# UNITED	STATES

# SECURITIES	AND	EXCHANGE	COMMISSION

# ANNUAL	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE	SECURITIES	EXCHANGE	ACT

# For	the	fiscal	year	ended	December	31,	2015

# TRANSITION	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE	SECURITIES	EXCHANGE

# HUNTINGTON	INGALLS	INDUSTRIES,	INC.

(Exact	name	of	registrant	as	specified	in	its	charter)

DELAWARE

(State	or	other	jurisdiction	of	incorporation	or	organization)

4101	Washington	Avenue

(I.R.S.	Employer	Identification	No.)

(Registrant's	telephone	number,	including	area	code)

(Address	of	principal	executive	offices)

# Securities	registered	pursuant	to	section	12(b)	of	the	Act:

# Title	of	each	class

Common	Stock,	$0.01	par	value

# Name	of	each	exchange	on	which	registered

New	York	Stock	Exchange

Securities	registered	pursuant	to	section	12(g)	of	the	Act:

Indicate	by	check	mark	if	the	registrant	is	a	well-known	seasoned	issuer,	as	defined	in	Rule	405	of	the	Securities	Act.	Yes		ý				No		¨

Indicate	by	check	mark	if	the	registrant	is	not	required	to	file	reports	pursuant	to	Section	13	or	15(d)	of	the	Act.	Yes		¨				No		ý

Indicate	by	check	mark	whether	the	registrant	(1)	has	filed	all	reports	required	to	be	filed	by	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934	during	the preceding	12	months	(or	for	such	shorter	period	that	the	registrant	was	required	to	file	such	reports),	and	(2)	has	been	subject	to	such	filing	requirements	for	the	past 90	days.				Yes		ý				No		¨

Indicate	by	check	mark	whether	the	registrant	has	submitted	electronically	and	posted	on	its	corporate	Web	site,	if	any,	every	Interactive	Data	File	required	to	be submitted	and	posted	pursuant	to	Rule	405	of	Regulation	S-T	during	the	preceding	12	months	(or	for	such	shorter	period	that	the	registrant	was	required	to	submit	and post	such	files).				Yes		ý				No		¨

Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	is	not	contained	herein,	and	will	not	be	contained,	to	the	best	of registrant's	knowledge,	in	definitive	proxy	or	information	statements	incorporated	by	reference	in	Part	III	of	this	Form	10-K	or	any	amendment	to	this	Form	10-K.	¨

Indicate	by	check	mark	whether	the	registrant	is	a	large	accelerated	filer,	an	accelerated	filer,	a	non-accelerated	filer,	or	a	smaller	reporting	company.	See	the definitions	of	"large	accelerated	filer,"	"accelerated	filer"	and	"smaller	reporting	company"	in	Rule	12b-2	of	the	Exchange	Act.	(Check	one):

Large	accelerated	filer 	 ý

Non-accelerated	filer 	 ¨

(Do	not	check	if	a	smaller	reporting	company)

	 Accelerated	filer

	 Smaller	reporting	company

Indicate	by	check	mark	whether	the	registrant	is	a	shell	company	(as	defined	in	Rule	12b-2	of	the	Exchange	Act).				Yes		¨				No		ý

As	of	June	30,	2015,	the	aggregate	market	value	(based	upon	the	closing	price	of	the	stock	on	the	New	York	Stock	Exchange)	of	the	registrant's	common	stock	held by	non-affiliates	was	approximately	$5,417	million.

# DOCUMENTS	INCORPORATED	BY	REFERENCE

Portions	of	the	registrant's	Proxy	Statement	to	be	filed	with	the	Securities	and	Exchange	Commission	pursuant	to	Rule	14A	for	the	registrant's	2016	Annual	Meeting	of Stockholders	are	incorporated	by	reference	in	Part	III	of	this	Form	10-K.

# TABLE	OF	CONTENTS

|  |  | Page |
| :--- | :--- | :--- |
|  | PART\tI |  |
| Item\t1. | BUSINESS | 1 |
| Item\t1A. | RISK\tFACTORS | 11 |
| Item\t1B. | UNRESOLVED\tSTAFF\tCOMMENTS | 26 |
| Item\t2. | PROPERTIES | 26 |
| Item\t3. | LEGAL\tPROCEEDINGS | 27 |
| Item\t4. | MINE\tSAFTEY\tDISCLOSURES | 28 |
| Item\t4A. | EXECUTIVE\tOFFICERS\tOF\tTHE\tREGISTRANT | 29 |
|  | PART\tII |  |
| Item\t5. | MARKET\tFOR\tREGISTRANT'S\tCOMMON\tEQUITY,\tRELATED\tSTOCKHOLDER\tMATTERS\tAND | 32 |
|  | ISSUER\tPURCHASES\tOF\tEQUITY\tSECURITIES |  |
| Item\t6. | SELECTED\tFINANCIAL\tDATA | 34 |
| Item\t7. | MANAGEMENT'S\tDISCUSSION\tAND\tANALYSIS\tOF\tFINANCIAL\tCONDITION\tAND\tRESULTS\tOF | 35 |
|  | OPERATIONS |  |
| Item\t7A. | QUANTITATIVE\tAND\tQUALITATIVE\tDISCLOSURES\tABOUT\tMARKET\tRISK | 62 |
| Item\t8. | FINANCIAL\tSTATEMENTS\tAND\tSUPPLEMENTARY\tDATA | 63 |
|  | REPORTS\tOF\tINDEPENDENT\tREGISTERED\tPUBLIC\tACCOUNTING\tFIRM | 63 |
|  | CONSOLIDATED\tSTATEMENTS\tOF\tOPERATIONS\tAND\tCOMPREHENSIVE\tINCOME | 65 |
|  | CONSOLIDATED\tSTATEMENTS\tOF\tFINANCIAL\tPOSITION | 66 |
|  | CONSOLIDATED\tSTATEMENTS\tOF\tCASH\tFLOWS | 68 |
|  | CONSOLIDATED\tSTATEMENTS\tOF\tCHANGES\tIN\tEQUITY | 69 |
|  | NOTES\tTO\tCONSOLIDATED\tFINANCIAL\tSTATEMENTS | 70 |
| Item\t9. | CHANGES\tIN\tAND\tDISAGREEMENTS\tWITH\tACCOUNTANTS\tON\tACCOUNTING\tAND\tFINANCIAL | 107 |
|  | DISCLOSURE |  |
| Item\t9A. | CONTROLS\tAND\tPROCEDURES | 107 |
| Item\t9B. | OTHER\tINFORMATION | 108 |
|  | PART\tIII |  |
| Item\t10. | DIRECTORS,\tEXECUTIVE\tOFFICERS,\tAND\tCORPORATE\tGOVERNANCE | 109 |
| Item\t11. | EXECUTIVE\tCOMPENSATION | 109 |
| Item\t12. | SECURITY\tOWNERSHIP\tOF\tCERTAIN\tBENEFICIAL\tOWNERS\tAND\tMANAGEMENT\tAND\tRELATED | 109 |
|  | STOCKHOLDER\tMATTERS |  |
| Item\t13. | CERTAIN\tRELATIONSHIPS\tAND\tRELATED\tTRANSACTIONS,\tAND\tDIRECTOR\tINDEPENDENCE | 110 |
| Item\t14. | PRINCIPAL\tACCOUNTANT\tFEES\tAND\tSERVICES | 110 |
|  | PART\tIV |  |
| Item\t15. | EXHIBITS\tAND\tFINANCIAL\tSTATEMENT\tSCHEDULES | 111 |
| SIGNATURES |  | 116 |

# PART	I

# ITEM	1.	BUSINESS

# History	and	Organization

For	more	than	a	century,	Huntington	Ingalls	Industries,	Inc.	("HII",	the	"Company",	"we",	"us",	or	"our"	and,	as	the	context	requires,	including	our predecessor	business	as	a	subsidiary	of	Northrop	Grumman	Corporation	("Northrop	Grumman"))	has	been	designing,	building,	overhauling,	and	repairing ships	primarily	for	the	U.S.	Navy	and	the	U.S.	Coast	Guard.	We	are	the	nation's	sole	designer,	builder,	and	refueler	of	nuclear-powered	aircraft	carriers,	a builder	of	amphibious	assault	and	expeditionary	warfare	ships	for	the	U.S.	Navy,	the	sole	builder	of	National	Security	Cutters	("NSCs")	for	the	U.S.	Coast Guard,	one	of	only	two	companies	currently	designing	and	building	nuclear-powered	submarines	for	the	U.S.	Navy,	and	one	of	only	two	companies	that builds	the	Navy's	current	fleet	of	DDG-51	Arleigh	Burke-class	destroyers.	We	are	the	exclusive	provider	of	Refueling	and	Complex	Overhaul	("RCOH") services	for	nuclear-powered	aircraft	carriers,	a	full-service	systems	provider	for	the	design,	engineering,	construction,	and	life	cycle	support	of	major programs	for	surface	ships,	and	a	provider	of	fleet	support	and	maintenance	services	for	the	U.S.	Navy.

We	conduct	most	of	our	business	with	the	U.S.	Government,	principally	the	Department	of	Defense	("DoD").	As	prime	contractor,	principal	subcontractor, team	member,	or	partner,	we	participate	in	many	high-priority	U.S.	defense	technology	programs.	We	operate	our	shipbuilding	business	through	our Huntington	Ingalls	Incorporated	subsidiary,	which	is	organized	into	two	segments:	Ingalls	Shipbuilding	("Ingalls"),	which	includes	our	non-nuclear	ship design,	construction,	repair,	and	maintenance	businesses;	and	Newport	News	Shipbuilding	("Newport	News"),	which	includes	all	of	our	nuclear	ship design,	construction,	overhaul,	refueling,	and	repair	and	maintenance	businesses.	We	also	provide	a	range	of	services	to	the	energy	and	oil	and	gas industries,	as	well	as	government	customers.

We	became	an	independent,	publicly-owned	company	on	March	31,	2011,	when	we	were	spun	off	from	Northrop	Grumman.	We	have	owned	and operated	the	legacy	Northrop	Grumman	shipbuilding	business	since	the	spin-off.	We	believe	our	product	capabilities,	heavy	industrial	facilities,	and	a workforce	of	approximately	36,000	employees	position	us	well	to	continue	to	support	the	long-term	objectives	of	the	U.S.	Navy	and	U.S.	Coast	Guard.

# Ingalls

Through	our	Ingalls	segment,	we	design	and	construct	non-nuclear	ships	for	the	U.S.	Navy	and	U.S.	Coast	Guard,	including	amphibious	assault	ships, surface	combatants,	and	NSCs.	We	build	amphibious	assault	ships	for	the	U.S.	Navy	and	have	built	28	of	the	62	DDG-51	Arleigh	Burke-class	of	Aegis guided	missile	destroyers	in	active	service.	We	are	also	the	sole	builder	of	the	large	multi-mission	NSCs	for	the	U.S.	Coast	Guard.	Our	Ingalls shipbuilding	site	is	located	in	Pascagoula,	Mississippi.	This	shipyard	offers	a	collection	of	manufacturing	capabilities	that	include	a	660-ton	gantry	crane and	a	Land	Based	Test	Facility.

In	October	2014,	we	ceased	shipbuilding	construction	operations	at	our	Avondale,	Louisiana	shipyard	("Avondale")	and	consolidated	that	activity	at	our Pascagoula,	Mississippi	facility,	which	we	believe	enhances	our	competitive	position	by	decreasing	our	fixed	overhead	expenses,	improving	facility utilization	to	provide	a	more	cost-efficient	construction	process,	centralizing	our	shipbuilding	learning	and	increasing	the	benefits	of	serial	production,	and reducing	program	costs.	In	March	2015,	we	sold	our	Gulfport	Composite	Center	of	Excellence	(the	"Gulfport	facility")	in	Gulfport,	Mississippi,	to	the Mississippi	State	Port	Authority,	due	to	limited	demand	from	the	U.S.	Navy	for	composite	products	provided	by	our	Gulfport	facility.

# Amphibious	Assault	Ships

We	supply	the	U.S.	Navy	with	amphibious	assault	and	expeditionary	warfare	ships,	which	include	the	U.S.	Navy	large	deck	amphibious	ships	("LHA")	and amphibious	transport	dock	ships	("LPD").	The	LHA	is	a	key	component	of	the	U.S.	Navy-Marine	Corps	requirement	for	11	Expeditionary	Strike Groups/Amphibious	Readiness	Groups,	and	design,	construction,	and	modernization	of	LHAs	are	core	to	our	Ingalls	operations.	In	2007,	we	were awarded	the	construction	contract	for	LHA-6	America,	the	first	in	a	new	class	of	enhanced	amphibious	assault	ships	designed	from	the	keel	up	to	be	an aviation	optimized	Marine	assault	platform.	We	delivered	LHA-6	America	in	the	second	quarter	of	2014	and	are	currently	constructing	LHA-7 Tripoli, scheduled	for	delivery	in	2018.

The	LPD	program	is	a	long-running	production	program	in	which	we	have	generated	efficiencies	through	ship-over-ship	learning.	We	are	currently constructing	two	LPD-17	San	Antonio-class	amphibious	transport	dock	ships,	LPD-26	John	P.	Murtha,	scheduled	for	delivery	in	2016,	and	LPD-27 Portland,	scheduled	for	delivery	in	2017.	We	delivered	LPD-25	USS	 Somerset	in	2013	and	LPD-23	USS	 Anchorage	and	LPD-24	USS	Arlington	in	2012. In	December	2015,	we	were	awarded	an	advance	procurement	contract	for	LPD-28	(unnamed).

# Surface	Combatants

We	are	a	design	agent	for	and	one	of	only	two	companies	that	constructs	the	DDG-51	 Arleigh	Burke-class	guided	missile	destroyers.	We	have	delivered 28	DDG-51	Arleigh	Burke-class	destroyers	to	the	U.S.	Navy.	We	are	currently	constructing	DDG-113	 John	Finn	and	DDG-114	Ralph	Johnson,	scheduled for	delivery	in	2016	and	2017,	respectively.	In	2013,	we	were	awarded	a	multi-year	contract	totaling	$3.3	billion	for	construction	of	five	additional	DDG-51 Arleigh	Burke-class	destroyers	as	a	part	of	a	larger	U.S.	Navy	order	for	nine	DDG-51 	Arleigh	Burke-class	destroyers.	We	began	fabrication	on	DDG-117 Paul	Ignatius	in	2014	and	DDG-119	Delbert	D.	Black	in	2015,	with	deliveries	scheduled	in	2018	and	2019,	respectively.

In	2008,	the	U.S.	Navy	truncated	the	DDG-1000	 Zumwalt-class	destroyer	program	when	it	restarted	the	DDG-51	Arleigh	Burke-class	destroyer production	line.	Our	participation	in	the	DDG-1000	Zumwalt-class	program	included	detailed	design	and	construction	of	the	ships'	integrated	composite deckhouses	and	hangars,	as	well	as	portions	of	the	ships'	aft	peripheral	vertical	launch	systems.	We	completed	our	participation	in	this	program	with	the delivery	of	the	composite	deckhouse	of	DDG-1001	Michael	Monsoor	in	2014.

# National	Security	Cutters

The	U.S.	Coast	Guard's	recapitalization	program	is	designed	to	replace	aging	and	operationally	expensive	ships	and	aircraft	used	to	conduct	missions	in excess	of	50	miles	from	the	shoreline.	The	flagship	of	this	program	is	the	Legend-class	NSC,	a	multi-mission	platform	we	designed	and	built.	The	U.S. Coast	Guard	ordered	the	first	three	NSC	vessels	from	Integrated	Coast	Guard	Systems	("ICGS"),	a	joint	venture	between	Lockheed	Martin	and	us. Beginning	in	2010	with	the	construction	contract	for	NSC-4	USCGC	Hamilton,	the	NSC	contracts	have	been	awarded	directly	to	us.	NSC-4	USCGC Hamilton	and	NSC-5	USCGC	James	were	delivered	to	the	U.S.	Coast	Guard	in	2014	and	2015,	respectively.	NSC-6	 Munro	and	NSC-7	Kimball	are currently	under	construction	and	are	scheduled	for	delivery	in	2016	and	2018,	respectively.	We	were	awarded	the	construction	contract	for	NSC-8 Midgett	in	2015,	and	it	is	scheduled	for	delivery	in	2019.

# Newport	News

The	capabilities	of	our	Newport	News	segment	extend	from	our	core	business	of	designing	and	constructing	nuclear-powered	ships,	such	as	aircraft carriers	and	submarines,	and	the	refueling	and	overhaul	and	the	inactivation	of	such	ships,	to	businesses	that	are	focused	on	the	construction	of	heavy manufacturing	equipment	for	commercial	nuclear	power	facilities	and	the	operation,	management,	and	cleanup	of	environmental	hazard	sites	through Department	of	Energy	("DoE")	programs.	Our	Newport	News	shipyard	is	one	of	the	largest	shipyards	in	the	United	States,	located	on	approximately 550	acres	near	the	mouth	of	the	James	River,	which	adjoins	the	Chesapeake	Bay.	The	shipyard	has	two	miles	of	waterfront	property	and	heavy industrial	facilities,	which	include	seven	graving	docks,	a	floating	dry	dock,	two	outfitting	berths,	five	outfitting	piers,	module	outfitting	facilities,	and	various other	workshops.	Our	Newport	News	shipyard	also	has	a	2,170-foot	dry	dock	serviced	by	a	1,050-ton	gantry	crane	capable	of	supporting	two	aircraft carriers	at	one	time.

# Design,	Construction,	and	Refueling	and	Complex	Overhaul	of	Aircraft	Carriers

Engineering,	design,	and	construction	of	U.S.	Navy	nuclear	aircraft	carriers	are	core	to	Newport	News	operations.	Aircraft	carriers	are	the	largest	ships	in the	U.S.	Navy's	fleet,	with	a	displacement	of	over	90,000	tons.	Newport	News	has	delivered	30	aircraft	carriers	to	the	U.S.	Navy	since	1933,	including	all ten	ships	currently	in	active	service.

We	delivered	the	U.S.	Navy's	newest	carrier	and	the	last	of	the	CVN-68	 Nimitz-class,	CVN-77	USS	George	H.W.	Bush,	in	2009.	We	have	been	engaged in	design	work	on	the	next	generation	aircraft	carrier,	the	CVN-78	Gerald	R.	Ford-class,	for	over	ten	years.	In	2008,	we	were	awarded	a	$5.1	billion contract	for	detail	design	and	construction	of	the	first	ship	of	the	class,	CVN-78	Gerald	R.	Ford,	which	is	scheduled	for	delivery	in	2016.	We	also	received awards

in	2009	through	2015	totaling	$6.6	billion	for	construction	preparation,	detail	design,	and	construction	of	the	second	CVN-78 Gerald	R.	Ford-class	aircraft carrier,	CVN-79	John	F.	Kennedy.

We	continue	to	be	the	exclusive	prime	contractor	for	nuclear	aircraft	carrier	RCOH.	Each	RCOH	takes	over	three	years	to	complete,	and	the	work accounts	for	approximately	35%	of	all	maintenance	and	modernization	during	an	aircraft	carrier's	50	year	service	life.	RCOH	services	include	propulsion work	(refueling	of	reactors;	propulsion	plant	modernization;	and	propulsion	plant	repairs),	restoration	of	service	life	(dry	docking,	tank,	and	void maintenance;	hull,	shafting,	propellers,	and	rudders;	launch	and	recovery	system;	piping	repairs;	and	component	refurbishment),	and	modernization (electrical	systems;	aviation	support	systems;	warfare;	interoperability;	and	environmental	compliance).	We	provide	ongoing	maintenance	services	for	the U.S.	Navy	aircraft	carrier	fleet	through	both	RCOH	and	on-site	fleet	repair	work.

We	completed	the	RCOH	for	CVN-71	USS	Theodore	Roosevelt	and	redelivered	it	to	the	U.S.	Navy	in	2013.	We	also	received	awards	totaling	$2.6	billion under	an	execution	contract	for	the	RCOH	of	CVN-72	USS	Abraham	Lincoln,	which	is	scheduled	for	redelivery	in	2016.	We	believe	our	position	as	the exclusive	designer	and	builder	of	nuclear-powered	aircraft	carriers,	as	well	as	the	fact	that	RCOH	work	requires	a	highly	trained	workforce,	is	capital- intensive,	and	has	high	barriers	to	entry	due	to	its	nuclear	component,	strongly	position	us	for	future	RCOH	contract	awards	on	the	U.S.	Navy	aircraft carrier	fleet.

# Aircraft	Carrier	Inactivation

The	U.S.	Navy	awarded	us	a	$745	million	contract	in	2013	to	inactivate	CVN-65	USS	 Enterprise,	the	world's	first	nuclear-powered	aircraft	carrier,	which was	built	by	us	and	commissioned	in	1961.	The	CVN-65	USS	Enterprise	has	a	scheduled	redelivery	date	in	2017.	Aircraft	carriers	have	a	lifespan	of approximately	50	years,	and	we	believe	the	ten	carriers	delivered	by	us	that	are	currently	in	active	service,	as	well	as	those	we	will	deliver	in	the	future, present	a	significant	opportunity	for	us	with	respect	to	their	inactivation.	We	believe	that	the	U.S.	Navy	will	require	inactivation	of	aircraft	carriers	in	the naval	fleet	as	they	reach	the	end	of	their	lifespans,	and	we	intend	to	be	positioned	as	the	best	choice	for	these	contract	awards.

# Design	and	Construction	of	Nuclear-Powered	Submarines

We	are	one	of	only	two	companies	in	the	United	States	capable	of	designing	and	building	nuclear-powered	submarines	for	the	U.S.	Navy.	Newport	News has	delivered	59	submarines	to	the	U.S.	Navy	since	1960,	comprised	of	 45	fast	attack	and	14	ballistic	missile	submarines.	Of	the	53	nuclear-powered	fast attack	submarines	currently	in	active	service,	26	were	delivered	by	Newport	News.	Our	nuclear	submarine	program,	located	at	our	Newport	News shipyard,	includes	construction,	engineering,	design,	research,	and	integrated	planning.

In	February	1997,	we	executed	a	teaming	agreement	with	Electric	Boat,	a	division	of	General	Dynamics	Corporation	("General	Dynamics"),	to	build	SSN- 774	Virginia-class	fast	attack	nuclear	submarines	cooperatively.	Under	the	present	arrangement,	we	build	the	stern,	habitability	and	machinery	spaces, torpedo	room,	sail,	and	bow,	while	Electric	Boat	builds	the	engine	room,	control	room,	and	pressure	hull	structure.	Work	on	the	reactor	plant	and	the	final assembly,	test,	outfit,	and	delivery	of	the	submarines	alternate	between	Electric	Boat	and	us.

The	four	submarines	of	the	first	block	and	six	submarines	of	the	second	block	of	SSN-774	 Virginia-class	submarines	have	been	delivered.	In	2008,	the team	was	awarded	a	construction	contract	for	the	third	block	of	eight	SSN-774	Virginia-class	submarines.	The	multi-year	contract	increased	construction from	one	submarine	per	year	to	two	submarines	per	year	from	2011	through	2013.	The	first	submarine	under	this	contract	was	delivered	in	2014,	the second	was	delivered	in	2015,	and	the	last	submarine	of	the	third	block	is	scheduled	for	delivery	in	2019.	In	2014,	the	team	was	awarded	a	construction contract	for	the	fourth	block	of	ten	SSN-774	Virginia-class	submarines,	continuing	the	two	submarines	per	year	production	rate.	The	first	submarine	of	the block	IV	contract	is	scheduled	for	delivery	in	2019,	and	the	last	is	scheduled	for	delivery	in	2023.

# Fleet	Support:	AMSEC	and	Continental	Maritime	of	San	Diego	("CMSD")

Fleet	Support	provides	comprehensive	life	cycle	services,	including	depot	maintenance,	modernization,	repairs,	logistics	and	technical	support,	and planning	yard	services	for	naval	and	commercial	vessels	through	our	AMSEC	and	CMSD	subsidiaries.	We	have	ship	repair	facilities	in	Newport	News, Virginia,	and	San	Diego,	California,	which	are	near	the	U.S.	Navy's	largest	homeports	of	Norfolk,	Virginia,	and	San	Diego,	respectively.	AMSEC	provides naval	architecture	and	marine	engineering,	ship	system	assessments,	maintenance	engineering,	and	logistics	services	to	the	U.S.	Navy	and	commercial maritime	industry	from	27	locations	across	the	globe.	On	any	given	day,	over	600	of	our	AMSEC	employees	are	on	board	U.S.	Navy	ships,	assessing equipment	conditions,	modernizing	systems,	and	training	sailors.	Through	CMSD,	a	Master	Ship	Repair	contractor,	we	provide	ship	repair,	regular overhaul,	and	selected	restricted	availability	services	(pier	side	or	in	customers'	dry	docks)	for	the	U.S.	Navy.	We	also	perform	emergent	repair	for	the U.S.	Navy	on	all	classes	of	ships.	Beginning	in	2014,	AMSEC	and	CMSD	were	transferred	from	the	Ingalls	segment	to	the	Newport	News	segment.

# SSBN(X)	Ohio-Class	Replacement	Program

The	U.S.	Navy's	shipbuilding	plan	for	Fiscal	Year	2015	states	the	U.S.	Navy's	intention	to	focus	on	the	design	and	construction	of	replacement	boats	for the	current	aging	Ohio-class	nuclear	ballistic	and	cruise	missile	submarines.	The	U.S.	Navy	has	committed	to	designing	a	replacement	class	for	the SSBN	Ohio-class	nuclear	ballistic	missile	submarines	("SSBN"),	which	were	first	introduced	into	service	in	1981.	The	SSBN	 Ohio-class	includes	14 nuclear	ballistic	missile	submarines	and	four	nuclear	cruise	missile	submarines	("SSGN").	The	Ohio	Replacement	Program	is	a	$100	billion	program	that currently	anticipates	12	new	ballistic	missile	submarines	over	a	15-year	period	at	an	annual	budget	of	approximately	$5	billion	to	$7	billion.	The	U.S.	Navy has	initiated	the	design	process	for	the	new	class	of	submarine,	and	we	have	begun	design	work	as	a	subcontractor	to	Electric	Boat.	We	believe	our experience	and	specialized	workforce	position	us	for	a	potential	role	in	the	construction	effort.	Congress	has	delayed	the	start	of	the	first	Ohio replacement	submarine	by	two	years,	and	construction	is	now	expected	to	begin	in	2021,	with	procurement	of	long-lead-time	materials	in	2017	and delivery	in	2030.	The	first	Ohio-class	ballistic	missile	submarine	is	expected	to	be	retired	in	2027,	with	an	additional	submarine	being	retired	each	year thereafter.	By	2030	the	Ohio-class	ballistic	missile	submarine	fleet	is	expected	to	be	down	to	ten.	The	current	fiscal	environment	and	uncertainty	in defense	budgets	may	cause	additional	delay	to	the	start	of	construction	or	result	in	a	reduction	in	the	number	of	ships	being	procured,	but	we	believe	the Ohio	Replacement	Program	may	represent	a	significant	opportunity	for	us	in	the	future.

# Energy

Our	DoE	and	commercial	nuclear	programs	leverage	our	core	competencies	in	nuclear	operations,	program	management,	and	heavy	manufacturing.	We selectively	partner	with	experienced	industry	leaders,	and	we	participate	in	active	joint	ventures.	Through	our	subsidiary,	Stoller	Newport	News	Nuclear, Inc.	("SN3"),	we	provide	technical,	environmental,	ecological,	waste	management,	remediation,	and	consultation	services	to	private	sector	companies	and the	DoE.

Newport	News	Industrial	Corporation	("NNI")	provides	a	range	of	support	services	to	commercial	nuclear	power	plants.	Since	it	was	founded	in	1965,	NNI has	expanded	its	capabilities,	continuing	to	provide	support	for	nuclear	energy	facilities,	as	well	as	for	fossil	power	plants	and	other	industrial	facilities. NNI	focuses	on	fabrication	services,	construction	services,	equipment	services,	technical	services,	and	product	sales	to	its	customers,	which	include	both private	industry	and	government	entities	such	as	the	DoE	and	the	DoD.

In	January	2008,	Savannah	River	Nuclear	Solutions,	LLC	("SRNS"),	our	joint	venture	with	Fluor	Federal	Services,	Inc.	and	Honeywell	International	Inc., was	awarded	a	five-year	$4	billion	contract	for	site	management	and	operations	at	the	DoE's	Savannah	River	Site	located	12	miles	south	of	Aiken,	South Carolina,	which	would	have	expired	in	2013.	In	2012,	the	DoE	exercised	its	option	to	extend	the	original	contract	for	another	three	years	through	2016. We	have	a	34%	ownership	interest	in	SRNS.

# Other

Our	Other	segment	was	established	in	the	second	quarter	of	2014	to	account	for	certain	of	our	non-shipbuilding	commercial	activities	following	our acquisition	of	UniversalPegasus	International	Holdings,	Inc.	("UPI").	UPI	has	a	50	year	history	of	providing	project	management,	engineering,	and construction	management	for	the	oil	and	gas	industry.	UPI	has	approximately	600	professionals,	with	major	office	locations	in	Houston,	Texas;	Calgary, Canada;	Aberdeen,	Scotland;	and	San	Juan,	Trinidad	and	Tobago.

# Corporate

Huntington	Ingalls	Industries,	Inc.	was	incorporated	in	Delaware	on	August	4,	2010.	Our	principal	executive	offices	are	located	at	4101	Washington Avenue,	Newport	News,	Virginia	23607.	Our	telephone	number	is	(757)	380-2000,	and	our	home	page	on	the	Internet	is	www.huntingtoningalls.com. References	to	our	website	in	this	report	are	provided	as	a	convenience	and	do	not	constitute,	and	should	not	be	viewed	as,	incorporation	by	reference	of the	information	contained	on,	or	available	through,	the	website.	Accordingly,	such	information	should	not	be	considered	part	of	this	report.

# Summary	Segment	Financial	Data

For	a	more	complete	understanding	of	our	segment	financial	information,	see	Segment	Operating	Results	in	Item	7	and	Note	9:	Segment	Information	in Item	8.

# Customers

Our	revenues	are	primarily	derived	from	the	U.S.	Government.	In	 2015,	2014,	and	2013,	approximately	89%,	88%,	and	94%,	respectively,	of	our revenues	were	generated	from	the	U.S.	Navy,	and	approximately	7%,	8%,	and	6%,	respectively,	were	generated	from	the	U.S.	Coast	Guard.	In	2015	and 2014,	we	generated	approximately	3%	and	2%	of	our	revenues	from	commercial	customers,	respectively,	and	1%	and	2%	from	other	government agencies,	respectively.

# Intellectual	Property

We	develop	and	incorporate	into	our	vessels	new	technologies,	manufacturing	processes,	and	systems-integration	practices.	In	addition	to	owning	a	large portfolio	of	proprietary	intellectual	property,	we	license	intellectual	property	rights	to	and	from	others.	The	U.S.	Government	holds	licenses	to	our	patents developed	in	the	performance	of	U.S.	Government	contracts	and	unlimited	license	rights	in	technical	data	developed	under	our	U.S.	Government contracts	when	such	data	is	developed	entirely	at	government	expense.	The	U.S.	Government	may	use	or	authorize	others	to	use	the	technology covered	by	our	patents	licensed	to	the	government.	While	our	intellectual	property	rights	are	important	to	our	operations,	we	do	not	believe	that	any existing	patent,	license,	or	other	intellectual	property	right	is	of	such	importance	that	its	loss	or	termination	would	have	a	material	impact	on	our	business.

# Seasonality

No	material	portion	of	our	business	is	seasonal.	The	timing	of	our	revenue	recognition	is	based	on	several	factors,	including	the	timing	of	contract	awards, the	incurrence	of	contract	costs,	contract	cost	estimation,	and	unit	deliveries.	See	Critical	Accounting	Policies,	Estimates,	and	Judgments	-	Revenue Recognition	in	Item	7.

# Backlog

As	of	December	31,	2015	and	2014,	our	total	backlog	was	approximately	 $22	billion	and	$21	billion,	respectively.	We	expect	approximately	29%	of backlog	at	December	31,	2015,	to	be	converted	into	sales	in	2016.

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).	Unfunded	backlog	excludes	unexercised	contract	options	and	unfunded Indefinite	Delivery/Indefinite	Quantity	("IDIQ")	orders.	For	contracts	having	no	stated	contract	values,	backlog	includes	only	the	amounts	committed	by	the customer.	Backlog	is	converted	into	sales	as	work	is	performed	or	deliveries	are	made.	For	backlog	by	segment,	see	Backlog	in	Item	7.

# Raw	Materials

The	most	significant	material	we	use	is	steel.	Other	materials	used	in	large	quantities	include	paint,	aluminum,	pipe,	electrical	cable,	and	fittings.	All	of these	materials	are	currently	available	in	adequate	supply.	In	connection	with	our	U.S.	Government	contracts,	we	are	required	to	procure	certain	materials and	component	parts	from	supply	sources	approved	by	the	U.S.	Government.	Generally,	for	long-term	contracts,	we	obtain	price	quotations	for	many	of our	materials	requirements	from	multiple	suppliers	to	ensure	competitive	pricing.	We	have	not	generally	been	dependent	upon	any	one	supply	source; however,	due	to	consolidation	in	the	defense	industry,	we	currently	have	only	one	supplier	for	certain	component	parts.	We	believe	that	these	single source	suppliers,	as	well	as	our	overall	supplier	base,	are	adequate	to	meet	our	foreseeable	needs.	We	have	mitigated	some	supply	risk	by	negotiating long-term	agreements	with	certain	raw	material	suppliers.	In	addition,	we	have	mitigated	price	risk	related	to	raw	material	purchases	through	certain contractual	arrangements	with	customers.

# Research	and	Development

To	facilitate	innovative	product	development	and	evolution,	we	conduct	research	and	development	activities	as	part	of	our	normal	business	operations. Our	research	and	development	activities	primarily	include	Independent	Research	and	Development	("IR&D")	related	to	government	programs.	We recover	a	significant	portion	of	our	IR&D	expenditures	through	overhead	charges	to	U.S.	Government	contracts,	consistent	with	U.S.	Government regulations.	We	include	IR&D	expenses	in	general	and	administrative	expenses.	Company-sponsored	IR&D	expenses	totaled	$19	million,	$18	million, and	$22	million	for	the	years	ended	December	31,	2015,	2014,	and	2013,	respectively.

At	our	Virginia	Advanced	Shipbuilding	and	Carrier	Integration	Center	("VASCIC"),	located	in	Newport	News,	Virginia,	we	conduct	on-site	warfare	systems testing,	training,	and	laboratory	research	for	the	next	generation	of	aircraft	carriers,	submarines,	and	other	ships.	VASCIC	serves	as	the	focal	point	for	the integration	of	ship	systems	and	the	application	of	new	technologies.	It	has	a	classified	facility	and	an	integration	area	that	facilitates	research	and development	related	to	setup	and	testing	of	electronics,	as	well	as	hull,	mechanical,	and	electrical	systems,	prior	to	introducing	new	equipment	on	board	a ship.	It	also	has	modeling	and	simulation	capability	allowing	for	visualization	using	3-D	displays.	We	believe	VASCIC	benefits	the	U.S.	Navy	and represents	a	competitive	advantage	for	us	by	developing	future	naval	capabilities,	reducing	total	ownership	cost,	and	facilitating	technology	transfer.

# Governmental	Regulation	and	Supervision

Our	business	is	affected	by	a	variety	of	laws	and	regulations	relating	to	the	award,	administration,	and	performance	of	U.S.	Government	contracts.	See Risks	Related	to	Our	Business,	in	Risk	Factors	in	Item	1A.

We	operate	in	a	heavily	regulated	environment	and	are	routinely	audited	and	reviewed	by	the	U.S.	Government	and	its	agencies,	including	the U.S.	Navy's	Supervisor	of	Shipbuilding,	the	Defense	Contract	Audit	Agency	("DCAA"),	and	the	Defense	Contract	Management	Agency	("DCMA").	These agencies	review	our	contract	performance,	cost	structures,	and	compliance	with	applicable	laws,	regulations,	and	standards,	as	well	as	the	adequacy	of, and	our	compliance	with,	our	internal	control	systems	and	policies.	Systems	subject	to	audit	or	review	include	our	accounting	systems,	purchasing systems,	billing	systems,	property	management	and	control	systems,	cost	estimating	systems,	earned	value	management	systems,	compensation systems,	and	management	information	systems.	If	an	audit	uncovers	improper	or	illegal	activities,	we	may	be	subject	to	administrative,	civil,	or	criminal proceedings,	which	could	result	in	fines,	penalties,	repayments,	or	compensatory,	treble,	or	other	damages.	Certain	U.S.	Government	findings	against	a contractor	can	also	lead	to	suspension	or	debarment	from	future	U.S.	Government	contracts	or	the	loss	of	export	privileges.	In	addition,	any	costs	we incur	that	are	determined	to	be	unallowable	or	improperly	allocated	to	a	specific	contract	will	not	be	reimbursed	by	a	government	customer	or	must	be refunded	if	already	reimbursed.

The	U.S.	Government	has	the	ability	to	decrease	or	withhold	contract	payments	if	it	determines	significant	deficiencies	exist	in	one	or	more	business systems	subject	to	its	review.	The	U.S.	Government	has,	in	certain	instances,	withheld	payments	on	contracts	upon	its	assessment	that	deficiencies	exist with	one	or	more	of	our	business	systems.	When	appropriate,	we	will	modify	our	affected	business	systems	to	address	the	U.S.	Government's	concerns.

In	addition,	the	U.S.	Government	generally	has	the	ability	to	terminate	contracts,	in	whole	or	in	part,	with	little	to	no	prior	notice,	for	convenience	or	for default	based	on	performance.	In	the	event	of	termination	for	the	government's	convenience,	contractors	are	generally	protected	by	provisions	that provide	for	reimbursement	of	costs	already	incurred	on	the	contracts	and	profit	on	those	costs	up	to	the	amount	authorized	under	the	contract,	but	not	the anticipated	profit	that	would	have	been	earned	had	the	contract	been	completed.	Such	a	termination	could	also	result	in	the	cancellation	of	future	work	on the	related	program.	Termination	resulting	from	our	default	could	expose	us	to	various	liabilities,	including	excess	reprocurement	costs,	and	could	have	a material	effect	on	our	ability	to	compete	for	future	contracts.

Government	contractors	must	comply	with	significant	regulatory	requirements,	including	those	related	to	procurement.	Our	contracts	with	the	U.S. Government	may	result	in	Requests	for	Equitable	Adjustments	("REAs"),	which	represent	requests	for	the	U.S.	Government	to	make	appropriate adjustments	to	terms	of	a	contract,	including	pricing,	delivery	schedule,	technical	requirements,	or	other	affected	terms,	due	to	changes	in	the	original contract	requirements	and	resulting	delays	and	disruption	in	contract	performance	for	which	the	U.S.	Government	is	responsible.	We	prepare,	submit, and	negotiate	REAs	in	the	ordinary	course	of	business,	and	large	REAs	are	not	uncommon	at	the	conclusion	of	both	new	construction	and	RCOH activities.	Such	REAs	are	not	considered	claims	under	the	Contract	Disputes	Act	of	1978,	although	they	may	be	converted	to	such	claims	if	good	faith negotiations	to	resolve	the	REAs	are	not	satisfactory.

In	cases	where	there	are	multiple	suppliers,	contracts	for	the	construction	and	conversion	of	U.S.	Navy	ships	and	submarines	are	generally	subject	to competitive	bidding.	In	evaluating	proposed	prices,	the	U.S.	Navy	sometimes	requires	that	each	bidder	submit	information	on	pricing,	estimated	costs	of completion,	and	anticipated	profit	margins	in	order	to	assess	cost	realism.	The	U.S.	Navy	uses	this	information	and	other	data	to	determine	an	estimated cost	for	each	bidder.	Under	U.S.	Government	regulations,	certain	costs,	including	certain	financing	costs	and	marketing	expenses,	are	not	allowable contract	costs	and,	therefore,	are	not	recoverable.	The	U.S.	Government	also	regulates	the	methods	by	which	all	costs,	including	overhead,	are	allocated to	government	contracts.

Our	business,	our	contracts	with	various	agencies	of	the	U.S.	Government,	and	our	subcontracts	with	other	prime	contractors	are	subject	to	a	variety	of laws	and	regulations,	including,	but	not	limited	to,	the	Federal	Acquisition	Regulation	("FAR"),	the	Truth	in	Negotiations	Act,	the	Procurement	Integrity Act,	the	False	Claims	Act,	Cost	Accounting	Standards,	the	International	Traffic	in	Arms	Regulations	promulgated	under	the	Arms	Export	Control	Act,	the Close	the	Contractor	Fraud	Loophole	Act,	and	the	Foreign	Corrupt	Practices	Act.	A	noncompliance	determination	by	a	government	agency	may	result	in reductions	in	the	values	of	contracts,	contract	modifications	or	terminations,	penalties,	fines,	repayments,	compensatory,	treble,	or	other	damages,	or suspension	or	debarment.

# Competition

In	our	primary	business	of	designing,	building,	overhauling,	and	repairing	military	ships,	we	primarily	compete	with	General	Dynamics	and,	to	a	lesser extent,	smaller	shipyards,	one	or	more	of	which	could	team	with	a	large	defense	contractor.	Intense	competition	related	to	programs,	resources,	and funding,	and	long	operating	cycles	are	key	characteristics	of	both	our	business	and	the	shipbuilding	defense	industry	in	general.	It	is	common	industry practice	to	share	work	on	major	programs	among	a	number	of	companies.	A	company	competing	to	be	a	prime	contractor	may,	upon	ultimate	award	of the	contract	to	another	party,	become	a	subcontractor	for	the	prime	contracting	party.	It	is	not	uncommon	to	compete	for	a	contract	award	with	a	peer company	and,	simultaneously,	perform	as	a	supplier	to	or	a	customer	of	such	competitor	on	other	contracts.	The	nature	of	major	defense	programs, conducted	under	binding	contracts,	allows	companies	that	perform	well	to	benefit	from	a	level	of	program	continuity	not	common	in	many	industries.

We	believe	we	are	well-positioned	in	the	market.	Because	we	are	the	only	company	currently	capable	of	building,	refueling,	and	defueling	the	U.S.	Navy's nuclear-powered	aircraft	carriers,	we	believe	we	are	in	a	strong	competitive	position	to	be	awarded	each	contract	to	perform	such	activities.	Even	so,	the government	periodically	revisits	whether	refueling	of	nuclear-powered	aircraft	carriers	should	be	performed	in	private	or	public	facilities.	In	this	regard,	the National	Defense	Authorization	Act	for	Fiscal	Year	2012	("2012	Act")	required	DoD	to	develop	a	core	depot	level	maintenance	capability	to	refuel	nuclear aircraft	carriers.	The	National	Defense	Authorization	Act	for	Fiscal	Year	2013	("2013	Act")	modified	the	2012	Act	by	restoring	an	exception	for	the	nuclear refueling	of	an	aircraft	carrier	from	the	definition	of	core	depot	level	maintenance.	The	2013	Act	also	amended	and	clarified	the	exception	to	cover	the concurrent	refueling	and	overhaul	of	an	aircraft	carrier,	as	well	as	the	defueling	of	an	aircraft	carrier.

Similarly,	the	2013	Act	restored	an	exclusion	for	nuclear	aircraft	carrier	programs	from	the	definition	of	core	logistics	capabilities	that	was	found	in previous	law.

We	are	currently	the	only	builder	of	large	deck	amphibious	assault	and	expeditionary	warfare	ships	for	the	U.S.	Navy,	including	LHAs	and	LPDs.	We	are, however,	currently	engaged	in	a	competition	to	build	either	the	next	amphibious	assault	ship	("LHA-8")	or	six	fleet	oilers	("T-AO(X)").	We	are	also	the	sole builder	of	NSCs	for	the	U.S.	Coast	Guard,	and	are	positioned	to	be	awarded	future	contracts	for	these	types	of	vessels.	We	are	one	of	only	two companies	currently	designing	and	building	nuclear-powered	submarines	for	the	U.S.	Navy,	and	we	are	party	to	a	long-term	teaming	agreement	with	the other	company	for	the	production	of	such	vessels.	We	are	one	of	only	two	companies	that	builds	the	U.S.	Navy's	current	fleet	of	DDG-51	Arleigh	Burke- class	destroyers	and	are	positioned	to	be	awarded	future	contracts	for	these	types	of	ships	as	well.

Our	success	in	the	shipbuilding	defense	industry	depends	upon	our	ability	to	develop,	market,	and	produce	our	products	and	services	at	a	cost	consistent with	the	U.S.	Navy's	budget,	as	well	as	our	ability	to	provide	the	workforce,	technologies,	facilities,	equipment	and	financial	capacity	needed	to	deliver those	products	and	services	with	maximum	efficiency.

We	compete	with	a	variety	of	companies	in	the	provision	of	engineering	services	in	the	energy	and	oil	and	gas	markets.

# Environmental,	Health,	and	Safety

Our	manufacturing	operations	are	subject	to	and	affected	by	federal,	state,	and	local	laws	and	regulations	relating	to	the	protection	of	the	environment. We	accrue	the	estimated	costs	to	complete	environmental	remediation	when	we	determine	it	is	probable	we	will	incur	expenses	in	the	future,	in	amounts we	can	reasonably	estimate,	to	address	environmental	conditions	at	currently	or	formerly	owned	or	leased	operating	facilities,	or	at	sites	where	we	are named	a	Potentially	Responsible	Party	("PRP")	by	the	U.S.	Environmental	Protection	Agency	("EPA")	or	similarly	designated	by	another	environmental agency.	The	inherent	difficulties	in	estimating	future	environmental	remediation	costs,	resulting	from	uncertainties	regarding	the	extent	of	required remediation,	determination	of	legally	responsible	parties,	and	the	status	of	laws	and	regulations	and	their	interpretations,	can	cause	our	estimated remediation	costs	to	change.

We	assess	the	potential	impact	on	our	financial	statements	of	future	environmental	remediation	costs	by	estimating,	on	a	site-by-site	basis,	the	range	of reasonably	possible	remediation	costs	that	we	could	incur,	taking	into	account	currently	available	information	at	each	site,	the	current	state	of	technology, and	our	prior	experience	in	remediating	contaminated	sites.	We	review	our	estimates	periodically	and	adjust	them	to	reflect	changes	in	facts,	technology, and	legal	circumstances.	We	record	accruals	for	environmental	remediation	costs	on	an	undiscounted	basis	in	the	accounting	period	in	which	it	becomes probable	we	have	incurred	a	liability	and	the	costs	can	be	reasonably	estimated.	We	would	record	related	insurance	recoveries	only	when	we	determine that	collection	is	probable,	and	we	do	not	include	any	litigation	costs	related	to	environmental	matters	in	our	environmental	remediation	accrual.

We	either	expense	or	capitalize	environmental	expenditures	as	appropriate.	Capitalized	expenditures	relate	to	long-lived	improvements	in	current operating	facilities.	We	accrue	environmental	remediation	costs	at	sites	involving	multiple	parties	based	upon	our	expected	share	of	liability,	taking	into account	the	financial	viability	of	other	jointly	liable	parties.	We	may	incur	remediation	costs	exceeding	our	accrued	amount	if	other	PRPs	do	not	pay	their allocable	share	of	remediation	costs,	which	could	have	a	material	effect	on	our	business,	financial	position,	results	of	operations,	or	cash	flows.

As	of	December	31,	2015,	our	probable	future	costs	for	environmental	remediation	were	approximately	 $2	million,	which	is	accrued	in	other	current liabilities	in	the	consolidated	statement	of	financial	position.	Although	information	gained	as	projects	progress	may	materially	affect	our	accrued	liability, we	do	not	anticipate	that	future	remediation	expenditures	will	have	a	material	effect	on	our	financial	position,	results	of	operations,	or	cash	flows.

We	may	incur	environmental	costs	in	the	future	related	to	our	wind	down	of	shipbuilding	at	Avondale.	These	costs	are	not	reasonably	estimable	at	this time	due	to	insufficient	information	about	the	nature,	timing,	and	extent	of	any	potential	environmental	remediation	we	may	be	required	to	perform	or	the related	costs	that	we	may	incur.	Accordingly,	potential	environmental	costs	associated	with	the	wind	down	of	Avondale	are	not	included	in	our	$2	million accrual	for	environmental	remediation	costs	or	our	$287	million	estimate	of	Avondale	asset	write-downs	and	restructuring	costs,	or	otherwise	reflected	in our	consolidated	financial	statements.	We	expect	that	a	significant

portion	of	any	future	environmental	remediation	costs	we	might	incur	at	Avondale	would	be	recoverable	in	accordance	with	government	accounting practices	under	the	Federal	Acquisition	Regulation	("FAR").

We	believe	that	we	are	in	material	compliance	with	applicable	environmental	laws	and	regulations,	and	historical	environmental	compliance	costs	have not	been	material	to	our	business.	We	could	be	affected	by	new	environmental	laws	or	regulations,	including	any	enacted	in	response	to	concerns	over climate	change,	other	aspects	of	the	environment,	or	natural	resources.	We	have	made	the	investments	we	believe	are	necessary	to	comply	with environmental	laws.	We	expect,	however,	to	incur	capital	and	operating	costs	in	the	future	to	comply	with	current	and	future	environmental	laws	and regulations.	At	this	time,	we	do	not	believe	such	costs	will	have	a	material	effect	on	our	financial	position,	results	of	operations,	or	cash	flows.

With	regard	to	occupational	health	and	safety,	the	shipbuilding	and	ship	repair	industry	involves	work	with	hazardous	materials	and	processes	and remains	one	of	the	most	hazardous	industry	segments.	According	to	the	Bureau	of	Labor	Statistics,	the	shipbuilding	and	ship	repair	industry	(NAICS 336611)	ranks	among	the	highest	in	several	injury	metrics.	We	have	experienced	one	industrial	related	fatality	in	the	past	seven	years.	We	strive	to	keep our	Occupational	Safety	&	Health	Administration	("OSHA")	compliance	programs	strong.	In	1995,	our	Newport	News	shipyard	became	the	first	shipyard	to be	awarded	the	Star	Award	from	OSHA's	Voluntary	Protection	Program	("OSHA	VPP").	To	earn	this	award,	we	joined	efforts	with	our	unions	and supported	participation	in	the	OSHA	VPP,	in	which	all	parties	assist	each	other	to	make	our	shipyard	a	safer	place	to	work.	Our	CMSD	facility	and	SN3's Grand	Junction	site	have	also	been	certified	as	OSHA	VPP	Star	Sites.

The	U.S.	Navy,	Nuclear	Regulatory	Commission,	and	DoE	each	regulate	and	control	various	matters	relating	to	nuclear	materials	we	handle.	Subject	to certain	requirements	and	limitations,	our	contracts	with	the	U.S.	Navy	and	DoE	generally	provide	for	indemnity	by	the	U.S.	Government	for	losses resulting	from	our	nuclear	operations.	For	our	commercial	nuclear	operations,	we	rely	primarily	on	insurance	carried	by	nuclear	facility	operators	for	risk mitigation,	and	we	maintain	limited	insurance	coverage	for	losses	in	excess	of	the	coverage	of	facility	operators.

# Employees

We	have	approximately	36,000	employees.	We	are	the	largest	industrial	employer	in	Virginia	and	the	largest	private	employer	in	Mississippi.	We	employ individuals	specializing	in	19	crafts	and	trades,	with	approximately	4,700	engineers	and	designers	and	approximately	2,300	employees	with	advanced degrees.	Our	workforce	contains	many	third-,	fourth-	and	fifth-generation	employees,	and	approximately	1,100	employees	have	40	or	more	years	of continuous	service.	Employees	in	our	shipbuilding	divisions	with	more	than	40	years	of	service	achieve	the	honor	of	"Master	Shipbuilder".		As	of December	31,	2015,	there	were	802	Master	Shipbuilders	at	Newport	News	and	289	at	Ingalls.	We	employ	more	than	5,000	veterans	across	the enterprise.

More	than	1,400	apprentices	are	trained	by	our	two	shipbuilding	units	each	year	in	more	than	26	crafts	and	advanced	programs.	From	nuclear	pipe welders	to	senior	executives,	approximately	4,500	apprentice	alumni,	3,000	at	Newport	News	and	1,500	at	Ingalls,	continue	to	work	with	us.

Approximately	50%	of	our	employees	are	covered	by	a	total	of	eight	collective	bargaining	agreements	and	two	DoE	site	stabilization	agreements.	Newport News	has	three	collective	bargaining	agreements	covering	represented	employees,	which	expire	in	July	2017,	August	2018,	and	December 2018.	Newport	News	craft	workers	employed	at	the	Kesselring	Site	near	Saratoga	Springs,	New	York	are	represented	under	an	indefinite	DoE	site agreement.	Newport	News	will	begin	negotiations	in	early	2016	with	the	International	Association	of	Machinist	and	Aerospace	Workers	("IAM"),	which was	recently	determined	to	be	the	exclusive	representative	for	approximately	200	Newport	News	radiological	control,	calibration,	and	laboratory technicians.	Ingalls	has	five	collective	bargaining	agreements	covering	represented	employees,	all	of	which	expire	in	March	2018.		Approximately	35	SN3 craft	employees	at	the	Hanford	Site	near	Richland,	Washington	are	represented	under	an	indefinite	DoE	site	stabilization	agreement.	We	believe	that	our relationship	with	our	employees	is	satisfactory.

# Available	Information

Our	Annual	Reports	on	Form	10-K,	Quarterly	Reports	on	Form	10-Q,	and	Current	Reports	on	Form	8-K,	as	well	as	any	amendments	to	those	reports,	are available	free	of	charge	through	our	website	as	soon	as	reasonably	practicable	after	we	file	them	with	the	Securities	and	Exchange	Commission	("SEC"). You	can	learn	more	about	us	by	reviewing	our	SEC	filings	on	the	investor	relations	page	on	our	website	at	www.huntingtoningalls.com.

Our	SEC	filings	are	also	available	at	the	Public	Reference	Room	of	the	SEC	at	100	F	Street,	N.E.,	Washington,	D.C.	20549.	You	may	obtain	information on	the	operation	of	the	Public	Reference	Room	by	calling	1-800-SEC-0330.

The	SEC	also	maintains	a	website	at	www.sec.gov	that	contains	reports,	proxy	statements,	and	other	information	about	SEC	registrants,	including	us.

# Executive	Officers	of	the	Registrant

See	Executive	Officers	of	the	Registrant	in	Item	4A	for	information	about	our	executive	officers.

# Forward-Looking	Statements

Statements	in	this	Annual	Report	on	Form	10-K	and	in	our	other	filings	with	the	SEC,	as	well	as	other	statements	we	may	make	from	time	to	time,	other than	statements	of	historical	fact,	constitute	"forward-looking	statements"	within	the	meaning	of	the	Private	Securities	Litigation	Reform	Act	of	1995. Forward-looking	statements	involve	risks	and	uncertainties	that	could	cause	our	actual	results	to	differ	materially	from	those	expressed	in	these statements.	Factors	that	may	cause	such	differences	include:

•changes	in	government	and	customer	priorities	and	requirements	(including	government	budgetary	constraints,	shifts	in	defense	spending,	and changes	in	customer	short-range	and	long-range	plans);

•our	ability	to	obtain	new	contracts,	estimate	our	future	contract	costs	and	perform	our	contracts	effectively;

•changes	in	procurement	processes	and	government	regulations	and	our	ability	to	comply	with	such	requirements;

•our	ability	to	deliver	our	products	and	services	at	an	affordable	life	cycle	cost	and	compete	within	our	markets;

•natural	disasters;

•adverse	economic	conditions	in	the	United	States	and	globally;

•changes	in	key	estimates	and	assumptions	regarding	our	pension	and	retiree	health	care	costs;

•security	threats,	including	cyber	security	threats,	and	related	disruptions;	and

•other	risk	factors	discussed	herein	and	in	our	filings	with	the	SEC.

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

# Item	1A.	Risk	Factors

An	investment	in	our	common	stock	or	debt	securities	involves	risks	and	uncertainties.	We	seek	to	identify,	manage,	and	mitigate	risks	to	our	business, but	risk	and	uncertainty	cannot	be	eliminated	or	necessarily	predicted.	You	should	consider	the	following	factors	carefully,	in	addition	to	the	other information	contained	in	this	Annual	Report	on	Form	10-K,	before	deciding	to	purchase	our	securities.

# Risks	Related	to	Our	Business

# We	depend	heavily	on	a	single	customer,	the	U.S.	Government,	for	substantially	all	of	our	business,	and	changes	affecting	this	customer's priorities	and	spending	could	have	a	material	adverse	effect	on	our	financial	position,	results	of	operations,	or	cash	flows.

Our	business	consists	primarily	of	the	design,	construction,	repair,	and	maintenance	of	nuclear-powered	ships,	such	as	aircraft	carriers	and	submarines, and	non-nuclear	ships,	such	as	surface	combatants	and	expeditionary	warfare	and	amphibious	assault	ships,	for	the	U.S.	Navy	and	coastal	defense surface	ships	for	the	U.S.	Coast	Guard,	as	well	as	the	refueling	and	overhaul	and	inactivation	of	nuclear-powered	ships	for	the	U.S.	Navy.	Most	of	our revenues	in	2015	were	derived	from	products	and	services	ultimately	sold	to	the	U.S.	Government,	and	we	expect	this	to	continue	in	the	foreseeable future.	In	addition,	most	of	our	backlog	was	U.S.	Government	related	as	of	December	31,	2015.	Our	U.S.	Government	contracts	are	subject	to	various risks,	including	our	customers'	political	and	budgetary	constraints	and	processes,	changes	in	customers'	short-range	and	long-range	strategic	plans,	the timing	of	contract	awards,	significant	changes	in	contract	scheduling,	intense	contract	and	funding	competition,	difficulty	in	forecasting	costs	and schedules	for	bids	on	developmental	and	sophisticated	technical	work,	delays	in	the	timing	of	contract	approval,	and	contractor	suspension	or	debarment in	the	event	of	certain	violations	of	legal	or	regulatory	requirements.	Any	of	these	factors	could	affect	our	ability	to	do	business	with	the	U.S.	Government, which	would	have	a	material	adverse	effect	on	our	financial	position,	results	of	operations	or	cash	flows.

# Significant	delays	or	reductions	in	appropriations	for	our	programs,	changes	in	customer	priorities,	and	potential	contract	terminations	could have	a	material	adverse	effect	on	our	financial	position,	results	of	operations,	or	cash	flows.

We	are	directly	dependent	upon	congressional	allocation	of	defense	funds	to	the	U.S.	Navy	and	the	U.S.	Coast	Guard.	The	funding	of	U.S.	Government programs	is	subject	to	congressional	budget	authorization	and	appropriation	processes.	For	certain	programs,	Congress	appropriates	funds	on	a	fiscal year	basis	even	though	a	program	may	be	performed	over	several	fiscal	years.	Consequently,	programs	are	often	partially	funded	initially	and	receive additional	funding	only	as	Congress	makes	additional	appropriations.	If	we	incur	costs	in	excess	of	existing	funding	on	a	contract,	we	may	be	at	risk	for reimbursement	of	those	costs	unless	and	until	additional	funds	are	appropriated.	We	cannot	predict	the	extent	to	which	total	funding	or	funding	for individual	programs	will	be	included,	increased,	or	reduced	as	part	of	the	annual	budget	process,	in	continuing	resolutions,	or	in	individual	supplemental appropriations.

