Good morning, ladies and gentlemen, and welcome to the First Quarter 2012 Huntington Ingalls Industries Earnings conference call. My name is Montoya and I’ll be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question and answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Andy Green, Vice President of Investor Relations. Please proceed, sir.

Thanks, Montoya. Good morning and welcome to the Huntington Ingalls Industries first quarter 2012 earnings conference call. With us today are Mike Petters, President and Chief Executive Officer, and Barb Niland, Corporate Vice President, Business Management and Chief Financial Officer. As a reminder, statements made in today’s call that are not historical fact are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities law. Actual results may differ. Please refer to our SEC filings for a description of some of the factors that may cause actual results to vary materially from anticipated results. Also in their remarks today, Mike and Barb will refer to segment operating income, a non-GAAP measure. Reconciliation of this metric to the comparable GAAP measure is included in the appendix of our earnings presentation that is posted on our website. We plan to address the posted presentation slides during the call to supplement our comments. Please access our website at www.huntingtoningalls.com and click on the Investor Relations link to view the presentation as well as our earnings release. With that, I’d like to turn the call over to Mike.

Thanks, Andy. Morning, everyone, and thanks for joining us on today's call. I am pleased to report Huntington Ingalls Industries results for the first quarter of 2012. Today, we reported first quarter sales of $1.57 billion, down 6.9% from the same period last and earnings per share of $0.67, down from $0.92 in the first quarter of 2011. First quarter segment operating margin was 6.4%, a significant improvement from 5.0% last year and we ended the quarter with $551 million of cash on the balance sheet, in line with what we told you on the fourth quarter call. Total backlog at the end of the quarter was $15.5 billion compared with $17.4 billion last year. Now, it's only been about six weeks since our last call so not much has changed with respect to our major programs or outlook. That being said, overall it was a good quarter for us and one that reflects the dedication, talent and commitment of our 38,000 shipbuilders. Newport News continues to execute on major programs such as construction of the Navy's newest aircraft carrier, Ford, construction of Virginia-class submarines and the overhaul of Roosevelt, while preparing for construction of Kennedy, the refueling of Lincoln and the inactivation of Enterprise. At Ingalls, we continue to make significant progress towards delivering the legacy LPDs and LHA-6 America, while securing new business in amphibious ships, national security cutters and destroyers. With two legacy ship deliveries this year, and the remaining two scheduled for next year, the Ingalls team is closing in on returning margins to normal and sustainable levels. Overall, we are on track to deliver our goal of 9%-plus total operating margin in 2015 on a flat revenue base. Now, before I get into more detail about our individual programs, I'd like to make a few…

Thanks, Mike, and good morning to everyone on the call. I would like to briefly review our consolidated and segment results as disclosed in the press release. Turning to the financials on Slide 4 of the presentation, reported first quarter sales were down 6.9% compared to the same period last year. The decrease was mainly driven by lower volume following the delivery of NSC-3 and LPD-22 in 2011 and lower volume on the Roosevelt RCOH and VCS program. These were partially offset by higher volume on the construction preparation on Kennedy and the advanced planning on the Lincoln RCOH. First quarter segment operating income was $101 million and total operating income was $80 million. Segment operating margin was 6.4%, up from 5% in 2011. Total operating margin was 5.1%, up only slightly from the same period last year due primarily to $13 million higher pension expense and the $9 million difference in deferred state taxes in 2012. Diluted earnings per share for the quarter was $0.67 compared to $0.92 for the first quarter 2011. The decline in EPS was driven mainly by higher interest expense, pension expense and deferred taxes. In line with what we said in the fourth quarter call, we ended the quarter with $551 million in cash. Cash used in operating activities was $329 million, and improvement of $35 million over the same period last year. Generally, we are cash users in the first quarter and this trend reverses over the remaining three quarters. We saw that in 2011 and expect a similar pattern in 2012. Additionally, during the first quarter we contributed $122 million to our pension plans, approximately 50% of our expected full year contribution. We expect the remainder of our 2012 pension contributions to be weighted towards the second and third quarters. Capital expenditures…

Thanks, Barb. Just as a reminder to everyone, we request that you limit yourself to one initial question and one follow-up. And always are welcomed to get back in the queue for any additional questions so we can get as many as possible. With that, I'll turn it over you, Montoya, to manage the Q&A.

