Great Lakes Dredge & Dock Corporation
Great Lakes Dredge & Dock CORP (Form: 10-Q/A, Received: 03/29/2013 14:26:44)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q/A

 

 

(Amendment No. 1)

 

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

For the quarterly period ended September 30, 2012

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 November 2, 2012, 59,279,750 shares of the Registrant’s Common Stock, par value $.0001 per share, were outstanding.

 

 

 


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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

Form 10-Q/A for the Quarterly Period Ended September 30, 2012

EXPLANATORY NOTE

Great Lakes Dredge & Dock Corporation (“Great Lakes”) is filing this Amendment No. 1 on Form 10-Q/A a) to restate its previously issued interim financial statements for 1) the recognition of revenue with respect to certain projects in its demolition segment and 2) the recognition of accelerated maintenance expense related to new international deployments and b) to address matters related to the foregoing with respect to Great Lakes’ disclosure controls and procedures. Subsequent to the filing of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, management became aware of a material weakness in our internal control over financial reporting. The restatement and conclusion regarding the material weakness affect Items 1, 2 and 4 of Part I of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 as originally filed with the Securities and Exchange Commission (“SEC”) on November 7, 2012.

Additionally, in connection with the filing of this Form 10-Q/A and pursuant to SEC rules, Great Lakes is including currently dated certifications in Item 6 of Part II.

Except as described in this Explanatory Note, no other portions of the originally filed Form 10-Q for the third quarter of 2012 were affected, but for the convenience of the reader, this interim report on Form 10-Q/A has been filed in its entirety. In addition, this Form 10-Q/A is presented as of the filing date of the original Form 10-Q and has not been updated for events or information subsequent to the date of filing of the original Form 10-Q, except in connection with the foregoing. Accordingly, this Form 10-Q/A should be read in conjunction with our other filings with the SEC. For more information about the restatement and the related disclosure controls and procedures matters, please see Great Lakes’ Current Report on Form 8-K (Items 2.02 and 4.02(a)) filed on March 14, 2013.

 

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Great Lakes Dredge & Dock Corporation and Subsidiaries

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

Securities Exchange Act of 1934

For the Quarterly Period ended September 30, 2012

INDEX

 

     Page  

Part I Financial Information (Unaudited)

     4   

Item 1 Financial Statements

     4   

Condensed Consolidated Balance Sheets at September 30, 2012 (Restated) and December 31, 2011

     4   

Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2012 (Restated) and 2011

     5   

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months ended September 30, 2012 (Restated) and 2011

     6   

Condensed Consolidated Statements of Equity for the Nine Months ended September 30, 2012 (Restated) and 2011

     7   

Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2012 (Restated) and 2011

     8   

Notes to Condensed Consolidated Financial Statements

     9   

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

     27   

Item 3 Quantitative and Qualitative Disclosures About Market Risk

     35   

Item 4 Controls and Procedures

     36   

Part II Other Information

     37   

Item 1 Legal Proceedings

     37   

Item 1A Risk Factors

     37   

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

     37   

Item 3 Defaults Upon Senior Securities

     37   

Item 4 Mine Safety Disclosures

     37   

Item 5 Other Information

     37   

Item 6 Exhibits

     38   

Signature

     39   

Exhibit Index

     40   

 

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Table of Contents

PART I — Financial Information

Item 1. Financial Statements.

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)

 

     September 30,     December 31,  
     2012     2011  
     (Restated, See Note 1)        

ASSETS

    

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 38,324     $ 113,288  

Accounts receivable—net

     127,359       120,268  

Contract revenues in excess of billings

     60,846       26,412  

Inventories

     36,511       33,426  

Prepaid expenses and other current assets

     52,016       32,384  
  

 

 

   

 

 

 

Total current assets

     315,056       325,778  

PROPERTY AND EQUIPMENT—Net

     314,181       310,520  

GOODWILL AND OTHER INTANGIBLE ASSETS—Net

     98,666       98,863  

INVENTORIES—Noncurrent

     37,354       30,103  

INVESTMENTS IN JOINT VENTURES

     7,076       6,923  

OTHER

     17,983       16,273  
  

 

 

   

 

 

 

TOTAL

   $ 790,316     $ 788,460  
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

CURRENT LIABILITIES:

    

Accounts payable

   $ 92,019     $ 82,745  

Accrued expenses

     23,905       31,121  

Billings in excess of contract revenues

     20,817       13,627  

Current portion of long term debt

     2,587       3,033  
  

 

 

   

 

 

 

Total current liabilities

     139,328       130,526  

LONG TERM NOTE PAYABLE

     2,500       2,500  

7 3/8% SENIOR NOTES

     250,000       250,000  

DEFERRED INCOME TAXES

     104,349       104,352  

OTHER

     6,757       8,545  
  

 

 

   

 

 

 

Total liabilities

     502,934       495,923  
  

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 9)

    

EQUITY:

    

Common stock—$.0001 par value; 90,000,000 authorized, 59,274,393 and 58,999,404 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively.

     6       6  

Additional paid-in capital

     270,434       267,918  

Retained earnings

     17,280       24,042  

Accumulated other comprehensive income (loss)

     (547     3  
  

 

 

   

 

 

 

Total Great Lakes Dredge & Dock Corporation equity

     287,173       291,969  

NONCONTROLLING INTERESTS

     209       568  
  

 

 

   

 

 

 

Total equity

     287,382       292,537  
  

 

 

   

 

 

 

TOTAL

   $ 790,316     $ 788,460  
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share amounts)

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2012     2011     2012     2011  
     (Restated,
See Note
1)
          (Restated,
See Note
1)
       

Contract revenues

   $ 162,484     $ 158,468     $ 480,498     $ 468,765  

Costs of contract revenues

     154,664       131,077       433,950       394,166  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     7,820       27,391       46,548       74,599  

General and administrative expenses

     11,667       12,736       36,390       38,447  

Gain on sale of assets—net

     (108     (131     (232     (2,902
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (3,739     14,786       10,390       39,054  

Interest expense—net

     (5,105     (5,571     (15,747     (16,432

Equity in earnings (loss) of joint ventures

     177       606       153       (108

Loss on foreign currency transactions—net

     (40     (544     (55     (544

Loss on extinguishment of debt

     —          —          —          (5,145
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (8,707     9,277       (5,259     16,825  

Income tax (provision) benefit

     3,351       (3,618     2,036       (6,600
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (5,356     5,659       (3,223     10,225  

Net (income) loss attributable to noncontrolling interests

     20       (57     226       (525
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Great Lakes Dredge & Dock Corporation

   $ (5,336   $ 5,602     $ (2,997   $ 9,700  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (0.09   $ 0.10     $ (0.05   $ 0.16  

Basic weighted average shares

     59,253       58,930       59,154       58,863  

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

   $ (0.09   $ 0.09     $ (0.05   $ 0.16  

Diluted weighted average shares

     59,253       59,161       59,154       59,533  

Dividends declared per share

   $ 0.02     $ 0.02     $ 0.06     $ 0.06  

See notes to unaudited condensed consolidated financial statements.