The	impact	of	Congressional	actions	to	reduce	the	federal	debt	and	resulting	pressures	on	federal	spending	could	adversely	affect	the	total	funding	of individual	ships	or	funding	for	individual	programs	and	delay	purchasing	or	payment	decisions	by	our	customers.	In	August	2011,	the	Budget	Control	Act (the	"BCA")	reduced	the	DoD	top-line	budget	by	$487	billion	from	fiscal	years	2012	through	2021,	representing	approximately	8%	of	planned	defense spending.	Additionally,	because	Congress	did	not	identify	savings	to	reduce	the	U.S.	deficit	by	up	to	$1.2	trillion	prior	to	March	1,	2013,	budgetary sequestration	was	implemented	under	the	BCA.	Sequestration	requires	an	additional	reduction	from	fiscal	years	2012	through	2021	of	$500	billion	for defense	spending,	representing	approximately	9%	of	planned	defense	spending,	and	$500	billion	for	non-defense	discretionary	spending,	including	the U.S.	Coast	Guard.

On	December	26,	2013,	the	President	signed	into	law	the	Bipartisan	Budget	Act	of	2013	(the	"BBA	2013"),	which	provided	$63	billion	in	sequestration relief	over	two	years,	split	evenly	between	defense	and	non-defense	programs,	and	set	overall	discretionary	spending	at	$1.012	trillion	and	$1.013	trillion for	fiscal	years	2014	and	2015,	respectively.	On	November	2,	2015,	the	President	signed	into	law	the	Bipartisan	Budget	Act	of	2015	(the	"BBA	2015"), which	provided	$80	billion	in	sequestration	relief	over	two	years,	split	evenly	between	defense	and	non-defense	programs.	The	BBA	2015	provided sequestration	relief	of	$50	billion	and	$30	billion	for	fiscal	years	2016	and	2017,	respectively,	resulting	in	overall	discretionary	spending	caps	of	$1.067 trillion	and	$1.070	trillion	for	fiscal	years	2016	and	2017,	respectively.	Sequestration	remains	in	effect	under	the	BCA	for	fiscal	years	2018	through

2021.	Enactment	of	the	BBA	2015	enabled	the	House	and	Senate	Appropriations	Committees	to	agree	upon	final	appropriations	levels	and	enabled	final passage	and	enactment	of	the	Consolidated	Appropriations	Act	of	2016,	which	provided	general	spending	for	most	of	the	U.S.	federal	government, including	the	DoD,	DoE,	and	the	Department	of	Homeland	Security.

The	Consolidated	Appropriations	Act	of	2016	specifically	provided	funding	for	construction	of	CVN-79	 John	F.	Kennedy,	advance	procurement	funding	for CVN-80	Enterprise,	construction	of	two	SSN-774	 Virginia-class	submarines,	procurement	for	the	CVN-73	 USS	George	Washington	RCOH,	advance procurement	for	the	CVN-74	USS	John	C.	Stennis	RCOH,	continuation	of	DDG-51	Arleigh	Burke-class	destroyer	production,	advance	procurement	for LHA-8	(unnamed),	procurement	of	an	additional	LPD-17	San	Antonio-class	warship,	advance	procurement	to	accelerate	the	LXR	program,	research, development,	test,	and	evaluation	("RDT&E")	funding	for	the	Ohio	replacement	program,	procurement	of	a	T-AO(X)	fleet	oiler,	and	procurement	of	an additional	NSC	for	the	U.S.	Coast	Guard.

While	the	BBA	2015	eliminated	the	implementation	of	sequestration	reductions	for	fiscal	years	2016	and	2017,	uncertainty	continues	regarding	the specific	effects	of	sequestration	in	fiscal	years	2018	through	2021,	and	related	funding	reductions	that	could	result	in	the	cancellation	of	or	decreased funding	for	our	existing	programs	and/or	a	lack	of	funding	for	future	programs.

The	impact	of	the	continuing	federal	fiscal	debates	for	fiscal	year	2017	and	beyond	remains	uncertain,	and	we	cannot	predict	the	impact	that	the sequestration	cuts	or	other	defense	spending	cuts	may	have	on	funding	for	our	individual	programs.	Long-term	funding	for	certain	programs	in	which	we participate	may	be	reduced,	delayed,	or	canceled.	In	addition,	defense	spending	cuts	and	delays	could	adversely	affect	the	viability	of	our	suppliers	and subcontractors	and	employee	base.	Our	contracts	or	subcontracts	under	programs	in	which	we	participate	may	be	terminated	or	adjusted	by	the U.S.	Government	or	the	prime	contractor	as	a	result	of	lack	of	government	funding	or	reductions	or	delays	in	government	funding.	Significant	reductions	in the	number	of	ships	procured	by	the	U.S.	Navy	or	significant	delays	in	funding	our	ship	programs	would	have	a	material	adverse	effect	on	our	financial position,	results	of	operations,	or	cash	flows.

The	budget	environment,	including	sequestration	as	currently	mandated,	remains	a	significant	long-term	risk.	Considerable	uncertainty	exists	regarding how	future	budget	and	program	decisions	will	develop	and	what	challenges	budget	reductions	will	present	for	the	defense	industry.	We	believe	continued budget	pressures	will	have	serious	negative	consequences	for	the	security	of	our	country,	the	defense	industrial	base,	including	us,	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.	Congress	continues	to	discuss	various	options	to	address	sequestration	in	future	budget	planning, but	we	cannot	predict	the	outcome	of	these	efforts.	It	is	likely	budget	and	program	decisions	made	in	this	environment	will	have	long-term	impacts	on	us and	the	entire	defense	industry.

Demand	for	our	products	and	services	can	also	be	affected	by	potential	changes	in	customer	priorities	due	to	changes	in	military	strategy	and	planning.	In response	to	the	need	for	cheaper	alternatives	and	the	proliferation	of	"smart	weapons,"	future	strategy	reassessments	by	the	DoD	may	result	in decreased	demand	for	our	shipbuilding	programs,	including	our	aircraft	carrier	programs.	For	the	year	ended	December	31,	2015,	our	aircraft	carrier programs	accounted	for	approximately	35%	of	our	consolidated	revenue.	We	cannot	predict	the	impact	of	changes	in	customer	priorities	on	existing, follow-on,	replacement,	or	future	programs.	A	shift	of	priorities	to	programs	in	which	we	do	not	participate	and	related	reductions	in	funding	for	or	the termination	of	programs	in	which	we	do	participate	could	have	a	material	adverse	effect	on	our	financial	position,	results	of	operations,	or	cash	flows.

The	U.S.	Government	generally	has	the	ability	to	terminate	contracts,	in	whole	or	in	part,	with	little	to	no	prior	notice,	for	convenience	or	for	default	based on	performance.	In	the	event	of	termination	for	the	U.S.	Government's	convenience,	contractors	are	normally	protected	by	provisions	covering reimbursement	of	costs	already	incurred	on	the	contracts	and	profit	on	those	costs	up	to	the	amount	authorized	under	the	contract,	but	not	the	anticipated profit	that	would	have	been	earned	had	the	contract	been	completed.	Such	a	termination	could	also	result	in	the	cancellation	of	future	work	on	the	related program.	Termination	resulting	from	our	default	can	expose	us	to	various	liabilities,	including	excess	re-procurement	costs,	and	could	negatively	affect	our ability	to	compete	for	future	contracts.	Any	contract	termination	could	have	a	material	adverse	effect	on	our	financial	condition,	results	of	operations,	or cash	flows.

# Cost	growth	on	fixed	price	and	other	contracts	that	cannot	be	justified	as	increases	in	contract	value	due	from	customers	exposes	us	to reduced	profitability	and	to	the	potential	loss	of	future	business.

Our	operating	income	is	adversely	affected	when	we	incur	certain	contract	costs	or	certain	increases	in	contract	costs	that	cannot	be	billed	to	customers. Cost	growth	can	occur	if	expenses	to	complete	a	contract	increase	due	to	technical	challenges,	manufacturing	difficulties,	delays,	workforce-related issues,	or	inaccurate	initial	estimates	used	for	calculating	contract	costs.	Reasons	may	include	unavailability	or	reduced	productivity	of	labor,	the	nature and	complexity	of	the	work	performed,	the	timeliness	and	availability	of	materials,	major	subcontractor	performance	or	product	quality	issues, performance	delays,	availability	and	timing	of	funding	from	the	customer,	and	natural	disasters.	The	process	of	estimating	contract	costs	requires significant	judgment	and	expertise.	A	significant	increase	in	contract	costs	from	our	original	cost	estimates	on	one	or	more	programs	could	have	a material	adverse	effect	on	our	financial	position,	results	of	operations,	or	cash	flows.

Our	ability	to	recover	the	costs	we	incur	and	realize	profits	on	contracts	with	our	U.S.	Government	customers	depends	on	the	type	of	contract	under which	we	are	performing.	Our	U.S.	Government	business	is	currently	performed	under	firm	fixed	price	("FFP"),	fixed	price	incentive	("FPI"),	cost	plus incentive	fee	("CPIF"),	cost	plus	fixed	fee	("CPFF"),	and	cost	plus	award	fee	("CPAF")	contracts.	Under	FFP	contracts,	we	retain	all	cost	savings	on completed	contracts	but	are	responsible	for	the	full	amount	of	all	expenditures	in	excess	of	the	contract	price.	FPI	contracts,	on	the	other	hand,	are flexibly	priced	agreements	under	which	cost	overruns	and	underruns	to	an	agreed	target	cost	are	shared	between	the	U.S.	Government	and	us.	The U.S.	Government	is	liable	for	its	share	of	allowable	costs	up	to	a	ceiling	price,	and	we	are	responsible	for	all	costs	incurred	in	excess	of	such	ceiling	price, typically	125-135%	of	target	cost.	Our	profit	on	FPI	contracts	varies	according	to	a	formula	set	forth	in	the	contract	that	generally	compares	the	amount	of costs	incurred	to	the	contract	target	cost.	Under	CPIF,	CPFF	and	CPAF	contracts,	we	are	generally	required	to	perform	the	contract	only	to	the	extent	the U.S.	Government	makes	funds	available,	and	we	recover	all	allowable	costs	incurred	in	the	performance	of	the	contract.	Under	CPIF	contracts,	our	profit is	determined	by	a	contractually	specified	formula	that	compares	allowable	incurred	costs	to	the	contract	target	cost,	subject	in	some	instances	to	a maximum	or	minimum	fee	percentage.	Under	CPFF	contracts,	the	dollar	amount	of	profit	received	is	the	same	without	regard	to	the	amount	of	costs incurred.	Under	CPAF	contracts,	the	dollar	amount	of	profit	received	is	determined	by	the	award	fee	provisions	in	the	contract.

Of	Ingalls'	revenues	in	2015,	approximately	89%	were	generated	from	FPI	contracts,	approximately	4%	were	generated	from	FFP	contracts, approximately	4%	were	generated	from	CPFF	contracts,	and	approximately	 3%	were	generated	from	CPAF	contracts.	Of	Newport	News'	 2015	revenues, approximately	33%	were	generated	from	FPI	contracts,	consisting	primarily	of	submarine	construction	contracts,	approximately	 32%	were	generated from	CPFF	contracts,	approximately	31%	were	generated	from	CPIF	contracts,	consisting	primarily	of	aircraft	carrier	construction	and	RCOH	contracts, approximately	3%	were	generated	from	FFP	contracts,	and	approximately	 1%	were	generated	from	CPAF	contracts.	Substantially	all	of	our	Other segment's	2015	revenues	were	generated	from	FFP	contracts.	To	the	extent	our	mix	of	contract	types	change	in	the	future,	our	ability	to	recover	our costs	and	realize	profits	on	our	contracts	can	be	negatively	affected.

# Our	earnings	and	profitability	depend	upon	our	ability	to	perform	under	contracts.

When	agreeing	to	contract	terms,	we	make	assumptions	and	projections	about	future	conditions	and	events,	many	of	which	extend	over	long	periods.	Our assumptions	and	projections	are	based	upon	our	assessments	of	the	productivity	and	availability	of	labor,	the	complexity	of	the	work	to	be	performed,	the cost	and	availability	of	materials,	the	impact	of	delayed	performance,	and	the	timing	of	product	deliveries.	We	may	experience	significant	variances	from our	assumptions	and	projections,	delays	in	our	contract	performance,	and	variances	in	the	timing	of	our	product	deliveries.	If	our	actual	experience	differs significantly	from	one	or	more	of	our	assumptions	or	projections,	or,	if	we	incur	unanticipated	contract	costs,	the	profitability	of	the	related	contracts	may be	adversely	affected.

# Our	earnings	and	profitability	depend,	in	part,	upon	subcontractor	performance	and	raw	material	and	component	availability	and	pricing.

We	rely	on	other	companies	to	provide	raw	materials,	major	components,	and	sub-systems	for	our	products,	and	we	rely	on	subcontractors	to	produce hardware	elements	and	sub-assemblies	and	perform	certain	services	that	we	provide	to	our	customers.	We	are	subject	to	potential	delivery	disruptions and	performance	problems	caused	by	our	suppliers	and	subcontractors.	Our	ability	to	perform	our	obligations	as	a	prime	contractor	could	be	adversely

affected	if	one	or	more	of	our	suppliers	or	subcontractors	are	unable	to	provide	the	agreed-upon	products	or	materials	or	perform	the	agreed-upon services	in	a	timely	and	cost-effective	manner.

Our	costs	to	manufacture	our	products	can	increase	over	the	terms	of	our	contracts.	We	may	be	protected	from	increases	in	material	costs	through	cost escalation	provisions	contained	in	some	of	our	U.S.	Government	contracts,	to	the	extent	that	such	increases	are	consistent	with	industry	indices.	Even with	these	provisions,	however,	the	difference	in	basis	between	our	actual	material	costs	and	these	indices	may	expose	us	to	cost	uncertainty.	In	addition, significant	delays	in	deliveries	of	key	raw	materials,	which	may	occur	as	a	result	of	availability	or	price,	could	have	a	material	adverse	effect	on	our financial	position,	results	of	operations,	or	cash	flows.

In	connection	with	our	U.S.	Government	contracts,	we	are	required	to	procure	certain	raw	materials,	components	and	parts	from	supply	sources	approved by	the	U.S.	Government.	As	a	result	of	consolidation	in	the	defense	industry,	only	one	supplier	may	exist	for	certain	components	and	parts	required	to manufacture	our	products.	The	inability	of	a	sole	source	supplier	to	provide	a	necessary	component	in	a	timely	or	cost-effective	manner	could	have	a material	adverse	effect	on	our	financial	position,	results	of	operations,	or	cash	flows.

# Changes	to	Department	of	Defense	business	practices	could	have	a	material	effect	on	DoD's	procurement	process	and	adversely	impact	our current	programs	and	potential	new	awards.

The	defense	industry	has	implemented,	and	we	expect	will	continue	to	implement,	significant	changes	to	business	practices	resulting	from,	among	other causes,	an	increased	focus	by	DoD	on	affordability,	efficiencies,	recovery	of	costs,	and	a	reprioritization	of	available	defense	funds	to	key	areas	for	future defense	spending.	The	DoD	continues	to	adjust	its	procurement	practices,	requirements	criteria,	and	source	selection	methodology	in	an	ongoing	effort	to reduce	costs,	gain	efficiencies	and	enhance	program	management	and	control.	In	addition,	the	DCMA	and	DCAA	have	implemented	cost	recovery/cost savings	initiatives	to	prioritize	efforts	to	recover	costs.	As	a	result	of	certain	of	these	initiatives,	we	have	experienced	and	may	continue	to	experience	a higher	number	of	audits	and/or	lengthened	periods	of	time	required	to	close	open	audits.	In	addition,	the	thresholds	for	certain	allowable	costs,	including compensation	costs,	have	been	significantly	reduced,	and	other	thresholds	are	being	challenged,	debated,	and,	in	certain	cases,	modified.	Significant changes	to	the	thresholds	for	allowable	costs	could	adversely	affect	our	financial	position,	results	of	operations	or	cash	flows.

In	September	2014,	the	DoD	initiated	Better	Buying	Power	3.0	("BBP	3.0")	to	address	its	growing	concern	that	the	United	States'	technological	superiority over	potential	adversaries	is	being	threatened.	BBP	3.0	includes	eight	focus	areas:	achieve	affordable	programs;	achieve	dominant	capabilities	while controlling	life	cycle	costs;	incentivize	productivity	in	industry	and	government;	incentivize	innovation	in	industry	and	government;	eliminate	unproductive processes	and	bureaucracy;	promote	effective	competition;	improve	tradecraft	in	acquisition	of	services;	and	improve	the	professionalism	of	the	total acquisition	workforce.	While	some	of	the	larger	objectives	remained	the	same	as	those	in	Better	Buying	Power	2.0,	their	focus	has	narrowed	and	the circle	of	stakeholders	has	expanded.

We	expect	DoD's	focus	on	business	practices	to	impact	the	contracting	environment	in	which	we	operate	as	we	and	others	in	the	industry	adjust	our practices	to	address	the	new	initiatives	and	the	reduced	level	of	spending	by	the	DoD.	We	are	assessing	internally	how	we	can	respond	to	and	support these	changes,	including	how	we	can	further	reduce	costs	and	increase	productivity,	modify	how	we	respond	to	acquisition	proposals,	and	revise	our areas	of	focus.	Depending	on	how	these	initiatives	are	implemented,	they	could	have	an	impact	on	our	current	programs,	as	well	as	new	business opportunities	with	the	DoD.

# Our	future	success	depends,	in	part,	on	our	ability	to	deliver	our	products	and	services	at	an	affordable	life	cycle	cost,	requiring	us	to	develop and	maintain	technologies,	facilities,	equipment	and	a	qualified	workforce	to	meet	the	needs	of	current	and	future	customers.

Shipbuilding	is	a	long	cycle	business,	and	our	success	depends	on	quality,	cost,	and	schedule	performance	on	our	contracts.	We	must	develop	and maintain	the	workforce,	technologies,	facilities,	equipment,	and	financial	capacity	needed	to	deliver	our	products	and	services	at	an	affordable	life	cycle cost.	If	we	fail	to	maintain	our	competitive	position	in	these	areas,	we	could	lose	future	contracts	to	our	competitors,	which	could	have	a	material	adverse effect	on	our	financial	position,	results	of	operations	or	cash	flows.

Our	operating	results	are	heavily	dependent	upon	our	ability	to	attract	and	retain	at	competitive	costs	a	sufficient	number	of	engineers	and	workers	with the	necessary	skills	and/or	security	clearances.	At	the	same	time,	stable	future	revenues	and	costs	are	important	for	us	to	maintain	a	qualified	workforce. Development	and	maintenance	of	the	necessary	nuclear	expertise	and	the	challenges	of	hiring	and	training	a	qualified	workforce	can	be	a	limitation	on our	business.	If	qualified	personnel	become	scarce,	we	could	experience	higher	labor,	recruiting,	or	training	costs	to	attract	and	retain	qualified employees,	or,	if	we	fail	to	attract	and	retain	qualified	personnel,	we	could	incur	difficulties	in	performing	our	contracts	and	attracting	new	contract	awards.

# Competition	within	our	markets	or	an	increase	in	bid	protests	may	reduce	our	revenues	and	market	share.

U.S.	defense	spending	levels	are	uncertain	and	difficult	to	predict.	The	reduction	in	shipbuilding	activity	by	the	U.S.	Navy,	as	evidenced	by	the	reduction in	fleet	size	from	566	ships	in	1989	to	272	ships	as	of	December	31,	2015,	has	resulted	in	workforce	reductions	in	the	industry	but	little	infrastructure consolidation.	The	general	result	has	been	fewer	contracts	awarded	to	the	same	fixed	number	of	shipyards.	Six	major	private	United	States	shipyards, three	of	which	we	own,	plus	numerous	other	smaller	private	shipyards	compete	for	contracts	to	construct,	overhaul,	repair,	and	convert	naval	vessels. Additionally,	our	products,	such	as	aircraft	carriers,	submarines,	amphibious	assault	ships,	surface	combatants,	and	other	ships,	compete	for	funding	with each	other,	as	well	as	with	other	defense	products	and	services.	We	expect	competition	for	future	shipbuilding	programs	to	be	intense.

We	compete	with	another	large	defense	contractor	for	construction	contracts	to	build	surface	combatants	and	submarines,	and	we	are	currently	engaged in	a	competition	to	build	either	the	next	amphibious	assault	ship	(LHA-8)	or	six	fleet	oilers	(T-AO(X)).	We	may	in	the	future	compete	with	the	same	and other	defense	contractors	to	build	other	ships	for	which	we	are	currently	the	sole	source,	including	expeditionary	warfare	and	amphibious	assault ships.	Moreover,	reductions	in	U.S.	defense	spending	that	reduce	the	demand	for	the	types	of	ships	we	build	and	services	we	provide	increase	our	risk exposure	to	market	competition.	If	we	are	unable	to	continue	to	compete	successfully	against	our	current	or	future	competitors,	we	may	experience declines	in	revenues	and	market	share,	which	could	negatively	impact	our	financial	condition,	results	of	operations,	or	cash	flows.

Although	we	are	the	only	company	currently	capable	of	refueling	nuclear-powered	aircraft	carriers,	two	existing	U.S.	Government-owned	shipyards	may be	able	to	refuel	nuclear-powered	aircraft	carriers	if	substantial	investments	in	facilities,	personnel,	and	training	were	made.	U.S.	Government-owned shipyards	engage	in	the	refueling,	overhaul,	and	inactivation	of	SSN-688	Los	Angeles-class	submarines	and	are	capable	of	repairing	and	overhauling non-nuclear	ships.	The	2012	National	Defense	Authorization	Act	required	DoD	to	develop	a	core	depot	level	maintenance	capability	to	refuel	nuclear aircraft	carriers.	The	2013	Defense	Authorization	Act,	however,	modified	the	2012	Act	by	restoring	an	exception	for	the	nuclear	refueling	of	an	aircraft carrier	from	the	definition	of	core	depot	level	maintenance.	The	2013	Act	also	amended	and	clarified	the	exception	to	cover	the	concurrent	refueling	and overhaul	of	an	aircraft	carrier,	as	well	as	the	defueling	of	an	aircraft	carrier.	Similarly,	the	2013	Act	restored	an	exclusion	for	nuclear	aircraft	carrier programs	from	the	definition	of	core	logistics	capabilities	that	was	contained	in	previous	law.	If	a	U.S.	Government-owned	shipyard	were	to	become capable	and	engaged	in	the	refueling	of	nuclear-powered	aircraft	carriers,	our	financial	position,	results	of	operations,	or	cash	flows	could	be	adversely affected.

We	also	compete	in	the	shipbuilding	engineering,	planning,	and	design	market	with	other	companies	that	provide	engineering	support	services.	Such competition	increases	the	risk	that	we	may	not	be	the	successful	bidder	on	future	U.S.	Navy	engineering	proposals,	including	aircraft	carrier	research	and development,	submarine	design,	and	surface	combatant	and	amphibious	assault	ship	program	contracts.

Our	competitive	environment	is	also	affected	by	bid	protests	from	unsuccessful	bidders	on	new	program	awards.	As	the	competitive	environment intensifies,	the	number	of	bid	protests	may	increase.	Bid	protests	can	result	in	an	award	decision	being	overturned,	requiring	a	re-bid	of	the	contract.	Even when	a	bid	protest	does	not	result	in	a	re-bid,	resolution	of	the	matter	typically	extends	the	time	until	contract	performance	can	begin,	which	may	reduce our	earnings	in	the	period	in	which	the	contract	would	otherwise	be	performed.

# As	a	U.S.	Government	contractor,	we	are	heavily	regulated	and	could	be	adversely	affected	by	changes	in	regulations	or	negative	findings from	a	U.S.	Government	audit	or	investigation.

As	a	U.S.	Government	contractor,	we	must	comply	with	significant	regulatory	requirements,	including	those	relating	to	procurement,	cyber	security,	and nuclear	operations.	Government	contracting	requirements	increase	our	contract

performance	and	compliance	costs	and	change	on	a	consistent	basis.	In	addition,	our	nuclear	operations	are	subject	to	an	enhanced	regulatory environment,	which	results	in	increased	performance	and	compliance	efforts	and	costs.	New	laws,	regulations,	or	procurement	requirements,	or	changes to	existing	ones	(including,	for	example,	regulations	related	to	allowability	of	compensation	costs,	cyber	security,	counterfeit	parts,	specialty	metals,	and conflict	minerals),	can	increase	our	performance	and	compliance	costs	and	reduce	our	profitability.

We	operate	in	a	heavily	regulated	environment	and	are	routinely	audited	and	reviewed	by	the	U.S.	Government	and	its	various	agencies,	including	the U.S.	Navy's	Supervisor	of	Shipbuilding,	the	DCAA,	and	the	DCMA.	These	agencies	review	our	contract	performance,	cost	structures,	and	compliance with	applicable	laws,	regulations,	and	standards,	as	well	as	the	adequacy	of,	and	our	compliance	with,	our	internal	control	systems	and	internal	policies. Systems	subject	to	audit	or	review	include	our	accounting	systems,	purchasing	systems,	billing	systems,	property	management	and	control	systems,	cost estimating	systems,	earned	value	management	systems,	compensation	systems,	and	management	information	and	cyber	security	systems.	If	an	audit uncovers	improper	or	illegal	activities,	we	may	be	subject	to	administrative,	civil,	or	criminal	proceedings,	which	could	result	in	fines,	penalties, repayments,	or	compensatory,	treble,	or	other	damages.	Certain	U.S.	Government	findings	against	a	contractor	can	also	lead	to	suspension	or	debarment from	future	U.S.	Government	contracts	or	the	loss	of	export	privileges.	Allegations	of	impropriety	can	also	cause	us	significant	reputational	harm.

Whether	or	not	illegal	activities	are	alleged,	the	U.S. 	Government	has	the	ability	to	decrease	or	withhold	contract	payments	if	it	determines	significant deficiencies	exist	in	business	systems	subject	to	its	review.	The	U.S.	Government	has,	in	certain	instances,	withheld	payments	on	certain	of	our	contracts upon	its	assessment	that	deficiencies	exist	with	one	or	more	of	our	business	systems.	When	appropriate,	we	will	modify	our	affected	business	systems	to address	the	U.S.	Government's	concerns.

The	U.S.	Government	has,	from	time	to	time,	recommended	that	certain	of	our	contract	prices	be	reduced,	or	that	certain	costs	allocated	to	our	contracts be	disallowed.	These	recommendations	sometimes	involve	substantial	dollar	amounts.	In	response	to	U.S.	Government	audits,	investigations,	and inquiries,	we	have	also	in	the	past	made	adjustments	to	our	contract	prices	and	the	costs	allocated	to	our	government	contracts.	Such	audits, investigations,	and	inquiries	may	result	in	future	reductions	of	our	contract	prices.	Any	costs	we	incur	that	are	determined	to	be	unallowable	or	improperly allocated	to	a	specific	contract	will	not	be	reimbursed	or	must	be	refunded	if	previously	reimbursed.

We	must	comply	with	a	variety	of	federal	laws	and	regulations,	including	the	FAR,	the	Truth	in	Negotiations	Act,	the	False	Claims	Act,	the	Procurement Integrity	Act,	the	International	Traffic	in	Arms	Regulations	promulgated	under	the	Arms	Export	Control	Act,	the	Close	the	Contractor	Fraud	Loophole	Act, the	Foreign	Corrupt	Practices	Act,	and	Cost	Accounting	Standards,	and	we	are	subject,	from	time	to	time,	to	U.S.	Government	investigations	relating	to our	operations.	If	we	are	convicted	or	otherwise	found	to	have	engaged	in	illegal	activities,	or	are	found	not	to	have	acted	responsibly	as	defined	by	the law,	we	may	be	subject	to	reductions	in	the	values	of	contracts,	contract	modifications	or	terminations,	penalties,	fines,	repayments,	compensatory, treble,	or	other	damages,	or	suspension	or	debarment,	any	of	which	could	have	a	material	adverse	effect	on	our	financial	position,	results	of	operations, or	cash	flows.

# Many	of	our	contracts	contain	performance	obligations	that	require	innovative	design	capabilities,	are	technologically	complex,	require	state- of-the-art	manufacturing	expertise,	or	are	dependent	upon	factors	not	wholly	within	our	control,	and	failure	to	meet	these	obligations	could adversely	affect	our	profitability	and	future	prospects.

We	design,	develop,	and	manufacture	products	and	provide	services	applied	by	our	customers	in	a	variety	of	environments.	Problems	and	delays	in product	development	or	with	delivery	of	subcontractor	components	or	services	as	a	result	of	issues	with	respect	to	design,	technology,	licensing	and intellectual	property	rights,	labor,	learning	curve	assumptions,	or	materials	and	parts	could	prevent	us	from	satisfying	contractual	requirements.

First-in-class	ships,	also	known	as	lead	ships,	usually	have	new	technology	that	is	supplied	by	the	U.S.	Navy,	other	contractors,	or	us.	Problems	in developing	these	new	technologies	or	design	changes	in	the	construction	process	can	lead	to	delays	in	the	design	schedule	needed	for	construction.	The risks	associated	with	new	technology	or	mid-construction	design	changes	can	both	increase	the	cost	of	a	ship	and	delay	delivery.	Late	delivery	of information	can	also	cause	inefficiencies	in	the	construction	process,	increase	costs,	and	put	the	delivery	schedule	at	risk,	which	could	adversely	affect our	profitability	and	future	prospects.

Our	products	cannot	always	be	tested	and	proven	and	are	otherwise	subject	to	unforeseen	problems,	including	premature	failure	of	products	that	cannot be	accessed	for	repair	or	replacement,	substandard	quality	or	workmanship,	and	unplanned	degradation	of	product	performance.	These	failures	could result	in	loss	of	life	or	property	and	could	negatively	affect	our	results	of	operations	by	causing	unanticipated	expenses	not	covered	by	insurance	or indemnification	from	the	customer,	diversion	of	management	focus	to	respond	to	unforeseen	problems,	loss	of	follow-on	work,	and,	in	the	case	of	certain contracts,	repayment	to	the	government	customer	of	contract	costs	and	fee	payments	previously	received.

We	have	experienced	quality	issues	in	the	past	with	respect	to	products	and	services	that	we	sell	to	our	U.S.	Government	customers.	These	issues	have required	significant	resources	to	analyze	the	source	of	the	deficiencies	and	implement	corrective	actions.	We	may	discover	quality	issues	in	the	future related	to	our	products	and	services	that	require	analysis	and	corrective	action.	Such	issues	and	our	responses	and	corrective	actions	could	have	a material	adverse	effect	on	our	financial	position,	results	of	operations,	or	cash	flows.

# We	may	not	recover	all	of	our	costs	related	to	the	wind	down	of	shipbuilding	at	our	Avondale	shipyard.

In	October	2014,	we	ceased	shipbuilding	construction	operations	at	our	Avondale,	Louisiana	shipyard	and	consolidated	all	Ingalls	shipbuilding	into	our Pascagoula	shipyard.	In	connection	with	and	as	a	result	of	the	wind	down	of	shipbuilding	at	Avondale,	we	have	incurred	substantial	restructuring	costs and	asset	write-downs,	which	we	currently	estimate	at	$287	million.	We	believe	that	substantially	all	such	expenses	are	recoverable	under	existing flexibly-priced	contracts	or	future	negotiated	contracts	in	accordance	with	FAR	provisions	governing	the	treatment	of	restructuring	and	shutdown	related costs.

We	have	engaged	in	communications	and	negotiations	with	the	U.S.	Navy	since	2010	regarding	the	amount	and	recovery	of	our	restructuring	and shutdown	costs.	In	August	2015,	we	received	a	letter	from	the	Supervisor	of	Shipbuilding's	Contracting	Officer	("Contracting	Officer"),	with	a	preliminary determination	that	our	method	of	allocating	as	indirect	costs	certain	employee	retention	and	incentive	expenses,	which	could	be	up	to	$57	million,	did	not comply	with	cost	accounting	allocation	regulations.	We	have	responded	with	our	basis	supporting	our	cost	allocation	positions	and	sought	a	determination that	supports	our	method	of	cost	allocation.

We	currently	do	not	have	an	agreement	with	the	U.S.	Navy	regarding	the	government	contract	accounting	and	pricing	treatment	of	the	restructuring	and shutdown	costs	associated	with	our	wind	down	of	operations	at	Avondale.	We	may	also	incur	environmental	costs	in	connection	with	the	wind	down.	Such costs,	which	we	cannot	reasonably	estimate	at	this	time,	could	be	significant.	The	actual	restructuring	expenses	we	incur	in	connection	with	our	wind down	of	Avondale,	including	potential	environmental	costs,	may	be	greater	than	our	current	estimate,	and	any	inability	to	recover	our	restructuring expenses	substantially	in	accordance	with	our	cost	recovery	expectations	could	result	in	a	material	adverse	effect	on	our	financial	position,	results	of operations,	or	cash	flows.

# We	use	estimates	when	accounting	for	contracts.	Changes	in	estimates	could	affect	our	profitability	and	our	overall	financial	position.

Contract	accounting	requires	judgment	relative	to	assessing	risks,	estimating	contract	revenues	and	costs,	and	making	assumptions	for	schedule	and technical	issues.	The	size	and	nature	of	many	of	our	contracts	make	the	estimation	of	total	revenues	and	costs	at	completion	complicated	and	subject	to many	variables.	For	new	shipbuilding	programs,	we	estimate,	negotiate	and	contract	for	construction	of	ships	that	are	not	completely	designed.	Assessing risks,	estimating	contract	revenues	and	costs,	and	making	assumptions	for	schedule	and	technical	issues	for	these	ships	are	subject	to	the	variability	of the	final	ship	design	and	evolving	scope	of	work.	Our	assumptions	on	ship	contracts	include	the	length	of	time	to	complete	the	contract,	because	total costs	include	expected	increases	in	wages	and	material	prices.	Similarly,	our	assumptions	include	the	future	impact	of	our	efficiency	initiatives	and	cost reduction	efforts.	We	consider	incentives,	awards,	and	penalties	related	to	contract	performance	in	estimating	revenues	and	profit	rates,	and	we	record them	when	sufficient	information	exists	to	assess	anticipated	contract	performance.

The	judgment	and	estimation	processes	described	above	are	significant	to	our	contract	accounting,	and	materially	different	amounts	can	be	generated	if different	assumptions	are	used	or	if	actual	events	differ	from	our	assumptions.	Future	changes	in	underlying	assumptions,	circumstances,	or	estimates may	have	a	material	adverse	effect	on	our	future	financial	position,	results	of	operations,	or	cash	flows.	See	Critical	Accounting	Policies,	Estimates,	and Judgments	in	Item	7.

# Our	business	is	subject	to	disruption	caused	by	natural	disasters,	environmental	disasters,	and	other	events	that	could	have	a	material adverse	effect	on	our	financial	position,	results	of	operations,	or	cash	flows.

We	have	significant	operations	located	in	regions	of	the	United	States	that	have	been	and	may	in	the	future	be	exposed	to	damaging	storms,	such	as hurricanes,	floods,	and	environmental	disasters,	such	as	oil	spills.	The	damage	and	disruption	resulting	from	natural	and	environmental	disasters	may	be significant.	Natural	disasters	can	disrupt	our	facilities,	systems,	or	projects,	which	can	interrupt	operational	processes	and	performance	on	our	contracts. Should	insurance	or	other	risk	transfer	mechanisms	be	unavailable	or	insufficient	to	recover	material	costs	associated	with	natural	or	environmental disasters,	we	could	experience	a	material	adverse	effect	on	our	financial	position,	results	of	operations,	or	cash	flows.	See	Our	insurance	coverage	may be	inadequate	to	cover	all	of	our	significant	risks	or	our	insurers	may	deny	coverage	of	material	losses	we	incur,	which	could	adversely	affect	our profitability	and	financial	position.

Natural	disasters	can	disrupt	our	workforce,	electrical	and	other	power	distribution	networks,	computer	and	internet	operations	and	accessibility,	and	the critical	industrial	infrastructure	needed	for	normal	business	operations.	These	disruptions	could	adversely	affect	our	contract	performance	and	financial results.	Environmental	disasters,	particularly	oil	spills	in	waterways	and	bodies	of	water	used	for	the	transport	and	testing	of	our	ships,	can	disrupt	the timing	of	performance	under	our	contracts	with	the	U.S.	Navy	and	the	U.S.	Coast	Guard.

Our	suppliers	and	subcontractors	are	also	subject	to	natural	and	environmental	disasters	that	could	affect	their	ability	to	deliver	products	or	services	or otherwise	perform	their	contracts.	Performance	failures	by	our	subcontractors	due	to	natural	or	environmental	disasters	may	adversely	affect	our	ability	to perform	our	contracts,	which	could	reduce	our	profitability	in	the	event	damages	or	other	costs	are	not	recoverable	from	the	subcontractor,	the	customer, or	insurers.	Such	events	could	also	result	in	a	termination	of	the	prime	contract	and	have	an	adverse	effect	on	our	ability	to	compete	for	future	contracts.

In	addition	to	the	types	of	events	described	above,	operation	of	our	facilities	may	be	disrupted	by	civil	unrest,	acts	of	sabotage	or	terrorism,	and	other	local security	concerns.	Such	events	may	require	us	to	incur	greater	costs	for	security	or	to	shut	down	operations	for	a	period	of	time.

# Our	insurance	coverage	may	be	inadequate	to	cover	all	of	our	significant	risks	or	our	insurers	may	deny	coverage	of	material	losses	we	incur, which	could	adversely	affect	our	profitability	and	financial	position.

We	seek	to	negotiate	and	enter	into	insurance	agreements	to	cover	our	significant	risks	and	potential	liabilities,	including,	among	others,	natural	disasters, product	liability,	and	business	interruption	resulting	from	an	insured	property	loss.	In	some	circumstances,	we	may	be	indemnified	for	losses	by	the U.S.	Government,	subject	to	the	availability	of	appropriated	funds.	Not	every	risk	or	liability	can	be	protected	by	insurance,	and,	for	insurable	risks,	the limits	of	coverage	reasonably	obtainable	in	the	market	may	not	be	sufficient	to	cover	the	full	amount	of	actual	losses	or	liabilities	incurred,	including,	for example,	in	the	case	of	a	catastrophic	hurricane.	In	addition,	the	nature	of	our	business	makes	it	difficult	to	quantify	the	disruptive	impact	of	such	events. Such	limitations	on	the	availability	of	insurance	coverage	may	result	in	us	bearing	substantial	costs	for	uninsured	losses,	which	could	have	a	material adverse	effect	on	our	financial	position,	results	of	operations,	or	cash	flows.	Even	in	cases	where	we	have	insurance	coverage,	disputes	with	insurance carriers	over	coverage	may	affect	the	timing	of	cash	flows,	and,	if	litigation	with	the	insurance	carrier	becomes	necessary,	an	outcome	unfavorable	to	us may	have	a	material	adverse	effect	on	our	financial	position,	results	of	operations,	or	cash	flows.

# Our	business	could	suffer	if	we	are	unsuccessful	in	negotiating	new	collective	bargaining	agreements.

Approximately	50%	of	our	employees	are	covered	by	a	total	of	eight	collective	bargaining	agreements	and	two	DoE	site	stabilization	agreements.	Newport News	has	three	collective	bargaining	agreements	covering	represented	employees,	which	expire	in	July	2017,	August	2018,	and	December 2018.	Newport	News	craft	workers	employed	at	the	Kesselring	Site	near	Saratoga	Springs,	New	York	are	represented	under	an	indefinite	DoE	site agreement.	Newport	News	will	begin	negotiations	in	early	2016	with	IAM,	which	was	recently	determined	to	be	the	exclusive	representative	for approximately	200	Newport	News	radiological	control,	calibration,	and	laboratory	technicians.	Ingalls	has	five	collective	bargaining	agreements	covering represented	employees,	all	of	which	expire	in	March	2018.		Approximately	35	SN3	craft	employees	at	the	Hanford	Site	near	Richland,	Washington	are represented	under	an	indefinite	DoE	site	stabilization	agreement.

Collective	bargaining	agreements	generally	expire	after	three	to	five	years,	and	we	negotiate	successor	agreements	as	each	of	our	collective	bargaining agreements	expires.	While	we	believe	we	maintain	good	relationships	with	our	represented	workers,	it	is	possible	that	we	may	experience	difficulties renegotiating	expiring	collective	bargaining	agreements.	We	have,	in	the	past,	experienced	work	stoppages,	strikes,	and	other	labor	disruptions associated	with	the	collective	bargaining	of	new	labor	agreements.	If	we	experience	such	events	in	the	future,	we	could	incur	additional	expenses	or	work delays	that	could	adversely	affect	programs	served	by	employees	who	are	covered	by	collective	bargaining	agreements.

# Changes	in	key	estimates	and	assumptions,	such	as	discount	rates	and	assumed	long-term	returns	on	assets,	actual	investment	returns	on our	pension	plan	assets,	and	legislative	and	regulatory	actions	could	significantly	affect	our	earnings,	equity,	and	contributions	to	our	defined benefit	pension	and	other	postretirement	benefit	plans	in	future	periods.

Our	pension	and	retiree	health	care	costs	are	dependent	on	significant	judgment	regarding	various	estimates	and	assumptions,	particularly	with	respect	to the	discount	rate	and	expected	long-term	rates	of	return	on	plan	assets.	Changes	to	these	estimates	and	assumptions	could	have	a	material	adverse effect	on	our	financial	position,	results	of	operations,	or	cash	flows.	Differences	between	actual	investment	returns	and	our	assumed	long-term	returns	on assets	will	result	in	future	changes	in	pension	expense	and	the	funded	status	of	our	plans,	and	could	increase	future	funding	of	the	plans.

Timing	differences	exist	among	the	accrual	of	pension	costs	under	accounting	principles	generally	accepted	in	the	United	States	of	America	("GAAP"), pension	funding	requirements,	and	the	recovery	of	pension	costs	that	are	allowable	under	our	government	contracts.	Such	timing	differences	could	have a	material	adverse	effect	on	our	financial	position,	results	of	operations,	or	cash	flows.	On	December	27,	2011,	the	U.S.	Cost	Accounting	Standards ("CAS")	Board	issued	its	final	CAS	Harmonization	Rule.	The	rule	impacted	pension	costs	on	contracts	beginning	in	2013	and	was	effective	for	forward pricing	purposes	for	contracts	negotiated	on	or	after	February	27,	2012.	Although	we	believe	contractors	are	entitled	to	an	equitable	adjustment	on	CAS- covered	contracts	awarded	prior	to	the	February	27,	2012	effective	date,	the	application	of	this	rule	could	have	a	material	adverse	effect	on	our	financial position,	results	of	operations,	or	cash	flows	if	we	are	unable	to	successfully	recover	such	equitable	adjustment.

For	a	complete	discussion	regarding	how	our	consolidated	financial	statements	can	be	affected	by	pension	plan	accounting	policies	and	regulatory changes,	see	Critical	Accounting	Policies,	Estimates,	and	Judgments	in	Item	7.

# Unforeseen	environmental	costs	could	have	a	material	adverse	effect	on	our	financial	position,	results	of	operations,	or	cash	flows.

Our	operations	are	subject	to	and	affected	by	a	variety	of	existing	federal,	state,	and	local	environmental	protection	laws	and	regulations.	In	addition,	we could	be	affected	by	future	laws	or	regulations,	including	those	imposed	in	response	to	concerns	over	climate	change,	other	aspects	of	the	environment, or	natural	resources.	We	expect	to	incur	future	capital	and	operating	costs	to	comply	with	current	and	future	environmental	laws	and	regulations,	and such	costs	could	be	substantial,	depending	on	the	future	proliferation	of	environmental	rules	and	regulations	and	the	extent	to	which	we	discover	currently unknown	environmental	conditions.

Shipbuilding	operations	require	the	use	of	hazardous	materials.	Our	shipyards	also	generate	significant	quantities	of	wastewater,	which	we	treat	before discharging	pursuant	to	various	permits.	To	handle	these	materials,	our	shipyards	have	an	extensive	network	of	aboveground	and	underground	storage tanks,	some	of	which	have	leaked	and	required	remediation	in	the	past.	In	addition,	our	handling	of	hazardous	materials	has	sometimes	resulted	in	spills in	our	shipyards	and	occasionally	in	adjacent	rivers	and	waterways	in	which	we	operate.	Our	shipyards	maintain	extensive	waste	handling	programs	that we	periodically	modify,	consistent	with	changes	in	applicable	laws	and	regulations.	See	Environmental,	Health	and	Safety	in	Item	1.

Various	federal,	state,	and	local	environmental	laws	and	regulations	impose	restrictions	on	the	discharge	of	pollutants	into	the	environment	and	establish standards	for	the	transportation,	storage,	and	disposal	of	toxic	and	hazardous	wastes.	Substantial	fines,	penalties,	and	criminal	sanctions	may	be imposed	for	noncompliance,	and	certain	environmental	laws	impose	joint	and	several	"strict	liability"	for	remediation	of	spills	and	releases	of	oil	and hazardous	substances.	Such	laws	and	regulations	render	a	party	liable	for	environmental	cleanup	and	remediation	costs	and	damage	without	regard	to negligence	or	fault	on	the	part	of	such	party	and	could	expose	us	to	liability	for	the	conduct	of	or	conditions	caused	by	third	parties.

In	addition	to	fines,	penalties,	and	criminal	sanctions,	environmental	laws	and	regulations	may	require	the	installation	of	costly	pollution	control	equipment or	operational	changes	to	limit	pollution	emissions	or	discharges	and/or	to	decrease	the	likelihood	of	accidental	hazardous	material	releases.	We	have incurred,	and	expect	to	incur	in	the	future,	costs	to	comply	with	federal	and	state	environmental	laws	and	regulations	related	to	the	cleanup	of	pollutants released	into	the	environment.	In	addition,	if	we	are	found	to	be	in	violation	of	the	Clean	Air	Act	or	the	Clean	Water	Act,	the	facility	or	facilities	involved	in the	violation	could	be	placed	by	the	EPA	on	the	"Excluded	Parties	List"	maintained	by	the	General	Services	Administration,	which	would	continue	until	the EPA	concluded	that	the	cause	of	the	violation	was	cured.	Facilities	on	the	"Excluded	Parties	List"	are	prohibited	from	working	on	any	U.S.	Government contract.

The	adoption	of	new	environmental	laws	and	regulations,	stricter	enforcement	of	existing	laws	and	regulations,	imposition	of	new	cleanup	requirements, discovery	of	previously	unknown	or	more	extensive	contamination,	litigation	involving	environmental	impacts,	our	inability	to	recover	related	costs	under our	government	contracts,	or	the	financial	insolvency	of	other	responsible	parties	could	cause	us	to	incur	costs	that	could	have	a	material	adverse	effect on	our	financial	position,	results	of	operations,	or	cash	flows.

We	ceased	shipbuilding	construction	at	our	Avondale,	Louisiana	shipyard	in	2014.	Our	wind	down	of	operations	at	this	shipyard	may	result	in environmental	costs,	the	amount	of	which	we	cannot	currently	estimate.	Such	costs	could	be	significant	and	could	have	a	material	adverse	effect	on	our financial	position,	results	of	operations,	or	cash	flows.

# Market	volatility	and	adverse	capital	or	credit	market	conditions	may	affect	our	ability	to	access	cost-effective	sources	of	funding	and	may expose	us	to	risks	associated	with	the	financial	viability	of	suppliers	and	subcontractors	and	the	ability	of	counterparties	to	perform	on financial	agreements.

The	financial	markets	can	experience	high	levels	of	volatility	and	disruption,	reducing	the	availability	of	credit	for	certain	issuers.	We	may	access	these markets	from	time	to	time	to	support	certain	business	activities,	including	funding	acquisitions	and	capital	expansion	projects	and	refinancing	existing indebtedness.	We	also	access	these	markets	to	obtain	credit	support	for	our	workers'	compensation	self-insurance	program	and	arrange	for	letters	of credit.	A	number	of	factors	could	cause	us	to	incur	increased	borrowing	costs	and	to	have	greater	difficulty	accessing	public	and	private	markets	for	debt. These	factors	include	disruptions	or	declines	in	the	global	capital	markets	and/or	a	decline	in	our	financial	performance,	outlook,	or	credit	ratings.	The occurrence	of	any	or	all	of	these	events	may	adversely	affect	our	ability	to	fund	our	operations,	meet	contractual	or	financing	commitments,	make	future investments	or	desirable	acquisitions,	or	respond	to	competitive	challenges.

Tightening	credit	markets	could	also	adversely	affect	our	suppliers'	and	subcontractors'	ability	to	obtain	financing.	Delays	in	suppliers'	or	subcontractors' ability	to	obtain	financing,	or	the	unavailability	of	financing,	could	negatively	affect	their	ability	to	perform	their	contracts	with	us	and	cause	our	inability	to perform	our	contracts.	The	inability	of	our	suppliers	and	subcontractors	to	obtain	financing	could	also	result	in	the	need	for	us	to	transition	to	alternate suppliers	and	subcontractors,	which	could	result	in	significant	incremental	costs	and	delays.

We	have	existing	agreements	with	counterparties	in	the	financial	markets,	including	brokers	and	dealers,	commercial	banks,	and	other	institutional parties,	and	may	in	the	future	enter	into	agreements	with	such	parties.	These	transactions	expose	us	to	potential	credit	risk	in	the	event	of	default	of	a counterparty.	In	addition,	our	credit	risk	may	be	increased	when	collateral	held	by	us	to	secure	performance	of	a	counterparty	cannot	be	liquidated	upon	a sale	or	is	liquidated	at	prices	not	sufficient	to	recover	the	full	amount	due	to	us	under	the	related	contract.

# Our	reputation	and	our	ability	to	do	business	may	be	impacted	by	the	improper	conduct	of	employees,	agents,	or	business	partners.

Our	compliance	program	includes	detailed	compliance	plans	and	related	compliance	controls,	policies,	procedures,	and	training	designed	to	prevent	and detect	misconduct	by	employees,	agents,	or	business	partners	that	would	violate	the	laws	of	the	jurisdictions	in	which	we	operate,	including	laws governing	payments	to	government	officials,	the	protection	of	export	controlled	or	classified	information,	cost	accounting	and	billing,	competition,	and	data privacy.	We	may	not,	however,	prevent	all	such	misconduct	committed	by	our	employees,	agents,	or	business	partners,	and	the	risk	of	improper	conduct may	be	expected	to	increase	as	we	expand	into	commercial	markets	and	foreign	jurisdictions.	Any	improper	actions	by	our	employees,	agents,	or business	partners	could	subject	us	to	administrative,	civil,	or	criminal	investigations	and	monetary	and	non-monetary	penalties,	including	suspension	or

debarment,	which	could	have	a	material	adverse	effect	on	our	financial	position,	results	of	operations,	or	cash	flows.	Any	such	improper	actions	could also	cause	us	significant	reputational	harm.

# Our	business	could	be	negatively	impacted	by	security	threats,	including	cyber	security	threats,	and	related	disruptions.

As	a	defense	contractor,	we	rely	on	our	information	technology	infrastructure	to	process,	transmit,	and	store	electronic	information,	including	classified and	other	sensitive	information	of	the	U.S.	Government.	While	we	maintain	stringent	information	security	policies	and	protocols,	we	face	cyber	security and	other	security	threats	to	our	information	technology	infrastructure,	including	threats	to	our	and	the	U.S.	Government's	proprietary	and	classified information.	We	face	unauthorized	and	unlawful	attempts	to	gain	access	to	our	information	technology	infrastructure,	including	coordinated	attacks	from groups	of	hackers,	and	we	could	also	face	attempts	to	gain	physical	access	to	classified	and	other	sensitive	information	located	at	our	facilities.	Our information	technology	infrastructure	is	critical	to	the	efficient	operation	of	our	business	and	essential	to	our	ability	to	perform	day-to-day	operations. Breaches	of	our	information	technology	infrastructure	or	physical	facilities	could	cause	us	to	incur	significant	recovery	and	restoration	expenses;	degrade performance	on	existing	contracts;	and	expose	us	to	reputational	damage,	potential	liability,	or	the	loss	of	current	or	future	contracts,	including	work	on sensitive	or	classified	systems	for	the	U.S.	Government,	which	could	have	a	material	adverse	effect	on	our	operations,	financial	position,	results	of operations,	or	cash	flows.

# Our	nuclear	operations	subject	us	to	various	environmental,	regulatory,	financial,	and	other	risks.

The	design,	construction,	refueling	and	overhaul,	repair,	and	inactivation	of	nuclear-powered	aircraft	carriers	and	nuclear-powered	submarines,	our nuclear	facilities	used	to	support	such	activities,	our	nuclear	operations	at	DoE	sites,	and	our	activities	in	the	commercial	nuclear	market	subject	us	to various	risks,	including:

•Potential	liabilities	relating	to	harmful	effects	on	the	environment	and	human	health	resulting	from	nuclear	operations	and	the	storage,	handling, and	disposal	of	radioactive	materials,	including	nuclear	assemblies	and	their	components;

•Unplanned	expenditures	relating	to	maintenance,	operation,	security,	and	repair,	including	repairs	required	by	the	U.S.	Navy,	the	Nuclear Regulatory	Commission	or	the	DoE;

•Reputational	harm;

•Potential	liabilities	arising	out	of	a	nuclear	incident	whether	or	not	it	is	within	our	control;	and

•Regulatory	noncompliance	and	loss	of	authorizations	or	indemnifications	necessary	for	our	operations.

Failure	to	properly	handle	nuclear	materials	could	pose	a	health	risk	to	humans	or	wildlife	and	could	cause	personal	injury	and	property	damage, including	environmental	contamination.	If	a	nuclear	accident	were	to	occur,	its	severity	could	be	significantly	affected	by	the	volume	of	the	materials	and the	speed	of	corrective	action	taken	by	us	and	emergency	response	personnel,	as	well	as	other	factors	beyond	our	control,	such	as	weather	and	wind conditions.	Actions	we	might	take	in	response	to	an	accident	could	result	in	significant	costs.

Our	nuclear	operations	are	subject	to	various	safety	related	requirements	imposed	by	the	U.S.	Navy,	DoE,	and	Nuclear	Regulatory	Commission.	In	the event	of	noncompliance,	these	agencies	may	increase	regulatory	oversight,	impose	fines,	or	shut	down	our	operations,	depending	on	their	assessment	of the	severity	of	the	noncompliance.	In	addition,	new	or	revised	security	and	safety	requirements	imposed	by	the	U.S.	Navy,	DoE,	and	Nuclear	Regulatory Commission	could	necessitate	substantial	capital	and	other	expenditures.

Subject	to	certain	requirements	and	limitations,	our	contracts	with	the	U.S.	Navy	and	DoE	generally	provide	for	indemnity	by	the	U.S.	Government	for costs	arising	out	of	or	resulting	from	our	nuclear	operations.	We	may	not,	however,	be	indemnified	for	all	liabilities	we	may	incur	in	connection	with	our nuclear	operations.	To	mitigate	risks	related	to	our	commercial	nuclear	operations,	we	rely	primarily	on	insurance	carried	by	nuclear	facility	operators	and our	own	limited	insurance	for	losses	in	excess	of	the	coverage	of	facility	operators.	Such	insurance,	however,	may	not	be	sufficient	to	cover	our	costs	in the	event	of	an	accident	or	business	interruption	relating	to	our	commercial	nuclear	operations,	which	could	have	a	material	adverse	effect	on	our financial	position,	results	of	operations,	or	cash	flows.

# Changes	in	future	business	conditions	could	cause	business	investments,	recorded	goodwill,	and/or	purchased	intangible	assets	to	become impaired,	resulting	in	substantial	losses	and	write-downs	that	would	reduce	our	operating	income.

As	part	of	our	business	strategy,	we	acquire	non-controlling	and	controlling	interests	in	businesses.	We	make	acquisitions	and	investments	following careful	analysis	and	due	diligence	processes	designed	to	achieve	a	desired	return	or	strategic	objective.	Business	acquisitions	generally	involve estimates,	assumptions	and	judgments	in	determining	acquisition	prices,	which	prices	are	allocated	among	acquired	assets,	including	goodwill,	based upon	fair	market	values.	Notwithstanding	our	analyses,	due	diligence	processes	and	business	integration	efforts,	actual	operating	results	of	acquired businesses	may	vary	significantly	from	initial	estimates.	In	such	events,	we	may	be	required	to	write	down	our	carrying	value	of	the	related	goodwill	and/or purchased	intangible	assets.	In	addition,	declines	in	the	trading	price	of	our	common	stock	or	the	market	as	a	whole	can	result	in	goodwill	and/or purchased	intangible	asset	impairment	charges.

As	of	December	31,	2015,	goodwill	and	purchased	intangible	assets	generated	from	prior	business	acquisitions	accounted	for	approximately 16%	and 8%,	respectively,	of	our	total	assets.	We	evaluate	goodwill	values	for	impairment	annually	on	November	30,	or	when	evidence	of	potential	impairment exists.	We	also	evaluate	the	values	of	purchased	intangible	assets	when	evidence	of	potential	impairment	exists.	The	impairment	tests	are	based	on several	factors	requiring	judgment.	As	a	general	matter,	a	significant	decrease	in	expected	cash	flows	or	changes	in	market	conditions	may	indicate potential	impairment	of	recorded	goodwill	or	purchased	intangible	assets.

In	the	fourth	quarter	of	2015,	the	second	quarter	of	2015,	and	the	fourth	quarter	of	2014,	we	recorded	goodwill	impairment	charges	at	our	Other	segment of	$16	million,	$59	million,	and	$47	million,	respectively.	The	Other	segment,	established	in	the	second	quarter	of	2014	following	the	acquisition	of	UPI,	is sensitive	to	developments	in	the	oil	and	gas	industry.	The	goodwill	impairment	charges	were	primarily	driven	by	continuing	declines	in	oil	prices	and	the resulting	decreases	in	industry	market	multiples.	In	the	fourth	quarter	of	2015,	we	recorded	an	intangible	asset	impairment	of	$27	million	at	our	Other segment	as	a	result	of	declining	market	conditions	and	updated	expectations.

Adverse	equity	market	conditions	that	result	in	a	decline	in	market	multiples	and	the	trading	price	of	our	common	stock,	or	other	events	such	as reductions	in	future	contract	awards	or	significant	adverse	changes	in	our	operating	margins	or	operating	results	of	acquired	businesses	that	vary significantly	from	projected	results	on	which	purchase	prices	are	based,	could	result	in	an	impairment	of	goodwill	or	other	intangible	assets.	Any	such impairments	that	result	in	us	recording	additional	goodwill	impairment	charges	could	have	a	material	adverse	effect	on	our	financial	position	or	results	of operations.

# Unanticipated	changes	in	our	tax	provisions	or	exposure	to	additional	income	tax	liabilities	could	affect	our	profitability	and	cash	flow.

We	are	subject	to	income	taxes	in	various	jurisdictions.	Significant	judgment	is	required	in	determining	our	provision	for	income	taxes.	In	the	ordinary course	of	business,	the	ultimate	tax	determination	of	many	of	our	transactions	and	calculations	is	uncertain.	In	addition,	timing	differences	in	the recognition	of	contract	income	for	financial	statement	purposes	and	for	income	tax	purposes	can	cause	uncertainty	with	respect	to	the	timing	of	income tax	payments,	which	can	have	a	significant	impact	on	cash	flow	in	a	particular	period.	Changes	in	applicable	income	tax	laws	and	regulations,	or	their interpretation,	could	result	in	higher	or	lower	income	tax	rates	or	changes	in	the	taxability	of	certain	transactions	or	the	deductibility	of	certain	expenses, thereby	affecting	our	income	tax	expense	and	profitability.	In	addition,	the	final	results	of	any	tax	audits	or	related	litigation	could	be	materially	different from	our	related	historical	income	tax	provisions	and	accruals.	Changes	in	our	tax	rate	as	a	result	of	changes	in	our	overall	profitability,	changes	in	tax legislation,	changes	in	the	valuation	of	deferred	tax	assets	and	liabilities,	changes	in	differences	between	financial	statement	income	and	taxable	income, the	examination	of	previously	filed	tax	returns	by	taxing	authorities,	and	continuing	assessments	of	our	tax	exposures	can	also	impact	our	tax	liabilities and	affect	our	income	tax	expense,	profitability,	and	cash	flow.

