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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________
FORM 10-Q
______________________________________________________________ | | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
or | | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission file number 001-34910
______________________________________________________________
HUNTINGTON INGALLS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
______________________________________________________________ | | | | | | | | |
| Delaware | | 90-0607005 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer
Identification No.) |
4101 Washington Avenue Newport News, Virginia 23607
(Address of principal executive offices and zip code)
(757) 380-2000
(Registrant’s telephone number, including area code)
______________________________________________________________
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock | HII | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | | | | | | | | | | | | | |
| Large Accelerated Filer | | ☒ | | | Accelerated Filer | | ☐ |
| Non-Accelerated Filer | | ☐ | | | Smaller Reporting Company | | ☐ |
| | | | | Emerging Growth Company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 25, 2024, 39,129,347 shares of the registrant's common stock were outstanding.
TABLE OF CONTENTS
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| PART I – FINANCIAL INFORMATION | | Page |
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| Item 1. | | | |
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| Item 2. | | | |
| Item 3. | | | |
| Item 4. | | | |
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| PART II – OTHER INFORMATION | | |
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| Item 1. | | | |
| Item 1A. | | | |
| Item 2. | | | |
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| Item 6. | | | |
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HUNTINGTON INGALLS INDUSTRIES, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30 | | Nine Months Ended September 30 |
| (in millions, except per share amounts) | | 2024 | | 2023 | | 2024 | | 2023 |
| Sales and service revenues | | | | | | | | |
| Product sales | | $ | 1,761 | | | $ | 1,835 | | | $ | 5,474 | | | $ | 5,543 | |
| Service revenues | | 988 | | | 981 | | | 3,057 | | | 2,734 | |
| Sales and service revenues | | 2,749 | | | 2,816 | | | 8,531 | | | 8,277 | |
| Cost of sales and service revenues | | | | | | | | |
| Cost of product sales | | 1,556 | | | 1,541 | | | 4,720 | | | 4,711 | |
| Cost of service revenues | | 871 | | | 859 | | | 2,682 | | | 2,411 | |
| Income from operating investments, net | | 12 | | | 9 | | | 35 | | | 25 | |
| | | | | | | | |
| General and administrative expenses | | 252 | | | 253 | | | 739 | | | 711 | |
| | | | | | | | |
| Operating income | | 82 | | | 172 | | | 425 | | | 469 | |
| Other income (expense) | | | | | | | | |
| Interest expense | | (23) | | | (22) | | | (68) | | | (70) | |
| Non-operating retirement benefit | | 44 | | | 37 | | | 134 | | | 111 | |
| Other, net | | 9 | | | 2 | | | 21 | | | 11 | |
| Earnings before income taxes | | 112 | | | 189 | | | 512 | | | 521 | |
| Federal and foreign income tax expense | | 11 | | | 41 | | | 85 | | | 114 | |
| Net earnings | | $ | 101 | | | $ | 148 | | | $ | 427 | | | $ | 407 | |
| | | | | | | | |
| Basic earnings per share | | $ | 2.56 | | | $ | 3.70 | | | $ | 10.81 | | | $ | 10.18 | |
| Weighted-average common shares outstanding | | 39.5 | | | 40.0 | | | 39.5 | | | 40.0 | |
| | | | | | | | |
| Diluted earnings per share | | $ | 2.56 | | | $ | 3.70 | | | $ | 10.81 | | | $ | 10.18 | |
| Weighted-average diluted shares outstanding | | 39.5 | | | 40.0 | | | 39.5 | | | 40.0 | |
| | | | | | | | |
| Dividends declared per share | | $ | 1.30 | | | $ | 1.24 | | | $ | 3.90 | | | $ | 3.72 | |
| | | | | | | | |
| Net earnings from above | | $ | 101 | | | $ | 148 | | | $ | 427 | | | $ | 407 | |
| Other comprehensive income | | | | | | | | |
| Change in unamortized benefit plan costs | | 5 | | | 4 | | | 14 | | | 13 | |
| | | | | | | | |
| Tax expense for items of other comprehensive income | | (2) | | | (2) | | | (4) | | | (4) | |
| Other comprehensive income, net of tax | | 3 | | | 2 | | | 10 | | | 9 | |
| Comprehensive income | | $ | 104 | | | $ | 150 | | | $ | 437 | | | $ | 416 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
| | | | | | | | | | | | | | |
| ($ in millions) | | September 30, 2024 | | December 31, 2023 |
| Assets | | | | |
| Current Assets | | | | |
| Cash and cash equivalents | | $ | 10 | | | $ | 430 | |
Accounts receivable, net of allowance for expected credit losses of $2 million as of 2024 and $8 million as of 2023 | 436 | | | 461 | |
