10-Q 1 hii-20240331.htm 10-Q hii-20240331
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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, 2024
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 001-34910
  ______________________________________________________________
HUNTINGTON INGALLS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
 ______________________________________________________________
Delaware90-0607005
(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)
(757380-2000
(Registrant’s telephone number, including area code)
 ______________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockHIINew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    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 FilerSmaller 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 26, 2024, 39,433,340 shares of the registrant's common stock were outstanding.



Table of Contents                                        
TABLE OF CONTENTS
 
  
PART I – FINANCIAL INFORMATIONPage
Item 1.
Item 2.
Item 3.
Item 4.
PART II – OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



Table of Contents                                        
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
(in millions, except per share amounts)20242023
Sales and service revenues
Product sales$1,787 $1,829 
Service revenues1,018 845 
Sales and service revenues2,805 2,674 
Cost of sales and service revenues
Cost of product sales1,537 1,568 
Cost of service revenues893 756 
Income from operating investments, net12 12 
Other income and gains (losses), net(1)(1)
General and administrative expenses232 220 
Operating income154 141 
Other income (expense)
Interest expense(21)(24)
Non-operating retirement benefit44 37 
Other, net7 9 
Earnings before income taxes184 163 
Federal and foreign income tax expense31 34 
Net earnings$153 $129 
Basic earnings per share$3.87 $3.23 
Weighted-average common shares outstanding39.5 39.9 
Diluted earnings per share$3.87 $3.23 
Weighted-average diluted shares outstanding39.5 39.9 
Dividends declared per share$1.30 $1.24 
Net earnings from above$153 $129 
Other comprehensive income
Change in unamortized benefit plan costs5 4 
Tax expense for items of other comprehensive income(2)(1)
Other comprehensive income, net of tax3 3 
Comprehensive income$156 $132 

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

1

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HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
($ in millions)March 31, 2024December 31, 2023
Assets
Current Assets
Cash and cash equivalents$10 $430 
Accounts receivable, net of allowance for expected credit losses of $5 million as of 2024 and $8 million as of 2023
718 461 
Contract assets1,661 1,537 
Inventoried costs199 186 
Income taxes receivable140 183 
Prepaid expenses and other current assets105 83 
Total current assets2,833 2,880 
Property, plant, and equipment, net of accumulated depreciation of $2,515 million as of 2024 and $2,467 million as of 2023
3,298 3,296 
Operating lease assets251 262 
Goodwill2,618 2,618 
Other intangible assets, net of accumulated amortization of $1,036 million as of 2024 and $1,009 million as of 2023
864 891 
Pension plan assets920 888 
Miscellaneous other assets383 380 
Total assets$11,167 $11,215 
Liabilities and Stockholders' Equity
Current Liabilities
Trade accounts payable$608 $554 
Accrued employees’ compensation342 382 
Short-term debt and current portion of long-term debt203 231 
Current portion of postretirement plan liabilities129 129 
Current portion of workers’ compensation liabilities225 224 
Contract liabilities936 1,063 
Other current liabilities505 449 
Total current liabilities2,948 3,032 
Long-term debt2,235 2,214 
Pension plan liabilities214 212 
Other postretirement plan liabilities239 241 
Workers’ compensation liabilities451 449 
Long-term operating lease liabilities217 228 
Deferred tax liabilities351 367 
Other long-term liabilities386 379 
Total liabilities7,041 7,122 
Commitments and Contingencies (Note 10)
Stockholders’ Equity
Common stock, $0.01 par value; 150,000,000 shares authorized; 53,709,837 shares issued and 39,509,640 shares outstanding as of March 31, 2024, and 53,595,748 shares issued and 39,618,880 shares outstanding as of December 31, 2023
1 1 
Additional paid-in capital2,038 2,045 
Retained earnings4,855 4,755 
Treasury stock(2,349)(2,286)
Accumulated other comprehensive loss(419)(422)
Total stockholders’ equity4,126 4,093 
Total liabilities and stockholders’ equity$11,167 $11,215 

