HUNTINGTON INGALLS INDUSTRIES, INC. [HII] Filings

10-Q 1 hii-20240630.htm 10-Q hii-20240630

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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 June 30, 2024


☐			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 July 26, 2024, 39,215,232 shares of the registrant's common stock were outstanding.

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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	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 4.	Controls and Procedures	32

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	34
Item 6.	Exhibits	34

Signatures		35

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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 June 30				Six Months Ended June 30
(in millions, except per share amounts)	2024		2023		2024		2023
Sales and service revenues
Product sales	$	1,926	$	1,879	$	3,713	$	3,708
Service revenues	1,051		908		2,069		1,753
Sales and service revenues	2,977		2,787		5,782		5,461
Cost of sales and service revenues
Cost of product sales	1,627		1,602		3,164		3,170
Cost of service revenues	918		796		1,811		1,552
Income from operating investments, net	11		4		23		16
Other income and gains, net	1		1		—		—
General and administrative expenses	255		238		487		458

Operating income	189		156		343		297
Other income (expense)
Interest expense	(24)		(24)		(45)		(48)
Non-operating retirement benefit	46		37		90		74
Other, net	5		—		12		9
Earnings before income taxes	216		169		400		332
Federal and foreign income tax expense	43		39		74		73
Net earnings	$	173	$	130	$	326	$	259

Basic earnings per share	$	4.38	$	3.27	$	8.25	$	6.49
Weighted-average common shares outstanding	39.5		39.8		39.5		39.9

Diluted earnings per share	$	4.38	$	3.27	$	8.25	$	6.49
Weighted-average diluted shares outstanding	39.5		39.8		39.5		39.9

Dividends declared per share	$	1.30	$	1.24	$	2.60	$	2.48

Net earnings from above	$	173	$	130	$	326	$	259
Other comprehensive income
Change in unamortized benefit plan costs	4		5		9		9

Tax expense for items of other comprehensive income	—		(1)		(2)		(2)
Other comprehensive income, net of tax	4		4		7		7
Comprehensive income	$	177	$	134	$	333	$	266

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)	June 30, 2024		December 31, 2023
Assets
Current Assets
Cash and cash equivalents	$	11	$	430
Accounts receivable, net of allowance for expected credit losses of $2 million as of 2024 and $8 million as of 2023	706		461
Contract assets	1,694		1,537
Inventoried costs	198		186
Income taxes receivable	197		183

Prepaid expenses and other current assets	106		83
Total current assets	2,912		2,880
Property, plant, and equipment, net of accumulated depreciation of $2,494 million as of 2024 and $2,467 million as of 2023	3,342		3,296
Operating lease assets	259		262
Goodwill	2,618		2,618
Other intangible assets, net of accumulated amortization of $1,063 million as of 2024 and $1,009 million as of 2023	837		891
Pension plan assets	952		888

Miscellaneous other assets	390		380
Total assets	$	11,310	$	11,215
Liabilities and Stockholders' Equity
Current Liabilities
Trade accounts payable	$	652	$	554
Accrued employees’ compensation	354		382
Short-term debt and current portion of long-term debt	942		231
Current portion of postretirement plan liabilities	129		129
Current portion of workers’ compensation liabilities	225		224
Contract liabilities	886		1,063


Other current liabilities	375		449
Total current liabilities	3,563		3,032
Long-term debt	1,715		2,214
Pension plan liabilities	216		212
Other postretirement plan liabilities	235		241
Workers’ compensation liabilities	451		449
Long-term operating lease liabilities	224		228
Deferred tax liabilities	341		367
Other long-term liabilities	387		379
Total liabilities	7,132		7,122
Commitments and Contingencies (Note 10)
Stockholders’ Equity
Common stock, $0.01 par value; 150,000,000 shares authorized; 53,710,514 shares issued and 39,260,208 shares outstanding as of 2024, and 53,595,748 shares issued and 39,618,880 shares outstanding as of 2023	1		1
Additional paid-in capital	2,029		2,045
Retained earnings	4,977		4,755
Treasury stock	(2,414)		(2,286)
Accumulated other comprehensive loss	(415)		(422)
Total stockholders’ equity	4,178		4,093
Total liabilities and stockholders’ equity	$	11,310	$	11,215

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)


