Ship management company

HUNTINGTON INGALLS INDUSTRIES, INC. – 10-Q – Management report and analysis of the financial situation and operating results

OVERVIEW

Our business

Huntington Ingalls Industries, Inc. ("HII", "we", "us", or "our") is an
all-domain defense and technologies partner, recognized worldwide as America's
largest shipbuilder. For more than a century, our 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. Our Mission Technologies (formerly named
Technical Solutions) segment provides a range of services and products to
government and commercial customers. Headquartered in Newport News, Virginia,
HII employs approximately 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 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 solutions; platform modernization; and
critical nuclear operations.

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The following discussion should be read along with the unaudited condensed
consolidated financial statements included in this Quarterly Report on Form
10-Q, as well as our Annual Report on Form 10-K for the year ended December 31,
2021.

Business Environment

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

U.S. Government Contracts - Long-term uncertainty exists with respect to overall
levels of defense spending across the future years' defense plan, and it is
likely that U.S. Government discretionary spending levels will continue to be
subject to significant pressure.

Congressional consideration of the fiscal year 2023 President's Budget Request
began following its release in March 2022 and is ongoing. The House
Appropriations Committee voted out a defense appropriations measure that broadly
supports our shipbuilding and unmanned programs and awaits floor consideration.
The Senate Appropriations Committee has yet to conduct markups, and the timing
of committee action remains uncertain. The House and Senate Armed Services
Committees have each acted on their respective National Defense Authorization
bills for fiscal year 2023, both of which broadly support our shipbuilding
programs, including increased funding authority for Arleigh Burke class
destroyers (DDG-51) and LHA and LPD Flight II amphibious ships. The full House
has approved its authorization bill and awaits Senate floor consideration of its
version before the two bills can be reconciled to produce a final measure. We
cannot predict the outcome of the fiscal year 2023 budget process or whether
short-term funding will be required in the event annual appropriations measures
are not finalized by the start of the October 1 fiscal year.

Long-term funding for certain programs in which we participate may be reduced,
delayed, or canceled. In addition, spending cuts and/or reprioritization of
defense investment could adversely affect the viability of our suppliers,
subcontractors, and employee base. Our contracts or subcontracts under programs
in which we participate may be terminated or adjusted by the U.S. Government or
the prime contractor due to lack of government funding or reductions or delays
in government funding. Significant reductions in the number of ships procured by
the U.S. Navy or significant delays in funding our ship programs would have a
material effect on our financial position, results of operations, and cash
flows.

The federal budget environment remains a significant long-term risk.
Considerable uncertainty exists regarding how future budget and program
decisions will develop and what challenges budget changes will present for the
defense industry. We believe continued budget pressures could have serious
implications for defense discretionary spending, the defense industrial base,
including HII, and the customers, employees, suppliers, subcontractors,
investors, and communities that rely on companies in the defense industrial
base. Although it is difficult to determine specific impacts, we expect that
over the longer term, the budget environment may result in fewer contract awards
and lower revenues, profits, and cash flows from our U.S. Government contracts.
It is likely budget and program decisions made in this environment will have
long-term impacts on HII and the entire defense industry.

Political and Economic Environment - The global geopolitical and economic
environment continues to be impacted by uncertainty, heightened tensions, and
instability. Geopolitical relationships have changed, and are continuing to
change, and the U.S. and its allies face a global security environment that
includes threats from state and non-state actors, including major global powers,
as well as terrorist organizations, emerging nuclear tensions, diverse regional
security concerns, and political instability. These global threats persist
across all domains, from undersea to space to cyber, and the global market for
defense products, services, and solutions is driven by these complex and
evolving security challenges. Our current operating environment exists in the
broader context of political and socioeconomic priorities and reflects, among
other things, the continued impact of and uncertainty surrounding geopolitical
tensions, financial market volatility, inflation, and the COVID-19 pandemic.

In February 2022, Russian forces invaded Ukraine. In response, the United States
and other countries imposed economic and trade sanctions, export controls, and
other restrictions. The conflict and these sanctions have caused disruptions to
global economies and global business, including heightened cybersecurity risks,
supply chain challenges, increased energy costs, and an exacerbation of existing
inflationary pressures. Additionally, and more broadly, economic tensions with
China and changes in international trade policies, including higher tariffs on
imported goods and materials and renegotiation of free trade agreements, could
impact the global market for defense products, services, and solutions.
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Contents

In addition to price surges in energy, food, and aluminum as a result of the
Russian invasion of Ukraine, rising inflation has led to higher costs of various
commodities and supplier products. Inflation has also increased interest rates,
raising the cost of borrowing for the federal government, which could impact
other spending priorities. In an era of unanticipated cost increases, the
inclusion of mitigation mechanisms, such as Economic Price Adjustment clauses,
in our contracts help reduce risks from negative price adjustments. Our bids for
longer-term firm fixed-price contracts typically include assumptions for labor
and other contract costs that historically have been sufficient to cover cost
increases over the period of performance. If, however, recent inflationary
conditions continue over the long-term, our cost assumptions may not be
sufficient to cover potential contract cost growth or may impact the
availability of resources to execute the respective contracts. Management is
closely monitoring possible cost impacts with our customers.

COVID-19 Pandemic - The COVID-19 pandemic has dramatically impacted the global
economic environment, including labor shortages and supply chain challenges. The
COVID-19 crisis initially had a significant impact on the U.S. labor market, and
the resulting challenges and uncertainty have exacerbated already existing
workforce trends. Talent attraction and retention and the ability to maintain a
qualified workforce affects not only industry prime contractors but suppliers as
well. Challenges incurred by our suppliers relative to their workforces, access
to necessary components, materials, and other supplies at reasonable prices, and
access to support services, such as shipping and transportation, may impact the
ability of suppliers to provide agreed-upon goods and services in a timely,
compliant, and cost-effective manner. We may in the future incur additional
costs and performance challenges, including as a result of higher prices,
schedule delays, or the need to identify and develop alternative suppliers.

The COVID-19 pandemic has impacted our employees, customers, suppliers, and
communities (collectively, "COVID-19 Events"). While costs related to COVID-19
Events are allowable under U.S. Government contracts, our contract estimates
reflect profit margin impact uncertainty, because such costs may not result in
equitable adjustments, particularly on firm fixed-price and fixed-price
incentive contracts, or may not be adequately covered by insurance. Reinsurers
under our property insurance have failed to acknowledge coverage for various
losses related to COVID-19, and we filed a complaint in state court in Vermont
seeking a judgment declaring that our business interruption and other losses
associated with COVID-19 are covered by our property insurance program. We also
initiated arbitration proceedings against other reinsurers seeking similar
relief. The Vermont court dismissed our complaint in response to a motion of the
reinsurers for judgment on the pleadings, and we have appealed the decision.
Although we continue to believe that our position is well-founded, no assurance
can be provided regarding the ultimate resolution of this matter. See Note 10:
Investigations, Claims, and Litigation.

