Great Lakes Dredge & Dock Corporation
Great Lakes Dredge & Dock CORP (Form: 10-Q, Received: 08/05/2011 16:47:59)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended June 30, 2011

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   x     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 1, 2011, 58,915,249 shares of the Registrant’s Common Stock, par value $.0001 per share, were outstanding.

 

 

 


Table of Contents

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, 2011

INDEX

 

         Page  

Part I

  Financial Information (Unaudited)   
 

Item 1

  

Financial Statements

  
    

Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010

     3   
    

Condensed Consolidated Statements of Operations for the Three Months and Six Months ended June  30, 2011 and 2010

     4   
    

Condensed Consolidated Statements of Equity for the Six Months ended June 30, 2011 and 2010

     5   
    

Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2011 and 2010

     6   
    

Notes to Condensed Consolidated Financial Statements

     7   
 

Item 2

  

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

     21   
 

Item 3

  

Quantitative and Qualitative Disclosures About Market Risk

     28   
 

Item 4

  

Controls and Procedures

     29   

Part II

  Other Information   
 

Item 1

  

Legal Proceedings

     30   
 

Item 1A

  

Risk Factors

     30   
 

Item 2

  

Unregistered Sales of Equity Securities and Use of Proceeds

     30   
 

Item 3

  

Defaults Upon Senior Securities

     30   
 

Item 4

  

Reserved

     30   
 

Item 5

  

Other Information

     30   
 

Item 6

  

Exhibits

     30   

Signature

     31   

Exhibit Index

     32   

 

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Table of Contents

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)

 

     June 30,
2011
     December 31,
2010
 

ASSETS

     

CURRENT ASSETS:

     

Cash and cash equivalents

   $ 95,997       $ 48,478   

Accounts receivable — net

     108,152         95,548   

Contract revenues in excess of billings

     27,120         24,842   

Inventories

     31,464         31,734   

Prepaid expenses

     2,787         3,448   

Other current assets

     30,580         18,919   
  

 

 

    

 

 

 

Total current assets

     296,100         222,969   

PROPERTY AND EQUIPMENT — Net

     309,296         323,231   

GOODWILL

     98,049         98,049   

OTHER INTANGIBLE ASSETS — Net

     1,987         3,280   

INVENTORIES — Noncurrent

     27,760         27,128   

INVESTMENTS IN JOINT VENTURES

     6,615         7,329   

OTHER

     17,527         11,839   
  

 

 

    

 

 

 

TOTAL

   $ 757,334       $ 693,825   
  

 

 

    

 

 

 

LIABILITIES AND EQUITY

     

CURRENT LIABILITIES:

     

Accounts payable

   $ 70,237       $ 82,721   

Accrued expenses

     33,911         32,809   

Billings in excess of contract revenues

     12,319         14,484   

Current portion of note payable

     2,500         2,500   

Current portion of equipment debt

     111         303   
  

 

 

    

 

 

 

Total current liabilities

     119,078         132,817   

LONG TERM NOTE PAYABLE

     5,000         5,000   

7 3/8% SENIOR NOTES

     250,000         —     

7 3/4% SENIOR SUBORDINATED NOTES

     —           175,000   

DEFERRED INCOME TAXES

     92,239         92,466   

OTHER

     9,516         11,717   
  

 

 

    

 

 

 

Total liabilities

     475,833         417,000   
  

 

 

    

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 9)

     

EQUITY:

     

Common stock—$.0001 par value; 90,000,000 authorized, 58,915,249 and 58,770,369 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively.

     6         6   

Additional paid-in capital

     266,961         266,329   

Accumulated earnings

     14,112         12,261   

Accumulated other comprehensive income

     109         357   
  

 

 

    

 

 

 

Total Great Lakes Dredge & Dock Corporation Equity

     281,188         278,953   

NONCONTROLLING INTERESTS

     313         (2,128
  

 

 

    

 

 

 

Total equity

     281,501         276,825   
  

 

 

    

 

 

 

TOTAL

   $ 757,334       $ 693,825   
  

 

 

    

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

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,
 
     2011     2010     2011     2010  

Contract revenues

   $ 154,959      $ 180,135      $ 310,297      $ 341,535   

Costs of contract revenues

     135,193        145,546        263,089        276,462   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     19,766        34,589        47,208        65,073   

General and administrative expenses

     13,622        14,374        25,711        25,444   

Gain on sale of assets, net

     (2,513     —          (2,771     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     8,657        20,215        24,268        39,629   

Interest expense, net

     (4,911     (2,995     (10,861     (6,215

Equity in loss of joint ventures

     (123     (131     (714     (853

Loss on extinguishment of debt

     —          —          (5,145     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     3,623        17,089        7,548        32,561   

Income tax provision

     (1,455     (6,755     (2,982     (12,994
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     2,168        10,334        4,566        19,567   

Net (income) loss attributable to noncontrolling interests

     (462     474        (468     567   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Great Lakes Dredge & Dock Corporation

   $ 1,706      $ 10,808      $ 4,098      $ 20,134   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 0.03      $ 0.18      $ 0.07      $ 0.34   

Basic weighted average shares

     58,875        58,602        58,830        58,575   

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

   $ 0.03      $ 0.18      $ 0.07      $ 0.34   

Diluted weighted average shares

     59,184        58,781        59,228        58,748   

Dividends declared per share

   $ 0.02      $ 0.02      $ 0.04      $ 0.03   

See notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

(Unaudited)

(in thousands, except share amounts)

 

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

BALANCE — January 1, 2011

    58,770,369      $ 6      $ 266,329      $ 12,261      $ 357      $ (2,128   $ 276,825   

Share-based compensation

    57,215        —          843        —          —          —          843   

Vesting of restricted stock units, including impact of shares withheld for taxes

    81,387        —          (250     —          —          —          (250

Exercise of stock options

    6,278        —          27        —          —          —          27   

Excess income tax benefit from share based compensation

    —          —          52        —          —          —          52   

Acquisition of noncontrolling interest in NASDI, LLC

    —          —          (40     —          —          1,973        1,933   

Dividends declared and paid

    —          —          —          (2,236     —          —          (2,236

Dividend equivalents paid on restricted stock units

    —          —          —          (11     —          —          (11

Comprehensive income (loss):

             

Net income

    —          —          —          4,098        —          468        4,566   

Reclassification of derivative gains to earnings (net of tax of $709)

    —          —          —          —          (1,067     —          (1,067

Change in fair value of derivatives (net of tax of $544)

    —          —          —          —          819        —          819   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

              468        4,318   
           

 

 

   

 

 

 

BALANCE — June 30, 2011

    58,915,249      $ 6      $ 266,961      $ 14,112      $ 109      $ 313      $ 281,501   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    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 restricted stock units, including impact of shares withheld for taxes

    13,202        —          —          —          —          —          —     

Exercise of stock options

    83,236        —          414        —          —          —          414   

Dividends declared and paid

    —          —          —          (1,992     —          —          (1,992

Dividend equivalents paid on restricted stock units

    —          —          —          (12     —          —          (12

Comprehensive income (loss):

                —     

Net income (loss)

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

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

    —          —          —          —          (216     —          (216

Change in fair value of derivatives (net of tax 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   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

     Six Months Ended
June 30,
 
     2011     2010  

OPERATING ACTIVITIES:

    

Net income

   $ 4,566      $ 19,567   

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

    

Depreciation and amortization

     18,804        17,993   

Equity in loss of joint ventures

     714        853   

Loss on extinguishment of 7 3/4% senior subordinated notes

     5,145        —     

Deferred income taxes

     1,010        (2,958

Gain on dispositions of property and equipment

     (2,771     (255

Amortization of deferred financing fees

     775        803   

Share-based compensation expense

     843        861   

Excess income tax benefit from share based compensation

     (52     —     

Changes in assets and liabilities:

    

Accounts receivable

     (13,025     18,934   

Contract revenues in excess of billings

     (2,278     14,867   

Inventories

     (362     1,823   

Prepaid expenses and other current assets

     (12,432     2,093   

Accounts payable and accrued expenses

     (5,523     577   

Billings in excess of contract revenues

     (2,165     2,189   

Other noncurrent assets and liabilities

     (3,694     (1,702
  

 

 

   

 

 

 

Net cash flows provided by (used in) operating activities

     (10,445     75,645   

INVESTING ACTIVITIES:

    

Purchases of property and equipment

     (13,583     (12,973

Proceeds from dispositions of property and equipment

     7,275        210   
  

 

 

   

 

 

 

Net cash flows used in investing activities

     (6,308     (12,763

FINANCING ACTIVITIES:

    

