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McDermott International (NYSE:MDR)

Q3 2011 Earnings Call

October 27, 2011 8:00 am ET

Executives

Perry L. Elders - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Stephen M. Johnson - Chairman, Chief Executive Officer and President

John E. Roueche - Vice President of Treasury and Investor Relations

Analysts

Jamie L. Cook - Crédit Suisse AG, Research Division

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Steven Fisher - UBS Investment Bank, Research Division

Blake Allen Hutchinson - Howard Weil Incorporated, Research Division

Andy Kaplowitz - Barclays Capital, Research Division

Will Gabrielski - American Technology

Robert F. Norfleet - BB&T Capital Markets, Research Division

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

John Rogers - D.A. Davidson & Co., Research Division

Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division

Operator

Ladies and gentlemen, thank you for standing by, and welcome to McDermott International's Third Quarter 2011 Earnings Preview Conference Call. [Operator Instructions] I would now like to turn the call over to our host, Mr. Jay Roueche, McDermott's Treasurer and Vice President of Investor Relations. Please go ahead.

John E. Roueche

Thank you, Keanna, and good morning, everyone. As you all probably have seen, yesterday, McDermott provided an earnings preview of its 2011 third quarter. And today, we wanted to provide additional color and an opportunity for the financial community to ask their questions. Assuming our final results, which will be reported on November 8, are in line with yesterday's preview, this will likely be the only call we will have in regard to our 2011 third quarter.

Joining me this morning are Steve Johnson, McDermott's Chairman, President, and Chief Executive Officer; and Perry Elders, our Senior Vice President and Chief Financial Officer.

Before I turn the call over, let me remind you that this event is being recorded, and a replay will be available for a limited time on our website. In addition, considering we have yet to finalize our financial statements for the 2011 third quarter, most of our comments this morning will include forward-looking statements and estimates, including with regard to our preliminary 2012 outlook. These comments are subject to various risks and uncertainties, and they reflect management's view as of October 27, 2011. Please refer to our filings with the Securities and Exchange Commission, which are available on our website, including our Form 10-K for the year ended December 31, 2010, subsequent Form 10-Qs and yesterday's 8-K, for a discussion of the factors that may cause actual results to differ from management's projections, forecasts, estimates and expectations. And please note that, except to the extent required by applicable law, McDermott undertakes no obligation to update any forward-looking statement.

I will now turn the call over to Steve Johnson, McDermott's Chairman, President and CEO, for his remarks on the third quarter preview and the business and operational environment.

Stephen M. Johnson

Thanks, Jay. Good morning, everyone. Obviously, I wish we were speaking under different circumstances, but I do appreciate you joining us today, particularly on short notice to discuss the earnings preview we issued last night. My goal this morning is to be as open and direct with you as possible, to speak to the quarter's expected results with as much detail as we can and answer as many of your questions as time permits.

As we indicated in the press release, the 2011 third quarter will be disappointing from an income statement perspective. While the vast majority of our projects and backlog performed very much in line with our expectations, we had a handful of challenges on certain marine projects that resulted in significant project charges for the quarter in the neighborhood of $50 million.

In addition, a few other projects had timing issues and revisions to their expected profitability at completion, which will result in gross margin recognized in the third quarter at a profit percentage below the gross margin we expect for the entire project. Without these charges and adjustments, we anticipate the quarter would have been much more in line with expectations.

Of the challenges this quarter, each project had unique reasons for why the issues occurred or are expected to occur. While I don't plan to discuss each project specifically, let me start with some good news. Of the projects that contributed to the expected $50 million of project losses in the 2011 third quarter, all but one are now complete or expected to be complete by the first half of 2012. This should provide some confidence that we don't expect a bunch of problem projects lingering into the future.

In addition, we believe that some of the project losses we expect to report this period may merit claims or change orders in the future from insurance, suppliers or customers. Despite this belief, however, as required, we will record the entire expected project losses in Q3, and should we recover monies at a later date, we would recognize those amounts then.

Two projects I'll spend a little time on are in the Atlantic segment and represent about 75% of the expected $50 million charge. The first project relates to an upcoming multiyear vessel charter contract. I highlight it for 3 reasons: One, it will represent just over half of the expected $50 million charge; two, the marine operations under contract haven't begun yet; and three, since we're delayed in beginning the project, we've accrued liquidated damages. So let me start at the beginning on this project.

In advance of beginning a multiyear charter in Brazil, our Agile vessel began a drydock and upgrade program at a shipyard in Holland in February of this year. After the program began and the ship was opened up, we discovered additional work that needed to be done beyond the original scope. In addition, we were receiving frequent updates on the customers' requirements for the vessel. This led to some cost overruns on the drydock upgrade program, as well as delays coming out of the shipyard. However, the vessel completed its sea trials in September and left the shipyard headed for South America thereafter.

A few days after leaving the shipyard in early October, the Agile began leaking fluids and had to turn around and go back into the shipyard, and is still there today undergoing repairs. We are currently expecting the vessel to leave the shipyard for the second time in early November and be on on-hire status in Brazil in January of 2012.

Additionally, we've also forecasted additional operating costs on this project during the charter period, resulting from an updated and more comprehensive review of the project execution plans that took place during this third quarter. The Agile project developments are clearly the most disappointing event of the quarter to me and the company.

The second project in the Atlantic segment is a pipelay project in the Mexican waters of the Gulf of Mexico and is expected to contribute almost $10 million in losses in the quarter. We were awarded this project in late April of this year and have only recently learned of a delay in beginning the marine installation campaign. This delay is due to a summer tropical storm, combined with customs clearance and site access issues.

Further, this delay moves the project into more adverse weather months. So we will necessarily continue to closely monitor the situation. However, our vessel has recently left the dock and should begin pipelay work this week. The job is expected to complete in January of 2012.

Now there were 3 other projects which contributed around $12 million to the third quarter losses, 2 in Asia-Pacific and 1 in the Middle East. The changes in these jobs related to specific third quarter events, primarily around marine activity, including items such as the loss of other bid work requiring one job to absorb a greater share of vessel mobilization costs; the failure on another job of a supplier's product during installation, requiring schedule delays and incurring liquidated damages; and on the final job, weather and productivity, which extended the duration of the marine campaign. One of these jobs is now complete, and the other 2 are expected to conclude in the first half of 2012.

