2
0
2
3
A
N
N
U
A
L
R
E
P
O
R
T
DELIVERING THE
ADVANTAGE
VISION
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.
MISSION
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.
VALUES
Integrity, Safety, Respect, Engagement,
Responsibility and Performance
MISSION
TECHNOLOGIES
DELIVERING
THE ADVANTAGE
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 44,000 strong. For more information, visit HII.com.
NEWPORT NEWS
SHIPBUILDING
INGALLS
SHIPBUILDING
HII—1
2023 MESSAGE
2023 ANNUAL REPORT
DELIVERING THE ADVANTAGE
Dear Fellow Shareholder:
We are pleased to report that your
Mission Technologies booked new and
with the University of Adelaide, Curtin
company’s solid performance in 2023
recompete contract awards with nearly
University, and the University of NSW to
indicates HII is entering a period of
$6 billion in total contract value. Among
form the AUKUS Workforce Alliance (AWA)
accelerated growth and opportunity.
Record revenues of $11.5 billion for the
full year increased 7.3% over 2022, due to
higher volumes in all three segments. Free
cash flow increased to $692 million. New
contract awards in 2023 were approxi-
mately $12.5 billion, bringing total backlog
to approximately $48.1 billion by the end of
the year.
This strong performance reflects the
growing demand for what HII delivers to
our customers — from nuclear-powered
aircraft carriers and submarines, to Flight
III destroyers, amphibious warships, and
all-domain advanced technology solutions.
Our shipbuilding execution milestones
in 2023 reflect our continued focus on
fulfilling our contractual commitments to
our customers, and meeting our financial
objectives. Among the many milestones
achieved by HII’s shipbuilding divisions are:
Ingalls Shipbuilding delivered the first
Flight III guided missile destroyer Jack
H. Lucas (DDG 125) to the U.S. Navy and
national security cutter Calhoun (WMSL
759) to the U.S. Coast Guard.
Ingalls authenticated the keel of
amphibious assault ship Fallujah (LHA 9),
guided missile destroyers George M.
Neal (DDG 131) and amphibious transport
dock Pittsburgh (LPD 31).
Ingalls christened amphibious transport
dock Bougainville (LHA 8) and guided
missile destroyer Ted Stevens (DDG 128).
Newport News Shipbuilding (NNS)
redelivered Nimitz-class aircraft carrier
USS George Washington (CVN 73) after
a successful midlife overhaul.
NNS christened Virginia-class attack
submarine Massachusetts (SSN 798).
NNS reached the pressure-hull complete
milestone on Arkansas (SSN 800).
NNS laid the keel of Virginia-class attack
submarine Oklahoma (SSN 802).
Additionally, Mission Technologies per-
formed ahead of plan across all business
units. In addition to record revenue growth,
the division wins:
Awarded $1.3 billion contract to support
U.S. Africa Command’s Life-Saving
Operations.
Awarded $1.4 billion Joint Network
Engineering and Emerging Operations
task order.
Awarded contract for U.S. Navy’s Lionfish
Small Unmanned Undersea Vehicle. The
contract has the potential to grow to as
many as 200 vehicles over the next five
years with a total value of more than
$347 million.
Introduced the SABERHUNT prototype
kit for cyber threat hunting. SABERHUNT
adapts to fit mission needs and can hunt
on a traditional partner network or in a
cloud or hybrid environment.
Awarded $244 million task order to
integrate Minotaur software products
into maritime platforms.
Mission Technologies ended the year
with a robust business pipeline of $75 bil-
lion, raising prospects of additional growth
opportunities in 2024. Key growth drivers
include support for mission readiness in
artificial intelligence; cyber and electronic
warfare; advanced modeling and simu-
lation; Live, Virtual, Constructive Training;
and C5ISR (Command, Control, Comput-
ers, Communications. Cyber, Intelligence,
Surveillance, Reconnaissance).
In 2023 we advanced into new and
exciting markets created by the AUKUS
partnership between Australia, the United
Kingdom and the United States. HII is
being joined by Babcock Australasia and
Bechtel Australia to identify opportunities
to leverage our complementary skillsets
and experience to establish and support
Australia’s conventionally armed nuclear-
powered submarine program. This is the
first agreement of its kind supporting
Australia’s required nuclear-powered
submarine program from infrastructure
build through to the end of life of the
submarines. Additionally, HII joined forces
— a dedicated partnership committed to
preparing a skilled workforce in support of
the trilateral pact.
While we improved our rates of
hiring in 2023, the competition for skilled
labor in shipbuilding, and in the larger
manufacturing sector, continues to impact
our shipyards and our supply base. Training
and retaining our skilled workforce remains
a paramount priority. We continue to invest
alongside our Navy partner to improve
worker retention and proficiency, both
within our shipyards and in the supply chain.
It is, after all, our team of 44,000
strong who advance your company’s
mission, vision and values every day
in service of our customers and the
nation. It is because of them that HII
remains on Forbes’ list of America’s
Best Large Employers, and recognized
as a top employer of military veterans.
Our efforts to continuously engage
and retain our diverse workforce, and
to drive a culture of safety, ethics and
performance, are among the pillars of
our sustainability strategy. Indeed, the
latest HII Sustainability Report focuses on
the importance of translating our goals
into meaningful impact to benefit all of
our stakeholders, including employees,
customers, shareholders, suppliers, and the
communities where we live and work.
On behalf of your company, thank you for
your steadfast support of HII’s mission.
Admiral Kirkland H. Donald
U.S. Navy (Ret.)
Chairman of the Board
Chris Kastner
President and CEO
HII—3
CVN 73
NNS Redelivered Aircraft
Carrier USS George Washington
(CVN 73) to U.S. Navy after its
Successful RCOH
DRIVEN BY RESULTS
Operating Results
($ in millions, except per share amounts)
Sales and Service Revenues
Operating Income
Segment Operating Income(1)
Segment Operating Margin (1)
Diluted EPS
Net Cash Provided by Operating Activities
Free Cash Flow(2)
2023
2022
$ 11,454
$ 10,676
781
842
565
712
7.4 %
6.7 %
17.07
970
692
14.44
766
494
(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 these
measures to GAAP.
$11.5
BILLION
ANNUAL REVENUE
$48.1
BILLION
BACKLOG
2023 MILESTONES
Ingalls Awarded
$1.3 Billion Contract
for the Detail Design
and Construction of
LPD 32
Mission Technologies
Awarded $1.3 Billion
Contract to Support
U.S. Africa Command’s
Life-Saving Operations
Mission Technologies
Awarded $1.4 Billion
Joint Network
Engineering and
Emerging Operations
Task Order
Ingalls Awarded
Six Guided Missile
Destroyers in Multi-
Year Contract and
One Option Ship, With
Options for Additional
Destroyers
Mission Technologies
Awarded $242 million
contract to provide
shore-based training,
engineering and
development support
to the U.S. Navy
2023 ANNUAL REPORT
LPD 31
Ingalls Authenticated
Amphibious Transport
Dock Pittsburgh
(LPD 31) Keel
SSN 798
NNS Christened
Fast-Attack Submarine
Massachusetts (SSN 798)
DDG 131
Authenticated Guided Missile
Destroyer George M. Neal
(DDG 131) Keel
DDG 128
Ingalls Christened
Guided Missile
Destroyer
Ted Stevens
(DDG 128)
LHA 8
Ingalls Christened
Amphibious Assault Ship
Bougainville (LHA 8)
WMSL 759
Ingalls Delivered
National Security Cutter
Calhoun (WMSL 759) to
U.S. Coast Guard
LHA 9
Ingalls Authenticated
Amphibious Assault Ship
Fallujah (LHA 9) Keel
SSN 802
NNS Authenticated
Fast-Attack Submarine
Oklahoma (SSN 802) Keel
DDG 125
Authenticated Guided
Missile Destroyer USS
Jack H. Lucas (DDG 125)
to U.S. Navy
Mission Technologies
Awarded $347 Million
U.S. Navy Lionfish
Small UUV Contract
Mission Technologies
Awarded $244 Million
Contract to Integrate
Minotaur Software
Products into Maritime
Platforms
NNS receives certification and
approval as a vendor for additive
manufacturing components on
Naval Sea Systems (NAVSEA)
platforms. The highly digitized
process could lead to cost
savings and reduced production
schedules for naval ships
NNS creates first additively
manufactured part for installation
on a new construction submarine.
Working with partners, NNS
successfully produced a copper-
nickel deck drain part that will be
installed on Oklahoma (SSN 802)
HII—5
OUR GLOBAL
WORKFORCE
Our 44,000-strong team includes skilled
tradespeople; artificial intelligence,
machine learning (AI/ML) experts;
engineers; technologists; scientists; logistics
experts; and business administration
professionals. Recognized as one of
America’s top large employers, we are a
values and ethics driven organization that
puts people’s safety and well-being first.
In 2023, HII remained ranked in the top
50 among large companies on the list
of America’s Best Employers. We hired
more than 6,900 craft personnel in 2023,
exceeding our goal of 5,000 new hires.
HII was awarded the 2023 Honoring
Investments in Recruiting and Employing
(HIRE) Vets Medallion Award, which is the
only federal-level veterans’ employment
award that recognizes a company or
organization’s exemplary commitment to
veteran hiring, retention and professional
development.
HII OPERATES IN
45
States in the U.S.
10
Countries across
the globe
2023 ANNUAL REPORT
2023 ANNUAL REPORT
6,900
Craft Personnel Hired
DELIVERING THE ADVANTAGE
Across the company, HII invests more
reflect HII’s commitment to building and
than $110 million a year in workforce
supporting the education and training
development, education and training
of a future nuclear workforce. The third
initiatives. That includes academic
Mission Technologies program is in
partnerships with two- and four-year
the Fleet Sustainment business group
colleges and universities, as well as
that offers an apprenticeship program
science, technology, engineering and
focused on providing students with
math (STEM) investments in elementary,
experience in the maintenance, repair
middle and high schools.
and modernization of U.S. Navy ships.
To help create the advantage for our
Founded in 1919, the Newport News
customers, each of our three divisions
Shipbuilding Apprentice School
offer apprenticeship programs.
offers four- to eight-year, tuition-
free apprenticeships in 19 trades and
eight optional advanced programs.
Apprentices work a 40-hour week and
are paid for all work, including time spent
in academic classes. Accredited by the
Council for Occupational Education, the
school is certified to offer associate’s
degrees of applied science in maritime
technology in 26 educational programs.
At Ingalls Shipbuilding, the Apprentice
School has produced more than 4,000
graduates in support of Ingalls’
operational needs since the school’s
inception in 1952. Enrollment for the
apprentice program is competitive, and
involves a comprehensive two- to four-
year curriculum for students interested
in shipbuilding careers. Apprentices
earn competitive wages and receive a
comprehensive benefit package upon
entering the program.
Mission Technologies offers three
apprenticeship programs: two within
the Nuclear and Environmental Services
business group that partner with the
Nuclear Operator Apprenticeship
Programs at Newport News Nuclear
BWXT (N3B) in Los Alamos, New Mexico,
and at Savannah River Nuclear Solutions
(SRNS) near Aiken, South Carolina. These
6,700
Veterans Employed
200+
Apprentices Graduate
Each Year
HII—7
HII—7
HII SUSTAINABILITY
20+
EMPLOYEE RESOURCE
GROUPS ACROSS HII
Our sustainability priorities inform every aspect of our business. They are formalized
into our sustainability program to ensure they maintain our strengths and continue to
mature and grow as the business does. They are woven into our formal frameworks and
processes, our internal governance structures, our ongoing actions and plans, our policies
for reinforcing personal responsibility and accountability and our overall culture.
The communities surrounding our operations are the places where our employees live,
raise families and find community. We take our responsibility seriously to act as a good
corporate citizen. In that role we proactively and intentionally listen, and engage our
neighbors and partners, in working toward the betterment of our communities.
Our sustainability priorities overseen by our Board and Leadership:
ETHICAL
CONDUCT
PRODUCT
QUALITY &
SAFETY
SUPPLY CHAIN
MANAGEMENT
CYBER
SECURITY
& DATA
PROTECTION
DIVERSITY &
INCLUSION
2023 ANNUAL REPORT
DELIVERING THE ADVANTAGE
100K
HII and our employees commit
to providing 100,000 meals
annually to those facing food
and nutrition insecurity.
Company Values
HII is an active corporate partner in the communities
where we live and do business. We’re dedicated
to being a workplace of choice, recognized by
Forbes as one of America’s best large employers
for three years in a row. In all we do, we make
the commitment and hold ourselves accountable
to doing the right thing and meeting the highest
standards of ethics, compliance, and integrity.
Our company values — integrity, respect, responsibility,
safety, performance and engagement — are the
foundation of our work, guiding our actions and
decisions to demonstrate the highest standards of
professional and ethical behavior.
Together, we are united by our mission in service of
the success of our people, the security of the nation
and the future of freedom around the world.
COMMUNITY
RELATIONS
EMPLOYEE
ENGAGEMENT
HEALTH &
SAFETY
ENERGY &
GREENHOUSE
GAS (GHG)
ENVIRONMENTAL
COMPLIANCE
HII—9
AUKUS
HII has a proven track record of safely
At HII, we recognize the importance
and efficiently building the best
and value of maintaining a nuclear
submarines in the world for our U.S. Navy
stewardship culture in the submarine
customer, and delivering advanced all-
life-cycle that emphasizes rigorous
domain military capabilities for America
training, adherence to stringent safety
and its allies and partners.
standards, continuous learning, and a
Our workforce stands ready to leverage
its longstanding expertise in nuclear
shipbuilding and defense technologies,
maintenance and sustainment, workforce
and supply chain development, and
presence in Canberra, Australia, in
support of the AUKUS lines of effort.
shared responsibility for the well-being
of all stakeholders. We are committed
to demonstrating these principles
daily, to safeguard our people and the
environment and foster public trust.
60
HII brings more than
60 years of nuclear
shipbuilding expertise
to workforce training
2023 ANNUAL REPORT
PARTNERSHIPS
JULY 2023
HII and Babcock International Group entered
into a strategic agreement to collaborate on
naval and civil nuclear decommissioning and
construction opportunities in the U.K. and U.S.
HII and Babcock will apply their complementary
capabilities to existing nuclear decommissioning
contracts for U.S. ships and U.K. submarines,
to share best practices and provide the
opportunity to upskill and enhance both
organizations’ capability for the benefit of the
U.S. and U.K. programs. HII and Babcock will also
explore how their combined capability as global
leaders in defense can be applied in support of
the Australia-United Kingdom-United (AUKUS)
programs.
NOVEMBER 2023
HII and Babcock Australasia (Babcock) joined
forces with the University of Adelaide, Curtin
University, and the University of NSW to form
the AUKUS Workforce Alliance (AWA) — a
dedicated partnership committed to preparing
a skilled workforce in support of all steps of
Australia’s optimal pathway to sovereign
nuclear-powered submarines.
DECEMBER 2023
In an AUKUS-first collaboration, HII, Babcock
Australasia and Bechtel Australia agreed to
work together to identify opportunities to
leverage their complementary set of skills and
experience to establish and support Australia’s
conventionally armed nuclear-powered
submarine program.
HII—11
ALL-DOMAIN SOLUTIONS
ALL-DOMAIN
We are industry leaders in naval ship design, construction and integration, to artificial
intelligence and electronic warfare, unmanned systems and autonomy, synthetic
training, to C5ISR and platform modernization.
HII was awarded a $244 million contract
HII introduced the SABERHUNT prototype
to integrate Minotaur software products
kit for cyber threat hunting. SABERHUNT
into Navy, Marine Corps and Coast
adapts to fit mission needs and can
Guard platforms. Minotaur is a mission
hunt on a traditional partner network
management software suite that integrates
or in a cloud or hybrid environment. It
and fuses sensor data for easy analysis.
features a modular architecture that
enables scalability in both computing and
data storage to provide customers with
mission-oriented, customized solutions.
$1.3B
USAFRICOM Personnel
Recovery Enterprise
Services and Solutions
(PRESS) task order
$244M
HII awarded $244 million contract to integrate
Minotaur software products into Navy, Marine
Corps and Coast Guard platforms
2023 ANNUAL REPORT
FORM
10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________
FORM 10-K
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. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error
to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
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, 2023, 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 $9,075 million.
As of January 26, 2024, 39,590,687 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 2024 Annual Meeting of Stockholders are
incorporated by reference in Part III of this Form 10-K.
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2023OR☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Commission file number 001-34910______________________________________________ HUNTINGTON INGALLS INDUSTRIES, INC.(Exact name of registrant as specified in its charter)Delaware90-0607005(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)4101 Washington Avenue, Newport News, Virginia 23607(Address of principal executive offices and zip code)(757) 380-2000(Registrant’s telephone number, including area code)______________________________________________ Securities registered pursuant to section 12(b) of the Act: BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
CYBERSECURITY
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
TABLE OF CONTENTS
PART I
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 1C.
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
i
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ITEM 1. BUSINESS
History and Organization
PART I
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 segment develops integrated
technology solutions and products that enable today's connected, all domain force. Headquartered in Newport News, Virginia, we employ over 44,000
people domestically and internationally.
We conduct most of our business with the U.S. Government, primarily the Department of Defense ("DoD"). As prime contractor, principal subcontractor,
team member, or partner, we participate in many high-priority U.S. defense programs. Ingalls includes our non-nuclear ship design, construction, repair,
and maintenance businesses. Newport News includes all of our nuclear ship design, construction, overhaul, refueling, and repair and maintenance
businesses. Our Mission Technologies segment provides a wide range of services and products, including command, control, computers,
communications, cyber, intelligence, surveillance, and reconnaissance ("C5ISR") systems and operations; the application of Artificial Intelligence and
machine learning to battlefield decisions; defense and offensive cyberspace strategies and electronic warfare; unmanned autonomous systems; live,
virtual, and constructive training solutions; fleet sustainment; 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 are currently constructing Bougainville (LHA 8) and Fallujah (LHA 9). In 2023, we were
awarded a long-lead-time material contract for LHA 10 (unnamed).
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 2023, we were awarded a contract to construct Philadelphia (LPD 32).
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 35 Arleigh Burke class (DDG 51) destroyers to the U.S. Navy, including USS Jack H. Lucas (DDG 125) in 2023, USS
Lenah H. Sutcliffe Higbee (DDG 123) in 2022, and USS Frank E. Petersen Jr. (DDG 121) in 2021. In 2018, we were awarded a multi-year contract for
construction of six Arleigh Burke class (DDG 51) destroyers and, in 2020,a contract to construct an additional Arleigh Burke class (DDG 51) destroyer.
In 2023, we were awarded a multi-year contract for construction of six more Arleigh Burke class (DDG 51) destroyers, as well as the first option ship, for
a total of seven ships. We are currently
1
constructing Ted Stevens (DDG128), Jeremiah Denton (DDG 129), George M. Neal (DDG 131), Sam Nunn (DDG 133), and Thad Cochran (DDG 135).
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. In
2018, we were awarded long-lead-time material and construction contracts for Calhoun (NSC 10), which was delivered to the U.S. Coast Guard in 2023,
and Friedman (NSC 11), which is 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 $8.7 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 contract 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 services worldwide.
USS George Washington (CVN 73) was redelivered to the U.S. Navy in 2023 after completion of its RCOH, and we are currently performing the RCOH
of USS John C. Stennis (CVN 74). We believe our current 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 required nuclear expertise 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.
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 to be the U.S. Navy's shipyard of choice for these contract awards.
Design and Construction of Nuclear-Powered Submarines
We are one of only two companies in the United States currently 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 49
nuclear-powered fast attack submarines currently in
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active service, 23 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 contemplated production of two submarines per year. The first submarine of the Block IV contract was delivered in 2020, and three
more submarines have been delivered through 2023. The remaining six boats of the Block IV contract are in the final assembly and test 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. Ten of the Block V boats are in manufacturing and outfitting stages
of construction.
In 2023, the team was awarded a contract modification for advance procurement for long lead-time material in support of two additional Block V boats,
bringing the total Block V boats to 12. In addition, the team received a contract award for advance procurement of long-lead-time material in support of
the first two Block VI boats.
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. 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. In 2023, we were awarded a contract modification for long-lead-time material and advance construction in
support of five additional Columbia class (SSBN 826) boats, also referred to as Build II of the class.
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
Our Mission Technologies segment develops integrated solutions that enable today’s connected, all-domain force. Our capabilities include C5ISR
systems and operations; the application of Artificial Intelligence ("AI") and machine learning to battlefield decisions; defensive and offensive cyberspace
strategies and electronic warfare ("CEW&S"); live, virtual, constructive solutions ("LVC"); unmanned, autonomous systems; fleet sustainment; and
critical nuclear operations. Our domain expertise and advanced technologies support our mission partners across the globe.
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C5ISR
C5ISR designs, develops, integrates, and manages the sensors, systems and other assets necessary to support integrated ISR operations and
accelerated decision-making. These business activities provide data fusion and mission management capabilities for the DoD, the combatant
commands, and the intelligence community.
CEW&S
CEW&S works within our nation’s intelligence and cyber operations communities to defend U.S. interests in cyberspace and anticipate emerging
threats. Our capabilities in cybersecurity, network architecture, reverse engineering, software, and hardware development uniquely enable our ability to
support sensitive missions for the U.S. military and federal agency partners. We also develop, test, and integrate leading-edge AI and machine learning
algorithms to optimize and accelerate the nation’s mission-critical systems and platforms.
LVC
LVC training connects live environments with virtual platforms and simulated (constructive) threats to prepare trainees through integrated, real world
scenarios before they are in harm’s way. LVC is a modern and distributed approach to U.S. military training.
Fleet Sustainment
Fleet sustainment provides comprehensive life-cycle sustainment to the U.S. Navy fleet and other DoD and commercial maritime customers. Services
include 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 also provide undersea vehicle and specialized craft development and prototyping services.
Unmanned Systems
Unmanned Systems develops advanced unmanned systems for defense, marine research, and commercial applications. Serving customers in more
than 30 countries, we provide design, autonomy, manufacturing, testing, operations, and sustainment of unmanned systems, including unmanned
underwater vehicles and unmanned surface vessels.
Nuclear and Environmental Services
Nuclear and Environmental Services support the Department of Energy’s ("DoE") national security mission through the management and operation of
DoE sites, as well as the safe cleanup of legacy waste across the country. Through participation 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 meet
customers’ toughest nuclear and environmental challenges.
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 2023, 2022, and 2021, approximately 81%, 82%, and 90%, respectively, of our revenues were generated from the U.S. Navy.
Intellectual Property
We develop new technologies that are incorporated into the products and services we provide to 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
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entirely at government expense. The U.S. Government may use or authorize other parties to use the 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, 2023 and 2022, our total backlog was approximately $48.1 billion and $47.1 billion, respectively. We expect approximately 22% of
backlog at December 31, 2023, to be converted into sales in 2024.
Raw Materials
We rely on third parties to provide raw materials. The most significant material we use is steel. Other materials we use in large quantities include paint,
aluminum, pipe, electrical cables, electronic components, fittings, custom machine items, and sensors. 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
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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. 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 recoverable 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
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("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 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
would likely 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.
Key competitive factors in the Mission Technologies segment 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 over 44,000 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 7,000 engineers and designers and approximately 3,700 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, 2023, we had 1,322 Master Shipbuilders at Newport News and 227 at Ingalls. We also employ more than 6,700 veterans across
the enterprise.
In addition, over 1,400 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 4,100 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 24 years at Newport News and more than 16 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 2023, we hired approximately
9,500 new employees. To help us meet this large demand for talent, we have
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created, developed, and maintain multiple talent pipelines. One of the key components of our approach to workforce 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 14,400 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 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 82% 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 5.15 in 2023, 5.58 in 2022, and 5.64 in 2021, and the TCR at Ingalls was 6.31 in 2023, 5.67 in 2022, and 6.26 in 2021.
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 4.10 in 2023, 4.86 in 2022, and 4.45 in 2021. Before 2023, Ingalls tracked 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, and 2.75 and 76.32, respectively, in 2021. In 2023 Ingalls
began to track DART, in lieu of LTCR and LWDR. DART at Ingalls was 3.34 in 2023.
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
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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 23 ERGs, which represent 10 distinct affinity groups, including those that support African Americans, Asian and
Pacific Islanders, Hispanics, Women and Women in Engineering, LGBTQ+ employees, veterans, multiple generations, newly hired employees,
and wellness. Our ERGs are employee-led and open to all employees.
• 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.
Available Information
We maintain a website at the following address: www.hii.com. References to our websites in this report are provided as a matter of 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.
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:
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changes in government and customer priorities and requirements (including government budgetary constraints, shifts in defense spending, and
changes in customer short-range and long-range plans);
our ability to estimate our future contract costs, including cost increases due to inflation, and perform our contracts effectively;
changes in procurement processes and government regulations and our ability to comply with such requirements;
our ability to deliver our products and services at an affordable life cycle cost and compete within our markets;
natural and environmental disasters and political instability;
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our ability to execute our strategic plan, including with respect to share repurchases, dividends, capital expenditures, and strategic acquisitions;
adverse economic conditions in the United States and globally;
health epidemics, pandemics and similar outbreaks;
our ability to attract, retain, and train a qualified workforce;
disruptions impacting global supply, including those resulting from the ongoing conflict between Russia and Ukraine and in the Middle East;
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
Our consolidated financial position, results of operations and cash flows are subject to various risks, many of which are not exclusively within our
control, that may cause actual performance to differ materially from historical or projected future performance. We encourage you to consider carefully
the risk factors described below when evaluating the information contained in this report as the outcome of one or more of these risks could have a
material adverse effect on our financial position, results of operations and/or cash flows.
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 integrated solutions that enable today's connected, all-domain force, including C5ISR systems and operations;
the application of Artificial Intelligence and machine learning to battlefield decisions; defense and offensive cyberspace strategies and electronic
warfare; unmanned autonomous systems; live, virtual, and constructive training solutions; fleet sustainment; and critical nuclear operations.
Substantially all of our revenues in 2023 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, 2023, 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 materially affect our business with the U.S. Government, which in turn 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.
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.
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Current U.S. Government spending levels for defense-related or other programs may not be sustained, and future spending and program authorizations
may not increase or may decrease or shift to programs in areas in which we do not provide products or services or are less likely to be awarded
contracts. Such changes in spending authorizations and budgetary priorities may occur as a result of uncertainty surrounding the federal budget,
increasing political pressure and legislation, shifts in spending priorities from defense-related or other programs as a result of competing demands for
federal funds, the number and intensity of military conflicts or other factors. For example, the military conflicts between Russia and Ukraine and Israel
and Hamas have resulted in increased security assistance to Ukraine and Israel, respectively. Changes in defense budgetary priorities as a result of
such conflicts or otherwise could have an adverse impact on our results.
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, 2023, our total backlog was $48.1 billion, including $26.0 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 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 (such as the evaluation of environmental factors), 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
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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.
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 291 ships as of December 31, 2023, 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 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 would likely 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, across our business capability, 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 risk assessments, contract revenue and cost estimates, and 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 assessment, estimation, and assumption processes
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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.
Our level of indebtedness and our ability to make payments on or service our indebtedness may adversely affect our financial and operating
activities or our ability to incur additional 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 funding 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.
We have classified contracts with the U.S. government, which limits investor insight into portions of our business.
We derive a portion of our revenues from programs with the U.S. Government and its agencies that are subject to security restrictions (e.g., contracts
involving classified information and classified programs), which preclude the dissemination of information and technology that is classified for national
security purposes under applicable law and regulation. In general, access to classified information, technology, facilities or programs requires
appropriate personnel security clearances, is subject to additional contract oversight and potential liability and may also require appropriate facility
clearances and other specialized infrastructure. In the event of a security incident involving classified information, technology, facilities, programs or
personnel holding clearances, we may be subject to legal, financial, operational and reputational harm. We are limited in our ability to provide
information about these classified programs, their risks or any disputes or claims relating to such programs. As a result, investors have less insight into
our classified business or our business overall. However, historically the business risks associated with our work on classified programs have not
differed materially from those of our other government contracts.
Business and Operational Risk Factors
Cost growth on flexibly priced contracts that does not result in higher contract prices 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 or equipment, 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: firm fixed-price, fixed-price incentive, cost-type, or time and material. 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.
Approximately 51% of our revenues in 2023 were generated under fixed-price incentive contracts, approximately 44% were generated under cost-type
contracts, approximately 2% 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, our
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operating results could be adversely affected if we are unable to control costs, 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 technology difficulties, fluctuations in the price of raw materials, a
significant increase in or sustained period of higher inflation, supplier issues, including equipment delays, 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 values of our contracts. Moreover, if we fail to meet contract deadlines or specifications, we may be required 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.
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 relating to final contract price, specifications and terms, or loss of negotiating
leverage associated with contract definitization, may negatively affect our profitability.
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, train, 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.
A growing portion of our current workforce is nearing or eligible for retirement. To the extent we lose experienced personnel, it is critical that we hire new
qualified personnel, develop and train inexperienced employees, 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
compete with commercial technology companies outside of the shipbuilding and defense industry for qualified technical positions. Such companies may
be able to offer more attractive compensation and other benefits to candidates, including in the recruitment of our existing employees. As a result of the
above factors, we have experienced, and expect to continue to experience, significant difficulties hiring and retaining personnel with relevant
qualifications and experience, which has negatively impacted, and may continue to negatively impact, our results of operations, financial condition, and
cash flow, and could impact our ability to perform under our contracts and compete for new contracts. We have also experienced higher labor,
recruiting, and training costs to attract and retain such employees, which has negatively impacted our results of operations, financial condition, and cash
flow. A shortage of skilled employees has and may continue to impact our ability to perform our contracts and may impact our ability to compete for new
contracts.
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, in compliance with applicable laws and regulations, including applicable DoD cybersecurity
requirements. Disruptions and performance issues from our suppliers and subcontractors, or inconsistencies between our contractual obligations to our
customers and our agreements with our subcontractors and suppliers, could adversely impact our ability to meet our commitments to customers. Our
ability to satisfy our obligations on a timely basis are adversely affected if one or
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more of our suppliers or subcontractors are unable to provide agreed-upon products, materials, or 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.
