Great Lakes Dredge & Dock Corporation
Great Lakes Dredge & Dock CORP (Form: 10-Q/A, Received: 12/23/2010 16:30:39)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q/A

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number: 001-33225

 

 

Great Lakes Dredge & Dock Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   20-5336063

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

2122 York Road, Oak Brook, IL   60523
(Address of principal executive offices)   (Zip Code)

(630) 574-3000

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ¨     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer   ¨    Accelerated Filer   x
Non-Accelerated Filer   ¨   (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

As of August 2, 2010, 58,686,637 shares of the Registrant’s Common Stock, par value $.0001 per share, were outstanding.

 

 

 


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GREAT LAKES DREDGE & DOCK CORPORATION

Form 10-Q/A for the Quarterly Period Ended June 30, 2010

EXPLANATORY NOTE

Great Lakes Dredge & Dock Corporation (“Great Lakes”) is filing this Form 10-Q/A to

(1) amend the presentation of Note 10 (Supplemental Condensed Consolidating Financial Information) for its Condensed Consolidated Financial Statements as of June 30, 2010 and December 31, 2009 and for the three and six months ended June 30, 2010 and June 30, 2009 to (a) create new columns that will contain financial information for each of the GLDD subsidiaries, Non-100% Owned NASDI, LLC (“NASDI”) and Non-100% Owned Yankee Environmental Services, LLC (“Yankee”), respectively, and (b) remove financial information for each of NASDI and Yankee from the column previously titled “Guarantor Subsidiaries”, and

(2) include (a) the Unaudited Condensed Financial Statements of each of NASDI and Yankee as of June 30, 2010 and December 31, 2009 and for the three and six months ended June 30, 2010 and June 30, 2009 and the related footnotes thereto; and (b) the related Management’s Discussion and Analysis of Financial Condition and Results of Operations for each of NASDI and Yankee;

all in accordance with Rule 3-10 of Regulation S-X under the Securities Exchange Act of 1934, as amended.

Additionally, in connection with the filing of this Form 10-Q/A and pursuant to Securities and Exchange Commission (“SEC”) rules, Great Lakes is including currently dated certifications.

Except as described in this Explanatory Note, no other portions of the original Form 10-Q are being supplemented or amended by this Form 10-Q/A. In addition, this Form 10-Q/A has not been updated for events or information subsequent to the date of filing of the original Form 10-Q, except in connection with the foregoing. Accordingly, this Form 10-Q/A should be read in conjunction with our other filings with the SEC subsequent to the filing of the original Form 10-Q.

 

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Great Lakes Dredge & Dock Corporation and Subsidiaries

Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the Quarterly Period ended June 30, 2010

INDEX

 

                 Page  
Part I    Financial Information (Unaudited)   
        Explanatory Note      2   
   Item 1      Financial Statements   
        Condensed Consolidated Balance Sheets at June 30, 2010 and December 31, 2009      4   
        Condensed Consolidated Statements of Operations for the Three Months and Six Months ended June 30, 2010 and 2009      5   
        Condensed Consolidated Statements of Equity for the Six Months ended June 30, 2010 and 2009      6   
        Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2010 and 2009      7   
        Notes to Condensed Consolidated Financial Statements      8   
   Item 2      Management’s Discussion and Analysis of Financial Condition and Results of Operations      25   
   Item 3      Quantitative and Qualitative Disclosures About Market Risk      33   
   Item 4      Controls and Procedures      33   
Part II    Other Information      34   
   Item 1      Legal Proceedings      34   
   Item 1A      Risk Factors      34   
   Item 2      Unregistered Sales of Equity Securities and Use of Proceeds      34   
   Item 3      Defaults Upon Senior Securities      34   
   Item 4      Reserved      34   
   Item 5      Other Information      34   
   Item 6      Exhibits      34   
Signature           35   

Non 100%-Owned Guarantor Subsidiary Financial Statements

     F-1   

NASDI, LLC

     F-2   

Yankee Environmental Services, LLC

     F-11   

Exhibit Index

     36   

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)

 

     June 30,
2010
    December 31,
2009
 

ASSETS

    

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 52,802      $ 3,250   

Accounts receivable — net

     134,967        153,901   

Contract revenues in excess of billings

     13,137        28,004   

Inventories

     29,494        29,192   

Prepaid expenses

     2,854        2,644   

Other current assets

     13,302        15,445   
                

Total current assets

     246,556        232,436   

PROPERTY AND EQUIPMENT — Net

     284,526        291,157   

GOODWILL

     98,049        98,049   

OTHER INTANGIBLE ASSETS — Net

     819        1,037   

INVENTORIES — Noncurrent

     25,537        27,662   

INVESTMENTS IN JOINT VENTURES

     7,090        7,943   

OTHER

     6,778        7,142   
                

TOTAL

   $ 669,355      $ 665,426   
                

LIABILITIES AND EQUITY

    

CURRENT LIABILITIES:

    

Accounts payable

   $ 78,532      $ 83,783   

Accrued expenses

     34,965        31,265   

Billings in excess of contract revenues

     27,090        24,901   

Current portion of equipment debt

     669        1,200   
                

Total current liabilities

     141,256        141,149   

REVOLVING CREDIT FACILITY

     —          11,000   

  3 / 4 % SENIOR SUBORDINATED NOTES

     175,000        175,000   

DEFERRED INCOME TAXES

     79,419        81,642   

OTHER

     10,868        12,086   
                

Total liabilities

     406,543        420,877   
                

COMMITMENTS AND CONTINGENCIES

    

EQUITY:

    

Common stock — $.0001 par value; 90,000,000 authorized, 58,671,956 and 58,542,038 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively.

     6        6   

Additional paid-in capital

     264,854        263,579   

Accumulated deficit

     (206 )     (18,336 )

Accumulated other comprehensive income (loss)

     (36 )     539   
                

Total Great Lakes Dredge & Dock Corporation Equity

     264,618        245,788   

NONCONTROLLING INTERESTS

     (1,806 )     (1,239 )
                

Total equity

     262,812        244,549   
                

TOTAL

   $ 669,355      $ 665,426   

See notes to unaudited condensed consolidated financial statements.

 

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Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share data)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  

Contract revenues

   $ 180,135      $ 142,455      $ 341,535      $ 321,658   

Costs of contract revenues

     145,546        113,897        276,462        266,063   
                                

Gross profit

     34,589        28,558        65,073        55,595   

General and administrative expenses

     14,266        11,591        25,226        21,990   

Amortization of intangible assets

     108        193        218        386   
                                

Operating income

     20,215        16,774        39,629        33,219   

Interest expense, net

     (2,995 )     (4,730 )     (6,215 )     (8,998 )

Equity in loss of joint ventures

     (131 )     (9 )     (853 )     (565 )
                                

Income before income taxes

     17,089        12,035        32,561        23,656   

Income tax provision

     (6,755 )     (4,631 )     (12,994 )     (9,802 )

Net income

     10,334        7,404        19,567        13,854   

Net loss attributable to noncontrolling interests

     474        27        567        891   
                                

Net income attributable to Great Lakes Dredge & Dock Corporation

   $ 10,808      $ 7,431      $ 20,134      $ 14,745   
                                

Basic earnings per share attributable to Great Lakes Dredge & Dock Corporation

   $ 0.18      $ 0.13      $ 0.34      $ 0.25   

Basic weighted average shares

     58,602        58,499        58,575        58,494   

Diluted earnings per share attributable to Great Lakes Dredge & Dock Corporation

   $ 0.18      $ 0.13      $ 0.34      $ 0.25   

Diluted weighted average shares

     58,781        58,554        58,748        58,521   

Dividends declared per share

   $ 0.02      $ 0.02      $ 0.03      $ 0.03   

See notes to unaudited condensed consolidated financial statements.

