Good day ladies and gentlemen and welcome to the Third Quarter 2012 Huntington Ingalls Earnings Conference Call. My name is Stephanie and I will be your coordinator for today. At this time, all participants are in listen-only mode. Following the prepared remarks, there will be a question-and-answer session. (Operator Instructions) I would now like to turn the presentation over to Mr. Andy Green, Vice President of Investor Relations. Please proceed sir.

Thanks Stephanie. Good morning and welcome to the Huntington Ingalls Industries third quarter 2012 earnings conference call. With us today are Mike Petters, President and Chief Executive Officer, and Barb Niland, Corporate Vice President, Business Management, 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 certain non-GAAP measures, including certain segment and adjusted financial measures. Reconciliations of these metrics to the comparable GAAP measures are 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. Good morning everyone and thanks for joining us on today's call. We know that a great many of you listening in this morning on the East Coast have suffered and are still dealing with the devastating effects of Hurricane Sandy, and we want to you know that our thoughts go out to each and all of you. I am pleased to report Huntington Ingalls Industries' results for the third quarter of 2012. Today we reported sales of $1.6 billion flat from the same period last year, and diluted earnings per share of $0.26, compared with a loss of $5.07 in the third quarter of 2011. After adjusting for non-cash, non-operating items in both periods, adjusted EPS were $0.74 compared with $1.05 last year. Third quarter adjusted segment operating margin was 7.1% or flat compared to last year, and we ended the quarter with $766 million of cash and total backlog of $16 billion, with $13 billion of that funded. Our results through the third quarter contain non-cash workers' compensation and tax expenses that were unrelated to the core operating performance at both Ingalls and Newport News. In addition to these expenses, Ingalls operating margin was also negatively impacted by $20 million in EAC adjustments related to the LPD program. This charge was largely driven by performance on LPD-24, which just completed its final sea trials and is expected to be delivered by the end of the year. Following the delivery of LPD-24 the remaining two underperforming ships at Ingalls LPD-25 and LHA-6 are scheduled for delivery in 2013. As I've stated on previous calls, delivery of these underperforming ships is critical to achieving our 2015 target of 9 plus percent operating margin, and we are making steady progress towards that goal. Reflecting our confidence in the performance of…

Thanks, Mike, and good morning to everyone on the call. I'd like to briefly review our consolidated and segment results as disclosed in the press release. Then wrap up with some comments on pension. Before I get into our operational results, I'd like to discuss the two non-cash, non-operational items that affected our income statement this quarter. First, we took a non-cash workers' compensation charge of $24 million, which resulted in lower segment operating income at both Ingalls and Newport News. In the third quarter of every year we update our self-insured workers' compensation liabilities based on factors including actuarial data, recent claims history, and prevailing interest rates. The charge included in this quarter was primarily driven by the decline in the discount rate assumption using computing the workers' compensation liability from 3.05% to 1.59%. The other operational item was an $8 million tax expense related to our spin-off tax agreement with Northrop Grumman, which reflects the portion of the final Northrop Grumman 2011 tax return filing attributable to the HII for the free spin period. This tax expense increased our effective tax rate for the quarter to 65%. These adjustments are difficult to predict and may be subject to both positive and negative adjustments in the future. Now turning to the financials on Slide 4 of the presentation, third quarter sales were flat from the same period last year, and included higher sales in carrier surface combatants and the NSC program, offset by lower sales volumes on amphibious assault ships. GAAP reported segment operating income for the quarter was $89 million. Total operating income was $66 million, and diluted EPS was $0.26. Adjusted for the non-cash workers' compensation charge and tax expense, segment operating income was $113 million, total operating income was $90 million, total operating margin was 5.6%,…

Thanks Barb. Just a reminder to everyone, if you could limit yourself to one initial question and one follow-up, so we can get as many people through the queue as possible. Stephanie, I'll turn it over to you and let you manage the Q&A.

Thank you. (Operator Instructions) Your first question comes from the line of Robert Spingarn with Credit Suisse. Please proceed.