 

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Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(in thousands)

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2012     2011     2012     2011  
     (Restated, See
Note 1)
          (Restated, See
Note 1)
       

Net income (loss)

   $ (5,356   $ 5,659     $ (3,223   $ 10,225  

Currency translation adjustment—net of tax (1)

     —          (374     (4     (374

Reclassification of derivative losses to earnings—net of tax (2)

     (85     (183     (348     (1,250

Change in fair value of derivatives—net of tax (3)

     827       (347     (198     472  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)—net of tax

     742       (904     (550     (1,152
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (4,614     4,755       (3,773     9,073  

Comprehensive (income) loss attributable to noncontrolling interests

     20       (57     226       (525
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Great Lakes Dredge & Dock Corporation

   $ (4,594   $ 4,698     $ (3,547   $ 8,548  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Net of income tax (expense) benefit of $0 and $0 for the three months ended September 30, 2012 and 2011, respectively, and $(3) and $0 for nine months ended September 30, 2012 and 2011, respectively.
(2) Net of income tax expense of $56 and $295 for the three months ended September 30, 2012 and 2011, respectively, and $231 and $830 for the nine months ended September 30, 2012 and 2011, respectively.
(3) Net of income tax (expense) benefit of $549 and $(246) for the three months ended September 30, 2012 and 2011, respectively, and $(132) and $(313) for the nine months ended September 30, 2012 and 2011, respectively.

See notes to unaudited condensed consolidated financial statements.

 

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Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

(Unaudited)

(in thousands, except share amounts)

 

                                                                                          
    Great Lakes Dredge & Dock Corporation shareholders              
                            Accumulated              
    Shares of           Additional           Other              
    Common     Common     Paid-In     Retained     Comprehensive     Noncontrolling        
    Stock     Stock     Capital     Earnings     Income (Loss)     Interests     Total  
                      (Restated, See
Note 1)
                (Restated, See
Note 1)
 

BALANCE—January 1, 2012

    58,999,404     $ 6     $ 267,918     $ 24,042     $ 3     $ 568     $ 292,537  

Share-based compensation

    145,349       —          2,389       —          —          —          2,389  

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

    81,640       —          (212     —          —          —          (212

Exercise of stock options

    48,000       —          200       —          —          —          200  

Excess income tax benefit from share-based compensation

    —          —          139       —          —          —          139  

Dividends declared and paid

    —          —          —          (3,726     —          —          (3,726

Dividend equivalents paid on restricted stock units

    —          —          —          (39     —          —          (39

Distributions paid to noncontrolling interests

    —          —          —          —          —          (133     (133

Net loss

    —          —          —          (2,997     —          (226     (3,223

Other comprehensive loss—net of tax

    —          —          —          —          (550     —          (550
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE—September 30, 2012

    59,274,393     $ 6     $ 270,434     $ 17,280     $ (547   $ 209     $ 287,382  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

                                                                                          
    Great Lakes Dredge & Dock Corporation shareholders              
                            Accumulated              
    Shares of           Additional           Other              
    Common     Common     Paid-In     Retained     Comprehensive     Noncontrolling        
    Stock     Stock     Capital     Earnings     Income (Loss)     Interests     Total  

BALANCE—January 1, 2011

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

Share-based compensation

    77,369       —          1,224       —          —          —          1,224  

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

    106,428       —          (291     —          —          —          (291

Exercise of stock options

    6,278       —          27       —          —          —          27  

Excess income tax benefit from share-based compensation

    —          —          48       —          —          —          48  

Acquisition of noncontrolling interest in NASDI, LLC

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

Dividends declared and paid

    —          —          —          (3,473     —          —          (3,473

Dividend equivalents paid on restricted stock units

    —          —          —          (20     —          —          (20

Net income

    —          —          —          9,700       —          525       10,225  

Other comprehensive loss—net of tax

    —          —          —          —          (1,152     —          (1,152
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE—September 30, 2011

    58,960,444     $ 6     $ 267,297     $ 18,468     $ (795   $ 370     $ 285,346  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

     Nine Months Ended September 30,  
     2012     2011  
     (Restated, See Note 1)        

OPERATING ACTIVITIES:

    

Net income (loss)

   $ (3,223   $ 10,225  

Adjustments to reconcile net income to net cash flows used in operating activities:

    

Depreciation and amortization

     26,637       29,999  

Equity in (earnings) loss of joint ventures

     (153     108  

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

     —          5,145  

Deferred income taxes

     1,386       8,793  

Gain on dispositions of property and equipment

     (232     (2,902

Gain on adjustment of contingent earnout

     (240     (1,122

Amortization of deferred financing fees

     957       1,181  

Unrealized foreign currency loss

     207       525  

Share-based compensation expense

     2,389       1,224  

Excess income tax benefit from share-based compensation

     (139     (48

Changes in assets and liabilities:

    

Accounts receivable

     (9,375     (13,279

Contract revenues in excess of billings

     (32,245     (893

Inventories

     (10,616     (4,524

Prepaid expenses and other current assets

     (17,044     (11,641

Accounts payable and accrued expenses

     (1,733     (9,027

Billings in excess of contract revenues

     7,189       728  

Other noncurrent assets and liabilities

     (2,177     (866
  

 

 

   

 

 

 

Net cash flows provided by (used in) operating activities

     (38,412     13,626  

INVESTING ACTIVITIES:

    

Purchases of property and equipment

     (30,813     (24,901

Proceeds from dispositions of property and equipment

     563       7,452  
  

 

 

   

 

 

 

Net cash flows used in investing activities

     (30,250     (17,449

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

     (2,039     (5,962

Distributions paid to minority interests

     (133     —     

Dividends paid

     (3,726     (3,473

Dividend equivalents paid on restricted stock units

     (39     (20

Taxes paid on settlement of vested share awards

     (212     (291

Repayments of equipment debt

     (502     (274

Exercise of stock options

     200       27  

Excess income tax benefit from share-based compensation

     139       48  
  

 

 

   

 

 

 

Net cash flows provided by (used in) financing activities

     (6,312     62,791  
  

 

 

   

 

 

 

Effect of foreign currency exchange rates on cash and cash equivalents

     10       (396
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (74,964     58,572  

Cash and cash equivalents at beginning of period

     113,288       48,478  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 38,324     $ 107,050  
  

 

 

   

 

 

 

Supplemental Cash Flow Information

    