# We	conduct	a	portion	of	our	operations	through	joint	ventures	and	strategic	alliances.	We	may	have	limited	control	over	such	arrangements and	experience	returns	that	are	not	proportional	to	the	risks	and	resources	we	contribute.

We	conduct	some	of	our	operations	through	joint	ventures	with	business	partners.	In	any	joint	venture	arrangement,	differences	in	views	among	the	joint venture	participants	may	result	in	delayed	decisions	or	in	failures	to	reach	agreement	on	major	issues.	We	and	our	joint	venture	partners	may,	in	certain instances,	fail	to	reach	agreement	on	significant	decisions	on	a	timely	basis,	or	at	all.	We	also	cannot	control	the	actions	of	our	joint	venture	partners, including	any	non-performance,	default,	or	bankruptcy	of	our	joint	venture	partners,	and	we	typically	share	liability	or	have	joint	and/or	several	liability	with our	joint	venture	partners	for	joint	venture	matters.	Any	of	these	factors	could	potentially	have	a	material	adverse	effect	on	our	joint	venture	operations and	the	profitability	of	our	joint	ventures.

In	joint	ventures	in	which	we	hold	a	minority	interest,	we	have	limited	control	over	many	decisions	relating	to	joint	venture	projects	and	internal	controls relating	to	operations.	These	joint	ventures	may	not	be	subject	to	the	same	requirements	regarding	internal	controls	and	internal	control	reporting	that apply	to	us.	As	a	result,	internal	control	issues	may	arise	that	could	have	a	material	adverse	effect	on	the	joint	venture.	In	addition,	in	order	to	establish	or preserve	relationships	with	our	joint	venture	partners,	we	may	agree	to	assume	risks	and	contribute	resources	that	are	proportionately	greater	than	the returns	we	expect	to	receive	in	the	related	joint	venture.	Such	agreements	may	reduce	our	income	and	returns	on	these	investments	compared	to	what	we would	have	received	if	our	assumed	risks	and	contributed	resources	were	proportionate	to	our	returns.

# Strategic	acquisitions	and	investments	we	pursue	involve	risks	and	uncertainties.

In	pursuing	our	business	strategy,	we	review,	evaluate,	and	consider	potential	acquisitions	and	investments.	In	evaluating	such	transactions,	we	have	to make	difficult	judgments	regarding	the	value	of	business	opportunities,	technologies,	and	other	assets,	the	risks	and	costs	of	potential	liabilities,	and	the future	prospects	of	business	opportunities.	In	addition,	acquisitions	and	investments	involve	other	risks	and	uncertainties,	including	the	difficulty	of integrating	acquired	businesses,	challenges	achieving	strategic	objectives	and	other	benefits	anticipated	from	acquisitions	or	investments,	the	diversion	of management	attention	and	resources	from	our	existing	operations	and	other	initiatives,	the	potential	impairment	of	acquired	assets,	and	the	potential	loss of	key	employees	of	acquired	businesses.	Our	financial	results,	business,	and	future	prospects	could	be	adversely	affected	by	unanticipated	performance issues	at	acquired	businesses,	transaction-related	charges,	liabilities,	amortization	of	expenses	related	to	purchased	intangible	assets,	and	charges	for impairment	of	purchased	intangible	assets.

# We	are	subject	to	various	claims	and	litigation	that	could	ultimately	be	resolved	against	us,	requiring	material	future	cash	payments	and/or future	material	charges	against	our	operating	income,	materially	impairing	our	financial	position	or	cash	flows.

The	size,	nature,	and	complexity	of	our	business	make	it	highly	susceptible	to	claims	and	litigation.	We	are	currently,	and	may	in	the	future	become, subject	to	various	administrative,	civil,	or	criminal	litigation,	environmental	claims,	income	tax	matters,	compliance	matters,	claims,	and	investigations, which	could	divert	financial	and	management	resources	and	result	in	fines,	penalties,	compensatory,	treble	or	other	damages,	or	nonmonetary	relief. Government	regulations	also	provide	that	certain	allegations	against	a	contractor	may	lead	to	suspension	or	debarment	from	government	contracts	or suspension	of	export	privileges.	Suspension	or	debarment	could	have	a	material	adverse	effect	on	us	because	of	our	reliance	on	government	contracts and	authorizations.	Litigation,	claims,	or	investigations,	if	ultimately	resolved	against	us,	could	have	a	material	adverse	effect	on	our	financial	position, results	of	operations,	or	cash	flows.	Any	litigation,	claim,	or	investigation,	even	if	fully	indemnified	or	insured,	could	negatively	impact	our	reputation among	our	customers	and	the	public	and	make	it	more	difficult	for	us	to	compete	effectively	or	obtain	adequate	insurance	in	the	future.

# We	may	be	unable	to	adequately	protect	our	intellectual	property	rights,	which	could	affect	our	ability	to	compete.

We	own	certain	patents,	trademarks,	copyrights,	and	other	forms	of	intellectual	property,	and	we	license	certain	intellectual	property	rights	to	and	from third	parties.	The	U.S.	Government	generally	holds	licenses	to	certain	intellectual	property	we	develop	in	performance	of	government	contracts,	and	it may	use	or	authorize	others	to	use	such	intellectual	property.	More	recently,	the	U.S.	Government	has	asserted	or	sought	to	obtain	more	extensive	rights in	intellectual	property	associated	with	its	contracts.	The	U.S.	Government's	efforts	could	result	in	a	decrease	in	our	ability	to	control	the	use	of	certain	of our	intellectual	property	rights	in	a	government	contracting	environment.	Our	intellectual	property	is	also	subject	to	challenge,	invalidation, misappropriation,	or	circumvention	by	third	parties.

We	also	rely	upon	proprietary	technology,	information,	processes,	and	know-how	that	are	not	protected	by	patents.	We	seek	to	protect	this	information through	trade	secret	or	confidentiality	agreements	with	our	employees,	consultants,	subcontractors,	and	other	parties,	as	well	as	through	other	measures. These	agreements	and	other	measures	may	not,	however,	provide	meaningful	protection	for	our	unpatented	proprietary	information.

In	the	event	of	infringement	of	our	intellectual	property	rights,	breach	of	a	confidentiality	agreement,	or	unauthorized	disclosure	of	proprietary	information, we	may	not	have	adequate	legal	remedies	to	maintain	our	rights	in	our	intellectual	property.	Litigation	to	determine	the	scope	of	our	rights,	even	if successful,	could	be	costly	and	a	diversion	of	management's	attention	from	other	aspects	of	our	business.	In	addition,	trade	secrets	may	otherwise become	known	or	be	independently	developed	by	competitors.	If	we	are	unable	adequately	to	protect	our	intellectual	property	rights,	our	business	could be	adversely	affected.

We	have	the	right	to	use	certain	intellectual	property	licensed	to	us	by	third	parties.	In	instances	where	third	parties	have	licensed	to	us	the	right	to	use their	intellectual	property,	we	may	be	unable	in	the	future	to	secure	the	necessary	licenses	to	use	such	intellectual	property	on	commercially	reasonable terms.

# Our	debt	exposes	us	to	certain	risks.

As	of	December	31,	2015,	we	had	$1,273	million	of	debt	and	$1,223	million	of	additional	borrowing	capacity	under	our	Second	Amended	and	Restated Credit	Agreement	(the	"Amended	Credit	Facility").	Our	current	level	of	debt	could	have	important	consequences,	including:

•Increasing	our	vulnerability	to	adverse	economic	or	industry	conditions;

•Requiring	us	to	dedicate	a	portion	of	our	cash	flow	from	operations	to	payments	on	our	debt,	thereby	reducing	the	availability	of	our	cash	flow	to fund	working	capital,	capital	expenditures,	strategic	initiatives,	and	general	corporate	purposes;

•Increasing	our	vulnerability	to,	and	limiting	our	flexibility	in	planning	for,	or	reacting	to,	changes	in	our	business	or	the	industries	in	which	we operate;

•Exposing	us	to	the	risk	of	higher	interest	rates,	to	the	extent	borrowings	under	our	Amended	Credit	Facility	are	subject	to	variable	rates	of	interest;

•Placing	us	at	a	competitive	disadvantage	compared	to	our	competitors	that	have	less	debt;	and

•Limiting	our	ability	to	borrow	additional	funds.

Because	we	use	a	portion	of	our	cash	flow	from	operations	to	service	our	debt,	we	could	fail	to	generate	sufficient	cash	to	fund	our	liquidity	needs	or	fail	to satisfy	the	restrictive	covenants	and	borrowing	limitations	to	which	we	are	subject	under	our	various	debt	arrangements.	Moreover,	we	have	significant additional	borrowing	capacity	and	may	be	able	to	incur	significant	additional	debt	in	the	future.	To	the	extent	new	debt	is	added	to	our	current	debt	levels, the	related	risks	that	we	face	could	be	increased.

# Restrictive	covenants	in	the	indentures	governing	our	senior	notes	and	our	Amended	Credit	Facility	may	restrict	our	ability	to	pursue	our business	strategies.

The	terms	of	our	Amended	Credit	Facility	limit	our	ability,	among	other	things,	to:

•Incur	additional	debt;

•Pay	dividends	or	make	other	distributions	on,	or	repurchase	or	redeem,	our	stock;

•Prepay,	redeem,	or	repurchase	certain	of	our	debt;

# •Make	investments;

•Consolidate,	merge,	sell,	or	otherwise	dispose	of	all	or	substantially	all	of	our	assets;	and

•Incur	liens.

The	indentures	governing	our	two	tranches	of	5.000%	senior	notes	limit	our	ability,	among	other	things,	to:

In	addition,	the	terms	of	our	Amended	Credit	Facility	require	us	to	maintain	a	maximum	leverage	ratio.	These	covenants	may	restrict	our	financial flexibility,	limit	our	strategic	initiatives,	restrict	our	ability	to	grow,	or	limit	our	ability	to	respond	to	competitive	changes.	These	covenants	may	affect	how we	conduct	our	business,	and	we	may	be	unable	to	engage	in	favorable	business	activities	or	finance	future	operations	or	capital	needs.	These covenants	may,	therefore,	affect	our	ability	to	successfully	execute	our	business	strategy	and	operate	our	business.

# Our	spin-off	from	Northrop	Grumman	exposes	us	to	potential	liabilities,	including	U.S.	federal	income	tax	liabilities.

Our	spin-off	from	Northrop	Grumman	was	structured	to	minimize	the	likelihood	that	Northrop	Grumman,	Northrop	Grumman's	stockholders,	and	we	would be	required	to	recognize	any	taxable	income,	gain,	or	loss	for	U.S.	federal	income	tax	purposes	as	a	result	of	the	spin-off,	except	with	respect	to	cash received	by	Northrop	Grumman's	stockholders	in	lieu	of	fractional	shares.	If	all	or	a	portion	of	the	spin-off	does	not	qualify	as	a	tax-free	transaction, Northrop	Grumman	would	recognize	a	substantial	gain	for	U.S.	federal	income	tax	purposes.	In	such	case,	under	IRS	regulations,	each	member	of Northrop	Grumman's	consolidated	group	at	the	time	of	the	spin-off,	including	us	and	our	subsidiaries,	would	be	severally	liable	for	the	resulting U.S.	federal	income	tax	liability.

In	connection	with	the	spin-off,	Northrop	Grumman	and	we	agreed	that	each	of	us	would	be	responsible	for	the	debts,	liabilities,	and	other	obligations related	to	the	respective	business	or	businesses	that	we	own	and	operate	following	the	spin-off.	Although	we	do	not	expect	to	be	liable	for	any	such obligations	not	expressly	assumed	by	us,	it	is	possible	that	a	court	would	disregard	the	agreed	allocation	and	require	that	we	assume	responsibility	for obligations	allocated	to	Northrop	Grumman,	such	as	certain	tax	and/or	environmental	liabilities,	particularly	if	Northrop	Grumman	were	to	refuse	or	be unable	to	pay	or	perform	its	allocated	obligations.

# Anti-takeover	provisions	in	our	organizational	documents	and	Delaware	law,	as	well	as	regulatory	requirements,	could	delay	or	prevent	a change	in	control.

Certain	provisions	of	our	Restated	Certificate	of	Incorporation	and	Restated	Bylaws	may	delay	or	prevent	a	merger	or	acquisition	that	stockholders	may consider	favorable.	For	example,	our	Restated	Certificate	of	Incorporation	and	Restated	Bylaws	currently	provide	for	a	classified	board	of	directors, require	advance	notice	for	stockholder	proposals	and	director	nominations,	and	authorize	our	board	of	directors	to	issue	one	or	more	series	of	preferred stock.	These	provisions	may	discourage	acquisition	proposals	or	delay	or	prevent	a	change	in	control,	which	could	harm	our	stock	price.	Delaware	law also	imposes	restrictions	on	mergers	and	other	business	combinations	between	any	holder	of	15%	or	more	of	our	outstanding	common	stock	and	us.

Our	nuclear	shipbuilding	operations	are	considered	vitally	important	to	the	U.S.	Navy.	Consequently,	the	U.S.	Navy	has	required	us	to	include	in	our contracts	with	the	Navy	provisions	regarding	notice	and	approval	rights	in	the	event	of	a	change	of	control	of	our	nuclear	shipbuilding	operations	and regarding	the	Navy's	obligations	to	indemnify	us	for	losses	relating	to	our	nuclear	work	for	the	Navy.		Such	provisions	require	us	to	provide	the	U.S.	Navy with	notice	of	any	potential	change	of	control	of	our	nuclear	shipbuilding	operations	and	obtain	the	Navy's	consent	for	transferring	certain	related	licenses, to	facilitate	the	Navy's	ability	to	ensure	that	a	potential	buyer	would	continue	to	conduct	our	operations	in	a	satisfactory	manner.	We	have	included	such provisions	in	solicitations	for	future	U.S.	Navy	nuclear	work,	and	we	expect	them	to	be	included	in	future	contracts	with	the	Navy	for	nuclear	work.

Provisions	of	our	Restated	Certificate	of	Incorporation	and	our	Restated	Bylaws	and	our	existing	contracts	with	the	U.S.	Navy	may	have	the	effect	of discouraging,	delaying,	or	preventing	a	change	of	control	of	our	company	that	may	be	beneficial	to	our	stockholders.

# ITEM	1B.	UNRESOLVED	STAFF	COMMENTS

There	were	no	unresolved	staff	comments.

# ITEM	2.	PROPERTIES

Our	principal	properties	are	located	in	San	Diego,	California;	Broomfield,	Colorado;	Avondale	(New	Orleans),	Louisiana;	Pascagoula,	Mississippi;

Houston,	Texas;	Hampton,	Newport	News,	Suffolk,	and	Virginia	Beach,	Virginia;	and	Washington,	D.C.

Ingalls	-	The	properties	comprising	our	Ingalls	operating	segment	are	located	in	Pascagoula,	Mississippi,	and	Avondale	and	Waggaman,	Louisiana.	In March	2015,	we	sold	the	Gulfport	Composite	Center	of	Excellence	to	the	Mississippi	State	Port	Authority.

Our	Pascagoula	shipyard	is	a	primary	builder	of	major	surface	warships	for	the	U.S.	Navy	and	has	modernized	dozens	of	other	naval	ships.	It	is	the	only U.S.	shipyard	in	recent	years	to	be	developing	and	building	six	different	classes	of	ships	for	the	U.S.	Navy	and	U.S.	Coast	Guard.	Our	facilities	in Pascagoula	are	located	on	approximately	800	acres	on	the	banks	of	the	Pascagoula	River	where	it	flows	into	the	Mississippi	Sound.	We	lease	the	west bank	of	our	Pascagoula	shipyard	from	the	State	of	Mississippi	pursuant	to	a	99-year	lease,	consisting	of	a	40-year	base	term	plus	six	optional	terms.	We anticipate	continued	use	of	this	facility	for	the	remaining	51	years	of	the	lease	and	beyond.

In	October	2014,	we	ceased	shipbuilding	construction	operations	at	the	Avondale	facility.	Our	Avondale	shipyard	is	located	on	approximately	268	acres on	the	banks	of	the	Mississippi	River,	approximately	12	miles	upriver	from	downtown	New	Orleans.	Approximately	20%	of	the	Avondale	shipyard	is leased	from	several	third	parties.	The	leases	have	varying	expiration	dates	and	typically	contain	renewal	rights.	The	Avondale	shipyard	site	has	the capacity	to	manufacture	large	amphibious	assault	ships	and	military	and	commercial	transport	vessels,	and	includes	three	outfitting	docks	totaling	more than	6,000	linear	feet.	In	addition	to	the	shipyard,	the	Avondale	facilities	include	the	Maritime	Technology	Center	of	Excellence.

Newport	News	-	The	primary	properties	comprising	our	Newport	News	operating	segment	are	located	in	Newport	News,	Virginia.

Our	facilities	in	Newport	News	are	located	on	approximately	550	acres	that	we	own	near	the	mouth	of	the	James	River,	which	adjoins	the	Chesapeake Bay,	the	premier	deep-water	harbor	on	the	east	coast	of	the	United	States.	Our	Newport	News	shipyard	is	one	of	the	largest	in	the	United	States.	It	is	the sole	designer,	builder,	and	refueler	of	nuclear-powered	aircraft	carriers	and	one	of	only	two	shipyards	capable	of	designing	and	building	nuclear-powered submarines	for	the	U.S.	Navy.	The	shipyard	also	provides	services	for	naval	and	commercial	vessels.

Our	Newport	News	shipyard	includes	seven	graving	docks,	a	floating	dry	dock,	two	outfitting	berths,	five	outfitting	piers,	and	various	other	shops.	It	also has	a	variety	of	other	facilities,	including	an	18-acre	all-weather	steel	fabrication	shop,	accessible	by	both	rail	and	transporter,	module	outfitting	facilities that	enable	us	to	assemble	a	ship's	basic	structural	modules	indoors	and	on	land,	machine	shops	totaling	300,000	square	feet,	and	an	apprentice	school, which	provides	a	four-year	accredited	apprenticeship	program	to	train	shipbuilders.

Our	Newport	News	segment	also	includes	CMSD	facilities	in	San	Diego,	California,	AMSEC	facilities	in	Virginia	Beach,	Virginia,	NNI	facilities	in	Newport News,	Virginia,	and	SN3	facilities	in	Broomfield,	Colorado.

Other	-	The	properties	comprising	our	Other	segment	are	located	in	Houston,	Texas;	Calgary,	Canada;	Aberdeen,	Scotland;	and	San	Juan,	Trinidad	and Tobago.

We	believe	that	substantially	all	of	our	plants	and	equipment	are,	in	general,	well	maintained	and	in	good	operating	condition.	We	believe	they	are adequate	for	present	needs	and,	as	supplemented	by	planned	construction,	are	expected	to	remain	adequate	for	the	foreseeable	future.

# ITEM	3.	LEGAL	PROCEEDINGS

U.S.	Government	Investigations	and	Claims	-	Departments	and	agencies	of	the	U.S.	Government	have	the	authority	to	investigate	various	transactions and	operations	of	our	company,	and	the	results	of	such	investigations	may	lead	to	administrative,	civil,	or	criminal	proceedings,	the	ultimate	outcome	of which	could	be	fines,	penalties,	repayments,	or	compensatory,	treble,	or	other	damages.	U.S.	Government	regulations	provide	that	certain	findings against	a	contractor	may	also	lead	to	suspension	or	debarment	from	future	U.S.	Government	contracts	or	the	loss	of	export	privileges.	Any	suspension	or debarment	would	likely	have	a	material	effect	on	us	because	of	our	reliance	on	government	contracts.

In	January	2013,	we	disclosed	to	the	DoD,	including	the	U.S.	Navy,	and	the	U.S.	Department	of	Homeland	Security,	including	the	U.S.	Coast	Guard, pursuant	to	the	FAR,	that	we	had	initiated	an	internal	investigation	regarding	whether	certain	employees	at	Ingalls	mischarged	time	or	misstated	progress on	Navy	and	Coast	Guard	contracts.	We	conducted	an	internal	investigation,	led	by	external	counsel,	and	have	taken	remedial	actions,	including	the termination	of	employees	in	instances	where	we	believed	grounds	for	termination	existed.	We	provided	information	regarding	our	investigation	to	the relevant	government	agencies.	We	agreed	with	the	U.S.	Navy	and	U.S.	Coast	Guard	that	they	would	initially	withhold	$24	million	in	payments	on	existing contracts	pending	receipt	of	additional	information	from	our	internal	investigation.	The	U.S.	Navy	has	reduced	its	portion	of	the	withhold	from	$18.2	million to	$4.7	million,	while	expressing	its	view	that	the	gross	amount	of	potential	mischarging	incurred	by	the	Navy	will	likely	not	exceed	 $3.1	million.	The	U.S. Coast	Guard	informed	us	in	June	2014	that	it	was	provisionally	reducing	its	withhold	from	$5.8	million	to	$3.6	million.	Based	on	the	results	of	our	internal investigation,	we	estimate	that	the	maximum	amount	of	U.S.	Navy	and	Coast	Guard	mischarging	is	approximately	$4	million.	We	are	continuing discussions	with	our	U.S.	Government	customers	regarding	the	potential	release	of	an	additional	portion	of	the	withheld	funds,	but	we	cannot	predict whether	or	when	these	customers	will	agree	to	any	additional	release	of	the	withhold	amounts.

In	June	2015,	the	DoJ	informed	us	that	it	is	investigating	the	matters	we	disclosed	to	the	DoD	in	January	2013.	In	July	2015,	the	DoJ	requested information	from	us,	and	we	are	cooperating	with	the	DoJ's	requests	and	have	provided	certain	information	to	the	DoJ.	Depending	upon	the	outcome	of this	matter,	which	could	result	in	litigation	by	the	DoJ	against	us,	we	could	be	subject	to	civil	penalties,	damages,	and/or	suspension	or	debarment	from future	U.S.	Government	contracts,	which	could	have	a	material	effect	on	our	consolidated	financial	position,	results	of	operations,	or	cash	flows.	Given the	early	stage	of	our	discussions	with	the	DoJ,	we	are	currently	unable	to	estimate	an	amount	or	range	of	reasonably	possible	loss	or	to	express	an opinion	regarding	the	ultimate	outcome	of	this	matter.

Litigation	-	We	are	party	to	various	claims	and	legal	proceedings	that	arise	in	the	ordinary	course	of	business.	Although	we	believe	that	the	resolution	of any	of	these	various	claims	and	legal	proceedings	will	not	have	a	material	effect	on	our	consolidated	financial	position,	results	of	operations,	or	cash flows,	we	cannot	predict	what	new	or	revised	claims	or	litigation	might	be	asserted	or	what	information	might	come	to	light	and	can,	therefore,	give	no assurances	regarding	the	ultimate	outcome	of	these	matters.

In	2013,	we	resolved	litigation	against	an	insurance	provider,	Factory	Mutual	Insurance	Company	("FM	Global"),	arising	out	of	a	disagreement	concerning the	coverage	of	certain	losses	related	to	Hurricane	Katrina.	In	January	2011,	we,	through	a	predecessor-in-interest,	filed	suit	in	Superior	Court	in California	against	Aon	Risk	Insurance	Services	West,	Inc.	("Aon"),	which	acted	as	broker	to	our	predecessor-in-interest	in	connection	with	the	insurance policy	with	FM	Global,	seeking	damages	for	breach	of	contract,	professional	negligence	and	negligent	misrepresentation,	as	well	as	declaratory	relief. Those	included	damages	unrecovered	from	FM	Global	plus	costs,	legal	fees,	and	expenses	incurred	in	the	lawsuit	against	FM	Global,	as	well	as	interest. In	January	2014,	we	amended	our	complaint	to	allege	fraud	and	seek	punitive	damages.	In	May	2015,	we	entered	into	a	settlement	agreement	with	Aon, pursuant	to	which	Aon	made	a	cash	payment	of	$150	million	to	us	and	we	released	our	claims	against	Aon.

In	January	2011,	the	U.S.	Department	of	Justice	("DoJ")	first	informed	us	through	Northrop	Grumman	of	a	False	Claims	Act	complaint	(the	"Complaint") that	was	filed	under	seal	in	the	U.S.	District	Court	for	the	District	of	Columbia.	The	redacted	copy	of	the	Complaint	we	received	alleges	that,	through largely	unspecified	fraudulent	means,	we	and	Northrop	Grumman	obtained	federal	funds	that	were	restricted	by	law	for	the	consequences	of	Hurricane Katrina,	and	used	those	funds	to	cover	costs	under	certain	shipbuilding	contracts	that	were	unrelated	to	Katrina	and	for	which	Northrop	Grumman	and	we were	not	entitled	to	recovery	under	the	contracts.	The	Complaint

seeks	monetary	damages	of	at	least	$835	million,	plus	penalties,	attorneys'	fees	and	other	costs	of	suit.	Damages	under	the	False	Claims	Act	may	be trebled	upon	a	finding	of	liability.

In	July	2012,	the	District	Court	entered	an	order	permitting	us	to	disclose	certain	information	not	included	in	the	redacted	copy	of	the	Complaint	received by	us,	including	the	date	the	Complaint	was	filed,	the	decision	of	the	DoJ	to	decline	intervention	in	the	case,	and	the	principal	parties	involved	in	the case.	The	Complaint	was	filed	on	June	2,	2010,	by	relators	Gerald	M.	Fisher	and	Donald	C.	Holmes.	In	December	2011,	the	DoJ	filed	a	Notice	of	Election to	Decline	Intervention	in	the	case.	As	of	August	29,	2012,	Gerald	M.	Fisher	was	no	longer	a	relator	in	or	party	to	this	case.	In	February	2013,	the	U.S. District	Court	for	the	District	of	Columbia	granted	the	defendants'	motion	to	transfer	venue,	and	the	case	was	transferred	to	the	U.S.	District	Court	for	the Southern	District	of	Mississippi.	We	filed	a	motion	to	dismiss	the	case	and	a	motion	to	disqualify	relator	Holmes,	and	all	other	matters	were	stayed pending	resolution	of	those	motions.	On	June	3,	2015,	the	District	Court	granted	our	motion	to	disqualify	Holmes	as	relator,	dismissed	the	case	as	to Holmes,	and	entered	final	judgment	in	favor	of	us.	Holmes	has	appealed	the	District	Court's	decision	to	the	U.S.	Court	of	Appeals	for	the	Fifth	Circuit.

Based	upon	a	review	to	date	of	the	information	available	to	us,	we	believe	that	we	have	substantive	defenses	to	the	allegations	in	the	Complaint,	that	the claims	as	set	forth	in	the	Complaint	evidence	a	fundamental	lack	of	understanding	of	the	terms	and	conditions	in	our	shipbuilding	contracts,	including	the post-Katrina	modifications	to	those	contracts,	and	the	manner	in	which	the	parties	performed	in	connection	with	the	contracts,	and	that	the	claims	as	set forth	in	the	Complaint	lack	merit.	We,	therefore,	believe	that	the	claims	as	set	forth	in	the	Complaint	will	not	result	in	a	material	effect	on	our	consolidated financial	position,	results	of	operations,	or	cash	flows.	We	intend	to	defend	the	matter	vigorously,	but	we	cannot	predict	what	new	or	revised	claims	might be	asserted	or	what	information	might	come	to	light	and	can,	therefore,	give	no	assurances	regarding	the	ultimate	outcome.

We	and	our	predecessors-in-interest	are	defendants	in	a	longstanding	series	of	cases	that	have	been	and	continue	to	be	filed	in	various	jurisdictions around	the	country,	in	which	former	and	current	employees	and	various	third	parties	allege	exposure	to	asbestos-containing	materials	while	on,	or associated	with,	our	premises	or	while	working	on	vessels	constructed	or	repaired	by	us.	The	cases	allege	various	injuries,	including	those	associated with	pleural	plaque	disease,	asbestosis,	cancer,	mesothelioma	and	other	alleged	asbestos-related	conditions.	In	some	cases,	several	of	our	former executive	officers	are	also	named	as	defendants.	In	some	instances,	partial	or	full	insurance	coverage	is	available	to	us	for	our	liability	and	that	of	our former	executive	officers.	Although	we	believe	the	ultimate	resolution	of	these	cases	will	not	have	a	material	effect	on	our	consolidated	financial	position, results	of	operations,	or	cash	flows,	we	cannot	predict	what	new	or	revised	claims	or	litigation	might	be	asserted	or	what	information	might	come	to	light and	can,	therefore,	give	no	assurances	regarding	the	ultimate	outcome	of	asbestos	related	litigation.

We	and	our	predecessor-in-interest	have	been	in	litigation	with	the	Bolivarian	Republic	of	Venezuela	(the	"Republic")	since	2002	over	a	contract	for	the repair,	refurbishment	and	modernization	at	Ingalls	of	two	foreign-built	frigates.	The	case	proceeded	towards	arbitration,	then	appeared	to	settle	favorably, but	the	settlement	was	overturned	in	court	and	the	matter	returned	to	litigation.	In	March	2014,	we	filed	an	arbitral	statement	of	claim	asserting	breaches of	the	contract	and	$173	million	in	damages	plus	substantial	interest	and	litigation	expenses.	In	July	2014,	the	Republic	filed	in	the	arbitration	a	statement of	defense	denying	all	our	allegations	and	a	counterclaim	alleging	late	redelivery	of	the	frigates,	unfinished	work	and	breach	of	warranty	and	asserting damages	of	$61	million	plus	interest.	An	arbitration	hearing	was	held	in	January	2015,	and	we	cannot	predict	when	the	arbitration	panel	will	render	a decision.	No	assurances	can	be	provided	regarding	the	ultimate	outcome	of	this	matter.

# ITEM	4.				MINE	SAFETY	DISCLOSURES

None.

# ITEM	4A.	EXECUTIVE	OFFICERS	OF	THE	REGISTRANT

The	following	table	sets	forth	certain	information	as	of	 February	12,	2016,	concerning	our	executive	officers,	including	a	five-year	employment	history.

C.	Michael	Petters,	President	and	Chief	Executive	Officer	-	Mr.	Petters	has	been	our	President	and	Chief	Executive	Officer	since	the	spin-off.	Prior	to	the spin-off,	Mr.	Petters	had	been	President	of	Northrop	Grumman	Shipbuilding	("NGSB")	since	2008,	when	NGSB	was	formed,	and	before	that	had	been President	of	Northrop	Grumman	Newport	News	since	2004.	Since	joining	Newport	News	Shipbuilding	and	Dry	Dock	Company	in	1987,	his	responsibilities have	included	oversight	of	the	Virginia-class	submarine	program,	the	nuclear-powered	aircraft	carrier	programs,	aircraft	carrier	refueling	and	overhaul, submarine	fleet	maintenance,	commercial	and	naval	ship	repair,	human	resources	and	business	and	technology	development.	Mr.	Petters	holds	a	B.S.	in Physics	from	the	United	States	Naval	Academy	and	an	M.B.A.	from	the	College	of	William	and	Mary.

Brian	J.	Cuccias,	Corporate	Vice	President	and	President,	Ingalls	Shipbuilding 	-	Mr.	Cuccias	became	our	Corporate	Vice	President	and	President,	Ingalls Shipbuilding,	on	April	1,	2014.	Prior	to	that	and	since	February	2011,	he	served	in	several	different	positions	at	our	Ingalls	Shipbuilding	segment,	including Vice	President,	Program	Management,	Vice	President,	Amphibious	Ship	Programs,	and	Vice	President,	Large	Deck	Amphibious	Ships.	From	2008	to February	2011,	Mr.	Cuccias	was	Vice	President,	Surface	Combatants,	for	NGSB.	After	joining	a	predecessor	of	Northrop	Grumman	in	1979,	he	held	a variety	of	positions,	including	assistant	to	the	group	vice	president	of	Avondale	Industries,	sector	vice	president,	material,	for	Northrop	Grumman	Ship Systems,	and	DDG(X)	and	DDG	1000	program	manager	and	vice	president.	Mr.	Cuccias	holds	a	B.S.	in	Accounting	from	the	University	of	South Alabama.

Jerri	F.	Dickseski,	Corporate	Vice	President,	Communications	-	Ms.	Dickseski	has	been	our	Corporate	Vice	President,	Communications	since	the	spin-off. In	this	position,	she	is	responsible	for	our	communications	strategy	and	execution.	Prior	to	her	current	position	and	since	2008,	Ms.	Dickseski	served	as Sector	Vice	President	of	Communications	for	NGSB.	Prior	to	that	and	since	2001,	she	was	Director	of	Communications	at	Northrop	Grumman	Newport News.	She	joined	Newport	News	Shipbuilding	Inc.	in	1991.	Ms.	Dickseski	holds	both	a	B.A.	and	an	M.A.	in	English	from	Old	Dominion	University.

William	R.	Ermatinger,	Corporate	Vice	President	and	Chief	Human	Resources	Officer -	Mr.	Ermatinger	has	been	our	Corporate	Vice	President	and	Chief Human	Resources	Officer	since	the	spin-off.	Prior	to	the	spin-off,	Mr.	Ermatinger	had	been	Sector	Vice	President	of	Human	Resources	and Administration	for	NGSB	since	2008,	when	NGSB	was	formed.	In	that	position,	he	was	responsible	for	all	NGSB	human	resources	and	administration activities.	Since	joining	a	predecessor	of	Northrop	Grumman	in	1987,	Mr.	Ermatinger	has	held	several	human	resources	management	positions	with increasing	responsibility,	including	Vice	President	of	Human	Resources	and	Administration	of	Northrop	Grumman	Newport	News.	Mr.	Ermatinger	holds	a B.A.	in	Political	Science	from	the	University	of	Maryland	Baltimore	County.

Christopher	D.	Kastner,	Corporate	Vice	President	and	General	Manager,	Corporate	Development 	-	Mr.	Kastner	was	appointed	Corporate	Vice	President and	General	Manager,	Corporate	Development	in	August	of	2012.	Prior	to	that	and	following	the	spin-off,	he	served	as	Vice	President	and	Chief	Financial Officer	of	our	Ingalls	Shipbuilding	segment.	Prior	to	the	spin-off,	Mr.	Kastner	had	served	as	Vice	President,	Business	Management,	and	Chief	Financial Officer	of	NGSB,	Gulf	Coast	since	2008	and	served	as	Vice	President,	Contracts	and	Risk	Management	of	Northrop	Grumman	Ship	Systems	from	2006 to	2008.	Prior	to	that,	he	held	several	positions	at	other	Northrop	Grumman	businesses,	including	Corporate	Director	of	Strategic	Transactions.	Mr. Kastner	holds	a	B.A.	in	Political	Science	from	the	University	of	California	at	Santa	Barbara	and	an	M.B.A	from	Pepperdine	University.

Matthew	J.	Mulherin,	Corporate	Vice	President	and	President,	Newport	News	Shipbuilding	-	 Mr.	Mulherin	has	been	our	Corporate	Vice	President	and President,	Newport	News	Shipbuilding	since	2011.	From	2008	until	he	assumed	his	current	position,	Mr.	Mulherin	was	Sector	Vice	President	and	General Manager,	Newport	News	for	NGSB.	Since	joining	Newport	News	Shipbuilding	and	Dry	Dock	Company	in	1981,	Mr.	Mulherin	has	had	a	variety	of responsibilities,	including	serving	as	Vice	President	of	the	CVNX	program,	Vice	President	of	the	CVN-21	program,	and	Vice	President	of	Programs	for	the Newport	News	operations,	where	he	successfully	led	the	aircraft	carrier	design	and	construction	programs,	carrier	refueling	and	overhaul	programs	and the	submarine	program.	Mr.	Mulherin	holds	a	B.S.	in	Civil	Engineering	from	Virginia	Polytechnic	Institute	and	State	University.

Barbara	A.	Niland,	Corporate	Vice	President,	Business	Management	and	Chief	Financial	Officer	-	 Ms.	Niland	has	been	our	Corporate	Vice	President, Business	Management	and	Chief	Financial	Officer	since	the	spin-off.	Prior	to	the	spin-off,	Ms.	Niland	had	been	Sector	Vice	President,	Business Management	and	Chief	Financial	Officer	for	NGSB	since	2008,	when	NGSB	was	formed.	In	these	positions,	she	has	been	responsible	for	strategy	and processes	supporting	growth	and	profitability	goals,	as	well	as	business	management	functions.	Since	joining	a	predecessor	of	Northrop	Grumman	in 1979,	Ms.	Niland	held	a	variety	of	positions,	including	Vice	President	of	Business	Management	and	Chief	Financial	Officer	of	Northrop	Grumman	Newport News.	Ms.	Niland	holds	a	B.S.	in	Finance	from	Towson	State	University	and	a	Master's	Degree	from	the	University	of	Maryland	University	College.

Nicolas	G.	Schuck,	Corporate	Vice	President,	Controller	and	Chief	Accounting	Officer 	-	Mr.	Schuck	was	appointed	Corporate	Vice	President,	Controller and	Chief	Accounting	Officer	effective	August	10,	2015.	Prior	to	that,	he	worked	as	Assistant	Controller	at	our	Newport	News	Shipbuilding	division.	Prior to	that,	and	since	joining	us	in	January	2012,	he	served	as	our	Corporate	Assistant	Controller.	From	December	2009	until	December	2011,	Mr.	Schuck served	as	Director,	Finance	at	ManTech	International	Corporation,	a	provider	of	technologies	and	solutions	for	national	security	programs	for	the intelligence	community	and	other	U.S.	federal	government	customers.	Prior	to	that,	he	worked	for	PricewaterhouseCoopers	and	Arthur	Andersen.	Mr. Schuck	attended	the	National	Institute	of	Economics	and	Accounting	in	Paris.	He	holds	a	bachelor's	degree	and	a	master's	degree	in	accounting	and finance	and	is	a	certified	public	accountant.

Mitchell	B.	Waldman,	Corporate	Vice	President,	Government	and	Customer	Relations	-	Mr.	Waldman	has	been	our	Corporate	Vice	President, Government	and	Customer	Relations	since	the	spin-off.	In	this	position,	he	is	responsible	for	the	development	and	management	of	our	government	and customer	affairs	programs.	Prior	to	that	and	since	2009,	Mr.	Waldman	served	as	Vice	President	of	Business	Development	of	Advanced	Programs	and Technology	for	Northrop	Grumman's	Aerospace	Systems	sector.	Prior	to	that	position,	he	served	as	Northrop	Grumman's	Corporate	Director	for Acquisition	Policy	from	2008.	From	2003	to	2008,	Mr.	Waldman	served	as	National	Security	Advisor	for	former	Sen.	Trent	Lott.	Prior	to	that,	he	held various	senior	executive	positions	within	the	Department	of	the	Navy,	including	Deputy	Assistant	Secretary	of	the	Navy	(Ships).	He	holds	a	B.S.	in Mechanical	Engineering	from	the	University	of	Florida	and	a	J.D.	from	Catholic	University.

Kellye	L.	Walker,	Corporate	Vice	President	and	General	Counsel -	Ms.	Walker	became	our	Corporate	Vice	President	and	General	Counsel	in	January 2015.	In	this	position,	she	has	overall	leadership	responsibility	for	our	law	department	and	outside	counsel.		Prior	to	joining	us,	Ms.	Walker	was	with American	Water	Works	Company,	Inc.,	serving	as	Chief	Administrative	Officer,	General	Counsel	and	Secretary	from	September	2010	through	May	2014. She	served	as	their	Senior	Vice	President,	General	Counsel	and	Secretary	from	January	2010	through	January	2015.	From	February	2007	to	June	2009, Ms.	Walker	served	as	Senior	Vice	President	and	General	Counsel	of	Diageo	North	America,	Inc.,	the	largest	operating	company	of	Diageo	plc.	From February	2003	to	December	2006,	she	served	as	Senior	Vice	President,	General	Counsel	and	Secretary	of	BJ's	Wholesale	Club,	Inc.,	a	leading warehouse	club	operator.	Ms.	Walker	also	served	as	a	partner	with	the	law	firm	of	Hill	&	Barlow	in	Boston,	Massachusetts,	and	as	a	partner	and/or associate	with	the	law	firms	of	Chaffe,	McCall,	Phillips,	Toler	&	Sarpy	in	New	Orleans,	Louisiana,	and	Boult,	Cummings,	Connors	&	Berry	in	Nashville, Tennessee.	Ms.	Walker

holds	a	B.S.	in	Business	Administration,	Marketing	from	Louisiana	Tech	University	and	a	J.D.	from	Emory	University	School	of	Law.

D.	R.	Wyatt,	Corporate	Vice	President	and	Treasurer -	Mr.	Wyatt	has	been	our	Corporate	Vice	President	and	Treasurer	since	the	spin-off.	Prior	to	that,	he had	been	Director	of	Business	Management	at	NGSB	where	he	was	responsible	for	aircraft	carriers,	carrier	fleet	support	and	energy	business.	Prior	to	his appointment	as	Director	of	Business	Management,	Mr.	Wyatt	served	as	Treasurer	of	Newport	News	Shipbuilding	Inc.,	Assistant	Treasurer	and	Manager of	Finance,	and	has	held	various	positions	in	the	financial	area,	including	cost	estimating,	cost	control,	accounting,	financial	analysis,	and	government accounting.	He	has	extensive	Treasury	experience,	including	responsibility	for	corporate	finance,	cash	management,	risk	management	and	all	financings, capital	structure,	capital	market	interface,	rating	agency	relationships,	cash	and	financial	forecasting,	working	capital	management,	short	term investments,	pension	asset	management,	and	insurance	and	loss	control.	Mr.	Wyatt	holds	a	B.S.	in	Economics	from	Hampden-Sydney	College	and	an M.B.A.	from	Old	Dominion	University.

# PART	II

# ITEM	5.	MARKET	FOR	REGISTRANT'S	COMMON	EQUITY,	RELATED	STOCKHOLDER	MATTERS	AND	ISSUER	PURCHASES	OF	EQUITY

# SECURITIES

# Market	Information

Our	common	stock	is	listed	on	the	New	York	Stock	Exchange	under	the	symbol	"HII".

The	following	table	sets	forth,	for	the	periods	indicated,	the	high	and	low	closing	sale	prices	of	our	common	stock	as	reported	in	the	consolidated	reporting system	for	the	New	York	Stock	Exchange	Composite	Transactions:

|  | High | Low | High | Low |
| :--- | :--- | :--- | :--- | :--- |
| January\tthrough\tMarch | $144.00 | $109.42 | $105.37 | $87.91 |
| April\tthrough\tJune | $142.99 | $111.38 | $104.49 | $93.59 |
| July\tthrough\tSeptember | $128.22 | $102.76 | $107.59 | $89.29 |
| October\tthrough\tDecember | $136.55 | $103.58 | $115.48 | $92.37 |

# Stockholders

The	approximate	number	of	common	stockholders	was	19,230	as	of	 February	12,	2016.

# Dividends

Quarterly	cash	dividends	per	common	share	for	the	most	recent	two	years	were	as	follows:

|  | 2015 | 2014 |
| :--- | :--- | :--- |
| January\tthrough\tMarch | $0.40 | $0.20 |
| April\tthrough\tJune | $0.40 | $0.20 |
| July\tthrough\tSeptember | $0.40 | $0.20 |
| October\tthrough\tDecember | $0.50 | $0.40 |

The	terms	of	our	Second	Amended	and	Restated	Credit	Agreement	(the	"Amended	Credit	Facility")	limit	our	ability	to	pay	dividends.	See	Note	14:	Debt	in Item	8.

# Annual	Meeting	of	Stockholders

Our	Annual	Meeting	of	Stockholders	will	be	held	on	April	29,	2016,	in	Newport	News,	Virginia.

# Stock	Performance	Graph

The	following	graph	compares	the	total	return	on	a	cumulative	basis	of	$100	invested	in	our	common	stock	on	March	22,	2011,	to	the	Standard	&	Poor's ("S&P")	500	Index	and	the	S&P	500	Aerospace	and	Defense	Index.

(1) The	cumulative	total	return	assumes	reinvestment	of	dividends.

(2) The	total	return	is	weighted	according	to	market	capitalization	of	each	company	at	the	beginning	of	each	year.

(3) Our	common	stock	first	began	trading	on	the	New	York	Stock	Exchange	on	March	22,	2011.

(4) The	S&P	500	Aerospace	&	Defense	Index	is	comprised	of	The	Boeing	Company,	General	Dynamics	Corporation,	Honeywell	International, Inc.,	L-3	Communications,	Lockheed	Martin	Corporation,	Northrop	Grumman	Corporation,	Precision	Castparts	Corporation,	Raytheon Company,	Rockwell	Collins,	Inc.,	Textron,	Inc.,	and	United	Technologies	Corporation.

# Purchases	of	Equity	Securities	by	the	Issuer	and	Affiliated	Purchasers

In	October	2013,	our	board	of	directors	authorized	an	increase	in	our	existing	stock	repurchase	program	from	$150	million	to	$300	million	and	an extension	of	the	term	of	the	program	to	October	31,	2017.	In	October	2014,	our	board	of	directors	authorized	an	increase	in	the	stock	repurchase program	from	$300	million	to	$600	million	and	an	extension	of	the	term	of	the	program	to	October	31,	2019.	In	October	2015,	our	board	of	directors authorized	an	increase	in	our	stock	repurchase	program	from	$600	million	to	$1,200	million .	Repurchases	are	made	from	time	to	time	at	management's discretion	in	accordance	with	applicable	federal	securities	laws.	All	repurchases	of	HII	common	stock	have	been	recorded	as	treasury	stock.	The following	table	summarizes	information	by	month	relating	to	purchases	made	by	or	on	behalf	of	the	Company	of	shares	of	the	Company's	common	stock during	the	quarter	ended	December	31,	2015.

| Period | Total	Number	of	Shares<br>Purchased | Average	Price	Paid	per<br>Share | Total	Number	of	Shares<br>Purchased	as	Part	of<br>Publicly	Announced<br>Program | Approximate	Dollar	Value	of<br>Shares	that	May	Yet	Be<br>Purchased	Under	the<br>Program	(in	millions) |
| :--- | :--- | :--- | :--- | :--- |
| October\t1,\t2015\tthrough\tOctober\t31,\t2015 | 217,026 | $105.81 | 217,026 | $723.0 |
| November\t1,\t2015\tthrough\tNovember\t30,\t2015 | — | — | — | 723.0 |
| December\t1,\t2015\tthrough\tDecember\t31,\t2015 | 115,670 | 127.93 | 115,670 | 708.2 |
| Total | 332,696 | $113.50 | 332,696 | $708.2 |

# Securities	Authorized	for	Issuance	Under	Equity	Compensation	Plans

For	information	regarding	securities	authorized	for	issuance	under	our	equity	compensation	plans,	see	Note	19:	Stock	Compensation	Plans	in	Item	8	and Equity	Compensation	Plan	Information	in	Item	12.

# ITEM	6.	SELECTED	FINANCIAL	DATA

The	following	table	sets	forth	our	selected	financial	data.	The	table	should	be	read	in	conjunction	with	Item	7	and	Item	8	of	this	Annual	Report	on	Form 10-K.

|  |  |  | Year	Ended	December	31 |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
| ($\tin\tmillions,\texcept\tper\tshare\tamounts) | 2015 | 2014 | 2013 | 2012 | 2011 |
| Sales\tand\tservice\trevenues | $7,020 | $6,957 | $6,820 | $6,708 | $6,575 |
| Goodwill\timpairment | 75 | 47 | — | — | 290 |
| Operating\tincome\t(loss) | 769 | 655 | 512 | 358 | 100 |
| Net\tearnings\t(loss) | 404 | 338 | 261 | 146 | (100) |
| Total\tassets\t(1) | 6,024 | 6,239 | 6,190 | 6,353 | 6,021 |
| Long-term\tdebt\t(1)(2) | 1,273 | 1,562 | 1,665 | 1,740 | 1,782 |
| Total\tlong-term\tobligations\t(1) | 3,260 | 3,562 | 3,277 | 4,302 | 3,790 |
| Free\tcash\tflow\t(3) | 640 | 551 | 97 | 170 | 331 |
| Dividends\tdeclared\tper\tshare | $1.70 | $1.00 | $0.50 | $0.10 | $— |
| Basic\tearnings\t(loss)\tper\tshare\t(4) | $8.43 | $6.93 | $5.25 | $2.96 | $(2.05) |
| Diluted\tearnings\t(loss)\tper\tshare\t(4) | $8.36 | $6.86 | $5.18 | $2.91 | $(2.05) |

(1)	Prior	year	disclosures	have	been	retrospectively	adjusted	to	reflect	the	reclassification	of	debt	issuance	costs	between	miscellaneous	other	assets	and long-term	debt	to	conform	to	the	current	year	presentation.

(2)	Long-term	debt	does	not	include	the	current	portion	of	long-term	debt,	which	is	included	in	current	liabilities.

(3)	Free	cash	flow	is	a	non-GAAP	financial	measure	and	represents	cash	from	operating	activities	less	capital	expenditures.	See	Liquidity	and	Capital Resources	in	Item	7	for	more	information	on	this	measure.

(4)	On	March	30,	2011,	the	record	date	of	the	stock	distribution	associated	with	the	spin-off	from	Northrop	Grumman,	approximately	48.8	million	shares	of $0.01	par	value	HII	common	stock	were	distributed	to	Northrop	Grumman

stockholders.	This	share	amount	was	utilized	for	the	calculation	of	basic	and	diluted	earnings	(loss)	per	share	for	the	three	months	ended	March	31, 2011,	as	the	impact	of	dilutive	securities	in	the	three	month	period	ended	March	31,	2011,	was	not	material.

# ITEM	7.	MANAGEMENT'S	DISCUSSION	AND	ANALYSIS	OF	FINANCIAL	CONDITION	AND	RESULTS	OF	OPERATIONS

# OVERVIEW

# Our	Business

For	more	than	a	century,	we	have	designed,	built,	overhauled	and	repaired	ships	primarily	for	the	U.S.	Navy	and	the	U.S.	Coast	Guard.	We	conduct business	primarily	with	the	U.S.	Government,	principally	the	Department	of	Defense	("DoD").	As	prime	contractor,	principal	subcontractor,	team	member, or	partner,	we	participate	in	many	high-priority	U.S.	defense	technology	programs.	HII	is	organized	into	three	reportable	segments:	Ingalls,	Newport News,	and	Other.	Through	our	Ingalls	segment,	we	are	a	builder	of	amphibious	assault	and	expeditionary	warfare	ships	for	the	U.S.	Navy,	the	sole builder	of	National	Security	Cutters	("NSC")	for	the	U.S.	Coast	Guard,	and	one	of	only	two	companies	that	builds	the	Navy's	current	fleet	of	DDG-51 Arleigh	Burke-class	destroyers.	Through	our	Newport	News	segment,	we	are	the	nation's	sole	designer,	builder,	and	refueler	of	nuclear-powered	aircraft carriers,	and	one	of	only	two	companies	currently	designing	and	building	nuclear-powered	submarines	for	the	U.S.	Navy.	Our	Other	segment	was established	in	the	second	quarter	of	2014	to	account	for	certain	of	our	non-shipbuilding	commercial	activities.

The	following	discussion	should	be	read	along	with	the	audited	consolidated	financial	statements	included	in	this	Annual	Report	on	Form	10-K.

# Business	Environment

In	August	2011,	the	BCA	reduced	the	DoD	top	line	budget	by	$487	billion	from	fiscal	year	2012	through	2021.	Additionally,	because	Congress	did	not identify	savings	to	reduce	the	U.S.	deficit	by	up	to	$1.2	trillion	prior	to	March	1,	2013,	budgetary	sequestration	was	implemented	under	the	BCA. Sequestration	requires	an	additional	reduction	from	fiscal	year	2012	through	2021	of	$500	billion	for	defense	spending	and	$500	billion	for	non-defense discretionary	spending,	including	the	U.S.	Coast	Guard.

In	December	2013,	the	President	signed	into	law	the	BBA	2013,	which	provided	$63	billion	in	sequestration	relief	over	two	years,	split	evenly	between defense	and	non-defense	programs,	and	set	overall	discretionary	spending	at	$1.012	trillion	and	$1.013	trillion	for	fiscal	years	2014	and	2015, respectively.	On	November	2,	2015,	the	President	signed	into	law	the	BBA	2015,	which	provided	$80	billion	in	sequestration	relief	over	two	years,	split evenly	between	defense	and	non-defense	programs.	The	BBA	2015	provided	sequestration	relief	of	$50	billion	and	$30	billion	for	fiscal	years	2016	and 2017,	respectively,	resulting	in	overall	discretionary	spending	caps	of	$1.067	trillion	and	$1.070	trillion	for	fiscal	years	2016	and	2017,	respectively. Sequestration	remains	in	effect	under	the	BCA	for	fiscal	years	2018	through	2021.	Enactment	of	the	BBA	2015	enabled	the	House	and	Senate Appropriations	Committees	to	agree	upon	final	appropriations	levels	and	enabled	final	passage	and	enactment	of	the	Consolidated	Appropriations	Act	of 2016,	which	provided	general	spending	for	most	of	the	U.S.	federal	government,	including	the	DoD,	DoE,	and	the	Department	of	Homeland	Security.

The	Consolidated	Appropriations	Act	of	2016	specifically	provided	funding	for	construction	of	CVN-79	 John	F.	Kennedy,	advance	procurement	funding	for CVN-80	Enterprise,	construction	of	two	SSN-774	 Virginia-class	submarines,	procurement	for	the	CVN-73	 USS	George	Washington	RCOH,	advance procurement	for	the	CVN-74	USS	John	C.	Stennis	RCOH,	continuation	of	DDG-51	Arleigh	Burke-class	destroyer	production,	advance	procurement	for LHA-8	(unnamed),	procurement	of	an	additional	LPD-17	San	Antonio-class	warship,	advance	procurement	to	accelerate	the	LXR	program,	RDT&E funding	for	the	Ohio	replacement	program,	procurement	of	a	T-AO(X)	fleet	oiler,	and	procurement	of	an	additional	NSC	for	the	U.S.	Coast	Guard.

The	impact	of	the	continuing	federal	fiscal	debates	for	fiscal	year	2017	and	beyond	remains	uncertain,	and	we	cannot	predict	the	impact	that	the sequestration	cuts	or	other	defense	spending	cuts	may	have	on	funding	for	our	individual	programs.	Long-term	funding	for	certain	programs	in	which	we participate	may	be	reduced,	delayed,	or	canceled.	In	addition,	defense	spending	cuts	and	delays	could	adversely	affect	the	viability	of	our	suppliers	and subcontractors	and	employee	base.	Our	contracts	or	subcontracts	under	programs	in	which	we	participate	may	be	terminated	or	adjusted	by	the U.S.	Government	or	the	prime	contractor	as	a	result	of	lack	of	government	funding	or	reductions	or	delays	in	government	funding.	Significant	reductions	in the	number	of	ships	procured	by	the	U.S.	Navy	or	significant	delays	in	funding	our	ship	programs	would	have	a	material	effect	on	our	financial	position, results	of	operations,	or	cash	flows.

# Defense	Industry	Overview

The	United	States	faces	a	complex,	uncertain,	and	rapidly	changing	national	security	environment.	The	defense	of	the	United	States	and	its	allies requires	the	ability	to	respond	to	constantly	evolving	threats,	terrorist	acts,	regional	conflicts,	and	cyber	attacks,	responses	to	which	are	increasingly dependent	on	early	threat	identification.	National	responses	to	such	threats	can	require	unilateral	or	cooperative	initiatives	that	include	dissuasion, deterrence,	active	defense,	security	and	stability	operations,	and	peacekeeping.	We	believe	the	U.S.	Government	will	continue	to	place	a	high	priority	on the	protection	of	its	engaged	forces	and	citizenry	and	on	minimizing	collateral	damage	when	force	must	be	applied	in	pursuit	of	national	objectives.

The	United	States'	engagement	in	combating	terrorism	around	the	world,	coupled	with	the	need	to	modernize	U.S.	military	forces,	has	driven	DoD funding	levels	since	2001.	In	March	2014,	the	DoD	released	its	Report	of	the	Quadrennial	Defense	Review	("QDR"),	a	legislatively-mandated	review	of military	strategy	and	priorities	that	shapes	defense	funding	over	the	ensuing	four	years.	The	QDR	built	upon	the	2012	Defense	Strategic	Guidance, prioritizing	three	strategic	pillars:	defending	the	homeland;	building	security	globally	by	projecting	U.S.	influence	and	deterring	aggression;	and	remaining prepared	to	win	decisively	against	any	adversary	should	deterrence	fail.	Guided	by	this	updated	defense	strategy,	DoD	plans	to	rebalance	the	military over	the	next	decade	and	put	it	on	a	sustainable	path	to	protect	and	advance	U.S.	interests	and	sustain	U.S.	global	leadership.

We	expect	that	the	DoD	execution	of	its	strategy	will	require	an	affordable	balance	between	investments	in	current	missions	and	investments	in	new capabilities	to	meet	future	challenges.	The	DoD	faces	the	additional	challenge	of	recapitalizing	equipment	and	rebuilding	readiness	at	a	time	when	the DoD	is	pursuing	modernization	of	its	capabilities,	while	facing	additional	major	budget	cuts	that	began	in	2013.	While	the	BBA	2015	established	new budget	caps	and	provided	sequestration	relief	for	fiscal	years	2016	and	2017,	it	is	unclear	how	sequestration	could	impact	programs	for	2018	and	beyond. BCA	spending	caps	could	have	a	significant	impact	on	future	spending	plans	for	defense	and	non-defense	discretionary	programs.	Decreases	in	the proposed	funding	levels	for	our	programs	could	negatively	impact	our	financial	position,	results	of	operations,	or	cash	flows,	including	revenues,	goodwill, and	long-lived	assets.

In	March	2015,	the	U.S.	Navy	released	its	2016	Shipbuilding	Plan,	which	anticipates	a	fleet	of	308	ships	comprised	of	12	ballistic	missile	submarines,	11 nuclear-powered	aircraft	carriers,	48	nuclear-powered	attack	submarines,	88	large	multi-mission	surface	combatants,	52	small	multi-role	surface combatants,	34	amphibious	landing	ships,	29	combat	logistics	force	ships,	and	34	support	vessels.	The	2016	Shipbuilding	Plan	also	notes	that	the	four SSGN	currently	in	service	will	retire	in	the	mid-2020s,	and	the	U.S.	Navy	is	exploring	the	possibility	of	inserting	a	quad-pack	of	large	diameter	payload tubes	in	Block	V	SSN-774	Virginia-class	submarines	to	offset	the	loss	of	the	SSGN	strike	capability.	The	2016	Shipbuilding	Plan	also	acknowledges	that the	DoD	will	encounter	several	challenges	in	executing	the	plan,	particularly	with	regard	to	funding	new	submarines	to	replace	the	Ohio-class	nuclear ballistic	submarines.	Significant	reductions	in	the	number	of	ships	procured	by	the	U.S.	Navy	would	have	a	material	effect

on	our	financial	position,	results	of	operations,	or	cash	flows.	It	is	anticipated	that	the	U.S.	Navy	will	submit	a	shipbuilding	plan	to	Congress	subsequent	to submission	of	the	Fiscal	Year	2017	President's	Budget	Request,	which	will	provide	additional	details	regarding	the	force	structure.