| Contract assets | | 1,714 | | | 1,537 | |
| Inventoried costs | | 205 | | | 186 | |
| Income taxes receivable | | 173 | | | 183 | |
| | | | |
| Prepaid expenses and other current assets | | 91 | | | 83 | |
| Total current assets | | 2,629 | | | 2,880 | |
Property, plant, and equipment, net of accumulated depreciation of $2,544 million as of 2024 and $2,467 million as of 2023 | | 3,384 | | | 3,296 | |
| Operating lease assets | | 249 | | | 262 | |
| Goodwill | | 2,618 | | | 2,618 | |
Other intangible assets, net of accumulated amortization of $1,091 million as of 2024 and $1,009 million as of 2023 | 809 | | | 891 | |
| Pension plan assets | | 985 | | | 888 | |
| | | | |
| Miscellaneous other assets | | 408 | | | 380 | |
| Total assets | | $ | 11,082 | | | $ | 11,215 | |
| Liabilities and Stockholders' Equity | | | | |
| Current Liabilities | | | | |
| Trade accounts payable | | $ | 579 | | | $ | 554 | |
| Accrued employees’ compensation | | 345 | | | 382 | |
| Short-term debt and current portion of long-term debt | | 898 | | | 231 | |
| Current portion of postretirement plan liabilities | | 129 | | | 129 | |
| Current portion of workers’ compensation liabilities | | 224 | | | 224 | |
| Contract liabilities | | 743 | | | 1,063 | |
| | | | |
| | | | |
| Other current liabilities | | 418 | | | 449 | |
| Total current liabilities | | 3,336 | | | 3,032 | |
| Long-term debt | | 1,709 | | | 2,214 | |
| Pension plan liabilities | | 219 | | | 212 | |
| Other postretirement plan liabilities | | 232 | | | 241 | |
| Workers’ compensation liabilities | | 448 | | | 449 | |
| Long-term operating lease liabilities | | 213 | | | 228 | |
| Deferred tax liabilities | | 316 | | | 367 | |
| Other long-term liabilities | | 406 | | | 379 | |
| Total liabilities | | 6,879 | | | 7,122 | |
| Commitments and Contingencies (Note 10) | | | | |
| Stockholders’ Equity | | | | |
Common stock, $0.01 par value; 150,000,000 shares authorized; 53,713,746 shares issued and 39,129,037 shares outstanding as of 2024, and 53,595,748 shares issued and 39,618,880 shares outstanding as of 2023 | | 1 | | | 1 | |
| Additional paid-in capital | | 2,037 | | | 2,045 | |
| Retained earnings | | 5,026 | | | 4,755 | |
| Treasury stock | | (2,449) | | | (2,286) | |
| Accumulated other comprehensive loss | | (412) | | | (422) | |
| Total stockholders’ equity | | 4,203 | | | 4,093 | |
| Total liabilities and stockholders’ equity | | $ | 11,082 | | | $ | 11,215 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30 |
| ($ in millions) | | 2024 | | 2023 |
| Operating Activities: | | | | |
| Net earnings | | $ | 427 | | | $ | 407 | |
| Adjustments to reconcile net cash provided by operating activities: | | | | |
| Depreciation | | 160 | | | 163 | |
| Amortization of purchased intangibles | | 82 | | | 96 | |
| Other non-cash transactions, net | | 7 | | | 16 | |
| Stock-based compensation | | 15 | | | 27 | |
| | | | |
| Deferred income taxes | | (55) | | | (81) | |
| | | | |
| | | | |
| | | | |
| | | | |
| Gain on investments in marketable securities | | (22) | | | (10) | |
| | | | |
| Change in | | | | |
| Accounts receivable | | 31 | | | (62) | |
| Contract assets | | (177) | | | (60) | |
| Inventoried costs | | (19) | | | (12) | |
| Prepaid expenses and other assets | | (9) | | | (66) | |
| Accounts payable and accruals | | (354) | | | 45 | |
| Retiree benefits | | (84) | | | (55) | |
| Net cash provided by operating activities | | 2 | | | 408 | |
| Investing Activities: | | | | |
| Capital expenditures | | | | |
| Capital expenditure additions | | (253) | | | (164) | |
| Grant proceeds for capital expenditures | | 14 | | | 14 | |
| Investment in affiliates | | — | | | (24) | |
| Proceeds from equity method investments | | — | | | 61 | |
| | | | |
| | | | |
| Other investing activities, net | | 1 | | | 2 | |
| Net cash used in investing activities | | (238) | | | (111) | |
| Financing Activities: | | | | |
| | | | |
| Repayment of long-term debt | | (229) | | | (455) | |
| Proceeds from revolving credit facility borrowings | | 42 | | | — | |
| Repayment of revolving credit facility borrowings | | (42) | | | — | |
| Net borrowings on commercial paper | | 396 | | | — | |
| Debt issuance costs | | (7) | | | — | |
| | | | |
| Dividends paid | | (154) | | | (149) | |
| Repurchases of common stock | | (162) | | | (37) | |
| | | | |
| Employee taxes on certain share-based payment arrangements | | (25) | | | (13) | |
| | | | |
| Other financing activities, net | | (3) | | | (1) | |
| Net cash used in financing activities | | (184) | | | (655) | |
| Change in cash and cash equivalents | | (420) | | | (358) | |
