2 0 2 2 A N N U A L R E P O R T
DELIVERING
THE ALL-DOMAIN
ADVANTAGE
VIS ION
Be the global leader in advancing national security and
driving sustained value and opportunity for our customers,
employees, shareholders, communities and suppliers, in
accordance with our values.
M ISS ION
To deliver the world’s most powerful ships and all-domain
solutions in service of the nation, creating the advantage
for our customers to protect peace and freedom around
the world.
VALU ES
Integrity, Safety, Respect, Engagement, Responsibility
and Performance
Ingalls Shipbuilding was awarded a $10.5 million contract for the modernization period
planning of Zumwalt-class guided missile destroyers, USS Zumwalt (DDG 1000) and
USS Michael Monsoor (DDG 1001).
INGALLS SHIPBUILDINGMISSION TECHNOLOGIESNEWPORT NEWS SHIPBULDING CAN WE GET THIS IMAGE?
CAN WE GET THIS IMAGE?
HII is a global, all-domain defense provider. HII’s
mission is to deliver the world’s most powerful ships
and all-domain solutions in service of the nation,
creating the advantage for our customers to protect
peace and freedom around the world.
As the nation’s largest military shipbuilder, and
with a more than 135-year history of advancing U.S.
national security, HII delivers critical capabilities
extending from ships to unmanned systems, cyber,
ISR, AI/ML and synthetic training. Headquartered
in Virginia, HII’s workforce is 43,000 strong. For more
information, visit HII.com.
1
To our shareholders,
employees, customers,
suppliers and communities:
At HII, we remain steadfast in our mission to build and deliver the
world’s most powerful ships and all-domain solutions in service of
the nation, creating the advantage for our customers to protect
peace and freedom around the world.
In 2022 HII responded to global economic challenges, and the lingering effects of COVID-19,
with special attention to people. Specifically we focused on our longstanding core strength
of training and developing a workforce that adheres to the fundamentals, and builds great
ships. We grew our Mission Technologies business by listening to customers and leading in
the development and delivery of tailored, mission-ready solutions in the areas of unmanned
systems, synthetic training, artificial intelligence and machine learning, critical nuclear
operations, cyber operations and platform modernization. We also capitalized on cross-
division opportunities to leverage our shipyards as testbeds for innovation.
Solid financial performance followed. HII produced $10.7 billion in revenues, a 12.1% increase
over the prior year. The company’s total backlog still remains at a historically high level of
$47.1 billion as of Dec. 31, 2022.
Among the many milestones achieved by HII’s shipbuilding divisions are:
Ingalls Shipbuilding delivered Arleigh Burke-class guided missile destroyer Lenah Sutcliffe
Higbee (DDG 123) and San Antonio-class amphibious transport dock Fort Lauderdale
(LPD 28) to the U.S. Navy.
Ingalls authenticated the keel of amphibious transport dock Harrisburg (LPD 30), guided
missile destroyer Ted Stevens (DDG 128) and destroyer Jeremiah Denton (DDG 129).
Ingalls christened destroyer Jack H. Lucas (DDG 125), national security cutter Calhoun
(WMSL 759) and amphibious transport dock Richard M. McCool Jr. (LPD 29).
Newport News Shipbuilding delivered Virginia-class submarine Montana (SSN 794) to the
U.S. Navy, launched New Jersey (SSN 796) and authenticated the keel of Arkansas (SSN 800).
NNS laid the keel of Ford-class aircraft carrier Enterprise (CVN 80) and completed the first
planned incremental availability for USS Gerald R. Ford (CVN 78).
Mission Technologies also achieved important milestones:
REMUS 300 was selected as the U.S. Navy’s next generation small unmanned underwater
vehicle program of record; the division also unveiled the REMUS 620 UUV. Our Unmanned
Systems business unit now serves customers in more than 30 countries.
The division successfully completed the first contractor-owned, contractor-operated air
combat training mission with the U.S. Air Force in Europe. This training represents a milestone
for contracted adversary air training outside the U.S. and enhances the training readiness
for U.S. Air Forces in Europe/Air Forces Africa.
2
STAKEHOLDER MESSAGE $10.7B
ANNUAL
REVENUE
$47.1B
BACKLOG
Several contracts awarded in 2022 continue to fuel HII’s historic
backlog and position us for future success. Mission Technologies
was awarded an $826 million task order to deliver decisive mission
actions and technology services to U.S. Department of Defense and
a $127 million defense contract for research, development, test and
evaluation of emerging technologies.
Ingalls was awarded $240 million for the advanced procurement for
LPD 32, $2.4 billion to build amphibious assault ship Fallujah (LHA 9)
as well as a design engineering contract for DDG(X) and a combat
systems availability contract for Zumwalt-class destroyer DDG 1002.
It is our people — our team of 43,000 strong — who deliver these
capabilities to our customers in service of the nation. In 2022 HII ranked
11th on Forbes’ list of America’s Best Large Employers. With attention
to future generations, we matured our sustainability strategy last year
with the publication of the HII Sustainability Report. By positioning the
company to foresee and navigate risks and opportunities ahead, we
nourish and protect the strong, stable, resilient relationships on which
HII’s health and growth into the future depend.
On behalf of HII, thank you for your continued support of this mission.
Chris Kastner
President and CEO
Adm. Kirkland H. Donald
U.S. Navy (Ret.)
Chairman of the Board
3
DRIVEN BY RESULTS
OPERATING RESULTS
($ in millions, except per share amounts)
2022
2021
Sales and Service Revenues
$ 10,676
$ 9,524
Operating Income
Segment Operating Income(1)
Segment Operating Margin(1)
Diluted EPS
Net Cash Provided by Operating Activities
Free Cash Flow(2)
565
712
513
683
6.7 %
7.2 %
14.44
13.50
766
494
760
449
(1) Segment operating income and segment operating margin are non-GAAP financial measures that
exclude operating FAS/CAS adjustment and non-current state income taxes. Please see the page that
precedes the back cover of this report for a reconciliation of these measures to GAAP.
(2) Free cash flow is a non-GAAP financial measure defined as net cash provided by operating activities less
capital expenditures net of related grant proceeds. Please see the page that precedes the back cover of
this report for a reconciliation of this measure to GAAP.
HII’S 2022
SHIPBUILDING
MILESTONES
INCLUDE
Ingalls Authenticated
Keel of Destroyer
Jeremiah Denton
(DDG 129)
NNS Ceremoniously
Laid Keel of Aircraft Carrier
Enterprise (CVN 80)
NNS Ceremoniously
Laid the Keel of Virginia-
class Submarine Arkansas
(SSN 800)
Ingalls Christened
Destroyer
Jack H. Lucas
(DDG 125)
(DDG 129)
(CVN 80)
(SSN 800)
(DDG 125)
Ingalls Authenticated
Amphibious Transport Dock
Harrisburg (LPD 30) Keel
Ingalls Authenticated
Keel of Guided Missile
Destroyer Ted Stevens
(DDG 128)
(LPD 30)
(DDG 128)
4
PERFORMANCE $826M
$127M
MISSION TECHNOLOGIES IS AWARDED
$826 MILLION TASK ORDER TO DELIVER
DECISIVE MISSION ACTIONS AND TECHNOLOGY
SERVICES TO U.S. DEPARTMENT OF DEFENSE
MISSION TECHNOLOGIES IS AWARDED
$127 MILLION DEFENSE CONTRACT FOR
RESEARCH, DEVELOPMENT, TEST AND
EVALUATION OF EMERGING TECHNOLOGIES
INGALLS SHIPBUILDING AWARDED DDG(X) DESIGN ENGINEERING CONTRACT
INGALLS SHIPBUILDING AWARDED DDG 1002 COMBAT SYSTEMS AVAILABILITY CONTRACT
MISSION TECHNOLOGIES AWARDED U.S. AIR FORCE CONTRACT TO SUPPORT MOBILITY
AIR FORCE, DISTRIBUTED MISSION OPERATIONS
MISSION TECHNOLOGIES AWARDED TACTICAL TRAINING SYSTEMS CONTRACTS BY THE
NAVAL AIR WARFARE CENTER
$240M
INGALLS AWARDED $240 MILLION ADVANCE
PROCUREMENT CONTRACT FOR LPD 32
$2.4B
INGALLS AWARDED $2.4 BILLION
TO BUILD AMPHIBIOUS
ASSAULT SHIP FALLUJAH (LHA 9)
Ingalls Christened
National Security Cutter
Calhoun (WMSL 759)
Ingalls Christened
Amphibious Transport Dock
Richard M. McCool Jr.
(LPD 29)
NNS Delivered
Virginia-Class Submarine
Montana (SSN 794)
to U.S. Navy
Ingalls Delivered
Amphibious Transport Dock
USS Fort Lauderdale
(LPD 28) to U.S. Navy
Ingalls Delivered Guided
Missile Destroyer
Lenah Sutcliffe Higbee
(DDG 123) to U.S. Navy
(WMSL 759)
(LPD 29)
(SSN 794)
(LPD 28)
(DDG 123)
Ship’s Sponsor Christina Calhoun Zubowicz christened the U.S. Coast Guard’s 10th national security cutter Calhoun (WMSL 759) at Ingalls Shipbuilding.
5
TRAINING AND
GROWING OUR
TALENTED WORKFORCE
In 2022, HII was ranked #11 among large companies on Forbes list
of America’s Best Employers, making it the only aerospace and
defense contractor within the top 40 large companies on the list.
At 43,000 strong, HII’s workforce unites diverse backgrounds
and skill sets, from pipefitters to nuclear physicists to software
coders. Nearly a quarter of HII’s workforce has been with the
company at least 25 years, and more than 1,600 workers have been
employed for at least 40 years. Additionally, HII hires and trains
approximately 4,925 workers each year.
To meet the ongoing national labor market challenges, HII has
aggressively enhanced its skilled workforce development and
broadened recruiting efforts to attract more employees. HII
is also expanding its successful apprenticeship programs in
Virginia and Mississippi. This includes revised curricula, reduction
in completion timelines, a focus on apprenticeships and an
expansion to underserved populations and women in the industry.
6
WORKFORCE 43,000
EMPLOYEES
7,400
VETERANS
7,100
ENGINEERS AND DESIGNERS
HII invests in the communities where our employees
live and work. In 2022, the company contributed more
than $8.4 million in charitable giving to the United Way,
American Red Cross and American Heart Association,
among other nonprofit and charitable organizations.
Shavonda Eure, Newport News Shipbuilding
Ingalls Shipbuilding delivered San Antonio-class amphibious transport
dock USS Fort Lauderdale (LPD 28) to its U.S. Navy customer in March.
HII hosted commencement
exercises for 170 graduates of the
company’s Apprentice School at
Newport News Shipbuilding.
7
HII’S VALUES IN ACTION
IN AND OUTSIDE OUR COMPANY
At HII, we are committed to living our values in every aspect of how we do business: in
serving and championing the success of our people and communities, the security of
our nation and environment, and the future of freedom worldwide. These commitments
honor our interconnectedness with our employees, customers, shareholders, suppliers,
and communities. They also reflect our deep sense of responsibility to understand and
anticipate our stakeholders’ needs and priorities in service of our shared future.
By taking meaningful steps to foresee risks and opportunities ahead, and by
positioning the company to navigate them, we nourish and protect the strong,
stable, resilient relationships upon which HII’s health and growth into the future
depend. As the company grows, innovation develops, and our capabilities
continue to evolve and expand to serve customer needs, the trust and service
at the heart of our company remain steadfast.
Our culture of engagement and respect, continuous improvement to drive
performance and safety, and our commitment to uphold with integrity our
highest responsibilities to employees, customers, and shareholders, keeps
us on a steady course.
Appointed HII’s first chief sustainability officer
Ongoing work to develop sustainability program and future reporting
Recognized as one of America’s best large employers
Sustainability program aligned with our core values and our
commitment to the communities in which we work
Men’s college basketball teams Gonzaga and Michigan State faced off on Veterans Day
during a game held on the flight deck of USS Abraham Lincoln (CVN 72), which was built at
Newport News Shipbuilding.
8
SUSTAINABILITY
COMPANY VALUES
INTEGRITY
SAFETY
RESPECT
Integrity is at the heart of who we
are and what we do. We are each
personally accountable for the highest
standards of ethics and integrity.
We value our employees above all
else and will not compromise on
maintaining a safe and healthy work
environment for them.
We value people, knowing
we must show fairness and
equal treatment for all.
ENGAGEMENT
RESPONSIBILITY
PERFORMANCE
We are committed to fostering an
engaged workforce. Our employees
are very involved in what they do and
take ownership of their work and
work processes.
We keep promises and commitments
made to others. We are responsible
for ensuring quality is a component
of everything we do. We take pride
in providing outstanding customer
service.
We are committed to improving
our Company performance while
upholding our strong values. Superior
performance and quality ensure future
trust and confidence in our products
and services. We promote continuous
improvement and innovation.
Volunteers from Mission Technologies’ offices in northern Virginia completed an improvement project for the Potomac Appalachian
Trail Club during the Global Day of Caring.
9
HII collaborated with the U.S. Navy on a research
and development effort that advanced the launch
and recovery of a large size unmanned undersea
vehicle, using an amphibious assault ship and HII’s
Pharos system.
10
INNOVATING FOR
THE FUTURE
At HII, we continue to transform the way we do business integrating
digital technologies throughout the enterprise, creating scalable
opportunities and efficiencies that allow us to deliver innovations
and opportunities for cost savings to our customers.
In Virginia and Mississippi, we have modern world-class shipbuilding
facilities that utilize Integrated Digital Shipbuilding — laser scanning,
augmented reality, modeling and simulation, and additive
manufacturing — to increase efficiency, safety and affordability.
HII’s presence across all combatant commands means we are ready
to meet our defense customers’ current and future needs – across all
domains – with advanced technology solutions.
11
INTEGRATED SOLUTIONS THAT
ENABLE TODAY’S CONNECTED,
ALL-DOMAIN FORCE
At HII, we continue to transform the way we do business. HII renamed its government services
division to Mission Technologies to reflect its ability to provide and develop integrated
solutions that enable today’s connected, all-domain force. HII is a significant provider of
advanced engineering and research and development services in the areas of intelligence,
surveillance and reconnaissance; military training and simulation; cyber and artificial
intelligence and machine learning data analytics and other next-generation technology-
based solutions.
Our multi-domain cyber ranges in the cloud and cost-effective capabilities meet mission
requirements without the need for additional hardware purchases.
HII also supports the national security mission of the Department of Energy through the
management and operation of its sites, as well as the safe cleanup of legacy waste across
the country.
In 2022, our joint venture at Savannah River National Laboratory received an extension for
four years, plus an additional option year, and at the Nevada National Security Site, our joint
venture received a simultaneous early exercise of all five of its option years.
HII develops
integrated solutions
that enable today’s
connected, all-domain
force utilizing capabilities
including:
C5ISR
AI and machine learning
Electronic warfare
Unmanned
autonomous systems
Live virtual
constructive solutions
Fleet modernization
Critical nuclear
operations
12
ALL-DOMAIN FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2022
OR
Commission file number 001-34910
_____________________________________
HUNTINGTON INGALLS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
90-0607005
(I.R.S. Employer Identification No.)
4101 Washington Avenue, Newport News, Virginia 23607
(Address of principal executive offices and zip code)
(757) 380-2000
(Registrant’s telephone number, including area code)
___________________________________
Securities registered pursuant to section 12(b) of the Act:
Title of each class
Common Stock
Trading Symbol(s)
HII
Name of each exchange on which
registered
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2022, the aggregate market value (based upon the closing price of the stock on the New York Stock Exchange) of the registrant's
common stock held by non-affiliates was approximately $8,709 million.
As of February 3, 2023, 39,855,814 shares of the registrant's common stock were outstanding.
_____________________________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Rule 14A for the registrant's 2023
Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.
TABLE OF
CONTENTS
PART I
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
PART II
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
[RESERVED]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS
PART III
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
FORM 10-K SUMMARY
PART IV
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
SIGNATURES
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i
PART I
ITEM 1. BUSINESS
History and Organization
Huntington Ingalls Industries, Inc. ("HII", the "Company", "we", "us", or "our") is a global, all-domain defense partner,
building and delivering the world's most powerful, survivable naval ships and technologies that safeguard America’s
seas, sky, land, space, and cyber. For more than a century, our Ingalls Shipbuilding segment ("Ingalls") in
Mississippi and Newport News Shipbuilding segment ("Newport News") in Virginia have built more ships in more
ship classes than any other U.S. naval shipbuilder, making us America's largest shipbuilder. Our Mission
Technologies (formerly named Technical Solutions) segment delivers high-value engineering and technology
solutions to enable multi-domain distributed operations in the government and commercial markets. Headquartered
in Newport News, Virginia, we employ approximately 43,000 people domestically and internationally.
We conduct most of our business with the U.S. Government, primarily the Department of Defense ("DoD"). As prime
contractor, principal subcontractor, team member, or partner, we participate in many high-priority U.S. defense
programs. Ingalls includes our non-nuclear ship design, construction, repair, and maintenance businesses. Newport
News includes all of our nuclear ship design, construction, overhaul, refueling, and repair and maintenance
businesses. Our Mission Technologies segment provides a wide range of services and products, including
command, control, computers, communications, cyber, intelligence, surveillance, and reconnaissance ("C5ISR")
systems and operations; the application of artificial intelligence and machine learning to battlefield decisions;
defensive and offensive cyberspace strategies and electronic warfare ("CEWS"); unmanned autonomous systems;
live, virtual, and constructive training solutions ("LVC"); platform modernization; and critical nuclear operations.
Ingalls
Through our Ingalls segment, we design and construct non-nuclear ships for the U.S. Navy and U.S. Coast Guard,
including amphibious assault ships, expeditionary warfare ships, surface combatants, and national security cutters
("NSC"). We are the sole builder of amphibious assault ships and one of two builders of surface combatants for the
U.S. Navy. We are the sole builder of large multi-mission NSCs for the U.S. Coast Guard. Our Ingalls segment is
located in Pascagoula, Mississippi on 800 acres along the Pascagoula River.
Amphibious Assault Ships
We construct amphibious assault ships and expeditionary warfare ships for the U.S. Navy, which include U.S. Navy
large deck amphibious assault ships ("LHA") and amphibious transport dock ships ("LPD"), respectively. The LHA is
a key component of the Department of the Navy's requirement for Expeditionary Strike Groups/Amphibious
Readiness Groups, and design, construction, and modernization of LHAs are core to our Ingalls operations. In
2007, we were awarded the construction contract for USS America (LHA 6), the first in a class of enhanced
amphibious assault ships designed from the keel up to be an aviation optimized Marine assault platform. We
delivered USS Tripoli (LHA 7) in 2020 and are currently constructing Bougainville (LHA 8). In 2022, we were
awarded the construction contract for Fallujah (LHA 9).
The LPD program is a long-running production program of expeditionary warfare ships in which we have generated
efficiencies through ship-over-ship learning. We delivered USS Fort Lauderdale (LPD 28) in 2022, and we are
currently constructing Richard M. McCool Jr. (LPD 29), Harrisburg (LPD 30), and Pittsburgh (LPD 31). In 2022, we
were awarded a long-lead time material contract for LPD 32 (unnamed).
Surface Combatants
We are a design agent for, and one of only two companies that constructs, Arleigh Burke class (DDG 51) guided
missile destroyers, a class of surface combatant. We have delivered 34 Arleigh Burke class (DDG 51) destroyers to
the U.S. Navy, including Lenah H. Sutcliffe Higbee (DDG 123) in 2022, USS Frank E. Petersen Jr. (DDG 121) in
2021, and USS Delbert D. Black (DDG 119) in 2020. In 2013, we were awarded a multi-year contract totaling $3.3
billion for construction of five Arleigh Burke class (DDG 51) destroyers, of which four have been delivered and Jack
H. Lucas (DDG 125) is being constructed. In 2018, we were awarded a multi-year contract totaling $5.1 billion for
construction of six additional Arleigh Burke class (DDG 51) destroyers. In 2020, we were awarded a contract to
1
construct an additional Arleigh Burke class (DDG 51) destroyer. We are currently constructing Ted Stevens
(DDG128), Jeremiah Denton (DDG 129), George M. Neal (DDG 131), and Sam Nunn (DDG 133).
National Security Cutters
The U.S. Coast Guard's recapitalization program is replacing aging and operationally expansive ships and aircraft
used to conduct missions in excess of 50 miles from the shoreline. The flagship of this program is the Legend class
NSC, a multi-mission platform we designed and continue to build. We delivered USCGC Stone (NSC 9) to the U.S.
Coast Guard in 2020. In 2018, we were awarded long-lead-time material and construction contracts for Calhoun
(NSC 10) and Friedman (NSC 11), which are currently under construction.
Newport News
The core business of our Newport News segment is designing and constructing nuclear-powered aircraft carriers
and submarines, and the refueling and overhaul and the inactivation of nuclear-powered aircraft carriers. Our
Newport News shipyard is located on approximately 550 acres near the mouth of the James River, which adjoins
the Chesapeake Bay.
Design, Construction, Refueling and Complex Overhaul, and Inactivation of Aircraft Carriers
Engineering, design, and construction of U.S. Navy nuclear aircraft carriers ("CVN") are core to Newport News
operations. Aircraft carriers are the largest ships in the U.S. Navy's fleet, with a displacement of over 90,000 tons.
Newport News has designed and built more than 31 aircraft carriers for the U.S. Navy since 1933, including all ten
Nimitz class (CVN 68) aircraft carriers currently in active service, as well as the first ship of the next generation
Gerald R. Ford class (CVN 78) aircraft carriers.
We delivered USS Gerald R. Ford (CVN 78), the first aircraft carrier of the Gerald R. Ford class to the U.S. Navy in
2017. Beginning in 2009, we received contract awards totaling $8.2 billion for construction preparation, detail
design, and construction of the second Gerald R. Ford class (CVN 78) aircraft carrier, John F. Kennedy (CVN 79).
In addition, we have received awards valued at $15.3 billion for detail design and construction of the Gerald R. Ford
class (CVN 78) aircraft carriers Enterprise (CVN 80) and Doris Miller (CVN 81).
We continue to be the exclusive prime contractor for nuclear aircraft carrier refueling and complex overhaul
("RCOH"). Each RCOH takes nearly four years to complete, with the work accounting for approximately 35% of all
maintenance and modernization during an aircraft carrier's 50 year service life. RCOH services include propulsion
work (refueling of reactors; propulsion plant modernization; and propulsion plant repairs), restoration of service life
(dry docking, tank, and void maintenance; hull, shafting, propellers, and rudders; launch and recovery system;
piping repairs; and component refurbishment), and modernization (electrical systems; aviation support systems;
warfare; interoperability; and environmental compliance). We provide ongoing maintenance services for the U.S.
Navy aircraft carrier fleet through both RCOH and fleet support across the globe.
We are currently performing the RCOH of USS George Washington (CVN 73) and USS John C. Stennis (CVN 74).
We believe our position as the exclusive designer and builder of nuclear-powered aircraft carriers, our RCOH
performance on the first seven Nimitz class (CVN 68) carriers, our highly trained workforce, the capital-intensive
nature of RCOH work, and high barriers to entry due to its nuclear component position us well for RCOH contract
awards on the remaining Nimitz class (CVN 68) carriers, as well as future RCOH work on Gerald R. Ford class
(CVN 78) aircraft carriers.
We received a contract in 2013 to inactivate the decommissioned Enterprise (CVN 65), the world's first nuclear-
powered aircraft carrier, which was built by us and commissioned in 1961. The decommissioned Enterprise (CVN
65) inactivation was completed in the second quarter of 2018. Aircraft carriers have a lifespan of approximately 50
years, and we believe the ten Nimitz class (CVN 68) carriers we delivered that are currently in active service, as
well as Gerald R. Ford class (CVN 78) aircraft carriers, present significant opportunities for inactivation contracts as
they reach the end of their lifespans. We believe we are well positioned as the U.S. Navy's shipyard of choice for
these contract awards.
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Design and Construction of Nuclear-Powered Submarines
We are one of only two companies in the United States capable of designing and building nuclear-powered
submarines for the U.S. Navy. Newport News has delivered 63 submarines to the U.S. Navy since 1960, comprised
of 49 fast attack and 14 ballistic missile submarines. Of the 50 nuclear-powered fast attack submarines currently in
active service, 25 were delivered by Newport News. Our nuclear submarine program, located at our Newport News
shipyard, includes construction, engineering, design, research, and integrated planning.
Virginia Class (SSN 774) Submarines
We have a teaming agreement with Electric Boat Corporation ("Electric Boat"), a division of General Dynamics
Corporation ("General Dynamics"), to build Virginia class (SSN 774) fast attack nuclear submarines. Under the
teaming arrangement, we build the stern, habitability and machinery spaces, torpedo room, sail, and bow, while
Electric Boat builds the engine room, control room, and pressure hull structure. Work on the reactor plant and the
final assembly, test, outfit, and delivery of the submarines to the U.S. Navy alternates between Electric Boat and us.
The four submarines of the first block, six submarines of the second block, and eight submarines of the third block
of Virginia class (SSN 774) submarines have been delivered. In 2014, the team was awarded a construction
contract for the fourth block of ten Virginia class (SSN 774) submarines, which requires production of two
submarines per year. The first submarine of the Block IV contract was delivered in 2020, two more submarines of
the Block IV contract were delivered in 2022, and the remaining boats are in the manufacturing and outfitting
phases of construction.
In 2019, the team was awarded a construction contract for the fifth block of nine Virginia class (SSN 774)
submarines, and, in 2021, an option for a 10th submarine was exercised, continuing the two submarines per year
production rate. Eight of the Block V boats are in manufacturing and outfitting stages and two of the Block V boats
are in the advance procurement phases.
Columbia Class (SSBN 826) Submarines
Newport News is participating in the design and construction of the Columbia class (SSBN 826) submarines as a
replacement for the current aging Ohio class nuclear ballistic missile submarines ("SSBN"), which were first
introduced into service in 1981. The Columbia class (SSBN 826) program currently anticipates 12 new ballistic
missile submarines. We perform design work as a subcontractor to Electric Boat, and we have entered into a
teaming agreement with Electric Boat to build modules for the entire Columbia class (SSBN 826) submarine
program that leverages our Virginia class (SSN 774) experience. We were previously awarded contracts from
Electric Boat to begin integrated product and process development and provide long-lead-time material and
advance construction for the Columbia class (SSBN 826) program. Contract award for the first two Columbia class
submarines (SSBN 826 and SSBN 827) and construction start of the first Columbia class (SSBN 826) submarine
occurred in late 2020.
Naval Nuclear Support Services
Newport News provides additional services to and in support of the U.S. Navy, ranging from services supporting the
Navy's carrier and submarine fleets to maintenance services at U.S. Navy training facilities. Fleet support services
include design, construction, maintenance, and disposal activities for in-service U.S. Navy nuclear ships worldwide
through mobile and in-house capabilities. We also provide maintenance services on nuclear reactor prototypes,
such as those at the Kenneth A. Kesselring Site, a research and development facility in New York that supports the
U.S. Navy.
Mission Technologies
The Mission Technologies segment includes business groups focused on high-end information technology (“IT”) and
mission based solutions for DoD, intelligence, and federal civilian customers; life-cycle sustainment services to the
U.S. Navy fleet and other maritime customers; unmanned, autonomous systems; and nuclear management and
operations and environmental management services for the Department of Energy ("DoE"), DoD, state and local
governments, and private sector companies. The Mission Technologies segment is comprised of four business
groups as follows:
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Mission Based Solutions
Our mission based solutions businesses are focused on solving national security challenges for the DoD, the
intelligence community, and federal civilian agencies around the globe. The group’s expertise includes intelligence,
surveillance, and reconnaissance; cyber operations; secure enterprise information technology engineering and
operations; advanced modeling, simulation, and training; and logistics management. Our C5ISR solutions deliver
actionable intelligence across the globe at hyper speed through mission systems and operations, accelerating
decision-making and exploiting foreign threat vulnerabilities. Our CEWS solutions provide full spectrum cyber,
electronic warfare, and space capabilities that address today’s rapidly changing, multi-domain global security
threats, and anticipated emerging threats. Our LVC solutions designs and executes enterprise simulation and
network technologies to prepare warfighters for virtually every conceivable environment they may face in the service
to national defense and security.
Unmanned Systems
Our unmanned systems products and services create advanced unmanned maritime solutions for defense, marine
research, and commercial applications. Serving customers in more than 30 countries, our unmanned systems group
provides design, autonomy, manufacturing, testing, operations, and sustainment of unmanned systems, including
unmanned underwater vehicles and unmanned surface vessels.
Fleet Sustainment
Our fleet support services provide comprehensive life-cycle sustainment services to the U.S. Navy fleet and other
DoD and commercial maritime customers. We provide services including maintenance, modernization, and repair
on all ship classes; naval architecture, marine engineering, and design; integrated logistics support; technical
documentation development; warehousing, asset management, and material readiness; operational and
maintenance training development and delivery; software design and development; IT infrastructure support and
data delivery and management; and cyber security and information assurance. We provide undersea vehicle and
specialized craft development and prototyping services.
Nuclear and Environmental Services
Our nuclear and environmental services focus on nuclear management and operations. We provide site
management, nuclear and industrial facilities operations and maintenance, decontamination and decommissioning,
and radiological and hazardous waste management services to DoE, DoD, state and local governments, and private
sector companies. As part of our nuclear and environmental services, we participate in joint ventures, including
Newport News Nuclear BWXT Los Alamos, LLC ("N3B"), Mission Support and Test Services, LLC ("MSTS"), and
Savannah River Nuclear Solutions, LLC ("SRNS"). We have a 51% ownership interest in N3B, which, in 2017, was
awarded the Los Alamos Legacy Cleanup Contract at the DoE/National Nuclear Security Administration’s Los
Alamos National Laboratory located northwest of Santa Fe, New Mexico. We have a 23% ownership interest in
MSTS, which, in 2017, was awarded a contract for site management and operations at the Nevada National
Security Site located northwest of Las Vegas, Nevada. We have a 34% ownership interest in SRNS, which provides
site management and operations at the DoE's Savannah River Site near Aiken, South Carolina.
Customers
Our revenues are primarily derived from the U.S. Government, including the U.S. Navy, the U.S. Coast Guard, the
DoD, the DoE, and other federal agencies. In 2022, 2021, and 2020, approximately 82%, 90%, and 88%,
respectively, of our revenues were generated from the U.S. Navy.
Intellectual Property
We develop new technologies that are incorporated into the products we produce and services we provide for our
customers. We also develop new manufacturing processes and systems-integration technologies and processes
that we use to produce our products and to provide services to our customers. In addition to owning intellectual
property, we license intellectual property rights to and from other parties. The U.S. Government generally receives
non-exclusive licenses to certain intellectual property we develop in the performance of U.S. Government contracts
and unlimited license rights in technical data developed under our U.S. Government contracts when such data is
developed entirely at government expense. The U.S. Government may use or authorize other parties to use the
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intellectual property we license to the government. While our intellectual property rights are important to our
operations, we do not believe that any existing patent, license, or other intellectual property right is of such
importance that its loss or termination would have a material impact on our business.
Seasonality
No material portion of our business is seasonal. The timing of our revenue recognition is based on multiple factors,
including the timing of contract awards, the incurrence of contract costs, contract cost estimation, and unit
deliveries. See Note 2: Summary of Significant Accounting Policies in Item 8.
Backlog
As of December 31, 2022 and 2021, our total backlog was approximately $47.1 billion and $48.5 billion,
respectively. We expect approximately 22% of backlog at December 31, 2022, to be converted into sales in 2023.
Raw Materials
The most significant material we use is steel. Other materials we use in large quantities include paint, aluminum,
pipe, electrical cable, and fittings. All of these materials are currently available in adequate supply. In connection
with our U.S. Government contracts, we are required to procure certain materials and component parts from supply
sources approved by the U.S. Government. For long-term contracts, we generally solicit price quotations for many
of our material requirements from multiple suppliers to ensure competitive pricing. While we have not generally
been dependent upon any one supply source, we currently have only one supplier for certain component parts as a
result of consolidation in the defense industry. We believe these single source suppliers, as well as our overall
supplier base, are adequate to meet our foreseeable needs. Any inability to procure the necessary raw materials,
components, and other supplies for our products on a timely basis could negatively affect our results of operations,
financial condition, or cash flow. In addition, a significant prolonged increase in inflation could negatively impact the
cost of raw materials, components, and other supplies. We mitigate some supply risk by negotiating long-term
agreements with certain raw material suppliers, and we mitigate inflation risk related to raw material to an extent
through price escalation provisions in certain customer contracts.
Regulatory Matters
We operate in heavily regulated markets and must comply with a variety of laws and regulations, including those
relating to the award, administration, and performance of U.S. Government contracts, as well as legal and
regulatory requirements relating to cyber security, environmental protection, and our nuclear operations.
Government contracting requirements increase our contract performance costs and compliance costs and
risks. See Risk Factors in Item 1A.
Government Contracting
We are overseen and audited by the U.S. Government and its agencies, including the U.S. Navy's Supervisor of
Shipbuilding, the Defense Contract Audit Agency ("DCAA"), and the Defense Contract Management Agency
("DCMA"). These agencies evaluate our contract performance, cost structures, and compliance with applicable
laws, regulations, and standards. If an audit uncovers improper or illegal activities, we may be subject to
administrative, civil, or criminal proceedings, which could result in fines, penalties, repayments, or compensatory,
treble, or other damages. Certain U.S. Government findings against a contractor can also lead to suspension or
debarment from future U.S. Government contracts or the loss of export privileges.
U.S. Government agencies also evaluate the adequacy of our business systems and processes relative to U.S.
Government requirements. Our business systems subject to audit or review include our accounting systems,
purchasing systems, government property management systems, estimating systems, earned value management
systems, and material management accounting systems. The U.S. Government has the ability to decrease or
withhold contract payments if it determines significant deficiencies exist in one or more of our business systems.
The U.S. Government generally has the ability to terminate contracts, in whole or in part, with little or no prior notice,
for convenience or for default based upon performance. In the event of termination of a contract for convenience, a
contractor is normally able to recover costs already incurred on the contract and profit on incurred costs up to the
amount authorized under the contract, but not the profit that would have been earned had the contract been
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completed. Such a termination could also result in the cancellation of future work on the related program. A
termination resulting from our default could expose us to various liabilities, including excess re-procurement costs,
and could have a material effect on our ability to compete for future contracts.
Our contracts with the U.S. Government sometimes result in Requests for Equitable Adjustments ("REAs"), which
represent requests for the U.S. Government to make appropriate adjustments to contract terms, including pricing,
delivery schedule, technical requirements, or other affected terms, due to changes to the original contract
requirements and resulting delays and disruption for which the U.S. Government is responsible. We submit and
negotiate REAs in the ordinary course of business, and large REAs are not uncommon at the conclusion of both
new construction and RCOH activities. REAs can result in claims under the Contract Disputes Act of 1978, in cases
in which we cannot reach agreement with the U.S. Government.
U.S. Government regulations determine contractor costs that are allowable and therefore recoverable from the
government, and certain costs are not allowable and therefore not recoverable. The U.S. Government also
regulates the methods by which allowable costs, including overhead, are allocated to government contracts. Costs
we incur that are not allowable under the Federal Acquisition Regulation (the “FAR”) or U.S. Cost Accounting
Standards (“CAS”) or that are otherwise determined to be unallowable or improperly allocated to a specific contract
are not recovered or must be refunded if already reimbursed.
Our business, including contracts with U.S. Government agencies and subcontracts with other prime contractors, is
subject to a variety of laws and regulations, including the FAR, the Defense Federal Acquisition Regulation
Supplement ("DFARS"), the Truth in Negotiations Act, the Procurement Integrity Act, the False Claims Act, CAS, the
International Traffic in Arms Regulations promulgated under the Arms Export Control Act, the Close the Contractor
Fraud Loophole Act, and the Foreign Corrupt Practices Act. A noncompliance determination by a government
agency may result in reductions in contract values, contract modifications or terminations, penalties, fines,
repayments, compensatory, treble, or other damages, or suspension or debarment. We are also subject to evolving
cyber security and data privacy and protection laws and regulations, which increase our costs and compliance risks
and may affect our competitiveness, cause reputational harm, and expose us to damage claims, substantial fines,
and other penalties. See Note 7: Revenue under Item 8 and "Risk Factors" in Item 1A for further information
regarding our contracts.
Nuclear
Our nuclear operations are subject to various safety related requirements imposed by the U.S. Navy, the DoE, and
the U.S. Nuclear Regulatory Commission. In the event of noncompliance, these agencies may increase regulatory
oversight, impose fines, or shut down our operations, depending on their assessment of the severity of the
noncompliance. In addition, new or revised security and safety requirements imposed by the U.S. Navy, the DoE,
and the Nuclear Regulatory Commission could necessitate substantial capital and other expenditures.
Subject to certain requirements and limitations, our contracts with the U.S. Navy and the DoE generally provide for
indemnity by the U.S. Government for losses resulting from our nuclear operations. For our commercial nuclear
operations, we rely primarily on insurance carried by nuclear facility operators for risk mitigation, and we maintain
limited insurance coverage for losses in excess of the coverage of facility operators. See "Risk Factors" in Item 1A
for further information regarding nuclear regulatory matters.
Environmental
Our operations are subject to federal, state, and local laws and regulations relating to the protection of the
environment. Substantial fines, penalties, and criminal sanctions may be imposed for noncompliance, and certain
environmental laws impose joint and several "strict liability" for remediation of spills and releases of oil and
hazardous substances. Such laws and regulations impose liability upon a party for environmental cleanup and
remediation costs and damage without regard to negligence or fault on the part of such party and could expose us
to liability for the conduct of or conditions caused by third parties.
We accrue estimated costs to perform environmental remediation when we determine it is probable we will incur
expenses in the future, in amounts we can reasonably estimate, to address environmental conditions at currently or
formerly owned or leased operating facilities, or at sites where we are named a Potentially Responsible Party
("PRP") by the U.S. Environmental Protection Agency ("EPA") or similarly designated by another environmental
agency. Uncertainties regarding the extent of required remediation, determination of legally responsible parties, and
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the status of laws and regulations and their interpretations make future environmental remediation costs difficult to
estimate and can cause our estimated remediation costs to change.
We believe we are in material compliance with environmental laws and regulations, and historical environmental
compliance costs have not been material to our business. We could be affected by new environmental laws or
regulations, including any laws and regulations enacted in response to concerns over climate change, other aspects
of the environment, or natural resources. We have made investments we believe are necessary to comply with
environmental legal requirements, but we expect to incur future capital and operating costs to comply with current
and future environmental laws and regulations. We do not currently believe such costs will have a material effect on
our financial position, results of operations, or cash flows. See "Risk Factors" in Item 1A and Note 16: Commitments
and Contingencies under Item 8 for further information regarding environmental matters.
Competitive Environment
In our business of designing, building, overhauling, and repairing military ships, we primarily compete with General
Dynamics and, in the case of certain non-nuclear shipbuilding programs, smaller shipyards. The smaller shipyards
sometimes team with large defense contractors. Intense competition related to programs, resources, funding, and
long operating cycles are key characteristics of both our shipbuilding business and the shipbuilding defense industry
in general. It is common industry practice to share work on major programs among a number of companies. A
company competing to be a prime contractor may, upon ultimate award of the contract to another party, become a
subcontractor for the prime contracting party. It is not uncommon to compete for a contract award with a peer
company and, simultaneously, serve as a supplier to or a customer of such competitor on other contracts. The
nature of major defense programs, conducted under binding long-term contracts, enable companies that perform
well to benefit from a level of program continuity not common in many industries.
We believe we are well-positioned in our shipbuilding markets. Because we are the only company currently capable
of building, refueling, and inactivating the U.S. Navy's nuclear-powered aircraft carriers, we believe we are
positioned well to be awarded future contracts to perform such activities. Even so, the government periodically
revisits whether refueling of nuclear-powered aircraft carriers should be performed in private or public facilities. If a
U.S. Government shipyard were to become capable and engaged in the refueling of nuclear-powered aircraft
carriers, our market position could be significantly and adversely affected.
While we have competed with another large defense contractor to build large deck amphibious ships, we are
currently the only builder of large deck amphibious assault ships and expeditionary warfare ships for the U.S. Navy,
including LHAs and LPDs. We are also the sole builder of NSCs for the U.S. Coast Guard. We are one of only two
companies currently capable of designing and building nuclear-powered submarines for the U.S. Navy, and we are
party to long-term teaming agreements with the other company for the production of both Virginia class (SSN 774)
fast attack nuclear submarines and Columbia class (SSBN 826) ballistic missile submarines. We are one of only two
companies that builds the U.S. Navy's current fleet of Arleigh Burke class (DDG 51) destroyers and are positioned
well to be awarded future contracts for surface combatant ships as well.
Our Mission Technologies segment delivers technology based products and solutions to government and
commercial markets. Key competitive factors in these markets include technology capabilities, innovative cyber
advances and artificial intelligence, the ability to develop and implement complex, integrated solutions; the ability to
meet delivery schedules; and cost effectiveness. Our success depends on investments in our people, technologies,
and products to meet the evolving needs of our customers. To remain competitive, we must be able to identify
emerging technology trends and consistently provide superior service, while understanding customer priorities and
maintaining customer relationships.
Our Mission Technologies segment competes domestically and internationally against large aerospace and defense
("A&D") companies, primarily L3 Harris, Amentum, ManTech, Leidos, and, increasingly, small businesses serving
the intelligence community. To a lesser extent, our lines of business compete on certain contracts with major prime
A&D contractors, including Lockheed Martin, General Dynamics, Northrop Grumman, Raytheon, and Boeing.
Our success depends upon our ability to develop, market, produce, and deliver our products and services at costs
consistent with our customers' expectations, as well as our ability to provide the workforce, technologies, facilities,
equipment, and financial capacity needed to deliver those products and services with maximum efficiency.
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Human Capital Resources
We recognize that our employees are our most important resources and serve as the foundation for our ability to
achieve financial and strategic objectives. Our employees are critical to driving operational execution, meeting
customer expectations, delivering strong financial performance, advancing innovation, and maintaining a strong
quality and compliance program. Our leaders believe each employee contributes to our success.
We have approximately 43,000 employees. We are the largest industrial employer in Virginia and the largest private
employer in Mississippi. We employ individuals specializing in 19 crafts and trades, with approximately 7,100
engineers and designers and approximately 3,600 employees with advanced degrees. Our workforce contains
many third-, fourth-, and fifth-generation employees, and approximately 1,600 employees with more than 40 years
of continuous service. Employees in our shipbuilding segments with more than 40 years of continuous service
achieve the honor of “Master Shipbuilder.” As of December 31, 2022, we had 1,305 Master Shipbuilders at Newport
News and 242 at Ingalls. We also employ more than 7,400 veterans across the enterprise.
In addition, over 1,000 apprentices are enrolled in more than 27 crafts and advanced programs at our two
shipbuilding segments. From nuclear pipe welders to senior executives, we employ approximately 4,600 apprentice
school alumni at Newport News and Ingalls.
Approximately 45% of our employees are covered by a total of nine collective bargaining agreements and one site
stabilization agreement. Newport News has three collective bargaining agreements covering represented
employees, which expire in April 2024, February 2027, and December 2027. Newport News craft workers employed
at the Kesselring Site near Saratoga Springs, New York are represented under an indefinite DoE site agreement.
Ingalls has five collective bargaining agreements covering represented employees, all of which expire in March
2026. Approximately 15 Mission Technologies employees in Klamath Falls, Oregon are covered by a collective
bargaining agreement that expires in June 2025.
We have not experienced a work stoppage in more than 23 years at Newport News and more than 15 years at
Ingalls. We are committed to working effectively with our existing unions and believe our relationship with our
represented employees is satisfactory.