Thank you. (Operator Instructions) Our first question comes from the line of Carter Copeland of Barclays Capital. Please proceed.

Good morning, Andy, Mike and Barb. Just – I know this is a tough topic to address but I wondered if you could talk a little bit about sequestration and scenarios you're evaluating and how shipbuilding may differ from other programs that we'd see at your peers and things like overhead flexibility or the lack thereof. Or how we should think about the impact of long-term funding and perhaps unspent funds that you could live on a little bit longer than programs that are incrementally funded. And lastly, if there are scenarios in your mind that could push programs into a (inaudible) position where we could see stop work orders or anything like that. Anything you're evaluating as you kind of think about scenarios. Any color you could provide would be really helpful.

Sure. Gosh. That’s a wide open question so let me see if I can bring a little bit of color to it. Thanks for the question. We've said from the beginning that this prospect of sequestration, it's out there, but the vast majority of the work that we need to do in the next three to five years to achieve the objectives that we've been talking about for the last year, we have under contract. We really have two more contracts to get, the LHA-7 and the LPD-27 contract. We're close on those. We've just got to get those finished. Those are really the last two of the original set of contracts that we talked about a year ago that really push us out to the three to five-year timeframe. And our focus in that body of work is to retire the risk that we have in some of our heritage work. The LPD-2 delivery was a big milestone for us at the end of last year. This summer is going to be a big risk retirement summer for us with the launch of America, the sea trials and ultimate deliveries of LPD-23 and 24. We're in a place now where a big part of what we've been working on to retire risk, we're heading into the zone where it's time to get it retired. Relative to the law and the sequestration, I don't know that I have any other particular insight in it than anybody else does. A whole lot of folks say that ultimately this is not going to happen but a whole lot of folks also say they have no idea how it may not happen. Or if it does happen, it's going to have some different effect or maybe a reduced effect. There are a whole…

Thanks very much. I know it's a tough topic to address, but I appreciate the color.

And it's a little long-winded too I know.

That's okay. It's a tough topic.

Well, thanks for the question.

Our next question comes from the line of Doug Harned of Sanford Bernstein. Please proceed.

Good morning. If you look at the margins at Ingalls, and they were improving. But could you talk a little bit what operational metrics you're looking at in the Gulf right now and how we should think of this margin improvement as sitting on some kind of interjectory toward the goals that you've described.

Well, first of all, I think the way to think about what's happening in the Gulf I'll go back to what we just talked about. We've done a lot of work over the last four years to put ourselves in position to retire substantial amount of risk. And the work that we're going to do in the next few months is going to be the culmination of that. Going to builders trials on 23 and 24 are significant milestones. Launching LHA-6 is a significant milestone. We just launched LPD-25, another significant milestone. And so over the next four months you're going to see these milestones go by and you'll see us be able to step back with a little bit more certainty about, okay, these things just like with LPD-22 we were able to move past another big piece of the risk. As we've said all along, the year 2013 is really the inflection point for any sort of trajectory in performance at Ingalls. Our operating system is full of metrics where we do hot washes after every phase and do all kinds of things like that. But it's really going to be the ultimate delivery of LHA-6, the delivery of 23, 24 and 25 and the closure of Avondale - getting those things out of our system and getting them behind us, then puts us in a place to accelerate. And so as we said earlier today, you should see a little bit of an improvement year-over-year at Ingalls this year. But after that I think that 2013 becomes the inflection. The new work comes in and we accelerate that into our goal of 9%-plus in 2015.

And then related to that, when you think of LPD-25 over at Avondale and could you describe any progress in the thinking about the ultimate disposition of Avondale and then also how you ensure us that’s the last piece of work that may be done there that you make sure that goes smoothly to the end point and gets delivered with the kind of quality and cost that you're targeting.