Mike, when we think about your revenue flow at Ingalls with the delivery of the zero margin LPDs continuing and then the new wins you talked about on the surface, other surface ships. And within the context of the insulation that you mentioned when you're talking about the budget uncertainty how many quarters of revenue visibility, do you think you have at this time, at this $700 million type average? How long can you do that? How do we think about that?

Rob well if I can answer a little bit of that and then I'll let Mike add to it, if that's okay. At Ingalls we're seeing was about $7.6 billion in backlog. So when you think about how long it takes to deliver those ships and everything you can do the math, you've a minimum of 10 quarters, but I think that we won't have all those ships delivered in 10 quarters.

Okay.

Okay. And then just as a follow-up on the same topic Barb, what percentage of Ingalls revenue in the quarter was represented by the zero margin contracts?

We don't usually provide that. We provide generalities by year but not by quarter.

Can you talk about it on an annual basis?

Yeah we talked about it in the past. We said that 25% was what we were burning off, so over the entire year.

But remember Rob, I mean that reflex here is to say okay, if it's, whatever the percentage, 25% or whatever is not performing then you want to say okay the rest of them must be performing at the top of the, at the right rate. Well what we're doing here is we're retiring the ships that should be performing at the top rate and we're filling in with work that the blend is low and so it takes time for us to walk our way up back to 2015 where we will achieve the nine plus objective there.

Well fair enough, and we know that there is adjustments that are made in there. But when I think about the fact that you had an underlying run rate of $30 million as Barb said on roughly sort of $670 million in revenue, and as we go forward more and more of that revenue of that zero margin is going to go away, as long as its replaced by profitable ships. You understand where I'm going?

Yeah absolutely that's very fair.

Your next question comes from the line of Dough Harned with Sanford Bernstein. Please proceed. Doug Harned – Sanford Bernstein: I wanted to -- could you give a picture of your longer-term capital spending plans. If you look at Newport News, it seems like you've gone through the transitions related to Virginia Class, CVN-78, decommissioning, and then Pascagoula seems to be pretty modern at this point and how are you thinking about CapEx longer-term?

Doug, I think, first of all I think you're right. The major projects at Newport News and it was the Virginia Class program to get facilities for two submarines per year production capability as well as the inactivation business for the enterprise and then the follow-on aircraft carrier and activation business. We are on the back end of that. We're thinking about the next round of investments for the Navy relative to future programs out there, whether it's a higher replacement programs or something like that or may be even thinking more about how do we retire the risk on certain programs to make them more affordable so that we can strengthen their position budget debate that's going on. So we think about that as well. We think the same way at Ingalls. Ingalls future is probably a bit more dynamic than the Newport News. One, the ships, there's, the ships are smaller and come a little bit faster and so being able to invest to support or kick start the next program and help make that affordable to help the taxpayers find their way to support it, it's something that we're very interested in doing. And so we're always thinking about that. Having said that, inside of our navy shipbuilding business today, we are on the back end of a pretty substantial investment, and we are very proud of the facilities and capital that we have in place today. Doug Harned – Sanford Bernstein: And then on Ingalls, after having lost the DDG-51 competition, the last one to GD. When you look ahead now, what's the timing of competition for future DDG-51's and are you, where you want to be at Ingalls in terms of your competitive position when you look at those awards?

Well we have that next round of competition is actually underway right now. Both teams have submitted bids. It's for, nominally for nine ships. There is discussion that the navy might actually try to find a way to award 10 ships in this discussion. The answer to your question about are we, where we want to be. We will not be where we want to be unless we win. And so we've taken a lot. We've taken a lot of steps. We got a lot of good feedback from that last round of competition. We have been driving our competitive posture and we look for ways to continue to improve our competitive position. But at the end of the day, no matter how good we feel about it, if we don't win we need, we have more work to do. And so that's kind of the way we're approaching it.

