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 ~~March 31,~~June 30, 2023, and December 31, 2022, were ~~$2,747~~$2,224 million and $2,703 million, respectively. The estimated fair values of the current portion of the Company's long-term debt were ~~$393~~$482 million and $390 million as of ~~March 31,~~June 30, 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 - In April 2023, the Company amended its existing $1.5 billion credit facility (the "Revolving Credit Facility") and $650 million term loan due August 19, 2024 (the "Term Loan") to change the benchmark interest rate from the London Interbank Offered Rate to the Secured Overnight Financing Rate (“SOFR”). The 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 quarterly assessment for impairment between annual tests for impairment.

Sale of 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, 2023, are not expected to have a material impact on the Company's consolidated financial position, results of operations, and cash flows.

4. 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 ~~three~~six months ended ~~March 31,~~June 30, 2023, the Company repurchased ~~39,325~~75,849 shares at an aggregate cost of $9$16 million. For the ~~three~~six months ended ~~March 31,~~June 30, 2022, the Company repurchased ~~50,549~~131,006 shares at an aggregate cost of ~~$10~~$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 ~~$49~~$99 million and ~~$47~~$94 million for the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 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 was comprised of unamortized benefit plan costs of ~~$596~~$592 million and $599 million as of ~~March 31,~~June 30, 2023 and December 31, 2022, respectively.

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The changes in accumulated other comprehensive loss by component for the three and six months ended ~~March 31,~~June 30, 2023 and 2022, were as follows:


($ in millions)	($ in millions)	Benefit Plans		Other		Total		($ in millions)	Benefit Plans		Other		Total
Balance as of December 31, 2021		$	(923)	$	—	$	(923)
Balance as of March 31, 2022								Balance as of March 31, 2022	$	(987)	$	—	$	(987)
Other comprehensive loss before reclassifications	Other comprehensive loss before reclassifications	(97)		—		(97)		Other comprehensive loss before reclassifications	—		(1)		(1)
Amounts reclassified from accumulated other comprehensive loss	Amounts reclassified from accumulated other comprehensive loss							Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost1	Amortization of prior service cost1	3		—		3		Amortization of prior service cost1	5		—		5
Amortization of net actuarial loss1	Amortization of net actuarial loss1	8		—		8		Amortization of net actuarial loss1	8		—		8

Tax benefit for items of other comprehensive loss		22		—		22
Net current period other comprehensive loss		(64)		—		(64)
Balance as of March 31, 2022		$	(987)	$	—	$	(987)
Tax expense for items of other comprehensive income								Tax expense for items of other comprehensive income	(3)		—		(3)
Net current period other comprehensive income (loss)								Net current period other comprehensive income (loss)	10		(1)		9
Balance as of June 30, 2022								Balance as of June 30, 2022	$	(977)	$	(1)	$	(978)

Balance as of December 31, 2022		$	(599)	$	—	$	(599)
Balance as of March 31, 2023								Balance as of March 31, 2023	$	(596)	$	—	$	(596)

Amounts reclassified from accumulated other comprehensive loss	Amounts reclassified from accumulated other comprehensive loss							Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost1	Amortization of prior service cost1	3		—		3		Amortization of prior service cost1	5		—		5
Amortization of net actuarial loss1		1		—		1

Tax expense for items of other comprehensive income	Tax expense for items of other comprehensive income	(1)		—		(1)		Tax expense for items of other comprehensive income	(1)		—		(1)
Net current period other comprehensive income	Net current period other comprehensive income	3		—		3		Net current period other comprehensive income	4		—		4
Balance as of March 31, 2023		$	(596)	$	—	$	(596)

Balance as of June 30, 2023								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 11: Employee Pension and Other Postretirement Benefits. The tax expense recorded in stockholders' equity for the amounts reclassified from accumulated other comprehensive loss for the three months ended ~~March 31,~~June 30, 2023 and 2022, was $1 million and $3 million, respectively. The tax expense recorded in stockholders' equity for the amounts reclassified from accumulated other comprehensive loss for the six months ended June 30, 2023 and 2022, was $2 million and $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 March 31				Three Months Ended June 30				Six Months Ended June 30
(in millions, except per share amounts)	(in millions, except per share amounts)	2023		2022			(in millions, except per share amounts)	2023		2022		2023		2022
Net earnings	Net earnings	$	129	$	140		Net earnings	$	130	$	178	$	259	$	318

Weighted-average common shares outstanding	Weighted-average common shares outstanding	39.9		40.0			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	39.9		40.0			Dilutive weighted-average common shares outstanding	39.8		40.1		39.9		40.1

Earnings per share - basic	Earnings per share - basic	$	3.23	$	3.50		Earnings per share - basic	$	3.27	$	4.44	$	6.49	$	7.93
Earnings per share - diluted	Earnings per share - diluted	$	3.23	$	3.50		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 0.5 million ~~and 0.4 million~~ Restricted Performance Stock Rights ("RPSRs") for each of the three and six months ended ~~March 31,~~June 30, 2023, and ~~2022, respectively.~~0.4 million RPSRs for each of the three and six months ended June 30, 2022.

6. REVENUE

Disaggregation of Revenue

The following tables present revenues on a disaggregated basis, in a manner that reconciles with the Company's ~~contracts~~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 ~~customers typically fall into one of four categories: firm fixed-price, fixed-price incentive, cost-type,~~information to evaluate the Company’s financial performance and ~~time and materials.~~provides the Company with information to make capital allocation decisions in the most appropriate manner. For more information on the Company's contracts, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company's 2022 Annual Report on Form 10-K.

The following tables present revenues on a disaggregated basis:

Three Months Ended March 31, 2023
($ in millions) Ingalls Newport News Mission Technologies Intersegment Eliminations Total
Revenue Type
Product sales $ 534 $ 1,271 $ 24 $ — $ 1,829
Service revenues 41 234 570 — 845
Intersegment 2 1 30 (33) —
Sales and service revenues $ 577 $ 1,506 $ 624 $ (33) $ 2,674
Customer Type
Federal $ 575 $ 1,505 $ 581 $ — $ 2,661
Commercial — — 13 — 13
Intersegment 2 1 30 (33) —
Sales and service revenues $ 577 $ 1,506 $ 624 $ (33) $ 2,674
Contract Type
Firm fixed-price $ 2 $ — $ 75 $ — $ 77
Fixed-price incentive 533 829 — — 1,362
Cost-type 40 676 467 — 1,183
Time and materials — — 52 — 52
Intersegment 2 1 30 (33) —
Sales and service revenues $ 577 $ 1,506 $ 624 $ (33) $ 2,674


	Three Months Ended June 30, 2023
($ in millions)	Ingalls		Newport News		Mission Technologies		Intersegment Eliminations		Total
Revenue Type
Product sales	$	604	$	1,247	$	28	$	—	$	1,879
Service revenues	57		262		589		—		908
Intersegment	3		—		28		(31)		—
Sales and service revenues	$	664	$	1,509	$	645	$	(31)	$	2,787
Customer Type
Federal	$	661	$	1,509	$	608	$	—	$	2,778
Commercial	—		—		9		—		9

Intersegment	3		—		28		(31)		—
Sales and service revenues	$	664	$	1,509	$	645	$	(31)	$	2,787
Contract Type
Firm fixed-price	$	—	$	2	$	84	$	—	$	86
Fixed-price incentive	606		824		1		—		1,431
Cost-type	55		683		476		—		1,214
Time and materials	—		—		56		—		56
Intersegment	3		—		28		(31)		—
Sales and service revenues	$	664	$	1,509	$	645	$	(31)	$	2,787