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

2

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HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Three Months Ended
March 31
($ in millions)20242023
Operating Activities
Net earnings$153 $129 
Adjustments to reconcile to net cash used in operating activities
Depreciation53 55 
Amortization of purchased intangibles27 32 
Amortization of debt issuance costs2 2 
Provision for expected credit losses(3)— 
Stock-based compensation14 12 
Deferred income taxes(17)(30)
Loss (gain) on investments in marketable securities(8)(8)
Change in
Accounts receivable(253)(119)
Contract assets(124)(58)
Inventoried costs(13)(7)
Prepaid expenses and other assets25 30 
Accounts payable and accruals(34)(31)
Retiree benefits(27)(18)
Other non-cash transactions, net3 2 
Net cash used in operating activities(202)(9)
Investing Activities
Capital expenditures
Capital expenditure additions(75)(43)
Grant proceeds for capital expenditures3 3 
Investment in affiliates (20)
Other investing activities, net1 — 
Net cash used in investing activities(71)(60)
Financing Activities
Repayment of long-term debt(145)(10)
Proceeds from revolving credit facility borrowings42 — 
Repayment of revolving credit facility borrowings(20)— 
Net borrowings on commercial paper117 — 
Dividends paid(51)(49)
Repurchases of common stock(62)(9)
Employee taxes on certain share-based payment arrangements(25)(12)
Other financing activities, net(3)— 
Net cash used in financing activities(147)(80)
Change in cash and cash equivalents(420)(149)
Cash and cash equivalents, beginning of period430 467 
Cash and cash equivalents, end of period$10 $318 
Supplemental Cash Flow Disclosure
Cash paid for interest$10 $12 
Non-Cash Investing and Financing Activities
Capital expenditures accrued in accounts payable$6 $8 

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

3

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HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED) 
Three Months Ended March 31, 2024 and 2023
($ in millions)
Common StockAdditional Paid-in CapitalRetained Earnings (Deficit)Treasury StockAccumulated 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— — 129 — — 129 
Dividends declared ($1.24 per share)
— — (49)— — (49)
Stock-based compensation— 2 (2)— — — 
Other comprehensive income, net of tax— — — — 3 3 
Treasury stock activity— — — (9)— (9)
Balance as of March 31, 2023$1 $2,024 $4,354 $(2,220)$(596)$3,563 
Balance as of December 31, 2023$1 $2,045 $4,755 $(2,286)$(422)$4,093 
Net earnings  153   153 
Dividends declared ($1.30 per share)
  (51)  (51)
Stock-based compensation (7)(2)  (9)
Other comprehensive income, net of tax    3 3 
Treasury stock activity   (63) (63)
Balance as of March 31, 2024$1 $2,038 $4,855 $(2,349)$(419)$4,126 

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.

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 $226 million and $220 million as of March 31, 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 March 31, 2024, and December 31, 2023, were $2,178 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 $84 million and $229 million as of March 31, 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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Debt - In January 2024, the Company prepaid the remaining balance of $145 million on its term loan due August 19, 2024. For further information on the Company's debt, see the Company's 2023 Annual Report on Form 10-K.

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 three months ended March 31, 2024, the Company repurchased 223,329 shares at an aggregate cost of $63 million, including $1 million of accrued excise tax. For the three months ended March 31, 2023, the Company repurchased 39,325 shares at an aggregate cost of $9 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 $51 million and $49 million for the three months ended March 31, 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 $419 million and $422 million as of March 31, 2024, and December 31, 2023, respectively.