Our procurement practices are intended to provide materials, components, parts, and services that meet contract specifications and to reduce the
likelihood of our procurement of unauthorized, non-compliant, or deficient goods 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, through representations and certifications from our
subcontractors and suppliers regarding such compliance. We also 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, components, parts, and
services, subcontractors and suppliers sometimes provide us with unauthorized, non-compliant, or deficient goods and services, which can increase our
contract costs and impact our ability to satisfy our contract obligations to our customers.
Many of our contracts include performance obligations that incorporate innovative designs, state-of-the-art manufacturing expertise, or new
technologies, or otherwise 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 perform services that often involve innovative designs, new technologies, and complex
manufacturing processes. Delays and issues 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 as a result of unanticipated expenses that we don't
recover, 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 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.
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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. In addition, 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.
We have taken actions intended to mitigate the risk related to our defined benefit pension plans through pension risk transfer transactions whereby we
purchase group annuity contracts (“GACs”) from insurance companies using assets from the pension trust. We expect to continue to evaluate such
transactions in the future. Although we are relieved of all responsibility for the associated pension obligations under the GACs we have purchased to
date, we may in the future purchase GACs whereby the insurance company reimburses the pension plans but we remain responsible for paying
benefits under the plans to covered retirees and beneficiaries and are subject to the risk that the insurance company will default on its obligations to
reimburse the pension trusts. While we believe pension risk transfer transactions are beneficial, future transactions, depending on their size, could result
in us making additional contributions to the pension trust and/or require us to recognize noncash settlement charges in earnings in the applicable
reporting period.
Our business is subject to disruptions 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, our 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 global health crises like COVID-19. Such risks include
disruptions or restrictions on our employees’ ability to work or work effectively,
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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 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.
Our business could be negatively impacted if we are unsuccessful 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 costs 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. 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
of 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.
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
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security breaches, particularly cyber attacks and cyber intrusions or disruptions, regularly occur and will continue to occur in the future and the
techniques used in such attempts are constantly evolving and generally are not recognized until launched against a target. As a result, we are not
always able to anticipate 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 and other security threats, 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.
We could also 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 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, 2023, goodwill and purchased intangible assets from prior business acquisitions accounted for approximately 23% and 8%,
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
involving judgment. 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 requirements, or changes to existing ones (including, for example,
regulations related to recovery of compensation costs, cyber security, counterfeit parts, specialty metals, conflict minerals, and climate-related
disclosure), 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,
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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.
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, which could be substantial. Costs we incur that are determined to be unallowable or improperly
allocated to a specific contract will not be recovered or must be refunded to the customer 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
presenting 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. 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 compliance with applicable permits. To manage these materials, our shipyards have an extensive network of above ground and
underground storage tanks, some of which have leaked and required remediation in the past. In addition, our use of hazardous materials has
sometimes resulted in releases 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.
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Our business may be impacted by climate change and governmental and industry actions taken in response. Changes in environmental and climate-
related laws or regulations, including regulations on greenhouse gas emissions, carbon pricing, energy taxes, product efficiency standards, mandatory
disclosure obligations, and U.S. Government procurement requirements, could increase our operational and compliance expenditures and those of our
suppliers, including increased energy and raw materials costs and costs associated with manufacturing changes, and lead to new or additional
investments in product designs and facility upgrades. Customers, shareholders, and institutional investors continue to increase their focus on
environmental, social, and governance matters, including our environmental sustainability practices and commitments with respect to our operations,
products, and suppliers. As a result, we anticipate that we will need to make additional investments in new technologies and capabilities and devote
additional management and other resources in response to the foregoing.
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 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 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.
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Our reputation and our ability to conduct business may be impacted by the improper conduct of employees, agents, or business partners.
Our compliance program incorporates 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. 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 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. Moreover, actions that are inconsistent with our values, including
with respect to product safety or quality, legal or regulatory compliance, financial reporting, or people management, may cause us significant
reputational damage.
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 2023 cash from operations by $68 million, and we estimate it will reduce our 2024
cash from operations by approximately $59 million. The actual impact on 2024 cash from operations will depend on whether and when these provisions
are deferred, modified, or repealed by Congress, including any retroactive application, 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 and amortization 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, which would materially impact our financial position, results of operations, or cash flows.
The size, nature, and complexity of our business make us 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 our business because of our reliance on
government contracts and authorizations. The negative resolution of litigation, claims, or investigations 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.
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
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licenses to certain intellectual property we develop in the performance of U.S. Government contracts, and the U.S. Government may use or, in some
cases, authorize third parties to use such intellectual property. The U.S. Government can take aggressive positions both as to the intellectual property to
which they believe government use rights apply and to the acquisition of broad license rights. To the extent the U.S. Government is successful, the
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. In addition, trade
secrets may be independently developed by competitors.
Our intellectual property is also subject to challenge, invalidation, infringement, misappropriation, or circumvention by third parties. In the event of
infringement, misappropriation, 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 or to protect our rights, even if successful, could be
costly and a diversion of management's attention. If we are unable to protect our intellectual property rights adequately, 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
might 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 to transfer certain related licenses to facilitate the Navy's ability to confirm 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 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
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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, an unfavorable
outcome in the event of litigation with an insurance carrier 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 experience high levels of volatility and disruption from time to time, 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 debt markets,
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.
If we fail to manage acquisitions, joint ventures, 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, joint ventures, 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;
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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 we incur, 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.
We can provide 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 1C. CYBERSECURITY
Our cybersecurity program (the “Cybersecurity Program”) includes processes to identify, assess, and manage material risks from cybersecurity threats.
The Cybersecurity Program processes utilize a risk-based approach and include written cybersecurity and information technology policies and
procedures, including a cybersecurity incident response plan.
The Cybersecurity Program is informed, in part, by the guidelines of the National Institute of Standards and Technology Cybersecurity Framework to
define material risks and establish controls designed to protect, detect, respond to, and recover from cybersecurity incidents. Controls are embedded
within our processes and technology, and system activities are measured and monitored by our cybersecurity and information security subject matter
specialists and applicable security operations centers at our different business units. We utilize an enterprise-wide “defense-in-depth” risk management
strategy to effectively integrate people, processes, and technology.
When appropriate, we use external subject matter specialists to provide incident response services and to conduct independent assessments of internal
response readiness. We conduct tabletop scenario planning, covering a range of potential cybersecurity threats, as part of our internal response
readiness assessment. We also maintain a supply chain cybersecurity compliance and risk mitigation program to assess material cybersecurity risk
from third parties.
Governance
In 2019, our board of directors established a standing Cybersecurity Committee, which is tasked with oversight of the Cybersecurity Program, including:
(i) strategy and governance; (ii) operations; and (iii) risk management and regulatory compliance.
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The Cybersecurity Committee responsibilities include:
•
•
•
•
•
•
reviewing our enterprise cybersecurity strategy and framework, including our assessment of cybersecurity threats and risk, data security
programs, and our management and mitigation of cybersecurity and information technology risks and potential breach incidents;
reviewing any significant cybersecurity incident that has occurred, reports to or from regulators with respect thereto, and steps that have been
taken to mitigate against reoccurrence;
evaluating the effectiveness of our cyber risk management and data security programs measured against our cybersecurity threat landscape;
assessing the effectiveness of our data breach incident response plan;
reviewing and assessing our information technology disaster recovery capabilities; and
reviewing our assessment of cybersecurity threats and risk associated with our supply chain and actions we are taking to address such threats
and risks.
The Cybersecurity Committee receives reports and updates at committee meetings from our Chief Information Officer (“CIO”), Chief Information
Security Officer (“CISO”), and other executives and cybersecurity specialists. Following each committee meeting, the chair of the Cybersecurity
Committee briefs the full board of directors on matters covered at the prior Cybersecurity Committee meeting. The board also receives periodic briefings
on emerging trends in order to enhance its literacy on cybersecurity issues. At least annually, the Cybersecurity Committee receives updates about the
results of the Cybersecurity Program reviews.
The Cybersecurity Committee participates with management periodically in “tabletop” exercises to evaluate our data breach incident response plan.
Management’s Role and Expertise in Assessing and Managing Cybersecurity
Our Cybersecurity and Information Technology organization is led by our CIO, who is responsible for cybersecurity risk management, with oversight by
the Cybersecurity Committee of the board of directors. Our CIO has more than 25 years of experience in the IT industry. Since 2008, he has held
senior-level and CIO positions for several companies, each of which included responsibilities or influence for cybersecurity implementation delivery and
oversight.
Our CISO executes the Cybersecurity Program with the support of the Cybersecurity Management Team, which has extensive cybersecurity expertise
to protect and defend our networks, physical systems, infrastructure, and data from cybersecurity risks. Our CISO has 30 years of experience in
cybersecurity, IT networking and electronic security, and holds a degree in Information Systems (Cybersecurity concentration). He has specific
experience in the following cybersecurity areas: global IT security policy & governance; information risk management; cybersecurity strategic planning
and integration; enterprise infrastructure cybersecurity engineering; incident response and remediation; global supply chain cyber risk management;
cybersecurity awareness training; M&A cyber risk management; Cloud security; identity management; disaster recovery; and cybersecurity damage
assessment.
Our cybersecurity incident response framework is governed by a corporate Cybersecurity Incident Response Plan (the “IRP”), which sets out our
approach for categorizing, responding to, and mitigating cybersecurity incidents. The IRP provides definitions of key terms, stakeholder roles and
responsibilities, and a response governance and escalation process.
We have an incident response team comprised of our CISO, executive leaders, management, and internal and external legal counsel, whose primary
responsibilities include:
•
•
•
•
evaluating and validating the impact of an incident;
approving certain incident response countermeasures and remediation actions;
escalating incidents and response countermeasures for approval; and
acting in an advisory capacity in support of cybersecurity incident remediation, as appropriate.
We also have an executive cybersecurity and information technology steering committee comprised of our Chief Executive Officer, CIO, and other
members of our executive leadership team, whose primary responsibilities include:
•
•
approving containment and remediation procedures for escalated cyber incidents;
activating, when appropriate, a crisis management team response; and
27
•
approving certain incident response measures.
We maintain a Crisis Management Plan that addresses our preparation for, management, recovery from, and ultimate resumption of business after a
crisis, including emergency response, continued recovery, and business resumption activities such as information systems recovery, when a
cybersecurity incident may potentially have a significant impact on our business strategy, results of operations, or financial condition.
As of the date of this report, we are not aware of any cybersecurity threats that have materially affected or are reasonably likely to materially affect us,
including our business strategy, results of operations, or financial condition. However, as discussed under "Item 1A. Risk Factors," specifically the risks
titled "We could be negatively impacted by security threats, including cyber security threats, and related disruptions" and "Our earnings and profitability
depend, in part, upon subcontractor performance and raw material and component availability and pricing," the sophistication of cyber threats continues
to increase, and the preventative actions we take to reduce the risk of cyber incidents and protect our systems and information may be insufficient.
Accordingly, no matter how well our controls are designed or implemented, we will not be able to anticipate all security breaches, and we may not be
able to implement effective preventive measures against such security breaches in a timely manner.
ITEM 2. PROPERTIES
Our principal properties are located in Pascagoula, Mississippi; Fairfax, McLean, and Newport News, 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 43 years of the lease and beyond.
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. Mission Technologies leases and owns
properties related to its operations in approximately 52 cities, 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, 2023, C5ISR, CEW&S, and LVC 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 Systems had operations in Pocasset, Massachusetts and Hampton, Virginia, and Nuclear and Environmental
Services 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.
28
ITEM 3. LEGAL PROCEEDINGS
For information regarding legal proceedings, see Note 14: Investigations, Claims, and Litigation in Item 8. Consistent with the requirements of Securities
and Exchange Commission Regulation S-K, Item 103, our threshold for disclosing any environmental legal proceeding involving a governmental
authority is potential monetary sanctions that our management believes will exceed $1 million.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
29
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 12,644 as of January 26, 2024.
Annual Meeting of Stockholders
Our Annual Meeting of Stockholders is currently scheduled to be held on May 1, 2024.
Dividend
For the years ended December 31, 2023 and 2022, we declared dividends on common stock totaling $5.02 and $4.78 per share, respectively. While we
intend to continue paying dividends, the declaration of cash dividends is at the discretion of our board of directors, considered in the context of the
current conditions, including our earnings, other operating results, capital requirements, and applicable laws.
Stock Performance Graph
The following graph compares the total return on a cumulative basis of $100 invested in our common stock on January 1, 2019, 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, RTX Corporation, Textron, Inc.,
and TransDigm Group Incorporated, among other companies.
30
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, 2023.
Period
October 1, 2023 to October 31, 2023
November 1, 2023 to November 30, 2023
December 1, 2023 to December 31, 2023
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
1,2
millions)
65,076 $
48,276
48,100
161,452 $
214.52
231.48
241.27
227.56
65,076 $
48,276
48,100
161,452 $
937.4
926.2
914.6
914.6
1
From the stock repurchase program's inception through December 31, 2023, we have purchased 13,976,868
shares at an average price of $163.51 per share for a total of $2.3 billion.
2
In November 2012, we announced the establishment of our stock repurchase program. In January 2024, our board
of directors authorized an increase in the stock repurchase program to $3.8 billion and an extension of the term to
December 31, 2028.
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, 2022.
Business Environment
We continue to see uncertainty, both domestically and globally, with challenges for customers and suppliers, labor shortages, supply chain challenges,
and inflation, among other impacts.
Defense Spending Environment – Congressional consideration of the $886 billion fiscal year 2024 President’s Budget Request for defense spending
began following its submission to Congress on March 9, 2023. Additionally, after the statutory debt limit of $31.4 trillion was reached in January, the
President signed into law the Fiscal Responsibility Act of 2023 (the “FRA”) on June 3, 2023, which suspended the federal debt limit through January 1,
2025 and established new discretionary funding limits for defense and non-defense accounts. The FRA capped national defense spending at $886
billion for fiscal year 2024 (consistent with the President’s budget request level) and $895 billion for fiscal year 2025. In accordance with the FRA, since
Congress did not pass full-year appropriations for all discretionary spending by the end of calendar year 2023, fiscal year 2024 discretionary spending is
subject to sequestration after April 30, 2024. Any additional emergency supplemental funding legislation during fiscal years 2024 and 2025 is not subject
to the budget caps.
The House and Senate reached a compromise agreement on the National Defense Authorization Act ("NDAA") for fiscal year 2024 in December 2023.
Overall, the fiscal year 2024 NDAA authorizes $886 billion for national defense programs, consistent with the spending caps directed in the FRA. The
compromise legislation supports our shipbuilding priorities with a total authorization of $32.9 billion for shipbuilding programs, including the authorization
of an LPD 33 Flight II amphibious ship along with incremental funding authority, two Virginia class (SSN 774) submarines, one Columbia class (SSBN
826) ballistic missile submarine, and two Arleigh Burke class (DDG 51)
31
destroyers. Additionally, the fiscal year 2024 NDAA authorizes multiyear procurement authority for the Block VI Virginia class (SSN 774) submarine
contract and includes authorities to help implement the Australia-United Kingdom-United States security partnership, including the authority to transfer
Virginia class submarines to Australia effective in fiscal year 2025.
Both House and Senate appropriations bills have been passed out of committee, and the House defense appropriations bill has been approved by the
full House. The House defense appropriations measure broadly supports the President’s budget request for shipbuilding, including funding for two
Virginia class (SSN 774) submarines, one Columbia class (SSBN 826) ballistic missile submarine and two Arleigh Burke class (DDG 51) destroyers.
The Senate Appropriations Committee included $500 million in advance procurement for LPD 33 (unnamed) and advance procurement for a third
Arleigh Burke class (DDG 51) destroyer in fiscal year 2025, as well as full funding for two Arleigh Burke class (DDG 51) destroyers, two Virginia class
(SSN 774) submarines, and one Columbia class (SSBN 826) submarine in fiscal year 2024.
Although a new fiscal year began on October 1, 2023, annual appropriations to fund the federal government for fiscal year 2024 have not been enacted.
To provide Congress additional time to reach agreements on funding levels for federal agencies, a Continuing Resolution ("CR") extending funding
through November 17, 2023, at fiscal year 2023 levels was enacted on September 30, 2023. Congress passed a second CR in November 2023 that
extended agencies covered by four of the appropriations bills until January 19, 2024, and the balance of agencies, including the DoD, until February 2,
2024. An additional CR passed by Congress in January 2024 further extended government funding deadlines under the previous CR’s division of
appropriations bills until March 1, 2024, and March 8, 2024.
While the DoD is normally prohibited from starting new programs or increasing funding on existing programs under a CR, the current CR includes an
exception that will allow the DoD to deviate from typical restrictions and obligate funding to begin construction of the second Columbia class nuclear
submarine (SSBN 827). We cannot predict the outcome of the fiscal year 2024 budget process or whether additional short-term funding will be required
in the event annual appropriations measures are not finalized by the expiration date of the current CR.
Global Geopolitical Environment – Our current operating environment exists in the broader context of political and socioeconomic priorities and
continues to be impacted by uncertainty, heightened geopolitical tensions, and instability. Geopolitical relationships continue to change, and the U.S.
and its allies face a global security environment that includes threats from state and non-state actors, including major global powers, as well as terrorist
organizations, emerging nuclear tensions, diverse regional security concerns, and political instability.
In February 2022, Russian forces invaded Ukraine, and the conflict is continuing. In response, the U.S. and other countries imposed economic and
trade sanctions, export controls, and other restrictions on Russia. This conflict and the associated sanctions have impacted the global economy, causing
heightened cybersecurity risks and an exacerbation of supply chain challenges, higher energy costs, and 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. Meanwhile, the duration and impact of the evolving conflict surrounding Israel and Gaza is
unknown but is likely to have global economic and political ramifications.
The escalating strategic competition with China and the implications of Russia’s invasion of Ukraine and the Israeli-Gaza conflict have led Asian,
Oceania, and European countries, in particular, to pay renewed attention to their military budget. Global military expenditures surpassed $2 trillion for
the first time in 2021, and the recent conflicts in both Ukraine and Israel could lead to more demand.
Economic Environment – Conflict or the threat thereof has led to an increase in economic and trade sanctions and export controls. Economic tensions
with other nations and changes in international trade policies, including higher tariffs on imported goods and materials and renegotiation of free trade
agreements, have impacted the global market for defense products, services, and solutions. Global supply chain and labor markets continue to
experience high levels of disruption, causing significant materials and parts shortages, including raw material, microelectronics and commodity
shortages, as well as delivery delays, labor shortages, and price increases.
Domestically, the political ramifications of national debt levels coupled with the uncertainty of economic indices including inflation, gross domestic
product growth, and the pace of recovery from the coronavirus pandemic could increase pressure on discretionary spending. While monthly inflation
rates have steadily declined since peaking at
32
9.1% in June of 2022, rising military personnel and operations and maintenance costs continue to pressure the Pentagon’s investment portfolio buying
power. If above-average inflationary conditions continue over the long-term, additional resources may be required to address contract and labor cost
growth.
The labor market continues to present significant challenges. We monitor labor market conditions and trends and work continuously to mitigate the
effects of labor constraints through targeted programs. Challenges in the labor market are addressed through targeted talent acquisition, partnerships
with community colleges, apprentice school sourcing and recruiting, workforce succession planning, and initiatives to retain current employees. Labor
shortages are also impacting our supply chain, resulting in longer lead times for materials, parts, and other supplies. We work with our suppliers and
subcontractors to mitigate risk, arrange supply source alternatives, increase our inventory of available materials and parts, and regularly pursue cost
reductions through quantity orders of materials.
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.
While costs related to COVID-19 events are allowable under U.S. Government contracts, our contract financial estimates reflect cost recovery
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 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.
U.S. Political Environment – While geopolitical pressures may point to a world where spending on defense and security in the U.S. should increase, it
remains for Congress and the Executive Branch to determine how best to balance defense and other discretionary spending with rising entitlement
costs and a focus in Washington on the federal deficit. The 118th Congress is nearly equally divided with a thin majority held in both the House and
Senate. Given the partisan political environment that will likely continue through the 2024 elections, when the presidency, all 435 House seats, and 34
Senate seats will be up for consideration, the prospect for significant legislative activity in 2024 is low.
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.
33
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.
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;
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
34
risks. For the impacts of changes in estimates on our consolidated statements of operations and comprehensive income, see Note 7: Revenue and
Note 8: Segment Information 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 (the "PPA"), which amended ERISA. Under the PPA and
the American Rescue Plan Act of 2021, we are required to fully fund our pension plans over a rolling 15-year period as determined annually based upon
the funded status at the beginning of each year. The 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 for determining CAS pension costs. As a result, 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 for plan sponsors under ERISA are subject to pension relief 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 the PPA or the amounts we recover from the U.S. Government under CAS.
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.
35
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 2023, the actual return on assets was approximately 12.3%, which was greater than the expected return assumption of
8.00%. For the year ended December 31, 2023, the weighted average discount rates for our pension and other postretirement benefit plans decreased
by 19 and 15 basis points, respectively. The differences in asset returns resulted in an actuarial gain of $263 million, and the differences in discount
rates resulted in an actuarial loss of $144 million for the year ended December 31, 2023.
An increase or decrease of 25 basis points in the discount rate and the expected long-term rate of return assumptions would have had the following
approximate impacts on pension expense and obligations:
($ 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 2024
Expense
Increase (Decrease) in
December 31, 2023
Obligations
$
$
7
(6)
17
(17)
193
(184)
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.
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.
36
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, 2023 and 2022 were $455 million and $678 million, respectively. The decrease in
actuarial losses in 2023 was primarily driven by asset returns greater than expected returns of $263 million, updated mortality assumptions of $118
million, and amortization of previously unrecognized actuarial losses of $2 million, offset by lower discount rates used to determine benefit obligations of
$144 million.
Net pre-tax unrecognized prior service costs (credits) as of December 31, 2023 and 2022 were $125 million and $140 million, respectively. These net
deferred costs (credits) primarily originated from plan amendments, including those resulting from collective bargaining agreements. The change in
unrecognized prior service costs (credits) in 2023 resulted from plan amendments and the amortization of previously accumulated prior service costs
(credits).
Workers' Compensation
Our operations are subject to federal and state workers' compensation laws. We maintain self-insured workers' compensation plans and participate in
federally administered second injury workers' compensation funds. We estimate the liability for such claims and funding requirements on a discounted
basis utilizing actuarial methods based on various assumptions, which include our historical loss experience and projected loss development factors.
We periodically, and at least annually, update our assumptions based on an actuarial analysis. For further information on workers’ compensation, see
Environmental, Health & Safety in Item 1 and Note 16: Commitments and Contingencies in Item 8.
Accounting Standards Updates
See Note 3: Accounting Standards Updates in Item 8 for further information.
37
CONSOLIDATED OPERATING RESULTS
The following table presents selected financial highlights:
($ in millions)
Sales and service revenues
Cost of product sales and service revenues
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
$
$
Operating Performance Assessment and Reporting
2021
Year Ended December 31
2022
10,676 $
9,236
48
1
924
565
(102)
276
(20)
140
579 $
2023
11,454 $
9,808
37
120
1,022
781
(95)
148
19
172
681 $
9,524 $
8,156
41
2
898
513
(89)
181
17
78
544 $
2023 over 2022
2022 over 2021
Dollars
Percent
Dollars
Percent
778
572
(11)
119
98
216
7
(128)
39
32
102
7 % $
6 %
(23)%
11,900 %
11 %
38 %
7 %
(46)%
195 %
23 %
18 % $
1,152
1,080
7
(1)
26
52
(13)
95
(37)
62
35
12 %
13 %
17 %
(50)%
3 %
10 %
(15)%
52 %
(218)%
79 %
6 %
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.
Sales and Service Revenues
Period-to-period revenues reflect performance under new and ongoing contracts. Changes in sales and service
revenues are typically expressed in terms of volume. Unless otherwise described, volume generally refers to
increases (or decreases) in reported revenues due to varying production activity levels, delivery rates, or service
levels on individual contracts. Volume changes will typically carry a corresponding income change based on the
profit margin rate for a particular contract.
Sales and service revenues for the year ended December 31, 2023, increased $778 million, or 7%, compared to the same period in 2022, due to higher
volumes at Mission Technologies, Newport News, and Ingalls.
Cost of Sales and Service Revenues
Cost of sales for both product sales and service revenues consists of materials, labor, and subcontracting costs, as well as an allocation of indirect costs
for overhead. We manage the type and amount of costs at the contract level,
38
which is the basis for estimating our total costs at completion of our contracts. Unusual fluctuations in operating performance driven by changes in a
specific cost element across multiple contracts are described in our analysis.
Refer to "Segment Operating Results" and "Product and Service Analysis" in this section for details related to cost of sales for both product sales and
service revenues.
Income from Operating Investments, Net
The activities of our operating investments are closely aligned with the operations of the segments holding the investments. We therefore record income
related to earnings from equity method investments in our operating income.
Refer to "Segment Operating Results" in this section for details related to income from operating investments.
Other Income and Gains, Net
Other income and gains, net in 2023 was $120 million, compared to $1 million in 2022. The increase was due to the sale of our court judgment against
the Bolivarian Republic of Venezuela, to recover unpaid receivables for the prior repair, refurbishment, and modernization of foreign-built frigates, and
the settlement of a representations and warranties insurance claim related to the acquisition of Hydroid.
General and Administrative Expenses
In accordance with industry practice and the regulations that govern the cost accounting requirements for government contracts, most general and
administrative expenses are considered allowable and allocable costs on government contracts. These costs are allocated to contracts in progress on a
systematic basis, and contract performance factors include this cost component as an element of cost.
General and administrative expenses in 2023 increased $98 million, or 11%, compared to 2022. The increase was primarily due to higher overhead
costs and state income taxes.
Operating Income
We consider operating income an important measure for evaluating our operating performance, and, consistent with industry practice, we define
operating income as revenues less the related costs of producing the revenues and general and administrative expenses.
We internally manage our operations by reference to "segment operating income," which is defined as operating income before the Operating FAS/CAS
Adjustment and non-current state income taxes, neither of which affects contract performance. Segment operating income is not a recognized measure
under GAAP. When analyzing our operating performance, investors should use segment operating income in addition to, and not as an alternative for,
operating income or any other performance measure presented in accordance with GAAP. It is a measure we use to evaluate our core operating
performance. We believe segment operating income reflects an additional way of viewing aspects of our operations that, when viewed with our GAAP
results, provides a more complete understanding of factors and trends affecting our business. We believe the measure is used by investors and is a
useful indicator to measure our performance. Because not all companies use identical calculations, our presentation of segment operating income may
not be comparable to similarly titled measures of other companies. Refer to "Segment Operating Results" in this section for details related to segment
operating income, as well as activity within each segment.
39
The following table reconciles operating income to segment operating income:
($ in millions)
Operating income
Operating FAS/CAS Adjustment
Non-current state income taxes
Segment operating income
Year Ended December 31
2022
2021
2023
2023 over 2022
2022 over 2021
Dollars
Percent
Dollars
Percent
$
$
781 $
72
(11)
842 $
565 $
145
2
712 $
513 $
157
13
683 $
216
(73)
(13)
130
38 % $
(50)%
(650)%
18 % $
52
(12)
(11)
29
10 %
(8)%
(85)%
4 %
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.
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
Operating FAS/CAS Adjustment (expense) benefit
Year Ended December 31
2022
2021
2023
2023 over 2022
2022 over 2021
Dollars
Percent
Dollars
Percent
$
$
30 $
46
76
(148)
(72) $
86 $
45
131
(276)
(145) $
(28) $
52
24
(181)
(157) $
(56)
1
(55)
128
73
(65)% $
2 %
(42)%
46 %
50 % $
114
(7)
107
(95)
12
407 %
(13)%
446 %
(52)%
8 %
The Operating FAS/CAS Adjustment in 2023 was a net expense of $72 million, compared to a net expense of $145 million in 2022. The favorable
change was primarily driven by higher interest rates under FAS.
We expect the FAS/CAS Adjustment in 2024 to be a net benefit of approximately $115 million (($65) million FAS and $50 million CAS), primarily driven
by the more immediate recognition of the 2023 asset returns, offset by lower interest rates under FAS.
We expect the Operating FAS/CAS Adjustment in 2024 to be a net expense of approximately $63 million ($113 million FAS and $50 million CAS),
primarily driven by lower interest rates under FAS. The expected FAS/CAS Adjustment is subject to change during 2024, when we remeasure our
actuarial estimate of the unfunded benefit obligation with updated census data and other items later in the year.
Non-current State Income Taxes
Non-current state income taxes include deferred state income taxes, which reflect the change in deferred state tax assets and liabilities, and the tax
expense or benefit associated with changes in state unrecognized tax benefits in the relevant period. These amounts are recorded within operating
income. Current period state income tax expense is charged to contract costs and included in cost of sales and service revenues in segment operating
income.
Non-current state income tax benefit in 2023 was $11 million, compared to non-current state income tax expense of $2 million in 2022. The favorable
change in non-current state income taxes was primarily driven by a decrease in deferred state income tax expense, primarily attributable to the timing of
long-term contract income for tax purposes.
SEGMENT OPERATING RESULTS
Basis of Presentation
Our discussion of business segment performance focuses on sales and service revenues and operating income,
40
consistent with our approach for managing our business. We are aligned into three reportable segments: Ingalls, Newport News, and Mission
Technologies.
