Operator: Good day, ladies and gentlemen, and welcome to Q4 2012 McDermott International Inc. Earnings Conference Call. My name is Christine. I'll be your operator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer section towards the end of this conference. As a reminder, this call is being recorded.
I would now like to turn the call over to Mr. Steve Oldham, Vice President, Treasury and Investor Relations.
Steven D. Oldham - VP, Treasury and IR: Thank you, Christine. Good morning, everyone. We appreciate you joining us today as we discuss our results for the fourth quarter 2012 which were released through our press release and in Form 10-K yesterday.
Joining me on the call 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 turning the call over to Steve, let me remind you that this event is being recorded and a replay will be available for a limited time on our website. Additionally, our comments will include forward-looking statements and estimates. These forward-looking comments are subject to various risks and uncertainties and reflect management's views as of March 1, 2013.
Please refer to our filings with the SEC which are available on our website, including our Form 10-K for the year ended December 31, 2012 which provides a discussion of 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 the applicable law, McDermott undertakes no obligation to update any forward-looking statements.
With that disclosure, let me now turn the call over to Steve for his opening remarks.
Stephen M. Johnson - President and CEO: Thanks, Steve and thank you to everyone for joining us today. McDermott reported satisfactory results for the fourth quarter with consolidated numbers reflecting strong operating successes, albeit with some productivity challenges on certain projects which I will discuss later.
During the fourth quarter, McDermott reported net income of $40.5 million with earnings per share of $0.17 with our full-year net income of $206.7 million or $0.87 per share. Perry is going to cover our financials in detail. However, we are pleased with the results of our operations and our financial position entering the New Year.
With several significant projects awarded in the fourth quarter, McDermott had bookings of about $725 million and a book-to-bill ratio of about 75%. Our ending backlog was $5.1 billion. In December, we received a letter notice of a significant reward from a large customer in our Middle East segment under which we were authorized to proceed on a portion totaling less than 100 million which has been included in our year-end backlog.
However, under our conservative booking convention we will record the balance of the award into our backlog only when we are authorized to proceed which we expect to receive shortly. We expect the combination of backlog projects and this notice of award to generate about $2.6 billion of revenue in 2013, greatly enhancing our visibility this year. Perry will go into more detail on guidance later in the call as well.
Our bids and change orders outstanding grew meaningfully, ending the quarter at over $7.7 billion. It is the largest in memory for the company. This compares to $7.1 billion of bids and change orders outstanding in the third quarter and is about 57% higher than the $4.9 billion from a year ago.
To provide some more detail on the bidding and change order opportunities three projects are in the $1 billion range, about 12 are in the $100 million plus range, with the remaining 30 or so below $100 million. Consistent with the last few quarters, the majority of these bids relate to the Asia-Pacific and Middle Eastern regions. Of course, the timing of awards is never certain as we have seen our share of projects push to the right. However, we are anticipating over 90% of these 45 or so bids to be awarded over the next two quarters. While over half of our backlog relates to SURF projects the opportunities in our conventional business continue to be robust and a majority of our bids outstanding is for conventional type work. In addition, our list of target projects remains very strong at $10.7 billion at year-end. We expect several of these projects to be awarded over the next few quarters.
As a reminder, target projects are those that we intend to bid in the future are well-suited for us and that we expect to reach award within the next five quarters. So, if you combine bids and change orders outstanding with backlog and targeted projects all as of December 31, 2012, we have provided a revenue pipeline just below $23.5 billion, also a record level for this Company.
In addition, most of you know that we maintain a list of backup prospects that maybe considered forbidding as well. Maintaining bidding discipline and building quality backlog remains our primary goal. I've spoken to this many times in the past. We see continued strength in our end markets and are very encouraged by the amount of bids and targeted opportunities.
Thinking about recent announcements by others in this space, I would emphasize that adhering to our bidding rigors is paramount to long-term success in this largely lump sum turnkey business and short-term wins, even if they are elephants are not truly wins in my mind, if we can't execute the work with reasonable certainty and profitability. The better win is one where we have differentiated ourselves with creative solutions or have unique assets and resources to offer to our customers.
I'll turn the call over now to Perry to discuss in greater detail for 2012 fourth quarter financial results and at the conclusion of Perry's prepared comments, I'll return for additional operational and other comments and then we'll open the call to questions. Perry?
Perry L. Elders - SVP, CFO and Treasurer: Thanks, Steve and good morning everyone. As we reported total revenues for 2012 fourth quarter were $996 million, a $180 million or 22% above the 2011 fourth quarter. The increased revenues came from all our geographic segments. The COP Pipeline and Safaniya projects accounted for the bulk of the revenue gains in the Middle East segment. And revenue increases in Asia Pacific were driven by the Macedon project in Australia.