Cash paid for interest

   $ 19,051     $ 12,714  
  

 

 

   

 

 

 

Cash paid (refunded) for income taxes

   $ (4,840   $ 5,282  
  

 

 

   

 

 

 

Non-cash Investing and Financing Activities

    

Property and equipment purchased but not yet paid

   $ 7,693     $ 3,366  
  

 

 

   

 

 

 

Property and equipment purchased on capital leases and equipment notes

   $ —        $ 2,085  
  

 

 

   

 

 

 

Acquisition of noncontrolling interest in NASDI, LLC

   $ —        $ 40  
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

1. Basis of presentation

The unaudited condensed consolidated financial statements and notes herein should be read in conjunction with the audited consolidated financial statements of Great Lakes Dredge & Dock Corporation and Subsidiaries (the “Company” or “Great Lakes”) and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. 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 September 30, 2012, and its results of operations for the three and nine months ended September 30, 2012 and 2011 and cash flows for the nine months ended September 30, 2012 and 2011 have been included.

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

The Company’s cost structure includes significant annual equipment-related costs, including depreciation, maintenance, insurance and long-term rentals. These costs have averaged approximately 21% to 25% of total costs of contract revenues over the prior 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 or 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, 2012 for the goodwill in both the dredging and demolition segments with no indication of goodwill impairment as of the test date. The Company will perform its next scheduled annual test of goodwill in the third quarter of 2013.

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

Restatement

The Company has identified instances in its demolition segment where revenue was recognized in a manner not consistent with Great Lakes’ accounting policy. Great Lakes’ policy regarding pending change orders is to immediately recognize the costs but defer the recognition of the related revenue until the recovery is probable and collectability is reasonably assured. Certain pending change orders where client acceptance has not been finalized were included as revenue. As a result of this error, contract revenues were overstated by $4,279 and $8,185 for the three and nine months ended September 30, 2012, respectively. Accounts receivable—net and contract revenues in excess of billings were overstated by $8,185.

In addition, the Company is restating certain costs related to the preparation of vessels for new international deployments that were originally recorded as a component of other current assets. These expenses are being recorded as a component of costs of contract revenues in conformity with their presentation at year end. The Company is also correcting for other immaterial adjustments that were initially recorded in the period they were identified. These immaterial adjustments are being recast into the periods in which they originated.

For the three and nine months ended, the errors noted above overstated net income by $3,204 and $6,370, respectively. Net income per basic and diluted common share was overstated by $0.05 and $0.11, respectively.

 

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The effects of the restatement on certain line items within the Company’s previously issued financial statements are as follows:

 

     September 30, 2012  
     As
Reported
     Restatement
Adjustments
    As
Restated
 

Condensed Consolidated Balance Sheets

       

Accounts receivable—net

   $ 134,244      $ (6,885   $ 127,359  

Contract revenues in excess of billings

     62,146        (1,300     60,846  

Prepaid expenses and other current assets

     50,999        1,017       52,016  

Total current assets

     322,224        (7,168     315,056  

Property and equipment—net

     313,383        798       314,181  

Total assets

     796,686        (6,370     790,316  

Total Great Lakes Dredge & Dock Corporation equity

     293,543        (6,370     287,173  

 

     For the three months ended
September 30, 2012
    For the nine months ended
September 30, 2012
 
     As
Reported
    Restatement
Adjustments
    As
Restated
    As
Reported
    Restatement
Adjustments
    As
Restated
 

Condensed Consolidated Statement of Operations

            

Contract revenues

   $ 166,763     $ (4,279   $ 162,484     $ 488,202     $ (7,704   $ 480,498  

Costs of contract revenues

     153,743       921       154,664       431,271       2,679       433,950  

Gross profit

     13,020       (5,200     7,820       56,931       (10,383     46,548  

Operating income (loss)

     1,461       (5,200     (3,739     20,773       (10,383     10,390  

Income tax (provision) benefit

     1,355       1,996       3,351       (1,977     4,013       2,036  

Net income (loss)

     (2,152     (3,204     (5,356     3,147       (6,370     (3,223

Net income (loss) attributable to Great Lakes Dredge & Dock Corporation

     (2,132     (3,204     (5,336     3,373       (6,370     (2,997

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

   $ (0.04   $ (0.05   $ (0.09   $ 0.06     $ (0.11   $ (0.05

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

   $ (0.04   $ (0.05   $ (0.09   $ 0.06     $ (0.11   $ (0.05

 

     For the nine months ended
September 30, 2012
 
     As
Reported
    Restatement
Adjustments
    As
Restated
 

Condensed Consolidated Statement of Cash Flows

      

Net cash flows used in operating activities

   $ (39,210   $ 798     $ (38,412

Net cash flows used in investing activities

     (29,452     (798     (30,250

 

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2. Earnings per share

Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similar to basic earnings per share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. For the three and nine months ended September 30, 2012, 462 and 413 thousand shares of potentially dilutive stock options and restricted stock units were excluded from the diluted weighted-average common shares outstanding, in accordance with the treasury stock method, as the Company incurred a loss during these periods. The impact of such shares would have been antidilutive. For the three and nine months ended September 30, 2011, zero options to purchase shares of common stock were excluded from the calculation of diluted earnings per share based on the application of the treasury stock method. The computations for basic and diluted earnings per share from continuing operations are as follows:

 

(shares in thousands)    Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2012     2011      2012     2011  

Net income (loss) attributable to common shareholders of Great Lakes Dredge & Dock Corporation

   $ (5,336   $ 5,602      $ (2,997   $ 9,700  

Weighted-average common shares outstanding — basic

     59,253       58,930        59,154       58,863  

Effect of stock options and restricted stock units

     —          231        —          670  
  

 

 

   

 

 

    

 

 

   

 

 

 

Weighted-average common shares outstanding — diluted

     59,253       59,161        59,154       59,533  
  

 

 

   

 

 

    

 

 

   

 

 

 

Earnings (loss) per share — basic

   $ (0.09   $ 0.10      $ (0.05   $ 0.16  

Earnings (loss) per share — diluted

   $ (0.09   $ 0.09      $ (0.05   $ 0.16  

3. Accounts receivable and contracts in progress

Accounts receivable at September 30, 2012 and December 31, 2011 are as follows:

 

     September 30,
2012
    December 31,
2011
 

Completed contracts

   $ 27,119     $ 38,317  

Contracts in progress

     87,786       69,469  

Retainage

     21,788       20,692  
  

 

 

   

 

 

 
     136,693       128,478  

Allowance for doubtful accounts

     (750     (1,839
  

 

 

   

 

 

 

Total accounts receivable—net

   $ 135,943     $ 126,639  
  

 

 

   

 

 

 