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Three Months Ended March 31, 2022
($ in millions) Ingalls Newport News Mission Technologies Intersegment Eliminations Total
Revenue Type
Product sales $ 578 $ 1,121 $ 25 $ — $ 1,724
Service revenues 50 267 535 — 852
Intersegment 3 2 30 (35) —
Sales and service revenues $ 631 $ 1,390 $ 590 $ (35) $ 2,576
Customer Type
Federal $ 628 $ 1,388 $ 547 $ — $ 2,563
Commercial — — 13 — 13
Intersegment 3 2 30 (35) —
Sales and service revenues $ 631 $ 1,390 $ 590 $ (35) $ 2,576
Contract Type
Firm fixed-price $ 2 $ 8 $ 64 $ — $ 74
Fixed-price incentive 576 703 — — 1,279
Cost-type 50 677 425 — 1,152
Time and materials — — 71 — 71
Intersegment 3 2 30 (35) —
Sales and service revenues $ 631 $ 1,390 $ 590 $ (35) $ 2,576


	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

Three Months Ended
March 31
($ in millions) 2023 2022
Major Programs
Amphibious assault ships $ 323 $ 363
Surface combatants and coast guard cutters 253 265
Other 1 3
Total Ingalls 577 631
Aircraft carriers 837 742
Submarines 540 470
Other 129 178
Total Newport News 1,506 1,390
Mission based solutions 518 491
Other 106 99
Total Mission Technologies 624 590
Intersegment eliminations (33) (35)
Sales and service revenues $ 2,674 $ 2,576

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	Six Months Ended June 30, 2022
($ in millions)	Ingalls		Newport News		Mission Technologies		Intersegment Eliminations		Total
Revenue Type
Product sales	$	1,189	$	2,311	$	53	$	—	$	3,553
Service revenues	95		509		1,081		—		1,685
Intersegment	5		3		56		(64)		—
Sales and service revenues	$	1,289	$	2,823	$	1,190	$	(64)	$	5,238
Customer Type
Federal	$	1,284	$	2,820	$	1,111	$	—	$	5,215
Commercial	—		—		23		—		23

Intersegment	5		3		56		(64)		—
Sales and service revenues	$	1,289	$	2,823	$	1,190	$	(64)	$	5,238
Contract Type
Firm fixed-price	$	6	$	11	$	133	$	—	$	150
Fixed-price incentive	1,185		1,457		—		—		2,642
Cost-type	93		1,352		862		—		2,307
Time and materials	—		—		139		—		139
Intersegment	5		3		56		(64)		—
Sales and service revenues	$	1,289	$	2,823	$	1,190	$	(64)	$	5,238


	Three Months Ended June 30				Six Months Ended June 30
($ in millions)	2023		2022		2023		2022
Major Programs
Amphibious assault ships	$	374	$	372	$	697	$	735
Surface combatants and coast guard cutters	287		284		540		549
Other	3		2		4		5
Total Ingalls	664		658		1,241		1,289
Aircraft carriers	828		814		1,665		1,556
Submarines	537		470		1,077		940
Other	144		149		273		327
Total Newport News	1,509		1,433		3,015		2,823
Mission based solutions	524		488		1,042		979
Other	121		112		227		211
Total Mission Technologies	645		600		1,269		1,190
Intersegment eliminations	(31)		(29)		(64)		(64)
Sales and service revenues	$	2,787	$	2,662	$	5,461	$	5,238

As of ~~March 31,~~June 30, 2023, the Company had ~~$47.0~~$46.9 billion of remaining performance obligations. The Company expects to recognize approximately ~~40%~~35% of its remaining performance obligations as revenue through 2024, an additional ~~25%~~30% through 2026, and the balance thereafter.

Cumulative Catch-up Revenue Adjustments

For the three months ended ~~March 31,~~June 30, 2023, net cumulative catch-up revenue adjustments increased operating income and increased diluted earnings per share by $9$20 million and ~~$0.17,~~$0.41, respectively. For the three months ended ~~March 31,~~June 30, 2022, net cumulative catch-up revenue adjustments increased operating income and increased diluted earnings per share by ~~$45~~$68 million and ~~$0.89,~~$1.34, respectively.

For the six months ended June 30, 2023, net cumulative catch-up revenue adjustments increased operating income and increased diluted earnings per share by $29 million and $0.58, respectively. For the six months ended June 30, 2022, net cumulative catch-up revenue

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~~Cumulative catch-up revenue~~ adjustments ~~for the three months ended March 31, 2023, included a favorable adjustment of $15 million on a contract at the Company's Newport News segment, which~~increased operating income and increased diluted earnings per share by ~~$0.30. Cumulative~~$113 million and $2.22, respectively.

For the three and six months ended June 30, 2023, no individual favorable cumulative catch-up revenue ~~adjustments for~~adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income. For the three and six months ended ~~March 31,~~June 30, 2023, ~~included an~~no individual unfavorable cumulative catch-up revenue adjustment ~~of $14 million on a contract at~~was material to the Company's ~~Newport News segment, which decreased diluted earnings per share by $0.28.~~unaudited condensed consolidated statements of operations and comprehensive income.

Cumulative catch-up revenue adjustments for the three months ended ~~March 31,~~June 30, 2022, included a favorable adjustment of ~~$17~~$20 million on a contract at the Company's Ingalls segment, which increased diluted earnings per share by ~~$0.34.~~$0.40. For the six months ended June 30, 2022, 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 ~~March 31,~~June 30, 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 $14~~decreased $41 million from December 31, 2022, to ~~March 31,~~June 30, 2023, primarily resulting from ~~an increase in contract assets related to revenue~~billings on certain U.S. Navy contracts. For the three and six months ended ~~March 31,~~June 30, 2023, the Company recognized revenue of ~~$551~~$122 million and $673 million, respectively, related to its contract liabilities as of December 31, 2022. For the three and six months ended ~~March 31,~~June 30, 2022, the Company recognized revenue of ~~$379~~$152 million and $531 million, respectively, related to its contract liabilities as of December 31, 2021.

7. SEGMENT INFORMATION

The following table presents segment results for the three and six months ended ~~March 31,~~June 30, 2023 and 2022:


		Three Months Ended March 31				Three Months Ended June 30				Six Months Ended June 30
($ in millions)	($ in millions)	2023		2022			($ in millions)	2023		2022		2023		2022
Sales and Service Revenues	Sales and Service Revenues						Sales and Service Revenues
Ingalls	Ingalls	$	577	$	631		Ingalls	$	664	$	658	$	1,241	$	1,289
Newport News	Newport News	1,506		1,390			Newport News	1,509		1,433		3,015		2,823
Mission Technologies	Mission Technologies	624		590			Mission Technologies	645		600		1,269		1,190
Intersegment eliminations	Intersegment eliminations	(33)		(35)			Intersegment eliminations	(31)		(29)		(64)		(64)
Sales and service revenues	Sales and service revenues	$	2,674	$	2,576		Sales and service revenues	$	2,787	$	2,662	$	5,461	$	5,238
Operating Income	Operating Income						Operating Income
Ingalls	Ingalls	$	55	$	86		Ingalls	$	65	$	106	$	120	$	192
Newport News	Newport News	84		81			Newport News	95		94		179		175
Mission Technologies	Mission Technologies	17		9			Mission Technologies	9		25		26		34
Segment operating income	Segment operating income	156		176			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	(19)		(37)			Operating FAS/CAS Adjustment	(17)		(35)		(36)		(72)
Non-current state income taxes	Non-current state income taxes	4		(1)			Non-current state income taxes	4		1		8		—
Operating income	Operating income	$	141	$	138		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 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)	March 31, 2023		December 31, 2022		($ in millions)	June 30, 2023		December 31, 2022
Assets	Assets					Assets
Ingalls	Ingalls	$	1,615	$	1,633	Ingalls	$	1,614	$	1,633
Newport News	Newport News	4,566		4,344		Newport News	4,557		4,344
Mission Technologies	Mission Technologies	3,291		3,347		Mission Technologies	3,215		3,347
Corporate	Corporate	1,377		1,533		Corporate	1,473		1,533
Total assets	Total assets	$	10,849	$	10,857	Total assets	$	10,859	$	10,857

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 ~~March 31,~~June 30, 2023 and 2022, were ~~20.9%~~23.1% and ~~20.5%~~19.8%, ~~respectively, which~~respectively. For the six months ended June 30, 2023 and 2022, the Company's 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 sale of the Company's interest in Titan.

