Working capital, current assets less current liabilities improved to a positive $78 million compared to a negative $320 million at year-end.

A substantial portion of current assets is closed to $1 billion in unrestricted cash, restricted cash and short-term investments. Shareholders equity improved to its highest levels since the first quarter of 2002.

McDermott consolidated backlog was $7.9 billion, up in total about $300 million from year-end with each segment reporting sequential improvement.

J. Ray had bookings over $600 million bringing to ending backlog to $4.2 billion. The bulk of the new awards came from a new multi-year marine project in offshore Malaysia.

J. Ray’s fabrication utilization was approximately 70% above its standard. The substantial activity in the Asia Pacific and Middle East markets more than offset the improving but still below standard average in Morgan City. Morgan City returned to profitability and is continuing to build momentum not only for traditional offshore market, but also in modules for the power market and other specialty work. J. Ray’s marine vessels were under their standard days as a result of the dry docking for a number of vessels.

In Power Generation Systems, BMW’s business produced strong results from $655 million in revenues generating a 6.6% operating margin.

- Compared to last year, B&W increased its backlog $350 million ending the 2007 period at $2.3 billion.
- The company has approximately $3 billion in bids outstanding so the markets remain robust. The projects the company is pursuing include numerous new and replacement boiler projects and large number of scrubber opportunities.
- The company recorded bookings of around $700 million for the new boiler projects and some environmental projects representing some of the larger awards.

The company has reached the termination agreement with Texas utilities for units 4 through 8. TXU made a final payment of $79 million with respect to these units in April, which concludes $243 million obligation for these five units.

Additional revenues of approximately $120 million will be booked in the second quarter related to these units. The company will receive a modest demand on these for ongoing storage of materials purchased on TXU’s behalf and the company has agreed to help them try to dispense for these materials on a commission basis. There has been an interest expressed in several of the units by other US utilities.

- The company completed the announced acquisition of Marine Mechanical Corporation. This company’s product is vertically integrated with BWXT’s components.

- The company has combined BWXT and B&W under a common operational management structure called the Babcock & Wilcox Companies.

Second Quarter 2007 Outlook

The company expects that at least $120 million of additional revenues will be reported reflecting the termination agreement signed in April on units 4 through 8, plus the company will receive revenues from ongoing work on units 1 through 3.

Fiscal 2007 Outlook

- The company believes that the 10% to 12% range is a reasonable ongoing range for off shore construction segment in the foreseeable future.
- Reported tax rate going forward will move around, depending on which segments and which regions are generating the pre-tax income, but the mid 20% range should be reasonable demonstrating one of the benefits of corporate structure.
- The company expects J. Ray’s marine activity to increase during the remainder of the year. New facility in Altamira, Mexico continues to progress and the company believes it will be ready to begin executing projects late this year. The company continues to pursue development of new facility in Kazakhstan as well.

Key questions from the first quarter earnings call conducted by McDermott International, Inc. on May 08, 2007.

John Rogers (D. A. Davidson & Co): You expect margins in the 10% to 12% range and you noted $40 million in closeouts. If you exclude that $40 million, you would still be operating at a better than a 15% margin. What is your run rate and is that a reasonable level?

Bruce Wilkinson: The company has given the 10% to 12% guidance looking at the long-term. The company would have to have a precipitous fall to come down to that level for the whole year which it does not anticipate. Change orders are potential repetitive phenomena that go on quarter-to-quarter throughout the life of a project depending on how it is developing. The closeout, if one takes a typical project for 30 months then there are ten quarters but it only closes out longs and sometimes that is all in one quarter and occasionally it is closed out over a two quarter period. When there is a closeout, if the project has been profitable throughout and the company does not have any of the contingencies goes out, that is where this up-spikes. When one is running at excess of standard hours and is running margins back to back there is always a chance of productivity slips. The first quarter is evidence that into running at this level and executing well and those things do not happen, the upside leverage is enormous. that remains a factor in McDermott’s business and the reason the company would not be so bold is that other factor remains that there is always a chance that when it is running at 8 million man hours in a 5 million man hour yard productivity that often does deteriorate, so far has not and so far the execution has been as expected.

John Rogers (D. A. Davidson & Co): Is the $79 million that you are going to collect for closing of the project with TXU profitable?

Bruce Wilkinson: That was a cash payment that closed out effectively $243 million of value in the units 4 through 8. When those were de-booked and when the company was advised they were not going forward, it de-booked them from the backlog and commenced in effect revenue and cost became one and the same. The company stops recording any profit because it has been advised they were going to be de-booked. There is potential for profit, which would occur in the second quarter, as to units 4 through 8. Units 1 through 3 would be different in the sense that they were not terminated nor were they suspended and so McDermott continued working on them in a more normal profit recognition scenario in the first quarter, but that will also continue in the second quarter and if they go forward or sold to a third-party it will continue do project exploration. The $79 million is not just margin but there are costs associated with that. That was final payment that the company received as part of that agreement and that money has been received.