Current portion of accounts receivable—net

   $ 127,359     $ 120,268  

Long-term accounts receivable and retainage

     8,584       6,371  
  

 

 

   

 

 

 

Total accounts receivable—net

   $ 135,943     $ 126,639  
  

 

 

   

 

 

 

 

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Table of Contents

The components of contracts in progress at September 30, 2012 and December 31, 2011 are as follows:

 

     September 30,
2012
    December 31,
2011
 

Costs and earnings in excess of billings:

    

Costs and earnings for contracts in progress

   $ 324,873     $ 173,187  

Amounts billed

     (267,388     (152,045
  

 

 

   

 

 

 

Costs and earnings in excess of billings for contracts in progress

     57,485       21,142  

Costs and earnings in excess of billings for completed contracts

     3,361       7,459  
  

 

 

   

 

 

 

Total contract revenues in excess of billings

   $ 60,846     $ 28,601  
  

 

 

   

 

 

 

Current portion of contract revenues in excess of billings

   $ 60,846     $ 26,412  

Portion included in other noncurrent assets

     —          2,189  
  

 

 

   

 

 

 

Total contract revenues in excess of billings

   $ 60,846     $ 28,601  
  

 

 

   

 

 

 

Billings in excess of costs and earnings:

    

Amounts billed

   $ (451,568   $ (427,797

Costs and earnings for contracts in progress

     430,751       414,170  
  

 

 

   

 

 

 

Total billings in excess of contract revenues

   $ (20,817   $ (13,627
  

 

 

   

 

 

 

4. 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 September 30, 2012 and December 31, 2011, the Company held certain derivative contracts that it uses to manage foreign currency risk, commodity price risk and interest rate risk. The Company does not hold or issue derivatives for speculative or trading purposes. The fair values of these financial instruments are summarized as follows:

 

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Table of Contents
          Fair Value Measurements at Reporting Date Using  

Description

  At September 30,
2012
    Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
    Significant Other
Observable Inputs
(Level 2)
    Significant
Unobservable Inputs
(Level 3)
 

Assets

       

Interest rate swap contracts

  $ 430     $ —        $ 430     $ —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

       

Fuel hedge contracts

  $ 459     $        $ 459     $     

Foreign exchange contracts

    13       —          13       —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities measured at fair value

  $ 472     $ —        $ 472     $ —     
 

 

 

   

 

 

   

 

 

   

 

 

 

 

          Fair Value Measurements at Reporting Date Using  

Description

  At December 31,
2011
    Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
    Significant Other
Observable Inputs
(Level 2)
    Significant
Unobservable Inputs
(Level 3)
 

Fuel hedge contracts

  $ 449     $ —        $ 449     $ —     

Interest rate swap contracts

    755       —          755       —     

Foreign exchange contracts

    155       —          155       —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total assets measured at fair value

  $ 1,359     $ —        $ 1,359     $ —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Interest rate swap contracts

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 remain in place. The swaps are 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 previously verified the fair value of the interest rate swap contracts using a quantitative model that contained both observable and unobservable inputs. The unobservable inputs related primarily to the implied LIBOR forward rate and the long-term nature of the contracts. As of December 31, 2011, the unobservable inputs began to be corroborated by observable market data and accordingly the Company transferred the swaps into Level 2 of the fair value hierarchy. The change in Level 3 interest rate swap contracts during the comparable quarter of the prior year was as follows:

 

    Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
 
    2011  

Interest rate swap contracts

 

Balance at January 1

  $ 1,264  

Total unrealized gains (losses) included in earnings

    (511

Settlements

    445  
 

 

 

 

Balance at September 30

  $ 1,198  
 

 

 

 

Balance at July 1

  $ 1,141  

Total unrealized gains (losses) included in earnings

    57  

Settlements

    —     
 

 

 

 

Balance at September 30

  $ 1,198  
 

 

 

 

 

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Table of Contents

Foreign exchange contracts

The Company has exposure to foreign currencies that fluctuate in relation to the U.S. dollar. The Company periodically enters into foreign exchange forward contracts to hedge this risk. At September 30, 2012 and December 31, 2011, the Company had one outstanding contract related to the Brazilian Real. This foreign exchange contract is not accounted for as a hedge.

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 September 30, 2012, 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 March 2013. As of September 30, 2012, there were 5.0 million gallons remaining on these contracts which represent approximately 80% of the Company’s forecasted fuel purchases through March 2013. Under these swap agreements, the Company will pay fixed prices ranging from $2.86 to $3.29 per gallon.

At each balance sheet date, unrealized gains and losses on fuel hedge contracts are recorded as a component of accumulated other comprehensive income (loss) in the condensed consolidated balance sheets. Gains and losses realized upon settlement of fuel hedge contracts are reclassified from accumulated other comprehensive income (loss) as the fuel is utilized and included in fuel expense, which is a component of costs of contract revenues in the condensed consolidated statements of operations.

At September 30, 2012, the fair value liability of the fuel hedge contracts was estimated to be $459 and is recorded in accrued expenses. At December 31, 2011 the fair value asset of the fuel hedge contracts was estimated to be $449 and is recorded in other current assets. The loss reclassified to earnings from changes in fair value of derivatives, net of cash settlements and taxes, for the nine months ended September 30, 2012 was $348. The remaining gains and losses included in accumulated other comprehensive income (loss) at September 30, 2012 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 foreign exchange contracts, interest rate and fuel hedge contracts outstanding as of September 30, 2012 and December 31, 2011 is as follows:

 

     Balance Sheet Location    Fair Value at  
          September 30,      December 31,  
          2012      2011  

Asset derivatives:

        

Derivatives designated as hedges

        

Fuel hedge contracts

   Other current assets    $ —         $ 449  

Derivatives not designated as hedges

        

Interest rate swaps

   Other current assets      430        755  

Foreign exchange contracts

   Other current assets      —           155  
     

 

 

    

 

 

 

Total asset derivatives

      $ 430       $ 1,359  
     

 

 

    

 

 

 

Liability derivatives:

        

Derivatives designated as hedges

        

Fuel hedge contracts

   Accrued expenses    $ 459      $ —     

Derivatives not designated as hedges

        

Foreign exchange contracts

   Accrued expenses      13        —     
     

 

 

    

 

 

 

Total liability derivatives

      $ 472      $ —     
     

 

 

    

 

 

 

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 September 30, 2012. 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 $263,750 at September 30, 2012, which is a Level 1 fair value measurement as the senior notes value was obtained using quoted prices in active markets.