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The changes in accumulated other comprehensive loss by component for the three months ended March 31, 2024 and 2023, were as follows:

($ in millions)Benefit PlansOtherTotal
Balance as of December 31, 2022$(599)$— $(599)
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost1
3 — 3 
Amortization of net actuarial loss1
1 — 1 
Tax expense for items of other comprehensive income(1)— (1)
Net current period other comprehensive income3 — 3 
Balance as of March 31, 2023$(596)$— $(596)
Balance as of December 31, 2023$(422)$— $(422)
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost1
3  3 
Amortization of net actuarial loss1
2  2 
Tax expense for items of other comprehensive income(2) (2)
Net current period other comprehensive income3  3 
Balance as of March 31, 2024$(419)$ $(419)
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, 2024 and 2023, was $2 million and $1 million, respectively.

5. EARNINGS PER SHARE

Basic and diluted earnings per common share were calculated as follows:
 Three Months Ended
March 31
(in millions, except per share amounts)20242023
Net earnings$153 $129 
Weighted-average common shares outstanding39.5 39.9 
Net dilutive effect of stock awards — 
Dilutive weighted-average common shares outstanding39.5 39.9 
Earnings per share - basic$3.87 $3.23 
Earnings per share - diluted$3.87 $3.23 

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 the three months ended March 31, 2024, and 0.5 million RPSRs for the three months ended March 31, 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

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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.

The following tables present revenues on a disaggregated basis:
Three Months Ended March 31, 2024
($ in millions)IngallsNewport NewsMission TechnologiesIntersegment EliminationsTotal
Revenue Type
Product sales$586 $1,176 $25 $— $1,787 
Service revenues67 257 694 — 1,018 
Intersegment2 1 31 (34)— 
Sales and service revenues$655 $1,434 $750 $(34)$2,805 
Customer Type
Federal$653 $1,433 $717 $— $2,803 
Commercial— — 2 — 2 
Intersegment2 1 31 (34)— 
Sales and service revenues$655 $1,434 $750 $(34)$2,805 
Contract Type
Firm fixed-price$1 $2 $82 $— $85 
Fixed-price incentive586 788 2 — 1,376 
Cost-type66 643 593 — 1,302 
Time and materials— — 42 — 42 
Intersegment2 1 31 (34)— 
Sales and service revenues$655 $1,434 $750 $(34)$2,805 

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


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Three Months Ended
March 31
($ in millions)20242023
Major Programs
Amphibious assault ships$352 $323 
Surface combatants and coast guard cutters300 253 
Other3 1 
Total Ingalls655 577 
Aircraft carriers792 837 
Submarines516 540 
Other126 129 
Total Newport News1,434 1,506 
C5ISR, CEW&S, LVC626 518 
Other124 106 
Total Mission Technologies750 624 
Intersegment eliminations(34)(33)
Sales and service revenues$2,805 $2,674 

As of March 31, 2024, the Company had $48.4 billion of remaining performance obligations. The Company expects to recognize approximately 40% 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
March 31
($ in millions, except per share amounts)20242023
Effect on operating income$2 $9 
Effect on diluted earnings per share$0.03 $0.17 

For the three months ended March 31, 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 months ended March 31, 2024, no individual unfavorable cumulative catch-up revenue adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.

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

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)March 31, 2024December 31, 2023
Contract assets$1,661 $1,537 
Contract liabilities936 1,063 
Net contract assets$725 $474 


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The Company’s net contract assets increased $251 million from December 31, 2023, to March 31, 2024, primarily resulting from an increase in contract assets related to revenue on certain U.S. Navy contracts. For the three months ended March 31, 2024, the Company recognized revenue of $641 million related to its contract liabilities as of December 31, 2023. For the three months ended March 31, 2023, the Company recognized revenue of $551 million related to its contract liabilities as of December 31, 2022.

7. SEGMENT INFORMATION

The following table presents segment results for the three months ended March 31, 2024 and 2023:
 Three Months Ended
March 31
($ in millions)20242023
Sales and Service Revenues
Ingalls$655 $577 
Newport News1,434 1,506 
Mission Technologies750 624 
Intersegment eliminations(34)(33)
Sales and service revenues$2,805 $2,674 
Operating Income
Ingalls$60 $55 
Newport News82 84 
Mission Technologies28 17 
Segment operating income170 156 
Non-segment factors affecting operating income
Operating FAS/CAS Adjustment(17)(19)
Non-current state income taxes1 4 
Operating income $154 $141 

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").

