HUNTINGTON INGALLS INDUSTRIES, INC. – 10-K – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following discussion should be read along with the audited consolidated
financial statements included in Item 8 of this Annual Report on Form 10-K, as
well as Part II, "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" of our Annual Report on Form 10-K for the
year ended December 31, 2021.

Business Environment

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

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

The fiscal year 2023 budget cycle concluded with the enactment of the National
Defense Authorization Act ("NDAA") for fiscal year 2023 on December 23, 2022 and
the Consolidated Appropriations Act, 2023 on December 29, 2022. The NDAA broadly
supported our shipbuilding programs, including multiyear procurement authority
for up to 15 DDG Flight III destroyers, a fleet requirement of no less than 31
operational amphibious warships (LPD/LHD/LHA), including a minimum of 10
amphibious assault ships (LHD/LHA), and bundle acquisition authority for LPD/LHA
amphibious warship procurement. Final defense appropriations were included in
the Consolidated Appropriations Act and provided funding for three Arleigh Burke
class (DDG 51) destroyers, two Virginia class (SSN 774) attack submarines and
continued funding for LPD 32 (unnamed) and Fallujah (LHA 9). Additionally, the
appropriations measure provided advance procurement funding for LPD 33, LHA 10,
and a third Arleigh Burke class (DDG 51) destroyer in fiscal year 2024. The bill
also provided funding for the Columbia class (SSBN 826) ballistic-missile
submarine program, Gerald R. Ford class (CVN 78) nuclear aircraft carrier
programs, and the refueling and complex overhaul ("RCOH") of USS John C. Stennis
(CVN 74), as well as funding to support large surface combatant shipyard
infrastructure and the submarine industrial base.

The federal budget environment remains a significant long-term risk.
Considerable uncertainty exists regarding how future budget and program
decisions will develop and what challenges budget changes will present for the
defense

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

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

In February 2022, Russian forces invaded Ukraine, and the conflict is
continuing. In response, the United States and other countries imposed economic
and trade sanctions, export controls, and other restrictions. This conflict and
the associated sanctions have disrupted the global economy, causing heightened
cybersecurity risks, supply chain challenges, higher energy costs, and an
exacerbation of existing inflationary pressures. Additionally, and more broadly,
tensions with China and changes in international trade policies, including
higher tariffs on imported goods and materials, could impact the global market
for defense products, services, and solutions.

In addition to price surges in energy, food, and aluminum, an increase in
inflation has led to higher costs of various commodities and supplier products.
In an era of unanticipated cost increases, the inclusion of mitigation
mechanisms, such as economic price adjustment clauses, in our contracts help
mitigate certain risks attributable to price inflation. Our bids for longer-term
firm fixed-price contracts typically include assumptions for labor and other
contract costs that historically have been sufficient to cover cost increases
over the period of performance. If, however, recent inflationary conditions
continue over the long-term, our cost assumptions may not be sufficient to cover
potential contract cost growth or may impact the availability of resources to
execute the respective contracts. Management is closely monitoring possible cost
impacts with our customers.

The macro labor market continues to present significant challenges, and those
challenges continue to impact our operations and our financial performance. We
are aggressively responding to the labor market challenges, including utilizing
outside leased labor and overtime to mitigate the short-term deficit of
employees and implementing aggressive hiring and retention programs. Labor
shortages are also impacting our supply chain, resulting in longer lead times
for materials, parts, and other supplies, as well as inflationary pressure. Our
longer term ability to meet contract requirements, as well as our financial
performance, are dependent on our ability to attract and retain a stable skilled
workforce.

The Inflation Reduction Act of 2022 ("IRA") was signed into law during the third
quarter of 2022 and included provisions for an alternative minimum tax and a one
percent excise tax on share repurchases. We anticipate being subject to the
excise tax beginning in 2023 and continue to evaluate other provisions of the
IRA for their impact on our business.

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

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The COVID-19 pandemic has impacted our employees, customers, suppliers, and
communities (collectively, "COVID-19 Events"). While costs related to COVID-19
Events are allowable under U.S. Government contracts, our contract financial
estimates reflect profit margin impact uncertainty, because such costs may not
result in equitable adjustments, particularly on firm fixed-price and
fixed-price incentive contracts, or may not be adequately covered by insurance.
Reinsurers under our property insurance have failed to acknowledge coverage for
various losses related to COVID-19, and we filed a complaint in state court in
Vermont seeking a judgment declaring that our business interruption and other
losses associated with COVID-19 are covered by our property insurance program.
We also initiated arbitration proceedings against other reinsurers seeking
similar relief. The Vermont court dismissed our complaint, and we appealed the
decision to the Vermont Supreme Court, which reversed and remanded the lower
court's decision in September 2022, allowing our claim to proceed. No assurance
can be provided regarding the ultimate resolution of this matter. See Note 14:
Investigations, Claims, and Litigation.

Defense Industry Overview

The United States faces a complex, uncertain, and rapidly changing national
security environment. President Biden released his first National Security
Strategy (the "NSS") in October 2022. The NSS, which continues the U.S. focus on
China as the "pacing challenge" and Russia as an "acute" threat, calls for
investments in emerging technologies and modernizing the U.S. military, with a
special focus on allies in the Indo-Pacific region and Europe. The Biden
Administration also released in October 2022 the public version of its 2022
National Defense Strategy (the "NDS"). Under the NDS, the Indo-Pacific region
remains at the heart of U.S. defense planning, and primary focus is placed on
the need to sustain and strengthen U.S. deterrence against China. The NDS also
takes into account the challenges posed by Russia, including those connected
with its invasion of Ukraine, along with threats posed by North Korea, Iran, and
violent extremist organizations. Additionally, 'non-traditional' threats, such
as pandemic disease and climate change, are included in the NDS as part of the
national security dialogue. Integrated deterrence, the defining principle of the
NDS, seeks to align DoD activities and investments across all theaters, across
the full spectrum of conflict, and across all domains, including space and
cyberspace, as well as a closer working relationship with the U.S.'s network of
allies and partners to deter aggression, exemplified in the Indo-Pacific region
by the Australia, U.K., and U.S. AUKUS agreement and the trilateral cooperation
agreement with Japan and Korea.

The U.S. also faces a more lethal and disruptive battlefield, combined across
domains and conducted at increasing speed and reach. The security environment is
affected by rapid technological advancements and the changing character of war.
The drive to develop new capabilities and enhance lethality is relentless,
expanding to address emerging threats from peer-competitors as well as actors
with lower barriers of entry, and moving at accelerating speed. To address these
rapidly-evolving threats, the U.S. is investing in new capabilities and
lethality enhancements, including unmanned and autonomous systems and platforms;
artificial intelligence; hypersonics; directed energy; resilient networks;
command, control, communications, computers, cyber, intelligence, surveillance
and reconnaissance; and targeting requirements and microelectronics.
Technologies are being prioritized that can penetrate and operate inside
highly-contested and highly-defended territory, both physical and cyber.

We anticipate the U.S. Navy's force projection strategy will continue to
emphasize sea control and sea denial, enabling power projection against
adversaries with long-range weapons and full-spectrum joint domain capabilities.
The Navy will likely continue to employ the evolving concept of Distributed
Maritime Operations ("DMO"), which features multiple sensors and shooters that
are widely dispersed across a broad range of manned and unmanned platforms and
linked through resilient networks. Naval forces are participating in a larger
DoD-wide objective to modernize command and control architecture, the concept to
connect sensors from all of the military services into a single network known as
Joint All-Domain Command and Control ("JADC2"). Future conflicts may require
leaders to analyze the operating environment and make decisions rapidly. With
JADC2, DoD envisions creating an "internet of things" network that would connect
numerous sensors with weapons systems, using artificial intelligence algorithms
to help improve decision-making. Project Overmatch is the Navy's effort to
develop the networks, infrastructure, data architecture, and analytics to
participate in this larger, networked military operating environment. The
end-state for the "Future Navy" envisions a fleet designed to ensure the
wholeness of combat capability and lethal forces maximizing the benefits of DMO,
expeditionary advanced base operations, and littoral operations in a contested
environment. Manned and unmanned technology will be used to expand reach,
lethality, and warfighter awareness.

The Navy's force structure goal of 355 ships, identified in the December 2016
Force Structure Assessment and codified in the fiscal year 2018 National Defense
Authorization Act, has remained the fleet objective for six years. The Navy and
the DoD have been working to develop a successor for the 355-ship force-level
goal. The Navy submitted a long-range shipbuilding plan with the fiscal year
2023 budget request, but, instead of providing a single
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30-year outlook for shipbuilding, the service issued three separate plans for
fiscal year 2023. The Navy crafted low-end and high-end plans based on two
separate funding profiles, and a third profile emphasized the building of attack
submarines and Columbia class (SSBN 826) nuclear ballistic missile submarines.
In 2022, the Navy also delivered its initial, long-range ship maintenance plan,
The Framework for Maintenance and Modernization of Naval Vessels, to Congress.
The maintenance plan provides a long-range look at upcoming maintenance
requirements to better prepare Navy and industry partners for projected
workloads. The Navy has struggled with maintenance delays in recent years, and a
significant tension exists between maintaining and modernizing the fleet.

The DoD and Navy not only face difficult tradeoffs between modernization
priorities, but also tradeoffs about where to take risk across time. The
shipbuilding defense industry is capital heavy and skilled labor intensive. The
Navy, a large single customer with many needs and requirements, dominates the
industry's customer base and is served by an increasingly fragile supplier base
that has trended toward exclusive providers. Inconsistent shipbuilding plans and
annual funding uncertainty severely degrade the ability of shipyards to conduct
long-term planning and respond to near-term changes in requirements. This
ultimately results in longer construction times and increased costs. For
example, the high operational tempo of the Navy in recent years has resulted in
a backlog of repair work across the fleet. Coupled with the impacts of COVID-19
and increases in new ship construction, many suppliers are experiencing a
shortfall in their capacity to perform work and manufacture products. This
increased demand is applying stress to already-aging production equipment. The
combination of limited suppliers and an increase in workload could increase cost
and potentially create schedule slips, impacting American warfighting
capability.