Gross profits in the 2012 fourth quarter were higher by $103 million or 130% as compared to year ago quarter. The improvement was primarily due to net decline of approximately $75 million in project charges across the segments included in the fourth quarter results of both periods.
At December 31, 2012 while six of the Company's projects were in a loss position, three had no material effect on the fourth quarter's results, and one was a subsea project in Malaysia. In the Atlantic segment, two fabrication projects were affected by low productivity and related cost estimate increases of $10 million. In the Asia Pacific segment, we benefited from reductions in marine cost on a project during the quarter, which was partially offset by charges of $23 million during the quarter related to increased cost estimates on the Malaysia project, which Steve will discuss later in the call.
SG&A expense increased by about $12 million in the fourth quarter to $60 million as compared to the 2011 fourth quarter, primarily due to increase in bidding activity. For the full year, SG&A totaled $206 million, a slight reduction from 2011. However, we expect our fourth quarter SG&A run rate to continue through 2013.
Operating income for the fourth quarter of 2012 came in at $77.3 million compared to $31.4 million from the comparable 2011 period. All segments reported improved operating results as compared to the 2011 fourth quarter. Operating margins this quarter were slightly under 8% and our full year operating margins were approximately 8.8% which was in line with our 7% to 10% guidance range for 2012.
In other income and expense line, we had an improvement of $4.8 million primarily due to foreign currency gains compared to the 2011 quarter. We strive to minimize FX impacts as a U.S. dollar reporting entity. However, as guided in prior calls, the accounting for foreign currency transactions continues to generate some lumpiness in our other income and expense line item due to the movement between the spot and forward rates on the valuation of our hedges.
Our tax provision in the fourth quarter of 2012 was $42.2 million, resulting in an effective tax rate of 49%. We were unable to recognize tax benefits associated with certain losses primarily in the Atlantic segment, but also in zero tax jurisdictions. Also, as we discussed regularly, our earnings are subject to various rates driven by tax jurisdictions where we're working. For example, several jurisdictions apply deemed profits tax to revenues regardless of profit or loss levels. Had these tax benefits and the foreign rate differential been more typical this quarter our effective rate would have been reduced by 27 percentage points for approximately $0.10 per diluted share. However, we expect these factors continue to drive our effective tax rate in the coming year into the 30% plus range with the rate dependent upon the jurisdictional mix of profits in the extent of unbenefited losses each quarter.
Net income after non-controlling interest was $40.5 million for the fourth quarter of 2012 or $0.17 per diluted share compared to the $0.04 we reported from containing operations in the 2011 fourth quarter.
Moving to the balance sheet, our liquidity position remained strong with 704 million of cash, cash equivalents and investments at the end of 2012, down slightly from the sequential quarter due to forecasted an announced capital growth investments.
In 2012, we invested 286 million in capital expenditures, an amount equivalent to the previous year. However, as we complete the build out of the Altamira yard increase the capabilities of the DB30 and the DB32 and make shipyard milestone payments on the construction of the Lay vessel 108 and the DLV2000 we expect our investment levels to be significantly higher over the next two years. Combining maintenance CapEx, which is expected to remain in the annual range of 75 million to 100 million with our ongoing growth initiatives, we expect total capital expenditures in the range of $400 million to $500 million during each of the next two years.
Working capital increased as anticipated primarily due to net contracts in progress and advanced billings and we expect working capital to continue to increase during the next year.
So, considering the investments in growth initiatives and forecast working capital changes on customer projects, the total cash, cash equivalents and investments is expected to substantially decline in 2013's first quarter.
During the fourth quarter of 2012, our debt position declined slightly to $103 million as we made the first of 17th semiannual principal payments toward the North Ocean 105 loan facility. As Steve mentioned, we're not chasing work just to keep our backlog full. We remain focused on targeting the right projects, ones where we can add value through credit solutions and maintain our bidding discipline.
As a result, there are times when our assets will be underutilized and we will have to absorb the fixed costs. We favor this discipline and seek to improve utilization through drive-by work in fast-track projects which maximizes our flexibility and reduces risk. As a result like was the case in 2012, we expect to have excess capacity in 2013, and this under absorption could amount to a 3 to 4 percentage point reduction in 2013 operating margins from our long-term expectations of 10% to 12%.
With that said, there are opportunities for margin expansion. If we're able to pick up drive-by work or if we're able to favorably resolve certain commercial claims and change orders with our customers. So, we expect to continue to see operating margins between 7% and 10% in 2013, which includes the negative impact of the expected losses in the Atlantic, which Steve will discuss.