For each of the three and six months ended 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, the Company's effective tax rate differed from the federal statutory corporate income tax rate primarily as a result of research and development tax 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 $2 million and $4 million during the three and six months ended ~~March 31, 2023.~~June 30, 2023, respectively. As of ~~March 31,~~June 30, 2023, the estimated amounts of the Company's unrecognized tax benefits, excluding interest and penalties, were liabilities of ~~$92~~$94 million. Assuming a sustainment of these tax positions, a reversal of ~~$70~~$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 six months ended ~~March 31,~~June 30, 2023, interest resulting from the unrecognized tax benefits noted above increased income tax expense by $1 ~~million.~~million and $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.

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~~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 also provided footnote

disclosure for matters for which a material loss is reasonably possible but a reserve has not been accrued because

the likelihood of a material loss is not probable.

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.

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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 ~~three~~six months ended ~~March 31,~~June 30, 2023 and 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, 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, 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.

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 ~~March 31, 2023, 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

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matters, nor do they include amounts recorded as asset retirement obligations. Management estimates that as of ~~March 31,~~June 30, 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, 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 ~~March 31,~~June 30, 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, 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 FAS. Under the 1985 settlement agreement, these costs would be recovered in future periods. In December 2020, a U.S. Navy Contracting Officer issued a determination that the 1985 settlement agreement did not comply with CAS and directed the Company to develop and implement a different process to bill and allocate the cost of workers’ compensation self-insurance. The Company believes the 1985 settlement agreement is CAS-compliant and cannot be unilaterally terminated, but the Company is continuing to negotiate a resolution of the matter with the Contracting Officer.

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

~~In January 2023, the Company entered into discussions~~negotiations with a Mission ~~Technologies'~~Technologies customer ~~to amend an~~

~~existing contract~~since January 2023 to address issues related to a manufacturing ~~issues. Although final agreement has not been reached, the~~contract. The Company recorded ~~during the period ended March 31, 2023, a provision~~provisions for contract loss in prior periods that ~~was~~were not material to the Company's consolidated financial ~~statements as~~position, results of operations, or cash flows. The parties have not agreed upon a ~~whole.~~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.

~~National Security Cutter (“NSC”) 11 Steel Plates Issue~~ ~~- After the Company’s Ingalls Shipbuilding segment began fabrication of~~ ~~Friedman~~ ~~(NSC 11) for the U.S. Coast Guard, the Coast Guard initiated communications with Ingalls about~~The Company previously disclosed an issue regarding the degree of corrosion of certain steel plates ~~Ingalls was using~~used to fabricate Friedman (NSC 11)~~, as well as~~. The Company’s expectation regarding the ~~process Ingalls was using to remediate the corrosion. The Coast Guard subsequently informed Ingalls of its objection to the process Ingalls was using to remediate corrosion in~~ ~~Friedman~~ (NSC 11) steel plates and requested that Ingalls follow a different remediation process or, alternatively, reconstruct affected fabricated units with new steel. Ingalls and the Coast Guard are continuing to seek a resolution of the ~~matter.~~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 ~~has included estimates of~~does not expect the ~~financial impact of the~~ ~~Friedman~~ (NSC 11) matter into its contract cost estimates and revenue recognition processes. The variability of the scope of work the Company will perform to resolve the matter and the extent to which the Company will recover increased costs to resolve the matter could impact those estimates in the future. The ultimatefinal resolution of the ~~Friedman~~ ~~(NSC 11) steel plates issue, including~~matter to have a material impact to the ~~scope of remediation work and recovery of associated costs, could result in an adverse effect on the~~ Company's ~~condensed~~ consolidated financial position, results of operations, or cash flows.

Collective Bargaining Agreements - Of the Company's approximately 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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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 six months ended ~~March 31,~~June 30, 2023 and 2022, were as follows:


		Three Months Ended March 31								Three Months Ended June 30					Six Months Ended June 30
		Pension Benefits				Other Benefits					Pension Benefits		Other Benefits				Pension Benefits				Other Benefits
($ in millions)	($ in millions)	2023		2022		2023		2022				($ 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	$	28	$	45	$	1	$	2			Service cost	$	28	$	45	$	2	$	3	$	56	$	90	$	3	$	5
Interest cost	Interest cost	86		64		5		4				Interest cost	86		65		5		3		172		129		10		7
Expected return on plan assets	Expected return on plan assets	(132)		(150)		—		—				Expected return on plan assets	(133)		(148)		—		—		(265)		(298)		—		—
Amortization of prior service cost (credit)	Amortization of prior service cost (credit)	4		4		(1)		(1)				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)	4		9		(3)		(1)				Amortization of net actuarial loss (gain)	4		9		(4)		(1)		8		18		(7)		(2)

Net periodic benefit (income) cost	Net periodic benefit (income) cost	$	(10)	$	(28)	$	2	$	4			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 ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022:


		Three Months Ended March 31					Six Months Ended June 30
($ in millions)	($ in millions)	2023		2022		($ in millions)	2023		2022
Pension plans	Pension plans					Pension plans

Discretionary	Discretionary					Discretionary
Qualified	Qualified	$	—	$	—	Qualified	$	—	$	—
Non-qualified	Non-qualified	2		3		Non-qualified	5		5
Other benefit plans	Other benefit plans	8		7		Other benefit plans	16		16
Total contributions	Total contributions	$	10	$	10	Total contributions	$	21	$	21

As of ~~March 31,~~June 30, 2023, the Company anticipates no further significant cash contributions to its qualified defined benefit pension plans in 2023.

12. STOCK COMPENSATION PLANS

During the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022, the Company issued new stock awards as follows:

Restricted Performance Stock Rights - For the ~~three~~six months ended ~~March 31,~~June 30, 2023, the Company granted approximately ~~0.1~~0.2 million RPSRs at a weighted average share price of ~~$215.20.~~$214.92. These rights are subject to cliff vesting on December 31, 2025. For the ~~three~~six months ended ~~March 31,~~June 30, 2022, the Company granted approximately 0.1 million RPSRs at a weighted average share price of $204.10. These rights are subject to cliff vesting on December 31, 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 ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022, awards of approximately 0.1 million and 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 ~~March 31,~~June 30, 2023:
Stock Awards
(in thousands) Weighted-Average
Grant Date Fair
Value Weighted-Average Remaining Contractual Term
(in years)
Total stock awards 551 $ 189.15 1.5


	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 $9$7 million for the three months ended ~~March 31,~~June 30, 2023 and 2022, respectively. The Company recorded stock-based compensation for the value of awards granted to The Company's employees and non-employee members of the board of directors of $18 million and $16 million for the six months ended June 30, 2023 and 2022, respectively.

The Company recorded tax benefits related to stock awards of ~~$2 million and~~ $1 million for each of the three months ended ~~March 31,~~June 30, 2023 and 2022. The Company recorded tax benefits related to stock awards of $3 million and $2 million for the six months ended June 30, 2023 and 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 June 30, 2023 and 2022. The Company recognized tax benefits associated with the issuance of stock in settlement of stock awards of $3 million and $4 million for the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022, respectively.

Unrecognized Compensation Expense

As of ~~March 31,~~June 30, 2023, the Company had $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 ~~0.9 years,~~1.0 year, and ~~$57~~$49 million of unrecognized compensation expense associated with RPSRs granted in 2023, 2022, and 2021, which will be recognized over a weighted average period of ~~1.7~~1.5 years.