So some may ask, did we get it all? What I can tell you is this, we've recorded everything we know and can reasonably foresee. Further, 4 of the 5 jobs are complete or near completion, and while the fifth job, the Brazil Charter contract, runs for the next 5 years, we have recorded everything permitted by accounting rules.

Let me, at this point, turn the call over to Perry to discuss in a little more detail our current expectations for the 2011 third quarter, as well as our preliminary outlook for 2012, and I'll come back afterwards for some of the operational metrics and business updates that we typically provide as part of our quarter's review. Perry?

Perry L. Elders

Thanks, Steve, and good morning, everyone. Total revenues for the 2011 third quarter are expected to be between $870 million and $880 million, an increase from both the sequential quarter, as well as the 2010 third quarter. The Asia-Pacific segment will prove to be the big driver behind the year-over-year increase as a result of increased scope and marine activity on a large EPCI project, which will more than offset the year-over-year decline in the Middle East segment.

As Steve discussed, expected project losses of approximately $50 million, as well as timing and POC adjustments on certain other projects, will significantly reduce our operating income and operating margin expected for the 2011 third quarter. Further restraining this quarter's results, we expect the lowest level of change orders and closeouts for the year in this quarter, including Q4. Considering these issues, we are expecting our operating income to be in the $30 million to $38 million range when we report in early November, therefore, with operating margins between 3% and 4%.

The tax rate this quarter will be higher than we have experienced recently, primarily due to limited, if any, tax benefit associated with project losses this quarter. Therefore, we're expecting a provision for taxes to be above 50% of our pretax income in the 2011 third quarter.

At the bottom line, we currently expect that net income from continuing operations will be between $6 million and $12 million or $0.03 to $0.05 per diluted share for the third quarter.

Turning briefly to our liquidity, our overall financial position remains strong -- remains sound. We ended September with over $600 million of cash, cash equivalents and investments. Also during the third quarter, we completed the amendment to, and extension of, our credit facility. We now have a 5-year facility, which was upsized at $950 million and has a lower ongoing cost than our prior agreement. As before, we currently only have letters of credit issued under our facility, and we sincerely appreciate the banks that participated with us.

In addition to providing the preview of our third quarter expectations, we also yesterday included a preliminary outlook for the coming year. As you know, we don't normally provide earnings guidance, but we did want to give you a sense that we don't currently expect this quarter to be indicative of how we look at 2012. In fact, Steve will provide some backdrop in a moment on our long-term enthusiasm for the marketplace, based on bids we have outstanding, which have grown significantly throughout the year.

While we currently expect full year 2012 to be an improvement versus full year 2011, we do expect the coming year to see a pullback in our operating margin, vis-a-vis our long-term product target range. We want to reiterate here that as indicated in our forward-looking statement disclosures, that these and the following comments about 2012 reflect our current expectations about future events and circumstances, including factors outside our control, and we undertake no obligation to update or revise these forward-looking statements, except to the extent it is required to do so by applicable law.

To give you a little more color, as we indicated in our press release, we believe revenues next year have a potential to remain at the record levels we're expecting in 2011. Consideringly, we will have realized over $2.6 billion in revenues through the 9 months of 2011, and we are expecting backlog roll-off in the fourth quarter to be around $900 million, we're indicating a potential for revenues next year somewhere around the $3.6 billion range. We've formed this expectation based upon about $2.6 billion, which we expect to drive from our current backlog, with the difference coming from awards on some of the bids currently outstanding, as well as change orders, drive-by work and other awards that may contribute to 2012.

Although we're expecting the top line to remain strong, we're currently forecasting our activity level in 2012 to subside, with lower levels of major marine activity, as well as reduced fab work in at least one region. It may seem counterintuitive that activity will slow, considering the exceptionally high level of bids outstanding. But there's a time lag between bidding, when we expect bids to be awarded and when we forecast work to begin. As a result, we currently expect in 2012 that the company will incur an increased level of fixed costs that are not expected to be allocated to projects, creating a drag on operating margins.

In addition, we expect we will have some revenue that equals costs as a result of a small amount of revenues from the lost projects, as well as from the project that remains on deferred profit recognition accounting. Taking these and other factors into account, we currently believe that 2012 will likely produce operating margins in the 7% to 10% range. However, our long-term margin's targets beyond next year remain unchanged, as we continue to see a strong level of work coming to the industry in the not-too-distant future. But we just don't expect to achieve that level consistently in 2012.

This pretty well summarizes our current expectations for the 2011 third quarter and provides the preliminary overview of 2012. Now I'll turn the call over to Steve to cover some of the operational and business discussion from the third quarter.

Stephen M. Johnson

Thanks, Perry. Clearly, our major purpose today is to get our current expectations related to the quarter preview and 2012 out to our shareholders and to the financial community, yet I also want to cover some of the other data from the quarter.

Bookings in the third quarter were relatively light and approximately $420 million. However, we believe this is predominantly timing-related. As most of the $3.3 billion in bids outstanding from the second quarter are still outstanding, and we've added another 50% to that level. So at third quarter's end, we had close to $5 billion in bids outstanding, and we're excited about this development. We started the year with $1.7 billion in bids outstanding. We've booked about $1.8 billion during the first 9 months of the year, and bids outstanding have grown to around $5 billion at September 30.

Our bids outstanding includes 2 large bids, representing just over half the total dollar amount, which are expected to be awarded in the first quarter of 2012. And although we believe we have offered excellent solutions at competitive prices to our customers on these bids, these are competitive tenders, and our capture of these awards is uncertain. Also as with any customer tender process, the timing of award can shift to the right.

Also of the September 30, 2011, backlog, approximately $312 million is from projects currently in a loss position, whereby future revenues are expected to equal costs when recognized. Additionally, as discussed, the company continues to have one project that we account for under our deferred profit recognition policy, representing approximately $145 million of the September 30 backlog.

The market environment is robust, and we've been busy in bid reviews and working with clients on our technical solutions to their issues, and we believe we're well-suited for much of this work. If you combine bids outstanding with backlog and target projects, all as of the end of the third quarter, we see a potential revenue pipeline, which is north of $20 billion. To be clear, competition remains tough in every market in which we operate, but there remain plenty of opportunities available. We seek projects that fit our unique capabilities, including marine, fabrication, EPCI and SURF. I can assure you that while in any quarter we may see spikes and troughs, the quality of our backlog is always paramount.