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

Why don't we find out and understand a little bit more about the adjustment on the LPD 22 to 25. And I guess a couple parts, is number one, the 22 has been delivered for a while. So why would that still be going on? And then just trying to think about how the typical ship would go out as I would think you would have some contract closeouts when the 23 was delivered. But until the 24 gets delivered, you wouldn't have that next milestone. So can you just talk a little bit about that aspect of it?

Sure. Across all four of those contracts we had a change in our escalation that affected the targets on this contract downward. All right, so that's just a cycle life of how the contracts work with escalation. So we had small piece of it was that. The majority of it was actually performance on LPD-24 and getting that ship to sea.

Okay. And then what the performance in terms of the 24, are there any lessons learned that help you with 25 that or there are changes that you have to make in terms of the production or anything that you can kind of ensure that you wouldn't see a repeat with 25?

Well as we've said all along these four ships 22 through 25 are challenges for us. Two of them are being built, were built in Pascagoula, two of them were being built in Avondale. The challenge specifically with LPD-24 was that LPD-24 was the last ship in the line, while in the production line while our shipyard was going through the trials and tribulations of LHD-8, LPD-22, the DDG-1000 swap, the startup of the NSC program, the other things that were going on there in the aftermath of the storm. So the 24 had a variety of issues associated with reallocating resources to those other programs. On the other hand LPD-24 had the full benefit or had the most benefit of the operating system that we put in place. And so as we approach delivery, the lessons that we learn from LPD-22 and 23 to get the ships to delivery, we absolutely applied and benefitted from. But on the other hand we still had to work through some of these longstanding issues that were out there. And as I, the other thing I said from the beginning is that the number one issue for these ships is we've to deliver. It's unfortunate and concerns us greatly when we have to do something like we've done this quarter. But we're very excited that we got the ship out to acceptance trials. We got to cross that threshold. The ship performed very well on acceptance trials and we are very strongly committed to getting that ship delivered before the end of the year. And the number one issue for us is getting these five ships delivered. This will be the third one. LPD-25 and LHA-6 deliver next year. The delivery of LPD-24 just enhances our confidence in and our plan to get those two ships delivered next year. Certainly, things that we learned from LPD-24 are rolled forward into 25 and LHA-6, Sam.

Your next question comes from the line of Peter Skibitski with Drexel Hamilton. Please proceed.

I guess there is obviously still some risk remaining on 25 and LHA-6. Could you guys talk about some of these other programs, the destroyer restart? I know there has been a talk of a lot of new technologies inserted there Ford with I think has the emails. And then, the next Virginia contract that we expect to have any changes in booking rates there? Can you talk about those three areas and just, how we should think about profit risk on those programs?

Well, I think the first thing is let's step back at how do we do this. The way that Barb and I have set this to be done in this organization over the last five years is, we're very conservative on the front-end of the program. We identify what we think the risks are and we don't take credit for retiring a risk until the risk is actually retired. So, on all of the new work that we've started in Pascagoula the two destroyers, the two LPDs and LHA-7 were being fairly conservative there at this point given that, when you sign the contract you have a risk register and as we retire those risks then we will adjust the rates accordingly. That has been the approach to reduce the Newport News for many, many years. And so -- and it shows itself in all of the performance, in all of the programs that we have at Newport News. As we, we've had quarters where we've had step ups at Newport News due to a delivery of a ship, which is the ultimate retirement of risk on that ship, and that creates a little bit of a lumpiness quarter-to-quarter that you see. But over the long-term, it's a very, very solid way to recognize the profitability of the program, it's always stepping forward its pace I guess, is the right way to say that. And so, relative to the specific programs that you mentioned, the destroyer program, this is a restart of the DDG-51 line. There was a five-year gap in that line and we were given the opportunity to be the first two ships in production. We're very pleased with the way that production has started because we're actually brining the operating systems that we put in place, in…

Okay. Very helpful I appreciate that. And last question on pension. I guess for Barb, Barb it looks like on a net basis year-over-year, it looks like may be you guys are taking may be only you called it $15 million incremental pension headwind for 2013, does it sound about right?