The following table presents segment operating results:
($ in millions)
Sales and Service Revenues
Ingalls
Newport News
Mission Technologies
Intersegment eliminations
Sales and service revenues
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
Year Ended December 31
2022
2023
2021
2023 over 2022
2022 over 2021
Dollars
Percent
Dollars
Percent
$
$
$
$
2,752 $
6,133
2,699
(130)
11,454 $
2,570 $
5,852
2,387
(133)
10,676 $
2,528 $
5,663
1,476
(143)
9,524 $
362 $
379
101
842
(72)
11
781 $
292 $
357
63
712
(145)
(2)
565 $
281 $
352
50
683
(157)
(13)
513 $
182
281
312
3
778
70
22
38
130
73
13
216
7 % $
5 %
13 %
2 %
7 % $
24 % $
6 %
60 %
18 %
50 %
650 %
38 % $
42
189
911
10
1,152
11
5
13
29
12
11
52
2 %
3 %
62 %
7 %
12 %
4 %
1 %
26 %
4 %
8 %
85 %
10 %
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"), which reflect
improved or deteriorated operating performance on that contract. Operating income changes are accounted for on a cumulative to date basis at the time
an EAC change is recorded. Segment operating income may also be affected by, among other things, contract performance, the effects of workforce
stoppages, the effects of natural disasters such as hurricanes, resolution of disputed items with the customer, recovery of insurance proceeds, and
other discrete events. At the completion of a long-term contract, any originally estimated costs not incurred or reserves not fully utilized, such as
warranty reserves, could also impact contract earnings. Where such items have occurred and the effects are material, a separate description is
provided.
41
Net Cumulative Catch-up Revenue Adjustments
For the years ended December 31, 2023, 2022, and 2021, 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
2023
$
$
309
(191)
118
$
$
325
(212)
113
$
$
244
(129)
115
For the years ended December 31, 2023, 2022, and 2021, net cumulative catch-up revenue adjustments by segment were as follows:
($ in millions)
Ingalls
Newport News
Mission Technologies
Net adjustments
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
2021
2023
$
$
91
9
18
118
$
$
109
(13)
17
113
$
$
103
6
6
115
2023 over 2022
2022 over 2021
Dollars
Percent
Dollars
Percent
$
182
70
7 % $
24 %
42
11
2 %
4 %
Year Ended December 31
2022
2,570
292
11.4 %
2023
2,752
362
13.2 %
$
$
2021
2,528
281
11.1 %
Ingalls sales and service revenues, including intersegment sales, increased $182 million, or 7%, in 2023 compared to 2022, primarily driven by higher
volumes in surface combatants and amphibious assault ships, partially offset by lower volumes in the NSC program.
Segment Operating Income
Ingalls segment operating income in 2023 was $362 million, compared to segment operating income of $292 million in 2022. The increase was primarily
driven by the sale of our court judgment against the Bolivarian Republic of Venezuela, to recover unpaid receivables for the prior repair, refurbishment,
and modernization of foreign-built frigates, higher volumes described above, and a contract incentive on Jeremiah Denton (DDG 129), partially offset by
lower risk retirement on USS Fort Lauderdale (LPD 28), delivered in 2022, and Harrisburg (LPD 30).
Newport News
($ in millions)
Sales and service revenues
Segment operating income
As a percentage of segment sales
Sales and Service Revenues
$
Year Ended December 31
2022
5,852
357
6.1 %
2023
6,133
379
6.2 %
$
$
2021
5,663
352
6.2 %
2023 over 2022
2022 over 2021
Dollars
Percent
Dollars
Percent
$
281
22
5 % $
6 %
189
5
3 %
1 %
Newport News sales and service revenues, including intersegment sales, increased $281 million, or 5%, in 2023 compared to 2022, primarily driven by
higher volumes in aircraft carrier construction and engineering, the Columbia
42
class (SSBN 826) submarine program, submarine services, and the Virginia class (SSN 774) submarine program, partially offset by lower volumes in
aircraft carrier RCOH and naval nuclear support services.
Segment Operating Income
Newport News segment operating income in 2023 was $379 million, compared to segment operating income of $357 million in 2022. The increase was
due to higher volumes described above and revenue adjustment on the RCOH of USS George Washington (CVN 73), partially offset by contract
incentives on the Columbia class (SSBN 826) submarine program in 2022.
Mission Technologies
($ in millions)
Sales and service revenues
Segment operating income
As a percentage of segment sales
Sales and Service Revenues
$
Year Ended December 31
2022
2,387
63
2.6 %
2023
2,699
101
3.7 %
$
$
2021
1,476
50
3.4 %
2023 over 2022
2022 over 2021
Dollars
Percent
Dollars
Percent
$
312
38
13 % $
60 %
911
13
62 %
26 %
Mission Technologies sales and service revenues, including intersegment sales, for the year ended December 31, 2023, increased $312 million, or
13%, compared to 2022, primarily due to higher volumes in C5ISR and CEW&S contracts.
Segment Operating Income
Mission Technologies segment operating income for the year ended December 31, 2023, was $101 million, compared to segment operating income of
$63 million in 2022. The increase was primarily driven by the settlement of a representations and warranties insurance claim related to the acquisition of
Hydroid and higher volumes described above, partially offset by a contract loss and lower equity income from the disposition of our investment in an
unconsolidated ship repair and specialty fabrication joint venture.
43
PRODUCT AND SERVICE REVENUES AND COST ANALYSIS
The following table presents segment sales and service revenues by both product and service:
Segment Sales and Service Revenues
($ in millions)
Segment Information
Ingalls
Product
Service
Intersegment
Total Ingalls
Newport News
Product
Service
Intersegment
Total Newport News
Mission Technologies
Product
Service
Intersegment
Total Mission Technologies
Segment Totals
Product
Service
Total Segment
Year Ended December 31
2022
2023
2021
2023 over 2022
2022 over 2021
Dollars
Percent
Dollars
Percent
$
2,495 $
248
9
2,752
2,372 $
186
12
2,570
5,053
1,077
3
6,133
116
2,465
118
2,699
4,821
1,026
5
5,852
90
2,181
116
2,387
$
$
7,664 $
3,790
11,454 $
7,283 $
3,393
10,676 $
123
62
(3)
182
232
51
(2)
281
26
284
2
312
381
397
778
2,357
156
15
2,528
4,543
1,109
11
5,663
100
1,259
117
1,476
7,000
2,524
9,524
$
$
$
$
$
$
$
$
$
$
44
5 % $
33 %
(25)%
7 %
5 %
5 %
(40)%
5 %
29 %
13 %
2 %
13 %
15
30
(3)
42
278
(83)
(6)
189
(10)
922
(1)
911
5 % $
12 %
7 % $
283
869
1,152
1 %
19 %
(20)%
2 %
6 %
(7)%
(55)%
3 %
(10)%
73 %
(1)%
62 %
4 %
34 %
12 %
The following table presents segment cost of sales and service revenues by both product and service:
Segment Cost of Sales and Service Revenues
($ in millions)
Segment Information
Ingalls
Product
Service
Intersegment
Total Ingalls
Newport News
Product
Service
Intersegment
Total Newport News
Mission Technologies
Product
Service
Intersegment
Total Mission Technologies
Segment Totals
Product
Service
Total Segment
(1)
Year Ended December 31
2022
2021
2023
2023 over 2022
2022 over 2021
Dollars
Percent
Dollars
Percent
$
2,031 $
207
9
2,247
1,931 $
162
12
2,105
4,254
900
3
5,157
121
2,223
118
2,462
4,097
858
5
4,960
73
1,970
116
2,159
$
$
6,406 $
3,330
9,736 $
6,101 $
2,990
9,091 $
1,885
132
15
2,032
3,856
941
11
4,808
85
1,100
117
1,302
5,826
2,173
7,999
$
$
$
$
$
$
$
$
$
$
100
45
(3)
142
157
42
(2)
197
48
253
2
303
305
340
645
5 % $
28 %
(25)%
7 %
4 %
5 %
(40)%
4 %
66 %
13 %
2 %
14 %
46
30
(3)
73
241
(83)
(6)
152
(12)
870
(1)
857
5 % $
11 %
7 % $
275
817
1,092
2 %
23 %
(20)%
4 %
6 %
(9)%
(55)%
3 %
(14)%
79 %
(1)%
66 %
5 %
38 %
14 %
(1)
Operating FAS/CAS Adjustment is excluded from segment cost of product sales and service revenues.
Product Sales and Segment Cost of Product Sales
Product sales in 2023 increased $381 million, or 5%, from 2022, primarily as a result of higher volumes at Newport News in aircraft carrier construction,
the Columbia class (SSBN 826) submarine program, and the Virginia class (SSN 774) submarine program, and higher volumes at Ingalls in surface
combatants and amphibious assault ships, partially offset by lower volumes at Newport News in aircraft carrier RCOH and lower volumes at Ingalls in
the NSC program.
Cost of product sales in 2023 increased $305 million, or 5%, compared to 2022, consistent with higher product sales described above.
Service Revenues and Segment Cost of Service Revenues
Service revenues in 2023 increased $397 million, or 12%, from 2022, primarily as a result of higher volumes at Mission Technologies in C5ISR and
CEW&S contracts, higher volumes at Newport News in aircraft carrier engineering and submarine services, and higher volumes at Ingalls in surface
combatant services, partially offset by lower volumes at Newport News in naval nuclear support services.
Cost of service revenues in 2023 increased $340 million, or 11%, compared to 2022, consistent with higher service volumes described above.
OTHER FINANCIAL INFORMATION
Interest Expense
Interest expense in 2023 was $95 million, compared to $102 million in 2022. The change was driven by an increase in capitalized interest costs on
construction in progress.
45
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.
The non-operating retirement benefit in 2023 was $148 million, compared to $276 million in 2022. The unfavorable change was primarily driven by lower
2022 returns on plan assets.
Other, Net
Other, net income in 2023 was $19 million, compared to other, net expense of $20 million in 2022. The increase was primarily driven by unrealized net
gains in investments.
Federal and Foreign Income Taxes
Our effective tax rate on earnings from continuing operations was 20.2% in 2023, compared to 19.5% in 2022. The increase in our effective tax rate for
2023 was primarily attributable to prior period research and development tax credits recorded in 2022.
In October 2021, the Organization for Economic Co-operation and Development (the "OECD") announced the OECD/G20 Inclusive Framework on Base
Erosion and Profit Shifting (the "Framework"), which agreed to a two-pillar solution to address tax challenges arising from digitalization of the economy.
In December 2021, the OECD released Pillar Two Model Rules defining the global minimum tax rules, which contemplate a minimum tax rate of 15%.
To date, various jurisdictions have enacted, or are in the process of enacting, legislation on these rules, and the OECD continues to release additional
guidance. While it is uncertain whether the U.S. will enact legislation to adopt the minimum tax directive, certain countries in which we operate have
adopted legislation, and other countries are in the process of introducing legislation to implement the minimum tax directive. Further, the OECD issued
administrative guidance providing transition and safe harbor rules that could delay the impact of the minimum tax directive. We will continue to monitor
the implementation of the Framework by the countries in which we operate. We currently do not expect the Framework to have a material impact on our
effective tax rate or our consolidated results of operation, financial position, and cash flows.
BACKLOG
Total backlog as of December 31, 2023, was approximately $48.1 billion. Total backlog includes both funded backlog (firm orders for which funding is
contractually obligated by the customer) and unfunded backlog (firm orders for which funding is not currently contractually obligated by the customer).
Backlog excludes unexercised contract options and unfunded Indefinite Delivery/Indefinite Quantity orders. For contracts having no stated contract
values, backlog includes only the amounts committed by the customer.
The following table presents funded and unfunded backlog by segment as of December 31, 2023 and 2022:
($ in millions)
Ingalls
Newport News
Mission Technologies
Total backlog
December 31, 2023
December 31, 2022
Funded
Unfunded
Total
Backlog
Funded
Unfunded
Total
Backlog
$
$
12,546
11,890
1,545
25,981
$
$
3,201
15,349
3,590
22,140
$
$
15,747
27,239
5,135
48,121
$
$
9,231
11,665
1,317
22,213
$
$
3,546
17,742
3,622
24,910
$
$
12,777
29,407
4,939
47,123
We expect approximately 22% of the $48.1 billion total backlog as of December 31, 2023, to be converted into sales in 2024. U.S. Government orders
comprised substantially all of the backlog as of December 31, 2023 and 2022.
46
Contract Awards
The value of new contract awards during the year ended December 31, 2023, was approximately $12.5 billion, including a funded award for the
construction of Arleigh Burke class (DDG 51) destroyers, an award for the Joint Network Engineering and Emerging Operations task order, an award
modification for the detail design and construction of Philadelphia (LPD 32), an award modification for long-lead-time material and advance construction
activities on the Columbia class (SSBN 826) submarine program, an award modification to the construction contract for John F. Kennedy (CVN 79), and
an award modification for long-lead-time material for additional Block V boats of the Virginia class (SSN 774) submarine program.
LIQUIDITY AND CAPITAL RESOURCES
We seek to efficiently convert operating results into cash for deployment in operating our businesses, implementing our business strategy, and
maximizing stockholder value. We use various financial measures to inform our capital deployment strategy, including net cash provided by operating
activities and free cash flow. We believe these measures are useful to investors in assessing our financial performance.
The following table summarizes key components of cash flow provided by operating activities:
($ in millions)
Net earnings
Depreciation and amortization
Provision for expected credit losses
Stock-based compensation
Deferred income taxes
Loss (gain) on investments in marketable securities
Retiree benefits
Trade working capital decrease (increase)
Net cash provided by operating activities
$
$
Year Ended December 31
2022
2021
2023
2023 over 2022
2022 over 2021
Dollars
Percent
Dollars
Percent
681 $
355
6
34
(113)
(23)
(75)
105
970 $
579 $
366
(7)
36
2
25
(127)
(108)
766 $
544 $
301
7
33
98
(19)
(78)
(126)
760 $
102
(11)
13
(2)
(115)
(48)
52
213
204
18 % $
(3)%
186 %
(6)%
(5,750)%
(192)%
41 %
197 %
27 % $
35
65
(14)
3
(96)
44
(49)
18
6
6 %
22 %
(200)%
9 %
(98)%
232 %
(63)%
14 %
1 %
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, 2023, as classified in our consolidated statements of cash flows.
Operating Activities
Cash provided by operating activities in 2023 was $970 million, compared to $766 million provided by operating activities in 2022. The favorable change
in cash was primarily due to accelerated receipts of accounts receivable and higher earnings, partially offset by higher payments for income taxes.
We expect cash generated from operations in 2024, 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, 2024 and beyond such 12-month period based on our current business plans.
Investing Activities
Cash used in investing activities in 2023 was $236 million, compared to $268 million used in investing activities in 2022. The change in cash used in
investing activities was primarily driven by the sale of an unconsolidated ship
47
repair and specialty fabrication joint venture in 2023, partially offset by increased investment in one of our unconsolidated nuclear and environmental
joint ventures in 2023.
For 2024, 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 3.5% to 4.0% of annual revenues. We expect our capital expenditures to increase due to an expansion of
shipbuilding capacity.
Financing Activities
Cash used in financing activities in 2023 was $771 million, compared to $658 million used in financing activities in 2022. The change in cash used in
financing activities was primarily due to higher repayments of long term debt.
Free Cash Flow
Free cash flow represents cash provided by (used in) operating activities less capital expenditures net of related grant proceeds. Free cash flow is not a
measure recognized under GAAP. Free cash flow has limitations as an analytical tool and should not be considered in isolation from, or as a substitute
for, net earnings as a measure of our performance or net cash provided by operating activities as a measure of our liquidity. We believe free cash flow is
an important liquidity measure for our investors because it provides them insight into our current and period-to-period performance and our ability to
generate cash from continuing operations. We also use free cash flow as a key operating metric in assessing the performance of our business and as a
key performance measure in evaluating management performance and determining incentive compensation. Free cash flow may not be comparable to
similarly titled measures of other companies.
The following table reconciles net cash provided by operating activities to free cash flow:
($ in millions)
Net cash provided by operating activities
Less capital expenditures:
Capital expenditure additions
Grant proceeds for capital expenditures
Free cash flow
2023
Year Ended December 31
2022
970
$
766
$
2021
(292)
14
692
$
(284)
12
494
$
760
(331)
20
449
$
$
Free cash flow in 2023 increased $198 million from 2022, primarily due to the increase in cash from operating activities as described above.
Retirement Related Benefit Plan Contributions
ERISA, including amendments under pension relief legislation, defines the minimum amount we must contribute to our qualified defined benefit pension
plans. In determining whether to make discretionary contributions to these plans above the minimum required amounts, we consider various factors,
including maintaining the funded status needed to avoid potential benefit restrictions and other adverse consequences, maintaining minimum CAS
funding requirements, and the current and anticipated future funding levels of each plan. The contributions to our qualified defined benefit pension plans
are affected by a number of factors, including published IRS interest rates, the actual return on plan assets, actuarial assumptions, and demographic
experience. These factors and our resulting contributions also impact the funded status of the plans.
48
We made the following minimum and discretionary contributions to our pension and other postretirement benefit plans in the years ended December 31,
2023, 2022, and 2021:
($ in millions)
Pension plans
Discretionary
Qualified
Non-qualified
Other benefit plans
Total contributions
Year Ended December 31
2022
2021
2023
$
$
—
12
32
44
$
$
—
10
31
41
$
$
60
9
37
106
As of December 31, 2023 and 2022, our qualified pension plans were funded 114% and 109%, respectively. As of December 31, 2023 and 2022, 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 2024 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.
We expect 2024 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.
Other Sources and Uses of Capital
Stockholder Distributions - In November 2023, our board of directors authorized an increase in our quarterly cash dividend to $1.30 per share. The
board previously increased the quarterly cash dividend to $1.24 per share in November 2022 and $1.18 per share in November 2021. We paid cash
dividends totaling $200 million ($5.02 per share), $192 million ($4.78 per share), and $186 million ($4.60 per share) in the years ended December 31,
2023, 2022, and 2021, respectively.
In January 2024, our board of directors authorized an increase to our stock repurchase program from $3.2 billion to $3.8 billion and an extension of the
term of the program to December 31, 2028. Repurchases are made from time to time at management's discretion in accordance with applicable federal
securities laws. For the year ended December 31, 2023, we repurchased 337,007 shares at an aggregate cost of $75 million. For the years ended
December 31, 2022 and 2021, we repurchased 244,561 and 544,440 shares, respectively, at aggregate costs of $52 million and $101 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.
We maintain an unsecured commercial paper note program, under which we may issue up to $1 billion of unsecured commercial paper notes.
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, 2023, were approximately $5,122 million, with approximately $2,702 million expected to be paid in
49
2024 and $2,420 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, 2023, future scheduled periodic interest payments on our outstanding
long-term debt, including commitment fees that we are obligated to pay on our existing $1.5 billion Revolving Credit Facility, were approximately $333
million, with approximately $87 million expected to be paid in 2024 and $246 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, 2023, $12 million in letters of credit were issued but undrawn and $360 million of surety bonds were outstanding. As of
December 31, 2023, we had no other significant off-balance sheet arrangements.
50
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
Aircraft carrier RCOH
America class (LHA 6) amphibious assault ships
Arleigh Burke class (DDG 51) destroyers
Columbia class (SSBN 826) submarines
USS Gerald R. Ford class (CVN 78) aircraft carriers
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 John C. Stennis (CVN
74) arrived at Newport News for the start of its RCOH in May 2021, and USS George
Washington (CVN 73) was redelivered to the U.S. Navy in May 2023.
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.
We are currently constructing Bougainville (LHA 8) and Fallujah (LHA 9). In 2023, we
were awarded a long-lead-time material contract for LHA 10 (unnamed).
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
Frank E. Petersen Jr. (DDG 121), Lenah H. Sutcliffe Higbee (DDG 123), and Jack H.
Lucas (DDG 125) in 2021, 2022, and 2023, respectively. We have contracts to
construct the following Arleigh Burke class (DDG 51) destroyers: 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), Telesforo Trinidad (DDG 139),
Ernest E. Evans (DDG 141), and Charles J. French (DDG 142).
Design and construct modules for Columbia class (SSBN 826) nuclear ballistic missile
submarines ("SSBNs") as a subcontractor to Electric Boat. SSBNs are the most secure
and survivable of our nation’s nuclear deterrent triad. Columbia class SSBNs will carry
approximately 70 percent of the nation’s nuclear arsenal. The Columbia class (SSBN
826) program plan of record is to construct 12 new SSBNs to replace the current aging
Ohio class. We have a teaming agreement with Electric Boat to build modules for the
entire Columbia class (SSBN 826) submarine program that leverages our Virginia class
(SSN 774) experience. We have been awarded contracts from Electric Boat for
integrated product and process development, providing long–lead–time material and
advance construction, and construction of the first two boats of the Columbia class
(SSBN 826) submarine program. Construction of the first Columbia class (SSBN 826)
submarine began in 2020. In 2023, we received an award modification for long-lead-
time material and advance construction for the next five boats.
Design and construction for the Ford class program, which is the aircraft carrier
replacement program for the decommissioned Enterprise (CVN 65) and Nimitz class
(CVN 68) aircraft carriers. USS Gerald R. Ford (CVN 78), the first ship of the Ford
class, was delivered to the U.S. Navy in the second quarter of 2017. In June 2015, we
were awarded a contract for the detail design and construction of John F. Kennedy
(CVN 79), following several years of engineering, advance construction, and purchase
of long-lead-time components and material. In addition, we have received awards for
detail design and construction of Enterprise (CVN 80) and Doris Miller (CVN 81). This
category also includes the class' non-recurring engineering. The class is expected to
bring improved warfighting capability, quality of life improvements for sailors, and
reduced life cycle costs.
51
Legend class National Security Cutter
Naval nuclear support services
Nuclear and environmental services
San Antonio class (LPD 17) amphibious transport dock
ships
Virginia class (SSN 774) fast attack submarines
Design and build the U.S. Coast Guard's National Security Cutters ("NSCs"), the
largest and most technically advanced class of cutter in the U.S. Coast Guard. The
NSC is equipped to carry out maritime homeland security, maritime safety, protection of
natural resources, maritime mobility, and national defense missions. There were 11
ships planned for this program, of which the first ten ships have been delivered, and
Friedman (NSC 11) is currently under construction.
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.
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 Philadelphia (LPD 32). In 2023, we
received an award modification for the detail design and construction of Philadelphia
(LPD 32). We are currently constructing Richard M. McCool Jr. (LPD 29), Harrisburg
(LPD 30), and Pittsburgh (LPD 31).
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 Term Loan, a $1.5 billion Revolving Credit Facility, and a $1
billion commercial paper program. As of December 31, 2023, we had $145 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,
2023, an
52
increase of 1% in interest rates would increase the interest expense on our debt by approximately $1 million on an annual basis. In January 2024, we
paid the remaining $145 million balance of the Term Loan.
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.
53
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, 2023 and 2022, 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, 2023, 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, 2023, and 2022, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2023, 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, 2023, 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 1, 2024, 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 – Shipbuilding Contracts — Refer to Note 2 and 7 to the financial statements
Critical Audit Matter Description
The Company recognizes revenue on 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
54
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.
Given the judgments necessary to estimate total material costs, labor costs, and profit in order to recognize revenue for certain shipbuilding contracts,
auditing such estimates required extensive audit effort due to the complexity of the contracts and a high degree of auditor judgment, especially for
contracts where there is limited historical data.
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
shipbuilding contracts included the following, among others:
• We tested the effectiveness of controls over 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 contracts during 2023 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 contracts selected, we performed tailored audit
procedures to address the specific characteristics of audit interest identified. Procedures performed, among others, may have included:
◦
◦
Read the relevant portions of contracts including any recent contract modifications to understand contract terms, including incentives,
fee arrangement, scope of work, and other unusual contract terms.
Evaluated the estimates of total costs and profit for the performance obligation by performing some combination of the following:
▪
▪
▪
▪
Performed inquiries with the business managers and corroborated 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.
Evaluated management’s material and labor estimates against historical performance, underlying performance metrics, and
metrics of similar performance obligations.
Tested the appropriateness of the timing and accuracy of changes in estimates, including inspection of underlying source
documentation, and consideration of any contradictory information.
Evaluated the necessity and appropriateness of any constraints applied against any variable consideration.
Goodwill - 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 the forecasted
revenue, forecasted earnings before income tax, depreciation, and amortization (“EBITDA”), and the selection of the long-term growth rate and the
discount rate. 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.
The goodwill balance was $2.6 billion as of December 31, 2023 of which $1.7 billion related to the Mission Technologies reporting unit. The fair value of
the Mission Technologies reporting unit exceeded the carrying value by 10.4% as of the measurement date and, therefore, no impairment was
recognized.
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 revenue, forecasted EBITDA, and the selection of the long-term growth rate
and the discount rate, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value
specialists.
55
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the selection of the forecasted revenue, forecasted EBITDA, and the selection of the long-term growth rate and the
discount 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 revenue and EBITDA by comparing actual results to management’s historical
forecasts.
• We evaluated the reasonableness of management’s forecasted revenue and EBITDA 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 long-term growth rate and discount rate by:
◦
◦
◦
Comparing the valuation methodologies used to generally accepted valuation practices.
Testing the appropriateness of source information used by management to select the long-term growth rate and discount rate used by
management.
Developing a range of independent estimates and comparing those to the discount rate selected by management.
• We evaluated the carrying value of the Mission Technologies reporting unit including the corporate allocations.
/s/ Deloitte & Touche LLP
Richmond, Virginia
February 1, 2024
We have served as the Company’s auditor since 2011.
56
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,
2023, 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, 2023, 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, 2023, of the Company and our report dated February 1, 2024, 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 1, 2024
57
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
Change in unamortized benefit plan costs
Tax expense for items of other comprehensive income
Other comprehensive income, net of tax
Comprehensive income
The accompanying notes are an integral part of these consolidated financial statements.
58
Year Ended December 31
2022
2021
2023
$
7,664
3,790
11,454
$
7,283
3,393
10,676
6,467
3,341
37
120
1,022
781
(95)
148
19
853
172
681
17.07
39.9
17.07
39.9
$
$
$
6,225
3,011
48
1
924
565
(102)
276
(20)
719
140
579
14.44
40.1
14.44
40.1
$
$
$
7,000
2,524
9,524
5,958
2,198
41
2
898
513
(89)
181
17
622
78
544
13.50
40.3
13.50
40.3
681
$
579
$
544
238
(61)
177
858
$
436
(112)
324
903
$
838
(214)
624
1,168
$
$
$
$
$
$
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
($ in millions)
Assets
Current Assets
Cash and cash equivalents
Accounts receivable, net
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 $1,009 million as of 2023 and $881 million as
of 2022
Pension plan assets
Miscellaneous other assets
Total other assets
Total assets
The accompanying notes are an integral part of these consolidated financial statements.
59
December 31
2023
2022
430
461
1,537
186
183
83
2,880
351
2,954
2,197
261
5,763
(2,467)
3,296
262
2,618
891
888
380
5,039
11,215
$
$
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
$
$
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
Commitments and Contingencies (Note 16)
Stockholders’ Equity
Common stock, $0.01 par value; 150,000,000 shares authorized; 53,595,748 issued and 39,618,880
outstanding as of December 31, 2023, and 53,503,317 issued and 39,863,456 outstanding as of
December 31, 2022
Additional paid-in capital
Retained earnings
Treasury stock
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
60
December 31
2023
2022
$
554
382
231
129
224
1,063
449
3,032
2,214
212
241
449
228
367
379
7,122
1
2,045
4,755
(2,286)
(422)
4,093
11,215
$
642
345
399
134
229
766
380
2,895
2,506
214
260
463
246
418
366
7,368
1
2,022
4,276
(2,211)
(599)
3,489
10,857
$
$
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
Depreciation
Amortization of purchased intangibles
Amortization of debt issuance costs
Provision for expected credit losses
Stock-based compensation
Deferred income taxes
Loss (gain) on investments in marketable securities
Change in
Accounts receivable
Contract assets
Inventoried costs
Prepaid expenses and other current 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 equity method investment
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
Dividends paid
Repurchases of common stock
Employee taxes on certain share-based payment arrangements
Other financing activities, net
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
The accompanying notes are an integral part of these consolidated financial statements.
61
2023
Year Ended December 31
2022
2021
$
681
$
579
$
219
128
8
6
34
(113)
(23)
168
(297)
(3)
(42)
264
(75)
15
970
(292)
14
—
(24)
63
—
3
(236)
—
(480)
—
—
—
(200)
(75)
(13)
(3)
(771)
(37)
467
430
330
101
29
$
$
$
$
218
140
8
(7)
36
2
25
(196)
70
(22)
20
6
(127)
14
766
(284)
12
—
(5)
6
—
3
(268)
—
(400)
24
(24)
—
(192)
(52)
(14)
—
(658)
(160)
627
467
127
100
12
$
$
$
$
$
$
$
$
544
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
6
HUNTINGTON INGALLS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
($ in millions)
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
Balance as of December 31, 2022
Net earnings
Dividends declared ($5.02 per share)
Stock compensation
Other comprehensive income, net of tax
Treasury stock activity
Balance as of December 31, 2023
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
(Deficit)
Treasury
Stock
Accumulated Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity
$
$
1 $
—
—
—
—
—
1
—
—
—
—
—
1
—
—
—
—
—
1 $
1,972 $
—
—
26
—
—
1,998
—
—
24
—
—
2,022
—
—
23
—
—
2,045 $
3,533 $
544
(186)
—
—
—
3,891
579
(192)
(2)
—
—
4,276
681
(200)
(2)
—
—
4,755 $
(2,058) $
—
—
—
—
(101)
(2,159)
—
—
—
—
(52)
(2,211)
—
—
—
—
(75)
(2,286) $
(1,547) $
—
—
—
624
—
(923)
—
—
—
324
—
(599)
—
—
—
177
—
(422) $
1,901
544
(186)
26
624
(101)
2,808
579
(192)
22
324
(52)
3,489
681
(200)
21
177
(75)
4,093
The accompanying notes are an integral part of these consolidated financial statements.
62
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 develops integrated solutions that enable today's connected, all-domain
force.
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.
Additionally, certain prior year amounts have been reclassified to conform to the current year presentation.
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.
63
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 accounts receivable, net in the consolidated statements 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 expected credit
losses. 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.