Ultimately, a balance will need to be achieved between the competing priorities
of upgrading legacy systems for the near-term, developing and procuring the next
generation of systems for the mid-term, and investing in emerging technologies
that could drive game-changing capabilities in the long-term. Additionally, the
U.S. Navy must compete with other budget priorities, including other defense
activities, non-defense discretionary spending, supplemental spending for
COVID-19 relief and natural disasters, entitlement programs, and other mandatory
spending, for a share of federal budget funding. While the impact to our
business resulting from these developments remains uncertain, they could have a
material impact on current programs, as well as new business opportunities with
the DoD. See Risk Factors in Item 1A.

Program Descriptions

For convenience, a brief description of certain programs discussed in this
Annual Report on Form 10-K is included in the Glossary of Programs.

CONTRACTS

We generate most of our revenues from long-term U.S. Government contracts for
the production of goods and services. Government contracts typically include the
following cost elements: direct material, labor and subcontracting costs, and
certain indirect costs, including allowable general and administrative expenses.
Unless otherwise specified in a contract, costs billed to contracts with the
U.S. Government are treated as allowable and allocable costs under the FAR and
CAS regulations. Examples of costs incurred by us that are not allowable under
the FAR and CAS regulations include certain legal costs, lobbying costs,
charitable donations, interest expense, organizational costs, including certain
merger and acquisition costs, and advertising costs.

We monitor our policies and procedures with respect to our contracts on a
regular basis to ensure consistent application under similar terms and
conditions, as well as compliance with all applicable government regulations. In
addition, the DCAA routinely audits the costs we incur that are allocated to
U.S. Government contracts.

Our contracts typically fall into one of four categories: firm fixed-price,
fixed-price incentive, cost-type, and time and materials. See Note 7: Revenue in
Item 8.

•Firm Fixed-Price Contracts - A firm fixed-price contract is a contract in which
the specified scope of work is agreed to for a price that is predetermined by
bid or negotiation and not generally subject to adjustment regardless of costs
incurred by the contractor.

•Fixed-Price Incentive Contracts - Fixed-price incentive contracts provide for
reimbursement of the contractor's allowable costs, but are subject to a
cost-share limit that affects profitability. Fixed-price incentive contracts
effectively become firm fixed-price contracts once the cost-share limit is
reached.
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•Cost-Type Contracts - Cost-type contracts provide for reimbursement of the
contractor's allowable costs plus a fee that represents profit. Cost-type
contracts generally require that the contractor use its reasonable efforts to
accomplish the scope of the work within some specified time and some stated
dollar limitation.

•Time and Materials - Time and materials contracts specify a fixed hourly
billing rate for each direct labor hour expended and reimbursement for allowable
material costs and expenses.

Contract Fees - Negotiated contract fee structures include: fixed fee amounts,
cost sharing arrangements to reward or penalize contractors for under- or
over-cost target performance, respectively, positive award fees, and negative
penalty arrangements. Profit margins may vary materially depending on the
negotiated contract fee arrangements, percentage-of-completion of the contract,
the achievement of performance objectives, and the stage of performance at which
the right to receive fees, particularly under incentive and award fee contracts,
is finally determined.

Award Fees - Certain contracts contain award fees based on performance criteria
such as cost, schedule, quality, and technical performance. Award fees are
determined and earned based on an evaluation by the customer of our performance
against such negotiated criteria. We consider award fees to be variable
consideration and generally include these fees in the transaction price using a
most likely amount approach. Award fees are limited to the extent of funding
allotted by the customer and available for performance and those amounts for
which a significant reversal of revenue is not probable.

CRITICAL ACCOUNTING POLICIES, ESTIMATES, AND JUDGMENTS

Our consolidated financial statements are prepared in accordance with U.S. GAAP,
which requires management to make estimates, judgments, and assumptions that
affect the amounts reported in the consolidated financial statements and the
accompanying notes. Management considers an accounting policy to be critical if
it is important to our financial condition and results of operations and
requires significant judgment and estimates by management in its application.
The development and selection of these critical accounting policies have been
determined by our management. We have reviewed our critical accounting policies
and estimates with the audit committee of our board of directors. Due to the
significant judgment involved in selecting certain of the assumptions used in
these policies, it is possible that different parties could choose different
assumptions and reach different conclusions. While we base estimates and
assumptions on our knowledge of current events and actions we may undertake in
the future, actual results may ultimately differ from these estimates and
assumptions. We consider our policies relating to the following matters to
involve our most critical accounting policies and estimates:

•Revenue recognition;

•Purchase accounting, goodwill, and intangible assets;

•Litigation, commitments, and contingencies;

•Retirement related benefit plans; and

•Workers' compensation.

Revenue Recognition

Most of our revenues are derived from long-term contracts for the production of
goods and services provided to the U.S. Government, which are generally
accounted for by recognizing revenues over time using a cost-to-cost measure of
progress. In estimating contract costs, we utilize a profit-booking rate based
upon performance expectations that incorporate a number of assumptions and
estimates regarding risks related to technical requirements, feasibility,
schedule, and contract costs. Management performs periodic reviews of the
contracts to evaluate the underlying risks, which may increase the
profit-booking rate as we are able to mitigate and retire such risks. For the
impacts of changes in estimates on our consolidated statements of operations and
comprehensive income, see Note 8: Segment Information in Item 8.

Purchase Accounting, Goodwill, and Intangible Assets

We allocate the purchase price of acquired businesses to the underlying tangible
and intangible assets acquired and liabilities assumed based upon their
respective fair values, with the excess recorded as goodwill. We recognize
purchased intangible assets from our business acquisitions at fair value on the
acquisition date. Our most significant
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purchased intangible assets are generally related to customer contracts,
including backlog and recompeted contracts. We determine the fair values of
those customer related intangible assets based on estimates and judgments,
including the amount and timing of expected future cash flows, long-term growth
rates, and discount rates.

Goodwill is tested for impairment on an annual basis at each of our reporting
units by assessing qualitative factors to determine whether it is more likely
than not that the fair value of other intangible asset or the goodwill allocated
to the reporting unit is less than its carrying amount. If the qualitative
assessment indicates a possible impairment, the carrying value of the asset or
reporting unit is compared with its fair value. If the fair value is determined
to be less than the carrying value, we record an impairment charge to the
reporting unit. We perform tests for impairment of amortizable intangible assets
whenever events or circumstances suggest that amortizable intangible assets may
be impaired.

We estimate the fair value of each reporting unit using a combination of
discounted cash flow analysis and market-based valuation methodologies.
Determining fair value requires the exercise of significant judgment, including
judgments about projected revenues, operating expenses, working capital
investment, capital expenditures, and cash flows over a multi-year period. The
discount rate applied to our forecasts of future cash flows is based on our
estimated weighted average cost of capital. In assessing the reasonableness of
our determined fair values, we evaluate our results against our market
capitalization. Impairment assessment inherently involves management judgments
as to assumptions about expected future cash flows and the impact of market
conditions on those assumptions. Changes in our estimates and assumptions could
materially affect the determination of fair value and/or goodwill impairment for
each reporting unit.

For further information on purchase accounting, goodwill, and intangible assets,
see Risk Factors in Item 1A and Note 2: Summary of Significant Accounting
Policies, Note 4: Acquisitions and Divestitures, and Note 11: Goodwill and Other
Intangible Assets in Item 8.

Litigation, Commitments, and Contingencies

Overview - We are subject to a range of legal proceedings before various courts
and administrative agencies and are periodically subject to government audits,
inquiries, and investigations that arise in the ordinary course of business.
Estimating liabilities and costs associated with these matters requires judgment
and assessment based upon professional knowledge and the experience of
management and our internal and external legal counsel. In accordance with our
practices relating to accounting for contingencies, we record charges to
earnings when we determine, after taking into consideration the facts and
circumstances of each matter, including any settlement offers, that it is
probable a liability has been incurred and the amount of the loss can be
reasonably estimated. The ultimate resolution of any such exposure may vary from
earlier estimates as further facts and circumstances become known.

Environmental Accruals - We are subject to the environmental laws and
regulations of the jurisdictions in which we conduct operations. We record a
liability for the costs of expected environmental remediation obligations when
we determine that it is probable we will incur such costs and the amount of the
liability can be reasonably estimated. When a range of costs is possible and no
amount within that range is a better estimate than another, we record the
minimum amount of the range.

Factors that could result in changes to the assessment of probability, range of
estimated costs, and environmental liability accruals include: modification of
planned remedial actions, increase or decrease in the estimated time required to
remediate, discovery of more extensive contamination than anticipated, results
of efforts to involve other legally responsible parties, financial insolvency of
other responsible parties, changes in laws and regulations or contractual
obligations affecting remediation requirements, and improvements in remediation
technology. Although we cannot predict whether new information gained as
remediation projects progress will materially affect the accrued liability, we
do not believe that future remediation expenditures will have a material effect
on our financial position, results of operations, or cash flows.

Income Tax Matters - The evaluation of tax positions taken in a filed tax
return, or planned to be taken in a future tax return or claim, requires
judgment. We establish reserves for uncertain tax positions that do not meet the
more-likely-than-not recognition threshold, based on the merits of the position.
We recognize the amount of a tax benefit that is more than 50% likely to be
realized upon ultimate settlement with the related tax authority. If a tax
position
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does not meet the minimum statutory threshold to avoid payment of penalties, we
recognize an expense for the amount of the penalty in the period the tax
position is claimed or expected to be claimed in our tax return. Penalties and
accrued interest related to unrecognized tax benefits are recognized as a
component of income tax expense. See Note 12: Income Taxes in Item 8. Changes in
accruals associated with unrecognized tax benefits are recorded in earnings in
the period they are determined.

For further information on litigation, commitments, and contingencies, see Risk
Factors in Item 1A and Note 2: Summary of Significant Accounting Policies, Note
4: Acquisitions and Divestitures, Note 12: Income Taxes, Note 14:
Investigations, Claims, and Litigation, and Note 16: Commitments and
Contingencies in Item 8.

Retirement Related Benefit Plans

We recognize, on a plan-by-plan basis, the funded status of our retirement
related benefit plans as an asset or liability on our balance sheet, with
corresponding adjustments to after-tax accumulated other comprehensive loss and
deferred tax assets or liabilities. The funded status represents the difference
between the benefit obligation and the fair value of plan assets. See Note 17:
Employee Pension and Other Postretirement Benefits in Item 8.

