Item 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

						Three Months Ended September 30												Nine Months Ended September 30
(in millions, except per share amounts)						2024						2023						2024						2023
Sales and service revenues
Product sales						$	1,761					$	1,835					$	5,474					$	5,543
Service revenues						988						981						3,057						2,734
Sales and service revenues						2,749						2,816						8,531						8,277
Cost of sales and service revenues
Cost of product sales						1,556						1,541						4,720						4,711
Cost of service revenues						871						859						2,682						2,411
Income from operating investments, net						12						9						35						25
General and administrative expenses						252						253						739						711
Operating income						82						172						425						469
Other income (expense)
Interest expense						(23)						(22)						(68)						(70)
Non-operating retirement benefit						44						37						134						111
Other, net						9						2						21						11
Earnings before income taxes						112						189						512						521
Federal and foreign income tax expense						11						41						85						114
Net earnings						$	101					$	148					$	427					$	407
Basic earnings per share						$	2.56					$	3.70					$	10.81					$	10.18
Weighted-average common shares outstanding						39.5						40.0						39.5						40.0
Diluted earnings per share						$	2.56					$	3.70					$	10.81					$	10.18
Weighted-average diluted shares outstanding						39.5						40.0						39.5						40.0
Dividends declared per share						$	1.30					$	1.24					$	3.90					$	3.72
Net earnings from above						$	101					$	148					$	427					$	407
Other comprehensive income
Change in unamortized benefit plan costs						5						4						14						13
Tax expense for items of other comprehensive income						(2)						(2)						(4)						(4)
Other comprehensive income, net of tax						3						2						10						9
Comprehensive income						$	104					$	150					$	437					$	416

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

HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

($ in millions)						September 30, 2024						December 31, 2023
Assets
Current Assets
Cash and cash equivalents						$	10					$	430
Accounts receivable, net of allowance for expected credit losses of $2 million as of 2024 and $8 million as of 2023						436						461
Contract assets						1,714						1,537
Inventoried costs						205						186
Income taxes receivable						173						183
Prepaid expenses and other current assets						91						83
Total current assets						2,629						2,880
Property, plant, and equipment, net of accumulated depreciation of $2,544 million as of 2024 and $2,467 million as of 2023						3,384						3,296
Operating lease assets						249						262
Goodwill						2,618						2,618
Other intangible assets, net of accumulated amortization of $1,091 million as of 2024 and $1,009 million as of 2023						809						891
Pension plan assets						985						888
Miscellaneous other assets						408						380
Total assets						$	11,082					$	11,215
Liabilities and Stockholders' Equity
Current Liabilities
Trade accounts payable						$	579					$	554
Accrued employees’ compensation						345						382
Short-term debt and current portion of long-term debt						898						231
Current portion of postretirement plan liabilities						129						129
Current portion of workers’ compensation liabilities						224						224
Contract liabilities						743						1,063
Other current liabilities						418						449
Total current liabilities						3,336						3,032
Long-term debt						1,709						2,214
Pension plan liabilities						219						212
Other postretirement plan liabilities						232						241
Workers’ compensation liabilities						448						449
Long-term operating lease liabilities						213						228
Deferred tax liabilities						316						367
Other long-term liabilities						406						379
Total liabilities						6,879						7,122
Commitments and Contingencies (Note 10)
Stockholders’ Equity
Common stock, $0.01 par value; 150,000,000 shares authorized; 53,713,746 shares issued and 39,129,037 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						2,037						2,045
Retained earnings						5,026						4,755
Treasury stock						(2,449)						(2,286)
Accumulated other comprehensive loss						(412)						(422)
Total stockholders’ equity						4,203						4,093
Total liabilities and stockholders’ equity						$	11,082					$	11,215