~~13. SUBSEQUENT EVENTS~~

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

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

OVERVIEW

Our Business

Huntington Ingalls Industries, Inc. ("HII", "we", "us", or "our") is 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 segment ~~delivers high-value engineering and technology~~develops integrated solutions tothat enable ~~multi-domain distributed operations in the government and commercial markets.~~today's connected, all-domain force. Headquartered in Newport News, Virginia, HII employs approximately 43,000 people domestically and internationally.

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.

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

U.S. Government Contracts - ~~The President submitted~~Congressional consideration of the fiscal year 2024 ~~budget request on~~President’s Budget Request began following its release in March 9, 2023 and is ongoing. The House and Senate have each acted on their respective National Defense Authorization bills for fiscal year 2024, both of which support our shipbuilding programs, including the ~~request is now under consideration by Congress. The budget request reflects continued investment in shipbuilding, funding~~additional authorization of the ~~second~~ ~~Columbia~~ ~~class (SSBN 826) submarine,~~LPD 33 Flight II amphibious ship. Both House and Senate appropriations committees fund the procurement of two Virginia class (SSN 774) ~~attack~~ submarines, one Columbia class (SSBN 826) ballistic missile submarine, and two ~~Flight III~~ Arleigh Burkeclass (DDG 51) ~~destroyers, and the final increment of~~ ~~Fallujah~~ ~~(LHA 9). Additionally, the budget request continues~~destroyers. The Senate appropriations bill provides advance procurement funding for ~~USS~~ ~~Gerald R. Ford~~ ~~class (CVN 78) nuclear aircraft carriers and aircraft carrier refueling programs, and includes investment~~LPD 33 (unnamed) in ~~the submarine industrial base. The U.S. Marine Corps included a LPD Flight II amphibious ship (LPD 33) in its~~ fiscal year 2024 ~~unfunded priority list, which was submitted~~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 more contracts for the ~~Congress shortly after the release~~multiyear procurement of the next block of Virginia class (SSN 774) submarines. We cannot predict the outcome of the fiscal year 2024 budget ~~request.~~process or whether short-term funding will be required in the event annual appropriations measures are not finalized by the October 1 start of the fiscal year.

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

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 continued public health issues.~~market.

For further information on our business environment, see the discussion under Business Environment under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our 2022 Annual Report on Form 10-K.

Critical Accounting Policies, Estimates, and Judgments

As discussed in our 2022 Annual Report on Form 10-K, 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 ~~March 31,~~June 30, 2023, there had been no material changes to the foregoing critical accounting policies, estimates, and judgments since December 31, 2022.

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

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 March 31														Three Months Ended June 30								Six Months Ended June 30
							2023 vs. 2022							Three Months Ended June 30	2023 vs. 2022			Six Months Ended June 30		2023 vs. 2022
($ in millions)	($ in millions)			2023			2022			Dollars			Percent				($ in millions)			2023			2022	Dollars		Percent		2023		2022		Dollars		Percent
Sales and service revenues	Sales and service revenues	$	2,674		$	2,576		$	98		4	%					Sales and service revenues	$	2,787		$	2,662		$	125	5	%	$	5,461	$	5,238	$	223	4	%
Cost of product sales and service revenues	Cost of product sales and service revenues	2,324			2,227			97			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	Income from operating investments, net	12			7			5			71	%					Income from operating investments, net	4			27			(23)		(85)	%	16		34		(18)		(53)	%
Other income and gains (losses), net		(1)			(1)			—			—	%
Other income and gains, net																	Other income and gains, net	1			1			—		—	%	—		—		—		—	%
General and administrative expenses	General and administrative expenses	220			217			3			1	%					General and administrative expenses	238			227			11		5	%	458		444		14		3	%

Operating income	Operating income	141			138			3			2	%					Operating income	156			191			(35)		(18)	%	297		329		(32)		(10)	%
Other income (expense)	Other income (expense)																Other income (expense)
Interest expense	Interest expense	(24)			(26)			2			8	%					Interest expense	(24)			(26)			2		8	%	(48)		(52)		4		8	%
Non-operating retirement benefit	Non-operating retirement benefit	37			71			(34)			(48)	%					Non-operating retirement benefit	37			67			(30)		(45)	%	74		138		(64)		(46)	%
Other, net	Other, net	9			(7)			16			229	%					Other, net	—			(10)			10		100	%	9		(17)		26		153	%
Federal and foreign income taxes	Federal and foreign income taxes	34			36			(2)			(6)	%					Federal and foreign income taxes	39			44			(5)		(11)	%	73		80		(7)		(9)	%
Net earnings	Net earnings	$	129		$	140		$	(11)		(8)	%					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 ~~March 31,~~June 30, 2023, increased ~~$98~~$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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Refer to "Segment Operating Results" and "Product and Service Revenues and Cost Analysis" in this section for details related to cost of sales for both product sales and service revenues.

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.

Refer to "Segment Operating Results" in this section for details related to income from operating 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 months ended ~~March 31,~~June 30, 2023, increased $3$11 million from the same period in 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 and state income ~~taxes and overhead costs.~~taxes.

Operating Income

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

We internally manage our operations by reference to "segment operating income," which is defined as operating income before the Operating FAS/CAS Adjustment and non-current state income taxes, neither of which affects 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 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 March 31														Three Months Ended June 30								Six Months Ended June 30
							2023 vs. 2022							Three Months Ended June 30	2023 vs. 2022			Six Months Ended June 30		2023 vs. 2022
($ in millions)	($ in millions)			2023			2022			Dollars			Percent				($ in millions)			2023			2022	Dollars		Percent		2023		2022		Dollars		Percent
Operating income	Operating income	$	141		$	138		$	3		2	%					Operating income	$	156		$	191		$	(35)	(18)	%	$	297	$	329	$	(32)	(10)	%
Operating FAS/CAS Adjustment	Operating FAS/CAS Adjustment	19			37			(18)			(49)	%					Operating FAS/CAS Adjustment	17			35			(18)		(51)	%	36		72		(36)		(50)	%
Non-current state income taxes	Non-current state income taxes	(4)			1			(5)			(500)	%					Non-current state income taxes	(4)			(1)			(3)		(300)	%	(8)		—		(8)		—	%
Segment operating income	Segment operating income	$	156		$	176		$	(20)		(11)	%					Segment operating income	$	169		$	225		$	(56)	(25)	%	$	325	$	401	$	(76)	(19)	%

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Operating income for the three months ended ~~March 31,~~June 30, 2023, ~~increased $3~~decreased $35 million compared with the same period in 2022, primarily due to lower segment operating income, partially offset by favorable changes in the Operating FAS/CAS Adjustment and non-current state income ~~taxes,~~taxes. Operating income for the six months ended June 30, 2023, decreased $32 million compared with the same period in 2022, primarily due to lower segment operating income, partially offset by ~~lower segment operating income.~~favorable changes in the Operating FAS/CAS Adjustment and 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

~~Table of Contents~~

("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 March 31														Three Months Ended June 30								Six Months Ended June 30
							2023 vs. 2022							Three Months Ended June 30	2023 vs. 2022			Six Months Ended June 30		2023 vs. 2022
($ in millions)	($ in millions)			2023			2022			Dollars			Percent				($ in millions)			2023			2022	Dollars		Percent		2023		2022		Dollars		Percent
FAS benefit	FAS benefit	$	8		$	24		$	(16)		(67)	%					FAS benefit	$	7		$	19		$	(12)	(63)	%	$	15	$	43	$	(28)	(65)	%
CAS cost	CAS cost	10			10			—			—	%					CAS cost	13			13			—		—	%	23		23		—		—	%
FAS/CAS Adjustment	FAS/CAS Adjustment	18			34			(16)			(47)	%					FAS/CAS Adjustment	20			32			(12)		(38)	%	38		66		(28)		(42)	%
Non-operating retirement benefit	Non-operating retirement benefit	(37)			(71)			34			48	%					Non-operating retirement benefit	(37)			(67)			30		45	%	(74)		(138)		64		46	%
Operating FAS/CAS Adjustment	Operating FAS/CAS Adjustment	$	(19)		$	(37)		$	18		49	%					Operating FAS/CAS Adjustment	$	(17)		$	(35)		$	18	51	%	$	(36)	$	(72)	$	36	50	%

