UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended September 30, 2011

OR

 

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

For the transition period from                 to                

Commission file number: 001-33225

 

 

Great Lakes Dredge & Dock Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		20-5336063
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
2122 York Road, Oak Brook, IL		60523
(Address of principal executive offices)		(Zip Code)

(630) 574-3000

(Registrant’s telephone number, including area code)

 

 

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

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

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

 

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

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

As of November 4, 2011, 58,960,444 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

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

Securities Exchange Act of 1934

For the Quarterly Period ended September 30, 2011

INDEX

 

				Page
Part I Financial Information (Unaudited)
Item 1		Financial Statements
		Condensed Consolidated Balance Sheets at September 30, 2011 and December 31, 2010			3
		Condensed Consolidated Statements of Operations for the Three Months and Nine Months ended September 30, 2011 and 2010			4
		Condensed Consolidated Statements of Equity for the Nine Months ended September 30, 2011 and 2010			5
		Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2011 and 2010			6
		Notes to Condensed Consolidated Financial Statements			7
Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3		Quantitative and Qualitative Disclosures About Market Risk			29
Item 4		Controls and Procedures			30
Part II Other Information
Item 1		Legal Proceedings			31
Item 1A		Risk Factors			31
Item 2		Unregistered Sales of Equity Securities and Use of Proceeds			31
Item 3		Defaults Upon Senior Securities			31
Item 4		Reserved			31
Item 5		Other Information			31
Item 6		Exhibits			31
Signature					32
Exhibit Index					33

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)

 

		September 30,				December 31,
		2011				2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	107,050			$	48,478
Accounts receivable — net			110,044				95,548
Contract revenues in excess of billings			25,735				24,842
Inventories			32,398				31,734
Prepaid expenses			2,703				3,448
Other current assets			28,747				18,919
Total current assets			306,677				222,969
PROPERTY AND EQUIPMENT — Net			311,588				323,231
GOODWILL			98,049				98,049
OTHER INTANGIBLE ASSETS — Net			1,340				3,280
INVENTORIES — Noncurrent			30,988				27,128
INVESTMENTS IN JOINT VENTURES			7,221				7,329
OTHER			11,955				11,839
TOTAL		$	767,818			$	693,825
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable		$	71,928			$	82,721
Accrued expenses			27,688				32,809
Billings in excess of contract revenues			15,212				14,484
Current portion of note payable			2,500				2,500
Current portion of equipment debt			1,493				303
Total current liabilities			118,821				132,817
LONG TERM NOTE PAYABLE			5,000				5,000
7 3/8% SENIOR NOTES			250,000				—
7 3/4% SENIOR SUBORDINATED NOTES			—				175,000
DEFERRED INCOME TAXES			99,451				92,466
OTHER			9,200				11,717
Total liabilities			482,472				417,000
COMMITMENTS AND CONTINGENCIES (Note 10)
EQUITY:
Common stock—$.0001 par value; 90,000,000 authorized, 58,960,444 and 58,770,369 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively.			6				6
Additional paid-in capital			267,297				266,329
Retained earnings			18,468				12,261
Accumulated other comprehensive income (loss)			(795	)			357
Total Great Lakes Dredge & Dock Corporation Equity			284,976				278,953
NONCONTROLLING INTERESTS			370				(2,128	)
Total equity			285,346				276,825
TOTAL		$	767,818			$	693,825

See notes to unaudited condensed consolidated financial statements.

 

