SEC Filing | Great Lakes Dredge & Dock Corporation

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gldd-10q_20190331.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2019

☐	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 ☒ No ☐

Indicate by check mark whether the registrant has every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock (Par Value $0.0001)	GLDD	Nasdaq Stock Market, LLC

As of April 26, 2019, 63,367,995 shares of the Registrant’s Common Stock, par value $.0001 per share, were outstanding.

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 March 31, 2019

INDEX

		Page

	Part I Financial Information (Unaudited)	3

Item 1	Financial Statements	3

	Condensed Consolidated Balance Sheets at March 31, 2019 and December 31, 2018	3

	Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2019 and 2018	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months ended March 31, 2019 and 2018	5

	Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2019 and 2018	6

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018	7

	Notes to Condensed Consolidated Financial Statements	9

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4	Controls and Procedures	27

	Part II Other Information	28

Item 1	Legal Proceedings	28

Item 1A	Risk Factors	28

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3	Defaults Upon Senior Securities	28

Item 4	Mine Safety Disclosures	28

Item 5	Other Information	28

Item 6	Exhibits	29

	Signature	30

PART I — Financial Information

Item 1.

Financial Statements.

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except per share amounts)

	March 31,			December 31,
	2019			2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	122,986		$	34,458
Accounts receivable—net		34,494			64,779
Contract revenues in excess of billings		16,415			17,953
Inventories		26,629			28,112
Prepaid expenses and other current assets		34,392			36,617
Assets held for sale		15,751			24,779
Total current assets		250,667			206,698

PROPERTY AND EQUIPMENT—Net		368,600			369,863
OPERATING LEASE ASSETS		76,594			—
GOODWILL AND OTHER INTANGIBLE ASSETS—Net		76,576			76,576
INVENTORIES—Noncurrent		62,466			61,264
OTHER		16,948			15,870
TOTAL	$	851,851		$	730,271

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	73,051		$	71,537
Accrued expenses		42,633			48,351
Operating lease liabilities		20,599			—
Billings in excess of contract revenues		53,855			17,793
Revolving credit facility		—			11,500
Liabilities held for sale		7,948			13,940
Total current liabilities		198,086			163,121

LONG-TERM DEBT		322,173			321,950
OPERATING LEASE LIABILITIES—Noncurrent		55,991			—
DEFERRED INCOME TAXES		30,626			22,846
OTHER		5,698			7,426
Total liabilities		612,574			515,343

COMMITMENTS AND CONTINGENCIES (Note 10)
EQUITY:
Common stock—$.0001 par value; 90,000 authorized, 63,600 and 62,830 shares issued; 63,323 and 62,552 shares outstanding at March 31, 2019 and December 31, 2018, respectively.		6			6
Treasury stock, at cost		(1,433	)		(1,433	)
Additional paid-in capital		296,774			295,135
Accumulated deficit		(55,001	)		(74,971	)
Accumulated other comprehensive loss		(1,069	)		(3,809	)
Total equity		239,277			214,928
TOTAL	$	851,851		$	730,271

See notes to unaudited condensed consolidated financial statements.

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share amounts)

	Three Months Ended
	March 31,
	2019			2018

Contract revenues	$	192,637		$	133,623
Costs of contract revenues		142,760			119,493
Gross profit		49,877			14,130
General and administrative expenses		14,825			13,093
(Gain) loss on sale of assets—net		279			(199	)
Operating income		34,773			1,236
Interest expense—net		(7,551	)		(8,653	)
Other income (expense)		172			(2,065	)
Income (loss) from continuing operations before income taxes		27,394			(9,482	)
Income tax (provision) benefit		(6,846	)		2,475
Income (loss) from continuing operations		20,548			(7,007	)
Loss from discontinued operations, net of income taxes		(3,380	)		(2,314	)
Net income (loss)	$	17,168		$	(9,321	)

Basic earnings (loss) per share attributable to continuing operations	$	0.33		$	(0.11	)
Basic loss per share attributable to discontinued operations, net of tax		(0.05	)		(0.04	)
Basic earnings (loss) per share	$	0.28		$	(0.15	)
Basic weighted average shares		62,882			61,815

Diluted earnings (loss) per share attributable to continuing operations	$	0.32		$	(0.11	)
Diluted loss per share attributable to discontinued operations, net of tax		(0.05	)		(0.04	)
Diluted earnings (loss) per share	$	0.27		$	(0.15	)
Diluted weighted average shares		64,569			61,815

See notes to unaudited condensed consolidated financial statements.

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(in thousands)

	Three Months Ended
	March 31,
	2019		2018

Net income (loss)	$	17,168	$	(9,321	)
Currency translation adjustment—net of tax (1)		—		1,361
Net change in cash flow derivative hedges—net of tax (2)		2,740		(734	)
Other comprehensive income—net of tax		2,740		627
Comprehensive income (loss)	$	19,908	$	(8,694	)

(1)	Net of income tax provision of $(535) for the three months ended March 31, 2018.