The success and growth of our business depends in large part on our ability to attract, retain, and develop a skilled
and diverse workforce of talented and high-performing employees at all levels of our organization. To succeed in the
markets in which we compete for labor, we have developed key workforce development, recruitment, and retention
strategies and objectives that we focus on as part of the overall management of our business. These strategies and
objectives form the pillars of our human capital management framework and are advanced through the following
programs, policies, and initiatives:
Competitive Pay and Benefits - Our compensation programs are designed to ensure we have the ability to attract,
retain, and motivate employees to achieve our objectives.
• We provide employee base wages and salaries that are competitive and consistent with employee
positions, skill levels, experience, knowledge, and geographic location.
•
• We utilize nationally recognized surveys and outside compensation and benefits consulting firms to
independently evaluate the effectiveness of our employee and executive compensation and benefit
programs and to provide benchmarking against our peers within the industry.
The structure of our executive compensation programs balances incentive earnings for both short-term and
long-term performance, and we align our executive long-term equity compensation metrics with long-term
shareholder interests.
Employees are eligible for health insurance, paid and unpaid leaves, 401(k) plans, and life and disability/
accident insurance coverage. We also offer a variety of benefits that allow employees to select the options
that meet their needs, including: annual leave/paid time off; paid holidays, flexible work arrangements/
schedules; telemedicine; parental leave; transgender medical coverage; and a wellness program that
includes physical, mental, and financial wellness components. We also fund the operation of Family Health
Centers near our two shipyards, which provide a full range of medical, lab, pharmacy, dental, physical
therapy, and vision services.
•
Recruitment, Training, and Workforce Development - Our three segments hire thousands of employees each year.
In 2022, we hired over 7,500 new employees. To help us meet this large demand for talent, we have created,
developed, and maintain multiple talent pipelines. One of the key components of our approach to workforce
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development is to “grow our own.” We operate two apprentice schools, one at Ingalls and one at Newport News.
The Newport News Apprentice School was founded in 1919, and the Ingalls Apprentice School was founded in
1952.
The two apprentice schools combined have graduated over 14,250 graduates since their inceptions. The schools
are nationally renowned and are critical to training both our craft/trades and technical workforce, as well as
developing the future leaders of our company. The Ingalls Apprentice School has partnered with the Mississippi Gulf
Coast Community College to permit their apprentices to earn credits toward an associate’s degree. The Newport
News Apprentice School has partnered with two community colleges, as well as Old Dominion University, to enable
apprentices to earn a bachelor’s degree in Mechanical Engineering, Electrical Engineering, or Modeling &
Simulation.
In addition to operating our own apprentice schools, we have developed and nurtured multiple partnerships with
state and local governments, pre-K education providers, primary/secondary school districts, community colleges,
and four-year colleges and universities, as well as post-graduate institutions. We also make significant investments
through monetary contributions, leadership time, and employee volunteer hours to support these critical
partnerships.
We maintain effective partnerships with colleges and universities, military bases for transitioning veterans, and
regional community colleges to enable us to recruit and hire engineering, IT, and other technical talent. Working
closely with state and local government leaders, we have successfully facilitated local, regional, and state-wide
workforce development and education initiatives that include pre-K programs, high school trades programs/talent
development labs, pre-hire trades/technical community college programs, interns/co-ops with colleges and
universities, adult trades programs, veterans and military spouses training programs, and unemployed/
underemployed training programs.
We view our workforce development process critical to our success and have developed a robust and effective
succession planning process that ensures continuity in our leadership ranks. Since our founding in 2011, we have
followed our succession plans 81% of the time when replacing a vacancy in an existing vice president position, and
we have filled 82% of newly created vice president positions with internal hires. See "Risk Factors" in Item 1A for
further information regarding our human capital resources.
Environmental, Health & Safety (“EH&S”) - The health, safety, and well-being of our employees, together with
protection of the environment in the communities in which we operate, is one of our core values and rooted in our
culture across the enterprise. We prioritize, manage, and carefully track safety performance and integrate sound
environmental, safety, and health practices to make a meaningful difference in every facet of our operations,
particularly at our shipbuilding segments and at DoE sites on which Mission Technologies segment employees
work.
Safety goals are included in operational metrics under the Newport News and Ingalls compensation programs. We
also use a wide variety of training courses, pre-job “Take Five” crew talks, medical surveillance programs, and
employee involvement to focus our workforce on EH&S. At Newport News and Ingalls, a key component of our
EH&S program is the utilization of health and safety teams, which are comprised of production and maintenance
employees and front-line managers whose goal is to educate, engage, and empower our workforce toward a culture
that strives to reduce injury, illness, and environmental impacts. We employ programs focused on identifying,
reporting, and abating near misses and other programs that aim to recognize, evaluate, and control hazards.
We track multiple metrics related to occupational injuries as one of several methods to monitor our safety
performance. One of the key metrics is Total Case Rate (“TCR”), which is the number of Occupational Safety and
Health Administration ("OSHA") recordable injuries per 100 equivalent employees. The TCR for Newport News was
5.58 in 2022, 5.64 in 2021, and 4.77 in 2020, and the TCR at Ingalls was 5.67 in 2022, 6.26 in 2021, and 6.35 in
2020. Newport News also tracks Days Away, Restricted or Transferred (“DART”), which is the number of OSHA
recordable cases in which the employee is unable to work, cannot work due to a restriction, or can work with a
restriction as a result of an injury per 100 equivalent employees. DART at Newport News was 4.86 in 2022, 4.45 in
2021, and 3.41 in 2020. Ingalls tracks two other safety metrics: Lost Time Case Rate (“LTCR”), which is the number
of employees that lost work time per 100 employees, and Lost Work Day Rate (“LWDR”), which is the number of
lost workdays per 100 full-time employees. The LTCR and LWDR at Ingalls were 2.55 and 73.06, respectively, in
2022, 2.75 and 76.32, respectively, in 2021, and 2.53 and 56.37, respectively, in 2020.
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Corporate Values - We operate on a set of values that are shared with all employees: Integrity, Safety, Respect,
Engagement, Responsibility, and Performance. "Always doing the right thing" is an essential belief at HII, and the
tone starts at the top and permeates through the culture of the company. It is a set of core values, standards, and
behaviors that guide employee commitment to the highest ethical standards and serves as the underlying
framework for all of our human capital strategies.
Advancing and Celebrating Diversity and Inclusion (“D&I”) - We believe we gain a key competitive advantage by
building a workforce community that values contributions and perspectives from a variety of backgrounds, skills, and
experiences regardless of race, ethnicity, color, religion, sex, disability, nationality, or other differentiation, and our
leaders leverage the differences within their teams. We also believe D&I is vital to our ability to grow and innovate in
an ever-changing, fast-paced environment. Our diverse and inclusive workplace encourages different perspectives
and ideas, which we believe enables better business decisions. The following are highlights of our D&I program:
•
Employee Resource Groups (“ERGs”) are a key component of our corporate culture and an important part
of our diversity and inclusion strategy. We currently sponsor 20 ERGs, which represent 10 distinct affinity
groups, are employee-led and open to all employees, and include: African American Shipbuilders
Association, Asian & Pacific Islander Shipbuilding Association, Hispanic Outreach & Leadership Alliance,
Women in Shipbuilding Enterprise, Ingalls Shipbuilders Equality Alliance, Shipbuilders Together Realizing
Inclusion, Diversity and Equality, Engaging Employees to Learn Improve Network and Knowledge Share,
FitNNS, and the Veterans Employee Resource Groups.
• We have established D&I Councils, which provide strategic direction, guidance, and advocacy for our D&I
initiatives and advancements. These councils are led by senior executives and include high-performing
employees and leaders from across our enterprise.
• We have a long history of participation in a number of annual national diversity conferences, including Black
Engineer of the Year Awards (BEYA), Society of Hispanic Engineers and Professionals (SHPE), Society of
Asian Scientists and Engineers (SASE), and Women of Color STEM Conference. These events provide
recruitment, recognition, and development opportunities for our diverse workforce.
Employee Engagement - Since 2006, we have conducted an annual anonymous engagement survey of our
workforce, both non-represented and represented. Administered and analyzed by an independent third party, the
survey results are reviewed by our executive team and other senior leaders at our three segments. The results of
this engagement survey are also shared with individual managers and employees, who are then tasked with
discussing the results with their teams and working together to set goals and implement actions to improve
employee engagement and performance. Approximately 78% of our workforce participated in the 2022 engagement
survey. We believe that, at the individual employee level, engagement is about taking ownership of your work and
work processes. At the enterprise level, engagement is about creating an inclusive and highly collaborative culture
where we all care about and encourage each other’s success, and supporting the opportunity to create more value
and transform our business for the future.
Available Information
We maintain a website at the following address: www.hii.com. References to our website in this report are provided
as a convenience and do not constitute, and should not be viewed as, incorporation by reference of the information
contained on, or available through, the website. Accordingly, such information should not be considered part of this
report. We make available on or through our website certain reports and amendments to those reports that we file
with or furnish to the Securities and Exchange Commission ("SEC") in accordance with the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). These include our Annual Reports on Form 10–K, our Quarterly Reports
on Form 10–Q, and our Current Reports on Form 8-K. We make this information available on our website free of
charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC.
In addition, we routinely post on the "Investors" page of our website (www.ir.hii.com) news releases,
announcements, and other statements about our business and results of operations, some of which may contain
information that may be deemed material to investors. Therefore, we encourage investors to monitor the "Investors"
page of our website and review the information we post on that page.
The SEC also maintains a website at www.sec.gov that contains reports, proxy statements, and other information
about SEC registrants, including us.
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Cautionary Statement Regarding Forward-Looking Statements
Statements in this Annual Report on Form 10-K and in our other filings with the SEC, as well as other statements
we may make from time to time, other than statements of historical fact, constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-
looking statements by words such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "continue," and similar words or phrases or the negative of these words or
phrases. These statements relate to future events or our future financial performance and involve known and
unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or
achievements to be materially different from any future results, levels of activity, performance, or achievements
expressed or implied by these forward-looking statements. Although we believe the expectations reflected in the
forward-looking statements are reasonable when made, we cannot guarantee future results, levels of activity,
performance, or achievements. There are a number of important factors that could cause our actual results to differ
materially from the results anticipated by our forward-looking statements, which include, but are not limited to:
•
Changes in government and customer priorities and requirements (including government budgetary
constraints, shifts in defense spending, and changes in customer short-range and long-range plans);
• Our ability to estimate our future contract costs and perform our contracts effectively;
•
Changes in procurement processes and government regulations and our ability to comply with such
requirements;
• Our ability to deliver our products and services at an affordable life cycle cost and compete within our
markets;
Natural and environmental disasters and political instability;
•
• Our ability to execute our strategic plan, including with respect to share repurchases, dividends, capital
•
•
expenditures, and strategic acquisitions;
Adverse economic conditions in the United States and globally;
Health epidemics, pandemics and similar outbreaks, including the COVID-19 pandemic, and the impacts of
vaccination mandates on our workforce;
• Our ability to attract, retain, and train a qualified workforce;
•
Disruptions impacting global supply, including those attributable to the COVID-19 pandemic and those
resulting from the ongoing conflict between Russia and Ukraine;
Changes in key estimates and assumptions regarding our pension and retiree health care costs;
Security threats, including cyber security threats, and related disruptions; and
•
•
• Other risk factors discussed herein and in our other filings with the SEC.
There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not
expect to have a material adverse effect on our business, and we undertake no obligation to update or revise any
forward-looking statements. You should not place undue reliance on any forward-looking statements that we may
make.
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Item 1A. Risk Factors
An investment in our common stock or debt securities involves risks and uncertainties. We seek to identify, manage,
and mitigate risks to our business, but risk and uncertainty cannot be eliminated or necessarily predicted. You
should consider the following factors carefully, in addition to the other information contained in this Annual Report on
Form 10-K, before deciding to purchase our securities.
Industry and Economic Risk Factors
We depend on the U.S. Government for substantially all of our business, and risks that arise from
conducting business with the U.S. Government could have a material adverse effect on our financial
position, results of operations, or cash flows.
A substantial majority of our business consists of the design, construction, repair, and maintenance of nuclear-
powered ships and non-nuclear ships for the U.S. Navy and coastal defense surface ships for the U.S. Coast
Guard, as well as the refueling and overhaul and inactivation of nuclear-powered ships for the U.S. Navy. We also
provide high-end IT and mission based solutions for DoD, intelligence, and federal civilian customers; life-cycle
sustainment services to the U.S. Navy fleet and other maritime customers; unmanned, autonomous systems; and
nuclear management and operations and environmental management services for the DoE, DoD, state and local
governments, and private sector companies. Substantially all of our revenues in 2022 were derived from products
and services sold to the U.S. Government, and we expect this to continue for the foreseeable future. In addition,
substantially all of our backlog as of December 31, 2022, was related to products and services deliverable to the
U.S. Government. Our U.S. Government contracts are subject to various risks, including customer political and
budgetary constraints and processes, changes in customer short-term and long-term strategic plans, the timing of
contract awards, significant changes in contract scheduling, recessionary impacts on government spending, intense
contract award and funding competition, challenges forecasting costs and schedules for bids on developmental and
sophisticated technical work, and contractor suspension or debarment in the event of certain legal or regulatory
violations. Any of these factors could affect our business with the U.S. Government, which would have a material
adverse effect on our financial position, results of operations, or cash flows.
Significant delays or reductions in appropriations for our programs, changes in customer priorities, and
potential contract terminations could have a material adverse effect on our financial position, results of
operations, or cash flows.
We are directly dependent upon Congressional funding of U.S. Navy, U.S. Coast Guard, and other federal agency
programs. Under the normal legislative process, Congress completes 12 annual appropriations bills each fiscal year
to fund the activities of the federal agencies. When Congress is unable to pass appropriations bills before the
beginning of a fiscal year, a continuing resolution can be enacted to provide stopgap funding for a specified period
of time at a specified rate, often the prior year’s appropriations level. When the U.S. Government operates under a
continuing resolution, limitations can be placed on production increases, multi-year procurements, and new program
starts, which may result in delays or cancellation of new contract awards. When the U.S. Government fails to enact
annual appropriations or a continuing resolution, a full or partial federal government shutdown may occur. A federal
government shutdown could, in turn, result in the delay or cancellation of government programs, or the delay of
contract payments, which could have a negative effect on our cash flows and adversely affect our future results of
operations.
Congress sometimes appropriates funds on an annual fiscal year basis for programs for which the performance
period may extend over multiple years. Such programs are funded initially on a partial basis, and additional funds
are committed only as Congress makes further appropriations. If we incur costs in excess of existing funding on a
contract, we may not recover those costs unless and until additional funds are appropriated. We cannot predict the
extent to which total funding or funding for individual programs will be included, increased, or reduced as part of the
annual budget process or through continuing resolutions or individual supplemental appropriations.
Congressional actions to reduce the federal debt and resulting pressures on federal spending could adversely affect
the total funding of individual contracts or funding for individual programs and delay purchasing or payment
decisions by our customers. Considerable uncertainty exists regarding how future budget and program decisions
will develop and the challenges budget changes will present for the defense industry. It is likely that U.S.
Government discretionary spending levels, including defense spending, will continue to be subject to significant
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pressure. For additional information relating to the U.S. defense budget, see the Business Environment section
under Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.
Demand for our products and services can also be affected by shifts in customer priorities resulting from changes in
military strategy and planning. In response to the need for less expensive alternatives and the increasing
proliferation of advanced weapons, future strategy reassessments by the DoD may result in decreased demand for
our shipbuilding programs, including our aircraft carrier programs. We cannot predict the impact of changes to
customer priorities on existing, follow-on, replacement, or future programs. A shift of priorities to programs in which
we do not participate and related reductions in funding for or the termination of programs in which we do participate
could have a material adverse effect on our financial position, results of operations, or cash flows.
As of December 31, 2022, our total backlog was $47.1 billion, including $22.2 billion in funded backlog. The
U.S. Government generally has the ability to terminate contracts, in whole or in part, with little or no prior notice, for
convenience or for default based upon performance. In the event of termination of a contract for the U.S.
Government's convenience, a contractor is normally able to recover costs already incurred on the contract and profit
on incurred costs up to the amount authorized under the contract, but not the profit that would have been earned
had the contract been completed. Our unfunded backlog, in particular, contains management’s estimate of revenues
expected to be realized on unfunded contracts that may never be realized. Any termination could also result in the
cancellation of future work on the related program. A termination resulting from our default can expose us to various
liabilities, including excess re-procurement costs, and could negatively affect our ability to compete for future
contracts. Any contract termination could have a material adverse effect on our financial condition, results of
operations, or cash flows.
Changes to Department of Defense business practices could have a material effect on DoD's procurement
process and adversely impact our current programs and potential new awards.
Our industry has experienced, and we expect will continue to experience, significant changes to business practices
resulting from greater focus on affordability, efficiencies, business systems, recovery of costs, and a reprioritization
of defense funding. These initiatives and changes to procurement practices may change the way U.S. Government
contracts are solicited, negotiated, and managed, and may impact whether and how we pursue opportunities to
provide our products and services to the U.S. Government, including the terms and conditions under which we do
so, which may have an adverse impact on our business, financial condition, results of operations, and cash flows.
Changes in procurement practices favoring incentive-based fee arrangements, different award fee criteria, non-
traditional contract provisions, and cost mandates from the government may affect our profitability and the
predictability of our profit rates. The U.S. Government is also pursuing alternatives to shift additional responsibility
and performance risks to contractors.
For example, the DoD is accelerating development and acquisition of new technologies through rapid acquisition
alternatives and procedures, including through other transaction authority agreements (“OTAs”). In recent years, the
DoD has increased the frequency and size of OTAs, and we expect this trend to continue in the future. OTAs are
exempt from many traditional procurement laws, including the FAR, and may be used, subject to certain conditions,
for research, prototype development, and follow-on production for a successful prototype. OTA awards include, in
certain instances, that a significant portion of the work under the OTA be performed by a non-traditional defense
contractor or that a portion of the cost of the prototype project be funded by non-governmental sources. If we cannot
successfully adapt to the DoD’s accelerated acquisition processes or if the DoD significantly increases the use of
OTAs with non-traditional defense contractors or increases cost sharing mandates, we may lose new strategic
business opportunities in high-growth areas and our future performance and results of operations could be
adversely affected.
In addition to the DoD's business practice initiatives, the DCMA and DCAA have implemented cost recovery/cost
savings initiatives to prioritize cost recovery/savings. As a result, we have experienced and may continue to
experience a higher number of audits and/or lengthened periods of time required to close open audits. Moreover,
the thresholds for certain allowable costs, including compensation costs, have been significantly reduced, and the
allowability of other types of costs are being challenged, debated, and, in certain cases, modified. Significant
changes to the thresholds for allowable costs or the allowability of certain costs could adversely affect our financial
position, results of operations, or cash flows.
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Competition within our markets or an increase in bid protests may reduce our revenues and market share.
U.S. defense spending levels are uncertain and difficult to predict. A longer term trend in reduced U.S. Navy
shipbuilding activity, evidenced by the reduction in fleet size from 566 ships in 1989 to 293 ships as of
December 31, 2022, has resulted in workforce reductions but limited infrastructure consolidation. The general result
has been fewer contracts awarded to the same fixed number of shipyards. Five major private United States
shipyards, two of which we own, plus many other smaller private shipyards compete for contracts to construct,
overhaul, repair, and convert naval vessels. Additionally, our products, such as aircraft carriers, submarines,
amphibious assault ships, surface combatants, and other ships, compete for funding with each other, as well as with
other defense products and services. We expect competition for future shipbuilding programs to be intense.
We compete with another large defense contractor for contracts to build surface combatants, submarines, and large
deck amphibious ships, and smaller shipyards have entered the market for surface combatants. We may compete
in the future with the same contractor and other shipyards to build new and different classes of ships, as well as
ships for which we are currently the sole source, including expeditionary warfare and amphibious assault
ships. Moreover, reductions in U.S. defense spending that reduce the demand for the types of ships we build and
services we provide increase our exposure to market competition risk. If we are unable to continue to compete
successfully against our current or future competitors, we may generate lower revenues and lose market share,
which would negatively impact our financial condition, results of operations, and cash flows and could impact our
ability to compete for future defense contracts.
Although we are the only company currently capable of refueling nuclear-powered aircraft carriers, two existing U.S.
Government shipyards may be able to refuel nuclear-powered aircraft carriers if they made substantial investments
in facilities, personnel, and training. U.S. Government-owned shipyards currently engage in the refueling, overhaul,
and inactivation of Los Angeles class (SSN 688) submarines and are capable of repairing and overhauling non-
nuclear ships. If a U.S. Government-owned shipyard became capable of and engaged in the refueling of nuclear-
powered aircraft carriers, our financial position, results of operations, or cash flows could be adversely affected.
We also compete in the shipbuilding engineering, planning, and design market with companies that provide
engineering support services. Such competition increases the risk we may not be the successful bidder on future
U.S. Navy engineering proposals, including aircraft carrier research and development, submarine design, and
surface combatant and amphibious assault ship program contracts.
Mission Technologies competes domestically and internationally against large A&D companies, primarily L3 Harris,
Amentum, ManTech, Leidos, and, increasingly, small businesses serving the intelligence community. To a lesser
extent, our lines of business compete on certain contracts with major prime A&D contractors, including Lockheed
Martin, General Dynamics, Northrop Grumman, Raytheon, and Boeing.
Our competitive environment is also affected by bid protests from unsuccessful bidders on new program awards. As
the competitive environment intensifies, the number of bid protests may increase. Bid protests can result in an
award decision being overturned, requiring a re-bid of the contract. Even when a bid protest does not result in a re-
bid, resolution of the matter typically extends the time until contract performance can begin, which can reduce our
earnings in the period in which the contract would otherwise be performed.
Changes in estimates used in contract accounting could affect our profitability and our overall financial
position.
Contract accounting requires judgments relative to assessing risks, estimating contract revenues and costs, and
making assumptions regarding schedule and technical issues. The size and nature of many of our contracts make
the estimation of total revenues and costs at completion complicated and subject to many variables. For new
shipbuilding programs, we estimate, negotiate, and contract for construction of ships that are not completely
designed, which subjects our risk assessments, revenue and cost estimates, and assumptions to the variability of
the final ship design and an evolving scope of work. Our judgment, estimation, and assumption processes
significantly impact our contract accounting, and materially different amounts can result if different assumptions are
used or if actual events differ from our assumptions. Future changes in assumptions, circumstances, or estimates
may have a material adverse effect on our future financial position, results of operations, or cash flows. See the
Contracts section under Management's Discussion and Analysis of Financial Condition and Results of Operations in
Item 7.
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Our debt exposes us to certain risks.
As of December 31, 2022, we had $2.6 billion of debt under our senior notes, $225 million of debt under our $650
million 3-year term loan (the “Term Loan”), $105 million of revenue bonds, $1.5 billion of additional borrowing
capacity under our revolving credit facility (the "Revolving Credit Facility"), and $1 billion of borrowing capacity
under our commercial paper program. Our Revolving Credit Facility also allows us to solicit lenders to provide
incremental financing capacity in an aggregate amount not to exceed $1 billion, and the indentures governing our
senior notes do not limit our incurrence of debt.
Our ability to make payments on and to refinance our current or future indebtedness will depend on our ability to
generate cash from operations, financings, or asset sales, which may be subject to general economic, financial,
competitive, legislative, regulatory, and other factors that are beyond our control. If we are not able to repay or
refinance our debt as it becomes due, we may be forced to sell assets or take other unfavorable actions, including
reducing financing for working capital, capital expenditures, and general corporate purposes; reducing our cash
dividend rate and/or share repurchases; or dedicating an unsustainable level of our cash flow from operations to the
payment of principal and interest on our indebtedness. In addition, our ability to withstand competitive pressures
and to react to changes in the defense industry could be impaired. In the event of a default on any of our
indebtedness, the lenders who hold such debt could accelerate amounts due, which could potentially trigger a
default or acceleration of our other indebtedness.
The interest rates on variable rate indebtedness under our Revolving Credit Facility and Term Loan are based upon
the London Interbank Offered Rate (“LIBOR”). In March 2021, LIBOR’s regulator, the U.K. Financial Conduct
Authority, announced that the publication of rates for one-week and two-month U.S. Dollar LIBOR maturities and all
non-U.S. LIBOR maturities would cease immediately after December 31, 2021, with all other tenors ceasing
immediately after June 30, 2023. In anticipation of the cessation of LIBOR as a benchmark interest rate, our
Revolving Credit Facility and Term Loan mandate the use of the Secured Overnight Financing Rate (“SOFR”) or, if
unavailable, other alternative benchmarks upon termination of LIBOR. We cannot predict the consequences of the
benchmark transition from LIBOR to SOFR or another benchmark, but the transition may potentially increase the
cost of our variable rate indebtedness.
Business and Operational Risk Factors
Cost growth on flexibly priced contracts that does not result in higher contract price due from customers
reduces our profit and exposes us to the potential loss of future business.
Our operating income is adversely affected when we incur certain contract costs or certain increases in contract
costs that cannot be billed to customers. Cost growth can occur if expenses to complete a contract increase due to
inflation, technical challenges, manufacturing difficulties, delays, workforce-related issues, or inaccurate initial
contract cost estimates. Reasons may include labor shortages or reduced productivity, the nature and complexity of
the work performed, the timeliness and availability of materials, subcontractor performance or product quality
issues, performance delays, availability and timing of customer funding, and natural disasters. A significant increase
in contract costs from our original cost estimates on one or more contracts could have a material adverse effect on
our financial position, results of operations, or cash flows.
Our ability to recover costs and realize profits on contracts with our U.S. Government customers depends upon the
type of contract under which we are performing. Our U.S. Government contracts include firm fixed-price, fixed-price
incentive, cost-type, and time and material contracts. Under firm fixed-price contracts, we agree to perform the
specified work for a pre-determined price. To the extent our actual costs vary from the estimates upon which the
price was negotiated, including due to greater than anticipated or a sustained period of higher inflation or
unexpected delays, we will generate more or less profit or could incur a loss. Some firm fixed-price contracts have a
performance-based component under which we may earn incentive payments or incur financial penalties based
upon our performance. Fixed-price incentive contracts provide for reimbursement of the contractor’s allowable
costs, subject to a cost-share limit that impacts the profit on the contract. Cost-type contracts provide for the
payment of allowable costs plus a fee up to a ceiling based on the amount that has been funded. Under time and
material contracts, we are paid for direct labor hours incurred at specified hourly rates plus material costs. See the
Contracts section under Management's Discussion and Analysis of Financial Condition and Results of Operations in
Item 7 for descriptions of the types of contracts that comprise our business.
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Approximately 50% of our revenues in 2022 were generated under fixed-price incentive contracts, approximately
44% were generated under cost-type contracts, approximately 3% were generated under time and material
contracts, and approximately 3% were generated under firm fixed-price contracts. Fixed price contracts increase the
risk that we may not recover all of our costs or will generate less profit or a loss. Under each type of contract, if we
are unable to control costs, our operating results could be adversely affected, particularly if we are unable to
negotiate an increase in contract price with our customers.
U.S. Government contracts can extend for years, and unforeseen events, such as technological difficulties,
fluctuations in the price of raw materials, a significant increase in or sustained period of higher inflation, problems
with our suppliers, labor market conditions, and cost overruns, can result in the contract price becoming less
favorable or even unprofitable to us over time. Higher interest rates resulting from inflationary pressures can also
impact the fair value of these contracts. Furthermore, if we do not meet contract deadlines or specifications, we may
need to renegotiate contracts on less favorable terms, be forced to pay penalties or liquidated damages, or suffer
major losses if the customer exercises its right to terminate. In addition, some of our contracts have provisions
relating to cost controls and audit rights, and, if we fail to meet the terms specified in those contracts, we may not
realize their full benefits. Cost overruns would adversely impact our results of operations, which are dependent on
our ability to maximize our earnings from our contracts, and the potential risk would be greater if our contracts
shifted toward a greater percentage of fixed-price contracts, particularly firm fixed-price contracts. Cost overruns or
the failure to perform on existing programs also may adversely affect our ability to retain existing programs and win
future contract awards. In addition, changes in contract financing policy for fixed-price contracts, such as changes in
performance and progress payments policies, including a reversal or modification of the DoD’s March 2020 increase
to the applicable progress payment rate from 80% to 90%, could significantly affect the timing of our cash flows.
From time to time, we may begin performance under an undefinitized contract action with a not-to-exceed price prior
to completing contract negotiations in order to support U.S. government priorities. Uncertainties in final contract
price, specifications and terms, or loss of negotiating leverage associated with contract definitization may negatively
affect our profitability.
Our earnings and profitability depend, in part, upon subcontractor performance and raw material and
component availability and pricing.
We rely on third parties to provide raw materials, major components and sub-systems, hardware elements, and sub-
assemblies for our products and to perform certain services we provide to our customers, and we rely on such third
parties to comply with applicable laws and regulations, including various DoD cybersecurity requirements.
Disruptions and performance problems from our suppliers and subcontractors, or inconsistencies between our
contractual obligations to our customers and our agreements with our subcontractors and suppliers, could have an
adverse effect on our ability to meet our commitments to customers. Our ability to satisfy our obligations on a timely
basis are adversely affected if one or more of our suppliers or subcontractors are unable to provide agreed-upon
products or materials or perform agreed-upon services in a timely, compliant, and cost-effective manner, or they
otherwise fail to satisfy contractual requirements. The inability of our suppliers or subcontractors to meet
expectations could also result in our need to transition to alternate parties, which could result in significant
incremental cost and delay, or the need for us to provide other supplemental support to our existing suppliers and
subcontractors.
Our costs to manufacture our products can increase over the terms of our contracts, including as a result of
increases in material costs and wages. Although we may be protected from increases in material costs through cost
escalation provisions, the difference in basis between our actual material costs and industry indices may expose us
to cost recovery risk. Our bids for longer-term firm fixed-price contracts typically include assumptions for labor and
other contract costs that historically have been sufficient to cover cost increases over the period of performance. If,
however, recent inflationary conditions continue over the long-term, our cost assumptions may not be sufficient to
cover potential contract cost growth. In addition, significant delays in deliveries of key raw materials, which may
occur as a result of shortage or pricing, could have a material adverse effect on our financial position, results of
operations, or cash flows.
In some cases, only one supplier may exist for certain components and parts required to manufacture our products.
The inability of a sole source supplier to provide a necessary component or part on a timely, compliant, and cost-
effective basis could increase our contract cost and affect our ability to satisfy our contract obligations.
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Our procurement practices are intended to provide materials and services that meet contract specifications and to
reduce the likelihood of our procurement of unauthorized, non-compliant, or deficient materials and services. We
rely on our subcontractors and suppliers to comply with applicable laws, regulations, and the obligations set forth in
the HII Supplier Code of Conduct. We rely on representations and certifications from our subcontractors and
suppliers regarding such compliance, and we conduct technical assessments, inspections, and audits, as
necessary, with subcontractors and suppliers. Notwithstanding the actions we take to mitigate the risk of receiving
non-compliant materials and services, subcontractors and suppliers sometimes provide us with unauthorized, non-
compliant, or deficient materials and services. Such unauthorized, non-compliant or deficient materials or services
can increase our contract costs and impact our ability to satisfy our contract obligations to our customers.
We depend on the recruitment and retention of qualified personnel, and our failure to attract, train and
retain such personnel could seriously harm our business.
Due to the specialized nature of our business, our performance is dependent upon our ability to identify, attract and
retain a workforce with the requisite skills in multiple areas, including: engineering, nuclear, trades and crafts,
manufacturing, information technology, and cybersecurity. Our operating performance is also dependent upon
personnel who hold security clearances and receive substantial training to work on certain programs or tasks and
can be difficult to replace on a timely basis if we experience unplanned attrition.
To the extent we lose experienced personnel, it is critical that we develop other employees, hire new qualified
personnel, and successfully manage the short and long-term transfer of critical knowledge and skills. Competition
for talent is intense, and this may affect our ability to successfully attract or retain personnel with the requisite skills
or clearances. We increasingly compete with commercial technology companies outside of the shipbuilding and
defense industry for qualified technical positions. To the extent that these companies grow at a faster rate or face
fewer cost and product pricing constraints, they may be able to offer more attractive compensation and other
benefits to candidates, including in the recruitment of our existing employees. In cases where the demand for skilled
personnel exceeds supply, we could experience higher labor, recruiting, or training costs to attract and retain such
employees. We could experience difficulty performing our contracts and executing on new or growing programs if
we have a shortage of skilled employees or we experience recruiting challenges. We also must manage leadership
development and succession planning throughout our business. While we have processes in place for management
transition and the transfer of knowledge and skills, the loss of key personnel, coupled with an inability to adequately
train other personnel, hire new personnel, or transfer knowledge and skills, could significantly impact our ability to
perform under our contracts and compete for new contracts.
Many of our contracts include performance obligations that incorporate innovative designs and state-of-
the-art manufacturing expertise, include new technologies, or are dependent upon factors not wholly within
our control, and failure to meet performance expectations could adversely affect our profitability and future
prospects.
We design, develop, and manufacture products and provide services that often involve innovative designs, new
technologies, and complex manufacturing processes. Problems and delays with product development, technology
implementation, manufacturing, or subcontractor components or services can impact our contract performance.
First-in-class ships, also known as lead ships, usually include new technologies supplied by the U.S. Navy or other
contractors or developed by us. Problems associated with development or implementation of these new
technologies or design changes in the construction process can lead to delays in the design and construction
schedule. The risks associated with new technologies or design changes during construction can both increase the
cost of a ship and delay delivery.
Our products cannot always be tested and proven and are otherwise subject to unforeseen problems, including
premature failure of elements that cannot be accessed for repair or replacement, substandard quality or
workmanship, and unexpected degradation of product performance. These failures could result in loss of life or
property and could negatively affect our results of operations by causing unanticipated expenses not covered by
insurance or customer indemnification, diversion of management attention, loss of follow-on work, and, in the case
of certain contracts, reimbursement to the customer of contract costs and fee payments previously received.
We periodically experience quality issues with respect to products and services that we sell to our U.S. Government
customers. These issues can and have required significant resources to determine the source of the deficiencies
and implement corrective actions. We may discover quality issues in the future related to our products and services
17
that require analysis and corrective action. Such issues and our responses and corrective actions could have a
material adverse effect on our financial position, results of operations, or cash flows.
Changes in key estimates and assumptions associated with postretirement benefit plans, such as discount
rates and assumed long-term returns on assets, actual investment returns on our pension plan assets, and
legislative and regulatory actions could significantly affect our financial position, results of operations, and
cash flows.
Our pension and retiree health care costs are dependent upon various estimates and assumptions, particularly with
respect to the discount rate and expected long-term rates of return on plan assets, which to a large extent are
reflective of the financial markets and economic conditions. Changes to these estimates and assumptions and
differences between expected and actual returns on plan assets could significantly impact our retirement related
expense, the funded status of benefit plans, and contributions to our defined benefit pension and other
postretirement benefit plans, which could have material adverse effects on our financial position, results of
operations, or cash flows.
Additionally, pension cost recoveries under CAS for our U.S. Government contracts occur in different periods from
those in which pension expense is recognized under accounting principles generally accepted in the United States
("GAAP") or the periods in which we make contributions to our benefit plans, and changes to estimates and
assumptions and differences between expected and actual returns could adversely affect the timing of those
pension cost recoveries.
Our business is subject to disruption caused by natural disasters, environmental disasters, and other
events that could have a material adverse effect on our financial position, results of operations, or cash
flows.
We have significant operations located in regions of the United States that have been and may in the future be
exposed to damaging storms, such as hurricanes and floods, the intensity and frequency of which are being
exacerbated by climate change, other impacts of climate change, including rising sea waters, and environmental
disasters, such as oil spills. Natural disasters can disrupt our workforce, electrical and other power distribution
networks, computer and internet operations and accessibility, and critical industrial infrastructure needed for normal
business operations, which can adversely affect our contract performance and, as a result, our financial results.
Environmental disasters, particularly oil spills in waterways and bodies of water we use for transporting and testing
our ships, can cause schedule delays under our contracts with the U.S. Navy and the U.S. Coast Guard.
Damage and disruption resulting from natural and environmental disasters may be significant. Should insurance or
other risk transfer mechanisms be unavailable or insufficient to recover material costs associated with natural or
environmental disasters or other events, we could experience a material adverse effect on our financial position,
results of operations, or cash flows. See Our insurance coverage may be inadequate to cover all of our significant
risks or our insurers may deny coverage of material losses we incur, which could adversely affect our profitability
and financial position.
Our suppliers and subcontractors are also subject to natural and environmental disasters that could affect their
ability to deliver products or services or otherwise perform their contracts. Performance failures by our
subcontractors or suppliers due to natural or environmental disasters may adversely affect our ability to perform our
contracts, which could reduce our profitability in the event damages or other costs are not recoverable from the
subcontractor or supplier, the customer, or insurers. Such events could also result in a termination of the prime
contract and have an adverse effect on our ability to compete for future contracts.
We face risks related to health epidemics, pandemics, and similar outbreaks.
We face various risks related to health epidemics, pandemics, and similar outbreaks, including the global health
crisis of COVID-19. Such risks include disruptions or restrictions on our employees’ ability to work or work
effectively, temporary closures of our facilities or the facilities of our customers or suppliers, delays in supplier
deliveries, and delays in customer contract awards. We experienced higher employee absentee rates as a result of
COVID-19, which increased our costs and generated delay and disruption, impacted our performance on our
contracts, and degraded our financial performance. We could incur similar impacts in the future, in connection with
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COVID-19 or other health epidemics, pandemics, or similar outbreaks, and related cost increases may not be fully
recoverable under our contracts or adequately covered by insurance, which could impact our profitability.
The COVID-19 health crisis also created challenges for our suppliers relative to their workforces, access to
necessary components, materials, and other supplies at reasonable prices, and access to support services, such as
shipping and transportation. These challenges have impacted the ability of suppliers to provide agreed-upon goods
and services in a timely, compliant, and cost-effective manner. We may in the future incur additional costs and
performance challenges, including as a result of higher prices, schedule delays, or the need to identify and develop
alternative suppliers.
While we are not currently subject to any vaccine mandate, we continue to encourage each of our employees to be
fully vaccinated against COVID-19. To the extent we become subject to a vaccine mandate in the future, our
implementation of the mandate could result in employee attrition, including attrition of critical skilled labor, and
difficulty meeting future labor requirements. If attrition is significant, our operations and ability to execute our
contracts could be materially impacted. In addition, our subcontractors and suppliers who become subject to a
vaccine mandate could be impacted by an inability to comply or loss of personnel, which could disrupt subcontractor
or supplier performance or deliveries, and negatively impact our business.
Our business could suffer if we are unsuccessful in negotiating new collective bargaining agreements.
Approximately 45% of our employees are covered by a total of nine collective bargaining agreements and one site
stabilization agreement. Newport News has three collective bargaining agreements covering represented
employees, which expire in April 2024, February 2027, and December 2027. Newport News craft workers employed
at the Kesselring Site near Saratoga Springs, New York are represented under an indefinite DoE site agreement.
Ingalls has five collective bargaining agreements covering represented employees, all of which expire in March
2026. Approximately 15 Mission Technologies employees in Klamath Falls, Oregon are covered by a collective
bargaining agreement that expires in June 2025.
Collective bargaining agreements generally expire after three to five years and are subject to renegotiation at that
time. While we believe we maintain satisfactory relationships with our represented workers, it is possible we may
experience difficulties renegotiating expiring collective bargaining agreements. We have experienced in the past
work stoppages, strikes, and other labor disruptions associated with the collective bargaining of new labor
agreements. If we experience such events in the future, we could incur additional expenses or work delays that
could adversely affect programs served by employees who are covered by collective bargaining agreements.
We could be negatively impacted by security threats, including cyber security threats, and related
disruptions.
As a defense contractor, we rely on our information technology infrastructure to process, transmit, and store
electronic information, including classified and other sensitive information of the U.S. Government. While we
maintain stringent information security policies and protocols and implement security controls and complementary
cyber security technologies in compliance with industry requirements, we face substantial cyber security threats to
our information technology infrastructure, including threats to our and the U.S. Government's proprietary and
classified information from advanced nation state threat actors, sophisticated cybercrime syndicates, hacktivists,
and insiders. Such cyber security threats include security breaches (whether through cyber attack, cyber intrusion or
insider threat) via the internet; malicious software, including ransomware; computer viruses; attachments to emails;
persons inside our organization or with access to systems inside our organization; subcontractors or suppliers; or
other significant disruptions of our information technology networks and related systems or those of our suppliers or
subcontractors.
Our information technology infrastructure is critical to the efficient operation of our business and essential to our
ability to perform day-to-day operations. Breaches of our information technology can be expected to lead to the
following types of adverse consequences: losses or misuse of sensitive information or capabilities; theft or
corruption of data; harm to personnel, infrastructure or products; financial costs and liabilities; protracted
interruptions in our operations and performance; significant recovery and restoration expenses, degraded
performance on existing contracts, the misuse of our products; and exposure to reputational damage, potential
liability, or the loss of current or future contracts, including work on sensitive or classified systems for the U.S.
Government, any of which could have a material adverse effect on our operations, financial position, results of
operations, or cash flows.
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While we implement countermeasures to address the risks posed by cyber security threats, external and internal
threat actors continuously seek to evade our cyber security countermeasures to gain unauthorized and unlawful
access to our information technology infrastructure, assets, and data, both on premises and in the cloud. Even the
most well-protected information, networks, systems, and facilities remain potentially vulnerable because attempted
security breaches, particularly cyber attacks and cyber intrusions or disruptions, regularly occur and will continue to
occur in the future, and because the techniques used in such attempts are constantly evolving and generally are not
recognized until launched against a target. Accordingly, we are not always able to anticipate these techniques or to
implement adequate security barriers or other preventative measures.
Our suppliers, subcontractors, and other business partners also face cyber security and other security threats.
Although we undertake cooperative efforts with our customers, suppliers, subcontractors, and other business
partners to facilitate their understanding of cyber security threats they face and potential cyber security
countermeasures to mitigate potential cyber-attacks, other security threats, and business disruptions, we rely
substantially on the safeguards implemented by these organizations, which affects the security of our information.
These organizations have varying levels of cyber security expertise and safeguards, and their relationships with
U.S. Government contractors increases the likelihood that they are or will be targeted by the same cyber security
threats we face.
Our business and financial performance may be adversely affected by threats to our physical security and
other events outside our control.
We could encounter threats to our physical security, including our facilities and personnel, and threats from
workplace violence, civil unrest, acts of sabotage or terrorism, and other local security issues, any of which could
disrupt our business. Such events may require us to incur greater costs for security or to shut down operations for a
period of time.
Changes in future business conditions could cause business investments, recorded goodwill, and/or
purchased intangible assets to become impaired, resulting in losses and write-downs that would reduce
our operating income.
Our business strategy includes strategic business acquisitions and non-controlling investments in businesses. We
make acquisitions and investments following careful analysis and due diligence to achieve a desired strategic
objective or acquire a desired capability or technology. Acquisitions involve estimates, assumptions, and judgments
to arrive at acquisition prices, which are allocated among acquired assets, including goodwill, based upon fair
market values. Notwithstanding our acquisition process and business integration efforts, actual operating results of
businesses we acquire or in which we invest may vary significantly from expectations. In such events, we may be
required to write down our carrying values of the related goodwill, purchased intangible assets, or investments. In
addition, declines in the trading price of our common stock or the market as a whole can result in goodwill and/or
purchased intangible asset impairment charges associated with our existing businesses.
As of December 31, 2022, goodwill and purchased intangible assets from prior business acquisitions accounted for
approximately 24% and 9%, respectively, of our total assets. We evaluate goodwill values for impairment annually,
or when evidence of potential impairment exists. We also evaluate the values of purchased intangible assets when
evidence of potential impairment exists. The impairment tests are based on several factors requiring judgments. As
a general matter, a significant decrease in expected cash flows or unfavorable changes in market conditions may
indicate potential impairment of recorded goodwill or purchased intangible assets.
Legal and Regulatory Risk Factors
As a U.S. Government contractor, we are heavily regulated and could be adversely affected by changes in
regulations or negative findings from a U.S. Government audit or investigation.