Sure. It's something we think about every day. The plan of record today still is to close that shipyard. We do not have an alternative plan today. We continue to explore alternatives but our plan is we're marching down the path of closure. 25's launch was a significant milestone because it was a high quality launch. The ship was in great shape when it went into the water. LPD-23 is in great shape as it gets ready to go on sea trials. The workforce at Avondale has done a magnificent job since the announcement when we were part of North (inaudible) in 2010 that – of the plan to close Avondale. They've done an absolutely tremendous job on these last two ships. The things that we've done, we've tried to step back and think about the things that you just asked about. What's going to happen when you only have two ships left and you're going to close it, what's the disruption – what's the potential for that to be? How do you manage your cost? How do you make it as variable as you can? We've thought our way all the way through that. We put some incentives for instance for attendance and productivity in our labor contract and our union leadership worked with us to do that in a very constructive way. And all of those incentives have been met to-date. We have another year to go on that and we continue to be optimistic about how that's going to turn out. But we're, as we've said all along, this is a bit uncharted territory. And so we go into this with our eyes wide open.

Okay. Thank you.

Our next question comes from the line of George Shapiro of Shapiro Research. Please proceed.

Yes. Good morning. Could you tell us what percent of Ingalls business is currently making a 9% margin?

You know, George, we don't break it out that way in any of our reporting. As we've said before about 25% of our total revenue last year was in these heritage programs. The delivery of LPD-22 reduces that this year. And that's about as far as we've gone with it.

Okay. And then also, Barb, kind of my question I always ask. The contract for losses came down $7 million in the quarter, clearly better than the fourth quarter because you didn't have LPD-22. Is that still sufficient you think to not require an incremental charge?

Well, George, we talked about this as we go through 24 and 23 and Mike just talked about 25. We feel pretty good about those ships but we still don't know. So there could be some incremental small charges as we go forward. But nothing that we anticipate or know right now. What I will tell you in terms of provisions in the fourth quarter we were 89% complete on LPD-23 and 24. And we're just about at 94% complete on those two ships right now or through the March 31, so through the reporting period. And so I believe those provisions are adequate right now.

Okay. Thanks. I'll get back in the queue.

Our next question comes from the line of Robert Spinharn of Credit Suisse. Please proceed.

Good morning, everyone. Mike, I'm trying to reconcile on this Ingalls profitability issue some of the things that you've said. And it sounds like it's not just a question of delivering legacy ships and adding new ships but you also have these initiatives across the yard that are intended to improve profitability toward that 9%. And then listening to your answer to George's question it would seem to imply that really perhaps no ships in that yard are yet at 9%. So, one, is that an unfair assumption. I know I'm asking his question again but I think it's an important question. And then two, in this environment can you really expect to earn 9%-type margins on future contracts given what the Pentagon's doing on pricing?

Well, as I said before we're not going to break that out any more than we already have. One of the things that you have to remember about what we do is that when we have brand new contract we are fairly conservative in the way that we book it. When these heritage contracts are gone we're going to have a handful of new contracts that we're working our way through. And so that's why you see the ramp up after 2013 because the burden of profitability is going to fall on a handful of relatively new contracts. As far as the Navy pricing goes, my sense of this is that at the end of the day it's up to us to go and make sure that we get a solid contract that allows us to attract capital and talent to our business. And so it is a challenge. We've talked about this several times. When we go into a contract negotiation it's often less about what the price of the contract is. It's often more about what's in the risk and how are you going to share the risk and what's in the scope. We've had contract negotiations where the whole negotiation has been about scope. And so I expect that we'll be continuing to have those. It's certainly – I think everybody who's ever been in this business for the last 200 years would say that those are always challenging and they will continue to be challenging. It's our job to get that right and that's what we intend to do.