 

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Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

(Unaudited)

(in thousands, except per share amounts)

 

     Shares of
Common
Stock
     Common
Stock
     Additional
Paid-In
Capital
     Accumulated
Deficit
    Accumulated
Other
Comprehensive
Income (Loss)
    Noncontrolling
Interests
    Total  

BALANCE — January 1, 2010

     58,542,038       $ 6       $ 263,579       $ (18,336 )   $ 539      $ (1,239 )   $ 244,549   

Share-based compensation

     33,480         —           861         —          —          —          861   

Vesting of RSU’s

     13,202                     —     

Exercise of stock options

     83,236            414               414   

Dividends declared and paid

     —           —           —           (2,004 )     —          —          (2,004 )

Comprehensive income (loss):

                 

Net income (loss)

     —           —           —           20,134        —          (567 )     19,567   

Reclassification of derivative gain to earnings (net of tax of $143)

     —           —           —           —          (216 )     —          (216 )

Change in fair value of derivatives (net of tax benefit of $239)

     —           —           —           —          (359 )     —          (359 )
                                                           

Total comprehensive income (loss)

                  (567 )     18,992   
                             

BALANCE — June 30, 2010

     58,671,956       $ 6       $ 264,854       $ (206 )   $ (36 )   $ (1,806 )   $ 262,812   
                                                           

 

     Shares of
Common
Stock
     Common
Stock
     Additional
Paid-In
Capital
     Accumulated
Deficit
    Accumulated
Other
Comprehensive
Income (Loss)
    Noncontrolling
Interests
    Total  

BALANCE — January 1, 2009

     58,484,242       $ 6       $ 262,501       $ (31,812 )   $ (3,415 )   $ 833      $ 228,113   

Acquisition of Yankee Environmental Services

     —           —              —          —          662        662   

Share-based compensation

     20,300         —           375         —          —          —          375   

Dividends declared and paid

     —           —           —           (1,989 )     —          —          (1,989 )

Comprehensive income (loss):

                 

Net income (loss)

     —           —           —           14,745        —          (891 )     13,854   

Reclassification of derivative loss to earnings (net of tax of $2,016)

     —           —           —           —          3,036        —          3,036   

Change in fair value of derivatives (net of tax of $290)

     —           —           —           —          437        —          437   
                                                           

Total comprehensive income (loss)

                  (891 )     17,327   
                             

BALANCE — June 30, 2009

     58,504,542       $ 6       $ 262,876       $ (19,056 )   $ 58      $ 604      $ 244,488   
                                                           

See notes to unaudited condensed consolidated financial statements.

 

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Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands, except per share amounts)

 

     Six Months Ended
June 30,
 
     2010     2009  

OPERATING ACTIVITIES:

    

Net income

   $ 19,567      $ 13,854   

Adjustments to reconcile net income to net cash flows provided by operating activities:

    

Depreciation and amortization

     17,993        17,482   

Equity in loss of joint ventures

     853        565   

Distribution from equity joint ventures

     —          621   

Deferred income taxes

     (2,958 )     256   

Gain on dispositions of property and equipment

     (255 )     (369 )

Amortization of deferred financing fees

     803        874   

Share-based compensation expense

     861        375   

Changes in assets and liabilities:

    

Accounts receivable

     18,934        (10,903 )

Contract revenues in excess of billings

     14,867        (8,798 )

Inventories

     1,823        4,028   

Prepaid expenses and other current assets

     2,093        3,195   

Accounts payable and accrued expenses

     577        (12,320 )

Billings in excess of contract revenues

     2,189        2,564   

Other noncurrent assets and liabilities

     (1,702 )     907   
                

Net cash flows provided by operating activities

     75,645        12,331   

INVESTING ACTIVITIES:

    

Purchases of property and equipment

     (12,973 )     (10,060 )

Dispositions of property and equipment

     210        982   

Acquisition of controlling interest in Yankee Environmental Services

     —          (1,229 )
                

Net cash flows used in investing activities

     (12,763 )     (10,307 )

FINANCING ACTIVITIES:

    

Repayments of long-term debt

     (694 )     (829 )

Borrowings under revolving loans

     14,968        104,831   

Repayments of revolving loans

     (25,968 )     (104,831 )

Exercise of stock options

     414        —     

Dividends paid

     (2,004 )     (1,989 )

Repayment of capital lease debt

     (46 )     (60 )
                

Net cash flows used in by financing activities

     (13,330 )     (2,878 )
                

Net change in cash and cash equivalents

     49,552        (854 )

Cash and cash equivalents at beginning of period

     3,250        10,478   
                

Cash and cash equivalents at end of period

   $ 52,802      $ 9,624   
                

Supplemental Cash Flow Information

    

Cash paid for interest

   $ 6,747      $ 9,036   
                

Cash paid for income taxes

   $ 8,431      $ 4,183   
                

Non-cash Investing Activity

    

Property and equipment purchased but not yet paid

   $ 1,444      $ 2,374   
                

Property and equipment purchased on equipment notes

   $ 32      $ 100   
                

See notes to unaudited condensed consolidated financial statements.

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(dollar amounts in thousands, except per share amounts or as otherwise noted)

1. Basis of presentation

The unaudited condensed consolidated financial statements and notes herein should be read in conjunction with the audited consolidated financial statements of Great Lakes Dredge & Dock Corporation and Subsidiaries (the “Company” or “Great Lakes”) and the notes thereto, included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2009. The condensed consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate and make the information presented not misleading. In the opinion of management, all adjustments, which are of a normal and recurring nature, that are necessary to present fairly the Company’s financial position as of June 30, 2010 and its results of operations for the three and six months ended June 30, 2010 and 2009 and cash flows for the six months ended June 30, 2010 and 2009, have been included.

The components of costs of contract revenues include labor, equipment (including depreciation, maintenance, insurance and long-term rentals), subcontracts, fuel and project overhead. Hourly labor is generally hired on a project-by-project basis. Costs of contract revenues vary significantly depending on the type and location of work performed and assets utilized. Generally, capital projects have the highest margins due to the complexity of the projects, while beach nourishment projects have the most volatile margins because they are most often exposed to variability in weather conditions.

The Company’s cost structure includes significant annual equipment-related costs, including depreciation, maintenance, insurance and long-term rentals. These costs have averaged approximately 22% to 25% of total costs of contract revenues over the last three years. During the year, both equipment utilization and the timing of fixed cost expenditures fluctuate significantly. Accordingly, the Company allocates these fixed equipment costs to interim periods in proportion to revenues recognized over the year, to better match revenues and expenses. Specifically, at each interim reporting date the Company compares actual revenues earned to date on its dredging contracts to expected annual revenues and recognizes equipment costs on the same proportionate basis. In the fourth quarter, any over and under allocated equipment costs are recognized such that the expense for the year equals actual equipment costs incurred during the year.