As a U.S. Government contractor, we must comply with significant regulatory requirements, including those relating
to award, administration, and performance of U.S. Government contracts, as well as legal and regulatory
requirements relating to cyber security, environmental protection, and our nuclear operations. Government
contracting requirements increase our contract performance costs and compliance costs and risks, and change on a
routine basis. In addition, our nuclear operations are subject to an enhanced regulatory environment, which results
in further performance and compliance requirements and higher costs. New laws, regulations, or procurement
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requirements, or changes to existing ones (including, for example, regulations related to recovery of compensation
costs, cyber security, counterfeit parts, specialty metals, and conflict minerals), can increase our performance costs
and compliance costs and risks, and reduce our profitability.
We are overseen and audited by the U.S. Government and its various agencies, including the U.S. Navy's
Supervisor of Shipbuilding, the DCAA, and the DCMA. These agencies evaluate our contract performance, cost
structures, and compliance with applicable laws, regulations, and standards, as well as the adequacy of our
business systems and processes relative to U.S. Government requirements. If an audit uncovers improper or illegal
activities, we may be subject to administrative, civil, or criminal proceedings, which could result in fines, penalties,
repayments, or compensatory, treble, or other damages. Certain U.S. Government findings against a contractor can
also lead to suspension or debarment from future U.S. Government contracts or the loss of export privileges.
Allegations of impropriety can also cause significant reputational damage.
The U.S. Government also has the ability to decrease or withhold contract payments if it determines significant
deficiencies exist in one or more of our business systems. The U.S. Government has, in certain instances, withheld
contract payments upon its assessment that deficiencies exist with one or more of our business systems, which can
have a material impact on the timing of our cash receipts. For example, in August 2022, a Navy Contracting Officer
issued a written determination that the Ingalls Shipbuilding Property Management System had a significant
deficiency, resulting in a 2% withhold of payments on certain invoices issued under one contract. The withhold will
terminate and withheld funds paid to us when the Contracting Officer determines that the significant deficiency has
been corrected.
The U.S. Government has, from time to time, recommended that certain of our contract prices be reduced, or that
certain costs allocated to our contracts be disallowed, which sometimes involve substantial dollar amounts. In
response to U.S. Government audits, investigations, and inquiries, we have also made adjustments from time to
time to our contract prices and costs allocated to our government contracts. Such audits, investigations, and
inquiries may result in future reductions of our contract prices. Costs we incur that are determined to be unallowable
or improperly allocated to a specific contract will not be recovered or must be refunded if previously reimbursed.
We must comply with a variety of federal laws and regulations, including the FAR, the DFARS, the Truth in
Negotiations Act, the False Claims Act, the Procurement Integrity Act, the International Traffic in Arms Regulations
promulgated under the Arms Export Control Act, the Close the Contractor Fraud Loophole Act, the Foreign Corrupt
Practices Act, and CAS. If a determination is made that we engaged in illegal activities or that we are not presently
responsible, as defined under the FAR, we may be subject to reductions in contract values, contract modifications or
terminations, penalties, fines, repayments, compensatory, treble, or other damages, or suspension or debarment,
any of which could have a material adverse effect on our financial position, results of operations, or cash flows. In
addition, cyber security and data privacy and protection laws and regulations are evolving and present increasing
compliance challenges, which increase our costs and may affect our competitiveness, cause reputational harm, and
expose us to damages claims, substantial fines, or other penalties.
Environmental costs could have a material adverse effect on our financial position, results of operations, or
cash flows.
Our operations are subject to and affected by federal, state, and local environmental laws and regulations relating to
the discharge, storage, treatment, handling, disposal, and remediation of certain materials, substances, and wastes
used in our operations. Future environmental laws or regulations could also impact us. Increased public awareness
and concern regarding global climate change may result in more federal, regional, and/or international requirements
to reduce or mitigate global warming, and legislation, international protocols or treaties, or regulation could mandate
stricter limits on greenhouse gas emissions. Environmental laws and regulations may require the installation of
costly pollution control equipment or operational changes to limit emissions or discharges and/or to decrease the
likelihood of accidental hazardous material releases. We expect to incur future capital and operating costs to comply
with current and future laws and regulations for environmental protection and remediation, and such costs could be
substantial, depending on the future proliferation of environmental requirements and the extent to which we discover
currently unknown environmental conditions.
Shipbuilding operations require the use of hazardous materials. Our shipyards also generate significant quantities of
wastewater, which we treat before discharging in accordance with applicable permits. To manage these materials,
our shipyards have an extensive network of above ground and underground storage tanks, some of which have
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leaked and required remediation in the past. In addition, our handling of hazardous materials has sometimes
resulted in spills in our shipyards and occasionally in adjacent rivers and waterways in which we operate.
Various federal, state, and local environmental laws and regulations impose restrictions on the discharge of
pollutants into the environment and establish standards for the transportation, storage, and disposal of toxic and
hazardous wastes. Substantial fines, penalties, and criminal sanctions may be imposed for noncompliance, and
certain environmental laws impose joint and several "strict liability" for remediation of spills and releases of oil and
hazardous substances. Such laws and regulations impose liability upon a party for environmental cleanup and
remediation costs and damage without regard to the negligence or fault of such party and could expose us to
liability for the conduct of or conditions caused by third parties. Moreover, if we violate the Clean Air Act or the Clean
Water Act, the facility or facilities involved in the violation could be placed by the EPA on the "Excluded Parties List"
maintained by the General Services Administration, which would continue until the EPA concluded the cause of the
violation was cured. Facilities on the "Excluded Parties List" are prohibited from working on any U.S. Government
contract.
The adoption of new environmental or climate change laws and regulations, stricter enforcement of existing laws
and regulations, imposition of new cleanup requirements, discovery of previously unknown or more extensive
contamination, litigation involving environmental matters, our inability to recover related costs under our government
contracts, or the financial insolvency of other responsible parties could cause us to incur costs that could have a
material adverse effect on our financial position, results of operations, or cash flows.
Our reputation and our ability to conduct business may be impacted by the improper conduct of
employees, agents, or business partners.
Our compliance program includes detailed compliance plans and related compliance controls, policies, procedures,
and training designed to prevent and detect misconduct by employees, agents, business partners, and others
working on our behalf, including suppliers and subcontractors, that would violate the laws of the jurisdictions in
which we operate, including laws governing payments to government officials, the protection of export controlled or
classified information, cost accounting and billing, competition, and data privacy. From time to time we are impacted
by the misconduct of employees and business partners, and we may be impacted in the future by the misconduct of
our employees, agents, business partners, and others working on our behalf, including suppliers and
subcontractors. Moreover, the risk of improper conduct may be expected to increase as we expand our operations
into foreign jurisdictions. Any improper actions by our employees, agents, business partners, and others working on
our behalf, including suppliers and subcontractors, could subject us to administrative, civil, or criminal investigations
and monetary and non-monetary penalties, including suspension or debarment, which could have a material
adverse effect on our financial position, results of operations, or cash flows. Any such improper actions could also
cause us significant reputational damage.
Our nuclear operations subject us to environmental, regulatory, financial, and other risks.
The design, construction, refueling and overhaul, repair, and inactivation of nuclear-powered aircraft carriers and
nuclear-powered submarines, our nuclear facilities used to support such activities, our nuclear operations at DoE
sites, and our activities in the commercial nuclear market subject us to various risks, including:
•
•
•
•
•
Potential liabilities relating to harmful effects on the environment and human health resulting from nuclear
operations and the storage, handling, and disposal of radioactive materials, including nuclear assemblies
and their components;
Unplanned expenditures relating to maintenance, operations, security, and repairs, including repairs
required by the U.S. Navy, the Nuclear Regulatory Commission, or the DoE;
Reputational damage;
Potential liabilities arising out of a nuclear incident whether or not it is within our control; and
Regulatory noncompliance and loss of authorizations or indemnifications necessary for our operations.
Failure to properly store, handle, and dispose of nuclear materials could pose a health risk to humans and wildlife
and could cause personal injury and property damage, including environmental contamination. If a nuclear accident
were to occur, its severity could be significantly affected by the volume of the materials and the speed of remedial
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actions taken by us and emergency response personnel, as well as other factors beyond our control, such as
weather and wind conditions. Actions we might take in response to an accident could result in significant costs.
Our nuclear operations are subject to various safety related requirements imposed by the U.S. Navy, the DoE, and
the Nuclear Regulatory Commission. In the event of noncompliance, these agencies may increase regulatory
oversight, impose fines, or shut down our operations, depending on their assessment of the severity of the
noncompliance. In addition, new or revised security and safety requirements imposed by the U.S. Navy, DoE, and
Nuclear Regulatory Commission could require substantial capital and other expenditures.
Subject to certain requirements and limitations, our contracts with the U.S. Navy and DoE generally provide for
indemnity by the U.S. Government for costs arising out of or resulting from our nuclear operations. We may not,
however, be indemnified for all liabilities we may incur in connection with our nuclear operations. To mitigate risks
related to our commercial nuclear operations, we rely primarily on insurance carried by nuclear facility operators and
our own limited insurance for losses in excess of the coverage of facility operators. Such insurance, however, may
not be sufficient to cover our costs in the event of an accident or business interruption relating to our commercial
nuclear operations, which could have a material adverse effect on our financial position, results of operations, or
cash flows.
Changes in tax laws and regulations or exposure to additional tax liabilities could adversely affect our
financial results.
Changes in U.S. (federal or state) or foreign tax laws and regulations, or their interpretation and application,
including those with retroactive effect, could result in increases in our tax expense and affect profitability and cash
flows. For example, beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research
and development expenditures immediately in the year incurred and requires taxpayers to capitalize and amortize
such expenditures over five years. This change reduced our 2022 cash from operations by $102 million, and we
estimate it will reduce our 2023 cash from operations by approximately $82 million. The actual impact on 2023 cash
from operations will depend on whether and when these provisions are deferred, modified, or repealed by
Congress, including any retroactive application to 2022, among other factors.
In addition to future changes in tax laws, the amount of net deferred tax liabilities will change periodically as a result
of a number of factors, including the measurement of our defined benefit pension plans, actual cash contributions to
our defined benefit pension plans, changes in the timing of contract taxable income, and changes in the amount and
timing of depreciation deductions. We are also regularly under audit or examination by taxing authorities, including
foreign tax authorities. The final determination of tax liabilities and any related litigation could similarly result in
unanticipated increases in our tax expense and affect profitability and cash flows.
We are subject to claims and litigation that could ultimately be resolved against us, requiring future material
cash payments and/or future material charges against our operating income, materially impairing our
financial position or cash flows.
The size, nature, and complexity of our business make it highly susceptible to claims and litigation. We are subject
to various administrative, civil, and criminal litigation, environmental claims, income tax proceedings, compliance
proceedings, customer claims, and audits and investigations, which can divert financial and management resources
and result in fines, penalties, compensatory, treble or other damages, or nonmonetary sanctions. Government
regulations also provide that certain allegations against a contractor may lead to suspension or debarment from
government contracts or suspension of export privileges. Suspension or debarment would have a material adverse
effect on us because of our reliance on government contracts and authorizations. Litigation, claims, or
investigations, if ultimately resolved against us, could have a material adverse effect on our financial position,
results of operations, or cash flows. Any litigation, claim, audit, or investigation, even if fully indemnified or insured,
could negatively impact our reputation among our customers and the public and make it more difficult for us to
compete effectively or acquire adequate insurance in the future. See Note 14: Investigations, Claims, and Litigation
in Item 8.
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We may be unable to adequately protect our intellectual property rights, which could affect our ability to
compete.
We own patents, trademarks, copyrights, and other forms of intellectual property related to our business, and we
license intellectual property rights to and from third parties. The U.S. Government generally receives non-exclusive
licenses to certain intellectual property we develop in the performance of U.S. Government contracts, and the U.S.
Government may use or authorize others to use such intellectual property. The U.S. Government is taking
increasingly aggressive positions both as to the intellectual property to which they believe government use rights
apply and to the acquisition of broad license rights. If the U.S. Government is successful in these efforts, our
intellectual property on which we depend and our access to and use of certain supplier intellectual property could be
negatively affected.
We also rely upon proprietary technology, information, processes, and know-how that are not protected by patents.
We seek to protect this information through trade secret or confidentiality agreements with our employees,
consultants, subcontractors, and other parties, as well as through other measures. These agreements and other
measures may not, however, adequately protect the trade secrets on which we depend.
Our intellectual property is also subject to challenge, invalidation, misappropriation, or circumvention by third
parties. In the event of infringement of our intellectual property rights, breach of a confidentiality agreement, or
unauthorized disclosure of proprietary information, we may not have adequate legal remedies to protect our
intellectual property. Litigation to determine the scope of our rights, even if successful, could be costly and a
diversion of management's attention. In addition, trade secrets may otherwise become known or be independently
developed by competitors. If we are unable adequately to protect our intellectual property rights, our business could
be adversely affected.
We also use certain intellectual property licensed to us by third parties. In the case of such licensed intellectual
property, we may be unable in the future to secure the necessary licenses to use such intellectual property, or to
secure the licenses on commercially reasonable terms.
Anti-takeover provisions in our organizational documents and Delaware law, as well as regulatory
requirements, could delay or prevent a change in control.
Certain provisions of our Restated Certificate of Incorporation and Restated Bylaws may delay or prevent a merger
or acquisition that stockholders may consider favorable. For example, our Restated Certificate of Incorporation and
Restated Bylaws currently require advance notice for stockholder proposals and director nominations, and authorize
our board of directors to issue one or more series of preferred stock. Delaware law also imposes restrictions on
mergers and other business combinations between any holder of 15% or more of our outstanding common stock
and us.
Our nuclear shipbuilding operations are considered vitally important to the U.S. Navy. As a result, our Navy
contracts include notice and approval rights for the Navy and conditions regarding the Navy's obligations to
indemnify us for losses relating to our naval nuclear operations, in the event of a change of control of our nuclear
shipbuilding operations. Such provisions require us to provide the U.S. Navy with notice of any potential change of
control of our nuclear shipbuilding operations and receive the Navy's consent for transferring certain related licenses
to facilitate the Navy's ability to ensure that a potential buyer would continue to conduct our operations in a
satisfactory manner.
Provisions of our Restated Certificate of Incorporation and our Restated Bylaws and our existing contracts with the
U.S. Navy may have the effect of discouraging, delaying, or preventing a change of control of our company that may
be beneficial to our stockholders and could have a negative impact on our stock price.
Our Restated Bylaws include an exclusive forum requirement for certain litigation that may be initiated by
our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for such
disputes with us or our directors, officers, or employees.
Our Restated Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of
Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court
for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any
derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty
24
owed by any of our directors, officers, other employees, or stockholders to us or our stockholders, (iii) any action
asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware or as to
which the General Corporation Law of the State of Delaware confers jurisdiction on the Court of Chancery, (iv) any
action asserting a claim arising pursuant to any provision of our Certificate of Incorporation or Restated Bylaws, (v)
any action asserting an “internal corporate claim” as that term is defined in Section 115 of the General Corporation
Law of the State of Delaware, or (vi) any action governed by the internal affairs doctrine. This exclusive forum
provision would not apply to suits brought to enforce a duty or liability created by the Securities Act or the Exchange
Act, which provides for exclusive jurisdiction of the federal courts.
The exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds
favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits
against us and our directors, officers and other employees. Alternatively, if a court were to find the exclusive forum
provision contained in our Restated Bylaws to be inapplicable or unenforceable in an action, we may incur
additional costs and liabilities associated with resolving such action in other jurisdictions.
General Risk Factors
Our insurance coverage may be inadequate to cover all of our significant risks or our insurers may deny
coverage of material losses we incur, which could adversely affect our profitability and financial position.
We seek to insure our significant risks and potential liabilities that are insurable, including, among others, property
loss from natural disasters, product liability, and business interruption resulting from an insured property loss. In
some circumstances, we may be indemnified for losses by the U.S. Government, subject to the availability of
appropriated funds. Not every risk or liability can be protected by insurance, and, for insurable risks, the limits of
coverage we can reasonably purchase may not be sufficient to cover the full amount of our actual losses or
liabilities, including, for example, in the case of a catastrophic hurricane. In addition, the nature of our business can
make it difficult to quantify the disruptive impact and loss resulting from such events. Limitations on the availability of
insurance coverage may result in substantial uninsured losses, which could have a material adverse effect on our
financial position, results of operations, or cash flows. Even in cases for which we have insurance coverage,
disputes with insurance carriers over coverage may affect the timing of cash flows and cause us to incur significant
expense to pursue insurance claims. In addition, in the event of litigation with an insurance carrier, an unfavorable
outcome may have a material adverse effect on our financial position, results of operations, or cash flows.
Market volatility and adverse capital market conditions may affect our ability to access cost-effective
sources of funding and may expose us to risks associated with the financial viability of suppliers and
subcontractors.
The financial markets have recently experienced high levels of volatility and disruption, reducing the availability of
credit for certain issuers. We access these markets from time to time to support certain business activities, including
funding acquisitions and capital projects and refinancing existing indebtedness. We may also access these markets
to acquire credit support for our workers' compensation self-insurance program and letters of credit. A number of
factors could cause us to incur higher borrowing costs and experience greater difficulty accessing public and private
markets for debt, including disruptions or declines in the global capital markets and/or a decline in our financial
performance, outlook, or credit ratings. The occurrence of any or all of these events may adversely affect our ability
to fund our operations, meet contractual commitments, make future investments or desirable acquisitions, or
respond to competitive challenges.
Tightening capital markets could also adversely affect the ability of our suppliers and subcontractors to obtain
financing. Delays in the ability of our suppliers or subcontractors to obtain financing, or the unavailability of
financing, could negatively affect their ability to perform their contracts with us and, as a result, our ability to satisfy
our contractual obligations. The inability of our suppliers and subcontractors to obtain financing could also result in
the need for us to transition to alternate suppliers and subcontractors, which could result in us incurring significant
incremental costs and delays.
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If we fail to manage acquisitions, equity investments, and other transactions successfully or if acquired
businesses or equity investments fail to perform as expected, our financial results, business, and future
prospects could be harmed.
As part of our business strategy, we identify and evaluate potential acquisitions and investments. When evaluating
such transactions, we make significant judgments regarding the values of business opportunities, technologies, and
other assets, the risks and costs of potential liabilities, and the future prospects of strategic acquisitions. We often
compete with other potential buyers for the same opportunities. To be successful, we conduct due diligence to
identify valuation issues and potential loss contingencies; negotiate transaction terms; complete and close complex
transactions; integrate acquired companies and employees; and realize anticipated operating synergies efficiently
and effectively. Acquisition, joint venture, and investment transactions often require substantial management
resources and have the potential to divert our attention from our existing business. Unidentified or identified but un-
indemnified or uninsured pre-closing liabilities could affect our future financial results, particularly through successor
liability under procurement laws and regulations, such as the False Claims Act or Truth in Negotiations Act, anti-
corruption, environmental, tax, import-export, and technology transfer laws, which provide for civil and criminal
penalties and the potential for debarment. We also may incur unanticipated costs or expenses, including post-
closing asset impairment charges, expenses associated with eliminating duplicate facilities, employee retention,
transaction-related or other litigation, and other liabilities. Any of the foregoing could adversely affect our business
and results of operations.
Joint ventures and other non-controlling investments operate under shared control with other parties. These
investments typically include many of the same risks and uncertainties as we do, but may also expose us to
additional risks not present if we retained full control. A joint venture partner may have economic or other business
interests that are inconsistent with our interests, and we may be unable to prevent strategic decisions that may
adversely affect our business, financial condition, and results of operations. We also could be adversely affected by,
or liable for, actions taken by joint ventures that we do not control, including violations of anti-corruption, import and
export, taxation, and anti-boycott laws.
There can be no assurance we will continue to increase our dividends or to repurchase shares of our
common stock at current levels.
The payment of cash dividends and repurchases of our common stock are subject to limitations under applicable
law and the discretion of our board of directors, considered in the context of then current conditions, including our
earnings, other operating results, and capital requirements. Declines in asset values or increases in liabilities,
including liabilities associated with benefit plans and assets and liabilities associated with taxes, can reduce
stockholders’ equity. A deficit in stockholders’ equity could limit our ability under Delaware law to pay dividends and
repurchase shares in the future. In addition, the timing and amount of share repurchases under board-approved
share repurchase programs are within the discretion of management and depend upon many factors, including our
share price, results of operations, capital requirements, and general business conditions, as well as applicable law.
ITEM 1B. UNRESOLVED STAFF COMMENTS
There were no unresolved staff comments.
ITEM 2. PROPERTIES
Our principal properties are located in Pascagoula, Mississippi; Fairfax, Hampton, McLean, Newport News, Suffolk,
and Virginia Beach, Virginia; and Washington, D.C.
Ingalls - The primary properties comprising our Ingalls operating segment are located in Pascagoula, Mississippi.
Our Pascagoula shipyard facilities are located on approximately 800 acres on the banks of the Pascagoula River
where it flows into the Mississippi Sound. This shipyard offers a collection of manufacturing capabilities, including a
660-ton gantry crane and a Land Based Test Facility. We lease the west bank of our Pascagoula shipyard from the
State of Mississippi pursuant to a 99-year lease, consisting of a 40-year base term plus six optional terms. We
anticipate continued use of this facility for the remaining 44 years of the lease and beyond.
26
Newport News - The primary properties comprising our Newport News operating segment are located in Newport
News, Virginia.
Our Newport News facilities are located on approximately 550 acres we own near the mouth of the James River,
which adjoins the Chesapeake Bay, the premier deep-water harbor on the east coast of the United States. Our
Newport News shipyard is one of the largest in the United States and includes seven graving docks, a floating dry
dock, two outfitting berths, five outfitting piers, and various other shops. It also has a variety of other facilities,
including an 18-acre all-weather steel fabrication shop, accessible by both rail and transporter, module outfitting
facilities that enable us to assemble a ship's basic structural modules indoors and on land, machine shops totaling
300,000 square feet, and an apprentice school, which provides a four-year accredited apprenticeship program to
train shipbuilders.
Mission Technologies - The properties comprising our Mission Technologies operating segment are located
throughout the United States, United Kingdom, and Australia. Our Mission Technologies headquarters are located in
Fairfax and McLean, Virginia, and Mission Technologies leases properties related to its operations in approximately
51 locations, consisting of both corporate support locations and contract performance locations. Mission
Technologies also has employees working at customer sites throughout the United States and in other countries.
As of December 31, 2022, Mission Based Solutions had major operations in Annapolis and Hanover, Maryland;
Syracuse, New York; Beavercreek and Dayton, Ohio; and Alexandria, Virginia. Fleet Sustainment had operations in
Portsmouth, New Hampshire; Philadelphia, Pennsylvania; and Suffolk and Virginia Beach, Virginia. Unmanned
Solutions had operations in Pocasset, Massachusetts and Hampton, Virginia, and Nuclear and Environmental had
operations in Los Alamos, New Mexico; Aiken, South Carolina; and Newport News, Virginia.
We maintain a robust capital sustainment and maintenance program and believe our physical facilities and
equipment are generally well maintained, in good operating condition, and satisfactory for our current needs. We
have undertaken substantial capital expenditure programs at our Ingalls and Newport News segments intended to
increase our competitiveness and enable us to meet future obligations under our growing shipbuilding program
backlog.
ITEM 3. LEGAL PROCEEDINGS
For information regarding legal proceedings, see Note 14: Investigations, Claims, and Litigation in Item 8.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
27
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
PART II
Market Information
Our common stock is listed on the New York Stock Exchange under the symbol "HII".
Stockholders
The approximate number of our common stockholders was 13,278 as of February 3, 2023.
Annual Meeting of Stockholders
Our Annual Meeting of Stockholders is currently scheduled to be held on May 2, 2023, through a virtual format.
Stock Performance Graph
The following graph compares the total return on a cumulative basis of $100 invested in our common stock on
January 1, 2018, to the Standard & Poor's ("S&P") 500 Index and the S&P Aerospace and Defense Select Index.
◦
◦
The cumulative total return assumes reinvestment of dividends.
The S&P Aerospace & Defense Select Index is comprised of The Boeing Company, General Dynamics
Corporation, Huntington Ingalls Industries, Inc., L3 Harris Technologies, Inc., Lockheed Martin
Corporation, Northrop Grumman Corporation, Raytheon Technologies Corporation, Textron, Inc., and
TransDigm Group Incorporated, among other companies.
28
Index Value ($)Total Stockholder Returns HII S&P A&D Select S&P 5001/1/201812/31/201812/31/201912/31/202012/31/202112/31/20225075100125150175200
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Repurchases under our stock repurchase program are made from time to time at management's discretion in
accordance with applicable federal securities laws. All repurchases of HII common stock have been recorded as
treasury stock. The following table summarizes information relating to purchases made by or on behalf of the
Company of shares of the Company's common stock during the quarter ended December 31, 2022.
Period
October 1, 2022 to October 31, 2022
November 1, 2022 to November 30, 2022
December 1, 2022 to December 31, 2022
Total
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced
Program
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Program (in
millions)1,2
7,631 $
24,320
15,760
47,711 $
230.49
228.46
230.57
229.48
7,631 $
24,320
15,760
47,711 $
997.8
992.3
988.6
988.6
1 From the stock repurchase program's inception through December 31, 2022, we have purchased 13,639,861
shares at an average price of $162.13 per share for a total of $2.2 billion.
2 In October 2012, we commenced our stock repurchase program. In November 2019, we announced an increase in
the stock repurchase program to $3.2 billion and an extension of the term to October 31, 2024.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The following discussion should be read along with the audited consolidated financial statements included in Item 8
of this Annual Report on Form 10-K, as well as Part II, “Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021.
Business Environment
We continue to see uncertainty in the economy, our industry, and our company, with challenges for customers and
suppliers, labor shortages, supply chain challenges, and inflation, among other impacts.
U.S. Government Contracts - Long-term uncertainty exists with respect to overall levels of defense spending across
the future years' defense plan, and it is likely that U.S. Government discretionary spending levels will continue to be
subject to significant pressure.
The fiscal year 2023 budget cycle concluded with the enactment of the National Defense Authorization Act ("NDAA")
for fiscal year 2023 on December 23, 2022 and the Consolidated Appropriations Act, 2023 on December 29, 2022.
The NDAA broadly supported our shipbuilding programs, including multiyear procurement authority for up to 15
DDG Flight III destroyers, a fleet requirement of no less than 31 operational amphibious warships (LPD/LHD/LHA),
including a minimum of 10 amphibious assault ships (LHD/LHA), and bundle acquisition authority for LPD/LHA
amphibious warship procurement. Final defense appropriations were included in the Consolidated Appropriations
Act and provided funding for three Arleigh Burke class (DDG 51) destroyers, two Virginia class (SSN 774) attack
submarines and continued funding for LPD 32 (unnamed) and Fallujah (LHA 9). Additionally, the appropriations
measure provided advance procurement funding for LPD 33, LHA 10, and a third Arleigh Burke class (DDG 51)
destroyer in fiscal year 2024. The bill also provided funding for the Columbia class (SSBN 826) ballistic-missile
submarine program, Gerald R. Ford class (CVN 78) nuclear aircraft carrier programs, and the refueling and complex
overhaul ("RCOH") of USS John C. Stennis (CVN 74), as well as funding to support large surface combatant
shipyard infrastructure and the submarine industrial base.
The federal budget environment remains a significant long-term risk. Considerable uncertainty exists regarding how
future budget and program decisions will develop and what challenges budget changes will present for the defense
29
industry. We believe continued budget pressures could have serious implications for defense discretionary
spending, the defense industrial base, including HII, and the customers, employees, suppliers, subcontractors,
investors, and communities that rely on companies in the defense industrial base. Although it is difficult to determine
specific impacts, we expect that over the longer term, the budget environment may result in fewer contract awards
and lower revenues, profits, and cash flows from our U.S. Government contracts. It is likely budget and program
decisions made in this environment will have long-term impacts on HII and the entire defense industry.
Political and Economic Environment – The global geopolitical and economic environment continues to be impacted
by uncertainty, heightened tensions, and instability. Geopolitical relationships have changed, and are continuing to
change, and the U.S. and its allies face a global security environment that includes threats from state and non-state
actors, including major global powers, as well as terrorist organizations, emerging nuclear tensions, diverse regional
security concerns, and political instability. These global threats persist across all domains, from undersea to space
to cyber, and the global market for defense products, services, and solutions is driven by these complex and
evolving security challenges. Our current operating environment exists in the broader context of political and
socioeconomic priorities and reflects, among other things, the continued impact of and uncertainty surrounding
geopolitical tensions, financial market volatility, inflation, a challenging labor market, and the continued threat posed
by COVID-19.
In February 2022, Russian forces invaded Ukraine, and the conflict is continuing. In response, the United States
and other countries imposed economic and trade sanctions, export controls, and other restrictions. This conflict and
the associated sanctions have disrupted the global economy, causing heightened cybersecurity risks, supply chain
challenges, higher energy costs, and an exacerbation of existing inflationary pressures. Additionally, and more
broadly, tensions with China and changes in international trade policies, including higher tariffs on imported goods
and materials, could impact the global market for defense products, services, and solutions.
In addition to price surges in energy, food, and aluminum, an increase in inflation has led to higher costs of various
commodities and supplier products. In an era of unanticipated cost increases, the inclusion of mitigation
mechanisms, such as economic price adjustment clauses, in our contracts help mitigate certain risks attributable to
price inflation. Our bids for longer-term firm fixed-price contracts typically include assumptions for labor and other
contract costs that historically have been sufficient to cover cost increases over the period of performance. If,
however, recent inflationary conditions continue over the long-term, our cost assumptions may not be sufficient to
cover potential contract cost growth or may impact the availability of resources to execute the respective contracts.
Management is closely monitoring possible cost impacts with our customers.
The macro labor market continues to present significant challenges, and those challenges continue to impact our
operations and our financial performance. We are aggressively responding to the labor market challenges, including
utilizing outside leased labor and overtime to mitigate the short-term deficit of employees and implementing
aggressive hiring and retention programs. Labor shortages are also impacting our supply chain, resulting in longer
lead times for materials, parts, and other supplies, as well as inflationary pressure. Our longer term ability to meet
contract requirements, as well as our financial performance, are dependent on our ability to attract and retain a
stable skilled workforce.
The Inflation Reduction Act of 2022 ("IRA") was signed into law during the third quarter of 2022 and included
provisions for an alternative minimum tax and a one percent excise tax on share repurchases. We anticipate being
subject to the excise tax beginning in 2023 and continue to evaluate other provisions of the IRA for their impact on
our business.
COVID-19 Pandemic - The COVID-19 pandemic has dramatically impacted the global economic environment,
including labor shortages and supply chain challenges. The COVID-19 crisis initially had a significant impact on the
U.S. labor market, and the resulting challenges and uncertainty have exacerbated already existing workforce trends.
Talent attraction and retention and the ability to maintain a qualified workforce affects not only industry prime
contractors but suppliers as well. Challenges incurred by our suppliers relative to their workforces, access to
necessary components, materials, and other supplies at reasonable prices, and access to support services, such as
shipping and transportation, may impact the ability of suppliers to provide agreed-upon goods and services in a
timely, compliant, and cost-effective manner. We may in the future incur additional costs and performance
challenges, including as a result of higher prices, schedule delays, or the need to identify and develop alternative
suppliers.
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The COVID-19 pandemic has impacted our employees, customers, suppliers, and communities (collectively,
“COVID-19 Events”). While costs related to COVID-19 Events are allowable under U.S. Government contracts, our
contract financial estimates reflect profit margin impact uncertainty, because such costs may not result in equitable
adjustments, particularly on firm fixed-price and fixed-price incentive contracts, or may not be adequately covered
by insurance. Reinsurers under our property insurance have failed to acknowledge coverage for various losses
related to COVID-19, and we filed a complaint in state court in Vermont seeking a judgment declaring that our
business interruption and other losses associated with COVID-19 are covered by our property insurance program.
We also initiated arbitration proceedings against other reinsurers seeking similar relief. The Vermont court
dismissed our complaint, and we appealed the decision to the Vermont Supreme Court, which reversed and
remanded the lower court’s decision in September 2022, allowing our claim to proceed. No assurance can be
provided regarding the ultimate resolution of this matter. See Note 14: Investigations, Claims, and Litigation.
Defense Industry Overview
The United States faces a complex, uncertain, and rapidly changing national security environment. President Biden
released his first National Security Strategy (the "NSS") in October 2022. The NSS, which continues the U.S. focus
on China as the “pacing challenge” and Russia as an “acute” threat, calls for investments in emerging technologies
and modernizing the U.S. military, with a special focus on allies in the Indo-Pacific region and Europe. The Biden
Administration also released in October 2022 the public version of its 2022 National Defense Strategy (the "NDS").
Under the NDS, the Indo-Pacific region remains at the heart of U.S. defense planning, and primary focus is placed
on the need to sustain and strengthen U.S. deterrence against China. The NDS also takes into account the
challenges posed by Russia, including those connected with its invasion of Ukraine, along with threats posed by
North Korea, Iran, and violent extremist organizations. Additionally, ‘non-traditional’ threats, such as pandemic
disease and climate change, are included in the NDS as part of the national security dialogue. Integrated
deterrence, the defining principle of the NDS, seeks to align DoD activities and investments across all theaters,
across the full spectrum of conflict, and across all domains, including space and cyberspace, as well as a closer
working relationship with the U.S.’s network of allies and partners to deter aggression, exemplified in the Indo-
Pacific region by the Australia, U.K., and U.S. AUKUS agreement and the trilateral cooperation agreement with
Japan and Korea.
The U.S. also faces a more lethal and disruptive battlefield, combined across domains and conducted at increasing
speed and reach. The security environment is affected by rapid technological advancements and the changing
character of war. The drive to develop new capabilities and enhance lethality is relentless, expanding to address
emerging threats from peer-competitors as well as actors with lower barriers of entry, and moving at accelerating
speed. To address these rapidly-evolving threats, the U.S. is investing in new capabilities and lethality
enhancements, including unmanned and autonomous systems and platforms; artificial intelligence; hypersonics;
directed energy; resilient networks; command, control, communications, computers, cyber, intelligence, surveillance
and reconnaissance; and targeting requirements and microelectronics. Technologies are being prioritized that can
penetrate and operate inside highly-contested and highly-defended territory, both physical and cyber.
We anticipate the U.S. Navy’s force projection strategy will continue to emphasize sea control and sea denial,
enabling power projection against adversaries with long-range weapons and full-spectrum joint domain capabilities.
The Navy will likely continue to employ the evolving concept of Distributed Maritime Operations ("DMO"), which
features multiple sensors and shooters that are widely dispersed across a broad range of manned and unmanned
platforms and linked through resilient networks. Naval forces are participating in a larger DoD-wide objective to
modernize command and control architecture, the concept to connect sensors from all of the military services into a
single network known as Joint All-Domain Command and Control ("JADC2"). Future conflicts may require leaders to
analyze the operating environment and make decisions rapidly. With JADC2, DoD envisions creating an “internet of
things” network that would connect numerous sensors with weapons systems, using artificial intelligence algorithms
to help improve decision-making. Project Overmatch is the Navy’s effort to develop the networks, infrastructure,
data architecture, and analytics to participate in this larger, networked military operating environment. The end-state
for the “Future Navy” envisions a fleet designed to ensure the wholeness of combat capability and lethal forces
maximizing the benefits of DMO, expeditionary advanced base operations, and littoral operations in a contested
environment. Manned and unmanned technology will be used to expand reach, lethality, and warfighter awareness.
The Navy’s force structure goal of 355 ships, identified in the December 2016 Force Structure Assessment and
codified in the fiscal year 2018 National Defense Authorization Act, has remained the fleet objective for six years.
The Navy and the DoD have been working to develop a successor for the 355-ship force-level goal. The Navy
submitted a long-range shipbuilding plan with the fiscal year 2023 budget request, but, instead of providing a single
31
30-year outlook for shipbuilding, the service issued three separate plans for fiscal year 2023. The Navy crafted low-
end and high-end plans based on two separate funding profiles, and a third profile emphasized the building of attack
submarines and Columbia class (SSBN 826) nuclear ballistic missile submarines. In 2022, the Navy also delivered
its initial, long-range ship maintenance plan, The Framework for Maintenance and Modernization of Naval Vessels,
to Congress. The maintenance plan provides a long-range look at upcoming maintenance requirements to better
prepare Navy and industry partners for projected workloads. The Navy has struggled with maintenance delays in
recent years, and a significant tension exists between maintaining and modernizing the fleet.
The DoD and Navy not only face difficult tradeoffs between modernization priorities, but also tradeoffs about where
to take risk across time. The shipbuilding defense industry is capital heavy and skilled labor intensive. The Navy, a
large single customer with many needs and requirements, dominates the industry's customer base and is served by
an increasingly fragile supplier base that has trended toward exclusive providers. Inconsistent shipbuilding plans
and annual funding uncertainty severely degrade the ability of shipyards to conduct long-term planning and respond
to near-term changes in requirements. This ultimately results in longer construction times and increased costs. For
example, the high operational tempo of the Navy in recent years has resulted in a backlog of repair work across the
fleet. Coupled with the impacts of COVID-19 and increases in new ship construction, many suppliers are
experiencing a shortfall in their capacity to perform work and manufacture products. This increased demand is
applying stress to already-aging production equipment. The combination of limited suppliers and an increase in
workload could increase cost and potentially create schedule slips, impacting American warfighting capability.
Ultimately, a balance will need to be achieved between the competing priorities of upgrading legacy systems for the
near-term, developing and procuring the next generation of systems for the mid-term, and investing in emerging
technologies that could drive game-changing capabilities in the long-term. Additionally, the U.S. Navy must compete
with other budget priorities, including other defense activities, non-defense discretionary spending, supplemental
spending for COVID-19 relief and natural disasters, entitlement programs, and other mandatory spending, for a
share of federal budget funding. While the impact to our business resulting from these developments remains
uncertain, they could have a material impact on current programs, as well as new business opportunities with the
DoD. See Risk Factors in Item 1A.
Program Descriptions
For convenience, a brief description of certain programs discussed in this Annual Report on Form 10-K is included
in the Glossary of Programs.
CONTRACTS
We generate most of our revenues from long-term U.S. Government contracts for the production of goods and
services. Government contracts typically include the following cost elements: direct material, labor and
subcontracting costs, and certain indirect costs, including allowable general and administrative expenses. Unless
otherwise specified in a contract, costs billed to contracts with the U.S. Government are treated as allowable and
allocable costs under the FAR and CAS regulations. Examples of costs incurred by us that are not allowable under
the FAR and CAS regulations include certain legal costs, lobbying costs, charitable donations, interest expense,
organizational costs, including certain merger and acquisition costs, and advertising costs.
We monitor our policies and procedures with respect to our contracts on a regular basis to ensure consistent
application under similar terms and conditions, as well as compliance with all applicable government regulations. In
addition, the DCAA routinely audits the costs we incur that are allocated to U.S. Government contracts.
Our contracts typically fall into one of four categories: firm fixed-price, fixed-price incentive, cost-type, and time and
materials. See Note 7: Revenue in Item 8.
•
•
Firm Fixed-Price Contracts - A firm fixed-price contract is a contract in which the specified scope of work is
agreed to for a price that is predetermined by bid or negotiation and not generally subject to adjustment
regardless of costs incurred by the contractor.
Fixed-Price Incentive Contracts - Fixed-price incentive contracts provide for reimbursement of the
contractor's allowable costs, but are subject to a cost-share limit that affects profitability. Fixed-price
incentive contracts effectively become firm fixed-price contracts once the cost-share limit is reached.
32
•
•
Cost-Type Contracts - Cost-type contracts provide for reimbursement of the contractor's allowable costs
plus a fee that represents profit. Cost-type contracts generally require that the contractor use its reasonable
efforts to accomplish the scope of the work within some specified time and some stated dollar limitation.
Time and Materials - Time and materials contracts specify a fixed hourly billing rate for each direct labor
hour expended and reimbursement for allowable material costs and expenses.
Contract Fees - Negotiated contract fee structures include: fixed fee amounts, cost sharing arrangements to reward
or penalize contractors for under- or over-cost target performance, respectively, positive award fees, and negative
penalty arrangements. Profit margins may vary materially depending on the negotiated contract fee arrangements,
percentage-of-completion of the contract, the achievement of performance objectives, and the stage of performance
at which the right to receive fees, particularly under incentive and award fee contracts, is finally determined.
Award Fees - Certain contracts contain award fees based on performance criteria such as cost, schedule, quality,
and technical performance. Award fees are determined and earned based on an evaluation by the customer of our
performance against such negotiated criteria. We consider award fees to be variable consideration and generally
include these fees in the transaction price using a most likely amount approach. Award fees are limited to the extent
of funding allotted by the customer and available for performance and those amounts for which a significant reversal
of revenue is not probable.
CRITICAL ACCOUNTING POLICIES, ESTIMATES, AND JUDGMENTS
Our consolidated financial statements are prepared in accordance with U.S. GAAP, which requires management to
make estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial
statements and the accompanying notes. Management considers an accounting policy to be critical if it is important
to our financial condition and results of operations and requires significant judgment and estimates by management
in its application. The development and selection of these critical accounting policies have been determined by our
management. We have reviewed our critical accounting policies and estimates with the audit committee of our
board of directors. Due to the significant judgment involved in selecting certain of the assumptions used in these
policies, it is possible that different parties could choose different assumptions and reach different conclusions.
While we base estimates and assumptions on our knowledge of current events and actions we may undertake in
the future, actual results may ultimately differ from these estimates and assumptions. We consider our policies
relating to the following matters to involve our most critical accounting policies and estimates:
•
•
•
•
Revenue recognition;
Purchase accounting, goodwill, and intangible assets;
Litigation, commitments, and contingencies;
Retirement related benefit plans; and
• Workers' compensation.
Revenue Recognition
Most of our revenues are derived from long-term contracts for the production of goods and services provided to the
U.S. Government, which are generally accounted for by recognizing revenues over time using a cost-to-cost
measure of progress. In estimating contract costs, we utilize a profit-booking rate based upon performance
expectations that incorporate a number of assumptions and estimates regarding risks related to technical
requirements, feasibility, schedule, and contract costs. Management performs periodic reviews of the contracts to
evaluate the underlying risks, which may increase the profit-booking rate as we are able to mitigate and retire such
risks. For the impacts of changes in estimates on our consolidated statements of operations and comprehensive
income, see Note 8: Segment Information in Item 8.
Purchase Accounting, Goodwill, and Intangible Assets
We allocate the purchase price of acquired businesses to the underlying tangible and intangible assets acquired
and liabilities assumed based upon their respective fair values, with the excess recorded as goodwill. We recognize
purchased intangible assets from our business acquisitions at fair value on the acquisition date. Our most significant
33
purchased intangible assets are generally related to customer contracts, including backlog and recompeted
contracts. We determine the fair values of those customer related intangible assets based on estimates and
judgments, including the amount and timing of expected future cash flows, long-term growth rates, and discount
rates.
Goodwill is tested for impairment on an annual basis at each of our reporting units by assessing qualitative factors
to determine whether it is more likely than not that the fair value of other intangible asset or the goodwill allocated to
the reporting unit is less than its carrying amount. If the qualitative assessment indicates a possible impairment, the
carrying value of the asset or reporting unit is compared with its fair value. If the fair value is determined to be less
than the carrying value, we record an impairment charge to the reporting unit. We perform tests for impairment of
amortizable intangible assets whenever events or circumstances suggest that amortizable intangible assets may be
impaired.
We estimate the fair value of each reporting unit using a combination of discounted cash flow analysis and market-
based valuation methodologies. Determining fair value requires the exercise of significant judgment, including
judgments about projected revenues, operating expenses, working capital investment, capital expenditures, and
cash flows over a multi-year period. The discount rate applied to our forecasts of future cash flows is based on our
estimated weighted average cost of capital. In assessing the reasonableness of our determined fair values, we
evaluate our results against our market capitalization. Impairment assessment inherently involves management
judgments as to assumptions about expected future cash flows and the impact of market conditions on those
assumptions. Changes in our estimates and assumptions could materially affect the determination of fair value and/
or goodwill impairment for each reporting unit.