Now our activity levels during the 2011 third quarter were probably as soft collectively as we've seen in some time. We had under 3 million man hours in our construction yards during the quarter, which is about 20% lower than our next-lowest quarter of this year 2011. Likewise, our marine-work barge days were right at the lows we saw in the 2011 first quarter at 302 days. Both fab and marine were below standards for the quarter. The good news is we expect an uptick in both of these metrics for the 2011 fourth quarter. In both fab and marine, our Asia-Pacific segments saw the most activity and the Atlantic segment remained the weakest. So clearly, for the rest of 2011 and throughout next year, adding profitable work to our portfolio and executing on it will remain a top priority.

You know I've spoken the last couple of quarters about the underperforming Atlantic segment, and we continue to focus on cost structure and getting our operations in line with the opportunities that we see. While the third quarter will be masked by the project charges I've just spoken of, we otherwise would have begun to see some improvement.

However, our work isn't done. I think we pretty well indicated, we currently expect the company's overall activity levels to improve in 2011 fourth quarter, and we expect that our operational results will improve as well, both as compared to Q3. But I do want you to be aware that we're looking at additional cost reductions, primarily in the Atlantic region and some in corporate segments. And as such, we may have some nonrecurring charges associated with this restructuring.

I'll begin to summarize here, so we can open the call up to questions. Although I'm disappointed in our results this quarter and the timing associated with expected new work next year, I do remain quite enthusiastic about this business. We have a tremendous amount of work out to bid, and we're looking forward to seeing these projects begin to be awarded.

Most of the disappointing projects in this quarter are about to be complete in a few months. And while one larger project will remain, we believe we captured the expected cost to complete.

While our results have always been lumpy, I continue to believe that we serve the best end market in the industry, and it's expected to continue to grow, and not everyone has the reputation, the experience and the global footprint that McDermott does. And I believe we have opportunities in the years ahead to further serve our existing markets and expand our ability to serve. We'll continue to be disciplined in the projects we approve, the capital we spend and the returns we require. Please look for us to publish our actual results through a press release and on Form 10-Q on November 8.

And with that, operator, let's now open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Martin Malloy with Johnson Rice.

Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division

I was wondering if you might be able to address the competitive landscape out there? And if there have been any structural changes over the last year or 2 -- in what you see coming in the next year or 2 with a number of fabrication yards being opened in Southeast Asia or expanded and then Saipem's yard in Saudi Arabia opening up and some of your competitors having invested a lot in deepwater vessels in the last several years, a lot more than you all have. Is McDermott in a different competitive position or at a disadvantage versus where it was 3 or 4 years ago?

Stephen M. Johnson

Marty, let's begin with the facts, and you've cited a number of them. It is true that some of our competitors may have and surely have invested more in both fabrication and marine on the fabrication side. It is correct, there's a new fabrication yard in Asia-Pacific, in the Middle East, there's a newer fabrication yard in Saudi Arabia. On the marine side, that story's been told in a number of vessels with fast speed, flexible lay vessels, et cetera. I'd argue this: We are probably, for reasons discussed in the past, in a bit of fast-follower position. We invested in late 2009 and are investing now and continue to invest in renewing our fleet through the North Ocean vessels. We've got 1.5 of them, the half of the one I speak of is coming to work the middle part of next year. We continue to look at other vessels for the purposes of meeting the competition. But more importantly, having better technical capability than those we talk about in the competition. And we may be later than others, but we anticipate and expect to have better-quality, higher-spec vessels to do the work. On the fabrication side, we have talked about further investment in the Middle East through a potential fabrication yard for modules due to the opportunities we see in the Emirates and potentially other places in the Middle East. We talked about a Brazilian fabrication yard which, we fully intend to move forward on, if we are successful with programs -- bidding programs down there. We are very geared towards just-in-time investment. Now to the sense of your question. Are we competitively disadvantaged? My view is no. My view is the events of this quarter are very specific, related to project issues that have very little to do with competitive pressures. They have to do with the unique circumstances post-award. And the larger view I would have is, I believe our strategy will serve us well into the future as we think about when to invest and where to invest marine versus fab versus engineering. I hope that's useful to you, Marty.

Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division

Yes, it is. Just one follow-up question. On the marine side for next year, I was a little bit -- I was surprised at the commentary regarding the lower marine utilization, when you're going to have the 102, the 105 and the DB50 coming out of drydock. Can you talk a little bit more about the situation for next year? And is there opportunity to increase the vessel days, perhaps, as we move through next year?

Stephen M. Johnson

Why don't we let Perry begin with that one?

Perry L. Elders

The direct answer is yes. There is opportunity, and specifically on those 2 vessels you referenced, it will be the latter half of the year before they're available. The 50 and the 105 come out of their respective yards kind of late Q1 or early Q2, and then will go through some trials and fit-out processes. And so, those 2 key vessels won't be available for significant revenue-generating work until the second half of the year. So -- but looking at what we currently have booked and what we can reasonably forecast, we see a fairly low utilization year, but there is some opportunity to improve that, should we pick up additional work.

Operator

And our next question comes from the line of Andy Kaplowitz with Barclays Capital.

Andy Kaplowitz - Barclays Capital, Research Division

If I look at your backlog, backlog at Atlantic is fine. It's going up. Backlog in Asia Pacific is relatively flattish. Backlog in the Middle East has come off pretty considerably this year as you burn work. So maybe, Steve, you could talk about the Middle East region. Have there things -- has there been things in this region that have slipped, and as you look into 2012 that has caused more issues than maybe you expected? And there's this is long-term agreement that you have with the Saudi Aramco. Have you not done as much work, maybe, as you thought you would get there?