The Operating FAS/CAS Adjustment was a net expense of ~~$19~~$17 million and ~~$37~~$35 million for the three months ended ~~March 31,~~June 30, 2023 and 2022, respectively. The Operating FAS/CAS Adjustment was a net expense of $36 million and $72 million for the six months ended June 30, 2023 and 2022, respectively. The favorable ~~change was~~changes in the Operating FAS/CAS Adjustment of $18 million and $36 million for the three and six months ended June 30, 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 ~~March 31,~~June 30, 2023 ~~was $4 million, compared to non-current~~and 2022, respectively. Non-current state income tax ~~expense of~~benefit was $8 million and less than $1 million for the ~~same period in 2022.~~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 the timing of long-term contract income for tax purposes.

SEGMENT OPERATING RESULTS

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

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

1820

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The following table presents segment sales and segment operating results:


		Three Months Ended March 31														Three Months Ended June 30								Six Months Ended June 30
							2023 vs. 2022							Three Months Ended June 30	2023 vs. 2022			Six Months Ended June 30		2023 vs. 2022
($ in millions)	($ in millions)			2023			2022			Dollars			Percent				($ in millions)			2023			2022	Dollars		Percent		2023		2022		Dollars		Percent
Sales and Service Revenues	Sales and Service Revenues																Sales and Service Revenues
Ingalls	Ingalls	$	577		$	631		$	(54)		(9)	%					Ingalls	$	664		$	658		$	6	1	%	$	1,241	$	1,289	$	(48)	(4)	%
Newport News	Newport News	1,506			1,390			116			8	%					Newport News	1,509			1,433			76		5	%	3,015		2,823		192		7	%
Mission Technologies	Mission Technologies	624			590			34			6	%					Mission Technologies	645			600			45		8	%	1,269		1,190		79		7	%
Intersegment eliminations	Intersegment eliminations	(33)			(35)			2			6	%					Intersegment eliminations	(31)			(29)			(2)		(7)	%	(64)		(64)		—		—	%
Sales and service revenues	Sales and service revenues	$	2,674		$	2,576		$	98		4	%					Sales and service revenues	$	2,787		$	2,662		$	125	5	%	$	5,461	$	5,238	$	223	4	%
Operating Income	Operating Income																Operating Income
Ingalls	Ingalls	$	55		$	86		$	(31)		(36)	%					Ingalls	$	65		$	106		$	(41)	(39)	%	$	120	$	192	$	(72)	(38)	%
Newport News	Newport News	84			81			3			4	%					Newport News	95			94			1		1	%	179		175		4		2	%
Mission Technologies	Mission Technologies	17			9			8			89	%					Mission Technologies	9			25			(16)		(64)	%	26		34		(8)		(24)	%
Segment operating income	Segment operating income	156			176			(20)			(11)	%					Segment operating income	169			225			(56)		(25)	%	325		401		(76)		(19)	%
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	(19)			(37)			18			49	%					Operating FAS/CAS Adjustment	(17)			(35)			18		51	%	(36)		(72)		36		50	%
Non-current state income taxes	Non-current state income taxes	4			(1)			5			500	%					Non-current state income taxes	4			1			3		300	%	8		—		8		—	%
Operating income	Operating income	$	141		$	138		$	3		2	%					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 ~~March 31,~~June 30, 2023 and 2022, favorable and unfavorable cumulative catch-up revenue adjustments were as follows:


		Three Months Ended March 31					Three Months Ended June 30							Six Months Ended June 30
						Three Months Ended June 30							Six Months Ended June 30
($ in millions)	($ in millions)	2023		2022			($ in millions)		2023			2022					2023				2022
Gross favorable adjustments	Gross favorable adjustments	$	64	$	107			Gross favorable adjustments		$	72					$	106			$	136			$	213
Gross unfavorable adjustments	Gross unfavorable adjustments	(55)		(62)				Gross unfavorable adjustments		(52)				(38)				(107)				(100)
Net adjustments	Net adjustments	$	9	$	45			Net adjustments		$	20			$	68			$	29			$	113

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For the three and six months ended ~~March 31,~~June 30, 2023 and 2022, net cumulative catch-up revenue adjustments by segment were as follows:


		Three Months Ended March 31					Three Months Ended June 30							Six Months Ended June 30
						Three Months Ended June 30							Six Months Ended June 30
($ in millions)	($ in millions)	2023		2022			($ in millions)		2023			2022					2023				2022
Ingalls	Ingalls	$	14	$	41			Ingalls		$	17					$	56			$	31			$	97
Newport News	Newport News	(9)		—				Newport News		—				9				(9)				9
Mission Technologies	Mission Technologies	4		4				Mission Technologies		3				3				7				7
Net adjustments	Net adjustments	$	9	$	45			Net adjustments		$	20			$	68			$	29			$	113

Ingalls


		Three Months Ended March 31																Three Months Ended June 30										Six Months Ended June 30
									2023 vs. 2022							Three Months Ended June 30	2023 vs. 2022			Six Months Ended June 30			2023 vs. 2022
($ in millions)	($ in millions)				2023				2022			Dollars			Percent				($ in millions)				2023				2022	Dollars		Percent		2023			2022			Dollars		Percent
Sales and service revenues	Sales and service revenues	$	577			$	631			$	(54)		(9)	%					Sales and service revenues	$	664			$	658			$	6	1	%	$	1,241		$	1,289		$	(48)	(4)	%
Segment operating income	Segment operating income	55				86				(31)			(36)	%					Segment operating income	65				106				(41)		(39)	%	120			192			(72)		(38)	%
As a percentage of segment sales	As a percentage of segment sales	9.5		%		13.6		%											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 ~~March 31,~~June 30, 2023, increased $6 million, or 1%, from the same period in 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 ~~$54~~$48 million, or 9%4%, from the same period in 2022, primarily driven by lower revenues in theNSC program and amphibious assault ships, ~~and the~~ ~~Legend~~ ~~class National Security Cutter ("NSC") program,~~ partially offset by higher revenues in surface combatants. ~~Revenues on amphibious assault ships decreased due to lower volumes on USS~~ ~~Fort Lauderdale~~ ~~(LPD 28) following its delivery,~~ ~~Bougainville~~ ~~(LHA 8), L-Class planning yard services contract, and~~ ~~Richard M. McCool Jr.~~ ~~(LPD 29), partially offset by higher volumes on~~ ~~Fallujah~~ ~~(LHA 9) and LPD 32 (unnamed). Revenues on the~~ ~~Legend~~ ~~class NSC program decreased due to lower volumes on~~ ~~Friedman~~ ~~(NSC 11). Revenues on surface combatants increased due to higher volumes on~~ ~~George M. Neal~~ ~~(DDG 131),~~ ~~Jeremiah Denton~~ ~~(DDG 129),~~ ~~John F. Lehman~~ ~~(DDG 137), and~~ ~~Ted Stevens~~ ~~(DDG 128), partially offset by lower volumes on~~ ~~Lenah Sutcliffe Higbee~~ ~~(DDG 123) and USS~~ ~~Jack H. Lucas~~ ~~(DDG 125).~~

Segment Operating Income

Ingalls segment operating income for the three months ended ~~March 31,~~June 30, 2023, was ~~$55~~$65 million, compared to segment operating income of ~~$86~~$106 million for the same period in 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 Harrisburg (LPD 30).