Critical accounting policies, estimates and judgments

As discussed in our Annual Report on Form 10-K for the year ended December 31,
2021, we consider our policies relating to the following matters to be critical
accounting policies and estimates:

•Revenue recognition;

•Purchase accounting, goodwill and intangible fixed assets;

•Litigation, Commitments and Contingencies;

• Retirement benefit plans; and

•Workers’ compensation.

From June 30, 2022there have been no material changes to the above
accounting policies, estimates and critical judgments since December 31, 2021.

We have incorporated realized and estimated future effects of COVID-19 Events,
based upon current conditions and our judgment of the future impacts of COVID-19
Events, with respect to contract costs and revenue recognition, effective income
tax rates, and the fair values of our long-lived assets, financial instruments,
intangible assets, and goodwill recorded at our reporting units.

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Contracts

We generate most of our revenues from multi-year contracts with the U.S.
Government for design, production, and support activities. Due to the size,
duration, and nature of many of our multi-year contracts, the estimation of
sales and services revenues and costs through completion is complicated and
subject to many variables. Sales and service revenue estimates are based on
negotiated contract prices, modified by our assumptions regarding contract
options, change orders, incentive and award provisions associated with schedule,
technical performance, and price adjustment clauses (such as inflation or
index-based clauses). These multi-year contracts generally have a transaction
price that is based on estimated cost to produce the product or service plus
margin. Product and service cost estimates are based on negotiated or estimated
contract terms, historical performance trends, and other economic projections.
Government contracts typically include the following cost elements: direct
material, labor and subcontracting costs, and certain indirect costs, including
allowable general and administrative expenses. Factors that influence our cost
estimates include inflationary trends, technical and schedule risk, internal and
subcontractor performance trends, business volume assumptions, COVID-19
disruptions, and capital costs.

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.

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.

Program Descriptions

For your convenience, a brief description of some of the programs covered in this
The Quarterly Report on Form 10-Q is included in the “Program Glossary” of this
section.

CONSOLIDATED OPERATING RESULTS

The following table presents certain financial highlights:

                                               Three Months Ended                                                               Six Months Ended
                                                     June 30                               2022 vs. 2021                             June 30                             2022 vs. 2021
($ in millions)                               2022                2021              Dollars              Percent              2022              2021              Dollars              Percent
Sales and service revenues              $    2,662             $ 2,231          $        431                  19  %       $   5,238          $ 4,509          $        729                  16  %
Cost of product sales and service
revenues                                     2,272               1,909                   363                  19  %           4,499            3,845                   654                  17  %
Income from operating
investments, net                                27                  12                    15                 125  %              34               20                    14                  70  %
Other income and gains (losses),
net                                              1                  (2)                    3                 150  %               -                1                    (1)               (100) %
General and administrative
expenses                                       227                 204                    23                  11  %             444              410                    34                   8  %

Operating income                               191                 128                    63                  49  %             329              275                    54                  20  %
Other income (expense)
Interest expense                               (26)                (18)                   (8)                (44) %             (52)             (39)                  (13)                (33) %
Non-operating retirement benefit                67                  44                    23                  52  %             138               90                    48                  53  %
Other, net                                     (10)                  7                   (17)               (243) %             (17)               8                   (25)               (313) %
Federal and foreign income taxes                44                  32                    12                  38  %              80               57                    23                  40  %
Net earnings                            $      178             $   129          $         49                  38  %       $     318          $   277          $         41                  15  %


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Contents

Operational Performance Evaluation and Reporting

We manage and assess the performance of our business based on our performance on
individual contracts and programs using the financial measures referred to
below, with consideration given to the Critical Accounting Policies, Estimates,
and Judgments referred to in this section. Our portfolio of long-term contracts
is largely flexibly-priced. Therefore, sales tend to fluctuate in concert with
costs across our large portfolio of active contracts, with operating income
being a critical measure of operating performance. Under FAR rules that govern
our business with the U.S. Government, most types of costs are allowable, and we
do not focus on individual cost groupings, such as cost of sales or general and
administrative expenses, as much as we do on total contract costs, which are a
key factor in determining contract operating income. As a result, in evaluating
our operating performance, we look primarily at changes in sales and service
revenues, as well as operating income, including the effects of significant
changes in operating income as a result of changes in contract 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.

Revenue from sales and services

Revenues from sales and services were broken down as follows:

                                       Three Months Ended                                                               Six Months Ended
                                             June 30                               2022 vs. 2021                             June 30                             2022 vs. 2021
($ in millions)                       2022                2021              Dollars              Percent              2022              2021              Dollars              Percent
Product sales                   $    1,829             $ 1,763          $         66                   4  %       $   3,553          $ 3,484          $         69                   2  %
Service revenues                       833                 468                   365                  78  %           1,685            1,025                   660                  64  %
Sales and service
revenues                        $    2,662             $ 2,231          $        431                  19  %       $   5,238          $ 4,509          $        729                  16  %



Product sales for the three months ended June 30, 2022, increased $66 million,
or 4%, from the same period in 2021. Product sales for the six months ended June
30, 2022, increased $69 million, or 2%, from the same period in 2021. Ingalls
product sales decreased $13 million and $39 million for the three and six months
ended June 30, 2022, respectively, primarily as a result of lower volumes in
surface combatants, partially offset by higher volumes in amphibious assault
ships. Newport News product sales increased $79 million for the three months
ended June 30, 2022, primarily as a result of higher volumes in aircraft
carriers, partially offset by lower volumes in submarines. Newport News product
sales increased $99 million for the six months ended June 30, 2022, primarily as
a result of higher volumes in aircraft carriers. Mission Technologies product
sales were flat for the three months ended June 30, 2022. Mission Technologies
product sales increased $9 million for the six months ended June 30, 2022,
primarily as a result of higher volumes in defense and federal solutions
("DFS").

Service revenues for the three months ended June 30, 2022, increased $365
million, or 78%, compared with the same period in 2021. Service revenues for the
six months ended June 30, 2022, increased $660 million, or 64%, compared with
the same period in 2021. Ingalls service revenues increased $4 million and $12
million for the three and six months ended June 30, 2022, respectively,
primarily as a result of higher volumes in amphibious assault ship services,
partially offset by lower volumes in surface combatant services. Newport News
service revenues decreased $6 million for the three months ended June 30, 2022,
primarily as a result of lower volumes in naval nuclear support services and
aircraft carrier services, partially offset by higher volumes in submarine
services. Newport News service revenues decreased $43 million for the six months
ended June 30, 2022, primarily as a result of lower volumes in aircraft carrier
services and naval nuclear support services. Mission Technologies service
revenues increased $367 million and $691 million for the three and six months
ended June 30, 2022, respectively, primarily as a result of higher volumes in
DFS services.