3

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Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share data)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2011				2010				2011				2010
Contract revenues		$	158,468			$	173,333			$	468,765			$	514,868
Costs of contract revenues			131,077				140,638				394,166				417,100
Gross profit			27,391				32,695				74,599				97,768
General and administrative expenses			12,736				16,640				38,447				42,084
Gain on sale of assets, net			(131	)			—				(2,902	)			—
Operating income			14,786				16,055				39,054				55,684
Interest expense, net			(5,571	)			(3,302	)			(16,432	)			(9,517	)
Equity in earnings (loss) of joint ventures			606				81				(108	)			(772	)
Loss on foreign currency transactions, net			(544	)			—				(544	)			—
Loss on extinguishment of debt			—				—				(5,145	)			—
Income before income taxes			9,277				12,834				16,825				45,395
Income tax provision			(3,618	)			(5,113	)			(6,600	)			(18,107	)
Net income			5,659				7,721				10,225				27,288
Net (income) loss attributable to noncontrolling interests			(57	)			(36	)			(525	)			531
Net income attributable to Great Lakes Dredge & Dock Corporation		$	5,602			$	7,685			$	9,700			$	27,819
Basic earnings per share attributable to Great Lakes Dredge & Dock Corporation		$	0.10			$	0.13			$	0.16			$	0.47
Basic weighted average shares			58,930				58,698				58,863				58,616
Diluted earnings per share attributable to Great Lakes Dredge & Dock Corporation		$	0.09			$	0.13			$	0.16			$	0.47
Diluted weighted average shares			59,161				58,901				59,533				58,818
Dividends declared per share		$	0.02			$	0.02			$	0.06			$	0.05

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)

 

																		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	)
Comprehensive income (loss):
Net income			—				—				—				9,700				—				525				10,225
Currency translation adjustment, net			—				—				—				—				(374	)			—				(374	)
Reclassification of derivative gains to earnings (net of tax of $830)			—				—				—				—				(1,250	)			—				(1,250	)
Change in fair value of derivatives (net of tax of $313)			—				—				—				—				472				—				472
Total comprehensive income																							525				9,073
BALANCE — September 30, 2011			58,960,444			$	6			$	267,297			$	18,468			$	(795	)		$	370			$	285,346

 

														Retained				Accumulated
		Shares of								Additional				Earnings				Other
		Common				Common				Paid-In				(Accumulated				Comprehensive				Noncontrolling
		Stock				Stock				Capital				Deficit)				Income (Loss)				Interests				Total
BALANCE — January 1, 2010			58,542,038			$	6			$	263,579			$	(18,336	)		$	539			$	(1,239	)			244,549
Share-based compensation			68,467				—				1,734				—				—				—				1,734
Vesting of restricted stock units, including impact of shares withheld for taxes			13,202				—				—				—				—				—				—
Exercise of stock options			97,917				—				470				—				—				—				470
Dividends declared and paid			—				—				—				(2,990	)			—				—				(2,990	)
Dividend equivalents paid on restricted stock units			—				—				—				(17	)			—				—				(17	)
Comprehensive income (loss):
Net income (loss)			—				—				—				27,819				—				(531	)			27,288
Reclassification of derivative gains to earnings (net of tax of $64)			—				—				—				—				(96	)			—				(96	)
Change in fair value of derivatives (net of tax of $153)			—				—				—				—				(231	)			—				(231	)
Total comprehensive income (loss)																							(531	)			26,961
BALANCE — September 30, 2010			58,721,624			$	6			$	265,783			$	6,476			$	212			$	(1,770	)		$	270,707