	Six Months Ended June 30
($ in millions)	2024		2023
Operating Activities:
Net earnings	$	326	$	259
Adjustments to reconcile net cash provided by (used in) operating activities:
Depreciation	106		110
Amortization of purchased intangibles	54		64
Other non-cash transactions, net	2		14
Stock-based compensation	7		18

Deferred income taxes	(28)		(62)




Gain on investments in marketable securities	(11)		(12)

Change in
Accounts receivable	(239)		(149)
Contract assets	(157)		(27)
Inventoried costs	(12)		(7)
Prepaid expenses and other assets	(38)		(42)
Accounts payable and accruals	(164)		(57)
Retiree benefits	(57)		(36)
Net cash provided by (used in) operating activities	(211)		73
Investing Activities:
Capital expenditures
Capital expenditure additions	(165)		(111)
Grant proceeds for capital expenditures	3		3
Investment in affiliates	—		(24)
Proceeds from equity method investments	—		61


Other investing activities, net	—		1
Net cash used in investing activities	(162)		(70)
Financing Activities:

Repayment of long-term debt	(229)		(30)
Proceeds from revolving credit facility borrowings	42		—
Repayment of revolving credit facility borrowings	(42)		—
Net borrowings on commercial paper	440		—


Dividends paid	(102)		(99)
Repurchases of common stock	(127)		(16)

Employee taxes on certain share-based payment arrangements	(25)		(12)

Other financing activities, net	(3)		—
Net cash used in financing activities	(46)		(157)
Change in cash and cash equivalents	(419)		(154)
Cash and cash equivalents, beginning of period	430		467
Cash and cash equivalents, end of period	$	11	$	313
Supplemental Cash Flow Disclosure
Cash paid for income taxes (net of refunds)	$	157	$	172
Cash paid for interest	$	51	$	51
Non-Cash Investing and Financing Activities
Capital expenditures accrued in accounts payable	$	9	$	4

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 June 30, 2024 and 2023 ($ 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, 2023	$	1	$	2,024	$	4,354	$	(2,220)	$	(596)	$	3,563
Net earnings	—		—		130		—		—		130
Dividends declared ($1.24 per share)	—		—		(50)		—		—		(50)
Stock-based compensation	—		6		—		—		—		6
Other comprehensive income, net of tax	—		—		—		—		4		4

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

Balance as of March 31, 2024	$	1	$	2,038	$	4,855	$	(2,349)	$	(419)	$	4,126
Net earnings	—		—		173		—		—		173
Dividends declared ($1.30 per share)	—		—		(51)		—		—		(51)
Stock-based compensation	—		(9)		—		—		—		(9)
Other comprehensive income, net of tax	—		—		—		—		4		4

Treasury stock activity	—		—		—		(65)		—		(65)
Balance as of June 30, 2024	$	1	$	2,029	$	4,977	$	(2,414)	$	(415)	$	4,178

Six Months Ended June 30, 2024 and 2023 ($ 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, 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

Balance as of December 31, 2023	$	1	$	2,045	$	4,755	$	(2,286)	$	(422)	$	4,093
Net earnings	—		—		326		—		—		326
Dividends declared ($2.60 per share)	—		—		(102)		—		—		(102)
Stock-based compensation	—		(16)		(2)		—		—		(18)
Other comprehensive income, net of tax	—		—		—		—		7		7

Treasury stock activity	—		—		—		(128)		—		(128)
Balance as of June 30, 2024	$	1	$	2,029	$	4,977	$	(2,414)	$	(415)	$	4,178

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 develops integrated solutions that enable today's connected, all-domain force.

2. BASIS OF PRESENTATION

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

These unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature considered necessary by management for a fair presentation of the unaudited condensed consolidated financial position, results of operations, and cash flows and should be read in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 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. This practice only exists 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 $227 million and $220 million as of June 30, 2024, and December 31, 2023, 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), excluding finance lease liabilities, as of June 30, 2024, and December 31, 2023, were $2,081 million and $2,309 million, respectively. The estimated fair values of the current portion of the Company's long-term debt, excluding finance lease liabilities, were $492 million and $229 million as of June 30, 2024, and December 31, 2023, 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 of the fair value hierarchy.