 

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Table of Contents

5. Accrued expenses

Accrued expenses at September 30, 2012 and December 31, 2011 are as follows:

 

     September 30,      December 31,  
     2012      2011  

Insurance

   $ 8,353      $ 8,285  

Payroll and employee benefits

     7,567        10,763  

Interest

     3,200        7,759  

Income and other taxes

     1,689        1,261  

Percentage of completion adjustment

     1,313        1,855  

Fuel hedge liability

     459        —     

Other

     1,324        1,198  
  

 

 

    

 

 

 

Total accrued expenses

   $ 23,905      $ 31,121  
  

 

 

    

 

 

 

6. Long-term debt

On June 4, 2012, the Company entered into a senior revolving credit agreement (the “Credit Agreement”) with certain financial institutions from time to time party thereto as lenders, Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and an Issuing Lender, Bank of America, N.A., as Syndication Agent and PNC Bank, National Association, BMO Harris Bank N.A. and Fifth Third Bank, as Co-Documentation Agents. The Credit Agreement, which replaced the Company’s former revolving credit agreement, provides for a senior revolving credit facility in an aggregate principal amount of up to $175,000, subfacilities for the issuance of standby letters of credit up to a $125,000 sublimit, multicurrency borrowings up to a $50,000 sublimit and swingline loans up to a $10,000 sublimit. The Credit Agreement also includes an incremental loans feature that will allow the Company to increase the senior revolving credit facility by an aggregate principal amount of up to $50,000. This is subject to lenders providing incremental commitments for such increase, provided that no default or event of default exists, and the Company will be in pro forma compliance with the existing financial covenants both before and after giving effect to the increase, and subject to other standard conditions. The prior credit agreement with Bank of America N.A. was terminated.

Depending on the Company’s consolidated leverage ratio (as defined in the Credit Agreement), borrowings under the new revolving credit facility will bear interest at the option of the Company of either a LIBOR rate plus a margin of between 1.50% to 2.50% per annum or a base rate plus a margin of between 0.50% to 1.50% per annum.

The revolving credit facility is an unsecured facility and will remain unsecured provided the Company maintains a total leverage ratio less than or equal to 3.75 to 1.00 as of the end of each fiscal quarter. If the leverage ratio exceeds 3.75 to 1.00, or an event of default occurs and is not cured within the applicable grace period, the revolving credit facility will cease to remain unsecured. In the event of the facility becomes secured, outstanding obligations shall be automatically secured by certain vessels and all domestic accounts receivable, subject to the liens and interests of other parties (including the Company’s bonding provider) holding first priority perfected liens.

The new credit facility contains affirmative, negative and financial covenants customary for financings of this type. The Credit Agreement also contains customary events of default (including non-payment of principal or interest on any material debt and breaches of covenants) as well as events of default relating to certain actions by the Company’s surety bonding provider. At September 30, 2012 the Company was in compliance with its debt covenants.

7. Share-based compensation

The Company’s 2007 Long-Term Incentive Plan permits the granting 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.

In June 2012, the Company granted 497 thousand options to purchase shares of common stock and 273 thousand 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 board related compensation in stock grants. Compensation cost charged to expense related to share-based compensation arrangements was $675 and $2,389, respectively, for the three and nine months ended September 30, 2012 and $381 and $1,224, respectively, for the three and nine months ended September 30, 2011.

 

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Table of Contents

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      Nine Months Ended  
     September 30,      September 30,  
     2012     2011      2012     2011  

Dredging

         

Contract revenues

   $ 138,811     $ 134,591      $ 396,425     $ 396,273  

Operating income

     1,765       13,593        18,361       45,008  

Demolition

         

Contract revenues

   $ 23,673     $ 23,877      $ 84,073     $ 72,492  

Operating income (loss)

     (5,504     1,193        (7,971     (5,954

Total

         

Contract revenues

   $ 162,484     $ 158,468      $ 480,498     $ 468,765  

Operating income (loss)

     (3,739     14,786        10,390       39,054  

Dredging contract revenues for the nine months ended September 30, 2012 are net of $1,374 in intersegment revenues. Demolition contract revenues for the nine months ended September 30, 2012 are net of $75 in intersegment revenues. In addition, foreign dredging revenue of $36,329 and $75,202 for the three and nine months ended September 30, 2012 and $21,843 and $59,779 for the three and nine months ended September 30, 2011, respectively, was primarily attributable to work done in the Middle East as well as the early stages of mobilization for the Wheatstone LNG project in Western Australia.

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 obligations of Great Lakes under the Credit Agreement are unconditionally guaranteed, on a joint and several basis, by each existing and subsequently acquired or formed material direct and indirect domestic subsidiary of the Company. As of September 30, 2012, the Company had no borrowings and $33,252 of letters of credit outstanding, resulting in $141,748 of availability under the Credit Agreement. At September 30, 2012, the Company was in compliance with its various covenants under its Credit Agreement.

Performance and bid bonds are customarily required for dredging and marine construction projects, as well as some demolition projects. In September 2011, the Company entered into a bonding agreement with Zurich American Insurance Company (“Zurich”) under which the Company can obtain performance, bid and payment bonds. Bid bonds are generally obtained for a percentage of bid value and amounts outstanding typically range from $1,000 to $10,000. At September 30, 2012, the Company had outstanding performance bonds valued at approximately $457,924; however, the revenue value remaining in backlog related to these projects totaled approximately $133,252.

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 September 30, 2012, Great Lakes had no of letters of credit outstanding under this facility. At September 30, 2012, the Company also had $250,000 of 7.375% senior notes outstanding, which mature in February 2019.

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

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

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 to the Company. 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 records an accrual when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. The Company does not believe any of these proceedings, individually or in the aggregate, would be expected to have a material effect on results of operations, cash flows or financial condition.

The Company or its former subsidiary, NATCO Limited Partnership, was named as a defendant in approximately 251 asbestos-related personal injury lawsuits, the majority of which were filed between 1989 and 2000. The claims were filed on behalf of seamen or their personal representatives alleging injury or illness from exposure to asbestos while employed as seamen on Company-owned vessels. In these cases, the Company is typically one of many defendants, including manufacturers and suppliers of products containing asbestos, as well as other vessel owners. Following certain administrative proceedings, counsel for plaintiffs agreed to name a group of cases that they intended to pursue and to dismiss the remaining cases without prejudice. Plaintiffs previously named 40 cases against the Company that they intended to pursue, each of which involves one plaintiff. The remaining cases against the Company were dismissed without prejudice. 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. Of the 40 named cases, three were subsequently dismissed, leaving 37 cases remaining. The Company is presently unable to quantify the amounts of damages being sought in the remaining lawsuits because none of the complaints specify a damage amount. Based on preliminary discovery and settlement demands received to date, 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 remaining 37 lawsuits, individually or in the aggregate, 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 in 2009 and engaged in further discussions with the Massachusetts Attorney General’s office in the second quarter of 2011, but has had no further contact with the Massachusetts Attorney General’s office since then. 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 conducted 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.