For further information on purchase accounting, goodwill, and intangible assets, see Risk Factors in Item 1A and
Note 2: Summary of Significant Accounting Policies, Note 4: Acquisitions and Divestitures, and Note 11: Goodwill
and Other Intangible Assets in Item 8.
Litigation, Commitments, and Contingencies
Overview - We are subject to a range of legal proceedings before various courts and administrative agencies and
are periodically subject to government audits, inquiries, and investigations that arise in the ordinary course of
business. Estimating liabilities and costs associated with these matters requires judgment and assessment based
upon professional knowledge and the experience of management and our internal and external legal counsel. In
accordance with our practices relating to accounting for contingencies, we record charges to earnings when we
determine, after taking into consideration the facts and circumstances of each matter, including any settlement
offers, that it is probable a liability has been incurred and the amount of the loss can be reasonably estimated. The
ultimate resolution of any such exposure may vary from earlier estimates as further facts and circumstances
become known.
Environmental Accruals - We are subject to the environmental laws and regulations of the jurisdictions in which we
conduct operations. We record a liability for the costs of expected environmental remediation obligations when we
determine that it is probable we will incur such costs and the amount of the liability can be reasonably estimated.
When a range of costs is possible and no amount within that range is a better estimate than another, we record the
minimum amount of the range.
Factors that could result in changes to the assessment of probability, range of estimated costs, and environmental
liability accruals include: modification of planned remedial actions, increase or decrease in the estimated time
required to remediate, discovery of more extensive contamination than anticipated, results of efforts to involve other
legally responsible parties, financial insolvency of other responsible parties, changes in laws and regulations or
contractual obligations affecting remediation requirements, and improvements in remediation technology. Although
we cannot predict whether new information gained as remediation projects progress will materially affect the
accrued liability, we do not believe that future remediation expenditures will have a material effect on our financial
position, results of operations, or cash flows.
Income Tax Matters - The evaluation of tax positions taken in a filed tax return, or planned to be taken in a future tax
return or claim, requires judgment. We establish reserves for uncertain tax positions that do not meet the more-
likely-than-not recognition threshold, based on the merits of the position. We recognize the amount of a tax benefit
that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. If a tax position
34
does not meet the minimum statutory threshold to avoid payment of penalties, we recognize an expense for the
amount of the penalty in the period the tax position is claimed or expected to be claimed in our tax return. Penalties
and accrued interest related to unrecognized tax benefits are recognized as a component of income tax expense.
See Note 12: Income Taxes in Item 8. Changes in accruals associated with unrecognized tax benefits are recorded
in earnings in the period they are determined.
For further information on litigation, commitments, and contingencies, see Risk Factors in Item 1A and Note 2:
Summary of Significant Accounting Policies, Note 4: Acquisitions and Divestitures, Note 12: Income Taxes, Note 14:
Investigations, Claims, and Litigation, and Note 16: Commitments and Contingencies in Item 8.
Retirement Related Benefit Plans
We recognize, on a plan-by-plan basis, the funded status of our retirement related benefit plans as an asset or
liability on our balance sheet, with corresponding adjustments to after-tax accumulated other comprehensive loss
and deferred tax assets or liabilities. The funded status represents the difference between the benefit obligation and
the fair value of plan assets. See Note 17: Employee Pension and Other Postretirement Benefits in Item 8.
We calculate our retirement related benefit plan costs under both CAS and U.S. GAAP Financial Accounting
Standards ("FAS"). The calculations under CAS and FAS require significant judgment. CAS prescribes the
determination, allocation, and recovery of retirement related benefit plan costs on U.S. Government contracts
through the pricing of products and services. FAS prescribes the methodology used to determine retirement related
benefit plan expense or income, as well as the liability, for financial reporting purposes. The CAS requirements for
these costs and their calculation methodologies differ from FAS. As a result, while both CAS and FAS use
assumptions in their calculation methodologies, each method results in different calculated amounts of retirement
related benefit plan costs.
We recover our CAS costs through the pricing of products and services on U.S. Government contracts, so that the
CAS cost is recognized in segment product sales and service revenues and in the costs of those product sales and
service revenues. In order to present our consolidated financial statements in accordance with FAS, we record the
difference between our FAS expense and CAS cost (“FAS/CAS Adjustment”) as operating income within segment
operating income and non-operating retirement benefit (expense).
The minimum funding requirements for our qualified pension plans are determined under the Employee Retirement
Income Security Act of 1974 ("ERISA"), which is primarily based on the year's expected service cost and
amortization of other previously unfunded liabilities. Effective January 1, 2011, we were subject to the funding
requirements under the Pension Protection Act of 2006 ("PPA"), which amended ERISA. Under the PPA, we are
required to fully fund our pension plans over a rolling seven-year period as determined annually based upon the
funded status at the beginning of each year. PPA also introduced a variety of benefit restrictions that apply if a plan
falls below certain funded percentages, as defined by the Internal Revenue Code. In funding our plans, we consider
various factors, including the minimum funding requirements, the funded status needed to avoid potential benefit
restrictions and other adverse consequences, minimum CAS funding requirements, and the current and anticipated
funding levels of each plan.
Effective January 1, 2021, we adopted the Safe Harbor methodology used in determining CAS pension costs. The
interest rates used to calculate pension liabilities under CAS are consistent with those used in the determination of
minimum funding requirements under ERISA.
Pension funding requirements under ERISA are subject to pension relief for plan sponsors in the form of higher
interest rate assumptions introduced by the Moving Ahead for Progress in the 21st Century Act and subsequently
extended by the American Rescue Plan Act of 2021. Using these minimum funding interest rates for the purposes of
determining pension costs under CAS reduces volatility in CAS costs year-over-year and provides more predictable
costs for our customers, while better aligning reimbursements of pension costs under our contracts with our
required pension plan contributions under ERISA.
Due to the differences in requirements and calculation methodologies between FAS and CAS, our FAS pension
expense is not necessarily indicative of the funding requirements under PPA or the amounts we recover from the
U.S. Government under CAS.
35
Assumptions - We account for our retirement related benefit plans on the accrual basis under FAS. The
measurements of obligations, costs, assets, and liabilities require significant judgment. We annually review our
assumptions, which are set at each year end and generally not changed during the following year unless a major
plan event occurs, such as an amendment, curtailment, or settlement that would trigger a remeasurement. The key
assumptions in these measurements are the interest rate used to discount future benefit payments and the
expected long-term rate of return on plan assets.
Discount Rate - The assumed discount rate under FAS is used to determine the retirement related benefit plan
obligations and expense, and represents the hypothetical rate at which plan benefit obligations could be effectively
settled at the measurement date. Consequently, the discount rate can be volatile from year to year. The discount
rate assumption is determined for each plan by constructing a hypothetical portfolio of high-quality bonds with cash
flows that match the estimated outflows for future benefit payments to determine a single equivalent discount rate.
Benefit payments are not only contingent on the terms of a plan but also on the underlying participant
demographics, including current age and assumed mortality. We use only bonds that are denominated in U.S.
Dollars, are rated Aa or better by nationally recognized statistical rating agencies, have a minimum outstanding
issue of $50 million as of the measurement date, and are not callable, convertible, or index-linked.
Expected Long-Term Rate of Return - The expected long-term rate of return on assets is used to calculate net
periodic expense, based on such factors as historical returns, targeted asset allocations, investment policy,
duration, expected future long-term performance of individual asset classes, interest rates, inflation, portfolio
volatility, investment management and administrative fees, and risk management strategies. Historical plan asset
performance alone has inherent limitations in predicting future returns. While studies are helpful in understanding
past and current trends and performance, the rate of return assumption is based more on long-term prospective
views to avoid short-term market influences. Unless plan assets and benefit obligations are subject to re-
measurement during the year, the expected return on pension assets is based on the fair value of plan assets at the
beginning of the year.
Mortality - Mortality assumptions are used to determine the retirement related benefit obligations and expense, and
represent the likelihood and duration of benefit payments to plan participants based on historical experience and
projected longevity. We periodically update our mortality assumptions as circumstances warrant.
Differences arising from actual experience or changes in assumptions might materially affect retirement related
benefit plan obligations and the funded status. Actuarial gains and losses arising from differences between
assumptions and actual experience or changes in assumptions are deferred in accumulated other comprehensive
loss. This unrecognized amount is amortized as a component of net expense to the extent it exceeds 10% of the
greater of the plan's benefit obligation or plan assets. The amortization period for actuarial gains and losses is the
estimated average remaining service life of the plan participants. In 2022, the actual return on assets was
approximately (16.1)%, which was less than the expected return assumption of 7.25%. For the year ended
December 31, 2022, the weighted average discount rates for our pension and other postretirement benefit plans
increased by 247 and 256 basis points, respectively. The differences in asset returns resulted in an actuarial loss of
$1,943 million, and the differences in discount rates resulted in an actuarial gain of $2,605 million for the year ended
December 31, 2022.
An increase or decrease of 25 basis points in the discount rate and the expected long-term rate of return
assumptions would have had the following approximate impacts on pension expense and obligations:
($ in millions)
25 basis point decrease in discount rate
25 basis point increase in discount rate
25 basis point decrease in expected return on assets
25 basis point increase in expected return on assets
Increase (Decrease) in
2023 Expense
Increase (Decrease) in
December 31, 2022
Obligations
$
16
$
(6)
17
(17)
197
(188)
Assuming an 8.00% expected return on assets assumption, a $50 million pension plan contribution is generally
expected to favorably impact the current year expected return on assets by approximately $2 million, depending on
the timing of the contribution.
36
Sensitivities to assumptions are not necessarily linear and are specific to the time periods noted.
CAS Cost - In addition to providing the methodology for calculating retirement related benefit plan costs, CAS also
prescribes the method for assigning those costs to specific periods. While the ultimate liability for such costs under
FAS and CAS is similar, the pattern of cost recognition is different. The key drivers of CAS pension cost include the
funded status and the method used to calculate CAS reimbursement for each of our plans. A plan’s CAS pension
cost can only be allocated until the plan is fully funded as defined under the CAS requirements.
Other FAS and CAS Pension Considerations - A key driver of the difference between FAS expense and CAS cost
(and consequently the FAS/CAS Adjustment) is the pattern of earnings and expense recognition for actuarial gains
and losses that arise when our asset and liability experiences differ from our assumptions under each set of
requirements. Under FAS, our net actuarial gains and losses exceeding the 10% corridor are amortized over the
estimated average remaining service life of the plan participants. Under CAS Harmonization, the amortization period
is 10 years for actuarial gains and losses. Both FAS and CAS use a "market-related value" of plan assets approach
to calculate the amount of deferred asset gains or losses to be amortized. Under CAS, actual asset gains and
losses are systematically smoothed over five years, subject to certain limitations. For FAS, we do not use this
smoothing method, and instead use fair value in determining our FAS expense. Accordingly, FAS expense generally
reflects recent asset gains and losses sooner than CAS.
Additionally, CAS cost is only recognized for plans that are not fully funded as defined under CAS. If a plan
becomes or ceases to be fully funded due to our asset or liability experience, our CAS cost will change accordingly.
Retirement Plan Assets - Retirement plan assets are stated at fair value. Investments in equity securities (common
and preferred) are valued at the last reported sales price when an active market exists. Investments in fixed-income
securities are generally valued based on market transactions for comparable securities and various relationships
between securities that are generally recognized by institutional traders. Investments in hedge funds, real estate
investment funds, private partnerships, collective trust funds, and commingled funds are generally valued at their
Net Asset Values ("NAV") or equivalent, which are based on the current fair values of the fund's underlying assets.
Management reviews independently appraised values, audited financial statements, and additional pricing
information to evaluate the NAV or its equivalent.
For the limited group of investments for which market quotations are not readily available or for which the above
valuation procedures are deemed not to reflect fair value, additional information is obtained from the investment
manager and evaluated internally to determine whether any adjustments are required to reflect fair value. See Note
17: Employee Pension and Other Postretirement Benefits in Item 8.
Accumulated Other Comprehensive Loss - Changes in assumptions and changes to plan assets and benefit
obligations due to differences between actuarial assumptions and actual results are reported as actuarial gains and
losses and recorded in accumulated other comprehensive loss, along with unrecognized prior service costs arising
from plan amendments. As disclosed in Note 17: Employee Pension and Other Postretirement Benefits in Item 8,
net pre-tax unrecognized actuarial losses as of December 31, 2022 and 2021 were $678 million and $1,194 million,
respectively. The decrease in actuarial losses in 2022 was primarily driven by lower benefit obligations of $2,605
million resulting from higher discount rates used to determine benefit obligations and amortization of previously
unrecognized actuarial losses of $32 million, partially offset by asset returns less than expected returns of $1,943
million.
Net pre-tax unrecognized prior service costs (credits) as of December 31, 2022 and 2021 were $140 million and
$60 million, respectively. These net deferred costs (credits) primarily originated from plan amendments, including
those resulting from collective bargaining agreements. The change in unrecognized prior service costs (credits) in
2022 resulted from plan amendments and the amortization of previously accumulated prior service costs (credits).
Workers' Compensation
Our operations are subject to federal and state workers' compensation laws. We maintain self-insured workers'
compensation plans and participate in federally administered second injury workers' compensation funds. We
estimate the liability for such claims and funding requirements on a discounted basis utilizing actuarial methods
based on various assumptions, which include our historical loss experience and projected loss development factors.
We periodically, and at least annually, update our assumptions based on an actuarial analysis. For further
37
information on workers’ compensation, see Environmental, Health & Safety in Item 1 and Note 16: Commitments
and Contingencies in Item 8.
Accounting Standards Updates
See Note 3: Accounting Standards Updates in Item 8 for further information.
CONSOLIDATED OPERATING RESULTS
The following table presents selected financial highlights:
($ in millions)
Sales and service revenues
Year Ended December 31
2022 over 2021
2021 over 2020
2022
2021
2020
Dollars
Percent
Dollars
Percent
$ 10,676 $ 9,524 $ 9,361 $ 1,152
12 % $
Cost of product sales and service revenues
9,236
8,156
7,691
1,080
Income from operating investments, net
Other income and gains, net
General and administrative expenses
Operating income
Interest expense
Non-operating retirement benefit
Other, net
Federal and foreign income taxes
Net earnings
48
1
924
565
(102)
276
(20)
140
41
2
898
513
(89)
181
17
78
32
1
904
799
(114)
119
6
114
$
579 $
544 $
696 $
7
(1)
26
52
(13)
95
(37)
62
35
Operating Performance Assessment and Reporting
13 %
17 %
(50) %
3 %
10 %
(15) %
52 %
(218) %
163
465
9
1
(6)
(286)
25
62
11
79 %
(36)
6 % $
(152)
2 %
6 %
28 %
100 %
(1) %
(36) %
22 %
52 %
183 %
(32) %
(22) %
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.
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.
38
Sales and Service Revenues
Sales and service revenues were comprised as follows:
($ in millions)
Product sales
Service revenues
Sales and service revenues
$ 10,676 $ 9,524 $ 9,361 $ 1,152
Year Ended December 31
2022 over 2021
2021 over 2020
2022
2021
2020
Dollars
Percent
Dollars
Percent
$ 7,283 $ 7,000 $ 6,850 $
3,393
2,524
2,511
283
869
4 % $
34 %
12 % $
150
13
163
2 %
1 %
2 %
2022 - Product sales in 2022 increased $283 million, or 4%, from 2021. Product sales at our Ingalls segment
increased $15 million in 2022, primarily as a result of higher volumes in amphibious assault ships and surface
combatants, partially offset by lower volumes in the Legend class NSC program. Newport News product sales
increased $278 million in 2022, primarily as a result of higher volumes in aircraft carriers and submarines. Mission
Technologies product sales decreased $10 million in 2022, primarily as a result of lower volumes in mission based
solutions, unmanned systems, and fleet sustainment.
Service revenues in 2022 increased $869 million, or 34%, from 2021. Service revenues at our Ingalls segment
increased $30 million in 2022, primarily as a result of higher volumes in amphibious assault ship services. Service
revenues at our Newport News segment decreased $83 million in 2022, primarily as a result of lower volumes in
aircraft carrier, submarine and naval nuclear support services. Service revenues at our Mission Technologies
segment increased $922 million in 2022, primarily as a result of higher volumes in mission based solutions services
due to the acquisition of Alion in 2021.
2021 - Product sales in 2021 increased $150 million, or 2%, from 2020. Product sales at our Ingalls segment
decreased $105 million in 2021, primarily as a result of lower volumes in the Legend class NSC program and
amphibious assault ships, partially offset by higher volumes in surface combatants. Newport News product sales
increased $231 million in 2021, primarily as a result of higher volumes in submarines and aircraft carriers. Mission
Technologies product sales increased $24 million in 2021, primarily as a result of higher volumes in mission based
solutions, partially offset by lower volumes in unmanned systems.
Service revenues in 2021 increased $13 million, or 1%, from 2020. Service revenues at our Ingalls segment
decreased $56 million in 2021, primarily as a result of lower volumes in surface combatants and amphibious assault
ship services. Service revenues at our Newport News segment decreased $138 million in 2021, primarily as a result
of lower volumes in naval nuclear support services. Service revenues at our Mission Technologies segment
increased $207 million in 2021, primarily as a result of higher volumes in mission based solutions services due to
the acquisition of Alion, partially offset by the divestiture of our oil and gas business and contribution of our San
Diego Shipyard to a joint venture.
Cost of Sales and Service Revenues
Cost of product sales, cost of service revenues, income from operating investments, net, and general and
administrative expenses were as follows:
($ in millions)
Cost of product sales
% of product sales
Cost of service revenues
% of service revenues
Income from operating investments, net
Other income and gains, net
General and administrative expenses
% of total sales and service revenues
Year Ended December 31
2022 over 2021
2021 over 2020
2022
2021
2020
Dollars
Percent
Dollars
Percent
$ 6,225
$ 5,958
$ 5,621
$
267
4 % $
337
85.5 %
85.1 %
82.1 %
3,011
2,198
2,070
813
37 %
128
6 %
6 %
88.7 %
87.1 %
82.4 %
48
1
924
41
2
898
32
1
904
8.7 %
9.4 %
9.7 %
7
(1)
26
17 %
(50) %
3 %
9
1
(6)
28 %
100 %
(1) %
Cost of sales and service revenues
$ 10,111
$ 9,011
$ 8,562
$ 1,100
12 % $
449
5 %
39
Cost of Product Sales
2022 - Cost of product sales in 2022 increased $267 million, or 4%, compared to 2021. Cost of product sales at our
Ingalls segment increased $46 million in 2022, primarily as a result of volume increases described above and
receipt of a contract incentive on USS Jack H. Lucas (DDG 125) in 2021. Cost of product sales at our Newport
News segment increased $241 million in 2022, primarily as a result of volume increases described above. Cost of
product sales at our Mission Technologies segment decreased $12 million in 2022, primarily as a result of volume
decreases described above and year-to-year variances in contract mix. Cost of product sales related to the
Operating FAS/CAS Adjustment decreased $8 million from 2021 to 2022.
Cost of product sales as a percentage of product sales increased from 85.1% in 2021 to 85.5% in 2022, primarily
due to lower risk retirement on the Virginia class (SSN 774) submarine program and the RCOH of USS George
Washington (CVN 73), and receipt of a contract incentive on USS Jack H. Lucas (DDG 125) in 2021, partially offset
by favorable changes in contract estimates from facilities capital and price adjustment clauses, contract incentives
on the Columbia class (SSBN 826) submarine program, higher risk retirement on Harrisburg (LPD 30) and USS Fort
Lauderdale (LPD 28), as well as a favorable change in the Operating FAS/CAS Adjustment.
2021 - Cost of product sales in 2021 increased $337 million, or 6%, compared to 2020. Cost of product sales at our
Ingalls segment decreased $82 million in 2021, primarily as a result of the volume changes described above. Cost
of product sales at our Newport News segment increased $65 million in 2021, primarily as a result of submarine
volume increases described above, partially offset by impacts related to the performance on Block IV boats of the
Virginia class (SSN 774) submarine program and delay and disruption from discrete COVID-19 Events in 2020.
Cost of product sales at our Mission Technologies segment increased $20 million in 2021, primarily due to the
higher volumes described above. Cost of product sales related to the Operating FAS/CAS Adjustment increased
$334 million from 2020 to 2021.
Cost of product sales as a percentage of product sales increased from 82.1% in 2020 to 85.1% in 2021, primarily
due to an unfavorable change in the Operating FAS/CAS Adjustment, lower risk retirement on USS Delbert D. Black
(DDG 119), and year-to-year variances in contract mix, partially offset by impacts related to performance on Block
IV boats of the Virginia class (SSN 774) submarine program and delay and disruption from discrete COVID-19
Events in 2020, higher risk retirement on Bougainville (LHA 8), and a contract incentive on Jack H. Lucas (DDG
125).
Cost of Service Revenues
2022 - Cost of service revenues in 2022 increased $813 million, or 37%, compared to 2021. Cost of service
revenues at our Ingalls segment increased $30 million in 2022, primarily as a result of higher volumes described
above. Cost of service revenues at our Newport News segment decreased $83 million in 2022, primarily as a result
of lower volumes described above. Cost of service revenues at our Mission Technologies segment increased $870
million in 2022, primarily as a result of higher volumes described above. Cost of service revenues related to the
Operating FAS/CAS Adjustment decreased $4 million from 2021 to 2022.
Cost of service revenues as a percentage of service revenues increased from 87.1% in 2021 to 88.7% in 2022,
primarily driven by higher amortization of purchased intangible assets in 2022 due to the Alion acquisition, partially
offset by higher operating income driven by the acquisition of Alion in 2021 and a favorable change in the Operating
FAS/CAS Adjustment.
2021 - Cost of service revenues in 2021 increased $128 million, or 6%, compared to 2020. Cost of service revenues
at our Ingalls segment decreased $46 million in 2021, primarily as a result of the lower volumes described above.
Cost of service revenues at our Newport News segment decreased $74 million in 2021, primarily as a result of lower
volumes described above. Cost of service revenues at our Mission Technologies segment increased $177 million in
2021, primarily as a result of higher volumes changes described above. Cost of service revenues related to the
Operating FAS/CAS Adjustment increased $71 million from 2020 to 2021.
Cost of service revenues as a percentage of service revenues increased from 82.4% in 2020 to 87.1% in 2021,
primarily driven by an unfavorable change in the Operating FAS/CAS Adjustment, lower risk retirement on
submarine support services, and year-to-year variances in contract mix.
40
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.
2022 - Income from operating investments, net increased $7 million, or 17%, to $48 million in 2022 from $41 million
in 2021. The increase resulted from higher equity income from our investment in an unconsolidated ship repair and
specialty fabrication joint venture.
2021 - Income from operating investments, net increased $9 million, or 28%, to $41 million in 2021 from $32 million
in 2020. The increase resulted from higher equity income from our investment in an unconsolidated ship repair and
specialty fabrication joint venture and from our unconsolidated nuclear and environmental joint ventures.
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.
2022 - General and administrative expenses in 2022 increased $26 million, or 3%, compared to 2021. This increase
was primarily due to higher overhead costs as a result of the acquisition of Alion in 2021 and current state income
tax expense, partially offset by favorable changes in non-current state income tax expense.
2021 - General and administrative expenses in 2021 decreased $6 million, or 1%, compared to 2020. This decrease
was primarily driven by favorable changes in current state income tax expense, partially offset by unfavorable
changes in non-current state income tax expense and higher overhead costs driven by the acquisition of Alion.
Operating Income
We consider operating income an important measure for evaluating our operating performance, and, consistent with
industry practice, we define operating income as revenues less the related costs of producing the revenues and
general and administrative expenses.
We internally manage our operations by reference to "segment operating income," which is defined as operating
income before the Operating FAS/CAS Adjustment and non-current state income taxes, neither of which affects
segment performance. Segment operating income is not a recognized measure under GAAP. When analyzing our
operating performance, investors should use segment operating income in addition to, and not as an alternative for,
operating income or any other performance measure presented in accordance with GAAP. It is a measure we use to
evaluate our core operating performance. We believe segment operating income reflects an additional way of
viewing aspects of our operations that, when viewed with our GAAP results, provides a more complete
understanding of factors and trends affecting our business. We believe the measure is used by investors and is a
useful indicator to measure our performance. Because not all companies use identical calculations, our presentation
of segment operating income may not be comparable to similarly titled measures of other companies.
The following table reconciles operating income to segment operating income:
($ in millions)
Operating income
Operating FAS/CAS Adjustment
Non-current state income taxes
Segment operating income
Year Ended December 31
2022 over 2021
2021 over 2020
2022
2021
2020
Dollars
Percent
Dollars
Percent
$
565 $
145
513 $
157
799 $
(248)
2
13
4
$
712 $
683 $
555 $
52
(12)
(11)
29
10 % $
(8) %
(85) %
(286)
405
9
4 % $
128
(36) %
163 %
225 %
23 %
41
Segment Operating Income
2022 - Segment operating income in 2022 was $712 million, compared to $683 million in 2021. The increase was
primarily due to favorable changes in contract estimates from facilities capital and price adjustment clauses,
contract incentives on the Columbia class (SSBN 826) submarine program, higher risk retirement on Harrisburg
(LPD 30) and USS Fort Lauderdale (LPD 28), higher operating income driven by the acquisition of Alion in 2021,
and higher equity income from our investment in an unconsolidated ship repair and specialty fabrication joint
venture, partially offset by higher amortization of purchased intangible assets in 2022 due to the Alion acquisition,
lower risk retirement on the Virginia class (SSN 774) submarine program and the RCOH of USS George
Washington (CVN 73), and receipt of a contract incentive on USS Jack H. Lucas (DDG 125) in 2021.
2021 - Segment operating income in 2021 was $683 million, compared to $555 million in 2020. The increase was
driven by impacts related to performance on Block IV boats of the Virginia class (SSN 774) submarine program and
delay and disruption from discrete COVID-19 Events in 2020.
Activity within each segment is discussed under Segment Operating Results below.
FAS/CAS Adjustment and Operating FAS/CAS Adjustment
The FAS/CAS Adjustment reflects the difference between expenses for pension and other postretirement benefits
determined in accordance with GAAP and the expenses for these items included in segment operating income in
accordance with CAS. The Operating FAS/CAS Adjustment excludes the following components of net periodic
benefit costs: interest cost, expected return on plan assets, amortization of prior service cost (credit) and actuarial
loss (gain), and settlement and curtailment effects.
Effective January 1, 2021, we adopted the Safe Harbor methodology for determining CAS pension costs. Under this
methodology, the interest rates used to calculate pension liabilities under CAS are consistent with those used in the
determination of minimum funding requirements under the Employee Retirement Income Security Act of 1974
("ERISA").
The components of the Operating FAS/CAS Adjustment were as follows:
($ in millions)
FAS benefit (expense)
CAS cost
FAS/CAS Adjustment
Non-operating retirement benefit
Year Ended December 31
2022 over 2021
2021 over 2020
2022
2021
2020
Dollars
Percent
Dollars
Percent
$
86 $
(28) $
(70) $
114
407 % $
42
45
131
52
24
437
367
(276)
(181)
(119)
(13) %
446 %
(52) %
(385)
(343)
(62)
(7)
107
(95)
12
60 %
(88) %
(93) %
(52) %
Operating FAS/CAS Adjustment (expense) benefit
$
(145) $
(157) $
248 $
8 % $
(405)
(163) %
2022 - The Operating FAS/CAS Adjustment in 2022 was a net expense of $145 million, compared to a net expense
of $157 million in 2021. The favorable change was primarily driven by higher interest rates under FAS.
2021 - The Operating FAS/CAS Adjustment in 2021 was a net expense of $157 million, compared to a net benefit of
$248 million in 2020. The unfavorable change was primarily driven by the more immediate recognition of higher
interest rates under CAS.
We expect the FAS/CAS Adjustment in 2023 to be a net benefit of approximately $81 million (($31) million FAS and
$50 million CAS), primarily driven by higher interest rates offset by 2022 asset returns.
We expect the Operating FAS/CAS Adjustment in 2023 to be a net expense of approximately $68 million ($118
million FAS and $50 million CAS), primarily driven by the more immediate recognition of higher interest rates under
FAS. The expected FAS/CAS Adjustment is subject to change during 2023, when we remeasure our actuarial
estimate of the unfunded benefit obligation for CAS with updated census data and other items later in the year.
42
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.
2022 - Non-current state income tax expense in 2022 was $2 million, compared to $13 million in 2021. The
favorable change in non-current state income taxes was primarily driven by a decrease in deferred state income tax
expense, largely attributable to research and development expenses that are capitalized and amortized for tax
purposes.
2021 - Non-current state income tax expense in 2021 was $13 million, compared to $4 million in 2020. The
unfavorable change in non-current state income taxes was driven by an increase in deferred state income tax
expense, primarily attributable to a decrease in expenses not currently deductible for income tax purposes.
Interest Expense
2022 - Interest expense in 2022 was $102 million, compared to $89 million in 2021. The increase was primarily due
to the issuance of senior notes and borrowing under the Term Loan in 2021 to partially fund the Alion acquisition.
2021 - Interest expense in 2021 was $89 million, compared to $114 million in 2020. The decrease was primarily a
result of costs associated with the early redemption in 2020 of $600 million aggregate principal amount of our
5.000% senior notes due 2025, partially offset by increased borrowing to fund the acquisition of Alion with the
issuance of $400 million aggregate principal amount of 0.670% senior notes due 2023, $600 million aggregate
principal amount of 2.043% senior notes due 2028, and a $650 million three-year Term Loan.
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.
2022 - A favorable change in the non-operating retirement benefit of $95 million from 2021 to 2022 was primarily
driven by higher 2021 returns on plan assets.
2021 - A favorable change in the non-operating retirement benefit of $62 million from 2020 to 2021 was primarily
driven by higher 2020 returns on plan assets.
Other, Net
2022 - Other, net expense in 2022 was $20 million, compared to other, net income of $17 million in 2021. The
decrease was primarily driven by realized and unrealized net investment losses.
2021 - Other, net income in 2021 was $17 million, compared to $6 million with 2020. The increase was primarily
driven by an impairment of a loan receivable in 2020.
Federal and Foreign Income Taxes
2022 - Our effective tax rate on earnings from continuing operations was 19.5% in 2022, compared to 12.5% in
2021. The increase in our effective tax rate for 2022 was primarily attributable to income tax benefits recorded in
2021 relating to research and development tax credits for prior periods and a tax loss associated with the sale of our
oil and gas business.
2021 - Our effective tax rate on earnings from continuing operations was 12.5% in 2021, compared to 14.1% in
2020. The decrease in our effective tax rate for 2021 was primarily attributable to an increase in research and
development tax credits for prior periods and a tax loss associated with the sale of our oil and gas business,
partially offset by an increase in unrecognized tax benefits.
43
SEGMENT OPERATING RESULTS
Basis of Presentation
We are aligned into three reportable segments: Ingalls, Newport News, and Mission Technologies.
The following table presents segment operating results:
Year Ended December 31
2022 over 2021
2021 over 2020
2022
2021
2020
Dollars
Percent
Dollars
Percent
($ in millions)
Sales and Service Revenues
Ingalls
Newport News
Mission Technologies
Intersegment eliminations
$ 2,570 $ 2,528 $ 2,678 $
5,852
2,387
(133)
5,663
1,476
(143)
5,571
1,268
(156)
42
189
911
10
Sales and service revenues
$ 10,676 $ 9,524 $ 9,361 $ 1,152
12 % $
Operating Income
Ingalls
Newport News
Mission Technologies
Segment operating income
Non-segment factors affecting operating income
Operating FAS/CAS Adjustment
Non-current state income taxes
Operating income
KEY SEGMENT FINANCIAL MEASURES
Sales and Service Revenues
$
292 $
357
281 $
352
281 $
233
63
712
(145)
(2)
50
683
(157)
(13)
41
555
248
(4)
$
565 $
513 $
799 $
11
5
13
29
12
11
52
2 % $
(150)
3 %
62 %
7 %
4 % $
1 %
26 %
4 %
92
208
13
163
—
119
9
128
(6) %
2 %
16 %
8 %
2 %
— %
51 %
22 %
23 %
8 %
(405)
85 %
(9)
10 % $
(286)
(163) %
(225) %
(36) %
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.
Segment Operating Income
Segment operating income reflects the aggregate performance results of contracts within a segment. Excluded from
this measure are certain costs not directly associated with contract performance, such as the Operating FAS/CAS
Adjustment and non-current state income taxes. Changes in segment operating income are typically expressed in
terms of volume, as discussed above, or performance. Performance refers to changes in contract profit margin
rates. These changes typically relate to profit recognition associated with revisions to estimated costs at completion
("EAC") that reflect improved or deteriorated operating performance on that contract. Operating income changes are
accounted for on a cumulative to date basis at the time an EAC change is recorded. Segment operating income
may also be affected by, among other things, contract performance, the effects of workforce stoppages, the effects
of natural disasters such as hurricanes, resolution of disputed items with the customer, recovery of insurance
proceeds, and other discrete events. At the completion of a long-term contract, any originally estimated costs not
incurred or reserves not fully utilized, such as warranty reserves, could also impact contract earnings. Where such
items have occurred and the effects are material, a separate description is provided.
44
Cumulative Adjustments
For the years ended December 31, 2022, 2021, and 2020, favorable and unfavorable cumulative catch-up revenue
adjustments were as follows:
($ in millions)
Gross favorable adjustments
Gross unfavorable adjustments
Net adjustments
Year Ended December 31
2022
2021
2020
$
$
325
$
244
$
(212)
(129)
113
$
115
$
244
(273)
(29)
2022 - Favorable cumulative catch-up revenue adjustments included contract incentives on the Columbia class
(SSBN 826) submarine program and higher risk retirement on USS Fort Lauderdale (LPD 28), Bougainville (LHA 8),
and Harrisburg (LPD 30). Unfavorable cumulative catch-up revenue adjustments included lower risk retirement on
the Virginia class (SSN 774) submarine program, the RCOH of USS George Washington (CVN 73), and the
construction of John F. Kennedy (CVN 79).
2021 - Favorable cumulative catch-up revenue adjustments included risk retirement on Bougainville (LHA 8), a
contract incentive on Jack H. Lucas (DDG 125), and risk retirement on Fort Lauderdale (LPD 28). No unfavorable
cumulative catch-up revenue adjustments were individually significant.
2020 - Favorable cumulative catch-up revenue adjustments included risk retirement on USS Delbert D. Black (DDG
119) in connection with its delivery and a capital expenditure contract incentive, naval nuclear support services, the
San Antonio class (LPD 17) program, and other individually insignificant adjustments.
Unfavorable cumulative catch-up revenue adjustments were primarily driven by $111 million in the second quarter of
2020 on the Block IV boats of the Virginia class (SSN 774) submarine program, including $95 million for cost and
schedule performance and updates to our assumptions for future program efficiencies and performance as a result
of cost and schedule trends. Our risk retirement assumptions on Block IV boats anticipated boat-to-boat cost and
schedule improvements working down the learning curve, but performance trends, exacerbated by the COVID-19
Events, made those improvements less likely to occur. Unfavorable cumulative catch-up revenue adjustments on
the Block IV boats of the Virginia class (SSN 774) submarine program also included $16 million from delay and
disruption directly attributable to COVID-19 Events due to lower employee attendance, decreased availability of
critical skills, and out-of-sequence work. Unfavorable cumulative catch-up revenue adjustments across all programs
resulting from delay and disruption cost estimates for discrete COVID-19 Events were $61 million, including $16
million in relation to the Block IV boats of the Virginia class (SSN 774) submarine program discussed above.
When estimates of total costs to be incurred exceed estimates of total revenue to be earned on a performance
obligation related to a complex, construction-type contract, we recognize the entire loss on the performance
obligation in the period the loss is determined.
Ingalls
($ in millions)
Sales and service revenues
Segment operating income
As a percentage of segment sales
Sales and Service Revenues
Year Ended December 31
2022 over 2021
2021 over 2020
2022
2021
2020
Dollars
Percent
Dollars
Percent
$ 2,570
$ 2,528
$ 2,678
$
292
281
281
11.4 %
11.1 %
10.5 %
42
11
2 % $
(150)
4 %
—
(6) %
— %
2022 - Ingalls revenues, including intersegment sales, increased $42 million, or 2%, in 2022 compared to 2021,
primarily driven by higher revenues in amphibious assault ships and surface combatants, partially offset by lower
revenues in the Legend class NSC program. Revenues on amphibious assault ships increased due to higher
volumes on Fallujah (LHA 9) and Pittsburgh (LPD 31), partially offset by lower volume on USS Fort Lauderdale
(LPD 28) following its delivery. Revenues on surface combatants increased due to higher volumes on Thad Cochran
(DDG 135), Sam Nunn (DDG 133), and Telesforo Trinidad (DDG 139), partially offset by lower volumes on
45
Jeremiah Denton (DDG 129) and USS Frank E. Petersen Jr. (DDG 121). Revenues on the Legend class NSC
program decreased due to lower volumes on Friedman (NSC 11) and Calhoun (NSC 10).
2021 - Ingalls revenues, including intersegment sales, decreased $150 million, or 6%, in 2021 compared to 2020,
primarily driven by lower revenues in the Legend class NSC program and amphibious assault ships, partially offset
by higher revenues in surface combatants. Revenues on the Legend class NSC program decreased due to lower
volumes on USCGC Stone (NSC 9) following its delivery. Amphibious assault ship revenues decreased due to lower
volumes on Fort Lauderdale (LPD 28), Richard M. McCool Jr. (LPD 29), Harrisburg (LPD 30), and USS Tripoli (LHA
7), partially offset by higher volumes on Pittsburgh (LPD 31) and Fallujah (LHA 9). Surface combatant revenues
increased due to higher volumes on Jack H. Lucas (DDG 125), George M. Neal (DDG 131), Jeremiah Denton (DDG
129), and Sam Nunn (DDG 133), partially offset by lower volumes on USS Delbert D. Black (DDG 119) following its
delivery and USS Fitzgerald (DDG 62) following its redelivery.
Segment Operating Income
2022 - Ingalls segment operating income in 2022 was $292 million, compared to segment operating income of $281
million in 2021. The increase was primarily due to favorable changes in contract estimates from facilities capital and
price adjustment clauses and higher risk retirement on Harrisburg (LPD 30) and USS Fort Lauderdale (LPD 28),
partially offset by receipt of a contract incentive on USS Jack H. Lucas (DDG 125) in 2021.
2021 - Ingalls segment operating income in 2021 was flat compared to 2020.
Newport News
($ in millions)
Sales and service revenues
Segment operating income
As a percentage of segment sales
Sales and Service Revenues
Year Ended December 31
2022 over 2021
2021 over 2020
2022
2021
2020
Dollars
Percent
Dollars
Percent
$ 5,852
$ 5,663
$ 5,571
$
189
357
6.1 %
352
6.2 %
233
4.2 %
5
3 % $
1 %
92
119
2 %
51 %
2022 - Newport News revenues, including intersegment sales, increased $189 million, or 3%, in 2022 compared to
2021, primarily driven by higher revenues in aircraft carriers and submarines, partially offset by lower revenues in
naval nuclear support services. Aircraft carrier revenues increased primarily as a result of higher volumes on the
RCOH of USS John C. Stennis (CVN 74) and the construction of Doris Miller (CVN 81) and Enterprise (CVN 80),
partially offset by lower volumes on the RCOH of USS George Washington (CVN 73) and USS Gerald R. Ford
(CVN 78). Submarine revenues increased due to higher volumes on the Columbia class (SSBN 826) submarine
program and Block V boats of the Virginia class (SSN 774) submarine program, partially offset by lower volumes on
Block IV boats of the Virginia class (SSN 774) submarine program. Naval nuclear support service revenues
decreased primarily as a result of lower volumes in facility maintenance services, partially offset by higher volumes
in submarine fleet support services.
2021 - Newport News revenues, including intersegment sales, increased $92 million, or 2%, in 2021 compared to
2020, primarily driven by higher revenues in submarines and aircraft carriers, partially offset by lower revenues in
naval nuclear support services. Submarine revenues increased primarily as a result of higher volumes on Block V
boats of the Virginia class (SSN 774) submarine program and the Columbia class (SSBN 826) submarine program,
partially offset by lower volumes on Block IV boats of the Virginia class (SSN 774) submarine program. Aircraft
carrier revenues increased primarily as a result of higher volumes on the RCOH of USS John C. Stennis (CVN 74),
the construction of Enterprise (CVN 80), and the construction of Doris Miller (CVN 81), partially offset by lower
volumes on the construction of John F. Kennedy (CVN 79) and the RCOH of USS George Washington (CVN 73).
Naval nuclear support service revenues decreased primarily as a result of lower volumes in submarine fleet support
services and facility maintenance services, partially offset by higher volumes in carrier fleet support services.
Segment Operating Income
2022 - Newport News segment operating income in 2022 was $357 million, compared to segment operating income
of $352 million in 2021. The increase was primarily due to favorable changes in contract estimates from facilities
46
capital and price adjustment clauses and contract incentives on the Columbia class (SSBN 826) submarine
program, partially offset by lower risk retirement on the Virginia class (SSN 774) submarine program and the RCOH
of USS George Washington (CVN 73).
2021 - Newport News segment operating income in 2021 was $352 million, compared to segment operating income
of $233 million in 2020. The increase was primarily due to impacts related to performance on Block IV boats of the
Virginia class (SSN 774) submarine program and delay and disruption from discrete COVID-19 Events in 2020.
Mission Technologies
($ in millions)
Sales and service revenues
Segment operating income (loss)
As a percentage of segment sales
Sales and Service Revenues
Year Ended December 31
2022 over 2021
2021 over 2020
2022
2021
2020
Dollars
Percent
Dollars
Percent
$ 2,387
$ 1,476
$ 1,268
$
63
2.6 %
50
3.4 %
41
3.2 %
911
13
62 % $
208
26 %
9
16 %
22 %
2022 - Mission Technologies revenues, including intersegment sales, for the year ended December 31, 2022,
increased $911 million, or 62%, compared to 2021, primarily due to higher volumes in mission based solutions
attributable to the acquisition of Alion in 2021.
2021 - Mission Technologies revenues, including intersegment sales, for the year ended December 31, 2021,
increased $208 million, or 16%, compared to 2020, primarily due to higher volumes in mission based solutions from
the acquisition of Alion, partially offset by the divestiture of our oil and gas business and contribution of our San
Diego Shipyard to a joint venture.
Segment Operating Income
2022 - Mission Technologies segment operating income for the year ended December 31, 2022, was $63 million,
compared to segment operating income of $50 million in 2021. The increase was primarily driven by the acquisition
of Alion in 2021 and higher equity income from our investment in an unconsolidated ship repair and specialty
fabrication joint venture, partially offset by higher amortization of purchased intangible assets in 2022 due to the
Alion acquisition.
2021 - Mission Technologies segment operating income for the year ended December 31, 2021, was $50 million,
compared to a segment operating income of $41 million in 2020. The increase was primarily driven by the
acquisition of Alion and equity income from nuclear and environmental joint ventures, partially offset by lower
performance in unmanned systems and the amortization of Alion purchased intangible assets.
BACKLOG
Total backlog as of December 31, 2022, was approximately $47.1 billion. Total backlog includes both funded
backlog (firm orders for which funding is contractually obligated by the customer) and unfunded backlog (firm orders
for which funding is not currently contractually obligated by the customer). Backlog excludes unexercised contract
options and unfunded Indefinite Delivery/Indefinite Quantity orders. For contracts having no stated contract values,
backlog includes only the amounts committed by the customer.
47
The following table presents funded and unfunded backlog by segment as of December 31, 2022 and
2021:
December 31, 2022
December 31, 2021
($ in millions)
Ingalls
Newport News
Mission Technologies
Total backlog
Funded
$
$
9,231
11,665
1,317
22,213
Unfunded
$
3,546
17,742
3,622
24,910
$
Total
Backlog
Funded
Unfunded
Total
Backlog
$
$
12,777
29,407
4,939
47,123
$
$
10,216
11,121
1,334
22,671
$
$
792
21,198
3,789
25,779
$
$
11,008
32,319
5,123
48,450
We expect approximately 22% of the $47.1 billion total backlog as of December 31, 2022, to be converted into sales
in 2023. U.S. Government orders comprised substantially all of the backlog as of December 31, 2022 and 2021.