The	shipbuilding	defense	industry,	as	characterized	by	its	competitors,	customers,	suppliers,	potential	entrants,	and	substitutes,	is	unique	in	many	ways. It	is	heavily	capital	and	skilled	labor	intensive.	The	U.S.	Navy,	a	large	single	customer	with	many	needs	and	requirements,	dominates	the	industry's customer	base	and	is	served	by	a	supplier	base	that	has	trended	toward	exclusive	providers.	Smaller	shipyards,	however,	have	entered	the	market	to build	the	U.S.	Navy's	new	LCS.	The	U.S.	Navy	must	compete	with	other	national	priorities,	including	other	defense	activities	and	entitlement	programs,	for a	share	of	federal	budget	funding.

The	DoD	continues	to	adjust	its	procurement	practices,	requirements	criteria,	and	source	selection	methodology	in	an	ongoing	effort	to	reduce	costs,	gain efficiencies,	and	enhance	program	management	and	control.	The	most	recent	initiatives,	included	in	the	September	2014	BBP	3.0,	are	organized	into eight	major	areas:	achieve	affordable	programs;	achieve	dominant	capabilities	while	controlling	lifecycle	costs;	incentivize	productivity	in	industry	and government;	incentivize	innovation	in	industry	and	government;	eliminate	unproductive	processes	and	bureaucracy;	promote	effective	competition; improve	tradecraft	in	acquisition	of	services;	and	improve	the	professionalism	of	the	total	acquisition	workforce.	While	the	impact	to	our	business	resulting from	these	initiatives	remains	uncertain,	they	could	have	a	material	impact	on	current	programs,	as	well	as	new	business	opportunities	with	the	DoD.	See Risks	Related	to	Our	Business	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	design,	production,	and	support	activities.	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,	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 contracts	with	the	U.S.	Government.

Our	long-term	contracts	typically	fall	into	one	of	two	broad	categories:

•Flexibly-Priced	Contracts	-	Includes	both	cost-type	and	fixed-price	incentive	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.	Fixed-price	incentive	contracts	also	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.	Approximately	95%,	94%	and	98%	of	our	revenues	for	the years	ended	December	31,	2015,	2014	and	2013,	respectively,	were	generated	from	flexibly-priced	contracts,	including	certain	fixed-price incentive	contracts	that	have	exceeded	their	cost-share	limit.

•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.	Time	and	materials contracts,	which	specify	a	fixed	hourly	rate	for	each	labor	hour	charged,	are	considered	firm	fixed-price	contracts.	Approximately	5%,	6%	and	2% of	our	revenues	for	the	years	ended	December	31,	2015,	2014	and	2013,	respectively,	were	generated	from	firm	fixed-price	arrangements.

Contract	Fees	-	Negotiated	contract	fee	structures	for	both	flexibly-priced	and	firm	fixed-price	contracts	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.	Fees	that	we	are	reasonably assured	of	collecting	and	can	be	reasonably	estimated	are	recorded	over	the	performance	period	of	the	contract.

# CRITICAL	ACCOUNTING	POLICIES,	ESTIMATES,	AND	JUDGMENTS

Our	consolidated	financial	statements	are	prepared	in	accordance	with	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	areas,	it	is	possible	that	different	parties	could	choose	different	assumptions	and	reach	different conclusions.	We	consider	the	policies	relating	to	the	following	matters	to	be	critical	accounting	policies:

# •Revenue	recognition;

•Purchase	accounting,	goodwill,	and	intangible	assets;

•Litigation,	commitments,	and	contingencies;

•Retirement	related	benefit	plans;	and

•Workers'	compensation.

Overview	-	Most	of	our	revenues	are	derived	from	long-term	contracts	for	the	production	of	goods	and	services	provided	to	the	federal	government,	which are	accounted	for	in	conformity	with	GAAP	for	construction-type	and	production-type	contracts	and	federal	government	contractors.	We	have	other	types of	contracts,	such	as	services	and	commercial	arrangements,	for	which	revenues	are	recognized	upon	delivery	or	as	services	are	rendered	once persuasive	evidence	of	an	arrangement	exists,	the	price	is	fixed	or	determinable,	and	collectibility	is	reasonably	assured.	Costs	related	to	these	contracts are	expensed	as	incurred.	We	classify	contract	revenues	as	product	sales	or	service	revenues	depending	on	the	predominant	attributes	of	the	relevant underlying	contracts.	We	consider	the	nature	of	these	contracts	and	the	types	of	products	and	services	provided	when	determining	the	proper	accounting method	for	a	particular	contract.

Percentage-of-Completion	Accounting	-	We	generally	recognize	revenues	from	our	long-term	contracts	under	the	cost-to-cost	measure	of	the percentage-of-completion	method	of	accounting.	The	percentage-of-completion	method	recognizes	income	as	work	on	a	contract	progresses.	For	most contracts,	we	calculate	sales	based	on	the	percentage	of	costs	incurred	in	relation	to	total	Estimated	Costs	at	Completion	of	the	contract	("EAC").	For certain	contracts	with	large	up-front	purchases	of	material,	sales	are	calculated	based	on	the	percentage	that	direct	labor	costs	incurred	bear	to	total estimated	direct	labor	costs	at	completion.	For	certain	contracts	that	provide	for	deliveries	of	a	substantial	number	of	similar	units,	sales	are	accounted	for using	units	of	delivery	as	the	basis	to	measure	progress	toward	completion.

The	use	of	the	percentage-of-completion	method	depends	on	our	ability	to	make	reasonably	dependable	cost	estimates	for	the	design,	manufacture,	and delivery	of	our	products	and	services.	Such	costs	are	typically	incurred	over	a	period	of	several	years,	and	estimation	of	these	costs	requires	the	use	of judgment.	We	record	sales	under	cost-type	contracts	as	costs	are	incurred.

Many	contracts	contain	positive	and	negative	profit	incentives	based	upon	performance	relative	to	predetermined	targets	that	may	occur	during	or subsequent	to	delivery	of	the	product.	These	incentives	take	the	form	of	potential	additional	fees	to	be	earned	or	penalties	to	be	incurred.	Incentives	and award	fees	that	we	are	reasonably	assured	of	collecting	and	can	be	reasonably	estimated	are	recorded	over	the	performance	period	of	the	contract. Incentives	and	award	fees	that	we	are	not	reasonably	assured	of	collecting	or	cannot	be	reasonably	estimated	are	recorded	when	awarded	or	at	such time	as	a	reasonable	estimate	can	be	made.

At	the	start	of	each	contract,	we	estimate	an	initial	profit-booking	rate	that	considers	risks	related	to	technical	requirements	and	feasibility,	schedule,	and contract	costs.	Management	then	performs	periodic	reviews	of	our	contracts	in	order	to	evaluate	technical	matters,	schedule,	and	contract	costs.	During the	life	of	a	contract,	the	profit-booking	rate	may	increase	as	we	are	able	to	retire	risks	in	connection	with	technical	matters,	schedule,	and	contract	costs. Conversely,	if	we	are	not	able	to	retire	these	risks,	our	EAC	may	increase,	resulting	in	a	lower	profit-booking	rate.

Changes	in	estimates	of	contract	sales,	costs,	and	profits	are	recognized	using	the	cumulative	catch-up	method	of	accounting.	This	method	recognizes	in the	current	period	the	cumulative	effect	of	the	changes	in	current	and	prior	periods.	Hence,	the	effect	of	the	changes	in	future	periods	of	contract performance	is	recognized	as	if	the	revised	estimate	had	been	the	original	estimate.	A	significant	change	in	an	estimate	on	one	or	more	contracts	in	a period	could	have	a	material	effect	on	our	consolidated	financial	position	or	results	of	operations	for	that	period.

For	the	years	ended	December	31,	2015,	2014	and	2013,	favorable	and	unfavorable	cumulative	catch-up	adjustments	were	as	follows:

|  |  | Year	Ended	December	31 |  |
| :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 |
| Gross\tfavorable\tadjustments | $304 | $253 | $220 |
| Gross\tunfavorable\tadjustments | (65) | (31) | (107) |
| Net\tadjustments | $239 | $222 | $113 |

For	the	year	ended	December	31,	2015,	favorable	cumulative	catch-up	adjustments	were	primarily	related	to	risk	retirement	on	the	SSN-774	 Virginia- class	submarine	program,	the	Legend-class	NSC	program,	and	the	LPD-17	San	Antonio-class	program,	including	delivered	ships,	the	resolution	of outstanding	contract	changes	on	the	LHA-6	America-class	program	and	the	CVN-71	USS	Theodore	Roosevelt	RCOH,	and	contract	impacts	of	the	Aon litigation	settlement.	During	the	same	period,	unfavorable	cumulative	catch-up	adjustments	included	lower	performance	on	CVN-78	Gerald	R.	Ford,	as well	as	other	individually	insignificant	adjustments.

For	the	year	ended	December	31,	2014,	favorable	cumulative	catch-up	adjustments	were	primarily	related	to	risk	retirement	on	the	SSN-774	 Virginia- class	submarine	program,	the	Legend-class	NSC	program,	the	LPD-17	San	Antonio-class	program,	including	delivered	LPD	ships,	and	the	construction contract	for	CVN-78	Gerald	R.	Ford.	During	the	same	period,	none	of	the	unfavorable	cumulative	catch-up	adjustments	were	individually	significant.

For	the	year	ended	December	31,	2013,	favorable	cumulative	catch-up	adjustments	were	primarily	related	to	the	SSN-774	 Virginia-class	submarine program,	driven	by	risk	retirement,	performance	improvement,	and	the	favorable	resolution	of	outstanding	contract	changes,	risk	retirement	on	the execution	contract	for	the	CVN-71	USS	Theodore	Roosevelt	RCOH,	and	risk	retirement	on	the	Legend-class	NSC	program.	For	the	same	period, unfavorable	cumulative	catch-up	adjustments	were	primarily	related	to	the	closing	of	our	Gulfport	facility,	costs	and	delays	on	LHA-6	America	associated with	the	remediation	of	mechanical	issues	identified	during	testing,	as	well	as	unfavorable	performance	on	LPD-25	Somerset,	including	costs	and	delays associated	with	repairing	damage	caused	by	underwater	debris	during	preparation	for	sea	trials.

Cost	Estimation	-	The	cost	estimation	process	requires	significant	judgment	and	is	based	upon	the	professional	knowledge	and	experience	of	our engineers,	program	managers,	and	financial	professionals.	Factors	we	consider	in	estimating	the	work	to	be	completed	and	ultimate	contract	recovery include	the	availability,	productivity,	and	cost	of	labor,	the	nature	and	complexity	of	the	work	to	be	performed,	the	effect	of	change	orders,	the	availability	of materials,	the	effect	of	any	delays	in	performance,	the	availability	and	timing	of	funding	from	the	customer,	and	the	recoverability	of	any	claims	included	in the	estimates	to	complete.	A	significant	change	in	an	estimate	on	one	or	more	contracts	in	a	period	could	have	a	material	effect	on	our	consolidated financial	position	or	results	of	operations

for	that	period,	and,	where	such	changes	occur,	separate	disclosure	is	made	of	the	nature,	underlying	conditions,	and	financial	impact	of	the	change.	We update	our	contract	cost	estimates	at	least	annually	and	more	frequently	as	determined	by	events	or	circumstances.	We	review	and	assess	our	cost	and revenue	estimates	for	each	significant	contract	on	a	quarterly	basis.

We	record	a	provision	for	the	entire	loss	on	a	contract	in	the	period	the	loss	is	determined	when	estimates	of	total	costs	to	be	incurred	on	the	contract exceed	estimates	of	total	revenues	to	be	earned.	We	offset	loss	provisions	first	against	costs	that	are	included	in	unbilled	accounts	receivable	or inventoried	costs,	with	any	remaining	amount	reflected	in	other	current	liabilities.

Goodwill	-	Goodwill	represents	the	purchase	price	paid	in	excess	of	the	fair	value	of	identifiable	net	tangible	and	intangible	assets	acquired	in	a	business combination.	The	amount	of	our	goodwill	as	of	December	31,	2015	and	2014,	was	$956	million	and	$1,026	million,	respectively.

Tests	for	Impairment	-	We	perform	impairment	tests	for	goodwill	as	of	November	30	of	each	year,	or	when	evidence	of	potential	impairment	exists.	When testing	goodwill,	we	first	compare	the	fair	value	of	the	reporting	unit	to	its	carrying	value.	If	the	fair	value	of	the	reporting	unit	is	determined	to	be	less	than the	carrying	value,	we	perform	a	second	step	to	estimate	the	fair	value	of	goodwill,	based	in	part	on	the	fair	value	of	the	underlying	operations.	We	record a	charge	to	operations	when	we	determine	that	the	recorded	amount	of	goodwill	exceeds	its	fair	value	during	this	second	step.

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.	Changes	in	these	estimates	and	assumptions	could	materially	affect	the	determination	of	fair	value	and/or	goodwill	impairment	for	each reporting	unit.

November	30,	2015	Impairment	Test	-	In	connection	with	our	annual	goodwill	impairment	test,	we	tested	goodwill	for	each	of	our	four	reporting	units.	As	a result	of	our	annual	goodwill	impairment	test,	we	determined	that	the	estimated	fair	value	of	each	reporting	unit	exceeded	by	more	than	10%	its corresponding	carrying	value	as	of	November	30,	2015,	except	for	the	Oil	and	Gas	reporting	unit	in	our	Other	segment.

December	31,	2015	Impairment	Test	-	While	the	November	30,	2015,	annual	impairment	test	did	not	result	in	an	impairment,	considering	the	limited excess	fair	value	of	goodwill	over	its	carrying	value	in	our	Oil	and	Gas	reporting	unit	and	the	continued	decline	in	oil	prices	and	related	industry	activity levels,	we	performed	an	interim	assessment	of	goodwill	as	of	December	31,	2015.	Our	determination	of	fair	value	as	of	December	31,	2015,	considered industry	events	that	occurred	in	the	period	since	our	annual	goodwill	impairment	test,	as	well	as	the	updated	long	term	outlook	for	this	reporting	unit. Those	events	included	continued	deterioration	in	the	oil	and	gas	markets,	numerous	industry-wide	project	deferrals,	and	capital	spending	cuts	announced by	industry	leaders.	The	analysis	concluded	the	fair	value	of	this	reporting	unit	was	less	than	its	carrying	value	as	of	December	31,	2015,	and	we recorded	a	goodwill	impairment	charge	of	$16	million	at	our	Other	segment	in	the	fourth	quarter	of	2015.

May	31,	2015	Impairment	Test	-	We	continuously	monitor	industry	events	and	changes	in	circumstances	in	the	industries	in	which	our	reporting	units conduct	business.	In	consideration	of	the	Oil	and	Gas	reporting	unit's	sensitivity	to	developments	within	its	industry,	the	continued	decline	in	crude	oil prices,	significant	reductions	in	its	customer	capital	spending	plans,	and	project	delays,	we	concluded	an	interim	goodwill	impairment	test	was	necessary to	determine	whether	it	was	more	likely	than	not	that	the	fair	value	of	our	Oil	and	Gas	reporting	unit	was	still	higher	than	its	carrying	value	as	of	May	31, 2015.	Our	assessment	considered	the	aforementioned	changes	to	expectations	that	were	considered	as	part	of	our	annual	goodwill	impairment	test	as	of November	30,	2014.	As	a	result	of	our	analysis,	we	recorded	a	$59	million	goodwill	impairment	charge	at	our	Other	segment	in	the	second	quarter	of 2015.

November	30,	2014	Impairment	Test	-	We	performed	our	annual	goodwill	impairment	testing	as	of	November	30,	2014,	and	determined	that	goodwill	at our	Other	segment	was	impaired	by	$47	million.	The	goodwill	impairment

charge	was	primarily	driven	by	the	drop	in	oil	prices	and	the	resulting	decrease	in	industry	market	multiples.	We	determined	that	the	estimated	fair	value of	our	remaining	reporting	units	significantly	exceeded	their	corresponding	carrying	values	as	of	November	30,	2014.

Other	Intangible	Assets	-	We	perform	tests	for	impairment	of	amortizable	intangible	assets	whenever	events	or	circumstances	suggest	that	amortizable intangible	assets	may	be	impaired.

December	31,	2015	Impairment	Test	-	We	performed	an	impairment	test	as	of	December	31,	2015,	on	the	amortizable	intangible	assets	that	arose	from the	UPI	acquisition,	which	reside	in	our	Oil	and	Gas	reporting	unit	within	our	Other	segment.	The	Oil	and	Gas	asset	group's	long-lived	intangible	assets consist	primarily	of	customer	relationships	and,	to	a	lesser	degree,	trade	name	and	developed	technology.	We	performed	our	impairment	test	considering the	latest	market	conditions	and	expectations,	as	well	as	lower	anticipated	revenue	and	profitability.	Based	on	the	nature	of	UPI's	intangible	assets,	we performed	the	recoverability	test	at	the	reporting	unit	level.	In	connection	with	the	recoverability	test,	we	reevaluated	the	remaining	useful	lives	of	the intangible	assets	and	determined	the	total	undiscounted	pretax	cash	flows	generated	by	the	reporting	unit	over	the	remaining	useful	life	of	the	primary asset,	customer	relationships.	The	carrying	amount	of	the	reporting	unit	was	greater	than	the	total	undiscounted	pretax	cash	flows,	and,	as	a	result,	the intangible	assets	were	written	down	by	$27	million,	charged	against	cost	of	sales	and	service	revenues	within	income	from	operations	at	our	Other segment.

Overview	-	We	are	subject	to	a	range	of	claims,	lawsuits,	environmental	and	income	tax	matters,	and	administrative	proceedings	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	amounts	as	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	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.

Asset	Retirement	Obligations	-	We	record	all	known	asset	retirement	obligations	for	which	the	liability's	fair	value	can	be	reasonably	estimated,	including certain	asbestos	removal,	asset	decommissioning,	and	contractual	lease	restoration	obligations.	Recorded	amounts	as	of	December	31,	2015	and	2014, were	$18	million	and	$22	million,	respectively,	and	consist	primarily	of	obligations	associated	with	the	wind	down	of	shipbuilding	operations	at	our Avondale	facility.	See	Note	2:	Summary	of	Significant	Accounting	Policies	in	Item	8.

We	also	have	known	conditional	asset	retirement	obligations	related	to	assets	currently	in	use,	such	as	certain	asbestos	remediation	and	asset decommissioning	activities	to	be	performed	in	the	future,	that	were	not	reasonably	estimable	as	of	December	31,	2015,	due	to	insufficient	information about	the	timing	and	method	of	settlement	of	the	obligation.	Accordingly,	the	fair	value	of	these	obligations	has	not	been	recorded	in	the	consolidated financial	statements.	Environmental	remediation	and/or	asset	decommissioning	of	these	facilities	may	be	required	when	we	cease	to	utilize	these facilities.	In	addition,	there	may	be	conditional	environmental	asset	retirement	obligations	that	we	have	not	yet	discovered	(for	example,	asbestos	of	which we	have	not	become	aware	through	normal	business

operations	may	exist	in	certain	buildings),	and	these	obligations	have,	therefore,	not	been	included	in	our	consolidated	financial	statements.

Litigation	Accruals	-	Litigation	accruals	are	recorded	as	charges	to	earnings	when	management	has	determined,	after	taking	into	consideration	the	facts and	circumstances	of	each	matter,	including	any	settlement	offers,	that	it	is	probable	that	a	liability	has	been	incurred	and	the	amount	of	the	loss	can	be reasonably	estimated.	The	ultimate	resolution	of	any	exposure	may	vary	from	earlier	estimates	as	further	facts	and	circumstances	become	known.	Based upon	the	information	available,	we	believe	that	the	resolution	of	any	of	these	various	claims	and	legal	proceedings	will	not	have	a	material	effect	on	our consolidated	financial	position,	results	of	operations,	or	cash	flows.

Uncertain	Tax	Positions	-	Uncertain	tax	positions	meeting	the	more-likely-than-not	recognition	threshold,	based	on	the	merits	of	the	position,	are recognized	in	the	financial	statements.	We	recognize	the	amount	of	tax	benefit	that	is	greater	than	50%	likely	to	be	realized	upon	ultimate	settlement	with the	related	tax	authority.	If	a	tax	position	does	not	meet	the	minimum	statutory	threshold	to	avoid	payment	of	penalties,	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 uncertain	tax	positions	are	recognized	as	a	component	of	income	tax	expense.	See	Note	13:	Income	Taxes	in	Item	8.	Changes	in	accruals	associated with	uncertain	tax	positions	are	recorded	in	earnings	in	the	period	they	are	determined.

# 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	income,	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	18:	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	outlines	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.

Retirement	related	benefit	plan	costs	are	allocated	to	our	U.S.	Government	contracts	as	allowable	costs	based	upon	CAS.	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	(loss)	within	general	and	administrative expenses.	For	the	years	ended	December	31,	2015	and	2014,	our	CAS	costs	in	excess	of	FAS	expenses	were	 $104	million	and	$72	million,	respectively, and	for	the	year	ended	December	31,	2013,	our	FAS	expense	exceeded	our	CAS	costs	by	 $61	million.

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	different	funded	percentages,	as	defined	by	the	Internal	Revenue Code.	In	funding	our	plans,	we	consider	various	factors,	including	the	minimum	funding	requirements,	maintaining	the	funded	status	needed	to	avoid potential	benefit	restrictions	and	other	adverse	consequences,	maintaining	minimum	CAS	funding	requirements,	and	the	current	and	anticipated	funding levels	of	each	plan.

During	2012,	the	Moving	Ahead	for	Progress	in	the	21st	Century	Act	("MAP-21")	was	enacted.	MAP-21	included	provisions	for	potential	pension	relief	to plan	sponsors	in	the	form	of	higher	interest	rate	assumptions	that	were

used	to	determine	minimum	funding	requirements.	The	relief	derived	from	these	provisions	was	to	be	phased	out	to	lower	levels	over	the	next	few	years. The	enactment	of	the	Highway	and	Transportation	Funding	Act	("HATFA")	in	2014	and	BBA	2015	successively	provided	for	the	continuation	of	higher interest	rate	assumptions	used	to	determine	minimum	funding	requirements	and	extended	the	pension	relief	phase-out	period.	We	consider	the	effects	of legislation	such	as	MAP-21,	HATFA,	and	BBA	2015	in	the	context	of	current	year	and	future	projected	funded	status	levels	in	deciding	on	the	level	of contributions	to	make	to	our	plans	each	year.

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.

When	PPA	was	enacted,	it	was	anticipated	that	the	amounts	required	to	be	funded	would	exceed	government	contractors'	recovery	of	those	costs	under CAS.	To	remedy	this	cash	flow	misalignment,	on	December	27,	2011,	the	U.S.	Cost	Accounting	Standards	Board	issued	its	final	CAS	Harmonization Rule	("Harmonization").	Harmonization	is	intended	to	improve	the	alignment	of	the	pension	cost	recovered	through	contract	pricing	under	CAS	and	the pension	funding	requirements	under	the	PPA.	Harmonization	became	effective	for	forward	pricing	purposes	for	contracts	negotiated	on	or	after	February 27,	2012.	Under	Harmonization,	only	contracts	entered	into	before	the	effective	date	qualify	for	an	equitable	adjustment.	Price	proposals	for	CAS	covered contracts	awarded	on	or	after	the	effective	date	of	February	27,	2012,	reflect	the	effects	of	the	rule.	Harmonization	affects	pension	costs	on	contracts over	a	phase-in	period	ending	in	2017.	Our	CAS	pension	cost	recoveries	are	expected	to	remain	unaffected	by	the	pension	relief	provisions	offered	under MAP-21,	HATFA,	and	BBA	2015	because	of	the	method	permitted	under	Harmonization	we	use	to	determine	the	CAS	interest	rate,	which	is	a	current market	rate.

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	are	generally	not	changed	during	the following	year	unless	there	is	a	major	plan	event,	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	the	plans'	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 $100	million	as	of	the	measurement	date,	and	are	not	callable,	convertible,	or	index-linked.

Taking	into	consideration	the	factors	noted	above,	our	weighted	average	discount	rate	for	pensions	was	 4.73%	and	4.34%	as	of	December	31,	2015	and 2014,	respectively.	Our	weighted	average	discount	rate	for	other	postretirement	benefits	was	 4.58%	and	4.22%	as	of	December	31,	2015	and	2014, respectively.

Expected	Long-Term	Rate	of	Return	-	The	expected	long-term	rate	of	return	on	assets	is	used	to	calculate	net	periodic	expense,	and	is	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	assumption	is	based	more	on	long-term	prospective	views	to	avoid	short-term	market	influences.	Unless	plan	assets	and	benefit obligations	are	subject	to	remeasurement	during	the	year,	the	expected	return	on	pension	assets	is	based	on	the	fair	value	of	plan	assets	at	the beginning	of	the	year.	We	used	a	7.50%	expected	long-term	rate	of	return	assumption	to	record	2015	and	2014	pension	expense.	We	will	continue	to	use this	7.50%	assumption	for	recording	2016	FAS	pension	expense.

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.	As	of	December	31,	2014,	we	updated	our	mortality assumptions	to	reflect	our	recent	mortality	experience	and	the	anticipated	effects	of	future	mortality	improvements.	The	effect	of	the	changes	in	the mortality

assumptions	increased	our	December	31,	2014,	pension	related	benefit	obligations	by	approximately	$54	million	or	1%.	The	impact	on	other postretirement	benefits	was	not	material.	The	increase	was	treated	as	an	actuarial	loss	and	subject	to	amortization	in	future	periods	as	described	below. We	reflected	updated	mortality	assumptions	in	our	CAS	costs.	If	the	IRS	publishes	updated	mortality	tables	for	funding	purposes,	our	pension contributions	could	be	affected.

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	from	actual	experience	or	changes	in	assumptions	are	deferred	in	accumulated	other comprehensive	income.	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	2015,	the	actual	return	on	assets	was	approximately	negative	1.00%,	which	was	less	than	the	expected	return	assumption	of	7.50%.	For the	year	ended	December	31,	2015,	the	weighted	average	discount	rates	for	our	pension	and	other	postretirement	benefit	plans	increased	by	39	and	36 basis	points,	respectively.	These	differences	in	asset	returns	and	discount	rates	resulted	in	an	actuarial	loss	of	$398	million	and	an	actuarial	gain	of	$363 million,	respectively,	as	of	December	31,	2015.

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	pensions:

| ($	in	millions) | Increase	(Decrease)	in	2016<br>Expense | Increase	(Decrease)	in	December<br>31,	2015	Obligations |
| :--- | :--- | :--- |
| 25\tbasis\tpoint\tdecrease\tin\tdiscount\trate | $19 | $213 |
| 25\tbasis\tpoint\tincrease\tin\tdiscount\trate | (19) | (201) |
| 25\tbasis\tpoint\tdecrease\tin\texpected\treturn\ton\tassets | 12 |  |
| 25\tbasis\tpoint\tincrease\tin\texpected\treturn\ton\tassets | (12) |  |

Assuming	a	7.50%	expected	return	on	asset	assumption,	a	$50	million	pension	contribution	is	generally	expected	to	favorably	impact	the	current	year expected	return	on	assets	by	approximately	$2	million,	depending	on	the	timing	of	the	contribution.

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

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

Through	2013,	CAS	required	the	pension	discount	rate	to	be	consistent	with	the	expected	long-term	rate	of	return	on	assets	assumption,	which	changed infrequently	given	its	long-term	nature.	As	a	result,	short-term	changes	in	bond	or	other	interest	rates	generally	did	not	impact	CAS	costs.	Under Harmonization	the	liability	used	to	determine	CAS	cost	is	developed	by	comparing	the	liability	under	the	previous	CAS	methodology	and	assumptions	to a	liability	based	on	a	discount	rate	derived	from	yields	on	high	quality	bonds.	When	Harmonization	is	fully	phased	in,	the	greater	of	the	two	liabilities	will be	used	for	CAS	cost	calculations.	Generally,	liabilities	based	on	a	discount	rate	of	high	quality	bonds	will	be	higher	than	liabilities	calculated	prior	to Harmonization.	The	four	year	phase	in	period	that	commenced	in	2014	requires	the	use	of	a	blend	of	the	pre	and	post	Harmonization	liabilities.

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 employee's	average	future	service	life	of	approximately	12	years.	Under	CAS,	actuarial	gains	and	losses	were	amortized	over	a	15-year	period	without regard	to	a	corridor	approach.	Under	Harmonization,	the	amortization	period	for	CAS	changed	to	10	years	for	actuarial	gains	and	losses	beginning	in 2013.	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	faster	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.

The	FAS/CAS	Adjustment	in	2015	was	a	net	benefit	of	$104	million,	compared	to	a	net	benefit	of	 $72	million	in	2014.	The	favorable	change	was	driven by	the	phase-in	of	Harmonization	and	better	than	expected	2014	asset	returns,	partially	offset	by	higher	FAS	expense	primarily	due	to	lower	discount rates	at	the	end	of	2014.	The	FAS/CAS	Adjustment	in	2013	was	a	net	expense	of	 $61	million.	The	favorable	change	from	2013	to	2014	was	driven	by lower	FAS	expense	primarily	due	to	higher	discount	rates	and	plan	assets	at	the	end	of	2013,	the	full	year	effect	of	the	2013	postretirement	benefits amendment,	and	the	phase-in	of	Harmonization.	Our	projected	2016	FAS/CAS	Adjustment	is	discussed	in	Consolidated	Operating	Results	-	Operating Income.

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,	collective	trust	funds,	and	commingled	funds	are	generally	valued	at	their	Net	Asset	Values	("NAV")	or	equivalent,	which	are based	on	the	current	fair	value	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	very	limited	group	of	investments	for	which	market	quotations	are	not	readily	available	or	for	which	the	above	valuation	procedures are	deemed	not	to	reflect	fair	value,	additional	information	is	obtained	from	the	investment	manager	and	evaluated	internally	to	determine	whether	any adjustments	are	required	to	reflect	fair	value.	See	Note	18:	Employee	Pension	and	Other	Postretirement	Benefits,	in	Item	8.

Accumulated	Other	Comprehensive	Income	-	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	income	along	with unrecognized	prior	service	costs	arising	from	plan	amendments.	As	disclosed	in	Note	18:	Employee	Pension	and	Other	Postretirement	Benefits	in	Item	8, net	pre-tax	unrecognized	actuarial	losses	as	of	December	31,	2015	and	2014	were	$1,412	million	and	$1,447	million,	respectively.	The	decrease	in	these actuarial	losses	in	2015	was	primarily	driven	by	an	increase	in	the	discount	rates	used	to	determine	benefit	obligations,	which	accounted	for	$363	million, offset	by	2015	actual	asset	returns	being	less	than	expected	by	$398	million,	partially	offset	by	$88	million	of	amortization	of	previously	unrecognized actuarial	losses.

Net	pre-tax	unrecognized	prior	service	costs	(credits)	as	of	 December	31,	2015	and	2014	were	$(19)	million	and	$(20)	million,	respectively.	These	net deferred	costs	(credits)	primarily	originated	from	plan	amendments,	including	those	resulting	from	collective	bargaining	agreements.	The	decrease	in unrecognized	prior	service	costs	(credits)	in	2015	primarily	resulted	from	amortization	of	previously	accumulated	prior	service	costs	(credits) .

Our	operations	are	subject	to	federal	and	state	workers'	compensation	laws.	We	maintain	self-insured	workers'	compensation	plans,	in	addition	to participating	in	federally	administered	second	injury	workers'	compensation	funds.	We	estimate	the	required	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.	Related	self-insurance	accruals include	the	liability	for	reported	claims	and	an	estimated	accrual	for	claims	incurred	but	not	reported.	Our	workers'	compensation	liability	was	discounted at	2.12%	and	2.48%	as	of	December	31,	2015	and	2014,	respectively,	based	on	future	payment	streams	and	a	risk-free	rate.	We	estimate	a	100	basis points	increase	or	decrease	in	the	discount	rate	would	change	our	workers'	compensation	liability	by	$(48)	million	and	$57	million,	respectively.	The workers'	compensation	benefit	obligation	on	an	undiscounted	basis	was	$825	million	and	$846	million	as	of	December	31,	2015	and	2014,	respectively.

# Accounting	Standards	Updates

See	Note	3:	Accounting	Standards	Updates	in	Item	8	for	information	related	to	accounting	standards	updates.

# CONSOLIDATED	OPERATING	RESULTS

Selected	financial	highlights	are	presented	in	the	following	table:

|  |  | Year	Ended	December	31 | Year	Ended	December	31 | 2015	over	2014 |  | 2014	over	2013 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 | Dollars | Percent | Dollars | Percent |
| Sales\tand\tservice\trevenues | $7,020 | $6,957 | $6,820 | $63 | 1\t% | $137 | 2\t% |
| Cost\tof\tproduct\tsales\tand\tservice\trevenues | 5,517 | 5,540 | 5,583 | (23) | —\t% | (43) | (1)% |
| Income\t(loss)\tfrom\toperating\tinvestments,\tnet | 10 | 11 | 14 | (1) | (9)% | (3) | (21)% |
| General\tand\tadministrative\texpenses | 669 | 726 | 739 | (57) | (8)% | (13) | (2)% |
| Goodwill\timpairment | 75 | 47 | — | 28 | 60\t% | 47 | —\t% |
| Operating\tincome\t(loss) | 769 | 655 | 512 | 114 | 17\t% | 143 | 28\t% |
| Interest\texpense | 137 | 149 | 118 | (12) | (8)% | 31 | 26\t% |
| Other\tincome | — | 1 | — | (1) | (100)% | 1 | —\t% |
| Federal\tand\tforeign\tincome\ttaxes | 228 | 169 | 133 | 59 | 35\t% | 36 | 27\t% |
| Net\tearnings\t(loss) | $404 | $338 | $261 | $66 | 20\t% | $77 | 30\t% |

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

# Sales	and	Service	Revenues

Sales	and	service	revenues	consisted	of	the	following:

|  | Year	Ended	December	31 | Year	Ended	December	31 |  | 2015	over	2014 |  | 2014	over	2013 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 | Dollars | Percent | Dollars | Percent |
| Product\tsales | $5,665 | $5,712 | $5,801 | $(47) | (1)% | $(89) | (2)% |
| Service\trevenues | 1,355 | 1,245 | 1,019 | 110 | 9\t% | 226 | 22\t% |
| Sales\tand\tservice\trevenues | $7,020 | $6,957 | $6,820 | $63 | 1\t% | $137 | 2\t% |

2015	-	Product	sales	in	2015	decreased	$47	million,	or	1%,	from	2014.	Product	sales	at	our	Ingalls	segment	decreased	$115	million	in	 2015,	primarily due	to	lower	volumes	in	Amphibious	Assault	Ships	and	the	Legend-class	NSC	program,	partially	offset	by	higher	volumes	in	Surface	Combatants. Newport	News	product	sales	increased	$68	million	in	2015,	as	a	result	of	higher	volumes	in	Submarines	and	Energy,	partially	offset	by	lower	volumes	in Aircraft	Carriers.

Service	revenues	in	2015	increased	$110	million,	or	9%,	from	2014.	Service	revenues	at	our	Ingalls	segment	increased	$17	million	in	 2015,	as	a	result	of higher	volumes	in	Surface	Combatants	services.	Service	revenues	at	our	Newport	News	segment	increased	$96	million	in	2015,	primarily	driven	by higher	volumes	in	Fleet	Support	services,	partially	offset	by	lower	volumes	in	Energy	services.	Service	revenues	at	our	Other	segment	decreased	$3 million	in	2015,	primarily	due	to	lower	volumes	in	oil	and	gas	services.

2014	-	Product	sales	in	2014	decreased	$89	million,	or	2%,	from	2013.	Product	sales	at	our	Ingalls	segment	decreased	$139	million	in	 2014,	primarily due	to	lower	volumes	in	Amphibious	Assault	Ships,	partially	offset	by	higher	volumes	in	the	Legend-class	NSC	program	and	Surface	Combatants. Newport	News	product	sales	increased	$50	million	in	2014,	as	a	result	of	higher	volumes	in	Submarines	and	Energy,	partially	offset	by	lower	volumes	in Aircraft	Carriers.

Service	revenues	in	2014	increased	$226	million,	or	22%,	from	2013.	Service	revenues	at	our	Ingalls	segment	decreased	$15	million	in	 2014,	as	a	result of	lower	volumes	in	Amphibious	Assault	Ships	and	Surface	Combatants	services.	Service	revenues	at	our	Newport	News	segment	increased	$104	million in	2014,	primarily	as	a	result	of	the	acquisition	of	SN3,	as	well	as	higher	volumes	in	Aircraft	Carriers	services,	partially	offset	by	lower	volumes	in	Fleet Support	services.	Service	revenues	at	our	Other	segment	were	$137	million	in	2014,	primarily	due	to	the	acquisition	of	UPI.

# 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 | Year	Ended	December	31 |  | 2015	over	2014 |  | 2014	over	2013 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 | Dollars | Percent | Dollars | Percent |
| Cost\tof\tproduct\tsales | $4,319 | $4,489 | $4,695 | $(170) | (4)% | $(206) | (4)% |
| %\tof\tproduct\tsales | 76.2% | 78.6% | 80.9% | — |  | — |  |
| Cost\tof\tservice\trevenues | 1,198 | 1,051 | 888 | 147 | 14\t% | 163 | 18\t% |
| %\tof\tservice\trevenues | 88.4% | 84.4% | 87.1% | — |  | — |  |
| Income\t(loss)\tfrom\toperating\tinvestments,\tnet | 10 | 11 | 14 | (1) | (9)% | (3) | (21)% |
| General\tand\tadministrative\texpenses | 669 | 726 | 739 | (57) | (8)% | (13) | (2)% |
| %\tof\ttotal\tsales\tand\tservice\trevenues | 9.5% | 10.4% | 10.8% | — |  | — |  |
| Goodwill\timpairment | 75 | 47 | — | 28 | 60\t% | 47 | —\t% |
| Cost\tof\tsales\tand\tservice\trevenues | $6,251 | $6,302 | $6,308 | $(51) | (1)% | $(6) | —\t% |

# Cost	of	Product	Sales

2015	-	Cost	of	product	sales	in	2015	decreased	$170	million,	or	4%,	compared	to	2014.	Cost	of	product	sales	at	our	Ingalls	segment	decreased	$225 million	in	2015,	primarily	due	to	the	settlement	of	the	Aon	litigation	and	the	lower	sales	volumes	described	above.	Cost	of	product	sales	at	our	Newport News	segment	increased	$55	million	in	2015,	primarily	due	to	the	higher	sales	volumes	described	above	and	year-to-year	variances	in	contract	mix.	Cost of	product	sales	as	a	percentage	of	product	sales	declined	from	78.6%	in	2014	to	76.2%	in	2015,	primarily	driven	by	the	settlement	of	the	Aon	litigation, higher	performance	in	Amphibious	Assault	Ships,	and	year-to-year	variances	in	contract	mix,	partially	offset	by	lower	performance	in	Aircraft	Carriers.

2014	-	Cost	of	product	sales	in	2014	decreased	$206	million,	or	4%,	compared	to	2013.	Cost	of	product	sales	at	our	Ingalls	segment	decreased	$236 million	in	2014,	primarily	due	to	performance	improvement	on	the	LPD-17 	San	Antonio-class	program	and	the	lower	sales	volumes	described	above. Cost	of	product	sales	at	our	Newport	News	segment	increased	$30	million	in	2014,	primarily	due	to	higher	sales	volumes	described	above	and	year-to- year

variances	in	contract	mix.	Cost	of	product	sales	as	a	percentage	of	product	sales	 declined	from	80.9%	in	2013	to	78.6%	in	2014,	primarily	driven	by performance	improvement	on	the	LPD-17	San	Antonio-class	program	and	risk	retirement	on	the	Legend-class	NSC	program.

# Cost	of	Service	Revenues

2015	-	Cost	of	service	revenues	in	2015	increased	$147	million,	or	14%,	compared	to	2014.	Cost	of	service	revenues	at	our	Ingalls	segment	increased $15	million	in	2015,	primarily	as	a	result	of	the	higher	sales	volumes	described	above.	Cost	of	service	revenues	at	our	Newport	News	segment	increased $98	million	in	2015,	primarily	as	a	result	of	the	higher	sales	volumes	described	above.	Cost	of	service	revenues	at	our	Other	segment	increased	$34 million	in	2015,	primarily	as	a	result	of	an	intangible	asset	impairment.	Cost	of	service	revenues	as	a	percentage	of	service	revenues	 increased	from 84.4%	in	2014	to	88.4%	in	2015,	primarily	driven	by	the	intangible	asset	impairment	at	the	Other	segment,	year-to-year	variances	in	contract	mix,	and lower	performance	in	Aircraft	Carriers	and	oil	and	gas	services.

2014	-	Cost	of	service	revenues	in	2014	increased	$163	million,	or	18%,	compared	to	2013.	Cost	of	service	revenues	at	our	Ingalls	segment	decreased $20	million	in	2014,	consistent	with	the	volume	changes	described	above.	Cost	of	service	revenues	at	our	Newport	News	segment	increased	$61	million in	2014,	primarily	as	a	result	of	the	higher	volumes	described	above,	partially	offset	by	the	impact	of	a	change	in	our	contract	mix	following	the	acquisition of	SN3.	Cost	of	service	revenues	at	our	Other	segment	were	$122	million	in	2014,	primarily	resulting	from	the	acquisition	of	UPI.	Cost	of	service	revenues as	a	percentage	of	service	revenues	increased	from	87.1%	in	2013	to	84.4%	in	2014,	due	to	year-to-year	variances	in	contract	mix	primarily	resulting from	the	acquisition	of	SN3.

# Income	(Loss)	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.

2015	-	Income	from	operating	investments,	net	 decreased	$1	million,	or	9%,	to	$10	million	in	2015	from	$11	million	in	2014.	The	decrease	resulted	from lower	equity	income	from	our	Savannah	River	Nuclear	Solutions,	LLC	investment.

2014	-	Income	from	operating	investments,	net	decreased	$3	million,	or	21%,	to	$11	million	in	2014	from	$14	million	in	2013.	The	decrease	resulted from	lower	equity	income	from	our	Savannah	River	Nuclear	Solutions,	LLC	investment.

# 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.

2015	-	General	and	administrative	expenses	in	 2015	decreased	$57	million,	or	8%,	compared	to	2014.	This	decrease	was	primarily	the	result	of	a favorable	change	in	the	FAS/CAS	Adjustment	and	lower	overhead	costs,	offset	by	the	inclusion	of	UPI	and	higher	state	tax	expense.

2014	-	General	and	administrative	expenses	in	2014	decreased	$13	million,	or	2%,	compared	to	2013.	This	decrease	was	primarily	the	result	of	a favorable	change	in	the	FAS/CAS	Adjustment,	partially	offset	by	increases	resulting	from	the	amortization	of	Avondale	restructuring	costs,	the	inclusion	of UPI	and	SN3,	and	higher	state	tax	expense.

# Impairment	of	Goodwill

As	discussed	above	in	Critical	Accounting	Policies,	Estimates	and	Judgments,	we	perform	impairment	tests	for goodwill	as	of	November	30	each	year,	or	when	evidence	of	potential	impairment	exists.	We	record	a	charge	to	operations	when	we	determine	that	an impairment	has	occurred.

2015	-	We	recorded	goodwill	impairment	charges	in	2015	of	$75	million	in	our	Other	segment.	See	Note	12:	Goodwill	and	Other	Purchased	Intangible Assets	in	Item	8.

2014	-	We	recorded	a	goodwill	impairment	charge	in	2014	of	 $47	million	in	our	Other	segment.	See	Note	12:	Goodwill	and	Other	Purchased	Intangible Assets	in	Item	8.

2013	-	We	did	not	record	any	goodwill	impairment	charge	during	2013.

# Operating	Income

We	consider	operating	income	to	be	an	important	measure	for	evaluating	our	operating	performance,	and,	as	is	typical	in	the	industry,	we	define operating	income	as	revenues	less	the	related	cost	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	FAS/CAS	Adjustment and	deferred	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,	total	operating income	or	any	other	performance	measure	presented	in	accordance	with	GAAP.	It	is	a	metric	that	we	use	to	evaluate	our	core	operating	performance. We	believe	that	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	segment	operating	income	to	total	operating	income:

|  | Year	Ended	December	31 | Year	Ended	December	31 | Year	Ended	December	31 | 2015	over	2014 |  | 2014	over	2013 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 | Dollars | Percent | Dollars | Percent |
| Segment\toperating\tincome\t(loss) | $667 | $585 | $567 | $82 | 14% | $18 | 3\t% |
| FAS/CAS\tAdjustment | 104 | 72 | (61) | 32 | 44% | 133 | 218\t% |
| Deferred\tstate\tincome\ttaxes | (2) | (2) | 6 | — | —% | (8) | (133)% |
| Total\toperating\tincome\t(loss) | $769 | $655 | $512 | $114 | 17% | $143 | 28\t% |

# Segment	Operating	Income

2015	-	Segment	operating	income	in	2015	was	$667	million,	compared	to	$585	million	in	2014.	The	increase	was	primarily	due	to	the	settlement	of	the Aon	litigation,	higher	performance	and	volumes	in	Submarines,	and	higher	performance	on	Amphibious	Assault	Ships,	partially	offset	by	the	goodwill	and intangible	asset	impairment	charges	in	the	Other	segment	and	lower	performance	on	Aircraft	Carriers.

2014	-	Segment	operating	income	in	2014	was	$585	million,	compared	to	$567	million	in	2013.	The	increase	was	primarily	due	to	performance improvement	and	risk	retirement	on	the	LPD-17	San	Antonio-class	program	and	the	Legend-class	NSC	program,	as	well	as	the	unfavorable	impact	in	the prior	year	of	the	Gulfport	facility	closure,	partially	offset	by	the	goodwill	impairment	charge	described	above	and	the	favorable	impact	in	the	prior	year	of hurricane	insurance	recoveries.

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

# FAS/CAS	Adjustment

The	FAS/CAS	Adjustment	represents	the	difference	between	our	pension	and	postretirement	plan	expense	under	FAS	and	under	CAS.

|  | Year	Ended	December	31 | Year	Ended	December	31 |  | 2015	over	2014 |  | 2014	over	2013 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 | Dollars | Percent | Dollars | Percent |
| FAS\texpense | $(168) | $(155) | $(257) | $(13) | (8)% | $102 | 40% |
| CAS\tcost | 272 | 227 | 196 | 45 | 20\t% | 31 | 16% |
| FAS/CAS\tAdjustment | $104 | $72 | $(61) | $32 | 44\t% | $133 | 218% |

2015	-	The	FAS/CAS	Adjustment	in	2015	was	a	net	benefit	of	$104	million,	compared	to	a	net	benefit	of	 $72	million	in	2014.	The	favorable	change	was driven	by	the	phase-in	of	Harmonization	and	better	than	expected	2014	asset	returns,	partially	offset	by	higher	FAS	expense	primarily	due	to	lower discount	rates	at	the	end	of	2014.

2014	-	The	FAS/CAS	Adjustment	in	2014	was	a	net	benefit	of	$72	million,	compared	to	a	net	expense	of	 $61	million	in	2013.	The	favorable	change	was driven	by	lower	FAS	expense,	due	primarily	to	higher	discount	rates	and	plan	assets	at	the	end	of	2013,	the	full	year	effect	of	the	2013	postretirement benefits	amendment,	and	the	phase-in	of	Harmonization.

We	expect	the	FAS/CAS	Adjustment	in	2016	to	be	a	net	benefit	of	approximately	$137	million	($161	million	FAS	and	$298	million	CAS),	primarily	driven by	the	continued	phase-in	of	Harmonization	and	higher	FAS	discount	rates,	partially	offset	by	lower	than	expected	2015	asset	returns.	The	expected FAS/CAS	Adjustment	is	subject	to	change	during	2016,	when	we	remeasure	our	actuarial	estimate	of	the	unfunded	benefit	obligation	for	CAS	with updated	census	data	and	other	items.

# Deferred	State	Income	Taxes

Deferred	state	income	taxes	reflect	the	change	in	deferred	state	tax	assets	and	liabilities	in	the	relevant	period.	These	amounts	are	recorded	within operating	income,	while	the	current	period	state	income	tax	expense	is	charged	to	contract	costs	and	included	in	cost	of	sales	and	service	revenues	in segment	operating	income.

2015	-	The	deferred	state	income	tax	expense	remained	constant	at	$2	million	in	2015	and	2014.	Deferred	state	tax	expense	in	2015	was	primarily attributable	to	changes	in	the	timing	of	contract	taxable	income	and	pension	related	adjustments,	partially	offset	by	a	reduction	in	the	valuation	allowance for	state	tax	credit	carryforwards.

2014	-	The	deferred	state	income	tax	expense	in	2014	was	$2	million,	compared	to	a	benefit	of	$6	million	in	2013.	This	change	was	primarily	attributable to	non-recurring	adjustments	related	to	establishing	a	valuation	allowance	for	a	state	tax	loss	carryforward	and	the	true-up	of	2013	deferred	taxes.	These increases	were	partially	offset	by	changes	in	the	timing	of	contract	taxable	income	and	reserves	that	are	not	currently	deductible	for	tax	purposes.

# Interest	Expense

2015	-	Interest	expense	in	2015	was	$137	million,	compared	to	$149	million	in	2014.	The	decrease	was	primarily	a	result	of	refinancing	6.875%	senior notes	with	5.000%	senior	notes	and	repayment	in	full	of	the	term	loans,	partially	offset	by	loss	on	early	extinguishment	of	debt.	See	Note	14:	Debt	in	Item 8.

2014	-	Interest	expense	in	2014	was	$149	million,	compared	to	$118	million	in	2013.	The	increase	was	primarily	a	result	of	a	loss	on	the	early extinguishment	of	debt	in	the	fourth	quarter	of	2014.	See	Note	14:	Debt	in	Item	8.

# Federal	Income	Taxes

2015	-	Our	effective	tax	rate	on	earnings	from	continuing	operations	was	 36.1%	in	2015,	compared	to	33.3%	in	2014.	The	increase	in	our	effective	tax rate	for	2015	was	primarily	attributable	to	adjustments	to	the	domestic	manufacturing	deduction	and	an	increase	in	the	goodwill	impairment	that	is	not amortizable	for	tax	purposes.

2014	-	Our	effective	tax	rate	on	earnings	from	continuing	operations	was	 33.3%	in	2014,	compared	to	33.8%	in	2013.	The	decrease	in	our	effective	tax rate	for	2014	was	primarily	attributable	to	an	increase	in	the	domestic	manufacturing	deduction,	partially	offset	by	the	amount	of	the	goodwill	impairment that	is	not	deductible	for	tax	purposes.

# SEGMENT	OPERATING	RESULTS

# Basis	of	Presentation

We	are	aligned	into	three	reportable	segments:	Ingalls,	Newport	News,	and	Other.	We	established	the	Other	segment	in	the	second	quarter	of	2014	to account	for	certain	of	our	non-shipbuilding	commercial	activities.	In	the	first	quarter	of	2014,	we	realigned	our	segments	in	order	to	optimize	our	operating structure.	As	a	result	of	this	realignment,	our	AMSEC	and	CMSD	businesses	were	transferred	from	the	Ingalls	segment	to	the	Newport	News	segment. We	have	reflected	the	2014	realignment	in	prior	financial	reporting	periods	on	an	as-if	basis,	which	has	resulted	in	the	transfer	of	revenue,	operating profit,	assets,	and	liabilities	between	the	Ingalls	and	Newport	News	segments.	None	of	these	changes	impacted	our	previously	reported	consolidated financial	position,	results	of	operations,	or	cash	flows.

On	January	30,	2015,	we	completed	the	acquisition	of	USG.	USG's	post-acquisition	results	of	operations,	financial	position,	and	cash	flows	are	reported within	our	Newport	News	segment.	On	May	30,	2014,	we	completed	the	acquisition	of	UPI.	We	report	the	post-acquisition	results	of	operations,	financial position,	and	cash	flows	of	UPI	as	part	of	our	Other	segment.	On	January	2,	2014,	we	completed	the	acquisition	of	SN3.	SN3's	post-acquisition	results	of operations,	financial	position,	and	cash	flows	are	reported	within	our	Newport	News	segment.

Segment	operating	results	are	presented	in	the	following	table:

|  | Year	Ended	December	31 | Year	Ended	December	31 |  | 2015	over	2014 |  | 2014	over	2013 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 | Dollars | Percent | Dollars | Percent |
| Sales\tand\tService\tRevenues |  |  |  |  |  |  |  |
| Ingalls | $2,188 | $2,286 | $2,441 | $(98) | (4)% | $(155) | (6)% |
| Newport\tNews | 4,700 | 4,536 | 4,382 | 164 | 4\t% | 154 | 4\t% |
| Other | 134 | 137 | — | (3) | (2)% | 137 | —\t% |
| Intersegment\teliminations | (2) | (2) | (3) | — | —\t% | 1 | 33\t% |
| Total\tsales\tand\tservice\trevenues | $7,020 | $6,957 | $6,820 | $63 | 1\t% | $137 | 2\t% |
| Operating\tIncome\t(Loss) |  |  |  |  |  |  |  |
| Ingalls | $379 | $229 | $165 | $150 | 66\t% | $64 | 39\t% |
| Newport\tNews | 422 | 415 | 402 | 7 | 2\t% | 13 | 3\t% |
| Other | (134) | (59) | — | (75) | (127)% | (59) | —\t% |
| Total\tsegment\toperating\tincome\t(loss) | 667 | 585 | 567 | 82 | 14\t% | 18 | 3\t% |
| Non-segment\tfactors\taffecting\toperating\tincome\t(loss) |  |  |  |  |  |  |  |
| FAS/CAS\tAdjustment | 104 | 72 | (61) | 32 | 44\t% | 133 | 218\t% |
| Deferred\tstate\tincome\ttaxes | (2) | (2) | 6 | — | —\t% | (8) | (133)% |
| Total\toperating\tincome\t(loss) | $769 | $655 | $512 | $114 | 17\t% | $143 | 28\t% |

# KEY	SEGMENT	FINANCIAL	MEASURES

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

Segment	operating	income	reflects	the	aggregate	performance	results	of	contracts	within	a	segment.	Excluded	from	this	measure	are	certain	costs	not directly	associated	with	contract	performance,	including	the	FAS/CAS	Adjustment	and	deferred	state	income	taxes.	Changes	in	segment	operating income	are	typically	expressed	in	terms	of	volume,	as	discussed	above,	or	performance.	Performance	refers	to	changes	in	contract	margin	rates.	These changes	typically	relate	to	profit	recognition	associated	with	revisions	to	EAC	that	reflect	improved	(or	deteriorated)	operating	performance	on	a	particular 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.

|  | Year	Ended	December	31 | Year	Ended	December	31 |  | 2015	over	2014 |  | 2014	over	2013 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 | Dollars | Percent | Dollars | Percent |
| Sales\tand\tservice\trevenues | $2,188 | $2,286 | $2,441 | $(98) | (4)% | $(155) | (6)% |
| Segment\toperating\tincome\t(loss) | 379 | 229 | 165 | 150 | 66\t% | 64 | 39\t% |
| As\ta\tpercentage\tof\tsegment\tsales | 17.3% | 10.0% | 6.8% |  |  |  |  |

2015	-	Ingalls	revenues,	including	intersegment	sales,	 decreased	$98	million,	or	4%,	in	2015	compared	to	2014,	driven	by	lower	revenues	in	Amphibious Assault	Ships	and	the	Legend-class	NSC	program,	partially	offset	by	higher	revenues	in	Surface	Combatants.	The	decrease	in	Amphibious	Assault	Ships revenues	was	due	to	lower	volumes	on	LPD-26	John	P.	Murtha,	LPD-27	Portland,	and	LHA-6	USS	America,	partially	offset	by	higher	volume	on	LHA-7 Tripoli.	Revenues	on	the	Legend-class	NSC	program	decreased	due	to	lower	volumes	on	NSC-4	USCGC	 Hamilton	and	NSC-5	USCGC	James,	partially offset	by	higher	volumes	on	NSC-7	Kimball	and	NSC-8	Midgett.	Surface	Combatants	revenues	increased	due	to	higher	volumes	on	DDG-119	 Delbert	D. Black	and	DDG-121	(unnamed),	partially	offset	by	lower	volumes	in	the	DDG-1000	 Zumwalt-class	destroyer	program.

2014	-	Ingalls	revenues,	including	intersegment	sales,	 decreased	$155	million,	or	6%,	in	2014	compared	to	2013,	driven	by	lower	revenues	in Amphibious	Assault	Ships,	partially	offset	by	higher	revenues	in	the	Legend-class	NSC	program	and	Surface	Combatants.	The	decrease	in	Amphibious Assault	Ships	revenues	was	due	to	lower	volumes	on	LHA-6	USS	America	and	LPD-25	USS	Somerset,	partially	offset	by	higher	volumes	on	LHA-7 Tripoli	and	LPD-26	John	P.	Murtha.	Revenues	on	the	Legend-class	NSC	program	increased	due	to	higher	volumes	on	the	construction	contracts	of	NSC- 6	Munro,	NSC-7	Kimball,	and	NSC-5	James,	partially	offset	by	lower	volumes	on	the	construction	of	NSC-4	 Hamilton.	Surface	Combatants	revenues increased	due	to	higher	volumes	on	the	construction	contracts	of	DDG-117	Paul	Ignatius,	DDG-119	Delbert	D.	Black,	and	DDG-114	Ralph	Johnson, partially	offset	by	lower	volumes	on	the	DDG-1000	Zumwalt-class	destroyer	program.

2015	-	Ingalls	operating	income	in	2015	was	$379	million,	compared	to	income	of	$229	million	in	2014.	The	increase	was	primarily	due	to	the	Aon litigation	settlement,	the	resolution	of	outstanding	contract	changes	and	higher	performance	on	the	LHA-6	America-class	program,	as	well	as	higher performance	on	the	Legend-class	NSC	program,	partially	offset	by	the	lower	volumes	described	above.

2014	-	Ingalls	operating	income	in	2014	was	$229	million,	compared	to	income	of	$165	million	in	2013.	The	increase	was	primarily	due	to	performance improvement	and	risk	retirement	on	the	LPD-17	San	Antonio-class	program	and	the	Legend-class	NSC	program,	as	well	as	the	unfavorable	impact	in	the prior	year	of	the	Gulfport	facility	closure,	partially	offset	by	the	favorable	impact	in	the	prior	year	of	hurricane	insurance	recoveries.

|  | Year	Ended	December	31 | Year	Ended	December	31 |  | 2015	over	2014 |  | 2014	over	2013 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 | Dollars | Percent | Dollars | Percent |
| Sales\tand\tservice\trevenues | $4,700 | $4,536 | $4,382 | $164 | 4% | $154 | 4% |
| Segment\toperating\tincome\t(loss) | 422 | 415 | 402 | 7 | 2% | 13 | 3% |
| As\ta\tpercentage\tof\tsegment\tsales | 9.0% | 9.1% | 9.2% |  |  |  |  |

2015	-	Newport	News	revenues,	including	intersegment	sales,	increased	$164	million,	or	4%,	in	2015	compared	to	2014,	primarily	driven	by	higher revenues	in	Submarines	and	Fleet	Support	services,	partially	offset	by	lower	revenues	in	Aircraft	Carriers	and	Energy	services.	Submarines	revenues related	to	the	SSN-774	Virginia-class	submarine	program	were	higher	due	to	higher	volumes	on	Block	IV	boats,	partially	offset	by	lower	volumes	on	Block III	boats.	Higher	revenues	in	Fleet	Support	services	were	primarily	due	to	higher	volumes	associated	with	Aircraft	Carrier	support	services.	Aircraft Carriers	revenues	decreased	due	to	lower	volumes	on	the	execution	contract	for	the	CVN-72	USS	Abraham	Lincoln	RCOH	and	the	construction	contract for	CVN-78	Gerald	R.	Ford,	partially	offset	by	higher	volume	on	the	construction	contract	for	CVN-79	 John	F.	Kennedy.	Lower	revenues	in	Energy services	were	due	to	lower	volumes	on	environmental	remediation	programs.