Proceeds from issuance of 7 3/8% senior notes

     250,000        —     

Redemption of 7 3/4% senior subordinated notes

     (175,000     —     

Senior subordinated notes redemption premium

     (2,264     —     

Deferred financing fees

     (5,829     —     

Dividends paid

     (2,236     (1,992

Dividend equivalents paid on restricted stock units

     (11     (12

Taxes paid on vested share awards

     (250     —     

Repayments of equipment debt

     (217     (740

Exercise of stock options

     27        414   

Excess income tax benefit from share-based compensation

     52        —     

Borrowings under revolving loans

     —          14,968   

Repayments of revolving loans

     —          (25,968
  

 

 

   

 

 

 

Net cash flows provided by (used in) financing activities

     64,272        (13,330
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     47,519        49,552   

Cash and cash equivalents at beginning of period

     48,478        3,250   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 95,997      $ 52,802   
  

 

 

   

 

 

 

Supplemental Cash Flow Information

    

Cash paid for interest

   $ 2,728      $ 6,747   
  

 

 

   

 

 

 

Cash paid for income taxes

   $ 5,155      $ 8,431   
  

 

 

   

 

 

 

Non-cash Investing Activity

    

Property and equipment purchased but not yet paid

   $ 4,303      $ 1,444   
  

 

 

   

 

 

 

Property and equipment purchased on equipment notes

   $ —        $ 32   
  

 

 

   

 

 

 

Acquisition of noncontrolling interest in NASDI, LLC

   $ 40      $ —     
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

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, 2010. 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 the SEC’s 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 (except as otherwise noted), that are necessary to present fairly the Company’s financial position as of June 30, 2011, its results of operations for the three and six months ended June 30, 2011 and 2010 and its cash flows for the six months ended June 30, 2011 and 2010 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 has reclassified certain of its gains, net of losses, on the sale of assets during the first quarter of 2011, of $258, from costs of contract revenues to gain on sale of assets, net within the consolidated statement of operations to conform to the current year presentation. In the prior year gains, net of losses, on the sale of assets included in costs of contract revenues were $62 and $236 for the three and six months ended June 30, 2010.

The Company’s cost structure includes significant annual equipment-related costs, including depreciation, maintenance, insurance and long-term rentals. These costs have averaged approximately 21% to 22% 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 operates in two reportable segments: dredging and demolition. These reportable segments are the Company’s operating segments and the reporting units at which the Company tests goodwill for impairment. The Company performed its most recent annual test of impairment as of July 1, 2010 for the goodwill in both the dredging and demolition segments with no indication of goodwill impairment as of the test date. As of the test date, the fair value of both the dredging segment and the demolition segment were in excess of their carrying values by approximately 25%. The decline in the operating results and related cash flow forecasts in the demolition segment during the past year has likely reduced the amount by which the estimated fair value of the demolition segment exceeds the carrying value of the demolition segment’s assets. 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 2011 because no triggering event occurred that would require a test to be performed. The Company will perform its next scheduled annual test of goodwill in the third quarter of 2011.

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.

Future adoption of accounting standards

In May 2011, the Financial Accounting Standards Board (“FASB”) issued an amendment to their accounting guidance to clarify existing standards and to improve comparability of fair value measurements disclosed in financial statements prepared in accordance with GAAP and International Financial Reporting Standards (“IFRS”). The amendment clarifies the FASB’s intent as it relates to existing measurement guidance and revises some requirements for measuring or disclosing information about fair value measurements. The amendment will be effective for Great Lakes on January 1, 2012 and is not expected to have a significant impact our consolidated financial statements.

In June 2011, the FASB issued an amendment to their accounting guidance that requires presentation of net income and total comprehensive income, together with their components, either in a single continuous statement or in two separate but consecutive statements. The amendment does not alter any current recognition or measurement requirements in respect of items of other comprehensive income. When adopted, Great Lakes will cease to present the components of other comprehensive income within the statements of equity. The amendment will be effective for Great Lakes on January 1, 2012, with early adoption permitted.

 

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Table of Contents
  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. At June 30, 2011 and 2010, the impact of options to purchase shares of common stock was dilutive and, accordingly, no options are excluded from the calculation of diluted earnings per share based on the application of the treasury stock method. In addition, the impact of restricted stock units was dilutive. The computations for basic and diluted earnings per share from continuing operations are as follows:

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2011      2010      2011      2010  

Numerator:

           

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

   $ 1,706       $ 10,808       $ 4,098       $ 20,134   

Denominator:

           

Denominator for basic earnings per share - weighted average shares outstanding

     58,875         58,602         58,830         58,575   

Dilutive impact of outstanding restricted stock units issued

     180         135         216         134   

Dilutive impact of outstanding stock options issued

     129         44         182         39   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator for diluted earnings per share adjusted weighted average shares

     59,184         58,781         59,228         58,748   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 0.03       $ 0.18       $ 0.07       $ 0.34   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 0.03       $ 0.18       $ 0.07       $ 0.34   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  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.

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, 2011, the Company held certain derivative contracts that it uses to manage commodity price risk and interest rate risk. The Company does not hold or issue derivatives for speculative or trading purposes. At June 30, 2011 the Company held a position in a money market fund where quoted prices are not available in an active market. The fair value of these financial instruments are summarized as follows:

 

            Fair Value Measurements at Reporting Date Using  

Description

   At June 30,
2011
     Quoted Prices in
Active  Markets for
Identical Assets
(Level 1)
     Significant Other
Observable  Inputs
(Level 2)
     Significant
Unobservable  Inputs
(Level 3)
 

Cash equivalents

   $ 20,012       $ —         $ 20,012       $ —     

Fuel hedge contracts

     182         —           182         —     

Interest rate swap contracts-assets

     1,141         —           —           1,141   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value

   $ 21,335       $ —         $ 20,194       $ 1,141   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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            Fair Value Measurements at Reporting Date Using  

Description

   At December 31,
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

   $ 595       $ —         $ 595       $ —     

Interest rate swap contracts-assets

     1,264         —           —           1,264   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value

   $ 1,859       $ —         $ 595       $ 1,264   
  

 

 

    

 

 

    

 

 

    

 

 

 

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. Although the senior subordinated notes were redeemed in January 2011, the swaps remained in place. 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
 
     2011     2010  

Balance at January 1,

   $ 1,264      $ (20

Total unrealized gains (losses): included in earnings

     (568     773   

Settlements

     445        440   
  

 

 

   

 

 

 

Balance at June 30,

   $ 1,141      $ 1,193   
  

 

 

   

 

 

 
     Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3) Interest Rate Swaps
    Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3) Interest Rate Swaps
 
     2011     2010  

Balance at April 1,

   $ 1,299      $ 774   

Total unrealized losses: included in earnings

     (603     (21

Settlements

     445        440   
  

 

 

   

 

 

 

Balance at June 30,

   $ 1,141      $ 1,193   
  

 

 

   

 

 

 

Fuel hedge contracts

The Company is exposed to certain market risks, primarily commodity price risk as it relates to the diesel fuel purchase requirements, which occur in the normal course of business. The Company enters into heating oil commodity swap contracts to hedge the risk that fluctuations in diesel fuel prices will have an adverse impact on cash flows associated with its domestic dredging contracts. The Company’s goal is to hedge approximately 80% of the fuel requirements for work in backlog.

As of June 30, 2011, the Company was party to various swap arrangements to hedge the price of a portion of its diesel fuel purchase requirements for work in its backlog to be performed through December 2011. As of June 30, 2011, there were 2.7 million gallons remaining on these contracts which represent approximately 76% of the Company’s forecasted fuel purchases through December 2011. Under these swap agreements, the Company will pay fixed prices ranging from $2.35 to $3.33 per gallon.