The following table presents the Company's assets by segment:
($ in millions)March 31, 2024December 31, 2023
Assets
Ingalls$1,674 $1,619 
Newport News4,846 4,612 
Mission Technologies3,219 3,161 
Corporate1,428 1,823 
Total assets$11,167 $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 March 31, 2024 and 2023, were 16.8% and 20.9%, respectively. The lower effective tax rate differed from the federal statutory corporate income tax rate of 21% for the three months ended March 31, 2024, 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 during the three months ended March 31, 2024. As of March 31, 2024, the estimated amounts of the Company's unrecognized tax benefits, excluding interest and

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penalties, were liabilities of $100 million. Assuming a sustainment of these tax positions, a reversal of $78 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 months ended March 31, 2024, interest resulting from the unrecognized tax benefits noted above increased income tax expense by $1 million.
Non-current state income taxes include deferred state income taxes, which reflect the change in deferred state tax assets and liabilities and the tax expense or benefit associated with changes in 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 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.

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 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 three months ended March 31, 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.


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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 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 sites where it has been named a Potentially Responsible Party by the Environmental Protection Agency or similarly designated by another environmental agency, and the related costs can be estimated by management. These accruals do not include any litigation costs related to environmental matters, nor do they include amounts recorded as asset retirement obligations. Management estimates that as of March 31, 2024, 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, 2024, the Company had $12 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 - The Company has been in negotiations with a Mission Technologies customer since January 2023 to address issues related to a manufacturing contract, and the parties reached an agreement to settle the matter. The Company has recorded losses relating to the contract that were not material to the Company's consolidated financial position, results of operations, or cash flows.

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


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Collective Bargaining Agreements - Of the Company's more than 44,000 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.

11. EMPLOYEE PENSION AND OTHER POSTRETIREMENT BENEFITS

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

The costs of the Company's defined benefit pension plans and other postretirement benefit plans for the three months ended March 31, 2024 and 2023, were as follows:
 Three Months Ended
March 31
Pension BenefitsOther Benefits
($ in millions)2024202320242023
Components of net periodic benefit cost
Service cost$27 $28 $1 $1 
Interest cost80 86 5 5 
Expected return on plan assets(134)(132) — 
Amortization of prior service cost (credit)4 4 (1)(1)
Amortization of net actuarial loss (gain)5 4 (3)(3)
Net periodic benefit (income) cost$(18)$(10)$2 $2 

The Company made the following contributions to its defined benefit pension plans and other postretirement benefit plans for the three months ended March 31, 2024 and 2023:
 Three Months Ended
March 31
($ in millions)20242023
Pension plans
Discretionary
Qualified$ $— 
Non-qualified3 2 
Other benefit plans7 8 
Total contributions$10 $10 

As of March 31, 2024, the Company anticipates no further significant cash contributions to its qualified defined benefit pension plans in 2024.

12. STOCK COMPENSATION PLANS

During the three months ended March 31, 2024 and 2023, the Company issued new stock awards as follows:

Restricted Performance Stock Rights - For the three months ended March 31, 2024, the Company granted approximately 0.1 million RPSRs at a weighted average share price of $288.33. These rights are subject to cliff vesting on December 31, 2026. For the three months ended March 31, 2023, the Company granted approximately 0.1 million RPSRs at a weighted average share price of $215.20. These rights are subject to cliff vesting on December 31, 2025. 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.

Restricted Stock Rights - For the three months ended March 31, 2024, the Company granted approximately 0.1 million compensation RSRs at a weighted average share price of $288.33. These rights vest 33 1/3% upon each of the first, second, and third anniversaries of the grant date. No compensation RSRs were granted for the three months ended March 31, 2023.