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Cost of Sales and Service Revenues

Cost of product sales, cost of service revenue, operating revenue
investments, net and general and administrative expenses are as follows:

                                           Three Months Ended                                                            Six Months Ended
                                                 June 30                             2022 vs. 2021                            June 30                            2022 vs. 2021
($ in millions)                           2022              2021              Dollars              Percent             2022             2021              Dollars              Percent
Cost of product sales                 $   1,526          $ 1,495          $         31                   2  %       $ 2,994          $ 2,949          $         45                   2  %
% of product sales                         83.4  %          84.8  %                                                    84.3  %          84.6  %
Cost of service revenues                    746              414                   332                  80  %         1,505              896                   609                  68  %
% of service revenues                      89.6  %          88.5  %                                                    89.3  %          87.4  %
Income from operating
investments, net                             27               12                    15                 125  %            34               20                    14                  70  %
Other income and gains
(losses), net                                 1               (2)                    3                 150  %             -                1                    (1)               (100) %
General and administrative
expenses                                    227              204                    23                  11  %           444              410                    34                   8  %
% of sales and service revenues             8.5  %           9.1  %                                                     8.5  %           9.1  %

Cost of sales and service
revenues                              $   2,471          $ 2,103          $        368                  17  %       $ 4,909          $ 4,234          $        675                  16  %



Cost of Product Sales

Cost of product sales for the three months ended June 30, 2022, increased $31
million, or 2%, compared with the same period in 2021. Cost of product sales for
the six months ended June 30, 2022, increased $45 million, or 2%, compared with
the same period in 2021. Ingalls cost of product sales decreased $28 million and
$38 million for the three and six months ended June 30, 2022, respectively,
primarily as a result of volume decreases described above, partially offset by
higher risk retirement on Harrisburg (LPD 30). Newport News cost of product
sales increased $56 million and $76 million for the three and six months ended
June 30, 2022, respectively, primarily as a result of volume increases described
above. Mission Technologies cost of product sales increased $5 million for the
three months ended June 30, 2022, driven by year-to-year variances in contract
mix. Mission Technologies cost of product sales increased $11 million for the
six months ended June 30, 2022, driven by volume increases described above. Cost
of product sales related to the Operating FAS/CAS Adjustment decreased $2
million and $4 million for the three and six months ended June 30, 2022,
respectively, as described below.

Cost of product sales as a percentage of product sales decreased from 84.8% for
the three months ended June 30, 2021, to 83.4% for the three months ended June
30, 2022. The decrease was primarily due to favorable changes in contract
estimates from facilities capital and price adjustment clauses and higher risk
retirement on Harrisburg (LPD 30), as well as a favorable change in the
Operating FAS/CAS Adjustment, partially offset by lower risk retirement on the
Virginia class (SSN 774) submarine program and receipt of a contract incentive
on USS Jack H. Lucas (DDG 125) in 2021. Cost of product sales as a percentage of
product sales decreased from 84.6% for the six months ended June 30, 2021, to
84.3% for the six months ended June 30, 2022. The decrease was primarily due to
favorable changes in contract estimates from facilities capital and price
adjustment clauses and higher risk retirement on Harrisburg (LPD 30), USS Gerald
R. Ford (CVN 78), Fort Lauderdale (LPD 28) following its delivery, and Frank E.
Petersen Jr. (DDG 121), as well as a favorable change in the Operating FAS/CAS
Adjustment, partially offset by lower risk retirement on the Virginia class (SSN
774) submarine program, receipt of a contract incentive on USS Jack H. Lucas
(DDG 125) in 2021, and lower risk retirement on Bougainville (LHA 8).

Service revenue cost

Cost of service revenues for the three months ended June 30, 2022, increased
$332 million, or 80%, compared with the same period in 2021. Cost of service
revenues for the six months ended June 30, 2022, increased $609 million, or 68%,
compared with the same period in 2021. Ingalls cost of service revenues
increased $5 million and $12 million for the three and six months ended June 30,
2022, respectively, primarily as a result of higher volumes described above.
Newport News cost of service revenues decreased $15 million and $50 million for
the three and six months ended June 30, 2022, respectively, primarily as a
result of lower volumes described above. Mission Technologies cost of service
revenues increased $342 million and $648 million for the three and six months
ended June 30, 2022, respectively, primarily as a result of higher volumes
described above. Cost of service revenues
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related to the Operating FAS/CAS Adjustment was flat for the three months ended
June 30, 2022 and decreased $1 million for the six months ended June 30, 2022,
as described below.

Cost of service revenues as a percentage of service revenues increased from
88.5% for the three months ended June 30, 2021, to 89.6% for the three months
ended June 30, 2022, primarily driven by higher amortization of purchased
intangible assets and year-to-year variances in contract mix, partially offset
by improved performance in DFS services due to the acquisition of Alion in the
third quarter of 2021. and a favorable change in the Operating FAS/CAS
Adjustment. Cost of service revenues as a percentage of service revenues
increased from 87.4% for the six months ended June 30, 2021, to 89.3% for the
six months ended June 30, 2022, primarily driven by higher amortization of
purchased intangible assets and year-to-year variances in contract mix,
partially offset by improved performance in DFS services due to the acquisition
of Alion in the third quarter of 2021, as well as a favorable change in the
Operating FAS/CAS Adjustment.

Income (loss) from operating investments, net

The activities of our operational investments are closely aligned with the
operations of the segments holding the investments. We therefore recognize revenue
related to earnings from equity accounted investments in our operating income.

Income from operating investments, net for the three and six months ended June
30, 2022, increased $15 million and $14 million, respectively, from the same
periods in 2021, primarily due to higher equity income from our investment in an
unconsolidated ship repair and specialty fabrication joint venture, partially
offset by lower equity income from our nuclear and environmental joint ventures.

Other income and gains (losses), net

Other income and gains (losses), net was a net gain of $1 million and a net loss
of $2 million for the three months ended June 30, 2022 and 2021, respectively.
The favorable change of $3 million was primarily due to a loss recognized in the
second quarter of 2021 as a result of the final purchase price adjustment to a
gain on the sale of our oil and gas business. Other income and gains (losses),
net were flat for the six months ended June 30, 2022, compared to the same
period in 2021.

General and administrative expenses

In accordance with industry practice and the regulations that govern the cost
accounting requirements for government contracts, most general and
administrative expenses are considered allowable and allocable costs on
government contracts. These costs are allocated to contracts in progress on a
systematic basis, and contract performance factors include this cost component
as an element of cost.

