Bruce W. Wilkinson

Thanks Mike and good morning all. I am very pleased with McDermott''s second quarter overall, but it''s fair to say it played out differently than some of you might have expected. It''s somewhat the nature of the engineering and construction business coupled with the vagaries of percentage of completion accounting but most importantly it demonstrates the benefit of McDermott''s diversified energy EMC business. Since there is a lot to talk about in our segments this morning let me jump into the specifics so there will be plenty of time at the end for your questions.

Beginning with Offshore Oil and Gas Construction, revenues of $872 million were a quarterly record for the segment, but it was about $115 million below the amount we had expected to roll off from backlog. Operating income of $90 million in the Offshore Oil and Gas Construction segment was largely in line with what we would expect all things considered. The total amount was lower than we anticipated due to the revenue shortfall, but the margin was right in the middle of the 10% to 12% range we''ve consistently suggested. Since we beat this target range throughout 2007, the obvious question may be why didn''t we exceed it again this quarter and there are a number of factors contributing to this.

First, as we discussed in the last call, our 2008 backlog has more procured items and higher number of less risky cost plus and unit rate components in our contracts meaning that the portfolio of projects has changed. Secondly, we have been outstanding in managing material escalation like steel, but there have been inflationary effects felt elsewhere, namely fuel, labor, and subcontractors, which have eaten somewhat into our contingency that a year ago we were consistently harvesting to profit and now more of it is becoming cost. Third, we are positioning our offshore construction business for long-term growth, which means we are incurring cost today which are really longer-term investments, such as starting of new facilities in Mexico, China, Kazakhstan, and expanding our subsea construction business. Additionally, the benefits from change orders and other closeouts have declined thus far year-over-year and at the same time our SG&A has increased in the higher overall workload. Project closeouts do have their regular timing.

Finally, some of the project delays we have encountered have added cost to certain projects, such as extra marine days and also it potentially exposed us to penalties on some contracts otherwise known as liquidated damages. You probably noted we recorded about $4 million of these penalties in the second quarter of this year. The accounting for liquidated damages often increases the already lumpy nature of the EMC business. Frequently customers tell you verbally they do not plan to assess any penalty, our history will indicate they don''t enforce the charge. We also may have an offset to LD claims, such as contractually excusable delays. However, unless we get agreements in writing which customers are normally reluctant to provide until the project is complete, accounting rules usually require we record the expense once contractually incurred, often only to reverse the charge down the road. Typically though customers want an operational solution on delayed projects rather than simply charging liquidated damages. So, while there have been changes and various challenges occurring as I describe, Bob Deason and his team have not been sitting idly by. The group is actively addressing current execution issues, pursuing operational improvement initiatives for some of our projects, and working with customers to limit schedule driven penalties, pursuing growth opportunities, and adding new work.

We are far from alone in dealing with cost increases and schedule delays, but in spite of this we are still leading the margin pack. And truthfully, most companies in our peer group would relish having what I say may sound like challenging problems, if they could have our segment’s 11% operating margins this quarter while continuing to position for growth. I want to assure you that our eye is clearly on the ball, the market remains strong and I believe our customers truly value our work product as evidenced by over $800 million in new awards we recorded this quarter in the Oil and Gas segment. We had just over $2 billion in bids outstanding at the end of June, and our focus list continues to grow now to over $12 billion. At the same time, the backlog in the segment remains robust at almost $5.3 billion, which is right at our all-time high and provides us good visibility for the coming periods.

We also have a number of projects we believe will be booked in the backlog soon like the second phase to Saudi Aramco''s long-term agreement and there are also feed contracts in the backlog such as Barzan in Saudi that have significant future work scope opportunities, which we would hope to win. I''ve congratulated Bob and his team many times during these conference calls for the segment''s outstanding performance. In this oil and gas environment which appears to have a long cycle ahead, I believe the future remains bright for our Offshore Oil and Gas Construction business. Our praise of the results delivered by their team has been well deserved and I am confident you will hear more of it in the future.

Speaking of praise let me move on to the Power Generation Systems segment. This segment generated almost $700 million in revenues during the quarter producing record operating income, which resulted in near double-digit margins. They were truly hitting on all cylinders. There were a number of opportunities that we realized during the quarter including some project closeouts and settlements, improved contract performance with percentage of completion effect and timing benefits that make this level of profitability and margin above what we believe should be annualized. Such results are very much real and part of our business.

As Mike indicated our Power segment''s recent performance provides us the confidence to increase our expected target range for segment operating margins to the 7% to 10% range. Over this past year, you''ve heard me anticipate the operational efficiencies and potential for expense savings that would come from having the fossil and nuclear operating groups under a common management team. I believe this quarter we began to see the reality of my prediction. Certainly, mid-way through the year, our Power Generation''s business is off to a very good start.