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Retention Restricted Stock Rights - Retention stock awards are granted to key employees primarily to ensure business continuity. For the three months ended March 31, 2024, the Company granted approximately 1,200 retention RSRs at a weighted average share price of $288.53, with cliff vesting one to two years from the grant date. For the three months ended March 31, 2023, the Company granted approximately 5,000 retention RSRs at a weighted average share price of $211.66, with cliff vesting two to three years from the grant date.

The Company also received transfers of stock awards from employees in satisfaction of tax withholding obligations associated with the vesting of stock awards during the period. Because the stock awards are surrendered in lieu of payments of cash to settle tax obligations and the stock is not issued, the Company does not account for these transfers as treasury stock.

The following table summarizes the status of the Company's outstanding stock awards as of March 31, 2024:
Stock Awards
(in thousands)
Weighted-Average
Grant Date Fair
Value
Weighted-Average Remaining Contractual Term
(in years)
Total stock awards545 $221.58 1.4

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 $14 million and $12 million for the three months ended March 31, 2024 and 2023, respectively.

The Company recorded tax benefits related to stock awards of $3 million and $2 million for the three months ended March 31, 2024 and 2023, respectively. The Company recognized tax benefits associated with the issuance of stock in settlement of stock awards of $8 million and $3 million for the three months ended March 31, 2024 and 2023, respectively.

Unrecognized Compensation Expense

As of March 31, 2024, the Company had $21 million of unrecognized compensation expense associated with RSRs granted in 2024, 2023, and 2022, which will be recognized over a weighted average period of approximately 1.8 years, and $51 million of unrecognized compensation expense associated with RPSRs granted in 2024, 2023, and 2022, which will be recognized over a weighted average period of 1.6 years.


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

OVERVIEW

Our Business

Huntington Ingalls Industries, Inc. ("HII", "we", "us", or "our") is a global, all-domain defense partner, building and delivering the world’s most powerful, survivable naval ships and technologies that safeguard America’s seas, sky, land, space, and cyber. For more than a century, our Ingalls Shipbuilding segment ("Ingalls") in Mississippi and Newport News Shipbuilding segment ("Newport News") in Virginia have built more ships in more ship classes than any other U.S. naval shipbuilder, making us America's largest shipbuilder. Our Mission Technologies segment develops integrated technology solutions and products that enable today's connected, all-domain force. Headquartered in Newport News, Virginia, we employ over 44,000 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;

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defensive and offensive cyberspace strategies and electronic warfare; unmanned autonomous systems; live, virtual, and constructive training solutions ("LVC"); fleet sustainment; and critical nuclear operations.

The following discussion should be read along with the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year ended December 31, 2023 (our "2023 Annual Report on Form 10-K").

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.

Defense Spending Environment - The National Defense Authorization Act ("NDAA") for fiscal year 2024 was finalized in December 2023, and the fiscal year 2024 budget cycle concluded with the enactment of the Further Consolidated Appropriations Act, 2024 (the "Act") on March 23, 2024. Final defense appropriations broadly supported shipbuilding programs, including funding for two Arleigh Burke class (DDG 51) destroyers, two Virginia class (SSN 774) attack submarines, and one Columbia class (SSBN 826) ballistic submarine. Additionally, the appropriations measure provided $500 million for advance procurement ("AP") funding for LPD-33, additional AP funding for a third DDG-51 in fiscal year 2025, and funding for Ford class (CVN 78) nuclear aircraft carrier programs. The Act also provides funding for the submarine industrial base and large surface combatant shipyard infrastructure and authorizes the Navy to enter into a multi-year procurement contract for Virginia class (SSN 774) submarines.

The President submitted the fiscal year 2025 budget request on March 11, 2024, which is now under consideration by Congress. The budget request reflects continued investment in shipbuilding, funding two Arleigh Burke class (DDG 51) surface combatants, one San Antonio class (LPD 17) amphibious warship, and the lead Block VI Virginia class (SSN 774) submarine, which is proposed to be executed as a multiyear procurement. Additionally, the budget request continues funding for Ford class (CVN 78) nuclear aircraft carriers and the first of three years of full funding for the refueling and complex overhaul of USS Harry S. Truman (CVN 75). The budget request continues investment in the submarine industrial base and research and development on next generation large surface combatants (DDG(X)) and nuclear submarines (SSN(X)).