64
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.
Costs to Obtain or Fulfill a Contract - Costs to obtain a contract are incremental direct costs incurred to obtain a contract with a customer and are
capitalized if material. Costs to fulfill a contract include costs directly related to a contract or a specific anticipated contract (for example, mobilization
and set-up) that generate or enhance our ability to satisfy our performance obligations under a contract. These costs are capitalized to the extent they
are expected to be recovered from the associated contract. Capitalized costs to obtain or fulfill a contract are amortized to expense over the expected
period of benefit. As of December 31, 2023, capitalized costs to obtain or fulfill a contract were $24 million, included in prepaid expenses and other
current assets in the consolidated statements of financial position.
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 related to specific expenses are recognized in the period in which the expenses are incurred as an offset to the 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, 2023, 2022, and 2021, the Company recognized cash grant benefits of $14 million, $12 million, and $20 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.
65
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 $35 million, $40 million, and
$34 million for the years ended December 31, 2023, 2022, and 2021, 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 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, 2023 and 2022, 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 that are recorded at historical cost approximate
fair value due to the short-term nature of the instruments and low credit risk associated with the respective counterparties.
The Company maintains multiple grantor trusts to fund certain non-qualified pension plans. These trusts were valued at $220 million and $209 million as
of December 31, 2023 and 2022, 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, 2023 and
2022.
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
66
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 $29 million and $28 million were recognized as of December 31, 2023 and 2022, respectively.
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
67
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. Right of use assets associated with finance leases are included in
miscellaneous other assets in the consolidated statements of financial position. Finance lease liabilities are included in the current portion of long-term
debt and long-term debt in the consolidated statements of financial position.
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 annually each year and between annual impairment tests if
evidence of potential impairment exists. During the second quarter of 2023, the Company elected to change the measurement date of its annual
goodwill impairment test from November 30 to October 31. The change is not material to the consolidated financial statements as it does not result in
the delay, acceleration or avoidance of an impairment charge, and the test is still performed in the fourth quarter. The Company 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 miscellaneous 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 3.93% and 3.88% as of December 31, 2023 and 2022, 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 $784 million and $778 million as of December 31, 2023 and 2022, respectively.
68
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 $41 million, net of $9 million of loan discount, as of December 31, 2023, and at amortized cost of $39
million, net of $11 million loan discount, as of December 31, 2022. 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.
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 March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The new
guidance requires new tabular and narrative segment disclosures of significant
69
expenses that are regularly reported to the chief operating decision maker and the nature of segment expense information used to manage operations.
The new guidance is effective for annual reporting periods beginning after December 15, 2023, and interim periods within fiscal years beginning after
December 15, 2024. The Company is currently evaluating the impacts of the new guidance on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The new guidance requires
disaggregated information about the effective tax rate reconciliation and additional information on taxes paid that meet a quantitative threshold. The new
guidance is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted. The Company is currently
evaluating the impacts of the new guidance on its consolidated financial statements.
Other accounting pronouncements issued but not effective until after December 31, 2023, are not expected to have a material impact on the Company's
consolidated financial position, results of operations, 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 Accounting Standards Codification ("ASC") 805 – “Business Combinations.” The purchase
price was $1.79 billion, including $148 million of cash received in the acquisition.
Pro Forma Financial Information
The following unaudited consolidated pro forma summary has been prepared by adjusting the Company's historical data to give effect to the acquisition
of Alion as if it had occurred on January 1, 2021.
($ in millions, except per share amounts)
Sales and service revenues
Net earnings
Basic earnings per share
Diluted earnings per share
Pro Forma
(Unaudited)
Year Ended December 31
2023
2022
2021
$
$
$
$
11,454 $
681 $
17.07 $
17.07 $
10,676 $
579 $
14.44 $
14.44 $
10,364
539
13.37
13.37
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.
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
70
$22 million to Titan as part of the exchange. The Company's investment in Titan, inclusive of equity earnings and distributions, of $70 million as of
December 31, 2022, is recorded in miscellaneous other assets in the consolidated statements of financial position. In June 2023, the Company sold its
investment in Titan. For the year ended December 31, 2023, the Company received $63 million in proceeds and recognized an immaterial loss on sale.
5. STOCKHOLDERS' EQUITY
Common Stock - Changes in the number of Company outstanding shares for the year ended December 31, 2023, 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 January 2024, the Company's board of directors authorized an increase in the Company's stock repurchase program from $3.2
billion to $3.8 billion and an extension of the term of the program to December 31, 2028. Repurchases are made from time to time at management's
discretion in accordance with applicable federal securities laws. For the year ended December 31, 2023, the Company repurchased 337,007 shares at
an aggregate cost of $75 million. For the years ended December 31, 2022 and 2021, the Company repurchased 244,561 and 544,440 shares,
respectively, at aggregate costs of $52 million and $101 million, respectively. The cost of purchased shares is recorded as treasury stock in the
consolidated statements of financial position.
Dividends - In November 2023, the Company's board of directors authorized an increase in the Company's quarterly cash dividend from $1.24 per
share to $1.30 per share. 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. The Company paid cash dividends totaling $200 million ($5.02 per share), $192 million ($4.78 per
share), and $186 million ($4.60 per share) in the years ended December 31, 2023, 2022, and 2021, 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 $422 million and $599
million as of December 31, 2023 and 2022, respectively.
71
The changes in accumulated other comprehensive loss by component for the years ended December 31, 2023, 2022, and 2021, were as follows:
($ in millions)
Balance as of December 31, 2020
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive loss
(1,546) $
720
Benefit Plans
(1) $
—
Other
Total
$
(1,547)
720
Amortization of prior service cost
1
Amortization of net actuarial loss
1
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 cost
1
Amortization of net actuarial loss
1
Settlement gain
1
Tax expense for items of other comprehensive income
Net current period other comprehensive income
Balance as of December 31, 2022
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Amortization of prior service cost
1
Amortization of net actuarial loss
1
Tax expense for items of other comprehensive income
Net current period other comprehensive income
Balance as of December 31, 2023
11
107
(215)
623
(923)
390
18
32
(4)
(112)
324
(599)
221
15
2
(61)
177
(422) $
$
—
—
1
1
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
11
107
(214)
624
(923)
390
18
32
(4)
(112)
324
(599)
221
15
2
(61)
177
(422)
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 recorded in stockholders' equity for the amounts reclassified from accumulated other
comprehensive loss for the years ended December 31, 2023, 2022, and 2021, was $4 million, $12 million, and $30 million, respectively.
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
2023
Year Ended December 31
2022
681
$
579
$
39.9
—
39.9
40.1
—
40.1
17.07
17.07
$
$
14.44
14.44
$
$
2021
544
40.3
—
40.3
13.50
13.50
$
$
$
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 Restricted Performance Stock Rights ("RPSRs") for each of the years ended December 31, 2023, 2022, and
2021.
72
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.
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.
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,
73
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.
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.
74
The following tables present revenues on a disaggregated basis:
($ 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
($ 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, 2023
Mission
Technologies
Intersegment
Eliminations
Newport News
Ingalls
2,495
248
9
2,752
2,743
—
—
9
2,752
2
2,497
244
—
9
2,752
$
$
$
$
$
$
5,053
1,077
3
6,133
6,129
1
—
3
6,133
4
3,364
2,762
—
3
6,133
$
$
$
$
$
$
116
2,465
118
2,699
2,558
22
1
118
2,699
322
6
2,039
214
118
2,699
$
$
$
$
$
$
—
—
(130)
(130)
—
—
—
(130)
(130)
—
—
—
—
(130)
(130)
Year Ended December 31, 2022
Mission
Technologies
Intersegment
Eliminations
Newport News
Ingalls
4,821
1,026
5
5,852
5,846
1
—
5
5,852
14
3,009
2,824
—
5
5,852
$
$
$
$
$
$
90
2,181
116
2,387
2,221
49
1
116
2,387
277
—
1,725
269
116
2,387
$
$
$
$
$
$
—
—
(133)
(133)
—
—
—
(133)
(133)
—
—
—
—
(133)
(133)
2,372
186
12
2,570
2,558
—
—
12
2,570
8
2,369
181
—
12
2,570
$
$
$
$
$
$
75
Total
7,664
3,790
—
11,454
11,430
23
1
—
11,454
328
5,867
5,045
214
—
11,454
Total
7,283
3,393
—
10,676
10,625
50
1
—
10,676
299
5,378
4,730
269
—
10,676
$
$
$
$
$
$
$
$
$
$
$
$
($ 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
($ in millions)
Major Programs
Amphibious assault ships
Surface combatants and coast guard cutters
Other
Total Ingalls
Aircraft carriers
Submarines
Other
Total Newport News
C5ISR, CEW&S, LVC
Oil and gas services
Other
Total Mission Technologies
Intersegment eliminations
Sales and service revenues
Year Ended December 31, 2021
Mission
Technologies
Intersegment
Eliminations
Newport News
Ingalls
$
$
$
$
$
$
2,357
156
15
2,528
2,513
—
—
15
2,528
33
2,329
151
—
15
2,528
$
$
$
$
$
$
4,543
1,109
11
5,663
5,652
—
—
11
5,663
41
2,913
2,698
—
11
5,663
$
$
$
$
$
$
$
$
100
1,259
117
1,476
1,310
48
1
117
1,476
205
5
894
255
117
1,476
$
$
$
$
$
$
—
—
(143)
(143)
—
—
—
(143)
(143)
—
—
—
—
(143)
(143)
$
$
$
$
$
$
Total
7,000
2,524
—
9,524
9,475
48
1
—
9,524
279
5,247
3,743
255
—
9,524
Year Ended December 31
2022
2023
2021
1,511 $
1,225
16
2,752
3,374
2,161
598
6,133
2,232
—
467
2,699
(130)
11,454 $
1,415 $
1,138
17
2,570
3,203
2,002
647
5,852
1,950
—
437
2,387
(133)
10,676 $
1,328
1,179
21
2,528
3,073
1,917
673
5,663
1,034
14
428
1,476
(143)
9,524
As of December 31, 2023, the Company had $48.1 billion of remaining performance obligations. The Company expects to recognize approximately 22%
of its remaining performance obligations as revenue through 2024, an additional 30% through 2026, and the balance thereafter.
76
Cumulative Catch-up Revenue Adjustments
The following table presents the effect of net cumulative catch-up revenue adjustments on operating income and diluted earnings per share:
($ in millions, except per share amounts)
Effect on operating income
Effect on diluted earnings per share
Year Ended December 31
2022
2021
2023
$
$
118
2.33
$
$
113
2.22
$
$
115
2.26
For each of the years ended December 31, 2023, 2022, and 2021, no individual favorable cumulative catch-up revenue adjustment was material to the
Company's consolidated statements of operations and comprehensive income. For each of the years ended December 31, 2023, 2022, and 2021, no
individual unfavorable cumulative catch-up revenue adjustment was material to the Company's consolidated statements of operations and
comprehensive income.
Contract Balances
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. Contract liabilities relate to advance payments, billings in excess of revenues, and deferred revenue
amounts.
Contract assets include retention amounts, substantially all of which were under U.S. Government contracts, and were comprised of the following:
($ in millions)
Due from U.S. Government
Due from other customers
Total contract assets
December 31
2023
2022
$
$
1,471
66
1,537
$
$
1,165
75
1,240
The Company reports contract balances in a net contract asset or contract liability position on a contract-by-contract basis at the end of each reporting
period. Net contract assets were comprised as follows:
($ in millions)
Contract assets
Contract liabilities
Net contract assets
December 31
2023
2022
2023 over 2022
$
$
1,537
1,063
474
$
$
1,240
766
474
$
$
297
297
—
For the year ended December 31, 2023, the Company recognized revenue of $690 million related to its contract liabilities as of December 31, 2022. 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 $382 million related to its contract liabilities as of December 31, 2020.
8. SEGMENT INFORMATION
The Company is organized into three reportable segments: Ingalls, Newport News, and Mission Technologies, consistent with how management makes
operating decisions and assesses performance.
U.S. Government Sales - Revenues from the U.S. Government include revenues from contracts for which HII is the prime contractor, as well as
contracts for which the Company is a subcontractor and the ultimate customer is the U.S. Government. The Company derived over 95% of its revenues
from the U.S. Government for each of the years ended December 31, 2023, 2022, and 2021.
Assets - Substantially all of the Company's assets are located or maintained in the United States.
77
Results of Operations by Segment
The following table presents the Company's operating results by segment:
($ 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.
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
(1)
($ in millions)
Capital Expenditures
Ingalls
Newport News
Mission Technologies
Corporate
Total capital expenditures
(1)
Net of grant proceeds for capital expenditures
$
$
$
$
78
Year Ended December 31
2022
2023
2021
$
$
$
$
2,752
6,133
2,699
(130)
11,454
362
379
101
842
(72)
11
781
$
$
$
$
2,570
5,852
2,387
(133)
10,676
292
357
63
712
(145)
(2)
565
$
$
$
$
$
$
2,528
5,663
1,476
(143)
9,524
281
352
50
683
(157)
(13)
513
2021
1,659
4,179
3,553
1,236
10,627
2023
December 31
2022
1,619
4,612
3,161
1,823
11,215
$
$
1,633
4,344
3,347
1,533
10,857
Year Ended December 31
2022
2021
2023
65
196
11
6
278
$
$
69
182
20
1
272
$
$
72
201
38
—
311
($ in millions)
Depreciation and Amortization
Ingalls
Newport News
Mission Technologies
Corporate
Total depreciation and amortization
9. ACCOUNTS RECEIVABLE
Year Ended December 31
2022
2021
2023
$
$
76
150
120
1
347
$
$
79
148
130
1
358
$
$
74
146
72
1
293
Accounts receivable include amounts related to any unconditional Company right to receive consideration. Substantially all amounts included in
accounts receivable as of December 31, 2023, are expected to be collected in 2024. The Company's accounts receivable are primarily with the U.S.
Government and include balance amounts from companies acting as a prime contractor to the U.S. Government. The Company does not have material
exposure to accounts receivable credit risk.
Accounts receivable were comprised of the following:
($ in millions)
Due from U.S. Government
Due from other customers
Total accounts receivable
Allowance for expected credit losses
Total accounts receivable, net
10. INVENTORIED COSTS, NET
December 31
2023
2022
$
$
464
5
469
(8)
461
$
$
631
7
638
(2)
636
Inventoried costs are principally associated with contracts for which the U.S. government is the primary customer. As a result, the Company does not
believe it has significant exposure to recoverability risk related to inventoried costs.
Inventoried costs were comprised of the following:
($ in millions)
Production costs of contracts in process
Raw material inventory
Total inventoried costs, net
11. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
December 31
2023
2022
$
$
40
146
186
$
$
54
129
183
HII performs impairment tests for goodwill 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 October 31, 2023, management tested goodwill for each of its three reporting
units with goodwill balances. Based on the annual goodwill impairment
79
analysis, the Company estimated that the fair value of the Mission Technologies segment exceeded its carrying value by approximately 10%. The
Company determined that the estimated fair values of its remaining reporting units exceeded by more than 10% their corresponding carrying values as
of October 31, 2023.
As of each of December 31, 2023 and 2022, accumulated goodwill impairment losses were $2,755 million, comprised of $1,568 million and $1,187
million at Ingalls and Newport News, respectively.
For the year ended December 31, 2022, the Company recorded goodwill adjustments of $10 million related to the acquisition of Alion in 2021, resulting
from updates to Alion's tax carryforwards and the true-up of estimated taxes to filed income tax returns for the pre-acquisition period.
For the years ended December 31, 2023 and 2022, the carrying amounts of goodwill changed as follows:
($ in millions)
Balance as of December 31, 2021
Adjustments
Balance as of December 31, 2022
Adjustments
Balance as of December 31, 2023
Other Intangible Assets
Ingalls
Newport News
Mission
Technologies
Total
$
$
175 $
—
175
—
175 $
721 $
—
721
—
721 $
1,732 $
(10)
1,722
—
1,722 $
2,628
(10)
2,618
—
2,618
The Company performs tests for impairment of long-lived assets whenever events or circumstances suggest that long-lived assets may be impaired.
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, 2023, 2022, and
2021, was $128 million, $140 million, and $86 million, respectively.
The Company expects amortization for currently recorded purchased intangible assets of $109 million in 2024, $99 million in 2025, $80 million in 2026,
$60 million in 2027, and $53 million in 2028.
12. INCOME TAXES
The Company's earnings are primarily domestic, and its effective tax rate on earnings from operations for the year ended December 31, 2023, was
20.2%, compared with 19.5% and 12.5% for 2022 and 2021, respectively.
For the year ended December 31, 2023, the Company's effective tax rate differed from the statutory federal corporate income tax rate primarily as a
result of estimated research and development tax credits for 2023 and prior years. For the year ended December 31, 2022, the Company's effective tax
rate differed from the statutory federal corporate income tax rate primarily as a result of estimated research and development tax credits for 2022 and
prior years. For the year ended December 31, 2021, the Company’s effective tax rate differed from the statutory federal corporate income tax rate
primarily as a result of a tax loss associated with the sale of the Company's oil and gas business and estimated research and development tax credits
for 2021 and prior years.
Non-current state income taxes include deferred state income taxes, which reflect the change in deferred state tax assets and liabilities and the tax
expense or benefit associated with changes in state unrecognized tax benefits in the relevant period. These amounts are recorded within operating
income. Current period state income tax expense is charged to contract costs and included in cost of sales and service revenues in segment operating
income.
80
Federal and foreign income tax expense for the years ended December 31, 2023, 2022, and 2021, consisted of the following:
($ in millions)
Income Taxes on Operations
Federal and foreign income taxes currently payable (receivable)
Change in deferred federal and foreign income taxes
Total federal and foreign income taxes
Year Ended December 31
2022
2021
2023
$
$
273
(101)
172
$
$
138
2
140
$
$
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 corporate income tax rate:
($ in millions)
Income tax expense (benefit) on operations at statutory rate
Tax benefit - sale of business
Unrecognized tax benefits
Research and development tax credit
Other, net
Total federal and foreign income taxes
Year Ended December 31
2022
2021
2023
$
$
179
—
7
(22)
8
172
$
$
151
—
7
(25)
7
140
$
$
(12)
90
78
131
(11)
30
(78)
6
78
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 and comprehensive income. 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, 2023, 2022, and 2021 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
Lapse of statute of limitations
Net change in unrecognized tax benefits
Unrecognized tax benefits at end of the year
2023
December 31
2022
$
$
90
11
—
(3)
8
98
$
$
81
8
3
(2)
9
90
2021
$
47
7
27
—
34
81
As of December 31, 2023 and 2022, the estimated amounts of the Company's uncertain tax positions, excluding interest and penalties, were liabilities of
$98 million and $90 million, respectively. Assuming sustainment of these positions, as of December 31, 2023 and 2022, the reversal of $76 million and
$70 million, respectively, of the accrued amounts would favorably affect the Company's effective federal income tax rate in future periods.
The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense. As a result of the unrecognized tax
benefits noted above, income tax expense increased by $4 million in 2023 for interest, resulting in an interest liability of $9 million as of December 31,
2023. In 2022, income tax expense increased $2 million for interest, resulting in an interest liability of $5 million as of December 31, 2022. In 2021,
income tax expense increased $1 million for interest, resulting in an interest liability of $3 million as of December 31, 2021.
81
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
Connecticut
Mississippi
Virginia
Years
-
-
-
-
2016
2020
2018
2020
2022
2022
2022
2022
(1)
(1)
The 2016, 2018, 2019, 2021, and 2022 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.
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. It is reasonably possible that within the next 12 months the amount
of unrecognized tax benefits could decrease by $17 million due to the lapse of the statute of limitations.
During 2013 the Company entered into the pre-Compliance Assurance Process with the IRS for years 2011 and 2012. Tax years 2014 and 2015 have
been closed with the IRS. The Company is part of the IRS Compliance Assurance Process program for the 2014 through 2023 tax years. Open tax
years related to state jurisdictions remain subject to examination.
Deferred Income Taxes - Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and for income tax purposes. As described above, deferred tax assets and liabilities are calculated as of the
balance sheet date using current tax laws and rates expected to be in effect when the deferred tax items reverse in future periods. Net deferred tax
liabilities are classified as long-term deferred tax liabilities in the consolidated statements of financial position.
82
The tax effects of significant temporary differences and carry-forwards that resulted in year-end deferred tax balances, as presented in the consolidated
statements of financial position, were as follows:
($ 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
Retirement benefits
Gross deferred tax liabilities
Total net deferred tax liabilities
December 31
2023
2022
$
$
—
157
77
61
7
35
200
10
547
29
518
447
78
234
72
54
885
(367)
$
$
23
160
77
61
7
37
122
13
500
28
472
444
123
250
73
—
890
(418)
As of December 31, 2023, the Company had state income tax credit carry-forwards of approximately $20 million, which expire from 2024 through 2026.
A deferred tax asset of approximately $16 million (net of federal benefit) related to these state income tax credit carry-forwards has been recorded, with
a valuation allowance of $12 million against such deferred tax asset as of December 31, 2023. State net operating loss carry-forwards are individually
and cumulatively immaterial to the Company’s deferred tax balances and expire from 2030 through 2042.
83
13. DEBT
The Company's long-term debt consisted of the following:
($ 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%
Finance lease obligations
Less unamortized debt issuance costs
Total long-term debt
Less current portion
Long-term debt, net of current portion
December 31
2023
2022
$
$
$
600
500
500
—
600
145
84
21
12
(17)
2,445
231
2,214
$
$
$
600
500
500
400
600
225
84
21
—
(25)
2,905
399
2,506
Debt Facilities - In April 2023, the Company amended its existing $1.5 billion credit facility, which includes a letter of credit subfacility of $300 million (the
"Revolving Credit Facility"), and term loan due August 19, 2024 (the “Term Loan”), to change the benchmark interest rate from the London Interbank
Offered Rate to the Secured Overnight Financing Rate (“SOFR”). The interest rate on both facilities is based on SOFR plus an interest spread, currently
1.475%, based on the Company's credit rating, which may vary between 1.225% and 2.100%. The commitment fee rate on the Revolving Credit Facility
as of December 31, 2023, was 0.200% and may vary between 0.125% and 0.300%. The Company does not expect the transition to the SOFR
benchmark to materially impact its consolidated financial position, results of operations, or cash flows.
As of December 31, 2023, the Company had $12 million in issued but undrawn letters of credit and $1,488 million unutilized under the Revolving Credit
Facility. The Company had unamortized debt issuance costs associated with its debt facilities of $6 million and $10 million as of December 31, 2023 and
2022, 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, 2023, the Company had no outstanding debt under the commercial paper program.
Senior 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. Interest on the senior notes is payable semiannually. The Company
had unamortized debt issuance costs associated with the senior notes of $11 million and $15 million as of December 31, 2023 and 2022, respectively.
In August 2023, the Company repaid $400 million aggregate principal amount of 0.670% senior notes upon their maturity.
Interest on the Mississippi Economic Development Revenue Bonds and Gulf Opportunity Zone Industrial Development Revenue Bonds is payable
semiannually.
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, 2023.
84
The estimated fair values of the Company's total long-term debt, including the current portion of long-term debt and excluding finance lease liabilities, as
of December 31, 2023, and December 31, 2022, were $2,309 million and $2,703 million, respectively. The estimated fair values of the current portion of
the Company's long-term debt, excluding finance lease liabilities, were $229 million and $390 million as of December 31, 2023, and December 31,
2022, respectively. The fair values of the Company's long-term debt were calculated based on recent trades of the Company's debt instruments in
inactive markets, which fall within Level 2 under the fair value hierarchy.
As of December 31, 2023, the aggregate amounts of principal payments due on long-term debt, excluding finance lease liabilities, within the next five
years consisted of $229 million due in 2024, $500 million due in 2025, $600 million due in 2027, and $621 million due in 2028. In January 2024, the
Company prepaid the remaining $145 million balance of the Term Loan.
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 ASC 450 - "Contingencies", the Company has accrued for losses associated with
investigations, claims, and litigation when, and to the extent that, loss amounts related to the investigations, claims, and litigation are probable and can
be reasonably estimated. The actual losses that might be incurred to resolve such investigations, claims, and litigation may be higher or lower than the
amounts accrued. The Company has also provided footnote disclosure for matters for which a material loss is reasonably possible but a reserve has not
been accrued because the likelihood of a material loss is not probable.
Antitrust Complaint - On October 6, 2023, a class action antitrust lawsuit was filed against the Company and other defendants in the U.S. District Court
for the Eastern District of Virginia. The lawsuit names several HII companies, among other companies, as defendants. The named plaintiffs generally
allege that the defendant companies have adhered to a “gentlemen’s agreement” that prohibits any defendant from actively recruiting naval engineers
from other defendants. The complaint seeks class certification, treble damages, and any other relief to which the plaintiffs are entitled. Depending on the
outcome of the lawsuit, the Company could be subject to penalties and damages that could have a material adverse effect on its consolidated financial
position, results of operations, or cash flows. The case is at an early stage, and, as a result, the Company currently is unable to estimate an amount or
range of reasonably possible loss or to express an opinion regarding the ultimate outcome of the matter.
False Claims Act Complaint - In 2016, the Company was made aware that it is a defendant in a qui tam False Claims Act lawsuit pending in the U.S.
District Court for the Middle District of Florida related to the Company’s purchases of allegedly non-conforming parts from a supplier for use in
connection with U.S. Government contracts. In August 2019, the Department of Justice (“DoJ”) declined to intervene in the lawsuit, and the lawsuit was
unsealed. The court dismissed the complaint in September 2021, and the plaintiff appealed the dismissal to the United States Court of Appeals for the
11th Circuit. In August 2023, the 11th Circuit confirmed the district court's dismissal of the complaint.
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 insured the Company against losses relating to the seller’s breach of certain representations
and warranties in the Hydroid acquisition agreement. In December 2023, the Company and the insurers settled the matter for a payment of $49.5 million
to the Company, recognized in the Mission Technologies segment's other income and gains, net in the consolidated statements of operations and
comprehensive income.
85
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, 2023, 2022, and 2021
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. In November 2023, the Company sold its judgment against the Republic to a third party in exchange for
an initial cash payment of $70.5 million, recognized in the Ingalls segment's other income and gains, net in the consolidated statements of operations
and comprehensive income. The Company's consideration also includes a contingent participating interest in the final amount recovered.
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.
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 and an immaterial finance lease included in the consolidated financial statements. See
Note 2: Summary of Significant Accounting Policies and Note: 13 Debt.
86
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
2023
2022
2021
$
$
$
$
$
$
$
$
$
$
67
54
7
(66)
80
9 years
5.0 %
$
$
$
$
$
69
44
6
(65)
111
9 years
4.5 %
53
43
4
(52)
97
8 years
3.6 %
The undiscounted future non-cancellable lease payments under the Company's operating leases as of December 31, 2023, were as follows:
December 31, 2023
($ in millions)
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Less: imputed interest
Present value of operating lease liabilities
$
$
Lease liabilities included in the Company's consolidated statements of financial position as of December 31, 2023 and 2022, 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
2023
2022
$
$
51
228
279
$
$
Contract Performance Contingencies - Contract profit margins may include estimates of revenues for matters on which the customer and the Company
have not reached agreement, such as settlements in the process of negotiation, contract changes, claims, and requests for equitable adjustment for
unanticipated contract costs. These estimates are based upon management's best assessment of the underlying causal events and circumstances and
recognized to the extent of expected recovery based upon contractual entitlements and the probability of successful negotiation with the customer. The
Company believes its outstanding customer settlements will be resolved without material impact to its financial position, results of operations, or cash
flows.
Environmental Matters - The estimated cost to complete environmental remediation has been accrued when it is probable that the Company will incur
such costs in the future to address environmental conditions at currently or formerly owned or leased operating facilities, or at sites where it has been
named a Potentially Responsible Party by the Environmental Protection Agency or similarly designated by another environmental agency, and the
related costs can be estimated by management. These accruals do not include any litigation costs related to environmental matters, nor do they include
amounts recorded as asset retirement obligations. Management estimates that as of December 31, 2023, the probable estimable future cost for
environmental remediation was not material. Although management cannot predict whether new information gained as remediation progresses or the
Company incurs additional remediation obligations will materially affect the estimated liability accrued, management does not believe
87
61
56
44
37
27
128
353
74
279
52
246
298
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, 2023, the Company had $12 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 - The Company has been in negotiations with a Mission Technologies customer since January 2023 to address issues related to a
manufacturing contract. The Company has recorded provisions for contract losses that were not material to the Company's consolidated financial
position, results of operations, or cash flows. The parties have not agreed upon a resolution of the matter, and the Company could incur additional future
losses on the contract. The Company therefore cannot predict or give assurances regarding the ultimate outcome of this matter.
The Company previously disclosed an issue regarding the degree of corrosion of certain steel plates used to fabricate Friedman (NSC 11). The
Company’s expectation regarding the resolution of the matter with the customer is included in contract cost and profit estimates. Those estimates
include management's best assessment of the underlying causal events, contractual entitlements, and the probability of successful resolution with the
customer. The Company does not expect the final resolution of the matter to have a material impact to the Company's consolidated financial position,
results of operations, or cash flows.
Collective Bargaining Agreements - Of the Company's over 44,000 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.
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.
88
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, 2023, 2022, and 2021, were $158 million, $153 million, and $140 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, 2023, were $202 million and $44 million, respectively, and as of December 31, 2022, were $192 million and
$38 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, 2023 and 2022, were $220 million and $209 million, respectively, of which $174
million and $169 million, respectively, were related to the non-qualified defined benefit pension plans.
The Company provides contributory postretirement health care and life insurance benefits to a dominantly closed group of eligible employees, retirees,
and their qualifying dependents. Covered employees achieve eligibility to participate in these contributory plans upon retirement from active service if
they meet specified age, years of service, and grandfathered requirements. Benefits are not guaranteed, and the Company reserves the right to amend
or terminate coverage at any time. The Company's contributions for retiree health care benefits are subject to caps, which limit Company contributions
when spending thresholds are reached.