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3. ACCOUNTING STANDARDS UPDATES

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The new guidance requires new tabular and narrative segment disclosures of significant expenses that are regularly reported to the chief operating decision maker and the nature of segment expense information used to manage operations. The new guidance is effective for annual reporting periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the impacts of the new guidance on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The new guidance requires disaggregated information about the effective tax rate reconciliation and additional information on taxes paid that meet a quantitative threshold. The new guidance is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impacts of the new guidance on its consolidated financial statements and related disclosures.

Other accounting pronouncements issued but not effective until after December 31, 2024, 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 January 2024, the Company's board of directors authorized an increase in the Company's stock repurchase program from $3.2 billion to $3.8 billion and an extension of the term of the program to December 31, 2028. Repurchases are made from time to time at management's discretion in accordance with applicable federal securities laws. For the six months ended June 30, 2024, the Company repurchased 473,438 shares at an aggregate cost of $128 million, including $1 million of accrued excise tax. For the six months ended June 30, 2023, the Company repurchased 75,849 shares at an aggregate cost of $16 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 $102 million and $99 million for the six months ended June 30, 2024 and 2023, 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 $415 million and $422 million as of June 30, 2024, and December 31, 2023, respectively.

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The changes in accumulated other comprehensive loss by component for the three and six months ended June 30, 2024 and 2023, were as follows:


($ in millions)	Benefit Plans		Other		Total
Balance as of March 31, 2023	$	(596)	$	—	$	(596)

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



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

Balance as of March 31, 2024	$	(419)	$	—	$	(419)

Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost1	4		—		4




Net current period other comprehensive income	4		—		4
Balance as of June 30, 2024	$	(415)	$	—	$	(415)


($ in millions)	Benefit Plans		Other		Total
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)

Balance as of December 31, 2023	$	(422)	$	—	$	(422)

Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost1	7		—		7
Amortization of net actuarial loss1	2		—		2


Tax expense for items of other comprehensive income	(2)		—		(2)
Net current period other comprehensive income	7		—		7
Balance as of June 30, 2024	$	(415)	$	—	$	(415)

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 June 30, 2024 and 2023, was less than $1 million and $1 million, respectively. The tax expense recorded in stockholders' equity for the amounts reclassified from accumulated other comprehensive loss for each of the six months ended June 30, 2024 and 2023, was $2 million.

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5. EARNINGS PER SHARE

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


	Three Months Ended June 30				Six Months Ended June 30
(in millions, except per share amounts)	2024		2023		2024		2023
Net earnings	$	173	$	130	$	326	$	259

Weighted-average common shares outstanding	39.5		39.8		39.5		39.9
Net dilutive effect of stock awards	—		—		—		—


Dilutive weighted-average common shares outstanding	39.5		39.8		39.5		39.9

Earnings per share - basic	$	4.38	$	3.27	$	8.25	$	6.49
Earnings per share - diluted	$	4.38	$	3.27	$	8.25	$	6.49

Under the treasury stock method, the Company has excluded from the diluted share amounts presented above the effects of 0.4 million Restricted Performance Stock Rights ("RPSRs") and 0.1 million Restricted Stock Rights ("RSRs") for each of the three and six months ended June 30, 2024, and 0.5 million RPSRs for each of the three and six months ended June 30, 2023.

6. REVENUE

Disaggregation of Revenue

The following tables present revenues on a disaggregated basis, in a manner that reconciles with the Company's reportable segment disclosures, for the following categories: product versus service type, customer type, contract type, and major program. The Company believes that this level of disaggregation provides investors with information to evaluate the Company’s financial performance and provides the Company with information to make capital allocation decisions in the most appropriate manner. For more information on the Company's contracts, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company's 2023 Annual Report on Form 10-K.

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The following tables present revenues on a disaggregated basis:


	Three Months Ended June 30, 2024
($ in millions)	Ingalls		Newport News		Mission Technologies		Intersegment Eliminations		Total
Revenue Type
Product sales	$	631	$	1,263	$	32	$	—	$	1,926
Service revenues	80		271		700		—		1,051
Intersegment	1		1		33		(35)		—
Sales and service revenues	$	712	$	1,535	$	765	$	(35)	$	2,977
Customer Type
Federal	$	711	$	1,533	$	730	$	—	$	2,974
Commercial	—		1		1		—		2
State and local government agencies	—		—		1		—		1
Intersegment	1		1		33		(35)		—
Sales and service revenues	$	712	$	1,535	$	765	$	(35)	$	2,977
Contract Type
Firm fixed-price	$	1	$	2	$	85	$	—	$	88
Fixed-price incentive	630		812		3		—		1,445
Cost-type	80		720		599		—		1,399
Time and materials	—		—		45		—		45
Intersegment	1		1		33		(35)		—
Sales and service revenues	$	712	$	1,535	$	765	$	(35)	$	2,977