But, Mike, if you're talking – if you're focusing on scope in those discussions then where do you get the comfort that you can hit 9% on the future contracts and frankly on the other ships that are in the yard now without really being there yet? Except perhaps at Newport News, which doesn’t seem to me to be necessarily relevant at Ingalls.

Well, first of all, we have contract structures that allow us to get there. Secondly, those are based on a very solid understanding of what the risk registers look like. Third, we have a leadership team that's focused on the retirement of those risks. We, Barb and I, have spent four years now building this team with Matt Mulherin at Newport News and Irwin Edenzon at Ingalls, have been building this team to make sure that we are focused on what we need to do to perform. I'm very proud of what those guys are doing today and I'm very confident that as we go into this uncertain future this is the team that I want to go into that future with. And I'm very comfortable with our prospect and our outlook for 9%-plus in 2015.

Okay. Thanks very much.

Our next question comes from the line of Darryl Genovesi of UBS. Please proceed.

Morning. So, I guess, just sticking with Ingalls for a second but on the top line specifically can you just give us a sense of how close you are to a steady state revenue run rate at this point on your new ships, so DDG-113, LPD-26 and NSC-4? Are those fully ramped up or is there still upside on the top line there?

I think what you're going to see is a bit of a blend. We're still ramping up on the new ships and we're going to be coming down on the heritage ships.

No. It's understood on the heritage ships. But I mean if you could just address those three new ships individually. I think that would be helpful.

I mean, we've just started them. So.

It's timing of how material comes into the yard. It'll be timing top line for Ingalls. It'll be timing on LPD-27 and LHA-7 contracts. So – but right now DDG-113 and 114, NSC-4 and 5 and LPD-27 are on schedule and performing well.

Okay. And then just in terms of, I guess building off Carter's question a little bit. As you guys are looking now to negotiate long-term contracts with the Navy on Virginia-class submarine and on your DDG program, what can you do to protect yourselves on those programs given that we still don't really have any clarity on the 2013 budget or on what's going to happen with the sequester and I'd imagine that we may see a few more rounds of this budget cutting here in the few years. So just wondering what are you doing in terms of building in penalty clauses in case things end up getting cancelled down the road, et cetera?

Well, first of all, every single negotiation has its own personality if you will. And so there's no silver bullet that fixes this in every single negotiation. Each one takes on a life of its own and the team that works it comes up with a range of solutions. Clearly one of the issues that we have to deal with when we are negotiating a contract today is what our future business base might be. And so that becomes an item in our risk register and it's something that we have to appropriately work through with the Navy about how much of that risk do they want to share. And the more that they want to share the more we can put it into the terms and conditions of the contract. If they want to share less of that, then that affects the price that they have to pay. And so that’s kind of the general way we think about that. Whether it's our future business base or any of those other things that could happen to us, we put all of those on the risk register and then we have a discussion with the Navy about what's the appropriate way to share that risk. And the more risk they put to us, the more it affects our price.

Our next question comes from the line of Sam Pearlstein from Wells Fargo. Please proceed.

Good morning. Can you just talk a little bit about the milestones you've mentioned several times at Ingalls in terms of what are the major milestones we should be looking for over the summer? And then just help me understand how we should see that play out in the P&L in the sense that if there are no issues, do we see a reserve that likely gets released? Or is it more a matter if there's an issue we might see further charges?

Yes. I think it's more the latter than the former. But I would say that again the milestones to look for are on the heels of the launch of 25, which we just came through. We have coming up sea trials on the 23. Launch of America. And sea trials on the 24. All of those are major milestones for us. They are the times where we can step back with quality launches and quality trials, we can step back with a sense that we've retired some risk associated with these programs. And that's kind of the way we're managing it. And that’s why we keep bringing people back to these milestones. To get through to those milestones in whatever fashion that we do, as clean as we can, then continues to confirm and validate our overall long-term outlook.

Okay. And if I can just follow-up on the Virginia-class, just as you’ve ramped up the two boats, I'm surprised to see revenues down year-over-year. Can you talk a little bit about that and maybe size the performance improvements that we would have seen in the quarter on that program?