Yeah, you're looking at that pension chart that we showed.

Correct, correct.

Well go in there. It's about that, may be a little higher.

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

So, just on Hurricane Isaac was there any impact in the quarter from that, your financial in the quarter or otherwise?

Yeah, in the quarter we lost about $23 million of sale volume and about a $1 million OM on that. So we looked at that is not material.

Okay. And then, it looks like you guys have been on the debt, you've been chipping a way at it, kind of $7 million to $8 million a quarter. Is that something that we should sort of expect now with the repurchase of the dividends, were you asked to stay on that same kind, but the pay down rate?

Yeah, I think that's fair. We're -- we were comfortable with the pace that we're on right now relative to our disruption.

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

Mike and Barb, I wanted to pursue a little bit, at the end of the second quarter you said like a $6 million reserve on balance sheet for completing the LPD stuff. And now you got $4 million. But so what's happened in the quarter that necessitated the $20 million incremental charge and it sounds like this is one-time stuff, but there must have been something happened in the quarter?

It was, a combination of all the things we've already talked about George. I mean there was no major single event. It was we're in the same quarter where we're trying to get LPD-23 delivered. We're trying to take LPD-24 from builders' trials to acceptance trials. And so there is a big press on that to get that done. There is things that happen day in and day out. But then there is things that we're doing to recover from things that were a couple of years back. So I can't say that there was any single event on that. And I think Barb talked about how there was, the overall effect on the whole. Remember these four ships were all part of the same major contract and so the overall effect of the whole contract was impacted as well.

And then what gives you confidence that LPD-26 and 7, which are also being made at Pascagoula, will be that much better than the 24 at Pascagoula. I mean, you got a better learning curve, did you get better pricing on 26 and 27, if you could just explore that a little bit?

Sure. Sure, thanks George. I think the first thing is that you remember we talked before these -- this four ship contract was it assumed a serial production line with a very steep learning curve in it. And it was signed post-Katrina and it assumed a pre-Katrina cost base line. And that's what we've been dealing with from the -- really from the day the contract was signed we've been Barb and I got there a couple of years later and we've been dealing with that ever since we got there. When we go to contract on LPD-26, we number one, are taking advantage of the operating system that we put in place, which includes class plan, build plans, serial production assumptions relative to how we're going to build things. We're going to do things the same way over and over again. It includes the full scale risk register that we've created. It includes the phase construction program with the hot washes and the phase start discussions that we do. All of those things are there and it reflects the cost base line that we have experienced post-Katrina. And so all of those things in tandem give us great confidence that these ships are not anywhere near to the same path that the four ships in previous contracts were on. Having said that, we still -- we manage it exactly the way we manage all of our other programs. We are conservative on the front-end. We only take credit for risk retirement when it's actually retired. And so we're ramping on those programs today. We go into the start of fabrication or the start of a major milestone and we don't take credit for that until we've actually accomplished it. And I think that that's a tribute to the leadership team there in Pascagoula, the way that they've started on these programs, and Irwin and his team are doing a fine job of getting these programs started the right way. And I think that will serve us very, very well over the next couple of years.

Okay. And then if I may just one, may be one for Barb, how come last year you didn't have any charge for workers' compensation, because I'm sure the discount rate would have also come down last year in this quarter?

So, we've a risk free rate and it wasn't as significant as the drop when we look at it this year. And so basically that was the driver.

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

Well just a quick question on the cash deployment. I was getting now a dividend and a share repurchase program. Just wondering if you could talk a little bit about other potential uses of cash, and your outlook now going forward with regard to acquisitions?