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,
		2011				2010
OPERATING ACTIVITIES:
Net income		$	10,225			$	27,288
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization			29,999				26,020
Equity in loss of joint ventures			108				772
Loss on extinguishment of 7 3/4% senior subordinated notes			5,145				—
Deferred income taxes			8,793				(683	)
Gain on dispositions of property and equipment			(2,902	)			(415	)
Amortization of deferred financing fees			1,181				1,205
Unrealized foreign currency loss			525				—
Share-based compensation expense			1,224				1,734
Excess income tax benefit from share based compensation			(48	)			—
Changes in assets and liabilities:
Accounts receivable			(13,279	)			47,649
Contract revenues in excess of billings			(893	)			10,342
Inventories			(4,524	)			846
Prepaid expenses and other current assets			(11,641	)			2,263
Accounts payable and accrued expenses			(9,707	)			(3,447	)
Billings in excess of contract revenues			728				(5,679	)
Other noncurrent assets and liabilities			(1,308	)			419
Net cash flows provided by operating activities			13,626				108,314
INVESTING ACTIVITIES:
Purchases of property and equipment			(24,901	)			(18,283	)
Proceeds from dispositions of property and equipment			7,452				361
Net cash flows used in investing activities			(17,449	)			(17,922	)
FINANCING ACTIVITIES:
Proceeds from issuance of 7 3/8% senior notes			250,000				—
Redemption of 7 3/4% senior subordinated notes			(175,000	)			—
Senior subordinated notes redemption premium			(2,264	)			—
Deferred financing fees			(5,962	)			—
Dividends paid			(3,473	)			(2,990	)
Dividend equivalents paid on restricted stock units			(20	)			(17	)
Taxes paid on settlement of vested share awards			(291	)			—
Repayments of equipment debt			(274	)			(1,074	)
Exercise of stock options			27				470
Excess income tax benefit from share-based compensation			48				—
Borrowings under revolving loans			—				14,968
Repayments of revolving loans			—				(25,968	)
Net cash flows provided by (used in) financing activities			62,791				(14,611	)
Change in cash and equivalents due to changes in foreign currency exchange rates			(396	)			—
Net change in cash and cash equivalents			58,572				75,781
Cash and cash equivalents at beginning of period			48,478				3,250
Cash and cash equivalents at end of period		$	107,050			$	79,031
Supplemental Cash Flow Information
Cash paid for interest		$	12,714			$	6,848
Cash paid for income taxes		$	5,282			$	15,521
Non-cash Investing Activity
Property and equipment purchased but not yet paid		$	3,366			$	2,565
Property and equipment purchased on capital leases and equipment notes		$	2,085			$	33
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, 2010. The condensed consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the SEC’s rules and regulations, although management believes that the disclosures are adequate and make the information presented not misleading. In the opinion of management, all adjustments, which are of a normal and recurring nature (except as otherwise noted), that are necessary to present fairly the Company’s financial position as of September 30, 2011, its results of operations for the three and nine months ended September 30, 2011 and 2010 and its cash flows for the nine months ended September 30, 2011 and 2010 have been included.

The components of costs of contract revenues include labor, equipment (including depreciation, maintenance, insurance and long-term rentals), subcontracts, fuel and project overhead. Hourly labor is generally hired on a project-by-project basis. Costs of contract revenues vary significantly depending on the type and location of work performed and assets utilized. Generally, capital projects have the highest margins due to the complexity of the projects, while beach nourishment projects have the most volatile margins because they are most often exposed to variability in weather conditions. In the current year condensed consolidated statements of operations, the Company has presented gains, net of losses, on the sale of assets as a separate line item in operating income. In the prior year gains, net of losses, on the sale of assets included in costs of contract revenues were $151 and $387 for the three and nine months ended September 30, 2010.

The Company’s cost structure includes significant annual equipment-related costs, including depreciation, maintenance, insurance and long-term rentals. These costs have averaged approximately 21% to 22% of total costs of contract revenues over the last three years. During the year, both equipment utilization and the timing of fixed cost expenditures fluctuate significantly. Accordingly, the Company allocates these fixed equipment costs to interim periods in proportion to revenues recognized over the year to better match revenues and expenses. Specifically, at each interim reporting date the Company compares actual revenues earned to date on its dredging contracts to expected annual revenues and recognizes equipment costs on the same proportionate basis. In the fourth quarter, any over and under allocated equipment costs are recognized such that the expense for the year equals actual equipment costs incurred during the year.

The Company operates in two reportable segments: dredging and demolition. These reportable segments are the Company’s operating segments and the reporting units at which the Company tests goodwill for impairment. In the current quarter, the Company early adopted new accounting guidance that allows for the option to perform a qualitative assessment prior to calculating the fair value of a reporting unit in the first step of the annual goodwill impairment testing. The Company performed its most recent annual test of impairment as of July 1, 2011 for the goodwill in both the dredging and demolition segments with no indication of goodwill impairment as of the test date. As of the test date, the fair value of both the dredging segment and the demolition segment were in excess of their carrying values by approximately 35% and 8%, respectively. Given the small margin the demolition segment’s fair value is in excess of its carrying value, a more than insignificant decline in the demolition segment’s future operating results or cash flow forecasts versus the segment’s current forecasts could potentially cause a goodwill impairment charge to be recognized in a future period.