From our existing backlogs and awards so far in 2013, we're expecting approximately $650 million to $750 million to roll-off during the first quarter of 2013, and expect to realize about $2.6 billion of revenues during the full year of 2013.
Looking at this booked revenue forecast combined with additional short-term work that we typically accrue throughout the year, we expect to see revenues in the range of $3 billion or perhaps higher in 2013.
Finally, we previously communicated our plans to sell three of our older vessels, the Bold Endurance, DB 16 and DB 26. We recently closed on the sale of the Bold and are in advanced stages of the sales process with a prospective buyer for the DB 26 with the potential to complete our sales soon.
Now, let me turn the call back over to Steve for his remaining comments.
Stephen M. Johnson - President and CEO: Thanks Perry. Just a few strategic and operational comments for you to supply some granularity. We continue on our drive to be a top tier player in the subsea market and we have been actively acquiring top talent in both subsea engineering and other important areas throughout the organization to support our growth in this area. We see attractive opportunities available in the North Sea particularly in subsea. To jumpstart our reentry into the market, we formed an alliance with Ocean Installer.
Ocean Installer has two vessels with another under construction that will complement our high spec faster transit vessels and allow us to exclusively pursue an execute projects together. Importantly, we feel good about our flee transformation. We are not the same McDermott as just a few years ago. Our new subsea vessels, the DLV 2000, the 102, the 105 and 108 clearly opened new markets for this Company and the upgrades to the DB 50, the DB 30 and the DB 32 offer significantly improved competitiveness and capabilities. Finally, we've made a strategic choice to sell our lesser utilized traditional barges and vessels and that process is well underway.
During the fourth quarter, we signed the shipyard contract for the construction of the DLV 2000. Based on our extensive study of the global offshore fleet, we believe are the DLV 2000 was designed with the right capabilities to perform the subsea work required by our customers' complex deepwater projects. And we believe the timing with completion expected in mid-2015 is optimal for the market opportunities that we forecasted when we did our build analysis. This vessel is expected to cost around $450 million and represents an important step in McDermott's subsea and deepwater strategic transformation.
Additionally, in December of last year, we reached agreement with a licensed Malaysian fabrication company to form a joint venture. Upon closing, which is expected later this year, the JV will be well-positioned to bid EPCI work in that region and especially in Malaysia where we can expand McDermott's traditional transportation and installation profile.
Our transformation is proceeding well and with the sizable number of projects on the horizon that are nearing the bidding stage, we're pretty excited about McDermott's prospects over the next couple of years. We're confident that these strategic moves are positioning the Company to win and to successfully execute work across our end markets.
In the interim, 2013 isn't without its challenges. As Perry mentioned earlier, despite the strong bookings last year, we see 2013 is a year with lower utilization than we've seen recently. With the exception of the expected award for the Middle East project, we expect most of our recently awarded EPCI projects to have profiles where significant portion of the revenue is expected to be recognized in 2014 and 2015. As evidenced by our revenue pipeline, I am very optimistic about 2014 in 2015 and believe they have the potential to be outstanding years.
I want to take a minute to discuss the projects that we're in a loss position at the end of last year and specifically why I believe these are isolated situations and are not representative of our business as a whole. Two projects comprise 80% of our projects in backlog that are in a loss position. One is well known to you. It is the continued burn-off of the five-year agile charter and I'm pleased to report that we did not incur charges this quarter related to that charter or at all during the full-year 2012 and that that vessel has performed very well oftentimes exceeding the expectations of our client. The other project is a Malaysian project that includes a marine campaign for the North Ocean 105 vessel involving four rigid pipelay trips and one flexible and umbilical trip. It is currently planned for execution in the second and third quarters of 2013.
Based upon our recent experience in operating this vessel, we increased the time estimates required to perform those installations of subsea equipment and to convert the vessel from rigid pipelay configuration to handle flexible pipe both are required on this Malaysian project.
The new execution plan includes additional project days for the 105 and related support vessels resulting in the increased estimates or estimated cost to complete the project. So now that we estimate that our cost to complete will exceed our revenues, our total estimated loss was recorded in our fourth quarter results. However, we've been here before and know that there is potential to recover some or perhaps all of the loss in future quarters.
Turning to our Atlantic segment; the Atlantic segment continue to be challenged in the fourth quarter and as a result incurred an operating loss of approximately $30 million. In our Morgan City yard, we experienced losses primarily on two projects in large part due to low fabrication productivity. While not offering any excuses, productivity on the U.S. Gulf coast is affecting many construction projects including those of our competitors. In my experience, these issues on the U.S. Gulf Coast are cyclical and we are presently in a down cycle.