Okay. Let's start with the performance improvements. There wasn't anything significantly material on there. But as far as the revenue, it only dropped a little bit and that was really related to we had a huge fourth quarter of material come in. So a big ramp up on material on Block 3 in the fourth quarter that we didn't have in the first quarter. So that was what's driving it.

Okay. Thank you.

Our next question comes from the line of Brian Ruttenbur of CRT Capital. Please proceed.

Thank you very much. Hi, Mike and Barb. What kind of build delays do you guys see versus pure dollar delays in the near-term and long-term?

I don't really see any. Right now we're funded. We don't have any issues in terms of funding so I don' really see any issues.

And we don't have issues with invoicing and payments on contracts that we have. If your question is really are we concerned about delays in appropriations and procurements going forward, I think that’s in the cloud of what ultimately happens with sequestration. You're starting to hear people talking a little bit about unobligated dollars in prior years and what does that mean? Most of our dollars are obligated and so it's not clear that that’s a big issue for us but it certainly is a big issue for the industry. One of the biggest confusions around sequestration I think today is that nobody really knows how it's going to be implemented. Even if you just said, okay, this is what the law says and let's go implement the law. Is it going to be a 10% across the whole business of everything that we do? And I think one of the Senators pointed out that how do you do that and buy three-quarters of a submarine. That becomes a real problem. And so then there's a question of can you take sequestration and do vertical cuts to get to the numbers and I don't know that anybody knows. I know there's a lot of opinions but I don't know that anybody knows and we certainly aren't qualified to even have an opinion on that. So that just continues to add to the uncertainty of our 5 to 10-year outlook.

Okay. As a follow-up let me see if I can be a little clearer on my question. Skepticism exists out there in terms of you guys being able to expand margins in a real questionable environment. I'm not a skeptic because it's basically you're still coming up to what would be less than what your biggest peers are in terms of margins. Can you address that? Where your peers are and why you don't think that you can get up to as high as the peer? Or do you think you can as high as your peers are and that wouldn't mean much higher than 9%?

Well, I think in the shipbuilding business the history has been in the 9% to 10% range. And we believe that we can operate sustainably in that range. But we're coming through a period of time here where we've got to retire substantial risk to get to that. We have the workload in our backlog today to do that and so the thought that somehow the budget debate is effecting our ability to improve our margins is a bit specious as far as I'm concerned. I think that we are focused internally to continue to drive the margins up to that normal operating range for the history of shipbuilding. What happens in shipbuilding is that mature programs book more than 10% because they're successful and you're in serial production and you're doing really well. Brand new programs book less than that. And so it's the blend that you're looking for in the business. The healthy business has a handful of new programs and has a handful of mature programs and you blend that together to get to the overall long-term sustainable run rate. And so I see no reason why this business can not be operating as well as anybody in the industry.

Thank you.

Our next question comes from the line of George Shapiro of Shapiro Research. Please proceed.

Yes, couple of other questions. Can you disclose what the EACs were in the quarter because I assume you'll probably put it out in the Q anyway?

Are you just asking for the cumulative adjustments, George?

I think that's all you're going to disclose in the Q, right?

Right. So Q1 2012 our cumulative adjustments were $14 million favorable versus Q1 last year of $4 million unfavorable adjustments. And so if you recall Q1 last year we recorded the negative adjustment for the retention grants issued as part of the spend and the continued risk evaluation on the 78 contract plus LPD-22 and 24. So this quarter we had, like I said, the $14 million cumulative favorable adjustment but basically it was across multiple programs, those milestones were achieved. Ship board test program on the RCOH. We finished the PSA on one of the submarines. So it was really across the board and there was no single item that was material.

Okay. And then just another quick one. The $240 million jump in receivables in the quarter that usually happens in the first quarter. It happened last year. Is there anything unusual in that? Can you detail what specific programs it might have been on?

That was across the board. It was really accruals driving that. That's – like you said, it happens every year.

Okay. Thanks very much again.