Contract Awards
2022 - The value of new contract awards during the year ended December 31, 2022, was approximately $9.3 billion,
including awards for the construction of Fallujah (LHA 9) and Telesforo Trinidad (DDG 139).
2021 - The value of new contract awards during the year ended December 31, 2021, was approximately $8.1 billion,
comprised primarily of awards for the RCOH of USS John C. Stennis (CVN 74), construction of a 10th boat of the
Virginia class (SSN 774) submarine program, and construction of John F. Lehman (DDG 137).
LIQUIDITY AND CAPITAL RESOURCES
We seek to efficiently convert operating results into cash for deployment in operating our businesses, implementing
our business strategy, and maximizing stockholder value. We use various financial measures to assist in capital
deployment decision making, including net cash provided by operating activities and free cash flow. We believe
these measures are useful to investors in assessing our financial performance.
The following table summarizes key components of cash flow provided by operating activities:
($ in millions)
Net earnings
Depreciation and amortization
Provision for doubtful accounts
Stock-based compensation
Deferred income taxes
Loss (gain) on investments in marketable
securities
Asset impairments
Retiree benefits
Loss on early extinguishment of debt
Trade working capital decrease (increase)
Year Ended December 31
2022 over 2021
2021 over 2020
2022
2021
2020
Dollars
Percent
Dollars
Percent
$
579 $
544 $
696 $
366
(7)
36
2
25
—
(127)
—
(108)
301
7
33
98
(19)
—
(78)
—
(126)
254
(1)
23
23
(17)
13
(176)
21
257
35
65
6 % $
(152)
22 %
(14)
(200) %
3
(96)
44
—
(49)
—
18
6
9 %
(98) %
232 %
— %
(63) %
— %
14 %
1 % $
47
8
10
75
(2)
(13)
98
(21)
(383)
(333)
(22) %
19 %
800 %
43 %
326 %
(12) %
(100) %
56 %
(100) %
(149) %
(30) %
Net cash provided by operating activities
$
766 $
760 $ 1,093 $
We have historically maintained a capital structure comprised of a mix of equity and debt financing. We vary our
leverage both to optimize our equity return and to pursue acquisitions. We expect to meet our current debt
obligations as they come due through internally generated funds from current levels of operations and/or through
refinancing in the debt markets prior to the maturity dates of our debt.
Cash Flows
We discuss below our significant operating, investing, and financing activities affecting cash flows for each of the
three years in the period ended December 31, 2022, as classified in our consolidated statements of cash flows.
48
Operating Activities
2022 - Cash provided by operating activities was $766 million in 2022, compared to $760 million in 2021. The $6
million favorable change in operating cash flow was primarily due to lower contributions to retiree benefit plans and
favorable changes in trade working capital, partially offset by higher income tax and interest payments. The change
in trade working capital was primarily driven by the timing of receipts of accounts receivable.
We expect cash generated from operations in 2023, in combination with our current cash and cash equivalents, as
well as existing borrowing facilities, to be sufficient to service debt and retiree benefit plans, meet contractual
obligations, and fund capital expenditures for at least the next 12 calendar months beginning January 1, 2023 and
beyond such 12-month period based on our current business plans.
2021 - Cash provided by operating activities was $760 million in 2021, compared to $1,093 million in 2020. The
unfavorable change of $333 million in operating cash flow was primarily due to unfavorable changes in trade
working capital, partially offset by lower income tax payments and lower contributions to retiree benefit plans. The
change in trade working capital was primarily driven by the timing of payments of accounts payable and receipts of
accounts receivable.
Investing Activities
2022 - Cash used in investing activities was $268 million in 2022, a decrease of $1,686 million from 2021. The
change in investing cash flow was primarily driven by the acquisition of Alion in 2021.
For 2023, we expect our capital expenditures for maintenance and sustainment to be approximately 1.5% of annual
revenues and our discretionary capital expenditures to be approximately 1.5% to 2.5% of annual revenues.
2021 - Cash used in investing activities was $1,954 million in 2021, an increase of $1,195 million from 2020. The
change in investing cash flow was driven by the acquisitions of Alion and a non-controlling interest in a specialty
fabrication and ship repair joint venture in 2021, partially offset by the acquisition of Hydroid in 2020 and lower
capital expenditures and the disposition of our oil and gas business in 2021.
Financing Activities
2022 - Cash used in financing activities in 2022 was $658 million, compared to $1,309 million provided by financing
activities in 2021. The change in financing cash was primarily due to a $1,650 million decrease in proceeds from
long-term debt, a $375 million increase in the repayment of long-term debt, a $7 million increase in employee taxes
on share-based payment arrangements, and a $6 million increase in cash dividend payments, partially offset by a
$49 million decrease in common stock repurchases and a $22 million decrease in debt issuance costs.
2021 - Cash provided by financing activities in 2021 was $1,309 million, compared to $103 million provided by
financing activities in 2020. The change in financing cash was primarily due to a $1,225 million increase in net
proceeds from long-term debt, a $15 million decrease in premiums related to the 2020 early extinguishment of debt,
and a $6 million decrease in employee taxes on share-based payment arrangements, partially offset by a $17
million increase in common stock repurchases, a $14 million increase in cash dividend payments, and a $9 million
increase in debt issuance costs.
Free Cash Flow
Free cash flow represents cash provided by (used in) operating activities less capital expenditures net of related
grant proceeds. Free cash flow is not a measure recognized under GAAP. Free cash flow has limitations as an
analytical tool and should not be considered in isolation from, or as a substitute for, net earnings as a measure of
our performance or net cash provided by operating activities as a measure of our liquidity. We believe free cash flow
is an important liquidity measure for our investors because it provides them insight into our current and period-to-
period performance and our ability to generate cash from continuing operations. We also use free cash flow as a
key operating metric in assessing the performance of our business and as a key performance measure in evaluating
management performance and determining incentive compensation. Free cash flow may not be comparable to
similarly titled measures of other companies.
49
The following table reconciles net cash provided by operating activities to free cash flow:
($ in millions)
Net cash provided by operating activities
Less capital expenditures:
Capital expenditure additions
Grant proceeds for capital expenditures
Free cash flow
Year Ended December 31
2022
2021
2020
$
766
$
760
$
1,093
(284)
12
(331)
20
$
494
$
449
$
(353)
17
757
2022 - Free cash flow increased $45 million from 2021, primarily due to lower contributions to retiree benefit plans,
lower capital expenditures, and favorable changes in trade working capital, partially offset by higher income tax and
interest payments.
2021 - Free cash flow decreased $308 million from 2020, primarily due to an unfavorable change in trade working
capital, partially offset by lower income tax payments, lower contributions to retiree benefit plans, and lower capital
expenditures.
Retirement Related Benefit Plan Contributions
ERISA, including amendments under pension relief legislation, defines the minimum amount we must contribute to
our qualified defined benefit pension plans. In determining whether to make discretionary contributions to these
plans above the minimum required amounts, we consider various factors, including maintaining the funded status
needed to avoid potential benefit restrictions and other adverse consequences, maintaining minimum CAS funding
requirements, and the current and anticipated future funding levels of each plan. The contributions to our qualified
defined benefit pension plans are affected by a number of factors, including published IRS interest rates, the actual
return on plan assets, actuarial assumptions, and demographic experience. These factors and our resulting
contributions also impact the funded status of the plans. We made the following minimum and discretionary
contributions to our pension and other postretirement benefit plans in the years ended December 31, 2022, 2021,
and 2020:
($ in millions)
Pension plans
Discretionary
Qualified
Non-qualified
Other benefit plans
Total contributions
Year Ended December 31
2022
2021
2020
$
$
—
10
31
41
$
$
60
$
9
37
106
$
205
8
33
246
We made discretionary contributions to our qualified defined benefit pension plans totaling less than $1 million, $60
million, and $205 million in the years ended December 31, 2022, 2021, and 2020, respectively.
As of December 31, 2022 and 2021, our qualified pension plans were funded 109% and 102%, respectively, on a
FAS basis. As of December 31, 2022 and 2021, these plans were sufficiently funded on an ERISA basis so as not to
be subject to benefit payment restrictions. The funded percentages under ERISA and FAS vary due to inherent
differences in the assumptions and methodologies used to calculate the respective obligations. We expect our 2023
cash contributions to our qualified defined benefit pension plans to be less than $1 million, all of which we anticipate
will be discretionary and which are exclusive of CAS cost recoveries under our contracts. Due to the differences in
calculation methodologies, our FAS expense is not necessarily representative of our funding requirements or CAS
cost recoveries.
Other postretirement benefit plan contributions were $31 million, $37 million, and $33 million in 2022, 2021, and
2020, respectively. We expect 2023 contributions to our other postretirement benefit plans to be approximately $35
million, which are exclusive of CAS cost recoveries under our contracts. Contributions for other postretirement
benefit plans are not required to be funded in advance and are paid on an as-incurred basis.
50
Other Sources and Uses of Capital
Stockholder Distributions - In November 2022, our board of directors authorized an increase in our quarterly cash
dividend to $1.24 per share. The board previously increased the quarterly cash dividend to $1.18 per share in
November 2021 and $1.14 per share in November 2020. We paid cash dividends totaling $192 million ($4.78 per
share), $186 million ($4.60 per share), and $172 million ($4.23 per share) in the years ended December 31, 2022,
2021, and 2020, respectively.
In November 2019, our board of directors authorized an increase to our stock repurchase program from $2.2 billion
to $3.2 billion and an extension of the term of the program to October 31, 2024. Repurchases are made from time to
time at management's discretion in accordance with applicable federal securities laws. For the year ended
December 31, 2022, we repurchased 244,561 shares at an aggregate cost of $52 million. For the years ended
December 31, 2021 and 2020, we repurchased 544,440 and 390,904 shares, respectively, at aggregate costs of
$101 million and $84 million, respectively. The cost of repurchased shares is recorded as treasury stock in the
consolidated statements of financial position.
Additional Capital - In 2021, we issued $1 billion aggregate principal amount of senior notes, and we entered into a
$650 million 3-year delayed draw term loan. The net proceeds were used to fund a portion of the purchase price for
the acquisition of Alion.
In 2021, we amended and restated our existing $1.25 billion credit facility, increasing the capacity thereunder to
$1.5 billion and extending the maturity date to five years from signing (the "Revolving Credit Facility"). The
Revolving Credit Facility includes a letter of credit subfacility of $300 million.
In 2020, we issued $1 billion aggregate principal amount of senior notes. The net proceeds were intended to be
used for general corporate purposes, including debt repayments and working capital.
In 2020, we redeemed $600 million aggregate principal amount of our outstanding senior notes in accordance with
the terms of the indenture governing the notes.
We maintain an unsecured commercial paper note program, under which we may issue up to $1 billion of
unsecured commercial paper notes.
For a description of our outstanding debt amounts and related restrictive covenants, see Note 13: Debt in Item 8.
Contractual obligations - Our future contractual obligations are related to debt, leases, pension liabilities,
unrecognized tax benefits, workers compensation, and purchase obligations. See Note 13: Debt, Note 15: Leases,
Note 17: Employee Pension and Other Postretirement Benefits, Note 12: Income Taxes, and Note 2: Summary of
Significant Accounting Policies in Item 8 for information about those obligations. Our purchase obligations as of
December 31, 2022, were approximately $4,525 million, with approximately $2,451 million expected to be paid in
2023 and $2,074 million thereafter. A purchase obligation is defined as an agreement to purchase goods or services
that is enforceable and legally binding on us and that specifies all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the
transaction. As of December 31, 2022, future scheduled periodic interest payments on our outstanding long-term
debt, including commitment fees that we are obligated to pay on our Revolving Credit Facility, were approximately
$437 million, with approximately $101 million expected to be paid in 2023 and $336 million thereafter.
Off-Balance Sheet Arrangements
In the ordinary course of business, we use letters of credit issued by commercial banks to support certain leases,
insurance policies, and contractual performance obligations, as well as surety bonds issued by insurance
companies principally to support our self-insured workers' compensation plans. As of December 31, 2022, $14
million in letters of credit were issued but undrawn and $360 million of surety bonds were outstanding. As of
December 31, 2022, we had no other significant off-balance sheet arrangements.
51
GLOSSARY OF PROGRAMS
Included below are brief descriptions of some of the programs discussed in this Annual Report on Form 10-K.
Program Name
Program Description
America class (LHA 6) amphibious assault
ships
Arleigh Burke class (DDG 51) destroyers
Carrier RCOH
Columbia class (SSBN 826) submarines
Fleet sustainment
Design and build large deck amphibious assault ships that
provide forward presence and power projection as an integral part
of joint, interagency and multinational maritime expeditionary
forces. The America class (LHA 6) ships, together with the Wasp
class (LHD 1) ships, are the successors to the decommissioned
Tarawa class (LHA 1) ships. The America class (LHA 6) ships
optimize aviation operations and support capabilities. In 2020, we
delivered USS Tripoli (LHA 7), and, in 2022, we were awarded a
long-lead-time material and construction contract for Fallujah
(LHA 9). We are currently constructing Bougainville (LHA 8) and
Fallujah (LHA 9).
Build guided missile destroyers designed for conducting anti-air,
anti-submarine, anti-surface, and strike operations. The Aegis-
equipped Arleigh Burke class (DDG 51) destroyers are the U.S.
Navy's primary surface combatant, and have been constructed in
variants, allowing technological advances during construction. We
delivered USS Paul Ignatius (DDG 117), USS Delbert D. Black
(DDG 119), USS Frank E. Petersen Jr. (DDG 121), and Lenah H.
Sutcliffe Higbee (DDG 123) in 2019, 2020, 2021, and 2022,
respectively. We have contracts to construct the following Arleigh
Burke class (DDG 51) destroyers: USS Jack H. Lucas (DDG 125),
Ted Stevens (DDG 128), Jeremiah Denton (DDG 129), George
M. Neal (DDG 131), Sam Nunn (DDG 133), Thad Cochran (DDG
135), John F. Lehman (DDG 137), and Telesforo Trinidad (DDG
139).
Perform refueling and complex overhaul ("RCOH") of nuclear-
powered aircraft carriers, which is required at the mid-point of
their 50-year life cycle. USS George Washington (CVN 73)
arrived at Newport News for the start of its RCOH in August 2017,
and USS John C. Stennis (CVN 74) arrived at Newport News for
the start of its RCOH in May 2021.
Participating in designing the Columbia class submarine as a
replacement for the current aging Ohio class nuclear ballistic
missile submarines, which were first introduced into service in
1981. The Ohio class SSBN includes 14 nuclear ballistic missile
submarines and four nuclear cruise missile submarines. The
Columbia class program plan of record is to construct 12 new
ballistic missile submarines. The U.S. Navy has initiated the
design process for the new class of submarines, and, in early
2017, the DoD signed the acquisition decision memorandum
approving the Columbia class program’s Milestone B, which
formally authorizes the program’s entry into the engineering and
manufacturing development phase. We perform design work as a
subcontractor to Electric Boat, and we have entered into a
teaming agreement with Electric Boat to build modules for the
entire Columbia class (SSBN 826) submarine program that
leverages our Virginia class (SSN 774) experience. We have
been awarded contracts from Electric Boat for integrated product
and process development, providing long–lead–time material and
advance construction, and construction of the first two boats of
the Columbia class (SSBN 826) submarine program. Construction
of the first Columbia class (SSBN 826) submarine began in 2020.
Maintains and modernizes a significant majority of the U.S. Navy
fleet, from small watercraft to submarines, combatants, and
aircraft carriers, our systems and maintenance experts help the
Navy maintain a high state of readiness. Ensures effective system
operation and sustainment by actively supporting design and
decision–making processes through studies, analyses, and
reviews of program documents, and provides a wide range of
logistics products.
52
USS Gerald R. Ford class (CVN 78) aircraft
carriers
Design and construct the Ford class program, which is the aircraft
carrier replacement program for the decommissioned Enterprise
(CVN 65) and Nimitz class (CVN 68) aircraft carriers. USS Gerald
R. Ford (CVN 78), the first ship of the Ford class, was delivered to
the U.S. Navy in the second quarter of 2017. In June 2015, we
were awarded a contract for the detail design and construction of
John F. Kennedy (CVN 79), following several years of
engineering, advance construction, and purchase of long-lead-
time components and material. In addition, we have received
awards for detail design and construction of Enterprise (CVN 80)
and Doris Miller (CVN 81). This category also includes the class'
non-recurring engineering. The class is expected to bring
improved warfighting capability, quality of life improvements for
sailors, and reduced life cycle costs.
Legend class National Security Cutter
Design and build the U.S. Coast Guard's National Security
Mission based solutions
Naval nuclear support services
Nuclear and environmental services
Cutters ("NSCs"), the largest and most technically advanced class
of cutter in the U.S. Coast Guard. The NSC is equipped to carry
out maritime homeland security, maritime safety, protection of
natural resources, maritime mobility, and national defense
missions. The plan is for a total of 11 ships, of which the first nine
ships have been delivered. Calhoun (NSC 10) and Friedman
(NSC 11) are currently under construction.
Develops integrated solutions that enable today's connected, all–
domain force. Capabilities include: command, control, computers,
communications, cyber, intelligence, surveillance, and
reconnaissance ("C5ISR") systems and operations; the
application of artificial intelligence and machine learning to
battlefield decisions; defensive and offensive cyberspace
strategies and electronic warfare ("CEWS"); and live, virtual, and
constructive ("LVC") solutions.
Provide services to and in support of the U.S. Navy, ranging from
services supporting the Navy's carrier and submarine fleets to
maintenance services at U.S. Navy training facilities. Naval
nuclear support services include design, construction,
maintenance, and disposal activities for in-service U.S. Navy
nuclear ships worldwide through mobile and in-house capabilities.
Services include maintenance services on nuclear reactor
prototypes.
Supports the national security mission of the Department of
Energy ("DoE") through the management and operation of DoE
sites, as well as the safe cleanup of legacy waste across the
country. We meet our clients' toughest nuclear and environmental
challenges and are positioned to serve the growing commercial
nuclear power plant decommissioning market. We participate in
several joint ventures, including Newport News Nuclear BWXT
Los Alamos, LLC (" N3B"), Mission Support and Test Services,
LLC ("MSTS"), and Savannah River Nuclear Solutions, LLC
("SRNS"), and we are an integrated subcontractor to Triad
National Security. N3B was awarded the Los Alamos Legacy
Cleanup Contract at the DoE/National Nuclear Security
Administration’s Los Alamos National Laboratory. MSTS was
awarded a contract for site management and operations at the
Nevada National Security Site. SRNS provides site management
and operations at the DoE’s Savannah River Site near Aiken,
South Carolina. Triad provides site management and operations
at the DoE’s Los Alamos National Laboratory.
53
San Antonio class (LPD 17) amphibious
transport dock ships
Unmanned systems
Virginia class (SSN 774) fast attack
submarines
Design and build amphibious transport dock ships, which are
warships that embark, transport, and land elements of a landing
force for a variety of expeditionary warfare missions, and also
serve as the secondary aviation platform for Amphibious
Readiness Groups. The San Antonio class (LPD 17) is the newest
addition to the U.S. Navy's 21st century amphibious assault force,
and these ships are a key element of the U.S. Navy's seabase
transformation. In 2022, we delivered USS Fort Lauderdale (LPD
28), and we were awarded a long-lead-time material contract for
LPD 32 (unnamed). We are currently constructing Richard M.
McCool Jr. (LPD 29), Harrisburg (LPD 30), and Pittsburgh (LPD
31).
Creates advanced unmanned maritime solutions for defense,
marine research, and commercial applications. Serving customers
in more than 30 countries, unmanned systems provides design,
autonomy, manufacturing, testing, operations, and sustainment of
unmanned systems, including unmanned underwater vehicles
and unmanned surface vessels.
Construct attack submarines as the principal subcontractor to
Electric Boat. The Virginia class (SSN 774) is a post-Cold War
design tailored to excel in a wide range of warfighting missions,
including anti-submarine and surface ship warfare; special
operation forces; strike; intelligence, surveillance, and
reconnaissance; carrier and expeditionary strike group support;
and mine warfare.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks, including those relating to interest rates and inflation.
Interest Rates - Our floating rate financial instruments subject to interest rate risk include a $650 million Term Loan,
a $1.5 billion Revolving Credit Facility, and a $1 billion commercial paper program. As of December 31, 2022, we
had $225 million outstanding on the Term Loan and no indebtedness outstanding under our Revolving Credit
Facility or our commercial paper program. Based on the amounts outstanding under our Term Loan as of
December 31, 2022, an increase of 1% in interest rates would increase the interest expense on our debt by
approximately $2 million on an annual basis.
Inflation - Macroeconomic factors have contributed, and we expect will continue to contribute, to increasing cost
inflation for raw materials, components, and supplies. We mitigate some cost inflation risk by negotiating long-term
agreements with certain raw material suppliers and incorporating price escalation provisions in customer contracts
to the extent possible. We include assumptions of anticipated cost growth in the development of our cost of
completion estimates, but if inflationary conditions continue over the long-term, our cost assumptions may not be
sufficient to cover all cost escalation or may impact the availability of resources to execute the respective contracts.
Persistent cost inflation over the long-term may have an adverse impact on our financial position, results of
operations, or cash flows.
54
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Huntington Ingalls Industries, Inc.
Newport News, Virginia
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Huntington Ingalls Industries,
Inc. and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of
operations and comprehensive income, changes in equity, and cash flows for each of the three years in the period
ended December 31, 2022, the related notes and the financial statement schedule listed in the Index at Item 15
(collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with
the accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 9, 2023, expressed an unqualified
opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing a separate opinion on the critical audit matters or on the accounts or disclosures to which it relates.
Revenue – Long Term Shipbuilding Contracts — Refer to Note 2 and 7 to the financial statements
Critical Audit Matter Description
The Company recognizes revenue on long-term shipbuilding contracts with U.S. Government customers over time
as the construction of the ship progresses, because transfer of control to the customer is continuous. Ordinarily the
Company’s contracts represent a single distinct performance obligation due to the highly interdependent and
interrelated nature of the underlying goods. The use of the cost-to-cost method to measure performance progress
over time is supported by clauses in the related contracts that allow the customer to unilaterally terminate the
contract for convenience, pay the Company for costs incurred plus a reasonable profit, and take control of any work
in process. The accounting for these contracts involves judgment, particularly as it relates to the process of
55
estimating total material costs, labor costs, and profit for the performance obligation. Cost of sales is recognized as
incurred, and revenues are determined by adding a proportionate amount of the estimated profit to the amount
reported as cost of sales. For the year ended of December 31, 2022, revenue from long-term shipbuilding contracts
was $8.4 billion as compared to total revenue of $10.7 billion.
Given the judgments necessary to estimate total material costs, labor costs, and profit in order to recognize revenue
for certain long-term shipbuilding contracts, auditing such estimates required extensive audit effort due to the
complexity of the contracts and a high degree of auditor judgment, especially given the limited historical data for
certain contracts, when performing audit procedures and evaluating the results of those procedures.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimates of total material costs, labor costs, and profit in order to
recognize revenue for certain long-term shipbuilding contracts included the following, among others:
• We tested the effectiveness of controls over long-term shipbuilding contract revenue, including
management’s controls over the estimates of total material costs, labor costs, and profit for performance
obligations.
• We developed independent estimates of revenue based on historical profit margins and current year
recorded costs. We compared those estimates to revenue recognized by the Company.
• We obtained the population of active contracts during 2022 and assessed the financial and performance
risk of the contracts based on our knowledge gained through prior year audits of the Company, industry
experience, and ongoing conversations with members of program management regarding the contract
performance to identify contracts that we believe were riskier. For those contracts selected, we performed
further audit procedures that were tailored to address the specific characteristics of audit interest identified.
Procedures performed, among others, included:
◦
◦
◦
◦
◦
Read the relevant portions of contracts including any recent contract modifications to understand
contract terms, including incentives, fee arrangement, scope of work, and any unusual contract
terms.
Compared the transaction prices to the consideration expected to be received based on current
rights and obligations under the contracts and any modifications that were agreed upon with the
customers.
Tested management’s identification of distinct performance obligations by evaluating whether the
underlying goods, services, or both were highly interdependent and interrelated.
Tested the accuracy and completeness of the costs incurred to date for the performance obligation.
Evaluated the estimates of total costs and profit for the performance obligation by:
▪
▪
▪
▪
Evaluating management’s ability to achieve the estimated costs and profit by 1) performing
inquiries with the business managers and corroborating the information gained from these
inquiries with other parties who have detailed knowledge of the contract’s progress, issues
being encountered, and overall production status, 2) considering management’s historical
performance against estimates, 3) detail testing the appropriateness of the timing of
changes in estimates, and 4) considering any contradictory information.
Comparing materials cost estimates to purchase orders, supplier contracts, or other source
documents.
Comparing management’s estimates for the selected contracts to costs and profits of
similar performance obligations, when applicable.
Evaluate the necessity and appropriateness of any constraints applied against any variable
consideration, including consideration provided within the contracts for facilities cost of
capital.
Goodwill Valuation of the Mission Technologies reporting unit – Refer to Note 2 and 11 to the financial
statements
Critical Audit Matter Description
The Company performed a quantitative impairment evaluation of the goodwill for the Mission Technologies reporting
unit by comparing the estimated fair value of the reporting unit to its carrying value. The Company’s testing
approach utilizes a combination of discounted cash flow analysis and comparative market-based valuation
methodologies to determine the fair value of the reporting unit for comparison to its corresponding book value.
Estimating the fair value of a reporting unit requires the exercise of significant judgment and assumptions including
judgments about expected future cash flows, discount rates and expected long-term growth rates. Changes in these
assumptions could have a significant impact on the fair value of the reporting unit, the amount of any goodwill
impairment charge, or both.
56
The goodwill balance was $2.6 billion as of December 31, 2022 of which $1.7 billion related to the Mission
Technologies reporting unit.
The Company’s accounting policy is to test for impairment on November 30 of each year. As a result of the
quantitative assessment, the Company concluded that the fair value of the Mission Technologies reporting unit
exceeded the carrying value by approximately 5%, which resulted in no impairment for the year ended December
31, 2022.
Given the significant judgments made by management to estimate the fair value of the Mission Technologies
reporting unit and the difference between its fair value and carrying value, performing audit procedures to test the
Company’s estimate of the fair value of the Mission Technologies reporting unit, which included evaluating estimates
and assumptions related to forecasted revenues, forecasted earnings before income taxes, depreciation and
amortization (“EBITDA”) margins, and the selection of the discount rate and terminal growth rate, required a high
degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the selection of the forecasted revenues, forecasted EBITDA margins, and the
selection of the discount rate and terminal growth rate for the Mission Technologies reporting unit included the
following, among others:
• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those
over the selection of the assumptions used in the fair value models.
• We evaluated management’s ability to accurately forecast future revenues and EBITDA margins by
comparing actual results to management’s historical forecasts.
• We evaluated the reasonableness of management’s forecasts of revenue and EBITDA margins by
comparing the forecasts to internal communications to management and the Board of Directors and
comparing the forecasts to third-party economic and industry data.
• We performed sensitivity analyses to evaluate the risk of impairment if key assumptions are changed.
• We evaluated, with the assistance of our fair value specialists, the reasonableness of the (1) valuation
methodology utilized by management, and (2) the selected terminal growth rate and discount rate by
performing certain procedures, including:
◦
◦
◦
◦
Comparing the valuation methodologies used to generally accepted valuation practices.
Evaluating the appropriateness of the Company’s selection of companies in its industry peer group
for comparability to the reporting unit.
Evaluating the appropriateness of source information used by management to select the terminal
growth rate and discount rate used in their models.
Developing an independent estimate and compare it to that used by management to evaluate the
appropriateness of the conclusion after recalculating the models.
• We evaluated the carrying value of the Mission Technologies reporting unit including the corporate
allocations.
/s/ Deloitte & Touche LLP
Richmond, Virginia
February 9, 2023
We have served as the Company’s auditor since 2011.
57
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Huntington Ingalls Industries, Inc.
Newport News, Virginia
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Huntington Ingalls Industries, Inc. and subsidiaries
(the "Company") as of December 31, 2022, based on criteria established in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by
COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the
Company and our report dated February 9, 2023, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/ Deloitte & Touche LLP
Richmond, Virginia
February 9, 2023
58
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in millions, except per share amounts)
Sales and service revenues
Product sales
Service revenues
Sales and service revenues
Cost of sales and service revenues
Cost of product sales
Cost of service revenues
Income from operating investments, net
Other income and gains, net
General and administrative expenses
Operating income
Other income (expense)
Interest expense
Non-operating retirement benefit
Other, net
Earnings before income taxes
Federal and foreign income taxes
Net earnings
Basic earnings per share
Weighted-average common shares outstanding
Diluted earnings per share
Weighted-average diluted shares outstanding
Net earnings from above
Other comprehensive income (loss)
Change in unamortized benefit plan costs
Other
Tax benefit (expense) for items of other comprehensive income
Other comprehensive income (loss), net of tax
Comprehensive income
Year Ended December 31
2021
2020
2022
$
7,283
$
7,000
$
3,393
10,676
6,225
3,011
48
1
924
565
(102)
276
(20)
719
140
579
2,524
9,524
5,958
2,198
41
2
898
513
(89)
181
17
622
78
$
544
$
14.44
$
13.50
$
40.1
40.3
14.44
$
13.50
$
40.1
40.3
6,850
2,511
9,361
5,621
2,070
32
1
904
799
(114)
119
6
810
114
696
17.14
40.6
17.14
40.6
579
$
544
$
696
436
—
(112)
324
903
838
—
(214)
624
$
1,168
$
(187)
2
47
(138)
558
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
59
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
($ in millions)
Assets
Current Assets
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $2 million as of 2022 and
$9 million as of 2021
Contract assets
Inventoried costs, net
Income taxes receivable
Prepaid expenses and other current assets
Total current assets
Property, Plant, and Equipment
Land and land improvements
Buildings and leasehold improvements
Machinery and other equipment
Capitalized software costs
Accumulated depreciation and amortization
Property, plant, and equipment, net
Other Assets
Operating lease assets
Goodwill
Other intangible assets, net of accumulated amortization of $881 million as of 2022 and
$741 million as of 2021
Pension plan assets
Miscellaneous other assets
Total other assets
Total assets
December 31
2022
2021
$
467
$
636
1,240
183
170
50
2,746
344
2,805
2,122
246
5,517
(2,319)
3,198
282
2,618
1,019
600
394
4,913
$
10,857
$
627
433
1,310
161
209
50
2,790
329
2,643
2,058
226
5,256
(2,149)
3,107
241
2,628
1,159
281
421
4,730
10,627
The accompanying notes are an integral part of these consolidated financial statements.
60
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION - CONTINUED
($ in millions)
Liabilities and Stockholders' Equity
Current Liabilities
Trade accounts payable
Accrued employees’ compensation
Current portion of long-term debt
Current portion of postretirement plan liabilities
Current portion of workers’ compensation liabilities
Contract liabilities
Other current liabilities
Total current liabilities
Long-term debt
Pension plan liabilities
Other postretirement plan liabilities
Workers’ compensation liabilities
Long-term operating lease liabilities
Deferred tax liabilities
Other long-term liabilities
Total liabilities
$
December 31
2022
2021
$
642
345
399
134
229
766
380
2,895
2,506
214
260
463
246
418
366
603
361
—
137
252
651
423
2,427
3,298
351
368
506
194
313
362
7,368
7,819
Commitments and Contingencies (Note 16)
Stockholders’ Equity
Common stock, $0.01 par value; 150 million shares authorized; 53.5 million issued and 39.9
million outstanding as of December 31, 2022, and 53.4 million issued and 40.0 million outstanding
as of December 31, 2021
Additional paid-in capital
Retained earnings
Treasury stock
Accumulated other comprehensive loss
Total stockholders’ equity
1
2,022
4,276
(2,211)
(599)
3,489
Total liabilities and stockholders’ equity
$
10,857
$
The accompanying notes are an integral part of these consolidated financial statements.
1
1,998
3,891
(2,159)
(923)
2,808
10,627
61
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
Operating Activities
Net earnings
Adjustments to reconcile to net cash provided by operating activities
Year Ended December 31
2022
2021
2020
$
579
$
544
$
Depreciation
Amortization of purchased intangibles
Amortization of debt issuance costs
Provision for doubtful accounts
Stock-based compensation
Deferred income taxes
Loss on early extinguishment of debt
Loss (gain) on investments in marketable securities
Asset impairments
Change in
Accounts receivable
Contract assets
Inventoried costs
Prepaid expenses and other assets
Accounts payable and accruals
Retiree benefits
Other non-cash transactions, net
Net cash provided by operating activities
Investing Activities
Capital expenditures
Capital expenditure additions
Grant proceeds for capital expenditures
Acquisitions of businesses, net of cash received
Investment in affiliates
Proceeds from disposition of business
Other investing activities, net
Net cash used in investing activities
Financing Activities
Proceeds from issuance of long-term debt
Repayment of long-term debt
Proceeds from line of credit borrowings
Repayment of line of credit borrowings
Debt issuance costs
Premiums and fees related to early extinguishment of debt
Dividends paid
Repurchases of common stock
Employee taxes on certain share-based payment arrangements
Net cash provided by (used in) financing activities
Change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental Cash Flow Disclosure
Cash paid for income taxes (net of refunds)
Cash paid for interest
Non-Cash Investing and Financing Activities
Capital expenditures accrued in accounts payable
218
140
8
(7)
36
2
—
25
—
(196)
70
(22)
20
6
(127)
14
766
(284)
12
—
(5)
—
9
(268)
—
(400)
24
(24)
—
—
(192)
(52)
(14)
(658)
(160)
627
467
127
100
$
$
$
207
86
8
7
33
98
—
(19)
—
58
(126)
(25)
(88)
45
(78)
10
760
(331)
20
(1,643)
(22)
20
2
(1,954)
1,650
(25)
—
—
(22)
—
(186)
(101)
(7)
1,309
115
512
627
33
76
$
$
$
12
$
6
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
62
696
191
56
7
(1)
23
23
21
(17)
13
(70)
22
11
(62)
344
(176)
12
1,093
(353)
17
(417)
—
—
(6)
(759)
1,000
(600)
385
(385)
(13)
(15)
(172)
(84)
(13)
103
437
75
512
155
89
7
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
($ 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, 2019
$
1 $
1,961 $
3,009 $
(1,974) $
(1,409) $
1,588
Net earnings
Dividends declared ($4.23 per share)
Stock compensation
Other comprehensive loss, net of tax
Treasury stock activity
Balance as of December 31, 2020
Net earnings
Dividends declared ($4.60 per share)
Stock compensation
Other comprehensive income, net of tax
Treasury stock activity
Balance as of December 31, 2021
Net earnings
Dividends declared ($4.78 per share)
Stock compensation
Other comprehensive income, net of tax
Treasury stock activity
—
—
—
—
—
1
—
—
—
—
—
1
—
—
—
—
—
—
—
11
—
—
696
(172)
—
—
—
—
—
—
—
(84)
1,972
3,533
(2,058)
—
—
26
—
—
1,998
—
—
24
—
—
544
(186)
—
—
—
3,891
579
(192)
(2)
—
—
—
—
—
—
(101)
(2,159)
—
—
—
—
(52)
—
—
—
(138)
—
(1,547)
—
—
—
624
—
(923)
—
—
—
324
—
696
(172)
11
(138)
(84)
1,901
544
(186)
26
624
(101)
2,808
579
(192)
22
324
(52)
Balance as of December 31, 2022
$
1 $
2,022 $
4,276 $
(2,211) $
(599) $
3,489
The accompanying notes are an integral part of these consolidated financial statements.
63
HUNTINGTON INGALLS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Huntington Ingalls Industries, Inc. ("HII" or the "Company") is a global, all-domain defense partner, building and
delivering the world's most powerful, survivable naval ships and technologies that safeguard America's seas, sky,
land, space, and cyber. HII is organized into three reportable segments: Ingalls Shipbuilding ("Ingalls"), Newport
News Shipbuilding ("Newport News"), and Mission Technologies. For more than a century, the Company's Ingalls
segment in Mississippi and Newport News segment in Virginia have built more ships in more ship classes than any
other U.S. naval shipbuilder, making HII America’s largest shipbuilder. The Mission Technologies segment delivers
high-value engineering and technology solutions to enable multi-domain distributed operations in the government
and commercial services markets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The 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-K promulgated by the Securities and Exchange Commission ("SEC"). As used in the Notes
to the Consolidated Financial Statements, 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.
Accounting Estimates - The preparation of the Company's 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.
Revenue Recognition - Most of the Company's revenues are derived from long-term contracts for the production of
goods and services provided to its U.S. Government customers. The Company generally recognizes revenues on
contracts with U.S. Government customers over time using a cost-to-cost measure of progress. The use of the cost-
to-cost method to measure performance progress over time is supported by clauses in the related contracts that
allow the customer to unilaterally terminate the contract for convenience, pay the Company for costs incurred plus a
reasonable profit, and take control of any work in process. The Company utilizes the cost-to-cost method to
measure performance progress, because it best reflects the continuous transfer of control over the related goods
and services to the customer as the Company satisfies its performance obligations.
When the customer is not a U.S. Government entity, the Company may recognize revenue over time or at a point
in time when control transfers upon delivery, depending upon the facts and circumstances of the related
arrangement. When the Company determines that revenue should be recognized over time, the Company utilizes
a measure of progress that best depicts the transfer of control of the relevant goods and services to the customer.
Generally, the terms and conditions of the contracts result in a transfer of control over the related goods and
services as the Company satisfies its performance obligations. Accordingly, the Company recognizes revenue
over time using the cost-to-cost method to measure performance progress. The Company may, however, utilize a
measure of progress other than cost-to-cost, such as a labor-based measure of progress, if the terms and
conditions of the arrangement require such accounting.
When using the cost-to-cost method to measure performance progress, certain contracts may include costs that
are not representative of performance progress, such as large upfront purchases of uninstalled materials,
unexpected waste, or inefficiencies. In these cases, the Company adjusts its measure of progress to exclude
such costs, with the goal of better reflecting the transfer of control over the related goods or services to the
customer and recognizing revenue only to the extent of the costs incurred that reflect the Company's
performance under the contract.
64
In addition, for time and material arrangements, the Company often utilizes the practical expedient allowing the
recognition of revenue in the amount the Company invoices, which corresponds with the value provided to the
customer and to which the Company is entitled to payment for performance to date.
A performance obligation is a promise to transfer a distinct good or service to the customer and is the unit of
account for which revenue is recognized. To determine the proper revenue recognition method, consideration is
given to whether two or more contracts should be combined and accounted for as one contract and whether a
single contract consists of more than one performance obligation. For contracts with multiple performance
obligations, the contract transaction price is allocated to each performance obligation using an estimate of the
standalone selling price based upon expected cost plus a margin at contract inception, which is generally the
price disclosed in the contract. Contracts are often modified to account for changes in contract specifications and
requirements. In the majority of circumstances, modifications do not result in additional performance obligations
that are distinct from the existing performance obligations in the contract, and the effects of the modifications are
recognized as an adjustment to revenue on a cumulative catch-up basis. Alternatively, in instances in which the
performance obligations in the modifications are deemed distinct, contract modifications are accounted for
prospectively.
The amount of revenue recognized as the Company satisfies performance obligations associated with contracts
with customers is based upon the determination of transaction price. Transaction price reflects the amount of
consideration to which the Company expects to be entitled for performance under the terms and conditions of the
relevant contract and may reflect fixed and variable components, including shareline incentive fees whereby the
value of the contract is variable based upon the amount of costs incurred, as well as other incentive fees based
upon achievement of contractual schedule commitments or other specified criteria in the contract. Shareline
incentive fees are determined based upon the formula under the relevant contract using the Company’s estimated
cost to complete for each period. The Company generally utilizes a most likely amount approach to estimate
variable consideration. In all such instances, the estimated revenues represent those amounts for which the
Company believes a significant reversal of revenue is not probable.
Contract Estimates - In estimating contract costs, the Company utilizes a profit-booking rate based upon
performance expectations that takes into consideration a number of assumptions and estimates regarding risks
related to technical requirements, feasibility, schedule, and contract costs. Management performs periodic
reviews of the contracts to evaluate the underlying risks, which may increase the profit-booking rate as the
Company is able to mitigate and retire such risks. Conversely, if the Company is not able to retire these risks,
cost estimates may increase, resulting in a lower profit-booking rate.
The cost estimation process requires significant judgment based upon the professional knowledge and
experience of the Company’s engineers, program managers, and financial professionals. Factors considered in
estimating the work to be completed and ultimate contract recovery include the availability, productivity, and cost
of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of
materials, the effect of any performance delays, the availability and timing of funding from the customer, and the
recoverability of any claims included in the estimates to complete.
Changes in estimates of sales, costs, and profits on a performance obligation are recognized using the
cumulative catch-up method of accounting, which recognizes in the current period the cumulative effect of the
changes in current and prior periods. A significant change in an estimate on one or more contracts in a period
could have a material effect on the Company's consolidated financial position or results of operations for that
period.
When estimates of total costs to be incurred exceed estimates of total revenue to be earned on a performance
obligation related to a complex, construction-type contract, a provision for the entire loss on the performance
obligation is recognized in the period the loss is determined.
Accounts Receivable - Accounts receivable include amounts related to any unconditional Company right to
receive consideration and are presented as receivables in the consolidated statement of financial position,
separate from other contract balances. Accounts receivable are comprised of amounts billed and currently due
from customers. The Company reports accounts receivable net of an allowance for doubtful accounts. Because
the Company's accounts receivable are primarily with the U.S. Government or with companies acting as a
contractor to the U.S. Government, the Company does not have material exposure to accounts receivable credit
risk.
65
Contract Assets - Contract assets primarily relate to the Company’s rights to consideration for work completed
but not billed as of the reporting date when the right to payment is not just subject to the passage of time,
including retention amounts. Contract assets are classified as current assets and, in accordance with industry
practice, include amounts that may be billed and collected beyond one year due to the long-term nature of many
of the Company's contracts. Contract assets are transferred to accounts receivable when the right to
consideration becomes unconditional.
Contract Liabilities - Contract liabilities are comprised of advance payments, billings in excess of revenues, and
deferred revenue amounts. Such advances are generally not considered a significant financing component,
because they are utilized to pay for contract costs within a one-year period. Contract liability amounts are
recognized as revenue once the requisite performance progress has occurred.
Inventoried Costs - Inventoried costs primarily relate to company-owned raw materials, which are stated at the
lower of cost or net realizable value, generally using the average-cost method, and costs capitalized pursuant to
applicable provisions of the Federal Acquisition Regulation ("FAR") and U.S. Cost Accounting Standards ("CAS").
Under the Company's U.S. Government contracts, the customer asserts title to, or a security interest in,
inventories related to such contracts as a result of contract advances, performance-based payments, and
progress payments. In accordance with industry practice, inventoried costs are classified as current assets and
include amounts related to contracts having production cycles longer than one year.
Warranty Costs - Certain of the Company’s contracts contain assurance-type warranty provisions, which generally
promise that the service or vessel will comply with agreed upon specifications. In such instances, the Company
accrues the estimated loss by a charge to income in the relevant period. In limited circumstances, the Company's
complex construction type contracts may provide the customer with an option to purchase a warranty or provide an
extended assurance service coupled with the primary assurance warranty. In such cases, the Company accounts
for the warranty as a separate performance obligation to the extent it is material within the context of the contract.
Warranty liabilities are reported within other current liabilities and are not material.