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

HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

						Nine Months Ended September 30
($ in millions)						2024						2023
Operating Activities:
Net earnings						$	427					$	407
Adjustments to reconcile net cash provided by operating activities:
Depreciation						160						163
Amortization of purchased intangibles						82						96
Other non-cash transactions, net						7						16
Stock-based compensation						15						27
Deferred income taxes						(55)						(81)
Gain on investments in marketable securities						(22)						(10)
Change in
Accounts receivable						31						(62)
Contract assets						(177)						(60)
Inventoried costs						(19)						(12)
Prepaid expenses and other assets						(9)						(66)
Accounts payable and accruals						(354)						45
Retiree benefits						(84)						(55)
Net cash provided by operating activities						2						408
Investing Activities:
Capital expenditures
Capital expenditure additions						(253)						(164)
Grant proceeds for capital expenditures						14						14
Investment in affiliates						—						(24)
Proceeds from equity method investments						—						61
Other investing activities, net						1						2
Net cash used in investing activities						(238)						(111)
Financing Activities:
Repayment of long-term debt						(229)						(455)
Proceeds from revolving credit facility borrowings						42						—
Repayment of revolving credit facility borrowings						(42)						—
Net borrowings on commercial paper						396						—
Debt issuance costs						(7)						—
Dividends paid						(154)						(149)
Repurchases of common stock						(162)						(37)
Employee taxes on certain share-based payment arrangements						(25)						(13)
Other financing activities, net						(3)						(1)
Net cash used in financing activities						(184)						(655)
Change in cash and cash equivalents						(420)						(358)
Cash and cash equivalents, beginning of period						430						467
Cash and cash equivalents, end of period						$	10					$	109
Supplemental Cash Flow Disclosure
Cash paid for income taxes (net of refunds)						$	170					$	227
Cash paid for interest						$	66					$	63
Non-Cash Investing and Financing Activities
Capital expenditures accrued in accounts payable						$	12					$	6

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

HUNTINGTON INGALLS INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

Three Months Ended September 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 June 30, 2023						$	1					$	2,030					$	4,434					$	(2,227)					$	(592)					$	3,646
Net earnings						—						—						148						—						—						148
Dividends declared ($1.24 per share)						—						—						(50)						—						—						(50)
Stock-based compensation						—						8						—						—						—						8
Other comprehensive income, net of tax						—						—						—						—						2						2
Treasury stock activity						—						—						—						(21)						—						(21)
Balance as of September 30, 2023						$	1					$	2,038					$	4,532					$	(2,248)					$	(590)					$	3,733
Balance as of June 30, 2024						$	1					$	2,029					$	4,977					$	(2,414)					$	(415)					$	4,178
Net earnings						—						—						101						—						—						101
Dividends declared ($1.30 per share)						—						—						(52)						—						—						(52)
Stock-based compensation						—						8						—						—						—						8
Other comprehensive income, net of tax						—						—						—						—						3						3
Treasury stock activity						—						—						—						(35)						—						(35)
Balance as of September 30, 2024						$	1					$	2,037					$	5,026					$	(2,449)					$	(412)					$	4,203
Nine Months Ended September 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						—						—						407						—						—						407
Dividends declared ($3.72 per share)						—						—						(149)						—						—						(149)
Stock-based compensation						—						16						(2)						—						—						14
Other comprehensive income, net of tax						—						—						—						—						9						9
Treasury stock activity						—						—						—						(37)						—						(37)
Balance as of September 30, 2023						$	1					$	2,038					$	4,532					$	(2,248)					$	(590)					$	3,733
Balance as of December 31, 2023						$	1					$	2,045					$	4,755					$	(2,286)					$	(422)					$	4,093
Net earnings						—						—						427						—						—						427
Dividends declared ($3.90 per share)						—						—						(154)						—						—						(154)
Stock-based compensation						—						(8)						(2)						—						—						(10)
Other comprehensive income, net of tax						—						—						—						—						10						10
Treasury stock activity						—						—						—						(163)						—						(163)
Balance as of September 30, 2024						$	1					$	2,037					$	5,026					$	(2,449)					$	(412)					$	4,203

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

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 $235 million and $220 million as of September 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 September 30, 2024, and December 31, 2023, were $2,146 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 $496 million and $229 million as of September 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.