General and administrative expenses for the three and six months ended June 30,
2022, increased $23 million and $34 million, respectively, from the same periods
in 2021, primarily due to higher overhead costs as a result of the acquisition
of Alion in the third quarter of 2021 and current state income tax expense,
partially offset by favorable changes in non-current state income taxes.

Operating result

We view operating profit as an important measure to assess our
operating performance and, in accordance with industry practice, we define
operating profit as revenue less costs related to revenue generation
and general and administrative expenses.

We internally manage our operations by reference to "segment operating income,"
which is defined as operating income before the Operating FAS/CAS Adjustment and
non-current state income taxes, neither of which affects segment performance.
Segment operating income is not a recognized measure under GAAP.  When analyzing
our operating performance, investors should use segment operating income in
addition to, and not as an alternative for, operating income or any other
performance measure presented in accordance with GAAP. It is a measure we use to
evaluate our core operating performance.  We believe segment operating income
reflects an additional way of viewing aspects of our operations that, when
viewed with our GAAP results, provides a more complete understanding of factors
and trends affecting our business. We believe the measure is used by investors
and is a
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useful indicator to measure our performance. Because not all companies use
identical calculations, our presentation of segment operating income may not be
comparable to similarly titled measures of other companies.

The following table reconciles operating income to segment operating income:
                                          Three Months Ended                                                             Six Months Ended
                                               June 30                            2022 vs. 2021                              June 30                              2022 vs. 2021
($ in millions)                          2022              2021            Dollars              Percent                2022                2021            Dollars              Percent
Operating income                     $      191          $ 128          $        63                  49  %       $     329               $ 275          $        54                  20  %
Operating FAS/CAS Adjustment                 35             37                   (2)                 (5) %              72                  77                   (5)                 (6) %
Non-current state income taxes               (1)             4                   (5)               (125) %               -                   8                   (8)               (100) %
Segment operating income             $      225          $ 169          $        56                  33  %       $     401               $ 360          $        41                  11  %



Segment Operating Income

Segment operating income for the three months ended June 30, 2022, was $225
million, compared with segment operating income of $169 million for the same
period in 2021. The increase was primarily due to favorable changes in contract
estimates from facilities capital and price adjustment clauses and higher risk
retirement on Harrisburg (LPD 30), as well as improved performance in DFS
services and higher equity income, partially offset by lower risk retirement on
the Virginia class (SSN 774) submarine program and receipt of a contract
incentive on USS Jack H. Lucas (DDG 125) in 2021, as well as higher amortization
of purchased intangible assets.

Segment operating income for the six months ended June 30, 2022, was $401
million, compared with segment operating income of $360 million for the same
period in 2021. The increase was primarily due to favorable changes in contract
estimates from facilities capital and price adjustment clauses and higher risk
retirement on Harrisburg (LPD 30), USS Gerald R. Ford (CVN 78), Fort Lauderdale
(LPD 28) following its delivery, and Frank E. Petersen Jr. (DDG 121), as well as
improved performance in DFS services and higher equity income, partially offset
by lower risk retirement on the Virginia class (SSN 774) submarine program,
receipt of a contract incentive on USS Jack H. Lucas (DDG 125) in 2021, and
lower risk retirement on Bougainville (LHA 8), as well as higher amortization of
purchased intangible assets.

The activity within each segment is described in the operating results of the segment below.

FAS/CAS setting and operating FAS/CAS setting

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

The components of the operating FAS/CAS adjustment were as follows:

                                            Three Months Ended                                                             Six Months Ended
                                                 June 30                            2022 vs. 2021                              June 30                              2022 vs. 2021
($ in millions)                            2022              2021            Dollars              Percent                2022                2021      
     Dollars              Percent
FAS benefit (expense)                  $       19          $  (7)         $        26                 371  %       $      43               $ (14)         $        57                 407  %
CAS cost                                       13             14                   (1)                 (7) %              23                  27                   (4)                (15) %
FAS/CAS Adjustment                             32              7                   25                 357  %              66                  13                   53                 408  %
Non-operating retirement benefit              (67)           (44)                 (23)                (52) %            (138)                (90)                 (48)                (53) %
Operating FAS/CAS Adjustment           $      (35)         $ (37)         $         2                   5  %       $     (72)              $ (77)         $         5                   6  %



The Operating FAS/CAS Adjustment was a net expense of $35 million and $37
million for the three months ended June 30, 2022 and 2021, respectively. The
Operating FAS/CAS Adjustment was a net expense of $72 million and $77 million
for the six months ended June 30, 2022 and 2021, respectively. The favorable
changes in the Operating FAS/CAS Adjustment of $2 million and $5 million for the
three and six months ended June 30, 2022, respectively, were primarily driven by
the more immediate recognition of higher interest rates under FAS.

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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 for the three months ended June 30, 2022,
was $1 million, compared to non-current state income tax expense of $4 million
for the same period in 2021. The favorable change in non-current state income
taxes was driven by a decrease in deferred state income tax expense, primarily
attributable to an increase in expenses that are not currently deductible for
income tax purposes. Non-current state income tax benefit for the six months
ended June 30, 2022, was less than $1 million, compared to non-current state
income tax expense of $8 million for the same period in 2021. The favorable
change in non-current state income taxes was driven by a decrease in deferred
state income tax expense, primarily attributable to an increase in expenses that
are not currently deductible for income tax purposes.

Interest charges

Interest expense for the three and six months ended June 30, 2022, increased $8
million and $13 million, respectively, compared with the same periods in 2021,
primarily due to the issuance of senior notes and borrowing under the Term Loan
in the third quarter of 2021.

Off-farm pension benefit

The non-operating retirement benefit includes the following components of net
periodic benefit costs: interest cost, expected return on plan assets,
amortization of prior service cost (credit) and actuarial loss (gain), and
settlement and curtailment effects. For the three and six months ended June 30,
2022, the favorable change in the non-operating retirement benefit of $23
million and $48 million was primarily driven by higher 2021 returns on plan
assets.

Other, Net

Other, net expenses up $17 million and $25 million for three and six
months ended June 30, 2022respectively, compared to the same periods in
2021, mainly due to losses on investments in marketable securities.

Federal and foreign income taxes

Our effective income tax rates on earnings from operations for the three months
ended June 30, 2022 and 2021, were 19.8% and 19.9%, respectively. Our effective
income tax rates on earnings from operations for the six months ended June 30,
2022 and 2021, were 20.1% and 17.1%, respectively. The effective tax rate for
the three months ended June 30, 2022, was generally flat compared to the prior
year. The higher effective tax rate for the six months ended June 30, 2022, was
primarily attributable to a tax loss associated with the sale of our oil and gas
business recorded in 2021.