Sure. I mean overall our number one challenge in this business is to achieve the full potential of this business. And that is to look for opportunities to create value and cash deployment is the way that we consider that. We're not completely focused in on any single approach. I think what we've described here is a very balanced approach of how we're going to deploy the cash. But we've talked about investing in the business that we're in to enhance new businesses like the carrier inactivation or the Virginia Class program or retire risk on programs to make them more affordable and may be help make them come to provision. But we also highlighted that; we're interested in doing those things that are -- that were uniquely qualified to do for may be other customers who may have a need for that. I think the team that we have at Savannah River is very a good example of how we are there to do nuclear operations. We are best in class when it comes to doing that kind of work and there are customers out there that need us to do that. We certainly want to bring the shareholders along and I think that from my standpoint, today is an historic day, really in this company today is the day we initiated the dividend and so we're very excited about that and we want to bring everyone along. We think that's a way for communicating and enhancing the value of this business as well. . :

And then speaking of Avondale what is the date of no return on making a decision on what to do with that yard?

Well, what I'd like to say is that we've already made our decision. We are closing the yard to navy business. The point of no return is really a discussion about the workforce. The delivery of LPD-23 means that LPD-25 is the only work that's left there. And so over the next year we will be delivering LPD-25. And as we go through that in the normal course of a ship delivery, the level of the workforce, the number of the workers that are on that ship will decline, has been declining, and will continue to decline. We do see that in that area of the country there are significant projects being planned or announced that would require a skill set that's not unlike the skill set that we have in Avondale. And it's modular construction, it's high energy systems, it's high density systems that we know how to go do. The challenge for us is what's the schedule for those projects, would we still have a workforce if we decided to deploy in that direction. And the second challenge is can we be competitive. And what does it take for us to be competitive in that environment. The fact is that having a qualified workforce and a skilled workforce in today's economy and in today's environment is a great asset and we're really working hard to try to figure out a way to take advantage of that.

Your next question comes from the line of Joe Nadol with J.P. Morgan. Please proceed.

I just have one more question on LPD-24 and the implications for later ships. I don't want to put words in your mouth but is it fair to characterize this as you were already at zero margin and the biggest reason for the impact this quarter is -- its just because you were already running so tight. And if we look at 26 and 27 it's something similar had happened close to delivery for those ships you probably the way you're accruing thins now you would have had a risk contingency that could have handled that?

Joe you got it exactly right. That's exactly right. I mean the issue here is that these programs have been under water really from for a quite a while now. And so whatever we do, as we said from the beginning whatever we do on these programs is going to be very visible. The fact that we would be not actually taking credit on LPD-26 or 27 until we retire the risk means that you shouldn't see this kind of thing as we approach delivery on the new contracts.

Okay, fair enough. And then just a couple of little niche. I was wondering if you could provide what the EAC's were a positive to negative in the quarter that will be in your Q. And any commentary on what we might expect in terms of near-term share repurchase. Should we think about this kind of ratably over three years and so it's just like your shipping always the debt, you'll be shipping the way your share base or any color you can get on that? Thanks.

Okay. So let me start with what you're seeing when we filed a Q on the gross favorable adjustments are $46 million, and the gross unfavorable adjustments are $55 million. So that $55 million includes the workers' comp and then the LPD 22 thorough 25 and the $46 million includes that enterprise EDSRA $50 million that we talked about earlier. As far as the share repurchase program we're looking at it. I don't want to really say that we have a prefect schedule of exactly how we're going to do it. We'll watch and see what happens.

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

May be to go back to a couple of questions. Mike you talked about industrial products other than ships and I guess two questions on that. Why would you ever want to get involved in something where you've the workforce but may be not that core competency for the end market? And would seem like that's something at least to other companies and position the outset as such. So that's kind of a top-level question. And what would be the decision timeline for something like that?

Well number one, there is no way we would get involved in something that was not in our core competency. I mean the reason that we are looking at this is because we do actually think we have a core competency here for fabrication and design -- design and engineering and fabrication of complex systems. We do know how to do that. The question about the timeline. So let me just put everybody at ease here. We're not charging out to go do something that we don't know how to do. We will only do something that we know how to do; we'll do it in a measured way so that we can prove to ourselves that we can be successful with it. Relative to the timeline for it again, I think that the compete -- the competition on the timeline is, we're not sure the demand for these products is going to be soon enough to support the workforce that we've in place. And so that's the balance that we're looking at. And, in the meantime we will continue to execute our plan to close the shipyard.