Also in the fourth quarter, we were very pleased to win our first major EPCI contract with work for the Altamira, Mexico fabrication facility for PEMEX. We have also been successfully executing low-risk rig repair business out of that facility. We're confident that Altamira will be the premier fabrication facility on the Gulf of Mexico with deepwater sea side access for float overs and with cost advantages over our U.S. competitors. We will continue to invest in that facility on a just-in-time basis, and we're pleased with the new work and expect both productivity and cost competitiveness to help us in the long-term.
We previously implemented various cost reduction measures in our Atlantic segment to better align our operations with anticipated business levels. However, we continue to evaluate and may implement further changes to the operations of this segment.
Moving to the Papa Terra project in Brazil, which is a project accounted for, using deferred profit recognition we are now targeting early fourth quarter 2013 for the commencement of the marine installation scope for our 50-50 joint ventures contract and a related sub contract for the completion of the full field development.
However, as has been in the past, this is a moving target and there could be further changes. But at this time we expect to mobilize the DB 50 to Brazil in the third quarter with work to begin in early fourth quarter. All discussion with our customer are ongoing and it's too early to predict outcomes. We don't expect such schedule changes to adversely impact our project estimates. We are now working to re-sequence project work for the DB 50 on other jobs in the Gulf of Mexico and Trinidad.
Additionally, we received – we recently completed the so in a project such so we and expected close out the remaining commercial and financial items in the Esso KTT Project successfully and expect to close out the remaining commercial and financial items in the first and second quarters of this year.
Getting back to the quarter, let me highlight our normally discussed operating metrics.
During the 2012 fourth quarter, our activity levels remained mixed. We were at about 95% of our standards in the fabrication facilities with almost 3.8 million man-hours worked. This is an increase of about 10% compared to the 2011 fourth quarter but a decline of 18% from the sequential quarter. Additionally, major work barge days declined significantly compared to the quarter a year ago at 153 days versus 475. Similarly, compared to the 2012 third quarter, barge days were also down 25%. Partially offsetting this lower level of work from our major construction vessel work barges, we saw increases in our multiservice high-spec faster transit vessels year-over-year and utilization consistently high compared to the sequential quarter.
In summary, we had a positive fourth quarter. Our backlog remains near record levels. Our pipeline of bids outstanding plus targeted prospects is the strongest in our history. We feel very good about our end markets. Our customers are pleased with our performance on their projects and we remain committed to our long-term growth strategy to better position McDermott as a leader in the offshore construction market.
With that, operator, let's now open up the call for questions.
Operator: Andy Kaplowitz, Barclays Capital.
Andy Kaplowitz - Barclays Capital: Steve, I know we all understand your cautious commentary on the Atlantic, but there is losing money and then there is losing a lot of money. And if you look at 4Q, even if you exclude the 9 million you are still talking about a pretty big acceleration in losses. So, maybe you can talk about that and then how you expect it to perform in '13. I know you said in the K that it's not going to be profitable this year, but then you said in the call about Papa Terra going into the marine by the end of the year. If you can give some more color on if 4Q is an anomaly in the trend or if things have gotten worse again?
Stephen M. Johnson - President and CEO: I would say this to begin, Andy. Let's start with the backend first, the backend of year that is. I remain positive about the potential to be profitable for the Atlantic segment towards the end of 2013. It is highly dependent on the Papa Terra marine campaign, it is also dependent on further cost management measures, it is dependent upon bidding discipline and a number of other factors including how we close out these projects in the Atlantic region that are currently being completed in our Morgan City fabrication yard, which leads me to another comment about the Atlantic region. I have a point of view that the Morgan City yard while very storied and excellent in terms of its history is challenged today and likely will be challenged for at least the short term here due to the lack of availability of greater numbers of qualified trades persons, and it's not just the McDermott problem. The charges on the projects that we mentioned in the call earlier are related to productivity in Morgan City. I believe that some of those productivity issues are related to what I mentioned, some of them are related to matters that we are able to put in front of our customers and get resolution on in future quarters. So this fourth quarter while significant loss is related to items that we see in those projects at Morgan City that may have recovery in the future, but there is at least a short-term endemic problem in productivity in the U.S. Gulf of Mexico. Last comment for you. We have been vigilant, I think, as all investors know with focusing on the end markets for the Atlantic region, focusing on the assets that we have and focusing on our costs and our bidding discipline that will continue until we have resolved the issues in the Atlantic region and I expect as I have in the past that to occur in 2013, albeit at the end of year.