For the three months ended June 30, 2022, our effective tax rate differed from
the federal statutory corporate income tax rate primarily as a result of
research and development tax credits. For the six months ended June 30, 2022,
our effective tax rate did not differ materially from the federal statutory
corporate income tax rate of 21%. For the three months ended June 30, 2021, our
effective tax rate differed from the federal statutory tax rate primarily as a
result of research and development tax credits. For the six months ended June
30, 2021, our effective tax rate differed from the federal statutory tax rate
primarily as a result of a tax loss associated with the sale of our oil and gas
business. See Note 9: Income Taxes.

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SEGMENT OPERATING RESULTS

Basis of Presentation

We are aligned on three segments to present: Ingalls, Newport Newsand
Missionary technologies.

The following table presents the segment operating results:

                                           Three Months Ended                                                               Six Months Ended
                                                 June 30                               2022 vs. 2021                             June 30                             2022 vs. 2021
($ in millions)                           2022                2021         
    Dollars              Percent              2022              2021              Dollars              Percent
Sales and Service Revenues
Ingalls                             $      658             $   670          $        (12)                 (2) %       $   1,289          $ 1,319          $        (30)                 (2) %
Newport News                             1,433               1,363                    70                   5  %           2,823            2,770                    53                   2  %
Mission Technologies                       600                 237                   363                 153  %           1,190              496                   694                 140  %
Intersegment eliminations                  (29)                (39)                   10                  26  %             (64)             (76)                   12                  16  %
Sales and service revenues          $    2,662             $ 2,231          $        431                  19  %       $   5,238          $ 4,509          $        729                  16  %
Operating Income
Ingalls                             $      106             $    80          $         26                  33  %       $     192          $   171          $         21                  12  %
Newport News                                94                  76                    18                  24  %             175              169                     6                   4  %
Mission Technologies                        25                  13                    12                  92  %              34               20                    14                  70  %
Segment operating income                   225                 169                    56                  33  %             401              360                    41                  11  %
Non-segment factors affecting
operating income
Operating FAS/CAS Adjustment               (35)                (37)                    2                   5  %             (72)             (77)                    5                   6  %
Non-current state income
taxes                                        1                  (4)                    5                 125  %               -               (8)                    8                 100  %
Operating income                    $      191             $   128          $         63                  49  %       $     329          $   275          $         54                  20  %


KEY FINANCIAL MEASURES IN THE SECTOR

Revenue from sales and services

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 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 margin rates. These changes typically
relate to profit recognition associated with revisions to estimated costs at
completion ("EAC") that reflect improved or deteriorated operating performance
on that contract. Operating income changes are accounted for on a cumulative to
date basis at the time an EAC change is recorded. Segment operating income may
also be affected by, among other things, contract performance, the effects of
workforce stoppages, the effects of natural disasters such as hurricanes,
resolution of disputed items with the customer, recovery of insurance proceeds,
and other discrete events. At the completion of a long-term contract, any
originally estimated costs not incurred or reserves not fully utilized, such as
warranty reserves, could also impact contract earnings. Where such items have
occurred and the effects are material, a separate description is provided.

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Cumulative Adjustments

For the three and six months ended June 30, 2022 and 2021, favorable and
unfavorable cumulative catch-up margin adjustments are as follows:

                                         Three Months Ended                 Six Months Ended
                                               June 30                          June 30
($ in millions)                            2022              2021           2022            2021
Gross favorable adjustments        $      106               $ 62      $     213            $ 148
Gross unfavorable adjustments             (38)               (27)          (100)             (63)
Net adjustments                    $       68               $ 35      $     113            $  85



For the three months ended June 30, 2022, favorable cumulative catch-up margin
adjustments were related to risk retirement on Harrisburg (LPD 30). During the
same period, none of the unfavorable cumulative catch-up margin adjustments were
individually significant.

For the six months ended June 30, 2022, favorable cumulative catch-up margin
adjustments were related to risk retirement on Harrisburg (LPD 30) and Fort
Lauderdale (LPD 28) following its delivery. During the same period, none of the
unfavorable cumulative catch-up margin adjustments were individually
significant.

For the three months ended June 30, 2021, favorable cumulative margin catch-up
adjustments included a contract incentive on Jack H. Lucas (DDG 125) and risk
retirement on Richard M. McCool Jr. (LPD 29) and Fort Lauderdale (LPD 28).
During the same period, none of the unfavorable cumulative catch-up margin
adjustments were individually significant.

For the six months ended June 30, 2021, favorable cumulative margin catch-up
adjustments included risk retirement on Bougainville (LHA 8), a contract
incentive on Jack H. Lucas (DDG 125), and risk retirement on Block IV of the
Virginia class (SSN 774) submarine program and Fort Lauderdale (LPD 28). During
the same period, none of the unfavorable cumulative catch-up margin adjustments
were individually significant.

Ingalls
                                         Three Months Ended                                                               Six Months Ended
                                               June 30                               2022 vs. 2021                             June 30                            2022 vs. 2021
($ in millions)                       2022                  2021              Dollars              Percent              2022             2021              Dollars              Percent
Sales and service revenues        $    658                $  670          $        (12)                  (2) %       $ 1,289          $ 1,319          $        (30)                 (2) %
Segment operating income               106                    80                    26                   33  %           192              171                    21                  12  %
As a percentage of segment
sales                                 16.1   %              11.9  %                                                     14.9  %          13.0  %



Sales and Service Revenues

Ingalls revenues for the three months ended June 30, 2022, decreased $12
million, or 2%, from the same period in 2021, primarily driven by lower revenues
in surface combatants, partially offset by higher revenues in amphibious assault
ships. Revenues on surface combatants decreased due to lower volumes on Jeremiah
Denton (DDG 129) and USS Jack H Lucas (DDG 125), partially offset by higher
volumes on Thad Cochran (DDG 135). Revenues on amphibious assault ships
increased due to higher volumes on Pittsburgh (LPD 31), Harrisburg (LPD 30), LHA
9 (unnamed), and L-Class planning yard services contract, partially offset by
lower volumes on Fort Lauderdale (LPD 28).

Ingalls revenues for the six months ended June 30, 2022, decreased $30 million,
or 2%, from the same period in 2021, primarily driven by lower revenues in
surface combatants, partially offset by higher revenues in amphibious assault
ships. Revenues on surface combatants decreased due to lower volumes on Jeremiah
Denton (DDG 129), USS Jack H. Lucas (DDG 125), and Frank E. Petersen Jr. (DDG
121), partially offset by higher volumes on Thad Cochran (DDG 135). Revenues on
amphibious assault ships increased due to higher volumes on LHA 9 (unnamed),
Pittsburgh (LPD 31), and L-Class planning yard services contract and higher
volumes on Harrisburg (LPD 30), partially offset by lower volumes on Fort
Lauderdale (LPD 28) and Bougainville (LHA 8).