 

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At June 30, 2011 and December 31, 2010, the fair value asset of the fuel hedge contracts was estimated to be $299 and $595, respectively, and is recorded in other current assets. The gain reclassified to earnings from changes in fair value of derivatives, net of cash settlements and taxes, for the period ended June 30, 2011 was $1,067. The remaining gains included in accumulated other comprehensive income at June 30, 2011 will be reclassified into earnings over the next six 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 the money market fund, interest rate and fuel hedge contracts outstanding as of June 30, 2011 and December 31, 2010 is as follows:

 

     Fair Value  
     At June 30, 2011  
     Balance Sheet Location    Fair Value
Asset
     Balance Sheet
Location
   Fair Value
Liability
 

Cash equivalents

   Cash and cash equivalents    $ 20,012         

Fuel hedge contracts

   Other current assets      299      Accrued expenses    $ (117

Interest rate swaps

   Other current assets      1,101       Accrued expenses      (86

Interest rate swaps

   Other assets      126       Other liabilities      —     
     

 

 

       

 

 

 

Total

      $ 21,538          $ (203
     

 

 

       

 

 

 
     Fair Value  
     At December 31, 2010  
     Balance Sheet Location    Fair Value
Asset
     Balance Sheet
Location
   Fair Value
Liability
 

Interest rate swaps

   Other current assets    $ 816       Other liabilities    $ —     

Interest rate swaps

   Other assets      448       Other liabilities      —     

Fuel hedge contracts

   Other current assets      595       Accrued expenses      —     
     

 

 

       

 

 

 

Total

      $ 1,859          $ —     
     

 

 

       

 

 

 

Other financial instruments

The carrying value of financial instruments included in current assets and current liabilities approximates fair value due to the short-term maturities of these instruments. In January 2011, the Company issued $250,000 of 7.375% senior notes due February 1, 2019, which were outstanding at June 30, 2011. The senior notes are senior unsecured obligations of the Company and its subsidiaries that guarantee the senior notes. The fair value of the senior notes was $246,875 at June 30, 2011, based on recent transactions.

 

  4. Share based compensation

The Company’s 2007 Long-Term Incentive Plan permits the grant of stock options, stock appreciation rights, restricted stock and restricted stock units to its employees and directors for up to 5.8 million shares of common stock. The Company believes that such awards better align the interests of its employees with those of its shareholders and attract and retain the best possible talent.

In June 2011, the Company granted 444,178 options to purchase shares of common stock and 263,428 restricted stock units to certain employees pursuant to the plan. In addition all non-employee directors on the Company’s board of directors are paid a portion of their compensation in stock grants. Compensation cost charged to income related to all share-based compensation arrangements was $323 and $843, respectively, for the three months and six months ended June 30, 2011 and $561 and $861, respectively, for the three and six months ended June 30, 2010.

 

  5. Accounts receivable

Accounts receivable at June 30, 2011 and December 31, 2010 are as follows:

 

     June 30,     December 31,  
     2011     2010  

Completed contracts

   $ 26,964      $ 20,093   

Contracts in progress

     64,041        64,399   

Retainage

     18,786        12,711   
  

 

 

   

 

 

 
     109,791        97,203   

Allowance for doubtful accounts

     (1,639     (1,655
  

 

 

   

 

 

 

Total accounts receivable

   $ 108,152      $ 95,548   
  

 

 

   

 

 

 

 

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At June 30, 2011 and December 31, 2010, $6,344 and $5,923, respectively, of retainage from long-term projects was not expected to be collected within the next twelve months and is classified as other non-current assets.

 

  6. Contracts in progress

The components of contracts in progress at June 30, 2011 and December 31, 2010 are as follows:

 

     June 30,     December 31,  
     2011     2010  

Costs and earnings in excess of billings:

    

Costs and earnings for contracts in progress

   $ 289,449      $ 287,291   

Amounts billed

     (263,335     (263,665
  

 

 

   

 

 

 

Costs and earnings in excess of billings for contracts in progress

     26,114        23,626   

Costs and earnings in excess of billings for completed contracts

     1,006        1,216   
  

 

 

   

 

 

 

Total contract revenues in excess of billings

   $ 27,120      $ 24,842   
  

 

 

   

 

 

 

Billings in excess of costs and earnings:

    

Amounts billed

   $ (430,920   $ (429,688

Costs and earnings for contracts in progress

     418,601        415,204   
  

 

 

   

 

 

 

Total billings in excess of contract revenues

   $ (12,319   $ (14,484
  

 

 

   

 

 

 

 

  7. Accrued expenses

Accrued expenses at June 30, 2011 and December 31, 2010 are as follows:

 

     June 30,      December 31,  
     2011      2010  

Insurance

   $ 9,669       $ 11,039   

Payroll and employee benefits

     8,338         13,573   

Interest

     7,837         604   

Percentage of completion adjustment

     4,750         3,232   

Income and other taxes

     1,257         2,977   

Other

     2,060         1,384   
  

 

 

    

 

 

 

Total accrued expenses

   $ 33,911       $ 32,809   
  

 

 

    

 

 

 

 

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  8. Segment information

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

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  

Dredging

        

Contract revenues

   $ 125,085      $ 165,599      $ 261,682      $ 314,640   

Operating income

     13,594        21,462        31,415        41,031   

Demolition

        

Contract revenues

   $ 29,874      $ 14,536      $ 48,615      $ 26,895   

Operating loss

     (4,937     (1,247     (7,147     (1,402

Total

        

Contract revenues

   $ 154,959      $ 180,135      $ 310,297      $ 341,535   

Operating income

     8,657        20,215        24,268        39,629   

In addition, foreign dredging revenue of $16,065 and $37,936 for the three months and six months ended June 30, 2011 and $13,641 and $39,213 for the three months and six months ended June 30, 2010, respectively, was primarily attributable to work done 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 entered into a credit agreement (the “Credit Agreement”) with Bank of America N.A. as administrative agent and issuing lender, various other financial institutions as lenders and certain subsidiaries of the Company as loan parties. The Credit Agreement provides for a revolving credit facility of up to $145,000 in borrowings and includes sublimits for the issuance of letters of credit and swingline loans. The revolving credit facility matures on June 12, 2012. The revolving credit facility bears interest at rates selected at the option of Great Lakes, currently equal to either LIBOR plus an applicable margin or the Base Rate (as defined in the Credit Agreement), plus an applicable margin. The applicable margins for LIBOR loans and Base Rate loans, as well as any non-use fee, are subject to adjustment based upon the Company’s ratio of Total Funded Debt to Adjusted Consolidated EBITDA (each as defined in the Credit Agreement). As of June 30, 2011, the Company had no borrowings and $9,119 of letters of credit outstanding, resulting in $135,881 of availability under the Credit Agreement.

The Company obtains its performance, bid and payment bonds through a bonding agreement (the “Bonding Agreement”) with Travelers Casualty and Surety Company of America. 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, 2011, Great Lakes had outstanding bonds valued at $297,869; however, the revenue value remaining in backlog related to these projects totaled $120,439.

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, 2011, Great Lakes had $15,703 of letters of credit outstanding under this facility.

The Company also has $250,000 of 7.375% senior notes outstanding, which mature in February 2019.

The Company’s obligations under the Credit Agreement and Bonding Agreement are secured by liens on a substantial portion of Great Lakes’ assets. As of December 31, 2010, the net book value of the Company’s operating equipment securing the Company’s obligations under the Credit Agreement and Bonding Agreement was $95,658 and $70,662, respectively. Great Lakes’ obligations under its international letter of credit facility are secured by the Company’s foreign accounts receivable.

The Credit Agreement, the Bonding Agreement and the indenture relating to the senior notes contain various restrictive covenants, including a limitation on dividends, limitations on redemption and repurchases of capital stock, limitations on the incurrence of additional indebtedness and requirements to maintain certain financial covenants.

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.

 

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Table of Contents

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 asbestos-related personal injury lawsuits, the majority of which were filed between 1989 and 2000. 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. Over the last year, hundreds of lawsuits have been reactivated in an effort to clean out the administrative docket. Prior to the commencement of discovery in any of the reactivated cases, counsel for plaintiffs agreed to name a group of cases that they intended to pursue and to dismiss the remaining cases without prejudice. Plaintiffs have currently named 38 cases against the Company that they intend to pursue, each of which involves one plaintiff. The remaining cases against the Company either have been or will be dismissed. Plaintiffs in the dismissed cases could file a new lawsuit if they develop a new disease allegedly caused by exposure to asbestos on board our vessels. The Company is presently unable to quantify the amounts of damages being sought in these lawsuits because none of the complaints specify a damage amount. The Company does not believe that it is probable that losses from these claims could be material, and an estimate of a range of losses relating to these claims cannot reasonably be made. Based on the foregoing, management does not believe that any of the 38 lawsuits will have a material impact on our business, financial position, results of operations or cash flows.

On August 26, 2009, the Company’s subsidiary NASDI, LLC (“NASDI”) received a letter stating that the Attorney General for the Commonwealth of Massachusetts is investigating alleged violations of the Massachusetts Solid Waste Act. The Company believes that the Massachusetts 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. Per the Massachusetts Attorney General’s request, NASDI executed a tolling agreement regarding the matter and has engaged in further discussions with the Massachusetts Attorney General’s office. The matter remains open, and, to the Company’s knowledge, no proceedings have currently been initiated against NASDI. Should a claim be brought, NASDI intends to defend itself vigorously. Based on consideration of all of the facts and circumstances now known, the Company does not believe this claim will have a material impact on its business, financial position, results of operations or cash flows.