We calculate our retirement related benefit plan costs under both CAS and U.S.
GAAP Financial Accounting Standards ("FAS"). The calculations under CAS and FAS
require significant judgment. CAS prescribes the determination, allocation, and
recovery of retirement related benefit plan costs on U.S. Government contracts
through the pricing of products and services. FAS prescribes the methodology
used to determine retirement related benefit plan expense or income, as well as
the liability, for financial reporting purposes. The CAS requirements for these
costs and their calculation methodologies differ from FAS. As a result, while
both CAS and FAS use assumptions in their calculation methodologies, each method
results in different calculated amounts of retirement related benefit plan
costs.

We recover our CAS costs through the pricing of products and services on U.S.
Government contracts, so that the CAS cost is recognized in segment product
sales and service revenues and in the costs of those product sales and service
revenues. In order to present our consolidated financial statements in
accordance with FAS, we record the difference between our FAS expense and CAS
cost ("FAS/CAS Adjustment") as operating income within segment operating income
and non-operating retirement benefit (expense).

The minimum funding requirements for our qualified pension plans are determined
under the Employee Retirement Income Security Act of 1974 ("ERISA"), which is
primarily based on the year's expected service cost and amortization of other
previously unfunded liabilities. Effective January 1, 2011, we were subject to
the funding requirements under the Pension Protection Act of 2006 ("PPA"), which
amended ERISA. Under the PPA, we are required to fully fund our pension plans
over a rolling seven-year period as determined annually based upon the funded
status at the beginning of each year. PPA also introduced a variety of benefit
restrictions that apply if a plan falls below certain funded percentages, as
defined by the Internal Revenue Code. In funding our plans, we consider various
factors, including the minimum funding requirements, the funded status needed to
avoid potential benefit restrictions and other adverse consequences, minimum CAS
funding requirements, and the current and anticipated funding levels of each
plan.

Effective January 1, 2021, we adopted the Safe Harbor methodology used in
determining CAS pension costs. The interest rates used to calculate pension
liabilities under CAS are consistent with those used in the determination of
minimum funding requirements under ERISA.

Pension funding requirements under ERISA are subject to pension relief for plan
sponsors in the form of higher interest rate assumptions introduced by the
Moving Ahead for Progress in the 21st Century Act and subsequently extended by
the American Rescue Plan Act of 2021. Using these minimum funding interest rates
for the purposes of determining pension costs under CAS reduces volatility in
CAS costs year-over-year and provides more predictable costs for our customers,
while better aligning reimbursements of pension costs under our contracts with
our required pension plan contributions under ERISA.

Due to the differences in requirements and calculation methodologies between FAS
and CAS, our FAS pension expense is not necessarily indicative of the funding
requirements under PPA or the amounts we recover from the U.S. Government under
CAS.

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Assumptions - We account for our retirement related benefit plans on the accrual
basis under FAS. The measurements of obligations, costs, assets, and liabilities
require significant judgment. We annually review our assumptions, which are set
at each year end and generally not changed during the following year unless a
major plan event occurs, such as an amendment, curtailment, or settlement that
would trigger a remeasurement. The key assumptions in these measurements are the
interest rate used to discount future benefit payments and the expected
long-term rate of return on plan assets.

Discount Rate - The assumed discount rate under FAS is used to determine the
retirement related benefit plan obligations and expense, and represents the
hypothetical rate at which plan benefit obligations could be effectively settled
at the measurement date. Consequently, the discount rate can be volatile from
year to year. The discount rate assumption is determined for each plan by
constructing a hypothetical portfolio of high-quality bonds with cash flows that
match the estimated outflows for future benefit payments to determine a single
equivalent discount rate. Benefit payments are not only contingent on the terms
of a plan but also on the underlying participant demographics, including current
age and assumed mortality. We use only bonds that are denominated in U.S.
Dollars, are rated Aa or better by nationally recognized statistical rating
agencies, have a minimum outstanding issue of $50 million as of the measurement
date, and are not callable, convertible, or index-linked.

Expected Long-Term Rate of Return - The expected long-term rate of return on
assets is used to calculate net periodic expense, based on such factors as
historical returns, targeted asset allocations, investment policy, duration,
expected future long-term performance of individual asset classes, interest
rates, inflation, portfolio volatility, investment management and administrative
fees, and risk management strategies. Historical plan asset performance alone
has inherent limitations in predicting future returns. While studies are helpful
in understanding past and current trends and performance, the rate of return
assumption is based more on long-term prospective views to avoid short-term
market influences. Unless plan assets and benefit obligations are subject to
re-measurement during the year, the expected return on pension assets is based
on the fair value of plan assets at the beginning of the year.

Mortality - Mortality assumptions are used to determine the retirement related
benefit obligations and expense, and represent the likelihood and duration of
benefit payments to plan participants based on historical experience and
projected longevity. We periodically update our mortality assumptions as
circumstances warrant.

Differences arising from actual experience or changes in assumptions might
materially affect retirement related benefit plan obligations and the funded
status. Actuarial gains and losses arising from differences between assumptions
and actual experience or changes in assumptions are deferred in accumulated
other comprehensive loss. This unrecognized amount is amortized as a component
of net expense to the extent it exceeds 10% of the greater of the plan's benefit
obligation or plan assets. The amortization period for actuarial gains and
losses is the estimated average remaining service life of the plan participants.
In 2022, the actual return on assets was approximately (16.1)%, which was less
than the expected return assumption of 7.25%. For the year ended December 31,
2022, the weighted average discount rates for our pension and other
postretirement benefit plans increased by 247 and 256 basis points,
respectively. The differences in asset returns resulted in an actuarial loss of
$1,943 million, and the differences in discount rates resulted in an actuarial
gain of $2,605 million for the year ended December 31, 2022.

An increase or decrease of 25 basis points in the discount rate and the expected
long-term rate of return assumptions would have had the following approximate
impacts on pension expense and obligations:
                                                                                   Increase (Decrease)
                                                        Increase (Decrease)        in December 31, 2022
($ in millions)                                           in 2023 Expense              Obligations
25 basis point decrease in discount rate                $              16          $             197
25 basis point increase in discount rate                               (6)                      (188)
25 basis point decrease in expected return on
assets                                                                 17
25 basis point increase in expected return on
assets                                                                (17)



Assuming an 8.00% expected return on assets assumption, a $50 million pension
plan contribution is generally expected to favorably impact the current year
expected return on assets by approximately $2 million, depending on the timing
of the contribution.

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Sensitivities to assumptions are not necessarily linear and are specific to the
time periods noted.

CAS Cost - In addition to providing the methodology for calculating retirement
related benefit plan costs, CAS also prescribes the method for assigning those
costs to specific periods. While the ultimate liability for such costs under FAS
and CAS is similar, the pattern of cost recognition is different. The key
drivers of CAS pension cost include the funded status and the method used to
calculate CAS reimbursement for each of our plans. A plan's CAS pension cost can
only be allocated until the plan is fully funded as defined under the CAS
requirements.

Other FAS and CAS Pension Considerations - A key driver of the difference
between FAS expense and CAS cost (and consequently the FAS/CAS Adjustment) is
the pattern of earnings and expense recognition for actuarial gains and losses
that arise when our asset and liability experiences differ from our assumptions
under each set of requirements. Under FAS, our net actuarial gains and losses
exceeding the 10% corridor are amortized over the estimated average remaining
service life of the plan participants. Under CAS Harmonization, the amortization
period is 10 years for actuarial gains and losses. Both FAS and CAS use a
"market-related value" of plan assets approach to calculate the amount of
deferred asset gains or losses to be amortized. Under CAS, actual asset gains
and losses are systematically smoothed over five years, subject to certain
limitations. For FAS, we do not use this smoothing method, and instead use fair
value in determining our FAS expense. Accordingly, FAS expense generally
reflects recent asset gains and losses sooner than CAS.

Additionally, CAS cost is only recognized for plans that are not fully funded as
defined under CAS. If a plan becomes or ceases to be fully funded due to our
asset or liability experience, our CAS cost will change accordingly.

Retirement Plan Assets - Retirement plan assets are stated at fair value.
Investments in equity securities (common and preferred) are valued at the last
reported sales price when an active market exists. Investments in fixed-income
securities are generally valued based on market transactions for comparable
securities and various relationships between securities that are generally
recognized by institutional traders. Investments in hedge funds, real estate
investment funds, private partnerships, collective trust funds, and commingled
funds are generally valued at their Net Asset Values ("NAV") or equivalent,
which are based on the current fair values of the fund's underlying assets.

Management reviews independently appraised values, audited financial statements,
and additional pricing information to evaluate the NAV or its equivalent.

For the limited group of investments for which market quotations are not readily
available or for which the above valuation procedures are deemed not to reflect
fair value, additional information is obtained from the investment manager and
evaluated internally to determine whether any adjustments are required to
reflect fair value. See Note 17: Employee Pension and Other Postretirement
Benefits in Item 8.

Accumulated Other Comprehensive Loss - Changes in assumptions and changes to
plan assets and benefit obligations due to differences between actuarial
assumptions and actual results are reported as actuarial gains and losses and
recorded in accumulated other comprehensive loss, along with unrecognized prior
service costs arising from plan amendments. As disclosed in Note 17: Employee
Pension and Other Postretirement Benefits in Item 8, net pre-tax unrecognized
actuarial losses as of December 31, 2022 and 2021 were $678 million and $1,194
million, respectively. The decrease in actuarial losses in 2022 was primarily
driven by lower benefit obligations of $2,605 million resulting from higher
discount rates used to determine benefit obligations and amortization of
previously unrecognized actuarial losses of $32 million, partially offset by
asset returns less than expected returns of $1,943 million.

Net pre-tax unrecognized prior service costs (credits) as of December 31, 2022
and 2021 were $140 million and $60 million, respectively. These net deferred
costs (credits) primarily originated from plan amendments, including those
resulting from collective bargaining agreements. The change in unrecognized
prior service costs (credits) in 2022 resulted from plan amendments and the
amortization of previously accumulated prior service costs (credits).

Workers' Compensation

Our operations are subject to federal and state workers' compensation laws. We
maintain self-insured workers' compensation plans and participate in federally
administered second injury workers' compensation funds. We estimate the
liability for such claims and funding requirements on a discounted basis
utilizing actuarial methods based on various assumptions, which include our
historical loss experience and projected loss development factors. We
periodically, and at least annually, update our assumptions based on an
actuarial analysis. For further
                                       37

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information on workers' compensation, see Environmental, Health & Safety in Item
1 and Note 16: Commitments and Contingencies in Item 8.