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Segment Operating Income

Ingalls segment operating income for the three months ended June 30, 2022, was
$106 million, compared with segment operating income of $80 million for the same
period in 2021. The increase was primarily driven by favorable changes in
contract estimates from facilities capital and price adjustment clauses and
higher risk retirement on Harrisburg (LPD 30), partially offset by receipt of a
contract incentive on USS Jack H. Lucas (DDG 125) in 2021.

Ingalls segment operating income for the six months ended June 30, 2022, was
$192 million, compared with segment operating income of $171 million for the
same period in 2021. The increase was primarily driven by favorable changes in
contract estimates from facilities capital and price adjustment clauses and
higher risk retirement on Harrisburg (LPD 30), Fort Lauderdale (LPD 28)
following its delivery, and Frank E. Petersen Jr. (DDG 121), partially offset by
receipt of a contract incentive on USS Jack H. Lucas (DDG 125) in 2021 and lower
risk retirement on Bougainville (LHA 8).

Newport News
                                       Three Months Ended                                                            Six Months Ended
                                             June 30                             2022 vs. 2021                            June 30                           2022 vs. 2021
($ in millions)                       2022              2021             Dollars              Percent              2022             2021             Dollars              Percent

Revenue from sales and services $1,433 $1,363 $

    70                    5  %       $ 2,823          $ 2,770          $        53                   2  %
Segment operating income                 94               76                   18                   24  %           175              169                    6                   4  %
As a percentage of segment
sales                                   6.6  %           5.6  %                                                     6.2  %           6.1  %


Revenue from sales and services

Newport News revenues for the three months ended June 30, 2022, increased $70
million, or 5%, from the same period in 2021, primarily driven by higher
revenues in aircraft carriers, partially offset by lower volumes in naval
nuclear support services. Aircraft carrier revenues increased primarily as a
result of higher volumes on the RCOH of USS John C. Stennis (CVN 74), the
construction of Doris Miller (CVN 81), the construction of John F. Kennedy (CVN
79), and Enterprise (CVN 80), partially offset by lower volumes on the RCOH of
USS George Washington (CVN 73). Naval nuclear support services revenues
decreased primarily as a result of lower volumes in submarine fleet support
services and facility maintenance services, partially offset by higher volumes
in carrier fleet support services.

Newport News revenues for the six months ended June 30, 2022, increased $53
million, or 2%, from the same period in 2021, primarily driven by higher
revenues in aircraft carriers and submarines, partially offset by lower revenues
in naval nuclear support services. Aircraft carrier revenues increased primarily
as a result of higher volumes on the RCOH of USS John C. Stennis (CVN 74),
partially offset by lower volumes on the RCOH of USS George Washington (CVN 73).
Submarine revenues increased due to higher volumes on Block V boats of the
Virginia class (SSN 774) submarine program and the Columbia class (SSBN 826)
program, partially offset by lower volumes on Block IV boats of the Virginia
class (SSN 774) submarine program. Naval nuclear support services revenues
decreased primarily as a result of lower volumes in submarine fleet support
services and facility maintenance services, partially offset by higher volumes
in carrier fleet support services.

Segment operating result

Newport News segment operating income for the three months ended June 30, 2022,
was $94 million, compared with segment operating income of $76 million for the
same period in 2021. The increase was primarily due to favorable changes in
contract estimates from facilities capital and price adjustment clauses,
partially offset by lower risk retirement on the Virginia class (SSN 774)
submarine program.

Newport News segment operating income for the six months ended June 30, 2022,
was $175 million, compared with segment operating income of $169 million for the
same period in 2021. The increase was primarily due to favorable changes in
contract estimates from facilities capital and price adjustment clauses and
higher risk retirement on USS Gerald R. Ford (CVN 78), partially offset by lower
risk retirement on the Virginia class (SSN 774) submarine program.

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Mission Technologies
                                         Three Months Ended                                                               Six Months Ended
                                               June 30                               2022 vs. 2021                             June 30                            2022 vs. 2021
($ in millions)                       2022                  2021              Dollars              Percent               2022             2021             Dollars              Percent
Sales and service revenues        $    600                $  237          $        363                  153  %       $   1,190          $ 496          $        694                 140  %
Segment operating income                25                    13                    12                   92  %              34             20                    14                  70  %
As a percentage of segment
sales                                  4.2   %               5.5  %                                                        2.9  %         4.0  %



Sales and Service Revenues

Mission Technologies revenue for the three months ended June 30, 2022,
increase $363 millionor 153%, compared to the same period in 2021, mainly due to
volume increase in DFS attributable to the acquisition of Alion in the third
quarter 2021.

Mission Technologies revenues for the six months ended June 30, 2022, increased
$694 million, or 140%, from the same period in 2021, primarily due to higher
volumes in DFS attributable to the acquisition of Alion in the third quarter of
2021.

Segment Operating Income

Mission Technologies segment operating income for the three months ended June
30, 2022, was $25 million, compared with segment operating income of $13 million
for the same period in 2021. The increase was primarily driven by the
acquisition of Alion in the third quarter of 2021 and higher equity income,
partially offset by higher amortization of purchased intangible assets.

Mission Technologies segment operating income for the six months ended June 30,
2022, was $34 million, compared with segment operating income of $20 million for
the same period in 2021. The increase was primarily driven by the acquisition of
Alion in the third quarter of 2021 and higher equity income, partially offset by
higher amortization of purchased intangible assets.

BACK

Total backlog as of June 30, 2022, and December 31, 2021, was approximately
$47.2 billion and $48.5 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.

The following table shows the funded and unfunded backlog by segment as of June
30, 2022
and December 31, 2021:

                                      June 30, 2022                           December 31, 2021
                                                        Total                                     Total
($ in millions)             Funded       Unfunded      Backlog        Funded       Unfunded      Backlog
Ingalls                   $ 10,208      $    940      $ 11,148      $ 10,216      $    792      $ 11,008
Newport News                13,025        18,386        31,411        11,121        21,198        32,319
Mission Technologies         1,361         3,289         4,650         1,334         3,789         5,123
Total backlog             $ 24,594      $ 22,615      $ 47,209      $ 22,671      $ 25,779      $ 48,450



Approximately 18% of the $48.5 billion total backlog as of December 31, 2021, is
expected to be converted into sales in 2022. U.S. Government orders comprised
substantially all of the backlog as of June 30, 2022, and December 31, 2021.

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Awards

The value of new contract awards during the six months ended June 30, 2022, was
approximately $4 billion, including an award for the construction of DDG 139
(unnamed).

