HUNTINGTON INGALLS INDUSTRIES INC

Previous wording

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;

Current wording

We conduct most of our business with the U.S. Government, primarily the Department of Defense ("DoD"). As prime contractor, principal subcontractor, team member, or partner, we participate in many high-priority U.S. defense programs. Ingalls includes our non-nuclear ship design, construction, repair, and maintenance businesses. Newport News includes all of our nuclear ship design, construction, overhaul, refueling, and repair and maintenance businesses. Our Mission Technologies segment provides a wide range of services and products, including command, control, computers, communications, cyber, intelligence, surveillance, and reconnaissance ("C5ISR") systems and operations; the application of Artificial Intelligence and machine learning to battlefield decisions; defensive and offensive cyberspace strategies and electronic warfare ("CEW&S"); unmanned autonomous systems; live, virtual, and constructive training solutions ("LVC"); fleet sustainment; and critical nuclear operations.

Previous wording

We continue to see uncertainty in the economy, our industry, and our company, with challenges for customers and suppliers, labor shortages, supply chain challenges, and inflation, among other impacts.

Current wording

We continue to see uncertainty in the economy, our industry, and our company, with challenges for customers and suppliers, labor and supply chain challenges, and inflation, among other impacts.

Previous wording

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

Current wording

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

Previous wording

Period-to-period revenues reflect performance under new and ongoing contracts. Changes in sales and service

Current wording

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.

Previous wording

General and administrative expenses for thethree months ended March 31, 2024, increased $12 million from the same period in 2023, primarily due to higher overhead costs.

Current wording

General and administrative expenses for thethree and six months ended June 30, 2024, increased $17 million and $29 million, respectively, from the same periods in 2023, primarily due to higher overhead costs, including bid and proposal costs.

Previous wording

The Operating FAS/CAS Adjustment was a net expense of $17 million and $19 million for the three months ended March 31, 2024 and 2023, respectively. The favorable change was primarily driven by demographic assumptions, offset by lower interest rates under FAS.

Current wording

The Operating FAS/CAS Adjustment was a net expense of $15 million and $17 million for the three months ended June 30, 2024 and 2023, respectively. The Operating FAS/CAS Adjustment was a net expense of $32 million and $36 million for the six months ended June 30, 2024 and 2023, respectively. The favorable change in the Operating FAS/CAS Adjustment for each period was primarily driven by demographic assumptions, partially offset by lower interest rates under FAS.

Previous wording

Non-current state income tax benefit was $1 million and $4 million for the three months ended March 31, 2024 and 2023, respectively. The unfavorable change was driven by an increase in deferred state income tax expense, primarily attributable to a change in net capitalized research and development expenditures and the timing of long-term contract income for tax purposes.

Current wording

Non-current state income tax benefit was $1 million and $4 million for the three months ended June 30, 2024 and 2023, respectively. Non-current state income tax benefit was $2 million and $8 million for the six months ended June 30, 2024 and 2023, respectively. The unfavorable change in non-current state income taxes for each period was driven by an increase in deferred state income tax expense, primarily attributable to a change in net capitalized research and development expenditures and the timing of long-term contract income for tax purposes.

Previous wording

For thethree months ended March 31, 2024 and 2023, favorable and unfavorable cumulative catch-up revenue adjustments were as follows:

Current wording

For thethree and six months ended June 30, 2024 and 2023, favorable and unfavorable cumulative catch-up revenue adjustments were as follows:

Previous wording

For thethree months ended March 31, 2024 and 2023, net cumulative catch-up revenue adjustments by segment were as follows:

Current wording

For thethree and six months ended June 30, 2024 and 2023, net cumulative catch-up revenue adjustments by segment were as follows:

Previous wording

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

Current wording

Ingalls revenues, including intersegment sales, for the three months ended June 30, 2024, increased $48 million, or 7%, from the same period in 2023, primarily driven by higher volumes in amphibious assault ships and surface combatants, partially offset by lower volumes in the Legend class National Security Cutter ("NSC") program.

Previous wording

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

Current wording

Newport News revenues, including intersegment sales, for the six months ended June 30, 2024, decreased $46 million, or 2%, from the same period in 2023, primarily driven by lower volumes in the Virginia class (SSN 774) submarine program and aircraft carriers, partially offset by higher volumes in the Columbia class (SSBN 826) submarine program.

Previous wording

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

Current wording

Newport News segment operating income for the three months ended June 30, 2024, was $111 million, compared to segment operating income of $95 million for the same period in 2023. The increase was primarily driven by contract adjustments, incentives, and volumes on the RCOH program, partially offset by lower performance on aircraft carrier construction and the Virginia class (SSN 774) submarine program.