The Company has not accrued any amounts with respect to these two 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.

During the quarter ended March 31, 2012, a favorable judgment was rendered in the Company’s loss of use claim related to the dredge New York allision in the approach channel to Port Newark, New Jersey. In January 2008, the Company filed suit against the M/V Orange Sun and her owners for damages incurred by the Company in connection with the allision. Following a bench trial in the United States District Court in the Southern District of New York, the Court issued an opinion and order in the Company’s favor, entitling Great Lakes to $11,736 in damages plus pre-judgment interest. Judgment was rendered in the aggregate amount of $13,272. Defendants timely appealed the judgment to the United States Court of Appeals for the Second Circuit. Briefing on the appeal is now complete, and oral argument is expected to take place in the first half of 2013. The Company cannot be assured when the appeal will be heard or predict the outcome of the appellate process.

 

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10. Acquisition of noncontrolling interest

The Company previously owned 65% of the profits interests of NASDI. Effective January 1, 2011 the Company reacquired Mr. Christopher Berardi’s 35% membership interest in NASDI for no cost per the 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.

11. Subsidiary guarantors

The Company’s long-term debt at September 30, 2012 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 100% owned domestic subsidiaries. Such guarantees are full, unconditional and joint and several.

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 September 30, 2012 and December 31, 2011;

 

  (ii) statements of operations and comprehensive income for the three and nine months ended September 30, 2012 and 2011; and

 

  (iii) statements of cash flows for the nine months ended September 30, 2012 and 2011.

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF SEPTEMBER 30, 2012

(In thousands)

 

       Subsidiary
Guarantors
     Non-Guarantor
Subsidiaries
     GLDD
Corporation
     Eliminations     Consolidated
Totals
 

ASSETS

             

CURRENT ASSETS:

             

Cash and cash equivalents

   $ 38,157      $ 167      $ —         $ —        $ 38,324  

Accounts receivable — net

     126,484        875        —           —          127,359  

Receivables from affiliates

     71,773        8,466        7,443        (87,682     —     

Contract revenues in excess of billings

     60,913        206        —           (273     60,846  

Inventories

     36,511        —           —           —          36,511  

Prepaid expenses and other current assets

     40,600        30        11,386        —          52,016  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     374,438        9,744        18,829        (87,955     315,056  

PROPERTY AND EQUIPMENT—Net

     314,136        45        —           —          314,181  

GOODWILL AND OTHER INTANGIBLE ASSETS—Net

     98,317        349        —           —          98,666  

INVENTORIES — Noncurrent

     37,354        —           —           —          37,354  

INVESTMENTS IN JOINT VENTURES

     7,076        —           —           —          7,076  

INVESTMENTS IN SUBSIDIARIES

     3,359        —           642,167        (645,526     —     

OTHER

     11,351        3        6,629        —          17,983  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL

   $ 846,031      $ 10,141      $ 667,625      $ (733,481   $ 790,316  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND EQUITY

             

CURRENT LIABILITIES:

             

Accounts payable

   $ 91,308      $ 711      $ —         $ —        $ 92,019  

Payables to affiliates

     61,980        3,925        21,926        (87,831     —     

Accrued expenses

     19,707        833        3,365        —          23,905  

Billings in excess of contract revenues

     20,808        133        —           (124     20,817  

Current portion of long term debt

     2,587        —           —           —          2,587  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     196,390        5,602        25,291        (87,955     139,328  

LONG TERM NOTE PAYABLE

     2,500        —           —           —          2,500  

7 3/8% SENIOR NOTES

     —           —           250,000        —          250,000  

DEFERRED INCOME TAXES

     172        —           104,177        —          104,349  

OTHER

     5,982        —           775        —          6,757  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     205,044        5,602        380,243        (87,955     502,934  

Total Great Lakes Dredge & Dock Corporation Equity

     640,987        4,539        287,173        (645,526     287,173  

NONCONTROLLING INTERESTS

     —           —           209        —          209  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL EQUITY

     640,987        4,539        287,382        (645,526     287,382  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL

   $ 846,031      $ 10,141      $ 667,625      $ (733,481   $ 790,316  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2011

(In thousands)

 

       Subsidiary
Guarantors
     Non-Guarantor
Subsidiaries
     GLDD
Corporation
     Eliminations     Consolidated
Totals
 

ASSETS

             

CURRENT ASSETS:

             

Cash and cash equivalents

   $ 108,985      $ 4,303      $ —         $ —        $ 113,288  

Accounts receivable — net

     118,530        1,738        —           —          120,268  

Receivables from affiliates

     79,683        7,729        49,724        (137,136     —     

Contract revenues in excess of billings

     26,323        153        —           (64     26,412  

Inventories

     33,426        —           —           —          33,426  

Prepaid expenses and other current assets

     15,929        125        16,330        —          32,384  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     382,876        14,048        66,054        (137,200     325,778  

PROPERTY AND EQUIPMENT—Net

     310,459        61        —           —          310,520  

GOODWILL AND OTHER INTANGIBLE ASSETS—Net

     98,474        389        —           —          98,863  

INVENTORIES — Noncurrent

     30,103        —           —           —          30,103  

INVESTMENTS IN JOINT VENTURES

     6,923        —           —           —          6,923  

INVESTMENTS IN SUBSIDIARIES

     4,385        —           627,754        (632,139     —     

OTHER

     10,729        3        5,547        (6     16,273  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL

   $ 843,949      $ 14,501      $ 699,355      $ (769,345   $ 788,460  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND EQUITY

             

CURRENT LIABILITIES:

             

Accounts payable

   $ 81,971      $ 774      $ —         $ —        $ 82,745  

Payables to affiliates

     85,865        7,234        44,053        (137,152     —     

Accrued expenses

     22,445        629        8,047        —          31,121  

Billings in excess of contract revenues

     13,607        68        —           (48     13,627  

Current portion of long term debt

     3,033        —           —           —          3,033  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     206,921        8,705        52,100        (137,200     130,526  

LONG TERM NOTE PAYABLE

     2,500        —           —           —          2,500  

7 3/4% SENIOR SUBORDINATED NOTES

     —           —           250,000        —          250,000  

DEFERRED INCOME TAXES

     399        —           103,959        (6     104,352  

OTHER

     7,786        —           759        —          8,545  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     217,606        8,705        406,818        (137,206     495,923  

Total Great Lakes Dredge & Dock Corporation Equity

     626,343        5,796        291,969        (632,139     291,969  

NONCONTROLLING INTERESTS

     —           —           568        —          568  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL EQUITY

     626,343        5,796        292,537        (632,139     292,537  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL

   $ 843,949      $ 14,501      $ 699,355      $ (769,345   $ 788,460  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012

(In thousands)

 

     Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    GLDD
Corporation
    Eliminations     Consolidated
Totals
 

Contract revenues

   $ 161,720     $ 2,300     $ —        $ (1,536   $ 162,484  

Costs of contract revenues

     (153,932     (2,268     —          1,536       (154,664
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     7,788       32       —          —          7,820  

OPERATING EXPENSES:

          

General and administrative expenses

     10,901       192       574       —          11,667  

Gain on sale of assets—net

     (192     —          84       —          (108
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (2,921     (160     (658     —          (3,739

Interest expense—net

     (96     (36     (4,973     —          (5,105

Equity in earnings (loss) of subsidiaries

     (37     —          28       9       —     

Equity in earnings of joint ventures

     177       —          —          —          177  

Loss on foreign currency transactions—net

     (40     —          —          —          (40
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (2,917     (196     (5,603     9       (8,707

Income tax (provision) benefit

     3,104       —          247       —          3,351  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     187       (196     (5,356     9       (5,356

Net loss attributable to noncontrolling interests

     —          —          20       —          20  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Great Lakes Dredge & Dock Corporation

   $ 187     $ (196   $ (5,336   $ 9     $ (5,336
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Great Lakes Dredge & Dock Corporation

   $ 929     $ (196   $ (4,594   $ (733   $ (4,594
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011

(In thousands)

 

     Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    GLDD
Corporation
    Eliminations     Consolidated
Totals
 

Contract revenues

   $ 155,426     $ 6,796     $ —        $ (3,754   $ 158,468  

Costs of contract revenues

     (127,306     (7,525     —          3,754       (131,077
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     28,120       (729     —          —          27,391  

OPERATING EXPENSES:

          

General and administrative expenses

     11,630       214       892       —          12,736  

Gain on sale of assets—net

     (131     —          —          —          (131
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     16,621       (943     (892     —          14,786  

Interest expense—net

     (450     (61     (5,060     —          (5,571

Equity in earnings (loss) of subsidiaries

     208       —          14,864       (15,072     —     

Equity in earnings of joint ventures

     606       —          —          —          606  

Loss on foreign currency transactions, net

     (526     (18     —          —          (544
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     16,459       (1,022     8,912       (15,072     9,277  

Income tax (provision) benefit

     (365     —          (3,253     —          (3,618
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     16,094       (1,022     5,659       (15,072     5,659  

Net income attributable to noncontrolling interests

     —          —          (57     —          (57
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Great Lakes Dredge & Dock Corporation

   $ 16,094     $ (1,022   $ 5,602     $ (15,072   $ 5,602  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Great Lakes Dredge & Dock Corporation

   $ 15,190     $ (1,022   $ 4,698     $ (14,168   $ 4,698  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

(In thousands)

 

     Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    GLDD
Corporation
    Eliminations     Consolidated
Totals
 

Contract revenues

   $ 480,206     $ 6,350     $ —        $ (6,058   $ 480,498  

Costs of contract revenues

     (433,172     (6,836     —          6,058       (433,950
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     47,034       (486     —          —          46,548  

OPERATING EXPENSES:

          

General and administrative expenses

     34,149       540       1,701       —          36,390  

Gain on sale of assets—net

     (327     —          95       —          (232
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     13,212       (1,026     (1,796     —          10,390  

Interest expense—net

     (634     (87     (15,026     —          (15,747

Equity in earnings (loss) of subsidiaries

     (639     —          15,062       (14,423     —     

Equity in earnings of joint ventures

     153       —          —          —          153  

Loss on foreign currency transactions—net

     (55     —          —          —          (55
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     12,037       (1,113     (1,760     (14,423     (5,259

Income tax (provision) benefit

     3,499       —          (1,463     —          2,036  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     15,536       (1,113     (3,223     (14,423     (3,223

Net loss attributable to noncontrolling interests

     —          —          226       —          226  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Great Lakes Dredge & Dock Corporation

   $ 15,536     $ (1,113   $ (2,997   $ (14,423   $ (2,997
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Great Lakes Dredge & Dock Corporation

   $ 14,990     $ (1,117   $ (3,547   $ (13,873   $ (3,547
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011

(In thousands)

 

     Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    GLDD
Corporation
    Eliminations     Consolidated
Totals
 

Contract revenues

   $ 460,688     $ 16,382     $ —        $ (8,305   $ 468,765  

Costs of contract revenues

     (387,094     (15,377     —          8,305       (394,166
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     73,594       1,005       —          —          74,599  

OPERATING EXPENSES:

          

General and administrative expenses

     35,356       635       2,456       —          38,447  

Gain on sale of assets—net

     (2,902     —          —          —          (2,902
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     41,140       370       (2,456     —          39,054  

Interest expense—net

     (579     (160     (15,693     —          (16,432

Equity in earnings (loss) of subsidiaries

     1,422       —          42,982       (44,404     —     

Equity in earnings of joint ventures

     (108     —          —          —          (108

Loss on foreign currency transactions, net

     (526     (18     —          —          (544

Loss on extinguishment of debt

     —          —          (5,145     —          (5,145
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     41,349       192       19,688       (44,404     16,825  

Income tax (provision) benefit

     2,863       —          (9,463     —          (6,600
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     44,212       192       10,225       (44,404     10,225  

Net income attributable to noncontrolling interests

     —          —          (525     —          (525
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Great Lakes Dredge & Dock Corporation

   $ 44,212     $ 192     $ 9,700     $ (44,404   $ 9,700  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Great Lakes Dredge & Dock Corporation

   $ 43,060     $ 192     $ 8,548     $ (43,252   $ 8,548  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

(In thousands)

 

    Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    GLDD
Corporation
    Eliminations     Consolidated
Totals
 

OPERATING ACTIVITIES:

         

Net cash flows provided by (used in) operating activities

  $ (8,984   $ 57     $ (29,485   $ —        $ (38,412

INVESTING ACTIVITIES:

         

Purchases of property and equipment

    (30,813     —          —          —          (30,813

Proceeds from dispositions of property and equipment

    563       —          —          —          563  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows used in investing activities

    (30,250     —          —          —          (30,250

FINANCING ACTIVITIES:

         

Deferred financing fees

    —          —          (2,039     —          (2,039

Distributions paid to minority interests

    —          —          (133     —          (133

Dividends paid

    —          —          (3,726     —          (3,726

Dividend equivalents paid on restricted stock units

    —          —          (39     —          (39

Taxes paid on settlement of vested share awards

    —          —          (212     —          (212

Net change in accounts with affiliates

    (31,092     (4,203     35,295       —          —     

Repayments of equipment debt

    (502     —          —          —          (502

Exercise of stock options

    —          —          200       —          200  

Excess income tax benefit from share-based compensation

    —          —          139       —          139  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows provided by (used in) financing activities