The Company performed its most recent annual test of impairment as of July 1, 2009 for the goodwill in both the dredging and demolition segments with no indication of goodwill impairment as of the test date. As of the measurement date, the fair value of the demolition segment was $1.8 million above the carrying value. A more than insignificant decline in the demolition segment’s future operating results or cash flow forecasts versus the segment’s current forecasts could potentially trigger a goodwill impairment charge in a future period. No test was performed in the first six months of 2010 as no triggering events which would require a test were deemed to have occurred, based on the segment’s current quarterly results and forecasts. The Company will perform its next annual test of impairment during the third quarter of 2010.

The condensed consolidated results of operations for the interim periods presented herein are not necessarily indicative of the results to be expected for the full year.

The Company has corrected the presentation of borrowings and payments on its revolving credit facility for the six months ended June 30, 2009. Such amounts had previously been presented on a net basis, rather than on a gross basis in accordance with Accounting Standards Codification Topic (“ASC”) 230. The correction had no effect on net cash flows used in financing activities.

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(dollar amounts in thousands, except per share amounts or as otherwise noted)

 

2. Earnings per share

Basic earnings per share is computed by dividing net income attributable to Great Lakes Dredge & Dock Corporation by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similar to basic earnings per share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. For the three and six months ended June 30, 2010, options to purchase 644,123 shares of common stock (“NQSOs”) and restricted stock units (“RSUs”) that are convertible into 122,716 shares of common stock were excluded from the computation of earnings per share (“EPS”), and for the three and six months ended June 30, 2009, 727,843 NQSOs and 145,736 RSUs were excluded from the calculation of diluted earnings per share based on the application of the treasury stock method, as such NQSQs and RSUs were determined to be anti-dilutive. The computations for basic and diluted earnings per share from continuing operations are as follows:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2010      2009      2010      2009  

Numerator:

           

Net income attributable to Great Lakes Dredge & Dock Corporation — numerator for basic & diluted earnings per share

   $ 10,808       $ 7,431       $ 20,134       $ 14,745   

Denominator:

           

Denominator for basic earnings per share — weighted average shares outstanding

     58,602         58,499         58,575         58,494   

Dilutive impact of outstanding restricted stock units issued

     135         55         134         27   

Dilutive impact of outstanding stock options issued

     44         —           39         —     
                                   

Denominator for diluted earnings per share adjusted weighted average shares

     58,781         58,554         58,748         58,521   
                                   

Basic earnings per share attributable to Great Lakes Dredge & Dock Corporation

   $ 0.18       $ 0.13       $ 0.34       $ 0.25   
                                   

Diluted earnings per share attributable to Great Lakes Dredge & Dock Corporation

   $ 0.18       $ 0.13       $ 0.34       $ 0.25   
                                   

3. Fair value measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy has been established by GAAP that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The accounting guidance describes three levels of inputs that may be used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(dollar amounts in thousands, except per share amounts or as otherwise noted)

 

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. At June 30, 2010, the Company held certain derivative contracts that it uses to manage commodity price risk and interest rate risk. Such instruments are not used for trading purposes. The fair value of these derivative contracts is summarized as follows:

 

           Fair Value Measurements at Reporting Date Using  

Description

   At June 30,
2010
    Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
    Significant
Unobservable Inputs
(Level 3)
 

Fuel hedge contracts

   $ (60 )   $ —         $ (60 )   $ —     

Interest rate swap contracts-other current assets

     719        —           —          719   

Interest rate swap contracts-other assets

     474        —           —          474   
                                 

Total assets measured at fair value

   $ 1,133      $ —         $ (60 )   $ 1,193   
                                 

 

           Fair Value Measurements at Reporting Date Using  

Description

   At December 31,
2009
    Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable Inputs
(Level 3)
 

Fuel hedge contracts

   $ 897      $ —         $ 897       $ —     

Interest rate swap contracts-assets

     1,529        —           —           1,529   

Interest rate swap contracts-liabilities

     (1,549 )     —           —           (1,549 )
                                  

Total assets measured at fair value

   $ 877      $ —         $ 897       $ (20 )
                                  

Interest Rate Swaps

In May 2009, the Company entered into two interest rate swap arrangements, which are effective through December 15, 2012, to swap a notional amount of $50 million from a fixed rate of 7.75% to a floating LIBOR-based rate in order to manage the interest rate paid with respect to the Company’s 7.75% senior subordinated notes. The current portion of the fair value asset of the swaps at June 30, 2010 is $719 and is recorded in current assets. The long term portion of the fair value asset of the swaps at June 30, 2010 was $474 and is recorded in other assets. The swap is not accounted for as a hedge; therefore, the changes in fair value are recorded as adjustments to interest expense in each reporting period.

The Company verifies the fair value of the interest rate swaps using a quantitative model that contains both observable and unobservable inputs. The unobservable inputs relate primarily to the LIBOR rate and long-term nature of the contracts. The Company believes that these unobservable inputs are significant and accordingly the Company determines the fair value of these interest rate swap contracts using Level 3 inputs.

 

     Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3) Interest Rate Swaps
     Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3) Interest Rate Swaps
 
     2010      2009  

Balance at January 1,

   $ 20       $ —     

Total unrealized gains or (losses): included in earnings

     773         (602 )

Included in other comprehensive income

     —           —     

Purchases

     —           —     

Settlements

     440         34   
                 

Balance at June 30,

   $ 1,193       $ (568 )
                 

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(dollar amounts in thousands, except per share amounts or as otherwise noted)

 

 

     Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3) Interest Rate Swaps
    Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3) Interest Rate Swaps
 
     2010     2009  

Balance at April 1,

   $ 774      $ —     

Transfers to Level 3

     —          —     

Total unrealized gains or (losses): included in earnings

     (21 )     (602 )

Included in other comprehensive income

     —          —     

Purchases

     —          —     

Settlements

     440        34   
                

Balance at June 30,

   $ 1,193      $ (568 )
                

Fuel Hedge Contracts

At June 30, 2010 and December 31, 2009, the fair value asset (liability) on the fuel hedge contracts was estimated to be ($60) and $897, respectively, and is recorded in accrued liabilities and other current assets, respectively. The change in fair value of derivatives, net of cash settlements and taxes, for the six months ended June 30, 2010 was ($359). The remaining losses included in accumulated other comprehensive income (loss) at June 30, 2010 will be reclassified into earnings over the next eleven months, corresponding to the period during which the hedged fuel is expected to be utilized. The fair values of fuel hedges are corroborated using inputs that are readily observable in public markets; therefore, the Company determines fair value of these fuel hedges using Level 2 inputs.

The fair value of interest rate and fuel hedge contracts outstanding as of June 30, 2010 and December 31, 2009 is as follows:

 

     Fair Value of Derivatives
At June 30, 2010
 
     Balance  Sheet
Location
     Fair Value
Asset
     Balance Sheet
Location
     Fair Value
Liability
 

Interest rate swaps

     Current Assets       $ 719         Other Liabilities       $ —     

Interest rate swaps

     Other Assets         474         Other Liabilities         —     

Fuel hedge contracts

     Current Assets         22         Accrued expenses         (82 )
                       

Total Derivatives

      $ 1,215          $ (82 )
                       

 

     Fair Value of Derivatives
At December 31, 2009
 
     Balance  Sheet
Location
     Fair Value
Asset
     Balance Sheet
Location
     Fair Value
Liability
 

Interest rate swaps

     Current Assets       $ 1,529         Other Liabilities       $ (1,549 )

Fuel hedge contracts

     Current Assets         897         Accrued expenses         —     
                       

Total Derivatives

      $ 2,426          $ (1,549 )
                       

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(dollar amounts in thousands, except per share amounts or as otherwise noted)

 

Other financial instruments

The carrying value of financial instruments included in current assets and current liabilities approximates fair values due to the short-term maturities of these instruments. At June 30, 2010, the Company had long-term subordinated notes outstanding with a recorded book value of $175,000. The fair value of these notes was $176,750 at June 30, 2010 and $173,250 at December 31, 2009, based on indicative market prices.