On March 27, 2011, NASDI received a subpoena from a federal grand jury in the District of Massachusetts directing NASDI to furnish certain documents relating to certain projects performed by NASDI since January 2005. The Company is continuing to conduct an internal investigation into this matter and continues to fully cooperate with the federal grand jury subpoena. Based on the early stage of the U.S. Department of Justice’s investigation and the limited information known to the Company, the Company cannot predict the outcome of the investigation, the U.S. Attorney’s views of the issues being investigated, any action the U.S. Attorney may take, or the impact, if any, that this matter may have on the Company’s business, financial position, results of operations or cash flows.

On April 6, 2011, NASDI received a subpoena from the District Attorney for Richmond County, New York in connection with a grand jury investigation. The subpoena directs NASDI to furnish certain documents relating to one project performed by NASDI and one of its subcontractors. The subpoena appears to be related to the activities of NASDI’s subcontractor for this project. The Company fully complied with the production of requested documents and has received no further communications. Based on the Company’s internal investigation to date, the Company does not believe that it will have any liability with respect to this matter. In addition, the Company intends to continue to fully cooperate with the New York grand jury subpoena.

The Company has not accrued any amounts with respect to these NASDI matters as the Company does not believe, based on information currently known to it, that a loss relating to these matters is probable, and an estimate of a range of potential losses relating to these matters cannot reasonably be made.

 

  10. Acquisition of noncontrolling interest

Effective January 1, 2011 the Company reacquired Mr. Christopher Berardi’s membership interest in NASDI for no cost per terms of NASDI’s limited liability company agreement. This resulted in the elimination of noncontrolling interest of $1,973 during the first quarter ended March 31, 2011. The Company now owns 100% of NASDI.

In March 2011, Mr. Berardi resigned his employment with the Company’s demolition segment effective April 29, 2011. Mr. Berardi’s resignation and the repurchase of his NASDI membership interest also resulted in the reversal of a $1,933 accrual established in conjunction with a prior restructuring of ownership interest in NASDI. This reversal was recorded directly to equity as part of the reacquisition of the noncontrolling interest.

 

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Table of Contents
  11. Subsidiary guarantors

The Company’s long-term debt at June 30, 2011 includes $250,000 of 7.375% senior notes due February 1, 2019. The Company’s obligations under these senior unsecured notes are guaranteed by the Company’s wholly-owned domestic subsidiaries. Such guarantees are full, unconditional and joint and several.

In connection with the private placement of the senior unsecured notes, the Company entered into an agreement giving registration rights to initial purchasers of the senior unsecured notes (the “Registration Rights Agreement”). The terms of the Registration Rights Agreement require, among other things, that the Company will use its commercially reasonable efforts to consummate an offer (“the “Exchange Offer”) to exchange the senior notes for registered, publicly tradable notes that have substantially identical terms as the senior notes (the “Exchange Notes”). The Exchange Notes will be guaranteed by the Company’s wholly-owned domestic subsidiaries (the “Exchange Notes Guarantors”). The Company commenced the Exchange Offer in August 2011 and expects to consummate the Exchange Offer in September 2011. The Exchange Note Guarantors are presented in this supplemental financial information as “Subsidiary Guarantors” as if the Exchange Notes and the guarantees of the Exchange Notes Guarantors had been outstanding at June 30, 2011. The Exchange Notes are not included in this supplemental financial information as they were not outstanding at June 30, 2011.

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

 

  (i) balance sheets as of June 30, 2011 and December 31, 2010;

 

  (ii) statements of operations for the three and six months ended June 30, 2011 and 2010; and

 

  (iii) statements of cash flows for the six months ended June 30, 2011 and 2010.

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2011

(In thousands)

 

 

     Subsidiary
Guarantors
     Non-Guarantor
Subsidiaries
     GLDD
Corporation
     Eliminations     Consolidated
Totals
 
ASSETS              

CURRENT ASSETS:

             

Cash and cash equivalents

   $ 95,598       $ 399       $ —         $ —        $ 95,997   

Accounts receivable—net

     105,131         3,021         —           —          108,152   

Receivables from affiliates

     30,854         7,305         60,917         (99,076     —     

Contract revenues in excess of billings

     27,105         101         —           (86     27,120   

Inventories

     31,464         —           —           —          31,464   

Prepaid expenses

     2,656         —           131         —          2,787   

Other current assets

     20,024         7         10,549         —          30,580   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     312,832         10,833         71,597         (99,162     296,100   

PROPERTY AND EQUIPMENT—Net

     309,137         159         —           —          309,296   

GOODWILL

     97,799         250         —           —          98,049   

OTHER INTANGIBLE ASSETS—Net

     1,786         201         —           —          1,987   

INVESTMENTS IN SUBSIDIARIES

     3,525         —           556,129         (559,654     —     

INVENTORIES — Noncurrent

     27,760         —           —           —          27,760   

INVESTMENTS IN JOINT VENTURES

     6,615         —           —           —          6,615   

OTHER ASSETS

     12,406         —           6,333         (1,212     17,527   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL

   $ 771,860       $ 11,443       $ 634,059       $ (660,028   $ 757,334   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND EQUITY

             

CURRENT LIABILITIES:

             

Accounts payable

   $ 68,896       $ 1,341       $ —         $ —          70,237   

Payables to affiliates

     93,013         5,001         420         (98,434     —     

Accrued expenses

     25,269         787         7,855         —          33,911   

Billings in excess of contract revenues

     12,258         789         —           (728     12,319   

Current portion of note payable

     2,500         —           —           —          2,500   

Current portion of equipment debt

     111         —           —           —          111   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     202,047         7,918         8,275         (99,162     119,078   

LONG TERM NOTE PAYABLE

     5,000         —           —           —          5,000   

7 3/8% SENIOR NOTES

     —           —           250,000         —          250,000   

DEFERRED INCOME TAXES

     —           —           93,451         (1,212     92,239   

OTHER

     8,684         —           832         —          9,516   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     215,731         7,918         352,558         (100,374     475,833   

Total Great Lakes Dredge & Dock Corporation Equity

     556,129         3,525         281,188         (559,654     281,188   

NONCONTROLLING INTERESTS

     —           —           313         —          313   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL EQUITY

     556,129         3,525         281,501         (559,654     281,501   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL

   $ 771,860       $ 11,443       $ 634,059       $ (660,028   $ 757,334   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2010

(In thousands)

 

 

     Subsidiary
Guarantors
     Non-Guarantor
Subsidiaries
     GLDD
Corporation
    Eliminations     Consolidated
Totals
 
ASSETS             

CURRENT ASSETS:

            

Cash and cash equivalents

   $ 48,416       $ 62       $ —        $ —        $ 48,478   

Accounts receivable—net

     93,983         1,565         —          —          95,548   

Receivables from affiliates

     5,338         5,798         6,745        (17,881     —     

Contract revenues in excess of billings

     24,777         94         —          (29     24,842   

Inventories

     31,734         —           —          —          31,734   

Prepaid expenses

     3,246         —           202        —          3,448   

Other current assets

     9,853         8         9,058        —          18,919   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     217,347         7,527         16,005        (17,910     222,969   

PROPERTY AND EQUIPMENT—Net

     322,958         273         —          —          323,231   

GOODWILL

     97,799         250         —          —          98,049   

OTHER INTANGIBLE ASSETS—Net

     3,017         263         —          —          3,280   

INVESTMENTS IN SUBSIDIARIES

     2,311         —           528,425        (530,736     —     

INVENTORIES — Noncurrent

     27,128         —           —          —          27,128   

INVESTMENTS IN JOINT VENTURES

     7,329         —           —          —          7,329   

OTHER ASSETS

     7,704         —           4,350        (215     11,839   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

TOTAL

   $ 685,593       $ 8,313       $ 548,780      $ (548,861   $ 693,825   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

            

CURRENT LIABILITIES:

            

Accounts payable

   $ 81,534       $ 1,187       $ —        $ —        $ 82,721   

Payables to affiliates

     14,151         3,655         —          (17,806     —     

Accrued expenses

     30,511         693         1,605        —          32,809   

Billings in excess of contract revenues

     14,121         467         —          (104     14,484   

Current portion of note payable

     2,500         —           —          —          2,500   

Current portion of equipment debt

     303         —           —          —          303   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current liabilities

     143,120         6,002         1,605        (17,910     132,817   

LONG TERM NOTE PAYABLE

     5,000         —           —          —          5,000   

7 3/4% SENIOR SUBORDINATED NOTES

     —           —           175,000        —          175,000   

DEFERRED INCOME TAXES

     —           —           92,681        (215     92,466   

OTHER

     9,048         —           2,669        —          11,717   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities

     157,168         6,002         271,955        (18,125     417,000   

Total Great Lakes Dredge & Dock Corporation Equity

     528,425         2,311         278,953        (530,736     278,953   

NONCONTROLLING INTERESTS

     —           —           (2,128     —          (2,128
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

TOTAL EQUITY

     528,425         2,311         276,825        (530,736     276,825   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

TOTAL

   $ 685,593       $ 8,313       $ 548,780      $ (548,861   $ 693,825   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

16


Table of Contents

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING INCOME STATEMENT

FOR THE THREE MONTHS ENDED JUNE 30, 2011

(In thousands)

 

 

     Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    GLDD
Corporation
    Eliminations     Consolidated
Totals
 

CONTRACT REVENUES

   $ 151,223      $ 6,269      $ —        $ (2,533   $ 154,959   

COSTS OF CONTRACT REVENUES

     (132,879     (4,847     —          2,533        (135,193
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GROSS PROFIT

     18,344        1,422        —          —          19,766   

OPERATING EXPENSES

          

General and administrative expenses

     12,522        208        892        —          13,622   

Gain on sale of assets

     (2,513     —          —          —          (2,513
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating income (loss)

     8,335        1,214        (892     —          8,657   

INTEREST EXPENSE (Net)

     (49     (54     (4,808     —          (4,911

EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES

     1,160        —          11,567        (12,727     —     

EQUITY IN LOSS OF JOINT VENTURE

     (123     —          —          —          (123

LOSS ON EXTENGUISHMENT OF DEBT

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

     9,323        1,160        5,867        (12,727     3,623   

INCOME TAX (PROVISION) BENEFIT

     2,244        —          (3,699     —          (1,455
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS)

     11,567        1,160        2,168        (12,727     2,168   

NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS

     —          —          (462     —          (462
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 11,567      $ 1,160      $ 1,706      $ (12,727   $ 1,706   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING INCOME STATEMENT

FOR THE THREE MONTHS ENDED JUNE 30, 2010

(In thousands)

 

 

     Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    GLDD
Corporation
    Eliminations     Consolidated
Totals
 

CONTRACT REVENUES

   $ 179,218      $ 1,703      $ —        $ (786   $ 180,135   

COSTS OF CONTRACT REVENUES

     (144,436     (1,896     —          786        (145,546
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GROSS PROFIT

     34,782        (193     —          —          34,589   

General and administrative expenses

     13,296        152        926        —          14,374   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating income (loss)

     21,486        (345     (926     —          20,215   

INTEREST EXPENSE (Net)

     3        (18     (2,980     —          (2,995

EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES

     (363     —          21,354        (20,991     —     

EQUITY IN LOSS OF JOINT VENTURE

     (131     —          —          —          (131
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

     20,995        (363     17,448        (20,991     17,089   

INCOME TAX PROVISION

     359        —          (7,114     —          (6,755
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS)

     21,354        (363     10,334        (20,991     10,334   

NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS

     —          —          474        —          474   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 21,354      $ (363   $ 10,808      $ (20,991   $ 10,808   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING INCOME STATEMENT

FOR THE SIX MONTHS ENDED JUNE 30, 2011

(In thousands)

 

 

     Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    GLDD
Corporation
    Eliminations     Consolidated
Totals
 

CONTRACT REVENUES

   $ 305,262      $ 9,586      $ —        $ (4,551   $ 310,297   

COSTS OF CONTRACT REVENUES

     (259,788     (7,852     —          4,551        (263,089
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GROSS PROFIT (LOSS)

     45,474        1,734        —          —          47,208   

OPERATING EXPENSES

          

General and administrative expenses

     23,726        421        1,564        —          25,711   

Gain on sale of assets

     (2,771     —          —          —          (2,771
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating income

     24,519        1,313        (1,564     —          24,268   

INTEREST EXPENSE (Net)

     (129     (99     (10,633     —          (10,861

EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES

     1,214        —          28,118        (29,332     —     

EQUITY IN LOSS OF JOINT VENTURE

     (714     —          —          —          (714

LOSS ON EXTENGUISHMENT OF DEBT

     —          —          (5,145     —          (5,145
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

     24,890        1,214        10,776        (29,332     7,548   

INCOME TAX (PROVISION) BENEFIT

     3,228        —          (6,210     —          (2,982
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS)

     28,118        1,214        4,566        (29,332     4,566   

NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS

     —          —          (468     —          (468
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 28,118      $ 1,214      $ 4,098      $ (29,332   $ 4,098   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING INCOME STATEMENT

FOR THE SIX MONTHS ENDED JUNE 30, 2010

(In thousands)

 

 

     Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    GLDD
Corporation
    Eliminations     Consolidated
Totals
 

CONTRACT REVENUES

   $ 340,047      $ 3,529      $ —        $ (2,041   $ 341,535   

COSTS OF CONTRACT REVENUES

     (274,968     (3,535     —          2,041        (276,462
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GROSS PROFIT

     65,079        (6     —          —          65,073   

OPERATING EXPENSES

          

General and administrative expenses

     23,480        347        1,617        —          25,444   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating income (loss)

     41,599        (353     (1,617     —          39,629   

INTEREST EXPENSE (Net)

     (4     (37     (6,174     —          (6,215

EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES

     (390     —          40,702        (40,312     —     

EQUITY IN LOSS OF JOINT VENTURE

     (853     —          —          —          (853
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

     40,352        (390     32,911        (40,312     32,561   

INCOME TAX PROVISION

     350        —          (13,344     —          (12,994
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS)

     40,702        (390     19,567        (40,312     19,567   

NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS

     —          —          567        —          567   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 40,702      $ (390   $ 20,134      $ (40,312   $ 20,134   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

AS OF JUNE 30, 2011

(In thousands)

 

 

     Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    GLDD
Corporation
    Eliminations      Consolidated
Totals
 

OPERATING ACTIVITIES —

           

Net cash flows provided by (used in) operating activities

   $ 3,004      $ 3,230      $ (16,679   $ —         $ (10,445

INVESTING ACTIVITIES:

           

Purchases of property and equipment

     (13,583     —          —          —           (13,583

Dispositions of property and equipment

     7,275        —          —          —           7,275   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash flows used in investing activities

     (6,308     —          —          —           (6,308
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

FINANCING ACTIVITIES:

           

Proceeds from issuance of 7 3/8% senior unsecured notes

     —          —          250,000        —           250,000   

Redemption of 7 3/4% senior subordinated notes

     —          —          (175,000     —           (175,000

Senior subordinated notes redemption premium

     —          —          (2,264     —           (2,264

Deferred financing fees

     —          —          (5,829     —           (5,829

Dividends paid

     —          —          (2,236     —           (2,236

Dividend equivalents paid on restricted stock units

     —          —          (11     —           (11

Taxes paid on vested share awards

     —          —          (250     —           (250

Net change in accounts with affiliates

     50,703        (2,893     (47,810     —           —     

Repayments of long-term debt

     (217     —          —          —           (217

Exercise of stock options

     —          —          27        —           27   

Excess income tax benefit from share-based compensation

     —          —          52        —           52   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash flows provided by (used in) financing activities

     50,486        (2,893     16,679        —           64,272   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

NET CHANGE IN CASH AND EQUIVALENTS

     47,182        337        —          —           47,519   

CASH AND CASH EQUIVALENTS — Beginning of year

     48,416        62        —          —           48,478   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

CASH AND CASH EQUIVALENTS — End of year

   $ 95,598      $ 399      $ —        $ —         $ 95,997   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

AS OF JUNE 30, 2010

(In thousands)

 

 

     Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    GLDD
Corporation
    Eliminations      Consolidated
Totals
 

OPERATING ACTIVITIES —

           

Net cash flows provided by (used in) operating activities

   $ 98,716      $ 1,336      $ (24,407   $ —         $ 75,645   

INVESTING ACTIVITIES:

           

Purchases of property and equipment

     (12,973     —          —          —           (12,973

Dispositions of property and equipment

     210        —          —          —           210   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash flows used in investing activities

     (12,763     —          —          —           (12,763
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

FINANCING ACTIVITIES:

           

Dividends paid

     —          —          (1,992     —           (1,992

Dividend equivalents paid on restricted stock units

     —          —          (12     —           (12

Net change in accounts with affiliates

     (36,063     (1,348     37,411        —           —     

Repayments of long-term debt

     (740     —          —          —           (740

Exercise of stock options

     414        —          —          —           414   

Borrowings under revolving loans

     —          —          14,968        —           14,968   

Repayments of revolving loans

     —          —          (25,968     —           (25,968
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash flows provided by (used in) financing activities

     (36,389     (1,348     24,407        —           (13,330
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

NET CHANGE IN CASH AND EQUIVALENTS

     49,564        (12     —          —           49,552   

CASH AND CASH EQUIVALENTS — Beginning of year

     3,028        222        —          —           3,250   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

CASH AND CASH EQUIVALENTS — End of year

   $ 52,592      $ 210      $ —        $ —         $ 52,802   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

20


Table of Contents
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,” “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 with respect to Great Lakes, include, but are not limited to, 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, 2010, as updated by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, 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 14% of its dredging revenues for the first six months of 2011, compared with the Company’s three year average of 23%. 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. The Company experienced an average combined bid market share in the U.S. of 39% over the last three years, including 44%, 32% and 52% 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”). With the acquisition of L.W. Matteson, Inc. (“Matteson”), on January 1, 2011 the Company began to provide the following additional dredging and other services: inland lake and river dredging, inland levee and construction dredging, environmental restoration and habitat improvement and other marine construction. The foregoing bid market shares do not reflect Matteson’s activities prior to December 31, 2010.