Debt – In September 2024, the Company amended and restated its existing $1.5 billion credit facility, increasing the capacity thereunder to $1.7 billion and extending the maturity date for five years from signing (the “Second Amended and Restated Revolving Credit Facility”). The Second Amended and Restated Revolving Credit Facility has a variable interest rate on outstanding borrowings based on the Secured Overnight Financing Rate (“SOFR”) plus an interest spread based upon the Company’s credit rating, which may vary between 1.225% and 2.100%. The Second Amended and Restated Revolving Credit Facility also has a commitment fee on unutilized amounts based on the Company’s credit rating, which may vary between 0.125% and 0.300%. The Second Amended and Restated Revolving Credit Facility includes a letter of credit sub-facility of $300 million.

As of September 30, 2024, the Company had not drawn on the Second Amended and Restated Revolving Credit Facility. Based on the Company’s current credit rating, the interest rate spread on drawn amounts would be 1.475% and the commitment fee would be 0.200%.

The Second Amended and Restated Revolving Credit Facility contains customary affirmative and negative covenants and events of default, as well as a financial covenant based on a maximum total leverage ratio. Each of the Company's existing and future material wholly owned domestic subsidiaries, except those that are specifically designated as unrestricted subsidiaries, are and will be guarantors under the Second Amended and Restated Revolving Credit Facility.

Additionally, in September 2024, the Company's borrowing capacity under its commercial paper program increased from $1 billion to $1.7 billion.

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, among other things, 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 on a retrospective basis for annual reporting periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company does not expect the new guidance to have a material impact on its consolidated financial statements.

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 plans to early adopt the new guidance on a retrospective basis for the annual reporting period ending December 31, 2024, and does not expect the new guidance to have a material impact on its consolidated financial statements.

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, or 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 nine months ended September 30, 2024, the Company repurchased 607,841 shares at an aggregate cost of $163 million, including $1 million of accrued excise tax. For the nine months ended September 30, 2023, the Company repurchased 175,555 shares at an aggregate cost of $37 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 $154 million and $149 million for the nine months ended September 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 $412 million and $422 million as of September 30, 2024, and December 31, 2023, respectively.

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

($ in millions)						Benefit Plans						Other						Total
Balance as of June 30, 2023						$	(592)					$	—					$	(592)
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						(2)						—						(2)
Net current period other comprehensive income						2						—						2
Balance as of September 30, 2023						$	(590)					$	—					$	(590)
Balance as of June 30, 2024						$	(415)					$	—					$	(415)
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost1						4						—						4
Amortization of net actuarial loss1						1						—						1
Tax expense for items of other comprehensive income						(2)						—						(2)
Net current period other comprehensive income						3						—						3
Balance as of September 30, 2024						$	(412)					$	—					$	(412)

($ 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						11						—						11
Amortization of net actuarial loss1						2						—						2
Tax expense for items of other comprehensive income						(4)						—						(4)
Net current period other comprehensive income						9						—						9
Balance as of September 30, 2023						$	(590)					$	—					$	(590)
Balance as of December 31, 2023						$	(422)					$	—					$	(422)
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost1						11						—						11
Amortization of net actuarial loss1						3						—						3
Tax expense for items of other comprehensive income						(4)						—						(4)
Net current period other comprehensive income						10						—						10
Balance as of September 30, 2024						$	(412)					$	—					$	(412)

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 each of the three months ended September 30, 2024 and 2023, was $2 million. The tax expense recorded in stockholders' equity for the amounts reclassified from accumulated other comprehensive loss for each of the nine months ended September 30, 2024 and 2023, was $4 million.

5. EARNINGS PER SHARE

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

						Three Months Ended September 30												Nine Months Ended September 30
(in millions, except per share amounts)						2024						2023						2024						2023
Net earnings						$	101					$	148					$	427					$	407
Weighted-average common shares outstanding						39.5						40.0						39.5						40.0
Net dilutive effect of stock awards						—						—						—						—
Dilutive weighted-average common shares outstanding						39.5						40.0						39.5						40.0
Earnings per share - basic						$	2.56					$	3.70					$	10.81					$	10.18
Earnings per share - diluted						$	2.56					$	3.70					$	10.81					$	10.18

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 nine months ended September 30, 2024, and 0.4 million RPSRs for each of the three and nine months ended September 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.