Accounting Standards Updates

See Note 3: Accounting Standards Updates in Item 8 for further information.

CONSOLIDATED OPERATING RESULTS

The following table presents selected financial highlights:

                                                         Year Ended December 31                              2022 over 2021                            2021 over 2020
($ in millions)                                  2022              2021             2020              Dollars               Percent              Dollars              Percent
Sales and service revenues                    $ 10,676          $ 9,524          $ 9,361          $       1,152                  12  %       $        163                   2  %
Cost of product sales and service
revenues                                         9,236            8,156            7,691                  1,080                  13  %                465                   6  %
Income from operating investments, net              48               41               32                      7                  17  %                  9                  28  %
Other income and gains, net                          1                2                1                     (1)                (50) %                  1                 100  %
General and administrative expenses                924              898              904                     26                   3  %                 (6)                 (1) %

Operating income                                   565              513              799                     52                  10  %               (286)                (36) %
Interest expense                                  (102)             (89)            (114)                   (13)                (15) %                 25                  22  %
Non-operating retirement benefit                   276              181              119                     95                  52  %                 62                  52  %
Other, net                                         (20)              17                6                    (37)               (218) %                 11                 183  %
Federal and foreign income taxes                   140               78              114                     62                  79  %                (36)                (32) %
Net earnings                                  $    579          $   544          $   696          $          35                   6  %       $       (152)                (22) %

Operating Performance Assessment 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 financial
estimates and the use of the cumulative catch-up method of accounting in
accordance with GAAP. This approach is consistent with the long-term life cycle
of our contracts, as management assesses the bidding of each contract by
focusing on net sales and operating profit and monitors performance in a similar
manner through contract completion. Consequently, our discussion of business
segment performance focuses on net sales and operating profit, consistent with
our approach for managing our business.

Cost of sales for both product sales and service revenues consists of materials,
labor, and subcontracting costs, as well as an allocation of indirect costs for
overhead. We manage the type and amount of costs at the contract level, which is
the basis for estimating our total costs at completion of our contracts. Unusual
fluctuations in operating performance driven by changes in a specific cost
element across multiple contracts are described in our analysis.

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Sales and Service Revenues

Sales and service revenues were comprised as follows:

                                                    Year Ended December 31                              2022 over 2021                             2021 over 2020
($ in millions)                             2022              2021             2020              Dollars               Percent              Dollars    

          Percent
Product sales                            $  7,283          $ 7,000          $ 6,850          $         283                   4  %       $         150                   2  %
Service revenues                            3,393            2,524            2,511                    869                  34  %                  13                   1  %
Sales and service revenues               $ 10,676          $ 9,524          $ 9,361          $       1,152                  12  %       $         163                   2  %



2022 - Product sales in 2022 increased $283 million, or 4%, from 2021. Product
sales at our Ingalls segment increased $15 million in 2022, primarily as a
result of higher volumes in amphibious assault ships and surface combatants,
partially offset by lower volumes in the Legend class NSC program. Newport News
product sales increased $278 million in 2022, primarily as a result of higher
volumes in aircraft carriers and submarines. Mission Technologies product sales
decreased $10 million in 2022, primarily as a result of lower volumes in mission
based solutions, unmanned systems, and fleet sustainment.

Service revenues in 2022 increased $869 million, or 34%, from 2021. Service
revenues at our Ingalls segment increased $30 million in 2022, primarily as a
result of higher volumes in amphibious assault ship services. Service revenues
at our Newport News segment decreased $83 million in 2022, primarily as a result
of lower volumes in aircraft carrier, submarine and naval nuclear support
services. Service revenues at our Mission Technologies segment increased $922
million in 2022, primarily as a result of higher volumes in mission based
solutions services due to the acquisition of Alion in 2021.

2021 - Product sales in 2021 increased $150 million, or 2%, from 2020. Product
sales at our Ingalls segment decreased $105 million in 2021, primarily as a
result of lower volumes in the Legend class NSC program and amphibious assault
ships, partially offset by higher volumes in surface combatants. Newport News
product sales increased $231 million in 2021, primarily as a result of higher
volumes in submarines and aircraft carriers. Mission Technologies product sales
increased $24 million in 2021, primarily as a result of higher volumes in
mission based solutions, partially offset by lower volumes in unmanned systems.

Service revenues in 2021 increased $13 million, or 1%, from 2020. Service
revenues at our Ingalls segment decreased $56 million in 2021, primarily as a
result of lower volumes in surface combatants and amphibious assault ship
services. Service revenues at our Newport News segment decreased $138 million in
2021, primarily as a result of lower volumes in naval nuclear support services.
Service revenues at our Mission Technologies segment increased $207 million in
2021, primarily as a result of higher volumes in mission based solutions
services due to the acquisition of Alion, partially offset by the divestiture of
our oil and gas business and contribution of our San Diego Shipyard to a joint
venture.
Cost of Sales and Service Revenues

Cost of product sales, cost of service revenues, income from operating
investments, net, and general and administrative expenses were as follows:

                                                          Year Ended December 31                              2022 over 2021                             2021 over 2020
($ in millions)                                   2022              2021             2020              Dollars               Percent             

Dollars               Percent
Cost of product sales                         $  6,225           $ 5,958          $ 5,621          $         267                   4  %       $         337                   6  %
% of product sales                                85.5   %          85.1  %          82.1  %
Cost of service revenues                         3,011             2,198            2,070                    813                  37  %                 128                   6  %
% of service revenues                             88.7   %          87.1  %          82.4  %
Income from operating investments, net              48                41               32                      7                  17  %                   9                  28  %
Other income and gains, net                          1                 2                1                     (1)                (50) %                   1                 100  %
General and administrative expenses                924               898              904                     26                   3  %                  (6)                 (1) %
% of total sales and service revenues              8.7   %           9.4  % 

9.7 %

Cost of sales and service revenues            $ 10,111           $ 9,011          $ 8,562          $       1,100                  12  %       $         449                   5  %



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Cost of Product Sales

2022 - Cost of product sales in 2022 increased $267 million, or 4%, compared to
2021. Cost of product sales at our Ingalls segment increased $46 million in
2022, primarily as a result of volume increases described above and receipt of a
contract incentive on USS Jack H. Lucas (DDG 125) in 2021. Cost of product sales
at our Newport News segment increased $241 million in 2022, primarily as a
result of volume increases described above. Cost of product sales at our Mission
Technologies segment decreased $12 million in 2022, primarily as a result of
volume decreases described above and year-to-year variances in contract mix.
Cost of product sales related to the Operating FAS/CAS Adjustment decreased $8
million from 2021 to 2022.

Cost of product sales as a percentage of product sales increased from 85.1% in
2021 to 85.5% in 2022, primarily due to lower risk retirement on the Virginia
class (SSN 774) submarine program and the RCOH of USS George Washington (CVN
73), and receipt of a contract incentive on USS Jack H. Lucas (DDG 125) in 2021,
partially offset by favorable changes in contract estimates from facilities
capital and price adjustment clauses, contract incentives on the Columbia class
(SSBN 826) submarine program, higher risk retirement on Harrisburg (LPD 30) and
USS Fort Lauderdale (LPD 28), as well as a favorable change in the Operating
FAS/CAS Adjustment.

2021 - Cost of product sales in 2021 increased $337 million, or 6%, compared to
2020. Cost of product sales at our Ingalls segment decreased $82 million in
2021, primarily as a result of the volume changes described above. Cost of
product sales at our Newport News segment increased $65 million in 2021,
primarily as a result of submarine volume increases described above, partially
offset by impacts related to the performance on Block IV boats of the Virginia
class (SSN 774) submarine program and delay and disruption from discrete
COVID-19 Events in 2020. Cost of product sales at our Mission Technologies
segment increased $20 million in 2021, primarily due to the higher volumes
described above. Cost of product sales related to the Operating FAS/CAS
Adjustment increased $334 million from 2020 to 2021.

Cost of product sales as a percentage of product sales increased from 82.1% in
2020 to 85.1% in 2021, primarily due to an unfavorable change in the Operating
FAS/CAS Adjustment, lower risk retirement on USS Delbert D. Black (DDG 119), and
year-to-year variances in contract mix, partially offset by impacts related to
performance on Block IV boats of the Virginia class (SSN 774) submarine program
and delay and disruption from discrete COVID-19 Events in 2020, higher risk
retirement on Bougainville (LHA 8), and a contract incentive on Jack H. Lucas
(DDG 125).

Cost of Service Revenues

2022 - Cost of service revenues in 2022 increased $813 million, or 37%, compared
to 2021. Cost of service revenues at our Ingalls segment increased $30 million
in 2022, primarily as a result of higher volumes described above. Cost of
service revenues at our Newport News segment decreased $83 million in 2022,
primarily as a result of lower volumes described above. Cost of service revenues
at our Mission Technologies segment increased $870 million in 2022, primarily as
a result of higher volumes described above. Cost of service revenues related to
the Operating FAS/CAS Adjustment decreased $4 million from 2021 to 2022.

Cost of service revenues as a percentage of service revenues increased from
87.1% in 2021 to 88.7% in 2022, primarily driven by higher amortization of
purchased intangible assets in 2022 due to the Alion acquisition, partially
offset by higher operating income driven by the acquisition of Alion in 2021 and
a favorable change in the Operating FAS/CAS Adjustment.

2021 - Cost of service revenues in 2021 increased $128 million, or 6%, compared
to 2020. Cost of service revenues at our Ingalls segment decreased $46 million
in 2021, primarily as a result of the lower volumes described above. Cost of
service revenues at our Newport News segment decreased $74 million in 2021,
primarily as a result of lower volumes described above. Cost of service revenues
at our Mission Technologies segment increased $177 million in 2021, primarily as
a result of higher volumes changes described above. Cost of service revenues
related to the Operating FAS/CAS Adjustment increased $71 million from 2020 to
2021.

Cost of service revenues as a percentage of service revenues increased from
82.4% in 2020 to 87.1% in 2021, primarily driven by an unfavorable change in the
Operating FAS/CAS Adjustment, lower risk retirement on submarine support
services, and year-to-year variances in contract mix.

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Income from Operating Investments, Net

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

2022 - Income from operating investments, net increased $7 million, or 17%, to
$48 million in 2022 from $41 million in 2021. The increase resulted from higher
equity income from our investment in an unconsolidated ship repair and specialty
fabrication joint venture.