Stephen M. Johnson

A lot in that question, Andy, I'll give it my best shot here, specifically related to the Middle East. The folks on the phone and listening in would be aware that last year, we pursued 2 major programs in the Middle East, one in Qatar and one in Saudi Arabia, what we would call elephant programs. We were not successful with either one of those programs for reasons discussed several times before. The short version of those -- of that answer, is we were disciplined with what we thought we should have in terms of risk-reward profile in those jobs. We thought and still believe we had the best technical solutions for the customer. In one case, we had a North Asian competitor come in and take that project, as advertised, below our cash cost, and I will forever not apologize for not winning that job. We wouldn't want that job for our shareholders below our cost. The second project was in Saudi Arabia, and that program was won by another competitor, largely related to a low-cost bid as well. And I wouldn't say where it was related to our cash cost, but significantly lower than our cost. And because they had leveraged a Saudi Arabian fabrication yard, and as it turns out, our understanding is that much of that work can't be done in Saudi Arabia. It has to be done in other regions of the world. So with that as a backdrop, what's going on in the Middle East? It is a swale, it is simply a trough between where we were, the bidding activity, and the bringing on of new backlog. If you add to that what's going on in the Caspian, as we talked about before, we had tremendous success in years past in the Caspian. The cancellation of the Kashagan job by Shell last year clearly hurt us as it did any other competitor in the Caspian. Those projects will come back, and we're looking forward to 2012 for some projects in the Caspian. So it is simply a timing-related dynamic, as I look at it. We have, I think, one of the best, if not the best, one of the best, if not the lowest-cost fabrication yards in the Middle East. We've got absolutely fit-for-purpose marine fleet. We've got excellent engineering capabilities in the Middle East. There is no reason why we shouldn't be able to move forward as we get through this timing-related issue. It will be driven by the long-term agreement programs from Saudi Aramco that you mentioned, it will be driven by the UAE. So we're very, very positive about the Middle East.

Andy Kaplowitz - Barclays Capital, Research Division

Okay, Steve, that's fair. Maybe if I could shift gears to Brazil. Obviously, it's a relatively new region for you, and it looks like the custom reason before the Agile had problems was maybe change in the specs on your bid. And so how does this make us feel about Brazil as a region for you? I think we've all been concerned about this as a new region for you and whether you can make good money in this region. So I guess maybe you could talk about how this may be changes your thought process, if at all, on Brazil?

Stephen M. Johnson

I would say this about Brazil. I think we're very level-headed in this company about Brazil. We know what we know, and we understand that there are things we do not know about how to operate in Brazil. We've had this recent experience with our customer there having to do with the Agile and the changing of the specifications. While we anticipated it, we probably didn't anticipate the depth and the frequency that we were having to deal with. It does not change our interest in taking a strong position in Brazil, because we see few competitive pressures out there. There are some, to be sure, but we see our unique skill sets being able to be applied to that market. Now the broader issue is having just returned from Brazil a few weeks ago, it's challenged and the bidding process has some challenges associated with it. But we have and have demonstrated in the past an ability to build a project bidding strategy and a project execution strategy that is equal to or better than competitors anywhere else in the world. We've done fab yards in the Middle East 10 years past, we've done it in Asia-Pacific, we're doing it now in the Atlantic region, and we'll do it in Brazil. So I'm giving you the positive message here, but I will tell you underneath that is a great deal of study, a great deal of caution and a fair amount of time spent with our customer, our customers' representatives, understanding the market, bringing people on who understand this market, bringing them on the payroll in the company and putting them in leadership positions, so that we know how to go forward in Brazil. I'm not -- while I may be disappointed about the Agile, I'm not afraid of Brazil at all, period.

Andy Kaplowitz - Barclays Capital, Research Division

Can we anticipate that you will change your strategy to adapt to the lessons learned from this bidding that you used the Agile on? I mean, that's the concern, right? That this is one of the first? And we're having some issues, I mean, can we -- are you going to change?

Stephen M. Johnson

Always, you use the lessons learned. The Agile is unique. It's a 5-year charter. It was about refitting a vessel to meet the requirements for the 5-year charter. It is emblematic of how our customer will behave. So yes, we will respond to that, and we will look forward to meeting those challenges on fabrication and in engineering and on EPIC. So the answer is absolutely yes. But the Agile is one data point, and the one data point doesn't change an entire strategy and certainly doesn't back us away from Brazil.

Operator

And our next question comes from Jamie Cook with Crédit Suisse.

Jamie L. Cook - Crédit Suisse AG, Research Division

A couple of questions. One, I know you said the majority of the projects would be complete first by the first half of 2012. Can you just give us on a percentage basis where the big projects are? My second question is sort of follow-up to what Andy's asking, Steve, but we had sort of 5 projects that sort of went -- that had issues all in one quarter. It's a big number of projects for a company like yourself, and you're saying it's not the competitive environment, it's unique circumstances. So specifically, what did McDermott miss? And then my last question, I'm just trying to get a sense of how you're thinking about margins next year? I think you said there's $300 million or, I don't know, $300 million and change is going through the income statement at 0 profit. What about is there any way you can talk us through some of the other costs? You said there were some costs that couldn't be allocated to projects, just sort of the other things that would be, if you can quantify the other things impacting margins, and I'll get back in queue.

Stephen M. Johnson

All right, Jamie, we'll take this in 2 parts. I'm going to start with kind of what happened on the projects, to use your term, what did we miss? And Perry, if you would follow up with some more granularity on the numbers. The first thing I would observe is, yes, 5 projects in a given quarter is material for a company of this size. If you peel back the onion, you will find that it is largely circumstantial. As I reported in my prepared comments, one project had a unique circumstance where the flexible product on that project, as we were installing it had an issue. I don't know yet whether or not that issue will be able to be put to others, or it will be our problem, but those things happen on occasion where you have an issue in installing a product. Was it manufactured wrong? I don't know. Did we install it with inappropriate equipment? I don't know. Was there something damaged? We'll find out. Another project had unique circumstances having to do with weather, which extended the duration associated with the project. In fact, 2 projects had weather, which put us in reduced productivity and standby costs. Those are things that are unique to the project, they're unique to the circumstances, they are not endemic in the business. As I look at these projects and I look across them, as I look for a pattern of bidding or competitive pressures or I look at project execution issues that can tie me to some project execution issues, I don't find a pattern. What I find rather are unique circumstances related to these, and it is somewhat surprising that in one quarter, we have these on 5 different projects. Having said that, we have one project, the Agile, which we discussed at pretty good length here, which is unique and the most disappointing. And we had another, the job in Mexico, which is the next largest, which is related to weather. So Perry, why don't you pick up on Jamie's other question that had something to do with the $312 million expense.

Jamie L. Cook - Crédit Suisse AG, Research Division

And then also the percent complete on the projects?

Stephen M. Johnson

Yes, we've got them.