The following tables present revenues on a disaggregated basis:

						Three Months Ended September 30, 2024
($ in millions)						Ingalls						Newport News						Mission Technologies						Intersegment Eliminations						Total
Revenue Type
Product sales						$	569					$	1,163					$	29					$	—					$	1,761
Service revenues						93						249						646						—						988
Intersegment						2						—						34						(36)						—
Sales and service revenues						$	664					$	1,412					$	709					$	(36)					$	2,749
Customer Type
Federal						$	662					$	1,412					$	673					$	—					$	2,747
Commercial						—						—						2						—						2
Intersegment						2						—						34						(36)						—
Sales and service revenues						$	664					$	1,412					$	709					$	(36)					$	2,749
Contract Type
Firm fixed-price						$	—					$	1					$	83					$	—					$	84
Fixed-price incentive						568						753						3						—						1,324
Cost-type						94						658						543						—						1,295
Time and materials						—						—						46						—						46
Intersegment						2						—						34						(36)						—
Sales and service revenues						$	664					$	1,412					$	709					$	(36)					$	2,749

						Three Months Ended September 30, 2023
($ in millions)						Ingalls						Newport News						Mission Technologies						Intersegment Eliminations						Total
Revenue Type
Product sales						$	637					$	1,170					$	28					$	—					$	1,835
Service revenues						73						281						627						—						981
Intersegment						1						2						30						(33)						—
Sales and service revenues						$	711					$	1,453					$	685					$	(33)					$	2,816
Customer Type
Federal						$	710					$	1,451					$	647					$	—					$	2,808
Commercial						—						—						7						—						7
State and local government agencies						—						—						1						—						1
Intersegment						1						2						30						(33)						—
Sales and service revenues						$	711					$	1,453					$	685					$	(33)					$	2,816
Contract Type
Firm fixed-price						$	—					$	1					$	77					$	—					$	78
Fixed-price incentive						637						779						3						—						1,419
Cost-type						73						671						521						—						1,265
Time and materials						—						—						54						—						54
Intersegment						1						2						30						(33)						—
Sales and service revenues						$	711					$	1,453					$	685					$	(33)					$	2,816

						Nine Months Ended September 30, 2024
($ in millions)						Ingalls						Newport News						Mission Technologies						Intersegment Eliminations						Total
Revenue Type
Product sales						$	1,786					$	3,602					$	86					$	—					$	5,474
Service revenues						240						777						2,040						—						3,057
Intersegment						5						2						98						(105)						—
Sales and service revenues						$	2,031					$	4,381					$	2,224					$	(105)					$	8,531
Customer Type
Federal						$	2,026					$	4,378					$	2,120					$	—					$	8,524
Commercial						—						1						5						—						6
State and local government agencies						—						—						1						—						1
Intersegment						5						2						98						(105)						—
Sales and service revenues						$	2,031					$	4,381					$	2,224					$	(105)					$	8,531
Contract Type
Firm fixed-price						$	2					$	5					$	250					$	—					$	257
Fixed-price incentive						1,784						2,353						8						—						4,145
Cost-type						240						2,021						1,735						—						3,996
Time and materials						—						—						133						—						133
Intersegment						5						2						98						(105)						—
Sales and service revenues						$	2,031					$	4,381					$	2,224					$	(105)					$	8,531

						Nine Months Ended September 30, 2023
($ in millions)						Ingalls						Newport News						Mission Technologies						Intersegment Eliminations						Total
Revenue Type
Product sales						$	1,775					$	3,688					$	80					$	—					$	5,543
Service revenues						171						777						1,786						—						2,734
Intersegment						6						3						88						(97)						—
Sales and service revenues						$	1,952					$	4,468					$	1,954					$	(97)					$	8,277
Customer Type
Federal						$	1,946					$	4,465					$	1,836					$	—					$	8,247
Commercial						—						—						29						—						29
State and local government agencies						—						—						1						—						1
Intersegment						6						3						88						(97)						—
Sales and service revenues						$	1,952					$	4,468					$	1,954					$	(97)					$	8,277
Contract Type
Firm fixed-price						$	2					$	3					$	236					$	—					$	241
Fixed-price incentive						1,776						2,432						4						—						4,212
Cost-type						168						2,030						1,464						—						3,662
Time and materials						—						—						162						—						162
Intersegment						6						3						88						(97)						—
Sales and service revenues						$	1,952					$	4,468					$	1,954					$	(97)					$	8,277