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

Future adoption of accounting standards

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

 

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

2. Earnings per share

Basic earnings per share is computed by dividing net income attributable to Great Lakes Dredge & Dock Corporation by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similar to basic earnings per share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. The computations for basic and diluted earnings per share from continuing operations are as follows:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2011				2010				2011				2010
Numerator:
Net income attributable to Great Lakes Dredge & Dock Corporation—numerator for basic and diluted earnings per share		$	5,602			$	7,685			$	9,700			$	27,819
Denominator:
Denominator for basic earnings per share—weighted average shares outstanding			58,930				58,698				58,863				58,616
Dilutive impact of outstanding restricted stock units issued			178				173				250				165
Dilutive impact of outstanding stock options issued*			53				30				420				37
Denominator for diluted earnings per share adjusted weighted average shares			59,161				58,901				59,533				58,818
Basic earnings per share attributable to Great Lakes Dredge & Dock Corporation		$	0.10			$	0.13			$	0.16			$	0.47
Diluted earnings per share attributable to Great Lakes Dredge & Dock Corporation		$	0.09			$	0.13			$	0.16			$	0.47

 

*

For the three and nine months ended September 30, 2011, 990,794 and zero options to purchase shares of common stock, respectively, were excluded from the calculation of diluted earnings per share. For the three and nine months ended September 30, 2010, 588,384 and 304,695 options to purchase shares of common stock, respectively, were excluded. The options were excluded based on the application of the treasury stock method, as such options were determined to be anti-dilutive.

3. Fair value measurements

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

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

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

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

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. At September 30, 2011, the Company held certain derivative contracts that it uses to manage commodity price risk and interest rate risk. The Company does not hold or issue derivatives for speculative or trading purposes. At September 30, 2011 the Company held a position in a money market fund where quoted prices are not available in an active market. The fair values of these financial instruments are summarized as follows:

 

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						Fair Value Measurements at Reporting Date Using
Description		At September 30, 2011				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Cash equivalents		$	20,022			$	—			$	20,022			$	—
Fuel hedge contracts			(701	)			—				(701	)			—
Interest rate swap contracts			1,198				—				—				1,198
Total assets measured at fair value		$	20,519			$	—			$	19,321			$	1,198

 

						Fair Value Measurements at Reporting Date Using
Description		At December 31, 2010				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Fuel hedge contracts		$	595			$	—			$	595			$	—
Interest rate swap contracts			1,264				—				—				1,264
Total assets measured at fair value		$	1,859			$	—			$	595			$	1,264

Interest rate swaps

In May 2009, the Company entered into two interest rate swap arrangements, which are effective through December 15, 2012, to swap a notional amount of $50 million from a fixed rate of 7.75% to a floating LIBOR-based rate in order to manage the interest rate paid with respect to the Company’s 7.75% senior subordinated notes. Although the senior subordinated notes were redeemed in January 2011, the swaps remain in place. The swap is not accounted for as a hedge; therefore, the changes in fair value are recorded as adjustments to interest expense in each reporting period.

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

 

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Interest Rate Swaps				Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Interest Rate Swaps
		2011				2010
Balance at January 1,		$	1,264			$	(20	)
Total unrealized gains (losses): included in earnings			(511	)			1,365
Settlements			445				440
Balance at September 30,		$	1,198			$	1,785

 

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Interest Rate Swaps				Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Interest Rate Swaps
		2011				2010
Balance at July 1,		$	1,141			$	1,193
Total unrealized losses: included in earnings			57				592
Settlements			—				—
Balance at September 30,		$	1,198			$	1,785

 

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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, 2011, the Company was party to various swap arrangements to hedge the price of a portion of its diesel fuel purchase requirements for work in its backlog to be performed through May 2012. As of September 30, 2011, there were 3.2 million gallons remaining on these contracts which represent approximately 45% of the Company’s forecasted fuel purchases through May 2012. Under these swap agreements, the Company will pay fixed prices ranging from $2.35 to $3.33 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, as a reduction of fuel expense, which is a component of costs of contract revenues in the condensed consolidated statements of operations.

At September 30, 2011 and December 31, 2010, the fair value asset of the fuel hedge contracts was estimated to be $19 and $595, respectively, and is recorded in other current assets. At September 30, 2011 the fair value liability of the fuel hedge contracts was estimated to be $720, and is recorded in accrued expenses. The gain reclassified to earnings from changes in fair value of derivatives, net of cash settlements and taxes, for the period ended September 30, 2011 was $1,250. The remaining gains included in accumulated other comprehensive income at September 30, 2011 will be reclassified into earnings over the next eight months, corresponding to the period during which the hedged fuel is expected to be utilized. The fair values of fuel hedges are corroborated using inputs that are readily observable in public markets; therefore, the Company determines fair value of these fuel hedges using Level 2 inputs.