2014	-	Newport	News	revenues,	including	intersegment	sales,	increased	$154	million,	or	4%,	in	2014	compared	to	2013,	primarily	driven	by	the	SN3 acquisition,	as	well	as	higher	revenues	in	Submarines	and	Energy,	partially	offset	by	lower	revenues	in	Aircraft	Carriers	and	Fleet	Support	services. Submarines	revenues	related	to	the	SSN-774	Virginia-class	submarine	program	were	higher	due	to	higher	volumes	on	Block	IV	advance	procurement and	Block	III	construction	contracts,	partially	offset	by	lower	volumes	on	Block	II	boats	following	the	delivery	of	SSN-783	USS	Minnesota.	Higher	Energy revenues	were	primarily	driven	by	higher	commercial	volumes.	Aircraft	Carriers	revenues	decreased	due	to	lower	volumes	on	the	execution	contract	for the	CVN-71	USS	Theodore	Roosevelt	RCOH	and	the	construction	contract	for	CVN-78	 Gerald	R.	Ford,	partially	offset	by	higher	volumes	on	the execution	contract	for	the	CVN-72	USS	Abraham	Lincoln	RCOH	and	the	inactivation	contract	for	CVN-65	USS	 Enterprise.	Lower	revenues	in	Fleet Support	services	were	primarily	due	to	lower	volumes	associated	with	repair	work	on	SSN-765	USS	Montpelier.

2015	-	Newport	News	operating	income	in	2015	was	$422	million,	compared	to	income	of	$415	million	in	2014.	The	increase	was	due	to	higher	volumes and	performance	on	the	SSN-774	Virginia-class	submarine	program	and	the	resolution	of	outstanding	contract	changes	on	the	CVN-71	USS	 Theodore Roosevelt	RCOH,	partially	offset	by	lower	performance	on	the	construction	contract	for	CVN-78	 Gerald	R.	Ford	and	lower	volumes	in	Aircraft	Carriers RCOH	programs.

2014	-	Newport	News	operating	income	in	2014	was	$415	million,	compared	to	income	of	$402	million	in	2013.	The	increase	was	primarily	related	to	the volume	changes	discussed	above	and	higher	risk	retirement	on	the	construction	contract	for	CVN-78	Gerald	R.	Ford,	offset	by	lower	risk	retirement	on the	CVN-71	USS	Theodore	Roosevelt	RCOH.

|  | Year	Ended	December	31 | Year	Ended	December	31 |  | 2015	over	2014 |  | 2014	over	2013 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 | Dollars | Percent | Dollars | Percent |
| Sales\tand\tservice\trevenues | $134 | $137 | $— | $(3) | (2)% | $137 | —% |
| Segment\toperating\tincome\t(loss) | (134) | (59) | — | (75) | (127)% | (59) | —% |
| As\ta\tpercentage\tof\tsegment\tsales | (100.0)% | (43.1)% | —% |  |  |  |  |

2015	-	Revenues	in	the	Other	segment	for	the	year	ended	December	31,	2015,	decreased	$3	million,	or	2%,	in	2015	compared	to	2014,	primarily	due	to lower	volumes	in	oil	and	gas	services.

2015	-	Operating	loss	in	the	Other	segment	for	the	year	ended	December	31,	2015,	was	$134	million,	compared	to	an	operating	loss	of	$59	million	in 2014.	The	decrease	was	primarily	due	to	goodwill	and	intangible	asset	impairment	charges	and	lower	performance	in	oil	and	gas	services.

2014	-	Other	operating	loss	for	the	year	ended	December	31,	2014,	was	$59	million,	primarily	due	to	the	goodwill	impairment	charge	of $47	million described	above.

Total	backlog	as	of	December	31,	2015,	was	approximately	$22	billion.	Total	backlog	includes	both	funded	backlog	(firm	orders	for	which	funding	is contractually	obligated	by	the	customer)	and	unfunded	backlog	(firm	orders	for	which	funding	is	not	currently	contractually	obligated	by	the	customer). Backlog	excludes	unexercised	contract	options	and	unfunded	Indefinite	Delivery/Indefinite	Quantity	orders.	For	contracts	having	no	stated	contract values,	backlog	includes	only	the	amounts	committed	by	the	customer.

The	following	table	presents	funded	and	unfunded	backlog	by	segment	as	of	 December	31,	2015	and	2014:

|  |  | December	31,	2015 |  |  | December	31,	2014 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | Total |  |  | Total |
| ($\tin\tmillions) | Funded | Unfunded | Backlog | Funded | Unfunded | Backlog |
| Ingalls | $5,153 | $1,290 | $6,443 | $5,609 | $1,889 | $7,498 |
| Newport\tNews | 6,026 | 9,513 | 15,539 | 6,158 | 7,709 | 13,867 |
| Other | 80 | — | 80 | 65 | — | 65 |
| Total\tbacklog | $11,259 | $10,803 | $22,062 | $11,832 | $9,598 | $21,430 |

We	expect	approximately	29%	of	the	$22	billion	total	backlog	as	of	 December	31,	2015,	to	be	converted	into	sales	in	2016.	U.S.	Government	orders comprised	substantially	all	of	the	backlog	as	of	December	31,	2015	and	2014.

# Awards

2015	-	The	value	of	new	contract	awards	during	the	 year	ended	December	31,	2015,	was	approximately	$7.6	billion.	Significant	new	awards	in	 2015 included	contracts	for	detail	design	and	construction	for	CVN-79	John	F.	Kennedy,	construction	of	NSC-8	Midgett,	continued	construction	of	CVN-78 Gerald	R.	Ford,	and	advance	planning	for	the	CVN-73	USS	 George	Washington	RCOH.

2014	-	The	value	of	new	contract	awards	during	the	 year	ended	December	31,	2014,	was	approximately	$10.1	billion.	Significant	new	awards	in	 2014 included	contracts	for	Block	IV	of	the	SSN-774	Virginia-class	submarine	program,	continued	construction	preparation	for	CVN-79	 John	F.	Kennedy,	and construction	of	NSC-7	Kimball.

# LIQUIDITY	AND	CAPITAL	RESOURCES

We	endeavor	to	ensure	the	most	efficient	conversion	of	operating	results	into	cash	for	deployment	in	operating	our	businesses	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	(used	in)	operating	activities:

|  |  | Year	Ended	December	31 |  | 2015	over	2014 |  | 2014	over	2013 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 | Dollars | Percent | Dollars | Percent |
| Net\tearnings\t(loss) | $404 | $338 | $261 | $66 | 20\t% | $77 | 30\t% |
| Depreciation\tand\tamortization | 188 | 205 | 235 | (17) | (8)% | (30) | (13)% |
| Stock-based\tcompensation | 43 | 34 | 44 | 9 | 26\t% | (10) | (23)% |
| Excess\ttax\tbenefit\trelated\tto\tstock-based\tcompensation | (33) | (39) | (24) | 6 | 15\t% | (15) | (63)% |
| Deferred\tincome\ttaxes | (15) | (22) | (28) | 7 | 32\t% | 6 | 21\t% |
| Retiree\tbenefit\tfunding\tless\tthan\t(in\texcess\tof)\texpense | 32 | (4) | (86) | 36 | 900\t% | 82 | 95\t% |
| Insurance\tproceeds\tfor\tinvesting\tpurposes | (21) | — | (58) | (21) | —\t% | 58 | 100\t% |
| Impairment\tof\tgoodwill\tand\tintangible\tassets | 102 | 47 | — | 55 | 117\t% | 47 | —\t% |
| Loss\ton\tearly\textinguishment\tof\tdebt | 44 | 37 | — | 7 | 19\t% | 37 | —\t% |
| Trade\tworking\tcapital\tdecrease\t(increase) | 84 | 120 | (108) | (36) | (30)% | 228 | 211\t% |
| Net\tcash\tprovided\tby\t(used\tin)\toperating\tactivities | $828 | $716 | $236 | $112 | 16\t% | $480 | 203\t% |

# Cash	Flows

We	discuss	below	our	major	operating,	investing,	and	financing	activities	for	each	of	the	three	years	in	the	period	ended December	31,	2015,	as	classified on	our	consolidated	statements	of	cash	flows.

# Operating	Activities

2015	-	Cash	provided	by	operating	activities	was	$828	million	in	2015,	compared	to	$716	million	in	2014.	The	favorable	change	of	$112	million	in operating	cash	flow	was	primarily	due	to	proceeds	from	the	Aon	litigation	settlement	and	a	change	in	funding	of	retiree	benefit	plans,	partially	offset	by higher	payments	for	income	taxes	and	a	change	in	trade	working	capital.	The	change	in	trade	working	capital	was	primarily	driven	by	accounts	receivable and	accounts	payable	due	to	timing	of	receipts	and	payments,	respectively.

We	expect	cash	generated	from	operations	in	2016,	in	combination	with	our	current	cash	and	cash	equivalents,	as	well	as	existing	credit	facilities,	to	be sufficient	to	service	debt,	meet	contractual	obligations,	and	finance	capital	expenditures	for	at	least	the	next	12	months.

2014	-	Cash	provided	by	operating	activities	was	$716	million	in	2014,	compared	to	$236	million	in	2013.	The	increase	of	$480	million	was	due	primarily to	decreases	in	accounts	receivable	and	retirement	benefit	funding.	In	2014,	we	paid	net	cash	of	 $161	million	for	federal	and	state	income	taxes.

# Investing	Activities

2015	-	Cash	used	in	investing	activities	was	$141	million	in	2015,	a	decrease	of	$296	million	from	2014.	The	favorable	change	in	investing	cash	flow	was driven	by	the	2014	acquisitions	of	UPI	and	SN3,	the	sale	of	the	Gulfport	Composite	Center	of	Excellence	in	March	2015,	and	proceeds	from	the	Aon litigation	settlement.	For	2016,	we	expect	our	capital	expenditures	for	maintenance	and	sustainment,	excluding	discretionary	projects,	to	be	between	two and	three	percent	of	annual	revenues.

2014	-	Cash	used	in	investing	activities	was	$437	million	in	2014,	an	increase	of	$356	million	from	2013.	This	increase	in	cash	used	in	investing	activities was	driven	by	the	acquisitions	of	SN3	and	UPI.

# Financing	Activities

2015	-	Cash	used	in	financing	activities	in	2015	was	$783	million,	compared	to	$332	million	used	in	2014.	The	increase	was	primarily	due	to	an additional	$316	million	of	long-term	debt	repayment,	$94	million	of	repurchases	of	common	stock,	$32	million	of	cash	dividend	payments,	$11	million	of debt	related	expenditures,	as	well	as	a	$6	million	decrease	in	excess	tax	benefit	related	to	stock	based	compensation	and	a	$2	million	decrease	in proceeds	from	stock	options	exercised,	partially	offset	by	a	$10	million	decrease	in	employee	tax	withholdings	on	share-based	payment	arrangements	in 2015	compared	to	2014.

2014	-	Cash	used	in	financing	activities	in	2014	was	$332	million,	compared	to	$169	million	used	in	2013.	The	increase	was	primarily	due	to	an additional	$66	million	of	debt	related	expenditures,	$24	million	of	cash	dividend	payments,	and	$19	million	of	repurchases	of	common	stock,	in	addition	to $64	million	in	employee	tax	withholdings	on	share-based	payment	arrangements	in	2014	compared	to	2013.

# Free	Cash	Flow

Free	cash	flow	represents	cash	provided	by	(used	in)	operating	activities	less	capital	expenditures.	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,	analysis	of	our	results	as reported	under	GAAP.	We	believe	free	cash	flow	is	an	important	measure	for	our	investors	because	it	provides	them	insight	into	our	current	and	period- to-period	performance	and	our	ability	to	generate	cash	from	continuing	operations.	We	also	use	free	cash	flow	as	a	key	operating	metric	in	assessing	the performance	of	our	business	and	as	a	key	performance	measure	in	evaluating	management	performance	and	determining	incentive	compensation.	Free cash	flow	may	not	be	comparable	to	similarly	titled	measures	of	other	companies.

The	following	table	reconciles	net	cash	provided	by	operating	activities	to	free	cash	flow:

|  |  | Year	Ended	December	31 |  |
| :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 |
| Net\tcash\tprovided\tby\t(used\tin)\toperating\tactivities | $828 | $716 | $236 |
| Less: |  |  |  |
| Capital\texpenditures | (188) | (165) | (139) |
| Free\tcash\tflow | $640 | $551 | $97 |

2015	-	Free	cash	flow	increased	$89	million	from	2014,	primarily	due	to	proceeds	from	the	Aon	litigation	settlement	and	a	change	in	funding	of	retiree benefit	plans,	partially	offset	by	higher	payments	for	income	taxes,	capital	expenditures,	and	a	change	in	trade	working	capital.

2014	-	Free	cash	flow	increased	$454	million	from	2013,	due	primarily	to	decreases	in	accounts	receivable	and	retirement	benefit	funding,	partially	offset by	increased	capital	expenditures	in	2014.

# Retirement	Related	Benefit	Plan	Contributions

ERISA,	including	amendments	under	pension	relief,	defines	the	minimum	amount	that	must	be	contributed	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	plans'	funded	status.	If	the	IRS	publishes	updated	mortality	tables	for	funding purposes,	our	pension	contributions	could	be	affected.	We	made	the	following	minimum	and	discretionary	contributions	to	our	pension	and	other postretirement	plans	in	the	years	ended	December	31,	2015,	2014	and	2013:

|  |  | Year	Ended	December	31 |  |
| :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 |
| Pension\tplans |  |  |  |
| Discretionary |  |  |  |
| Qualified | $99 | $123 | $301 |
| Non-qualified | 4 | 3 | 4 |
| Other\tbenefit\tplans | 33 | 33 | 38 |
| Total\tcontributions | $136 | $159 | $343 |

We	made	discretionary	contributions	to	our	qualified	defined	benefit	pension	plans	totaling $99	million,	$123	million,	and	$301	million	in	the	years	ended December	31,	2015,	2014,	and	2013,	respectively.

As	of	December	31,	2015	and	2014,	our	qualified	pension	plans	were	funded	84%	and	86%,	respectively,	on	a	FAS	basis.	As	of	December	31,	2015	and 2014,	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	develop	respective	obligations	for	these	two	different purposes.	We	expect	our	2016	cash	contributions	to	our	qualified	defined	benefit	pension	plans	to	be	 $167	million,	all	of	which	we	anticipate	will	be discretionary	and	are	exclusive	of	CAS	cost	recoveries	in	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	contributions	were	$33	million,	$33	million,	and	$38	million	in	2015,	2014,	and	2013,	respectively.	We	expect	our	2016 contributions	to	our	other	postretirement	benefit	plans	to	be	approximately	$37	million,	which	are	exclusive	of	CAS	cost	recoveries	in	our	contracts. Contributions	for	postretirement	benefits	are	not	required	to	be	funded	in	advance	and	are	paid	on	an	as-incurred	basis.

# Other	Sources	and	Uses	of	Capital

Stockholder	Distributions	-	In	October	2015,	our	board	of	directors	authorized	an	increase	in	our	quarterly	cash	dividend	to	$0.50	per	share.	The	board previously	increased	the	quarterly	cash	dividend	to	$0.40	per	share	in	October	2014	and	$0.20	per	share	in	October	2013.	We	paid	cash	dividends totaling	$81	million	($1.70	per	share),	$49	million	($1.00	per	share),	and	$25	million	($0.50	per	share)	in	the	years	ended	 December	31,	2015,	2014,	and 2013,	respectively.

In	October	2015,	our	board	of	directors	authorized	an	increase	in	our	existing	stock	repurchase	program	to	 $1,200	million	of	our	outstanding	shares	of common	stock.	The	board	previously	authorized	an	increase	in	our	existing	stock	repurchase	program	from	$300	million	to	$600	million	in	October	2014 and	from	$150	million	to	$300	million	in	October	2013.	Repurchases	are	made	from	time	to	time	at	management's	discretion	in	accordance	with applicable	federal	securities	laws.	For	the	years	ended	December	31,	2015,	2014,	and	2013,	we	repurchased	1,987,550,	1,407,729,	and	1,722,991 shares,	respectively,	at	a	cost	of	$234	million,	$138	million,	and	$119	million,	respectively.

Additional	Capital	-	In	2011,	we	issued	$1,200	million	of	senior	notes	(consisting	of	$600	million	of	6.875%	senior	notes	due	in	2018	and	$600	million	of 7.125%	senior	notes	due	in	2021).	In	November	2015,	we	issued	$600	million	aggregate	principal	amount	of	5.000%	senior	notes	due	November	15, 2025.	The	net	proceeds	from	the	issuance	of	these	senior	notes	were	used	to	repurchase	our	7.125%	senior	notes	due	March	15,	2021.	In	December 2014,	we	issued	$600	million	aggregate	principal	amount	of	5.000%	senior	notes	due	December	15,	2021.	The	net	proceeds	from	the	issuance	of	these senior	notes	were	used	to	repurchase	our	6.875%	senior	notes	due	in	2018.	Interest	on	our	senior	notes	is	payable	semi-annually.

In	July	2015,	we	entered	into	the	Amended	Credit	Facility	with	third-party	lenders.	The	Amended	Credit	Facility	includes	a	revolving	credit	facility	of $1,250	million,	which	may	be	drawn	upon	during	a	period	of	five	years	from	July	13,	2015.	The	revolving	credit	facility	includes	a	letter	of	credit	subfacility of	$500	million.	The	revolving	credit	facility	has	a	variable	interest	rate	on	outstanding	borrowings	based	on	the	London	Interbank	Offered	Rate	("LIBOR") plus	a	spread	based	upon	our	leverage	ratio,	which	may	vary	between	1.25%	and	2.00%.	The	revolving	credit	facility	also	has	a	commitment	fee	rate	on the	unutilized	balance	based	on	our	leverage	ratio.	As	of

December	31,	2015,	approximately	$27	million	in	letters	of	credit	were	issued	but	undrawn	under	the	revolving	credit	facility,	and	the	remaining $1,223 million	was	unutilized.

We	made	term	loan	payments	of	$395	million	during	the	year	ended	December	31,	2015,	using	cash	generated	from	operations.

We	were	in	compliance	with	all	debt-related	covenants	as	of	and	during	the	year	ended December	31,	2015.	For	a	description	of	our	outstanding	debt amounts	and	related	restrictive	covenants,	see	Note	14:	Debt	in	Item	8.

# CONTRACTUAL	OBLIGATIONS

As	of	December	31,	2015,	our	total	outstanding	long-term	debt	was	 $1,273	million,	consisting	of	senior	notes	and	third-party	debt	that	remained outstanding	subsequent	to	the	spin-off.	For	a	description	of	our	outstanding	debt	amounts	and	related	restrictive	covenants,	see	Note	14:	Debt	in	Item	8.

In	connection	with	the	spin-off,	we	entered	into	a	Tax	Matters	Agreement	with	Northrop	Grumman	(the	"Tax	Matters	Agreement"),	which	governs	the respective	rights,	responsibilities,	and	obligations	of	Northrop	Grumman	and	us	after	the	spin-off	with	respect	to	tax	liabilities	and	benefits,	tax	attributes, tax	contests,	and	other	tax	sharing	regarding	U.S.	federal,	state,	local,	and	foreign	income	taxes,	other	taxes,	and	related	tax	returns.	We	have	several liabilities	with	Northrop	Grumman	to	the	Internal	Revenue	Service	("IRS")	for	the	consolidated	U.S.	federal	income	taxes	of	the	Northrop	Grumman consolidated	group	relating	to	the	taxable	periods	in	which	we	were	part	of	that	group.	The	Tax	Matters	Agreement	specifies	the	portion	of	this	tax	liability for	which	we	will	bear	responsibility,	and	Northrop	Grumman	has	agreed	to	indemnify	us	against	any	amounts	for	which	we	are	not	responsible.	The	Tax Matters	Agreement	also	provides	special	rules	for	allocating	tax	liabilities	in	the	event	that	the	spin-off,	together	with	certain	related	transactions,	is	not tax-free.

The	following	table	presents	our	contractual	obligations	as	of	 December	31,	2015,	and	the	related	estimated	timing	of	future	cash	payments:

| ($	in	millions) | Total | 2016 | 2017	-	2018 | 2019	-	2020 | 2021	and<br>beyond |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Long-term\tdebt | $1,305 | $— | $— | $— | $1,305 |
| Interest\tpayments\ton\tlong-term\tdebt | 569 | 71 | 142 | 141 | 215 |
| Operating\tleases | 197 | 35 | 57 | 42 | 63 |
| Purchase\tobligations\t(1) | 2,494 | 949 | 778 | 266 | 501 |
| Other\tlong-term\tliabilities\t(2) | 761 | 105 | 116 | 88 | 452 |
| Total\tcontractual\tobligations | $5,326 | $1,160 | $1,093 | $537 | $2,536 |

(1) 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.	These	amounts	are	primarily	comprised	of	open	purchase	order	commitments	to	vendors	and	subcontractors	pertaining	to	funded contracts.

(2) Other	long-term	liabilities	primarily	consist	of	total	accrued	workers'	compensation	reserves,	deferred	compensation,	and	other	miscellaneous liabilities,	of	which	$227	million	is	the	current	portion	of	workers'	compensation	liabilities.	It	excludes	obligations	for	uncertain	tax	positions	of $30 million,	for	which	the	timing	of	the	payments,	if	any,	cannot	be	reasonably	estimated.

The	above	table	excludes	retirement	related	contributions.	Amounts	for	retirement	related	contributions	depend	on	plan	provisions,	actuarial	assumptions, actual	plan	asset	performance,	and	other	factors	described	under	retirement	related	plans	in	Critical	Accounting	Policies,	Estimates	and	Judgments	and under	Liquidity	and	Capital	Resources.

Further	details	regarding	long-term	debt	and	operating	leases	can	be	found	in	Note	14:	Debt	and	Note	16:	Commitments	and	Contingencies	in	Item	8.

# Off-Balance	Sheet	Arrangements

In	the	ordinary	course	of	business,	we	use	standby	letters	of	credit	issued	by	commercial	banks	and	surety	bonds	issued	by	insurance	companies principally	to	support	our	self-insured	workers'	compensation	plans.	As	of	December	31,	2015,	$27	million	in	standby	letters	of	credit	were	issued	but undrawn	and	$356	million	of	surety	bonds	were	outstanding.

As	of	December	31,	2015,	we	had	no	other	significant	off-balance	sheet	arrangements	other	than	operating	leases.	For	a	description	of	our	operating leases,	see	Note	2:	Summary	of	Significant	Accounting	Policies	and	Note	16:	Commitments	and	Contingencies	in	Item	8.

# GLOSSARY	OF	PROGRAMS

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

# Legend-class	National	Security	Cutter

Design	and	build	the	U.S.	Coast	Guard's	National	Security	Cutters,	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	eight	ships,	of which	the	first	five	ships	have	been	delivered.	NSC-6	Munro,	NSC-7	Kimball	and	NSC-8 Midgett	are	currently	under	construction.

LHA-6	America-class	amphibious	assault	ships Design	and	build	amphibious	assault	ships	that	provide	forward	presence	and	power projection	as	an	integral	part	of	joint,	interagency	and	multinational	maritime expeditionary	forces.	The	LHA-6	America-class	ships,	together	with	the	LHD-1	Wasp- class	ships,	are	the	successors	to	the	decommissioned	LHA-1	Tarawa-class	ships.	The LHA-6	America-class	ships	optimize	aviation	operations	and	support	capabilities.	We delivered	LHA-6	USS	America	in	April	2014	and	LHA-7	 Tripoli	is	currently	under construction. LPD-17	San	Antonio-class	amphibious	transport	dock ships Design	and	build	amphibious	transport	dock	ships,	which	are	warships	that	embark, transport	and	land	elements	of	a	landing	force	for	a	variety	of	expeditionary	warfare missions,	and	also	serve	as	the	secondary	aviation	platform	for	Amphibious	Readiness Groups.	The	LPD-17	San	Antonio-class	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	October	2013,	we	delivered	LPD-25	USS	Somerset,	and	we are	currently	constructing	LPD-26	John	P.	Murtha	and	LPD-27	Portland.	The	LPD-17 San	Antonio-class	currently	includes	a	total	of	11	ships. Savannah	River	Nuclear	Solutions,	LLC Participate,	as	a	minority	member	in	a	joint	venture,	in	the	management	and	operation of	DoE	nuclear	sites,	currently	at	the	Savannah	River	Site	near	Aiken,	South	Carolina, and	potentially	at	other	DoE	sites.	Our	joint	venture	partners	at	the	Savannah	River	Site include	Fluor	Federal	Services,	Inc.	and	Honeywell	International	Inc. SSBN(X)	Ohio-class	Submarine	Replacement	Program Perform,	through	an	agreement	with	Electric	Boat,	as	design	subcontractor	for	the SSBN(X)	Ohio-class	replacement	boats.	The	U.S.	Navy	has	committed	to	designing	a replacement	class	for	the	SSBN	Ohio-class	ballistic	missile	submarines,	which	were	first introduced	into	service	in	1981.	The	SSBN	Ohio-class	includes	14	ballistic	missile submarines	and	four	nuclear	cruise	missile	submarines.	The	Ohio	Replacement Program	currently	anticipates	12	new	ballistic	missile	submarines	over	a	15-year	period at	a	cost	of	approximately	$5	billion	to	$7	billion	each.	The	U.S.	Navy	has	initiated	the design	process	for	the	new	class	of	submarine,	and	we	have	begun	design	work	as	a subcontractor	to	Electric	Boat.	Congress	has	delayed	the	start	of	the first	Ohio	replacement	submarine	by	two	years	and	construction	is	now	expected	to begin	in	2021,	with	procurement	of	long-lead-time	materials	in	2017	and	delivery	in 2030.	The	first	Ohio-class	ballistic	missile	submarine	is	expected	to	be	retired	in	2027 with	an	additional	submarine	being	retired	each	year	thereafter.	By	2030	the	Ohio-class ballistic	missile	submarine	fleet	is	expected	to	be	ten.	The	current	fiscal	environment	and uncertainty	in	defense	budgets	may	cause	additional	delay	to	the	start	of	construction	or result	in	a	reduction	in	the	number	of	ships	being	procured,	but	we	believe	the Ohio	Replacement	Program	may	represent	an	opportunity	for	us	in	the	future. SSN-774	Virginia-class	fast	attack	submarines Construct	the	newest	attack	submarines	as	the	principal	subcontractor	to	Electric	Boat. The	SSN-774	Virginia-class	is	a	post-Cold	War	design	tailored	to	excel	in	a	wide	range of	warfighting	missions,	including	anti-submarine	and	surface	ship	warfare;	special operation	forces;	strike;	intelligence,	surveillance,	and	reconnaissance;	carrier	and expeditionary	strike	group	support;	and	mine	warfare.

# ITEM	7A.				QUANTITATIVE	AND	QUALITATIVE	DISCLOSURES	ABOUT	MARKET	RISK

We	are	exposed	to	market	risk,	primarily	related	to	interest	rates	and	foreign	currency	exchange	rates.

Interest	Rates	-	Our	financial	instruments	subject	to	interest	rate	risk	include	floating	rate	borrowings	under	our	Amended	Credit	Facility.	Our 	$1,250 million	revolving	facility	under	our	Amended	Credit	Facility	was	undrawn	as	of	December	31,	2015.

Foreign	Currency	-	We	currently	have,	and	in	the	future	may	enter	into,	foreign	currency	forward	contracts	to	manage	foreign	currency	exchange	rate	risk related	to	payments	to	suppliers	denominated	in	foreign	currencies.	As	of	December	31,	2015,	the	fair	values	of	our	outstanding	foreign	currency	forward contracts	were	not	significant.

# ITEM	8.	FINANCIAL	STATEMENTS	AND	SUPPLEMENTARY	DATA

# REPORT	OF	INDEPENDENT	REGISTERED	PUBLIC	ACCOUNTING	FIRM

# To	the	Board	of	Directors	and	Stockholders	of

# Newport	News,	Virginia

We	have	audited	the	accompanying	consolidated	statements	of	financial	position	of	Huntington	Ingalls	Industries,	Inc.	and	subsidiaries	(the	"Company") as	of	December	31,	2015	and	2014,	and	the	related	consolidated	statements	of	operations	and	comprehensive	income,	changes	in	equity,	and	cash flows	for	each	of	the	three	years	in	the	period	ended	December	31,	2015.	Our	audits	also	included	the	financial	statement	schedule	listed	in	the	Index	at Item	15.	These	financial	statements	and	financial	statement	schedule	are	the	responsibility	of	the	Company's	management.	Our	responsibility	is	to express	an	opinion	on	the	financial	statements	and	financial	statement	schedule	based	on	our	audits.

We	conducted	our	audits	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require that	we	plan	and	perform	the	audit	to	obtain	reasonable	assurance	about	whether	the	financial	statements	are	free	of	material	misstatement.	An	audit includes	examining,	on	a	test	basis,	evidence	supporting	the	amounts	and	disclosures	in	the	financial	statements.	An	audit	also	includes	assessing	the accounting	principles	used	and	significant	estimates	made	by	management,	as	well	as	evaluating	the	overall	financial	statement	presentation.	We	believe that	our	audits	provide	a	reasonable	basis	for	our	opinion.

In	our	opinion,	such	consolidated	financial	statements	present	fairly,	in	all	material	respects,	the	financial	position	of	Huntington	Ingalls	Industries,	Inc. and	subsidiaries	as	of	December	31,	2015	and	2014,	and	the	results	of	their	operations	and	their	cash	flows	for	each	of	the	three	years	in	the	period ended	December	31,	2015,	in	conformity	with	accounting	principles	generally	accepted	in	the	United	States	of	America.	Also,	in	our	opinion,	such financial	statement	schedule,	when	considered	in	relation	to	the	basic	consolidated	financial	statements	taken	as	a	whole,	present	fairly,	in	all	material respects,	the	information	set	forth	therein.

We	have	also	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	the	Company's	internal control	over	financial	reporting	as	of	December	31,	2015,	based	on	the	criteria	established	in	Internal	Control	-	Integrated	Framework	(2013)	issued	by the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	and	our	report	dated	February	18,	2016	expressed	an	unqualified	opinion	on the	Company's	internal	control	over	financial	reporting.

/s/	DELOITTE	&	TOUCHE	LLP

Richmond,	Virginia

We	have	audited	the	internal	control	over	financial	reporting	of	Huntington	Ingalls	Industries,	Inc.	and	subsidiaries	(the	"Company")	as	of	December	31, 2015,	based	on	criteria	established	in	Internal	Control	-	Integrated	Framework	(2013)	issued	by	the	Committee	of	Sponsoring	Organizations	of	the Treadway	Commission.	The	Company's	management	is	responsible	for	maintaining	effective	internal	control	over	financial	reporting	and	for	its assessment	of	the	effectiveness	of	internal	control	over	financial	reporting,	included	in	the	accompanying	Management's	Report	on	Internal	Control	over Financial	Reporting.	Our	responsibility	is	to	express	an	opinion	on	the	Company's	internal	control	over	financial	reporting	based	on	our	audit.

We	conducted	our	audit	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require that	we	plan	and	perform	the	audit	to	obtain	reasonable	assurance	about	whether	effective	internal	control	over	financial	reporting	was	maintained	in	all material	respects.	Our	audit	included	obtaining	an	understanding	of	internal	control	over	financial	reporting,	assessing	the	risk	that	a	material	weakness exists,	testing	and	evaluating	the	design	and	operating	effectiveness	of	internal	control	based	on	the	assessed	risk,	and	performing	such	other procedures	as	we	considered	necessary	in	the	circumstances.	We	believe	that	our	audit	provides	a	reasonable	basis	for	our	opinion.

A	company's	internal	control	over	financial	reporting	is	a	process	designed	by,	or	under	the	supervision	of,	the	company's	principal	executive	and principal	financial	officers,	or	persons	performing	similar	functions,	and	effected	by	the	company's	board	of	directors,	management,	and	other	personnel	to provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the	preparation	of	financial	statements	for	external	purposes	in accordance	with	generally	accepted	accounting	principles.	A	company's	internal	control	over	financial	reporting	includes	those	policies	and	procedures that	(1)	pertain	to	the	maintenance	of	records	that,	in	reasonable	detail,	accurately	and	fairly	reflect	the	transactions	and	dispositions	of	the	assets	of	the company;	(2)	provide	reasonable	assurance	that	transactions	are	recorded	as	necessary	to	permit	preparation	of	financial	statements	in	accordance	with generally	accepted	accounting	principles,	and	that	receipts	and	expenditures	of	the	company	are	being	made	only	in	accordance	with	authorizations	of management	and	directors	of	the	company;	and	(3)	provide	reasonable	assurance	regarding	prevention	or	timely	detection	of	unauthorized	acquisition, use,	or	disposition	of	the	company's	assets	that	could	have	a	material	effect	on	the	financial	statements.

Because	of	the	inherent	limitations	of	internal	control	over	financial	reporting,	including	the	possibility	of	collusion	or	improper	management	override	of controls,	material	misstatements	due	to	error	or	fraud	may	not	be	prevented	or	detected	on	a	timely	basis.	Also,	projections	of	any	evaluation	of	the effectiveness	of	the	internal	control	over	financial	reporting	to	future	periods	are	subject	to	the	risk	that	the	controls	may	become	inadequate	because	of changes	in	conditions,	or	that	the	degree	of	compliance	with	the	policies	or	procedures	may	deteriorate.

In	our	opinion,	the	Company	maintained,	in	all	material	respects,	effective	internal	control	over	financial	reporting	as	of	December	31,	2015,	based	on	the criteria	established	in	Internal	Control-	Integrated	Framework	(2013)	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission.

We	have	also	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	the	consolidated	financial statements	and	financial	statement	schedule	as	of	and	for	the	year	ended	December	31,	2015	of	the	Company	and	our	report	dated	February	18,	2016 expressed	an	unqualified	opinion	on	those	financial	statements	and	financial	statement	schedule.

# CONSOLIDATED	STATEMENTS	OF	OPERATIONS	AND	COMPREHENSIVE	INCOME

|  |  | Year	Ended	December	31 |  |
| :--- | :--- | :--- | :--- |
| (in\tmillions,\texcept\tper\tshare\tamounts) | 2015 | 2014 | 2013 |
| Sales\tand\tservice\trevenues |  |  |  |
| Product\tsales | $5,665 | $5,712 | $5,801 |
| Service\trevenues | 1,355 | 1,245 | 1,019 |
| Total\tsales\tand\tservice\trevenues | 7,020 | 6,957 | 6,820 |
| Cost\tof\tsales\tand\tservice\trevenues |  |  |  |
| Cost\tof\tproduct\tsales | 4,319 | 4,489 | 4,695 |
| Cost\tof\tservice\trevenues | 1,198 | 1,051 | 888 |
| Income\t(loss)\tfrom\toperating\tinvestments,\tnet | 10 | 11 | 14 |
| General\tand\tadministrative\texpenses | 669 | 726 | 739 |
| Goodwill\timpairment | 75 | 47 | — |
| Operating\tincome\t(loss) | 769 | 655 | 512 |
| Other\tincome\t(expense) |  |  |  |
| Interest\texpense | (137) | (149) | (118) |
| Other,\tnet | — | 1 | — |
| Earnings\t(loss)\tbefore\tincome\ttaxes | 632 | 507 | 394 |
| Federal\tincome\ttaxes | 228 | 169 | 133 |
| Net\tearnings\t(loss) | $404 | $338 | $261 |
| Basic\tearnings\t(loss)\tper\tshare | $8.43 | $6.93 | $5.25 |
| Weighted-average\tcommon\tshares\toutstanding | 47.9 | 48.8 | 49.7 |
| Diluted\tearnings\t(loss)\tper\tshare | $8.36 | $6.86 | $5.18 |
| Weighted-average\tdiluted\tshares\toutstanding | 48.3 | 49.3 | 50.4 |
| Net\tearnings\t(loss)\tfrom\tabove | $404 | $338 | $261 |
| Other\tcomprehensive\tincome\t(loss) |  |  |  |
| Change\tin\tunamortized\tbenefit\tplan\tcosts | 34 | (558) | 1,159 |
| Other | (5) | — | 4 |
| Tax\tbenefit\t(expense)\tfor\titems\tof\tother\tcomprehensive\tincome | (12) | 217 | (458) |
| Other\tcomprehensive\tincome\t(loss),\tnet\tof\ttax | 17 | (341) | 705 |
| Comprehensive\tincome\t(loss) | $421 | $(3) | $966 |

The	accompanying	notes	are	an	integral	part	of	these	consolidated	financial	statements.

# CONSOLIDATED	STATEMENTS	OF	FINANCIAL	POSITION

|  | December	31 |  |
| :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 |
| Assets |  |  |
| Current\tAssets |  |  |
| Cash\tand\tcash\tequivalents | $894 | $990 |
| Accounts\treceivable,\tnet | 1,074 | 1,038 |
| Inventoried\tcosts,\tnet | 285 | 339 |
| Prepaid\texpenses\tand\tother\tcurrent\tassets | 31 | 50 |
| Total\tcurrent\tassets | 2,284 | 2,417 |
| Property,\tPlant,\tand\tEquipment |  |  |
| Land\tand\tland\timprovements | 242 | 233 |
| Buildings\tand\tleasehold\timprovements | 1,579 | 1,498 |
| Machinery\tand\tother\tequipment | 1,315 | 1,240 |
| Capitalized\tsoftware\tcosts | 180 | 172 |
|  | 3,316 | 3,143 |
| Accumulated\tdepreciation\tand\tamortization | (1,489) | (1,351) |
| Property,\tplant,\tand\tequipment,\tnet | 1,827 | 1,792 |
| Other\tAssets |  |  |
| Goodwill | 956 | 1,026 |
| Other\tintangible\tassets,\tnet | 495 | 547 |
| Pension\tplan\tassets | — | 17 |
| Long-term\tdeferred\ttax\tassets | 336 | 341 |
| Miscellaneous\tother\tassets | 126 | 99 |
| Total\tother\tassets | 1,913 | 2,030 |
| Total\tassets | $6,024 | $6,239 |

# CONSOLIDATED	STATEMENTS	OF	FINANCIAL	POSITION	-	CONTINUED

|  | December	31 |  |
| :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 |
| Liabilities\tand\tStockholders'\tEquity |  |  |
| Current\tLiabilities |  |  |
| Trade\taccounts\tpayable | $317 | $269 |
| Accrued\temployees'\tcompensation | 215 | 248 |
| Current\tportion\tof\tlong-term\tdebt | — | 108 |
| Current\tportion\tof\tpostretirement\tplan\tliabilities | 143 | 143 |
| Current\tportion\tof\tworkers'\tcompensation\tliabilities | 227 | 221 |
| Advance\tpayments\tand\tbillings\tin\texcess\tof\trevenues | 125 | 74 |
| Other\tcurrent\tliabilities | 247 | 249 |
| Total\tcurrent\tliabilities | 1,274 | 1,312 |
| Long-term\tdebt | 1,273 | 1,562 |
| Pension\tplan\tliabilities | 1,001 | 939 |
| Other\tpostretirement\tplan\tliabilities | 423 | 507 |
| Workers'\tcompensation\tliabilities | 460 | 449 |
| Other\tlong-term\tliabilities | 103 | 105 |
| Total\tliabilities | 4,534 | 4,874 |
| Commitments\tand\tContingencies\t(Note\t16) |  |  |
| Stockholders'\tEquity |  |  |
|  | 1 | 1 |
| Additional\tpaid-in\tcapital | 1,978 | 1,959 |
| Retained\tearnings\t(deficit) | 848 | 525 |
| Treasury\tstock | (492) | (258) |
| Accumulated\tother\tcomprehensive\tincome\t(loss) | (845) | (862) |
| Total\tstockholders'\tequity | 1,490 | 1,365 |
| Total\tliabilities\tand\tstockholders'\tequity | $6,024 | $6,239 |

# CONSOLIDATED	STATEMENTS	OF	CASH	FLOWS

|  |  | Year	Ended	December	31 |  |
| :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 |
| Operating\tActivities |  |  |  |
| Net\tearnings\t(loss) | $404 | $338 | $261 |
| Adjustments\tto\treconcile\tto\tnet\tcash\tprovided\tby\t(used\tin)\toperating\tactivities |  |  |  |
| Depreciation | 154 | 166 | 206 |
| Amortization\tof\tpurchased\tintangibles | 26 | 28 | 20 |
| Amortization\tof\tdebt\tissuance\tcosts | 8 | 11 | 9 |
| Stock-based\tcompensation | 43 | 34 | 44 |
| Excess\ttax\tbenefit\trelated\tto\tstock-based\tcompensation | (33) | (39) | (24) |
| Deferred\tincome\ttaxes | (15) | (22) | (28) |
| Proceeds\tfrom\tinsurance\tsettlement\trelated\tto\tinvesting\tactivities | (21) | — | (58) |
| Impairment\tof\tgoodwill\tand\tintangible\tassets | 102 | 47 | — |
| Loss\ton\tearly\textinguishment\tof\tdebt | 44 | 37 | — |
| Change\tin |  |  |  |
| Accounts\treceivable | (41) | 140 | (218) |
| Inventoried\tcosts | 54 | 53 | 51 |
| Prepaid\texpenses\tand\tother\tassets | (31) | 7 | (15) |
| Accounts\tpayable\tand\taccruals | 97 | (86) | 69 |
| Retiree\tbenefits | 32 | (4) | (86) |
| Other\tnon-cash\ttransactions,\tnet | 5 | 6 | 5 |
| Net\tcash\tprovided\tby\t(used\tin)\toperating\tactivities | 828 | 716 | 236 |
| Investing\tActivities |  |  |  |
| Additions\tto\tproperty,\tplant,\tand\tequipment | (188) | (165) | (139) |
| Proceeds\tfrom\tdisposition\tof\tassets | 32 | — | — |
| Acquisitions\tof\tbusinesses,\tnet\tof\tcash\treceived | (6) | (272) | — |
| Proceeds\tfrom\tinsurance\tsettlement\trelated\tto\tinvesting\tactivities | 21 | — | 58 |
| Net\tcash\tprovided\tby\t(used\tin)\tinvesting\tactivities | (141) | (437) | (81) |
| Financing\tActivities |  |  |  |
| Proceeds\tfrom\tissuance\tof\tlong-term\tdebt | 600 | 600 | — |
| Repayment\tof\tlong-term\tdebt | (995) | (679) | (51) |
| Debt\tissuance\tcosts | (21) | (12) | (5) |
| Tender\tpremiums\tand\tfees\trelated\tto\tearly\textinguishment\tof\tdebt | (33) | (31) | — |
| Dividends\tpaid | (81) | (49) | (25) |
| Repurchases\tof\tcommon\tstock | (232) | (138) | (119) |
| Employee\ttaxes\ton\tcertain\tshare-based\tpayment\tarrangements | (54) | (64) | — |
| Proceeds\tfrom\tstock\toption\texercises | — | 2 | 7 |
| Excess\ttax\tbenefit\trelated\tto\tstock-based\tcompensation | 33 | 39 | 24 |
| Net\tcash\tprovided\tby\t(used\tin)\tfinancing\tactivities | (783) | (332) | (169) |
| Change\tin\tcash\tand\tcash\tequivalents | (96) | (53) | (14) |
| Cash\tand\tcash\tequivalents,\tbeginning\tof\tperiod | 990 | 1,043 | 1,057 |
| Cash\tand\tcash\tequivalents,\tend\tof\tperiod | $894 | $990 | $1,043 |
| Supplemental\tCash\tFlow\tDisclosure |  |  |  |
| Cash\tpaid\tfor\tincome\ttaxes | $242 | $161 | $154 |
| Cash\tpaid\tfor\tinterest | $96 | $113 | $109 |
| Non-Cash\tInvesting\tand\tFinancing\tActivities |  |  |  |
| Capital\texpenditures\taccrued\tin\taccounts\tpayable | $17 | $9 | $12 |

# CONSOLIDATED	STATEMENTS	OF	CHANGES	IN	EQUITY

| ($	in	millions) | Common<br>Stock | Additional<br>Paid-in	Capital | Retained<br>Earnings<br>(Deficit) | Treasury<br>Stock | Accumulated	Other<br>Comprehensive	Income<br>(Loss) | Total	Stockholders'<br>Equity |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Balance\tas\tof\tDecember\t31,\t2012 | $— | $1,894 | $— | $(1) | $(1,226) | $667 |
| Net\tearnings\t(loss) | — | — | 261 | — | — | 261 |
| Dividends\tdeclared\t($0.50\tper\tshare) | — | — | (25) | — | — | (25) |
| Additional\tpaid-in\tcapital | — | 31 | — | — | — | 31 |
| Other\tcomprehensive\tincome\t(loss),\tnet\tof\ttax | — | — | — | — | 705 | 705 |
| Common\tstock | 1 | — | — | — | — | 1 |
| Treasury\tstock\tactivity | — | — | — | (119) | — | (119) |
| Balance\tas\tof\tDecember\t31,\t2013 | 1 | 1,925 | 236 | (120) | (521) | 1,521 |
| Net\tearnings\t(loss) | — | — | 338 | — | — | 338 |
| Dividends\tdeclared\t($1.00\tper\tshare) | — | — | (49) | — | — | (49) |
| Additional\tpaid-in\tcapital | — | 34 | — | — | — | 34 |
| Other\tcomprehensive\tincome\t(loss),\tnet\tof\ttax | — | — | — | — | (341) | (341) |
| Treasury\tstock\tactivity | — | — | — | (138) | — | (138) |
| Balance\tas\tof\tDecember\t31,\t2014 | 1 | 1,959 | 525 | (258) | (862) | 1,365 |
| Net\tearnings\t(loss) | — | — | 404 | — | — | 404 |
| Dividends\tdeclared\t($1.70\tper\tshare) | — | — | (81) | — | — | (81) |
| Additional\tpaid-in\tcapital | — | 19 | — | — | — | 19 |
| Other\tcomprehensive\tincome\t(loss),\tnet\tof\ttax | — | — | — | — | 17 | 17 |
| Treasury\tstock\tactivity | — | — | — | (234) | — | (234) |
| Balance\tas\tof\tDecember\t31,\t2015 | $1 | $1,978 | $848 | $(492) | $(845) | $1,490 |

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

# 1.	DESCRIPTION	OF	BUSINESS

For	more	than	a	century,	Huntington	Ingalls	Industries,	Inc.	("HII"	or	the	"Company")	has	been	designing,	building,	overhauling	and	repairing	ships primarily	for	the	U.S.	Navy	and	the	U.S.	Coast	Guard.	The	Company	conducts	business	primarily	with	the	U.S.	Government,	principally	the	Department of	Defense	("DoD").	As	prime	contractor,	principal	subcontractor,	team	member	or	partner,	HII	participates	in	many	high-priority	U.S.	defense	technology programs.	HII	is	organized	into	three	reportable	segments:	Ingalls,	Newport	News,	and	Other.	Through	its	Ingalls	segment,	HII	is	a	builder	of	amphibious assault	and	expeditionary	ships	for	the	U.S.	Navy,	the	sole	builder	of	National	Security	Cutters	("NSCs")	for	the	U.S.	Coast	Guard,	and	one	of	only	two companies	that	builds	the	Navy's	current	fleet	of	DDG-51	Arleigh	Burke-class	destroyers.	Through	its	Newport	News	segment,	HII	is	the	nation's	sole designer,	builder	and	refueler	of	nuclear-powered	aircraft	carriers,	and	one	of	only	two	companies	currently	designing	and	building	nuclear-powered submarines	for	the	U.S.	Navy.	The	Other	segment	was	established	in	the	second	quarter	of	2014	to	account	for	certain	of	the	Company's	non- shipbuilding	commercial	activities.

# 2.	SUMMARY	OF	SIGNIFICANT	ACCOUNTING	POLICIES

Principles	of	Consolidation	-	The	consolidated	financial	statements	of	HII	and	its	subsidiaries	have	been	prepared	in	conformity	with	accounting	principles generally	accepted	in	the	United	States	of	America	("GAAP")	and	the	instructions	to	Form	10-K	promulgated	by	the	Securities	and	Exchange	Commission ("SEC").	All	intercompany	transactions	and	balances	are	eliminated	in	consolidation.	For	classification	of	current	assets	and	liabilities	related	to	its	long- term	production	contracts,	the	Company	uses	the	duration	of	these	contracts	as	its	operating	cycle,	which	is	generally	longer	than	one	year.	Additionally, certain	prior	year	amounts	have	been	reclassified	to	conform	to	the	current	year	presentation.

Accounting	Estimates	-	The	preparation	of	the	Company's	consolidated	financial	statements	requires	management	to	make	estimates	and	judgments	that affect	the	reported	amounts	of	assets	and	liabilities	and	the	disclosure	of	contingencies	at	the	date	of	the	financial	statements,	as	well	as	the	reported amounts	of	revenues	and	expenses	during	the	reporting	period.	Estimates	have	been	prepared	on	the	basis	of	the	most	current	and	best	available information,	and	actual	results	could	differ	materially	from	those	estimates.

The	Bipartisan	Budget	Act	of	2015	established	budget	top	lines	and	provided	sequestration	relief	for	2016	and	2017.	Sequestration	remains	in	effect	for 2018	through	2021	and	could	result	in	significant	decreases	in	DoD	spending	that	could	negatively	impact	the	Company's	revenues	and	its	estimated recovery	of	goodwill	and	other	long-lived	assets.

Revenue	Recognition	-	The	majority	of	the	Company's	business	is	derived	from	long-term	contracts	for	the	construction	of	naval	vessels,	production	of goods,	and	provision	of	services	to	the	federal	government,	principally	the	U.S.	Navy.	In	accounting	for	these	contracts,	the	Company	extensively	utilizes the	cost-to-cost	measure	of	the	percentage-of-completion	method	of	accounting,	principally	based	upon	total	costs	incurred.	Under	this	method,	sales, including	estimated	earned	fees	or	profits,	are	recorded	as	costs	are	incurred,	generally	based	on	the	percentage	that	total	costs	incurred	bear	to	total estimated	costs	at	completion.	For	certain	contracts	that	provide	for	deliveries	of	a	substantial	number	of	similar	units,	sales	are	accounted	for	using	units of	delivery	as	the	basis	to	measure	progress	toward	completion.	Certain	contracts	contain	provisions	for	price	redetermination	or	for	cost	and/or performance	incentives.	Such	redetermined	amounts	or	incentives	are	included	in	sales	when	the	amounts	can	reasonably	be	determined	and	estimated. Amounts	representing	contract	change	orders,	claims,	requests	for	equitable	adjustment,	or	limitations	in	funding	are	included	in	sales	only	when	they can	be	reliably	estimated	and	realization	is	probable.	The	Company	is	accounting	for	one	of	its	contracts	under	the	percentage-of-completion	method based	on	a	zero	profit	margin	and	will	continue	such	accounting	until	results	can	be	estimated	more	precisely.	Revenues	related	to	this	contract	represent less	than	1%	of	the	Company's	total	revenues	for	 2015.	The	Company	estimates	profit	as	the	difference	between	total	estimated	revenues	and	total estimated	cost	of	a	contract	and	recognizes	that	profit	over	the	life	of	the	contract	based	on	progress	toward	completion.	If	the	Company	estimates	a contract	will	result	in	a	loss,	the	full	amount	of	the	estimated	loss	is	recognized	against	income	in	the	period	in	which	the	loss	is	identified.

The	Company	classifies	contract	revenues	as	product	sales	or	service	revenues	depending	upon	the	predominant	attributes	of	the	relevant	underlying contracts.	The	Company	recognizes	changes	in	estimates	of	contract	sales,	costs,	and	profits	using	the	cumulative	catch-up	method	of	accounting.	This method	recognizes	in	the	current	period	the	cumulative	effect	of	the	changes	on	current	and	prior	periods.	Accordingly,	the	effect	of	the	changes	on future	periods	of	contract	performance	is	recognized	as	if	the	revised	estimate	had	been	the	original	estimate.	For	the	years	ended	December	31,	2015, 2014,	and	2013,	net	cumulative	catch-up	adjustments	increased	operating	income	by	 $239	million,	$222	million	and	$113	million,	respectively,	and increased	diluted	earnings	per	share	by	$3.21,	$2.93	and	$1.46,	respectively.	No	individual	adjustment	was	material	to	the	Company's	consolidated statements	of	operations	and	comprehensive	income	in	any	of	these	periods.

The	Company	also	enters	into	other	types	of	contracts,	including	certain	services	or	commercial	arrangements.	For	such	contracts	not	associated	with the	design,	development,	manufacture,	or	modification	of	complex	equipment,	revenues	are	recognized	upon	delivery	or	as	services	are	rendered	once persuasive	evidence	of	an	arrangement	exists,	the	price	is	fixed	or	determinable,	and	collectibility	is	reasonably	assured.	Costs	related	to	these	contracts are	expensed	as	incurred.

General	and	Administrative	Expenses	-	In	accordance	with	industry	practice	and	regulations	that	govern	the	cost	accounting	requirements	for	government contracts,	most	general	corporate	expenses	incurred	at	both	the	segment	and	corporate	locations	are	allowable	and	allocable	costs	on	government contracts.	These	costs	are	allocated	to	contracts	in	progress	on	a	systematic	basis,	and	contract	performance	factors	include	this	as	an	element	of	cost.

General	and	administrative	expenses	also	include	certain	other	costs	that	are	not	allocable	to	government	contracts,	primarily	consisting	of	the	FAS/CAS Adjustment	and	the	provision	for	deferred	state	income	taxes.	The	FAS/CAS	Adjustment	reflects	the	difference	between	pension	and	postretirement benefits	expenses	determined	in	accordance	with	U.S.	Financial	Accounting	Standards	("FAS")	and	pension	and	postretirement	benefit	expenses allocated	to	individual	contracts	in	accordance	with	U.S.	Cost	Accounting	Standards	("CAS").	Deferred	state	income	taxes	reflect	the	change	in	deferred state	tax	assets	and	liabilities	in	the	period.

Research	and	Development	-	Company-sponsored	research	and	development	activities	primarily	include	independent	research	and	development ("IR&D")	related	to	experimentation,	design,	development,	and	test	activities	for	government	programs.	IR&D	expenses	are	included	in	general	and administrative	expenses	and	are	generally	allocable	to	government	contracts.	Company-sponsored	IR&D	expenses	totaled	$19	million,	$18	million	and $22	million	for	the	years	ended	December	31,	2015,	2014	and	2013,	respectively.	Expenses	for	research	and	development	sponsored	by	the	customer are	charged	directly	to	the	related	contracts.

Product	Warranty	Costs	-	The	Company	provides	certain	product	warranties	that	require	repair	or	replacement	of	non-conforming	items	for	a	specified period	of	time	often	subject	to	a	specified	monetary	coverage	limit.	The	Company's	product	warranties	are	provided	under	government	contracts,	the costs	of	which	are	immaterial	and	are	included	in	contract	costs	for	purposes	of	using	the	percentage-of-completion	method	of	accounting.

Environmental	Costs	-	Environmental	liabilities	are	accrued	when	the	Company	determines	remediation	costs	are	probable	and	such	amounts	are reasonably	estimable.	When	only	a	range	of	amounts	is	established	and	no	amount	within	the	range	is	more	probable	than	another,	the	minimum	amount in	the	range	is	recorded.	Environmental	liabilities	are	recorded	on	an	undiscounted	basis	and	are	not	material.	Environmental	expenditures	are	expensed or	capitalized	as	appropriate.	Capitalized	expenditures,	if	any,	relate	to	long-lived	improvements	in	currently	operating	facilities.	The	Company	does	not record	insurance	recoveries	before	collection	is	probable	and,	as	of	December	31,	2015	and	2014,	did	not	have	any	accrued	receivables	related	to insurance	reimbursements	or	recoveries	for	environmental	matters.

Fair	Value	of	Financial	Instruments	-	The	accounting	standard	for	fair	value	measurements	provides	a	framework	for	measuring	fair	value	and	requires expanded	disclosures	regarding	fair	value	measurements.	Fair	value	is	defined	as	the	price	that	would	be	received	for	an	asset	or	the	exit	price	that would	be	paid	to	transfer	a	liability	in	the	principal	or	most	advantageous	market	in	an	orderly	transaction	between	market	participants	on	the measurement	date.	The	accounting	standard	provides	a	fair	value	hierarchy,	which	requires	an	entity	to	maximize	the	use	of	observable	inputs,	where available.	The	three	levels	of	inputs	consist	of:

Level	1:Quoted	prices	in	active	markets	for	identical	assets	and	liabilities.

Level	2:Observable	inputs,	other	than	Level	1	prices,	such	as:	quoted	prices	for	similar	assets	or	liabilities;	quoted	prices	in	markets	that	are	not	active;	or other	inputs	that	are	observable	or	that	the	Company	corroborates	with	observable	market	data	for	substantially	the	full	term	of	the	related	assets or	liabilities.

Level	3:Unobservable	inputs	supported	by	little	or	no	market	activity	that	are	significant	to	the	fair	value	of	the	assets	and	liabilities.

Except	for	the	Company's	long-term	debt,	the	carrying	amounts	of	the	Company's	financial	instruments	recorded	at	historical	cost	approximate	fair	value due	to	the	short-term	nature	of	the	instruments	and	low	credit	risk	associated	with	the	respective	counterparties.

The	Company	maintains	multiple	grantor	trusts	established	to	fund	certain	non-qualified	pension	plans.	These	trusts	consist	primarily	of	available-for-sale investments	in	marketable	securities.	The	assets	are	held	at	fair	value,	a	significant	majority	of	investments	held	in	the	trusts	are	valued	within	Level	1	of the	fair	value	hierarchy,	and	no	material	amounts	are	valued	within	Level	3	of	the	fair	value	hierarchy.	These	trusts	were	valued	at	$74	million	and	$45 million	as	of	December	31,	2015	and	2014,	respectively,	and	are	presented	within	miscellaneous	other	assets	within	the	consolidated	statements	of financial	position.

Foreign	Currency	Translation	-	The	Company's	international	subsidiaries	that	do	not	have	the	U.S.	dollar	as	their	functional	currency	translate	assets	and liabilities	at	current	rates	of	exchange	in	effect	at	the	balance	sheet	date.	Revenues	and	expenses	from	these	international	subsidiaries	are	translated using	the	monthly	average	exchange	rates	in	effect	for	the	periods	in	which	the	items	occur.	The	cumulative	foreign	currency	translation	gains	and	losses are	included	as	a	component	of	accumulated	other	comprehensive	income	(loss)	in	stockholders'	equity.	Gains	and	losses	from	foreign	currency transactions	are	included	in	other	income	(expense)	in	the	consolidated	statements	of	operations	and	comprehensive	income.	Such	amounts	are	not material.

Asset	Retirement	Obligations	-	Environmental	remediation	and/or	asset	decommissioning	may	be	required	when	the	Company	ceases	to	utilize	certain facilities.	The	Company	records,	within	other	current	liabilities	or	other	long-term	liabilities	as	appropriate,	all	known	asset	retirement	obligations	for	which the	liability's	fair	value	can	be	reasonably	estimated,	including	certain	asbestos	removal,	asset	decommissioning,	and	lease	restoration	obligations.