(2)	Net of income tax benefit of $971 and income tax provision of ($260) for the three months ended March 31, 2019 and 2018, respectively.

See notes to unaudited condensed consolidated financial statements.

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

(Unaudited)

(in thousands)


																	Accumulated
	Shares of				Shares of						Additional						Other
	Common		Common		Treasury			Treasury			Paid-In			Accumulated			Comprehensive
	Stock		Stock		Stock			Stock			Capital			Deficit			Income			Total

BALANCE—January 1, 2019		62,830	$	6		(278	)	$	(1,433	)	$	295,135		$	(74,971	)	$	(3,809	)	$	214,928

Cumulative effect of recent accounting pronouncements		—		—		—			—			—			2,802			—			2,802
Share-based compensation		31		—		—			—			2,201			—			—			2,201
Vesting of restricted stock units, including impact of shares withheld for taxes		453		—		—			—			(2,188	)		—			—			(2,188	)
Exercise of options and purchases from employee stock plans		286		—		—			—			1,626			—			—			1,626
Net income		—		—		—			—			—			17,168			—			17,168
Other comprehensive income—net of tax		—		—		—			—			—			—			2,740			2,740
BALANCE—March 31, 2019		63,600	$	6		(278	)	$	(1,433	)	$	296,774		$	(55,001	)	$	(1,069	)	$	239,277


																	Accumulated
	Shares of				Shares of						Additional						Other
	Common		Common		Treasury			Treasury			Paid-In			Accumulated			Comprehensive
	Stock		Stock		Stock			Stock			Capital			Deficit			Income (loss)		Total

BALANCE—January 1, 2018		61,897	$	6		(278	)	$	(1,433	)	$	289,821		$	(67,101	)	$	3	$	221,296

Cumulative effect of recent accounting pronouncements		—		—		—			—			—			(1,577	)		—	$	(1,577	)
Share-based compensation		40		—		—			—			1,009			—			—		1,009
Vesting of restricted stock units, including impact of shares withheld for taxes		430		—		—			—			(936	)		—			—		(936	)
Exercise of options and purchases from employee stock plans		118		—		—			—			404			—			—		404
Net loss		—		—		—			—			—			(9,321	)		—		(9,321	)
Other comprehensive income—net of tax		—		—		—			—			—			—			627		627
BALANCE—March 31, 2018		62,485	$	6		(278	)	$	(1,433	)	$	290,298		$	(77,999	)	$	630	$	211,502

See notes to unaudited condensed consolidated financial statements.

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Three Months Ended
	March 31,
	2019			2018
OPERATING ACTIVITIES:
Net income (loss)	$	17,168		$	(9,321	)
Loss from discontinued operations, net of income taxes		(3,380	)		(2,314	)
Income (loss) from continuing operations	$	20,548		$	(7,007	)
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities:
Depreciation and amortization		8,905			14,562
Deferred income taxes		7,074			(3,740	)
(Gain) loss on sale of assets		279			(199	)
Other non-cash restructuring items		—			2,015
Amortization of deferred financing fees		868			901
Unrealized foreign currency gain		—			(144	)
Share-based compensation expense		2,000			851
Changes in assets and liabilities:
Accounts receivable		30,285			(29,325	)
Contract revenues in excess of billings		1,538			26,077
Inventories		280			665
Prepaid expenses and other current assets		(1,678	)		12,704
Accounts payable and accrued expenses		(935	)		(5,094	)
Billings in excess of contract revenues		36,062			(2,714	)
Other noncurrent assets and liabilities		566			(4,506	)
Net cash flows provided by operating activities from continuing operations		105,792			5,046
Net cash flows used in operating activities of discontinued operations		2,668			(416	)
Cash provided by operating activities		108,460			4,630

INVESTING ACTIVITIES:
Purchases of property and equipment		(7,704	)		(7,513	)
Proceeds from dispositions of property and equipment		147			5,015
Net cash flows used in investing activities of continuing operations		(7,557	)		(2,498	)
Net cash flows used in investing activities of discontinued operations		(60	)		(36	)
Cash used in investing activities		(7,617	)		(2,534	)

	Three Months Ended
	March 31,
	2019			2018
FINANCING ACTIVITIES:
Repayments of debt		—			(297	)
Taxes paid on settlement of vested share awards		(2,188	)		(936	)
Exercise of options and purchases from employee stock plans		1,626			404
Borrowings under revolving loans		—			17,000
Repayments of revolving loans		(11,500	)		(21,000	)
Net cash flows used in financing activities of continuing operations		(12,062	)		(4,829	)
Net cash flows used in financing activities of discontinued operations		(253	)		(409	)
Cash used in financing activities		(12,315	)		(5,238	)
Effect of foreign currency exchange rates on cash and cash equivalents		—			26
Net increase (decrease) in cash, cash equivalents and restricted cash		88,528			(3,116	)
Cash, cash equivalents and restricted cash at beginning of period		34,458			17,352
Cash, cash equivalents and restricted cash at end of period	$	122,986		$	14,236

Cash and cash equivalents	$	122,986		$	12,736
Restricted cash included in other long-term assets		—			1,500
Cash, cash equivalents and restricted cash at end of period	$	122,986		$	14,236

Supplemental Cash Flow Information
Cash paid for interest	$	229		$	1,872
Cash (refunded) paid for income taxes	$	(10	)	$	54

Non-cash Investing and Financing Activities
Property and equipment purchased but not yet paid	$	6,239		$	3,614
Repayments of debt with proceeds from sale-leaseback transactions		—		$	13,034

See notes to unaudited condensed consolidated financial statements.