2021 - Income from operating investments, net increased $9 million, or 28%, to
$41 million in 2021 from $32 million in 2020. The increase resulted from higher
equity income from our investment in an unconsolidated ship repair and specialty
fabrication joint venture and from our unconsolidated nuclear and environmental
joint ventures.

General and Administrative Expenses

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

2022 - General and administrative expenses in 2022 increased $26 million, or 3%,
compared to 2021. This increase was primarily due to higher overhead costs as a
result of the acquisition of Alion in 2021 and current state income tax expense,
partially offset by favorable changes in non-current state income tax expense.

2021 - General and administrative expenses in 2021 decreased $6 million, or 1%,
compared to 2020. This decrease was primarily driven by favorable changes in
current state income tax expense, partially offset by unfavorable changes in
non-current state income tax expense and higher overhead costs driven by the
acquisition of Alion.

Operating Income

We consider operating income an important measure for evaluating our operating
performance, and, consistent with industry practice, we define operating income
as revenues less the related costs of producing the revenues and general and
administrative expenses.

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

The following table reconciles operating income to segment operating income:

                                                    Year Ended December 31                           2022 over 2021                            2021 over 2020
($ in millions)                               2022             2021           2020             Dollars              Percent              Dollars        

Percent

Operating income                           $    565          $ 513          $ 799          $         52                  10  %       $       (286)                (36) %
Operating FAS/CAS Adjustment                    145            157           (248)                  (12)                 (8) %                405                 163  %
Non-current state income taxes                    2             13              4                   (11)                (85) %                  9                 225  %
Segment operating income                   $    712          $ 683          $ 555          $         29                   4  %       $        128                  23  %




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Segment Operating Income

2022 - Segment operating income in 2022 was $712 million, compared to $683
million in 2021. The increase was primarily due to favorable changes in contract
estimates from facilities capital and price adjustment clauses, contract
incentives on the Columbia class (SSBN 826) submarine program, higher risk
retirement on Harrisburg (LPD 30) and USS Fort Lauderdale (LPD 28), higher
operating income driven by the acquisition of Alion in 2021, and higher equity
income from our investment in an unconsolidated ship repair and specialty
fabrication joint venture, partially offset by higher amortization of purchased
intangible assets in 2022 due to the Alion acquisition, lower risk retirement on
the Virginia class (SSN 774) submarine program and the RCOH of USS George
Washington (CVN 73), and receipt of a contract incentive on USS Jack H. Lucas
(DDG 125) in 2021.

2021 - Segment operating income in 2021 was $683 million, compared to $555
million in 2020. The increase was driven by impacts related to performance on
Block IV boats of the Virginia class (SSN 774) submarine program and delay and
disruption from discrete COVID-19 Events in 2020.

Activity within each segment is discussed under Segment Operating Results below.

FAS/CAS Adjustment and Operating FAS/CAS Adjustment

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

Effective January 1, 2021, we adopted the Safe Harbor methodology for
determining CAS pension costs. Under this methodology, the interest rates used
to calculate pension liabilities under CAS are consistent with those used in the
determination of minimum funding requirements under the Employee Retirement
Income Security Act of 1974 ("ERISA").

The components of the Operating FAS/CAS Adjustment were as follows:

                                                           Year Ended December 31                               2022 over 2021                            2021 over 2020
($ in millions)                                      2022               2021            2020             Dollars               Percent              Dollars              Percent
FAS benefit (expense)                          $      86              $  (28)         $ (70)         $         114                 407  %       $         42                  60  %
CAS cost                                              45                  52            437                     (7)                (13) %               (385)                (88) %
FAS/CAS Adjustment                                   131                  24            367                    107                 446  %               (343)                (93) %
Non-operating retirement benefit                    (276)               (181)          (119)                   (95)                (52) %                (62)                (52) %
Operating FAS/CAS Adjustment (expense)
benefit                                        $    (145)             $ (157)         $ 248          $          12                   8  %       $       (405)               (163) %

2022 - The Operating FAS/CAS Adjustment in 2022 was a net expense of $145
million, compared to a net expense of $157 million in 2021. The favorable change
was primarily driven by higher interest rates under FAS.

2021 - The Operating FAS/CAS Adjustment in 2021 was a net expense of $157
million, compared to a net benefit of $248 million in 2020. The unfavorable
change was primarily driven by the more immediate recognition of higher interest
rates under CAS.

We expect the FAS/CAS Adjustment in 2023 to be a net benefit of approximately
$81 million (($31) million FAS and $50 million CAS), primarily driven by higher
interest rates offset by 2022 asset returns.

We expect the Operating FAS/CAS Adjustment in 2023 to be a net expense of
approximately $68 million ($118 million FAS and $50 million CAS), primarily
driven by the more immediate recognition of higher interest rates under FAS. The
expected FAS/CAS Adjustment is subject to change during 2023, when we remeasure
our actuarial estimate of the unfunded benefit obligation for CAS with updated
census data and other items later in the year.

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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.

2022 - Non-current state income tax expense in 2022 was $2 million, compared to
$13 million in 2021. The favorable change in non-current state income taxes was
primarily driven by a decrease in deferred state income tax expense, largely
attributable to research and development expenses that are capitalized and
amortized for tax purposes.

2021 - Non-current state income tax expense in 2021 was $13 million, compared to
$4 million in 2020. The unfavorable change in non-current state income taxes was
driven by an increase in deferred state income tax expense, primarily
attributable to a decrease in expenses not currently deductible for income tax
purposes.

Interest Expense

2022 - Interest expense in 2022 was $102 million, compared to $89 million in
2021. The increase was primarily due to the issuance of senior notes and
borrowing under the Term Loan in 2021 to partially fund the Alion acquisition.

2021 - Interest expense in 2021 was $89 million, compared to $114 million in
2020. The decrease was primarily a result of costs associated with the early
redemption in 2020 of $600 million aggregate principal amount of our 5.000%
senior notes due 2025, partially offset by increased borrowing to fund the
acquisition of Alion with the issuance of $400 million aggregate principal
amount of 0.670% senior notes due 2023, $600 million aggregate principal amount
of 2.043% senior notes due 2028, and a $650 million three-year Term Loan.

Non-Operating Retirement Benefit

The non-operating retirement benefit includes the following components of net
periodic benefit costs: interest cost, expected return on plan assets,
amortization of prior service cost (credit) and actuarial loss (gain), and
settlement and curtailment effects.

2022 - A favorable change in the non-operating retirement benefit of $95 million
from 2021 to 2022 was primarily driven by higher 2021 returns on plan assets.

2021 - A favorable change in the non-operating retirement benefit of $62 million
from 2020 to 2021 was primarily driven by higher 2020 returns on plan assets.

Other, Net

2022 - Other, net expense in 2022 was $20 million, compared to other, net income
of $17 million in 2021. The decrease was primarily driven by realized and
unrealized net investment losses.

2021 - Other, net income in 2021 was $17 million, compared to $6 million with
2020. The increase was primarily driven by an impairment of a loan receivable in
2020.

Federal and Foreign Income Taxes

2022 - Our effective tax rate on earnings from continuing operations was 19.5%
in 2022, compared to 12.5% in 2021. The increase in our effective tax rate for
2022 was primarily attributable to income tax benefits recorded in 2021 relating
to research and development tax credits for prior periods and a tax loss
associated with the sale of our oil and gas business.

2021 - Our effective tax rate on earnings from continuing operations was 12.5%
in 2021, compared to 14.1% in 2020. The decrease in our effective tax rate for
2021 was primarily attributable to an increase in research and development tax
credits for prior periods and a tax loss associated with the sale of our oil and
gas business, partially offset by an increase in unrecognized tax benefits.

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SEGMENT OPERATING RESULTS

Basis of Presentation

We are aligned into three reportable segments: Ingalls, Newport News, and
Mission Technologies.

The following table presents segment operating results:

                                                       Year Ended December 31                              2022 over 2021                            2021 over 2020
($ in millions)                                2022              2021             2020              Dollars               Percent              Dollars              Percent
Sales and Service Revenues
Ingalls                                     $  2,570          $ 2,528          $ 2,678          $          42                   2  %       $       (150)                 (6) %
Newport News                                   5,852            5,663            5,571                    189                   3  %                 92                   2  %
Mission Technologies                           2,387            1,476            1,268                    911                  62  %                208                  16  %
Intersegment eliminations                       (133)            (143)            (156)                    10                   7  %                 13                   8  %
Sales and service revenues                  $ 10,676          $ 9,524      

   $ 9,361          $       1,152                  12  %       $        163                   2  %
Operating Income
Ingalls                                     $    292          $   281          $   281          $          11                   4  %       $          -                   -  %
Newport News                                     357              352              233                      5                   1  %                119                  51  %
Mission Technologies                              63               50               41                     13                  26  %                  9                  22  %

Segment operating income                         712              683              555                     29                   4  %                128                  23  %
Non-segment factors affecting
operating income
Operating FAS/CAS Adjustment                    (145)            (157)             248                     12                   8  %               (405)               (163) %
Non-current state income taxes                    (2)             (13)              (4)                    11                  85  %                 (9)               (225) %
Operating income                            $    565          $   513          $   799          $          52                  10  %       $       (286)                (36) %

KEY SEGMENT FINANCIAL MEASURES

Sales and Service Revenues

Period-to-period revenues reflect performance under new and ongoing contracts.
Changes in sales and service revenues are typically expressed in terms of
volume. Unless otherwise described, volume generally refers to increases (or
decreases) in reported revenues due to varying production activity levels,
delivery rates, or service levels on individual contracts. Volume changes will
typically carry a corresponding income change based on the profit margin rate
for a particular contract.

Segment Operating Income

Segment operating income reflects the aggregate performance results of contracts
within a segment. Excluded from this measure are certain costs not directly
associated with contract performance, such as the Operating FAS/CAS Adjustment
and non-current state income taxes. Changes in segment operating income are
typically expressed in terms of volume, as discussed above, or performance.
Performance refers to changes in contract profit margin rates. These changes
typically relate to profit recognition associated with revisions to estimated
costs at completion ("EAC") that reflect improved or deteriorated operating
performance on that contract. Operating income changes are accounted for on a
cumulative to date basis at the time an EAC change is recorded. Segment
operating income may also be affected by, among other things, contract
performance, the effects of workforce stoppages, the effects of natural
disasters such as hurricanes, resolution of disputed items with the customer,
recovery of insurance proceeds, and other discrete events. At the completion of
a long-term contract, any originally estimated costs not incurred or reserves
not fully utilized, such as warranty reserves, could also impact contract
earnings. Where such items have occurred and the effects are material, a
separate description is provided.