    (31,594     (4,203     29,485       —          (6,312
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of foreign currency exchange rates on cash and cash equivalents

    —          10       —          —          10  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net decrease in cash and cash equivalents

    (70,828     (4,136     —          —          (74,964

Cash and cash equivalents at beginning of period

    108,985       4,303       —          —          113,288  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $ 38,157     $ 167     $ —        $ —        $ 38,324  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 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

  $ 41,250     $ (640   $ (26,984   $ —        $ 13,626  

INVESTING ACTIVITIES:

         

Purchases of property and equipment

    (24,894     (7     —          —          (24,901

Proceeds from dispositions of property and equipment

    7,452       —          —          —          7,452  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows used in investing activities

    (17,442     (7     —          —          (17,449

FINANCING ACTIVITIES:

         

Proceeds from issuance of 7 3/8% senior 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

    —          —          (5,962     —          (5,962

Dividends paid

    —          —          (3,473     —          (3,473

Dividend equivalents paid on restricted stock units

    —          —          (20     —          (20

Taxes paid on vested share awards

    —          —          (291       (291

Net change in accounts with affiliates

    33,524       2,557       (36,081     —          —     

Capital contributions

    (3,205     3,205       —          —          —     

Repayments of equipment debt

    (274     —          —          —          (274

Exercise of stock options

    —          —          27       —          27  

Excess income tax benefit from share-based compensation

    —          —          48       —          48  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows provided by financing activities

    30,045       5,762       26,984       —          62,791  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of foreign currency exchange rates on cash and cash equivalents

    —          (396     —          —          (396

Net increase in cash and cash equivalents

    53,853       4,719       —          —          58,572  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at beginning of period

    48,416       62       —          —          48,478  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $ 102,269     $ 4,781     $ —        $ —        $ 107,050  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q/A 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 (the “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 the “Company”), 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 associated with Great Lakes’ leverage, fixed price contracts, dependence on government contracts and funding, bonding requirement and obligations, international operations, backlog, severe weather related costs, uncertainty related to pending litigation, government regulation, restrictive debt covenants and fluctuations in quarterly operations, and those factors, risks and uncertainties that are described in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 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. Great Lakes’ 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 this Quarterly Report on Form 10-Q/A are made only as of the date hereof and Great Lakes 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 19% of its dredging revenues for the first nine months of 2012, compared with the Company’s prior three year average of 17%. 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 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’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. The Company experienced an average combined bid market share in the U.S. of 39% over the prior three years, including 41%, 60% and 32% of the domestic capital, beach nourishment and maintenance sectors, respectively. Rivers & lakes bid market share during the prior year of ownership by the Company is 39%.

The Company’s largest domestic dredging customer is the U.S. Army Corps of Engineers (the “Corps”), which is responsible for federally funded projects related to navigation and flood control of U.S. waterways. In the first nine months of 2012, 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, and third parties operating under contracts with federal agencies, were approximately 72% of dredging revenues, above the Company’s prior three year average of 59%.

The Company’s demolition subsidiaries are a major U.S. provider of commercial and industrial demolition services. Historically, the majority of the work was performed in the New England area. Through increased collaboration with Great Lakes’ other lines of business, the demolition operations continue to expand into the New York area and marine demolition markets, specifically bridge demolition. In the first nine months of 2012, demolition revenues accounted for 17% of total revenues, above the prior three year average of 12%. The demolition segment’s principal services consist of exterior and interior demolition of commercial and industrial buildings, dismantling and disposal of aged or failing bridges, site development, salvage and recycling of related materials and removal of hazardous substances and materials. The Company’s demolition operations are one of a few providers in New England with the required licenses, operating expertise, equipment fleet and access to bonding to execute larger, complex industrial demolition projects.

 

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The Company also owns 50% of Amboy Aggregates (“Amboy”) and 50% of TerraSea Environmental Solutions (“TerraSea”) as joint ventures. Amboy’s primary business is dredging 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 fill. Amboy also imports stone from upstate New York and Nova Scotia and distributes it throughout the New York area. TerraSea is engaged in the environmental services business through its ability to remediate contaminated soil and dredged sediment treatment. 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.

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 and nine months ended September 30, 2012 and 2011:

 

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2012     2011     2012     2011  

Contract revenues

    100.0      100.0      100.0      100.0 

Costs of contract revenues

    (95.2     (82.7     (90.3     (84.1
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    4.8       17.3       9.7       15.9  

General and administrative expenses

    7.2       8.0       7.6       8.2  

Gain on sale of assets—net

    (0.1     (0.1     0.0        (0.6
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (2.3     9.4       2.1       8.3  

Interest expense—net

    (3.1     (3.5     (3.3     (3.5

Equity in earnings (loss) of joint ventures

    0.1        0.4       0.0        0.0   

Loss on foreign currency transactions—net

    0.0        (0.3     0.0        (0.1

Loss on extinguishment of debt

    0.0        0.0        0.0        (1.1
 

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (5.3     6.0       (1.2     3.6  

Income tax (provision) benefit

    2.1       (2.3     0.4       (1.4
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (3.2     3.7       (0.8     2.2  

Net (income) loss attributable to noncontrolling interests

    0.0        0.0        0.0        (0.1
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Great Lakes Dredge & Dock Corporation

    (3.2 )%      3.7      (0.8 )%      2.1 
 

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

    4.8      16.4      8.2      14.5 
 

 

 

   

 

 

   

 

 

   

 

 

 

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, debt extinguishment and accelerated maintenance expense for new international deployments. In the fourth quarter of 2012 and as recast in the second and third quarters of 2012, the Company has modified the Adjusted EBITDA calculation for accelerated maintenance expense for new international deployments that are not directly recoverable under the related dredging contract and are therefore expensed as incurred. The Company does not frequently incur significant accelerated maintenance as a part of its international deployments. As such, the exclusion of these accelerated maintenance expenses from the calculation of Adjusted EBITDA allows users of our financial statements to more easily compare our year-to-year results. Adjusted EBITDA is not a measure derived in accordance with accounting principles generally accepted in the United States of America (“GAAP”). 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 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 accelerated maintenance expense for new international deployments, 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

 

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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 & Dock Corporation:

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2012     2011      2012     2011  
(in thousands)                          

Net income (loss) attributable to Great Lakes Dredge & Dock Corporation

   $ (5,336   $ 5,602      $ (2,997   $ 9,700  

Adjusted for:

         

Accelerated maintenance expenses

     922       —           2,198       —     

Loss on extinguishment of debt

     —          —           —          5,145  

Interest expense—net

     5,105       5,571        15,747