						Three Months Ended September 30												Nine Months Ended September 30
($ in millions)						2024						2023						2024						2023
Major Programs
Amphibious assault ships						$	358					$	396					$	1,123					$	1,093
Surface combatants and coast guard cutters						304						313						901						853
Other						2						2						7						6
Total Ingalls						664						711						2,031						1,952
Aircraft carriers						768						782						2,391						2,447
Submarines						522						515						1,601						1,592
Other						122						156						389						429
Total Newport News						1,412						1,453						4,381						4,468
C5ISR, CEW&S, LVC						593						567						1,857						1,609
Other						116						118						367						345
Total Mission Technologies						709						685						2,224						1,954
Intersegment eliminations						(36)						(33)						(105)						(97)
Sales and service revenues						$	2,749					$	2,816					$	8,531					$	8,277

As of September 30, 2024, the Company had $49.4 billion of remaining performance obligations. The Company expects to recognize approximately 30% 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 September 30												Nine Months Ended September 30
($ in millions, except per share amounts)						2024						2023						2024						2023
Effect on operating income						$	(72)					$	21					$	(46)					$	50
Effect on diluted earnings per share						$	(1.42)					$	0.41					$	(0.91)					$	0.99

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 and nine months ended September 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 months ended September 30, 2024, cumulative catch-up revenue adjustments included unfavorable adjustments of $34 million on Block IV of the Virginia class (SSN 774) submarine program, $14 million on the refueling and complex overhaul ("RCOH") of USS John C. Stennis (CVN 74), and $16 million on the construction of Enterprise (CVN 80) and Doris Miller (CVN 81) at the Company's Newport News segment. For the nine months ended September 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 nine months ended September 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 nine months ended September 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.

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)						September 30, 2024						December 31, 2023
Contract assets						$	1,714					$	1,537
Contract liabilities						743						1,063
Net contract assets						$	971					$	474

The Company’s net contract assets increased $497 million from December 31, 2023, to September 30, 2024, primarily as a result of the timing of billings across programs on certain U.S. Navy contracts. For the three and nine months ended September 30, 2024, the Company recognized revenue of $6 million and $930 million, respectively, related to its contract liabilities as of December 31, 2023. For the three and nine months ended September 30, 2023, the Company recognized revenue of $5 million and $678 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 nine months ended September 30, 2024 and 2023:

						Three Months Ended September 30												Nine Months Ended September 30
($ in millions)						2024						2023						2024						2023
Sales and Service Revenues
Ingalls						$	664					$	711					$	2,031					$	1,952
Newport News						1,412						1,453						4,381						4,468
Mission Technologies						709						685						2,224						1,954
Intersegment eliminations						(36)						(33)						(105)						(97)
Sales and service revenues						$	2,749					$	2,816					$	8,531					$	8,277
Operating Income
Ingalls						$	49					$	73					$	165					$	193
Newport News						15						90						208						269
Mission Technologies						33						24						97						50
Segment operating income						97						187						470						512
Non-segment factors affecting operating income
Operating FAS/CAS Adjustment						(16)						(19)						(48)						(55)
Non-current state income taxes						1						4						3						12
Operating income						$	82					$	172					$	425					$	469

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)						September 30, 2024						December 31, 2023
Assets
Ingalls						$	1,652					$	1,619
Newport News						4,779						4,612
Mission Technologies						3,122						3,161
Corporate						1,529						1,823
Total assets						$	11,082					$	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 September 30, 2024 and 2023, were 9.8% and 21.7%, respectively. For the nine months ended September 30, 2024 and 2023, the Company's effective income tax rates on earnings from operations were 16.6% and 21.9%, respectively. The lower effective tax rate for the three months ended September 30, 2024, was primarily attributable to current and prior period research and development tax credits recorded in the current period. The lower effective tax rate for the nine months ended September 30, 2024, was primarily attributable to current and prior period research and development tax credits recorded in the current period and to a taxable gain associated with the sale of the Company’s interest in an unconsolidated ship repair and specialty fabrication joint venture recorded in 2023.