4. Share-based compensation

The Company’s 2007 Long-Term Incentive Plan (the “Incentive Plan”) permits the grant of stock options, stock appreciation rights, restricted stock and restricted stock units to the Company’s employees and directors for up to 5.8 million shares of common stock. The Company has granted NQSOs and RSUs to certain employees pursuant to the Incentive Plan. Compensation cost charged to income related to these stock-based compensation arrangements was $482 and $861 for the three and six months ended June 30, 2010, respectively, and $250 and $375 for the three and six months ended June 30, 2009, respectively. During the six months ended June 30, 2010, the Company granted 347,485 NQSOs and 122,716 RSUs. An insignificant number of NQSOs and RSUs have been forfeited during the six months ended June 30, 2010. As of June 30, 2010, there was $2.4 million of total unrecognized compensation cost related to non-vested NQS0s and RSUs granted under the Incentive Plan. This cost is expected to be recognized over a weighted-average period of 1.2 years. In addition, for the six months ended June 30, 2010 and 2009, 33,480 and 20,300 shares, respectively, of the Company’s common stock were issued to non-employee directors under the Incentive Plan.

5. Accounts receivable

Accounts receivable at the periods presented are as follows:

 

     June 30,
2010
    December 31,
2009
 

Completed contracts

   $ 29,361      $ 19,468   

Contracts in progress

     83,463        105,717   

Retainage

     23,770        29,966   
                
     136,594        155,151   

Allowance for doubtful accounts

     (1,627 )     (1,250 )
                

Total accounts receivable

   $ 134,967      $ 153,901   
                

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(dollar amounts in thousands, except per share amounts or as otherwise noted)

 

6. Contracts in progress

The components of contracts in progress at the periods presented are as follows:

 

     June 30,
2010
    December 31,
2009
 

Costs and earnings in excess of billings:

    

Costs and earnings for contracts in progress

   $ 194,659      $ 264,073   

Amounts billed

     (182,095 )     (236,780 )
                

Costs and earnings in excess of billings for contracts in progress

     12,564        27,293   

Costs and earnings in excess of billings for completed contracts

     573        711   
                

Total contract revenues in excess of billings

   $ 13,137      $ 28,004   
                

Billings in excess of costs and earnings:

    

Amounts billed

   $ (519,437 )   $ (434,893 )

Costs and earnings for contracts in progress

     492,347        409,992   
                

Total billings in excess of contract revenues

   $ (27,090 )   $ (24,901 )
                

7. Accrued expenses

Accrued expenses at the periods presented are as follows:

 

     June 30,
2010
     December 31,
2009
 

Income and other taxes

   $ 10,728       $ 4,094   

Insurance

     9,338         8,521   

Payroll and employee benefits

     7,321         11,233   

Fixed equipment costs accrued

     3,430         —     

Percentage of completion adjustment

     2,357         5,901   

Interest

     604         726   

Fuel hedge liability

     82         —     

Other

     1,105         790   
                 

Total accrued expenses

   $ 34,965       $ 31,265   
                 

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(dollar amounts in thousands, except per share amounts or as otherwise noted)

 

8. Segment information

The Company operates in two reportable segments: dredging and demolition. The Company’s financial reporting systems present various data for management to operate the business, including profit and loss statements prepared for the segments presented. Management uses operating income to evaluate performance of the two segments. Segment information for the periods presented is as follows:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  

Dredging

        

Contract revenues

   $ 165,599      $ 128,511      $ 314,640      $ 294,823   

Operating income

     21,462        16,813        41,031        35,771   

Demolition

        

Contract revenues

   $ 14,536      $ 13,944      $ 26,895      $ 26,835   

Operating loss

     (1,247 )     (39 )     (1,402 )     (2,552 )

Total

        

Contract revenues

   $ 180,135      $ 142,455      $ 341,535      $ 321,658   

Operating income

     20,215        16,774        39,629        33,219   

In addition, foreign dredging revenue of $13,641 and $39,213 for the three and six months ended June 30, 2010, respectively, and $45,521 and $89,776 for the three and six months ended June 30, 2009 respectively, was primarily attributable to work performed in Bahrain.

The majority of the Company’s long-lived assets are marine vessels and related equipment. At any point in time, the Company may employ certain assets outside of the U.S., as needed, to perform work on the Company’s foreign projects.

9. Commitments and contingencies

Commercial commitments

The Company’s $145,000 bank credit facility matures in June 2012. This credit facility provides for revolving loans, letters of credit and swingline loans. As of June 30, 2010, the Company had no outstanding borrowings and $16,566 of letters of credit outstanding, and $128,434 of remaining availability under the Credit Agreement. In late 2008, Lehman Brothers (“Lehman”), a 6.5% participant in the credit facility, filed for bankruptcy and stopped funding its share of the Company’s revolving credit borrowings. In May 2010, the Company’s Credit Agreement was amended to remove Lehman as a lender under the Credit Agreement and to reduce the lenders’ revolving credit commitment under the Credit Agreement from $155,000 to $145,000.

The Company obtains performance, bid and payment bonds through a bonding agreement with a surety company. The bonds issued under the bonding agreement are customarily required for dredging and marine construction projects, as well as demolition projects. As of June 30, 2010, Great Lakes had outstanding bonds valued at $359,304; however, the revenue value remaining in backlog related to these projects totaled approximately $166,087.

The Company has a $24,000 international letter of credit facility that it uses for the performance and advance payment guarantees on the Company’s foreign contracts. As of June 30, 2010, Great Lakes had $15,707 of letters of credit outstanding under this facility.

The Company has $175,000 of 7.75% senior subordinated notes outstanding, which mature in December 2013.

The Company’s obligations under its bank credit facility and bonding agreement are secured by liens on a substantial portion of Great Lakes’ assets. As of December 31, 2009, the net book value of the Company’s operating equipment securing the Company’s obligations under its bank credit facility and bonding agreement was approximately $88,620 and $74,847, respectively. Great Lakes’ obligations under its international letter of credit facility are secured by the Company’s foreign accounts receivable. Great Lakes’ obligations under its senior subordinated notes are unsecured.

The Company’s bank credit facility, bonding agreement and senior subordinated notes contain various restrictive covenants, including a limitation on dividends, limitations on redemption and repurchases of capital stock, limitations on the incurrence of indebtedness and requirements to maintain certain financial covenants.

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(dollar amounts in thousands, except per share amounts or as otherwise noted)

 

Certain foreign projects performed by the Company have warranty periods, typically spanning no more than one to three years beyond project completion, whereby the Company retains responsibility to maintain the project site to certain specifications during the warranty period. Generally, any potential liability of the Company is mitigated by insurance, shared responsibilities with consortium partners, and/or recourse to owner-provided specifications.

As is customary with negotiated contracts and modifications or claims to competitively-bid contracts with the federal government, the government has the right to audit the books and records of the Company to ensure compliance with such contracts, modifications or claims and the applicable federal laws. The government has the ability to seek a price adjustment based on the results of such audit. Any such audits have not had and are not expected to have a material impact on the financial position, operations or cash flows of the Company.