Government Grants - The Company recognizes incentive grants, inclusive of transfers of depreciable assets, from
federal, state, and local governments at fair value upon compliance with the conditions of their receipt and
reasonable assurance that the grants will be received or the depreciable assets will be transferred. Grants in
recognition of specific expenses are recognized in the same period as an offset to those related expenses. Grants
related to depreciable assets are recognized over the periods and in the proportions in which depreciation expense
on those assets is recognized.
For the years ended December 31, 2022, 2021, and 2020, the Company recognized cash grant benefits of $12
million, $20 million, and $17 million, respectively, in other long-term liabilities in the consolidated statements of
financial position.
General and Administrative Expenses - In accordance with industry practice and regulations that govern the cost
accounting requirements for government contracts, most general corporate expenses incurred at both the segment
and corporate locations are 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 as an element of cost.
General and administrative expenses also include certain other costs that do not affect segment operating income,
primarily 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.
Research and Development - Company-sponsored research and development activities primarily include
independent research and development ("IR&D") related to experimentation, design, development, and test
activities for government programs. IR&D expenses are included in general and administrative expenses and are
generally allocable to government contracts. Company-sponsored IR&D expenses totaled $40 million, $34 million,
and $31 million for the years ended December 31, 2022, 2021, and 2020, respectively. Expenses for research and
development sponsored by the customer are charged directly to the related contracts.
Environmental Costs - Environmental liabilities are accrued when the Company determines remediation costs are
probable and such costs are reasonably estimable. When only a range of costs is established and no amount within
66
the range is more probable than another, the minimum amount in the range is accrued. Environmental liabilities are
recorded on an undiscounted basis and are not material. Environmental expenditures are expensed or capitalized
as appropriate. Capitalized expenditures, if any, relate to long-lived improvements in currently operating facilities.
The Company does not record insurance recoveries before collection is probable. As of December 31, 2022 and
2021, the Company did not have any accrued receivables related to insurance reimbursements or recoveries for
environmental matters.
Fair Value of Financial Instruments - The accounting standard for fair value measurements provides a framework for
measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined
as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the
principal or most advantageous market in an orderly transaction between market participants on the measurement
date. The accounting standard provides a fair value hierarchy, which requires an entity to maximize the use of
observable inputs, where available. The three levels of inputs consist of:
Level 1: Quoted prices in active markets for identical assets and liabilities.
Level 2: Observable inputs, other than Level 1 prices, such as: quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or that the Company corroborates
with observable market data for substantially the full term of the related assets or liabilities.
Level 3: Unobservable inputs supported by little or no market activity that are significant to the fair value of the
assets and liabilities.
Except for the Company's long-term debt, the carrying amounts of the Company's financial instruments 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 $209 million and $220 million as of December 31, 2022 and 2021, respectively, and are presented within
miscellaneous other assets within the 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.
Asset Retirement Obligations - Environmental remediation and/or asset decommissioning may be required when
the Company ceases to utilize certain facilities. The Company records, within other current liabilities or other long-
term liabilities as appropriate, all known asset retirement obligations for which the liability's fair value can be
reasonably estimated, including certain asbestos removal, asset decommissioning, and lease restoration
obligations. Asset retirement obligations for which the liability's fair value can be reasonably estimated were
immaterial as of December 31, 2022 and 2021.
Income Taxes - Income tax expense and other related information are based on the prevailing statutory rates for
U.S. federal income taxes and the composite state income tax rate for the Company for each period presented.
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, while the current period state income tax
expense, which is generally allowable and allocable to contracts, is charged to contract costs and included in cost of
sales and service revenues in segment operating income.
Deferred income taxes are recorded when revenues and expenses are recognized in different periods for financial
statement purposes and for tax return purposes. Deferred tax asset or liability account balances are calculated at
the balance sheet date using current tax laws and rates expected to be in effect when the deferred tax items
reverse in future periods.
The Company recognizes deferred tax assets to the extent it believes these assets are more likely than not to be
realized. In making such a determination, the Company considers all available positive and negative evidence,
including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning
strategies, and results of recent operations. Based on the Company's evaluation of these deferred tax assets,
valuation allowances of $28 million and $22 million were recognized as of December 31, 2022 and 2021,
respectively.
67
Uncertain tax positions meeting the more-likely-than-not recognition threshold, based on the merits of the position,
are recognized in the financial statements. The Company recognizes the amount of tax benefit that is more than
50% likely to be realized upon ultimate settlement with the related tax authority. If a tax position does not meet the
minimum statutory threshold to avoid payment of penalties, the Company recognizes an expense for the amount of
the penalty in the period the tax position is claimed or expected to be claimed in its tax return. Penalties and
accrued interest related to unrecognized tax benefits are recognized as a component of income tax expense.
Changes in accruals associated with unrecognized tax benefits are recorded in earnings in the period in which they
are determined.
Cash and Cash Equivalents - The carrying amounts of cash and cash equivalents approximate fair value due to the
short-term nature of these assets, which have original maturity dates of 90 days or less.
Concentration Risk - The Company’s assets that are exposed to concentrations of credit risk consist primarily of
cash and cash equivalents. The Company places its cash and cash equivalents with reputable financial institutions
and limits the amount of credit exposure with any one of them. The Company regularly evaluates the
creditworthiness of these financial institutions and mitigates this credit risk by entering into transactions with high-
quality counterparties, limiting the exposure to each counterparty, and monitoring the financial condition of its
counterparties.
In connection with its U.S. Government contracts, the Company is required to procure certain raw materials,
components, and parts from supply sources approved by the U.S. Government. Only one supplier may exist for
certain components and parts required to manufacture the Company's products.
Property, Plant, and Equipment - Depreciable properties owned by the Company are recorded at cost and
depreciated over the estimated useful lives of individual assets. Major improvements are capitalized while
expenditures for maintenance, repairs, and minor improvements are expensed. Costs incurred for computer
software developed or purchased for internal use are capitalized and amortized over the expected useful life of the
software, not to exceed nine years. Leasehold improvements are amortized over the shorter of their useful lives or
the term of the lease.
The remaining assets are depreciated using the straight-line method, with the following lives:
Land improvements
Buildings and improvements
Capitalized software costs
Machinery and other equipment
Years
2
2
3
2
-
-
-
-
40
60
9
40
The Company evaluates the recoverability of its property, plant, and equipment when changes in economic
circumstances or business objectives indicate the carrying value may not be recoverable. The Company's
evaluations include estimated future cash flows, profitability, and other factors affecting fair value. As these
assumptions and estimates may change over time, it may or may not be necessary to record impairment charges.
Leases - The Company determines if an arrangement is a lease at contract inception. A lease exists when a
contract conveys to a party the right to control the use of identified property, plant, or equipment for a period of time
in exchange for consideration. The Company recognizes a lease liability at the lease commencement date, as the
present value of future lease payments, using an estimated rate of interest that the Company would pay to borrow
equivalent funds over an equivalent term on a collateralized basis. A lease asset is recognized based on the lease
liability value and adjusted for any prepaid lease payments, initial direct costs, or lease incentive amounts. The
lease term at the commencement date includes any renewal options or termination options when it is reasonably
certain that the Company will exercise or not exercise those options, respectively.
Right of use assets associated with operating leases are recognized in operating lease assets in the consolidated
statements of financial position. Lease liabilities associated with operating leases are recognized in long-term
operating lease liabilities, with short-term lease liability amounts included in other current liabilities in the
consolidated statements of financial position.
68
Rent expense for operating leases is recognized on a straight-line basis over the lease term and included in cost of
sales and service revenues in the consolidated statements of operations and comprehensive income. Variable lease
payments are recognized as incurred and include lease operating expenses, which are based on contractual lease
terms.
The Company elected for all asset classes to exclude from its consolidated statements of financial position leases
having terms of 12 months or less (short-term leases) and elected not to separate lease and non-lease components
in the determination of lease payment obligations for its long-term lease contracts.
Goodwill and Other Intangible Assets - The Company performs impairment tests for goodwill as of November 30 of
each year and between annual impairment tests if evidence of potential impairment exists. The Company tests for
impairment by assessing qualitative factors to determine whether it is more likely than not that the fair value of other
intangible assets or the goodwill allocated to the reporting unit is less than its carrying amount. If the qualitative
assessment indicates a possible impairment, the carrying value of the asset or reporting unit is compared with its
fair value. If the fair value is determined to be less than the carrying value, the Company records an impairment
charge to the reporting unit. Purchased intangible assets are amortized on a straight-line basis or a method based
on the pattern of benefits over their estimated useful lives, and the carrying value of these assets is reviewed for
impairment when events indicate that a potential impairment may have occurred.
Equity Method Investments - Investments in which the Company has the ability to exercise significant influence over
the investee but does not own a majority interest or otherwise control are accounted for under the equity method of
accounting and included in other assets in its consolidated statements of financial position. The Company's equity
investments align strategically and are integrated with the Company's operations. Accordingly, the Company's share
of the net earnings or losses of the investee is included in operating income. The Company evaluates its equity
investments for other than temporary impairment whenever events or changes in business circumstances indicate
that the carrying amounts of such investments may not be fully recoverable. If a decline in the value of an equity
method investment is determined to be other than temporary, a loss is recorded in earnings in the current period.
Self-Insured Group Medical Insurance - The Company maintains a self-insured group medical insurance plan. The
plan is designed to provide a specified level of coverage for employees and their dependents. Estimated liabilities
for incurred but not paid claims utilize actuarial methods based on various assumptions, which include, but are not
limited to, HII's historical loss experience and projected loss development factors. These liabilities are recorded in
other current liabilities and were immaterial.
Self-Insured Workers' Compensation Plan - The Company's operations are subject to federal and state workers'
compensation laws. The Company maintains self-insured workers' compensation plans and participates in federally
administered second injury workers' compensation funds. The Company estimates the liability for claims and
funding requirements on a discounted basis utilizing actuarial methods based on various assumptions, which
include, but are not limited to, the Company's historical loss experience and projected loss development factors as
compiled in an annual actuarial study. Self-insurance accruals include amounts related to liabilities for reported
claims and an estimated accrual for claims incurred but not reported. The Company's workers' compensation liability
was discounted at 3.88% and 1.47% as of December 31, 2022 and 2021, respectively. These discount rates were
determined using a risk-free rate based on future payment streams. Workers' compensation benefit obligations on
an undiscounted basis were $778 million and $785 million as of December 31, 2022 and 2021, respectively.
Litigation, Commitments, and Contingencies - Amounts associated with litigation, commitments, and contingencies
are recorded as charges to earnings when management, after taking into consideration the facts and circumstances
of each matter, including any settlement offers and projected loss or claim development factors, has determined it is
probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
Loan Receivable - The Company holds a loan receivable in connection with the financing of the sale of its
previously owned Avondale Shipyard facility. The receivable was carried at amortized cost of $39 million, net of $11
million of loan discount, as of December 31, 2022, and at amortized cost of $36 million, net of $13 million loan
discount, as of December 31, 2021. The loan receivable approximates fair value and is recorded in miscellaneous
other assets on the consolidated statements of financial position. Interest income is recognized on an accrual basis
using the effective yield method. The discount is accreted into income using the effective yield method over the
estimated life of the loan receivable.
69
Retirement Related Benefit Costs - The Company accounts for its retirement related benefit plans on the accrual
basis. The measurements of obligations, costs, assets, and liabilities require significant judgment. The costs of
benefits provided by defined benefit pension plans are recorded in the period participating employees provide
service. The costs of benefits provided by other postretirement benefit plans are recorded in the period participating
employees attain full eligibility. The discount rate assumption is defined under GAAP as the rate at which a plan's
obligation could be effectively settled. A discount rate is established for each of the retirement related benefit plans
at its respective measurement date.
The expected return on plan assets component of retirement related costs is used to calculate net periodic expense.
Unless plan assets and benefit obligations are subject to re-measurement during the year, the expected return on
assets is based on the fair value of plan assets at the beginning of the year. The costs of plan amendments that
provide benefits already earned by plan participants (prior service costs and credits) are deferred in accumulated
other comprehensive loss and amortized over the expected future service period of active participants as of the date
of amendment. Actuarial gains and losses arising from differences between assumptions and actual experience or
changes in assumptions are deferred in accumulated other comprehensive loss. This unrecognized amount is
amortized to the extent it exceeds 10% of the greater of the plan's benefit obligation or plan assets. The
amortization period for actuarial gains and losses is the estimated remaining service life of the plan participants.
The Company recognizes the funded status of each retirement related benefit plan as an asset or liability in its
consolidated statements of financial position. The funded status represents the difference between the plan's benefit
obligation and the fair value of the plan's assets. Unrecognized deferred amounts, such as demographic or asset
gains or losses and the impacts of plan amendments, are included in accumulated other comprehensive loss and
amortized as described above.
Stock Compensation - Stock-based compensation value is determined based on the closing market price of the
Company's common stock on grant date, and the expense is recognized over the vesting period. At each reporting
date, the number of shares is adjusted to equal the number ultimately expected to vest based on the Company's
expectations regarding the relevant performance and service criteria.
3. ACCOUNTING STANDARDS UPDATES
In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-14, Compensation—
Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the
Disclosure Requirements for Defined Benefit Plans, which reduces disclosure requirements of Subtopic 715-20 and
requires additional disclosure related to weighted-average interest crediting rates and significant gains and losses
related to changes in the benefit obligation for the reporting period. The update was effective on a retrospective
basis for fiscal years ending after December 15, 2020, with early adoption allowed. The adoption did not result in a
material impact to the Company's financial results or disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes, which amends and simplifies the requirements for income taxes. The ASU was effective for fiscal
years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption
permitted. The adoption did not result in a material impact to the Company's financial results or disclosures.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting, which provides optional exceptions to GAAP for certain
transactions related to the transition away from The London Interbank Offered Rate (“LIBOR”). The amended
guidance is designed to provide relief from the accounting analysis and impacts that may otherwise be required for
modifications to agreements (e.g., loans, debt securities, derivatives, borrowings) necessitated by the reference rate
reform. It also provides optional expedients to enable companies to continue to apply hedge accounting to certain
hedging relationships impacted by the reference rate reform. Application of the guidance in the amendment is
optional, is only available in certain situations, and is only available for companies to apply until December 31, 2022.
This standard did not impact the Company's financial results or disclosures.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract
Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). The update requires contract
assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on
the acquisition date in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606).
70
Generally, this new guidance will result in the acquirer recognizing contract assets and contract liabilities at the
same amounts recorded by the acquiree. Historically, such amounts were recognized by the acquirer at fair value in
accordance with acquisition accounting. The standard is effective for fiscal years beginning after December 15,
2022, including interim periods within those fiscal years, with early adoption permitted. The Company early adopted
this standard in fiscal year 2021, and it did not have a material impact on the Company's consolidated financial
statements.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), which requires business
entities to disclose information about transactions with a government that are accounted for by applying a grant or
contribution model by analogy (“ASU 2021-10”). For transactions within scope, the new standard requires the
disclosure of information about the nature of the transaction, including significant terms and conditions, as well as
the amounts and specific financial statement line items affected by the transaction. The new guidance was effective
for annual reporting periods beginning after December 15, 2021, with early adoption permitted. The adoption did not
have a material impact on the Company's financial results or disclosures.
Other accounting pronouncements issued but not effective until after December 31, 2022, are not expected to have
a material impact on the Company's consolidated financial position, results of operations, or cash flows.
4. ACQUISITIONS AND DIVESTITURES
Acquisition of Alion
In August 2021, the Company acquired all of the outstanding common stock of Alion Holding Corp., the parent
company of Alion Science and Technology Corporation (“Alion”), a technology-driven solutions provider. The
Company accounted for the transaction as a business combination using the acquisition method of accounting in
accordance with ASC 805 – “Business Combinations.” The purchase price was $1.79 billion, including $148 million
of cash received in the acquisition. In connection with the acquisition, the Company recorded $1,014 million of
goodwill, which included the value of Alion's workforce, and $720 million of intangible assets related to customer
relationships and existing contract backlog. The goodwill is attributable to operational synergies and growth
opportunities and was allocated to the Company's Mission Technologies segment. The acquisition accounting was
completed in the third quarter of 2022. See Note 11: Goodwill and Other Intangible Assets. None of the goodwill
resulting from this acquisition is expected to be amortizable for tax purposes.
Alion provides advanced engineering and R&D services in the areas of intelligence, surveillance, and
reconnaissance, military training and simulation, cyber, data analytics and other next-generation technology based
solutions to the DoD and intelligence community customers, with the DoD representing about one-third of current
annual revenues.
Pro Forma Financial Information
The following unaudited consolidated pro forma summary has been prepared by adjusting the Company's historical
data to give effect to the acquisition of Alion as if it had occurred on January 1, 2020.
($ in millions, except per share amounts)
Sales and service revenues
Net earnings
Basic earnings per share
Diluted earnings per share
Year Ended
Pro Forma (Unaudited)
December 31
Year Ended December 31
2022
2021
2020
$
$
$
$
10,676 $
10,364 $
10,453
579 $
14.44 $
14.44 $
539 $
13.37 $
13.37 $
648
15.96
15.96
These unaudited pro forma results include adjustments related to the acquisition, such as the amortization of
acquired intangible assets and interest expense on debt financing.
The unaudited consolidated pro forma financial information was prepared in accordance with GAAP and is not
necessarily indicative of the results of operations that would have occurred if the acquisition had been completed on
the date indicated, nor is it indicative of the future operating results of the Company.
71
The unaudited pro forma results do not reflect events that either have occurred or may occur in the future, including,
but not limited to, the anticipated realization of operating synergies in subsequent periods. These results also do not
give effect to certain charges that the Company incurred in connection with the acquisition, including, but not limited
to, additional professional fees and employee integration.
Divestitures
In February 2021, the Company contributed its San Diego Shipyard business to a joint venture, Titan Acquisition
Holdings, L.P. ("Titan"), in exchange for a 10% non-controlling interest. Titan is a leading provider of ship repair and
specialty fabrication services to government and commercial customers. The joint venture contribution was
completed as part of the Company’s operating strategy. The Company recognized its interest in Titan at fair value,
which approximated $83 million. No gain or loss was recognized in the transaction. The Company transferred
$22 million to Titan as part of the exchange. The Company's investment in Titan, inclusive of equity earnings and
distributions, of $70 million and $87 million as of December 31, 2022, and 2021, respectively, is recorded in
miscellaneous other assets in the consolidated statements of financial position.
In February 2021, the Company completed the sale of its oil and gas business. The divestiture was completed as
part of the Company’s plan to exit this part of the oil and gas industry and focus on its core services and customers.
In connection with the sale, the Company received $25 million net cash and recorded a net pre-tax gain of $1 million
in other income and gains, net within operating income in the consolidated statements of operations.
5. STOCKHOLDERS' EQUITY
Common Stock - Changes in the Company's number of outstanding shares for the year ended December 31, 2022,
resulted from shares purchased in the open market under the Company's stock repurchase program and share
activity under its stock compensation plans. See Note 18: Stock Compensation Plans.
Treasury Stock - In November 2019, the Company's board of directors authorized an increase in the Company's
stock repurchase program from $2.2 billion to $3.2 billion and an extension of the term of the program to October
31, 2024. Repurchases are made from time to time at management's discretion in accordance with applicable
federal securities laws. For the year ended December 31, 2022, the Company repurchased 244,561 shares at an
aggregate cost of $52 million. For the years ended December 31, 2021 and 2020, the Company repurchased
544,440 and 390,904 shares, respectively, at aggregate costs of $101 million and $84 million, respectively. The cost
of purchased shares is recorded as treasury stock in the consolidated statements of financial position.
Dividends - In November 2022, the Company's board of directors authorized an increase in the Company's quarterly
cash dividend from $1.18 per share to $1.24 per share. In November 2021, the Company's board of directors
authorized an increase in the Company's quarterly cash dividend from $1.14 per share to $1.18 per share. In
November 2020, the Company's board of directors authorized an increase in the Company's quarterly cash dividend
from $1.03 per share to $1.14 per share. The Company paid cash dividends totaling $192 million ($4.78 per share),
$186 million ($4.60 per share), and $172 million ($4.23 per share) in the years ended December 31, 2022, 2021,
and 2020, respectively.
Accumulated Other Comprehensive Loss - Other comprehensive 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 $599 million and $923 million as of December 31, 2022 and 2021,
respectively.
72
The changes in accumulated other comprehensive loss by component for the years ended December 31, 2022,
2021, and 2020, were as follows:
($ in millions)
Balance as of December 31, 2019
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service (credit)1
Amortization of net actuarial loss1
Tax benefit (expense) for items of other comprehensive income
Net current period other comprehensive income (loss)
Balance as of December 31, 2020
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost1
Amortization of net actuarial loss1
Tax benefit (expense) for items of other comprehensive income
Net current period other comprehensive income
Balance as of December 31, 2021
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost1
Amortization of net actuarial loss1
Settlement gain1
Tax expense for items of other comprehensive income
Net current period other comprehensive income
Benefit Plans
Other
Total
$
(1,407) $
(279)
(10)
102
48
(139)
(1,546)
720
11
107
(215)
623
(923)
390
18
32
(4)
(112)
324
(2) $
2
—
—
(1)
1
(1)
—
—
—
1
1
—
—
—
—
—
—
—
(1,409)
(277)
(10)
102
47
(138)
(1,547)
720
11
107
(214)
624
(923)
390
18
32
(4)
(112)
324
Balance as of December 31, 2022
(599)
1 These accumulated comprehensive loss components are included in the computation of net periodic benefit cost.
See Note 17: Employee Pension and Other Postretirement Benefits. The tax expense associated with amounts
reclassified from accumulated other comprehensive loss for the years ended December 31, 2022, 2021, and 2020,
was $12 million, $30 million, and $23 million, respectively.
(599) $
— $
$
6. EARNINGS PER SHARE
Basic and diluted earnings per common share were calculated as follows:
(in millions, except per share amounts)
Net earnings
Weighted-average common shares outstanding
Net effect of dilutive stock options and awards
Dilutive weighted-average common shares outstanding
Earnings per share - basic
Earnings per share - diluted
Year Ended December 31
2021
2020
2022
$
579
$
544
$
696
40.1
—
40.1
40.3
—
40.3
40.6
—
40.6
$
$
14.44
14.44
$
$
13.50
13.50
$
$
17.14
17.14
The Company's calculation of diluted earnings per common share includes the dilutive effects of the assumed
exercise of stock options and vesting of restricted stock based on the treasury stock method. Under the treasury
stock method, the Company has excluded from the diluted share amounts presented above the effects of 0.4 million
73
Restricted Performance Stock Rights ("RPSRs") for each of the years ended December 31, 2022, and 2021, and
0.3 million RPSRs for the year ended December 31, 2020.
7. REVENUE
The following is a description of principal activities from which the Company generates its revenues. For more
detailed information regarding reportable segments, see Note 8: Segment Information. For more detailed
information regarding the Company's significant accounting policy for revenue, see Note 2: Summary of Significant
Accounting Policies.
U.S. Government Contracts
The Ingalls and Newport News segments generate revenue primarily from performance under multi-year contracts
with the U.S. Government, generally the U.S. Navy and U.S. Coast Guard, or prime contractors to contracts with the
U.S. Government, relating to the advance planning, design, construction, repair, maintenance, refueling, overhaul,
or inactivation of nuclear-powered ships and non-nuclear ships. The period over which the Company performs may
extend past five years. The Mission Technologies segment also generates the majority of its revenue from contracts
with the U.S. Government, including U.S. Government agencies. The Company generally invoices and receives
related payments based upon performance progress no less frequently than monthly.
Shipbuilding - For most of the Company's shipbuilding contracts, the customer contracts with the Company to
provide a comprehensive service of designing, procuring long-lead-time materials, manufacturing, and integrating
complex equipment and technologies into a single ship or project, often resulting in a single performance obligation.
Contract modifications to account for changes in specifications and requirements are recognized when approved by
the customer. In the majority of circumstances, modifications do not result in additional performance obligations that
are distinct from the existing performance obligations in the contract, and the effects of the modifications are
recognized as an adjustment to revenue on a cumulative catch-up basis. Alternatively, in instances in which the
performance obligations in the modifications are deemed distinct, contract modifications are accounted for
prospectively.
The Company considers incentive and award fees to be variable consideration and includes in the transaction price
at inception the consideration to which the Company expects to be entitled under the terms and conditions of the
contract, generally estimated using a most likely amount approach. Transaction price is limited to the extent of
funding allotted by the customer and available for performance, and estimated revenues represent those amounts
for which the Company believes a significant reversal of revenue is not probable.
The Company recognizes revenues related to shipbuilding contracts as it satisfies the related performance
obligations over time using a cost-to-cost input method to measure performance progress, which best reflects the
transfer of control to the customer.
Services - The Mission Technologies segment generates revenue primarily under U.S. Government contracts.
Contracts generally are structured using either an Indefinite Delivery/Indefinite Quantity ("IDIQ") vehicle, under
which orders are issued, or a standalone contract. Contracts may be fixed-price or cost-type, include variable
consideration such as incentives and awards, and structured as task orders under an IDIQ contract vehicle or
requirements contract vehicle. In either case, the Company generally performs services over a shorter duration and
may continue to perform upon exercise of related period of performance options that are also shorter in duration.
The Company’s performance obligations vary in nature and may be stand-ready, in which case the Company
responds to the customer’s needs on the basis of its demand, a recurring service, typically recurring maintenance
services, or a single performance obligation that does not comprise a series of distinct services.
In determining transaction price, the Company considers incentives and other contingencies to be variable
consideration and includes in the initial transaction price the consideration to which the Company expects to be
entitled under the terms and conditions of the contract, generally estimated using a most likely amount approach.
Transaction price is limited to the extent of funding allotted by the customer and available for performance, and
estimated revenues represent those amounts for which the Company believes a significant reversal of revenue is
not probable. Where a series of distinct services has been identified, the Company generally allocates variable
consideration to distinct time increments of service.
74
The Company generally recognizes revenue as it satisfies the related performance obligations over time using a
cost-to-cost input method to measure performance progress, because, even when the Company has identified a
series of services, its cost incurrence pattern generally is not ratable given the complex nature of the services the
Company provides. Invoices are issued and related payments are received, on the basis of performance progress,
no less frequently than monthly. In addition, many of the Company's U.S. Government services contracts are time
and material arrangements. As a result, the Company often utilizes the practical expedient allowing the recognition
of revenue in the amount the Company invoices, which corresponds with the value provided to the customer and to
which the Company is entitled to payment for performance to date.
Non-U.S. Government Contracts
Revenues generated under commercial and state and local government agency contracts are primarily derived from
the provision of nuclear and environmental services. Non-U.S. Government contracts typically are one or two years
in duration.
In determining transaction price, the Company considers incentives and other contingencies to be variable
consideration and includes in the initial transaction price the consideration to which the Company expects to be
entitled under the terms and conditions of the contract, generally estimated using a most likely amount approach. In
the context of variable consideration, the Company limits the transaction price to amounts for which the Company
believes a significant reversal of revenue is not probable. Such amounts may relate to transaction price in excess of
funding, a lack of history with the customer, a lack of history with the goods or services being provided, or other
items.
Revenue generally is recognized over time given the terms and conditions of the related contracts. The Company
generally utilizes a cost-to-cost input method to measure performance progress, which best reflects the transfer of
control to the customer. The Company’s non-U.S. Government contract portfolio is comprised of a large number of
time and material arrangements. As a result, the Company often utilizes the practical expedient allowing the
recognition of revenue in the amount the Company invoices, which corresponds with the value provided to the
customer and to which the Company is entitled to payment for performance to date.
75
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. See Note 8: Segment Information. 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.
($ in millions)
Revenue Type
Product sales
Service revenues
Intersegment
Sales and service revenues
Customer Type
Federal
Commercial
State and local government agencies
Intersegment
Sales and service revenues
Contract Type
Firm fixed-price
Fixed-price incentive
Cost-type
Time and materials
Intersegment
Year Ended December 31, 2022
Mission
Technologies
Newport
News
Intersegment
Eliminations
Total
Ingalls
$
$
$
$
$
2,372
$
4,821
$
90
$
186
12
1,026
5
2,181
116
$
—
—
(133)
7,283
3,393
—
2,570
$
5,852
$
2,387
$
(133) $
10,676
$
2,558
—
$
5,846
1
—
12
—
5
$
2,221
49
1
116
$
—
—
—
(133)
10,625
50
1
—
2,570
$
5,852
$
2,387
$
(133) $
10,676
8
$
14
$
277
$
2,369
181
—
12
3,009
2,824
—
5
—
1,725
269
116
$
—
—
—
—
(133)
299
5,378
4,730
269
—
Sales and service revenues
$
2,570
$
5,852
$
2,387
$
(133) $
10,676
76
($ in millions)
Revenue Type
Product sales
Service revenues
Intersegment
Sales and service revenues
Customer Type
Federal
Commercial
State and local government agencies
Intersegment
Sales and service revenues
Contract Type
Firm fixed-price
Fixed-price incentive
Cost-type
Time and materials
Intersegment
Year Ended December 31, 2021
Mission
Technologies
Newport
News
Intersegment
Eliminations
Total
Ingalls
$
$
$
$
$
2,357
$
4,543
$
100
$
156
15
1,109
11
1,259
117
$
—
—
(143)
2,528
$
5,663
$
1,476
$
(143) $
7,000
2,524
—
9,524
2,513
$
5,652
$
1,310
$
—
—
15
—
—
11
48
1
117
—
—
—
(143)
$
9,475
48
1
—
2,528
$
5,663
$
1,476
$
(143) $
9,524
$
33
2,329
151
—
15
$
41
2,913
2,698
—
11
$
205
5
894
255
117
$
—
—
—
—
(143)
279
5,247
3,743
255
—
Sales and service revenues
$
2,528
$
5,663
$
1,476
$
(143) $
9,524
($ in millions)
Revenue Type
Product sales
Service revenues
Intersegment
Sales and service revenues
Customer Type
Federal
Commercial
State and local government agencies
Intersegment
Sales and service revenues
Contract Type
Firm fixed-price
Fixed-price incentive
Cost-type
Time and materials
Intersegment
Sales and service revenues
$
$
$
$
$
$
Year Ended December 31, 2020
Mission
Technologies
Newport
News
Intersegment
Eliminations
Ingalls
2,462
$
4,312
$
76
$
212
4
1,247
12
1,052
140
$
—
—
(156)
2,678
$
5,571
$
1,268
$
(156) $
2,674
$
5,558
$
—
—
4
1
—
12
$
882
245
1
140
$
—
—
—
(156)
Total
6,850
2,511
—
9,361
9,114
246
1
—
2,678
$
5,571
$
1,268
$
(156) $
9,361
50
$
15
$
222
$
29
465
412
$
—
—
—
—
287
5,095
3,567
412
—
9,361
140
1,268
$
$
(156)
(156) $
2,347
277
—
4
2,678
$
2,719
2,825
—
12
5,571
77
($ in millions)
Major Programs
Amphibious assault ships
Surface combatants and coast guard cutters
Other
Total Ingalls
Aircraft carriers
Submarines
Other
Total Newport News
Mission based solutions
Oil and gas services
Other
Total Mission Technologies
Intersegment eliminations
Sales and service revenues
Year Ended December 31
2021
2022
2020
$
1,415 $
1,328 $
1,138
17
2,570
3,203
2,002
647
5,852
1,950
—
437
2,387
(133)
1,179
21
2,528
3,073
1,917
673
5,663
1,034
14
428
1,476
(143)
$
10,676 $
9,524 $
1,403
1,267
8
2,678
3,056
1,727
788
5,571
540
235
493
1,268
(156)
9,361
As of December 31, 2022, the Company had $47.1 billion of remaining performance obligations. The Company
expects to recognize approximately 22% of its remaining performance obligations as revenue through 2023, an
additional 35% through 2025, and the balance thereafter.
Cumulative Catch-up Revenue Adjustments
For the year ended December 31, 2022, net cumulative catch-up revenue adjustments increased operating income
by $113 million and increased diluted earnings per share by $2.22. For the year ended December 31, 2021, net
cumulative catch-up revenue adjustments increased operating income by $115 million and increased diluted
earnings per share by $2.26. For the year ended December 31, 2020, net cumulative catch-up revenue adjustments
decreased operating income by $29 million and decreased diluted earnings per share by $0.56.
No individual cumulative adjustment was material to the Company's consolidated statements of operations and
comprehensive income for either of the years ended December 31, 2022 and 2021.
Cumulative catch-up revenue adjustments for the year ended December 31, 2020, included unfavorable
adjustments of $148 million, relating to Block IV of the Virginia class (SSN 774) submarine program at the
Company's Newport News segment, which decreased diluted earnings per share by $2.88. While other unfavorable
cumulative catch-up revenue adjustments for the year ended December 31, 2020, were not individually material,
cost estimates for discrete delay and disruption from COVID-19 Events drove $61 million of unfavorable cumulative
catch-up revenue adjustments across our contracts, including $16 million relating to Block IV of the Virginia class
(SSN 774) submarine program, which is included in the $148 million unfavorable adjustments discussed above. For
the year ended December 31, 2020, no individual favorable cumulative catch-up revenue adjustment was material
to the Company's consolidated statements of operations and comprehensive income.
Contract Balances
Contract balances include accounts receivable, contract assets, and contract liabilities from contracts with
customers. Accounts receivable represent an unconditional right to consideration and include amounts billed and
currently due from customers. Contract assets primarily relate to the Company's rights to consideration for work
completed but not billed as of the reporting date when the right to payment is not just subject to the passage of time.
Fixed-price contracts are generally billed to the customer using either progress payments, whereby amounts are
billed monthly as costs are incurred or work is completed, or performance-based payments, which are based upon
the achievement of specific, measurable events or milestones defined and valued at contract inception. Cost-type
contracts are typically billed to the customer on a monthly or semi-monthly basis. Contract liabilities relate to
78
advance payments, billings in excess of revenues, and deferred revenue amounts.
The Company reports contract balances in a net contract asset or contract liability position on a contract-by-contract
basis at the end of each reporting period. The Company’s net contract assets decreased $185 million from
December 31, 2021 to December 31, 2022, primarily resulting from an increase in billings on certain U.S. Navy
contracts. For the year ended December 31, 2022, the Company recognized revenue of $562 million related to its
contract liabilities as of December 31, 2021. For the year ended December 31, 2021, the Company recognized
revenue of $382 million related to its contract liabilities as of December 31, 2020. For the year ended December 31,
2020, the Company recognized revenue of $266 million related to its contract liabilities as of December 31, 2019.
8. SEGMENT INFORMATION
The Company is organized into three reportable segments: Ingalls, Newport News, and Mission Technologies,
consistent with how management makes operating decisions and assesses performance.
U.S. Government Sales - Revenues from the U.S. Government include revenues from contracts for which HII is the
prime contractor, as well as contracts for which the Company is a subcontractor and the ultimate customer is the
U.S. Government. The Company derived over 95% of its revenues from the U.S. Government for each of the years
ended December 31, 2022, 2021, and 2020.
Assets - Substantially all of the Company's assets are located or maintained in the United States.
Results of Operations by Segment
The following table presents the Company's operating results by segment:
($ in millions)
Sales and Service Revenues
Ingalls
Newport News
Mission Technologies
Intersegment eliminations
Total sales and service revenues
Operating Income
Ingalls
Newport News
Mission Technologies
Total segment operating income
Non-segment factors affecting operating income
Operating FAS/CAS Adjustment
Non-current state income taxes
Total operating income
Sales transactions between segments are generally recorded at cost.
Year Ended December 31
2021
2020
2022
$
2,570
$
2,528
$
$
$
5,852
2,387
(133)
5,663
1,476
(143)
10,676
$
9,524
$
$
292
357
63
712
(145)
(2)
$
281
352
50
683
(157)
(13)
$
565
$
513
$
2,678
5,571
1,268
(156)
9,361
281
233
41
555
248
(4)
799
79
Other Financial Information
The following tables present the Company's assets, capital expenditures, and depreciation and amortization by
segment:
($ in millions)
Assets
Ingalls
Newport News
Mission Technologies
Corporate
Total assets
($ in millions)
Capital Expenditures(1)
Ingalls
Newport News
Mission Technologies
Corporate
Total capital expenditures
(1) Net of grant proceeds for capital expenditures
($ in millions)
Depreciation and Amortization(1)
Ingalls
Newport News
Mission Technologies
Corporate
Total depreciation and amortization
(1) Excluding amortization of debt issuance costs
9. ACCOUNTS RECEIVABLE AND CONTRACT ASSETS
Accounts Receivable
December 31
2022
2021
2020
$
1,633
$
4,344
3,347
1,533
1,659
4,179
3,553
1,236
$
10,857
$
10,627
$
1,612
4,124
1,379
1,042
8,157
Year Ended December 31
2022
2021
2020
$
69
$
72
$
182
20
1
201
38
—
$
272
$
311
$
Year Ended December 31
2022
2021
2020
$
79
$
74
$
148
130
1
146
72
1
$
358
$
293
$
104
212
20
—
336
73
133
40
1
247
Accounts receivable include amounts related to any unconditional Company right to receive consideration.
Substantially all amounts included in accounts receivable as of December 31, 2022, are expected to be collected in
2023. Because the Company's accounts receivable are primarily with the U.S. Government or with companies
acting as a contractor to the U.S. Government, the Company does not have material exposure to accounts
receivable credit risk.
80
Accounts receivable were comprised of the following:
($ in millions)
Due from U.S. Government
Due from other customers
Total accounts receivable
Allowances for doubtful accounts
Total accounts receivable, net
Contract Assets
December 31
2022
2021
$
$
631
$
7
638
(2)
636
$
425
17
442
(9)
433
Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed as of the
reporting date when the right to payment is not subject solely to the passage of time. Contract assets include
retention amounts, substantially all of which were under U.S. Government contracts.
Contract assets were comprised of the following:
($ in millions)
Due from U.S. Government
Due from other customers
Total contract assets
10. INVENTORIED COSTS, NET
Inventoried costs were comprised of the following:
($ in millions)
Production costs of contracts in process(1)
Raw material inventory
Total inventoried costs, net
December 31
2022
2021
1,165
$
75
1,240
$
1,218
92
1,310
December 31
2022
2021
54
129
183
$
$
37
124
161
$
$
$
$
(1) Includes amounts capitalized pursuant to applicable provisions of the FAR and CAS.
11. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
HII performs impairment tests for goodwill as of November 30 of each year and between annual impairment tests if
an event occurs or circumstances change that would more likely than not reduce the fair values of the Company's
reporting units below their carrying values. Reporting units are aligned with the Company's businesses. The
Company assesses qualitative factors to determine whether it is more likely than not that the fair value of the
goodwill allocated to the reporting unit is less than its carrying amount. If the qualitative assessment indicates a
possible impairment, then the Company utilizes a combination of discounted cash flow analysis and comparative
market multiples to determine the fair values of its businesses for comparison to their corresponding book values.
In connection with the Company’s annual goodwill impairment test as of November 30, 2022, management tested
goodwill for each of its three reporting units with goodwill balances. As a result of the Company's annual goodwill
impairment analysis, it estimated that the fair value of the Mission Technologies segment exceeded carrying value
by approximately 5%. The Company determined that the estimated fair values of its remaining reporting units
exceeded by more than 10% their corresponding carrying values as of November 30, 2022.
Accumulated goodwill impairment losses were $2,755 million as of each of December 31, 2022 and 2021. The
accumulated goodwill impairment losses for Ingalls as of each of December 31, 2022 and 2021, were $1,568
million. The accumulated goodwill impairment losses for Newport News as of each of December 31, 2022 and 2021,
81
were $1,187 million. Mission Technologies did not have accumulated goodwill impairment losses as of each of
December 31, 2022 and 2021.
For the year ended December 31, 2021, the Company recorded $1,024 million of goodwill related to its acquisition
of Alion. For the year ended December 31, 2022, the Company recorded goodwill adjustments of $10 million related
to the acquisition of Alion, resulting from updates to Alion's tax carryforwards and the true-up of estimated taxes to
filed income tax returns for the pre-acquisition period. For the year ended December 31, 2021, the Company
recorded goodwill adjustments of $13 million relating to the acquisition of Spatial Integrated Systems, Inc. in 2020,
primarily related to allocations to other intangible assets.
For the years ended December 31, 2022 and 2021, the carrying amounts of goodwill changed as follows:
($ in millions)
Balance as of December 31, 2020
Acquisitions
Adjustments
Balance as of December 31, 2021
Adjustments
Balance as of December 31, 2022
$
Other Intangible Assets
Ingalls
Newport News
Mission
Technologies
Total
$
175
$
721
$
721
$
—
—
175
—
175
$
—
—
721
—
721
$
1,024
(13)
1,732
(10)
1,722
$
1,617
1,024
(13)
2,628
(10)
2,618
The Company performs tests for impairment of long-lived assets whenever events or circumstances suggest that
long-lived assets may be impaired. In connection with the acquisition of Alion in 2021, the Company recorded $720
million of intangible assets pertaining to customer relationships and existing contract backlog, which is being
amortized using the pattern of benefits method over a weighted-average life of 15 years.
The Company's purchased intangible assets are being amortized on a straight-line basis or a method based on the
pattern of benefits over their estimated useful lives. Net intangible assets consist primarily of amounts relating to
customer relationships and existing contract backlog within Mission Technologies, as well as nuclear-powered
aircraft carrier and submarine program intangible assets, with an aggregate weighted-average useful life of 29 years
based on the long life cycle of the related programs. Aggregate amortization expense for the years ended
December 31, 2022, 2021, and 2020, was $140 million, $86 million, and $56 million, respectively.
The Company expects amortization for currently recorded purchased intangible assets of $128 million in 2023, $109
million in 2024, $99 million in 2025, $80 million in 2026, and $60 million in 2027.
12. INCOME TAXES
The Company's earnings are primarily domestic, and its effective tax rate on earnings from operations for the year
ended December 31, 2022, was 19.5%, compared with 12.5% and 14.1% for 2021 and 2020, respectively.
For the year ended December 31, 2022, the Company's effective tax rate differed from the federal statutory tax rate
primarily as a result of estimated research and development tax credits for 2022 and prior years. For the year ended
December 31, 2021, the Company's effective tax rate differed from the federal statutory tax rate primarily as a result
of a tax loss associated with the sale of the Company's oil and gas business and estimated research and
development tax credits for 2021 and prior years. For the year ended December 31, 2020, the Company’s effective
tax rate differed from the federal statutory tax rate primarily as a result of estimated research and development tax
credits for prior years.
Non-current state income taxes include deferred state income taxes, which reflect the change in deferred state tax
assets and liabilities and the tax expense or benefit associated with changes in state unrecognized tax benefits in
the relevant period. These amounts are recorded within operating income. Current period state income tax expense
is charged to contract costs and included in cost of sales and service revenues in segment operating income.
82
Federal and foreign income tax expense for the years ended December 31, 2022, 2021, and 2020, consisted of the
following:
($ in millions)
Income Taxes on Operations
Year Ended December 31
2022
2021
2020
Federal and foreign income taxes currently payable (receivable)
Change in deferred federal and foreign income taxes
Total federal and foreign income taxes
$
$
138
$
(12) $
2
140
$
90
78
$
90
24
114
Earnings and income tax from foreign operations are not material for any periods presented.
The following table reconciles our actual income tax expense to income tax expense based on the statutory federal
income tax rate:
($ in millions)
Year Ended December 31
2022
2021
2020
Income tax expense (benefit) on operations at statutory rate
$
151
$
131
$
Tax benefit - sale of business
Stock compensation - net excess tax (benefits)/ shortfall
Unrecognized tax benefits
Research and development tax credit
Other, Net
Total federal and foreign income taxes
—
—
7
(25)
7
(11)
—
30
(78)
6
$
140
$
78
$
170
—
1
5
(66)
4
114
Unrecognized Tax Benefits - Unrecognized tax benefits represent the gross value of the Company's uncertain tax
positions that have not been reflected in the consolidated statements of operations. If the income tax benefits from
federal tax positions are ultimately realized, such realization would affect the Company's income tax expense, while
the realization of state tax benefits would be recorded in general and administrative expenses.