The measurement date for all of the Company's retirement related plans is December 31. The costs of the Company's defined benefit pension plans
and other postretirement benefit plans for the years ended December 31, 2023, 2022, and 2021, were as follows:
($ 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 (income) cost
Pension Benefits
Year Ended December 31
2022
2021
2023
Other Benefits
Year Ended December 31
2022
2021
2023
$
$
112 $
343
(529)
17
17
—
(40) $
181 $
258
(594)
22
35
(4)
(102) $
199 $
240
(553)
15
110
—
11 $
6 $
21
—
(2)
(15)
—
10 $
9 $
14
—
(4)
(3)
—
16 $
10
14
—
(4)
(3)
—
17
89
The funded status of these plans as of December 31, 2023 and 2022, 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
(1)
Amounts recognized in the consolidated statements of financial position:
Pension plan assets
Current liability
Non-current liability
Accumulated other comprehensive loss (income) (pre-tax) related to:
Prior service costs (credits)
Net actuarial loss (gain)
(2)
Pension Benefits
December 31
Other Benefits
December 31
2023
2022
2023
2022
$
$
$
6,438 $
112
343
10
—
62
(333)
(390)
6,242
8,569 $
181
258
6
97
(2,327)
(314)
(32)
6,438
6,781
793
12
10
(333)
(390)
6,873
8,460
(1,349)
10
6
(314)
(32)
6,781
631 $
343 $
888 $
(45)
(212)
600 $
(43)
(214)
138
562
156
780
394 $
6
21
9
—
(19)
(41)
—
370
—
—
32
9
(41)
—
—
(370) $
— $
(129)
(241)
(13)
(107)
505
9
14
11
—
(103)
(42)
—
394
—
—
31
11
(42)
—
—
(394)
—
(134)
(260)
(16)
(102)
(1)
Included in other current liabilities and current portion of postretirement plan liabilities, respectively.
(2)
Included in pension plan liabilities and other postretirement plan liabilities, respectively.
On November 3, 2023, the Company purchased an annuity contract to transfer $411 million of gross defined benefit pension obligations and related
plan assets to an insurance company for approximately 10,000 retirees and beneficiaries. The annuity contract was purchased using assets from the
pension master trust, and no additional funding contribution was required. This transaction had no impact on the amount, timing, or form of the monthly
retirement benefit payments to the affected retirees and beneficiaries. The transaction did not trigger settlement accounting under ASC 715 –
“Compensation – Retirement Benefits.”
In 2022, the Company purchased annuity contracts to transfer $32 million of gross defined benefit pension obligations and related plan assets to an
insurance company for approximately 500 retirees and beneficiaries. The annuity contracts were purchased using assets from the pension master trust,
and no additional funding contribution was required. This transaction had no impact on the amount, timing, or form of the monthly retirement benefit
payments to the affected retirees and beneficiaries. In connection with this transaction, the Company recognized a noncash, non-operating pension
settlement gain of $4 million for the affected plan, which represents the accelerated recognition of actuarial losses that were included in accumulated
other comprehensive loss within stockholders' equity.
90
The Projected Benefit Obligation ("PBO"), Accumulated Benefit Obligation ("ABO"), and asset values for the Company's qualified pension plans were
$6,040 million, $5,820 million, and $6,873 million, respectively, as of December 31, 2023, and $6,246 million, $6,017 million, and $6,781 million,
respectively, as of December 31, 2022. 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 $864 million and
$607 million, respectively, as of December 31, 2023, and $868 million and $611 million, respectively, as of December 31, 2022.
The ABOs for all qualified and non-qualified pension plans with ABOs in excess of plan assets were $186 million and $176 million as of December 31,
2023, and 2022, respectively. The ABOs for all pension plans were $6,006 million and $6,193 million as of December 31, 2023 and 2022, respectively.
The changes in amounts recorded in accumulated other comprehensive income (loss) were as follows:
Pension Benefits
Year Ended December 31
2022
2023
2021
Other Benefits
Year Ended December 31
2022
2021
2023
($ in millions)
Prior service credit (cost)
Amortization of prior service cost (credit)
Net actuarial gain
Amortization of net actuarial loss (gain)
Other
Total changes in accumulated other comprehensive income (loss)
$
$
— $
17
202
17
—
236 $
(97) $
22
384
35
(4)
340 $
— $
15
704
110
(1)
828 $
— $
(2)
19
(15)
—
2 $
— $
(4)
103
(3)
(1)
95 $
14
(4)
2
(3)
1
10
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
2023
5.47 %
8.00 %
3.63 %
2023
5.50 %
6.00 %
4.50 %
2028
Pension Benefits
2022
3.00 %
7.25 %
3.58 %
Other Benefits
2022
2.94 %
5.50 %
4.50 %
2027
2021
2.80 %
7.25 %
3.62 %
2021
2.75 %
5.50 %
4.50 %
2026
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
91
Pension Benefits
December 31
Other Benefits
December 31
2023
2022
2023
2022
5.28 %
3.58 %
3.63 %
5.47 %
3.63 %
3.63 %
5.35 %
5.50 %
6.00 %
4.50 %
2029
6.00 %
4.50 %
2028
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, 2023, 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 2029. As of December 31,
2022, the Company assumed 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.
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, 2023, 2022, and 2021:
($ in millions)
Pension plans
Discretionary
Qualified
Non-qualified
Other benefit plans
Total contributions
Year Ended December 31
2022
2021
2023
$
$
—
12
32
44
$
$
—
10
31
41
$
$
60
9
37
106
For the year ending December 31, 2024, 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, 2024, the Company expects its cash contributions to its other postretirement
benefit plans to be approximately $35 million.
The following table presents estimated future benefit payments, using the same assumptions used in determining the Company's benefit obligations, as
of December 31, 2023. Benefit payments depend on future employment and compensation levels, years of service, and mortality. Changes in any of
these factors could significantly affect these estimated amounts.
($ in millions)
2024
2025
2026
2027
2028
Years 2029 to 2033
Pension Plan Assets
Pension
Benefits
Other Benefit
Payments
$
$
321
340
360
378
395
2,160
$
$
35
36
36
36
35
145
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.
92
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, 2023, 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.
93
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, 2023, unfunded commitments to private
partnerships were $595 million.
Management reviews independently appraised values, audited financial statements, and additional pricing information to evaluate the NAVs. 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.
94
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
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
Total
December 31, 2023
Level 2
Level 1
Level 3
$
$
1,723 $
448
1,469
3
3,643 $
1,723 $
—
—
—
1,723 $
— $
448
1,469
3
1,920 $
—
—
—
—
—
1,134
234
532
828
388
114
3,230
$
6,873
(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.
95
($ 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
Total
December 31, 2022
Level 2
Level 1
Level 3
$
$
1,910 $
334
1,106
3
28
3,381 $
1,910 $
—
—
—
28
1,938 $
— $
334
1,106
3
—
1,443 $
—
—
—
—
—
—
1,494
222
471
670
382
161
3,400
$
6,781
(a)
(b)
U.S. and international equity securities include investments in small, medium, and large capitalization stocks of public companies held in commingled
trust funds.
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, 2023 and 2022.
18. STOCK COMPENSATION PLANS
As of December 31, 2023, 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, 2023, the remaining aggregate number of shares of the
Company's common stock authorized for issuance under the 2022 Plan was 1.2 million.
96
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, 2023, 2022, and 2021:
Restricted Performance Stock Rights - For the year ended December 31, 2023, the Company granted approximately 0.2 million RPSRs at a weighted
average share price of $215.24. These rights are subject to cliff vesting on December 31, 2025. 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 were fully vested as of December 31, 2023. 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 2023, the Company granted
approximately 9,500 RSRs at a weighted average share price of $213.37, with cliff vesting two to three years from the grant date. 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.
As of December 31, 2023, approximately 13,600 RSRs were outstanding.
The Company also received transfers of stock awards from employees in satisfaction of minimum tax withholding obligations associated with the vesting
of stock awards during the period. The Company does not consider these transfers as treasury stock because the stock is not issued; rather, the award
is surrendered in lieu of payments of cash to settle tax obligations.
Stock Rights and Stock Issuances - The Company granted stock rights to its non-employee directors on a quarterly basis in 2023, 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 requirements, 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 requirements 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.
97
Stock award activity for the years ended December 31, 2023, 2022, and 2021, was as follows:
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
Outstanding as of December 31, 2022
Granted
Adjustment due to performance
Vested
Forfeited
Outstanding as of December 31, 2023
Stock Awards
(in thousands)
Weighted-Average
Grant Date Fair
Value
381
213
19
(100)
(28)
485
166
52
(170)
(27)
506
177
32
(155)
(25)
535
$
$
211.77
181.66
259.03
259.03
202.81
190.36
204.65
209.04
209.04
199.40
189.68
215.16
224.35
224.35
178.68
189.98
Weighted
Average
Remaining
Contractual Term
1.0 year
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 2023, 2022, and 2021 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 is measured against EBITDAP growth of the S&P
Aerospace and Defense Select Index.
Compensation Expense
The Company recorded $34 million, $36 million, and $33 million of expense related to stock awards for the years ended December 31, 2023, 2022, and
2021, respectively. The Company recorded $10 million, $9 million, and $8 million as tax benefits related to stock awards for the years ended
December 31, 2023, 2022, and 2021, respectively.
The Company recognized tax benefits for the years ended December 31, 2023, 2022, and 2021, of $7 million, $8 million, and $4 million, respectively,
from the issuance of stock in settlement of stock awards.
Unrecognized Compensation Expense
As of December 31, 2023, the Company had $2 million of unrecognized compensation expense associated with RSRs granted in 2023, 2022, and
2021, which will be recognized over a weighted average period of 1.1 years, and $33 million of unrecognized expense associated with RPSRs granted
in 2023 and 2022, which will be recognized over a weighted average period of 1 year.
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, 2023, 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
98
Guarantors to obtain funds from their respective subsidiaries by dividend or loan, except those imposed by applicable law.
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, 2023. 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, 2023, the Company's disclosure controls
and procedures were effective to ensure that information required to be disclosed in reports the Company files or submits under the Exchange Act is (i)
recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) accumulated and communicated to
management to allow their timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the three months ended December 31, 2023, 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, with the participation of
Company's Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), 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, 2023, 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, 2023, 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
Adoption or Termination of Trading Arrangements
A significant portion of the compensation of our directors and officers is in the form of equity awards, and, from time to time, directors and officers
engage in open-market transactions with respect to the securities they acquire pursuant to such equity awards or other securities we have issued,
including for diversification or other personal reasons.
99
Transactions in our securities by directors and officers are required to be made in accordance with our insider trading policy, which requires that the
transactions comply with applicable U.S. federal securities laws that prohibit trading while in possession of material nonpublic information. Rule 10b5-1
under the Exchange Act provides an affirmative defense that enables directors and officers to prearrange transactions in our securities in a manner that
avoids concerns about initiating transactions while in possession of material nonpublic information.
The following table describes the contracts, instructions or written plans for the purchase or sale of securities adopted by our directors or officers (as
defined in Rule 16a-1(f) under the Exchange Act) during the three months ended December 31, 2023, that are intended to satisfy the affirmative
defense conditions of Rule 10b5-1(c). No other Rule 10b5-1 trading arrangements or “non-Rule 10b5–1 trading arrangements” (as defined by S-K Item
408(c)) were entered into or terminated by our directors or officers during such period:
Name and Title
Date of Adoption
Duration of Trading
Arrangement
1
Aggregate Number of
2
Securities to be Sold
Edgar A. Green III
Executive Vice President and
President, Mission Technologies
November 15, 2023
March 15, 2024
7,895
Type
Common Stock
1
The plan duration extends to the date listed in this column or such earlier date upon the completion of all trades
under the plan (or the expiration of the orders relating to such trades without execution) or the occurrence of such other termination events as specified
in the plan.
2
The aggregate number of shares to be sold will depend, in part, on the Company’s performance in 2021, 2022 and
2023.
To promote the alignment of management and stockholder interests, our directors and officers are subject to stock ownership guidelines, which are
described on pages 63 and 64 of our definitive Proxy Statement for our 2023 Annual Meeting of Stockholders filed with the Securities and Exchange
Commission on March 20, 2023. As of the date of this report on Form 10-K, the execution of the Rule 10b5-1 trading arrangement described above will
not cause such person to fall out of compliance with the stock ownership guidelines applicable to him.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
100
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Directors
PART III
Information regarding our directors will be incorporated herein by reference to the Proxy Statement for our 2024 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
Christopher D. Kastner
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
Christopher W. Soong
Thomas E. Stiehle
Kara R. Wilkinson
D. R. Wyatt
Position(s)
President and Chief Executive 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 Information Officer
Executive Vice President and Chief Financial Officer
Executive Vice President and President, Ingalls Shipbuilding
Corporate Vice President and Treasurer
Age
60
60
50
59
46
58
59
53
62
60
50
51
58
49
65
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.
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 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
101
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.
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.
102
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. 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.
Christopher W. Soong, Executive Vice President and Chief Information Officer – Mr. Soong was elected Executive Vice President and Chief Information
Officer in April 2023. Prior to that and from August 2021, he served as Chief Information Officer for HII’s Mission Technologies business segment. From
October 2018 to August 2021, Mr. Soong served as Senior Vice President and Chief Information Officer at Alion Science and Technology. He has also
served in executive-level positions at Booz Allen Hamilton and Sprint. Mr. Soong holds a bachelor’s degree in civil engineering from Virginia Tech. He
holds a Leadership Certificate from the University of Maryland and participated in the CIO Institute at the MIT Sloan School of Management.
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 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.
103
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
2024 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 "Investors—
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 2024 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 2024 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 2024 Annual Meeting of Stockholders, to be filed within 120 days after the end of the Company’s fiscal year.
104
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,
2023:
Plan category
Equity compensation plans approved by security
holders
Equity compensation plans not approved by security
holders
(2)
Total
Equity Compensation Plan Information
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
(1)
Warrants and Rights
(a)
Weighted-Average Exercise
Price of Outstanding
Options,
Warrants and Rights
(b)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
(c)
534,704
—
534,704
$0.00
—
$0.00
1,164,896
—
1,164,896
(1)
Includes grants made under the Huntington Ingalls Industries, Inc. 2022 Long-Term Incentive Stock Plan (the "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, 50,548 stock rights, 4,113 restricted stock rights, and 291,628 restricted performance stock rights granted under
the 2012 Plan, and 7,333 stock rights, 9,521 restricted stock rights, and 156,589 restricted performance stock rights granted under the 2022 Plan,
assuming target performance achievement.
No awards have been granted under plans not approved by security holders.
(2)
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 2024 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 2024 Annual Meeting of
Stockholders, to be filed within 120 days after the end of the Company’s fiscal year.
105
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, 2021
Valuation allowance for deferred tax assets
Year Ended December 31, 2022
Valuation allowance for deferred tax assets
Year Ended December 31, 2023
Valuation allowance for deferred tax assets
$
$
3. Exhibits
22 $
22
28 $
— $
— $
2
1 $
4
— $
22
28
29
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).
106
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).
107
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).
108
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).
109
10.32*
10.33*
10.34*
10.35*
10.36*
10.37*
10.38*
10.39*
10.40*
10.41*
10.42*
10.43
10.44
21.1
22
23.1
31.1
31.2
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, as
amended.
Terms and Conditions Applicable to Ratable Vesting Restricted Stock Rights Granted Under the 2022 Long-Term Incentive Stock Plan.
Terms and Conditions Applicable to Cliff Vesting Restricted Stock Rights Granted Under the 2022 Long-Term Incentive Stock Plan.
Terms and Conditions Applicable to Non-Employee Director Stock Units Granted Under the 2022 Long-Term Incentive Stock Plan
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on November 2, 2023).
Terms and Conditions Applicable to Non-Employee Director Stock Grants Under the 2022 Long-Term Incentive Stock Plan, as
amended (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 2,
2023).
Huntington Ingalls Industries, Inc. Amended and Restated Directors' Compensation Policy.
Huntington Ingalls Industries, Inc. Directors Compensation Policy--Amended and Restated Board Deferred Compensation Policy
(incorporated by reference to Exhibit 10.42 to the Company's Annual Report on Form 10-K filed on February 9, 2023).
Amendment No. 1, dated April 24, 2023, to the Company’s Amended and Restated Credit Agreement, dated August 2, 2021, among
Huntington Ingalls Industries, Inc., the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent and an issuing
bank, and certain other issuing banks (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
on April 28, 2023).
Amendment No. 1, dated April 24, 2023, to the Company’s Credit Agreement, dated 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 Current Report on Form 8-K filed on April 28, 2023).
List of subsidiaries of Huntington Ingalls Industries, Inc.
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.
110
32.1
32.2
97*
101
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.
Huntington Ingalls Industries, Inc. Compensation Recovery Policy.
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.
111
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 1st day of February, 2024.
SIGNATURES
Huntington Ingalls Industries, Inc.
/s/ Christopher D. Kastner
Christopher D. Kastner
President and Chief Executive Officer
112
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 1, 2024
/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/ Craig S. Faller
Craig S. Faller
/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 1, 2024
February 1, 2024
Chairman
February 1, 2024
Director
Director
Director
Director
Director
Director
Director
113
February 1, 2024
February 1, 2024
February 1, 2024
February 1, 2024
February 1, 2024
February 1, 2024
February 1, 2024
/s/ Stephanie L. O'Sullivan
Stephanie L. O'Sullivan
/s/ Thomas C. Schievelbein
Thomas C. Schievelbein
/s/ John K. Welch
John K. Welch
Director
Director
Director
114
February 1, 2024
February 1, 2024
February 1, 2024
Exhibit 4.10
DESCRIPTION OF SECURITIES REGISTERED UNDER SECTION 12 OF THE EXCHANGE ACT
Description of Common Stock
General
The Restated Certificate of Incorporation (the “Restated Certificate”) of Huntington Ingalls Industries, Inc. (the “Company,” “us,” “we,” or “our”), as
amended, authorizes the issuance of up to 150,000,000 shares of common stock, par value $0.01 per share (“Common Stock”), and up to 10,000,000
shares of preferred stock, par value $0.01 per share (“Preferred Stock”). Our Common Stock is registered under Section 12(b) of the Securities
Exchange Act of 1934, as amended.
Voting Rights
Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative
voting rights for the election of directors. Holders of a plurality of the shares entitled to vote in any election of directors may elect all of the directors
standing for election.
Dividends
Dividends may be paid on our Common Stock and on any class or series of stock entitled to participate with our Common Stock as to dividends, but
only when and as declared by our Board of Directors (“Board”) and only if full dividends on all then-outstanding series of our Preferred Stock for the
then current and prior dividend periods have been paid or provided for.
Rights Upon Liquidation
If we liquidate, holders of our Common Stock are entitled to receive all remaining assets available for distribution to stockholders after satisfaction of our
liabilities and the preferential rights of any our Preferred Stock that may be outstanding at that time.
Other Rights
The outstanding shares of our Common Stock are fully paid and nonassessable. The holders of our Common Stock do not have any preemptive,
conversion or redemption rights.
Preferred Stock
Under the terms of the Restated Certificate, the Board is authorized, subject to any limitations prescribed by law, without stockholder approval, to issue
shares of Preferred Stock in one or more series. Each such series of Preferred Stock shall have such powers (including voting powers, full or limited, or
no voting powers), and such designations, preferences and relative, participating, optional or other rights and such qualifications limitations or
restrictions thereof, if any, as shall be determined by the Board.
The rights, preferences and privileges of holders of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares
of any series of Preferred Stock which the Company may designate and issue in the future. In addition, the issuance of Preferred Stock could impede
the completion of a merger, tender offer or other takeover attempt.
Exhibit 4.10
Other Provisions of Our Restated Certificate and Bylaws and the General Corporation Law of Delaware
Board Vacancies
Under the Restated Certificate, newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the
Board resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board.
Special Meetings
Our Restated Bylaws (the “Bylaws”) provide that special meetings of the stockholders may only be called by the Board, the Chairperson of the Board or
the holders of shares representing at least twenty percent of all the shares of our capital stock issued and outstanding and entitled to vote at such
meeting.
Bylaw Amendments
Our Restated Certificate provides that the Bylaws may be amended by the affirmative vote of the Board or by the affirmative vote of the holders of a
majority of the shares of our capital stock issued and outstanding and entitled to vote at a stockholder meeting.
Advance Notice Provisions
Under our Bylaws, in order for any matter to be considered “properly brought” before an annual or special meeting by a stockholder, stockholders must
comply with certain requirements regarding advance notice to the Company.
Action by Written Consent
Under the General Corporation Law of Delaware and our Bylaws, any action required or permitted to be taken by the stockholders of the Company must
be taken at a duly called annual or special meeting, unless the Board authorizes such action to be taken by the written consent of the holders of
outstanding shares of stock having not less than the minimum voting power that would be necessary to authorize or take such action at a meeting of
stockholders at which all shares entitled to vote thereon were present and voted.
Director Liability
The Restated Certificate contains certain provisions permitted under the General Corporation Law of Delaware relating to the liability of directors. The
provisions eliminate a director's personal liability for monetary damages for a breach of fiduciary duty, except in certain circumstances involving wrongful
acts, such as the breach of a director’s duty of loyalty or acts or omissions which involve intentional misconduct or a knowing violation of law. Further,
the Restated Certificate and Bylaws contain provisions to indemnify our directors and officers to the fullest extent permitted by the General Corporation
Law of Delaware.
Section 203 of the General Corporation Law of Delaware
We are subject to the provisions of Section 203 of the General Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware corporation
from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the
person became an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes
mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested
stockholder” is a person
who, together with affiliates and associates, owns, or within three years did own, 15% or more of the Company’s voting stock.
Exhibit 4.10
EXHIBIT 10.36
HUNTINGTON INGALLS INDUSTRIES, INC.
TERMS AND CONDITIONS APPLICABLE TO
20__ RESTRICTED PERFORMANCE STOCK RIGHTS
GRANTED UNDER THE 2022 LONG-TERM INCENTIVE STOCK PLAN (“PLAN”)
These Terms and Conditions (“Terms”) apply to certain “Restricted Performance Stock Rights” (“RPSRs”) granted by Huntington Ingalls Industries, Inc. (the
“Company”) in 20__. If you were granted an RPSR award by the Company in 202_, the date of grant of your RPSR award and the target number of RPSRs applicable
to your award are set forth in the letter from the Company announcing your RPSR award grant (your “Grant Letter”) and are also reflected in the electronic stock plan
award recordkeeping system (“Stock Plan System”) maintained by the Company or its designee. These Terms apply only with respect to your 20__ RPSR award. If you
were granted an RPSR award, you are referred to as the “Grantee” with respect to your award. Capitalized terms are generally defined in the Plan, unless defined in
Section 8 below or elsewhere defined herein.
Each RPSR represents a right to receive one Share of the Company’s common stock, or cash of equivalent value as provided herein, subject to vesting as
provided herein. The performance period applicable to your award is January 1, 20__ to December 31, 20__ (the “Performance Period”). The target number of RPSRs
subject to your award is subject to adjustment as provided herein. The RPSR award is subject to all of the terms and conditions set forth in these Terms, and is further
subject to all of the terms and conditions of the Plan, as it may be amended from time to time, and any rules adopted by the Committee, as such rules are in effect from
time to time.
1. Vesting; Payment of RPSRs.
The RPSRs are subject to the vesting and payment provisions
established (or to be established, as the case may be) by the Committee with
respect to the Performance Period. RPSRs that vest based on such provisions
will be paid as provided below. No fractional shares will be issued.
1.1 Performance-Based Vesting of RPSRs. At the conclusion of the
Performance Period, the Committee shall determine whether and the extent
to which the applicable performance criteria have been achieved for purposes
of determining earnouts and RPSR payments. Based on its determination, the
Committee shall determine the percentage of target RPSRs subject to the
award (if any) that have vested for the Performance Period in accordance
with the earnout schedule established (or to be established, as the case may
be) by the Committee with respect to the Performance Period (the “Earnout
Percentage”). Any RPSRs subject to the award that are not vested as of the
conclusion of the Performance Period after giving effect to the Committee’s
determinations under this Section 1.1 shall terminate and become null and
void immediately following such determinations.
1.2 Payment of RPSRs. The number of RPSRs payable at the
conclusion of the Performance Period (“Earned RPSRs”) shall be determined
by multiplying the Earnout Percentage by the target number of RPSRs
subject to the award. The Earned RPSRs may be paid out in either an
equivalent number of Shares of common stock, or, in the discretion of the
Committee, in cash or in a combination of Shares of common stock and cash.
In the event of a cash payment, the amount of the payment for each Earned
RPSR to be paid in cash will equal the Fair Market Value of a Share of
common stock as of the date the Committee
determines the extent to which the applicable RPSR performance criteria
have been achieved. RPSRs will be paid in the calendar year following the
calendar year containing the last day of the Performance Period (and
generally will be paid on or before March 15 of such year).
2. Early Termination of Award; Termination of Employment.
2.1 General. The RPSRs subject to the award shall terminate and
become null and void prior to the conclusion of the Performance Period if
and when (a) the award terminates in connection with a Change in
Control pursuant to Section 5 below, or (b) except as provided below in this
Section 2 and in Section 5, the
Grantee ceases for any reason to be an employee of the Company or one of
its subsidiaries.
2.2 Termination of Employment Due to Retirement, Death, Disability,
or Layoff. The number of RPSRs subject to the award shall vest on a
prorated basis as provided herein if the Grantee’s employment by the
Company and its subsidiaries terminates due to the Grantee’s Retirement,
death, Disability, or Layoff, and, in each case, only if the Grantee has
completed at least six (6) consecutive calendar months of employment with
the Company or a subsidiary during the Performance Period. Such prorating
of RPSRs shall be based on the number of full months the Grantee was
actually employed by the Company or one of its subsidiaries out of the
thirty-six month Performance Period. Partial months of employment during
the Performance Period, even if substantial, shall not be counted for purposes
of prorated vesting. Any RPSRs subject to the award that do not vest in
accordance with this Section 2.2 upon a termination of the Grantee’s
employment due to Retirement, death, Disability, or Layoff shall terminate
immediately upon such termination of employment.
1
Death or Disability. In the case of death or Disability during the first or
second calendar year of the Performance Period (a) the Performance Period
used to calculate the Grantee’s Earned RPSRs will be deemed to have ended
as of the last day of the calendar year in which the death or Disability occurs,
(b) the Earnout Percentage of the Grantee’s RPSRs will be determined based
on actual performance for that short Performance Period, and (c) payment of
Earned RPSRs will be made in the calendar year following the calendar year
containing the last day of that short Performance Period (and generally will
be paid on or before March 15 of such year). In the case of death or
Disability during the third calendar year of the Performance Period, (a) the
entire Performance Period will be used to calculate the Grantee’s Earned
RPSRs, (b) the Earnout Percentage of the Grantee’s RPSRs will be
determined based on actual performance for the Performance Period, and (c)
payment of Earned RPSRs will be made in the calendar year following the
calendar year containing the last day of the Performance Period (and
generally will be paid on or before March 15 of such year).
Retirement in General or Layoff. Subject to the following provisions of
this Section 2.2, in the case of Retirement or Layoff, (a) the entire
Performance Period will be used to calculate the Grantee’s Earned RPSRs,
(b) the Earnout Percentage of the Grantee’s RPSRs will be determined based
on actual performance for the Performance Period, and (c) payment of
Earned RPSRs will be made in the calendar year following the calendar year
containing the last day of the Performance Period (and generally will be paid
on or before March 15 of such year).
In determining the Grantee’s eligibility for Retirement, service is
measured by dividing (a) the number of days the Grantee was employed by
the Company or a subsidiary in the period commencing with his or her last
date of hire by the Company or a subsidiary through and including the date
on which the Grantee is last employed by the Company or a subsidiary, by
(b) 365. If the Grantee ceased to be employed by the Company or a
subsidiary and was later rehired by the Company or a subsidiary, the
Grantee’s service prior to the break in service shall be disregarded in
determining service for such purposes; provided that, if the Grantee’s
employment with the Company or a subsidiary had terminated due to the
Grantee’s Retirement, or by the Company or a subsidiary as part of a
reduction in force (in each case, other than a termination by the Company or
a subsidiary for cause) and, within the two-year period following such
termination of employment (the “break in service”) the Grantee was
subsequently rehired by the Company or a subsidiary, then the Grantee’s
period of service with the Company or a subsidiary prior to and ending with
the break in service will be included in determining service for such
purposes. In the event the Grantee is employed by a business that is acquired
by the Company or a subsidiary, the Company shall have discretion to
EXHIBIT 10.36
determine whether the Grantee’s service prior to the acquisition will be
included in determining service for such purposes.
Retirement Due to Government Service. In the case of a Governmental
Service Retirement by the Grantee (a) the Performance Period used to
calculate the Grantee’s Earned RPSRs will be deemed to have ended as of
the most recent date that performance has been measured by the Company
with respect to the RPSRs prior to the Grantee’s Retirement (including
measurement for purposes of the Company’s Form 10-Q, but in no event
shall such date be more than one year before the Grantee’s Retirement), (b)
the Earnout Percentage of the Grantee’s RPSRs will be determined based on
actual performance for that short Performance Period, and (c) payment of
Earned RPSRs will be made within 10 days after Retirement.
2.3 Other Terminations of Employment. Subject to Section 5.2, all
RPSRs subject to the award terminate immediately upon a termination of the
Grantee’s employment: (a) for any reason other than due to the Grantee’s
Retirement, death ,Disability, or Layoff; or (b) for Retirement, death,
Disability, or Layoff, if the six-month employment requirement under
Section 2.2 above is not satisfied.