Andy Kaplowitz - Barclays Capital: Maybe if I could shift gears and go to Middle East. You mentioned that budge days were down significantly in 4Q, maybe that is the reason why the margins were so low in 4Q, but we've seen margins go down in that region for like the last year and year and a half. And so, I guess, the question is have we hit bottom there, will the new Middle East job eventually help with utilization again, is pricing worst in the Middle East. Could you give us some more color on the Middle East?
Stephen M. Johnson - President and CEO: I think Perry and I can both help you there. First comment to make about the Middle East is I feel very good about where we are with Saudi Aramco under the LTA program and other major programs that are going on. I would tell you that year and a half or two years ago, many would recall, we were finishing out the close out of claims on our Qatar projects et cetera, which frankly juiced the margin during those periods of 2010, 2011. So, those have been exhausted and now we're working off of operating earnings. The new award which has not been fully completed will helps us in the long run. It will include usage of our vessels in that region. It's an epic type of program and I will tell you while I think it has come – I know it's come later than I expected, our share of the LTA program on the Saudi Aramco is as good or better than we had thought and the opportunities in Abu Dhabi although we haven't been successful, I would chalk that up to our bidding discipline. I'd rather not win those projects as other have won them and I would rather wait for the opportunity to win work in Abu Dhabi at the right risk return profile. Perry, you want to comment further about utilization.
Perry L. Elders - SVP, CFO and Treasurer: Andy, the only thing I'd say, I think we're going to have a good year in 2013 in the Middle East. The first quarter maybe challenging, maybe similar to the fourth quarter because of the projects that we're finishing out, but as you point out the work that we've got booked for particularly the back-end of '13 should allow us to see nice margins there.
Operator: Jamie Cook, Credit Suisse.
Jamie Cook - Credit Suisse: Steve, if you could just elaborate the projects that you issues within the Atlantic region and you are talking about labor issues at a lot of your peers. I mean, in your estimate, do you – I know you mentioned productivity issues, but do also assume in your forecast that labor costs are going up, because that's an issue that other people are having. So I guess my concern would be that we didn't factor enough cushion in there, and just how you'll manage through the labor issue longer term? And then my second question just relates to your margins. Sitting here again in the 7% to 10% margin range which is below your targeted range of 10% to 12%, you cited number of issues, but is there any reason structurally as we look out to 2014 why margins can't get back within the 10% to 12% targeted range? Is there anything structural going on or are the new types of projects you're going after when we think of deeper water and subsea, it won't allow to achieve those type of margins, because I'm just wondering at what point or ever if we get back there? Thanks. I'll get in queue.
Stephen M. Johnson - President and CEO: Thanks Jamie. We'll try to answer both of them as crisply as we can. With respect to the labor issues in Morgan City and the U.S. Gulf Coast, rightly, you observed that wage rates are an issue as well. I would say you put the basket of the following things and they have put pressure on our projects. Labor availability has negatively affected us. Labor productivity in terms of lack of the skilled labor workforce that we have had in the past has negatively affected us. The fact that there are a number of – the numbers of skilled labors that we need has caused us to work through a subcontracting labor approach where we are not direct hire and can't control the labor as well as we have when we had a higher percentage of direct hire, and wage rates. The competition for the skilled labor naturally creates wage rate pressure. Now, specifically, you said did we include all of those in our estimates. Factually, no. We did not predict the extent of the issue in that yard and in that area specifically on the rates and that was part of what has caught us in the position that we're in. At the end of the day, I will tell you our customers are working with us. They see these issues. And as you know under our rules we take these charges as we see them and estimate them. There is recovery potential in two if not three of those jobs that we mentioned in the prepared comments in the Atlantic region. So, there is a future quarter potential recovery subject to negotiations with our customers. Now, let's go to the second question, Perry.
Perry L. Elders - SVP, CFO and Treasurer: Yeah, on OI margins, the structural question – the answer is no. There is nothing structurally that would preclude us from getting back to the 10% to 12% range long-term. And as you know we have the (indiscernible) job already booked for the out years and this pending award in the Middle East will also help those years as well. So, we see pretty clear visibility to that much better candidly than we would normally have at 12 months and 24 months out.
Operator: Steven Fisher, UBS.
Steven Fisher - UBS: Last quarter I think you guys thought that utilization on the barges for 2013 will be slightly better than I think it was about the 50% you are expecting for '12. But it sounds like, and now you think it's going to be below the 2012 level. Can you just comment a little bit about what's changed since then?
Perry L. Elders - SVP, CFO and Treasurer: Steven, just want to make sure our comments were clear here. A couple things going on the barges, we had just below 50% utilization on the major work barges in '12. We're forecasting that the tick up in '13, but most of that is because we've taken some of the older barges out of the capacity. When we take that out it is then further mitigated by a bit fewer days on a couple of the vessels the DB 30 that worked almost full time in 2012 and as well as the 27. So, factoring those into the mix we're thinking that the major work barge utilization will be little north of 50%. So, a little bit better in '13.