	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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	Six Months Ended June 30, 2024
($ in millions)	Ingalls		Newport News		Mission Technologies		Intersegment Eliminations		Total
Revenue Type
Product sales	$	1,217	$	2,439	$	57	$	—	$	3,713
Service revenues	147		528		1,394		—		2,069
Intersegment	3		2		64		(69)		—
Sales and service revenues	$	1,367	$	2,969	$	1,515	$	(69)	$	5,782
Customer Type
Federal	$	1,364	$	2,966	$	1,447	$	—	$	5,777
Commercial	—		1		3		—		4
State and local government agencies	—		—		1		—		1
Intersegment	3		2		64		(69)		—
Sales and service revenues	$	1,367	$	2,969	$	1,515	$	(69)	$	5,782
Contract Type
Firm fixed-price	$	2	$	4	$	167	$	—	$	173
Fixed-price incentive	1,216		1,600		5		—		2,821
Cost-type	146		1,363		1,192		—		2,701
Time and materials	—		—		87		—		87
Intersegment	3		2		64		(69)		—
Sales and service revenues	$	1,367	$	2,969	$	1,515	$	(69)	$	5,782


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

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

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	Three Months Ended June 30				Six Months Ended June 30
($ in millions)	2024		2023		2024		2023
Major Programs
Amphibious assault ships	$	413	$	374	$	765	$	697
Surface combatants and coast guard cutters	297		287		597		540
Other	2		3		5		4
Total Ingalls	712		664		1,367		1,241
Aircraft carriers	831		828		1,623		1,665
Submarines	563		537		1,079		1,077
Other	141		144		267		273
Total Newport News	1,535		1,509		2,969		3,015
C5ISR, CEW&S, LVC	638		524		1,264		1,042
Other	127		121		251		227
Total Mission Technologies	765		645		1,515		1,269
Intersegment eliminations	(35)		(31)		(69)		(64)
Sales and service revenues	$	2,977	$	2,787	$	5,782	$	5,461

As of June 30, 2024, the Company had $48.5 billion of remaining performance obligations. The Company expects to recognize approximately 35% of its remaining performance obligations as revenue through 2025, an additional 30% through 2027, and the balance thereafter.

Cumulative Catch-up Revenue Adjustments

The following table presents the effect of net cumulative catch-up revenue adjustments on operating income and diluted earnings per share:


	Three Months Ended June 30				Six Months Ended June 30
($ in millions, except per share amounts)	2024		2023		2024		2023
Effect on operating income	$	24	$	20	$	26	$	29
Effect on diluted earnings per share	$	0.48	$	0.41	$	0.51	$	0.58

The Company’s multi-year shipbuilding contracts with the U.S. Government are routinely modified as the result of unpriced change orders arising in the ordinary course of business. These anticipated changes are accounted for as contract modifications when the scope of the work has been approved and it is probable that the price will be approved. The Company recognizes variable consideration included in the transaction price for a modified contract to the extent the Company believes a significant reversal of revenue is not probable.

For the three months ended June 30, 2024, cumulative catch-up revenue adjustments included a favorable adjustment of $28 million for contract adjustments and incentives on the refueling and complex overhaul ("RCOH") of USS John C. Stennis (CVN 74) at the Company's Newport News segment. For the six months ended June 30, 2024, no individual favorable cumulative catch-up revenue adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income. For the three and six months ended June 30, 2024, no individual unfavorable cumulative catch-up revenue adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.

For the three and six months ended June 30, 2023, no individual favorable cumulative catch-up revenue adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income. For the three and six months ended June 30, 2023, no individual unfavorable cumulative catch-up revenue adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.

