As we disclosed in the 10-Q, we are off schedule in a few projects including these three that could expose us to future liquidated damages. Other than a relatively small amount of approximately $20 million, we do not view the majority of the potential LDs is probable at this time. So, we have not reserved for it in our contract estimates. We are in active negotiations with the affected customers and we are looking to agree to a mutually satisfactory outcome.

I am confident that this experience will return us to better bidding, refresh data on what''s achievable and associated downtime to expect. I believe most customers still prefer their projects to be completed on schedule from a preferred, trusted, knowledgeable contractor that consistently delivers.

Considering the market conditions to be active going forward, as there is plenty of work available, I do not believe a more disciplined bidding approach on our part will create any issues. I also believe that we learn more from challenges and difficulties than from easy victories. These events exposed clear areas for improvement - weaknesses in the bidding and project process, bidding to better approaches going forward. By curing these issues, we''re going to be a much stronger offshore construction company in the future.

I should also remind you that ours is not a 90-day business and I also believe that McDermott is well positioned for the future. Yes, our Offshore Construction segment is large project-focused with a majority of fixed price contracts and as a result, its 90-day results will typically vary the most quarter-to-quarter. Our Government Operations business by contrast provides a very stable basic, consistent and repeatable work and our company''s largest customer continues to be the United States Government.
Our Power Generation Systems business has attributes of both segments, a nice mix of repeatable higher margin parts and service offerings combined with a large project-oriented portfolio. While I spent a lot of time this morning discussing the unusual period specific losses on the few contracts in our offshore business which we believe we have our arms around and have accounted for appropriately, it''s reassuring to note that McDermott continues to be profitable despite these projects.

In a period where many investors appear to be overly worried about the end markets of E&C companies, I very much value our positioning with our diversified customer base and portfolio which includes major projects and a base of repeatable business.

Now let me turn the call over to Mike, for a quick discussion of our financials and I''ll return for a brief overview of the markets and our other segments.

Michael S. Taff

Thanks John. In the 2008 third quarter, McDermott reported net income of $85.6 million or $0.37 per diluted share compared to last year''s $140.4 million or $0.61 per share. Obviously, the $90 million of project losses at the gross margin level in offshore construction, which John just discussed, is the main variant between the two periods.

Looking at the top line, revenues were almost $1.7 billion, approximately 26% above a year ago. This increase came predominantly from the Offshore Oil and Gas Construction segment, although it was again below what we expected from backlog roll off.

The reason we''ve been challenged to achieve our roll off schedule of late is primarily due to the issues John mentioned earlier. Our other two segments; Power Generation Systems and Government Operations, also reported revenue growth adding a combined $109 million to a year ago levels.

McDermott''s operating income was $92 million in the third quarter of 2008 compared to a $155.2 million a year ago. Segment income at Power Generation Systems and Government Operations increased a combined $44 million or 60% year-over-year, but the decline in Offshore Construction segment more than offset these improvements.

Our provision for income tax declined about $14 million, but it''s not really due to the reduction in our pre-tax income. Since our U.S. businesses were up in pre-tax income and they’re typically taxed at a standard corporate rate, and most of our losses occurred this quarter in low tax jurisdictions, our consolidated tax rate would have been higher except with number of benefits from the release of certain tax evaluation allowances and as a result of recent order activity. As most of you know, our tax rate varies quarter-to-quarter and year-to-year, dependent upon what taxing jurisdictions we are making money in.

Now a high level review from our segment finds. Offshore Oil and Gas Construction had a $19.7 million segment loss, its first negative result in a quarter since early 2004. Increasing our estimated cost significantly and taking the full expected loss on certain projects generated the $90 million charge at the gross margin level, which is before any G&A costs get applied to the projects. With over 20% of the segment''s current backlog now expected to earn no margin going forward, I would suggest as a result that you trim your margin expectations in this segment to the 6% to 8% range for the next four to five quarters, assuming no liquidated damages or further project deterioration.

However, based on the projects we are reviewing today, I see no reason however - longer term our previous target range can''t once again be achieved. It is important to note that excluding the Middle East region, the remaining projects in Offshore Oil and Gas provided margins in the quarter near the typical range for this business.

Government Operations had another strong quarter, with segment income of $34.5 million. Both our site management activities, which largely comes in as equity income and the manufacturer of nuclear components for commercial and government use continued to perform well. We also had more timing benefits on procurement contracts which brought forward about $16 million in revenues and associated profits.

Power Generation Systems is putting together a tremendous year, and had another strong quarter, far exceeding our own expectations with $84.4 million in segment income. Existing contracts in our boiler and environmental retrofit project portfolio continue to improve and we continue to see a high level of parts and service work, which is traditionally our highest margin business in this segment.

Last quarter, we increased our target segment margins to the 7% to 10% range and we''d still suggest that going forward despite what had been several quarters of exceptional performance.

Now turning quickly to the balance sheet. We ended the quarter with over $1.2 billion in cash and investments. Changes in working capital were the primary reason cash and investment declined about $100 million sequentially as we are working off some of the advance billings we built up. Despite the turmoil in the overall credit market, McDermott remains well positioned from a liquidity standpoint.

In addition to our solid cash and investment position, we have several years left on our existing credit facilities. We value our current liquidity and believe in these unprecedented markets that maintaining a conservative liquidity position is paramount. However, we will continue to evaluate McDermott''s growth initiatives.

The final issue I''ll mention is that while I generally believe our end market remain robust, we are not immune from the crisis on Wall Street. The largest risk on this crisis is to our pension plans. Through September, our planned assets declined about 12% and the markets are falling further through October. While our actuaries haven''t done all the required calculations, suffice it to say, that if these year-to-date declines hold through December 31, we would expect a sizable non-cash reduction in shareholders’ equity at year end and to incur higher pension expense next year as well. We will obviously update you at year end. But I wanted to highlight this now, as it will be an issue for all companies with pension plans.