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Cumulative Adjustments

For the years ended December 31, 2022, 2021, and 2020, favorable and unfavorable
cumulative catch-up revenue adjustments were as follows:

                                           Year Ended December 31
($ in millions)                          2022            2021       2020
Gross favorable adjustments        $    325             $ 244      $ 244
Gross unfavorable adjustments          (212)             (129)      (273)
Net adjustments                    $    113             $ 115      $ (29)



2022 - Favorable cumulative catch-up revenue adjustments included contract
incentives on the Columbia class (SSBN 826) submarine program and higher risk
retirement on USS Fort Lauderdale (LPD 28), Bougainville (LHA 8), and Harrisburg
(LPD 30). Unfavorable cumulative catch-up revenue adjustments included lower
risk retirement on the Virginia class (SSN 774) submarine program, the RCOH of
USS George Washington (CVN 73), and the construction of John F. Kennedy (CVN
79).

2021 - Favorable cumulative catch-up revenue adjustments included risk
retirement on Bougainville (LHA 8), a contract incentive on Jack H. Lucas (DDG
125), and risk retirement on Fort Lauderdale (LPD 28). No unfavorable cumulative
catch-up revenue adjustments were individually significant.

2020 - Favorable cumulative catch-up revenue adjustments included risk
retirement on USS Delbert D. Black (DDG 119) in connection with its delivery and
a capital expenditure contract incentive, naval nuclear support services, the
San Antonio class (LPD 17) program, and other individually insignificant
adjustments.

Unfavorable cumulative catch-up revenue adjustments were primarily driven by
$111 million in the second quarter of 2020 on the Block IV boats of the Virginia
class (SSN 774) submarine program, including $95 million for cost and schedule
performance and updates to our assumptions for future program efficiencies and
performance as a result of cost and schedule trends. Our risk retirement
assumptions on Block IV boats anticipated boat-to-boat cost and schedule
improvements working down the learning curve, but performance trends,
exacerbated by the COVID-19 Events, made those improvements less likely to
occur. Unfavorable cumulative catch-up revenue adjustments on the Block IV boats
of the Virginia class (SSN 774) submarine program also included $16 million from
delay and disruption directly attributable to COVID-19 Events due to lower
employee attendance, decreased availability of critical skills, and
out-of-sequence work. Unfavorable cumulative catch-up revenue adjustments across
all programs resulting from delay and disruption cost estimates for discrete
COVID-19 Events were $61 million, including $16 million in relation to the Block
IV boats of the Virginia class (SSN 774) submarine program discussed above.

When estimates of total costs to be incurred exceed estimates of total revenue
to be earned on a performance obligation related to a complex, construction-type
contract, we recognize the entire loss on the performance obligation in the
period the loss is determined.

Ingalls
                                                     Year Ended December 31                            2022 over 2021                            2021 over 2020
($ in millions)                              2022             2021             2020              Dollars              Percent              Dollars              Percent
Sales and service revenues                $ 2,570          $ 2,528          $ 2,678          $         42                   2  %       $       (150)                 (6) %
Segment operating income                      292              281              281                    11                   4  %                  -                   -  %
As a percentage of segment sales             11.4  %          11.1  %          10.5  %



Sales and Service Revenues

2022 - Ingalls revenues, including intersegment sales, increased $42 million, or
2%, in 2022 compared to 2021, primarily driven by higher revenues in amphibious
assault ships and surface combatants, partially offset by lower revenues in the
Legend class NSC program. Revenues on amphibious assault ships increased due to
higher volumes on Fallujah (LHA 9) and Pittsburgh (LPD 31), partially offset by
lower volume on USS Fort Lauderdale (LPD 28) following its delivery. Revenues on
surface combatants increased due to higher volumes on Thad Cochran (DDG 135),
Sam Nunn (DDG 133), and Telesforo Trinidad (DDG 139), partially offset by lower
volumes on
                                       45
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Jeremiah Denton (DDG 129) and USS Frank E. Petersen Jr. (DDG 121). Revenues on
the Legend class NSC program decreased due to lower volumes on Friedman (NSC 11)
and Calhoun (NSC 10).

2021 - Ingalls revenues, including intersegment sales, decreased $150 million,
or 6%, in 2021 compared to 2020, primarily driven by lower revenues in the
Legend class NSC program and amphibious assault ships, partially offset by
higher revenues in surface combatants. Revenues on the Legend class NSC program
decreased due to lower volumes on USCGC Stone (NSC 9) following its delivery.
Amphibious assault ship revenues decreased due to lower volumes on Fort
Lauderdale (LPD 28), Richard M. McCool Jr. (LPD 29), Harrisburg (LPD 30), and
USS Tripoli (LHA 7), partially offset by higher volumes on Pittsburgh (LPD 31)
and Fallujah (LHA 9). Surface combatant revenues increased due to higher volumes
on Jack H. Lucas (DDG 125), George M. Neal (DDG 131), Jeremiah Denton (DDG 129),
and Sam Nunn (DDG 133), partially offset by lower volumes on USS Delbert D.
Black (DDG 119) following its delivery and USS Fitzgerald (DDG 62) following its
redelivery.

Segment Operating Income

2022 - Ingalls segment operating income in 2022 was $292 million, compared to
segment operating income of $281 million in 2021. The increase was primarily due
to favorable changes in contract estimates from facilities capital and price
adjustment clauses and higher risk retirement on Harrisburg (LPD 30) and USS
Fort Lauderdale (LPD 28), partially offset by receipt of a contract incentive on
USS Jack H. Lucas (DDG 125) in 2021.

2021 - Ingalls segment operating income in 2021 was flat compared to 2020.
Newport News
                                                     Year Ended December 31                             2022 over 2021                            2021 over 2020
($ in millions)                              2022             2021             2020              Dollars               Percent              Dollars              Percent
Sales and service revenues                $ 5,852          $ 5,663          $ 5,571          $         189                   3  %       $         92                   2  %
Segment operating income                      357              352              233                      5                   1  %                119                  51  %
As a percentage of segment sales              6.1  %           6.2  %           4.2  %



Sales and Service Revenues

2022 - Newport News revenues, including intersegment sales, increased $189
million, or 3%, in 2022 compared to 2021, primarily driven by higher revenues in
aircraft carriers and submarines, partially offset by lower revenues in naval
nuclear support services. Aircraft carrier revenues increased primarily as a
result of higher volumes on the RCOH of USS John C. Stennis (CVN 74) and the
construction of Doris Miller (CVN 81) and Enterprise (CVN 80), partially offset
by lower volumes on the RCOH of USS George Washington (CVN 73) and USS Gerald R.
Ford (CVN 78). Submarine revenues increased due to higher volumes on the
Columbia class (SSBN 826) submarine program and Block V boats of the Virginia
class (SSN 774) submarine program, partially offset by lower volumes on Block IV
boats of the Virginia class (SSN 774) submarine program. Naval nuclear support
service revenues decreased primarily as a result of lower volumes in facility
maintenance services, partially offset by higher volumes in submarine fleet
support services.
2021 - Newport News revenues, including intersegment sales, increased $92
million, or 2%, in 2021 compared to 2020, primarily driven by higher revenues in
submarines and aircraft carriers, partially offset by lower revenues in naval
nuclear support services. Submarine revenues increased primarily as a result of
higher volumes on Block V boats of the Virginia class (SSN 774) submarine
program and the Columbia class (SSBN 826) submarine program, partially offset by
lower volumes on Block IV boats of the Virginia class (SSN 774) submarine
program. Aircraft carrier revenues increased primarily as a result of higher
volumes on the RCOH of USS John C. Stennis (CVN 74), the construction of
Enterprise (CVN 80), and the construction of Doris Miller (CVN 81), partially
offset by lower volumes on the construction of John F. Kennedy (CVN 79) and the
RCOH of USS George Washington (CVN 73). Naval nuclear support service revenues
decreased primarily as a result of lower volumes in submarine fleet support
services and facility maintenance services, partially offset by higher volumes
in carrier fleet support services.

Segment Operating Income

2022 - Newport News segment operating income in 2022 was $357 million, compared
to segment operating income of $352 million in 2021. The increase was primarily
due to favorable changes in contract estimates from facilities
                                       46
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capital and price adjustment clauses and contract incentives on the Columbia
class (SSBN 826) submarine program, partially offset by lower risk retirement on
the Virginia class (SSN 774) submarine program and the RCOH of USS George
Washington (CVN 73).

2021 - Newport News segment operating income in 2021 was $352 million, compared
to segment operating income of $233 million in 2020. The increase was primarily
due to impacts related to performance on Block IV boats of the Virginia class
(SSN 774) submarine program and delay and disruption from discrete COVID-19
Events in 2020.

Mission Technologies
                                                     Year Ended December 31                             2022 over 2021                             2021 over 2020
($ in millions)                              2022             2021             2020              Dollars               Percent              Dollars               Percent
Sales and service revenues                $ 2,387          $ 1,476          $ 1,268          $         911                  62  %       $         208                  16  %
Segment operating income (loss)                63               50               41                     13                  26  %                   9                  22  %
As a percentage of segment sales              2.6  %           3.4  %           3.2  %



Sales and Service Revenues

2022 - Mission Technologies revenues, including intersegment sales, for the year
ended December 31, 2022, increased $911 million, or 62%, compared to 2021,
primarily due to higher volumes in mission based solutions attributable to the
acquisition of Alion in 2021.

2021 - Mission Technologies revenues, including intersegment sales, for the year
ended December 31, 2021, increased $208 million, or 16%, compared to 2020,
primarily due to higher volumes in mission based solutions from the acquisition
of Alion, partially offset by the divestiture of our oil and gas business and
contribution of our San Diego Shipyard to a joint venture.

Segment Operating Income

2022 - Mission Technologies segment operating income for the year ended
December 31, 2022, was $63 million, compared to segment operating income of $50
million in 2021. The increase was primarily driven by the acquisition of Alion
in 2021 and higher equity income from our investment in an unconsolidated ship
repair and specialty fabrication joint venture, partially offset by higher
amortization of purchased intangible assets in 2022 due to the Alion
acquisition.