Steven Fisher - UBS: So, your apples-to-apples is improving?
Perry L. Elders - SVP, CFO and Treasurer: Apples-to-apples, I would call it more flat because if you left those older barges in there we would be more closer to flat.
Steven Fisher - UBS: Then can you just give us a sense of how well the progress is going on both Macedon and Ichthys at this point?
Stephen M. Johnson - President and CEO: I'd be happy to do that. Macedon is a project that has been executed very well. We have achieved that project with the productivity rates that were expected with our installation crew and our installation vessels. We had one upset condition where that causes us to have stopped the work and come back and restart the work. There is about a 10 kilometer section of pipe that still has to be installed which will be started very shortly. But all in all, the Macedon project has been executed accordingly to plan, but for that one change, the crew and the vessel that did the work in my view has performed exceptionally well. That crew and that vessel are one of the major programs that will be repositioned for the INPEX Ichthys project that you mentioned. We have recently worked through the learnings on Macedon and a couple of other subsea projects or SURF projects and applied those learnings to INPEX Ichthys. Here a couple of data points for you on INPEX as you think about derisking the project. More than 90% of the procurement including the subcontracts of the total value of those have been positioned in a fixed-price way. We have engineering under way according to our revised schedule with our customer. The major subcontract with Heerema is aligned with that schedule and the planning for the marine campaign, I'm pleased to tell you has twice as long as any of our other subsea projects to get us ready for how to perform the work on a day-by-day basis. So, I consider that a whole series of derisking comments, and I'm really pleased that we're going to be using the same crew, the same vessel that we had on Macedon which was executed very well.
Steven Fisher - UBS: Just maybe to clarify, can you say what the impact of that stoppage on Macedon is going to be?
Stephen M. Johnson - President and CEO: It is still pending. We are in conversations with our customer. We believe we are in a good position under our contract terms and conditions, but I'll just leave it at that. Don't expect to have any further information on that for maybe a quarter or two.
Operator: William Gabrielski, Lazard.
William Gabrielski - Lazard: In terms of the commentary on the productivity on the Gulf Coast and I think you had said lack of good people or qualified craft labor. Can you just provide some color maybe on as you are bidding some bigger prospects in the Gulf right now that have a fabrication component and I think one did go out for bid a few weeks ago, whether or not you are not fully aware of this issue at that time. So, if you're winning work in the Gulf from here, we can expect you're using maybe current productivity and labor rates.
Stephen M. Johnson - President and CEO: Yeah, This is a learning organization here, Will, and any bid that has recently gone out for performance in Morgan City fabrication yard has clearly factored in the lessons and the knowledge from our recent experience there, I would confirm that. I would also say to you that fabrication work for our Atlantic region is also being positioned for being accomplished in our Altamira fabrication yard where we haven't experienced productivity deterioration, and we do have a labor rate advantage against the U.S. Gulf Coast fabricators, and there are no issues residual in terms of having projects for export meaning non-PEMEX work out of Mexico to be done or performed in that fabrication yard. But to be clear, we did submit a bid recently for performance in Morgan City and among the issues that we reviewed over a multi-tiered review process were productivity and labor rates in Morgan City and they have been applied to that bid.
William Gabrielski - Lazard: On the margin guidance range of 7% to 10% for the year. I am wondering does that include recognition of Papa Terra and then within that does that also take into account what you view as maybe probable of closeouts your incentives over those be on top of the 7% to 10% range you've given.
Perry L. Elders - SVP, CFO and Treasurer: Yes, it does include the Papa Terra at the end of the year. Yes, it does include closeouts and settlements that we can reasonably estimate. We don't see a tremendous volume of those in '13, but what we have line of sight to have been reflected in the guidance. So, we mentioned that there is a little bit upside. There will potentially on the closeouts and changes for '13, but don't think of that as a significant needle mover.
William Gabrielski - Lazard: Okay, but is it up year-on-year versus what you had in '12 just in terms of the closeouts?
Perry L. Elders - SVP, CFO and Treasurer: No, I would say it is very comparable.
William Gabrielski - Lazard: The equity income line moves around a lot and it's becoming maybe if it's in the second half of the year I think it's $0.02 of that of earnings versus the second half of 2011. I am just wondering what's driving that loss higher. Is it bidding work with FloaTEC or is there something else in there?
Stephen M. Johnson - President and CEO: Yeah, really equity line has been principally driven by our JVs in Brazil and China. So, I would tell you to kind of think about that as being a $3 million to $5 million hit per quarter until those ventures get more established in work flow and through them. So, kind of think about this run rate for '13.