Global Geopolitical and Economic Environment - The global geopolitical and economic environment continues to be impacted by uncertainty, heightened geopolitical tensions, and instability. Geopolitical relationships continue 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.

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 2023 Annual Report on Form 10-K.

Critical Accounting Policies, Estimates, and Judgments

As discussed in our 2023 Annual Report on Form 10-K, we consider our policies relating to the following matters to be critical accounting policies and estimates:

Revenue recognition;

Retirement related benefit plans; and

Workers' compensation.

As of March 31, 2024, there had been no material changes to the foregoing critical accounting policies, estimates, and judgments since December 31, 2023.

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Program Descriptions

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

CONSOLIDATED OPERATING RESULTS

The following table presents selected financial highlights:
Three Months Ended
March 31
 2024 vs. 2023
($ in millions)20242023DollarsPercent
Sales and service revenues$2,805 $2,674 $131 %
Cost of product sales and service revenues2,430 2,324 106 %
Income from operating investments, net12 12 — — %
Other income and gains (losses), net(1)(1)— — %
General and administrative expenses232 220 12 %
Operating income154 141 13 %
Other income (expense)
Interest expense(21)(24)13 %
Non-operating retirement benefit44 37 19 %
Other, net7 (2)(22)%
Federal and foreign income taxes31 34 (3)(9)%
Net earnings$153 $129 $24 19 %

Operating Performance Assessment and Reporting

We manage and assess the performance of our business based on our performance on individual contracts and programs using the financial measures referred to below, with consideration given to the Critical Accounting Policies, Estimates, and Judgments referred to in this section. Our portfolio of long-term contracts is largely flexibly-priced. Therefore, sales tend to fluctuate in concert with costs across our large portfolio of active contracts, with operating income being a critical measure of operating performance. Under FAR rules that govern our business with the U.S. Government, most types of costs are allowable, and we do not focus on individual cost groupings, such as cost of sales or general and administrative expenses, as much as we do on total contract costs, which are a key factor in determining contract operating income. As a result, in evaluating our operating performance, we look primarily at changes in sales and service revenues, as well as operating income, including the effects of significant changes in operating income as a result of changes in contract financial estimates and the use of the cumulative catch-up method of accounting in accordance with GAAP. This approach is consistent with the long-term life cycle of our contracts, as management assesses the bidding of each contract by focusing on net sales and operating profit and monitors performance in a similar manner through contract completion. Consequently, our discussion of business segment performance focuses on net sales and operating profit, consistent with our approach for managing our business.

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, 2024, increased $131 million, or 5%, compared to the same period in 2023, primarily due to higher volumes at Mission Technologies.


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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.

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, 2024, increased $12 million from the same period in 2023, primarily due to higher overhead costs.

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 contract 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
 2024 vs. 2023
($ in millions)20242023DollarsPercent
Operating income$154 $141 $13 %
Operating FAS/CAS Adjustment17 19 (2)(11)%
Non-current state income taxes(1)(4)75 %
Segment operating income$170 $156 $14 %


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FAS/CAS Adjustment and Operating FAS/CAS Adjustment

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

The components of the Operating FAS/CAS Adjustment were as follows:
Three Months Ended
March 31
 2024 vs. 2023
($ in millions)20242023DollarsPercent
FAS benefit$16 $$100 %
CAS cost11 10 10 %
FAS/CAS Adjustment27 18 50 %
Non-operating retirement benefit(44)(37)(7)(19)%
Operating FAS/CAS Adjustment expense$(17)$(19)$11 %

The Operating FAS/CAS Adjustment was a net expense of $17 million and $19 million for the three months ended March 31, 2024 and 2023, respectively. The favorable change was primarily driven by demographic assumptions, offset by lower 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 $1 million and $4 million for the three months ended March 31, 2024 and 2023, respectively. The unfavorable change was driven by an increase in deferred state income tax expense, primarily attributable to a change in net capitalized research and development expenditures and the timing of long-term contract income for tax purposes.