The fair value of the money market fund, interest rate and fuel hedge contracts outstanding as of September 30, 2011 and December 31, 2010 is as follows:

 

		Fair Value At September 30, 2011
		Balance Sheet Location		Fair Value Asset				Balance Sheet Location		Fair Value Liability
Cash equivalents		Cash and cash equivalents		$	20,022
Fuel hedge contracts		Other current assets			19			Accrued expenses		$	(720	)
Interest rate swaps		Other current assets			819			Accrued expenses			—
Interest rate swaps		Other assets			379			Other liabilities			—
Total				$	21,239					$	(720	)

 

		Fair Value At September 31, 2011
		Balance Sheet Location		Fair Value Asset				Balance Sheet Location		Fair Value Liability
Interest rate swaps		Other current assets		$	816			Other liabilities		$	—
Interest rate swaps		Other assets			448			Other liabilities			—
Fuel hedge contracts		Other current assets			595			Accrued expenses			—
Total				$	1,859					$	—

Other financial instruments

The carrying value of financial instruments included in current assets and current liabilities approximates fair value due to the short-term maturities of these instruments. In January 2011, the Company issued $250,000 of 7.375% senior notes due February 1, 2019, which were outstanding at September 30, 2011. The senior notes are senior unsecured obligations of the Company and its subsidiaries that guarantee the senior notes. The fair value of the senior notes was $231,250 at September 30, 2011, based on recent transactions.

 

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4. Share based compensation

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

In June 2011, the Company granted 444,178 options to purchase shares of common stock and 263,428 restricted stock units to certain employees pursuant to the plan. In addition all non-employee directors on the Company’s board of directors are paid a portion of their compensation in stock grants. Compensation cost charged to income related to all share-based compensation arrangements was $381 and $1,224, respectively, for the three months and nine months ended September 30, 2011 and $440 and $1,734, respectively, for the three and nine months ended September 30, 2010.

5. Accounts receivable

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

 

		September 30, 2011				December 31, 2010
Completed contracts		$	38,581			$	20,093
Contracts in progress			57,009				64,399
Retainage			16,293				12,711
			111,883				97,203
Allowance for doubtful accounts			(1,839	)			(1,655	)
Total accounts receivable		$	110,044			$	95,548

At September 30, 2011 and December 31, 2010, $4,181 and $5,923, respectively, of retainage from long-term projects was not expected to be collected within the next twelve months and is classified as other non-current assets.

6. Contracts in progress

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

 

		September 30, 2011				December 31, 2010
Costs and earnings in excess of billings:
Costs and earnings for contracts in progress		$	179,826			$	287,291
Amounts billed			(158,153	)			(263,665	)
Costs and earnings in excess of billings for contracts in progress			21,673				23,626
Costs and earnings in excess of billings for completed contracts			4,062				1,216
Total contract revenues in excess of billings		$	25,735			$	24,842
Billings in excess of costs and earnings:
Amounts billed		$	(425,977	)		$	(429,688	)
Costs and earnings for contracts in progress			410,765				415,204
Total billings in excess of contract revenues		$	(15,212	)		$	(14,484	)

 

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7.     Accrued expenses

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

 

		September 30,				December 31,
		2011				2010
Payroll and employee benefits		$	9,231			$	13,573
Insurance			8,674				11,039
Interest			3,073				604
Percentage of completion adjustment			2,849				3,232
Income and other taxes			1,433				2,977
Other			2,428				1,384
Total accrued expenses		$	27,688			$	32,809

8.     Foreign currency translation

The financial statements of the Company’s foreign subsidiaries where the operations are primarily denominated in the foreign currency are translated into U.S. dollars for reporting. Balance sheet accounts are translated at the current foreign exchange rate at the end of each period and income statement accounts are translated at the average foreign exchange rate for each period. Gains and losses on foreign currency translations are reflected as a currency translation adjustment in accumulated other comprehensive income. Foreign currency transaction gains and losses are included in loss on foreign currency transactions, net.