Legal proceedings and other contingencies

Various legal actions, claims, assessments and other contingencies arising in the ordinary course of business are pending against the Company and certain of its subsidiaries. These matters are subject to many uncertainties, and it is possible that some of these matters could ultimately be decided, resolved, or settled adversely. Although the Company is subject to various claims and legal actions that arise in the ordinary course of business, except as described below, the Company is not currently a party to any material legal proceedings or environmental claims.

The Company or its former subsidiary, NATCO Limited Partnership, is named as a defendant in approximately 251 lawsuits, the majority of which were filed between 1989 and 2000. In these lawsuits, the plaintiffs allege personal injury, primarily pleural abnormality or asbestosis, from exposure to asbestos on our vessels. The vast majority of these lawsuits have been filed in the Northern District of Ohio and a few in the Eastern District of Michigan. All of the cases filed against the Company prior to 1996 were administratively dismissed in May 1996 and any cases filed since that time have similarly been administratively transferred to the inactive docket. Plaintiffs in these cases could seek to reinstate the cases at a future date without being barred by the statute of limitations. By order dated October 29, 2009, however, the presiding judge reactivated 512 lawsuits in an effort to clean out the administrative docket and has stated that he intends to reactivate approximately 250 cases each month. Six of the cases reactivated to date name the Company as a defendant. Of these six cases, one of the plaintiffs has elected not to pursue his claims. Discovery on the remaining five cases was stayed by the presiding judge. In addition, by order entered March 2, 2010, the judge dismissed 7,405 lawsuits pending in the administrative docket, including twelve which named the Company as a defendant. Management does not believe that these cases will have a material adverse impact on the condensed consolidated financial statements.

On April 24, 2006, a class action complaint was filed in the U.S. District Court for the Eastern District of Louisiana on behalf of Louisiana citizens who allegedly suffered property damage from the floodwaters that flooded New Orleans and surrounding areas when Hurricane Katrina hit the area on August 29, 2005 (the “Reed Complaint”). The Reed Complaint names as defendants the U.S. government, Great Lakes Dredge & Dock Company and numerous other dredging companies that completed dredging projects on behalf of the Army Corps of Engineers in the Mississippi River Gulf Outlet (“MRGO”) between 1993 and 2005. The Reed Complaint alleges that the dredging of MRGO caused the destruction of Louisiana wetlands, which had provided a natural barrier against some storms and hurricanes. The Reed Complaint alleges that this loss of natural barriers contributed to the failure of levees as Katrina floodwaters damaged plaintiffs’ property. The Reed Complaint asserts claims of negligence, warranty, concealment and violations of the Water Pollution Control Act. Other plaintiffs have filed similar class action complaints and one mass tort case (together with the Reed Complaint, the “Katrina Claims”). All of these cases raise the same claims as the Reed Complaint. The amount of claimed damages in these claims is not stated, but is presumed to be significant. On March 9, 2007, the District Court dismissed with prejudice the Katrina Claims against Great Lakes and those plaintiffs filed an appeal to the U.S. Court of Appeals for the Fifth Circuit (the “Fifth Circuit”). On November 25, 2009, the Fifth Circuit affirmed the dismissal of the Katrina Claims and later denied the plaintiffs’ Motion for Rehearing. The plaintiffs did not file a writ of certiorari to the U.S. Supreme Court.

On October 19, 2006, Great Lakes and the other dredging companies filed in federal district court for exoneration or limitation of liability under the Limitation of Liability Act (the “Limitation Action”). The Limitation Action stays all outstanding Katrina Claims against Great Lakes in the district court, pending resolution of the Limitation Action. Approximately 40,000 claims by individuals, businesses, and the State of Louisiana were filed against Great Lakes asserting the same basic theory of liability as in the Katrina Claims and seeking damages significantly in excess of the $55 million limitation bond posted by Great Lakes. In addition, all of the dredging companies, including Great Lakes, filed cross-claims against each other in the Limitation Action seeking contribution and indemnification. Great Lakes currently believes that it has meritorious claims for either exoneration from all liability or limitation of liability to not more than $55 million, which is the value of the vessels which conducted the MRGO dredging work. These defenses include arguments for both statutory and constitutional immunity from liability. On September 7, 2007, Great Lakes filed a motion to dismiss the plaintiffs’ claims. The District Court granted the motion on June 12, 2008, dismissing these claims with prejudice. The plaintiffs filed a notice of appeal in the Fifth Circuit. The Fifth Circuit stayed the appeal pending issuance of its opinion in the Katrina Claims. Following the Fifth Circuit’s affirmance of the dismissal of the Katrina Claims, briefing on this appeal was completed, and the Fifth Circuit heard oral arguments on August 2, 2010. Great Lakes maintains $150 million in insurance coverage for the Katrina Claims and these claims. Great Lakes currently believes that these claims will not have a material adverse impact on its financial condition or results of operations and cash flows.

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(dollar amounts in thousands, except per share amounts or as otherwise noted)

 

On August 26, 2009, NASDI received a letter stating that the Attorney General for the Commonwealth of Massachusetts is investigating alleged violations of the Massachusetts Solid Waste Act. NASDI believes that the Attorney General is investigating illegal dumping activities at a dump site NASDI contracted with to have waste materials disposed of between September 2007 and July 2008. Although the matter remains open, no lawsuit has been filed. Per the Attorney General’s request, NASDI executed a tolling agreement (which allows for extending the statute of limitations) regarding the matter. Should charges be brought, NASDI intends to defend itself vigorously on this matter. Based on consideration of all of the facts and circumstances now known, the Company does not believe this claim will have a material adverse impact on the consolidated financial statements.

10. Supplemental condensed consolidating financial information

The Company’s long-term debt includes $175,000 of 7.75% senior subordinated notes which mature on December 15, 2013. The Company’s obligations under the senior subordinated notes are guaranteed by the Company’s domestic subsidiaries (the “Subsidiary Guarantors”). Such guarantees are full, unconditional and joint and several.

The following supplemental financial information sets forth for the Company’s 100%-Owned Subsidiary Guarantors (on a combined basis), each of the Company’s Non 100%-Owned Subsidiary Guarantors, the Company’s non-guarantor subsidiary and Great Lakes Dredge & Dock Corporation, exclusive of its subsidiaries (“GLDD Corporation”):

 

  (i) balance sheets as of June 30, 2010 and December 31, 2009;

 

  (ii) statements of operations for the three months and six months ended June 30, 2010 and June 30, 2009; and

 

  (iii) statements of cash flows for the six months ended June 30, 2010 and June 30, 2009.

The Company has adjusted the presentation of its separate condensed consolidating financial information as of December 31, 2009 and separate condensed consolidating financial information for the three and six months ended June 30, 2010 and 2009 to separately disclose its Non 100%-Owned Subsidiary Guarantors, NASDI and Yankee Environmental Services, LLC (“Yankee”). These adjustments had no impact on consolidated results as previously reported.

The Company’s Form 10-Q/A for the period ended June 30, 2010 includes separate financial statements for NASDI and Yankee. The separate financial information for NASDI and Yankee reconciles to the respective NASDI and Yankee financial information included in this supplemental consolidating financial information after considering timing differences in reflecting audit adjustments for each company that are immaterial to the Company’s consolidated financial statements. The NASDI difference results from a 2009 audit adjustment that was made to its separate financial statements in April 2010, subsequent to the filing of 2009 supplemental consolidating financial statements in the Company’s 2009 Form 10-K. The Yankee difference also results from a 2009 audit adjustment to its separate financial statements. That adjustment was identified upon completion of the Yankee 2009 audit in December 2010. The adjustments are reflected in 2010 activity in this supplemental consolidating financial information.