Okay. I'm just reminded like, commercial ships presumably that's something obviously we're not talking about. But something that you've the capability to do or forced to do. But at different market and different customers, sometimes is what dictates, what's not in the core competencies and I'm just kind of reluctant to understand how your translate what you do to an end customer whose is significantly different than your DoD customer in the risk profile that goes with that also?

You know Myles; I've got lots of scars on my back from those kinds of initiatives. And so believe me, I'm treading very softly here. On the other hand we said from the very beginning that if we're able to create a partnership along the way that can take advantage of our unique capabilities where they would have an understanding of the role in the marketplace. If we're able to demonstrate the ability to be competitive, then I would have to say that's an opportunity for us to achieve some potential that we otherwise wouldn't have achieved. And so I'm being open minded about this at this point. We're not charging off in a reckless fashion at all. We're being very thoughtful about this. The reality is that the projects that are being planned or have been announced will require a manufacturing workforce that does not exist today. That is a reality. And so the question, if you're sitting here with a manufacturing workforce, the question is how you engage in that? And can you engage in that? And we're way in that.

Okay. And then you mentioned both the teams have submitted bids in the surface destroyers with an expected decision for next year. Can you comment on the gates from a procedural budget process and if those are limiting factors to your resolution sequestration? Are those limiting factors, the actual award of the ship in terms of what your money we're talking about?

Yeah, I think the continuing resolution that goes through March does create an issue relative to the award of the contract before that. And so, this would be something after the March CR expires assuming that there was a FY'13 bill. And Myles that there is probably a range of possibilities there where you can have a normal bill, you can have a continuing resolution with anomalies, you can have a continuing resolution with no anomalies and you can kind of figure out which of those make sense for new starts and which doesn't. But in the situation we're in right now, well we don't expect that award to be in the current situation, it would be after this is resolved to the next phase.

Okay. Got it. And then, one last thing upon Barb, I think I got it that the workers' comp is in the AC. So that's effectively profit from prior periods or expenses that should have flown through prior periods based on what you know today, is that an accurate representation?

Well, it works just like pensions. So when you adjust the discount rate, here in this case the discount rate going down, it increase your liabilities, you got to flow this, you got to expense those through your contracts.

But is it being expensive to P&L today based on accum basis because?

Yeah.

But the intention wouldn't amongst you're already in the zero margin to this?

Right, right.

So that -- that was driving you?

Right. It goes through your calculation, your percentage complete on your contracts.

Okay. And so, the only reason you're calling out this as different than some of the escalators that may have come down is because it's a specific item to workmen's comp, is that right?

Correct.

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

Hi, thank you very much. Just wanted to get a little bit more color on return of cash to shareholders as a goal. Right now, it looks like you're paying less than a 1% dividend yield and that's below, if you would say broadly appears. And what the plan is, I just want to understand what the plan is for you guys down the road on the dividend?

Sure Brian. And I think it's fair to say that we are -- we take small steps and we wanted to start here in a very modest way. And as we go forward, we would evaluate our next approach. Our sense here is that we thought it'll be better to start early than to wait. And let's get started with it and then see where it takes us. And again, no need to go jump into the deep end of the pool let's just start here at the beginning and start walking down the path.

Okay. And then, for Barb, just a quick question on the tax rate long-term. I think you mentioned tax rate in the 40s, 42% this year, what do you expect longer-term, going 2014, '15 when you're talking about your 9% operating margins I think in '15? What kind of tax rate are you looking at then?

Well, you're going out a long way. But I'd say hey, it really depends on what happens with like the domestic manufacturing deduction and your R&D credits and all the other sausage making that goes into the taxes. But if you want to pick a number, I'd just go with the statutory rate of 35%.

Brain, I would ask you what sort of tax rate are you looking at in 2015?

All right. It's going to be a heck a lot higher than all I know.

Different then what it is now?

I don't want to say that.