With bookings of over $500 million in the second quarter, backlog grew over $200 million compared to a year ago, but was down modestly on a sequential basis. However, we still have about 2.6 billion of bids outstanding in the Power segment. These bids include several boiler projects for coal, waste-to-energy, and biomass, as well as the sizable number of environmental projects plus numerous bids under the 25 million size typically in the parts and services business. Customer decisions on some of these bids we believe were very close. We should be announcing soon at least two awards for the Canadian tar sands projects where we are assisting oil companies by providing steam systems that are needed for mining and oil extraction there. In addition, we expect to begin seeing an increased international award activity on the OEM retrofit and service side, which will be incremental to our strong North American market share.

Besides our segment''s exceptional results, the other major news recently announced was that the Washington D.C. Federal Appeals Court overturned the Clean Air Interstate Rule known as CAIR. This rule had been a major driver behind our scrubber and SCR business and at first blush it would be tempting to view the court vacating the rule as a negative. I don''t really view it that way. United States has never taken a permanent step backwards in environmental regulations to my knowledge. If anything, history says we only become more stringent.

One of three events is likely now to occur. The EPA could appeal further to the Supreme Court, Congress could take up legislation and pass a law to replace CAIR or the individual states will likely create their own rules. I believe that Congress would be the first to act considering the green move that most of the country remains in, and I fully expect that congressional restrictions will affect more states rather than just the 28 existing ones and might include more emissions perhaps, including CO2 and mercury in addition to dealing with SO2 and NOx and will be more stringent than CAIR possibly without a cap-and-trade approach. And we will have shorter implementation time lines in 2015. Between now and then it''s possible that short-term uncertainties could cause some CAIR driven project delays, which is primarily from merchant plants in the deregulated states, but I don''t believe there will be cancellations of projects mid-stream since utilities also recognize that the rule was overturned primarily because it wasn''t stringent enough and they recognize that a replacement law is coming. Many of our scrubber and SCR projects are driven by something other than CAIR such as the New Source Review issues or state regulation, which won''t be effected by the appeals court decision. For instance in July, we received a limited notice to proceed on the scrubber and SCR project that could ultimately be a very significant award to us, which is being driven purely by state regulatory issues.

Additionally, projects in regulated markets where the owner is pretty well assured of a return on investment probably won''t be impacted either. In total, I think in the not-too-distant future, we will be seeing an increase in our Power business as a result of new and more stringent environmental regulations. In the meantime, coal utilities continue running their older plants longer and harder. This is good news for our profitable parts and service offerings. Some of the plants that were previously forecast to be shut down in the near term are now likely to stay online as America needs the Power, which means additional retrofit opportunities become a future possibility for us. And I still believe that new generation utilizing our country''s most abundant natural resource coal is inevitable.

Like Mike, I am excited about the two new acquisitions for this segment, Delta Power and Intech, and I welcome these employees to McDermott. Wrapping up the Power segment, I want to congratulate the leadership and employees in this business for again delivering outstanding results we achieved this quarter.

Concluding with our Government Operations segment, our revenues in this segment during the quarter were over $225 million, 34% increase above a year ago. This revenue level was elevated by about 40 million in procurement contracts executed during the quarter, which we do have time to time. Like the Power segment, I am very pleased with the quarter and year-to-date results for our Government Operations business. Although we lost a couple of high profile M&O competition this year where we held the minority interest in the bid, there is still a number of good growth opportunities on the horizon. With the high cost of petroleum fuels and the current requirement for the Navy to maintain an extensive supply chain for refueling ports, there is a lot of discussion in Washington about potentially increasing the number and types of vessels that are powered by nuclear plants.

As we previously discussed, Congress and the administration have authorized the procurement for second Virginia class submarine, which should increase our awards in 2008. The cruiser program is also receiving a lot of discussion and consideration for nuclear power. We think this makes a lot of sense and we are working with Washington to show how McDermott can support such an initiative. We remain on a number of upcoming opportunities for our site management and operation offerings as well. Some of the sites are large and others are smaller but our goal remains to add to our experienced project which makes a difference. The outlook for this service offering remains strong.

Mike mentioned the planned acquisition of Nuclear Fuel Services, it''s a prefect fit for our Government Operations segment. It is part of the supply chain of our nuclear component work. NFS maintains an NRC Category 1 license as do we. They have a number of Department of Energy M&O sites that don''t overlap with ours. Typically, they are in especially nuclear operation support role to one of the larger players, and like us, we see increasing opportunities within the commercial nuclear market. It''s a natural fit and we''re looking forward to clearing the required approval processes and planning to close the transaction in late 2008. That wraps up my prepared remarks for operations.

In summary, the businesses continue to perform well. We have issues and opportunities within each of our segments, and our primary focus will continue to be on execution. A few words on the CEO search for my successor. McDermott''s Board is actively engaged in this process. When I announced my intention to retire last February of this year, I stated that my expectation would be that it would be achieved before year-end. I still believe we will meet that target. Whoever my successor ultimately turns out to be, McDermott is an outstanding enterprise. Bench strength is strong and our 28,000 employees are in my opinion the best in the industry. Our activities with investors will get into high gear again at the start of September. We are presenting at four conferences beginning right after Labor Day in September, running through mid-October, including twice in New York and once each in San Francisco and New Orleans. With several geographic options to choose from, we hope to see many of you at one of these venues. I will now open the meeting up for your questions.

Question and Answer

Operator