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2010

UNAUDITED

(in thousands)

 

     Subsidiary Guarantors      Non-  Guarantor
Subsidiary
     GLDD
Corporation
    Eliminations     Consolidated
Totals
 
       100%-Owned      NASDI      Yankee            

ASSETS

                  

CURRENT ASSETS:

                  

Cash and cash equivalents

   $ 52,378       $ 214       $ 201       $ 9       $ —        $ —        $ 52,802   

Accounts receivable — net

     122,195         11,896         876         —           —          —          134,967   

Receivables from affiliates

     20,054         3         1,069         2,744         —          (23,870     —     

Contract revenues in excess of billings

     9,276         3,711         229         —           —          (79     13,137   

Inventories

     29,494         —           —           —           —          —          29,494   

Prepaid expenses

     2,704         20         —           —           130        —          2,854   

Other current assets

     6,518         238         7         —           6,539        —          13,302   
                                                            

Total current assets

     242,619         16,082         2,382         2,753         6,669        (23,949     246,556   

PROPERTY AND EQUIPMENT — Net

     275,468         8,715         343         —           —          —          284,526   

GOODWILL

     76,575         21,224         250         —           —          —          98,049   

OTHER INTANGIBLE ASSETS — Net

     290         203         326         —           —          —          819   

INVESTMENTS IN SUBSIDIARIES

     25,753         —           —           —           529,918        (555,671     —     

INVENTORIES — Noncurrent

     25,537         —           —           —           —          —          25,537   

INVESTMENTS IN JOINT VENTURES

     7,090         —           —           —           —          —          7,090   

OTHER ASSETS

     2,318         —           —           —           5,179        (719     6,778   
                                                            

TOTAL

   $ 655,650       $ 46,224       $ 3,301       $ 2,753       $ 541,766      $ (580,339   $ 669,355   
                                                            

LIABILITIES AND EQUITY

                  

CURRENT LIABILITIES:

                  

Accounts payable

     71,116         6,979         437         —           —          —          78,532   

Payables to affiliates

     291         11,571         1,410         —           10,650        (23,922     —     

Accrued expenses

     22,085         2,149         505         —           10,226        —          34,965   

Billings in excess of contract revenues

     24,543         2,512         62         —           —          (27     27,090   

Current portion of equipment debt

     —           669         —           —           —          —          669   
                                                            

Total current liabilities

     118,035         23,880         2,414         —           20,876        (23,949     141,256   

7  3 / 4 % SENIOR SUBORDINATED NOTES

     —           —           —           —           175,000        —          175,000   

DEFERRED INCOME TAXES

     2         —           —           —           80,136        (719     79,419   

OTHER

     7,695         231         —           —           2,942        —          10,868   
                                                            

Total liabilities

     125,732         24,111         2,414         —           278,954        (24,668     406,543   

Total Great Lakes Dredge & Dock Corporation Equity

     529,918         22,113         887         2,753         264,618        (555,671     264,618   

NONCONTROLLING INTERESTS

     —           —           —           —           (1,806     —          (1,806
                                                            

TOTAL EQUITY

     529,918         22,113         887         2,753         262,812        (555,671     262,812   
                                                            

TOTAL

   $ 655,650       $ 46,224       $ 3,301       $ 2,753       $ 541,766      $ (580,339   $ 669,355   
                                                            

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2009

UNAUDITED

(in thousands)

 

     Subsidiary Guarantors      Non-  Guarantor
Subsidiary
     GLDD
Corporation
    Eliminations     Consolidated
Totals
 
     100%-Owned      NASDI      Yankee            

ASSETS

                  

CURRENT ASSETS:

                  

Cash and cash equivalents

   $ 2,834       $ 194       $ 213       $ 9       $ —        $ —        $ 3,250   

Accounts receivable — net

     142,080         10,194         1,627         —           —          —          153,901   

Receivables from affiliates

     4,558         —           1,918         2,743         17,881        (27,100     —     

Contract revenues in excess of billings

     25,560         2,444         42         —           —          (42     28,004   

Inventories

     29,192         —           —           —           —          —          29,192   

Prepaid expenses

     2,363         80         —           —           201        —          2,644   

Other current assets

     9,123         49         38         —           6,235        —          15,445   
                                                            

Total current assets

     215,710         12,961         3,838         2,752         24,317        (27,142     232,436   

PROPERTY AND EQUIPMENT — Net

     281,520         9,187         450         —           —          —          291,157   

GOODWILL

     76,575         21,224         250         —           —          —          98,049   

OTHER INTANGIBLE ASSETS — Net

     360         279         398         —           —          —          1,037   

INVESTMENTS IN SUBSIDIARIES

     27,094         —           —           —           490,191        (517,285     —     

NOTES RECEIVABLE FROM AFFILIATES

     61         —           —           —           —          (61     —     

INVENTORIES — Noncurrent

     27,662         —           —           —           —          —          27,662   

INVESTMENTS IN JOINT VENTURES

     7,943         —           —           —           —          —          7,943   

OTHER ASSETS

     2,074         —           —           —           5,509        (441     7,142   
                                                            

TOTAL

   $ 638,999       $ 43,651       $ 4,936       $ 2,752       $ 520,017      $ (544,929   $ 665,426   
                                                            

LIABILITIES AND EQUITY

                  

CURRENT LIABILITIES:

                  

Accounts payable

     75,765         7,623         395         —           —          —          83,783   

Payables to affiliates

     15,300         9,084         2,758         —           —          (27,142     —     

Accrued expenses

     26,597         1,457         306         —           2,905        —          31,265   

Billings in excess of contract revenues

     23,910         791         200         —           —          —          24,901   

Current portion of equipment debt

     —           1,200         —           —           —          —          1,200   
                                                            

Total current liabilities

     141,572         20,155         3,659         —           2,905        (27,142     141,149   

REVOLVING CREDIT FACILITY

     —           —           —           —           11,000        —          11,000   

7  3 / 4 % SENIOR SUBORDINATED NOTES

     —           —           —           —           175,000        —          175,000   

NOTES PAYABLE TO AFFILIATES

     —           61         —           —           —          (61     —     

DEFERRED INCOME TAXES

     2         —           —           —           82,081        (441     81,642   

OTHER

     7,234         370         —           —           4,482        —          12,086   
                                                            

Total liabilities

     148,808         20,586         3,659         —           275,468        (27,644     420,877   

Total Great Lakes Dredge & Dock Corporation Equity

     490,191         23,065         1,277         2,752         245,788        (517,285     245,788   

NONCONTROLLING INTERESTS

     —           —           —           —           (1,239     —          (1,239
                                                            

TOTAL EQUITY

     490,191         23,065         1,277         2,752         244,549        (517,285     244,549   
                                                            

TOTAL

   $ 638,999       $ 43,651       $ 4,936       $ 2,752       $ 520,017      $ (544,929   $ 665,426   
                                                            

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2010

UNAUDITED

(in thousands)

 

     Subsidiary Guarantors     Non-Guarantor
Subsidiary
     GLDD
Corporation
    Eliminations     Consolidated
Totals
 
     100%- Owned     NASDI     Yankee           

CONTRACT REVENUES

   $ 165,599      $ 13,619      $ 1,703      $ —         $ —        $ (786   $ 180,135   