Our next question comes from the line of Jason Gursky of Citigroup. Please proceed.

Thank you. Good morning, everyone. Hey, Barb, just a couple of quick technical questions for you. Can you update us on what your expectation is for both pension expense for the entire year as well as CapEx?

Okay. So let's start with CapEx. CapEx I expect to be in the 2% to 3% range like I've said. First quarter if you took out the $36 million we paid last year first quarter for the closure of Avondale with Louisiana, we're about the same quarter-over-quarter. So $27 million. And I expect the year to be just a little bit less than last year but in that 2% to 3%, kind of in the high end of the 2% to 3% range like I've said before. So that’s the CapEx. On the pension basically we expect the net FAS/CAS adjustment to be in the $77 million range. If you go back to what we talked about in March, we put together a pension assumptions chart and none of those assumptions have changed.

Okay. That's great. I just wanted to make sure that was any changes there. And then, Mike, could you just discuss a little bit about labor down in the Gulf and how labor retention is going down there and how the labor force down there is progressing along the various learning curves? Just another way of trying to explore some of the potential risks at Ingalls and the margin ramp down there.

You bet. One of the things that we set out to do when we first started bringing all this together about four years ago was that we had to build a constructive relationship with our various labor unions and we've done that. Just several months ago we signed an extension to the labor agreement down there that’s going to carry us out for the next couple of years. And it was approved pretty solidly by the workforce. There's a belief in the workforce that we have the right approach to improving the business. Our people want to be part of something that is successful and they see that we're on a path to be successful. What we've seen in particular, I've already spoken a little bit about the folks at Avondale, they really have taken on the challenge if these are the last two ships we're going to build. They're going to be the best two ships we ever build and we've very, very proud of that. And they have every right to be very proud of that. And so I think that's a testament to Erwin and his team in the way that they partner constructively with the organizations that handle our production. And we consider that an asset. And we continue to look forward to working with them in the future.

Okay. Great. Thank you.

Our next question comes from the line of Myles Walton of Deutsche Bank. Please proceed.

Thanks. Good morning. Maybe, Barb, first. On the first quarter of last year negative adjustments effecting Ingalls margins, can you quantify what that was so we can get a clean compare in terms of what the margin was year-on-year?

Well, Myles, they weren't material so they weren’t significant. And there was small adjustments on LPD-22 and 24. So we haven't been giving amounts out.

If you excluded those from both periods would you have had margin expansion?

Well, we have margin expansion because we delivered LPD-22. So you're going from the 2.2% to the 2.9%.

Right. So the 2.2% though had a negative adjustment in it?

It did. Small.

If you add it – okay. So even if you added it back you would still show margin expansion?

Right.

Okay. Good. And then, Mike, on the 9% by 2015. Obviously a piece of it is a mix shift of the backlog and a piece of it's the productivity improvement. As you look at a glide [ph] slope, it sounds like 2012 was a slight improvement, 2013 has the benefits of the mix shift. Is the glide slope from 2013 to 2015 relatively linear at that point?

I think, I'm not exactly know what relatively linear actually means, but what I would say is it will be accelerating. 2013 will have deliveries and the closure of Avondale all in there so 2013 is going to be a bit of a mix. 2014 will be clean and then as we retire risk on new programs, 2015 will be where we need to be. And so I'd hesitate to say that it's a stair-step linear thing from 2013 to 2015. I'd hesitate to say that because we're going to be working through the start-up of the new programs and the retirement of the risk on the front end of those programs. And that's what we'll really be doing in 2014.

But I guess if I understand it right that the move from 2013 to 2014 and 2014 to 2015 is really about your ability to drive the productivity improvements through the base business as opposed to any type of mix shift or program-X specific issues being delivered…

It'll be new contracts that'll have opportunity in it. It'll have risk in it. And as we retire the risk we step up. So that's what we'll be doing.

And I would say, on the productivity improvement, we're seeing productivity improvement today and so when we bid those new contracts we bid those contracts based on how we're performing today. So there isn't this whole leap we have to take to achieve those targets.