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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.

The following table presents segment operating results:
Three Months Ended
March 31
 2024 vs. 2023
($ in millions)20242023DollarsPercent
Sales and Service Revenues
Ingalls$655 $577 $78 14 %
Newport News1,434 1,506 (72)(5)%
Mission Technologies
750 624 126 20 %
Intersegment eliminations(34)(33)(1)(3)%
Sales and service revenues$2,805 $2,674 $131 %
Operating Income
Ingalls$60 $55 $%
Newport News82 84 (2)(2)%
Mission Technologies
28 17 11 65 %
Segment operating income170 156 14 %
Non-segment factors affecting operating income
Operating FAS/CAS Adjustment(17)(19)11 %
Non-current state income taxes1 (3)(75)%
Operating income$154 $141 $13 %

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") on a contract, which 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.

Net Cumulative Catch-up Revenue Adjustments

For the three months ended March 31, 2024 and 2023, favorable and unfavorable cumulative catch-up revenue adjustments were as follows:
Three Months Ended
March 31
 
($ in millions)20242023
Gross favorable adjustments$55 $64 
Gross unfavorable adjustments(53)(55)
Net adjustments$2 $


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For the three months ended March 31, 2024 and 2023, net cumulative catch-up revenue adjustments by segment were as follows:
Three Months Ended
March 31
 
($ in millions)20242023
Ingalls$13 $14 
Newport News(12)(9)
Mission Technologies1 
Net adjustments$2 $

Ingalls
Three Months Ended
March 31
 2024 vs. 2023
($ in millions)20242023DollarsPercent
Sales and service revenues$655 $577 $78 14 %
Segment operating income60 55 %
As a percentage of segment sales9.2 %9.5 %

Sales and Service Revenues

Ingalls revenues, including intersegment sales, for the three months ended March 31, 2024, increased $78 million, or 14%, from the same period in 2023, primarily driven by higher volumes in surface combatants and amphibious assault ships, partially offset by lower volumes in the Legend class National Security Cutter ("NSC") program.

Segment Operating Income

Ingalls segment operating income for the three months ended March 31, 2024, was $60 million, compared to segment operating income of $55 million for the same period in 2023. The increase was primarily driven by the changes in volume described above.

Newport News
Three Months Ended
March 31
 2024 vs. 2023
($ in millions)20242023DollarsPercent
Sales and service revenues$1,434 $1,506 $(72)(5)%
Segment operating income82 84 (2)(2)%
As a percentage of segment sales5.7 %5.6 %

Sales and Service Revenues

Newport News revenues, including intersegment sales, for the three months ended March 31, 2024, decreased $72 million, or 5%, from the same period in 2023, primarily driven by lower volumes in aircraft carriers and the Virginia class (SSN 774) submarine program.

Segment Operating Income

Newport News segment operating income for the three months ended March 31, 2024, was $82 million, compared to segment operating income of $84 million for the same period in 2023. The decrease was primarily driven by the changes in volume described above.


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Mission Technologies
Three Months Ended
March 31
 2024 vs. 2023
($ in millions)20242023DollarsPercent
Sales and service revenues$750 $624 $126 20 %
Segment operating income28 17 11 65 %
As a percentage of segment sales3.7 %2.7 %

Sales and Service Revenues

Mission Technologies revenues, including intersegment sales, for the three months ended March 31, 2024, increased $126 million, or 20%, from the same period in 2023, primarily due to higher volumes in C5ISR and cyber, electronic warfare & space ("CEW&S").