| Cash and cash equivalents, beginning of period | | 430 | | | 467 | |
| Cash and cash equivalents, end of period | | $ | 10 | | | $ | 109 | |
| Supplemental Cash Flow Disclosure | | | | |
| Cash paid for income taxes (net of refunds) | | $ | 170 | | | $ | 227 | |
| Cash paid for interest | | $ | 66 | | | $ | 63 | |
| Non-Cash Investing and Financing Activities | | | | |
| Capital expenditures accrued in accounts payable | | $ | 12 | | | $ | 6 | |
| | | | |
| | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
HUNTINGTON INGALLS INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2024 and 2023
($ in millions) | | Common Stock | | Additional Paid-in Capital | | Retained Earnings (Deficit) | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity |
| Balance as of June 30, 2023 | | $ | 1 | | | $ | 2,030 | | | $ | 4,434 | | | $ | (2,227) | | | $ | (592) | | | $ | 3,646 | |
| Net earnings | | — | | | — | | | 148 | | | — | | | — | | | 148 | |
Dividends declared ($1.24 per share) | | — | | | — | | | (50) | | | — | | | — | | | (50) | |
| Stock-based compensation | | — | | | 8 | | | — | | | — | | | — | | | 8 | |
| Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | 2 | | | 2 | |
| | | | | | | | | | | | |
| Treasury stock activity | | — | | | — | | | — | | | (21) | | | — | | | (21) | |
| Balance as of September 30, 2023 | | $ | 1 | | | $ | 2,038 | | | $ | 4,532 | | | $ | (2,248) | | | $ | (590) | | | $ | 3,733 | |
| | | | | | | | | | | | |
| Balance as of June 30, 2024 | | $ | 1 | | | $ | 2,029 | | | $ | 4,977 | | | $ | (2,414) | | | $ | (415) | | | $ | 4,178 | |
| Net earnings | | — | | | — | | | 101 | | | — | | | — | | | 101 | |
Dividends declared ($1.30 per share) | | — | | | — | | | (52) | | | — | | | — | | | (52) | |
| Stock-based compensation | | — | | | 8 | | | — | | | — | | | — | | | 8 | |
| Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | 3 | | | 3 | |
| | | | | | | | | | | | |
| Treasury stock activity | | — | | | — | | | — | | | (35) | | | — | | | (35) | |
| Balance as of September 30, 2024 | | $ | 1 | | | $ | 2,037 | | | $ | 5,026 | | | $ | (2,449) | | | $ | (412) | | | $ | 4,203 | |
| | | | | | | | | | | | |
Nine Months Ended September 30, 2024 and 2023
($ in millions) | | Common Stock | | Additional Paid-in Capital | | Retained Earnings (Deficit) | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity |
| Balance as of December 31, 2022 | | $ | 1 | | | $ | 2,022 | | | $ | 4,276 | | | $ | (2,211) | | | $ | (599) | | | $ | 3,489 | |
| Net earnings | | — | | | — | | | 407 | | | — | | | — | | | 407 | |
Dividends declared ($3.72 per share) | | — | | | — | | | (149) | | | — | | | — | | | (149) | |
| Stock-based compensation | | — | | | 16 | | | (2) | | | — | | | — | | | 14 | |
| Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | 9 | | | 9 | |
| | | | | | | | | | | | |
| Treasury stock activity | | — | | | — | | | — | | | (37) | | | — | | | (37) | |
| Balance as of September 30, 2023 | | $ | 1 | | | $ | 2,038 | | | $ | 4,532 | | | $ | (2,248) | | | $ | (590) | | | $ | 3,733 | |
| | | | | | | | | | | | |
| Balance as of December 31, 2023 | | $ | 1 | | | $ | 2,045 | | | $ | 4,755 | | | $ | (2,286) | | | $ | (422) | | | $ | 4,093 | |
| Net earnings | | — | | | — | | | 427 | | | — | | | — | | | 427 | |
Dividends declared ($3.90 per share) | | — | | | — | | | (154) | | | — | | | — | | | (154) | |
| Stock-based compensation | | — | | | (8) | | | (2) | | | — | | | — | | | (10) | |
| Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | 10 | | | 10 | |
| | | | | | | | | | | | |
| Treasury stock activity | | — | | | — | | | — | | | (163) | | | — | | | (163) | |
| Balance as of September 30, 2024 | | $ | 1 | | | $ | 2,037 | | | $ | 5,026 | | | $ | (2,449) | | | $ | (412) | | | $ | 4,203 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
HUNTINGTON INGALLS INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. DESCRIPTION OF BUSINESS
Huntington Ingalls Industries, Inc. ("HII" or the "Company") is a global, all-domain defense partner, building and delivering the world’s most powerful, survivable naval ships and technologies that safeguard America’s seas, sky, land, space, and cyber. HII is organized into three reportable segments: Ingalls Shipbuilding ("Ingalls"), Newport News Shipbuilding ("Newport News"), and Mission Technologies. For more than a century, the Company's Ingalls segment in Mississippi and Newport News segment in Virginia have built more ships in more ship classes than any other U.S. naval shipbuilder, making HII America's largest shipbuilder. The Mission Technologies segment develops integrated solutions that enable today's connected, all-domain force.