Okay. That’s fair. Just wanted to understand the slope. Thanks.

Our next question comes from the line of Matt Vittorioso of Barclays Capital. Please proceed.

Hi, guys. Thanks for taking my call. Just a quick question on working capital here. Obviously a pretty significant use of cash for working capital in the first quarter. Can we expect similar to what we saw last year and online throughout the year with the bulk of that coming in the fourth quarter? Or can you just give us a little guidance on what we should be looking for there?

No. That's exactly what I'm looking for. I expect it to look very similar to last year and then December will be the month that will tell where we end up for the year just like last year. I reminded everybody in the last call that in the last week of the month we had collected the majority of that cash. So I'm banking on the same thing to happen this year.

Okay. And then just as a quick follow-up. Can you just give us a sense of how you intend to manage the cash balance going forward, right? That puts you back towards $1 billion of cash on the balance sheet. Would you guys look into potentially paying down some term loan or is there other things out there – acquisitions or other opportunities that you're looking at that you'd want to keep the cash on the balance sheet for?

Certainly we're considering all of the potential uses of cash today. But our number one priority is to make sure that we get through the risk retirement of the four ships that are remaining and the closure of Avondale. So all of the other things we are considering. The things that you can do with cash, we're working very hard on what's the right use of that cash today. But the first thing that we have to do is we have to get through the closure of Avondale.

Okay. Great. Thanks. That's helpful.

Our next question comes from the line of Darryl Genovesi of UBS. Please proceed.

Hi. Thanks for taking my follow-up. I just wanted to get an update on the – you guys have this estimate of $271 million out there that you thought it was going to take to close Avondale, of which I think $128 million was an asset write-down and the remaining $143 million was cash. So just wondering if there's been any change to that and if any of that cash has actually gone out the door yet?

Yes. Like Mike talked about, one of the reasons why we feel like our estimates on 23 and 25 should be in the range of reasonable amounts is we're paying incentives and we're also paying retentions to our employees. So we've spent about $74 million to-date of the – my recollection is it's $150 million of facility expenses and human capital expenses. And so we've spent $74 million so about half of that to-date. And part of that was also the payment we made to Louisiana for the cooperative endeavor agreement.

Okay. Thank you.

Our next question comes from the line of (inaudible) of JPMorgan. Please proceed.

Thank you. Good morning. As I look out in several years and the margins improve and so forth, how does credit ratings fit into the picture? And any thoughts around financial policy and perhaps working towards investment grade in the out years?

Again, all of that’s part of our thinking today is just what do we want to look like when Avondale closes. And what's the right way for us to be deploying the cash that we will be able to generate. If we're able to and we're very confident that we'll be able to achieve our 2015 objective. How do we redeploy that cash to create the most value for the business. And we're taking a hard look at that. But at this point all we're prepared to say is we've got to get through Avondale first.

Yes, granted there is the Avondale work that is still in front of you, but does investment grade ratings make sense to the company. Is that something you would like or are you comfortable in the BB ratings category?

Again, I think we're considering all of the possibilities at this point. We're not uncomfortable where we are. But we also recognize that there are values to be somewhere else and we're looking at all of that. But we're not prepared today to cite that we have any particular objective.

Thank you. That's all I had.

Thank you, sir. At this time we have no questions. I would now like to turn this call over to Mr. Mike Petters for closing remarks.

Well, thank you and thanks to all of you for being part of the call today. As we said at the beginning, this call is six weeks since our last call and so not much has changed since then. But it's good to have another quarter under our belt. Another quarter where we've retired some of that heritage risk that's out there. The next few months are going to be very important for us in that regard with the potential sea trials that we have coming up and the launch of America. And we're excited about that. We think about that in terms of we've in a football analogy, we've driven this all the way down into the opportunity to score. Now we've got to get the ball across the goal line and that's where we are on all those programs and so we've done a lot of hard work to get here. But we're not done yet and we're very focused on that. So thank you all for being part of this and we'll talk to you next quarter.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.