9.     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,
		2011				2010				2011				2010
Dredging
Contract revenues		$	134,591			$	149,107			$	396,273			$	463,747
Operating income			13,593				15,796				45,008				56,827
Demolition
Contract revenues		$	23,877			$	24,226			$	72,492			$	51,121
Operating income (loss)			1,193				259				(5,954	)			(1,143	)
Total
Contract revenues		$	158,468			$	173,333			$	468,765			$	514,868
Operating income			14,786				16,055				39,054				55,684

In addition, foreign dredging revenue of $21,843 and $59,779 for the three months and nine months ended September 30, 2011 and $20,916 and $60,129 for the three months and nine months ended September 30, 2010, respectively, was primarily attributable to work done in the Middle East and Brazil.

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.

10.     Commitments and contingencies

Commercial commitments

In June 2007, the Company entered into a credit agreement (the “Credit Agreement”) with Bank of America N.A. as administrative agent and issuing lender, various other financial institutions as lenders and certain subsidiaries of the Company as loan parties. The Credit Agreement provides for a revolving credit facility of up to $145,000 in borrowings and includes sublimits for the issuance of letters of credit and swingline loans. The revolving credit facility matures on June 12, 2012. The revolving credit facility bears interest at rates selected at the option of Great Lakes, currently equal to either LIBOR plus an applicable margin or the Base Rate (as defined

 

12

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in the Credit Agreement), plus an applicable margin. The applicable margins for LIBOR loans and Base Rate loans, as well as any non-use fee, are subject to adjustment based upon the Company’s ratio of Total Funded Debt to Adjusted Consolidated EBITDA (each as defined in the Credit Agreement). As of September 30, 2011, the Company had no borrowings and $22,641 of letters of credit outstanding, resulting in $122,359 of availability under the Credit Agreement.

The Company obtains its performance, bid and payment bonds through bonding agreements (the “Bonding Agreements”). The bonds issued under the Bonding Agreements are customarily required for dredging and marine construction projects, as well as demolition projects. As of September 30, 2011, Great Lakes had outstanding bonds valued at $265,481; however, the revenue value remaining in backlog related to these projects totaled $176,757.

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, 2011, Great Lakes had $11,725 of letters of credit outstanding under this facility.

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

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

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

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

Legal proceedings and other contingencies

Various legal actions, claims, assessments and other contingencies arising in the ordinary course of business are pending against the Company and certain of its subsidiaries. These matters are subject to many uncertainties, and it is possible that some of these matters could ultimately be decided, resolved or settled adversely 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 or its former subsidiary, NATCO Limited Partnership, is named as a defendant in approximately 251 asbestos-related personal injury lawsuits, the majority of which were filed between 1989 and 2000. All of the cases filed against the Company prior to 1996 were administratively dismissed in May 1996 and any cases filed since that time have similarly been administratively transferred to the inactive docket. Over the last year, hundreds of lawsuits have been reactivated in an effort to clean out the administrative docket. Prior to the commencement of discovery in any of the reactivated cases, counsel for plaintiffs agreed to name a group of cases that they intended to pursue and to dismiss the remaining cases without prejudice. Plaintiffs have currently named 40 cases against the Company that they intend to pursue, each of which involves one plaintiff. The remaining cases against the Company have been dismissed. Plaintiffs in the dismissed cases could file a new lawsuit if they develop a new disease allegedly caused by exposure to asbestos on board our vessels. The Company is presently unable to quantify the amounts of damages being sought in these lawsuits because none of the complaints specify a damage amount. The Company does not believe that it is probable that losses from these claims could be material, and an estimate of a range of losses relating to these claims cannot reasonably be made. Based on the foregoing, management does not believe that the 40 lawsuits, individually and 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.

 

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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 continues to fully cooperate with the federal grand jury subpoena and internally investigate as appropriate. Based on the early stage of the U.S. Department of Justice’s investigation and the limited information known to the Company, the Company cannot predict the outcome of the investigation, the U.S. Attorney’s views of the issues being investigated, any action the U.S. Attorney may take, or the impact, if any, that this matter may have on the Company’s business, financial position, results of operations or cash flows.