2. BASIS OF PRESENTATION
Principles of Consolidation - The unaudited condensed consolidated financial statements of HII and its subsidiaries have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the instructions to Form 10-Q promulgated by the Securities and Exchange Commission ("SEC"). As used in the Notes to the Condensed Consolidated Financial Statements (Unaudited), the terms "HII" and "the Company" refer to HII and its subsidiaries. All intercompany transactions and balances are eliminated in consolidation. For classification of current assets and liabilities related to its long-term production contracts, the Company uses the duration of these contracts as its operating cycle, which is generally longer than one year. Additionally, certain prior year amounts have been reclassified to conform to the current year presentation.
These unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature considered necessary by management for a fair presentation of the unaudited condensed consolidated financial position, results of operations, and cash flows and should be read in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Annual Report on Form 10-K").
The quarterly information is labeled using a calendar convention; that is, first quarter is consistently labeled as ending on March 31, second quarter as ending on June 30, and third quarter as ending on September 30. It is management's long-standing practice to establish interim closing dates using a "fiscal" calendar, which requires the businesses to close their books on a Friday near these quarter-end dates in order to normalize the potentially disruptive effects of quarterly closings on business processes. This practice only exists for interim periods within a reporting year.
Accounting Estimates - The preparation of the Company's unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Estimates have been prepared on the basis of the most current and best available information, and actual results could differ materially from those estimates.
Fair Value of Financial Instruments - Except for the Company's long-term debt, the carrying amounts of the Company's financial instruments that are recorded at historical cost approximate fair value due to the short-term nature of the instruments and low credit risk associated with the respective counterparties.
The Company maintains multiple grantor trusts to fund certain non-qualified pension plans. These trusts were valued at $235 million and $220 million as of September 30, 2024, and December 31, 2023, respectively, and are presented within miscellaneous other assets within the unaudited condensed consolidated statements of financial position. These trusts consist primarily of investments in marketable securities, which are held at fair value within Level 1 of the fair value hierarchy.
The estimated fair values of the Company's total long-term debt (including current portion), excluding finance lease liabilities, as of September 30, 2024, and December 31, 2023, were $2,146 million and $2,309 million, respectively. The estimated fair values of the current portion of the Company's long-term debt, excluding finance lease liabilities, were $496 million and $229 million as of September 30, 2024, and December 31, 2023, respectively. The fair values of the Company's long-term debt were calculated based on recent trades of the Company's debt instruments in inactive markets, which fall within Level 2 of the fair value hierarchy.
Debt – In September 2024, the Company amended and restated its existing $1.5 billion credit facility, increasing the capacity thereunder to $1.7 billion and extending the maturity date for five years from signing (the “Second Amended and Restated Revolving Credit Facility”). The Second Amended and Restated Revolving Credit Facility has a variable interest rate on outstanding borrowings based on the Secured Overnight Financing Rate (“SOFR”) plus an interest spread based upon the Company’s credit rating, which may vary between 1.225% and 2.100%. The Second Amended and Restated Revolving Credit Facility also has a commitment fee on unutilized amounts based on the Company’s credit rating, which may vary between 0.125% and 0.300%. The Second Amended and Restated Revolving Credit Facility includes a letter of credit sub-facility of $300 million.
As of September 30, 2024, the Company had not drawn on the Second Amended and Restated Revolving Credit Facility. Based on the Company’s current credit rating, the interest rate spread on drawn amounts would be 1.475% and the commitment fee would be 0.200%.
The Second Amended and Restated Revolving Credit Facility contains customary affirmative and negative covenants and events of default, as well as a financial covenant based on a maximum total leverage ratio. Each of the Company's existing and future material wholly owned domestic subsidiaries, except those that are specifically designated as unrestricted subsidiaries, are and will be guarantors under the Second Amended and Restated Revolving Credit Facility.
Additionally, in September 2024, the Company's borrowing capacity under its commercial paper program increased from $1 billion to $1.7 billion.