Ingalls segment operating income for the six months ended June 30, 2023, was $120 million, compared to segment operating income of $192 million for the same period in 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 USS Fort Lauderdale (LPD 28) and ~~Bougainville~~ Harrisburg~~(LHA 8)~~ (LPD 30).

Newport News


		Three Months Ended March 31																Three Months Ended June 30										Six Months Ended June 30
									2023 vs. 2022							Three Months Ended June 30	2023 vs. 2022			Six Months Ended June 30			2023 vs. 2022
($ in millions)	($ in millions)				2023				2022			Dollars			Percent				($ in millions)				2023				2022	Dollars		Percent		2023			2022			Dollars		Percent
Sales and service revenues	Sales and service revenues	$	1,506			$	1,390			$	116		8	%					Sales and service revenues	$	1,509			$	1,433			$	76	5	%	$	3,015		$	2,823		$	192	7	%
Segment operating income	Segment operating income	84				81				3			4	%					Segment operating income	95				94				1		1	%	179			175			4		2	%
As a percentage of segment sales	As a percentage of segment sales	5.6		%		5.8		%											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 ~~March 31,~~June 30, 2023, increased ~~$116~~$76 million, or 8%5%, from the same period in 2022, primarily driven by higher revenues in aircraft ~~carriers and submarines, partially offset by lower revenues in naval nuclear support services. Aircraft~~ carrier ~~revenues increased primarily as a result of higher volumes on~~construction, the ~~refueling and complex overhaul ("RCOH") of USS~~ ~~John C. Stennis~~Columbia ~~(CVN 74)~~class (SSBN 826) submarine program, and ~~the construction of~~ ~~Doris Miller~~ ~~(CVN 81),~~ ~~Enterprise~~ ~~(CVN 80), and~~ ~~John F. Kennedy~~ ~~(CVN 79), partially offset by lower volumes on the RCOH of USS~~ ~~George Washington~~ ~~(CVN 73). Submarine revenues increased due to higher volumes on Block V boats of~~ the Virginia class (SSN 774) submarine program, ~~and the~~ ~~Columbia~~ ~~class (SSBN 826) submarine program,~~ partially offset by lower ~~volumes on Block IV boats of the~~ revenues in aircraft carrier refueling and complex overhaul ("RCOH").

~~Virginia~~ ~~class (SSN 774) submarine~~

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~~program. Naval~~Newport News revenues, including intersegment sales, for the six months ended June 30, 2023, increased $192 million, or 7%, from the same period in 2022, primarily driven by higher revenues in aircraft carrier construction, the Columbia class (SSBN 826) submarine program, and the Virginia class (SSN 774) submarine program, partially offset by lower revenues in naval nuclear support ~~services revenues decreased primarily as a result of lower volumes in carrier fleet support~~ services.

Segment Operating Income

Newport News segment operating income for the three months ended ~~March 31,~~June 30, 2023, was ~~$84~~$95 million, compared to segment operating income of ~~$81~~$94 million for the same period in 2022. Current year results were consistent with the prior year, as favorable Virginia class (SSN 774) submarine 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 six months ended June 30, 2023, was $179 million, compared to segment operating income of $175 million for the same period in 2022. The increase was primarily due to ~~higher sales volumes,~~favorable Virginia class (SSN 774) submarine program revenue adjustments, partially offset by ~~unfavorable~~lower risk retirement on ~~the~~ Enterprise (CVN 80). and lower favorable changes in contract estimates from facilities capital and economic price adjustment clauses.

Mission Technologies


		Three Months Ended March 31																Three Months Ended June 30										Six Months Ended June 30
									2023 vs. 2022							Three Months Ended June 30	2023 vs. 2022			Six Months Ended June 30			2023 vs. 2022
($ in millions)	($ in millions)				2023				2022			Dollars			Percent				($ in millions)				2023				2022	Dollars		Percent		2023			2022			Dollars		Percent
Sales and service revenues	Sales and service revenues	$	624			$	590			$	34		6	%					Sales and service revenues	$	645			$	600			$	45	8	%	$	1,269		$	1,190		$	79	7	%
Segment operating income	Segment operating income	17				9				8			89	%					Segment operating income	9				25				(16)		(64)	%	26			34			(8)		(24)	%
As a percentage of segment sales	As a percentage of segment sales	2.7		%		1.5		%											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 ~~March 31,~~June 30, 2023, increased ~~$34~~$45 million, or 6%8%, from the same period in 2022, primarily due to higher volumes in mission based ~~solutions and fleet sustainment.~~solutions.

Mission Technologies revenues, including intersegment sales, for the six months ended June 30, 2023, increased $79 million, or 7%, from the same period in 2022, primarily due to higher volumes in mission based solutions.

Segment Operating Income

Mission Technologies segment operating income for the three months ended ~~March 31,~~June 30, 2023, was ~~$17~~$9 million, compared to segment operating income of $9$25 million for the same period in 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. The results for the three and six months ended June 30, 2023, include a $6 million loss on the sale of the unconsolidated ship repair and specialty fabrication joint venture.

Mission Technologies segment operating income for the six months ended June 30, 2023, was $26 million, compared to segment operating income of $34 million for the same period in 2022. The decrease was primarily driven by 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 ~~mission based solutions and unmanned systems, and~~fleet sustainment, partially offset by higher equity income from nuclear and environmental joint ventures, ~~partially offset by lower~~higher performance in ~~fleet sustainment.~~unmanned systems, and higher volumes in mission based solutions.

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PRODUCT AND SERVICE REVENUES AND COST ANALYSIS

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


		Three Months Ended March 31								Sales and Service Revenues						Segment Cost of Product Sales and Service Revenues
($ in millions)	($ in millions)	2023				2022					($ in millions)	Three Months Ended June 30		2023 vs. 2022				Three Months Ended June 30				2023 vs. 2022
Segment Information	Segment Information	Sales and service revenues		Segment cost of product sales and service revenues		Sales and service revenues		Segment cost of product sales and service revenues					Segment Information	2023		2022		Dollars		Percent		2023		2022		Dollars		Percent
Ingalls	Ingalls												Ingalls
Product	Product	$	534	$	440	$	578	$	457				Product	$	604	$	611	$	(7)	(1)	%	$	496	$	462	$	34	7	%
Service	Service	41		34		50		43					Service	57		45		12		27	%	49		41		8		20	%
Intersegment	Intersegment	2		2		3		3					Intersegment	3		2		1		50	%	3		2		1		50	%
Total Ingalls	Total Ingalls	577		476		631		503					Total Ingalls	664		658		6		1	%	548		505		43		9	%
Newport News	Newport News												Newport News
Product	Product	1,271		1,092		1,121		959					Product	1,247		1,190		57		5	%	1,056		1,008		48		5	%
Service	Service	234		198		267		225					Service	262		242		20		8	%	222		202		20		10	%
Intersegment	Intersegment	1		1		2		2					Intersegment	—		1		(1)		(100)	%	—		1		(1)		(100)	%
Total Newport News	Total Newport News	1,506		1,291		1,390		1,186					Total Newport News	1,509		1,433		76		5	%	1,278		1,211		67		6	%
Mission Technologies	Mission Technologies												Mission Technologies
Product	Product	24		20		25		21					Product	28		28		—		—	%	35		26		9		35	%
Service	Service	570		521		535		485					Service	589		546		43		8	%	523		498		25		5	%
Intersegment	Intersegment	30		30		30		30					Intersegment	28		26		2		8	%	28		26		2		8	%
Total Mission Technologies	Total Mission Technologies	624		571		590		536					Total Mission Technologies	645		600		45		8	%	586		550		36		7	%
Segment Totals	Segment Totals												Segment Totals
Product	Product	1,829		1,552		1,724		1,437					Product	$	1,879	$	1,829	$	50	3	%	$	1,587	$	1,496	$	91	6	%
Service	Service	845		753		852		753					Service	908		833		75		9	%	794		741		53		7	%
Total Segment (1)	Total Segment (1)	$	2,674	$	2,305	$	2,576	$	2,190				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.