Previous wording

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

Current wording

Mission Technologies revenues, including intersegment sales, for the three and six months ended June 30, 2024, increased $120 million, or 19%, and $246 million, or 19%, respectively, from the same periods in 2023, primarily due to higher volumes in C5ISR and CEW&S.

Previous wording

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

Current wording

Mission Technologies segment operating income for the three months ended June 30, 2024, was $36 million, compared to segment operating income of $9 million for the same period in 2023. The increase was primarily driven by the higher volumes described above, a $6 million loss in 2023 on the sale of our investment in an unconsolidated ship repair and specialty fabrication joint venture, and higher performance in fleet sustainment.

Previous wording

The following table presents segment sales and service revenues and segment cost of sales and service revenues by both product and service:

Current wording

The following tables present segment sales and service revenues and segment cost of sales and service revenues by both product and service:

Previous wording

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

Current wording

Product sales for the three months ended June 30, 2024, increased $47 million, or 3%, from the same period in 2023, primarily as a result of higher volumes at Ingalls in amphibious assault ships and at Newport News in the Columbia class (SSBN 826) program, partially offset by lower volumes in aircraft carriers.

Previous wording

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

Current wording

Segment cost of product sales for the three months ended June 30, 2024, increased $27 million, or 2%, compared with the same period in 2023, consistent with product sales described above.

Previous wording

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

Current wording

Service revenues for the three months ended June 30, 2024, increased $143 million, or 16%, from the same period in 2023, primarily as a result of higher volumes at Mission Technologies in C5ISR and CEW&S.

Previous wording

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

Current wording

Segment cost of service revenues for the three months ended June 30, 2024, increased $122 million, or 15%, compared with the same period in 2023, consistent with the higher service volumes described above.

Previous wording

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

Current wording

Interest expense for each of the three months ended June 30, 2024 and 2023, was $24 million. Interest expense for the six months ended June 30, 2024, was $45 million, compared with $48 million for the same period in 2023. The decrease in interest expense for the six months ended June 30, 2024, was driven by a decrease in outstanding long-term debt from the prior year period, partially offset by an increase in outstanding short-term debt.

Previous wording

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

Current wording

For the three months ended June 30, 2024, the non-operating retirement benefit was $46 million, compared with $37 million for the same period in 2023. For the six months ended June 30, 2024, the non-operating retirement benefit was $90 million, compared with $74 million for the same period in 2023. The increases in the non-operating retirement benefit for the three and six months ended June 30, 2024, were primarily driven by higher 2023 returns on plan assets.

Previous wording

Other, net income for the three months ended March 31, 2024, was $7 million, compared with other, net income of $9 million for the same period in 2023. The decrease was primarily driven by lower unrealized net gains in investments.

Current wording

Other, net income for the three months ended June 30, 2024, was $5 million, compared with other, net of zero for the same period in 2023. Other, net income for the six months ended June 30, 2024, was $12 million, compared with other, net income of $9 million for the same period in 2023. There were no individually significant drivers for the increases in other, net for the three and six months ended June 30, 2024.

Previous wording

Our effective income tax rates on earnings from operations for the three months ended March 31, 2024 and 2023, were 16.8% and 20.9%, respectively. The lower effective tax rate differed from the federal statutory corporate income tax rate of 21% for the three months ended March 31, 2024, primarily due to research and development tax credits and income tax benefits associated with stock award settlement activity.

Current wording

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

Previous wording

Total backlog as of March 31, 2024, and December 31, 2023, was $48.4 billion and $48.1 billion, respectively. Total backlog includes both funded backlog (firm orders for which funding is contractually obligated by the customer) and unfunded backlog (firm orders for which funding is not currently contractually obligated by the customer). Backlog excludes unexercised contract options and unfunded Indefinite Delivery/Indefinite Quantity orders. For contracts having no stated contract values, backlog includes only the amounts committed by the customer.

Current wording

Total backlog as of June 30, 2024, and December 31, 2023, was $48.5 billion and $48.1 billion, respectively. Total backlog includes both funded backlog (firm orders for which funding is contractually obligated by the customer) and unfunded backlog (firm orders for which funding is not currently contractually obligated by the customer). Backlog excludes unexercised contract options and unfunded Indefinite Delivery/Indefinite Quantity orders. For contracts having no stated contract values, backlog includes only the amounts committed by the customer.

Previous wording

The value of new contract awards during the three months ended March 31, 2024, was $3.1 billion, including an award for the maintenance and overhaul of USSBoise (SSN 764) and an advanced planning contract for the refueling and complex overhaul ("RCOH") of USSHarry S. Truman (CVN 75).

Current wording

The value of new contract awards during the six months ended June 30, 2024, was $6.2 billion, including an award for the maintenance and overhaul of USSBoise (SSN 764), an award for an advanced planning contract for the RCOH of USSHarry S. Truman (CVN 75) and an award for construction of USSRichard J. Danzig(DDG 143).