The	changes	in	the	asset	retirement	obligation	carrying	amounts	for	the	years	ended	 December	31,	2015,	2014,	and	2013,	were	as	follows:

| ($	in	millions) | Asset	Retirement<br>Obligations |
| :--- | :--- |
| Balance\tas\tof\tDecember\t31,\t2012 | $25 |
| Obligation\trelating\tto\tthe\tfuture\tretirement\tof\ta\tfacility | — |
| Revision\tof\testimate | — |
| Accretion\texpense | — |
| Balance\tas\tof\tDecember\t31,\t2013 | 25 |
| Obligation\trelating\tto\tthe\tfuture\tretirement\tof\ta\tfacility | — |
| Revision\tof\testimate | (2) |
| Accretion\texpense | (1) |
| Balance\tas\tof\tDecember\t31,\t2014 | 22 |
| Liabilities\tsettled | (4) |
| Obligation\trelating\tto\tthe\tfuture\tretirement\tof\ta\tfacility | — |
| Revision\tof\testimate | (1) |
| Accretion\texpense | 1 |
| Balance\tas\tof\tDecember\t31,\t2015 | $18 |

The	Company	also	has	known	conditional	asset	retirement	obligations	related	to	assets	currently	in	use,	including	certain	asbestos	remediation	and	asset decommissioning	activities	to	be	performed	in	the	future,	that	were	not	reasonably	estimable	as	of	December	31,	2015,	due	to	insufficient	information about	the	timing	and	method	of

settlement	of	the	obligation.	Accordingly,	the	fair	value	of	these	obligations	has	not	been	recorded	in	the	consolidated	financial	statements.	In	addition, there	may	be	conditional	environmental	asset	retirement	obligations	that	the	Company	has	not	yet	discovered.

Income	Taxes	-	Income	tax	expense	and	other	related	information	are	based	on	the	prevailing	statutory	rates	for	U.S.	federal	income	taxes	and	the composite	state	income	tax	rate	for	the	Company	for	each	period	presented.	Deferred	state	income	taxes	reflect	the	change	in	deferred	state	tax	assets and	liabilities	in	the	relevant	period.	These	amounts	are	recorded	within	operating	income,	while	the	current	period	state	income	tax	expense	is	charged to	contract	costs	and	included	in	cost	of	sales	and	service	revenues	in	segment	operating	income.

Deferred	income	taxes	are	recorded	when	revenues	and	expenses	are	recognized	in	different	periods	for	financial	statement	purposes	than	for	tax	return purposes.	Deferred	tax	asset	or	liability	account	balances	are	calculated	at	the	balance	sheet	date	using	current	tax	laws	and	rates	expected	to	be	in effect	when	the	deferred	tax	items	reverse	in	future	periods.	The	Company	recognizes	deferred	tax	assets	to	the	extent	it	believes	that	these	assets	are more	likely	than	not	to	be	realized.	In	making	such	a	determination,	the	Company	considers	all	available	positive	and	negative	evidence,	including	future reversals	of	existing	taxable	temporary	differences,	projected	future	taxable	income,	tax-planning	strategies,	and	results	of	recent	operations.	Based	on the	Company's	evaluation	of	these	deferred	tax	assets,	valuation	allowances	of	$11	million	and	$14	million	were	deemed	necessary	as	of	December	31, 2015	and	2014,	respectively.

Uncertain	tax	positions	meeting	the	more-likely-than-not	recognition	threshold,	based	on	the	merits	of	the	position,	are	recognized	in	the	financial statements.	The	Company	recognizes	the	amount	of	tax	benefit	that	is	greater	than	50%	likely	to	be	realized	upon	ultimate	settlement	with	the	related	tax authority.	If	a	tax	position	does	not	meet	the	minimum	statutory	threshold	to	avoid	payment	of	penalties,	the	Company	recognizes	an	expense	for	the amount	of	the	penalty	in	the	period	the	tax	position	is	claimed	or	expected	to	be	claimed	in	its	tax	return.	Penalties	and	accrued	interest	related	to uncertain	tax	positions	are	recognized	as	a	component	of	income	tax	expense.	Changes	in	accruals	associated	with	uncertain	tax	positions	are	recorded in	earnings	in	the	period	in	which	they	are	determined.

Cash	and	Cash	Equivalents	-	The	carrying	amounts	of	cash	and	cash	equivalents	approximate	fair	value	due	to	the	short-term	nature	of	these	assets, which	have	original	maturity	dates	of	90	days	or	less.

Concentration	Risk	-	The	Company's	assets	that	are	exposed	to	concentrations	of	credit	risk	consist	primarily	of	cash	and	cash	equivalents.	The Company	places	its	cash	and	cash	equivalents	with	reputable	financial	institutions	and	limits	the	amount	of	credit	exposure	with	any	one	of	them.	The Company	regularly	evaluates	the	creditworthiness	of	these	financial	institutions	and	minimizes	this	credit	risk	by	entering	into	transactions	with	high- quality	counterparties,	limiting	the	exposure	to	each	counterparty,	and	monitoring	the	financial	condition	of	its	counterparties.

In	connection	with	its	U.S.	Government	contracts,	the	Company	is	required	to	procure	certain	raw	materials,	components,	and	parts	from	supply	sources approved	by	the	U.S.	Government.	As	a	result	of	consolidation	in	the	defense	industry,	only	one	supplier	exists	for	certain	components	and	parts	required to	manufacture	the	Company's	products.

Accounts	Receivable	-	Accounts	receivable	include	amounts	billed	and	currently	due	from	customers,	amounts	currently	due	but	unbilled,	certain estimated	contract	change	amounts,	claims	or	requests	for	equitable	adjustment	in	negotiation	that	are	probable	of	recovery,	and	amounts	retained	by	the customer	pending	contract	completion.

Inventoried	Costs	-	Inventoried	costs	primarily	relate	to	work	in	process	under	contracts	that	recognize	revenues	using	labor	dollars	or	units	of	delivery	as the	basis	of	the	percentage-of-completion	calculation.	These	costs	represent	accumulated	contract	costs	less	cost	of	sales	as	calculated	using	the percentage-of-completion	method,	not	in	excess	of	recoverable	value.	Accumulated	contract	costs	include	direct	production	costs,	factory	and engineering	overhead,	production	tooling	costs,	and,	for	government	contracts,	allowable	general	and	administrative	expenses.	Under	the	Company's U.S.	Government	contracts,	the	customer	asserts	title	to,	or	a	security	interest	in,	inventories	related	to	such	contracts	as	a	result	of	contract	advances, performance-based	payments,	and	progress	payments.	In	accordance	with	industry	practice,	inventoried	costs	are	classified	as	a	current	asset	and include	amounts	related	to	contracts	having	production	cycles	longer	than	one	year.	Inventoried	costs	also	include	company	owned	raw	materials,	which are	stated	at	the	lower	of	cost	or	market,	generally	using	the	average	cost	method.

# Advance	Payments	and	Billings	in	Excess	of	Revenues	- 	Payments	received	in	excess	of	inventoried	costs	and	revenues	are	recorded	as	advance payment	liabilities.

Property,	Plant,	and	Equipment	-	Depreciable	properties	owned	by	the	Company	are	recorded	at	cost	and	depreciated	over	the	estimated	useful	lives	of individual	assets.	Major	improvements	are	capitalized	while	expenditures	for	maintenance,	repairs,	and	minor	improvements	are	expensed.	Costs incurred	for	computer	software	developed	or	obtained	for	internal	use	are	capitalized	and	amortized	over	the	expected	useful	life	of	the	software,	not	to exceed	nine	years.	Leasehold	improvements	are	amortized	over	the	shorter	of	their	useful	lives	or	the	term	of	the	lease.

The	remaining	assets	are	depreciated	using	the	straight-line	method,	with	the	following	lives:

|  |  | Years |  |
| :--- | :--- | :--- | :--- |
| Land\timprovements | 3 | - | 40 |
| Buildings\tand\timprovements | 3 | - | 60 |
| Capitalized\tsoftware\tcosts | 3 | - | 9 |
| Machinery\tand\tother\tequipment | 2 | - | 45 |

The	Company	evaluates	the	recoverability	of	its	property,	plant,	and	equipment	when	there	are	changes	in	economic	circumstances	or	business objectives	that	indicate	the	carrying	value	may	not	be	recoverable.	The	Company's	evaluations	include	estimated	future	cash	flows,	profitability,	and	other factors	affecting	fair	value.	As	these	assumptions	and	estimates	may	change	over	time,	it	may	or	may	not	be	necessary	to	record	impairment	charges.

Leases	-	The	Company	uses	its	incremental	borrowing	rate	in	the	assessment	of	lease	classification	as	capital	or	operating	and	defines	the	initial	lease term	to	include	renewal	options	determined	to	be	reasonably	assured.	The	Company	conducts	operations	primarily	under	operating	leases.

Many	of	the	Company's	real	property	lease	agreements	contain	incentives	for	tenant	improvements,	rent	holidays,	or	rent	escalation	clauses.	For incentives	for	tenant	improvements,	the	Company	records	a	deferred	rent	liability	and	amortizes	the	deferred	rent	over	the	term	of	the	lease	as	a reduction	to	rent	expense.	For	rent	holidays	and	rent	escalation	clauses	during	the	lease	term,	the	Company	records	minimum	rental	expenses	on	a straight-line	basis	over	the	term	of	the	lease.	For	purposes	of	recognizing	lease	incentives,	the	Company	uses	the	date	of	initial	possession	as	the commencement	date,	which	is	generally	the	date	on	which	the	Company	is	given	the	right	of	access	to	the	space	and	begins	to	make	improvements	in preparation	for	the	intended	use.

Goodwill	and	Other	Intangible	Assets	-	The	Company	performs	impairment	tests	for	goodwill	as	of	November	30	of	each	year	and	between	annual impairment	tests	if	evidence	of	potential	impairment	exists,	by	first	comparing	the	carrying	value	of	net	assets	to	the	fair	value	of	the	related	operations.	If the	fair	value	is	determined	to	be	less	than	the	carrying	value,	a	second	step	is	performed	to	determine	if	goodwill	is	impaired,	by	comparing	the estimated	fair	value	of	goodwill	to	its	carrying	value.	Purchased	intangible	assets	are	amortized	on	a	straight-line	basis	or	a	method	based	on	the	pattern of	benefits	over	their	estimated	useful	lives,	and	the	carrying	value	of	these	assets	is	reviewed	for	impairment	when	events	indicate	that	a	potential impairment	may	have	occurred.

Equity	Method	Investments	-	Investments	in	which	the	Company	has	the	ability	to	exercise	significant	influence	over	the	investee	but	does	not	own	a majority	interest	or	otherwise	control	are	accounted	for	under	the	equity	method	of	accounting	and	included	in	other	assets	in	its	consolidated	statements of	financial	position.	The	Company's	equity	investments	align	strategically	and	are	integrated	with	the	Company's	operations,	and	therefore	the Company's	share	of	the	net	earnings	or	losses	of	the	investee	is	included	in	operating	income	(loss).	The	Company	evaluates	its	equity	investments	for other	than	temporary	impairment	whenever	events	or	changes	in	business	circumstances	indicate	that	the	carrying	amounts	of	such	investments	may	not be	fully	recoverable.	If	a	decline	in	the	value	of	an	equity	method	investment	is	determined	to	be	other	than	temporary,	a	loss	is	recorded	in	earnings	in the	current	period.

Self-Insured	Group	Medical	Insurance	-	The	Company	maintains	a	self-insured	group	medical	insurance	plan.	The	plan	is	designed	to	provide	a	specified level	of	coverage	for	employees	and	their	dependents.	Estimated	liabilities

for	incurred	but	not	paid	claims	utilize	actuarial	methods	based	on	various	assumptions,	which	include,	but	are	not	limited	to,	HII's	historical	loss experience	and	projected	loss	development	factors.	These	liabilities	are	recorded	in	other	current	liabilities	and	account	for	less	than	5%	of	the	total current	liabilities	balance.

Self-Insured	Workers'	Compensation	Plan	-	The	operations	of	the	Company	are	subject	to	federal	and	state	workers'	compensation	laws.	The	Company maintains	self-insured	workers'	compensation	plans,	in	addition	to	participating	in	federally	administered	second	injury	workers'	compensation	funds.	The Company	estimates	the	required	liability	of	claims	and	funding	requirements	on	a	discounted	basis	utilizing	actuarial	methods	based	on	various assumptions,	which	include,	but	are	not	limited	to,	the	Company's	historical	loss	experience	and	projected	loss	development	factors	as	compiled	in	an annual	actuarial	study.	Self-insurance	accruals	include	amounts	related	to	the	liability	for	reported	claims	and	an	estimated	accrual	for	claims	incurred	but not	reported.	The	Company's	workers'	compensation	liability	was	discounted	at	2.12%	and	2.48%	as	of	December	31,	2015	and	2014,	respectively. These	discount	rates	were	determined	using	a	risk-free	rate	based	on	future	payment	streams.	Workers'	compensation	benefit	obligations	on	an undiscounted	basis	were	$825	million	and	$846	million	as	of	December	31,	2015	and	2014,	respectively.

Litigation,	Commitments,	and	Contingencies	-	Amounts	associated	with	litigation,	commitments,	and	contingencies	are	recorded	as	charges	to	earnings when	management,	after	taking	into	consideration	the	facts	and	circumstances	of	each	matter,	including	any	settlement	offers,	has	determined	that	it	is probable	that	a	liability	has	been	incurred	and	the	amount	of	the	loss	can	be	reasonably	estimated.

Restructuring	-	The	Company	has	recorded	accruals	in	conjunction	with	its	restructuring	activities	in	other	current	liabilities.	These	accruals	include estimates	primarily	related	to	facility	consolidations	and	closures,	asset	retirement	obligations,	long-lived	asset	write-downs,	employment	reductions,	and contract	termination	costs.	Actual	costs	may	vary	from	these	estimates.	Restructuring	related	accruals	are	reviewed	and	adjusted	when	circumstances require	such	a	change.

Retirement	Related	Benefit	Costs	-	The	Company	accounts	for	its	retirement	related	benefit	plans	on	the	accrual	basis.	The	measurements	of obligations,	costs,	assets,	and	liabilities	require	significant	judgment.	The	costs	of	benefits	provided	by	defined	benefit	pension	plans	are	recorded	in	the period	participating	employees	provide	service.	The	costs	of	benefits	provided	by	other	postretirement	benefit	plans	are	recorded	in	the	period participating	employees	attain	full	eligibility.	The	discount	rate	assumption	is	defined	under	GAAP	as	the	rate	at	which	a	plan's	obligation	could	be effectively	settled.	The	discount	rate	is	established	for	each	of	the	retirement	related	benefit	plans	at	its	respective	measurement	date.

The	expected	return	on	plan	assets	component	of	retirement	related	costs	is	used	to	calculate	net	periodic	expense.	Unless	plan	assets	and	benefit obligations	are	subject	to	remeasurement	during	the	year,	the	expected	return	on	assets	is	based	on	the	fair	value	of	plan	assets	at	the	beginning	of	the year.	The	costs	of	plan	amendments	that	provide	benefits	already	earned	by	plan	participants	(prior	service	costs	and	credits)	are	deferred	in accumulated	other	comprehensive	income	and	amortized	over	the	expected	period	the	employees	provide	service	as	of	the	date	of	amendment.	Actuarial gains	and	losses	arising	from	differences	from	actual	experience	or	changes	in	assumptions	are	deferred	in	accumulated	other	comprehensive	income. This	unrecognized	amount	is	amortized	to	the	extent	it	exceeds	10%	of	the	greater	of	the	plan's	benefit	obligation	or	plan	assets.	The	amortization	period for	actuarial	gains	and	losses	is	the	estimated	remaining	service	life	of	the	plan	participants,	which	is	approximately	12	years.

The	Company	recognizes	the	funded	status	of	each	retirement	related	benefit	plan	as	an	asset	or	liability	in	its	consolidated	statements	of	financial position.	The	funded	status	represents	the	difference	between	the	plan's	benefit	obligation	and	the	fair	value	of	the	plan's	assets.	Unrecognized	deferred amounts,	such	as	demographic	or	asset	gains	or	losses	and	the	impacts	of	plan	amendments,	are	included	in	accumulated	other	comprehensive	income and	amortized	as	described	above.

Stock	Compensation	-	Stock-based	compensation	value	is	determined	based	on	the	closing	market	price	of	the	Company's	common	stock	on	grant	date, and	the	expense	is	recognized	over	the	vesting	period.	At	each	reporting	date,	the	number	of	shares	is	adjusted	to	equal	the	number	ultimately	expected to	vest	based	on	the	Company's	expectations	regarding	the	relevant	performance	and	service	criteria.

Related	Party	Transactions	-	On	March	29,	2011,	HII	entered	into	a	Separation	and	Distribution	Agreement	(the	"Separation	Agreement")	with	its	former parent	company,	Northrop	Grumman	Corporation	("Northrop	Grumman"),

and	Northrop	Grumman's	subsidiaries	(Northrop	Grumman	Shipbuilding,	Inc.	and	Northrop	Grumman	Systems	Corporation),	pursuant	to	which	HII	was legally	and	structurally	separated	from	Northrop	Grumman.	The	spin-off	from	Northrop	Grumman	was	a	transaction	under	common	control;	therefore,	no change	in	the	historical	basis	of	HII's	assets	or	liabilities	was	recorded	as	part	of	the	spin-off.	In	connection	with	the	spin-off,	HII	entered	into	a	Tax Matters	Agreement	with	Northrop	Grumman	related	to	taxes	prior	to	the	spin-off	as	described	in	Note	13:	Income	Taxes.	As	of	December	31,	2015	and 2014,	the	Company	was	due	 $31	million	and	$28	million,	respectively,	from	Northrop	Grumman	under	the	Tax	Matters	Agreement.	As	of	 December	31, 2015	and	2014,	the	Company	had	 $84	million	outstanding	under	Industrial	Revenue	Bonds	issued	by	the	Mississippi	Business	Finance	Corporation.	Prior to	the	spin-off,	repayment	of	principal	and	interest	was	guaranteed	by	Northrop	Grumman	Systems	Corporation.	The	guaranty	remains	in	effect,	and	the Company	has	agreed	to	indemnify	Northrop	Grumman	Systems	Corporation	for	any	losses	related	to	the	guaranty.

In	November	2015,	the	Financial	Accounting	Standards	Board	("FASB")	issued	Accounting	Standards	Update	("ASU")	2015-17,	"Income	Taxes	(Topic 740)."	The	amendments	in	this	update	require	that	entities	with	a	classified	balance	sheet	present	deferred	tax	liabilities	and	assets	as	noncurrent components.	Classifying	all	deferred	taxes	as	noncurrent	will	simplify	the	process,	with	no	requirement	to	separately	identify	the	net	current	and	net noncurrent	deferred	tax	asset	or	liability	and	allocate	valuation	allowances.	The	Company	elected	to	early	adopt	ASU	2015-17	retrospectively	as	of December	31,	2015,	and	therefore	reclassified	deferred	tax	assets	totaling	$129	million	to	long-term	deferred	tax	assets	as	of	December	31,	2014.

In	July	2015,	the	FASB	issued	ASU	2015-11,	"Inventory	(Topic	330)."	The	update	requires	entities	to	measure	inventory	"at	the	lower	of	cost	and	net realizable	value,"	simplifying	previous	guidance	under	which	inventory	must	be	measured	at	the	lower	of	cost	or	market.	For	inventory	within	the	scope	of the	ASU,	entities	will	be	required	to	compare	the	cost	of	inventory	to	only	one	measure,	its	net	realizable	value.	When	evidence	exists	that	the	net realizable	value	of	inventory	is	less	than	its	cost,	entities	will	recognize	the	difference	as	a	loss	in	earnings	in	the	period	in	which	it	occurs.	The	standard is	effective	for	public	entities	for	annual	reporting	periods	beginning	after	December	15,	2016,	and	interim	periods	within	those	periods.	The	Company does	not	expect	the	adoption	of	ASU	2015-11	to	have	a	material	impact	on	the	Company's	consolidated	financial	position,	results	of	operations,	or	cash flows.

In	May	2015,	the	FASB	issued	ASU	2015-07,	"Fair	Value	Measurement	(Topic	820):	Disclosures	for	Investments	in	Certain	Entities	that	Calculate	Net Asset	Value	("NAV")	per	Share	(or	Its	Equivalent)."	The	update	removes	the	requirement	to	categorize	within	the	fair	value	hierarchy	investments	whose values	are	measured	at	NAV,	or	its	equivalent.	Instead,	entities	will	be	required	to	disclose	the	fair	value	of	such	investments	so	that	financial	statement users	can	reconcile	amounts	reported	in	the	fair	value	hierarchy	table	and	the	amounts	reported	on	the	balance	sheet.	The	updated	guidance	is	effective for	annual	and	interim	periods	beginning	after	December	15,	2015,	with	early	adoption	permitted.	The	Company	does	not	expect	the	adoption	of	ASU 2015-07	to	have	a	material	impact	on	the	Company's	consolidated	financial	position,	results	of	operations,	or	cash	flows.

In	April	2015,	FASB	issued	ASU	2015-03,	"Interest—Imputation	of	Interest	(Subtopic	835-30):	Simplifying	the	Presentation	of	Debt	Issuance	Costs."	The update	requires	the	presentation	of	capitalized	debt	issuance	costs	as	a	direct	reduction	of	the	related	debt	liability,	consistent	with	the	current	required presentation	of	debt	discounts.	In	August	2015,	the	FASB	issued	ASU	2015-15,	which	addresses	the	lack	of	guidance	regarding	line-of-credit arrangements	in	ASU	2015-03.	The	update	clarifies	the	SEC	staff's	position,	indicating	that	for	line-of-credit	arrangements,	it	would	"not	object	to	an	entity deferring	and	presenting	debt	issuance	costs	as	an	asset	and	subsequently	amortizing	the	deferred	debt	issuance	costs	ratably	over	the	term	of	the	line- of-credit	arrangement."	The	Company	elected	to	early	adopt	ASU	2015-03	and	ASU	2015-15	as	of	December	31,	2015.	The	adoption	of	ASU	2015-03 resulted	in	the	presentation	of	$32	million	of	debt	issuance	costs	as	a	reduction	of	long-term	debt	as	of	December	31,	2015.	The	Company	retrospectively adjusted	the	December	31,	2014,	consolidated	statements	of	financial	position	and	related	disclosures	to	reflect	the	reclassification	of	$30	million	of	debt issuance	costs	between	miscellaneous	other	assets	and	long-term	debt.

In	February	2015,	the	FASB	issued	ASU	2015-02,	"Consolidation	(Topic	810):	Amendments	to	the	Consolidation	Analysis."	The	amendment	eliminates the	deferral	of	certain	consolidation	standards	for	entities	considered	to	be	investment	companies	and	requires	reporting	entities	to	reevaluate consolidation	conclusions	in	respect	of	variable	interest	entities,	limited	partnerships,	and	related	party	groups.		It	also	provides	clarity	for	determining whether	equity	holders	have	power	over	an	entity.	The	amendment	is	effective	for	annual	and	interim	periods	beginning	after

December	15,	2015.		The	Company	plans	to	adopt	this	guidance	in	the	first	quarter	of	fiscal	2016.	The	Company	does	not	expect	the	adoption	of	ASU 2015-02	to	have	a	material	impact	on	the	Company's	consolidated	financial	position,	results	of	operations,	or	cash	flows.

In	May	2014,	the	FASB	issued	the	final	standard	on	revenue	from	contracts	with	customers.	The	standard,	issued	as	ASU	2014-09,	outlines	a	single comprehensive	model	for	entities	to	use	in	accounting	for	revenue	arising	from	contracts	with	customers	and	supersedes	most	current	revenue recognition	guidance,	including	industry-	specific	guidance.	The	core	principle	of	the	standard	is	that	"an	entity	shall	recognize	revenue	to	depict	the transfer	of	promised	goods	or	services	to	customers	in	an	amount	that	reflects	the	consideration	to	which	the	entity	expects	to	be	entitled	in	exchange	for those	goods	or	services."	The	guidance	permits	the	use	of	either	a	retrospective	or	cumulative	effect	transition	method.	In	August	2015,	the	FASB	issued ASU	2015-14,	which	defers	the	effective	date	of	the	new	revenue	recognition	standard	by	one	year.	Based	on	ASU	2015-14,	public	entities	will	apply	the new	revenue	standard	to	annual	reporting	periods	beginning	after	December	15,	2017,	but	early	adoption	for	annual	reporting	periods	beginning	after December	31,	2016,	will	be	permitted.	The	Company	has	determined	not	to	early	adopt	the	standard	as	it	continues	to	evaluate	the	transition	methods and	has	not	yet	determined	the	impacts	that	will	result	from	the	implementation	of	ASU	2014-09	on	its	financial	statements	and	disclosures,	contracting and	accounting	processes,	internal	controls,	and	information	technology	systems.

Other	pronouncements	issued	but	not	effective	until	after	December	31,	2015,	are	not	expected	to	have	a	material	effect	on	the	Company's	financial position,	results	of	operations,	or	cash	flows.

# 4.	AVONDALE

In	2010,	plans	were	announced	to	consolidate	the	Company's	Ingalls	shipbuilding	operations	by	winding	down	shipbuilding	at	the	Avondale,	Louisiana facility	in	2013	after	completion	of	LPD-class	ships	that	were	under	construction	at	this	facility.	In	October	2014,	the	Company	ceased	shipbuilding construction	operations	at	the	Avondale	facility.	The	consolidation	is	intended	to	reduce	costs,	increase	efficiency,	and	address	shipbuilding	overcapacity.

In	connection	with	and	as	a	result	of	the	decision	to	wind	down	shipbuilding	at	the	Avondale	facility,	the	Company	began	incurring	and	paying	related costs,	including,	but	not	limited	to,	severance	expense,	relocation	expense,	and	asset	write-downs	related	to	the	Avondale	facilities.	The	Company believes	such	costs	should	be	recoverable	under	existing	flexibly-priced	contracts	or	future	negotiated	contracts	in	accordance	with	Federal	Acquisition Regulation	("FAR")	provisions	for	the	treatment	of	restructuring	and	shutdown	related	costs.	The	Company	is	currently	in	discussions	with	the	U.S.	Navy regarding	its	cost	submission	to	support	the	recoverability	of	these	costs	under	the	FAR	and	applicable	contracts.

The	Defense	Contract	Audit	Agency	("DCAA"),	a	DoD	agency,	prepared	an	initial	audit	report	on	the	Company's	July	2010	cost	proposal	for	restructuring and	shutdown	related	costs	of	$310	million,	which	stated	that	the	proposal	was	not	adequately	supported	for	the	DCAA	to	reach	a	conclusion	and questioned	certain	costs	submitted	by	the	Company.	In	July	2014,	the	Company	received	a	letter	from	the	Supervisor	of	Shipbuilding	requesting	that	the Company	revise	its	restructuring	proposal	to	address	certain	documentation	issues	identified	by	the	DCAA	in	order	for	the	Government	to	make	an adequate	evaluation	of	the	restructuring	proposal.	In	August	2014,	the	Company	received	a	letter	from	the	Supervisor	of	Shipbuilding	proposing	a	joint meeting	regarding	the	treatment	of	specific	costs	included	in	the	restructuring	proposal	and	acknowledging	that	the	allowability	and	allocability	of	costs	will be	determined	by	the	Government	in	an	Advanced	Agreement	in	accordance	with	FAR.	The	Company	submitted	a	revised	proposal	in	March	2015	to address	the	concerns	of	the	DCAA	and	to	reflect	a	revised	estimated	total	cost	of	$287	million.	In	July	2015,	the	Company	received	a	letter	from	the Supervisor	of	Shipbuilding	requesting	that	the	Company	either	provide	cost	estimates	to	address	the	Company's	positions	related	to	restructure	or	file	a dispute.	The	Company	responded	in	July	2015	by	addressing	the	matters	raised	by	the	Supervisor	of	Shipbuilding	and	recommending	the	parties continue	efforts	to	seek	a	mutual	resolution.	In	August	2015,	the	Company	received	a	letter	from	the	Supervisor	of	Shipbuilding's	Contracting	Officer ("Contracting	Officer"),	with	a	preliminary	determination	that	the	Company's	method	of	allocating	as	indirect	costs	certain	employee	retention	and incentive	expenses,	which	could	be	up	to	$57	million,	did	not	comply	with	cost	accounting	allocation	regulations.	The	Company	responded	in	September 2015	with	its	basis	supporting	its	cost	allocation	positions	and	sought	a	determination	that	supports	the	Company's	method	of	cost	allocation.

Although	the	Company	cannot	predict	what	the	Contracting	Officer	will	determine,	the	Company	anticipates	a	resolution	that	is	substantially	in accordance	with	management's	cost	recovery	expectations.	Accordingly,	HII	has

treated	these	costs	as	allowable	costs	in	determining	the	earnings	performance	on	its	contracts	in	process.	The	Contracting	Officer	may,	however, disagree	with	the	Company's	cost	allocation	method,	and	any	subsequent	inability	to	recover	costs	substantially	in	accordance	with	management's	cost recovery	expectations	could	result	in	a	material	effect	on	the	Company's	consolidated	financial	position,	results	of	operations,	or	cash	flows.

In	2014,	the	Company	evaluated	the	effect	that	the	wind	down	of	the	Avondale	facilities	might	have	on	the	benefit	plans	in	which	HII	employees participate.	HII	determined	that	the	impact	of	a	curtailment	and	other	resulting	adjustments	in	these	plans	was	not	material	to	its	consolidated	financial position,	results	of	operations,	or	cash	flows.

The	following	table	summarizes	the	changes	in	the	Company's	liability	for	restructuring	and	shutdown	related	costs	associated	with	winding	down	the Avondale	facility.	These	costs	were	comprised	primarily	of	employee	severance	and	retention	payments,	as	well	as	incentive	bonuses.	As	of December	31,	2015	and	2014,	$169	million	and	$212	million,	respectively,	of	restructuring	and	shutdown	related	costs	were	capitalized	in	inventoried costs.	As	of	December	31,	2015	and	2014,	$82	million	and	$48	million,	respectively,	of	accounts	receivable	were	related	to	restructuring	and	shutdown related	costs.	For	the	years	ended	December	31,	2015	and	2014,	the	Company	expensed	$55	million	and	$57	million,	respectively,	of	these	costs	as	part of	general	and	administrative	expenses.

# 5.	GULFPORT

In	September	2013,	the	Company	announced	the	closure	of	its	Gulfport	Composite	Center	of	Excellence	in	Gulfport,	Mississippi,	part	of	the	Ingalls reportable	segment,	which	it	completed	in	August	2014.	In	connection	with	this	closure,	the	Company	incurred	total	costs	of	$54	million,	consisting	of	$52 million	in	accelerated	depreciation	of	fixed	assets	and	 $2	million	in	personnel,	facility	shutdown,	and	other	related	costs.	In	July	2014,	the	Company received	a	letter	from	the	Supervisor	of	Shipbuilding	taking	exception	to	the	Company's	treatment	of	the	Gulfport	closure	costs.	In	April	2015,	the Company	submitted	recommended	accounting	alternatives,	which	the	U.S.	Government	is	currently	evaluating.	The	Company	anticipates	a	resolution that	is	substantially	in	accordance	with	management's	cost	recovery	expectations.	Any	inability,	however,	to	recover	Gulfport	closure	costs	could	result	in a	material	effect	on	the	Company's	consolidated	financial	position,	results	of	operations,	or	cash	flows.

As	of	December	31,	2015,	and	2014,	$35	million	and	$37	million,	respectively,	of	accounts	receivable	were	related	to	Gulfport	closure	costs.	In	March 2015,	the	Company	sold	the	Gulfport	Composite	Center	of	Excellence	to	the	Mississippi	State	Port	Authority	for	$32	million,	resulting	in	a	gain	on disposition	of	$9	million,	recorded	as	a	reduction	to	contract	costs	in	accordance	with	the	terms	of	the	Company's	contracts	with	the	U.S.	Government.

# 6.	ACQUISITIONS

On	January	30,	2015,	the	Company	acquired,	for	approximately	$6	million	in	cash,	the	assets	of	the	Engineering	Solutions	Division	("ESD")	of	The Columbia	Group.	ESD,	a	leading	designer	and	builder	of	unmanned	underwater	vehicles	for	domestic	and	international	customers,	is	operating	as	the Undersea	Solutions	Group	("USG").	As	the	U.S.	Navy	increases	employment	of	unmanned	vehicles	in	both	the	surface	and	undersea	domains,	this acquisition	enhances	the	Company's	ability	to	compete	in	these	markets.	In	connection	with	this	acquisition,	the	Company	recorded	$4	million	of	goodwill, all	of	which	was	allocated	to	its	Newport	News	segment,	primarily	attributed	to	USG's	specialized	and	skilled	employees,	and	$1	million	of	intangible assets,	primarily	related	to	technology.	See	Note	12:	Goodwill	and	Other	Intangible	Assets.	The	assets,	liabilities,	and	results	of	operations	of	USG	are not	material	to	the	Company's	consolidated	financial	position,	results	of	operations,	or	cash	flows.

On	May	30,	2014,	the	Company	acquired,	for	approximately	 $225	million	in	cash,	net	of	$5	million	of	cash	acquired,	UniversalPegasus	International Holdings,	Inc.	("UPI"),	a	provider	of	project	management,	engineering	and	construction	management	services	to	the	oil	and	gas	industry.	The	acquisition was	consistent	with	the	Company's	strategy	to	utilize	its	engineering	and	energy	related	expertise	to	expand	its	position	in	energy	infrastructure	markets. In	connection	with	this	acquisition,	the	Company	recorded	$150	million	of	goodwill,	all	of	which	was	allocated	to	its	Other	segment,	primarily	related	to	the value	of	UPI's	workforce,	and	$41	million	of	intangible	assets	related	to	contractual	relationships	and	trade	names.	See	Note	12:	Goodwill	and	Other Intangible	Assets.	Adjustments	to	the	fair	value	of	assets	acquired	and	liabilities	assumed	since	the	acquisition	date	were	not material	and	were	primarily	driven	by	the	finalization	of	the	net	working	capital	adjustment	and	refinement	of	fair

value	calculations	for	certain	assets	and	liabilities.	The	assets,	liabilities,	and	results	of	operations	of	UPI	are	not	material	to	the	Company's	consolidated financial	position,	results	of	operations,	or	cash	flows.

On	January	2,	2014,	the	Company	acquired,	for	approximately	 $47	million	in	cash,	net	of	$6	million	of	cash	acquired,	The	S.M.	Stoller	Corporation, renamed	as	Stoller	Newport	News	Nuclear,	Inc.	("SN3"),	a	provider	of	environmental,	nuclear,	and	technical	consulting	and	engineering	services	to	the Department	of	Energy,	Department	of	Defense,	and	private	sector.	The	acquisition	was	consistent	with	the	Company's	strategy	to	utilize	its	nuclear	and energy	related	expertise	developed	through	its	shipbuilding	activities	to	expand	its	position	in	the	energy	marketplace.	In	connection	with	this	acquisition, the	Company	recorded	$42	million	of	goodwill,	all	of	which	was	allocated	to	its	Newport	News	segment,	primarily	attributed	to	SN3's	specialized	and skilled	employees,	and	$6	million	of	intangible	assets,	primarily	related	to	existing	contract	backlog	and	trade	names.	See	Note	12:	Goodwill	and	Other Intangible	Assets.	The	assets,	liabilities,	and	results	of	operations	of	SN3	are	not	material	to	the	Company's	consolidated	financial	position,	results	of operations,	or	cash	flows.

The	Company	funded	each	of	these	acquisitions	using	cash	on	hand.	The	acquisition	costs	incurred	in	connection	with	these	acquisitions	were	not material.	The	operating	results	of	these	businesses	have	been	included	in	the	Company's	consolidated	results	as	of	the	respective	closing	dates	of	the acquisitions.	In	allocating	the	purchase	price	of	these	businesses,	the	Company	considered	the	estimated	fair	value	of	net	tangible	and	intangible	assets acquired,	with	any	excess	purchase	price	recorded	as	goodwill.	The	total	amount	of	goodwill	resulting	from	these	acquisitions	expected	to	be	deductible for	tax	purposes	was	$96	million.	These	acquisitions	are	not	material	either	individually	or	in	the	aggregate,	and	pro	forma	revenues	and	results	of operations	have	therefore	not	been	provided.

# 7.	STOCKHOLDERS'	EQUITY

Common	Stock	-	Changes	in	the	Company's	number	of	outstanding	shares	for	the	year	ended	 December	31,	2015,	resulted	from	shares	purchased	in the	open	market	under	the	Company's	stock	repurchase	program	and	share	activity	under	its	stock	compensation	plans.	See	Note	19:	Stock Compensation	Plans.

Treasury	Stock	-	In	October	2013,	the	Company's	board	of	directors	authorized	an	increase	in	the	Company's	existing	stock	repurchase	program	from $150	million	to	$300	million	and	an	extension	of	the	term	of	the	program	to	October	31,	2017.	 In	October	2014,	the	Company's	board	of	directors authorized	an	increase	in	the	stock	repurchase	program	from	$300	million	to	$600	million	and	an	extension	of	the	term	of	the	program	to	October	31, 2019.	In	October	2015,	the	Company's	board	of	directors	authorized	an	increase	in	the	stock	repurchase	program	from	$600	million	to	$1,200	million. Repurchases	are	made	from	time	to	time	at	management's	discretion	in	accordance	with	applicable	federal	securities	laws.	For	the	year	ended December	31,	2015,	the	Company	repurchased	1,987,550	shares	at	a	cost	of	 $234	million,	of	which	approximately	$2	million	was	not	yet	settled	for	cash as	of	December	31,	2015.	For	the	years	ended	December	31,	2014	and	2013,	the	Company	repurchased	1,407,729,	and	1,722,991	shares,	respectively, at	a	cost	of	$138	million	and	$119	million,	respectively.	The	cost	of	purchased	shares	is	recorded	as	treasury	stock	in	the	consolidated	statements	of financial	position.

Accumulated	Other	Comprehensive	Income	-	Other	comprehensive	income	(loss)	refers	to	gains	and	losses	recorded	as	an	element	of	stockholders' equity	but	excluded	from	net	earnings	(loss).	The	accumulated	other	comprehensive	loss	as	of	December	31,	2015	and	2014,	was	comprised	of unamortized	benefit	plan	costs	of	$843	million	and	$864	million,	respectively,	and	other	comprehensive	income	items	of	 $(2)	million	and	$2	million, respectively.

The	changes	in	accumulated	other	comprehensive	income	(loss)	by	component	for	the	years	ended	 December	31,	2015,	2014	and	2013,	were	as follows:

| ($	in	millions) | Benefit	Plans | Other | Total |
| :--- | :--- | :--- | :--- |
| Balance\tas\tof\tDecember\t31,\t2012 | $(1,226) | $— | $(1,226) |
| Other\tcomprehensive\tincome\t(loss)\tbefore\treclassifications | 1,028 | 4 | 1,032 |
| Amounts\treclassified\tfrom\taccumulated\tother\tcomprehensive\tincome\t(loss) |  |  |  |
| Amortization\tof\tprior\tservice\tcost\t(credit)1 | (3) | — | (3) |
| Amortization\tof\tnet\tactuarial\tloss\t(gain)1 | 134 | — | 134 |
| Tax\tbenefit\t(expense)\tfor\titems\tof\tother\tcomprehensive\tincome | (456) | (2) | (458) |
| Net\tcurrent\tperiod\tother\tcomprehensive\tincome\t(loss) | 703 | 2 | 705 |
| Balance\tas\tof\tDecember\t31,\t2013 | (523) | 2 | (521) |
| Other\tcomprehensive\tincome\t(loss)\tbefore\treclassifications | (603) | — | (603) |
| Amounts\treclassified\tfrom\taccumulated\tother\tcomprehensive\tincome\t(loss) |  |  |  |
| Amortization\tof\tprior\tservice\tcost\t(credit)1 | (7) | — | (7) |
| Amortization\tof\tnet\tactuarial\tloss\t(gain)1 | 52 | — | 52 |
| Tax\tbenefit\t(expense)\tfor\titems\tof\tother\tcomprehensive\tincome | 217 | — | 217 |
| Net\tcurrent\tperiod\tother\tcomprehensive\tincome\t(loss) | (341) | — | (341) |
| Balance\tas\tof\tDecember\t31,\t2014 | (864) | 2 | (862) |
| Other\tcomprehensive\tincome\t(loss)\tbefore\treclassifications | (53) | (5) | (58) |
| Amounts\treclassified\tfrom\taccumulated\tother\tcomprehensive\tincome\t(loss) |  |  |  |
| Amortization\tof\tprior\tservice\tcost\t(credit)1 | (1) | — | (1) |
| Amortization\tof\tnet\tactuarial\tloss\t(gain)1 | 88 | — | 88 |
| Tax\tbenefit\t(expense)\tfor\titems\tof\tother\tcomprehensive\tincome | (13) | 1 | (12) |
| Net\tcurrent\tperiod\tother\tcomprehensive\tincome\t(loss) | 21 | (4) | 17 |
| Balance\tas\tof\tDecember\t31,\t2015 | $(843) | $(2) | $(845) |

1	These	accumulated	comprehensive	income	(loss)	components	are	included	in	the	computation	of	net	periodic	benefit	cost.	See	Note	18:	Employee Pension	and	Other	Postretirement	Benefits.	The	tax	expense	associated	with	amounts	reclassified	from	accumulated	other	comprehensive	income	(loss) for	the	years	ended	December	31,	2015,	2014,	and	2013,	was	$30	million,	$16	million,	and	$46	million,	respectively.

# 8.	EARNINGS	PER	SHARE

Basic	and	diluted	earnings	per	common	share	were	calculated	as	follows:

|  |  | Year	Ended	December	31 |  |
| :--- | :--- | :--- | :--- |
| (in\tmillions,\texcept\tper\tshare\tamounts) | 2015 | 2014 | 2013 |
| Net\tearnings\t(loss) | $404 | $338 | $261 |
| Weighted-average\tcommon\tshares\toutstanding | 47.9 | 48.8 | 49.7 |
| Net\teffect\tof\tdilutive\tstock\toptions\tand\tawards | 0.4 | 0.5 | 0.7 |
| Dilutive\tweighted-average\tcommon\tshares\toutstanding | 48.3 | 49.3 | 50.4 |
| Earnings\t(loss)\tper\tshare\t-\tbasic | $8.43 | $6.93 | $5.25 |
| Earnings\t(loss)\tper\tshare\t-\tdiluted | $8.36 | $6.86 | $5.18 |

The	Company's	calculation	of	diluted	earnings	per	common	share	includes	the	dilutive	effects	of	the	assumed	exercise	of	stock	options	and	vesting	of restricted	stock	based	on	the	treasury	stock	method.	Under	this	method,	the	Company	has	excluded	from	the	diluted	share	amounts	presented	above the	effects	of	0.3	million	stock	options	and	0.7	million	Restricted	Performance	Stock	Rights	("RPSRs")	for	the	year	ended	December	31,	2015.

The	amounts	presented	above	for	the	year	ended	December	31,	2014,	exclude	the	impact	of	0.4	million	stock	options	and	1.1	million	RPSRs	under	the treasury	stock	method.	The	amounts	presented	above	for	the	year	ended	December	31,	2013,	exclude	the	impact	of	0.5	million	stock	options,	0.3	million Restricted	Stock	Rights	("RSRs"),	and	1.0	million	RPSRs	under	the	treasury	stock	method.

# 9.	SEGMENT	INFORMATION

The	Company	is	organized	into	three	reportable	segments:	Ingalls,	Newport	News	and	Other,	consistent	with	how	management	makes	operating decisions	and	assesses	performance.	The	Other	segment	was	established	in	the	second	quarter	of	2014	to	account	for	certain	of	the	Company's	non- shipbuilding	commercial	activities.

U.S.	Government	Sales	-	Revenues	from	the	U.S.	Government	include	revenues	from	contracts	for	which	HII	is	the	prime	contractor,	as	well	as	contracts for	which	the	Company	is	a	subcontractor	and	the	ultimate	customer	is	the	U.S.	Government.	The	Company	derives	over	95%	of	its	revenues	from	the U.S.	Government.

Assets	-	Substantially	all	of	the	Company's	assets	are	located	or	maintained	in	the	United	States.

# Results	of	Operations	by	Segment

|  |  | Year	Ended	December	31 |  |
| :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 |
| Sales\tand\tService\tRevenues |  |  |  |
| Ingalls | $2,188 | $2,286 | $2,441 |
| Newport\tNews | 4,700 | 4,536 | 4,382 |
| Other | 134 | 137 | — |
| Intersegment\teliminations | (2) | (2) | (3) |
| Total\tsales\tand\tservice\trevenues | $7,020 | $6,957 | $6,820 |
| Operating\tIncome\t(Loss) |  |  |  |
| Ingalls | $379 | $229 | $165 |
| Newport\tNews | 422 | 415 | 402 |
| Other | (134) | (59) | — |
| Total\tsegment\toperating\tincome\t(loss) | 667 | 585 | 567 |
| Non-segment\tfactors\taffecting\toperating\tincome\t(loss) |  |  |  |
| FAS/CAS\tAdjustment | 104 | 72 | (61) |
| Deferred\tstate\tincome\ttaxes | (2) | (2) | 6 |
| Total\toperating\tincome\t(loss) | $769 | $655 | $512 |

Sales	transactions	between	segments	are	generally	recorded	at	cost.

Goodwill	and	Intangible	Asset	Impairment	Charges	-	The	operating	losses	at	the	Other	segment	for	the	year	ended	December	31,	2015,	reflect	goodwill impairment	charges	of	$75	million	and	intangible	asset	impairment	charges	of	 $27	million.	The	operating	losses	at	the	Other	segment	for	the	year	ended December	31,	2014,	reflect	goodwill	impairment	charges	of	$47	million.

# Other	Financial	Information

The	following	tables	present,	by	segment,	the	Company's	assets,	capital	expenditures,	and	depreciation	and	amortization.

| ($	in	millions) | 2015 | 2014 | 2013 |
| :--- | :--- | :--- | :--- |
| Assets |  |  |  |
| Ingalls | $1,324 | $1,452 | 1,663 |
| Newport\tNews | 3,286 | 3,155 | 3,111 |
| Other | 78 | 210 | — |
| Corporate(1) | 1,336 | 1,422 | 1,416 |
| Total\tassets | $6,024 | $6,239 | $6,190 |

(1)	Includes	$30	million	and	$35	million	of	debt	issuance	costs	reclassified	between	miscellaneous	other	assets	and	long-term	debt	as	of	December	31, 2014	and	2013,	respectively.

|  |  | Year	Ended	December	31 |  |
| :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 |
| Capital\tExpenditures |  |  |  |
| Ingalls | $53 | $53 | $44 |
| Newport\tNews | 134 | 109 | 93 |
| Other | 1 | 3 | — |
| Corporate | — | — | 2 |
| Total\tcapital\texpenditures | $188 | $165 | $139 |

|  |  | Year	Ended	December	31 |  |
| :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 |
| Depreciation\tand\tAmortization(1) |  |  |  |
| Ingalls | $65 | $81 | $125 |
| Newport\tNews | 106 | 105 | 100 |
| Other | 9 | 8 | — |
| Corporate | — | — | 1 |
| Total\tdepreciation\tand\tamortization | $180 | $194 | $226 |

(1)	Excluding	amortization	of	debt	issuance	costs

# 10.	ACCOUNTS	RECEIVABLE,	NET

Accounts	receivable	includes	unbilled	amounts	that	represent	sales	for	which	billings	have	not	been	presented	to	customers	at	year-end.	These	amounts are	usually	billed	and	collected	within	one	year.	Accounts	receivable	billed	but	not	paid	by	customers	under	retainage	provisions	in	long-term	contracts were	$24	million	and	$38	million	as	of	December	31,	2015	and	2014,	respectively,	substantially	all	of	which	were	under	U.S.	Government	contracts. Accounts	receivable	at	December	31,	2015,	are	expected	to	be	collected	in	 2016,	except	for	approximately	$121	million	due	in	2017	and	 $115	million	due in	or	after	2018.

Because	the	Company's	accounts	receivable	are	primarily	with	the	U.S.	Government	or	with	companies	acting	as	a	contractor	to	the	U.S.	Government, the	Company	does	not	have	material	exposure	to	accounts	receivable	credit	risk.

Accounts	receivable	were	composed	of	the	following:

|  | December	31 |  |
| :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 |
| Due\tFrom\tU.S.\tGovernment |  |  |
| Amounts\tbilled | $197 | $180 |
| Recoverable\tcosts\tand\taccrued\tprofit\ton\tprogress\tcompleted\t-\tunbilled | 783 | 766 |
|  | 980 | 946 |
| Due\tFrom\tOther\tCustomers |  |  |
| Amounts\tbilled | 39 | 64 |
| Recoverable\tcosts\tand\taccrued\tprofit\ton\tprogress\tcompleted\t-\tunbilled | 59 | 35 |
|  | 98 | 99 |
| Total\taccounts\treceivable | 1,078 | 1,045 |
| Allowances\tfor\tdoubtful\taccounts | (4) | (7) |
| Total\taccounts\treceivable,\tnet | $1,074 | $1,038 |

# 11.	INVENTORIED	COSTS,	NET

Inventoried	costs	were	composed	of	the	following:

|  | December	31 |  |
| :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 |
| Production\tcosts\tof\tcontracts\tin\tprocess | $193 | $248 |
| Raw\tmaterial\tinventory | 92 | 91 |
| Total\tinventoried\tcosts,\tnet | $285 | $339 |

# 12.	GOODWILL	AND	OTHER	INTANGIBLE	ASSETS

# Goodwill

HII	performs	impairment	tests	for	goodwill	as	of	November	30	of	each	year	and	between	annual	impairment	tests	if	an	event	occurs	or	circumstances change	that	would	more	likely	than	not	reduce	the	fair	value	of	the	Company's	reporting	units	below	their	carrying	value.	Reporting	units	are	aligned	with the	Company's	businesses.	The	Company's	testing	approach	utilizes	a	combination	of	discounted	cash	flow	analysis	and	comparative	market	multiples	to determine	the	fair	values	of	its	businesses	for	comparison	to	their	corresponding	book	values.

In	connection	with	the	Company's	annual	goodwill	impairment	test	as	of	November	30,	2015,	management	tested	goodwill	for	each	of	its	 four	reporting units.	As	a	result	of	its	annual	goodwill	impairment	test,	the	Company	determined	that	the	estimated	fair	value	of	each	reporting	unit	exceeded	by	more than	10%	its	corresponding	carrying	value	as	of	November	30,	2015,	except	for	the	Oil	and	Gas	reporting	unit	in	the	Other	segment.

While	the	November	30,	2015,	annual	impairment	test	did	not	result	in	an	impairment,	considering	the	limited	excess	fair	value	of	goodwill	over	its carrying	value	in	the	Oil	and	Gas	reporting	unit	and	the	continued	decline	in	oil	prices	and	related	industry	activity	levels,	the	Company	performed	an interim	assessment	of	goodwill	as	of	December	31,	2015.	The	Company's	determination	of	fair	value	as	of	December	31,	2015,	considered	industry events	that	occurred	in	the	period	since	its	annual	goodwill	impairment	test,	as	well	as	the	updated	long	term	outlook	for	this	reporting	unit.	Those	events included	continued	deterioration	in	the	oil	and	gas	markets,	numerous	industry-wide	project	deferrals,	and	capital	spending	cuts	announced	by	industry leaders.	The	analysis	concluded	the	fair	value	of	this	reporting	unit	was	less	than	its	carrying	value	as	of	December	31,	2015,	and	the	Company	recorded a	goodwill	impairment	charge	of	$16	million	at	the	Other	segment	in	the	fourth	quarter	of	2015.

The	Company	continuously	monitors	industry	events	and	changes	in	circumstances	in	the	industries	in	which	its	reporting	units	conduct	business.	In consideration	of	the	Oil	and	Gas	reporting	unit's	sensitivity	to	developments	within	its	industry,	the	continued	decline	in	crude	oil	prices,	significant reductions	in	its	customer	capital	spending	plans,	and	project	delays,	management	concluded	that	an	interim	goodwill	impairment	test	was	necessary	to

determine	whether	it	was	more	likely	than	not	that	the	fair	value	of	its	Oil	and	Gas	reporting	unit	was	still	higher	than	its	carrying	value	as	of	May	31, 2015.	The	Company's	assessment	considered	the	aforementioned	changes	to	expectations	that	were	considered	as	part	of	its	annual	goodwill impairment	test	as	of	November	30,	2014.	As	a	result	of	its	analysis,	the	Company	recorded	a	$59	million	goodwill	impairment	charge	at	the	Other segment	in	the	second	quarter	of	2015.

In	2014,	the	Company	recorded	a	$47	million	goodwill	impairment	charge	at	its	Other	segment.	The	goodwill	impairment	charge	was	primarily	driven	by the	drop	in	oil	prices	and	the	resulting	decrease	in	industry	market	multiples.	The	Company	determined	that	the	estimated	fair	values	of	its	remaining reporting	units	exceeded	their	corresponding	carrying	values	as	of	November	30,	2014.

The	Company	determined	that	the	estimated	fair	value	of	each	reporting	unit	exceeded	its	corresponding	carrying	value	as	of	November	30, 2013.

Accumulated	goodwill	impairment	losses	as	of	 December	31,	2015	and	2014,	were	$2,877	million	and	$2,802	million,	respectively.	The	accumulated goodwill	impairment	losses	for	Ingalls	as	of	each	of	December	31,	2015,	and	2014,	were	$1,568	million.	The	accumulated	goodwill	impairment	losses	for Newport	News	as	of	each	of	December	31,	2015,	and	2014,	were	$1,187	million.	The	accumulated	goodwill	impairment	losses	for	the	Other	segment	as of	December	31,	2015	and	2014,	were	$122	million	and	$47	million,	respectively.

For	the	year	ended	December	31,	2015,	the	Company	recorded	 $4	million	of	goodwill	related	to	its	acquisition	of	USG.	The	Company	recorded $150 million	and	$42	million	of	goodwill	related	to	its	acquisitions	of	UPI	and	SN3,	respectively,	in	2014.

For	the	years	ended	December	31,	2015	and	2014,	the	carrying	amounts	of	goodwill	changed	as	follows:

| ($	in	millions) | Ingalls | Newport	News | Other | Total |
| :--- | :--- | :--- | :--- | :--- |
| Balance\tas\tof\tDecember\t31,\t2013 | $175 | $706 | $— | $881 |
| Acquisitions | — | 42 | 150 | 192 |
| Goodwill\timpairment | — | — | (47) | (47) |
| Balance\tas\tof\tDecember\t31,\t2014 | 175 | 748 | 103 | 1,026 |
| Acquisitions | — | 4 | — | 4 |
| Adjustments | — | — | 1 | 1 |
| Goodwill\timpairment | — | — | (75) | (75) |
| Balance\tas\tof\tDecember\t31,\t2015 | $175 | $752 | $29 | $956 |

In	the	first	quarter	of	2014,	the	Company	realigned	its	segments	in	order	to	optimize	its	operating	structure.	As	a	result,	the	net	goodwill	balance	as	of December	31,	2014,	includes	the	reclassification	of	$23	million	of	goodwill	from	the	Company's	Ingalls	segment	to	its	Newport	News	segment.	See	Note 9:	Segment	Information	for	a	full	description	of	the	segment	realignments.	None	of	these	changes	impacted	the	previously	reported	goodwill	within	each of	the	Company's	reporting	units.

# Other	Intangible	Assets

The	Company	performs	tests	for	impairment	of	long-lived	assets	whenever	events	or	circumstances	suggest	that	long-lived	assets	may	be	impaired.	In December	2015,	the	Company	performed	an	impairment	test	on	the	amortizable	intangible	assets	that	arose	from	the	UPI	acquisition,	which	reside	in	the Company's	Oil	and	Gas	reporting	unit	within	the	Other	segment.	The	Oil	and	Gas	asset	group's	long	lived	intangible	assets	consist	primarily	of	customer relationships	and,	to	a	lesser	degree,	trade	name	and	developed	technology.	The	Company	performed	its	impairment	test	considering	the	latest	market conditions	and	expectations,	as	well	as	lower	anticipated	revenue	and	profitability.	Based	on	the	nature	of	UPI's	intangible	assets,	the	Company performed	the	recoverability	test	at	the	reporting	unit	level.	In	connection	with	the	recoverability	test,	the	Company	reevaluated	the	remaining	useful	lives of	the	intangible	assets	and	determined	the	total	undiscounted	pretax	cash	flows	generated	by	the	reporting	unit	over	the	remaining	useful	life	of	the primary	asset,	customer	relationships.	The	carrying	amount	of	the	reporting	unit	was	greater	than	the	total	undiscounted	pretax	cash	flows,	and,	as	a result,	the	intangible	assets	were	written	down	by	$27	million,	charged	against	cost	of	sales	and	service	revenues	within	income	from	operations	at	the Other

segment,	and	the	new	carrying	value	was	adjusted	to	be	amortized	using	the	pattern	of	benefits	method	over	a	weighted-average	life	of seven	years.

In	connection	with	the	USG	purchase	in	2015,	the	Company	recorded	 $1	million	of	intangible	assets	pertaining	to	technology,	to	be	amortized	using	the pattern	of	benefits	method	over	a	weighted-average	life	of	19	years.	In	connection	with	the	UPI	purchase	in	2014,	the	Company	recorded	 $41	million	of intangible	assets	pertaining	to	existing	contracts,	trademarks,	and	trade	names,	to	be	amortized	using	the	pattern	of	benefits	method	over	a	weighted- average	life	of	11	years.	In	connection	with	the	SN3	purchase	in	2014,	the	Company	recorded	 $6	million	of	intangible	assets	pertaining	to	existing contract	backlog,	trademarks,	and	trade	names,	to	be	amortized	using	the	pattern	of	benefits	method	over	a	weighted-average	life	of	five	years.

The	following	table	summarizes	the	Company's	aggregate	purchased	intangible	assets,	which	are	primarily	program	related	intangible	assets.

|  | December	31 |  |
| :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 |
| Gross\tcarrying\tamount | $987 | $986 |
| Impairment | (27) | — |
| Accumulated\tamortization | (465) | (439) |
| Net\tcarrying\tamount | $495 | $547 |

The	Company's	purchased	intangible	assets	are	being	amortized	on	a	straight-line	basis	or	a	method	based	on	the	pattern	of	benefits	over	their estimated	useful	lives.	Net	intangible	assets	consist	principally	of	amounts	pertaining	to	nuclear-powered	aircraft	carrier	and	submarine	program	intangible assets,	with	an	aggregate	weighted-average	useful	life	of	40	years	based	on	the	long	life	cycle	of	the	related	programs.	Aggregate	amortization	expense for	the	years	ended	December	31,	2015,	2014	and	2013,	was	$26	million,	$28	million	and	$20	million,	respectively.

# 13.	INCOME	TAXES

The	Company's	earnings	are	principally	domestic	and	its	effective	tax	rate	on	earnings	from	operations	for	the year	ended	December	31,	2015,	was 36.1%,	compared	with	33.3%	and	33.8%	for	2014	and	2013,	respectively.