Segment Operating Income

Mission Technologies segment operating income for the three months ended March 31, 2024, was $28 million, compared to segment operating income of $17 million for the same period in 2023. The increase was primarily driven by the higher volumes described above.

PRODUCT AND SERVICE REVENUES AND COST ANALYSIS

The following table presents segment sales and service revenues and segment cost of sales and service revenues by both product and service:
Sales and Service RevenuesSegment Cost of Product Sales and Service Revenues
($ in millions)Three Months Ended
March 31
2024 vs. 2023Three Months Ended
March 31
2024 vs. 2023
Segment Information20242023DollarsPercent20242023DollarsPercent
Ingalls
Product$586 $534 $52 10 %$491 $440 $51 12 %
Service67 41 26 63 %58 34 24 71 %
Intersegment2 — — %2 — — %
Total Ingalls655 577 78 14 %551 476 75 16 %
Newport News
Product1,176 1,271 (95)(7)%1,001 1,092 (91)(8)%
Service257 234 23 10 %212 198 14 %
Intersegment1 — — %1 — — %
Total Newport News1,434 1,506 (72)(5)%1,214 1,291 (77)(6)%
Mission Technologies
Product25 24 %31 20 11 55 %
Service694 570 124 22 %620 521 99 19 %
Intersegment31 30 %31 30 %
Total Mission Technologies750 624 126 20 %682 571 111 19 %
Segment Totals
Product$1,787 $1,829 $(42)(2)%$1,523 $1,552 $(29)(2)%
Service1,018 845 173 20 %890 753 137 18 %
Total Segment1
$2,805 $2,674 $131 %$2,413 $2,305 $108 %
1 Operating FAS/CAS Adjustment is excluded from segment cost of product sales and service revenues.


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Product Sales and Segment Cost of Product Sales

Product sales for the three months ended March 31, 2024, decreased $42 million, or 2%, from the same period in 2023, primarily as a result of lower volumes at Newport News in aircraft carriers and the Virginia class (SSN 774) submarine program, partially offset by higher volumes at Ingalls in amphibious assault ships and surface combatants.

Segment cost of product sales for the three months ended March 31, 2024, decreased $29 million, or 2%, compared with the same period in 2023, consistent with the lower product sales described above.

Service Revenues and Segment Cost of Service Revenues

Service revenues for the three months ended March 31, 2024, increased $173 million, or 20%, from the same period in 2023, primarily as a result of higher volumes at Mission Technologies in C5ISR and CEW&S.

Segment cost of service revenues for the three months ended March 31, 2024, increased $137 million, or 18%, compared with the same period in 2023, consistent with the higher service volumes described above.

OTHER FINANCIAL INFORMATION

Interest Expense

Interest expense for the three months ended March 31, 2024, was $21 million, compared with $24 million for the same period in 2023. The decrease was driven by a decrease in outstanding long-term debt from the prior year period.

Non-Operating Retirement Benefit

The non-operating retirement benefit includes the following components of net periodic benefit costs: interest cost, expected return on plan assets, amortization of prior service cost (credit) and actuarial loss (gain), and settlement and curtailment effects.

For the three months ended March 31, 2024, the non-operating retirement benefit was $44 million, compared with $37 million for the same period in 2023. The favorable change was primarily driven by higher 2023 returns on plan assets.

Other, Net

Other, net income for the three months ended March 31, 2024, was $7 million, compared with other, net income of $9 million for the same period in 2023. The decrease was primarily driven by lower 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, 2024 and 2023, were 16.8% and 20.9%, respectively. The lower effective tax rate differed from the federal statutory corporate income tax rate of 21% for the three months ended March 31, 2024, primarily due to research and development tax credits and income tax benefits associated with stock award settlement activity.

BACKLOG

Total backlog as of March 31, 2024, and December 31, 2023, was $48.4 billion and $48.1 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, 2024, and December 31, 2023: 
 March 31, 2024December 31, 2023
($ in millions)FundedUnfundedTotal BacklogFundedUnfundedTotal Backlog
Ingalls$13,133