2.4 Leave of Absence. Unless the Committee otherwise provides (at the
time of the leave or otherwise), if the Grantee is granted a leave of absence
by the Company, the Grantee (a) shall not be deemed to have incurred a
termination of employment at the time such leave commences for purposes
of the award, and (b) shall be deemed to be employed by the Company for
the duration of such approved leave of absence for purposes of the award. A
termination of employment shall be deemed to have occurred if the Grantee
does not timely return to active employment upon the expiration of such
approved leave or if the Grantee commences a leave that is not approved by
the Company.
2.5 Salary Continuation. Subject to Section 2.4 above, the term
“employment” as used herein means active employment by the Company
and salary continuation without active employment (other than a leave of
absence approved by the Company that is covered by Section 2.4) will not, in
and of itself, constitute “employment” for purposes hereof (in the case of
salary continuation without active employment, the Grantee’s cessation of
active employee status shall, subject to Section 2.4, be deemed to be a
termination of “employment” for purposes hereof). Furthermore, salary
continuation will not, in and of itself, constitute a leave of absence approved
by the Company for purposes of the award.
2.6 Sale or Spinoff of Subsidiary or Business Unit. For purposes of the
RPSRs subject to the award, a termination of employment of the Grantee
shall be deemed to have occurred if the Grantee is employed by a subsidiary
or business unit and that subsidiary or business unit is sold, spun off, or
2
EXHIBIT 10.36
effect from time to time as well as any recoupment or similar provisions of
applicable law, and the Grantee shall promptly make any reimbursement
requested by the Board or Committee pursuant to such policy or applicable
law with respect to the award. Further, the Grantee agrees, by accepting the
award, that the Company and its affiliates may deduct from any amounts it
may owe the Grantee from time to time (such as wages or other
compensation) to the extent of any amounts the Grantee is required to
reimburse the Company pursuant to such policy or applicable law with
respect to the award.
4. Compliance with Laws; No Stockholder Rights Prior to Issuance;
Dividend Equivalent Rights.
4.1 Compliance with Laws. The Company’s obligation to make any
payments or issue any shares with respect to the award is subject to full
compliance with all then applicable requirements of law, the Securities and
Exchange Commission or other regulatory agencies having jurisdiction over
the Company and its shares, and of any exchange upon which stock of the
Company may be listed.
4.2 Limitations on Rights Associated with RPSRs. The Grantee shall
not have the rights and privileges of a stockholder, including without
limitation the right to vote or receive dividends (except as expressly provided
in Section 4.3), with respect to any shares which may be issued in respect of
the RPSRs until the date appearing on the certificate(s) for such shares (or, in
the case of shares entered in book entry form, the date that the shares are
actually recorded in such form for the benefit of the Grantee), if such shares
become deliverable.
4.3 Dividend Equivalent Rights. Not later than 60 days following each
date that the Company pays an ordinary cash dividend on its common stock
(if any), the Company shall credit the Grantee with an additional number of
RPSRs equal to the quotient of (A) the product of (i) the per share cash
dividend paid by the Company on its common stock on such date, multiplied
by (ii) the total number of target RPSRs (including any dividend equivalents
previously credited hereunder) (with such total number adjusted pursuant to
Section 5) subject to the RPSR award as of the related dividend payment
record date, divided by (B) the Fair Market Value of a Share of common
stock on the date of payment of such dividend. Any RPSRs credited pursuant
to the foregoing provisions of this Section 4.3 shall be added to the number
of target RPSRs awarded to the Grantee and shall be subject to the same
vesting, payment and other terms, conditions and restrictions as the original
RPSRs to which they relate. No crediting of RPSRs shall be made pursuant
to this Section 4.3 with respect to any RPSRs which, as of such record date,
have been paid pursuant to Section 1.
otherwise divested, the Grantee does not otherwise continue to be employed
by the Company or one of its subsidiaries after such event, and the divested
entity or business (or its successor or a parent company) does not assume the
award in connection with such transaction. In the event of such a termination
of employment, the termination shall be deemed to be a Retirement treated as
provided for in Section 2.2 (subject to Section 5).
2.7 Continuance of Employment Required. Except as expressly
provided in Sections 2.2 and 2.4 above and in Section 5 below, the vesting of
the RPSRs subject to the award requires continued employment through the
last day of the Performance Period as a condition of the payment of such
RPSRs. Employment for only a portion of the Performance Period, even if a
substantial portion, will not entitle the Grantee to any proportionate vesting
or avoid or mitigate a termination of rights and benefits upon or following a
termination of employment. Nothing contained in these Terms, the Grant
Letter, the Stock Plan System, or the Plan constitutes an employment
commitment by the Company or any subsidiary, affects the Grantee’s status
(if the Grantee is otherwise an at-will employee) as an employee at will who
is subject to termination without cause, confers upon the Grantee any right to
continue in the employ of the Company or any subsidiary, or interferes in
any way with the right of the Company or of any subsidiary to terminate
such employment at any time.
2.8 Death. In the event of the Grantee’s death subsequent to the vesting
of RPSRs but prior to the delivery of shares or other payment with respect to
such RPSRs, the Grantee’s Successor shall be entitled to any payments to
which the Grantee would have been entitled under these Terms with respect
to such RPSRs.
3. Non-Transferability and Other Restrictions.
3.1 Non-Transferability. The award, as well as the RPSRs subject to the
award, are nontransferable and shall not be subject in any manner to sale,
transfer, anticipation, alienation, assignment, pledge, encumbrance or charge.
The foregoing transfer restrictions shall not apply to transfers to the
Company or transfers by will or the laws of descent and distribution.
Notwithstanding the foregoing, the Company may honor any transfer
required pursuant to the terms of a court order in a divorce or similar
domestic relations matter to the extent that such transfer does not adversely
affect the Company's ability to register the offer and sale of the underlying
shares on a Form S-8 Registration Statement and such transfer is otherwise
in compliance with all applicable legal, regulatory and listing requirements.
3.2 Recoupment of Awards. Any payments or issuances of shares with
respect to the award are subject to recoupment pursuant to the Company’s
Policy Regarding the Recoupment of Certain Performance-Based
Compensation Payments as in
3
EXHIBIT 10.36
5. Adjustments; Change in Control.
5.1 Adjustments. The RPSRs and the shares subject to the award are
subject to adjustment upon the occurrence of events such as stock splits,
stock dividends and other changes in capitalization in accordance with
Section 4.3 of the Plan. In addition, for RPSRs that do not use a relative total
shareholder return metric as the applicable performance criterion, the
Committee shall adjust the applicable performance criteria to eliminate the
effects of the gain, loss, income or expense or other extraordinary items
resulting from (i) changes in accounting principles that become effective
during the Performance Period, (ii) the purchase or disposition of a business
during the Performance Period, and (iii) extraordinary charges not foreseen
at the date of grant of the RPSRs, provided that the Committee shall have the
discretion not to make any such adjustment if not making such adjustment
would result in a reduction in the number of Earned RPSRs. In the event of
any adjustment, the Company will give the Grantee written notice thereof
which will set forth the nature of the adjustment.
5.2 Possible Vesting Acceleration on Change in Control.
Notwithstanding the provisions of Section 2 hereof, and further subject to the
Company’s ability to terminate the award as provided in Section 5.3 below,
the Grantee shall be entitled to vesting of the award as provided below in the
event of the Grantee’s termination of employment in the following
circumstances:
(a) if the Grantee is covered by a Change in Control Severance
Arrangement at the time of the termination, and the termination of
employment constitutes a “Qualifying Termination” (as such term, or any
similar successor term, is defined in such Change in Control Severance
Arrangement) that triggers the Grantee’s right to severance benefits under
such Change in Control Severance Arrangement.
(b) if the Grantee is not covered by a Change in Control Severance
Arrangement at the time of the termination, the termination occurs either
within the Protected Period corresponding to a Change in Control of the
Company or within twenty-four (24) calendar months following the date of a
Change in Control of the Company, and the Grantee’s employment by the
Company and its subsidiaries is involuntarily terminated by the Company
and its subsidiaries for reasons other than Cause or by the Grantee for Good
Reason.
Notwithstanding anything else contained herein to the contrary, the
termination of the Grantee’s employment (or other events giving rise to Good
Reason) shall not entitle the Grantee to any accelerated vesting pursuant to
clause (b) above if there is objective evidence that, as of the commencement
of the Protected Period, the Grantee had specifically been identified by the
Company as
an employee whose employment would be terminated as part of a corporate
restructuring or downsizing program that commenced prior to the Protected
Period and such termination of employment was expected at that time to
occur within six (6) months. The applicable Change in Control Severance
Arrangement shall govern the matters addressed in this paragraph as to
clause (a) above.
In the event the Grantee is entitled to payment in accordance with the
foregoing provisions of this
Section 5.2, then the Grantee will be eligible for payment of a number of
RPSRs determined in accordance with the following formula: (a) the Earnout
Percentage determined in accordance with
Section 1 but calculated based on performance for the portion of the
Performance Period ending on the last day of the month coinciding with or
immediately preceding the date of the termination of the Grantee’s
employment, multiplied by (b) the target number of RPSRs subject to the
award. Payment of any amount due under this Section 5.2 will be made in
the calendar year following the calendar year containing the last day of the
Performance Period (and generally will be paid on or before March 15 of
such year) unless the Grantee dies or has a Disability, in which case such
payment will be made within 2.5 months following the date of the Grantee’s
death or
Disability, as the case may be. In the event the Grantee is entitled to payment
in accordance with the foregoing provisions of this Section 5.2, then this
Section 5.2 shall control as to the amount and timing of the payment of the
award notwithstanding anything in Section 2.2 to the contrary.
5.3 Automatic Vesting Acceleration; Early Termination. If the
Company undergoes a Change in Control triggered by clause (iii) or (iv) of
the definition thereof and the Company is not the surviving entity and the
successor to the Company (if any) (or a Parent thereof) does not agree in
writing prior to the occurrence of the Change in Control to continue and
assume the award following the Change in Control, or if for any other reason
the award would not continue after the Change in Control, then upon the
Change in Control the Grantee shall be entitled to a payment of the RPSRs as
provided below and the award shall terminate. Unless the Committee
expressly provides otherwise in the circumstances, no acceleration of vesting
of the award shall occur pursuant to this Section 5.3 in connection with a
Change in Control if either (a) the Company is the surviving entity, or (b) the
successor to the Company (if any) (or a Parent thereof) agrees in writing
prior to the Change in Control to assume the award. The
Committee may make adjustments pursuant to Section 6(a) of the Plan
and/or deem an acceleration of vesting of the award pursuant to this Section
5.3 to occur sufficiently prior to an event if necessary or deemed appropriate
to permit the Grantee to realize the benefits intended to be conveyed with
respect to the shares underlying the award; provided, however, that, the
Committee shall reinstate the original terms
4
of the award if the related event does not actually occur.
In the event the Grantee is entitled to a payment in accordance with the
foregoing provisions of this Section 5.3, then the Grantee will be eligible for
payment of a number of RPSRs determined in accordance with the following
formula: (a) the Earnout Percentage determined in accordance with
Section 1 but calculated based on performance for the portion of the
Performance Period ending on the date of the Change in Control of the
Company, multiplied by (b) the target number of RPSRs subject to the
award.
Payment of any amount due under this Section 5.3 will be made in the
calendar year following the calendar year containing the last day of the
Performance Period (and generally will be paid on or before March 15 of
such year) unless: (i) the Grantee dies or has a Disability, in which case such
payment will be made within 2.5 months following the date of the Grantee’s
death or Disability, as the case may be, or (ii) a Governmental Service
Retirement by the Grantee, in which case payment will be made within 10
days after Retirement. In the event the Grantee is employed by the Company
or a subsidiary immediately prior to the Change in Control and is entitled to
payment in accordance with the foregoing provisions of this Section 5.3, then
this Section 5.3 shall control as to the amount and timing of the payment of
the award notwithstanding anything in Section 2.2 or 5.2 to the contrary.
In the event of the Grantee’s Retirement pursuant to Section 2.2 (or
deemed Retirement pursuant to Section 2.6) prior to a Change in Control
described in the first paragraph of this Section 5.3 in which the award is to be
terminated, the Earnout Percentage shall no longer be based on the portion of
the Performance Period otherwise considered for purposes of Section 2.2 but
shall instead be calculated based on performance for the portion of the
Performance Period ending on the date of the Change in Control of the
Company.
6. Tax Matters.
6.1 Tax Withholding. The Company or the subsidiary which employs
the Grantee shall be entitled to require, as a condition of making any
payments or issuing any shares upon vesting of the RPSRs, that the Grantee
or other person entitled to such shares or other payment pay any sums
required to be withheld by federal, state, local or other applicable tax law
with respect to such vesting or payment. Alternatively, the Company or such
subsidiary, in its discretion, may make such provisions for the withholding of
taxes as it deems appropriate (including, without limitation, withholding the
taxes due from compensation otherwise payable to the Grantee or reducing
the number of shares otherwise deliverable with respect to the award (valued
at their then Fair Market Value)
EXHIBIT 10.36
by the amount necessary to satisfy such withholding obligations at the flat
percentage rates applicable to supplemental wages).
6.2 Transfer Taxes. The Company will pay all federal and state transfer
taxes, if any, and other fees and expenses in connection with the issuance of
shares in connection with the vesting of the RPSRs.
6.3 Compliance with Code. The Committee shall administer and
construe the award, and may amend the Terms of the award, in a manner
designed to comply with the Code and to avoid adverse tax consequences
under Code Section 409A or otherwise.
6.4 Unfunded Arrangement. The right of the
Grantee to receive payment under the award shall be an unsecured
contractual claim against the Company. As such, neither the Grantee nor any
Successor shall have any rights in or against any specific assets of the
Company based on the award. Awards shall at all times be considered
entirely unfunded for tax purposes.
7. Plan; Amendment.
The RPSRs subject to the award are governed by, and the Grantee’s rights
are subject to, all of the terms and conditions of the Plan and any other rules
adopted by the Committee, as the foregoing may be amended from time to
time. The Grantee shall have no rights with respect to any amendment of
these Terms or the Plan unless such amendment is in writing and signed by a
duly authorized officer of the Company. In the event of a conflict between
the provisions of the Grant Letter and/or the Stock Plan System and the
provisions of these Terms and/or the Plan, the provisions of these Terms
and/or the Plan, as applicable, shall control.
8. Definitions.
Whenever used in these Terms, the following terms shall have the
meanings set forth below and, when the meaning is intended, the initial letter
of the word is capitalized:
“Change in Control Severance Arrangement” means a “Special
Agreement” entered into by and between the Grantee and the Company that
provides severance protections in the event of certain changes in control of
the Company or the Company’s Change-in-Control Severance Plan, as each
may be in effect from time to time, or any similar successor agreement or
plan that provides severance protections in the event of a change in control of
the Company.
“Good Reason” means, without the Grantee’s express written consent,
the occurrence of any one or more of the following:
(i) A material and substantial reduction in the nature or status of the
Grantee’s authorities or responsibilities (when such authorities and/or
5
responsibilities are viewed in the aggregate) from their level in effect on the
day immediately prior to the start of the Protected Period, other than (A) an
inadvertent act that is remedied by the Company promptly after receipt of
notice thereof given by the Grantee, and/or (B) changes in the nature or
status of the Grantee’s authorities or responsibilities that, in the aggregate,
would generally be viewed by a nationally-recognized executive placement
firm as resulting in the Grantee having not materially and substantially fewer
authorities and responsibilities (taking into consideration the Company’s
industry) when compared to the authorities and responsibilities applicable to
the position held by the Grantee immediately prior to the start of the
Protected Period. The Company may retain a nationally-recognized
executive placement firm for purposes of making the determination required
by the preceding sentence and the written opinion of the firm thus selected
shall be conclusive as to this issue. In addition, if the Grantee is a vice
president, the Grantee’s loss of vice-president status will constitute “Good
Reason”; provided that the loss of the title of “vice president” will not, in and
of itself, constitute Good Reason if the Grantee’s lack of a vice president title
is generally consistent with the manner in which the title of vice president is
used within the Grantee’s business unit or if the loss of the title is the result
of a promotion to a higher level office. For the purposes of the preceding
sentence, the Grantee’s lack of a vice president title will only be considered
generally consistent with the manner in which such title is used if most
persons in the business unit with authorities, duties, and responsibilities
comparable to those of the Grantee immediately prior to the commencement
of the Protected Period do not have the title of vice-president.
(ii) A reduction by the Company in the Grantee’s annualized rate of base
salary as in effect on the first to occur of the start of the Performance Period
or the start of the Protected Period, or as the same shall be increased from
time to time.
(iii) A material reduction in the aggregate value of the Grantee's level of
participation in any of the Company’s short and/or long-term incentive
compensation plans (excluding stock-based incentive compensation plans),
employee benefit or retirement plans, or policies, practices, or arrangements
in which the Grantee participates immediately prior to the start of the
Protected Period provided; however, that a reduction in the aggregate value
shall not be deemed to be “Good Reason” if the reduced value remains
substantially consistent with the average level of other employees who have
positions commensurate with the position held by the Grantee immediately
prior to the start of the Protected Period.
(iv) A material reduction in the Grantee’s aggregate level of participation
in the Company’s stock-based incentive compensation plans from the level in
effect immediately prior to the start of the Protected Period; provided,
however, that a reduction
EXHIBIT 10.36
in the aggregate level of participation shall not be deemed to be “Good
Reason” if the reduced level of participation remains substantially consistent
with the average level of participation of other employees who have
positions commensurate with the position held by the Grantee immediately
prior to the start of the Protected Period.
(v) The Grantee is informed by the Company that his or her principal
place of employment for the Company will be relocated to a location that is
greater than fifty (50) miles away from the Grantee’s principal place of
employment for the Company at the start of the corresponding Protected
Period; provided that, if the Company communicates an intended effective
date for such relocation, in no event shall Good Reason exist pursuant to this
clause (v) more than ninety (90) days before such intended effective date.
The Grantee’s right to terminate employment for Good Reason shall not
be affected by the Grantee’s incapacity due to physical or mental illness. The
Grantee’s continued employment shall not constitute a consent to, or a
waiver of rights with respect to, any circumstances constituting Good Reason
herein.
“Governmental Service Retirement” means a
Retirement by the Grantee where the Grantee accepts a position in the
federal government or a state or local government and an accelerated
distribution under the award is permitted under Code Section 409A based on
such government employment and related ethics rules.
“Layoff” means a permanent , involuntary termination of employment
by the Company or a subsidiary due to a reduction in force, business
reorganization, facility closure or similar event (other than a termination by
the Company or a subsidiary for cause), as determined by the Committee in
its sole discretion. A Layoff shall not include any sale or spinoff described in
Section 2.6.
“Parent” means an entity that beneficially owns a majority of the voting
stock or voting power of the Company, or all or substantially all of the
Company’s assets, directly or indirectly through one or more subsidiaries.
The “Protected Period” corresponding to a
Change in Control of the Company shall be a period of time determined in
accordance with the following:
(i) If the Change in Control is triggered by a tender offer for shares of
the Company’s stock or by the offeror’s acquisition of shares pursuant to
such a tender offer, the Protected Period shall commence on the date of the
initial tender offer and shall continue through and including the date of the
Change in
Control; provided that in no case will the Protected Period commence earlier
than the date that is six (6) months prior to the Change in Control.
6
EXHIBIT 10.36
(ii) If the Change in Control is triggered by a merger, consolidation, or
reorganization of the Company with or involving any other corporation, the
Protected Period shall commence on the date that serious and substantial
discussions first take place to effect the merger, consolidation, or
reorganization and shall continue through and including the date of the
Change in Control; provided that in no case will the Protected Period
commence earlier than the date that is six (6) months prior to the Change in
Control.
(iii) In the case of any Change in Control not described in clause (i) or
(ii) above, the Protected Period shall commence on the date that is six (6)
months prior to the Change in Control and shall continue through and
including the date of the Change in Control.
“Retirement” or “Retire” means that the
Grantee terminates employment after attaining age 55 with at least 10 years
of service (other than in connection with a termination by the Company or a
subsidiary for cause). In the case of a Grantee who is an officer of the
Company subject to the Company’s mandatory retirement at age 65 policy,
“Retirement” or “Retire” shall also include as to that Grantee (without
limiting the Grantee’s ability to Retire pursuant to the preceding sentence) a
termination of the Grantee’s employment pursuant to such mandatory
retirement policy (regardless of the Grantee’s years of service and other than
in connection with a termination by the Company or a subsidiary for cause).
“Successor” means the person acquiring a Grantee’s rights to a grant
under the Plan by will or by the laws of descent or distribution.
7
EXHIBIT 10.37
HUNTINGTON INGALLS INDUSTRIES, INC.
TERMS AND CONDITIONS APPLICABLE TO
20__ RATABLE VESTING RESTRICTED STOCK RIGHTS
GRANTED UNDER THE 2022 LONG-TERM INCENTIVE STOCK PLAN (“PLAN”)
These Terms and Conditions (“Terms”) apply to certain “Restricted Stock Rights” (“RSRs”) granted by Huntington Ingalls Industries, Inc. (the “Company”) in
20__. If you were granted an RSR award by the Company in 20__, the date of grant of your RSR award (the “Grant Date”) and the number of RSRs applicable to your
award are set forth in the letter from the Company announcing your RSR award grant (your “Grant Letter”) and are also reflected in the electronic stock plan award
recordkeeping system (“Stock Plan System”) maintained by the Company or its designee. These Terms apply only with respect to the 20__ RSR award. If you were
granted an RSR award, you are referred to as the “Grantee” with respect to your award. Capitalized terms are generally defined in the Plan, unless defined in Section 8
below or elsewhere defined herein.
Each RSR represents a right to receive one Share of the Company’s common stock, or cash of equivalent value as provided herein, subject to vesting as provided
herein. The number of RSRs subject to your award is subject to adjustment as provided herein. The RSR award is subject to all of the terms and conditions set forth in
these Terms, and is further subject to all of the terms and conditions of the Plan, as it may be amended from time to time, and any rules adopted by the Committee, as
such rules are in effect from time to time.
1.
Vesting; Issuance of Shares.
Subject to Sections 2 and 5 below, thirty-three and one-third percent (33
1/3%) of the number of RSRs subject to your award (subject to adjustment as
provided in Section 5.1) shall vest upon each of the first, second, and third
anniversaries of the Grant Date.
Except as otherwise provided below, the Company shall pay a vested
RSR on or before March 15 of the year following the vesting of the RSR on
each of the applicable first, second, and third anniversaries of the Grant Date.
The Company shall pay such vested RSRs in either an equivalent number of
Shares of common stock, or, in the discretion of the Committee, in cash or in
a combination of Shares of common stock and cash. In the event of a cash
payment, the amount of the payment for a vested RSR to be paid in cash
(subject to tax withholding as provided in Section 6 below) will equal the
Fair Market Value of a Share of common stock as of the date that such RSR
became vested. No fractional shares will be issued.
2.
Early Termination of Award; Termination of Employment.
2.1 General. The RSRs subject to the award, to the extent not
previously vested, shall terminate and become null and void if and when (a)
the award terminates in connection with a Change in Control pursuant to
Section 5 below, or (b) except as provided in Section 2.6 and in Section 5, the
Grantee ceases for any reason to be an employee of the Company or one of
its subsidiaries.
2.2 Leave of Absence. Unless the Committee otherwise provides (at
the time of the leave or otherwise), if the Grantee is granted a leave of
absence by the Company, the Grantee (a) shall not be deemed to have
incurred a termination of employment at the time such leave commences for
purposes of the award, and (b) shall be deemed to be employed by the
Company for the duration of such approved leave of absence for purposes of
the award. A termination of employment shall be deemed to have occurred if
the Grantee does not timely
return to active employment upon the expiration of such approved leave or if
the Grantee commences a leave that is not approved by the Company.
2.3 Salary Continuation. Subject to Section 2.2 above, the term
“employment” as used herein means active employment by the Company and
salary continuation without active employment (other than a leave of absence
approved by the Company that is covered by Section 2.2) will not, in and of
itself, constitute “employment” for purposes hereof (in the case of salary
continuation without active employment, the Grantee’s cessation of active
employee status shall, subject to Section 2.2, be deemed to be a termination
of “employment” for purposes hereof). Furthermore, salary continuation will
not, in and of itself, constitute a leave of absence approved by the Company
for purposes of the award.
2.4 Sale or Spinoff of Subsidiary or Business Unit. For purposes of
the RSRs subject to the award, a termination of employment of the Grantee
shall be deemed to have occurred if the Grantee is employed by a subsidiary
or business unit and that subsidiary or business unit is sold, spun off, or
otherwise divested, the Grantee does not otherwise continue to be employed
by the Company after such event, and the divested entity or business (or its
successor or a parent company) does not assume the award in connection
with such transaction.
2.5 Continuance of Employment Required. Except as expressly
provided in Section 2.6 and in Section 5, the vesting of the RSRs subject to
the award requires continued employment through each of the applicable
first, second, and third anniversaries of the Grant Date as a condition to the
vesting of any portion of the award. Employment for only a portion of the
vesting period, even if a substantial portion, will not entitle the Grantee to
any proportionate vesting or avoid or mitigate a termination of rights and
benefits upon or following a termination of employment. Nothing contained
in these Terms, the Stock Plan System, or the Plan constitutes an employment
commitment by the Company or any subsidiary, affects the Grantee’s status
(if the Grantee is otherwise an at-will employee) as an employee at will
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EXHIBIT 10.37
determine whether the Grantee’s service prior to the acquisition will be
included in determining service for such purposes.
3.
Non-Transferability and Other Restrictions.
3.1 Non-Transferability. The award, as well as the RSRs subject to
the award, are non-transferable and shall not be subject in any manner to sale,
transfer, anticipation, alienation, assignment, pledge, encumbrance or charge.
The foregoing transfer restrictions shall not apply to transfers to the
Company or transfers by will or the laws of descent and distribution.
Notwithstanding the foregoing, the Company may honor any transfer
required pursuant to the terms of a court order in a divorce or similar
domestic relations matter to the extent that such transfer does not adversely
affect the Company’s ability to register the offer and sale of the underlying
shares on a Form S-8 Registration Statement and such transfer is otherwise in
compliance with all applicable legal, regulatory and listing requirements.
3.2 Recoupment of Awards. Any payments or issuances of shares
with respect to the award are subject to recoupment pursuant to the
Company’s Policy Regarding the Recoupment of Certain Performance-Based
Compensation Payments as in effect from time to time, as well as any
recoupment or similar provisions of applicable law, and the Grantee shall
promptly make any reimbursement requested by the Board or Committee
pursuant to such policy or applicable law with respect to the award. Further,
the Grantee agrees, by accepting the award, that the Company and its
affiliates may deduct from any amounts it may owe the Grantee from time to
time (such as wages or other compensation) to the extent of any amounts the
Grantee is required to reimburse the Company pursuant to such policy or
applicable law with respect to the award.
4.
Compliance with Laws; No Stockholder Rights Prior to Issuance;
Dividend Equivalent Rights.
4.1 Compliance with Laws. The Company’s obligation to make any
payments or issue any shares with respect to the award is subject to full
compliance with all then applicable requirements of law, the Securities and
Exchange Commission or other regulatory agencies having jurisdiction over
the Company and its shares, and of any exchange upon which stock of the
Company may be listed.
4.2 Limitations on Rights Associated with RSRs. The Grantee shall
not have the rights and privileges of a stockholder, including without
limitation the right to vote or receive dividends (except as expressly provided
in Section 4.3), with respect to any shares which may be issued in respect of
the RSRs until the date appearing on the certificate(s) for such shares (or, in
the case of shares entered in book entry form, the date that the shares are
actually recorded in such form for the benefit of the Grantee), if such shares
become deliverable.
4.3 Dividend Equivalent Rights. Not later than 60 days following
each date that the Company pays an ordinary cash dividend on its Shares of
common stock (if any), the Company shall credit the Grantee with an
additional number of RSRs equal to the quotient of (A)
who is subject to termination without cause, confers upon the Grantee any
right to continue in the employ of the Company or any subsidiary, or
interferes in any way with the right of the Company or of any subsidiary to
terminate such employment at any time.
2.6 Death, Disability, Retirement, or Layoff. If the Grantee dies or
incurs a Disability while employed by the Company or a subsidiary, the
outstanding and previously unvested RSRs subject to the award shall vest as
of the date of the Grantee’s death or Disability, as applicable. RSRs vesting
under this Section shall be paid within 2.5 months following the earlier of (a)
Grantee’s death or (b) Grantee’s Disability. In the event of the Grantee’s
death prior to the delivery of shares or other payment with respect to any
vested RSRs, the Grantee’s Successor shall be entitled to any payments to
which the Grantee would have been entitled under these Terms with respect
to such vested and unpaid RSRs.
Thirty-three and one-third percent (33 1/3%) of the RSRs subject to the
award that are scheduled to vest during the twelve (12) month period leading
up to and including the next annual anniversary of the Grant Date shall vest
on a prorated basis as provided herein if the Grantee’s employment by the
Company and its subsidiaries terminates due to Retirement, Government
Service Retirement, or Layoff. Such prorating of RSRs shall be based on the
number of full months the Grantee was actually employed by the Company
or one of its subsidiaries during the twelve (12) month period leading up to
and including the next annual anniversary of the Grant Date divided by
twelve months. Partial months of employment, even if substantial, shall not
be counted for purposes of prorated vesting. Any RSRs subject to the award
that do not vest in accordance with this Section 2.6 upon a termination of the
Grantee’s employment due to Retirement, Government Service Retirement,
or Layoff shall terminate immediately upon such termination of employment.