3. ACCOUNTING STANDARDS UPDATES
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The new guidance requires, among other things, segment disclosures of significant expenses that are regularly reported to the chief operating decision maker and the nature of segment expense information used to manage operations. The new guidance is effective on a retrospective basis for annual reporting periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company does not expect the new guidance to have a material impact on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The new guidance requires disaggregated information about the effective tax rate reconciliation and additional information on taxes paid that meet a quantitative threshold. The new guidance is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted. The Company plans to early adopt the new guidance on a retrospective basis for the annual reporting period ending December 31, 2024, and does not expect the new guidance to have a material impact on its consolidated financial statements.
Other accounting pronouncements issued but not effective until after December 31, 2024, are not expected to have a material impact on the Company's consolidated financial position, results of operations, or cash flows.
4. STOCKHOLDERS' EQUITY
Treasury Stock - In January 2024, the Company's board of directors authorized an increase in the Company's stock repurchase program from $3.2 billion to $3.8 billion and an extension of the term of the program to December 31, 2028. Repurchases are made from time to time at management's discretion in accordance with applicable federal securities laws. For the nine months ended September 30, 2024, the Company repurchased 607,841 shares at an aggregate cost of $163 million, including $1 million of accrued excise tax. For the nine months ended September 30, 2023, the Company repurchased 175,555 shares at an aggregate cost of $37 million. The cost of purchased shares is recorded as treasury stock in the unaudited condensed consolidated statements of financial position.
Dividends - The Company paid cash dividends totaling $154 million and $149 million for the nine months ended September 30, 2024 and 2023, respectively.
Accumulated Other Comprehensive Loss - Other comprehensive income (loss) refers to gains and losses recorded as an element of stockholders' equity but excluded from net earnings. The accumulated other comprehensive loss was comprised of unamortized benefit plan costs of $412 million and $422 million as of September 30, 2024, and December 31, 2023, respectively.
The changes in accumulated other comprehensive loss by component for the three and nine months ended September 30, 2024 and 2023, were as follows:
| | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | Benefit Plans | | Other | | Total |
| Balance as of June 30, 2023 | | $ | (592) | | | $ | — | | | $ | (592) | |
| | | | | | |
| Amounts reclassified from accumulated other comprehensive loss | | | | | | |
Amortization of prior service cost1 | | 3 | | | — | | | 3 | |
Amortization of net actuarial loss1 | | 1 | | | — | | | 1 | |
| | | | | | |
| | | | | | |
| Tax expense for items of other comprehensive income | | (2) | | | — | | | (2) | |
| Net current period other comprehensive income | | 2 | | | — | | | 2 | |
| Balance as of September 30, 2023 | | $ | (590) | | | $ | — | | | $ | (590) | |
| | | | | | |
| Balance as of June 30, 2024 | | $ | (415) | | | $ | — | | | $ | (415) | |
| | | | | | |
| Amounts reclassified from accumulated other comprehensive loss | | | | | | |
Amortization of prior service cost1 | | 4 | | | — | | | 4 | |
Amortization of net actuarial loss1 | | 1 | | | — | | | 1 | |
| | | | | | |
| | | | | | |
| Tax expense for items of other comprehensive income | | (2) | | | — | | | (2) | |
| Net current period other comprehensive income | | 3 | | | — | | | 3 | |
| Balance as of September 30, 2024 | | $ | (412) | | | $ | — | | | $ | (412) | |
| | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | Benefit Plans | | Other | | Total |
| Balance as of December 31, 2022 | | $ | (599) | | | $ | — | | | $ | (599) | |
| | | | | | |
| Amounts reclassified from accumulated other comprehensive loss | | | | | | |
Amortization of prior service cost1 | | 11 | | | — | | | 11 | |
Amortization of net actuarial loss1 | | 2 | | | — | | | 2 | |
| | | | | | |
| | | | | | |
| Tax expense for items of other comprehensive income | | (4) | | | — | | | (4) | |
| Net current period other comprehensive income | | 9 | | | — | | | 9 | |
| Balance as of September 30, 2023 | | $ | (590) | | | $ | — | | | $ | (590) | |
| | | | | | |
| Balance as of December 31, 2023 | | $ | (422) | | | $ | — | | | $ | (422) | |
| | | | | | |
| Amounts reclassified from accumulated other comprehensive loss | | | | | | |
Amortization of prior service cost1 | | 11 | | | — | | | 11 | |
Amortization of net actuarial loss1 | | 3 | | | — | | | 3 | |
| | | | | | |
| | | | | | |
| Tax expense for items of other comprehensive income | | (4) | | | — | | | (4) | |
| Net current period other comprehensive income | | 10 | | | — | | | 10 | |
| Balance as of September 30, 2024 | | $ | (412) | | | $ | — | | | $ | (412) | |
1 These accumulated comprehensive loss components are included in the computation of net periodic benefit cost. See Note 11: Employee Pension and Other Postretirement Benefits. The tax expense recorded in stockholders' equity for the amounts reclassified from accumulated other comprehensive loss for each of the three months ended September 30, 2024 and 2023, was $2 million. The tax expense recorded in stockholders' equity for the amounts reclassified from accumulated other comprehensive loss for each of the nine months ended September 30, 2024 and 2023, was $4 million.