Your next question comes from the line of Ron Epstein with Bank of America/Merrill Lynch. Please proceed. Ron Epstein - Bank of America/Merrill Lynch: Just a bigger picture question, in the prepared remarks you adjusted a little bit. But if we do run into some sort of sequestration scenario, who knows exactly, how that would play out? I mean, how do you think about it. And how do you think about how it would impact your business right I mean, given that pretty much everything you do is sort of multiyear in nature I mean, how do we think about that?

Well, thanks for the question, Ron. We, first of all, we made a decision very early on in this year that -- and I would say that it was a bit of a bad but I think it has paid off for us. And that is, that prior year obligated funds are just not going to be part of this discussion. And so, prior year obligated funds for us are all the ship contracts that we have and the design contracts that we have. And the backlog that Barb has talked about, we've got the contract signed at Ingalls that carries us out for the next few years. We've got contracts of Newport News that are going to carry us out for the next few years. And so, the near-term affect of sequestration as it exists, our sense of it is, it's not a near-term issue for HII. We are watching very closely the impact to our suppliers. We have 5,000 suppliers in all 50 states and those guys they're very careful about this, trying to predict how things are going to go and what investments they need to be making to support us. And so, we monitor that very closely, and if that -- so any affect from that would have a little bit of an effect on us. But for the most part, we're just working our way through that in terms of the near-term. I do think that there needs to be and their will be a discussion about how do we allocate the resources that we have for the needs that we have. And I think that debate is going to play out over the next couple of years. And that's really a discussion about what this company looks like in the 5 to 10 year…

Your next question comes from the line of Doug Harned with Sanford Bernstein. Please proceed. Doug Harned – Sanford Bernstein: Yes, I just got one more. You there?

Yeah.

Yes. Doug Harned – Sanford Bernstein: Yes. Just one more question on I wanted to follow-up on LPD 26 and 27, because can you talk about the difference in the way those contracts work compared to your earlier ones?

There is really not a big difference in the way the contracts work. It's really how we priced it and we priced it based on our current experience. And then, because the contracts are very similar they're both fixed price and -- say we're both fixed price instead of contracts. So it's based on, we priced it based on current performance and then from a work standpoint, we've put our operating system in place and we have a more diligent process where we go through this phase construction. And then the third piece of that, as Mike's talked about, we conservatively book on the front end due to the risk in front of us. And then as we retire that risk we improve so the margin rates going forward. Doug Harned – Sanford Bernstein: Yeah, because I guess my understanding was on LPD 22 through 25 and even the earlier ones that you would -- well the previous management had signed up for some pretty aggressive learning curves. And I was just curious how you were able to get to a point on 26 and 27 is it by virtue of continued improved performance or is it through better pricing and since more realistic pricing on these newer ships?

Doug, I'd say all of the above. I mean the fact is that when we go to sign a contract with the navy, we are -- both parties are certifying that the pricing that is there is actually achievable. And there is lots of data when we go to sign LPD-26; there is a lots of data about what that pricing ought to be. And so that's one part of it. But the other part of it is, we're good stewards of the taxpayer dollars here. These operating systems that we put in place are serving us very, very well. The leadership team that has been built and is executing the programs on the Golf Coast is doing a fine job and we're very proud of the work that we're doing and we're very optimistic about the targets that we set, and our ability to achieve our long-term objectives.

This concludes the question-and-answer session. I'll turn the call over back to Mr. Mike Petters for closing remarks. Please proceed.

Thank you. I just appreciate everybody joining us on the call this morning. As I said, I think today for us this is an historic day. We're initiating a dividend. We're initiating a stock buyback. In the history of the company today will be the day that we start with that and we're very, very excited about that. We said from the beginning that the number one objective over the next three years is to get those five ships delivered. We delivered another one this quarter that's exciting. We also took another one to acceptance trials just last week, and that's very exciting. And that would be three of the five ships by the end of this year will be out of the system. We are looking forward to next year and finishing that part of our process and then moving ahead and continuing to create more value for all of our stakeholders. So with that thanks for being with us today.

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