The changes in unrecognized tax benefits (exclusive of interest and penalties) for the years ended December 31,
2022, 2021, and 2020 are summarized in the following table:
($ in millions)
Unrecognized tax benefits at beginning of the year
Additions based on tax positions related to the current year
Additions based on tax positions related to prior years
Reductions based on tax positions related to prior years
Reductions based on settlement with taxing authorities
Lapse of statute of limitations
Net change in unrecognized tax benefits
Unrecognized tax benefits at end of the year
December 31
2022
2021
2020
$
81
$
47
$
8
3
—
—
(2)
9
$
90
$
7
27
—
—
—
34
81
36
8
17
(7)
(7)
—
11
47
As of December 31, 2022 and 2021, the estimated amounts of the Company's uncertain tax positions, excluding
interest and penalties, were liabilities of $90 million and $81 million, respectively. Assuming sustainment of these
positions, as of December 31, 2022 and 2021, the reversal of $70 million and $63 million, respectively, of the
amounts accrued 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. As a
result of the unrecognized tax benefits noted above, income tax expense increased by $2 million in 2022 for interest
and penalties, resulting in a liability of $5 million for interest and penalties as of December 31, 2022. In 2021, there
was an increase in income tax expense of $1 million for interest and penalties, resulting in a liability of $3 million for
interest and penalties as of December 31, 2021. In 2020, there was a net decrease in income tax expense of less
83
than $1 million for interest and penalties, resulting in a liability of $2 million for interest and penalties as of
December 31, 2020. The 2020 changes in interest expense related to a settlement with taxing authorities.
The following table summarizes the tax years that are either currently under examination or remain open under the
applicable statute of limitations and subject to examination by the major tax jurisdictions in which the Company
operates:
Jurisdiction
United States - Federal(1)
Connecticut
Mississippi
Years
2016
2019
2018
-
-
-
2021
2021
2021
2021
Virginia
(1) The 2016, 2018, 2019, and 2021 tax years are closed except for the research and development tax credits, and
the 2017 tax year is closed except for the manufacturing deduction and research and development tax credit.
2019
-
Although the Company believes it has adequately provided for all unrecognized tax benefits, positions asserted by
tax authorities could result in amounts greater than the Company's accrued position. Accordingly, additional
provisions for federal and state income tax related matters could be recorded in the future as revised estimates are
made or the underlying matters are effectively settled or otherwise resolved. Conversely, the Company could settle
positions with tax authorities for amounts lower than have been accrued. No material change to the Company's
unrecognized tax benefits is reasonably expected in the next 12 months.
During 2013 the Company entered into the pre-Compliance Assurance Process with the IRS for years 2011 and
2012. Tax years 2014 and 2015 have been closed with the IRS. The Company is part of the IRS Compliance
Assurance Process program for the 2014 through 2022 tax years. Open tax years related to state jurisdictions
remain subject to examination.
Deferred Income Taxes - Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and for income tax purposes. As described
above, deferred tax assets and liabilities are calculated as of the balance sheet date using current tax laws and
rates expected to be in effect when the deferred tax items reverse in future periods. Net deferred tax liabilities are
classified as long-term deferred tax liabilities in the consolidated statements of financial position.
84
The tax effects of significant temporary differences and carry-forwards that gave rise to year-end deferred tax
balances, as presented in the consolidated statements of financial position, were as follows:
($ in millions)
Deferred Tax Assets
Retirement benefits
Workers' compensation
Operating lease liabilities
Reserves not currently deductible for tax purposes
Stock compensation
Net operating losses, tax credit and other carry-forwards
Capitalized research and development expenses
Other
Gross deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred Tax Liabilities
Depreciation and amortization
Contract accounting differences
Purchased intangibles
Operating lease assets
Gross deferred tax liabilities
Total net deferred tax liabilities
December 31
2022
2021
$
23
$
160
77
61
7
37
122
13
500
28
472
444
123
250
73
890
170
174
63
75
7
55
—
6
550
22
528
423
81
275
62
841
$
(418) $
(313)
As of December 31, 2022, the Company had state income tax credit carry-forwards of approximately $20 million,
which expire from 2023 through 2025. A deferred tax asset of approximately $16 million (net of federal benefit)
related to these state income tax credit carry-forwards has been established, with a valuation allowance of $9
million against such deferred tax asset as of December 31, 2022. The Company also had state net operating loss
carry-forwards of $123 million from the Alion acquisition, which expire from 2031 through 2037. A deferred tax asset
of approximately $7 million (net of federal benefit) has been established for these carry-forwards, with a valuation
allowance of $4 million against such deferred tax asset as of December 31, 2022. Other federal and state net
operating loss carry-forwards are individually and cumulatively immaterial to the Company’s deferred tax balances.
85
13. DEBT
The Company's long-term debt consisted of the following:
($ in millions)
Senior notes due December 1, 2027, 3.483%
Senior notes due May 1, 2025, 3.844%
Senior notes due May 1, 2030, 4.200%
Senior notes due August 16, 2023, 0.670%
Senior notes due August 16, 2028, 2.043%
Term loan due August 19, 2024
Mississippi economic development revenue bonds due May 1, 2024, 7.81%
Gulf opportunity zone industrial development revenue bonds due December 1, 2028, 4.55%
Less unamortized debt issuance costs
Total long-term debt
Less current portion
Long-term debt, net of current portion
December 31
2022
2021
$
600
500
500
400
600
225
84
21
(25)
2,905
$
399
2,506
$
600
500
500
400
600
625
84
21
(32)
3,298
—
3,298
$
$
$
Credit Facility - In August 2021, the Company amended and restated its existing $1.25 billion credit facility,
increasing the capacity thereunder to $1.5 billion and extending the maturity date to five years from signing (the
"Revolving Credit Facility"). The Revolving Credit Facility includes a letter of credit subfacility of $300 million. The
Revolving Credit Facility has a variable interest rate on outstanding borrowings based on LIBOR, plus a spread
based upon the Company's credit rating, which may vary between 1.125% and 2.000%. As of December 31, 2022,
the interest rate spread on drawn amounts was 1.375% based on the Company's current credit rating. The revolving
credit facility also has a commitment fee rate on the unutilized balance based on the Company’s credit rating. The
commitment fee rate as of December 31, 2022 was 0.200% and may vary between 0.125% and 0.300%.
Term Loan - In August 2021, the Company entered into a $650 million 3-year delayed draw term loan (the “Term
Loan”) to finance a portion of the purchase price for Alion. The Term Loan must be repaid prior to or on August 19,
2024. The Term Loan has a variable interest rate on outstanding borrowings based on LIBOR, plus a spread based
upon the Company's credit rating, which may vary between 1.125% and 2.000%. As of December 31, 2022, the
annual interest rate spread was 1.375% based on the Company's current credit rating, and the outstanding balance
was $225 million.
As of December 31, 2022, the Company had $14 million in issued but undrawn letters of credit and $1,486 million
unutilized under the Revolving Credit Facility. The Company had unamortized debt issuance costs associated with
its credit facilities of $10 million and $13 million as of December 31, 2022 and 2021, respectively.
The Revolving Credit Facility and the Term Loan contain customary affirmative and negative covenants, 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 Revolving Credit Facility and the Term Loan. See Note 19: Subsidiary Guarantors.
The Company maintains an unsecured commercial paper note program, under which the Company may issue up to
$1 billion of unsecured commercial paper notes. As of December 31, 2022, the Company had no outstanding debt
under the commercial paper program.
Senior Notes - In August 2021, the Company issued $400 million aggregate principal amount of callable 0.670%
senior notes due 2023 and $600 million aggregate principal amount of 2.043% senior notes due 2028. The net
proceeds were used to fund a portion of the purchase price for the acquisition of Alion. Interest on these senior
notes is payable semiannually.
In 2020, the Company issued $500 million aggregate principal amount of 3.844% senior notes due 2025 and
$500 million aggregate principal amount of 4.200% senior notes due 2030. The Company also has outstanding
$600 million aggregate principal amount of 3.483% senior notes due 2027. The net proceeds of these senior notes
86
were intended to be used for general corporate purposes, including debt repayments and working capital. Interest
on these senior notes is payable semiannually.
In 2020, the Company redeemed $600 million aggregate principal amount of 5.000% senior notes due 2025 in
accordance with the terms of the indenture governing the notes.
The terms of the Company's senior notes limit the Company’s ability and the ability of certain of its subsidiaries to
create liens, enter into sale and leaseback transactions, sell assets, and effect consolidations or mergers. The
Company had unamortized debt issuance costs associated with the senior notes of $15 million and $19 million as of
December 31, 2022 and 2021, respectively.
Early Extinguishment of Debt - Components of the loss on early extinguishment of debt related to the Company's
redemption of senior notes in 2020, which was included in interest expense, were as follows:
($ in millions)
Redemption and tender premiums and fees
Write-off of unamortized debt issuance costs
Total loss on early extinguishment of debt
Year Ended
December 31, 2020
$
$
15
6
21
Mississippi Economic Development Revenue Bonds - As of each of December 31, 2022 and 2021, the Company
had $84 million outstanding under Industrial Revenue Bonds issued by the Mississippi Business Finance
Corporation. These bonds accrue interest at a fixed rate of 7.81% per annum (payable semi-annually) and mature in
2024.
Gulf Opportunity Zone Industrial Development Revenue Bonds - As of each of December 31, 2022 and 2021, the
Company had $21 million outstanding under Gulf Opportunity Zone Industrial Development Revenue Bonds issued
by the Mississippi Business Finance Corporation. These bonds accrue interest at a fixed rate of 4.55% per annum
(payable semi-annually) and mature in 2028.
The agreements governing the Company's debt contain customary affirmative and negative covenants. The
Company was in compliance with all debt covenants during the year ended December 31, 2022.
The estimated fair values of the Company's total long-term debt (including current portion) as of December 31,
2022, and December 31, 2021, were $2,703 million and $3,449 million, respectively. The estimated fair value of the
current portion of the Company's long-term debt was $390 million as of December 31, 2022. The fair values of the
Company's long-term debt were calculated based on recent trades of the Company's debt instruments in inactive
markets, which fall within Level 2 under the fair value hierarchy.
As of December 31, 2022, the aggregate amounts of principal payments due on long-term debt within the next five
years consisted of $400 million due in 2023, $309 million due in 2024, $500 million due in 2025, and $600 million
due in 2027.
14. 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.
False Claims Act Complaint - In 2016, the Company was made aware that it is a defendant in a qui tam False
Claims Act lawsuit pending in the U.S. District Court for the Middle District of Florida related to the Company’s
purchases of allegedly non-conforming parts from a supplier for use in connection with U.S. Government contracts.
In August 2019, the Department of Justice (“DoJ”) declined to intervene in the lawsuit, and the lawsuit was
87
unsealed. The court dismissed the complaint in September 2021, and the plaintiff has appealed the dismissal to the
United States Court of Appeals for the 11th Circuit.
Insurance Claims - In September 2020, the Company filed a complaint against 32 reinsurers in the Superior Court,
State of Vermont, Franklin Unit, seeking a judgment declaring that the Company's business interruption and other
losses associated with COVID-19 are covered by the Company's property insurance program. The Company also
has initiated arbitration proceedings against six other reinsurers seeking similar relief. In July 2021, the Vermont
court granted the reinsurers’ motion for judgment on the pleadings, which would have ended the Company’s claim.
The Company appealed the decision to the Vermont Supreme Court, which reversed and remanded the lower
court's decision in September 2022, allowing the Company's claim to proceed. No assurances can be provided
regarding the ultimate resolution of this matter.
In September 2021, the Company filed a complaint in the Superior Court of Delaware, seeking a judgment against
certain insurers for breach of contract and breach of the implied covenant of good faith and fair dealing under three
representations and warranties insurance policies purchased in connection with the Company’s acquisition of
Hydroid. The policies insure the Company against losses relating to the seller’s breach of certain representations
and warranties in the Hydroid acquisition agreement. The coverage limit under the insurance policies is $70 million,
and the Company believes it has incurred losses equal to at least that amount as a result of breaches of the
acquisition agreement. No assurances can be provided regarding the ultimate resolution of this matter.
U.S. Government Investigations and Claims - Departments and agencies of the U.S. Government have the authority
to investigate various transactions and operations of the Company, and the results of such investigations may lead
to administrative, civil, or criminal proceedings, the ultimate outcome of which could be fines, penalties, repayments
or compensatory, treble, or other damages. U.S. Government regulations provide that certain findings against a
contractor may also lead to suspension or debarment from future U.S. Government contracts or the loss of export
privileges. Any suspension or debarment would have a material effect on the Company because of its reliance on
government contracts.
Asbestos Related Claims - HII and its predecessors-in-interest are defendants in a longstanding series of cases that
have been and continue to be filed in various jurisdictions around the country, wherein former and current
employees and various third parties allege exposure to asbestos containing materials while on or associated with
HII premises or while working on vessels constructed or repaired by HII. In some instances, partial or full insurance
coverage is available for the Company's liabilities. The costs to resolve cases during the years ended December 31,
2022, 2021, and 2020 were not material individually or in the aggregate. The Company’s estimate of asbestos-
related liabilities is subject to uncertainty because liabilities are influenced by many variables that are inherently
difficult to predict. Although the Company believes the ultimate resolution of current cases will not have a material
effect on its consolidated financial position, results of operations, or cash flows, it cannot predict what new or
revised claims or litigation might be asserted or what information might come to light and can, therefore, give no
assurances regarding the ultimate outcome of asbestos related litigation.
Other Litigation - The Company and its predecessor-in-interest have been in litigation with the Bolivarian Republic of
Venezuela (the "Republic") since 2002 over a contract for the repair, refurbishment, and modernization at Ingalls of
two foreign-built frigates. Following an arbitration proceeding between the parties, in February 2018 the arbitral
tribunal awarded the Company approximately $151 million on its claims and awarded the Republic approximately
$22 million on its counterclaims. The Company is seeking to enforce and execute upon the award in multiple
jurisdictions. No assurances can be provided regarding the ultimate resolution of this matter.
The Company is party to various other claims, legal proceedings, and investigations that arise in the ordinary course
of business, including U.S. Government investigations that could result in administrative, civil, or criminal
proceedings involving the Company. The Company is a contractor with the U.S. Government, and such proceedings
can therefore include False Claims Act allegations against the Company. Although the Company believes that the
resolution of these other claims, legal proceedings, and investigations will not have a material effect on its
consolidated financial position, results of operations, or cash flows, the Company cannot predict what new or
revised claims or litigation might be asserted or what information might come to light and can, therefore, give no
assurances regarding the ultimate outcome of these matters.
88
15. LEASES
The Company leases certain land, warehouses, office space, and production, office, and technology equipment,
among other items. Most equipment is leased on a monthly basis. Many land, warehouse, and office space leases
include renewal terms that can extend the lease term. The exercise of lease renewal options is at our sole
discretion. The depreciable life of assets and leasehold improvements is generally limited by the expected lease
term. The Company's lease agreements do not generally contain material residual value guarantees, material
restrictive covenants, or purchase options. The Company's lease portfolio consists primarily of operating leases.
The following table presents costs and other information related to the Company's leases:
($ in millions)
Operating lease costs
Short-term operating lease costs
Variable operating lease costs
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for new operating lease liabilities
Weighted-average remaining lease term (years) - operating leases
Weighted-average discount rate - operating leases
$
$
$
$
$
Year Ended December 31
2021
2020
2022
$
$
$
$
$
69
44
6
(65)
111
9 years
4.5 %
$
$
$
$
$
53
43
4
(52)
97
8 years
3.6 %
55
38
4
(54)
61
10 years
4.1 %
The undiscounted future non-cancellable lease payments under the Company's operating leases as of
December 31, 2022, were as follows:
($ in millions)
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less: imputed interest
Present value of lease liabilities
December 31, 2022
$
$
65
57
49
37
33
135
376
78
298
Lease liabilities included in the Company's consolidated statements of financial position as of December 31, 2022
and 2021, were as follows:
($ in millions)
Short-term operating lease liabilities
Long-term operating lease liabilities
Total operating lease liabilities
16. COMMITMENTS AND CONTINGENCIES
December 31
2022
2021
$
$
52
$
246
298
$
52
194
246
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. As of December 31, 2022, amounts recognized in connection with claims and
requests for equitable adjustment were not material individually or in the aggregate.
89
Environmental Matters - The estimated cost to complete environmental remediation has been accrued when it is
probable that the Company will incur such costs in the future to address environmental conditions at currently or
formerly owned or leased operating facilities, or at sites where it has been named a Potentially Responsible Party
("PRP") 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 December 31, 2022, the probable estimable future cost of 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 December 31, 2022, the Company had $14 million in issued but undrawn letters of credit, as indicated in Note 13:
Debt, 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 - In 1985, the Company and the U.S. Navy entered into a settlement agreement to resolve disputes
associated with billing and allocating to contracts the cost of workers’ compensation self-insurance, among other
matters. Consistent with the 1985 settlement agreement, the Company has not recovered cumulative billable costs
resulting from the different treatment of workers' compensation costs between CAS and U.S. GAAP Financial
Accounting Standards ("FAS"). Under the 1985 settlement agreement, these costs would be recovered in future
periods. In December 2020, a U.S. Navy Contracting Officer issued a determination that the 1985 settlement
agreement did not comply with CAS and directed the Company to develop and implement a different process to bill
and allocate the cost of workers’ compensation self-insurance. The Company believes the 1985 settlement
agreement is CAS-compliant and cannot be unilaterally terminated, but the Company is continuing to negotiate a
resolution of the matter with the Contracting Officer.
In August 2022, the Navy Contracting Officer issued a written determination that the Ingalls Shipbuilding Property
Management System had a significant deficiency, resulting in a 2% withhold of payments on certain invoices issued
under one contract. The withhold will terminate and withheld funds paid to the Company when the Contracting
Officer determines that the significant deficiency has been corrected. Although the Company believes the ultimate
resolution of this matter will not have a material effect on its consolidated financial position, results of operations, or
cash flows, it cannot predict or give assurances regarding the ultimate outcome of this matter.
In January 2023, the Company entered into discussions with a Mission Technologies' customer to amend an
existing contract addressing manufacturing issues. An agreement has not been reached, but based on the current
status of discussions, an amendment to the contract may result in the Company incurring future losses of up to $25
million.
Collective Bargaining Agreements - Of the Company's approximately 43,000 employees, approximately 45% are
covered by a total of nine collective bargaining agreements and one site stabilization agreement. Newport News has
three collective bargaining agreements covering represented employees, which expire in April 2024, February 2027,
and December 2027. Newport News craft workers employed at the Kesselring Site near Saratoga Springs, New
York are represented under an indefinite Department of Energy ("DoE") site agreement. Ingalls has five collective
bargaining agreements covering represented employees, all of which expire in March 2026. Approximately 15
Mission Technologies employees in Klamath Falls, Oregon are covered by one collective bargaining agreement that
expires in June 2025.
90
Collective bargaining agreements generally expire after three to five years and are subject to renegotiation at that
time. The Company believes its relationship with its employees is satisfactory.
17. EMPLOYEE PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company provides eligible employees defined benefit pension plans, defined contribution benefit plans, and
other postretirement benefit plans. Non-collectively bargained defined benefit pension plans accruing benefits under
the traditional years of service and compensation formula were amended in 2009 to freeze future service accruals
and were replaced with a cash balance benefit for all current non-collectively bargained employees. Except for the
major collectively bargained plan at Ingalls, the Company's qualified defined benefit pension plans are frozen to new
entrants. The Company's policy is to fund its qualified defined benefit pension plans at least to the minimum
amounts required under U.S. Government regulations.
Defined benefit plan obligations are measured based on the present value of projected future benefit payments to
participants for services rendered to date. The measurement of projected future benefits is dependent on the terms
of each individual plan, demographics, and valuation assumptions. No assumption is made regarding any potential
changes to the benefit provisions beyond those to which the Company is currently committed, for example under
existing collective bargaining agreements.
The Company also sponsors 401(k) defined contribution pension plans in which most employees are eligible to
participate. Company contributions for most defined contribution pension plans are based on the matching of
employee contributions up to 4% of eligible compensation. Certain hourly employees are covered under a target
benefit plan. In addition to the 401(k) defined contribution pension benefit formula, non-collectively bargained
employees hired after June 30, 2008, and certain collectively bargained employees hired after July 10, 2017, are
eligible to participate in a defined contribution benefit program in lieu of a defined benefit pension plan. The
Company's contributions to the qualified defined contribution pension plans for the years ended December 31,
2022, 2021, and 2020, were $153 million, $140 million, and $130 million, respectively.
The Company also sponsors defined benefit and defined contribution pension plans to provide benefits in excess of
the tax-qualified limits. The liabilities related to these plans as of December 31, 2022, were $192 million and $38
million, respectively, and as of December 31, 2021, were $240 million and $45 million, respectively. Grantor trust
assets, primarily in the form of Level 1 marketable securities, are intended to fund certain of these obligations. The
trusts’ fair values supporting these liabilities as of December 31, 2022 and 2021, were $209 million and $220 million,
respectively, of which $169 million and $173 million, respectively, were related to the non-qualified defined benefit
pension plans.
The Company provides contributory postretirement health care and life insurance benefits to a dominantly closed
group of eligible employees, retirees, and their qualifying dependents. Covered employees achieve eligibility to
participate in these contributory plans upon retirement from active service if they meet specified age, years of
service, and grandfathered requirements. Benefits are not guaranteed, and the Company reserves the right to
amend or terminate coverage at any time. The Company's contributions for retiree health care benefits are subject
to caps, which limit Company contributions when spending thresholds are reached.
91
The measurement date for all of the Company's retirement related plans is December 31. The costs of the
Company's defined benefit pension plans and other postretirement benefit plans for the years ended December 31,
2022, 2021, and 2020, were as follows:
($ in millions)
Components of Net Periodic Benefit Cost
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost (credit)
Amortization of net actuarial loss (gain)
Settlement gain
Net periodic benefit cost
Pension Benefits
Year Ended December 31
2020
2021
2022
Other Benefits
Year Ended December 31
2020
2021
2022
$
$
181 $
258
(594)
199 $
240
(553)
180
258
(486)
$
22
15
35
(4)
(102) $
110
—
11 $
12
109
—
73
$
9 $
14
—
(4)
(3)
—
16 $
10 $
14
—
(4)
(3)
—
17 $
9
17
—
(22)
(7)
—
(3)
The funded status of these plans as of December 31, 2022 and 2021, was as follows:
($ in millions)
Change in Benefit Obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants' contributions
Plan amendments
Actuarial loss (gain)
Benefits paid
Settlement
Benefit obligation at end of year
Change in Plan Assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Plan participants' contributions
Benefits paid
Settlement
Fair value of plan assets at end of year
Funded status
Amounts Recognized in the Consolidated Statements of Financial Position:
Pension plan assets
Current liability (1)
Non-current liability (2)
Accumulated other comprehensive loss (income) (pre-tax) related to:
Prior service costs (credits)
Pension Benefits
December 31
Other Benefits
December 31
2022
2021
2022
2021
$ 8,569 $ 8,706 $
505 $
534
181
258
6
97
(2,327)
(314)
(32)
199
240
7
—
(292)
(291)
—
6,438
8,569
8,460
(1,349)
10
6
(314)
(32)
7,710
965
69
7
(291)
—
6,781
8,460
9
14
11
—
(103)
(42)
—
394
—
—
31
11
(42)
—
—
10
14
11
(14)
(2)
(48)
—
505
—
—
37
11
(48)
—
—
$
343 $
(109) $
(394) $
(505)
$
600 $
281 $
— $
—
(43)
(214)
(39)
(351)
156
80
(134)
(260)
(16)
(102)
(137)
(368)
(20)
(3)
Net actuarial loss (gain)
(1)
(2) Included in pension plan liabilities and other postretirement plan liabilities, respectively.
Included in other current liabilities and current portion of postretirement plan liabilities, respectively.
1,197
780
92
The Projected Benefit Obligation ("PBO"), Accumulated Benefit Obligation ("ABO"), and asset values for the
Company's qualified pension plans were $6,246 million, $6,017 million, and $6,781 million, respectively, as of
December 31, 2022, and $8,330 million, $7,898 million, and $8,460 million, respectively, as of December 31, 2021.
The PBO represents the present value of pension benefits earned through the end of the year, with allowance for
future salary increases. The ABO is similar to the PBO, but does not provide for future salary increases.
The PBOs and fair values of plan assets for all qualified and non-qualified pension plans with PBOs in excess of
plan assets were $868 million and $611 million, respectively, as of December 31, 2022, and $1,151 million and $761
million, respectively, as of December 31, 2021.
The ABOs for all qualified and non-qualified pension plans with ABOs in excess of plan assets were $176 million
and $222 million as of December 31, 2022, and 2021, respectively. The ABOs for all pension plans were $6,193
million and $8,120 million as of December 31, 2022 and 2021, respectively.
The changes in amounts recorded in accumulated other comprehensive income (loss) were as follows:
($ in millions)
Prior service credit (cost)
Amortization of prior service cost (credit)
Net actuarial gain (loss)
Amortization of net actuarial loss (gain)
Other
Pension Benefits
Year Ended December 31
2020
2021
2022
Other Benefits
Year Ended December 31
2020
2021
2022
$
(97) $
22
384
— $
15
704
(26) $
12
(222)
— $
(4)
103
35
(4)
110
(1)
109
—
(3)
(1)
14 $
(4)
2
(3)
1
—
(22)
(31)
(7)
—
Total changes in accumulated other comprehensive income
(loss)
$
340 $
828 $
(127) $
95 $
10 $
(60)
The weighted average assumptions used to determine the net periodic benefit costs for each year ended December
31 were as follows:
Discount rate
Expected long-term rate on plan assets
Rate of compensation increase
Discount rate
Initial health care cost trend rate assumed for next year
Gradually declining to a rate of
Year in which the rate reaches the ultimate rate
Pension Benefits
2021
2020
2022
3.00 %
7.25 %
3.58 %
2022
2.94 %
5.50 %
4.50 %
2027
2.80 %
7.25 %
3.62 %
Other Benefits
2021
2.75 %
5.50 %
4.50 %
2026
3.39 %
7.25 %
3.61 %
2020
3.35 %
5.50 %
4.50 %
2025
The weighted average assumptions used to determine the benefit obligations as of December 31 of each year were
as follows:
Discount rate
Weighted average interest crediting rate
Rate of compensation increase
Initial health care cost trend rate assumed for next year
Gradually declining to a rate of
Year in which the rate reaches the ultimate rate
93
Pension Benefits
December 31
Other Benefits
December 31
2022
2021
2022
2021
5.50 %
2.94 %
5.47 %
3.63 %
3.63 %
3.00 %
2.66 %
3.58 %
6.00 %
4.50 %
5.50 %
4.50 %
2028
2027
Health Care Cost Trend Rate - The health care cost trend rate represents the annual rates of change in the cost of
health care benefits based on estimates of health care inflation, changes in health care utilization or delivery
patterns, technological advances, government mandated benefits, and other considerations. Using a combination of
market expectations and economic projections as of December 31, 2022, the Company selected an expected initial
health care cost trend rate of 6.00% and an ultimate health care cost trend rate of 4.50% to be reached in 2028. As
of December 31, 2021, the Company assumed an expected initial health care cost trend rate of 5.50% and an
ultimate health care cost trend rate of 4.50% to be reached in 2027.
The Employee Retirement Income Security Act of 1974 ("ERISA"), including amendments under pension relief
legislation, defines the minimum amount the Company must contribute to its qualified defined benefit pension plans.
In determining whether to make discretionary contributions to these plans above the minimum required amounts,
the Company considers various factors, including attainment of the funded percentage needed to avoid benefit
restrictions and other adverse consequences, minimum CAS funding requirements, and the current and anticipated
future funding levels of each plan. The Company's contributions to its qualified defined benefit pension plans are
affected by a number of factors, including published IRS interest rates, the actual return on plan assets, actuarial
assumptions, and demographic experience. These factors and the Company's resulting contributions also impact
the funded status of each plan. The Company made the following contributions to its defined benefit pension plans
and other postretirement benefit plans for the years ended December 31, 2022, 2021, and 2020:
($ in millions)
Pension plans
Discretionary
Qualified
Non-qualified
Other benefit plans
Total contributions
Year Ended December 31
2022
2021
2020
$
$
—
10
31
41
$
$
60
$
9
37
106
$
205
8
33
246
For the year ending December 31, 2023, the Company expects its cash contributions to its qualified defined benefit
pension plans to be less than $1 million, all of which will be discretionary. For the year ending December 31, 2023,
the Company expects its cash contributions to its other postretirement benefit plans to be approximately $35 million.
The following table presents estimated future benefit payments, using the same assumptions used in determining
the Company's benefit obligations, as of December 31, 2022. Benefit payments depend on future employment and
compensation levels, years of service, and mortality. Changes in any of these factors could significantly affect these
estimated amounts.
($ in millions)
2023
2024
2025
2026
2027
Years 2028 to 2032
Pension Plan Assets
$
Pension
Benefits
Other Benefit
Payments
$
336
356
377
397
416
35
37
38
38
37
$
2,290
$
157
Pension assets include public equities, government and corporate bonds, cash and cash equivalents, private real
estate funds, private partnerships, hedge funds, and other assets. Plan assets are held in a master trust and
overseen by the Company's Investment Committee. All assets are externally managed through a combination of
active and passive strategies. Managers may only invest in the asset classes for which they have been appointed.
94
The Investment Committee is responsible for setting the policy that provides the framework for management of the
plan assets. The Investment Committee set the minimum and maximum permitted values for each asset class in the
Company's pension plan master trust for the year ended December 31, 2022, as follows:
U.S. and international equities
Fixed income securities
Alternative investments
Range
35
20
10
-
-
-
60%
45%
35%
The general objectives of the Company's pension asset strategy are to earn a rate of return over time to satisfy the
benefit obligations of the plans, meet minimum ERISA funding requirements, and maintain sufficient liquidity to pay
benefits and address other cash requirements within the master trust. Specific investment objectives include
reducing the volatility of pension assets relative to benefit obligations, achieving a competitive total investment
return, achieving diversification between and within asset classes, and managing other risks. Investment objectives
for each asset class are determined based on specific risks and investment opportunities identified. Decisions
regarding investment policies and asset allocations are made with the understanding of the historical and
prospective return and risk characteristics of various asset classes, the effect of asset allocations on funded status,
future Company contributions, and projected expenditures, including benefit payments. The Company updates its
asset allocations periodically. The Company uses various analytics to determine the optimal asset mix and
considers plan obligation characteristics, duration, liquidity characteristics, funding requirements, expected rates of
return, regular rebalancing, and the distribution of returns. Actual allocations to each asset class could vary from
target allocations due to periodic investment strategy changes, short-term market value fluctuations, the length of
time it takes to fully implement investment allocation positions, such as real estate and other alternative
investments, and the timing of benefit payments and Company contributions.
Taking into account the asset allocation ranges, the Company determines the specific allocation of the master trust's
investments within various asset classes. The master trust utilizes select investment strategies, which are executed
through separate account or fund structures with external investment managers who demonstrate experience and
expertise in the appropriate asset classes and styles. The selection of investment managers is done with careful
evaluation of all aspects of performance and risk, demonstrated fiduciary responsibility, investment management
experience, and a review of investment manager policies and processes. Investment performance is monitored
frequently against appropriate benchmarks and tracked to compliance guidelines with the assistance of third-party
consultants and performance evaluation tools and metrics.
Plan assets are stated at fair value. The Company employs a variety of pricing sources to estimate the fair value of
its pension plan assets, including independent pricing vendors, dealer or counterparty-supplied valuations, third-
party appraisals, and appraisals prepared by the Company's investment managers or other experts.
Investments in equity securities, common and preferred, are valued at the last reported sales price when an active
market exists. Securities for which official or last trade pricing on an active exchange is available are classified as
Level 1. If closing prices are not available, securities are valued at the last trade price, if deemed reasonable, or a
broker's quote in a non-active market, and are typically categorized as Level 2.
Investments in fixed-income securities are generally valued by independent pricing services or dealers who make
markets in such securities. Pricing methods are based upon market transactions for comparable securities and
various relationships between securities that are generally recognized by institutional traders, and fixed-income
securities typically are categorized as Level 2.
Investments in collective trust funds and commingled funds that use Net Asset Values (“NAV”) are valued based on
the redemption price of units owned by the master trust, which is based on the current fair values of the fund assets,
as reported by the investment manager.
Investments in hedge funds generally do not have readily available market quotations and are estimated at fair
value, which primarily utilizes NAV or the equivalent, as a practical expedient, as reported by the investment
manager. Hedge funds usually have restrictions on redemptions that might affect the ability to sell the investment at
NAV in the short term.
95
Real estate funds are typically valued through updated independent third-party appraisals, which are adjusted for
changes in cash flows, market conditions, property performance, and leasing status. Since real estate funds do not
have readily available market quotations, they are generally valued at NAV or its equivalent, as a practical
expedient, as reported by the asset manager. Redemptions from real estate funds are also subject to various
restrictions.
Private partnership interests include debt and equity investments. These investments are valued based on NAVs or
their equivalents, adjusted for capital calls and distributions, reported by the respective general partners. The terms
of the partnerships range from seven to ten or more years, and investors do not have the option to redeem their
interests in these partnerships. As of December 31, 2022, unfunded commitments to private partnerships were $847
million.
Management reviews independently appraised values, audited financial statements, and additional pricing
information to evaluate the net asset values. For the very limited group of investments for which market quotations
are not readily available or for which the above valuation procedures are deemed not to reflect fair value, additional
information is obtained from the investment manager and evaluated internally to determine whether any
adjustments are required to reflect fair value.
The Company might be unable to quickly liquidate some assets at amounts close or equal to fair value in order to
meet plan liquidity requirements or respond to specific events, such as the creditworthiness of any particular issuer
or counterparty. Illiquid assets are generally long-term investments that complement the long-term nature of the
Company's pension obligations and are generally not used to fund benefit payments in the short term. Management
monitors liquidity risk on an ongoing basis and has procedures designed to maintain adequate liquidity for plan
requirements.
The master trust has considerable investments in fixed income securities for which changes in the relevant interest
rate of a particular instrument might result in the inability to secure similar returns upon the maturity or sale of the
instrument. Changes in prevailing interest rates might result in an increase or decrease in fair value of the
instrument. Investment managers are permitted to use interest rate swaps and other financial derivatives to manage
interest rate and credit risks.
Counterparty risk is the risk that a counterparty to a financial instrument held by the master trust will default on its
commitment. Counterparty risk is generally related to over-the-counter derivative instruments used to manage risk
exposure to interest rates on long-term debt securities. Certain agreements with counterparties employ set-off
agreements, collateral support arrangements, and other risk mitigation practices designed to reduce the net credit
risk exposure in the event of a counterparty default. The Company has credit policies and processes that manage
concentrations of risk by seeking to undertake transactions with large well-capitalized counterparties and by
monitoring the creditworthiness of these counterparties.
96
Certain investments that are measured at fair value using NAV per share (or its equivalent) as a practical expedient
are not required to be categorized in the fair value hierarchy table. The total fair value of these investments is
included in the table below to permit reconciliation of the fair value hierarchy to amounts presented in the funded
status table above.
($ in millions)
Plan assets subject to leveling
U.S. and international equities
Government and agency debt securities
Corporate and other debt securities
Group annuity contract
Cash and cash equivalents, net
Net plan assets subject to leveling
Plan assets not subject to leveling
U.S. and international equities (a)
Corporate and other debt securities
Real estate investments
Private partnerships
Hedge funds
Cash and cash equivalents, net (b)
Total plan assets not subject to leveling
Net plan assets
December 31, 2022
Total
Level 1
Level 2
Level 3
$ 1,910 $ 1,910 $
— $
334
1,106
3
28
—
—
—
28
334
1,106
3
—
$ 3,381 $ 1,938 $ 1,443 $
—
—
—
—
—
—
1,494
222
471
670
382
161
3,400
$ 6,781
(a) U.S. and international equity securities include investments in small, medium, and large capitalization stocks of
public companies held in commingled trust funds.
(b) Cash and cash equivalents are liquid short-term investment funds and include net receivables and payables of
the trust. These funds are available for immediate use to fund daily operations, execute investment policies, and
serve as a temporary investment vehicle.
97
($ in millions)
Plan assets subject to leveling
U.S. and international equities
Government and agency debt securities
Corporate and other debt securities
Group annuity contract
Cash and cash equivalents, net
Net plan assets subject to leveling
Plan assets not subject to leveling
U.S. and international equities (a)
Corporate and other debt securities
Real estate investments
Private partnerships
Hedge funds
Cash and cash equivalents, net (b)
Total plan assets not subject to leveling
Net plan assets
December 31, 2021
Total
Level 1
Level 2
Level 3
$ 2,481 $ 2,481 $
— $
477
1,553
3
47
—
—
—
47
477
1,553
3
—
$ 4,561 $ 2,528 $ 2,033 $
—
—
—
—
—
—
1,994
327
467
518
361
232
3,899
$ 8,460
(a) U.S. and international equity securities include investments in small, medium, and large capitalization stocks of
public companies held in commingled trust funds.
(b) Cash and cash equivalents are liquid short-term investment funds and include net receivables and payables of
the trust. These funds are available for immediate use to fund daily operations, execute investment policies, and
serve as a temporary investment vehicle.
There was no activity attributable to Level 3 retirement plan assets during the years ended December 31, 2022 and
2021.
18. STOCK COMPENSATION PLANS
As of December 31, 2022, HII had stock-based compensation awards outstanding under the following plans: the
Huntington Ingalls Industries, Inc. 2011 Long-Term Incentive Stock Plan (the "2011 Plan"), the Huntington Ingalls
Industries, Inc. 2012 Long-Term Incentive Stock Plan (the "2012 Plan"), and the Huntington Ingalls Industries, Inc.
2022 Long-Term Incentive Stock Plan (the "2022 Plan").
Stock Compensation Plans
On March 1, 2022, the Company's board of directors adopted the 2022 Plan, subject to stockholder approval, and
the Company's stockholders approved the 2022 Plan on May 3, 2022. Award grants made on or after May 3, 2022,
were made under the 2022 Plan. Award grants made prior to May 3, 2022, were made under the 2011 Plan or the
2012 Plan. No future grants will be made under the 2011 Plan or the 2012 Plan.
The 2022 Plan permits awards of stock options, stock appreciation rights, and other stock awards. Stock awards, in
the form of RPSRs, restricted stock rights ("RSRs"), and stock rights, are granted to key employees and members
of the board of directors without payment to the Company. The 2022 Plan authorized (i) 1.3 million new shares; plus
(ii) any shares subject to outstanding awards under the 2012 Plan or 2011 Plan that were subsequently forfeited to
the Company; plus (iii) any shares subject to outstanding awards under the 2012 Plan or 2011 Plan that were
subsequently exchanged by the participant as full or partial payment to the Company in connection with any such
award or exchanged by a participant or withheld by the Company to satisfy the tax withholding obligations related to
any such award. As of December 31, 2022, the remaining aggregate number of shares of the Company's common
stock authorized for issuance under the 2022 Plan was 1.3 million.
98
The 2012 Plan permitted awards of stock options, stock appreciation rights, and other stock awards. Stock awards,
in the form of RPSRs, RSRs, and stock rights were granted to key employees and members of the board of
directors without payment to the Company.
The 2011 Plan permitted the awards of stock options and other stock awards. Stock awards, in the form of stock
rights, were granted to members of the board of directors without payment to the Company.
Stock Awards
Stock awards include RPSRs, RSRs, and stock rights. The fair value of stock awards is determined based on the
closing market price of the Company's common stock on the grant date. Compensation expense for stock awards is
measured based on the grant date fair value and recognized over the vesting period, generally three years.
For purposes of measuring compensation expense, the amount of shares ultimately expected to vest is estimated at
each reporting date based on management's expectations regarding the relevant service or performance criteria.
The Company issued the following stock awards in the years ended December 31, 2022, 2021, and 2020:
Restricted Performance Stock Rights - For the year ended December 31, 2022, the Company granted
approximately 0.2 million RPSRs at a weighted average share price of $204.41. These rights are subject to cliff
vesting on December 31, 2024. For the year ended December 31, 2021, the Company granted approximately 0.2
million RPSRs at a weighted average share price of $180.06. These rights are subject to cliff vesting on December
31, 2023. For the year ended December 31, 2020, the Company granted approximately 0.1 million RPSRs at a
weighted average share price of $229.06. These rights were fully vested as of December 31, 2022. 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 - Retention stock awards are granted to key employees primarily to ensure business
continuity. In 2022, the Company granted approximately 2,400 RSRs at a weighted average share price of $208.81,
with cliff vesting one to three years from the grant date. In 2021, the Company granted approximately 31,400 RSRs
at a weighted average share price of $187.59, with cliff vesting one to three years from the grant date. In 2020, the
Company granted less than 1,000 RSRs at a weighted average share price of $192.26, with cliff vesting two to three
years from the grant date. As of December 31, 2022, approximately 23,300 RSRs were outstanding.
For the year ended December 31, 2022, 0.2 million stock awards vested, of which less than 0.1 million were
transferred to the Company from employees in satisfaction of minimum tax withholding obligations. For the year
ended December 31, 2021, 0.1 million stock awards vested, of which less than 0.1 million were transferred to the
Company from employees in satisfaction of minimum tax withholding obligations. For the year ended December 31,
2020, 0.1 million stock awards vested, of which less than 0.1 million were transferred to the Company from
employees in satisfaction of minimum tax withholding obligations.
Stock Rights and Stock Issuances - The Company granted stock rights to its non-employee directors on a quarterly
basis in 2022, with each grant less than 10,000 shares. All stock rights granted to non-employee directors are fully
vested on the grant date. If a non-employee director has met certain stock ownership guidelines, the non-employee
director may elect under the terms of the Amended and Restated Directors’ Compensation Policy and Amended and
Restated Board Deferred Compensation Policy to receive their annual equity award for the following calendar year
in the form of either shares of the Company’s common stock or stock units that are payable in the fifth calendar year
after the year in which the annual equity award is earned, or, if earlier, upon termination of the director’s board
service.
Non-employee directors may also elect to receive their annual cash retainers in the form of stock units that become
payable upon termination of the director’s board service. Non-employee directors who elect to receive their annual
cash retainers in the form of stock units and have met their stock ownership guidelines may elect under the terms of
the Amended and Restated Directors’ Compensation Policy and Amended and Restated Board Deferred
Compensation Policy to receive in the following calendar year either shares of the Company's common stock or
stock units that are payable in the fifth calendar year after the year in which the stock units are earned, or, if earlier,
upon termination of the director’s board service.
99
Stock award activity for the years ended December 31, 2022, 2021, and 2020, was as follows:
Stock Awards
(in thousands)
Weighted-Average
Grant Date Fair
Value
Outstanding as of December 31, 2019
Granted
Adjustment due to performance
Vested
Forfeited
Outstanding as of December 31, 2020
Granted
Adjustment due to performance
Vested
Forfeited
Outstanding as of December 31, 2021
Granted
Adjustment due to performance
Vested
Forfeited
$
374
132
48
(157)
(16)
381
213
19
(100)
(28)
485
166
52
(170)
(27)
Outstanding as of December 31, 2022
506
$
201.92
225.80
199.58
199.58
231.06
211.77
181.66
259.03
259.03
202.81
190.36
204.65
209.04
209.04
199.40
189.68
Weighted
Average
Remaining
Contractual Term
0.9 years
1.0 year
1.0 year
1.0 year
Vested awards include stock awards that fully vested during the year based on the level of achievement of the
relevant performance goals. The performance goals for outstanding RPSRs granted in 2022, 2021, and 2020 were
based on three metrics as defined in the grant agreements: earnings before interest, taxes, depreciation,
amortization, and pension ("EBITDAP"), weighted at 40%, pension-adjusted return on invested capital ("ROIC"),
weighted at 40%, and relative EBITDAP growth, weighted at 20%. The Company's EBITDAP growth will be
measured against EBITDAP growth of the S&P Aerospace and Defense Select Index.