Table of Contents


	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 ~~March 31,~~June 30, 2023, increased ~~$105~~$50 million, or 6%3%, from the same period in ~~2022. Product sales at our Ingalls segment decreased $44 million in 2023, primarily as a result of lower volumes in amphibious assault ships and the~~ ~~Legend~~ ~~class NSC program, partially offset by higher volumes in surface combatants. Newport News product sales increased $150 million in 2023,~~2022, primarily as a result of higher volumes at Newport News in aircraft ~~carriers~~carrier construction, the Columbia class (SSBN 826) submarine program, and ~~submarines. Mission Technologies product sales decreased $1 million in 2023, primarily as a result of~~the Virginia class (SSN 774) submarine program, partially offset by lower volumes in ~~mission based solutions~~aircraft carrier refueling and ~~unmanned systems, partially offset by higher volumes in fleet sustainment.~~complex overhaul ("RCOH").

Segment cost of product sales for the three months ended ~~March 31,~~June 30, 2023, increased ~~$115~~$91 million, or 8%6%, compared with the same period in ~~2022. Cost of~~2022, consistent with higher product sales ~~at our Ingalls segment decreased $17 million in 2023, primarily as a result of lower volumes~~ described above ~~partially offset by lower risk retirement on USS~~ and higher costs at Ingalls.

~~Fort Lauderdale~~ ~~(LPD 28) following its delivery. Cost of product~~Product sales ~~at our Newport News segment~~for the six months ended June 30, 2023, increased ~~$133~~$155 million, or 4%, from the same period in ~~2023,~~2022, primarily as a result of higher volumes ~~described above. Cost~~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 ~~at our Mission Technologies segment decreased $1~~for the six months ended June 30, 2023, increased $206 million, or 7%, compared with the same period in ~~2023, primarily as a result of lower volumes~~2022, consistent with higher product sales described above.

Service Revenues and Segment Cost of Service Revenues

Service revenues for the three months ended ~~March 31,~~June 30, 2023, ~~decreased $7~~increased $75 million, or 1%9%, compared with the same period in ~~2022. Service revenues at our Ingalls segment decreased $9 million in 2023, primarily as a result of~~

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lower volumes in amphibious assault ship services. Service revenues at our Newport News segment decreased $33 million in 2023, primarily as a result of lower volumes in naval nuclear support services, partially offset by higher volumes in aircraft carrier and submarine services. Service revenues at our Mission Technologies segment increased $35 million in 2023,2022, primarily as a result of higher volumes at Mission Technologies in mission based solutions ~~services~~ and ~~fleet sustainment.~~higher volumes at Newport News in aircraft carrier services.

Segment cost of service revenues for the three months ended ~~March 31,~~June 30, 2023, ~~were flat~~increased $53 million, or 7%, compared with the same period in ~~2022. Cost of~~2022, consistent with higher service revenues ~~at our Ingalls segment decreased $9~~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 2023, primarily as a result of lower volumes described above. Cost of service revenues at our Newport News segment decreased $27 million in 2023, primarily as a result of lower volumes described above. Cost of service revenues at our Mission Technologies segment increased $36 million in 2023,2022, 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 and year-to-year variances in contract mix.~~above.

OTHER FINANCIAL INFORMATION

Interest Expense

Interest expense for the three months ended ~~March 31,~~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 ~~decrease was primarily~~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 ~~period.~~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 prior service cost (credit) and actuarial loss (gain), and settlement and curtailment effects.

For the three months ended ~~March 31,~~June 30, 2023, the non-operating retirement benefit was $37 million, compared with ~~$71~~$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 ~~decrease was~~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 returns on plan assets.

Other, Net

Other, net ~~income~~ for the three months ended ~~March 31,~~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 $7$17 million for the same period in 2022. The ~~favorable change was~~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 ~~realized and~~ unrealized net gains in investments.

Federal and Foreign Income Taxes

Our effective income tax rates on earnings from operations for the three months ended ~~March 31,~~June 30, 2023 and 2022, were ~~20.9%~~23.1% and ~~20.5%~~19.8%, ~~respectively, which~~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 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 ~~corporate income tax rate of 21%.~~rate.

BACKLOG

Total backlog as of ~~March 31,~~June 30, 2023, and December 31, 2022, was approximately ~~$47.0~~$46.9 billion and $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 ~~March 31,~~June 30, 2023, and December 31, 2022:


		March 31, 2023						December 31, 2022							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	$	10,852	$	2,786	$	13,638	$	9,231	$	3,546	$	12,777	Ingalls	$	10,345	$	3,157	$	13,502	$	9,231	$	3,546	$	12,777
Newport News	Newport News	13,579		15,069		28,648		11,665		17,742		29,407		Newport News	12,632		16,251		28,883		11,665		17,742		29,407
Mission Technologies	Mission Technologies	1,332		3,390		4,722		1,317		3,622		4,939		Mission Technologies	1,466		3,004		4,470		1,317		3,622		4,939
Total backlog	Total backlog	$	25,763	$	21,245	$	47,008	$	22,213	$	24,910	$	47,123	Total backlog	$	24,443	$	22,412	$	46,855	$	22,213	$	24,910	$	47,123

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

Contract Awards

The value of new contract awards during the ~~three~~six months ended ~~March 31,~~June 30, 2023, was approximately ~~$2.6~~$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 Columbia 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:


		Three Months Ended March 31					2023 vs. 2022					Six Months Ended June 30				2023 vs. 2022

($ in millions)	($ in millions)					2023			2022		Dollars				($ in millions)	2023		2022	Dollars
Net earnings	Net earnings	$	129	$	140		$	(11)		Net earnings		$	259	$	318	$	(59)
Depreciation and amortization	Depreciation and amortization	89		89			—			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	12		9			3			Stock-based compensation		18		16		2

Deferred income taxes	Deferred income taxes	(30)		2			(32)			Deferred income taxes		(62)		(1)		(61)

Loss (gain) on investments in marketable securities	Loss (gain) on investments in marketable securities	(8)		9			(17)			Loss (gain) on investments in marketable securities		(12)		26		(38)

Retiree benefits	Retiree benefits	(18)		(34)			16			Retiree benefits		(36)		(65)		29

Trade working capital increase	Trade working capital increase	(183)		(291)			108			Trade working capital increase		(272)		(281)		9
Net cash used in operating activities		$	(9)	$	(83)		$	74
Net cash provided by operating activities										Net cash provided by operating activities		$	73	$	184	$	(111)

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

leverage both to optimize our equity return and to pursue acquisitions. We expect to meet our current debt

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

Cash Flows

We discuss below our significant operating, investing, and financing activities affecting cash flows for the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022, as classified on our unaudited condensed consolidated statements of cash flows.

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Operating Activities

Cash ~~used in~~provided by operating activities for the ~~three~~six months ended ~~March 31,~~June 30, 2023, was $9$73 million, compared with ~~$83~~$184 million ~~used in~~provided by operating activities for the same period in 2022. The ~~favorable~~unfavorable change in operating cash flow was primarily due to ~~a favorable change in trade working capital. The change in trade working capital was primarily driven by the timing of receipts of accounts receivable.~~higher income tax payments.