2021 - Mission Technologies segment operating income for the year ended
December 31, 2021, was $50 million, compared to a segment operating income of
$41 million in 2020. The increase was primarily driven by the acquisition of
Alion and equity income from nuclear and environmental joint ventures, partially
offset by lower performance in unmanned systems and the amortization of Alion
purchased intangible assets.

BACKLOG

Total backlog as of December 31, 2022, was approximately $47.1 billion. Total
backlog includes both funded backlog (firm orders for which funding is
contractually obligated by the customer) and unfunded backlog (firm orders for
which funding is not currently contractually obligated by the customer). Backlog
excludes unexercised contract options and unfunded Indefinite
Delivery/Indefinite Quantity orders. For contracts having no stated contract
values, backlog includes only the amounts committed by the customer.

                                       47

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The following table presents funded and unfunded backlog by segment as of
December 31, 2022 and 2021:
                                    December 31, 2022                         December 31, 2021
                                                        Total                                     Total
($ in millions)             Funded       Unfunded      Backlog        Funded       Unfunded      Backlog
Ingalls                   $  9,231      $  3,546      $ 12,777      $ 10,216      $    792      $ 11,008
Newport News                11,665        17,742        29,407        11,121        21,198        32,319
Mission Technologies         1,317         3,622         4,939         1,334         3,789         5,123
Total backlog             $ 22,213      $ 24,910      $ 47,123      $ 22,671      $ 25,779      $ 48,450

We expect approximately 22% of the $47.1 billion total backlog as of
December 31, 2022, to be converted into sales in 2023. U.S. Government orders
comprised substantially all of the backlog as of December 31, 2022 and 2021.

Contract Awards

2022 - The value of new contract awards during the year ended December 31, 2022,
was approximately $9.3 billion, including awards for the construction of
Fallujah (LHA 9) and Telesforo Trinidad (DDG 139).

2021 - The value of new contract awards during the year ended December 31, 2021,
was approximately $8.1 billion, comprised primarily of awards for the RCOH of
USS John C. Stennis (CVN 74), construction of a 10th boat of the Virginia class
(SSN 774) submarine program, and construction of John F. Lehman (DDG 137).

LIQUIDITY AND CAPITAL RESOURCES

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

The following table summarizes key components of cash flow provided by operating
activities:
                                                          Year Ended December 31                              2022 over 2021                            2021 over 2020
($ in millions)                                    2022               2021            2020              Dollars              Percent              Dollars              Percent
Net earnings                                  $    579              $ 544          $   696          $         35                   6  %       $       (152)                (22) %
Depreciation and amortization                      366                301              254                    65                  22  %                 47                  19  %
Provision for doubtful accounts                     (7)                 7               (1)                  (14)               (200) %                  8                 800  %
Stock-based compensation                            36                 33               23                     3                   9  %                 10                  43  %
Deferred income taxes                                2                 98               23                   (96)                (98) %                 75                 326  %
Loss (gain) on investments in
marketable securities                               25                (19)             (17)                   44                 232  %                 (2)                (12) %
Asset impairments                                    -                  -               13                     -                   -  %                (13)               (100) %
Retiree benefits                                  (127)               (78)            (176)                  (49)                (63) %                 98                  56  %

Loss on early extinguishment of debt                 -                  -               21                     -                   -  %                (21)               (100) %
Trade working capital decrease
(increase)                                        (108)              (126)             257                    18                  14  %               (383)               (149) %
Net cash provided by operating
activities                                    $    766              $ 760          $ 1,093          $          6                   1  %       $       (333)                (30) %



We have historically maintained a capital structure comprised of a mix of equity
and debt financing. We vary our leverage both to optimize our equity return and
to pursue acquisitions. We expect to meet our current debt obligations as they
come due through internally generated funds from current levels of operations
and/or through refinancing in the debt markets prior to the maturity dates of
our debt.

Cash Flows

We discuss below our significant operating, investing, and financing activities
affecting cash flows for each of the three years in the period ended
December 31, 2022, as classified in our consolidated statements of cash flows.

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Operating Activities

2022 - Cash provided by operating activities was $766 million in 2022, compared
to $760 million in 2021. The $6 million favorable change in operating cash flow
was primarily due to lower contributions to retiree benefit plans and favorable
changes in trade working capital, partially offset by higher income tax and
interest payments. The change in trade working capital was primarily driven by
the timing of receipts of accounts receivable.

We expect cash generated from operations in 2023, in combination with our
current cash and cash equivalents, as well as existing borrowing facilities, to
be sufficient to service debt and retiree benefit plans, meet contractual
obligations, and fund capital expenditures for at least the next 12 calendar
months beginning January 1, 2023 and beyond such 12-month period based on our
current business plans.

2021 - Cash provided by operating activities was $760 million in 2021, compared
to $1,093 million in 2020. The unfavorable change of $333 million in operating
cash flow was primarily due to unfavorable changes in trade working capital,
partially offset by lower income tax payments and lower contributions to retiree
benefit plans. The change in trade working capital was primarily driven by the
timing of payments of accounts payable and receipts of accounts receivable.
Investing Activities

2022 - Cash used in investing activities was $268 million in 2022, a decrease of
$1,686 million from 2021. The change in investing cash flow was primarily driven
by the acquisition of Alion in 2021.
For 2023, we expect our capital expenditures for maintenance and sustainment to
be approximately 1.5% of annual revenues and our discretionary capital
expenditures to be approximately 1.5% to 2.5% of annual revenues.

2021 - Cash used in investing activities was $1,954 million in 2021, an increase
of $1,195 million from 2020. The change in investing cash flow was driven by the
acquisitions of Alion and a non-controlling interest in a specialty fabrication
and ship repair joint venture in 2021, partially offset by the acquisition of
Hydroid in 2020 and lower capital expenditures and the disposition of our oil
and gas business in 2021.

Financing Activities

2022 - Cash used in financing activities in 2022 was $658 million, compared to
$1,309 million provided by financing activities in 2021. The change in financing
cash was primarily due to a $1,650 million decrease in proceeds from long-term
debt, a $375 million increase in the repayment of long-term debt, a $7 million
increase in employee taxes on share-based payment arrangements, and a $6 million
increase in cash dividend payments, partially offset by a $49 million decrease
in common stock repurchases and a $22 million decrease in debt issuance costs.

2021 - Cash provided by financing activities in 2021 was $1,309 million,
compared to $103 million provided by financing activities in 2020. The change in
financing cash was primarily due to a $1,225 million increase in net proceeds
from long-term debt, a $15 million decrease in premiums related to the 2020
early extinguishment of debt, and a $6 million decrease in employee taxes on
share-based payment arrangements, partially offset by a $17 million increase in
common stock repurchases, a $14 million increase in cash dividend payments, and
a $9 million increase in debt issuance costs.

Free Cash Flow

Free cash flow represents cash provided by (used in) operating activities less
capital expenditures net of related grant proceeds. Free cash flow is not a
measure recognized under GAAP. Free cash flow has limitations as an analytical
tool and should not be considered in isolation from, or as a substitute for, net
earnings as a measure of our performance or net cash provided by operating
activities as a measure of our liquidity. We believe free cash flow is an
important liquidity measure for our investors because it provides them insight
into our current and period-to-period performance and our ability to generate
cash from continuing operations. We also use free cash flow as a key operating
metric in assessing the performance of our business and as a key performance
measure in evaluating management performance and determining incentive
compensation. Free cash flow may not be comparable to similarly titled measures
of other companies.
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The following table reconciles net cash provided by operating activities to free
cash flow:
                                                        Year Ended December 31
($ in millions)                                      2022           2021        2020
Net cash provided by operating activities       $    766           $ 760      $ 1,093
Less capital expenditures:
Capital expenditure additions                       (284)           (331)   

(353)

Grant proceeds for capital expenditures               12              20           17
Free cash flow                                  $    494           $ 449      $   757



2022 - Free cash flow increased $45 million from 2021, primarily due to lower
contributions to retiree benefit plans, lower capital expenditures, and
favorable changes in trade working capital, partially offset by higher income
tax and interest payments.

2021 - Free cash flow decreased $308 million from 2020, primarily due to an
unfavorable change in trade working capital, partially offset by lower income
tax payments, lower contributions to retiree benefit plans, and lower capital
expenditures.

Retirement Related Benefit Plan Contributions

ERISA, including amendments under pension relief legislation, defines the
minimum amount we must contribute to our qualified defined benefit pension
plans. In determining whether to make discretionary contributions to these plans
above the minimum required amounts, we consider various factors, including
maintaining the funded status needed to avoid potential benefit restrictions and
other adverse consequences, maintaining minimum CAS funding requirements, and
the current and anticipated future funding levels of each plan. The
contributions to our qualified defined benefit pension plans are affected by a
number of factors, including published IRS interest rates, the actual return on
plan assets, actuarial assumptions, and demographic experience. These factors
and our resulting contributions also impact the funded status of the plans. We
made the following minimum and discretionary contributions to our pension and
other postretirement benefit plans in the years ended December 31, 2022, 2021,
and 2020:
                                 Year Ended December 31
($ in millions)                2022            2021       2020
Pension plans

Discretionary
Qualified                $     -              $  60      $ 205
Non-qualified                 10                  9          8
Other benefit plans           31                 37         33
Total contributions      $    41              $ 106      $ 246



We made discretionary contributions to our qualified defined benefit pension
plans totaling less than $1 million, $60 million, and $205 million in the years
ended December 31, 2022, 2021, and 2020, respectively.

As of December 31, 2022 and 2021, our qualified pension plans were funded 109%
and 102%, respectively, on a FAS basis. As of December 31, 2022 and 2021, these
plans were sufficiently funded on an ERISA basis so as not to be subject to
benefit payment restrictions. The funded percentages under ERISA and FAS vary
due to inherent differences in the assumptions and methodologies used to
calculate the respective obligations. We expect our 2023 cash contributions to
our qualified defined benefit pension plans to be less than $1 million, all of
which we anticipate will be discretionary and which are exclusive of CAS cost
recoveries under our contracts. Due to the differences in calculation
methodologies, our FAS expense is not necessarily representative of our funding
requirements or CAS cost recoveries.