Operator: Tahira Afzal, KeyBanc.
Tahira Afzal - KeyBanc: Steve Oldham did a great job of explaining last evening to me the differences between what you're doing in Malaysia and really the big Ichthys project that's coming up next year. But I guess my question is, as I look at some of the productivity issues you've seen across the board whether it would be in shallow water, deepwater and given the market or the macro outlook according to your sales you are going to continue to improve how should we've been looking at the risk for some of those projects which are going to be very key for you for next year? Have you gone back and really looked at those projects again in terms of the terms you have out there and try to reassess them in terms of the new market? Then number two, there seems to be some new competitors coming out from Asia for the first time on the offshore side. Are you going to be caught in the situation where you could potentially see cost going up by incremental pricing pressure as a consequence?
Stephen M. Johnson - President and CEO: We'll respond to both of them, Tahira. The first one with regard to the Malaysian and impacts or implication for the INPEX project in Australia, I am sure Steve did give you some background on that. Let me give you my take on it. The first thing to note is that project in Australia for INPEX is much more like the work scope for the Macedon project in the Northwest shelf of Australia in a number of different ways including the fact that the water depth and location are comparable at around 270 to 300 meter, whereas the project in Australia was significantly deeper at 1,350 meters in Malaysia, the point being that as you go to a deeper and deeper water depths, the challenges for the materials of construction how they are introduced to the water are technically more challenging. Second thing I would say to you is that the Lay Vessel 105 the learning curve in my view is way up that curve on the earlier projects. We will be using that in INPEX as I have talked about earlier and will be using the same crew. We took a strong look at the Malaysian projects, the Macedon project and all of our collective experience and wisdom including the new hires that we brought on board that are subsea technical experts and compared those criteria, work scope durations, how we are going to perform the work to the INPEX project and have gone through and exhaustive program to make sure that we have appropriately derisked the project. While I won't know until we're in the field and we have completed the work frankly how well that is going, I am pleased with that technical comparison, a lot of lessons learned, we're frankly blowing into the INPEX project, but only time will tell there. The best thing about this is we have a great deal of time to absorb that information from other projects and to put them into the INPEX project where we've got extensive float. Last thing I will tell you is, as you know, we've subcontracted it out in a fixed price way a major portion of that installation scope. So, on the next question, new competitors from Asia, margin pressures as result of that, my singular comment would be our discipline has to serve across those competitive forces. In recent times, we've seen undisciplined bids from a number of different quarters, not just for North Asia, and now some of those folks are responding to the market by saying they had put in undisciplined and inappropriate bids. We have been forcing ourselves to not follow those competitors down and we don't have any intention of doing that when we see newer competitors come in. What that will do is introduce a bit of lumpiness to some of the awards throughout the quarters, but it will help assure that the quality of the backlog is where we want it to be.
Operator: Martin Malloy, Johnson Rice.
Martin Malloy - Johnson Rice: Could you talk about first half versus second half of this year in terms of barge utilization. Is there a significant difference?
Perry L. Elders - SVP, CFO and Treasurer: For 2013, I think you're asking about Marty?
Martin Malloy - Johnson Rice: Yes. That's correct.
Perry L. Elders - SVP, CFO and Treasurer: Well, I'd first point out the DB 50 which was in Galveston during much of the first quarter, and then has some work put forward in Q2, but it has extremely busy second half of the year, on projects that are booked as well as a few projects that we expect to pick up before it goes to Brazil. And then, in Brazil, throughout Q4, but in transit to Brazil at the end of Q3, so that vessel alone will help utilization in the second half, but I would say it will be more backend loaded. The utilization on the high-spec fast transit vessels will be strong throughout the year.
Stephen M. Johnson - President and CEO: Let me add to this Marty – reading into your questions might be a little bit more granularity on not only the total quantum of vessels we have, but specifically the DB 50, which is in the Gulf of Mexico today. Looking at what we expect, we see four projects that are in front of or around the Papa Terra program which represent maybe 70 days of booked work for the 50. Then, you've got the Papa Terra project itself, which is fourth quarter, maybe in the zip code of 100 days of booked work. And then you have the transit days to and from Brazil which are paid under the Papa Terra project of about 60 some days. So, you add that all up, you get into a number which is pretty meaningful for the DB 50 which is good news for the Company and the investment that we put in here is attracting work. At the same time, we're looking for drive-by work as Perry mentioned earlier in his comments for the DB 50.
Martin Malloy - Johnson Rice: Then the North Ocean 105 and this Malaysia project, can you talk about – are there any follow-on implications from additional days being required to complete the Malaysia project that might negatively impact future work that was scheduled for the North Ocean 105. I think it was booked pretty solidly?