CASH AND CAPITAL RESOURCES

We seek to efficiently convert operating results into cash for deployment in
operating our businesses, implementing our business strategy, and maximizing
stockholder value. We use various financial measures to assist in capital
deployment decision making, including net cash provided by operating activities
and free cash flow. We believe these measures are useful to investors in
assessing our financial performance.

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

                                                                           Six Months Ended
                                                                               June 30                      2022 vs. 2021
($ in millions)                                                          2022                2021              Dollars
Net earnings                                                       $     318               $ 277          $           41
Depreciation and amortization                                            178                 131                      47
Provision for doubtful accounts                                           (7)                  -                      (7)
Stock-based compensation                                                  16                  12                       4

Deferred income taxes                                                     (1)                 31                     (32)

Loss (gain) on investments in marketable securities                       26                 (12)                     38

Retiree benefits                                                         (65)                (70)                      5

Trade working capital increase                                          (281)               (230)                    (51)
Net cash provided by operating activities                          $     184               $ 139          $           45


We have historically maintained a capital structure comprising 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 our principal operating, investing and financing activities below.
affecting cash flow for the six months ended June 30, 2022 and 2021, as
filed in our unaudited condensed consolidated statements of cash flows.

Operational activities

Cash provided by operating activities for the six months ended June 30, 2022,
was $184 million, compared with $139 million provided by operating activities
for the same period in 2021. The favorable change in operating cash flow was
primarily due to higher earnings, lower contributions to retiree benefit plans,
and lower income tax payments, partially offset by changes in trade working
capital and higher interest payments. The change in trade working capital was
primarily driven by the timing of receipts of accounts receivable and payments
of accounts payable.

We expect cash generated from operations in combination with our current cash
and cash equivalents, as well as existing credit facilities, to be sufficient to
service debt and retiree benefit plans, meet contractual obligations, and
finance capital expenditures for at least the 12 months beginning July 1, 2022,
and beyond such 12-month period based on our current business plan.

Investing activities

Cash used in investing activities for the six months ended June 30, 2022, was
$101 million, compared with $134 million used in investing activities for the
same period in 2021. The change in investing cash was driven by lower capital
expenditures in 2022 and contribution of our San Diego Shipyard to a joint
venture in 2021, partially offset by
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the disposition of our oil and gas business in 2021. For 2022, we expect our
capital expenditures for maintenance and sustainment to be approximately 1.0% of
annual revenues and our discretionary capital expenditures to be approximately
1.5% to 2.0% of annual revenues.

Fundraising activities

Cash used in financing activities for the six months ended June 30, 2022, was
$335 million, compared with $169 million used in financing activities for the
same period in 2021. The change in financing cash was primarily due to an
increase in the repayment of long-term debt of $200 million, an increase of $7
million in employee taxes on certain share-based payment arrangements, and a $2
million increase in cash dividend payments, partially offset by a decrease of
$43 million in common stock repurchases.

Free movement of capital

Free cash flow represents cash provided by 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 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:
                                                      Six Months Ended
                                                          June 30                2022 vs. 2021
($ in millions)                                       2022            2021          Dollars
Net cash provided by operating activities       $     184            $ 139      $           45
Less capital expenditures:
Capital expenditure additions                        (102)            (134)                 32
Grant proceeds for capital expenditures                 -                2                  (2)
Free cash flow                                  $      82            $   7      $           75



Free cash flow for the six months ended June 30, 2022, increased $75 million
from the same period in 2021, primarily due to higher earnings, lower capital
expenditures, lower contributions to retiree benefit plans, and lower income tax
payments, partially offset by changes in trade working capital and higher
interest payments.


Government regulation and supervision

The U.S. Government has the ability, pursuant to regulations relating to
contractor business systems, to decrease or withhold contract payments if it
determines significant deficiencies exist in one or more such systems. As of
June 30, 2022 and 2021, the cumulative amounts of payments withheld by the U.S.
Government under our contracts subject to these regulations were not material to
our liquidity or cash flows.

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 June
30, 2022, $15 million in letters of credit were issued but undrawn and $276
million of surety bonds were outstanding. As of June 30, 2022, we had no other
significant off-balance sheet arrangements.


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ACCOUNTING STANDARDS UPDATES

See note 3: Updates to accounting standards in part I, point 1 for more information.
related to updates to accounting standards.

FORWARD-LOOKING STATEMENTS AND PROJECTIONS

Statements in this Quarterly Report on Form 10-Q and in our other filings with
the Securities and Exchange Commission ("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. You can generally identify forward-looking
statements by words such as "may," "will," "should," "expects," "intends,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential,"
"continue," and similar words or phrases or the negative of these words or
phrases. These statements relate to future events or our future financial
performance and involve known and unknown risks, uncertainties, and other
factors that may cause our actual results, levels of activity, performance, or
achievements to be materially different from any future results, levels of
activity, performance, or achievements expressed or implied by these
forward-looking statements. Although we believe the expectations reflected in
the forward-looking statements are reasonable when made, we cannot guarantee
future results, levels of activity, performance, or achievements. There are a
number of important factors that could cause our actual results to differ
materially from the results anticipated by our forward-looking statements, which
include, but are not limited to:

•Changes in government and customer priorities and requirements (including
government budgetary constraints, shifts in defense spending, and changes in
customer short-range and long-range plans);
•Our ability to estimate our future contract costs, 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, including the COVID-19
pandemic, and the impacts of vaccination mandates on our workforce;
•Our ability to effectively integrate the operations of Alion into our business;
•Disruptions impacting global supply, including those attributable to the
ongoing COVID-19 pandemic and those resulting from the ongoing conflict between
Russia and Ukraine;
•Changes in key estimates and assumptions regarding our pension and retiree
health care costs;
•Security threats, including cyber security threats, and related disruptions;
and
•Other risk factors discussed herein and in our other filings with the SEC.

There may be other risks and uncertainties that we are unable to predict at this
time or that we currently do not expect to have a material adverse effect on our
business, and we undertake no obligation to update or revise any forward-looking
statements. You should not place undue reliance on any forward looking
statements that we may make.
                                       32

————————————————– ——————————

Contents

GLOSSARY OF PROGRAMS
Included below are brief descriptions of some of the programs discussed in this
Quarterly Report on Form 10-Q.
Program Name                                  Program Description

America class (LHA 6) amphibious              Design and build large deck amphibious assault ships
assault ships                                 that provide forward presence and power projection as
                                              an integral part of joint, interagency and
                                              multinational maritime expeditionary forces. The
                                              America class (LHA 6) ships, together with the Wasp
                                              class (LHD 1) ships, are the successors to the
                                              decommissioned Tarawa class (LHA 1) ships. The America
                                              class (LHA 6) ships optimize aviation operations and
                                              support capabilities. In

2020 we delivered the USS Tripoli

                                              (LHA 7), and we were awarded a long-lead-time material
                                              and construction contract for LHA 9 (unnamed). We are
                                              currently constructing Bougainville (LHA 8).