Other postretirement benefit plan contributions were $31 million, $37 million,
and $33 million in 2022, 2021, and 2020, respectively. We expect 2023
contributions to our other postretirement benefit plans to be approximately $35
million, which are exclusive of CAS cost recoveries under our contracts.
Contributions for other postretirement benefit plans are not required to be
funded in advance and are paid on an as-incurred basis.
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Other Sources and Uses of Capital

Stockholder Distributions - In November 2022, our board of directors authorized
an increase in our quarterly cash dividend to $1.24 per share. The board
previously increased the quarterly cash dividend to $1.18 per share in November
2021 and $1.14 per share in November 2020. We paid cash dividends totaling $192
million ($4.78 per share), $186 million ($4.60 per share), and $172 million
($4.23 per share) in the years ended December 31, 2022, 2021, and 2020,
respectively.

In November 2019, our board of directors authorized an increase to our stock
repurchase program from $2.2 billion to $3.2 billion and an extension of the
term of the program to October 31, 2024. Repurchases are made from time to time
at management's discretion in accordance with applicable federal securities
laws. For the year ended December 31, 2022, we repurchased 244,561 shares at an
aggregate cost of $52 million. For the years ended December 31, 2021 and 2020,
we repurchased 544,440 and 390,904 shares, respectively, at aggregate costs of
$101 million and $84 million, respectively. The cost of repurchased shares is
recorded as treasury stock in the consolidated statements of financial position.

Additional Capital - In 2021, we issued $1 billion aggregate principal amount of
senior notes, and we entered into a $650 million 3-year delayed draw term loan.
The net proceeds were used to fund a portion of the purchase price for the
acquisition of Alion.

In 2021, we amended and restated our existing $1.25 billion credit facility,
increasing the capacity thereunder to $1.5 billion and extending the maturity
date to five years from signing (the "Revolving Credit Facility"). The Revolving
Credit Facility includes a letter of credit subfacility of $300 million.

In 2020, we issued $1 billion aggregate principal amount of senior notes. The
net proceeds were intended to be used for general corporate purposes, including
debt repayments and working capital.

In 2020, we redeemed $600 million aggregate principal amount of our outstanding
senior notes in accordance with the terms of the indenture governing the notes.

We maintain an unsecured commercial paper note program, under which we may issue
up to $1 billion of unsecured commercial paper notes.

For a description of our outstanding debt amounts and related restrictive
covenants, see Note 13: Debt in Item 8.

Contractual obligations - Our future contractual obligations are related to
debt, leases, pension liabilities, unrecognized tax benefits, workers
compensation, and purchase obligations. See Note 13: Debt, Note 15: Leases, Note
17: Employee Pension and Other Postretirement Benefits, Note 12: Income Taxes,
and Note 2: Summary of Significant Accounting Policies in Item 8 for information
about those obligations. Our purchase obligations as of December 31, 2022, were
approximately $4,525 million, with approximately $2,451 million expected to be
paid in 2023 and $2,074 million thereafter. A purchase obligation is defined as
an agreement to purchase goods or services that is enforceable and legally
binding on us and that specifies all significant terms, including: fixed or
minimum quantities to be purchased; fixed, minimum, or variable price
provisions; and the approximate timing of the transaction. As of December 31,
2022, future scheduled periodic interest payments on our outstanding long-term
debt, including commitment fees that we are obligated to pay on our Revolving
Credit Facility, were approximately $437 million, with approximately $101
million expected to be paid in 2023 and $336 million thereafter.

Off-Balance Sheet Arrangements

In the ordinary course of business, we use letters of credit issued by
commercial banks to support certain leases, insurance policies, and contractual
performance obligations, as well as surety bonds issued by insurance companies
principally to support our self-insured workers' compensation plans. As of
December 31, 2022, $14 million in letters of credit were issued but undrawn and
$360 million of surety bonds were outstanding. As of December 31, 2022, we had
no other significant off-balance sheet arrangements.
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GLOSSARY OF PROGRAMS

Included below are brief descriptions of some of the programs discussed in this
Annual Report on Form 10-K.
Program Name                                   Program Description

America class (LHA 6) amphibious               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 USS Tripoli

                                               (LHA 7), and, in 2022, we 

were awarded a long-lead-time

                                               material and construction 

contract for Fallujah (LHA

                                               9). We are currently 

constructing Bougainville (LHA 8)

                                               and Fallujah (LHA 9).

Arleigh Burke class (DDG 51) destroyers Build guided missile destroyers designed for conducting

                                               anti-air, anti-submarine, 

anti-surface, and strike

                                               operations. The 

Aegis-equipped Arleigh Burke class (DDG

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

advances during construction. We

                                               delivered USS Paul Ignatius (DDG 117), USS Delbert D.
                                               Black (DDG 119), USS Frank E. Petersen Jr. (DDG 121),
                                               and Lenah H. Sutcliffe

Higbee (DDG 123) in 2019, 2020,

                                               2021, and 2022, 

respectively. We have contracts to

                                               construct the following 

Arleigh Burke class (DDG 51)

                                               destroyers: USS Jack H. 

Lucas (DDG 125), Ted Stevens

                                               (DDG 128), Jeremiah Denton 

(DDG 129), George M. Neal

                                               (DDG 131), Sam Nunn (DDG 

133), Thad Cochran (DDG 135),

                                               John F. Lehman (DDG 137), 

and Telesforo Trinidad (DDG

                                               139).

Carrier RCOH                                   Perform refueling and 

complex overhaul ("RCOH") of

                                               nuclear-powered aircraft 

carriers, which is required at

                                               the mid-point of their 

50-year life cycle. USS George

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

Columbia class (SSBN 826) submarines           Participating in designing the Columbia class submarine
                                               as a replacement for the current aging Ohio class
                                               nuclear ballistic missile submarines, which were first
                                               introduced into service in 1981. The Ohio class SSBN
                                               includes 14 nuclear

ballistic missile submarines and

                                               four nuclear cruise missile submarines. The Columbia
                                               class program plan of record is to construct 12 new
                                               ballistic missile submarines. The U.S. Navy has
                                               initiated the design process for the new class of
                                               submarines, and, in early 2017, the DoD signed the
                                               acquisition decision

memorandum approving the Columbia

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

agreement with Electric Boat to

                                               build modules for the entire 

Columbia class (SSBN 826)

                                               submarine program that 

leverages our Virginia class

                                               (SSN 774) experience. We 

have been awarded contracts

                                               from Electric Boat for 

integrated product and process

                                               development, providing 

long-lead-time material and

                                               advance construction, and 

construction of the first two

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

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 Navy maintain a high state
                                               of readiness. Ensures

effective system operation and

                                               sustainment by actively supporting design and
                                               decision-making processes through studies, analyses,
                                               and reviews of program

documents, and provides a wide

                                               range of logistics products.


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USS Gerald R. Ford class (CVN 78)              Design and construct the Ford class program, which is
aircraft carriers                              the aircraft carrier 

replacement program for the

                                               decommissioned Enterprise 

(CVN 65) and Nimitz class (CVN

                                               68) aircraft carriers. USS 

Gerald R. Ford (CVN 78), the

                                               first ship of the Ford 

class, was delivered to the U.S.

                                               Navy in the second quarter of 2017. In June 2015, we
                                               were awarded a contract for the detail design and
                                               construction of John F. Kennedy (CVN 79), following
                                               several years of

engineering, advance construction, and

                                               purchase of long-lead-time 

components and material. In

                                               addition, we have received 

awards for detail design and

                                               construction of Enterprise (CVN 80) and Doris Miller
                                               (CVN 81). This category also includes the class'
                                               non-recurring engineering. The class is expected to
                                               bring improved warfighting

capability, quality of life

                                               improvements for sailors, 

and reduced life cycle costs.

Legend class National Security Cutter          Design and build the U.S. Coast Guard's National
                                               Security 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.

Mission based solutions                        Develops integrated solutions that enable today's
                                               connected, all-domain force. Capabilities include:
                                               command, control, computers, communications, cyber,
                                               intelligence, surveillance, and reconnaissance ("C5ISR")
                                               systems and operations; the application of artificial
                                               intelligence and machine learning to battlefield
                                               decisions; defensive and

offensive cyberspace strategies

                                               and electronic warfare 

("CEWS"); and live, virtual, and

                                               constructive ("LVC") 

solutions.

Naval nuclear support services                 Provide services to and in 

support of the U.S. Navy,

                                               ranging from services 

supporting the Navy's carrier and

                                               submarine fleets to 

maintenance services at U.S. Navy

                                               training facilities. Naval 

nuclear support services

                                               include design, 

construction, maintenance, and disposal

                                               activities for in-service U.S. Navy nuclear ships
                                               worldwide through mobile and in-house capabilities.
                                               Services include maintenance services on nuclear reactor
                                               prototypes.

Nuclear and environmental services             Supports the national 

security mission of the Department

                                               of Energy ("DoE") through 

the management and operation

                                               of DoE sites, as well as the safe cleanup of legacy
                                               waste across the country. We meet our clients' toughest
                                               nuclear and environmental

challenges and are positioned

                                               to serve the growing 

commercial nuclear power plant

                                               decommissioning market. We participate in several joint
                                               ventures, including Newport News Nuclear BWXT Los
                                               Alamos, LLC (" N3B"),

Mission Support and Test Services,

                                               LLC ("MSTS"), and Savannah River Nuclear Solutions, LLC
                                               ("SRNS"), and we are an integrated subcontractor to
                                               Triad National Security. N3B was awarded the Los Alamos
                                               Legacy Cleanup Contract at the DoE/National Nuclear
                                               Security Administration's Los Alamos National
                                               Laboratory. MSTS was awarded a contract for site
                                               management and operations at the Nevada National
                                               Security Site. SRNS provides site management and
                                               operations at the DoE's

Savannah River Site near Aiken,

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


                                       53

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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 USS Fort

                                               Lauderdale (LPD 28), and we 

were awarded a

                                               long-lead-time material 

contract for LPD 32 (unnamed).

                                               We are currently 

constructing Richard M. McCool Jr.

                                               (LPD 29), Harrisburg (LPD 

30), and Pittsburgh (LPD 31).

Unmanned systems                               Creates advanced unmanned 

maritime solutions for

                                               defense, marine research, 

and commercial applications.

                                               Serving customers in more 

than 30 countries, unmanned

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

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 tailored to excel in a

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

intelligence, surveillance,

                                               and reconnaissance; carrier 

and expeditionary strike

                                               group support; and mine 

warfare.