5. EARNINGS PER SHARE
Basic and diluted earnings per common share were calculated as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30 | | Nine Months Ended September 30 |
| (in millions, except per share amounts) | | 2024 | | 2023 | | 2024 | | 2023 |
| Net earnings | | $ | 101 | | | $ | 148 | | | $ | 427 | | | $ | 407 | |
| | | | | | | | |
| Weighted-average common shares outstanding | | 39.5 | | | 40.0 | | | 39.5 | | | 40.0 | |
| Net dilutive effect of stock awards | | — | | | — | | | — | | | — | |
| | | | | | | | |
| | | | | | | | |
| Dilutive weighted-average common shares outstanding | | 39.5 | | | 40.0 | | | 39.5 | | | 40.0 | |
| | | | | | | | |
| Earnings per share - basic | | $ | 2.56 | | | $ | 3.70 | | | $ | 10.81 | | | $ | 10.18 | |
| Earnings per share - diluted | | $ | 2.56 | | | $ | 3.70 | | | $ | 10.81 | | | $ | 10.18 | |
Under the treasury stock method, the Company has excluded from the diluted share amounts presented above the effects of 0.4 million Restricted Performance Stock Rights ("RPSRs") and 0.1 million Restricted Stock Rights ("RSRs") for each of the three and nine months ended September 30, 2024, and 0.4 million RPSRs for each of the three and nine months ended September 30, 2023.
6. REVENUE
Disaggregation of Revenue
The following tables present revenues on a disaggregated basis, in a manner that reconciles with the Company's reportable segment disclosures, for the following categories: product versus service type, customer type, contract type, and major program. The Company believes that this level of disaggregation provides investors with information to evaluate the Company’s financial performance and provides the Company with information to make capital allocation decisions in the most appropriate manner. For more information on the Company's contracts, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company's 2023 Annual Report on Form 10-K.
The following tables present revenues on a disaggregated basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2024 |
| ($ in millions) | | Ingalls | | Newport News | | Mission Technologies | | Intersegment Eliminations | | Total |
| Revenue Type | | | | | | | | | | |
| Product sales | | $ | 569 | | | $ | 1,163 | | | $ | 29 | | | $ | — | | | $ | 1,761 | |
| Service revenues | | 93 | | | 249 | | | 646 | | | — | | | 988 | |
| Intersegment | | 2 | | | — | | | 34 | | | (36) | | | — | |
| Sales and service revenues | | $ | 664 | | | $ | 1,412 | | | $ | 709 | | | $ | (36) | | | $ | 2,749 | |
| Customer Type | | | | | | | | | | |
| Federal | | $ | 662 | | | $ | 1,412 | | | $ | 673 | | | $ | — | | | $ | 2,747 | |
| Commercial | | — | | | — | | | 2 | | | — | | | 2 | |
| | | | | | | | | | |
| Intersegment | | 2 | | | — | | | 34 | | | (36) | | | — | |
| Sales and service revenues | | $ | 664 | | | $ | 1,412 | | | $ | 709 | | | $ | (36) | | | $ | 2,749 | |
| Contract Type | | | | | | | | | | |
| Firm fixed-price | | $ | — | | | $ | 1 | | | $ | 83 | | | $ | — | | | $ | 84 | |
| Fixed-price incentive | | 568 | | | 753 | | | 3 | | | — | | | 1,324 | |
| Cost-type | | 94 | | | 658 | | | 543 | | | — | | | 1,295 | |
| Time and materials | | — | | | — | | | 46 | | | — | | | 46 | |
| Intersegment | | 2 | | | — | | | 34 | | | (36) | | | — | |
| Sales and service revenues | | $ | 664 | | | $ | 1,412 | | | $ | 709 | | | $ | (36) | | | $ | 2,749 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2023 |
| ($ in millions) | | Ingalls | | Newport News | | Mission Technologies | | Intersegment Eliminations | | Total |
| Revenue Type | | | | | | | | | | |
| Product sales | | $ | 637 | | | $ | 1,170 | | | $ | 28 | | | $ | — | | | $ | 1,835 | |
| Service revenues | | 73 | | | 281 | | | 627 | | | — | | | 981 | |
| Intersegment | | 1 | | | 2 | | | 30 | | | (33) | | | — | |
| Sales and service revenues | | $ | 711 | | | $ | 1,453 | | | $ | 685 | | | $ | (33) | | | $ | 2,816 | |
| Customer Type | | | | | | | | | | |
| Federal | | $ | 710 | | | $ | 1,451 | | | $ | 647 | | | $ | — | | | $ | 2,808 | |
| Commercial | | — | | | — | | | 7 | | | — | | | 7 | |