Compensation Expense
The Company recorded $36 million, $33 million, and $23 million of expense related to stock awards for the years
ended December 31, 2022, 2021, and 2020, respectively. The Company recorded $9 million, $8 million, and $6
million as tax benefits related to stock awards for the years ended December 31, 2022, 2021, and 2020,
respectively.
The Company recognized tax benefits for the years ended December 31, 2022, 2021, and 2020, of $8 million, $4
million, and $5 million, respectively, from the issuance of stock in settlement of stock awards.
Unrecognized Compensation Expense
As of December 31, 2022, the Company had $2 million of unrecognized compensation expense associated with
RSRs granted in 2022 and 2021, which will be recognized over a weighted average period of 1.0 year, and $31
million of unrecognized expense associated with RPSRs granted in 2022 and 2021, which will be recognized over a
weighted average period of 1.1 years.
19. SUBSIDIARY GUARANTORS
As described in Note 13: Debt, the Company issued senior notes through the consolidating parent company, HII.
Performance of the Company's obligations under its senior notes outstanding as of December 31, 2022, including
any repurchase obligations resulting from a change of control, is fully and unconditionally guaranteed, jointly and
severally, on an unsecured basis, by each of HII's existing and future material domestic subsidiaries ("Subsidiary
Guarantors"). The Subsidiary Guarantors are 100% owned by HII. Each HII subsidiary that did not provide a
guarantee ("Non-Guarantors") is not material and HII, as the parent company issuer, did not have independent
assets or operations. There are no significant restrictions on the ability of the parent company and the Subsidiary
100
Guarantors to obtain funds from their respective subsidiaries by dividend or loan, except those imposed by
applicable law.
101
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of
December 31, 2022. Based on that evaluation, the Company's Chief Executive Officer (principal executive officer)
and Chief Financial Officer (principal financial officer) concluded that, as of December 31, 2022, the Company's
disclosure controls and procedures were effective to ensure that information required to be disclosed in reports the
Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the
time periods specified in SEC rules and forms, and (ii) accumulated and communicated to management to allow
their timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
As of December 31, 2022, we completed the integration of Alion, which we acquired on August 19, 2021, into our
controls over financial reporting. Other than the foregoing, there have been no changes in our internal control over
financial reporting that occurred in the period covered by this report that materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting for
the Company. In order to evaluate the effectiveness of internal control over financial reporting, as required by
Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing, using the
criteria in Internal Control – Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of
the Treadway Commission ("COSO"). The Company’s system of internal control over financial reporting is designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with accounting principles generally accepted in the United States
of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Based on its assessment, management has concluded that the Company maintained effective internal control over
financial reporting as of December 31, 2022, based on criteria in Internal Control – Integrated Framework (2013),
issued by the COSO. The effectiveness of the Company’s internal control over financial reporting as of
December 31, 2022, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm,
as stated in their report, which is included in Item 8.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
102
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
PART III
Directors
Information regarding our directors will be incorporated herein by reference to the Proxy Statement for our 2023
Annual Meeting of Stockholders, to be filed with the SEC within 120 days after the end of the Company's fiscal year.
Information about our Executive Officers
The following table sets forth certain information concerning our executive officers, including a five-year employment
history.
Name
Age Position(s)
Christopher D. Kastner
Bharat B. Amin
Todd R. Borkey
Chad N. Boudreaux
Jennifer R. Boykin
Eric D. Chewning
Edgar A. Green III
Paul C. Harris
Brooke A. Hart
Stewart H. Holmes
Edmond E. Hughes
Nicolas G. Schuck
Thomas E. Stiehle
Kara R. Wilkinson
D. R. Wyatt
59
68
59
49
58
45
57
58
52
61
59
49
57
48
64
President and Chief Executive Officer
Executive Vice President and Chief Information Officer
Executive Vice President and Chief Technology Officer
Executive Vice President and Chief Legal Officer
Executive Vice President and President, Newport News Shipbuilding
Executive Vice President, Strategy and Development
Executive Vice President and President, Mission Technologies
Executive Vice President, Chief Sustainability and Compliance Officer
Executive Vice President, Communications
Executive Vice President, Government and Customer Relations
Executive Vice President and Chief Human Resources Officer
Corporate Vice President, Controller and Chief Accounting Officer
Executive Vice President and Chief Financial Officer
Executive Vice President and President, Ingalls Shipbuilding
Corporate Vice President and Treasurer
Christopher D. Kastner, President and Chief Executive Officer - Mr. Kastner was elected President and Chief
Executive Officer effective March 1, 2022. From February 2021 until he was elected to his current position, he
served as Executive Vice President and Chief Operating Officer. From March 2016 until February 2021, he served
as Executive Vice President and Chief Financial Officer. From August 2012 until March 2016, Mr. Kastner served as
Corporate Vice President and General Manager, Corporate Development. Prior to that and from March 2011, he
served as Vice President and Chief Financial Officer of our Ingalls Shipbuilding segment. Before that and from
2008, Mr. Kastner served as Vice President, Business Management and Chief Financial Officer of NGSB, Gulf
Coast, and served as Vice President, Contracts and Risk Management of Northrop Grumman Ship Systems from
2006 to 2008. Prior to that, he held several positions at other Northrop Grumman businesses, including Corporate
Director of Strategic Transactions. Mr. Kastner holds a B.A. in Political Science from the University of California at
Santa Barbara and an M.B.A from Pepperdine University.
Bharat B. Amin, Executive Vice President and Chief Information Officer - Mr. Amin was appointed Executive Vice
President and Chief Information Officer in January 2020. Prior to that and from December 2014, he was Vice
President and Chief Information Officer for Newport News Shipbuilding. Prior to that, he held various leadership
positions at BAE Systems Inc., including Business Technology Officer and Vice President and CIO of the Global
Land and Armament Sector. Mr. Amin also held leadership positions in IT and Engineering as Corporate Director--
Computer Integrated Manufacturing, IT Director and Senior Industrial Engineer. He holds a B.S in Mechanical
Engineering from Maharaja Sayajirao University, India, as well as a M.S. in Industrial Engineering and an Executive
M.B.A. in International Business and Finance from Rutgers University.
Todd A. Borkey, Executive Vice President and Chief Technology Officer – Mr. Borkey was elected Executive Vice
President and Chief Technology Officer effective September 26, 2022. Prior to that, and from October 2017, he
served as Chief Technology Officer at Alion Science and Technology. Before joining Alion, Mr. Borkey served as
103
CTO to Thales Defense and Security and DRS Defense Solutions, where he was responsible for the technical
roadmap and program operations to a wide range of products, including RF communications, C5ISR solutions,
remote sensors, radars, sonars, and cyber/electronic warfare products. Earlier in his career, Mr. Borkey performed a
range of engineering and management assignments within Northrop Grumman and AT&T Bell Labs. He received a
Master's Degree in engineering management from Stevens Institute of Technology and holds an undergraduate
degree in Applied Mathematics from the University of Albuquerque.
Chad N. Boudreaux, Executive Vice President and Chief Legal Officer - Mr. Boudreaux was appointed Executive
Vice President and Chief Legal Officer effective April 1, 2020. In this position, he has overall leadership
responsibility for our law department and outside counsel. Prior to that appointment, Mr. Boudreaux managed HII’s
litigation docket and oversaw our compliance program as the company’s first chief compliance officer. He joined HII
in 2011 as Corporate Vice President for Litigation, Investigations and Compliance. Before joining us, Mr. Boudreaux
practiced law at Baker Botts LLP, where he established the law firm’s Global Security and Corporate Risk
Counseling practice group. Prior to that, he held various high-ranking positions in the U.S. government, including
deputy chief of staff of the U.S. Department of Homeland Security and leadership positions at the U.S. Department
of Justice. Mr. Boudreaux earned a B.A. from Baylor University and a J.D. from the University of Memphis School of
Law.
Jennifer R. Boykin, Executive Vice President and President, Newport News Shipbuilding - Ms. Boykin was elected
Executive Vice President and President, Newport News Shipbuilding effective July 2017. From 2012 until she
assumed her current position, Ms. Boykin was Vice President, Engineering and Design for Newport News
Shipbuilding. Since joining Newport News Shipbuilding in the Nuclear Division in 1987, Ms. Boykin has had a variety
of responsibilities, including serving as Vice President of Quality and Process Excellence, Director of Facilities and
Waterfront Support, and program manager for the Nuclear Engineering Division. Ms. Boykin also served as a
construction superintendent for the aircraft carrier program during construction of USS John C. Stennis and
USS Harry S. Truman. Ms. Boykin holds a B.S. in Marine Engineering from the U.S. Merchant Marine Academy and
a Master's Degree in Engineering Management from The George Washington University.
Eric D. Chewning, Executive Vice President, Strategy and Development - Mr. Chewning was elected Executive Vice
President, Strategy and Development, effective January 30, 2023. Before joining HII, Mr. Chewning co-led
McKinsey & Company's Aerospace & Defense practice in the Americas beginning in April 2020. From January 2019
to January 2020, he served as the Chief of Staff to the U.S. Secretary of Defense. Prior to that and from October
2017, Mr. Chewning was the Deputy Assistant Secretary of Defense for Industrial Policy. He is a former U.S. Army
military intelligence officer and, prior to that, was an investment banker with Morgan Stanley & Co. Mr. Chewning
received a B.A. and a M.A. in international relations from the University of Chicago and a M.B.A. from the Darden
School of Business at the University of Virginia.
Edgar A. Green III, Executive Vice President and President, Mission Technologies - Mr. Green was appointed
Executive Vice President and President, Mission Technologies in December 2016. Prior to that and from January
2015, he served as Corporate Vice President, Corporate Development. From January 2013 to January 2015, Mr.
Green served as Vice President, Component Manufacturing, for Newport News Shipbuilding, and, from March 2011
to January 2013, he served as Corporate Vice President, Investor Relations, of HII. Prior to joining HII in 2011, Mr.
Green served as Vice President of Investor Relations at Celanese Corp. Before that he was a Managing Director
and research analyst at Wells Fargo Securities, where he covered the defense and aerospace industry, and a
manufacturing plant engineer at Eaton Corp.’s Truck Components Division. Mr. Green also served as a U.S. Navy
nuclear submarine officer on board USS Tecumseh (SSBN-628). He holds a B.S. in Systems Engineering from the
U.S. Naval Academy and an M.B.A. from Duke University.
Paul C. Harris, Executive Vice President and Chief Sustainability and Compliance Officer – Mr. Harris was
appointed Executive Vice President and Chief Sustainability and Compliance Officer effective March 14, 2022. Prior
to that, and from September 2020, when he joined HII, Mr. Harris served as Corporate Vice President, Chief
Compliance and Privacy Officer. Before joining HII, he served as Senior Vice President at Hampton University, his
alma mater, beginning in September 2016. Before returning to Hampton, Mr. Harris held several positions of
increasing authority and responsibility in corporate law departments, including Sodexo, Northrop Grumman, and
Raytheon. Prior to joining Raytheon, he served as Deputy Assistant Attorney General at the U.S. Department of
Justice, where he later was elevated to Deputy Associate Attorney General. Prior to his service at the Department of
Justice, Mr. Harris served as a Member of the Virginia House of Delegates, from 1998 to 2001. A U.S. Army veteran,
he earned a Bachelor of Arts degree from Hampton University and a Juris Doctor degree from The George
Washington University Law School.
104
Brooke A. Hart, Executive Vice President, Communications – Ms. Hart was appointed Executive Vice President,
Communications effective September 27, 2021, upon joining HII. From August 2015 until she joined HII, she served
as Vice President of Communications and Brand at Sierra Nevada Corporation, a defense contractor, where she
oversaw the company's internal and external communications efforts in promoting and protecting the corporate
brand. Prior to that, Ms. Hart was Venture Partner and Vice President at Disruption Corporation and Crystal Tech
Fund, and prior to that served as Senior Communications Officer at The Pew Charitable Trusts. She spent 16 years
as an on-air television reporter, including serving as national correspondent for NBC News from June 1999 to June
2010. Ms. Hart received a B.A. from Stanford University and a M.A. from Georgetown University.
Stewart H. Holmes, Executive Vice President, Government and Customer Relations – Mr. Holmes was appointed
Executive Vice President, Government and Customer Relations effective September 27, 2021, upon joining HII.
From April 2017 until he joined HII, he served as Senior Vice President of Washington Operations for Textron Inc.,
where he was responsible for leading Textron’s government affairs activities and engaging with the legislative and
executive branches, federal agencies, and industry associations. From January 2015 until March 2017, he served
as Vice President of Washington Operations for Textron, where he was primarily responsible for leading lobbying
efforts. Prior to joining Textron in January 2015, Mr. Holmes served as the staff director/minority clerk for the Senate
Appropriations Subcommittee on Defense and, prior to that, worked as a staff member for the Senate
Appropriations Committee and as an aide to Sen. Thad Cochran of Mississippi. Mr. Holmes served in the U.S.
Marine Corps for more than two decades and is a graduate of The Citadel and the Naval Postgraduate School.
Edmond E. Hughes - Executive Vice President and Chief Human Resources Officer - Mr. Hughes was appointed
Executive Vice President and Chief Human Resources Officer effective April 1, 2022. Prior to that, and from March
2006, he served as the Vice President of Human Resources and Administration for Ingalls Shipbuilding. Before
joining Ingalls Shipbuilding, Mr. Hughes served in human resources roles of increasing responsibilities at General
Motors and TRW Automotive. He received a B.S. from Tougaloo College and an M.B.A. from Indiana University.
Nicolas G. Schuck, Corporate Vice President, Controller and Chief Accounting Officer - Mr. Schuck was appointed
Corporate Vice President, Controller and Chief Accounting Officer effective August 2015. Prior to that, he was
Assistant Controller at our Newport News Shipbuilding division. Prior to that and since joining us in January 2012,
he served as Corporate Assistant Controller. From December 2009 until December 2011, Mr. Schuck served as
Director, Finance at ManTech International Corporation, a provider of technologies and solutions for national
security programs for the intelligence community and other U.S. federal government customers. Prior to that, he
worked for PricewaterhouseCoopers and Arthur Andersen. Mr. Schuck attended the National Institute of Economics
and Accounting in Paris. He holds a Bachelor's Degree and a Master's Degree in Accounting and Finance and is a
certified public accountant.
Thomas E. Stiehle, Executive Vice President and Chief Financial Officer - Mr. Stiehle was elected Executive Vice
President and Chief Financial Officer effective February 12, 2021. From October 2012 until he assumed his current
position, he served as Vice President and Chief Financial Officer of our Ingalls Shipbuilding segment. Prior to that,
Mr. Stiehle served as Vice President, Contracts and Pricing, for Ingalls Shipbuilding. Prior to joining HII in 2011, he
worked for Northrop Grumman, Aerospace Sector, for 24 years. Mr. Stiehle holds a B.S. in Mechanical Engineering
from Hofstra University and an M.B.A. from Adelphi University and Master’s Degree in Acquisition and Contract
Management from Florida Institute of Technology.
Kara R. Wilkinson, Executive Vice President and President, Ingalls Shipbuilding - Ms. Wilkinson was elected
Executive Vice President and President, Ingalls Shipbuilding effective April 1, 2021. From May 2016 until she
assumed her current position, she served as Vice President of Program Management at Ingalls Shipbuilding. Prior
to that, Ms. Wilkinson held various positions in Business Development and Engineering at Ingalls Shipbuilding and
began her career at Ingalls Shipbuilding in 1996 as a naval architect. She holds a B.S. in Naval Architecture and
Marine Engineering from the University of Michigan and an M.B.A. from Temple University.
D. R. Wyatt, Corporate Vice President and Treasurer - Mr. Wyatt has been Corporate Vice President and Treasurer
since March 2011. Prior to that, he was Director of Business Management at NGSB where he was responsible for
aircraft carriers, carrier fleet support, and energy business. Prior to his appointment as Director of Business
Management, Mr. Wyatt served as Treasurer of Newport News Shipbuilding Inc., Assistant Treasurer and Manager
of Finance, and has held various positions in the financial area, including cost estimating, cost control, accounting,
financial analysis, and government accounting. He has extensive Treasury experience, including responsibility for
corporate finance, cash management, risk management and all financings, capital structure, capital market
105
interface, rating agency relationships, cash and financial forecasting, working capital management, short-term
investments, strategic transactions, pension asset management, and insurance and loss control. Mr. Wyatt holds a
B.S. in Economics from Hampden-Sydney College and an M.B.A. from Old Dominion University.
Audit Committee Financial Expert
Information as to the Audit Committee and the Audit Committee Financial Expert will be incorporated herein by
reference to the Proxy Statement for our 2023 Annual Meeting of Stockholders, to be filed within 120 days after the
end of the Company’s fiscal year.
Code of Ethics
We have adopted a Code of Ethics and Business Conduct for all of our employees, including the principal executive
officer, principal financial officer, and principal accounting officer. The Code of Ethics and Business Conduct can be
found on our internet website at www.HII.com under "Investor Relations—Company Corporate Governance." A copy
of the Code of Ethics and Business Conduct is available to any stockholder who requests it by writing to: Huntington
Ingalls Industries, Inc., c/o Office of the Secretary, 4101 Washington Avenue, Newport News, VA 23607. If we make
any substantive amendments to the Code of Ethics and Business Conduct or grant any waivers, including any
implicit waiver, from a provision of the Code of Ethics and Business Conduct, in each case as it relates to any
provision of the Code of Ethics and Business Conduct specified in applicable SEC rules or stock exchange rules, to
our principal executive officer, principal financial officer, principal accounting officer or controller, or persons
performing similar functions, we will disclose the nature of the amendment or waiver on our website.
Our website and information contained on our website or incorporated into our website are not intended to be
incorporated into this report on Form 10-K or other filings with the SEC.
Other Disclosures
Other disclosures required by this Item will be incorporated herein by reference to the Proxy Statement for our 2023
Annual Meeting of Stockholders, to be filed within 120 days after the end of the Company’s fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation (other than information related to pay-for-performance), including
information concerning compensation committee interlocks, insider participation, and the compensation committee
report, will be incorporated herein by reference to the Proxy Statement for our 2023 Annual Meeting of
Stockholders, to be filed within 120 days after the end of the Company’s fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information as to security ownership of certain beneficial owners and management and related stockholder matters
will be incorporated herein by reference to the Proxy Statement for our 2023 Annual Meeting of Stockholders, to be
filed within 120 days after the end of the Company’s fiscal year.
106
Equity Compensation Plan Information
The following table provides information regarding the equity securities available for issuance under our equity
compensation plans as of December 31, 2022:
Equity Compensation Plan Information
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights(1)
(a)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities
Reflected in Column (a))
(b)
(c)
Plan category
Equity compensation plans approved by security
holders
506,398
$0.00
1,264,841
Equity compensation plans not approved by
security holders(2)
Total
(1) Includes grants made under the Huntington Ingalls Industries, Inc. 2022 Long-Term Incentive Stock Plan (the
—
506,398
—
$0.00
—
1,264,841
"2022 Plan"), which was approved by our stockholders on May 3, 2022, Huntington Ingalls Industries, Inc. 2012
Long-Term Incentive Stock Plan (the "2012 Plan"), which was approved by our stockholders on May 2, 2012, and
the Huntington Ingalls Industries, Inc. 2011 Long-Term Incentive Stock Plan (the "2011 Plan"), which was
approved by the sole stockholder of HII prior to its spin-off from Northrop Grumman Corporation. These shares
were comprised of 14,972 stock rights granted under the 2011 Plan, 53,929 stock rights, 23,304 restricted stock
rights, and 406,515 restricted performance stock rights granted under the 2012 Plan, assuming target
performance achievement, and 7,678 restricted performance stock rights granted under the 2022 Plan, assuming
target performance achievement.
(2) No awards have been granted under plans not approved by security holders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information as to certain relationships and related transactions and director independence will be incorporated
herein by reference to the Proxy Statement for our 2023 Annual Meeting of Stockholders, to be filed within 120 days
after the end of the Company’s fiscal year.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information as to principal accountant fees and services will be incorporated herein by reference to the Proxy
Statement for our 2023 Annual Meeting of Stockholders, to be filed within 120 days after the end of the Company’s
fiscal year.
107
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
1. Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Financial Statements
Consolidated Statements of Operations and Comprehensive Income
Consolidated Statements of Financial Position
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Equity
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable, not required, or the information has
been otherwise supplied in the financial statements or notes to the financial statements.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at Beginning
of Period
(Benefits)/Charges
to Income
Other
Balance at
End of Period
Year Ended December 31, 2020
Valuation allowance for deferred tax assets
$
15 $
7 $
— $
Year Ended December 31, 2021
Valuation allowance for deferred tax assets
22
—
—
Year Ended December 31, 2022
Valuation allowance for deferred tax assets
$
22 $
2 $
4 $
22
22
28
3. Exhibits
2.1
3.1
3.2
3.3
3.4
3.5
Separation and Distribution Agreement, dated as of March 29, 2011, among Titan II Inc. (formerly
Northrop Grumman Corporation), Northrop Grumman Corporation (formerly New P, Inc.), Huntington
Ingalls Industries, Inc., Northrop Grumman Shipbuilding, Inc. and Northrop Grumman Systems
Corporation (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
filed on April 4, 2011).
Restated Certificate of Incorporation of Huntington Ingalls Industries, Inc., filed March 30, 2011
(incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on April
4, 2011).
Certificate of Amendment to the Restated Certificate of Incorporation of Huntington Ingalls Industries,
Inc., dated May 28, 2014 (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report
on Form 10-Q filed on August 7, 2014).
Certificate of Amendment to the Restated Certificate of Incorporation of Huntington Ingalls Industries,
Inc., dated May 21, 2015 (incorporated by reference to Exhibit 3.3 to the Company’s Quarterly Report
on Form 10-Q filed on August 6, 2015).
Certificate of Amendment to the Restated Certificate of Incorporation of Huntington Ingalls Industries,
Inc., dated May 12, 2021 (incorporated by reference to Annex B to the Proxy Statement filed on March
19, 2021).
Restated Bylaws of Huntington Ingalls Industries, Inc. (incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K filed on November 8, 2022).
108
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
10.1
10.2
10.3
Indenture, dated as of December 1, 2017, by and among Huntington Ingalls Industries, Inc., the
guarantors party thereto, and Wells Fargo Bank, National Association, as trustee (incorporated by
reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 4, 2017).
First Supplemental Indenture, dated as of August 27, 2019, to the Indenture, dated as of December 1,
2017, among Huntington Ingalls Industries, Inc., the guarantors party thereto, and Wells Fargo Bank,
National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Quarterly
Report on Form 10-Q filed on November 7, 2019).
Second Supplemental Indenture, dated as of June 30, 2020, to the Indenture, dated as of December
1, 2017, among Huntington Ingalls Industries, Inc., the guarantors party thereto, and Wells Fargo
Bank, National Association, as trustee (incorporated by reference to Exhibit 4.3 to the Company's
Annual Report on Form 10-K filed on February 11, 2021).
Third Supplemental Indenture, dated as of December 14, 2021, to the Indenture, dated as of
December 1, 2017, among Huntington Ingalls Industries, Inc., the guarantors party thereto, and Wells
Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.4 to the
Company's Annual Report on Form 10-K filed on February 10, 2022).
Indenture, dated March 30, 2020, by and among Huntington Ingalls Industries, Inc., the guarantors
party thereto, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K filed on March 30, 2020).
First Supplemental Indenture, dated as of June 30, 2020, to the Indenture, dated as of March 30,
2020, among Huntington Ingalls Industries, Inc., the guarantors party thereto, and Wells Fargo Bank,
National Association, as trustee (incorporated by reference to Exhibit 4.5 to the Company's Annual
Report on Form 10-K filed on February 11, 2021).
Second Supplemental Indenture, dated as of December 14, 2021, to the Indenture, dated as of March
30, 2020, among Huntington Ingalls Industries, Inc., the guarantors party thereto, and Wells Fargo
Bank, National Association, as trustee (incorporated by reference to Exhibit 4.7 to the Company's
Annual Report on Form 10-K filed on February 10, 2022).
Indenture, dated as of August 16, 2021, by and among Huntington Ingalls Industries, Inc., certain
subsidiaries of Huntington Ingalls Industries, Inc., and U.S. Bank National Association, as trustee
(incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8–K filed on
August 16, 2021).
First Supplemental Indenture, dated as of December 14, 2021, to the Indenture, dated as of August
16, 2021, by and among Huntington Ingalls Industries, Inc., certain subsidiaries of Huntington Ingalls
Industries, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit
4.9 to the Company's Annual Report on Form 10-K filed on February 10, 2022).
Description of Securities
Amended and Restated Revolving Credit Agreement, dated as of August 2, 2021, among Huntington
Ingalls Industries, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative
Agent and an Issuing Bank (incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q filed on August 5, 2021).
Credit Agreement, dated as of August 2, 2021, among Huntington Ingalls Industries, Inc., the lenders
party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on August 5, 2021).
Form of Amended and Restated Indemnification Agreement and Schedule of directors and officers
who have entered into such agreement (incorporated by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K filed on February 19, 2015).
109
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
Intellectual Property License Agreement, dated as of March 29, 2011, between Northrop Grumman
Systems Corporation and Northrop Grumman Shipbuilding, Inc. (incorporated by reference to Exhibit
10.4 to the Company's Current Report on Form 8-K filed on April 4, 2011).
Tax Matters Agreement, dated as of March 29, 2011, among Northrop Grumman Corporation (formerly
New P, Inc.), Huntington Ingalls Industries, Inc. and Titan II Inc. (formerly Northrop Grumman
Corporation) (incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K
filed on April 4, 2011).
Loan Agreement, dated as of May 1, 1999, between Ingalls Shipbuilding, Inc. and the Mississippi
Business Finance Corporation relating to the Economic Development Revenue Bonds (Ingalls
Shipbuilding, Inc. Project) Taxable Series 1999A due 2024 (incorporated by reference to Exhibit 10.6
to the Company's Amendment No. 1 to Registration Statement on Form 10 filed on November 24,
2010).
Indenture of Trust, dated as of May 1, 1999, between the Mississippi Business Finance Corporation
and the First National Bank of Chicago, as Trustee, relating to the Economic Development Revenue
Bonds (Ingalls Shipbuilding, Inc. Project) Taxable Series 1999A due 2024 (incorporated by reference
to Exhibit 10.7 to the Company's Amendment No. 1 to Registration Statement on Form 10 filed on
November 24, 2010).
Loan Agreement, dated as of December 1, 2006, between Northrop Grumman Ship Systems, Inc. and
the Mississippi Business Finance Corporation relating to the Gulf Opportunity Zone Industrial
Development Revenue Bonds (Northrop Grumman Ship Systems, Inc. Project), Series 2006 due 2028
(incorporated by reference to Exhibit 10.8 to the Company's Amendment No. 1 to Registration
Statement on Form 10 filed on November 24, 2010).
Trust Indenture, dated as of December 1, 2006, between the Mississippi Business Finance
Corporation and The Bank of New York Trust Company, N.A., as Trustee, relating to the Gulf
Opportunity Zone Industrial Development Revenue Bonds (Northrop Grumman Ship Systems, Inc.
Project), Series 2006 due 2028 (incorporated by reference to Exhibit 10.9 to the Company's
Amendment No. 1 to Registration Statement on Form 10 filed on November 24, 2010).
Guaranty Agreement, dated as of May 1, 1999, between Litton Industries, Inc. and The First National
Bank of Chicago, as Trustee (incorporated by reference to Exhibit 10.10 to the Company's
Amendment No. 2 to Registration Statement on Form 10 filed on December 21, 2010).
Assumption of Guaranty of Litton Industries, Inc., dated as of January 1, 2003, by Northrop Grumman
Systems Corporation (incorporated by reference to Exhibit 10.11 to the Company's Amendment No. 2
to Registration Statement on Form 10 filed on December 21, 2010).
Guaranty Agreement, dated as of December 1, 2006, between Northrop Grumman Corporation and
The Bank of New York Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 10.12 to
the Company's Amendment No. 2 to Registration Statement on Form 10 filed on December 21, 2010).
Performance and Indemnity Agreement, dated as of March 30, 2011, between Huntington Ingalls
Industries, Inc. and Titan II Inc. (formerly Northrop Grumman Corporation) relating to the Gulf
Opportunity Zone Industrial Development Revenue Bonds (incorporated by reference to Exhibit 10.6
to the Company's Quarterly Report on Form 10-Q filed on May 11, 2011).
Performance and Indemnity Agreement, dated as of March 30, 2011, between Huntington Ingalls
Industries, Inc. and Titan II Inc. (formerly Northrop Grumman Corporation) relating to certain
performance guarantees associated with certain U.S. Navy shipbuilding contracts (incorporated by
reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q filed on May 11, 2011).
Ingalls Guaranty Performance, Indemnity and Termination Agreement, dated as of March 29, 2011,
among Huntington Ingalls Industries, Inc., Northrop Grumman Systems Corporation and Northrop
Grumman Shipbuilding, Inc. (incorporated by reference to Exhibit 10.8 to the Company's Quarterly
Report on Form 10-Q filed on May 11, 2011).
110
10.16
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
Huntington Ingalls Industries Supplemental Plan 2 (incorporated by reference to Exhibit 10.16 to the
Company's Amendment No. 4 to Registration Statement on Form 10 filed on January 18, 2011) and
Amendment to Appendix G to the plan.
Second Amendment to Appendix G to Huntington Ingalls Industries Supplemental Plan 2-Officers
Supplemental Executive Retirement Plan, as amended January 7, 2015 (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 19, 2018).
Huntington Ingalls Industries ERISA Supplemental Plan (incorporated by reference to Exhibit 10.17 to
the Company's Amendment No. 4 to Registration Statement on Form 10 filed on January 18, 2011).
Severance Plan for Elected and Appointed Officers of Huntington Ingalls Industries, as amended and
restated effective January 1, 2019 (incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K filed on December 19, 2018).
Huntington Ingalls Industries Deferred Compensation Plan (incorporated by reference to Exhibit 10.19
to the Company's Amendment No. 4 to Registration Statement on Form 10 filed on January 18, 2011).
Huntington Ingalls Industries Savings Excess Plan (incorporated by reference to Exhibit 10.20 to the
Company's Amendment No. 4 to Registration Statement on Form 10 filed on January 18, 2011).
First Amendment to the Huntington Ingalls Industries Savings Excess Plan (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on August 3, 2017).
Huntington Ingalls Industries Officers Retirement Account Contribution Plan (incorporated by
reference to Exhibit 10.21 to the Company's Amendment No. 4 to Registration Statement on Form 10
filed on January 18, 2011).
HII Newport News Shipbuilding Inc. Retirement Benefit Restoration Plan (incorporated by reference to
Exhibit 10.22 to the Company's Amendment No. 4 to Registration Statement on Form 10 filed on
January 18, 2011).
Huntington Ingalls Industries Electronic Systems Executive Pension Plan (incorporated by reference
to Exhibit 10.23 to the Company's Amendment No. 4 to Registration Statement on Form 10 filed on
January 18, 2011).
Huntington Ingalls Industries, Inc. Special Officer Retiree Medical Plan (incorporated by reference to
Exhibit 10.24 to the Company's Amendment No. 4 to Registration Statement on Form 10 filed on
January 18, 2011).
Huntington Ingalls Industries, Inc. 2011 Long-Term Incentive Stock Plan (incorporated by reference to
Exhibit 10.25 to the Company's Amendment No. 8 to Registration Statement on Form 10 filed on
March 15, 2011).
Huntington Ingalls Industries, Inc. Annual Incentive Plan, as amended and restated December 13,
2018 (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on
December 19, 2018).
Form of Award Certificate applicable to Non-Employee Director Stock Units Granted Under the 2011
and 2012 Long-Term Incentive Stock Plans (incorporated by reference to Exhibit 10.30 to the
Company's Annual Report on Form 10-K filed on February 27, 2013).
Form of Award Certificate applicable to Restricted Performance Stock Rights Granted Under the 2011
and 2012 Long-Term Incentive Stock Plans (incorporated by reference to Exhibit 10.31 to the
Company's Annual Report on Form 10-K filed on February 27, 2014).
Form of Award Certificate applicable to Restricted Stock Rights Granted Under the 2011 and 2012
Long-Term Incentive Stock Plans (incorporated by reference to Exhibit 10.32 to the Company's Annual
Report on Form 10-K filed on February 27, 2014).
111
10.32*
10.33*
10.34*
10.35*
10.36*
10.37*
10.38*
10.39*
10.40*
Form of Award Certificate applicable to Stock Options Granted Under the 2011 and 2012 Long-Term
Incentive Stock Plans (incorporated by reference to Exhibit 10.33 to the Company's Annual Report on
Form 10-K filed on February 27, 2014).
Huntington Ingalls Industries, Inc. 2012 Long-Term Incentive Stock Plan (incorporated by reference to
Annex A to the Proxy Statement filed on April 3, 2012).
Performance-Based Compensation Policy of Huntington Ingalls Industries, Inc (incorporated by
reference to Annex B to the Proxy Statement filed on April 3, 2012).
Huntington Ingalls Industries, Inc. 2022 Long-Term Incentive Stock Plan (incorporated herein by
reference to Annex B to the Company's definitive proxy statement filed on March 21, 2022).
Terms and Conditions Applicable to Restricted Performance Stock Rights Granted Under the 2022
Long-Term Incentive Stock Plan (incorporated herein by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed on August 4, 2022).
Terms and Conditions Applicable to Restricted Stock Rights (1-year vesting) Granted Under the 2022
Long-Term Incentive Stock Plan (incorporated herein by reference to Exhibit 10.3 to the Company’s
Current Report on Form 8-K filed on August 4, 2022).
Terms and Conditions Applicable to Restricted Stock Rights (2-year vesting) Granted Under the 2022
Long-Term Incentive Stock Plan (incorporated herein by reference to Exhibit 10.4 to the Company’s
Current Report on Form 8-K filed on August 4, 2022).
Terms and Conditions Applicable to Restricted Stock Rights (3-year vesting) Granted Under the 2022
Long-Term Incentive Stock Plan (incorporated herein by reference to Exhibit 10.5 to the Company’s
Current Report on Form 8-K filed on August 4, 2022).
Terms and Conditions Applicable to Non-Employee Director Stock Grants Under the 2022 Long-Term
Incentive Stock Plan (incorporated herein by reference to Exhibit 10.6 to the Company’s Current
Report on Form 8-K filed on August 4, 2022).
10.41*
Huntington Ingalls Industries, Inc. Amended and Restated Directors' Compensation Policy.
10.42*
Huntington Ingalls Industries, Inc. Directors Compensation Policy--Amended and Restated Board
Deferred Compensation Policy.
21.1
List of subsidiaries of Huntington Ingalls Industries, Inc.
22
23.1
31.1
31.2
32.1
32.2
List of subsidiary guarantors of registered securities of Huntington Ingalls Industries, Inc.
Consent of Deloitte & Touche LLP.
Certification of the Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certificate of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certificate of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
112
101
The following financial information for the company, formatted in XBRL (Extensible Business
Reporting Language): (i) the Consolidated Statements of Operations and Comprehensive Income
(Loss), (ii) the Consolidated Statements of Financial Position, (iii) the Consolidated Statements of
Cash Flows, (iv) the Consolidated Statements of Changes in Equity, and (v) the Notes to Consolidated
Financial Statements.
104
The cover page from the Company's Annual Report on form 10-K, formatted in Inline XBRL and
contained in Exhibit 101.
*Indicates management contract or compensatory plan or arrangement.
ITEM 16. FORM 10-K SUMMARY
None.
113
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 9th day of
February, 2023.
SIGNATURES
Huntington Ingalls Industries, Inc.
/s/ Christopher D. Kastner
Christopher D. Kastner
President and Chief Executive Officer
114
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/s/ Christopher D. Kastner
Christopher D. Kastner
President, Chief Executive Officer and Director
(Principal Executive Officer)
February 9, 2023
/s/ Thomas E. Stiehle
Thomas E. Stiehle
/s/ Nicolas Schuck
Nicolas Schuck
/s/ Kirkland H. Donald
Kirkland H. Donald
/s/ Augustus L. Collins
Augustus L. Collins
/s/ Leo P. Denault
Leo P. Denault
/s/ Victoria D. Harker
Victoria D. Harker
/s/ Frank R. Jimenez
Frank R. Jimenez
/s/ Anastasia D. Kelly
Anastasia D. Kelly
/s/ Tracy B. McKibben
Tracy B. McKibben
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Corporate Vice President, Controller
and Chief Accounting Officer
(Principal Accounting Officer)
February 9, 2023
February 9, 2023
Chairman
February 9, 2023
Director
February 9, 2023
Director
February 9, 2023
Director
February 9, 2023
Director
February 9, 2023
Director
February 9, 2023
Director
February 9, 2023
/s/ Stephanie L. O'Sullivan
Stephanie L. O'Sullivan
Director
February 9, 2023
115
/s/ Thomas C. Schievelbein
Thomas C. Schievelbein
/s/ John K. Welch
John K. Welch
/s/ Stephen R. Wilson
Stephen R. Wilson
Director
February 9, 2023
Director
February 9, 2023
Director
February 9, 2023
116
Segment Operating Income
and Free Cash Flow Reconciliation
($ in millions)
Sales and Service Revenues
Operating Income
Non-segment factors affecting operating income:
Operating FAS/CAS adjustment
Non-current state income taxes
Segment Operating Income
Segment Operating Margin
Net Cash Provided by Operating Activities
Less capital expenditures:
Capital expenditure additions
Grant proceeds for capital expenditures
Free Cash Flow
Year Ended December 31
2022
2021
$10,676
$ 9,524
565
145
2
712
6.7%
766
(284 )
12
494
513
157
13
683
7.2 %
760
(331 )
20
449
Segment Operating Income, Segment Operating Margin and Free Cash Flow are not measures recognized under GAAP.
They should be considered supplemental to and not a substitute for financial information prepared in accordance with
GAAP. They may not be comparable to similarly titled measures of other companies.
Corporate Information
Corporate Headquarters
Huntington Ingalls Industries, Inc.
4101 Washington Avenue
Newport News, VA 23607
Tel: 757-380-2000
Stock Exchange Listing
Huntington Ingalls Industries Common Stock
is listed on the New York Stock Exchange
Ticker Symbol: HII
Transfer Agent/Stockholder Inquiries
Computershare Trust Company, N.A.
P.O. Box 43006
Providence, RI 02940-3006
(888) 665-9610
www.computershare.com/investor
Investor Relations
757-380-2104 or 757-380-7911
e-mail: investor.relations@hii-co.com
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
901 East Byrd Street
Suite 820
Richmond, VA 23219
Tel: 804-697-1500
Fax: 804-697-1825
For reporting complaints about Huntington Ingalls
Industries accounting, internal accounting controls or
auditing matters or any other concerns to the Board of
Directors or the Audit Committee, you may write to:
Board of Directors
Huntington Ingalls Industries, Inc.
c/o Charles R. Monroe, Jr., Corporate Secretary
4101 Washington Avenue
Newport News, VA 23607
e-mail: OfficeoftheGeneralCounsel@hii-co.com
Forward-Looking Statements
Statements in this annual report, other than statements of historical fact, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve important risks and
uncertainties that could cause our actual results to differ materially from those expressed in these statements. In some cases, you can identify forward-looking statements by words such as “may,” “will,” “should,” “expects,” “intends,” “plans,”
“anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” and similar words or phrases or the negative of these words or phrases. These statements relate to future events or our future financial performance and involve known and
unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied
by these forward-looking statements. Although we believe the expectations reflected in the forward-looking statements are reasonable when made, we cannot guarantee future results, levels of activity, performance or achievements. There are a
number of important factors that could cause our actual results to differ materially from the results anticipated by our forward-looking statements, which include, but are not limited to: changes in government and customer priorities and requirements
(including government budgetary constraints, shifts in defense spending and changes in customer short-range and long-range plans); our ability to estimate our future contract costs and perform our contracts effectively; changes in procurement
processes and government regulations and our ability to comply with such requirements; our ability to deliver our products and services at an affordable life cycle cost and compete within our markets; natural and environmental disasters and political
instability; our ability to execute our strategic plan, including with respect to share repurchases, dividends, capital expenditures and strategic acquisitions; adverse economic conditions in the United States and globally; health epidemics, pandemics
and similar outbreaks, including the COVID-19 pandemic, and the impacts of vaccination mandates on our workforce; our ability to attract, retain and train a qualified workforce; disruptions impacting global supply, including those attributable to the
COVID-19 pandemic and those resulting from the ongoing conflict between Russia and Ukraine; changes in key estimates and assumptions regarding our pension and retiree health care costs; security threats, including cyber security threats, and
related disruptions; and other risk factors discussed in our filings with the U.S. Securities and Exchange Commission. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a
material adverse effect on our business, and we undertake no obligation to update or revise any forward-looking statements. You should not place undue reliance on any forward-looking statements that we may make. This annual report also contains
non-GAAP financial measures and includes a GAAP reconciliation of these financial measures. Non-GAAP financial measures should not be construed as being more important than comparable GAAP measures.
Our Annual Report on Form 10-K for the year ended December 31, 2022 forms a part of this 2022 Annual Report. If you would like an additional copy of our Form 10-K, you can access it through the Investor Relations page of our website
(www.hii.com) or at the Securities and Exchange Commission website (www.sec.gov). The Form 10-K is also available free of charge by writing to us at: Corporate Secretary, Huntington Ingalls Industries, Inc., 4101 Washington Avenue, Newport News,
Virginia 23607. Exhibits to the Form 10-K are also available if requested.
BOARD OF DIRECTORS
CAN WE GET THIS IMAGE?
From top row left to right: Augustus L. Collins, CEO, MINACT, Inc., Major General, U.S. Army (Ret.); Thomas C. Schievelbein, Retired
Chairman, President and CEO, The Brink’s Company, Chair of Finance Committee; Stephen R. Wilson, Independent Business
Consultant and Retired Executive Vice President and Chief Financial Officer, RJR Nabisco, Inc., Chair of Audit Committee;
Christopher D. Kastner, President and CEO, HII; Leo Denault, Retired Chairman and CEO, Entergy Corporation; Frank R. Jimenez,
General Counsel and Corporate Secretary, GE HealthCare; Stephanie O’Sullivan, Independent Business Consultant, Chair of
Cybersecurity Committee; Tracy B. McKibben, Founder and CEO, MAC Energy Advisors LLC; Kirkland H. Donald, Chairman of the Board,
HII, Admiral, U.S. Navy (Ret.); Anastasia D. Kelly, Senior Advisor to the Chair and Executive Director of Client Relations, DLA Piper;
Victoria D. Harker, Executive Vice President and Chief Financial Officer, Tegna, Inc., Chair of Compensation Committee;
(Not photographed: John K. Welch, Retired President and CEO, Centrus Energy Corp., Chair of Governance and Policy Committee)
SENIOR EXECUTIVE TEAM
CAN WE GET THIS IMAGE?
Christopher D. Kastner
President and Chief
Executive Officer
Bharat Amin
Executive Vice
President and Chief
Information Officer
Todd Borkey
Executive Vice
President and Chief
Technology Officer
Chad Boudreaux
Executive Vice
President and Chief
Legal Officer
Jennifer Boykin
Executive Vice President
and President, Newport News
Shipbuilding
Eric D. Chewning
Executive Vice
President, Strategy and
Development
Andy Green
Executive Vice President
and President, Mission
Technologies
Paul C. Harris
Executive Vice President
and Chief Sustainability and
Compliance Officer
Brooke Hart
Executive Vice
President of
Communications
Stewart Holmes
Executive Vice
President, Government
and Customer Relations
Edmond E. Hughes
Executive Vice
President and Chief
Human Resources Officer
Thomas E. Stiehle
Executive Vice
President and Chief
Financial Officer
Kari Wilkinson
Executive Vice
President and President,
Ingalls Shipbuilding
Charles R. Monroe Jr.
Corporate Vice
President, Associate
General Counsel
and Secretary
Nicolas G. Schuck
Corporate Vice
President, Controller
and Chief Accounting
Officer
D.R. Wyatt
Corporate Vice
President
and Treasurer
HII.com