Perry L. Elders

I'll get them to you here. I'll try to handle it this way, Jamie, the biggest one, the Agile. Steve mentioned that it's just over half of the $50 million, it's almost $28 million. As Steve mentioned, that vessel is still in the yard in Rotterdam. We expect it will be in Brazil on location working in January. The contract there runs through to 2016. So of the $312 million, the largest amount of that, over $250 million of it, relates to the backlog on that contract that runs for the next almost 5 years. The next largest one that Steve mentioned was the job in Mexico that we incurred a $10 million loss on, and that one is expected to complete in January. And it is in progress, and we're working as we speak. Much of the cost overruns on that one were incurred getting ready to work because of weather delays getting out into the fields we're working now. The other 3 projects that Steve mentioned, 2 in Asia, both in Vietnam. One of those is now complete, the largest of it 6 -- just over $6 million of the loss. That job is now complete and behind us. The other Vietnamese job is expected to be complete. That's the one where Steve was mentioning the product challenges from a vendor-supplied product. That one, we expect to complete by the end of the second quarter next year. So on that one, we delivered 2/3 of the capacity that the contract called for us to deliver to the customer. The challenge that Steve mentioned relates to the remaining 1/3, and we expect to complete that by mid-next year. And then the final project, which is in India in our Middle East Group, was candidly not a problem with that project. We had originally estimated that we would mob one of our vessels, the DB101 and have 2 jobs to work on. We lost the second job, and so all of the costs of the mob and the demob, we lost that second job this quarter. So all the costs had to come into this job. So there was really no execution issues per se on the job. It was the way we allocated the costs of the mobilizations. That job is expected to be completed in January of 2012.

Jamie L. Cook - Crédit Suisse AG, Research Division

Okay, and then sorry just last on the margins.

Stephen M. Johnson

Yes, the margin guidance for next year. So as you can tell, of that $312 million, most of that will not burn off in 2012 because most of it relates to that Agile contract. So -- but there is some piece of this $50 million-ish range, that will burn off over Q4 this year and into 2012. So it will have a minor dilutive effect on $3.6 billion of revenues next year. In addition, we continue to have the drag-on margins next year of the projects that's on deferred profit recognition through our FloaTEC JV. So those kind of exacerbate the margin dilution for next year, but they're not the principal drivers for low margins next year. So just to clarify, hopefully, that helps you understand how the $312 million affects margins next year. The real margin effects next year is utilization of vessels that we talked about. And in one case, our Batam yard is expecting lower man hours of utilization in the fab yard. So those are the principal reasons for margins being down, and it's because of this bids outstanding, if we're awarded these jobs, there's very little of the jobs that will begin work in 2012.

Operator

And our next question comes from Steven Fisher with UBS.

Steven Fisher - UBS Investment Bank, Research Division

When I think about execution risk, typically, it's been the bigger projects that you're worried about. But really, there was no mention of Karan and Safaniya, and really, I guess a passing mention of Papa Terra. So can you just discuss how those projects are going?

Stephen M. Johnson

On Karan and Safaniya in the Middle East, my comment would be on Karan, while we've had some productivity challenges in the fab yard, we expect that project to produce the results that we had planned. These large projects have these kinds of challenges as you go forward, but we don't expect anything out of the ordinary. Safaniya is actually going very well, and seeing nothing on the horizon that management is aware of to indicate any issues there. Papa Terra, we did give a glancing comment about that. That project, through our partnership has its unique challenges related to having a partner. It has unique challenges related to being in Brazil. We have some scheduled challenges in the fabrication side, but we are at a point where we can see our way through the completion of the fabrication. Our goal is to get the fabrication done with the topsides, as well as the whole. So that the marine campaign can begin as planned. And I wouldn't signal any particular problem there, it is tight. But so far, so good on all 3 of those projects.

Perry L. Elders

If I could just complement Steve's -- to add on, from a financial POC perspective, the Karan project was almost 90% completed at the end of the quarter. Safaniya is early stages, around 15%, and the Papa Terra project is around a 0.0025% complete.

Steven Fisher - UBS Investment Bank, Research Division

Okay. And so Papa Terra when you get to that 70% mark, and you're still expecting to start recording profits as you originally anticipated?

Stephen M. Johnson

Well, that's our policy allows us to start recording profits at 70%. I will tell you that we will take a look at it at that time. We'll understand where we are as against the plan, where we are as against change orders and the like and make the call at that time. But yes, we do have the right under our own policy to begin recording profits at 70% complete.

Steven Fisher - UBS Investment Bank, Research Division

Okay. And then on to the margins. I mean, how should we think about this long-standing 10% to 12%, now that we're staring at about 7% to 10% for next year. I mean, does 10% to 12% really just only refer to an as-sold margin on projects, really exclusive of overhead utilization?

Perry L. Elders

No, it's not really the as-sold. It does factor in the overhead utilization. And as we've mentioned in our prepared comments, we still expect to get back into that range beyond 2012. And our view about that is there's a small portion of the backlog that would burn beyond 2012. But it relates to the bids, it relates to the nature of the work in terms of the opportunity for change on those bids and the expectation of the utilization levels in the fab yards and the marine vessels based on kind of a certain assumed successes on the bids outstandings and target work. So it does include absorbing the G&A overhead, as well as the, what we call DOE in the yards, which is the direct operating expense in the yards. So that does include both of those.

Steven Fisher - UBS Investment Bank, Research Division

Okay. And then just one quick numbers question. Can you give us the regional breakdown of the $5 billion of bids outstanding? And when, I guess, do you expect those 2 big ones to be determined?

Stephen M. Johnson

I'll answer the last one, Perry, as you're looking for of the numbers on the breakdown. The 2 large projects that we mentioned, our expectation is those would be a decision by the customer in Q1 of 2012. I couldn't give you any more granularity than that. We do have a third one in that pipeline, but we have not bid that project from a commercial standpoint yet. We've only put in our bid for qualifications and technical submittal. So we've got 2 in the first quarter and maybe 1 that goes on into the second quarter of next year, Stephen.

Perry L. Elders

Great. On the numbers, of the $5 billion bids outstanding, about $3.3 billion is Asia-Pacific, just over $800 million in both the Atlantic and Middle East regions.

Operator

And our next question comes from the line of Joe Ritchie with Goldman Sachs.