Stephen M. Johnson - President and CEO: Yeah, don't expect any – Perry any thoughts?
Perry L. Elders - SVP, CFO and Treasurer: I would say a couple of things. That Malaysia project what we're talking about is the job that we expect to finish in kind of the October time period. So, these are forecast duration extensions taking our learning. So, we go to get through that. Hopefully, we can do better than that. But the answer shortly is, no, Marty, we don't see any negative implications on follow-on work for the 105. We are very pleased with that vessel.
Stephen M. Johnson - President and CEO: I think important corollary answer is the performance on the Malaysian job. We've got the durations right and we've got that credentialed crew now. We're feeling pretty good that we've fully estimated cost to complete that project and hopefully have some advantage with the performance based upon the recent experience and then we released the 105 to go do other work.
Operator: Brian Konigsberg, Vertical Research Partners.
Brian Konigsberg - Vertical Research: Just following up on the questions of Papa Terra. So, in Q4, it sounds like you will hit that 70% mark. How do you or how much did you actually bake in of the profit recognition? Is it a lump sum as far as first 70% or is that going to be amortized over the next 30% in total?
Perry L. Elders - SVP, CFO and Treasurer: That will largely come in all in the four quarter assuming the execution schedule holds. Not only will we get to that 70% but because of Steve's comment about the DB 50, most of that will execute in the fourth quarter and some of it could lap over into early '14, but our current schedule would have that all executing, so you'd see it all in one quarter.
Brian Konigsberg - Vertical Research: Can you tell us how much you're baking in, in that margin estimate that you've provided? What the profit dollars from Papa Terra is contributing?
Perry L. Elders - SVP, CFO and Treasurer: I don't think we want to disclose individual job profits.
Brian Konigsberg - Vertical Research: Just also on your CapEx plans, obviously ramping up fairly significant over the next couple of years. So you do have a fairly large amount of cash on the balance sheet. You should have decent cash flow over the next couple of years. But do you anticipate that you'll need to raise any debts over the next couple of years because of timing reasons or maybe just to have more comfort of cash on the balance sheet?
Stephen M. Johnson - President and CEO: Look, Brian, what we have planned out is a program which says it is largely funded out of operating cash flow. It doesn't preclude that we would use other vehicles should we see the need to or that the judgment says we want to maintain a certain level of liquidity on the balance sheet and maybe make a modest capital raise of some kind or some kind of debt from other sources.
Operator: Robert Connors, Stifel Nicolaus.
Robert Connors - Stifel Nicolaus: So If I read these correctly just from the utilization rates, it seems like just in Brazil, you already have booked, inclusive of transit days, about 160 day. There's a potential for another 70. But I'm just wondering where the Trinidad and Williams project stand as far as – are those meaningful as far as on the utilization days for the DB 50?
Stephen M. Johnson - President and CEO: Yeah. The Trinidad job is roughly a couple of weeks of book days, and if I can just kind of give you some summary data points, we've got two Williams projects, a total of which is about 45 to 50 days for the DB 50, and those range in – they're generally Q2 and Q3 days, Robert.
Robert Connors - Stifel Nicolaus: So I mean, that's sort of, if my – sort of brings that vessel like close to somewhere around like 60% capacity just on the vessel days whereas we were not really seeing any right now in the first quarter of '13 because it was still in Houston, is that right?
Stephen M. Johnson - President and CEO: Yeah. It's largely been idle since the visit late last year, but getting ready for the (Arena) work, the Williams work, the BG work and then ultimately Papa Terra. So, remember, the transit days that I mentioned are inside the Papa Terra program itself in terms of being paid.
Robert Connors - Stifel Nicolaus: Then, just regarding that project too, I mean, I understand the deferred profit recognition is one thing, but just on a cash flow basis too, is – just wondering how that project is progressing – still cash flow positive within what you estimated?
Perry L. Elders - SVP, CFO and Treasurer: Yeah, we've been doing fine on that project, we got in advance early on and as the projects been moving along we've been fine and obviously with this delay it kind of strung it out a little here. Whereas we were expecting to execute that marine campaign in the Q4 of '12 will now execute it in Q4 of '13. But in terms of cash flow we are good.
Operator: Thank you. We have no further questions for you. I would now like to turn the call back over to Steve Oldham for closing remarks.
Steven D. Oldham - VP, Treasury and IR: Thank you again for participating today. And we invite you to join us on Thursday, May 9, 2013 when we plan to review McDermott's first quarter results. Operator, this concludes our call.
Operator: Thank you. Thank you for joining today's conference. This does conclude the presentation. You may now disconnect. Good day.