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 2011, 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 54% of dredging revenues, down slightly from the Company’s three year average of 60%.

The Company’s demolition subsidiaries are headquartered in the Boston, Massachusetts area. In the first six months of 2011, demolition revenues accounted for 16% of total revenues, above the prior three year average of 12%. The demolition segment’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 the work has historically been performed in New England; however, the primary demolition subsidiary, NASDI, LLC (“NASDI”) continues to expand its footprint primarily into the New York area and the marine demolition market, and specifically into bridge demolition projects. Effective as of January 1, 2011, NASDI became a wholly owned subsidiary of the Company. See Note 10 to Condensed Consolidated Financial Statements.

The Company also owns 50% of 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 and for clean land

 

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fill. Amboy also imports stone from Nova Scotia and distributes it throughout the New York area. The Company and its Amboy joint venture partner together 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 tables set forth the components of net income (loss) attributable to Great Lakes Dredge & Dock Corporation and Adjusted EBITDA, as defined below, as a percentage of contract revenues for the three months and six months ended June 30, 2011 and 2010:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  

Contract revenues

     100.0     100.0     100.0     100.0

Costs of contract revenues

     (87.2     (80.8     (84.8     (80.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     12.8        19.2        15.2        19.1   

General and administrative expenses

     8.8        8.0        8.3        7.5   

Gain on sale of assets, net

     (1.6     —          (0.9     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     5.6        11.2        7.8        11.6   

Interest expense, net

     (3.2     (1.7     (3.5     (1.8

Equity in loss of joint ventures

     (0.1     (0.1     (0.2     (0.2

Loss on extinguishment of debt

     —          —          (1.7     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     2.3        9.4        2.4        9.6   

Income tax provision

     (0.9     (3.7     (1.0     (3.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     1.4        5.7        1.4        5.8   

Net (income) loss attributable to noncontrolling interests

     (0.3     0.3        (0.2     0.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Great Lakes Dredge & Dock Corporation

     1.1     6.0     1.2     6.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     11.2     16.2     13.5     16.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA, as provided herein, represents net income (loss) attributable to Great Lakes Dredge & Dock Corporation, adjusted for net interest expense, income taxes, depreciation and amortization expense and debt extinguishment. The Company presents Adjusted EBITDA as an additional measure by which to evaluate the Company’s operating trends. The Company believes that Adjusted EBITDA is a measure frequently used to evaluate performance of companies with substantial leverage and that the Company’s primary stakeholders (i.e. its stockholders, bondholders and banks) use Adjusted EBITDA to evaluate the Company’s period to period performance. Additionally, management believes that Adjusted EBITDA provides a transparent measure of the Company’s recurring operating performance and allows management to readily view operating trends, perform analytical comparisons and identify strategies to improve operating performance. For this reason, the Company uses a measure based upon Adjusted EBITDA to assess performance for purposes of determining compensation under the Company’s incentive plan. Adjusted EBITDA should not be considered an alternative to, or more meaningful than, amounts determined in accordance with accounting principles generally accepted in the United States (“GAAP”) including: (a) operating income as an indicator of operating performance; or (b) cash flows from operations as a measure of liquidity. As such, the Company’s use of Adjusted EBITDA, instead of a GAAP measure, has limitations as an analytical tool, including the inability to determine profitability or liquidity due to the exclusion of interest and income tax expense and the associated significant cash requirements and the exclusion of depreciation and amortization, which represent significant and unavoidable operating costs given the level of indebtedness and capital expenditures needed to maintain the Company’s business. For these reasons, the Company uses operating income to measure the Company’s operating performance and uses Adjusted EBITDA only as a supplement. The following is a reconciliation of Adjusted EBITDA to net income (loss) attributable to Great Lakes Dredge and Dock Corporation:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2011      2010      2011      2010  

Net income attributable to Great Lakes Dredge & Dock Corporation

   $ 1,706       $ 10,808       $ 4,098       $ 20,134   

Adjusted for:

           

Loss on extinguishment of debt

     —           —           5,145         —     

Interest expense, net

     4,911         2,995         10,861         6,215   

Income tax expense

     1,455         6,755         2,982         12,994   

Depreciation and amortization

     9,238         8,554         18,804         17,993   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 17,310       $ 29,112       $ 41,890       $ 57,336   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following table sets forth, by segment and dredging type of work, the Company’s contract revenues for each of the periods indicated:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
Revenues (in thousands)    2011      2010      Change     2011      2010      Change  

Dredging:

                

Capital - U.S.

   $ 44,480       $ 72,164         (38 )%    $ 90,509       $ 116,251         (22 )% 

Capital - foreign

     16,065         13,640         18     37,936         39,212         (3 )% 

Beach

     28,376         43,099         (34 )%      46,233         81,704         (43 )% 

Maintenance

     28,703         36,696         (22 )%      75,942         77,473         (2 )% 

Rivers & Lakes*

     7,461         —           —       11,062         —           —  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Dredging Revenue

     125,085         165,599         (24 )%      261,682         314,640         (17 )% 

Demolition

     29,874         14,536         106     48,615         26,895         81
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total Revenue

   $ 154,959       $ 180,135         (14 )%    $ 310,297       $ 341,535         (9 )% 
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

* Rivers & Lakes was acquired by the Company on December 31, 2010 in connection with the Matteson acquisition, and did not operate as part of the Company prior to January 1, 2011

Total revenue for the 2011 second quarter was $155.0 million, down 14% from $180.1 million during the 2010 second quarter. Most of this decline was attributable to a decrease in domestic capital revenue, as well as a decrease in beach nourishment and maintenance revenue. Demolition revenue for the quarter was $29.9 million, more than double that of a year ago. Revenue for the six months ended June 30, 2011 was down compared to the prior year, due to decreases in dredging revenue, offset by contributions from rivers & lakes and a significant increase in demolition revenues.

Capital projects include large port deepenings and other infrastructure projects such as land reclamations. Domestic capital dredging revenue decreased $27.7 million, or 38%, in the 2011 second quarter, compared to the 2010 second quarter. Domestic capital dredging revenue decreased $25.7 million, or 22%, in the six months ended June 30, 2011, compared to the same period in 2010. Domestic capital revenues in the quarter and year to date were generated by work in the Port of New York, three projects in Florida and concluding work on the Louisiana sand berms. Foreign revenue increased $2.4 million, or 18%, for the second quarter of 2011 compared to the 2010 second quarter, but decreased $1.3 million, or 3%, in first six months of 2011 compared to the same period in 2010. Over 40% of foreign revenue was driven by two projects in Bahrain. Foreign revenues also benefited from the resolution of outstanding project claims of approximately $3.8 million in the 2011 first quarter.

Beach nourishment projects include rebuilding of shoreline areas that have been damaged by storm activity or ongoing erosion. Beach nourishment revenue in the 2011 second quarter decreased $14.7 million, or 34%, compared to the same 2010 quarter. Year to date 2011 beach revenue decreased $35.5 million, or 43%, compared to the first half of 2010. Beach nourishment revenue in the first six months of 2010 was atypically high due to the significant beach nourishment backlog the Company had at the beginning of 2010. In the 2011 second quarter, the Company worked on several beach projects, including projects in Delaware, Florida, New Jersey and North Carolina.

Maintenance projects include routine dredging of ports, non-inland rivers and channels to remove the regular build up of sediment. Maintenance revenue in the 2011 second quarter decreased by $8.0 million, or 22%, compared to the 2010 second quarter. Maintenance revenue in the first six months of 2011 decreased by $1.5 million, or 2%, compared to the same period in 2010. Maintenance revenue decreased compared to the prior year as the Company won fewer projects in the first half of 2011 compared to 2010.