| State and local government agencies | | — | | | — | | | 1 | | | — | | | 1 | |
| Intersegment | | 1 | | | 2 | | | 30 | | | (33) | | | — | |
| Sales and service revenues | | $ | 711 | | | $ | 1,453 | | | $ | 685 | | | $ | (33) | | | $ | 2,816 | |
| Contract Type | | | | | | | | | | |
| Firm fixed-price | | $ | — | | | $ | 1 | | | $ | 77 | | | $ | — | | | $ | 78 | |
| Fixed-price incentive | | 637 | | | 779 | | | 3 | | | — | | | 1,419 | |
| Cost-type | | 73 | | | 671 | | | 521 | | | — | | | 1,265 | |
| Time and materials | | — | | | — | | | 54 | | | — | | | 54 | |
| Intersegment | | 1 | | | 2 | | | 30 | | | (33) | | | — | |
| Sales and service revenues | | $ | 711 | | | $ | 1,453 | | | $ | 685 | | | $ | (33) | | | $ | 2,816 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2024 |
| ($ in millions) | | Ingalls | | Newport News | | Mission Technologies | | Intersegment Eliminations | | Total |
| Revenue Type | | | | | | | | | | |
| Product sales | | $ | 1,786 | | | $ | 3,602 | | | $ | 86 | | | $ | — | | | $ | 5,474 | |
| Service revenues | | 240 | | | 777 | | | 2,040 | | | — | | | 3,057 | |
| Intersegment | | 5 | | | 2 | | | 98 | | | (105) | | | — | |
| Sales and service revenues | | $ | 2,031 | | | $ | 4,381 | | | $ | 2,224 | | | $ | (105) | | | $ | 8,531 | |
| Customer Type | | | | | | | | | | |
| Federal | | $ | 2,026 | | | $ | 4,378 | | | $ | 2,120 | | | $ | — | | | $ | 8,524 | |
| Commercial | | — | | | 1 | | | 5 | | | — | | | 6 | |
| State and local government agencies | | — | | | — | | | 1 | | | — | | | 1 | |
| Intersegment | | 5 | | | 2 | | | 98 | | | (105) | | | — | |
| Sales and service revenues | | $ | 2,031 | | | $ | 4,381 | | | $ | 2,224 | | | $ | (105) | | | $ | 8,531 | |
| Contract Type | | | | | | | | | | |
| Firm fixed-price | | $ | 2 | | | $ | 5 | | | $ | 250 | | | $ | — | | | $ | 257 | |
| Fixed-price incentive | | 1,784 | | | 2,353 | | | 8 | | | — | | | 4,145 | |
| Cost-type | | 240 | | | 2,021 | | | 1,735 | | | — | | | 3,996 | |
| Time and materials | | — | | | — | | | 133 | | | — | | | 133 | |
| Intersegment | | 5 | | | 2 | | | 98 | | | (105) | | | — | |
| Sales and service revenues | | $ | 2,031 | | | $ | 4,381 | | | $ | 2,224 | | | $ | (105) | | | $ | 8,531 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2023 |
| ($ in millions) | | Ingalls | | Newport News | | Mission Technologies | | Intersegment Eliminations | | Total |
| Revenue Type | | | | | | | | | | |
| Product sales | | $ | 1,775 | | | $ | 3,688 | | | $ | 80 | | | $ | — | | | $ | 5,543 | |
| Service revenues | | 171 | | | 777 | | | 1,786 | | | — | | | 2,734 | |
| Intersegment | | 6 | | | 3 | | | 88 | | | (97) | | | — | |
| Sales and service revenues | | $ | 1,952 | | | $ | 4,468 | | | $ | 1,954 | | | $ | (97) | | | $ | 8,277 | |
| Customer Type | | | | | | | | | | |
| Federal | | $ | 1,946 | | | $ | 4,465 | | | $ | 1,836 | | | $ | — | | | $ | 8,247 | |
| Commercial | | — | | | — | | | 29 | | | — | | | 29 | |
| State and local government agencies | | — | | | — | | | 1 | | | — | | | 1 | |
| Intersegment | | 6 | | | 3 | | | 88 | | | (97) | | | — | |
| Sales and service revenues | | $ | 1,952 | | | $ | 4,468 | | | $ | 1,954 | | | $ | (97) | | | $ | 8,277 | |
| Contract Type | | | | | | | | | | |
| Firm fixed-price | | $ | 2 | | | $ | 3 | | | $ | 236 | | | $ | — | | | $ | 241 | |
| Fixed-price incentive | | 1,776 | | | 2,432 | | | 4 | | | — | | | 4,212 | |
| Cost-type | | 168 | | | 2,030 | | | 1,464 | | | — | | | 3,662 | |
| Time and materials | | — | | | — | | | 162 | | | — | | | 162 | |
| Intersegment | | 6 | | | 3 | | | 88 | | | (97) | | | — | |
| Sales and service revenues | | $ | 1,952 | | | $ | 4,468 | | | $ | 1,954 | | | $ | (97) | | | $ | 8,277 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30 | | Nine Months Ended September 30 |
| ($ in millions) | | 2024 | | 2023 | | 2024 | | 2023 |
| Major Programs | | | | | | | | |
| Amphibious assault ships | | $ | 358 | | | $ | 396 | | | $ | 1,123 | | | $ | 1,093 | |
| Surface combatants and coast guard cutters | | 304 | | | 313 | | | 901 | | | 853 | |
| Other | | 2 | | | 2 | | | 7 | | | 6 | |
| Total Ingalls | | 664 | | | 711 | | | 2,031 | | | 1,952 | |