Previous wording

The following table summarizes key components of cash flow provided by operating activities:

Current wording

The following table summarizes key components of cash flow provided by (used in) operating activities:

Previous wording

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.

Current wording

obligations as they come due through internally generated funds from current levels of operations, existing borrowing facilities, and/or through refinancing in the debt markets prior to the maturity dates of our debt.

Previous wording

We discuss below our significant operating, investing, and financing activities affecting cash flows for the three months ended March 31, 2024 and 2023, as classified in our unaudited condensed consolidated statements of cash flows.

Current wording

We discuss below our significant operating, investing, and financing activities affecting cash flows for the six months ended June 30, 2024 and 2023, as classified in our unaudited condensed consolidated statements of cash flows.

Previous wording

Cash used in operating activities for the three months ended March 31, 2024, was $202 million, compared with $9 million used in operating activities for the same period in 2023. The unfavorable change in operating cash flow was primarily due to an unfavorable change in trade working capital driven by the timing of receipts of accounts receivable and payments of accounts payable.

Current wording

Cash used in operating activities for the six months ended June 30, 2024, was $211 million, compared with cash provided by operating activities of $73 million for the same period in 2023. The unfavorable change in operating cash flow was primarily due to an unfavorable change in trade working capital driven by the timing of payments of accounts payable and receipts of accounts receivable, partially offset by lower payments for income taxes.

Previous wording

Cash used in investing activities for the three months ended March 31, 2024, was $71 million, compared with $60 million used in investing activities for the same period in 2023. The change in investing cash was primarily driven by an increase in capital expenditures, partially offset by additional investment in one of our unconsolidated nuclear and environmental joint ventures in 2023.

Current wording

Cash used in investing activities for the six months ended June 30, 2024, was $162 million, compared to $70 million used in investing activities for the same period in 2023. The change in investing cash was primarily driven by the sale of our interest in an unconsolidated ship repair and specialty fabrication joint venture in 2023 and an increase in capital expenditures, partially offset by additional investment in one of our unconsolidated nuclear and environmental joint ventures in 2023.

Previous wording

For 2024, we expect our capital expenditures for maintenance and sustainment to be approximately 1.5% to 2.0% of annual revenues and our discretionary capital expenditures to be approximately 2.5% to 3.5% of annual revenues. We expect our capital expenditures to increase from the past few years due to investments to expand our shipbuilding capacity.

Current wording

For 2024, we expect our capital expenditures for maintenance and sustainment to be approximately 1.5% to 2.0% of annual revenues and our discretionary capital expenditures to be approximately 2.5% to 3.5% of annual revenues. Our capital expenditures are increasing compared to the past few years due to investments to expand our shipbuilding capacity.

Previous wording

Cash used in financing activities for the three months ended March 31, 2024, was $147 million, compared with $80 million used in financing activities for the same period in 2023. The change in cash used in financing activities was primarily due to a $135 million increase in repayments on a term loan, a $53 million increase in common stock repurchases, and a $13 million increase in employee taxes on certain share-based payment arrangements, partially offset by a $117 million increase in proceeds from our commercial paper program and a $22 million increase in net proceeds from revolving credit facility borrowings.

Current wording

Cash used in financing activities for the six months ended June 30, 2024, was $46 million, compared with $157 million used in financing activities for the same period in 2023. The change in cash used in financing activities was primarily due to a $440 million increase in proceeds from our commercial paper program, partially offset by a $199 million increase in repayments of long term debt, and a $111 million increase in common stock repurchases.

Previous wording

The following table reconciles net cash used in operating activities to free cash flow:

Current wording

The following table reconciles net cash provided by (used in) operating activities to free cash flow:

Previous wording

Free cash flow for the three months ended March 31, 2024, decreased $225 million from the same period in 2023, primarily due to an unfavorable change in trade working capital and higher capital expenditures.

Current wording

Free cash flow for the six months ended June 30, 2024, decreased $338 million from the same period in 2023, primarily due to an unfavorable change in trade working capital and higher capital expenditures, partially offset by lower payments for income taxes.

Previous wording

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 March 31, 2024, $12 million in letters of credit were issued but undrawn and $360 million of surety bonds were outstanding. As of March 31, 2024, we had no other significant off-balance sheet arrangements.

Current wording

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 June 30, 2024, $11 million in letters of credit were issued but undrawn and $360 million of surety bonds were outstanding. As of June 30, 2024, we had no other significant off-balance sheet arrangements.

Previous wording

Additional factors include those described in our 2023 Annual Report on Form 10-K, including under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business,” in our subsequent quarterly reports on Form 10-Q, including under the captions “Risk Factors” and

Current wording

Additional factors include those described in our 2023 Annual Report on Form 10-K, including under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business,” in our subsequent quarterly reports on Form 10-Q, including under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in our subsequent filings with the SEC.