Arleigh Burke class (DDG 51)                  Build guided missile destroyers designed for conducting
destroyers                                    anti-air, anti-submarine, 

anti-surface, and strike

                                              operations. The 

Equipped with Aegis Arleigh Burke class (DDG

                                              51) destroyers are the U.S. Navy's primary surface
                                              combatant, and have been constructed in variants,
                                              allowing technological

progress during construction. We

                                              delivered USS Paul Ignatius (DDG 117), USS Delbert D.
                                              Black (DDG 119), and Frank E. Petersen Jr. (DDG121) in
                                              2019, 2020, and 2021,

respectively. We have contracts

                                              to construct the following 

Arleigh Burke class (DDG 51)

                                              destroyers: Lenah H. 

Sutcliffe Higbee (DDG 123), Jack

                                              H. Lucas (DDG 125), Ted Stevens (DDG 128), Jeremiah
                                              Denton (DDG 129), George M. Neal (DDG 131), Sam Nunn
                                              (DDG 133), Thad Cochran (DDG 135), John F. Lehman (DDG
                                              137), and DDG 139 (unnamed).

Carrier RCOH                                  Perform refueling and complex overhaul ("RCOH") of
                                              nuclear-powered aircraft

carriers, which is required to

                                              the mid-point of their 

50 year life cycle. USS George

                                              Washington (CVN 73) arrived at Newport News for the
                                              start of its RCOH in August 2017, and USS John C.
                                              Stennis (CVN 74) arrived at Newport News for the start
                                              of its RCOH in May 2021.

Colombia class submarines (SSBN 826) Newport News participate in the design of Colombia

                                              class submarine as a 

replacement of current aging

                                              Ohio class nuclear ballistic missile submarines, which
                                              were first introduced into service in 1981. The Ohio
                                              class SSBN includes 14 nuclear ballistic missile
                                              submarines and four nuclear cruise missile submarines.
                                              The Columbia class program plan of record is to
                                              construct 12 new ballistic missile submarines. The U.S.
                                              Navy has initiated the design process for the new class
                                              of submarines, and, in early 2017, the DoD signed the
                                              acquisition decision

memorandum approving the Colombia

                                              class program's Milestone B, which formally authorizes
                                              the program's entry into the engineering and
                                              manufacturing development phase. We perform design work
                                              as a subcontractor to Electric Boat, and we have
                                              entered into a teaming

agreement with Electric Boat for

                                              build modules for the entire 

Colombia class (SNLE 826)

                                              submarine program that 

take advantage of our Virginia to classify

                                              (SSN 774) experience. We have 

got contracts

                                              from Electric Boat for 

integrated product and process

                                              development, providing 

long delivery time material and

                                              advance construction, and 

construction of the first two

                                              boats of the Columbia class (SSBN 826) program.
                                              Construction of the first Columbia class (SSBN 826)
                                              submarine began in 2020.

Defense and federal solutions ("DFS")         Develops integrated solutions that enable today's
                                              connected, all-domain force. Capabilities include:
                                              C5ISR systems and operations; the application of
                                              artificial intelligence

(“AI”) and machine learning for

                                              battlefield decisions; defensive and offensive
                                              cyberspace strategies and electronic warfare ("EW");
                                              and live, virtual, and

constructive solutions (“LVC”).

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Fleet sustainment                               Maintains and modernizes a significant majority of the
                                                U.S. Navy fleet, from small watercraft to submarines,
                                                combatants, and aircraft carriers, our systems and
                                                maintenance experts help

the Marine maintain a high state

                                                of readiness. Ensures 

efficient operation of the system and

                                                sustainment by actively 

support the design and

                                                decision-making processes 

through studies, analyzes and

                                                reviews of program 

documents, and provides a wide range

                                                of logistics products.

USS Gerald R. Ford class (CVN 78)               Design and construction for the Ford class program,
aircraft carriers                               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, advanced construction and

                                                purchase of long-lead-time 

components and hardware. In

                                                addition, we have received 

awards for detailed 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

ability, quality of life

                                                improvements for sailors, 

and reduced life cycle costs.

Legend class National Security Cutter           Design and build the U.S. Coast Guard's National
                                                Security Cutters ("NSCs"), the largest and most
                                                technically advanced class of cutter in the U.S. Coast
                                                Guard. The NSC is equipped to carry out maritime
                                                homeland security, maritime safety, protection of
                                                natural resources, maritime mobility, and national
                                                defense missions. The plan is for a total of 11 ships,
                                                of which the first nine ships have been delivered.
                                                Calhoun (NSC 10) and

Friedman (NSC 11) are currently

                                                under construction.

Naval nuclear support services                  Provide services to and in 

support of the US Navy,

                                                ranging from services 

support the Marine carrier and

                                                submarine fleets to 

maintenance services at US 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

nuclear reactor maintenance services

                                                prototypes.

Nuclear and environmental services              Supports the national 

departmental security mission

                                                of Energy ("DoE") through 

management and operation

                                                of its sites, as well as 

safe legacy cleanup

                                                waste across the country. 

We meet the most difficult of our customers

                                                nuclear and environmental 

challenges and position themselves

                                                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 Testing Services,

                                                LLC ("MSTS"), and Savannah River Nuclear Solutions, LLC
                                                ("SRNS"), and we are an integrated subcontractor to
                                                Triad National Security.

N3B received 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 nearby Aiken,

                                                South Carolina. Triad provides site management and
                                                operations at the DoE's Los Alamos National Laboratory.


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San Antonio class (LPD 17) amphibious          Design and build amphibious transport dock ships, which
transport dock ships                           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 Fort
                                               Lauderdale (LPD 28). We are currently constructing
                                               Richard M. McCool Jr. (LPD

29) and Harrisburg (LPD 30).

                                               In 2020, we were awarded a contract to construct
                                               Pittsburgh (LPD 31).

Unmanned systems                               Creates advanced unmanned maritime solutions for
                                               defense, marine research,

and commercial applications.

                                               Serving customers in more 

from 30 countries, unmanned

                                               systems provides design, autonomy, manufacturing,
                                               testing, operations, and sustainment of unmanned
                                               systems, including unmanned underwater vehicles and
                                               unmanned surface vessels.

Virginia class (SSN 774) fast attack           Construct attack submarines as the principal
submarines                                     subcontractor to Electric 

Boat. The Virginia class (SSN

                                               774) is a post-Cold War 

design adapted to excel in a

                                               wide range of warfighting missions, including
                                               anti-submarine and surface ship warfare; special
                                               operation forces; strike;

intelligence, monitoring,

                                               and reconnaissance; carrier and expeditionary strike
                                               group support; and mine warfare.



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