| Aircraft carriers | | 768 | | | 782 | | | 2,391 | | | 2,447 | |
| Submarines | | 522 | | | 515 | | | 1,601 | | | 1,592 | |
| Other | | 122 | | | 156 | | | 389 | | | 429 | |
| Total Newport News | | 1,412 | | | 1,453 | | | 4,381 | | | 4,468 | |
| C5ISR, CEW&S, LVC | | 593 | | | 567 | | | 1,857 | | | 1,609 | |
| Other | | 116 | | | 118 | | | 367 | | | 345 | |
| Total Mission Technologies | | 709 | | | 685 | | | 2,224 | | | 1,954 | |
| Intersegment eliminations | | (36) | | | (33) | | | (105) | | | (97) | |
| Sales and service revenues | | $ | 2,749 | | | $ | 2,816 | | | $ | 8,531 | | | $ | 8,277 | |
As of September 30, 2024, the Company had $49.4 billion of remaining performance obligations. The Company expects to recognize approximately 30% of its remaining performance obligations as revenue through 2025, an additional 30% through 2027, and the balance thereafter.
Cumulative Catch-up Revenue Adjustments
The following table presents the effect of net cumulative catch-up revenue adjustments on operating income and diluted earnings per share:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30 | | Nine Months Ended September 30 |
| ($ in millions, except per share amounts) | | 2024 | | 2023 | | 2024 | | 2023 |
| Effect on operating income | | $ | (72) | | | $ | 21 | | | $ | (46) | | | $ | 50 | |
| Effect on diluted earnings per share | | $ | (1.42) | | | $ | 0.41 | | | $ | (0.91) | | | $ | 0.99 | |
The Company’s multi-year shipbuilding contracts with the U.S. Government are routinely modified as the result of unpriced change orders arising in the ordinary course of business. These anticipated changes are accounted for as contract modifications when the scope of the work has been approved and it is probable that the price will be approved. The Company recognizes variable consideration included in the transaction price for a modified contract to the extent the Company believes a significant reversal of revenue is not probable.
For the three and nine months ended September 30, 2024, no individual favorable cumulative catch-up revenue adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.
For the three months ended September 30, 2024, cumulative catch-up revenue adjustments included unfavorable adjustments of $34 million on Block IV of the Virginia class (SSN 774) submarine program, $14 million on the refueling and complex overhaul ("RCOH") of USS John C. Stennis (CVN 74), and $16 million on the construction of Enterprise (CVN 80) and Doris Miller (CVN 81) at the Company's Newport News segment. For the nine months ended September 30, 2024, no individual unfavorable cumulative catch-up revenue adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.
For the three and nine months ended September 30, 2023, no individual favorable cumulative catch-up revenue adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income. For the three and nine months ended September 30, 2023, no individual unfavorable cumulative catch-up revenue adjustment was material to the Company's unaudited condensed consolidated statements of operations and comprehensive income.
Contract Balances
The Company reports contract balances in a net contract asset or contract liability position on a contract-by-contract basis at the end of each reporting period. Net contract assets were comprised as follows:
| | | | | | | | | | | | | | |
| ($ in millions) | | September 30, 2024 | | December 31, 2023 |
| Contract assets | | $ | 1,714 | | | $ | 1,537 | |
| Contract liabilities | | 743 | | | 1,063 | |
| Net contract assets | | $ | 971 | | | $ | 474 | |
The Company’s net contract assets increased $497 million from December 31, 2023, to September 30, 2024, primarily as a result of the timing of billings across programs on certain U.S. Navy contracts. For the three and nine months ended September 30, 2024, the Company recognized revenue of $6 million and $930 million, respectively, related to its contract liabilities as of December 31, 2023. For the three and nine months ended September 30, 2023, the Company recognized revenue of $5 million and $