For	the	year	ended	December	31,	2015,	the	Company's	effective	tax	rate	differed	from	the	federal	statutory	rate	primarily	as	a	result	of	the	amount	of	the goodwill	impairment	that	is	not	amortizable	for	tax	purposes	and	other	non-deductible	expenses,	partially	offset	by	the	domestic	manufacturing	deduction. For	the	year	ended	December	31,	2014,	the	Company's	effective	tax	rate	differed	from	the	federal	statutory	rate	primarily	as	a	result	of	the	domestic manufacturing	deduction,	partially	offset	by	the	amount	of	the	goodwill	impairment	that	is	not	amortizable	for	tax	purposes.	For	the	year	ended December	31,	2013,	the	Company's	effective	tax	rate	differed	from	the	federal	statutory	rate	primarily	as	a	result	of	the	domestic	manufacturing	deduction and	enactment	of	the	American	Taxpayer	Relief	Act	in	January	2013,	which	retroactively	extended	the	research	and	development	tax	credit	through	the end	of	2013.	The	Company's	effective	tax	rate	for	the	year	ended	December	31,	2013,	reflects	the	entire	2012	income	tax	benefit	for	the	research	and development	tax	credit,	which	expired	at	the	end	of	2011.

In	connection	with	the	spin-off,	HII	entered	into	a	Tax	Matters	Agreement	with	Northrop	Grumman	that	governs	the	respective	rights,	responsibilities,	and obligations	of	Northrop	Grumman	and	the	Company	with	respect	to	tax	liabilities	and	benefits,	tax	attributes,	tax	contests,	and	other	tax	sharing	regarding U.S.	federal,	state,	local,	and	foreign	income	taxes,	other	taxes,	and	related	tax	returns.	The	Company	is	severally	liable	with	Northrop	Grumman	for	its income	taxes	for	periods	before	the	spin-off.	HII	is	obligated	to	indemnify	Northrop	Grumman	for	tax	adjustments	that	increase	the	Company's	taxable income	for	periods	before	the	spin-off	and	are	of	a	nature	that	could	result	in	a	correlative	reduction	in	HII's	taxable	income	for	periods	after	the	spin-off. Northrop	Grumman	is	obligated	to	indemnify	HII	for	tax	adjustments	that	decrease	the	Company's	taxable	income	for	periods	before	the

spin-off	and	are	of	a	nature	that	could	result	in	a	correlative	increase	in	HII's	taxable	income	for	periods	after	the	spin-off.	These	payment	obligations	only apply	once	the	aggregate	tax	liability	related	to	tax	adjustments	exceeds	$5	million.	Once	the	aggregate	amount	is	exceeded,	only	the	amount	in	excess of	$5	million	is	ultimately	required	to	be	paid.	In	2015	and	prior	years,	HII	incurred	non-cash	federal	and	state	tax	adjustments	for	items	governed	by	the Tax	Matters	Agreement.	The	federal	tax	expense	(benefit)	adjustment	is	reported	as	a	component	of	tax	expense,	while	the	state	tax	expense	(benefit) adjustment	is	treated	as	an	allowable	cost	in	the	applicable	period	under	the	terms	of	the	Company's	existing	contracts	and	is	included	in	general	and administrative	expenses.

Federal	income	tax	expense	for	the	years	ended	December	31,	2015,	2014,	and	2013,	consisted	of	the	following:

|  |  | Year	Ended	December	31 |  |
| :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 |
| Income\tTaxes\ton\tOperations |  |  |  |
| Federal\tincome\ttaxes\tcurrently\tpayable | $242 | $191 | $150 |
| Change\tin\tdeferred\tfederal\tincome\ttaxes | (14) | (22) | (17) |
| Total\tfederal\tincome\ttaxes | $228 | $169 | $133 |

Income	tax	expense	differed	from	the	amount	based	on	the	statutory	federal	income	tax	rate	applied	to	earnings	(loss)	before	income	taxes	due	to	the following:

|  |  | Year	Ended	December	31 |  |
| :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 |
| Income\ttax\texpense\t(benefit)\ton\toperations\tat\tstatutory\trate | $221 | $178 | $138 |
| Goodwill\timpairment | 11 | 6 | — |
| Manufacturing\tdeduction | (10) | (9) | (7) |
| Research\ttax\tcredit | — | — | (2) |
| Other,\tNet | 6 | (6) | 4 |
| Total\tfederal\tincome\ttaxes | $228 | $169 | $133 |

Unrecognized	Tax	Benefits	-	Unrecognized	tax	benefits	represent	the	gross	value	of	the	Company's	uncertain	tax	positions	that	have	not	been	reflected in	the	consolidated	statements	of	operations.	If	the	income	tax	benefits	from	federal	tax	positions	are	ultimately	realized,	such	realization	would	affect	the Company's	income	tax	expense,	while	the	realization	of	state	tax	benefits	would	be	recorded	in	general	and	administrative	expenses.

The	changes	in	unrecognized	tax	benefits	(exclusive	of	interest	and	penalties)	for	the years	ended	December	31,	2015,	2014,	and	2013	are	summarized in	the	following	table:

|  |  | December	31 |  |
| :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 |
| Unrecognized\ttax\tbenefits\tat\tbeginning\tof\tthe\tyear | $19 | $11 | $19 |
| Additions\tbased\ton\ttax\tpositions\trelated\tto\tthe\tcurrent\tyear | 8 | 5 | 5 |
| Additions\tbased\ton\ttax\tpositions\tof\tprior\tyears | 3 | 3 | 1 |
| Current\tyear\tacquisitions | — | 4 | — |
| Reductions\tbased\ton\ttax\tpositions\tof\tprior\tyears | — | — | (14) |
| Settlements | (1) | — | — |
| Statute\tof\tlimitation\texpirations | (2) | (4) | — |
| Net\tchange\tin\tunrecognized\ttax\tbenefits | 8 | 8 | (8) |
| Unrecognized\ttax\tbenefits\tat\tend\tof\tthe\tyear | $27 | $19 | $11 |

As	of	December	31,	2015	and	2014,	the	estimated	amount	of	the	Company's	uncertain	tax	positions,	excluding	interest	and	penalties,	were	liabilities	of $27	million	and	$19	million,	respectively.	Assuming	sustainment	of	these	positions,	as	of	 December	31,	2015	and	2014,	the	reversal	of	$17	million	and $11	million,	respectively,	of	the	amounts	accrued	would	favorably	affect	the	Company's	effective	federal	income	tax	rate	in	future	periods.	Accrued

interest	and	penalties	with	respect	to	unrecognized	tax	benefits	were	 $3	million	as	of	each	of	December	31,	2015	and	2014.

During	2013,	the	Company	recorded	a	reduction	of	$14	million	to	its	liability	for	uncertain	tax	positions	related	to	a	change	approved	by	the	IRS	for	the allocation	of	interest	costs	to	long	term	construction	contracts	at	Ingalls.	This	change	was	made	on	a	prospective	basis	only	and	did	not	impact	the	tax returns	filed	for	years	prior	to	2013.

The	following	table	summarizes	the	tax	years	that	are	either	currently	under	examination	or	remain	open	under	the	applicable	statute	of	limitations	and subject	to	examination	by	the	major	tax	jurisdictions	in	which	the	Company	operates:

Although	the	Company	believes	it	has	adequately	provided	for	all	uncertain	tax	positions,	amounts	asserted	by	taxing	authorities	could	be	greater	than the	Company's	accrued	position.	Accordingly,	additional	provisions	for	federal	and	state	income	tax	related	matters	could	be	recorded	in	the	future	as revised	estimates	are	made	or	the	underlying	matters	are	effectively	settled	or	otherwise	resolved.	Conversely,	the	Company	could	settle	positions	with the	tax	authorities	for	amounts	lower	than	have	been	accrued.	The	Company	believes	that	it	is	reasonably	possible	that	during	the	next	12	months	the Company's	liability	for	uncertain	tax	positions	may	decrease	by	approximately	$2	million	due	to	statute	of	limitation	expirations.

The	Company	recognizes	accrued	interest	and	penalties	related	to	uncertain	tax	positions	in	income	tax	expense.	The	IRS	is	currently	conducting	an examination	of	Northrop	Grumman's	consolidated	tax	returns,	of	which	HII	was	part,	for	the	years	2007	through	the	spin-off.	During	2013	the	Company entered	into	the	pre-Compliance	Assurance	Process	with	the	IRS	for	years	2011	and	2012.	The	Company	is	part	of	the	IRS	Compliance	Assurance Process	program	for	the	2014,	2015,	and	2016	tax	years.	Open	tax	years	related	to	state	jurisdictions	remain	subject	to	examination.	As	of	March	31, 2011,	the	date	of	the	spin-off,	the	Company's	liability	for	uncertain	tax	positions	was	approximately	$4	million,	net	of	federal	benefit,	which	related	solely to	state	income	tax	positions.	Under	the	terms	of	the	Separation	Agreement,	Northrop	Grumman	is	obligated	to	reimburse	HII	for	any	settlement	liabilities paid	by	HII	to	any	government	authority	for	tax	periods	prior	to	the	spin-off,	which	include	state	income	taxes.	As	a	result,	the	Company	recorded	in	other assets	a	reimbursement	receivable	of	approximately	$4	million,	net	of	federal	benefit,	related	to	uncertain	tax	positions	for	state	income	taxes	as	of	the date	of	the	spin-off.	In	2014,	the	statute	of	limitations	expired	for	the	$4	million	liability	related	to	state	uncertain	tax	positions	as	of	the	spin-off	date. Accordingly,	the	$4	million	liability	and	the	associated	reimbursement	receivable	were	written	off.

On	September	13,	2013,	the	Treasury	Department	and	the	Internal	Revenue	Service	issued	final	regulations	regarding	the	deduction	and	capitalization	of amounts	paid	to	acquire,	produce,	improve,	or	dispose	of	tangible	personal	property.	These	regulations	are	generally	effective	for	tax	years	beginning	on or	after	January	1,	2014.	The	application	of	these	regulations	did	not	have	a	material	impact	on	the	Company's	consolidated	financial	statements.

Deferred	Income	Taxes	-	Deferred	income	taxes	reflect	the	net	tax	effects	of	temporary	differences	between	the	carrying	amounts	of	assets	and	liabilities for	financial	reporting	purposes	and	for	income	tax	purposes.	Such	amounts	are	classified	in	the	consolidated	statements	of	financial	position	as	current or	non-current	assets	or	liabilities	based	upon	the	classification	of	the	related	assets	and	liabilities.

The	tax	effects	of	significant	temporary	differences	and	carry-forwards	that	gave	rise	to	year-end	deferred	federal	and	state	tax	balances,	as	presented	in the	consolidated	statements	of	financial	position,	were	as	follows:

|  | December	31 |  |
| :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 |
| Deferred\tTax\tAssets |  |  |
| Retirement\tbenefits | $571 | $592 |
| Workers'\tcompensation | 263 | 256 |
| Reserves\tnot\tcurrently\tdeductible\tfor\ttax\tpurposes | 21 | 9 |
| Stock-based\tcompensation | 19 | 14 |
| Net\toperating\tlosses\tand\ttax\tcredit\tcarry-forwards | 17 | 20 |
| Other | 12 | 9 |
| Gross\tdeferred\ttax\tassets | 903 | 900 |
| Less\tvaluation\tallowance | 11 | 14 |
| Net\tdeferred\ttax\tassets | 892 | 886 |
| Deferred\tTax\tLiabilities |  |  |
| Depreciation\tand\tamortization | 310 | 297 |
| Contract\taccounting\tdifferences | 85 | 53 |
| Purchased\tintangibles | 161 | 195 |
| Gross\tdeferred\ttax\tliabilities | 556 | 545 |
| Total\tnet\tdeferred\ttax\tassets | $336 | $341 |

As	of	December	31,	2015,	the	Company	had	gross	state	income	tax	credit	carry-forwards	of	approximately	 $22	million,	which	expire	from	2016	through 2018.	A	deferred	tax	asset	of	approximately	$14	million	(net	of	federal	benefit)	has	been	established	related	to	these	state	income	tax	credit	carry- forwards,	with	a	valuation	allowance	of	$9	million	against	such	deferred	tax	asset	as	of	December	31,	2015.	The	Company	had	a	gross	state	net operating	loss	carry-forward	of	$39	million,	which	expires	in	2022.	A	deferred	tax	asset	of	approximately	$2	million	(net	of	federal	benefit)	has	been established	for	the	net	operating	loss	carry-forward,	with	a	full	valuation	allowance	as	of	December	31,	2015.	The	Company	had	a	federal	net	operating loss	carry-forward	of	$2	million	from	the	UPI	acquisition,	which	expires	in	2034.

In	2015,	the	Company	elected	to	early	adopt	ASU	2015-17	retrospectively	as	of	December	31,	2015,	and	therefore	reclassified	deferred	tax	assets totaling	$129	million	to	long-term	deferred	tax	assets	as	of	December	31,	2014.	See	Note	3:	Accounting	Standards	Updates.

Long-term	debt	consisted	of	the	following:

|  | December	31 |  |
| :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 |
| Term\tloan\tdue\tMarch\t30,\t2016 | $— | $395 |
| Senior\tnotes\tdue\tMarch\t15,\t2021,\t7.125% | — | 600 |
| Senior\tnotes\tdue\tDecember\t15,\t2021,\t5.000% | 600 | 600 |
| Senior\tnotes\tdue\tNovember\t15,\t2025,\t5.000% | 600 | — |
| Mississippi\teconomic\tdevelopment\trevenue\tbonds\tdue\tMay\t1,\t2024,\t7.81% | 84 | 84 |
|  | 21 | 21 |
| Less\tunamortized\tdebt\tissuance\tcosts | (32) | (30) |
| Total\tlong-term\tdebt | 1,273 | 1,670 |
| Less\tcurrent\tportion | — | 108 |
| Long-term\tdebt,\tnet\tof\tcurrent\tportion | $1,273 | $1,562 |

Credit	Facility	-	In	March	2011,	the	Company	entered	into	a	Credit	Facility	with	third-party	lenders.	On	July	13,	2015,	the	Company	entered	into	a	Second Amended	and	Restated	Credit	Agreement	(the	"Amended	Credit	Facility")	with	third-party	lenders.	The	Amended	Credit	Facility	includes	a	revolving	credit facility	of	$1,250	million,	which	may	be	drawn	upon	during	a	period	of	 five	years	from	July	13,	2015.	The	revolving	credit	facility	includes	a	letter	of	credit subfacility	of	$500	million.	The	revolving	credit	facility	has	a	variable	interest	rate	on	outstanding	borrowings	based	on	the	London	Interbank	Offered	Rate ("LIBOR")	plus	a	spread	based	upon	the	Company's	leverage	ratio,	which	may	vary	between	1.25%	and	2.0%.	The	revolving	credit	facility	also	has	a commitment	fee	rate	on	the	unutilized	balance	based	on	the	Company's	leverage	ratio.	The	commitment	fee	rate	as	of	December	31,	2015	was	0.25% and	may	vary	between	0.25%	and	0.35%.	As	of	December	31,	2015,	$27	million	in	letters	of	credit	were	issued	but	undrawn,	and	the	remaining $1,223 million	of	the	revolving	credit	facility	was	unutilized.	The	Company	had	unamortized	debt	issuance	costs	associated	with	its	credit	facilities	of $10	million as	of	each	of	December	31,	2015	and	2014.

The	Amended	Credit	Facility	contains	customary	affirmative	and	negative	covenants,	as	well	as	a	financial	covenant	based	on	a	maximum	total	leverage ratio.	The	terms	of	the	Amended	Credit	Facility	also	limit	the	Company's	ability	to	pay	dividends.	Each	of	the	Company's	existing	and	future	material wholly	owned	domestic	subsidiaries,	except	those	that	are	specifically	designated	as	unrestricted	subsidiaries,	are	and	will	be	guarantors	under	the Amended	Credit	Facility.	Substantially	all	tangible	and	intangible	material	assets	of	the	Company	and	domestic	subsidiaries	are	pledged	as	collateral under	the	Amended	Credit	Facility.

On	July	13,	2015,	the	Company	used	cash	on	hand	to	repay	all 	amounts	outstanding	under	the	prior	credit	facility,	including	 $345	million	in	principal amount	of	outstanding	term	loans.

Senior	Notes	-	In	March	2011,	the	Company	issued	 $600	million	aggregate	principal	amount	of	6.875%	senior	notes	due	March	15,	2018,	and	 $600 million	aggregate	principal	amount	of	7.125%	senior	notes	due	March	15,	2021.	In	December	2014,	the	Company	issued	$600	million	aggregate	principal amount	of	unregistered	5.000%	senior	notes	due	December	15,	2021.	The	net	proceeds	from	the	issuance	of	these	unregistered	senior	notes	were	used to	repurchase	the	Company's	6.875%	senior	notes	due	March	15,	2018	in	connection	with	the	2014	tender	offer	and	redemption	described	below.	In November	2015,	the	Company	issued	$600	million	aggregate	principal	amount	of	unregistered	5.000%	senior	notes	due	November	15,	2025.	The	net proceeds	from	the	issuance	of	these	unregistered	senior	notes	were	used	to	repurchase	the	Company's	7.125%	senior	notes	due	March	15,	2021	in connection	with	the	2015	tender	offer	and	redemption	described	below.	Interest	on	the	Company's	senior	notes	is	payable	semi-annually.

The	terms	of	the	5.000%	senior	notes	limit	the	Company's	ability	and	the	ability	of	certain	of	its	subsidiaries	to	create	liens,	enter	into	sale	and	leaseback transactions,	sell	assets,	and	effect	consolidations	or	mergers.	The	Company	had	unamortized	debt	issuance	costs	associated	with	the	senior	notes	of $22	million	and	$20	million	as	of	December	31,	2015	and	2014,	respectively.

Tender	Offers	and	Redemptions	-	During	the	fourth	quarter	of	2015,	the	Company	completed	a	tender	offer,	followed	by	a	redemption	of	untendered notes,	to	purchase	for	cash	an	aggregate	principal	amount	of	$600	million	of	its	7.125%	senior	notes	due	March	15,	2021.	During	the	fourth	quarter	of 2014,	the	Company	completed	a	tender	offer,	followed	by	a	redemption	of	untendered	notes,	to	purchase	for	cash	an	aggregate	principal	amount	of	$600 million	of	its	6.875%	senior	notes	due	March	15,	2018.

Early	Extinguishment	of	Debt	-	Details	of	the	loss	on	early	extinguishment	of	debt	related	to	the	Amended	Credit	Facility	and	refinancing	of	senior	notes, which	was	included	in	interest	expense,	were	as	follows:

|  | December	31 | December	31 |
| :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 |
| Redemption\tand\ttender\tpremiums\tand\tfees | $33 | $31 |
| Write-off\tof\tunamortized\tdebt\tissuance\tcosts | 11 | 6 |
| Total\tloss\ton\tearly\textinguishment\tof\tdebt | $44 | $37 |

Mississippi	Economic	Development	Revenue	Bonds	- 	As	of	December	31,	2015	and	2014,	the	Company	had	 $84	million	outstanding	under	Industrial Revenue	Bonds	issued	by	the	Mississippi	Business	Finance	Corporation.	These	bonds	accrue	interest	at	a	fixed	rate	of	7.81%	per	annum	(payable	semi- annually)	and	mature	in	2024.	While

repayment	of	principal	and	interest	is	guaranteed	by	Northrop	Grumman	Systems	Corporation,	HII	has	agreed	to	indemnify	Northrop	Grumman	Systems Corporation	for	any	losses	related	to	the	guaranty.	In	accordance	with	the	terms	of	the	bonds,	the	proceeds	were	used	to	finance	the	construction, reconstruction,	and	renovation	of	the	Company's	interest	in	certain	ship	manufacturing	and	repair	facilities,	or	portions	thereof,	located	in	the	state	of Mississippi.

Gulf	Opportunity	Zone	Industrial	Development	Revenue	Bonds	- 	As	of	December	31,	2015	and	2014,	the	Company	had	 $21	million	outstanding	under Gulf	Opportunity	Zone	Industrial	Development	Revenue	Bonds	("GO	Zone	IRBs")	issued	by	the	Mississippi	Business	Finance	Corporation.	These	bonds accrue	interest	at	a	fixed	rate	of	4.55%	per	annum	(payable	semi-annually)	and	mature	in	2028.	In	accordance	with	the	terms	of	the	bonds,	the	proceeds were	used	to	finance	the	construction,	reconstruction,	and	renovation	of	the	Company's	interest	in	certain	ship	manufacturing	and	repair	facilities,	or portions	thereof,	located	in	the	state	of	Mississippi.

The	Company's	debt	arrangements	contain	customary	affirmative	and	negative	covenants,	including	a	maximum	leverage	ratio.	The	Company	was	in compliance	with	all	debt	covenants	during	the	year	ended	December	31,	2015.

The	estimated	fair	values	of	the	Company's	total	long-term	debt,	including	current	portions,	as	of	 December	31,	2015	and	December	31,	2014,	were $1,343	million	and	$1,779	million,	respectively.	The	fair	values	of	the	Company's	long-term	debt	were	calculated	based	on	either	recent	trades	of	the Company's	debt	instruments	in	inactive	markets	or	yields	available	on	debt	with	substantially	similar	risks,	terms,	and	maturities,	which	fall	within	Level	2 under	the	fair	value	hierarchy.

The	Company	does	not	have	any	principal	payments	due	on	long-term	debt	within	the	next	five	years.

# 15.	INVESTIGATIONS,	CLAIMS,	AND	LITIGATION

The	Company	is	involved	in	legal	proceedings	before	various	courts	and	administrative	agencies,	and	is	periodically	subject	to	government	examinations, inquiries	and	investigations.	Pursuant	to	FASB	Accounting	Standards	Codification	450	Contingencies,	the	Company	has	accrued	for	losses	associated with	investigations,	claims	and	litigation	when,	and	to	the	extent	that,	loss	amounts	related	to	the	investigations,	claims	and	litigation	are	probable	and	can be	reasonably	estimated.		The	actual	losses	that	might	be	incurred	to	resolve	such	investigations,	claims	and	litigation	may	be	higher	or	lower	than	the amounts	accrued.	For	matters	where	a	material	loss	is	probable	or	reasonably	possible	and	the	amount	of	loss	cannot	be	reasonably	estimated,	but	the Company	is	able	to	reasonably	estimate	a	range	of	possible	losses,	the	Company	will	disclose	such	estimated	range	in	these	notes.	This	estimated range	is	based	on	information	currently	available	to	the	Company	and	involves	elements	of	judgment	and	significant	uncertainties.	Any	estimated	range	of possible	loss	does	not	represent	the	Company's	maximum	possible	loss	exposure.	For	matters	as	to	which	the	Company	is	not	able	to	reasonably estimate	a	possible	loss	or	range	of	loss,	the	Company	will	indicate	the	reasons	why	it	is	unable	to	estimate	the	possible	loss	or	range	of	loss.	For matters	not	specifically	described	in	these	notes,	the	Company	does	not	believe,	based	on	information	currently	available	to	it,	that	it	is	reasonably possible	that	the	liabilities,	if	any,	arising	from	such	investigations,	claims	and	litigation	will	have	a	material	effect	on	its	consolidated	financial	position, results	of	operations,	or	cash	flows.	The	Company	has,	in	certain	cases,	provided	disclosure	regarding	certain	matters	for	which	the	Company	believes	at this	time	that	the	likelihood	of	material	loss	is	remote.

False	Claims	Act	Complaint	-	In	January	2011,	the	U.S.	Department	of	Justice	("DoJ")	first	informed	the	Company	through	Northrop	Grumman	of	a	False Claims	Act	complaint	(the	"Complaint")	that	was	filed	under	seal	in	the	U.S.	District	Court	for	the	District	of	Columbia.	The	redacted	copy	of	the	Complaint the	Company	received	alleges	that,	through	largely	unspecified	fraudulent	means,	the	Company	and	Northrop	Grumman	obtained	federal	funds	that	were restricted	by	law	for	the	consequences	of	Hurricane	Katrina,	and	used	those	funds	to	cover	costs	under	certain	shipbuilding	contracts	that	were	unrelated to	Katrina	and	for	which	Northrop	Grumman	and	the	Company	were	not	entitled	to	recovery	under	the	contracts.	The	Complaint	seeks	monetary damages	of	at	least	$835	million,	plus	penalties,	attorneys'	fees	and	other	costs	of	suit.	Damages	under	the	False	Claims	Act	may	be	trebled	upon	a finding	of	liability.

In	July	2012,	the	District	Court	entered	an	order	permitting	the	Company	to	disclose	certain	information	not	included	in	the	redacted	copy	of	the Complaint	received	by	the	Company,	including	the	date	the	Complaint	was	filed,	the	decision	of	the	DoJ	to	decline	intervention	in	the	case,	and	the principal	parties	involved	in	the	case.	The	Complaint	was	filed	on	June	2,	2010,	by	relators	Gerald	M.	Fisher	and	Donald	C.	Holmes.	In	December	2011, the	DoJ	filed	a	Notice	of	Election	to	Decline	Intervention	in	the	case.	As	of	August	29,	2012,	Gerald	M.	Fisher	was	no	longer	a

relator	in	or	party	to	this	case.	In	February	2013,	the	U.S.	District	Court	for	the	District	of	Columbia	granted	the	defendants'	motion	to	transfer	venue,	and the	case	was	transferred	to	the	U.S.	District	Court	for	the	Southern	District	of	Mississippi.	The	Company	filed	a	motion	to	dismiss	the	case	and	a	motion	to disqualify	relator	Holmes,	and	all	other	matters	were	stayed	pending	resolution	of	those	motions.	In	June	2015,	the	District	Court	granted	the	Company's motion	to	disqualify	Holmes	as	relator,	dismissed	the	case	as	to	Holmes,	and	entered	final	judgment	in	favor	of	the	Company.	Holmes	has	appealed	the District	Court's	decision	to	the	U.S.	Court	of	Appeals	for	the	Fifth	Circuit.

Based	upon	a	review	to	date	of	the	information	available	to	the	Company,	the	Company	believes	that	it	has	substantive	defenses	to	the	allegations	in	the Complaint,	that	the	claims	as	set	forth	in	the	Complaint	evidence	a	fundamental	lack	of	understanding	of	the	terms	and	conditions	in	the	Company's shipbuilding	contracts,	including	the	post-Katrina	modifications	to	those	contracts,	and	the	manner	in	which	the	parties	performed	in	connection	with	the contracts,	and	that	the	claims	as	set	forth	in	the	Complaint	lack	merit.	The	Company,	therefore,	believes	that	the	claims	as	set	forth	in	the	Complaint	will not	result	in	a	material	effect	on	its	consolidated	financial	position,	results	of	operations,	or	cash	flows.	The	Company	intends	to	defend	the	matter vigorously,	but	the	Company	cannot	predict	what	new	or	revised	claims	might	be	asserted	or	what	information	might	come	to	light	and	can,	therefore,	give no	assurances	regarding	the	ultimate	outcome.

U.S.	Government	Investigations	and	Claims	-	Departments	and	agencies	of	the	U.S.	Government	have	the	authority	to	investigate	various	transactions and	operations	of	the	Company,	and	the	results	of	such	investigations	may	lead	to	administrative,	civil	or	criminal	proceedings,	the	ultimate	outcome	of which	could	be	fines,	penalties,	repayments	or	compensatory,	treble,	or	other	damages.	U.S.	Government	regulations	provide	that	certain	findings	against a	contractor	may	also	lead	to	suspension	or	debarment	from	future	U.S.	Government	contracts	or	the	loss	of	export	privileges.	Any	suspension	or debarment	would	have	a	material	effect	on	the	Company	because	of	its	reliance	on	government	contracts.

In	January	2013,	the	Company	disclosed	to	the	DoD,	including	the	U.S.	Navy,	and	the	U.S.	Department	of	Homeland	Security,	including	the	U.S.	Coast Guard,	pursuant	to	the	FAR,	that	it	had	initiated	an	internal	investigation	regarding	whether	certain	employees	at	Ingalls	mischarged	time	or	misstated progress	on	Navy	and	Coast	Guard	contracts.	The	Company	conducted	an	internal	investigation,	led	by	external	counsel,	and	has	taken	remedial actions,	including	the	termination	of	employees	in	instances	where	the	Company	believed	grounds	for	termination	existed.	The	Company	provided information	regarding	its	investigation	to	the	relevant	government	agencies.	The	Company	agreed	with	the	U.S.	Navy	and	U.S.	Coast	Guard	that	they would	initially	withhold	$24	million	in	payments	on	existing	contracts	pending	receipt	of	additional	information	from	the	Company's	internal investigation.	The	U.S.	Navy	has	reduced	its	portion	of	the	withhold	from	$18.2	million	to	$4.7	million,	while	expressing	its	view	that	the	gross	amount	of potential	mischarging	incurred	by	the	Navy	will	likely	not	exceed	$3.1	million.	The	U.S.	Coast	Guard	informed	the	Company	in	June	2014	that	it	was provisionally	reducing	its	withhold	from	$5.8	million	to	$3.6	million.	Based	on	the	results	of	its	internal	investigation,	the	Company	estimates	that	the maximum	amount	of	U.S.	Navy	and	Coast	Guard	mischarging	is	approximately	$4	million.	The	Company	is	continuing	discussions	with	its	U.S. Government	customers	regarding	the	potential	release	of	an	additional	portion	of	the	withheld	funds,	but	the	Company	cannot	predict	whether	or	when these	customers	will	agree	to	any	additional	release	of	the	withhold	amounts.

In	June	2015,	the	DoJ	informed	the	Company	that	it	is	investigating	the	matters	disclosed	by	the	Company	to	the	DoD	in	January	2013.	In	July	2015,	the DoJ	requested	information	from	the	Company,	and	the	Company	is	cooperating	with	the	DoJ's	requests	and	has	provided	certain	information	to	the DoJ.	Depending	upon	the	outcome	of	this	matter,	which	could	result	in	litigation	by	the	DoJ	against	the	Company,	the	Company	could	be	subject	to	civil penalties,	damages,	and/or	suspension	or	debarment	from	future	U.S.	Government	contracts,	which	could	have	a	material	effect	on	its	consolidated financial	position,	results	of	operations,	or	cash	flows.	Given	the	early	stage	of	the	Company's	discussions	with	the	DoJ,	the	Company	is	currently	unable to	estimate	an	amount	or	range	of	reasonably	possible	loss	or	to	express	an	opinion	regarding	the	ultimate	outcome	of	this	matter.

Asbestos	Related	Claims	-	HII	and	its	predecessors-in-interest	are	defendants	in	a	longstanding	series	of	cases	that	have	been	and	continue	to	be	filed	in various	jurisdictions	around	the	country,	wherein	former	and	current	employees	and	various	third	parties	allege	exposure	to	asbestos	containing	materials while	on	or	associated	with	HII	premises	or	while	working	on	vessels	constructed	or	repaired	by	HII.	The	cases	allege	various	injuries,	including	those associated	with	pleural	plaque	disease,	asbestosis,	cancer,	mesothelioma	and	other	alleged	asbestos	related	conditions.	In	some	cases,	several	of	HII's former	executive	officers	are	also	named	as	defendants.	In	some	instances,	partial	or	full	insurance	coverage	is	available	to	the	Company	for	its	liability and	that	of	its	former

executive	officers.	The	average	cost	per	case	to	resolve	cases	during	the	years	ended	December	31,	2015,	2014,	and	2013	was	immaterial	individually and	in	the	aggregate.	The	Company's	estimate	of	asbestos-related	liabilities	is	subject	to	uncertainty	because	liabilities	are	influenced	by	numerous variables	that	are	inherently	difficult	to	predict.	Key	variables	include	the	number	and	type	of	new	claims,	the	litigation	process	from	jurisdiction	to jurisdiction	and	from	case	to	case,	reforms	made	by	state	and	federal	courts	and	the	passage	of	state	or	federal	tort	reform	legislation.	Although	the Company	believes	the	ultimate	resolution	of	current	cases	will	not	have	a	material	effect	on	its	consolidated	financial	position,	results	of	operations,	or cash	flows,	it	cannot	predict	what	new	or	revised	claims	or	litigation	might	be	asserted	or	what	information	might	come	to	light	and	can,	therefore,	give	no assurances	regarding	the	ultimate	outcome	of	asbestos	related	litigation.

Other	Litigation	-	The	Company	and	its	predecessor-in-interest	have	been	in	litigation	with	the	Bolivarian	Republic	of	Venezuela	(the	"Republic")	since 2002	over	a	contract	for	the	repair,	refurbishment	and	modernization	at	Ingalls	of	two	foreign-built	frigates.	The	case	proceeded	towards	arbitration,	then appeared	to	settle	favorably,	but	the	settlement	was	overturned	in	court	and	the	matter	returned	to	litigation.	In	March	2014,	the	Company	filed	an	arbitral statement	of	claim	asserting	breaches	of	the	contract	and	$173	million	in	damages	plus	substantial	interest	and	litigation	expenses.	In	July	2014,	the Republic	filed	in	the	arbitration	a	statement	of	defense	denying	all	the	Company's	allegations	and	a	counterclaim	alleging	late	redelivery	of	the	frigates, unfinished	work	and	breach	of	warranty	and	asserting	damages	of	$61	million	plus	interest.	An	arbitration	hearing	was	held	in	January	2015,	and	the Company	cannot	predict	when	the	arbitration	panel	will	render	a	decision.	No	assurances	can	be	provided	regarding	the	ultimate	outcome	of	this	matter.

The	Company	is	party	to	various	claims	and	legal	proceedings	that	arise	in	the	ordinary	course	of	business.	Although	the	Company	believes	that	the resolution	of	any	of	these	various	claims	and	legal	proceedings	will	not	have	a	material	effect	on	its	consolidated	financial	position,	results	of	operations, or	cash	flows,	it	cannot	predict	what	new	or	revised	claims	or	litigation	might	be	asserted	or	what	information	might	come	to	light	and	can,	therefore,	give no	assurances	regarding	the	ultimate	outcome	of	these	matters.

# 16.	COMMITMENTS	AND	CONTINGENCIES

Contract	Performance	Contingencies	-	Contract	profit	margins	may	include	estimates	of	revenues	for	matters	on	which	the	customer	and	the	Company have	not	reached	agreement,	such	as	settlements	in	the	process	of	negotiation,	contract	changes,	claims,	and	requests	for	equitable	adjustment	for previously	unanticipated	contract	costs.	These	estimates	are	based	upon	management's	best	assessment	of	the	underlying	causal	events	and circumstances,	and	are	included	in	determining	contract	profit	margins	to	the	extent	of	expected	recovery	based	on	contractual	entitlements	and	the probability	of	successful	negotiation	with	the	customer.	As	of	December	31,	2015,	the	recognized	amounts	related	to	claims	and	requests	for	equitable adjustment	were	not	material	individually	or	in	aggregate.

Guarantees	of	Performance	Obligations	-	From	time	to	time	in	the	ordinary	course	of	business,	HII	may	enter	into	joint	ventures,	teaming	and	other business	arrangements	to	support	the	Company's	products	and	services.	The	Company	generally	strives	to	limit	its	exposure	under	these	arrangements to	its	investment	in	the	arrangement,	or	to	the	extent	of	obligations	under	the	applicable	contract.	In	some	cases,	however,	HII	may	be	required	to guarantee	performance	of	the	arrangement's	obligations	and,	in	such	cases,	generally	obtains	cross-indemnification	from	the	other	members	of	the arrangement.

In	the	ordinary	course	of	business,	the	Company	may	guarantee	obligations	of	its	subsidiaries	under	certain	contracts.	Generally,	the	Company	is	liable under	such	an	arrangement	only	if	its	subsidiary	is	unable	to	perform	under	its	contract.	Historically,	the	Company	has	not	incurred	any	substantial liabilities	resulting	from	these	guarantees.	As	of	December	31,	2015,	the	Company	was	not	aware	of	any	existing	event	of	default	that	would	require	it	to satisfy	any	of	these	guarantees.

Environmental	Matters	-	The	estimated	cost	to	complete	environmental	remediation	has	been	accrued	where	it	is	probable	that	the	Company	will	incur such	costs	in	the	future	to	address	environmental	conditions	at	currently	or	formerly	owned	or	leased	operating	facilities,	or	at	sites	where	it	has	been named	a	Potentially	Responsible	Party	("PRP")	by	the	Environmental	Protection	Agency	or	similarly	designated	by	another	environmental	agency,	and the	related	costs	can	be	estimated	by	management.	These	accruals	do	not	include	any	litigation	costs	related	to	environmental	matters,	nor	do	they include	amounts	recorded	as	asset	retirement	obligations.	To	assess	the	potential	impact	on	the	Company's	consolidated	financial	statements, management	estimates	the	range	of	reasonably	possible	remediation	costs	that	could	be	incurred	by	the	Company,	taking	into	account	currently

available	facts	on	each	site,	as	well	as	the	current	state	of	technology	and	prior	experience	in	remediating	contaminated	sites.	These	estimates	are reviewed	periodically	and	adjusted	to	reflect	changes	in	facts	and	technical	and	legal	circumstances.	Management	estimates	that	as	of	December	31, 2015,	the	probable	future	cost	for	environmental	remediation	was	 $2	million,	which	is	accrued	in	other	current	liabilities.	Factors	that	could	result	in changes	to	the	Company's	estimates	include:	modification	of	planned	remedial	actions,	increases	or	decreases	in	the	estimated	time	required	to remediate,	changes	to	the	determination	of	legally	responsible	parties,	discovery	of	more	extensive	contamination	than	anticipated,	changes	in	laws	and regulations	affecting	remediation	requirements,	and	improvements	in	remediation	technology.	Should	other	PRPs	not	pay	their	allocable	share	of remediation	costs,	the	Company	may	incur	costs	exceeding	those	already	estimated	and	accrued.	In	addition,	there	are	certain	potential	remediation	sites where	the	costs	of	remediation	cannot	be	reasonably	estimated.	Although	management	cannot	predict	whether	new	information	gained	as	projects progress	will	materially	affect	the	estimated	liability	accrued,	management	does	not	believe	that	future	remediation	expenditures	will	have	a	material effect	on	the	Company's	consolidated	financial	position,	results	of	operations,	or	cash	flows.

Financial	Arrangements	-	In	the	ordinary	course	of	business,	HII	uses	standby	letters	of	credit	issued	by	commercial	banks	and	surety	bonds	issued	by insurance	companies	principally	to	support	the	Company's	self-insured	workers'	compensation	plans.	As	of	December	31,	2015,	the	Company	had	 $27 million	in	standby	letters	of	credit	issued	but	undrawn,	as	indicated	in	Note	14:	Debt,	and	 $356	million	of	surety	bonds	outstanding.

U.S.	Government	Claims	-	From	time	to	time,	the	U.S.	Government	advises	the	Company	of	claims	and	penalties	concerning	certain	potential	disallowed costs.	When	such	findings	are	presented,	the	Company	and	U.S.	Government	representatives	engage	in	discussions	to	enable	HII	to	evaluate	the	merits of	these	claims,	as	well	as	to	assess	the	amounts	being	claimed.	The	Company	does	not	believe	that	the	outcome	of	any	such	matters	will	have	a material	effect	on	its	consolidated	financial	position,	results	of	operations,	or	cash	flows.

Collective	Bargaining	Agreements	-	Of	the	Company's	36,000	employees,	approximately	50%	are	covered	by	a	total	of	 eight	collective	bargaining agreements.	Newport	News	has	three	collective	bargaining	agreements	covering	represented	employees,	which	expire	in	July	2017,	August	2018,	and December	2018.	Newport	News	craft	workers	employed	at	the	Kesselring	Site	near	Saratoga	Springs,	New	York	are	represented	under	an	indefinite Department	of	Energy	("DoE")	site	agreement.	Ingalls	has	five	collective	bargaining	agreements	covering	represented	employees,	all	of	which	expire	in March	2018.	Approximately	35	SN3	craft	employees	at	the	Hanford	Site	near	Richland,	Washington	are	represented	under	an	indefinite	DoE	site stabilization	agreement.

Collective	bargaining	agreements	generally	expire	after	 three	to	five	years	and	are	subject	to	renegotiation	at	that	time.	The	Company	does	not	expect the	results	of	these	negotiations,	either	individually	or	in	the	aggregate,	to	have	a	material	effect	on	the	Company's	consolidated	results	of	operations.

Purchase	Obligations	-	Periodically	the	Company	enters	into	agreements	to	purchase	goods	or	services	that	are	enforceable	and	legally	binding	on	the Company	and	specify	all	significant	terms,	including:	fixed	or	minimum	quantities	to	be	purchased;	fixed,	minimum,	or	variable	price	provisions;	and	the approximate	timing	of	the	transaction.	These	obligations	are	primarily	comprised	of	open	purchase	order	commitments	to	vendors	and	subcontractors pertaining	to	funded	contracts.

Operating	Leases	-	Rental	expense	for	operating	leases	for	the	 years	ended	December	31,	2015,	2014,	and	2013,	was	$62	million,	$53	million,	and	$46 million,	respectively.	These	amounts	are	net	of	immaterial	amounts	of	sublease	rental	income.	Minimum	rental	commitments	under	long-term	non- cancellable	operating	leases	for	each	of	the	years	2016	through	2020	and	thereafter	are:

# ($	in	millions)

# 17.	IMPACTS	FROM	HURRICANES

In	August	2005,	the	Company's	Ingalls	operations	were	significantly	impacted	by	Hurricane	Katrina,	and	the	Company's	shipyards	in	Louisiana	and Mississippi	sustained	significant	windstorm	damage	from	the	hurricane.	As	a	result	of	the	storm,	the	Company	incurred	costs	to	replace	or	repair destroyed	or	damaged	assets,	suffered	losses	under	its	contracts,	and	incurred	substantial	costs	to	clean	up	and	recover	its	operations.	At	the	time	of	the storm,	the	Company	had	an	insurance	program	that	provided	coverage	for,	among	other	things,	property	damage,	business	interruption	impact	on	net profitability,	and	costs	associated	with	clean-up	and	recovery.	The	Company	recovered	a	portion	of	its	Hurricane	Katrina	claim	from	certain	of	its participating	program	insurers	in	prior	periods.	In	2013,	the	Company	resolved	litigation	against	its	remaining	insurer,	Factory	Mutual	Insurance	Company ("FM	Global"),	arising	out	of	a	disagreement	concerning	the	coverage	of	certain	losses	related	to	Hurricane	Katrina.		Under	the	settlement	agreement with	FM	Global,	in	the	third	quarter	of	2013	FM	Global	made	a	cash	payment	of	$180	million	to	the	Company	and	the	Company	released	its	claim	against FM	Global,	resulting	in	a	total	recovery	from	the	Company's	insurers	of	$677.5	million	for	its	Hurricane	Katrina	claim.	The	$180	million	was	recorded	as an	insurance	recovery	gain	in	operating	income	in	the	third	quarter	of	2013.

In	February	2013,	the	Company	submitted	a	certified	claim	requesting	a	final	decision	on	the	allowability	and	allocability	of	certain	post-Katrina depreciation	and	other	Katrina-related	expenses	and	on	the	apportionment	of	insurance	proceeds.	In	October	2013,	the	Company	received	a	Contracting Officer's	Final	Decision	("COFD")	disallowing	certain	post-Katrina	depreciation	costs	and	other	Katrina-related	expenses,	as	well	as	providing	direction	on the	apportionment	of	Katrina-related	insurance	recoveries.	Impacted	by	this	decision,	the	Company's	accounting	for	hurricane	insurance	related	matters resulted	in	a	reduction	in	operating	income	of	$116	million.	The	2013	financial	results	reflect	disallowances	as	indicated	in	the	COFD.

For	the	year	ended	December	31,	2013,	the	Company's	accounting	for	hurricane	related	matters,	including	the	insurance	recovery	gain	of $180	million and	the	$116	million	reduction	in	operating	income	related	to	its	contracts	with	the	U.S.	Government,	resulted	in	a	net	favorable	impact	to	operating income	of	$64	million.

In	October	2014,	the	Company	executed	a	Memorandum	of	Understanding	("MOU")	with	the	U.S.	Navy	and	U.S.	Coast	Guard	acknowledging	the requirements	set	forth	in	the	COFD.	The	MOU	did	not	have	a	material	impact	on	the	Company's	accounting	for	hurricane	related	matters.

In	January	2011,	the	Company,	through	a	predecessor-in-interest,	filed	suit	in	Superior	Court	in	California	against	Aon	Risk	Insurance	Services	West,	Inc. ("Aon"),	which	acted	as	broker	to	the	predecessor-in-interest	in	connection	with	the	policy	with	FM	Global,	seeking	damages	for	breach	of	contract, professional	negligence	and	negligent	misrepresentation,	as	well	as	declaratory	relief.	Those	included	damages	unrecovered	from	FM	Global	plus	costs, legal	fees,	and	expenses	incurred	in	the	lawsuit	against	FM	Global,	as	well	as	interest.	In	January	2014,	the	Company	amended	its	complaint	to	allege fraud	and	seek	punitive	damages.

On	May	29,	2015,	the	Company	and	Aon	entered	into	a	settlement	agreement,	pursuant	to	which	Aon	made	a	cash	payment	of	 $150	million	to	the Company	and	the	Company	released	its	claims	against	Aon.	The	$150	million	settlement	was	recorded	as	a	gain	in	operating	income	in	the	second quarter	of	2015.	Based	on	the	previously	executed	MOU	and	COFD,	the	Company	has	recorded	a	credit	to	the	U.S.	Government,	which	resulted	in	a reduction	in	operating	income	of	$14	million	in	the	second	quarter	of	2015.	Should	the	U.S.	Government	disagree	with	the	Company's	allocation	of proceeds,	the	Company	may	be	required	to	allocate	additional	amounts	to	the	U.S.	Government.	The	$150	million	gain	and	allowable	cost	credit	resulted in	a	net	favorable	impact	to	operating	income	for	the	year	ended	December	31,	2015,	of	$136	million.

# 18.	EMPLOYEE	PENSION	AND	OTHER	POSTRETIREMENT	BENEFITS

The	Company	provides	defined	benefit	pension	plans	and	postretirement	benefit	plans	to	eligible	employees.	Non-collectively	bargained	defined	benefit pension	benefits	accruing	under	the	traditional	years	of	service	and	compensation	formula	were	amended	in	2009	to	freeze	future	service	accruals	and have	been	replaced	with	a	cash	balance	benefit	for	all	current	non-collectively	bargained	employees.	Except	for	major	collectively	bargained	plans,	the Company's	qualified	defined	benefit	pension	plans	are	frozen	to	new	entrants.	The	Company's	policy	is	to	fund	its	qualified	defined	benefit	pension	plans at	least	to	the	minimum	amounts	required	under	U.S.	Government	regulations.

Plan	obligations	are	measured	based	on	the	present	value	of	projected	future	benefit	payments	to	participants	for	services	rendered	to	date.	The measurement	of	projected	future	benefits	is	dependent	on	the	terms	of	each	individual	plan,	demographics,	and	valuation	assumptions.	No	assumption	is made	regarding	any	potential	changes	to	the	benefit	provisions	beyond	those	to	which	the	Company	is	currently	committed,	for	example	under	existing collective	bargaining	agreements.

The	Company	also	sponsors	401(k)	defined	contribution	pension	plans	in	which	most	employees,	including	certain	hourly	employees,	are	eligible	to participate.	Company	contributions	for	most	defined	contribution	pension	plans	are	based	on	the	matching	of	employee	contributions	up	to	4%	of	eligible compensation.	Certain	hourly	employees	are	covered	under	a	target	benefit	plan.	In	addition	to	the	401(k)	defined	contribution	pension	benefit	formula, non-collectively	bargained	employees	hired	after	June	30,	2008,	are	eligible	to	participate	in	a	defined	contribution	benefit	program	in	lieu	of	a	defined benefit	pension	plan.	The	Company's	contributions	to	the	qualified	defined	contribution	pension	plans	for	the	years	ended	December	31,	2015,	2014,	and 2013,	were	$73	million,	$70	million,	and	$61	million,	respectively.

The	Company	also	sponsors	defined	benefit	and	defined	contribution	pension	plans	to	provide	benefits	in	excess	of	the	qualified	limits.	The	liabilities related	to	these	plans	as	of	December	31,	2015,	were	$146	million	and	$27	million,	respectively,	and	as	of	December	31,	2014,	were	 $142	million	and $26	million,	respectively.	Assets,	primarily	in	the	form	of	Level	1	marketable	securities,	held	in	grantor	trusts,	are	intended	to	fund	certain	of	these obligations.	The	trusts'	fair	values	supporting	these	liabilities	as	of	December	31,	2015	and	2014,	were	$74	million	and	$45	million,	respectively,	of	which $47	million	and	$43	million,	respectively,	were	related	to	the	non-qualified	defined	benefit	pension	plans.

The	Company	provides	contributory	postretirement	health	care	and	life	insurance	benefits	to	a	dominantly	closed	group	of	eligible	employees,	retirees, and	their	qualifying	dependents.	Covered	employees	achieve	eligibility	to	participate	in	these	contributory	plans	upon	retirement	from	active	service	if	they meet	specified	age,	years	of	service,	and	grandfathered	requirements.	Benefits	are	not	guaranteed,	and	the	Company	reserves	the	right	to	amend	or terminate	coverage	at	any	time.	The	Company's	contributions	for	retiree	health	care	benefits	are	subject	to	caps,	which	limit	Company	contributions	when spending	thresholds	are	reached.

The	measurement	date	for	all	of	the	Company's	retirement	related	plans	is	December	31.	The	costs	of	the	Company's	defined	benefit	pension	plans	and other	postretirement	plans	for	the	years	ended	December	31,	2015,	2014	and	2013,	were	as	follows:

|  |  | Pension	Benefits |  |  | Other	Benefits |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Year\tEnded\tDecember\t31 |  | Year\tEnded\tDecember\t31 | Year\tEnded\tDecember\t31 |  |
| ($\tin\tmillions) | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 |
| Components\tof\tNet\tPeriodic\tBenefit\tCost |  |  |  |  |  |  |
| Service\tcost | $150 | $136 | $147 | $13 | $13 | $21 |
| Interest\tcost | 242 | 253 | 215 | 27 | 30 | 33 |
| Expected\treturn\ton\tplan\tassets | (351) | (322) | (289) | — | — | — |
| Amortization\tof\tprior\tservice\tcost\t(credit) | 19 | 19 | 18 | (20) | (26) | (21) |
| Amortization\tof\tnet\tactuarial\tloss\t(gain) | 86 | 52 | 118 | 2 | — | 16 |
| Curtailments | — | — | (1) | — | — | — |
| Net\tperiodic\tbenefit\tcost | $146 | $138 | $208 | $22 | $17 | $49 |

The	funded	status	of	the	Company's	plans	as	of	 December	31,	2015	and	2014,	was	as	follows:

|  | Pension	Benefits |  | Other	Benefits |  |
| :--- | :--- | :--- | :--- | :--- |
|  | December\t31 |  | December\t31 |  |
| ($\tin\tmillions) | 2015 | 2014 | 2015 | 2014 |
| Change\tin\tBenefit\tObligation |  |  |  |  |
| Benefit\tobligation\tat\tbeginning\tof\tyear | $5,671 | $4,730 | $650 | $616 |
| Service\tcost | 150 | 136 | 13 | 13 |
| Interest\tcost | 242 | 253 | 27 | 30 |
| Plan\tparticipants'\tcontributions | 11 | 26 | 6 | 7 |
| Actuarial\tloss\t(gain) | (254) | 714 | (91) | 24 |
| Benefits\tpaid | (185) | (168) | (39) | (40) |
| Curtailments | — | (20) | — | — |
| Benefit\tobligation\tat\tend\tof\tyear | 5,635 | 5,671 | 566 | 650 |
| Change\tin\tPlan\tAssets |  |  |  |  |
| Fair\tvalue\tof\tplan\tassets\tat\tbeginning\tof\tyear | 4,731 | 4,310 | — | — |
| Actual\treturn\ton\tplan\tassets | (47) | 437 | — | — |
| Employer\tcontributions | 103 | 126 | 33 | 33 |
| Plan\tparticipants'\tcontributions | 11 | 26 | 6 | 7 |
| Benefits\tpaid | (185) | (168) | (39) | (40) |
| Fair\tvalue\tof\tplan\tassets\tat\tend\tof\tyear | 4,613 | 4,731 | — | — |
| Funded\tstatus | $(1,022) | $(940) | $(566) | $(650) |
| Amounts\tRecognized\tin\tthe\tConsolidated\tStatements\tof\tFinancial\tPosition: |  |  |  |  |
| Pension\tplan\tassets | $— | $17 | $— | $— |
| Current\tliability\t(1) | (21) | (18) | (143) | (143) |
| Non-current\tliability\t(2) | (1,001) | (939) | (423) | (507) |
| Accumulated\tother\tcomprehensive\tloss\t(income)\t(pre-tax)\trelated\tto: |  |  |  |  |
| Prior\tservice\tcosts\t(credits) | 86 | 105 | (105) | (125) |
| Net\tactuarial\tloss\t(gain) | 1,433 | 1,374 | (21) | 73 |

(1) Included	in	other	current	liabilities	and	current	portion	of	postretirement	plan	liabilities,	respectively.

(2) Included	in	pension	plan	liabilities	and	other	postretirement	plan	liabilities,	respectively.

The	Projected	Benefit	Obligation	("PBO"),	Accumulated	Benefit	Obligation	("ABO"),	and	asset	values	for	the	Company's	qualified	pension	plans	were $5,490	million,	$5,146	million,	and	$4,613	million,	respectively,	as	of	December	31,	2015,	and	$5,529	million,	$5,124	million,	and	$4,731	million, respectively,	as	of	December	31,	2014.	The	PBO	represents	the	present	value	of	pension	benefits	earned	through	the	end	of	the	year,	with	allowance	for future	salary	increases.	The	ABO	is	similar	to	the	PBO,	but	does	not	provide	for	future	salary	increases.

The	PBO	and	fair	value	of	plan	assets	for	all	qualified	and	non-qualified	pension	plans	with	PBOs	in	excess	of	plan	assets	were	 $5,635	million	and $4,613	million,	respectively,	as	of	December	31,	2015,	and	$4,394	million	and	$3,438	million,	respectively,	as	of	December	31,	2014.

The	ABO	and	fair	value	of	plan	assets	for	all	qualified	and	non-qualified	pension	plans	with	ABOs	in	excess	of	plan	assets	were	 $4,051	million	and $3,391	million,	respectively,	as	of	December	31,	2015,	and	$3,981	million	and	$3,438	million,	respectively,	as	of	December	31,	2014.	The	ABO	for	all pension	plans	was	$5,273	million	and	$5,244	million	as	of	December	31,	2015	and	2014,	respectively.

The	changes	in	amounts	recorded	in	accumulated	other	comprehensive	income	(loss)	were	as	follows:

|  |  | Pension	Benefits |  |  | Other	Benefits |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Year\tEnded\tDecember\t31 | Year\tEnded\tDecember\t31 | Year\tEnded\tDecember\t31 |  | Year\tEnded\tDecember\t31 | Year\tEnded\tDecember\t31 |
| ($\tin\tmillions) | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 |
| Prior\tservice\tcost\t(credit) | $— | $— | $(66) | $— | $— | $145 |
| Amortization\tof\tprior\tservice\tcost\t(credit) | 19 | 19 | 18 | (20) | (26) | (21) |
| Net\tactuarial\tloss\t(gain) | (144) | (599) | 716 | 91 | (24) | 220 |
| Amortization\tof\tnet\tactuarial\tloss\t(gain) | 86 | 52 | 118 | 2 | — | 16 |
| Other | (1) | 20 | 12 | 1 | — | 1 |
| Total\tchanges\tin\taccumulated\tother\tcomprehensive\tincome\t(loss) | $(40) | $(508) | $798 | $74 | $(50) | $361 |

The	amounts	included	in	accumulated	other	comprehensive	income	(loss)	as	of	 December	31,	2015,	expected	to	be	recognized	as	components	of	net periodic	expense	in	2016	were	as	follows:

The	weighted	average	assumptions	used	to	determine	the	net	periodic	benefit	costs	for	each	year	ended	December	31	were	as	follows:

The	weighted	average	assumptions	used	to	determine	the	benefit	obligations	as	of	December	31	of	each	year	were	as	follows:

Health	Care	Cost	Trend	Rate	-	The	health	care	cost	trend	rate	represents	the	annual	rates	of	change	in	the	cost	of	health	care	benefits	based	on estimates	of	health	care	inflation,	changes	in	health	care	utilization	or	delivery	patterns,	technological	advances,	government	mandated	benefits,	and other	considerations.	Using	a	combination	of	market	expectations	and	economic	projections	on	December	31,	2015,	the	Company	selected	an	expected initial	health	care	cost	trend	rate	of	7.00%	and	an	ultimate	health	care	cost	trend	rate	of	 5.00%	to	be	reached	in	2024.	On

December	31,	2014,	the	Company	assumed	an	expected	initial	health	care	cost	trend	rate	of 7.00%	and	an	ultimate	health	care	cost	trend	rate	of	 5.00% to	be	reached	in	2023.

A	one	percent	change	in	the	assumed	health	care	cost	trend	rates	would	have	the	following	effects	on 2015	results:

The	Employee	Retirement	Income	Security	Act	of	1974	("ERISA"),	including	amendments	under	pension	relief,	defines	the	minimum	amount	that	must	be contributed	to	the	Company's	qualified	defined	benefit	pension	plans.	In	determining	whether	to	make	discretionary	contributions	to	these	plans	above	the minimum	required	amounts,	the	Company	considers	various	factors,	including	attainment	of	the	funded	percentage	needed	to	avoid	benefit	restrictions and	other	adverse	consequences,	minimum	CAS	funding	requirements,	and	the	current	and	anticipated	future	funding	levels	of	each	plan.	The Company's	contributions	to	its	qualified	defined	benefit	pension	plans	are	affected	by	a	number	of	factors,	including	published	IRS	interest	rates,	the actual	return	on	plan	assets,	actuarial	assumptions,	and	demographic	experience.	These	factors	and	the	Company's	resulting	contributions	also	impact the	plans'	funded	status.	If	the	IRS	publishes	updated	mortality	tables	for	funding	purposes,	the	Company's	pension	contributions	could	be	affected.	The Company	made	the	following	contributions	to	its	pension	and	other	postretirement	plans	for	the	years	ended	December	31,	2015,	2014,	and	2013:

|  |  | Year	Ended	December	31 |  |
| :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | 2015 | 2014 | 2013 |
| Pension\tplans |  |  |  |
| Discretionary |  |  |  |
| Qualified | $99 | $123 | $301 |
| Non-qualified | 4 | 3 | 4 |
| Other\tbenefit\tplans | 33 | 33 | 38 |
| Total\tcontributions | $136 | $159 | $343 |

For	the	year	ending	December	31,	2016,	the	Company	expects	its	cash	contributions	to	its	qualified	defined	benefit	pension	plans	to	be	 $167	million,	all of	which	will	be	discretionary.	For	the	year	ending	December	31,	2016,	the	Company	expects	its	cash	contributions	to	its	postretirement	benefit	plans	to be	approximately	$37	million.

In	March	2013,	the	Company	concluded	negotiations	on	one	of	its	collective	bargaining	agreements,	which	required	an	amendment	to	one	of	the Company's	pension	plans.	As	a	result	of	the	amendment,	the	remeasurement	of	the	plan	increased	the	pension	liability	and	pre-tax	accumulated	other comprehensive	loss	by	approximately	$30	million.

In	May	2013,	the	Company	amended	its	postretirement	benefit	plans	for	salaried	post-65	participants,	which	replaced	a	Company-sponsored	indemnity plan	with	coverage	offered	through	a	third-party	vendor	and	permanently	capped	the	Company's	contributions.	As	a	result	of	the	amendment,	the remeasurement	of	the	plans	decreased	the	postretirement	liability	and	pre-tax	accumulated	other	comprehensive	loss	by	approximately	$177	million.