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

So I guess my first question on the Agile, I'm trying to understand who the responsibility falls under for actually upgrading the vessel during the drydock? And whether that falls under your demand of responsibility or if there's a potential for you to recover some claims from subcontractors that are actually doing the work?

Stephen M. Johnson

Yes, it is McDermott's responsibility to refit and outfit the vessel in accordance with the customer's requirements for this charter campaign. And during the pendency of that refitting, the customer is on board, giving directions as to how we need to proceed the work as well as what the ultimate refitting should look like. The shipyard is involved, of course, doing the work. There are subcontractors involved. There is this issue of our having done the sea trials and sailed away and found that we had a problem that caused us to bring it back to the shipyard, which could, depending upon our discovery work, which is not yet completed, put us in a position where there are claims where we could see some benefit in the future. So I would say there is some likelihood that there are third parties that we will have to engage, as we think about the diagnostics on the overall upgrade of the vessel, and as well as the issue that we had with the propulsion systems after we sailed away. And I think the latter would be more likely than some of the others, Joe.

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Okay. And I know that you haven't given a number, a percentage on what is feasibly recoverable from the issues that you incurred this quarter. It sounds like there was potential -- some potential recoverability from the result of the supplier failure on that one project. Maybe there's some recoverability here on the Agile. Just trying to see if there's any number that you could give us or any guidance that you can give us on what your confidence level is that you're going to be able to recover any of these breakdowns that you took this quarter?

Stephen M. Johnson

It's early days on doing the diagnostics on both the Agile and on the product failure or the installation of the product, and I wouldn't want to speak to it because there's a negotiation likely in the future here. Having said that, we're pretty darn good at identifying root causes. So the root cause analysis is ongoing now on any and all of these projects. Once those root causes are identified and the source of those causes are related to third parties, we're pretty good at putting claims in front of the responsible parties and negotiating an outcome.

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Okay, Steve. I know you just mentioned that the 2 large prospects that you've bid on are expected to be awarded in the first quarter '12, and you guys have also mentioned that you're expecting revenue to essentially be flat in 2012. How much of -- are you expecting both projects to be awarded to McDermott in order to meet your revenue targets for 2012 or no?

Stephen M. Johnson

I don't know that I can answer that question as we sit here today. I will tell you that both of these projects are quite large. I don't know that there's a great deal of revenue that flows through the books in 2012. So the question might be a little bit moot, Joe, and I don't mean to be offensive at all, I'm just thinking through this. There's just -- these projects are so large. This is engineering in the early stages and some smaller work. So they're not big revenue needle-movers in 2012. Perry, would you agree with that?

Perry L. Elders

Yes, absolutely.

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Okay. And I have one last question. Perry, can you talk a little bit about the timing of the restructuring charges and perhaps the magnitude of those charges?

Perry L. Elders

There are evaluations and decisions ongoing that could result in costs related to personnel matters, asset impairments potentially, as well as facility costs. I'm not in a position to announce those decisions or the quantification of them. But as it relates to timing, those decisions either have been made here in the early stages in the fourth quarter or will be made shortly, and we would expect those to be recorded in the fourth quarter.

Operator

And our next question comes from the line of John Rogers with D.A. Davidson.

John Rogers - D.A. Davidson & Co., Research Division

Just following up, too, on the large project bids that are out there. I understand the comment that it might have an impact on revenue. But what about on the cost side? I mean, if you win the projects and presumably your pre-bid costs would be spread out over the course of the projects. If not, would they have a significant earnings impact, especially in the first part of the year?

Stephen M. Johnson

No, our costs are recorded -- are incurred as we incur them...

Perry L. Elders

The sales costs are expensed as incurred. So those would not be spread out. But I think you mentioned engineering costs, the front-end work on that. That would be captured over the entire length of the contract, to be recognized under the POC, a portion of the revenues and the costs and is part of the guidance around a small part of revenues, a small part of those costs as well.

John Rogers - D.A. Davidson & Co., Research Division

Okay. So success on those bids are not -- shouldn't have a material impact on the earnings in the first part of the year?

Perry L. Elders

Yes. Certainly, not in the first part of the year. Those jobs, both, if won or either of them won would be kind of late 2012 execution and, thus, recognition.

John Rogers - D.A. Davidson & Co., Research Division

Okay. And then Steve, back to the -- some of the earlier questions about capacity in the market. You mentioned in some of the new equipment was mentioned coming into the market, new facilities. Is there anything else that you're aware of out there that's being planned or possibly deferred now by competitors?

Stephen M. Johnson

By competitors?

John Rogers - D.A. Davidson & Co., Research Division

Yes.

Stephen M. Johnson

Yes, we monitor that pretty closely, both on the marine side and the fabrication side. There are vessels that are still in production. We have seen it drop off new builds in terms of those that are being planned, as we look forward. There's still some that are in shipyards and being fabricated. As you know, we've got one in fabrication, still, and we are looking at others. So on the marine side, I think it's beginning to tail off a little bit, but that can change in any future quarter. On the fabrication side, we talked about a new fabrication yard by a competitor in the Asia-Pacific region. We talked about our 2 new fabrication yards, one in Mexico and I planned one that we're contemplating in Brazil. So I don't know how to add any more granularity to it, other than it is company-specific. But I think we're pretty close to where everybody is spending money, and our next wave will be oriented towards Brazil and oriented towards faster vessels in deeper water with Flex-Lay or combination capability.

John Rogers - D.A. Davidson & Co., Research Division

Okay. And I'm sorry, in terms of your final decision on Brazil, I know you've indicated the link to some project wins, but what's the timing on that?

Stephen M. Johnson

No change on that. Our decision on Brazil, I have indicated in the past, John, was by year end, and I still stand by that. The bidding for those projects dovetails with that decision.

Operator

And our next question comes from Tahira Afzal with KeyBanc.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

I guess my first question is in regards to, really, the installation side of your business. I guess looking at the 2 things that are really 2 factors that are impacting your business, obviously, deferred revenue from a percentage-of-completion method is obviously something that one cannot really hold against you. But in terms of the projects, project losses on the other things, in my view, would -- it seems like calling them circumstantial seems a little generous. Is this an operational risk we should be looking in your business, going forward, as always been there? And if you look back into 2008 when you did have installation issues because you very tightly scheduled everything, as you look at what's happened with Agile, specifically, do you feel that you have overextended your schedule, you haven't built in enough of a cushion for maintenance? And as we look at what's in your backlog on the installation side, could you comment to the extent you can on you, really, the kinds of cushion and productivity expectation you have in those and really how you're monitoring them like John Reese [ph] used to do in terms of joints per day?