 

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Rivers and lakes projects include inland lake and river dredging, environmental restoration and habitat improvement and other marine construction. Rivers and lakes revenue was $7.5 million and $11.1 million for the three and six months ended June 30, 2011, respectively. The Company purchased its rivers and lakes operations on December 31, 2010. Rivers and lakes revenue increased in the 2011 second quarter because first quarter revenue is generally limited by freezing conditions in the northern United States that are typical during that time of year.

Gross profit for the 2011 second quarter decreased by 43% to $19.8 million, from $34.6 million in the same 2010 quarter. Gross profit margin (gross profit divided by revenue) for the 2011 second quarter decreased to 12.8% from 19.2% in the 2010 second quarter. Gross profit for the six months ended June 30, 2011 decreased by $17.9 million to $47.2 million from $65.1 million in the same 2010 period, resulting in a decline in and gross profit margin to 15.2% from 19.1%. The decrease in gross profit and gross profit margin was primarily due to lower fixed cost coverage associated with increased vessel downtime and negative gross profit in the Company’s demolition segment. The demolition segment continued to work on several projects, primarily in the New York market, that experienced cost overruns. These projects were commenced in 2010 as part of the demolition segment’s expansion into new markets.

The Company’s general and administrative expenses totaled $13.6 million and $25.7 million for the three and six months ended June 30, 2011. General and administrative expenses totaled $14.2 million and $25.2 million for the three and six months ended June 30, 2010. Although these expenses remain relatively flat, the six months ended June 30, 2011 included an additional $1.1 million of amortization expense related to the Company’s December 2010 acquisition of its rivers and lakes dredging operations. Additionally, during the 2011 second quarter, the demolition segment recorded $1.3 million of investigation-related expenses resulting from two subpoenas received in April 2011 (see Note 9 to Condensed Consolidated Financial Statements). In the six months ended June 30, 2010 the Company incurred severance expense of $2.7 million related to the April 2010 departure of the Company’s former Chief Operating Officer.

During the 2011 second quarter, the Company completed the sale of the dredge Victoria Island, resulting in the recognition of a $2.0 million gain.

Operating income for the three and six months ended June 30, 2011 decreased 57% and 39% to $8.7 million and $24.3 million, respectively, compared to the same periods of 2010, as a result of decreased dredging revenue and the resulting decline in gross profit, as well as negative gross profit in the demolition segment.

Interest expense totaled $4.9 million and $10.9 million, for the three and six months ended June 30, 2011, respectively, an increase from $3.0 million and $6.2 million from the same period of 2010, primarily due to the Company’s issuance of $250 million of 7.375% senior notes and the related redemption of the Company’s $175 million of 7.75% senior subordinated notes in the 2011 first quarter. Due to timing requirements, both of these note issuances were outstanding and accruing interest for approximately 30 days in the 2011 first quarter, resulting in duplicative interest expense of approximately $1.1 million. In addition, although the senior notes accrue interest at a lower interest rate, the increase in principal outstanding results in an increased amount of interest expense. Additionally, the Company recorded gains on interest rate swaps of $0.3 million for both the three and six months ended June 30, 2011, compared to gains of $0.9 million and $1.7 million for the three and six months ended June 30, 2010, respectively, as interest rates generally declined during 2011.

Income tax expense for the three and six months ended June 30, 2011 was $1.5 million and $3.0 million, respectively, compared to $6.8 million and $13.0 million for the same 2010 periods. This decrease was primarily attributable to lower earnings generated in 2011. The effective tax rate for the six months ended June 30, 2011 was 39.5%, which is substantially consistent with the effective tax rate of 39.9% for the same period of 2010. The Company expects the tax rate for the full year to remain at 39.5%.

Net income attributable to Great Lakes Dredge & Dock Corporation was $1.7 million and earnings per diluted share were $0.03 for the 2011 second quarter as compared to $10.8 million and $0.18 for the same 2010 period. Net income attributable to Great Lakes Dredge & Dock Corporation and earnings per diluted share for the six months ended June 30, 2011 was $4.1 million and $0.07, respectively, compared to $20.1 million and $0.34 for the same 2010 period. The decrease is due to the lower operating income and increased interest expense for the period, as well as approximately $6.2 million of expense associated with the redemption of the $175 million senior subordinated notes (consisting of a $2.9 million non-cash write off of deferred financing fees, a $2.2 million redemption premium, and $1.1 million in interest on the $175 million notes that were outstanding for 30 days after the debt was called).

Adjusted EBITDA (as defined on page 22) was $17.3 million and $41.9 million for the three and six months ended June 30, 2011, respectively, compared with $29.1 million and $57.3 million in the same 2010 periods, for the reasons discussed above.

Results by segment

Dredging

Dredging revenues for the three and six months ended June 30, 2011 were $125.1 million and $261.7 million, respectively, compared to $165.6 million and $314.6 million for the same periods of 2010. Dredging revenues for the six months ended June 30, 2011 were driven by domestic capital work. The decline in dredging revenue was due to a decline in domestic capital, beach nourishment and maintenance revenue, which was partially offset by the revenue contribution of the Company’s rivers and lakes operations. Gross

 

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profit margin in the dredging segment was 17.3% and 18.9% for the three and six months ended June 30, 2011 compared to gross profit margin in the dredging segment of 20.7% and 20.1% for the three and six months ended June 30, 2010, respectively, as lower dredging revenues from increased vessel downtime resulted in lower coverage of fixed costs. Dredging segment operating income was $13.6 million and $31.4 million for the three and six months ended June 30, 2011, compared to operating income of $21.5 million and $41.0 million for the three and six months ended June 30, 2010, respectively.

Demolition

Demolition revenues for the three and six months ended June 30, 2011 totaled $29.9 million and $48.6 million, respectively, compared to $14.5 million and $26.9 million for the same 2010 periods. The demolition segment experienced higher revenue levels in the 2011 second quarter as it worked off backlog from the New York market and due to the Louisiana bridge project that was started earlier this year. The demolition segment generated an operating loss of $4.9 million and $7.1 million for the three and six months ended June 30, 2011, respectively, compared to an operating loss of $1.2 million and $1.4 million for the same periods of 2010. Gross profit margin in the demolition segment was (4.5%) and (6.2%) for the three and six months ended June 30, 2011 compared to gross profit margin of 2.1% and 6.4% for the three and six months ended June 30, 2010, respectively. The Company continued to experience cost overruns on demolition projects in the New York market that were commenced in 2010, resulting in additional losses during the quarter. This, along with the $1.3 million of additional legal expenses relating to the subpoenas received in April 2011, drove down the second quarter results for the demolition segment.

Bidding Activity and Backlog

The following table sets forth, by reporting segment and type of dredging work, the Company’s backlog as of the dates indicated:

 

     June 30,      December 31,      June 30,  
Backlog (in thousands)    2011      2010      2010  

Dredging:

        

Capital - U.S.

   $ 49,086       $ 117,866       $ 170,709   

Capital - foreign

     53,941         65,334         35,899   

Beach

     62,228         18,080         10,860   

Maintenance

     12,935         56,140         31,681   

Rivers & Lakes*

     18,355         25,116         —     
  

 

 

    

 

 

    

 

 

 

Dredging Backlog

     196,545         282,536         249,149   

Demolition

     74,087         80,984         57,601   
  

 

 

    

 

 

    

 

 

 

Total Backlog

   $ 270,632       $ 363,520       $ 306,750   
  

 

 

    

 

 

    

 

 

 

 

* Rivers & Lakes was acquired by the Company on December 31, 2010 in connection with the Matteson acquisition, and was not part of the Company for the period ended June 30, 2010

The Company’s contract backlog represents its estimate of the revenues that will be realized under the portion of the contracts remaining to be performed. For dredging contracts these estimates are based primarily upon the time and costs required to mobilize the necessary assets to and from the project site, the amount and type of material to be dredged, and the expected production capabilities of the equipment performing the work. For demolition contracts, these estimates are based on the time and remaining costs required to complete the project, relative to total estimated project costs and project revenues agreed to with the customer. However, these estimates are necessarily subject to variances based upon actual circumstances. Because of these factors, as well as factors affecting the time required to complete each job, backlog is not always indicative of future revenues or profitability. In addition, a significant amount of the Company’s dredging backlog relates to federal government contracts, which can be canceled at any time without penalty to the government, subject to the Company’s contractual right to recover the Company’s actual committed costs and profit on work performed up to the date of cancellation. In addition, the Company’s backlog may fluctuate significantly from quarter to quarter based upon the type and size of the projects the Company is awarded from the bid market. A quarterly increase or decrease of the Company’s backlog does not necessarily result in an improvement or a deterioration of the Company’s business. The Company’s backlog includes only those projects for which the Company has obtained a signed contract with the customer.