The	following	table	presents	estimated	future	benefit	payments,	using	the	same	assumptions	used	in	determining	the	Company's	benefit	obligations	as	of December	31,	2015.	Benefit	payments	depend	on	future	employment	and	compensation	levels,	years	of	service,	and	mortality.	Changes	in	any	of	these factors	could	significantly	affect	these	estimated	amounts.

|  |  | Other	Benefits |  |
| :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | Pension\tBenefits | Benefit\tPayments | Subsidy\tReceipts |
| 2016 | $204 | $37 | $— |
| 2017 | 217 | 38 | — |
| 2018 | 231 | 40 | — |
| 2019 | 246 | 41 | — |
| 2020 | 263 | 42 | — |
| Years\t2021\tto\t2025 | $1,617 | $214 | $2 |

# Pension	Plan	Assets

Pension	assets	include	public	equities,	government	and	corporate	bonds,	cash	and	cash	equivalents,	private	real	estate	funds,	hedge	funds,	and	other assets.	Plan	assets	are	held	in	a	master	trust	and	overseen	by	the	Company's	Investment	Committee.	All	assets	are	externally	managed	through	a combination	of	active	and	passive	strategies.	Managers	may	only	invest	in	the	asset	classes	for	which	they	have	been	appointed.

The	Investment	Committee	is	responsible	for	setting	the	policy	that	provides	the	framework	for	management	of	the	plan	assets.	The	Investment Committee	has	set	the	minimum	and	maximum	permitted	values	for	each	asset	class	in	the	Company's	pension	plan	master	trust	for	the	year	ended December	31,	2015,	as	follows:

|  |  | Range |  |
| :--- | :--- | :--- | :--- |
| U.S.\tequities | 20 | - | 42% |
| International\tequities | 15 | - | 33% |
| Fixed\tincome\tsecurities | 25 | - | 50% |
| Alternative\tinvestments | 5 | - | 15% |

The	general	objectives	of	the	Company's	pension	asset	strategy	are	to	earn	a	rate	of	return	over	time	to	satisfy	the	benefit	obligations	of	the	plans,	meet minimum	ERISA	funding	requirements,	and	maintain	sufficient	liquidity	to	pay	benefits	and	address	other	cash	requirements	within	the	master	trust. Specific	investment	objectives	include	reducing	the	volatility	of	pension	assets	relative	to	benefit	obligations,	achieving	a	competitive,	total	investment return,	achieving	diversification	between	and	within	asset	classes,	and	managing	other	risks.	Investment	objectives	for	each	asset	class	are	determined based	on	specific	risks	and	investment	opportunities	identified.	Decisions	regarding	investment	policies	and	asset	allocation	are	made	with	the understanding	of	the	historical	and	prospective	return	and	risk	characteristics	of	various	asset	classes,	the	effect	of	asset	allocations	on	funded	status, future	Company	contributions,	and	projected	expenditures,	including	benefits.	The	Company	updates	its	asset	allocations	periodically.	The	Company uses	various	analytics	to	determine	the	optimal	asset	mix	and	considers	plan	obligation	characteristics,	duration,	liquidity	characteristics,	funding requirements,	expected	rates	of	return,	regular	rebalancing,	and	the	distribution	of	returns.	Actual	allocations	to	each	asset	class	could	vary	from	target allocations	due	to	periodic	investment	strategy	changes,	short-term	market	value	fluctuations,	the	length	of	time	it	takes	to	fully	implement	investment allocation	positions,	such	as	real	estate	and	other	alternative	investments,	and	the	timing	of	benefit	payments	and	Company	contributions.

Taking	into	account	the	asset	allocation	ranges,	the	investment	fiduciary	determines	the	specific	allocation	of	the	master	trust's	investments	within	various asset	classes.	The	master	trust	utilizes	select	investment	strategies,	which	are	executed	through	separate	account	or	fund	structures	with	external investment	managers	who	demonstrate	experience	and	expertise	in	the	appropriate	asset	classes	and	styles.	The	selection	of	investment	managers	is done	with	careful	evaluation	of	all	aspects	of	performance	and	risk,	demonstrated	fiduciary	responsibility,	investment	management	experience,	and	a review	of	the	investment	managers'	policies	and	processes.	Investment	performance	is	monitored	frequently	against	appropriate	benchmarks	and	tracked to	compliance	guidelines	with	the	assistance	of	third	party	consultants	and	performance	evaluation	tools	and	metrics.

Plan	assets	are	stated	at	fair	value.	The	Company	employs	a	variety	of	pricing	sources	to	estimate	the	fair	value	of	its	pension	plan	assets,	including independent	pricing	vendors,	dealer	or	counterparty-supplied	valuations,	third-party	appraisals,	and	appraisals	prepared	by	the	Company's	investment managers	or	other	experts.

Investments	in	equity	securities,	common	and	preferred,	are	valued	at	the	last	reported	sales	price	when	an	active	market	exists.	Securities	for	which official	or	last	trade	pricing	on	an	active	exchange	is	available	are	classified	as	Level	1.	If	closing	prices	are	not	available,	securities	are	valued	at	the	last trade	price,	if	deemed	reasonable,	or	a	broker's	quote	in	a	non-active	market,	and	are	typically	categorized	as	Level	2.

Investments	in	fixed-income	securities	are	generally	valued	by	independent	pricing	services	or	dealers	who	make	markets	in	such	securities.	Pricing methods	are	based	upon	market	transactions	for	comparable	securities	and	various	relationships	between	securities	that	are	generally	recognized	by institutional	traders,	and	fixed-income	securities	typically	are	categorized	as	Level	2.

Investments	in	collective	trust	funds	and	commingled	funds	based	on	the	use	of	Net	Asset	Values	("NAV")	are	valued	based	on	the	redemption	price	of units	owned	by	the	master	trust,	which	is	based	on	the	current	fair	values	of	the	funds'	underlying	assets,	as	reported	by	the	investment	manager.	The underlying	assets	are	valued	based	on	observable	inputs.	Accordingly,	collective	trust	and	commingled	funds	are	categorized	as	Level	2.

Investments	in	hedge	funds	generally	do	not	have	readily	available	market	quotations	and	are	estimated	at	fair	value,	which	primarily	utilizes	NAV	or	the equivalent,	as	a	practical	expedient,	as	reported	by	the	investment	manager.	Hedge	funds	usually	have	restrictions	on	redemptions	that	might	affect	the ability	to	sell	the	investment	at	NAV	in	the	short	term.	Accordingly,	these	investments	are	typically	classified	as	Level	3.

Real	estate	funds	are	typically	valued	through	updated	independent	third-party	appraisals,	which	are	adjusted	for	changes	in	cash	flows,	market conditions,	property	performance,	and	leasing	status.	Since	real	estate	funds	do	not	have	readily	available	market	quotations,	they	are	generally	valued	at NAV	or	its	equivalent,	as	a	practical	expedient,	as	reported	by	the	asset	manager.	Redemptions	from	real	estate	funds	are	also	subject	to	various restrictions.	Accordingly,	these	investments	are	classified	as	Level	3.

Management	reviews	independently	appraised	values,	audited	financial	statements,	and	additional	pricing	information	to	evaluate	the	net	asset	values. For	the	very	limited	group	of	investments	for	which	market	quotations	are	not	readily	available	or	for	which	the	above	valuation	procedures	are	deemed not	to	reflect	fair	value,	additional	information	is	obtained	from	the	investment	manager	and	evaluated	internally	to	determine	whether	any	adjustments are	required	to	reflect	fair	value.

The	Company	might	be	unable	to	quickly	liquidate	some	assets	at	amounts	close	or	equal	to	fair	value	in	order	to	meet	the	plans'	liquidity	requirements	or respond	to	specific	events,	such	as	the	creditworthiness	of	any	particular	issuer	or	counterparty.	Illiquid	assets	are	generally	long-term	investments	that complement	the	long-term	nature	of	the	Company's	pension	obligations	and	are	generally	not	used	to	fund	benefit	payments	in	the	short	term. Management	monitors	liquidity	risk	on	an	ongoing	basis	and	has	procedures	designed	to	maintain	flexibility	in	troubled	markets.

The	master	trust	has	considerable	investments	in	fixed	income	securities	for	which	changes	in	the	relevant	interest	rate	of	a	particular	instrument	might result	in	the	inability	to	secure	similar	returns	upon	the	maturity	or	sale.	Changes	in	prevailing	interest	rates	might	result	in	an	increase	or	decrease	in	fair value	of	the	instrument.	Investment	managers	are	permitted	to	use	interest	rate	swaps	and	other	financial	derivatives	to	manage	interest	rate	risk.

Counterparty	risk	is	the	risk	that	a	counterparty	to	a	financial	instrument	held	by	the	master	trust	will	default	on	its	commitment.	Counterparty	risk	is generally	related	to	over-the-counter	derivative	instruments	used	to	manage	risk	exposure	to	interest	rates	on	long-term	debt	securities.	Certain agreements	with	counterparties	employ	set-off	agreements,	collateral	support	arrangements,	and	other	risk	mitigation	practices	designed	to	reduce	the net	credit	risk	exposure	in	the	event	of	a	counterparty	default.	Credit	policies	and	processes	are	in	place	to	manage	concentrations	of	risk	by	seeking	to undertake	transactions	with	large	well-capitalized	counterparties	and	by	monitoring	the	creditworthiness	of	these	counterparties.

The	fair	values	of	the	Company's	retirement	plan	assets	by	asset	category	and	by	valuation	hierarchy	level	as	described	in	Note	2:	Summary	of	Significant Accounting	Policies	were	as	follows:

|  |  | December	31,	2015 | December	31,	2015 |  |
| :--- | :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | Total | Level\t1 | Level\t2 | Level\t3 |
| Asset\tCategory |  |  |  |  |
| Equity |  |  |  |  |
| U.S.\tequities\t(1) | $1,392 | $460 | $932 | $— |
| International\tequities\t(1) | 1,074 | 597 | 477 | — |
| Fixed\tIncome |  |  |  |  |
| U.S.\tgovernment | 175 | — | 175 | — |
| U.S.\tagency | 171 | — | 171 | — |
| Non-U.S.\tgovernment | 70 | — | 70 | — |
| Investment\tgrade\t(2) | 1,008 | — | 1,008 | — |
| Asset\tbacked | 39 | — | 39 | — |
| Non-investment\tgrade\t(3) | 40 | — | 40 | — |
| Cash\tand\tcash\tequivalents\t(4) | 45 | 5 | 40 | — |
| Hedge\tfunds | 312 | — | — | 312 |
| Real\testate\tfund | 285 | — | — | 285 |
| Other | 2 | — | 2 | — |
| Total\tassets\tat\tfair\tvalue | $4,613 | $1,062 | $2,954 | $597 |

(1) U.S.	and	international	equity	securities	include	investments	in	small,	medium,	and	large	capitalization	stocks	of	public	companies	held	in	separately managed	accounts	or	commingled	trust	funds.

(2) Investment	grade	fixed	income	securities	include	corporate	bonds	rated	Baa3/BBB-	or	higher	by	one	or	more	rating	agencies.

(3) Non-investment	grade	fixed	income	securities	include	corporate	bonds	consistently	rated	below	Baa3/BBB-	by	one	or	more	rating	agencies	and	units of	a	high	yield	commingled	fund.

(4) Cash	and	cash	equivalents	are	highly	liquid	short-term	investment	funds	and	include	net	receivables	and	payables	of	the	trust.	These	funds	are available	for	immediate	use	to	fund	daily	operations,	execute	investment	policies,	and	serve	as	a	temporary	investment	vehicle.	The	Company's	plan asset	allocation	policy	does	not	include	cash.

|  |  | December	31,	2014 | December	31,	2014 |  |
| :--- | :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | Total | Level\t1 | Level\t2 | Level\t3 |
| Asset\tCategory |  |  |  |  |
| Equity |  |  |  |  |
| U.S.\tequities\t(1) | $1,423 | $467 | $956 | $— |
| International\tequities\t(1) | 1,082 | 599 | 483 | — |
| Fixed\tIncome |  |  |  |  |
| U.S.\tgovernment | 237 | — | 237 | — |
| U.S.\tagency | 174 | — | 174 | — |
| Non-U.S.\tgovernment | 88 | — | 88 | — |
| Investment\tgrade\t(2) | 1,041 | — | 1,041 | — |
| Asset\tbacked | 52 | — | 52 | — |
| Non-investment\tgrade\t(3) | 45 | — | 45 | — |
| Cash\tand\tcash\tequivalents\t(4) | 42 | 5 | 37 | — |
| Hedge\tfunds | 298 | — | — | 298 |
| Real\testate\tfund | 247 | — | — | 247 |
| Other | 2 | — | 2 | — |
| Total\tassets\tat\tfair\tvalue | $4,731 | $1,071 | $3,115 | $545 |

The	master	trust	limits	the	use	of	derivatives	through	direct	or	separate	account	investments,	such	that	the	derivatives	used	are	liquid	and	able	to	be readily	valued	in	the	market.	Derivative	usage	in	separate	account	structures	is	limited	to	hedging	purposes	or	to	gain	market	exposure	in	a	non- speculative	manner.	The	net	fair	market	value	of	the	master	trust's	derivatives	through	direct	or	separate	account	investments	was	less	than	$1	million	as of	December	31,	2015	and	2014.

The	following	tables	summarize	the	changes	in	Level	3	retirement	plan	assets	measured	at	fair	value	for	the	years	ended December	31,	2015	and	2014.

|  |  | Attributable	to |  |  |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | Fair\tValue\tat\nDecember\t31,\n2014 | Assets\tHeld\tat\nDecember\t31,\n2015 | Attributable\tto\nAssets\tSold | Purchases | Sales | Transfers\nInto\nLevel\t3 | (Out)\tof\nLevel\t3 | Fair\tValue\tat\nDecember\t31,\n2015 |
| Asset\tCategory: |  |  |  |  |  |  |  |  |
| Hedge\tfunds | $298 | $14 | $— | $— | $— | $— | $— | $312 |
| Real\testate\tfund | 247 | 38 | — | — | — | — | — | 285 |
| Total\tLevel\t3\tfair\tvalue | $545 | $52 | $— | $— | $— | $— | $— | $597 |

# Return	on	plan	assets

|  |  | Attributable	to |  |  |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | Fair\tValue\tat\nDecember\t31,\n2013 | Assets\tHeld\tat\nDecember\t31,\n2014 | Attributable\tto\nAssets\tSold | Purchases | Sales | Transfers\nInto\nLevel\t3 | (Out)\tof\nLevel\t3 | Fair\tValue\tat\nDecember\t31,\n2014 |
| Asset\tCategory: |  |  |  |  |  |  |  |  |
| Hedge\tfunds | $257 | $19 | $— | $22 | $— | $— | $— | $298 |
| Real\testate\tfund | 188 | 24 | — | 35 | — | — | — | 247 |
| Total\tLevel\t3\tfair\tvalue | $445 | $43 | $— | $57 | $— | $— | $— | $545 |

# 19.	STOCK	COMPENSATION	PLANS

As	of	December	31,	2015,	HII	had	stock-based	compensation	awards	outstanding	under	the	following	plans:	the	Huntington	Ingalls	Industries,	Inc.	2011 Long-Term	Incentive	Stock	Plan	(the	"2011	Plan")	and	the	Huntington	Ingalls	Industries,	Inc.	2012	Long-Term	Incentive	Stock	Plan	(the	"2012	Plan").

On	March	23,	2012,	the	Company's	board	of	directors	adopted	the	2012	Plan,	subject	to	stockholder	approval,	and	the	Company's	stockholders approved	the	2012	Plan	on	May	2,	2012.	Award	grants	made	on	or	after	May	2,	2012,	were	made	under	the	2012	Plan.	Award	grants	made	prior	to	May 2,	2012,	were	made	under	the	2011	Plan.	No	future	grants	will	be	made	under	the	2011	Plan.

The	2012	Plan	permits	awards	of	stock	options,	stock	appreciation	rights,	and	other	stock	awards.	Each	stock	option	grant	is	made	with	an	exercise	price of	not	less	than	100%	of	the	closing	price	of	HII's	common	stock	on	the	date	of	grant.	Stock	awards,	in	the	form	of	RPSRs,	RSRs,	and	stock	rights,	are granted	to	key	employees	and	members	of	the	board	of	directors	without	payment	to	the	Company.	The	2012	Plan	authorized	(i)	3.4	million	new	shares; plus	(ii)	any	shares	subject	to	outstanding	awards	under	the	2011	Plan	that	were	subsequently	forfeited	to	the	Company;	plus	(iii)	any	shares	subject	to outstanding	awards	under	the	2011	Plan	that	were	subsequently	exchanged	by	the	participant	as	full	or	partial	payment	to	the	Company	in	connection with	any	such	award	or	exchanged	by	a	participant	or	withheld	by	the	Company	to	satisfy	the	tax	withholding	obligations	related	to	any	such	award.	As	of December	31,	2015,	the	remaining	aggregate	number	of	shares	of	the	Company's	common	stock	authorized	for	issuance	under	the	2012	Plan	was 4.3 million.

The	2011	Plan	permitted	the	awards	of	stock	options	and	other	stock	awards.	Each	stock	option	grant	was	made	with	an	exercise	price	of	not	less	than 100%	of	the	closing	price	of	HII's	common	stock	on	the	date	of	grant,	with	the	exception	of	stock	options	issued	at	the	time	of	the	spin-off	in	exchange	for Northrop	Grumman	stock	options.	Stock	awards,	in	the	form	of	stock	rights,	were	granted	to	members	of	the	board	of	directors	without	payment	to	the Company.

# Stock	Awards

Stock	awards	include	RPSRs,	RSRs,	and	stock	rights.	The	fair	value	of	stock	awards	is	determined	based	on	the	closing	market	price	of	the	Company's common	stock	on	the	grant	date.	Compensation	expense	for	stock	awards	is	measured	based	on	the	grant	date	fair	value	and	recognized	over	the vesting	period,	generally	three	years.

For	purposes	of	measuring	compensation	expense,	the	amount	of	shares	ultimately	expected	to	vest	is	estimated	at	each	reporting	date	based	on management's	expectations	regarding	the	relevant	service	or	performance	criteria.

The	Company	issued	the	following	stock	awards	in	the	years	ended	 December	31,	2015,	2014,	and	2013:

Restricted	Performance	Stock	Rights	-	For	the	year	ended	December	31,	2015,	the	Company	granted	approximately	 0.2	million	RPSRs	at	a	weighted average	share	price	of	$142.02.	These	rights	are	subject	to	cliff	vesting	on	December	31,	2017.	For	the	year	ended	 December	31,	2014,	the	Company granted	approximately	0.2	million	RPSRs	at	a	weighted	average	share	price	of	 $98.22.	These	rights	are	subject	to	cliff	vesting	on	December	31,	2016. For	the	year	ended	December	31,	2013,	the	Company	granted	approximately	 0.4	million	RPSRs	at	a

weighted	average	share	price	of	$44.67.	These	rights	were	fully	vested	as	of	December	31,	2015.	All	of	the	RPSRs	are	subject	to	the	achievement	of performance-based	targets	at	the	end	of	the	respective	vesting	periods.	Based	upon	the	Company's	results	measured	against	such	targets,	between	0% and	200%	of	the	original	stated	grant	are	expected	to	ultimately	vest.

Restricted	Stock	Rights	-	Retention	stock	awards	are	granted	to	key	employees	to	ensure	business	continuity.	In	2015,	the	Company	granted approximately	3,000	RSRs	at	a	weighted	average	share	price	of	 $115.50,	with	cliff	vesting	one	year	from	the	grant	date.	In	2014,	the	Company	granted approximately	12,000	RSRs	at	a	weighted	average	share	price	of	 $101.21,	with	cliff	vesting	three	years	from	the	grant	date.	As	of	December	31,	2015, approximately	10,000	of	these	RSRs	were	outstanding.	In	connection	with	the	spin-off,	retention	stock	awards	were	granted	to	key	employees	to	ensure	a successful	transition	and	business	continuity.	On	March	31,	2011,	the	Company	granted	0.7	million	RSRs	at	a	share	price	of	$41.50,	with	cliff	vesting three	years	from	the	grant	date.	As	of	December	31,	2013,	0.6	million	of	these	RSRs	were	outstanding,	and	they	were	settled	on	April	3,	2014.

For	the	year	ended	December	31,	2015,	0.9	million	stock	awards	vested,	of	which	approximately	 0.4	million	were	transferred	to	the	Company	from employees	in	satisfaction	of	minimum	tax	withholding	obligations.	For	the	year	ended	December	31,	2014,	1.5	million	stock	awards	vested,	of	which approximately	0.6	million	were	transferred	to	the	Company	from	employees	in	satisfaction	of	minimum	tax	withholding	obligations.	For	the	year	ended December	31,	2013,	0.9	million	stock	awards	vested,	of	which	approximately	 0.3	million	were	transferred	to	the	Company	from	employees	in	satisfaction of	minimum	tax	withholding	obligations.

Stock	Rights	-	The	Company	granted	stock	rights	to	its	non-employee	directors	on	a	quarterly	basis	in	 2015,	with	each	grant	less	than	10,000	shares.	All stock	rights	granted	to	non-employee	directors	are	fully	vested	on	the	grant	date.	If	a	non-employee	director	has	met	certain	ownership	guidelines,	the non-employee	director	may	elect	under	the	terms	of	the	Directors'	Compensation	Policy	and	Board	Deferred	Compensation	Policy	to	receive	their	annual equity	award	for	the	following	calendar	year	in	the	form	of	either	shares	of	the	Company's	common	stock	or	stock	units	that	are	payable	in	the	fifth calendar	year	after	the	year	in	which	the	annual	equity	award	is	earned,	or,	if	earlier,	upon	termination	of	the	director's	board	service.

|  | Stock	Awards<br>(in	thousands) | Weighted-Average<br>Grant	Date	Fair<br>Value | Weighted<br>Average<br>Remaining<br>Contractual	Term |
| :--- | :--- | :--- | :--- |
| Outstanding\tas\tof\tDecember\t31,\t2012 | 1,901 | $39.92 | 1.4\tyears |
| Granted | 456 | 46.51 |  |
| Adjustment\tdue\tto\tperformance | 315 | 41.41 |  |
| Vested | (931) | 41.41 |  |
| Forfeited | (68) | 40.23 |  |
| Outstanding\tas\tof\tDecember\t31,\t2013 | 1,673 | 40.92 | 1.0\tyear |
| Granted | 246 | 98.33 |  |
| Adjustment\tdue\tto\tperformance | 918 | 41.45 |  |
| Vested | (1,510) | 41.45 |  |
| Forfeited | (16) | 45.19 |  |
| Outstanding\tas\tof\tDecember\t31,\t2014 | 1,311 | 51.23 | 0.7\tyears |
| Granted | 163 | 140.48 |  |
| Adjustment\tdue\tto\tperformance | 315 | 36.36 |  |
| Vested | (865) | 36.36 |  |
| Forfeited | (33) | 83.44 |  |
| Outstanding\tas\tof\tDecember\t31,\t2015 | 891 | $75.73 | 0.6\tyears |

Vested	awards	include	stock	awards	that	fully	vested	during	the	year	based	on	the	level	of	achievement	of	the	relevant	performance	goals.	The performance	goals	for	outstanding	RPSRs	granted	in	2015,	2014,	and	2013	are

based	on	two	metrics	as	defined	in	the	grant	agreements:	earnings	before	interest,	taxes,	depreciation,	amortization,	and	pension,	weighted	at 50%,	and pension-adjusted	return	on	invested	capital,	weighted	at	50%.

# Stock	Options

Effect	of	the	Spin-Off	-	Prior	to	the	spin-off,	HII's	current	and	former	employees	received	stock	options	under	Northrop	Grumman's	stock-based	award plans	(the	"Northrop	Grumman	Plan").	As	of	the	date	of	the	spin-off,	the	stock	options	under	the	Northrop	Grumman	Plan	were	converted	to	stock	options under	the	2011	Plan.	The	conversion	was	effected	so	that	the	outstanding	stock	options	held	by	the	Company's	current	and	former	employees	on	the distribution	date	were	adjusted	to	reflect	the	value	of	the	distribution,	such	that	the	intrinsic	value	of	the	stock	options	was	not	diluted	at	the	time	of,	and due	to,	the	separation.	This	was	achieved	using	the	conversion	rate	included	in	the	spin-off	agreement.	Unless	otherwise	stated,	share	amounts	and share	prices	detailed	below	were	retroactively	adjusted	to	reflect	the	impact	of	the	conversion.	The	Company	measured	the	fair	value	of	the	stock	options immediately	before	and	after	the	conversion,	and	there	was	no	incremental	compensation	expense	associated	with	the	conversion.

The	following	is	a	description	of	the	Northrop	Grumman	Plan	stock	options,	which	were	converted	into	stock	options	under	the	2011	Plan.

Converted	Stock	Options	-	As	of	the	date	of	the	spin-off,	outstanding	stock	options	held	by	HII's	current	and	former	employees	under	the	Northrop Grumman	Plan	were	converted	to	stock	options	of	HII	under	the	2011	Plan.	Based	on	the	conversion	factor	of	1.65,	included	in	the	spin-off	agreement, approximately	1.0	million	stock	options	under	the	Northrop	Grumman	Plan	were	converted	into	approximately	 1.6	million	stock	options	under	the	2011 Plan,	approximately	1.4	million	of	which	were	fully	vested	at	the	time	of	conversion.	Outstanding	stock	options	granted	prior	to	2008	generally	vested	in 25%	increments	over	four	years	from	the	grant	date	and	expire	 ten	years	after	the	grant	date.	Stock	options	granted	in	2008	and	later	vested	in 33% increments	over	three	years	from	the	grant	date	and	expire	 seven	years	after	the	grant	date.	The	cumulative	intrinsic	value	of	the	stock	options	at conversion	was	maintained	in	the	conversion,	and	totaled	$15	million	at	March	31,	2011.

Compensation	expense	for	the	outstanding	converted	stock	options	was	determined	at	the	time	of	grant	by	Northrop	Grumman.	No	stock	options	were granted	during	the	years	ended	December	31,	2015,	2014,	and	2013.	The	fair	value	of	the	stock	options	was	expensed	on	a	straight-line	basis	over	the vesting	period	of	the	options.	The	fair	value	of	each	of	the	stock	options	was	estimated	on	the	date	of	grant	using	a	Black-Scholes	option	pricing	model.

|  | Shares	Under<br>Option<br>(in	thousands) | Weighted-<br>Average<br>Exercise	Price | Weighted-	Average<br>Remaining<br>Contractual	Term<br>(in	years) | Aggregate<br>Intrinsic<br>Value<br>($	in	millions) |
| :--- | :--- | :--- | :--- | :--- |
| Outstanding\tas\tof\tDecember\t31,\t2012 | 1,166 | $34.67 | 2.6\tyears | $12 |
| Exercised | (346) | 29.66 |  |  |
| Canceled\tand\tForfeited | (1) | 28.51 |  |  |
| Outstanding\tas\tof\tDecember\t31,\t2013 | 819 | 35.01 | 2.1\tyears | 45 |
| Exercised | (174) | 31.11 |  |  |
| Canceled\tand\tForfeited | (1) | 31.76 |  |  |
| Outstanding\tas\tof\tDecember\t31,\t2014 | 644 | 36.06 | 1.4\tyears | 49 |
| Exercised | (111) | 46.46 |  |  |
| Outstanding\tas\tof\tDecember\t31,\t2015 | 533 | $33.90 | 0.6\tyears | $50 |
| Vested\tas\tof\tDecember\t31,\t2015 | 533 | $33.90 | 0.6\tyears | $50 |

The	intrinsic	value	of	stock	options	exercised	during	the	 years	ended	December	31,	2015,	2014,	and	2013,	was	$11	million,	$12	million,	and	$11	million, respectively.	Intrinsic	value	is	measured	using	the	fair	market	value	at	the	date

of	exercise	for	stock	options	exercised	or	at	period	end	for	outstanding	stock	options,	less	the	applicable	exercise	price.	The	Company	issued	new	shares to	satisfy	exercised	stock	options.

# Compensation	Expense

The	Company	recorded	$43	million,	$34	million,	and	$44	million	of	expense	related	to	stock	awards	for	the	 years	ended	December	31,	2015,	2014,	and 2013,	respectively.	The	Company	recorded	$17	million,	$13	million,	and	$17	million	as	a	tax	benefit	related	to	stock	awards	and	stock	options	for	the years	ended	December	31,	2015,	2014,	and	2013,	respectively.

The	Company	recognized	tax	benefits	for	the	years	ended	December	31,	2015,	2014,	and	2013,	of	$41	million,	$53	million,	and	$32	million,	respectively, from	the	issuance	of	stock	in	settlement	of	stock	awards,	and	$4	million,	$5	million,	and	$4	million	for	the	years	ended	December	31,	2015,	2014,	and 2013,	respectively,	from	the	exercise	of	stock	options.

# Unrecognized	Compensation	Expense

As	of	December	31,	2015,	the	Company	had	less	than	 $1	million	of	unrecognized	compensation	expense	associated	with	RSRs	granted	in	2015	and 2014,	which	will	be	recognized	over	a	weighted	average	period	of	1.0	year,	and	$25	million	of	unrecognized	expense	associated	with	RPSRs	granted	in 2015,	2014,	and	2013,	which	will	be	recognized	over	a	weighted	average	period	of	 0.6	years.	As	of	December	31,	2015,	the	Company	had	no unrecognized	compensation	expense	related	to	stock	options.	Compensation	expense	for	stock	options	was	fully	recognized	as	of	December	31,	2013.

# 20.	UNAUDITED	SELECTED	QUARTERLY	DATA

Unaudited	quarterly	financial	results	for	the	 years	ended	December	31,	2015	and	2014,	are	set	forth	in	the	following	tables:

|  |  | Year	Ended	December	31,	2015 | Year	Ended	December	31,	2015 |  |
| :--- | :--- | :--- | :--- | :--- |
| ($\tin\tmillions,\texcept\tper\tshare\tamounts) | 1st\tQtr | 2nd\tQtr(1) | 3rd\tQtr | 4th\tQtr(2) |
| Sales\tand\tservice\trevenues | $1,570 | $1,745 | $1,800 | $1,905 |
| Operating\tincome\t(loss) | 156 | 269 | 200 | 144 |
| Earnings\t(loss)\tbefore\tincome\ttaxes | 133 | 244 | 175 | 80 |
| Net\tearnings\t(loss) | 87 | 156 | 111 | 50 |
| Dividends\tdeclared\tper\tshare | $0.40 | $0.40 | $0.40 | $0.50 |
| Basic\tearnings\t(loss)\tper\tshare | $1.80 | $3.22 | $2.31 | $1.07 |
| Diluted\tearnings\t(loss)\tper\tshare | $1.79 | $3.20 | $2.29 | $1.06 |

(1)	In	the	second	quarter	of	2015,	the	Company	recorded	a	 $59	million	goodwill	impairment	charge.	During	the	same	period,	the	Company	recorded	 $136 million	of	operating	income	as	a	result	of	the	Aon	settlement.

(2)	In	the	fourth	quarter	of	2015,	the	Company	recorded	 $16	million	goodwill	impairment	and	$27	million	intangible	asset	impairment	charges.

|  |  | Year	Ended	December	31,	2014 | Year	Ended	December	31,	2014 |  |
| :--- | :--- | :--- | :--- | :--- |
| ($\tin\tmillions,\texcept\tper\tshare\tamounts) | 1st\tQtr | 2nd\tQtr | 3rd\tQtr | 4th\tQtr(3) |
| Sales\tand\tservice\trevenues | $1,594 | $1,719 | $1,717 | $1,927 |
| Operating\tincome\t(loss) | 159 | 181 | 171 | 144 |
| Earnings\t(loss)\tbefore\tincome\ttaxes | 132 | 152 | 144 | 79 |
| Net\tearnings\t(loss) | 90 | 100 | 96 | 52 |
| Dividends\tdeclared\tper\tshare | $0.20 | $0.20 | $0.20 | $0.40 |
| Basic\tearnings\t(loss)\tper\tshare | $1.83 | $2.05 | $1.97 | $1.07 |
| Diluted\tearnings\t(loss)\tper\tshare | $1.81 | $2.04 | $1.96 | $1.05 |

(3)	In	the	fourth	quarter	of	2014,	the	Company	recorded	a	 $47	million	goodwill	impairment	charge.

# ITEM	9.	CHANGES	IN	AND	DISAGREEMENTS	WITH	ACCOUNTANTS	ON	ACCOUNTING	AND	FINANCIAL	DISCLOSURE

# ITEM	9A.	CONTROLS	AND	PROCEDURES

# Disclosure	Controls	and	Procedures

The	Company's	management,	with	the	participation	of	the	Company's	Chief	Executive	Officer	and	Chief	Financial	Officer,	has	evaluated	the	effectiveness of	the	Company's	disclosure	controls	and	procedures	(as	defined	in	Rules	13a-15(e)	and	15d-15(e)	under	the	Securities	Exchange	Act	of	1934,	as amended	(the	"Exchange	Act"))	as	of	December	31,	2015.	Based	on	that	evaluation,	the	Company's	Chief	Executive	Officer	and	Chief	Financial	Officer concluded	that,	as	of	December	31,	2015,	the	Company's	disclosure	controls	and	procedures	were	effective	to	ensure	that	information	required	to	be disclosed	in	reports	the	Company	files	or	submits	under	the	Exchange	Act	is	(i)	recorded,	processed,	summarized	and	reported	within	the	time	periods specified	in	SEC	rules	and	forms,	and	(ii)	accumulated	and	communicated	to	management	to	allow	their	timely	decisions	regarding	required	disclosure.

# Changes	in	Internal	Control	over	Financial	Reporting

During	the	three	months	ended	December	31,	2015,	no	change	occurred	in	the	Company's	internal	control	over	financial	reporting	that	materially affected,	or	is	reasonably	likely	to	materially	affect,	the	Company's	internal	control	over	financial	reporting.

# MANAGEMENT'S	REPORT	ON	INTERNAL	CONTROL	OVER	FINANCIAL	REPORTING

Management	is	responsible	for	establishing	and	maintaining	adequate	internal	control	over	financial	reporting	for	the	Company.	In	order	to	evaluate	the effectiveness	of	internal	control	over	financial	reporting,	as	required	by	Section	404	of	the	Sarbanes-Oxley	Act,	management	has	conducted	an assessment,	including	testing,	using	the	criteria	in	Internal	Control	–	Integrated	Framework	(2013),	issued	by	the	Committee	of	Sponsoring	Organizations of	the	Treadway	Commission	("COSO").	The	Company's	system	of	internal	control	over	financial	reporting	is	designed	to	provide	reasonable	assurance regarding	the	reliability	of	financial	reporting	and	the	preparation	of	financial	statements	for	external	purposes	in	accordance	with	accounting	principles generally	accepted	in	the	United	States	of	America.	Because	of	its	inherent	limitations,	internal	control	over	financial	reporting	may	not	prevent	or	detect misstatements.	Also,	projections	of	any	evaluation	of	effectiveness	to	future	periods	are	subject	to	the	risk	that	controls	may	become	inadequate	because of	changes	in	conditions,	or	that	the	degree	of	compliance	with	the	policies	or	procedures	may	deteriorate.

Based	on	its	assessment,	management	has	concluded	that	the	Company	maintained	effective	internal	control	over	financial	reporting	as	of	 December	31, 2015,	based	on	criteria	in	Internal	Control	–	Integrated	Framework	(2013),	issued	by	the	COSO.	The	effectiveness	of	the	Company's	internal	control	over financial	reporting	as	of	December	31,	2015,	has	been	audited	by	Deloitte	&	Touche	LLP,	an	independent	registered	public	accounting	firm,	as	stated	in their	report,	which	is	included	in	Item	8.

President	and	Chief	Executive	Officer

/s/	Barbara	A.	Niland

# ITEM	9B.	OTHER	INFORMATION

# PART	III

# ITEM	10.	DIRECTORS,	EXECUTIVE	OFFICERS,	AND	CORPORATE	GOVERNANCE

# Directors

Information	regarding	our	directors	will	be	incorporated	herein	by	reference	to	the	Proxy	Statement	for	our 2016	Annual	Meeting	of	Stockholders,	to	be filed	with	the	SEC	within	120	days	after	the	end	of	the	Company's	fiscal	year.

# Executive	Officers

Information	regarding	our	executive	officers	may	be	found	under	Item	4A.

# Audit	Committee	Financial	Expert

Information	as	to	the	Audit	Committee	and	the	Audit	Committee	Financial	Expert	will	be	incorporated	herein	by	reference	to	the	Proxy	Statement	for	our 2016	Annual	Meeting	of	Stockholders,	to	be	filed	within	120	days	after	the	end	of	the	Company's	fiscal	year.

# Code	of	Ethics

We	have	adopted	a	Code	of	Ethics	and	Business	Conduct	for	all	of	our	employees,	including	the	principal	executive	officer,	principal	financial	officer,	and principal	accounting	officer.	The	Code	of	Ethics	and	Business	Conduct	can	be	found	on	our	internet	website	at	www.huntingtoningalls.com	under "Investor	Relations—Corporate	Governance—Highlights."	A	copy	of	the	Code	of	Ethics	and	Business	Conduct	is	available	to	any	stockholder	who requests	it	by	writing	to:	Huntington	Ingalls	Industries,	Inc.,	c/o	Office	of	the	Secretary,	4101	Washington	Avenue,	Newport	News,	VA	23607.	If	we	make any	substantive	amendments	to	the	Code	of	Ethics	and	Business	Conduct	or	grant	any	waivers,	including	any	implicit	waiver,	from	a	provision	of	the Code	of	Ethics	and	Business	Conduct	to	our	Chief	Executive	Officer,	Chief	Financial	Officer,	or	Chief	Accounting	Officer,	we	will	disclose	the	nature	of	the amendment	or	waiver	on	our	website.

Our	website	and	information	contained	on	it	or	incorporated	in	it	are	not	intended	to	be	incorporated	in	this	report	on	Form	10-K	or	other	filings	with	the SEC.

# Other	Disclosures

Other	disclosures	required	by	this	Item	will	be	incorporated	herein	by	reference	to	the	Proxy	Statement	for	our 2016	Annual	Meeting	of	Stockholders,	to be	filed	within	120	days	after	the	end	of	the	Company's	fiscal	year.

# ITEM	11.	EXECUTIVE	COMPENSATION

Information	concerning	executive	compensation,	including	information	concerning	compensation	committee	interlocks,	insider	participation,	and	the compensation	committee	report,	will	be	incorporated	herein	by	reference	to	the	Proxy	Statement	for	our	2016	Annual	Meeting	of	Stockholders,	to	be	filed within	120	days	after	the	end	of	the	Company's	fiscal	year.

# ITEM	12.	SECURITY	OWNERSHIP	OF	CERTAIN	BENEFICIAL	OWNERS	AND	MANAGEMENT	AND	RELATED	STOCKHOLDER	MATTERS

Information	as	to	security	ownership	of	certain	beneficial	owners	and	management	and	related	stockholder	matters	will	be	incorporated	herein	by reference	to	the	Proxy	Statement	for	our	2016	Annual	Meeting	of	Stockholders,	to	be	filed	within	120	days	after	the	end	of	the	Company's	fiscal	year.

# Equity	Compensation	Plan	Information

| Plan	category | Number	of	Securities	to	be	Issued<br>Upon	Exercise	of	Outstanding<br>Options,	Warrants	and	Rights(1) | Weighted-Average	Exercise	Price<br>of	Outstanding	Options,<br>Warrants	and	Rights(2) | Number	of	Securities	Remaining<br>Available	for	Future	Issuance<br>Under	Equity	Compensation<br>Plans	(Excluding	Securities<br>Reflected	in	Column	(a)) |
| :--- | :--- | :--- | :--- |
|  | (a) | (b) | (c) |
| Equity\tcompensation\tplans\tapproved\tby\tsecurity\tholders | 1,424,356 | $33.90 | 4,281,952 |
| Equity\tcompensation\tplans\tnot\tapproved\tby\tsecurity\tholders(3) | — | — | — |
| Total | 1,424,356 | $33.90 | 4,281,952 |

(1)	Includes	grants	made	under	the	Huntington	Ingalls	Industries,	Inc.	2012	Long-Term	Incentive	Stock	Plan	(the	"2012	Plan"),	which	was	approved	by	our stockholders	on	May	2,	2012,	and	the	Huntington	Ingalls	Industries,	Inc.	2011	Long-Term	Incentive	Stock	Plan	(the	"2011	Plan"),	which	was	approved	by the	sole	stockholder	of	HII	prior	to	its	spin-off	from	Northrop	Grumman	Corporation.	Of	these	shares,	533,397	were	subject	to	stock	options	and	54,191 were	stock	rights	granted	under	the	2011	Plan.	In	addition,	this	number	includes	35,553	stock	rights,	10,279	restricted	stock	rights,	and	790,936	restricted performance	stock	rights	granted	under	the	2012	Plan,	assuming	target	performance	achievement.

(2)	This	is	the	weighted	average	exercise	price	of	the	533,397	outstanding	stock	options	only.

(3)	There	are	no	awards	made	under	plans	not	approved	by	security	holders.

# ITEM	13.	CERTAIN	RELATIONSHIPS	AND	RELATED	TRANSACTIONS,	AND	DIRECTOR	INDEPENDENCE

Information	as	to	certain	relationships	and	related	transactions	and	director	independence	will	be	incorporated	herein	by	reference	to	the	Proxy	Statement for	our	2016	Annual	Meeting	of	Stockholders,	to	be	filed	within	120	days	after	the	end	of	the	Company's	fiscal	year.

# ITEM	14.	PRINCIPAL	ACCOUNTANT	FEES	AND	SERVICES

Information	as	to	principal	accountant	fees	and	services	will	be	incorporated	herein	by	reference	to	the	Proxy	Statement	for	our 2016	Annual	Meeting	of Stockholders,	to	be	filed	within	120	days	after	the	end	of	the	Company's	fiscal	year.

# PART	IV

# ITEM	15.	EXHIBITS	AND	FINANCIAL	STATEMENT	SCHEDULES

(a)					1.	Report	of	Independent	Registered	Public	Accounting	Firm

# Financial	Statements

Consolidated	Statements	of	Changes	in	Stockholders'	Equity

# 2.	Financial	Statement	Schedules

# Schedule	II	-	Valuation	and	Qualifying	Accounts

All	other	schedules	have	been	omitted	because	they	are	not	applicable,	not	required,	or	the	information	has	been	otherwise	supplied	in	the financial	statements	or	notes	to	the	financial	statements.

|  | Balance	at	Beginning	of<br>Period | (Benefits)/Charges	to	Income | Other | Balance	at	End	of<br>Period |
| :--- | :--- | :--- | :--- | :--- |
| Year\tEnded\tDecember\t31,\t2013 |  |  |  |  |
| Valuation\tallowance\tfor\tdeferred\ttax\tassets | $21 | $(9) | $— | $12 |
| Year\tEnded\tDecember\t31,\t2014 |  |  |  |  |
| Valuation\tallowance\tfor\tdeferred\ttax\tassets | 12 | 2 | — | 14 |
| Year\tEnded\tDecember\t31,\t2015 |  |  |  |  |
| Valuation\tallowance\tfor\tdeferred\ttax\tassets | $14 | $(3) | $— | $11 |

# 3.	Exhibits

2.1 Separation	and	Distribution	Agreement,	dated	as	of	March	29,	2011,	among	Titan	II	Inc.	(formerly	Northrop	Grumman	Corporation), Northrop	Grumman	Corporation	(formerly	New	P,	Inc.),	Huntington	Ingalls	Industries,	Inc.,	Northrop	Grumman	Shipbuilding,	Inc.	and Northrop	Grumman	Systems	Corporation	(incorporated	by	reference	to	Exhibit	10.1	to	the	Company's	Current	Report	on	Form	8-K	filed on	April	4,	2011).

3.1 Restated	Certificate	of	Incorporation	of	Huntington	Ingalls	Industries,	Inc.,	filed	March	30,	2011	(incorporated	by	reference	to	Exhibit	3.1 to	the	Company's	Current	Report	on	Form	8-K	filed	on	April	4,	2011).

3.2 Certificate	of	Amendment	to	the	Restated	Certificate	of	Incorporation	of	Huntington	Ingalls	Industries,	Inc.,	dated	May	28,	2014 (incorporated	by	reference	to	Exhibit	3.2	to	the	Company's	Quarterly	Report	on	Form	10-Q	filed	on	August	7,	2014).

3.4 Restated	Bylaws	of	Huntington	Ingalls	Industries,	Inc.	(incorporated	by	reference	to	Exhibit	3.1	to	the	Company's	Current	Report	on Form	8-K	filed	on	February	1,	2016).

4.1 Indenture,	dated	as	of	December	2,	2014,	among	Huntington	Ingalls	Industries,	Inc.,	the	guarantors	party	thereto,	and	The	Bank	of	New York	Mellon,	as	trustee	(incorporated	by	reference	to	Exhibit	4.4	to	Amendment	No.	1	to	the	Company's	Annual	Report	on	Form	10-K/A filed	on	February	19,	2015).

4.2 First	supplemental	indenture,	dated	as	of	November	17,	2015,	to	the	indenture,	dated	as	of	December	2,	2014,	among	Huntington Ingalls	Industries,	Inc.,	the	guarantors	party	thereto,	and	The	Bank	of	New	York	Mellon,	as	trustee.

10.1 Second	Amended	and	Restated	Credit	Agreement,	dated	as	of	July	13,	2015,	among	Huntington	Ingalls	Industries,	Inc.,	as	borrower, the	lenders	party	thereto,	JPMorgan	Chase	Bank,	N.A.,	as	administrative	agent,	and	an	issuing	bank,	and	certain	other	issuing	banks (incorporated	by	reference	to	Exhibit	10.1	to	the	Company's	Current	Report	on	Form	8-K	filed	on	July	15,	2015).

10.2 Form	of	Amended	and	Restated	Indemnification	Agreement	and	Schedule	of	directors	and	officers	who	have	entered	into	such agreement	(incorporated	by	reference	to	Exhibit	10.2	to	the	Company's	Annual	Report	on	Form	10-K	filed	on	February	19,	2015).

10.3 Employee	Matters	Agreement,	dated	as	of	March	29,	2011,	among	Titan	II	Inc.	(formerly	Northrop	Grumman	Corporation),	Northrop Grumman	Corporation	(formerly	New	P,	Inc.)	and	Huntington	Ingalls	Industries,	Inc.	(incorporated	by	reference	to	Exhibit	10.2	to	the Company's	Current	Report	on	Form	8-K	filed	on	April	4,	2011).

10.4 Insurance	Matters	Agreement,	dated	as	of	March	29,	2011,	among	Titan	II	Inc.	(formerly	Northrop	Grumman	Corporation),	Northrop Grumman	Corporation	(formerly	New	P,	Inc.)	and	Huntington	Ingalls	Industries,	Inc.	(incorporated	by	reference	to	Exhibit	10.3	to	the Company's	Current	Report	on	Form	8-K	filed	on	April	4,	2011).

10.5 Intellectual	Property	License	Agreement,	dated	as	of	March	29,	2011,	between	Northrop	Grumman	Systems	Corporation	and	Northrop Grumman	Shipbuilding,	Inc.	(incorporated	by	reference	to	Exhibit	10.4	to	the	Company's	Current	Report	on	Form	8-K	filed	on	April	4, 2011).

10.6 Tax	Matters	Agreement,	dated	as	of	March	29,	2011,	among	Northrop	Grumman	Corporation	(formerly	New	P,	Inc.),	Huntington	Ingalls Industries,	Inc.	and	Titan	II	Inc.	(formerly	Northrop	Grumman	Corporation)	(incorporated	by	reference	to	Exhibit	10.5	to	the	Company's Current	Report	on	Form	8-K	filed	on	April	4,	2011).

10.7 Transition	Services	Agreement,	dated	as	of	March	29,	2011,	among	Northrop	Grumman	Systems	Corporation,	Northrop	Grumman Shipbuilding,	Inc.,	Northrop	Grumman	Corporation	(formerly	New	P,	Inc.)	and	Huntington	Ingalls	Industries,	Inc.	(incorporated	by reference	to	Exhibit	10.6	to	the	Company's	Current	Report	on	Form	8-K	filed	on	April	4,	2011).

10.8 Loan	Agreement,	dated	as	of	May	1,	1999,	between	Ingalls	Shipbuilding,	Inc.	and	the	Mississippi	Business	Finance	Corporation	relating to	the	Economic	Development	Revenue	Bonds	(Ingalls	Shipbuilding,	Inc.	Project)	Taxable	Series	1999A	due	2024	(incorporated	by reference	to	Exhibit	10.6	to	the	Company's	Amendment	No.	1	to	Registration	Statement	on	Form	10	filed	on	November	24,	2010).

10.9 Indenture	of	Trust,	dated	as	of	May	1,	1999,	between	the	Mississippi	Business	Finance	Corporation	and	the	First	National	Bank	of Chicago,	as	Trustee,	relating	to	the	Economic	Development	Revenue	Bonds	(Ingalls	Shipbuilding,	Inc.	Project)	Taxable	Series	1999A due	2024	(incorporated	by	reference	to	Exhibit	10.7	to	the	Company's	Amendment	No.	1	to	Registration	Statement	on	Form	10	filed	on November	24,	2010).

10.10 Loan	Agreement,	dated	as	of	December	1,	2006,	between	Northrop	Grumman	Ship	Systems,	Inc.	and	the	Mississippi	Business	Finance Corporation	relating	to	the	Gulf	Opportunity	Zone	Industrial	Development	Revenue	Bonds	(Northrop	Grumman	Ship	Systems,	Inc. Project),	Series	2006	due	2028	(incorporated	by	reference	to	Exhibit	10.8	to	the	Company's	Amendment	No.	1	to	Registration	Statement on	Form	10	filed	on	November	24,	2010).

10.11 Trust	Indenture,	dated	as	of	December	1,	2006,	between	the	Mississippi	Business	Finance	Corporation	and	The	Bank	of	New	York Trust	Company,	N.A.,	as	Trustee,	relating	to	the	Gulf	Opportunity	Zone	Industrial	Development	Revenue	Bonds	(Northrop	Grumman Ship	Systems,	Inc.	Project),	Series	2006	due	2028	(incorporated	by	reference	to	Exhibit	10.9	to	the	Company's	Amendment	No.	1	to Registration	Statement	on	Form	10	filed	on	November	24,	2010).

10.12 Guaranty	Agreement,	dated	as	of	May	1,	1999,	between	Litton	Industries,	Inc.	and	The	First	National	Bank	of	Chicago,	as	Trustee (incorporated	by	reference	to	Exhibit	10.10	to	the	Company's	Amendment	No.	2	to	Registration	Statement	on	Form	10	filed	on December	21,	2010).

10.13 Assumption	of	Guaranty	of	Litton	Industries,	Inc.,	dated	as	of	January	1,	2003,	by	Northrop	Grumman	Systems	Corporation	(incorporated by	reference	to	Exhibit	10.11	to	the	Company's	Amendment	No.	2	to	Registration	Statement	on	Form	10	filed	on	December	21,	2010).

10.16 Performance	and	Indemnity	Agreement,	dated	as	of	March	30,	2011,	between	Huntington	Ingalls	Industries,	Inc.	and	Titan	II	Inc. (formerly	Northrop	Grumman	Corporation)	relating	to	certain	performance	guarantees	associated	with	certain	U.S.	Navy	shipbuilding contracts	(incorporated	by	reference	to	Exhibit	10.7	to	the	Company's	Quarterly	Report	on	Form	10-Q	filed	on	May	11,	2011).

10.17 Ingalls	Guaranty	Performance,	Indemnity	and	Termination	Agreement,	dated	as	of	March	29,	2011,	among	Huntington	Ingalls Industries,	Inc.,	Northrop	Grumman	Systems	Corporation	and	Northrop	Grumman	Shipbuilding,	Inc.	(incorporated	by	reference	to Exhibit	10.8	to	the	Company's	Quarterly	Report	on	Form	10-Q	filed	on	May	11,	2011).

10.18* Huntington	Ingalls	Industries	Supplemental	Plan	2	(incorporated	by	reference	to	Exhibit	10.16	to	the	Company's	Amendment	No.	4	to Registration	Statement	on	Form	10	filed	on	January	18,	2011)	and	Amendment	to	Appendix	G	to	the	plan.

10.19* Huntington	Ingalls	Industries	ERISA	Supplemental	Plan	(incorporated	by	reference	to	Exhibit	10.17	to	the	Company's	Amendment	No.	4 to	Registration	Statement	on	Form	10	filed	on	January	18,	2011).

10.20* Severance	Plan	for	Elected	and	Appointed	Officers	of	Huntington	Ingalls	Industries	(incorporated	by	reference	to	Exhibit	10.18	to	the Company's	Quarterly	Report	on	Form	10-Q	filed	on	May	9,	2012).

10.21* First	Amendment	to	Severance	Plan	for	Elected	and	Appointed	Officers	of	Huntington	Ingalls	Industries	As	Amended	and	Restated (effective	March	31,	2012)	(incorporated	by	reference	to	Exhibit	10.2	to	the	Company's	Quarterly	Report	on	Form	10-Q	filed	on November	8,	2012).

10.22* Huntington	Ingalls	Industries	Deferred	Compensation	Plan	(incorporated	by	reference	to	Exhibit	10.19	to	the	Company's	Amendment No.	4	to	Registration	Statement	on	Form	10	filed	on	January	18,	2011).

10.23* Huntington	Ingalls	Industries	Savings	Excess	Plan	(incorporated	by	reference	to	Exhibit	10.20	to	the	Company's	Amendment	No.	4	to Registration	Statement	on	Form	10	filed	on	January	18,	2011).

10.24* Huntington	Ingalls	Industries	Officers	Retirement	Account	Contribution	Plan	(incorporated	by	reference	to	Exhibit	10.21	to	the Company's	Amendment	No.	4	to	Registration	Statement	on	Form	10	filed	on	January	18,	2011).

10.25* HII	Newport	News	Shipbuilding	Inc.	Retirement	Benefit	Restoration	Plan	(incorporated	by	reference	to	Exhibit	10.22	to	the	Company's Amendment	No.	4	to	Registration	Statement	on	Form	10	filed	on	January	18,	2011).

10.26* Huntington	Ingalls	Industries	Electronic	Systems	Executive	Pension	Plan	(incorporated	by	reference	to	Exhibit	10.23	to	the	Company's Amendment	No.	4	to	Registration	Statement	on	Form	10	filed	on	January	18,	2011).

10.27* Huntington	Ingalls	Industries,	Inc.	Special	Officer	Retiree	Medical	Plan	(incorporated	by	reference	to	Exhibit	10.24	to	the	Company's Amendment	No.	4	to	Registration	Statement	on	Form	10	filed	on	January	18,	2011).

10.28* Huntington	Ingalls	Industries,	Inc.	2011	Long-Term	Incentive	Stock	Plan	(incorporated	by	reference	to	Exhibit	10.25	to	the	Company's Amendment	No.	8	to	Registration	Statement	on	Form	10	filed	on	March	15,	2011).

10.29* The	2011	Incentive	Compensation	Plan	of	Huntington	Ingalls	Industries,	Inc.	(incorporated	by	reference	to	Exhibit	10.26	to	the Company's	Amendment	No.	4	to	Registration	Statement	on	Form	10	filed	on	January	18,	2011).

10.30* Form	of	Award	Certificate	applicable	to	Non-Employee	Director	Stock	Units	Granted	Under	the	2011	and	2012	Long-Term	Incentive Stock	Plans	(incorporated	by	reference	to	Exhibit	10.30	to	the	Company's	Annual	Report	on	Form	10-K	filed	on	February	27,	2013).

10.31* Form	of	Award	Certificate	applicable	to	Restricted	Performance	Stock	Rights	Granted	Under	the	2011	and	2012	Long-Term	Incentive Stock	Plans	(incorporated	by	reference	to	Exhibit	10.31	to	the	Company's	Annual	Report	on	Form	10-K	filed	on	February	27,	2014).

10.32* Form	of	Award	Certificate	applicable	to	Restricted	Stock	Rights	Granted	Under	the	2011	and	2012	Long-Term	Incentive	Stock	Plans (incorporated	by	reference	to	Exhibit	10.32	to	the	Company's	Annual	Report	on	Form	10-K	filed	on	February	27,	2014).

10.33* Form	of	Award	Certificate	applicable	to	Stock	Options	Granted	Under	the	2011	and	2012	Long-Term	Incentive	Stock	Plans	(incorporated by	reference	to	Exhibit	10.33	to	the	Company's	Annual	Report	on	Form	10-K	filed	on	February	27,	2014).

10.34* Amendment	to	Terms	and	Conditions	Applicable	to	2012,	2013	and	2014	Restricted	Performance	Stock	Rights	of	Irwin	F.	Edenzon (incorporated	by	reference	to	Exhibit	10.1	to	the	Company's	Current	Report	on	Form	8-K	filed	on	December	17,	2013).

10.35* Huntington	Ingalls	Industries,	Inc.	2012	Long-Term	Incentive	Stock	Plan	(incorporated	by	reference	to	Annex	A	to	the	Proxy	Statement filed	on	April	3,	2012).

10.36* Performance-based	Compensation	Policy	of	Huntington	Ingalls	Industries,	Inc	(incorporated	by	reference	to	Annex	B	to	the	Proxy Statement	filed	on	April	3,	2012).

11 Computation	of	Per	Share	Earnings	(provided	in	Note	7	of	the	Notes	to	Consolidated	Financial	Statements	under	the	caption	"Earnings Per	Share").

23.1 Consent	of	Deloitte	&	Touche	LLP.

31.2 Certification	of	the	Chief	Financial	Officer	Pursuant	to	Exchange	Act	Rule	13a-14(a)/15d-14(a),	as	Adopted	Pursuant	to	Section	302	of the	Sarbanes-Oxley	Act	of	2002.

32.1 Certificate	of	the	Chief	Executive	Officer	Pursuant	to	18	U.S.C.	Section	1350,	as	Adopted	Pursuant	to	Section	906	of	the	Sarbanes- Oxley	Act	of	2002.

32.2 Certificate	of	the	Chief	Financial	Officer	Pursuant	to	18	U.S.C.	Section	1350,	as	Adopted	Pursuant	to	Section	906	of	the	Sarbanes-Oxley Act	of	2002.

101 The	following	financial	information	for	the	company,	formatted	in	XBRL	(Extensible	Business	Reporting	Language):	(i)	the	Consolidated Statements	of	Operations	and	Comprehensive	Income,	(ii)	the	Consolidated	Statements	of	Financial	Position,	(iii)	the	Consolidated Statements	of	Cash	Flows,	(iv)	the	Consolidated	Statements	of	Changes	in	Equity,	and	(v)	the	Notes	to	Consolidated	Financial Statements.

*Indicates	management	contract	or	compensatory	plan	or	arrangement.

# SIGNATURES

Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	the	registrant	has	duly	caused	this	report	to	be	signed	on	its behalf	by	the	undersigned,	thereunto	duly	authorized,	on	the	18th	day	of	February,	2016.

/s/	C.	Michael	Petters

C.	Michael	Petters President	and	Chief	Executive	Officer

Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	report	has	been	signed	by	the	following	persons	on	behalf	of	the	registrant	and in	the	capacities	and	on	the	dates	indicated:



Question: what is the net income margin in the q1 of 2014?
Calculation: net_income_margin = 90
revenue_2014 = 1594
net_income_2014 = 132 + 152 + 144 + 79
answer = net_income_margin / revenue_2014 * 100
Answer: 5.6%