Stephen M. Johnson

Yes, I'm happy to do that. I think the overriding comment, whether you agree, it's generous or not to say that these things are circumstantial, I don't know. But I will tell you as you drill into these projects and you look for an operational pattern that would suggest to me that we have an endemic issue or that we have overextended ourselves, my findings would say no. We do have circumstances which may not have been contemplated, that we should have contemplated, maybe we should have had additional contingencies, but that's as far as I could tell you that we have true fault on as we bid these projects. We are at fault for the overrun, right? For the whole thing. But the bottom line is, is there's nothing that's a pattern. There is nothing in there that I would say suggests that we have overextended ourselves in terms of, to use your term, joints per day, and there is none of -- none of that in pipelay here, none at all. This is related to other issues. There's no pipelay delay. There is no issue in terms of productivity in a fab yard. These are externalities for the larger portion of them related to weather, related to flexible product and the installation thereof. The Agile, which is the preponderance of the issue in the quarter at around half of it, the Agile is a unique circumstance where we have an older vessel that, once we opened it up, we found issues that we simply could not have foreseen. One could argue we may we may have had or needed to have had more contingency, and I would take that argument. The other would be, we had a customer whose demands were beyond what we had anticipated. So this is much more of a unique circumstance, Tahira, not related to the fundamental blocking and tackling in project execution, having to do with lay rates and productivity in a fab yard and solving for the best solutions with our customers. These are externalities.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

And I just have a quick follow-up to that, Steve. As you look at your businesses in Brazil, and our team spent considerable time with your peers in Brazil just a few weeks ago as well. Petrobras is considered to be, how I shall say, a fairly particular, a pedantic client. So as you have conversations on Agile with them, what is the first impression you're getting in terms of how understanding they are about the scheduling issues, et cetera, that you've had? And number two, in terms of the cost recoveries that you've talked about earlier, are you building anything in for Agile? That would be helpful as well.

Stephen M. Johnson

It remains to be seen, the response from our customer as regards the Agile issues and the delays, et cetera. Our first order of business was to get that vessel repaired and get her headed towards the work. The next step is the root cause analysis, which overlaps with what we're doing today. We're focused on getting the vessel working, but we're also doing a root cause analysis. And the final step is to work with our customer, and we have not initiated that yet, and that's because of the sequence of getting the information that we need to begin that process. So I have to tell you that, that remains to be seen. We do understand the nature of the customer that we're working with. And your second question, I apologize, Tahira, what was the last one?

Perry L. Elders

Flow in the contractor contingency, if I'm correct.

Stephen M. Johnson

Go ahead.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Basically, in terms of the cost recoveries you indicated earlier, how much are you assuming return back from Petrobras potentially as well but I think you kind of answered that.

Perry L. Elders

Yes, we haven't quantified it.

Stephen M. Johnson

Yes, haven't quantified it and simply don't know at this juncture.

Operator

And our next question comes from Blake Hutchinson with Howard Weil.

Blake Allen Hutchinson - Howard Weil Incorporated, Research Division

Just a couple of points of clarification and then kind of a bigger-picture question. I guess you've portrayed 4Q, at least, while we're here a kind of guidance mode, I'll take the opportunity to think about this a little bit. 4Q is more of a kind of business as usual quarter before we head into 2012. Would you care to reflect on where you think margins might be for 4Q? Should we be thinking more in that 10% to 12% range? Or will you make the immediate adjustment down to kind of the more 7% to 10% range?

Perry L. Elders

More of the latter.

Blake Allen Hutchinson - Howard Weil Incorporated, Research Division

Okay, that's helpful. And then just again a point of clarification, a lot of discussion around the Agile. Is there any -- understanding the client was part of the problem, it would appear, is there any contractual opt-out due to the late delivery date?

Stephen M. Johnson

I would tell you, I don't specifically know sitting here. I don't have the contract in front of me. There's always -- there's always an opt-out. That is not the direction we want to head with this thing. This is important for us to get this vessel to work and show what we can do. I think our best defense and our best posture with this customer is to put the vessel to work, and that's what we'll do.

Blake Allen Hutchinson - Howard Weil Incorporated, Research Division

Okay. And then just kind of delving into the realm of the hypothetical a bit here. You've portrayed the 2012 margin issue as a business that has a fixed cost structure that is waiting on better times. I think -- is there a danger in calling that out as a fixed cost structure in that we start to think McDermott can't get to the 10% to 12% margins, unless we have $4 billion-plus in revenue in throughput. Hypothetically, can you still manage to that margin? Are there still strings to pull on the cost side that if we were in a different world and things were softening, you still think you can get to a 10% to 12% margin? Just again, maybe more of just a discussion of up market, down market, that 10% to 12% is a good range for us to still be thinking about?

Stephen M. Johnson

Yes. We get it, we get the sense of your question. I would say that it is -- it's pretty clear to me that we have a number of levers to pull which will affect margin in the company, and they include not only the scale of the business, and that speaks to your larger project scenario, but it also speaks to -- well, the other levers include cost management within the business. If you look at the 3 reporting regions we have, we have 2 that are performing well, maybe performing differently than prior quarters, but performing well and one that's not. We're very focused now on getting the new work, as well as adjusting the cost structure in the underperforming units. So we can pull that lever. As I think about the base business and how the projects produce the earnings, it is almost agnostic to size. To me, it is the mix of projects and the timing of the projects related to any quarter, Blake. So I would say it almost doesn't matter to me, the size of the given revenue in any given year.

Blake Allen Hutchinson - Howard Weil Incorporated, Research Division

So we're just -- I mean, 2012 is very much a, we need to -- we need to maintain the fixed cost structure, given the market we see unfolding at '13?

Stephen M. Johnson

I would say yes, but remember, it's principally vessel costs which are -- we decided to divest in vessels. That is the fixed cost. The fab side, we can and do flex up and down. So [indiscernible]

John E. Roueche

Just look at the labor.

Stephen M. Johnson

Yes, principally, the vessel side.

Operator

And our next question comes from the line of Rob Norfleet with BB&T Capital Markets.