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

Investing Activities

Cash used in investing activities for the ~~three~~six months ended ~~March 31,~~June 30, 2023, was ~~$60~~$70 million, compared with ~~$43~~$101 million used in investing activities for the same period in 2022. The change in investing cash was primarily driven by the sale of an unconsolidated ship repair and specialty fabrication joint venture, partially offset by increased investment in one of our unconsolidated nuclear and environmental joint ventures. For 2023, we expect our capital expenditures for maintenance and sustainment to be approximately 1.0% of annual revenues and our discretionary capital expenditures to be approximately 2.0% of annual revenues.

Financing Activities

Cash used in financing activities for the ~~three~~six months ended ~~March 31,~~June 30, 2023, was ~~$80~~$157 million, compared with ~~$171~~$335 million used in financing activities for the same period in 2022. The change in cash used in financing ~~cash~~activities was primarily due to a ~~$90~~$170 million decrease in ~~the~~ prepayments of 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 ~~used in~~provided by operating activities to free cash flow:


		Three Months Ended March 31					2023 vs. 2022			Six Months Ended June 30						2023 vs. 2022

($ in millions)	($ in millions)					2023			2022		Dollars	($ in millions)			2023			2022	Dollars
Net cash used in operating activities		$	(9)	$	(83)		$	74
Net cash provided by operating activities									Net cash provided by operating activities	$	73		$	184		$	(111)
Less capital expenditures:	Less capital expenditures:								Less capital expenditures:
Capital expenditure additions	Capital expenditure additions	(43)		(43)			—		Capital expenditure additions	(111)			(102)			(9)
Grant proceeds for capital expenditures	Grant proceeds for capital expenditures	3		—			3		Grant proceeds for capital expenditures	3			—			3
Free cash flow	Free cash flow	$	(49)	$	(126)		$	77	Free cash flow	$	(35)		$	82		$	(117)

Free cash flow for the ~~three~~six months ended ~~March 31,~~June 30, 2023, ~~increased $77~~decreased $117 million from the same period in 2022, primarily due to ~~a favorable change in trade working capital.~~higher income tax payments and 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 ~~March 31,~~June 30, 2023 and 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 ~~March 31,~~June 30, 2023, $14 million in letters of credit were issued but undrawn and $360 million of surety bonds were outstanding. As of ~~March 31,~~June 30, 2023, we had no other significant off-balance sheet arrangements.

ACCOUNTING STANDARDS UPDATES

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

FORWARD-LOOKING STATEMENTS AND PROJECTIONS

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

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

•Disruptions impacting global supply, including those ~~attributable to ongoing public health issues and those~~ resulting from the ongoing conflict between Russia and Ukraine;

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

•Security 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 7), and ~~in 2022,~~ we ~~were awarded a long-lead-time material and construction contract for~~ ~~Fallujah~~ ~~(LHA 9). 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 119), USS Frank E. Petersen Jr. (DDG 121), ~~and~~USS Lenah H. Sutcliffe Higbee (DDG 123), and Jack H. Lucas (DDG 125) in 2019, 2020, 2021, 2022, and ~~2022,~~2023, respectively. We have contracts to construct the following Arleigh Burke class (DDG 51) destroyers: ~~USS~~ ~~Jack H. Lucas~~ ~~(DDG 125),~~ Ted Stevens (DDG 128), Jeremiah Denton (DDG 129), George M. Neal (DDG 131), Sam Nunn (DDG 133), Thad Cochran (DDG 135), John F. Lehman (DDG 137), and Telesforo Trinidad (DDG 139).

Carrier RCOH						Perform refueling and complex overhaul ("RCOH") of nuclear-powered aircraft carriers, which is required at the mid-point of their 50-year life cycle. USS ~~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						Design and construct modules for Columbia class (SSBN 826) nuclear ballistic missile submarines ("SSBNs") as a subcontractor to Electric Boat. SSBNs are the most secure and survivable of our nation’s nuclear deterrent triad. Columbia class SSBNs will carry approximately 70 percent of the nation’s nuclear arsenal. The Columbia class (SSBN 826) program plan of record is to construct 12 new SSBNs to replace the current aging Ohio class. We have 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 ~~initial authorization to begin advance procurement~~an award modification for long-lead-time material and advance construction for the ~~third and fourth~~next five boats.

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 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).

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 risks, including those relating to interest 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 ~~March 31,~~June 30, 2023, we had ~~$215~~$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 ~~March 31,~~June 30, 2023, an increase of 1% in interest rates would increase the interest expense on our debt by approximately $2 million on an annual basis.

Inflation - Macroeconomic factors have contributed, and we expect will continue to contribute, to ~~increasing~~ 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 ~~provisions~~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 ~~if inflationary conditions continue over the long-term,~~ 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 ~~March 31,~~June 30, 2023. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that, as of ~~March 31,~~June 30, 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

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.

3033

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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 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 ~~March 31,~~June 30, 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
January 1, 2023 to January 31, 2023 7,837 $ 221.11 7,570 $ 987.0
February 1, 2023 to February 28, 2023 6,005 217.59 6,005 985.7
March 1, 2023 to March 31, 2023 81,548 212.53 25,750 980.3
Total 95,390 $ 213.55 39,325 $ 980.3


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in millions)1,2
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 39,325 shares of our common stock in the open market pursuant to our repurchase program, and 56,065 shares were transferred to us from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock rights during the period.

2 From the stock repurchase program's inception through ~~March 31,~~June 30, 2023, we have purchased ~~13,679,186~~13,715,710 shares at an average price of ~~$162.27~~$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 November 8, ~~2022~~)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:	~~May 4,~~August 3, 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)

3337


	Three Months Ended March 31, 2023
($ in millions)	Ingalls		Newport News		Mission Technologies		Intersegment Eliminations		Total
Revenue Type
Product sales	$	534	$	1,271	$	24	$	—	$	1,829
Service revenues	41		234		570		—		845
Intersegment	2		1		30		(33)		—
Sales and service revenues	$	577	$	1,506	$	624	$	(33)	$	2,674
Customer Type
Federal	$	575	$	1,505	$	581	$	—	$	2,661
Commercial	—		—		13		—		13

Intersegment	2		1		30		(33)		—
Sales and service revenues	$	577	$	1,506	$	624	$	(33)	$	2,674
Contract Type
Firm fixed-price	$	2	$	—	$	75	$	—	$	77
Fixed-price incentive	533		829		—		—		1,362
Cost-type	40		676		467		—		1,183
Time and materials	—		—		52		—		52
Intersegment	2		1		30		(33)		—
Sales and service revenues	$	577	$	1,506	$	624	$	(33)	$	2,674


	Three Months Ended March 31, 2022
($ in millions)	Ingalls		Newport News		Mission Technologies		Intersegment Eliminations		Total
Revenue Type
Product sales	$	578	$	1,121	$	25	$	—	$	1,724
Service revenues	50		267		535		—		852
Intersegment	3		2		30		(35)		—
Sales and service revenues	$	631	$	1,390	$	590	$	(35)	$	2,576
Customer Type
Federal	$	628	$	1,388	$	547	$	—	$	2,563
Commercial	—		—		13		—		13

Intersegment	3		2		30		(35)		—
Sales and service revenues	$	631	$	1,390	$	590	$	(35)	$	2,576
Contract Type
Firm fixed-price	$	2	$	8	$	64	$	—	$	74
Fixed-price incentive	576		703		—		—		1,279
Cost-type	50		677		425		—		1,152
Time and materials	—		—		71		—		71
Intersegment	3		2		30		(35)		—
Sales and service revenues	$	631	$	1,390	$	590	$	(35)	$	2,576


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
January 1, 2023 to January 31, 2023	7,837	$	221.11	7,570	$	987.0
February 1, 2023 to February 28, 2023	6,005	217.59		6,005	985.7
March 1, 2023 to March 31, 2023	81,548	212.53		25,750	980.3
Total	95,390	$	213.55	39,325	$	980.3