In determining the Grantee’s eligibility for Retirement, service is
measured by dividing (a) the number of days the Grantee was employed by
the Company or a subsidiary in the period commencing with his or her last
date of hire by the Company or a subsidiary through and including the date
on which the Grantee is last employed by the Company or a subsidiary, by
(b) 365. If the Grantee ceased to be employed by the Company or a
subsidiary and was later rehired by the Company or a subsidiary, the
Grantee’s service prior to the break in service shall be disregarded in
determining service for such purposes; provided that, if the Grantee’s
employment with the Company or a subsidiary had terminated due to the
Grantee’s Retirement, or by the Company or a subsidiary as part of a
reduction in force (in each case, other than a termination by the Company or
a subsidiary for cause) and, within the two-year period following such
termination of employment (the “break in service”) the Grantee was
subsequently rehired by the Company or a subsidiary, then the Grantee’s
period of service with the Company or a subsidiary prior to and ending with
the break in service will be included in determining service for such
purposes. In the event the Grantee is employed by a business that is acquired
by the Company or a subsidiary, the Company shall have discretion to
2
EXHIBIT 10.37
Protected Period and such termination of employment was expected at that
time to occur within six (6) months. The applicable Change in Control
Severance Arrangement shall govern the matters addressed in this paragraph
as to clause (a) above.
Payment of any amount due under this Section will be made on or
before March 15 of the year following the year in which the date of the
Grantee’s termination of employment occurs, unless the Grantee dies or has a
Disability, in which case such payment will be made within 2.5 months
following the date of the Grantee’s death or Disability, as the case may be.
5.3 Automatic Vesting Acceleration; Early Termination. If the
Company undergoes a Change in Control triggered by clause (iii) or (iv) of
the definition thereof and the Company is not the surviving entity and the
successor to the Company (if any) (or a Parent thereof) does not agree in
writing prior to the occurrence of the Change in Control to continue and
assume the award following the Change in Control, or if for any other reason
the award would not continue after the Change in Control, then upon the
Change in Control the outstanding and previously unvested RSRs subject to
the award shall vest fully and completely. Unless the Committee expressly
provides otherwise in the circumstances, no acceleration of vesting of the
award shall occur pursuant to this Section 5.3 in connection with a Change in
Control if either (a) the Company is the surviving entity, or (b) the successor
to the Company (if any) (or a Parent thereof) agrees in writing prior to the
Change in Control to assume the award. The award shall terminate, subject to
such acceleration provisions, upon a Change in Control triggered by clause
(iii) or (iv) of the definition thereof in which the Company is not the
surviving entity and the successor to the Company (if any) (or a Parent
thereof) does not agree in writing prior to the occurrence of the Change in
Control to continue and assume the award following the Change in Control.
The Committee may make adjustments pursuant to Section 6(a) of the Plan
and/or deem an acceleration of vesting of the award pursuant to this Section
5.3 to occur sufficiently prior to an event if necessary or deemed appropriate
to permit the Grantee to realize the benefits intended to be conveyed with
respect to the shares underlying the RSRs; provided, however, that, the
Committee shall reinstate the original terms of the award if the related event
does not actually occur.
Payment of any amount due under this Section will be made on or
before March 15 of the year following the year in which any accelerated
vesting occurs as a result of a Change in Control, unless the Grantee dies or
has a Disability prior to such Change in Control vesting, in which case such
payment will be made within 2.5 months following the date of the Grantee’s
death or Disability, as the case may be.
6.
Tax Matters.
6.1 Tax Withholding. The Company or the subsidiary which employs
the Grantee shall be entitled to require, as a condition of making any
payments or issuing any shares upon vesting of the RSRs, that the Grantee or
other person entitled to such shares or other payment pay any sums required
to be withheld by
the product of (i) the per share cash dividend paid by the Company on its
Shares of common stock on such date, multiplied by (ii) the total number of
RSRs (including any dividend equivalents previously credited hereunder)
(with such total number adjusted pursuant to Section 5) subject to the RSR
award as of the related dividend payment record date, divided by (B) the Fair
Market Value of a Share of common stock on the date of payment of such
dividend. Any RSRs credited pursuant to the foregoing provisions of this
Section 4.3 shall be subject to the same vesting, payment and other terms,
conditions and restrictions as the original RSRs to which they relate. No
crediting of RSRs shall be made pursuant to this Section 4.3 with respect to
any RSRs which, as of such record date, have been paid pursuant to Section
1.
5.
Adjustments; Change in Control.
5.1 Adjustments. The RSRs and the shares subject to the award are
subject to adjustment upon the occurrence of events such as stock splits,
stock dividends and other changes in capitalization in accordance with
Section 4.3 of the Plan. In the event of any adjustment, the Company will
give the Grantee written notice thereof which will set forth the nature of the
adjustment.
5.2 Possible Vesting Acceleration on Change in Control.
Notwithstanding the Company’s ability to terminate the award as provided in
Section 5.3 below, the outstanding and previously unvested RSRs subject to
the award shall become fully vested as of the date of the Grantee’s
termination of employment in the following circumstances:
(a) if the Grantee is covered by a Change in Control Severance
Arrangement at the time of the termination, if the termination of
employment constitutes a “Qualifying Termination” (as such term,
or any similar successor term, is defined in such Change in Control
Severance Arrangement) that triggers the Grantee’s right to
severance benefits under such Change in Control Severance
Arrangement.
(b) if the Grantee is not covered by a Change in Control Severance
Arrangement at the time of the termination and if the termination
occurs either within the Protected Period corresponding to a Change
in Control of the Company or within twenty-four (24) calendar
months following the date of a Change in Control of the Company,
the Grantee’s employment by the Company and its subsidiaries is
involuntarily terminated by the Company and its subsidiaries for
reasons other than Cause or by the Grantee for Good Reason.
Notwithstanding anything else contained herein to the contrary, the
termination of the Grantee’s employment (or other events giving rise to Good
Reason) shall not entitle the Grantee to any accelerated vesting pursuant to
clause (b) above if there is objective evidence that, as of the commencement
of the Protected Period, the Grantee had specifically been identified by the
Company as an employee whose employment would be terminated as part of
a corporate restructuring or downsizing program that commenced prior to the
3
EXHIBIT 10.37
(i) A material and substantial reduction in the nature or status of the
Grantee’s authorities or responsibilities (when such authorities and/or
responsibilities are viewed in the aggregate) from their level in effect on the
day immediately prior to the start of the Protected Period, other than (A) an
inadvertent act that is remedied by the Company promptly after receipt of
notice thereof given by the Grantee, and/or (B) changes in the nature or status
of the Grantee’s authorities or responsibilities that, in the aggregate, would
generally be viewed by a nationally-recognized executive placement firm as
resulting in the Grantee having not materially and substantially fewer
authorities and responsibilities (taking into consideration the Company’s
industry) when compared to the authorities and responsibilities applicable to
the position held by the Grantee immediately prior to the start of the
Protected Period. The Company may retain a nationally-recognized executive
placement firm for purposes of making the determination required by the
preceding sentence and the written opinion of the firm thus selected shall be
conclusive as to this issue. In addition, if the Grantee is a vice president, the
Grantee’s loss of vice-president status will constitute “Good Reason”;
provided that the loss of the title of “vice president” will not, in and of itself,
constitute Good Reason if the Grantee’s lack of a vice president title is
generally consistent with the manner in which the title of vice president is
used within the Grantee’s business unit or if the loss of the title is the result of
a promotion to a higher level office. For the purposes of the preceding
sentence, the Grantee’s lack of a vice president title will only be considered
generally consistent with the manner in which such title is used if most
persons in the business unit with authorities, duties, and responsibilities
comparable to those of the Grantee immediately prior to the commencement
of the Protected Period do not have the title of vice-president.
(ii) A reduction by the Company in the Grantee’s annualized rate of base
salary as in effect at the start of the Protected Period, or as the same shall be
increased from time to time.
(iii) A material reduction in the aggregate value of the Grantee's level of
participation in any of the Company’s short and/or long-term incentive
compensation plans (excluding stock-based incentive compensation plans),
employee benefit or retirement plans, or policies, practices, or arrangements
in which the Grantee participates immediately prior to the start of the
Protected Period provided; however, that a reduction in the aggregate value
shall not be deemed to be “Good Reason” if the reduced value remains
substantially consistent with the average level of other employees who have
positions commensurate with the position held by the Grantee immediately
prior to the start of the Protected Period.
(iv) A material reduction in the Grantee’s aggregate level of participation
in the Company’s stock-based incentive compensation plans from the level in
effect immediately prior to the start of the Protected Period; provided,
however, that a reduction in the aggregate level of participation shall not be
deemed to be “Good Reason” if the reduced level of participation remains
substantially consistent with the average level of participation of other
employees who have positions
federal, state, local or other applicable tax law with respect to such vesting or
payment. Alternatively, the Company or such subsidiary, in its discretion,
may make such provisions for the withholding of taxes as it deems
appropriate (including, without limitation, withholding the taxes due from
compensation otherwise payable to the Grantee or reducing the number of
shares otherwise deliverable with respect to the award (valued at their then
Fair Market Value) by the amount necessary to satisfy such withholding
obligations at the flat percentage rates applicable to supplemental wages).
6.2 Transfer Taxes. The Company will pay all federal and state
transfer taxes, if any, and other fees and expenses in connection with the
issuance of shares in connection with the vesting of the RSRs.
6.3 Compliance with Code. The Committee shall administer and
construe the award, and may amend the Terms of the award, in a manner
designed to comply with the Code and to avoid adverse tax consequences
under Code Section 409A or otherwise.
6.4 Unfunded Arrangement. The right of the Grantee to receive
payment under the award shall be an unsecured contractual claim against the
Company. As such, neither the Grantee nor any Successor shall have any
rights in or against any specific assets of the Company based on the award.
Awards shall at all times be considered entirely unfunded for tax purposes.
7.
Plan; Amendment.
The RSRs are governed by, and the Grantee’s rights are subject to, all of
the terms and conditions of the Plan and any other rules adopted by the
Committee, as the foregoing may be amended from time to time. The Grantee
shall have no rights with respect to any amendment of these Terms or the
Plan unless such amendment is in writing and signed by a duly authorized
officer of the Company. In the event of a conflict between the provisions of
the Grant Letter and/or the Stock Plan System and the provisions of these
Terms and/or the Plan, the provisions of these Terms and/or the Plan, as
applicable, shall control.
8. Definitions.
Whenever used in these Terms, the following terms shall have the
meanings set forth below and, when the meaning is intended, the initial letter
of the word is capitalized:
“Change in Control Severance Arrangement” means a “Special
Agreement” entered into by and between the Grantee and the Company that
provides severance protections in the event of certain changes in control of
the Company or the Company’s Change-in-Control Severance Plan, as each
may be in effect from time to time, or any similar successor agreement or
plan that provides severance protections in the event of a change in control of
the Company.
“Good Reason” means, without the Grantee’s express written consent,
the occurrence of any one or more of the following:
4
EXHIBIT 10.37
(iii) In the case of any Change in Control not described in clause (i) or
(ii) above, the Protected Period shall commence on the date that is six (6)
months prior to the Change in Control and shall continue through and
including the date of the Change in Control.
“Retirement” or “Retire” means that the Grantee terminates employment
after attaining age 55 with at least ten (10) years of service (other than in
connection with a termination by the Company or a subsidiary for cause). In
the case of a Grantee who is an officer of the Company subject to the
Company’s mandatory retirement at age 65 policy, “Retirement” or “Retire”
shall also include as to that Grantee (without limiting the Grantee’s ability to
Retire pursuant to the preceding sentence) a termination of the Grantee’s
employment pursuant to such mandatory retirement policy (regardless of the
Grantee’s years of service and other than in connection with a termination by
the Company or a subsidiary for cause).
“Successor” means the person acquiring a Grantee’s rights to a grant
under the Plan by will or by the laws of descent or distribution.
commensurate with the position held by the Grantee immediately prior to the
start of the Protected Period.
(v) The Grantee is informed by the Company that his or her principal
place of employment for the Company will be relocated to a location that is
greater than fifty (50) miles away from the Grantee’s principal place of
employment for the Company at the start of the corresponding Protected
Period; provided that, if the Company communicates an intended effective
date for such relocation, in no event shall Good Reason exist pursuant to this
clause (v) more than ninety (90) days before such intended effective date.
The Grantee’s right to terminate employment for Good Reason shall not
be affected by the Grantee’s incapacity due to physical or mental illness. The
Grantee’s continued employment shall not constitute a consent to, or a waiver
of rights with respect to, any circumstances constituting Good Reason herein.
“Governmental Service Retirement” means a Retirement by the
Grantee where the Grantee accepts a position in the federal government or a
state or local government and an accelerated distribution under the award is
permitted under Code Section 409A based on such government employment
and related ethics rules.
“Layoff” means a permanent, involuntary termination of the Grantee’s
employment by the Company or a subsidiary due to a reduction in force,
business reorganization, facility closure or similar event (other than a
termination by the Company or a subsidiary for cause), as determined by the
Committee in its sole discretion. A Layoff shall not include any sale or spin-
off described in Section 2.4.
“Parent” means an entity that beneficially owns a majority of the voting
stock or voting power of the Company, or all or substantially all of the
Company’s assets, directly or indirectly through one or more subsidiaries.
The “Protected Period” corresponding to a
Change in Control of the Company shall be a period of time determined in
accordance with the following:
(i) If the Change in Control is triggered by a tender offer for shares of the
Company’s stock or by the offeror’s acquisition of shares pursuant to such a
tender offer, the Protected Period shall commence on the date of the initial
tender offer and shall continue through and including the date of the Change
in
Control; provided that in no case will the Protected Period commence earlier
than the date that is six (6) months prior to the Change in Control.
(ii) If the Change in Control is triggered by a merger, consolidation, or
reorganization of the Company with or involving any other corporation, the
Protected Period shall commence on the date that serious and substantial
discussions first take place to effect the merger, consolidation, or
reorganization and shall continue through and including the date of the
Change in Control; provided that in no case will the Protected Period
commence earlier than the date that is six (6) months prior to the Change in
Control.
5
EXHIBIT 10.38
HUNTINGTON INGALLS INDUSTRIES, INC.
TERMS AND CONDITIONS APPLICABLE TO
20__ CLIFF VESTING RESTRICTED STOCK RIGHTS
GRANTED UNDER THE 2022 LONG-TERM INCENTIVE STOCK PLAN (“PLAN”)
These Terms and Conditions (“Terms”) apply to certain “Restricted Stock Rights” (“RSRs”) granted by Huntington Ingalls Industries, Inc. (the “Company”) in
20__. If you were granted an RSR award by the Company in 20__, the date of grant of your RSR award (the “Grant Date”) and the number of RSRs applicable to your
award are set forth in the letter from the Company announcing your RSR award grant (your “Grant Letter”) and are also reflected in the electronic stock plan award
recordkeeping system (“Stock Plan System”) maintained by the Company or its designee. These Terms apply only with respect to the 20__ RSR award. If you were
granted an RSR award, you are referred to as the “Grantee” with respect to your award. Capitalized terms are generally defined in the Plan, unless defined in Section 8
below or elsewhere defined herein.
Each RSR represents a right to receive one Share of the Company’s common stock, or cash of equivalent value as provided herein, subject to vesting as provided
herein. The number of RSRs subject to your award is subject to adjustment as provided herein. The RSR award is subject to all of the terms and conditions set forth in
these Terms, and is further subject to all of the terms and conditions of the Plan, as it may be amended from time to time, and any rules adopted by the Committee, as
such rules are in effect from time to time.
1.
Vesting; Issuance of Shares.
Subject to Sections 2 and 5 below, one-hundred percent (100%) of the
number of RSRs subject to your award (subject to adjustment as provided in
Section 5.1) shall vest upon the [first, second, or third] anniversary of the
Grant Date.
Except as otherwise provided below, the Company shall pay a vested
RSR on or before March 15 of the year following the vesting of the RSR on
the [first, second, or third] anniversary of the Grant Date. The Company
shall pay such vested RSRs in either an equivalent number of Shares of
common stock, or, in the discretion of the Committee, in cash or in a
combination of Shares of common stock and cash. In the event of a cash
payment, the amount of the payment for a vested RSR to be paid in cash
(subject to tax withholding as provided in Section 6 below) will equal the
Fair Market Value of a Share of common stock as of the date that such RSR
became vested. No fractional shares will be issued.
2.
Early Termination of Award; Termination of Employment.
2.1 General. The RSRs subject to the award, to the extent not
previously vested, shall terminate and become null and void if and when (a)
the award terminates in connection with a Change in Control pursuant to
Section 5 below, or (b) except as provided in Section 2.6 and in Section 5, the
Grantee ceases for any reason to be an employee of the Company or one of
its subsidiaries.
2.2 Leave of Absence. Unless the Committee otherwise provides (at
the time of the leave or otherwise), if the Grantee is granted a leave of
absence by the Company, the Grantee (a) shall not be deemed to have
incurred a termination of employment at the time such leave commences for
purposes of the award, and (b) shall be deemed to be employed by the
Company for the duration of such approved leave of absence for purposes of
the award. A termination of employment shall be deemed to have occurred if
the Grantee does not timely return to active employment upon the expiration
of such
approved leave or if the Grantee commences a leave that is not approved by
the Company.
2.3 Salary Continuation. Subject to Section 2.2 above, the term
“employment” as used herein means active employment by the Company and
salary continuation without active employment (other than a leave of absence
approved by the Company that is covered by Section 2.2) will not, in and of
itself, constitute “employment” for purposes hereof (in the case of salary
continuation without active employment, the Grantee’s cessation of active
employee status shall, subject to Section 2.2, be deemed to be a termination
of “employment” for purposes hereof). Furthermore, salary continuation will
not, in and of itself, constitute a leave of absence approved by the Company
for purposes of the award.
2.4 Sale or Spinoff of Subsidiary or Business Unit. For purposes of
the RSRs subject to the award, a termination of employment of the Grantee
shall be deemed to have occurred if the Grantee is employed by a subsidiary
or business unit and that subsidiary or business unit is sold, spun off, or
otherwise divested, the Grantee does not otherwise continue to be employed
by the Company after such event, and the divested entity or business (or its
successor or a parent company) does not assume the award in connection
with such transaction.
2.5 Continuance of Employment Required. Except as expressly
provided in Section 2.6 and in Section 5, the vesting of the RSRs subject to
the award requires continued employment through the [first, second, or
third] anniversary of the Grant Date as a condition to the vesting of any
portion of the award. Employment for only a portion of the vesting period,
even if a substantial portion, will not entitle the Grantee to any proportionate
vesting or avoid or mitigate a termination of rights and benefits upon or
following a termination of employment. Nothing contained in these Terms,
the Stock Plan System, or the Plan constitutes an employment commitment
by the Company or any subsidiary, affects the Grantee’s status (if the Grantee
is otherwise an at-will employee) as an employee at will who is subject to
termination without cause, confers
1
EXHIBIT 10.38
3.
Non-Transferability and Other Restrictions.
3.1 Non-Transferability. The award, as well as the RSRs subject to
the award, are non-transferable and shall not be subject in any manner to sale,
transfer, anticipation, alienation, assignment, pledge, encumbrance or charge.
The foregoing transfer restrictions shall not apply to transfers to the
Company or transfers by will or the laws of descent and distribution.
Notwithstanding the foregoing, the Company may honor any transfer
required pursuant to the terms of a court order in a divorce or similar
domestic relations matter to the extent that such transfer does not adversely
affect the Company’s ability to register the offer and sale of the underlying
shares on a Form S-8 Registration Statement and such transfer is otherwise in
compliance with all applicable legal, regulatory and listing requirements.
3.2 Recoupment of Awards. Any payments or issuances of shares
with respect to the award are subject to recoupment pursuant to the
Company’s Policy Regarding the Recoupment of Certain Performance-Based
Compensation Payments as in effect from time to time, as well as any
recoupment or similar provisions of applicable law, and the Grantee shall
promptly make any reimbursement requested by the Board or Committee
pursuant to such policy or applicable law with respect to the award. Further,
the Grantee agrees, by accepting the award, that the Company and its
affiliates may deduct from any amounts it may owe the Grantee from time to
time (such as wages or other compensation) to the extent of any amounts the
Grantee is required to reimburse the Company pursuant to such policy or
applicable law with respect to the award.
4.
Compliance with Laws; No Stockholder Rights Prior to Issuance;
Dividend Equivalent Rights.
4.1 Compliance with Laws. The Company’s obligation to make any
payments or issue any shares with respect to the award is subject to full
compliance with all then applicable requirements of law, the Securities and
Exchange Commission or other regulatory agencies having jurisdiction over
the Company and its shares, and of any exchange upon which stock of the
Company may be listed.
4.2 Limitations on Rights Associated with RSRs. The Grantee shall
not have the rights and privileges of a stockholder, including without
limitation the right to vote or receive dividends (except as expressly provided
in Section 4.3), with respect to any shares which may be issued in respect of
the RSRs until the date appearing on the certificate(s) for such shares (or, in
the case of shares entered in book entry form, the date that the shares are
actually recorded in such form for the benefit of the Grantee), if such shares
become deliverable.
4.3 Dividend Equivalent Rights. Not later than 60 days following
each date that the Company pays an ordinary cash dividend on its Shares of
common stock (if any), the Company shall credit the Grantee with an
additional number of RSRs equal to the quotient of (A) the product of (i) the
per share cash dividend paid by the Company on its Shares of common stock
on such date, multiplied by (ii) the total number of RSRs (including any
dividend equivalents previously credited hereunder)
upon the Grantee any right to continue in the employ of the Company or any
subsidiary, or interferes in any way with the right of the Company or of any
subsidiary to terminate such employment at any time.
2.6 Death, Disability, Retirement, or Layoff. If the Grantee dies or
incurs a Disability while employed by the Company or a subsidiary, the
outstanding and previously unvested RSRs subject to the award shall vest as
of the date of the Grantee’s death or Disability, as applicable. RSRs vesting
under this Section shall be paid within 2.5 months following the earlier of (a)
Grantee’s death or (b) Grantee’s Disability. In the event of the Grantee’s
death prior to the delivery of shares or other payment with respect to any
vested RSRs, the Grantee’s Successor shall be entitled to any payments to
which the Grantee would have been entitled under these Terms with respect
to such vested and unpaid RSRs.
The RSRs subject to the award shall vest on a prorated basis as
provided herein if the Grantee’s employment by the Company and its
subsidiaries terminates due to Retirement, Government Service Retirement,
or Layoff. Such prorating of RSRs shall be based on the number of full
months the Grantee was actually employed by the Company or one of its
subsidiaries after the Grant Date divided by the total number of months in the
vesting period. Partial months of employment, even if substantial, shall not
be counted for purposes of prorated vesting. Any RSRs subject to the award
that do not vest in accordance with this Section 2.6 upon a termination of the
Grantee’s employment due to Retirement, Government Service Retirement,
or Layoff shall terminate immediately upon such termination of employment.
In determining the Grantee’s eligibility for Retirement, service is
measured by dividing (a) the number of days the Grantee was employed by
the Company or a subsidiary in the period commencing with his or her last
date of hire by the Company or a subsidiary through and including the date
on which the Grantee is last employed by the Company or a subsidiary, by
(b) 365. If the Grantee ceased to be employed by the Company or a
subsidiary and was later rehired by the Company or a subsidiary, the
Grantee’s service prior to the break in service shall be disregarded in
determining service for such purposes; provided that, if the Grantee’s
employment with the Company or a subsidiary had terminated due to the
Grantee’s Retirement, or by the Company or a subsidiary as part of a
reduction in force (in each case, other than a termination by the Company or
a subsidiary for cause) and, within the two-year period following such
termination of employment (the “break in service”) the Grantee was
subsequently rehired by the Company or a subsidiary, then the Grantee’s
period of service with the Company or a subsidiary prior to and ending with
the break in service will be included in determining service for such
purposes. In the event the Grantee is employed by a business that is acquired
by the Company or a subsidiary, the Company shall have discretion to
determine whether the Grantee’s service prior to the acquisition will be
included in determining service for such purposes.
2
EXHIBIT 10.38
Arrangement shall govern the matters addressed in this paragraph as to clause
(a) above.
Payment of any amount due under this Section will be made on or
before March 15 of the year following the year in which the date of the
Grantee’s termination of employment occurs, unless the Grantee dies or has a
Disability, in which case such payment will be made within 2.5 months
following the date of the Grantee’s death or Disability, as the case may be.
5.3 Automatic Vesting Acceleration; Early Termination. If the
Company undergoes a Change in Control triggered by clause (iii) or (iv) of
the definition thereof and the Company is not the surviving entity and the
successor to the Company (if any) (or a Parent thereof) does not agree in
writing prior to the occurrence of the Change in Control to continue and
assume the award following the Change in Control, or if for any other reason
the award would not continue after the Change in Control, then upon the
Change in Control the outstanding and previously unvested RSRs subject to
the award shall vest fully and completely. Unless the Committee expressly
provides otherwise in the circumstances, no acceleration of vesting of the
award shall occur pursuant to this Section 5.3 in connection with a Change in
Control if either (a) the Company is the surviving entity, or (b) the successor
to the Company (if any) (or a Parent thereof) agrees in writing prior to the
Change in Control to assume the award. The award shall terminate, subject to
such acceleration provisions, upon a Change in Control triggered by clause
(iii) or (iv) of the definition thereof in which the Company is not the
surviving entity and the successor to the Company (if any) (or a Parent
thereof) does not agree in writing prior to the occurrence of the Change in
Control to continue and assume the award following the Change in Control.
The Committee may make adjustments pursuant to Section 6(a) of the Plan
and/or deem an acceleration of vesting of the award pursuant to this Section
5.3 to occur sufficiently prior to an event if necessary or deemed appropriate
to permit the Grantee to realize the benefits intended to be conveyed with
respect to the shares underlying the RSRs; provided, however, that, the
Committee shall reinstate the original terms of the award if the related event
does not actually occur.
Payment of any amount due under this Section will be made on or
before March 15 of the year following the year in which any accelerated
vesting occurs as a result of a Change in Control, unless the Grantee dies or
has a Disability prior to such Change in Control vesting, in which case such
payment will be made within 2.5 months following the date of the Grantee’s
death or Disability, as the case may be.
6.
Tax Matters.
6.1 Tax Withholding. The Company or the subsidiary which employs
the Grantee shall be entitled to require, as a condition of making any
payments or issuing any shares upon vesting of the RSRs, that the Grantee or
other person entitled to such shares or other payment pay any sums required
to be withheld by federal, state, local or other applicable tax law with respect
to such vesting or payment. Alternatively, the Company or such subsidiary, in
its discretion, may make
(with such total number adjusted pursuant to Section 5) subject to the RSR
award as of the related dividend payment record date, divided by (B) the Fair
Market Value of a Share of common stock on the date of payment of such
dividend. Any RSRs credited pursuant to the foregoing provisions of this
Section 4.3 shall be subject to the same vesting, payment and other terms,
conditions and restrictions as the original RSRs to which they relate. No
crediting of RSRs shall be made pursuant to this Section 4.3 with respect to
any RSRs which, as of such record date, have been paid pursuant to Section
1.
5.
Adjustments; Change in Control.
5.1 Adjustments. The RSRs and the shares subject to the award are
subject to adjustment upon the occurrence of events such as stock splits,
stock dividends and other changes in capitalization in accordance with
Section 4.3 of the Plan. In the event of any adjustment, the Company will
give the Grantee written notice thereof which will set forth the nature of the
adjustment.
5.2 Possible Vesting Acceleration on Change in Control.
Notwithstanding the Company’s ability to terminate the award as provided in
Section 5.3 below, the outstanding and previously unvested RSRs subject to
the award shall become fully vested as of the date of the Grantee’s
termination of employment in the following circumstances:
(a) if the Grantee is covered by a Change in Control Severance
Arrangement at the time of the termination, if the termination of
employment constitutes a “Qualifying Termination” (as such term,
or any similar successor term, is defined in such Change in Control
Severance Arrangement) that triggers the Grantee’s right to
severance benefits under such Change in Control Severance
Arrangement.
(b) if the Grantee is not covered by a Change in Control Severance
Arrangement at the time of the termination and if the termination
occurs either within the Protected Period corresponding to a Change
in Control of the Company or within twenty-four (24) calendar
months following the date of a Change in Control of the Company,
the Grantee’s employment by the Company and its subsidiaries is
involuntarily terminated by the Company and its subsidiaries for
reasons other than Cause or by the Grantee for Good Reason.
Notwithstanding anything else contained herein to the contrary, the
termination of the Grantee’s employment (or other events giving rise to Good
Reason) shall not entitle the Grantee to any accelerated vesting pursuant to
clause (b) above if there is objective evidence that, as of the commencement
of the Protected Period, the Grantee had specifically been identified by the
Company as an employee whose employment would be terminated as part of
a corporate restructuring or downsizing program that commenced prior to the
Protected Period and such termination of employment was expected at that
time to occur within six (6) months. The applicable Change in Control
Severance
3
EXHIBIT 10.38
in the aggregate) from their level in effect on the day immediately prior to the
start of the Protected Period, other than (A) an inadvertent act that is
remedied by the Company promptly after receipt of notice thereof given by
the Grantee, and/or (B) changes in the nature or status of the Grantee’s
authorities or responsibilities that, in the aggregate, would generally be
viewed by a nationally-recognized executive placement firm as resulting in
the Grantee having not materially and substantially fewer authorities and
responsibilities (taking into consideration the Company’s industry) when
compared to the authorities and responsibilities applicable to the position
held by the Grantee immediately prior to the start of the Protected Period.
The Company may retain a nationally-recognized executive placement firm
for purposes of making the determination required by the preceding sentence
and the written opinion of the firm thus selected shall be conclusive as to this
issue. In addition, if the Grantee is a vice president, the Grantee’s loss of
vice-president status will constitute “Good Reason”; provided that the loss of
the title of “vice president” will not, in and of itself, constitute Good Reason
if the Grantee’s lack of a vice president title is generally consistent with the
manner in which the title of vice president is used within the Grantee’s
business unit or if the loss of the title is the result of a promotion to a higher
level office. For the purposes of the preceding sentence, the Grantee’s lack of
a vice president title will only be considered generally consistent with the
manner in which such title is used if most persons in the business unit with
authorities, duties, and responsibilities comparable to those of the Grantee
immediately prior to the commencement of the Protected Period do not have
the title of vice-president.
(ii) A reduction by the Company in the Grantee’s annualized rate of base
salary as in effect at the start of the Protected Period, or as the same shall be
increased from time to time.