Robert F. Norfleet - BB&T Capital Markets, Research Division

Most of my questions have been answered, but just a few. I guess, Steven, the first question I have was, post the issue obviously that we have with the pipelay work in Qatar, where we obviously incurred charges back in '09. I thought in some cases, we had found ways to limit weather-related risk in contracts, either through building in contingencies and handing that down in terms of the way that this products are bid. Is that not the case or are there certain cases in which weather-related risk can -- in some ways, be parlayed to the customer, not just to the operator of the project?

Stephen M. Johnson

Yes. Well, obviously, the latter is more correct. There are certain situations where we cannot control or cannot lay off or otherwise cover off the weather risk. We did change our protocols for estimating weather and for our endeavors in terms of trying to get weather covered off through contract terms, through laying it off to other parties or otherwise dealing with it. We did change those, and I think that served us well. It is not universal to all projects, and these couple of projects we've got in the quarter here that have weather-related costs associated with them simply fell, because of the nature of the weather delays, simply fell outside of what we were able to wall off with the contract or estimated as a likely occurrence in the bid. So those are going to happen on occasion. I would say to you that related to this quarter's results, we will be looking at those projects and seeing if we need to adjust our bidding strategies around weather once again.

Robert F. Norfleet - BB&T Capital Markets, Research Division

Okay, great. And my last question is we just recently saw the government revise its tender policy to give Indonesian companies a price advantage in bid rounds, up to about 7.5%. Do you see other regions kind of adhering to a similar practice of increasing level of content and giving an advantage to their local base? And how do you see this impacting McDermott?

Stephen M. Johnson

Well, it impacts ourselves and all of our competitors fairly equally, if you're not Indonesian in the case you cite, or if you're not Brazilian and in the case of local content requirements in Brazil and in certain countries in West Africa. We're quite aware of the Indonesian situation. There are ways through this in Brazil where you see us partnering on the Papa Terra job with an existing fabrication facility. You'll see us do that kind of thing, if we decide to build the fabrication yard there. In Indonesia, you'd see us do a similar kind of thing to overcome the 7.5% penalty for not being Indonesia. There are ways around this, but I would say we're not disadvantaged any different than anybody else, and we have to deal with the regulations that are in place, and each one is unique and each one requires some thought around how to resolve the issue.

Operator

And our last question comes from Will Gabrielski with Lazard Capital Markets.

Will Gabrielski - American Technology

A couple of questions, just to follow up. In terms of your guidance or your commentary on revenue for next year, at flat with this year, which I guess would be in the $3.5 billion to $3.6 billion range, how do you get there? It sounds like the $2.5 billion of big projects wouldn't really contribute much next year. Do the other $2.5 billion have the potential to contribute more? Or is there something else that we should know about?

Perry L. Elders

Yes, there's a combination of things, Will. It's -- we see about $2.6 billion rolling off from the backlog. In addition to that, we have change orders on existing jobs that's not in backlog that could be recognized in '12. In addition, there's sometimes we call it drive-by work or book-and-burn work that comes up particularly on marine installation. And then some port, as you mentioned, of the bids outstanding could be recognized in 2012. A small part of the big jobs we talked about, but there's also revenues that could come from other bids outstanding in '12.

Will Gabrielski - American Technology

So if you look at that and that commentary and the language you used, is it fair to say $3.6 billion is somewhat optimistic or it requires a few things to move in your direction and 2012 has a potential to be a down-top line year? Is that the fair way to think about it in a more realistic prudent sense?

Perry L. Elders

No, I wouldn't say that. Look, every year that we go into, we don't have all of our forecast revenues in the bank. And so this is not an unusual circumstance at all. In fact, we feel pretty good about the fact that we've got $2.5 billion already booked. So we don't put a shadow on '12 at all from a volume-of-business standpoint and the likelihood of that. I mean, certainly things have to happen that we don't have currently in backlog, but that's not anything unusual for this year.

Will Gabrielski - American Technology

No, I understand that. I guess just to follow up on that, you had $2.6 billion, it implies you need to book and burn $1 billion next year, including Q4 this year when you could book some work. I know your typical 65-type percent burn rate, that would imply somewhere in the range of $1.5 billion of work for 2012 needs to be booked. And I just want to maybe emphasize the fact that $3.6 billion requires a little bit to go right. And estimates, therefore, maybe from our side, you don't need to go there right away and requires more than maybe you're letting on since that needs to go right. Is that too cautious on my point of view?

Perry L. Elders

No, I don't want to -- I probably said it all. I can't say...

Will Gabrielski - American Technology

Just because coming into the call, our consensus for next year was somewhere closer to $4 billion, and if you look at where your backlog is right now versus where it was last year and versus what you had in backlog now for next year versus what you had last year at this time for 2011, it would seem that getting to $3.6 billion felt like a little bit of a stretch to me or required a few things to move your direction. So following up on that though, of the other $2.5 billion outside of the 2 major projects you're looking at, the timing around those, is it similar over the next 6 months or is that still sort of a 4- to 5-quarter look at bids?

Stephen M. Johnson

That's more evenly spread. I would say a fair bit of that is Q4 and Q1. It is more weighted towards Q4 and Q1 than the remainder of 2012.

Will Gabrielski - American Technology

Okay. On the Brazilian project that you've talked about with the Agile vessel, is it now, are we going to look at the next 5 years that the contribution from that is going to come throughout a lower margin than what you initially expected?

Perry L. Elders

Yes, 0.

Will Gabrielski - American Technology

So all work that you haven't even booked yet will come through at that margin?

Perry L. Elders

No, no, no. We talked about Agile. The Agile was a loss contract. So it would come to a 0 margin in the future. I thought that's what you were asking about.

Will Gabrielski - American Technology

Okay. No, sorry about that. And then your CapEx for 2012, any sense of where that might shake out?

Perry L. Elders

We have ramped up CapEx in the last year. So it will probably be in the order of magnitude of 2011. We don't see a significant move.

Operator

There are no further questions at this time. I'll turn it back to Jay Roueche for closing remarks.

John E. Roueche

Thank you all again for participating with us today. And just in case we haven't made it perfectly clear, I want to remind you that this call included forward-looking statements, and I encourage you to see our SEC filings, including yesterday's 8-K for more information on these. And Keanna, this concludes our call.

Operator

Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may now disconnect and have a great day.

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