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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. Net contract assets were comprised as follows:


($ in millions)	June 30, 2024		December 31, 2023
Contract assets	$	1,694	$	1,537
Contract liabilities	886		1,063
Net contract assets	$	808	$	474

The Company’s net contract assets increased $334 million from December 31, 2023, to June 30, 2024, primarily as a result of an increase in contract assets related to revenue on certain U.S. Navy contracts. For the three and six months ended June 30, 2024, the Company recognized revenue of $283 million and $924 million, respectively, related to its contract liabilities as of December 31, 2023. For the three and six months ended June 30, 2023, the Company recognized revenue of $122 million and $673 million, respectively, related to its contract liabilities as of December 31, 2022.

7. SEGMENT INFORMATION

The following table presents segment results for the three and six months ended June 30, 2024 and 2023:


	Three Months Ended June 30				Six Months Ended June 30
($ in millions)	2024		2023		2024		2023
Sales and Service Revenues
Ingalls	$	712	$	664	$	1,367	$	1,241
Newport News	1,535		1,509		2,969		3,015
Mission Technologies	765		645		1,515		1,269
Intersegment eliminations	(35)		(31)		(69)		(64)
Sales and service revenues	$	2,977	$	2,787	$	5,782	$	5,461
Operating Income
Ingalls	$	56	$	65	$	116	$	120
Newport News	111		95		193		179
Mission Technologies	36		9		64		26
Segment operating income	203		169		373		325
Non-segment factors affecting operating income
Operating FAS/CAS Adjustment	(15)		(17)		(32)		(36)
Non-current state income taxes	1		4		2		8
Operating income	$	189	$	156	$	343	$	297

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)	June 30, 2024		December 31, 2023
Assets
Ingalls	$	1,715	$	1,619
Newport News	4,829		4,612
Mission Technologies	3,243		3,161
Corporate	1,523		1,823
Total assets	$	11,310	$	11,215

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 June 30, 2024 and 2023, were 19.9% and 23.1%, respectively. For the six months ended June 30, 2024 and 2023, the Company's effective income tax rates on earnings from operations were 18.5% and 22.0%, respectively. The lower effective tax rate for each of the three and six months ended June 30, 2024, was primarily attributable to a taxable gain associated with the sale of the Company’s interest in the Titan joint venture recorded in 2023.

For the three months ended June 30, 2024, the Company’s effective tax rate differed from the federal statutory corporate income tax rate of 21% primarily due to research and development tax credits. For the six months ended June 30, 2024, the Company’s effective tax rate differed from the federal statutory corporate income tax rate primarily due to research and development tax credits and income tax benefits associated with stock award settlement activity.

The Company's unrecognized tax benefits increased by $2 million and $4 million during the three and six months ended June 30, 2024, respectively. As of June 30, 2024, the estimated amounts of the Company's unrecognized tax benefits, excluding interest and penalties, were liabilities of $102 million. Assuming a sustainment of these tax positions, a reversal of $79 million of the accrued amounts would favorably affect the Company's effective federal income tax rate in future periods. The potential decrease in unrecognized tax benefits in the next 12 months due to the potential lapse of the statute of limitations, as described in Note 12 of the Company’s 2023 Annual Report on Form 10-K, decreased from $17 million to $5 million as a result of an extension of the statute of limitations during the second quarter of 2024.

The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense. For the three and six months ended June 30, 2024, interest resulting from the unrecognized tax benefits noted above increased income tax expense by $2 million and $3 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 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.

Antitrust Complaint - On October 6, 2023, a class action antitrust lawsuit was filed against the Company and other defendants in the U.S. District Court for the Eastern District of Virginia. The lawsuit names several HII companies, among other companies, as defendants. The named plaintiffs generally allege that the defendant companies have adhered to a “gentlemen’s agreement” that prohibits any defendant from actively recruiting naval engineers from

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other defendants. The complaint seeks class certification, treble damages, and any other relief to which the plaintiffs are entitled. The District Court dismissed the lawsuit against all defendants in April 2024.

COVID Insurance Claim - 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 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.

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 these cases during the six months ended June 30, 2024 and 2023, were not material individually or in the aggregate. The Company’s estimate of asbestos-related liabilities is subject to uncertainty because such 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.

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 and contract modifications 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 negotiation with the customer. The Company believes its outstanding customer settlements will be resolved without material impact to its financial position, results of operations, or cash flows.

Environmental Matters - The estimated cost to complete environmental remediation is 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 s