The domestic dredging bid market for the 2011 second quarter totaled $135.9 million, resulting in a total amount of work awarded for six months ended June 30, 2011 to $333.4 million, compared to $302.6 million in the same period of 2010. The Company won 78%, or $89.5 million, of the beach nourishment projects awarded through June 30, 2011, as well as 22%, or $30.4 million, of the maintenance projects and 12%, or $8.8 million, of capital projects awarded through June 30, 2011. The Company won 40% of the overall domestic bid market through June 30, 2011, on par with its three year average of 39%. In addition, since the end of the second quarter the Company has won over $90 million in projects, including a $43 million Louisiana coastal restoration project. Variability in contract wins from quarter to quarter is not unusual and one quarter’s win rate is generally not indicative of the win rate the Company is likely to achieve for a full year.

 

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The Company’s contracted dredging backlog was $196.5 million at June 30, 2011 compared to $282.5 million as of December 31, 2010. These amounts do not reflect approximately $27 million of domestic low bids pending formal award and additional phases (“options”) pending on projects currently in backlog. At December 31, 2010 the amount of domestic low bids pending award was $40 million.

Capital dredging backlog at June 30, 2011 was less than prior periods because the Company worked off most of its prior backlog related to deepening projects in the ports of New York and New Jersey and no large capital projects were added to backlog during the first half of 2011. The Company initially anticipated that no major capital deepening projects were expected to be let to bid this year; however, it now appears that a large project in New York will be bid in 2011. The Company believes that the new focus in Washington D.C. on marine infrastructure is evidenced by the bipartisan interest in addressing deferred and long overdue needs.

The $43 million Louisiana coastal restoration project won by Great Lakes in July, along with another coastal project that was let to bid, demonstrates that resources are being devoted to help restore the barrier islands and wetlands that provide natural protection from storms. The Company believes that numerous projects are being planned in the Gulf States resulting from a fund established following the Deepwater Horizon Oil Spill, which has not yet released projects. These projects have been long overdue to restore the eroding coastline.

Although several Middle Eastern countries have experienced civil unrest and resulting governmental instability in the current year, recent international response and focus has contributed to increased stability within many of these nations, including Bahrain. The Company has maintained normal operations for its international projects and has a positive outlook for many of its foreign markets. There has been further evidence of an increase in international dredging plans, particularly in the Middle East. In addition, the Company continues to follow the many opportunities in Brazil. These foreign opportunities include several projects that are being advertised which fit well with Great Lakes’ expertise and equipment.

Demolition services backlog was $74.1 million and $80.9 million at June 30, 2011 and December 31, 2010, respectively. This continued level of backlog reflects the success the demolition segment has achieved in expanding into other markets, specifically in New York and bridge demolition.

Liquidity and Capital Resources

The Company’s principal sources of liquidity are cash flow generated from operations and borrowings under its senior credit facility. The Company’s principal uses of cash are to meet debt service requirements, finance its capital expenditures, provide working capital and meet other general corporate purposes.

The Company’s net cash (used in) provided by operating activities for the six months ended June 30, 2011 and 2010 totaled $(10.4) million, and $75.6 million, respectively. Normal increases or decreases in the level of working capital relative to the level of operational activity impact cash flow from operating activities. In the first six months of 2011, net cash used in operating activities was primarily the result of lower net income and changes in accounts receivable and other operating assets between periods. In the first six months of 2010, lower activity in foreign dredging operations (which usually experience longer collection periods) coupled with payments being made on a foreign accounts receivable that had been outstanding throughout 2009, drove the increase in cash generated.

The Company’s net cash flows used in investing activities for the first six months of 2011 and 2010 totaled $6.3 million and $12.8 million, respectively. During the six months ended June 30, 2011, the Company sold the dredge Victoria Island for $6.6 million. Other investing activities in both periods primarily relate to normal course upgrades and capital maintenance of the Company’s dredging fleet.

The Company’s net cash flows provided by (used in) financing activities for the quarters ended June 30, 2011 and 2010 totaled $64.3 million and $(13.3) million, respectively. The Company issued $250 million of 7.375% senior notes in the first six months of 2011, resulting in $244.2 million of net proceeds. The Company used a portion of these net proceeds to redeem its $175 million of 7.75% senior subordinated notes in the first six months of 2011 for $180.0 million, which included a redemption premium and unpaid interest. Cash flows used in financing activities in the first six months of 2010 was primarily due to the net repayment of $11.0 million of revolving credit borrowings.

The Company paid $2.2 million in dividends in the first six months of 2011. The declaration and payment of any future cash dividends will be at the discretion of the Company’s Board of Directors and will depend on many factors, including general economic and business conditions, the Company’s strategic plans, the Company’s financial results and condition, legal requirements, including restrictions and limitations contained in the Company’s Credit Agreement, Bonding Agreement and the Indenture relating to its senior notes, and other factors the Board of Directors deems relevant. Accordingly, the Company cannot make any assurances as to the amount of any such dividend or that it will pay any such dividend in future periods.

In January 2011, the Company issued $250 million aggregate principal amount of 7.375% senior notes due February 1, 2019 in a private placement. Approximately $180 million of the net proceeds from the issuance of the senior notes was used to redeem all of the Company’s 7.75% senior subordinated notes due December 2013, including a redemption premium and accrued and unpaid interest. The remaining net proceeds from the issuance of the senior notes were used to augment working capital and could be used in the

 

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future for acquisitions. The Indenture governing the senior notes, among other things, limits the ability of the Company and its restricted subsidiaries to (i) pay dividends, or make certain other restricted payments or investments; (ii) incur additional indebtedness and issue disqualified stock; (iii) create liens on its assets; (iv) transfer and sell assets; (v) merge, consolidate or sell all or substantially all of its assets; (vi) enter into certain transactions with affiliates; (vii) create restrictions on dividends or other payments by its restricted subsidiaries; and (viii) create guarantees of indebtedness by restricted subsidiaries. These covenants are subject to a number of important limitations and exceptions that are described in the Indenture governing the senior notes.

In connection with the issuance of the senior notes, the Company entered an agreement giving registration rights to initial purchasers of the senior notes (the “Registration Rights Agreement”). The terms of the Registration Rights Agreement require, among other things, that the Company agreed use its commercially reasonable efforts to consummate an offer (the “Exchange Offer”) to exchange the senior notes for registered, publicly tradable notes that have substantially identical terms as the senior notes. If the Company fails to satisfy its registration obligations under the Registration Rights Agreement, then the Company will be required to pay, as liquidated damages, additional interest to the holders of the senior notes at an annual rate of 0.25% per annum which rate will be increased by an additional 0.25% per annum for each subsequent 90 day period that such additional interest continues to accrue (provided that the rate at which such additional interest accrues may not exceed 1.0% per annum). The Company commenced the Exchange Offer in August 2011 and expects to consummate the Exchange Offer in September 2011. The Company believes that upon consummation of the Exchange Offer no additional interest will be payable.

The Company’s obligations under the Credit Agreement and the Bonding Agreement are secured by liens on a substantial portion of the Company’s operating equipment. The Company’s obligations under its international letter of credit facility are secured by the Company’s foreign accounts receivable. The Company’s obligations under its senior notes are unsecured. The Company’s Credit Agreement, Bonding Agreement and the Indenture relating to the senior notes contain various restrictive covenants, including limitations on dividends, redemption and repurchases of capital stock, and the incurrence of indebtedness and requirements to maintain certain financial covenants.

The Company believes its cash and cash equivalents, anticipated cash flows from operations and availability under its Credit Agreement will be sufficient to fund the Company’s operations, capital expenditures, debt service requirements and pay any declared dividends for the next twelve months. Beyond the next twelve months, the Company’s ability to fund its working capital needs, planned capital expenditures, scheduled debt payments and dividends, if any, and to comply with all the financial covenants under the Credit Agreement and the Bonding Agreement, depends on its future operating performance and cash flow, which in turn, are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond the Company’s control.

Critical Accounting Policies and Estimates

In preparing its consolidated financial statements, the Company follows accounting principles generally accepted in the United States of America. The application of these principles requires significant judgments or an estimation process that can affect the results of operations, financial position and cash flows of the Company, as well as the related footnote disclosures. The Company continually reviews its accounting policies and financial information disclosures. There have been no material changes in the Company’s critical accounting policies or estimates since December 31, 2010.

 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

The market risk of the Company’s financial instruments as of June 30, 2011 has not materially changed since December 31, 2010. The market risk profile of the Company on December 31, 2010 is disclosed in Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

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