(iii) A material reduction in the aggregate value of the Grantee's level of
participation in any of the Company’s short and/or long-term incentive
compensation plans (excluding stock-based incentive compensation plans),
employee benefit or retirement plans, or policies, practices, or arrangements
in which the Grantee participates immediately prior to the start of the
Protected Period provided; however, that a reduction in the aggregate value
shall not be deemed to be “Good Reason” if the reduced value remains
substantially consistent with the average level of other employees who have
positions commensurate with the position held by the Grantee immediately
prior to the start of the Protected Period.
(iv) A material reduction in the Grantee’s aggregate level of participation
in the Company’s stock-based incentive compensation plans from the level in
effect immediately prior to the start of the Protected Period; provided,
however, that a reduction in the aggregate level of participation shall not be
deemed to be “Good Reason” if the reduced level of participation remains
substantially consistent with the average level of participation of other
employees who have positions commensurate with the position held by the
Grantee immediately prior to the start of the Protected Period.
such provisions for the withholding of taxes as it deems appropriate
(including, without limitation, withholding the taxes due from compensation
otherwise payable to the Grantee or reducing the number of shares otherwise
deliverable with respect to the award (valued at their then Fair Market Value)
by the amount necessary to satisfy such withholding obligations at the flat
percentage rates applicable to supplemental wages).
6.2 Transfer Taxes. The Company will pay all federal and state
transfer taxes, if any, and other fees and expenses in connection with the
issuance of shares in connection with the vesting of the RSRs.
6.3 Compliance with Code. The Committee shall administer and
construe the award, and may amend the Terms of the award, in a manner
designed to comply with the Code and to avoid adverse tax consequences
under Code Section 409A or otherwise.
6.4 Unfunded Arrangement. The right of the Grantee to receive
payment under the award shall be an unsecured contractual claim against the
Company. As such, neither the Grantee nor any Successor shall have any
rights in or against any specific assets of the Company based on the award.
Awards shall at all times be considered entirely unfunded for tax purposes.
7.
Plan; Amendment.
The RSRs are governed by, and the Grantee’s rights are subject to, all of
the terms and conditions of the Plan and any other rules adopted by the
Committee, as the foregoing may be amended from time to time. The Grantee
shall have no rights with respect to any amendment of these Terms or the
Plan unless such amendment is in writing and signed by a duly authorized
officer of the Company. In the event of a conflict between the provisions of
the Grant Letter and/or the Stock Plan System and the provisions of these
Terms and/or the Plan, the provisions of these Terms and/or the Plan, as
applicable, shall control.
8. Definitions.
Whenever used in these Terms, the following terms shall have the
meanings set forth below and, when the meaning is intended, the initial letter
of the word is capitalized:
“Change in Control Severance Arrangement” means a “Special
Agreement” entered into by and between the Grantee and the Company that
provides severance protections in the event of certain changes in control of
the Company or the Company’s Change-in-Control Severance Plan, as each
may be in effect from time to time, or any similar successor agreement or
plan that provides severance protections in the event of a change in control of
the Company.
“Good Reason” means, without the Grantee’s express written consent,
the occurrence of any one or more of the following:
(i) A material and substantial reduction in the nature or status of the
Grantee’s authorities or responsibilities (when such authorities and/or
responsibilities are viewed
4
EXHIBIT 10.38
shall commence on the date that is six (6) months prior to the Change in
Control and shall continue through and including the date of the Change in
Control.
“Retirement” or “Retire” means that the Grantee terminates employment
after attaining age 55 with at least ten (10) years of service (other than in
connection with a termination by the Company or a subsidiary for cause). In
the case of a Grantee who is an officer of the Company subject to the
Company’s mandatory retirement at age 65 policy, “Retirement” or “Retire”
shall also include as to that Grantee (without limiting the Grantee’s ability to
Retire pursuant to the preceding sentence) a termination of the Grantee’s
employment pursuant to such mandatory retirement policy (regardless of the
Grantee’s years of service and other than in connection with a termination by
the Company or a subsidiary for cause).
“Successor” means the person acquiring a Grantee’s rights to a grant
under the Plan by will or by the laws of descent or distribution.
(v) The Grantee is informed by the Company that his or her principal
place of employment for the Company will be relocated to a location that is
greater than fifty (50) miles away from the Grantee’s principal place of
employment for the Company at the start of the corresponding Protected
Period; provided that, if the Company communicates an intended effective
date for such relocation, in no event shall Good Reason exist pursuant to this
clause (v) more than ninety (90) days before such intended effective date.
The Grantee’s right to terminate employment for Good Reason shall not
be affected by the Grantee’s incapacity due to physical or mental illness. The
Grantee’s continued employment shall not constitute a consent to, or a waiver
of rights with respect to, any circumstances constituting Good Reason herein.
“Governmental Service Retirement” means a Retirement by the
Grantee where the Grantee accepts a position in the federal government or a
state or local government and an accelerated distribution under the award is
permitted under Code Section 409A based on such government employment
and related ethics rules.
“Layoff” means a permanent, involuntary termination of the Grantee’s
employment by the Company or a subsidiary due to a reduction in force,
business reorganization, facility closure or similar event (other than a
termination by the Company or a subsidiary for cause), as determined by the
Committee in its sole discretion. A Layoff shall not include any sale or spin-
off described in Section 2.4.
“Parent” means an entity that beneficially owns a majority of the voting
stock or voting power of the Company, or all or substantially all of the
Company’s assets, directly or indirectly through one or more subsidiaries.
The “Protected Period” corresponding to a
Change in Control of the Company shall be a period of time determined in
accordance with the following:
(i) If the Change in Control is triggered by a tender offer for shares of the
Company’s stock or by the offeror’s acquisition of shares pursuant to such a
tender offer, the Protected Period shall commence on the date of the initial
tender offer and shall continue through and including the date of the Change
in
Control; provided that in no case will the Protected Period commence earlier
than the date that is six (6) months prior to the Change in Control.
(ii) If the Change in Control is triggered by a merger, consolidation, or
reorganization of the Company with or involving any other corporation, the
Protected Period shall commence on the date that serious and substantial
discussions first take place to effect the merger, consolidation, or
reorganization and shall continue through and including the date of the
Change in Control; provided that in no case will the Protected Period
commence earlier than the date that is six (6) months prior to the Change in
Control.
(iii) In the case of any Change in Control not described in clause (i) or
(ii) above, the Protected Period
5
EXHIBIT 10.41
HUNTINGTON INGALLS INDUSTRIES, INC.
AMENDED AND RESTATED DIRECTORS' COMPENSATION POLICY
Directors of Huntington Ingalls Industries, Inc., a Delaware corporation (the "Company"), who are not
employed by the Company or one of its subsidiaries (''non-employee directors") are entitled to the compensation set
forth below for their service as a member of the Board of Directors (the "Board") of the Company. The Board has
the right to amend this policy from time to time.
Cash Compensation
Annual Retainer
Additional Non-Executive Chairman Retainer
Additional Committee Chair Retainers
Audit Committee Chair
Compensation Committee Chair
Governance and Policy Committee Chair
Finance Committee Chair
Cybersecurity Committee Chair
Additional Audit Committee Member Retainer
Additional Compensation Committee Member Retainer
Additional Governance and Policy Committee Member Retainer
Additional Finance Committee Member Retainer
Additional Cybersecurity Committee Member Retainer
Equity Compensation
Annual Equity Award
Cash Compensation
$120,000
$250,000
$25,000
$20,000
$20,000
$20,000
$20,000
$17,500
$7,500
$7,500
$7,500
$7,500
$165,000
Each non-employee director will be entitled to an annual cash retainer while serving on the Board in the amount set forth above (the "Annual Retainer"). A non-
employee director who serves as the Non-Executive Chairman of the Board will be entitled to an additional annual cash retainer while serving in that position in the
amount set forth above (the "Additional Chair Retainer"). A non-employee director who serves as the Chairman of the Audit Committee, the Compensation Committee,
the Governance and Policy Committee, the Finance Committee or the Cybersecurity Committee of the Board will be entitled to an additional annual cash retainer while
serving in that position in the applicable amount set forth above (an "Additional Committee Chair Retainer''). A non-employee director who serves as a member of the
Audit Committee, the Compensation Committee, the Governance and Policy Committee, the Finance Committee or the Cybersecurity Committee of the Board (other
than as the Chairman of the applicable committee) will be entitled to an additional cash retainer while serving as a member of that committee in the applicable amount
set forth above (the "Additional Committee Member Retainer").
The amounts of the Annual Retainer, Additional Chair Retainer, Additional Committee Chair Retainers and Additional Committee Member Retainers reflected
above (collectively, the “Annual Cash Retainers”) are expressed as annualized amounts. These retainers will be paid on a quarterly basis, at the end of each quarter in
arrears. The retainer for a non-employee director for a particular quarter will be pro-rated if the non-employee director serves (or serves in the corresponding position,
as the case may be) for only a portion of the quarter (with the proration based on the number of calendar days in the quarter that the director served as a non-employee
director or held the particular position, as the case may be).
Notwithstanding the foregoing, a non-employer director may elect under the terms of the Board Deferred Compensation Policy to receive his or her Annual Cash
Retainers for the following calendar year in the form of stock units. The stock units will generally become payable within 30 days following the date the non-employee
director ceases to provide services as a member of the Board; provided, however, a non-employee director who has met his or her Ownership Guideline (as defined
below) as of the Measurement Date (as defined below) may elect under the terms of the Board Deferred Compensation Policy to receive his or her Annual Cash
Retainers for the following calendar year in the form of either (a) shares of the Company’s common stock (payable on the same date the related Annual Cash Retainer
would otherwise have been paid) or (b) stock units that are payable in the fifth calendar year after the year in which the related Annual Cash Retainer is earned (or upon
the director’s separation from service from the Board, if earlier). The common stock or stock units, as the case may be, will be fully vested on the date of grant and will
be issued under (and subject to the terms of) the Plan and the stock units will further be subject to the terms of the Board Deferred Compensation Policy. If the non-
employee director elects to receive common stock and the non-employee director’s Beneficial Ownership is less than the Ownership Guideline as of any quarterly grant
date in the following calendar year, the non-employee director will be required to retain all of the common stock received on that quarterly grant date (net of taxes)
until the next Measurement Date on which his or her Beneficial Ownership is greater
1
EXHIBIT 10.41
than the Ownership Guideline. The number of shares of Company common stock or stock units, as the case may be, will be determined by dividing (1) the portion of
the Annual Cash Retainers to which the electing non-employee director is otherwise entitled for a given calendar quarter by (2) the per-share closing price (in regular
trading) of the Company’s common stock on the New York Stock Exchange on the last day of such quarter (or, if such day is not a trading day, the most recent prior
trading day), rounded down to the nearest whole unit.
Annual Equity Awards
On the first trading day of each fiscal quarter of the Company, each non-employee director then in office will automatically be granted an award of stock units
determined by dividing (1) one-quarter (1/4) of the Annual Equity Award grant value set forth above by (2) the per-share closing price (in regular trading) of the
Company's common stock on the New York Stock Exchange on the date of grant, rounded down to the nearest whole unit.
Each stock unit award will be made under and subject to the terms and conditions of the Company’s 2022 Long-Term Incentive Stock Plan or any successor equity
compensation plan approved by the Company's stockholders and in effect at the time of grant (the “Plan”), and will be evidenced by, and subject to the terms and
conditions of, an award certificate in the form approved by the Board to evidence such type of grant pursuant to this policy. Each award will be fully vested at grant and
will generally become payable within 30 days following the date the non-employee director ceases to provide services as a member of the Board. Non-employee
directors are entitled to receive dividend equivalents with respect to outstanding and unpaid stock units granted pursuant to this policy. Dividend equivalents, if any, are
paid in the form of a credit of additional stock units under the Plan and are subject to the same vesting, payment and other provisions as the underlying stock units.
Notwithstanding the foregoing, if a non-employee director beneficially owns shares of the Company’s common stock (his or her “Beneficial Ownership”) with a
value equal to at least five times (5x) the director’s annual cash retainer (the “Ownership Guideline”) as of the date of the last quarterly grant of the Annual Equity
Award for a given year (the “Measurement Date”), the non-employee director may elect under the terms of the Board Deferred Compensation Policy to receive his or
her Annual Equity Award for the following calendar year in the form of either (a) shares of the Company’s common stock (with the number of shares being equal to the
number of stock units the director would have been granted on each quarterly grant date, but for the election) or (b) stock units that are payable in the fifth calendar
year after the year in which the Annual Equity Award is earned (or upon the director’s separation from service from the Board, if earlier). The common stock or stock
units, as the case may be, will be fully vested on the date of grant and will be issued under (and subject to the terms of) the Plan and the stock units will further be
subject to the terms of the Board Deferred Compensation Policy. If the non-employee director elects to receive common stock and the non-employee director’s
Beneficial Ownership is less than the Ownership Guideline as of any quarterly grant date in the following calendar year, the non-employee director will be required to
retain all of the common stock received on that quarterly grant date (net of taxes) until the next Measurement Date on which his or her Beneficial Ownership is greater
than the Ownership Guideline.
Any stock units credited to a non-employee director (including in an account under the Board Deferred Compensation Policy), any shares owned by a non-
employee director, the non-employee director’s spouse or minor children, and any shares owned by a trust for the benefit of a non-employee director or his or her
family shall count as shares beneficially owned by a non-employee director for purposes of the Ownership Guideline.
The foregoing general provisions are, in the case of a particular award, subject to the terms and conditions of the applicable award certificate.
Expense Reimbursement
All non-employee directors will be entitled to reimbursement from the Company for their reasonable travel (including airfare and ground transportation), lodging
and meal expenses incident to meetings of the Board or committees thereof or in connection with other Board-related business.
Such benefits and reimbursements are not subject to liquidation or exchange for another benefit and the amount of such benefits and reimbursements that the non-
employee director receives in one taxable year shall not affect the amount of such benefits or reimbursements that the non-employee director receives in any other
taxable year. The non-employee director shall promptly provide the Company with reasonable written substantiation for any such expenses. The Company shall pay
any such reimbursement to the non-employee director promptly after its receipt of such documentation and in all events not later than the end of the calendar year
following the year in which the related expense was incurred.
Effective December 15, 2023
2
Exhibit 21.1
SUBSIDIARIES OF HUNTINGTON INGALLS INDUSTRIES, INC.
Name of Subsidiary
Avondale Engineering & Construction Company
CEMC Enterprise, LLC
Commonwealth Technology Innovation LLC
Enlighten IT Consulting LLC
Fleet Services Holding Corp.
Gray Research, Inc.
H&B Defence Pty Ltd
HII (Australia) Holding Company Pty Ltd
HII Energy Inc.
HII Fleet Support Group LLC
HII Mission Technologies Corp.
HII Nuclear Inc.
HII Nuclear Canada, Inc.
HII San Diego Shipyard Inc.
HII Services Corporation
HII Technical Solutions Corporation
HII Technical Solutions Limited
HII TSD Holding Company
HII (US) International Holding Company
HII (UK) International Holding Company Ltd.
HII Unmanned Systems, Inc.
Huntington Ingalls Engineering Services, Inc.
Huntington Ingalls Incorporated
Huntington Ingalls Industries Australia PTY Ltd.
Huntington Ingalls Industries Energy and Environmental Services, Inc.
Huntington Ingalls Industries International Shipbuilding, Inc.
Huntington Ingalls Industries Risk Management LLC
Huntington Ingalls Unmanned Maritime Systems, Inc.
Idaho Cleanup Completion Partners, LLC
Ingalls Shipbuilding, Inc.
Integrated Mission Excellence, LLC
KHA Defense Solutions PTY LTD
National Tru Solutions LLC
Nationwide Remediation Partners, LLC
Newport News Nuclear BWXT-Los Alamos, LLC
Newport News Nuclear, Inc.
Newport News Reactor Services, Inc.
Newport News Shipbuilding and Dry Dock Company
Pantex Production Partners LLC
Pegasus International Holdings, Inc.
Pegasus International Services, Inc.
1
Jurisdiction of Organization
Delaware
Delaware
Virginia
Maryland
Delaware
Alabama
Australia
Australia
Virginia
Delaware
Delaware
Delaware
Canada
California
Delaware
Delaware
United Kingdom
Delaware
Delaware
United Kingdom
Delaware
Delaware
Virginia
Australia
Delaware
Nevada
Vermont
Delaware
Delaware
Delaware
Delaware
Australia
Delaware
Delaware
Delaware
Virginia
Virginia
Delaware
Delaware
Texas
Nevada
Ownership Percentage
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
61%
100%
100%
50%
75%
51%
51%
100%
100%
100%
100%
100%
100%
Name of Subsidiary
Realion Robotics LLC
TITAN II Inc.
Trusted Security Alliance, LLC
UniversalPegasus International Trinidad and Tobago Limited
Veritas Analytics, Inc.
Jurisdiction of Organization
Virginia
Delaware
Maryland
Trinidad and Tobago
Virginia
Ownership Percentage
95.1%
100%
75%
86.5%
100%
Exhibit 21.1
2
Exhibit 22
List of Subsidiary Guarantors of Registered Securies of Hunngton Ingalls Industries, Inc.
The following subsidiaries of Hunngton Ingalls Industries, Inc. (the “Issuer”) guarantee $600 million aggregate principal amount of the
Issuer’s registered senior notes due December 2027, $500 million aggregate principal amount of the Issuer’s registered senior notes due
May 2025, $500 million aggregate principal amount of the Issuer’s registered senior notes due May 2030, and $600 million aggregate
principal amount of the Issuer’s registered senior notes due August 2028:
HUNTINGTON INGALLS ENGINEERING SERVICES, INC.
HUNTINGTON INGALLS INDUSTRIES ENERGY AND ENVIRONMENTAL SERVICES, INC.
HII NUCLEAR INC.
NEWPORT NEWS NUCLEAR INC.
HUNTINGTON INGALLS UNMANNED MARITIME SYSTEMS, INC.
HUNTINGTON INGALLS INCORPORATED
HII ENERGY INC.
FLEET SERVICES HOLDING CORP.
HII FLEET SUPPORT GROUP LLC
HII SAN DIEGO SHIPYARD INC.
HII SERVICES CORPORATION
HII TECHNICAL SOLUTIONS CORPORATION
HII TSD HOLDING COMPANY
VERITAS ANALYTICS, INC.
HII UNMANNED SYSTEMS, INC.
HII MISSION TECHNOLOGIES CORP.
COMMONWEALTH TECHNOLOGY INNOVATION LLC
ENLIGHTEN IT CONSULTING LLC
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We consent to the incorporation by reference in Registration Statement Nos. 333-173168, 333-173170, 333-173171, 333-173173, 333-183326, 333-
221451, 333-221452, 333-232250 and 333-265560 on Form S-8 of our reports dated February 1, 2024, relating to the consolidated financial statements
and financial statement schedule of Huntington Ingalls Industries, Inc. and subsidiaries (the “Company”), and the effectiveness of the Company’s
internal control over financial reporting, appearing in this Annual Report on Form 10-K of the Company for the year ended December 31, 2023.
/s/ Deloitte & Touche LLP
Richmond, Virginia
February 1, 2024
Exhibit 31.1
I, Christopher D. Kastner, certify that:
CERTIFICATION PURSUANT TO
EXCHANGE ACT RULE 13A-14(A)/15D-14(A)
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Huntington Ingalls Industries, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, 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;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 1, 2024
/s/ Christopher D. Kastner
Christopher D. Kastner
President and Chief Executive Officer
Exhibit 31.2
I, Thomas E. Stiehle, certify that:
CERTIFICATION PURSUANT TO
EXCHANGE ACT RULE 13A-14(A)/15D-14(A)
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Huntington Ingalls Industries, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, 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;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 1, 2024
/s/ Thomas E. Stiehle
Thomas E. Stiehle
Executive Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Huntington Ingalls Industries, Inc. (the “company”) on Form 10-K for the period ended December 31, 2023 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher D. Kastner, the President and Chief Executive
Officer of the company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge,
that:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
company.
Date: February 1, 2024
/s/ Christopher D. Kastner
Christopher D. Kastner
President and Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Huntington Ingalls Industries, Inc. (the “company”) on Form 10-K for the period ended December 31, 2023 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas E. Stiehle, Executive Vice President, Business
Management and Chief Financial Officer of the company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, to my knowledge, that:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
company.
Date: February 1, 2024
/s/ Thomas E. Stiehle
Thomas E. Stiehle
Executive Vice President and Chief Financial Officer
EXHIBIT 97
Huntington Ingalls Industries, Inc.
Dodd-Frank Compensation Recovery Policy
This Compensation Recovery Policy (this “Policy”) is adopted by Huntington Ingalls Industries, Inc. (the “Company”) in accordance with
Section 303A.14 of the New York Stock Exchange (“NYSE”) Listed Company Manual (“Section 303A.14”), which implements Rule 10D-
1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (as promulgated pursuant to Section 954 of the Dodd-
Frank Wall Street Reform and Consumer Protection Act of 2010). This Policy shall apply to Erroneously Awarded Compensation Received
on or after October 2, 2023 (the “Effective Date”) by Covered Persons during an applicable Recovery Period. Capitalized terms used herein
that are otherwise not defined shall have the meanings ascribed to them in Section 1 of this Policy.
1.
Definitions
(a)
“Accounting Restatement” means a requirement that the Company prepare an accounting restatement due to the material
noncompliance of the Company with any financial reporting requirement under the U.S. federal securities laws, including any required
accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial
statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current
period. Changes to the Company’s financial statements that do not represent error corrections are not an Accounting Restatement,
including: (A) retrospective application of a change in accounting principle; (B) retrospective revision to reportable segment information
due to a change in the structure of the Company’s internal organization; (C) retrospective reclassification due to a discontinued operation;
(D) retrospective application of a change in reporting entity, such as from a reorganization of entities under common control; and (E)
retrospective revision for stock splits, reverse stock splits, stock dividends or other changes in capital structure.
(b)
(c)
“Committee” means the Compensation Committee of the Company’s Board of Directors (the “Board”).
applicable Incentive-Based Compensation.
“Covered Person” means a person who served as an Executive Officer at any time during the performance period for the
(d)
“Erroneously Awarded Compensation” means the amount of Incentive-Based Compensation that was Received that
exceeds the amount of Incentive-Based Compensation that otherwise would have been Received had the amount of Incentive-Based
Compensation been determined based on the restated amounts, computed without regard to any taxes paid by the Covered Person or by the
Company on the Covered Person’s behalf. For Incentive-Based Compensation based on stock price or total shareholder return, where the
amount of Erroneously Awarded Compensation is not subject to mathematical recalculation directly from the information in an Accounting
Restatement, the amount of Erroneously Awarded Compensation will be based on a reasonable estimate by the Committee of the effect of
the Accounting Restatement on the stock price or total shareholder return upon which the Incentive-Based Compensation was Received.
The Company will maintain documentation of the determination of that reasonable estimate and provide such documentation to NYSE.
(e)
“Executive Officer” means the Company’s president, principal financial officer, principal accounting officer (or if there is
no such accounting officer, the controller), any vice president of the Company, any other officer who performs a significant policy-making
function, or any other person (including as applicable executives of any of the Company’s parents or subsidiaries) who performs similar
policy-making functions for the Company.
1
EXHIBIT 97
(f)
“Financial Reporting Measures” means (A) measures that are determined and presented in accordance with the accounting
principles used in preparing the Company’s financial statements, and any measures that are derived wholly or in part from such measures
(whether or not such measures are presented within the Company’s financial statements or included in a filing made with the U.S.
Securities and Exchange Commission), (B) stock price and (C) total shareholder return.
(g)
“Incentive-Based Compensation” means any compensation that is granted, earned or vested based wholly or in part upon
the attainment of a Financial Reporting Measure.
(h)
Incentive-Based Compensation is deemed to be “Received” in the Company’s fiscal period during which the Financial
Reporting Measure specified in the applicable Incentive-Based Compensation award is attained, even if the payment or grant of the
Incentive-Based Compensation occurs after the end of that period or is subject to additional time-based vesting requirements.
(i)
“Recovery Period” means the three completed fiscal years immediately preceding the earlier of: (A) the date the Board, a
committee of the Board or the officer or officers of the Company authorized to take such action if Board action is not required, concludes,
or reasonably should have concluded, that the Company is required to prepare an Accounting Restatement; or (B) the date a court, regulator
or other legally authorized body directs the Company to prepare an Accounting Restatement. In addition, if there is a change in the
Company’s fiscal year end, the Recovery Period will also include any transition period to the extent required by Section 303A.14.
2.
Recovery of Erroneously Awarded Compensation
(a)
Application of Prior Policy. If the Company is required to prepare an Accounting Restatement and the provisions of Section
2(b) of this Policy are inapplicable, the Policy Regarding the Recoupment of Certain Performance-Based Compensation Payments
previously adopted by the Committee on March 31, 2011 (the “Prior Policy”) will apply in accordance with its terms. The Prior Policy will
not apply when Section 2(b) of this Policy is applicable.
(b)
Application of this Policy. Subject to the terms of this Policy and the requirements of Section 303A.14, if, on or after the
Effective Date, the Company is required to prepare an Accounting Restatement, the Company will attempt to recover, reasonably promptly
from each Covered Person, any Erroneously Awarded Compensation that was Received by such Covered Person during the Recovery
Period pursuant to Incentive-Based Compensation that is subject to this Policy.
3.
Interpretation and Administration
(a)
Role of the Committee. This Policy will be interpreted by the Committee in a manner that is consistent with Section
303A.14 and any other applicable law and will otherwise be interpreted in the business judgment of the Committee. All decisions and
interpretations of the Committee that are consistent with Section 303A.14 will be final and binding.
(b)
Compensation Not Subject to this Policy. This Policy does not apply to Incentive-Based Compensation that was Received
before the Effective Date. With respect to any Covered Person, this Policy does not apply to Incentive-Based Compensation that was
Received by such Covered Person before beginning service as an Executive Officer.
(c)
Determination of Means of Recovery. Subject to the requirement that recovery be made reasonably promptly, the Committee
will determine the appropriate means of recovery,
2
EXHIBIT 97
which may vary between Covered Persons or based on the nature of the applicable Incentive-Based Compensation, and which may involve,
without limitation, establishing a deferred repayment plan or setting off against current or future compensation otherwise payable to the
Covered Person. Recovery of Erroneously Awarded Compensation will be made without regard to income taxes paid by the Covered
Person or by the Company on the Covered Person’s behalf in connection with such Erroneously Awarded Compensation.
(d)
Determination That Recovery is Impracticable. The Company is not required to recover Erroneously Awarded Compensation
if a determination is made by the Committee that either (A) after the Company has made and documented a reasonable attempt to recover
such Erroneously Awarded Compensation, the direct expense paid to a third party to assist in enforcing this Policy would exceed the
amount to be recovered or (B) recovery of such Erroneously Awarded Compensation would likely cause an otherwise tax-qualified
retirement plan, under which benefits are broadly available to employees of the registrant, to fail to meet the requirements of Section 401(a)
(13) or 411(a) of the Internal Revenue Code and regulations thereunder.
(e)
No Indemnification or Company-Paid Insurance. The Company will not indemnify any Covered Person against the loss of
Erroneously Awarded Compensation and will not pay or reimburse any Covered Person for the purchase of a third-party insurance policy to
fund potential recovery obligations.
(f)
Interaction with Other Clawback Provisions. The Company will be deemed to have recovered Erroneously Awarded
Compensation in accordance with this Policy to the extent the Company actually receives such amounts pursuant to any other Company
policy, program or agreement (including the Prior Policy), pursuant to Section 304 of the Sarbanes-Oxley Act or otherwise.
(g)
No Limitation on Other Remedies. Nothing in this Policy will be deemed to limit the Company’s right to terminate
employment of any Covered Person to seek recovery of other compensation paid to a Covered Person or to pursue other rights or remedies
available to the Company under applicable law.
Adopted by the Committee on October 30, 2023.
3
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
2023
2022
$11,454
$ 10,676
781
72
(11)
842
7.4%
970
(292 )
14
692
565
145
2
712
6.7 %
766
(284 )
12
494
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. 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); significant delays in appropriations for
our programs and U.S. government funding more broadly; our ability to estimate our future contract costs, including cost increases due to inflation, and perform our contracts effectively; changes in procurement processes and government regulations
and our ability to comply with such requirements; our ability to deliver our products and services at an affordable life cycle cost and compete within our markets; natural and environmental disasters and political instability; our ability to execute our
strategic plan, including with respect to share repurchases, dividends, capital expenditures and strategic acquisitions; adverse economic conditions in the United States and globally; health epidemics, pandemics and similar outbreaks; our ability to
attract, train and retain a qualified workforce; disruptions impacting global supply, including those resulting from the ongoing conflict between Russia and Ukraine and in the Middle East; 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, 2023 forms a part of this 2023 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
From top row left to right: Frank R. Jimenez, General Counsel and Corporate Secretary, GE Healthcare; Leo Denault, Retired Chairman and
CEO, Entergy Corporation, Chair of Audit Committee; John K. Welch, Retired President and CEO, Centrus Energy Corp., Chair of Governance
and Policy Committee; Craig S. Faller, Admiral, U.S. Navy (Ret.); 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; Christopher D. Kastner,
President and CEO, HII; Tracy B. McKibben, Founder and CEO, MAC Energy Advisors LLC; Anastasia D. Kelly, Senior Advisor to the Chair and
Executive Director of Client Relations, DLA Piper; Kirkland H. Donald, Chairman of the Board, HII, Admiral, U.S. Navy (Ret.); Victoria D. Harker,
Executive Vice President and Chief Financial Officer, Tegna, Inc., Chair of Compensation Committee; Stephanie O’Sullivan, Independent
Business Consultant, Chair of Cybersecurity Committee.
SENIOR EXECUTIVE TEAM
Christopher D. Kastner
President and Chief
Executive 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
Chris Soong
Executive Vice
President and
Chief Information 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
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