For each of the three and nine months ended September 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 current and prior periods.

The Company's unrecognized tax benefits increased by $5 million and $9 million during the three and nine months ended September 30, 2024, respectively. As of September 30, 2024, the estimated amounts of the Company's unrecognized tax benefits, excluding interest and penalties, were liabilities of $107 million. Assuming a sustainment of these tax positions, a reversal of $83 million of the accrued amounts would favorably affect the Company's effective federal income tax rate in future periods.

The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense. For the three and nine months ended September 30, 2024, interest resulting from the unrecognized tax benefits noted above increased income tax expense by $1 million and $4 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 - In October 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, and the plaintiffs have appealed the District Court dismissal to the Fourth Circuit Court of Appeals.

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.

During the third quarter, the Company identified certain quality issues involving noncompliance with welding procedures at Newport News. The Company has commenced an investigation and disclosed the matter to the U.S. Government. The Company is working with its U.S. Navy customer to evaluate the full extent of the matter and its potential impact on operations. Based upon the early stage of the Company’s investigation, the Company cannot at this time predict or reasonably estimate the outcome of this matter, including its financial impact.

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 nine months ended September 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, 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, claims, and requests for equitable adjustment will be resolved without material negative 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 September 30, 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 September 30, 2024, the Company had $11 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 began negotiations with a Mission Technologies customer in January 2023 to address issues related to a manufacturing contract, and the parties settled the matter in May 2024. 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.

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 and nine months ended September 30, 2024 and 2023, were as follows:

						Three Months Ended September 30																								Nine Months Ended September 30
						Pension Benefits												Other Benefits												Pension Benefits												Other Benefits
($ in millions)						2024						2023						2024						2023						2024						2023						2024						2023
Components of net periodic benefit cost
Service cost						$	28					$	28					$	1					$	1					$	82					$	84					$	4					$	4
Interest cost						80						85						5						6						241						257						14						16
Expected return on plan assets						(134)						(132)						—						—						(403)						(397)						—						—
Amortization of prior service cost (credit)						4						4						—						(1)						12						13						(1)						(2)
Amortization of net actuarial loss (gain)						4						5						(3)						(4)						13						13						(10)						(11)
Net periodic benefit (income) cost						$	(18)					$	(10)					$	3					$	2					$	(55)					$	(30)					$	7					$	7

The Company made the following contributions to its defined benefit pension plans and other postretirement benefit plans for the nine months ended September 30, 2024 and 2023:

						Nine Months Ended September 30
($ in millions)						2024						2023
Pension plans
Discretionary
Qualified						$	—					$	—
Non-qualified						9						9
Other benefit plans						27						23
Total contributions						$	36					$	32

As of September 30, 2024, the Company anticipates no further significant cash contributions to its qualified defined benefit pension plans in 2024.

12. STOCK COMPENSATION PLANS

During the nine months ended September 30, 2024 and 2023, the Company issued new stock awards as follows:

Restricted Performance Stock Rights - For the nine months ended September 30, 2024, the Company granted approximately 0.1 million RPSRs at a weighted average share price of $288.26. These rights are subject to cliff vesting on December 31, 2026. For the nine months ended September 30, 2023, the Company granted approximately 0.2 million RPSRs at a weighted average share price of $215.13. 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.

Compensation Restricted Stock Rights - For the nine months ended September 30, 2024, the Company granted approximately 0.1 million compensation RSRs at a weighted average share price of $287.91. 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 nine months ended September 30, 2023.

Retention Restricted Stock Rights - Retention stock awards are granted to key employees primarily to incentivize continued employment with the Company. For the nine months ended September 30, 2024, the Company granted approximately 2,200 retention RSRs at a weighted average share price of $281.01, with cliff vesting one to two years from the grant date. For the nine months ended September 30, 2023, the Company granted approximately 9,400 retention RSRs at a weighted average share price of $213.37, 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 September 30, 2024:

						Stock Awards (in thousands)						Weighted-Average Grant Date Fair Value						Weighted-Average Remaining Contractual Term (in years)
Total stock awards						546						$	221.91					1.0