COSTS OF CONTRACT REVENUES

     (131,314     (13,122     (1,896     —           —          786        (145,546
                                                         

GROSS PROFIT (LOSS)

     34,285        497        (193     —           —          —          34,589   

OPERATING EXPENSES

               

General and administrative expenses

     (11,858     (1,365     (117     —           (926     —          (14,266

Amortization of intangible assets

     (35     (38     (35     —           —          —          (108
                                                         

Total operating income (loss)

     22,392        (906     (345     —           (926     —          20,215   

INTEREST EXPENSE (Net)

     93        (90     (18     —           (2,980     —          (2,995

EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES

     (1,359     —          —          —           21,354        (19,995     —     

EQUITY IN EARNINGS (LOSS) OF JOINT VENTURE

     (131     —          —          —           —          —          (131
                                                         

INCOME (LOSS) BEFORE INCOME TAXES

     20,995        (996     (363     —           17,448        (19,995     17,089   

INCOME TAX (PROVISION) BENEFIT

     359        —          —          —           (7,114     —          (6,755
                                                         

NET INCOME (LOSS)

     21,354        (996     (363     —           10,334        (19,995     10,334   

NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

     —          —          —          —           474        —          474   
                                                         

NET INCOME (LOSS) ATTRIBUTABLE TO GREAT LAKES DREDGE & DOCK CORPORATION

   $ 21,354      $ (996   $ (363   $ —         $ 10,808      $ (19,995   $ 10,808   
                                                         

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2009

UNAUDITED

(in thousands)

 

     Subsidiary Guarantors     Non-Guarantor
Subsidiary
     GLDD
Corporation
    Eliminations     Consolidated
Totals
 
     100%- Owned     NASDI     Yankee           

CONTRACT REVENUES

   $ 128,511      $ 14,110      $ 2,003      $ —         $ —        $ (2,169   $ 142,455   

COSTS OF CONTRACT REVENUES

     (101,367     (12,810     (1,844     —           (45     2,169        (113,897
                                                         

GROSS PROFIT (LOSS)

     27,144        1,300        159        —           (45     —          28,558   

OPERATING EXPENSES

               

General and administrative expenses

     (9,724     (1,204     (68     —           (595     —          (11,591

Amortization of intangible assets

     (36     (37     (120     —           —          —          (193
                                                         

Total operating income (loss)

     17,384        59        (29     —           (640     —          16,774   

INTEREST EXPENSE (Net)

     140        (94     (35     —           (4,741     —          (4,730

EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES

     (99     —          —          —           17,454        (17,355     —     

EQUITY IN EARNINGS (LOSS) OF JOINT VENTURE

     (9     —          —          —           —          —          (9
                                                         

INCOME (LOSS) BEFORE INCOME TAXES

     17,416        (35     (64     —           12,073        (17,355     12,035   

INCOME TAX (PROVISION) BENEFIT

     38        —          —          —           (4,669     —          (4,631
                                                         

NET INCOME (LOSS)

     17,454        (35     (64     —           7,404        (17,355     7,404   

NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

     —          —          —          —           27        —          27   
                                                         

NET INCOME (LOSS) ATTRIBUTABLE TO GREAT LAKES DREDGE & DOCK CORPORATION

   $ 17,454      $ (35   $ (64   $ —         $ 7,431      $ (17,355   $ 7,431   
                                                         

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2010

UNAUDITED

(in thousands)

 

     Subsidiary Guarantors     Non-Guarantor
Subsidiary
     GLDD
Corporation
    Eliminations     Consolidated
Totals
 
     100%-Owned     NASDI     Yankee           

CONTRACT REVENUES

   $ 314,640      $ 25,407      $ 3,529      $ —         $ —        $ (2,041     341,535   

COSTS OF CONTRACT REVENUES

     (251,428     (23,540     (3,535     —           —          2,041        (276,462
                                                         

GROSS PROFIT (LOSS)

     63,212        1,867        (6     —           —          —          65,073   

OPERATING EXPENSES

               

General and administrative expenses

     (20,483     (2,851     (275     —           (1,617     —          (25,226

Amortization of intangible assets

     (71     (75     (72     —           —          —          (218
                                                         

Total operating income (loss)

     42,658        (1,059     (353     —           (1,617     —          39,629   

INTEREST EXPENSE (Net)

     181        (185     (37     —           (6,174     —          (6,215

EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES

     (1,634     —          —          —           40,702        (39,068     —     

EQUITY IN EARNINGS (LOSS) OF JOINT VENTURE

     (853     —          —          —           —          —          (853
                                                         

INCOME (LOSS) BEFORE INCOME TAXES

     40,352        (1,244     (390     —           32,911        (39,068     32,561   

INCOME TAX (PROVISION) BENEFIT

     350        —          —          —           (13,344     —          (12,994
                                                         

NET INCOME (LOSS)

     40,702        (1,244     (390     —           19,567        (39,068     19,567   

NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

     —          —          —          —           567        —          567   
                                                         

NET INCOME (LOSS) ATTRIBUTABLE TO GREAT LAKES DREDGE & DOCK CORPORATION

   $ 40,702      $ (1,244   $ (390   $ —         $ 20,134      $ (39,068   $ 20,134   
                                                         

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2009

UNAUDITED

(in thousands)

 

     Subsidiary Guarantors     Non-Guarantor
Subsidiary
     GLDD
Corporation
    Eliminations     Consolidated
Totals
 
     100%-Owned     NASDI     Yankee           

CONTRACT REVENUES

   $ 294,823      $ 26,708      $ 4,058      $ —         $ —        $ (3,931     321,658   

COSTS OF CONTRACT REVENUES

     (240,316     (25,595     (4,038     —           (45     3,931        (266,063
                                                         

GROSS PROFIT (LOSS)

     54,507        1,113        20        —           (45     —          55,595   

OPERATING EXPENSES

               

General and administrative expenses

     (17,531     (3,073     (277     —           (1,109     —          (21,990

Amortization of intangible assets

     (71     (75     (240     —           —          —          (386
                                                         

Total operating income (loss)

     36,905        (2,035     (497     —           (1,154     —          33,219   

INTEREST EXPENSE (Net)

     161        (161     (35     —           (8,963     —          (8,998

EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES

     (2,728     —          —          —           34,612        (31,884     —     

EQUITY IN EARNINGS (LOSS) OF JOINT VENTURE

     (565     —          —          —           —          —          (565
                                                         

INCOME (LOSS) BEFORE INCOME TAXES

     33,773        (2,196     (532     —           24,495        (31,884     23,656   

INCOME TAX (PROVISION) BENEFIT

     839        —          —          —           (10,641     —          (9,802
                                                         

NET INCOME (LOSS)

     34,612        (2,196     (532     —           13,854        (31,884     13,854   

NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

     —          —          —          —           891        —          891   
                                                         

NET INCOME (LOSS) ATTRIBUTABLE TO GREAT LAKES DREDGE & DOCK CORPORATION

   $ 34,612      $ (2,196   $ (532   $ —         $ 14,745      $ (31,884   $ 14,745   
                                                         

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2010

UNAUDITED

(in thousands)

 

     Subsidiary Guarantors     Non-Guarantor
Subsidiary
     GLDD
Corporation
    Eliminations      Consolidated
Totals
 
     100%- Owned     NASDI     Yankee            

Operating Activities

                

Net cash flows provided by (used in) operating activities

   $ 98,911      $ (195   $ 1,336      $ —         $ (24,407   $ —         $ 75,645   

Investing Activities

                