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)

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, 2018. 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 March 31, 2019, and its results of operations for the three months ended March 31, 2019 and 2018 and cash flows for the three months ended March 31, 2019 and 2018 have been included.

The Company adopted Accounting Standard Update No. 2016-02 (“ASU 2016-02”), Leases (Topic 842) and subsequently issued other Accounting Standard Updates related to the Accounting Standards Codification Topic 842 (collectively, “ASC 842”) on January 1, 2019. The Financial Accounting Standards Board (“FASB”) issued ASC 842 to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The Company adopted ASC 842 using the package of practical expedients that allowed entities to retain the classification of lease contracts existing as of the date of adoption. Additionally, the Company has elected to combine lease and non-lease components, such as common area maintenance costs, in calculating the operating lease assets and operating lease liabilities for all asset groups except for the Company’s dredges. Further, the Company adopted ASC 842 using the transition method under which entities initially applied ASC 842 at the adoption date and recognized a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Under this method, the comparative periods presented in the financial statements prior to the adoption date were not adjusted to apply ASC 842. Upon the adoption of ASC 842, the Company recorded a cumulative net adjustment of $2,802 to the beginning retained earnings balance.

The components of costs of contract revenues include labor, equipment (including depreciation, maintenance, insurance and long-term rentals), subcontracts, fuel, supplies, short-term rentals 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.

The Company has one operating segment which is also the Company’s reportable segment and reporting unit of which the Company tests goodwill for impairment. The historical environmental & infrastructure segment has been retrospectively presented as discontinued operations and assets and liabilities held for sale and is no longer reflected in continuing operations. The Company performed its most recent annual test of impairment as of July 1, 2018 with no indication of impairment as of the test date. The Company will perform its next scheduled annual test of goodwill in the third quarter of 2019 should no triggering events occur which would require a test prior to the next annual test.

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.

Recent accounting pronouncements

In January 2017, the FASB issued Accounting Standard Update No. 2017-04 (“ASU 2017-04”), Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendment removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. The guidance is effective for fiscal years beginning after December 15, 2019. The Company does not anticipate that the adoption of ASU 2017-04 will have a material effect on the Company’s consolidated financial statements.

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.

The computations for basic and diluted earnings (loss) per share are as follows:

	Three Months Ended
(shares in thousands)	March 31,
	2019			2018

Income (loss) from continuing operations	$	20,548		$	(7,007	)
Loss from discontinued operations, net of income taxes		(3,380	)		(2,314	)
Net income (loss)		17,168			(9,321	)

Weighted-average common shares outstanding — basic		62,882			61,815
Effect of stock options and restricted stock units		1,687			—

Weighted-average common shares outstanding — diluted		64,569			61,815

Earnings (loss) per share from continuing operations — basic	$	0.33		$	(0.11	)
Earnings (loss) per share from continuing operations — diluted	$	0.32		$	(0.11	)

For the three months ended March 31, 2018 the following amounts of stock options (“NQSO”) and restricted stock units (“RSU”) were excluded from the diluted weighted-average common shares outstanding as the Company incurred a loss during the period:

	Three Months Ended
(shares in thousands)	March 31,
	2018
Effect of stock options and restricted stock units		781

For the three months ended March 31, 2019 and 2018 the following amounts of NQSOs and RSUs were excluded from the calculation of diluted earnings per share based on the application of the treasury stock method, as such NQSOs and RSUs were determined to be anti-dilutive:

	Three Months Ended
(shares in thousands)	March 31,
	2019		2018
Effect of stock options and restricted stock units		66		1,906

Leases

The Company leases certain operating equipment and office facilities. Leases with an initial term greater than twelve months are recorded on the Company’s balance sheet as an operating lease asset and operating lease liability and are measured at the present value of lease payments over the lease term. Substantially all of the Company’s leases are classified as operating leases. Leases with an initial term of twelve months or less with purchase options or extension options that are not reasonably certain to be exercised are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

The exercise of lease renewal options is at the Company’s sole discretion and is considered in the measurement of operating lease assets and operating lease liabilities when it is reasonably certain the Company will exercise the option. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Lease cost

The Company’s lease costs are recorded in cost of contract revenues and general and administrative expenses. For the three months ended March 31, 2019, lease costs are as follows:

	Three Months Ended
	March 31, 2019
Operating lease cost	$	6,239