Purchases of property and equipment

     (12,332     (641     —          —           —          —           (12,973

Dispositions of property and equipment

     210        —          —          —           —          —           210   
                                                          

Net cash flows used in investing activities

     (12,122     (641     —          —           —          —           (12,763

Financing Activities

                   —     

Repayments of long-term debt

     (11     (683     —          —           —          —           (694

Borrowings under revolving loans

     —          —          —          —           14,968        —           14,968   

Repayments of revolving loans

     —          —          —          —           (25,968     —           (25,968

Net change in accounts with affiliates

     (37,602     1,539        (1,348     —           37,411        —           —     

Exercise of stock options

     414        —          —          —           —          —           414   

Dividends

     —          —          —          —           (2,004     —           (2,004

Repayment of capital lease debt

     (46     —          —          —           —          —           (46
                                                          

Net cash flows provided by (used in) financing activities

     (37,245     856        (1,348     —           24,407        —           (13,330
                                                          

Net change in cash and cash equivalents

     49,544        20        (12     —           —          —           49,552   

Cash and cash equivalents at beginning of period

     2,834        194        213        9         —          —           3,250   
                                                          

Cash and cash equivalents at end of period

   $ 52,378      $ 214      $ 201      $ 9       $ —        $ —         $ 52,802   
                                                          

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2009

UNAUDITED

(in thousands)

 

     Subsidiary Guarantors     Non-Guarantor
Subsidiary
     GLDD
Corporation
    Eliminations     Consolidated
Totals
 
     100%-Owned     NASDI     Yankee           

Operating Activities

               

Net cash flows provided by (used in) operating activities

   $ 25,901      $ 521      $ (3,706   $ —         $ (10,385   $ —        $ 12,331   

Investing Activities

               

Purchases of property and equipment

     (8,448     (1,612     —          —           —          —          (10,060

Dispositions of property and equipment

     984        (2     —          —           —          —          982   

Acquisition of controlling interest in Yankee Environmental Services

     (1,229     —          (1,891     —           —          1,891        (1,229
                                                         

Net cash flows used in investing activities

     (8,693     (1,614     (1,891     —           —          1,891        (10,307

Financing Activities

               

Repayments of long-term debt

     —          (829     —          —           —          —          (829

Borrowings under revolving loans

     —          —          —          —           104,831        —          104,831   

Repayments of revolving loans

     —          —          —          —           (104,831     —          (104,831

Members’ capital contribution to acquire assets of Yankee

     —          —          1,891        —           —          (1,891     —     

Net change in accounts with affiliates

     (18,603     2,318        3,911        —           12,374        —          —     

Dividends

     —          —          —          —           (1,989     —          (1,989

Distributions

     171        (171     —          —           —          —          —     

Repayment of capital lease debt

     (60     —          —          —           —          —          (60
                                                         

Net cash flows provided by (used in) financing activities

     (18,492     1,318        5,802        —           10,385        (1,891     (2,878
                                                         

Net change in cash and cash equivalents

     (1,284     225        205        —           —          —          (854

Cash and cash equivalents at beginning of period

     10,357        116        —          5         —          —          10,478   
                                                         

Cash and cash equivalents at end of period

   $ 9,073      $ 341      $ 205      $ 5       $ —        $ —        $ 9,624   
                                                         

 

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Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Statement Under the Private Securities Litigation Reform Act

Certain statements in this Quarterly Report on Form 10-Q may constitute “forward-looking” statements as defined in Section 27A of the Securities Act of 1933 (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) or in releases made by the Securities and Exchange Commission (“SEC”), all as may be amended from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Great Lakes Dredge & Dock Corporation and its subsidiaries (“Great Lakes”), or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words “plan,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “may,” “will,” “would,” “could,” “should,” “seeks,” or “scheduled to,” or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the “safe harbor” provisions of such laws. Great Lakes cautions investors that any forward-looking statements made by Great Lakes are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements include, risks and uncertainties that are described in Item 1A “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 , as updated by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, and in other securities filings by Great Lakes with the SEC.

Although the Company believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, actual results could differ materially from a projection or assumption in any forward-looking statements. The Company’s future financial condition, results of operations and cash flows, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The forward-looking statements contained in the Company’s Quarterly Report on Form 10-Q are made only as of the date hereof and the Company does not have or undertake any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law.

General

The Company is the largest provider of dredging services in the United States. In addition, the Company is the only U.S. dredging service provider with significant international operations, which represented 12% of its dredging revenues for the first six months of 2010, compared with the Company’s three year average of 30%. The mobility of the Company’s fleet enables the Company to move equipment in response to changes in demand for dredging services.

Dredging generally involves the enhancement or preservation of the navigability of waterways or the protection of shorelines through the removal or replenishment of soil, sand or rock. The U.S. dredging market consists of three primary types of work: capital, beach nourishment and maintenance, in which sectors we have experienced an average combined bid market share in the U.S. of 46% over the last three years, including 62%, 43% and 35% of the capital, beach nourishment and maintenance sectors, respectively. The Company’s bid market is defined as the aggregate dollar value of domestic projects on which the Company bid or could have bid if not for capacity constraints (“bid market”).

The Company’s largest domestic dredging customer is the Army Corps of Engineers (the “Corps”), which has responsibility for federally funded projects related to navigation and flood control of U.S. waterways. In the first six months of 2010, the Company’s dredging revenues earned from contracts with federal government agencies, including the Corps as well as other federal entities such as the U.S. Coast Guard and the U.S. Navy, were approximately 71% of dredging revenues as compared with the Company’s three year average of 54%.

The Company also owns a 65% interest in NASDI, LLC (“NASDI”), a demolition service provider located in the Boston, Massachusetts area. In the first six months of 2010, demolition revenues accounted for 8% of total revenues, compared with the prior three year average of 13%. NASDI’s principal services consist of interior and exterior demolition of commercial and industrial buildings, salvage and recycling of related materials, and removal of hazardous substances and materials. The majority of NASDI’s work has historically been performed in New England. However, NASDI is currently expanding its footprint; primarily, into New York. The Company also has a 65% interest in Yankee Environmental Services LLC (“Yankee”), a provider of environmental remediation services including asbestos abatement and removal of other hazardous materials for private and governmental entities predominantly in the Boston area.

 

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The Company has a 50% ownership interest in Amboy Aggregates (“Amboy”). Amboy’s primary business is mining sand from the entrance channel to the New York harbor in order to provide sand and aggregate for use in road and building construction. The Company and its Amboy joint venture partner own a 50% interest in land that is adjacent to Amboy’s property and may be used in conjunction with Amboy’s operations. The Company’s investment in Amboy is accounted for using the equity method.

The Company operates in two reportable segments: dredging and demolition.

Results of Operations

The following table sets forth the components of net income (loss) attributable to Great Lakes Dredge & Dock Corporation and EBITDA, as defined below, as a percentage of contract revenues for the three and six months ended June 30, 2010 and 2009:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  

Contract revenues

     100.0 %     100.0 %     100.0 %     100.0 %

Costs of contract revenues

     (80.8 )     (80.0 )     (80.9 )     (82.7 )

Gross profit

     19.2        20.0        19.1        17.3   

General and administrative expenses

     (7.9 )     (8.1 )     (7.4 )     (6.8 )

Amortization of intangible assets

     (0.1 )     (0.1 )     (0.1 )     (0.1 )

Operating income

     11.2        11.8        11.6        10.4