On April 6, 2011, NASDI received a subpoena from the District Attorney for Richmond County, New York in connection with a grand jury investigation. The subpoena directs NASDI to furnish certain documents relating to one project performed by NASDI and one of its subcontractors. The subpoena appears to be related to the activities of NASDI’s subcontractor for this project. The Company fully complied with the production of requested documents and will continue to cooperate if additional requests are made. Based on the Company’s internal investigation to date, the Company does not believe that it will have any liability with respect to this matter. In addition, the Company intends to continue to fully cooperate with the New York grand jury subpoena.

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

11.     Acquisition of noncontrolling interest

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

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

12.     Subsequent events

In October 2011, the Company entered into a transaction to sell a parcel of land in Channelview, Texas. The Company received proceeds of $6,490 for land with a recorded value of $106, resulting in a gain of $6,384. There were no other items occurring subsequent to September 30, 2011 that would have a material impact on the financial statements.

13.     Subsidiary guarantors

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

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, 2011 and December 31, 2010;

 

(ii)

statements of operations for the three and nine months ended September 30, 2011 and 2010; and

 

(iii)

statements of cash flows for the nine months ended September 30, 2011 and 2010.

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2011
(In thousands)
		Subsidiary Guarantors				Non-Guarantor Subsidiaries				GLDD Corporation				Eliminations				Consolidated Totals
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	102,269			$	4,781			$	—			$	—			$	107,050
Accounts receivable — net			107,875				2,169				—				—				110,044
Receivables from affiliates			38,563				6,481				49,639				(94,683	)			—
Contract revenues in excess of billings			25,734				275				—				(274	)			25,735
Inventories			32,398				—				—				—				32,398
Prepaid expenses			2,487				—				216				—				2,703
Other current assets			14,061				130				14,556				—				28,747
Total current assets			323,387				13,836				64,411				(94,957	)			306,677
PROPERTY AND EQUIPMENT—Net			311,472				116				—				—				311,588
GOODWILL			97,799				250				—				—				98,049
OTHER INTANGIBLE ASSETS—Net			1,170				170				—				—				1,340
INVENTORIES — Noncurrent			30,988				—				—				—				30,988
INVESTMENTS IN JOINT VENTURES			7,221				—				—				—				7,221
INVESTMENTS IN SUBSIDIARIES			3,732				—				572,946				(576,678	)			—
OTHER ASSETS			6,817				3				6,254				(1,119	)			11,955
TOTAL		$	782,586			$	14,375			$	643,611			$	(672,754	)		$	767,818
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable		$	70,688			$	1,240			$	—			$	—				71,928
Payables to affiliates			84,495				6,673				3,625				(94,793	)			—
Accrued expenses			23,764				608				3,316				—				27,688
Billings in excess of contract revenues			15,076				300				—				(164	)			15,212
Current portion of note payable			2,500				—				—				—				2,500
Current portion of equipment debt			1,493				—				—				—				1,493
Total current liabilities			198,016				8,821				6,941				(94,957	)			118,821
LONG TERM NOTE PAYABLE			5,000				—				—				—				5,000
7 3/8% SENIOR NOTES			—				—				250,000				—				250,000
DEFERRED INCOME TAXES			—				—				100,570				(1,119	)			99,451
OTHER			8,446				—				754				—				9,200
Total liabilities			211,462				8,821				358,265				(96,076	)			482,472
Total Great Lakes Dredge & Dock Corporation Equity			571,124				5,554				284,976				(576,678	)			284,976
NONCONTROLLING INTERESTS			—				—				370				—				370
TOTAL EQUITY			571,124				5,554				285,346				(576,678	)			285,346
TOTAL		$	782,586			$	14,375			$	643,611			$	(672,754	)		$	767,818

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2010
(In thousands)
		Subsidiary Guarantors				Non-Guarantor Subsidiaries				GLDD Corporation				Eliminations				Consolidated Totals
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	48,416			$	62			$	—			$	—			$	48,478
Accounts receivable — net			93,983				1,565				—				—				95,548
Receivables from affiliates			5,338				5,798				6,745				(17,881	)			—
Contract revenues in excess of billings			24,777				94				—				(29	)			24,842
Inventories			31,734				—				—				—				31,734
Prepaid expenses			3,246				—				202				—				3,448
Other current assets			9,853				8				9,058				—				18,919
Total current assets			217,347				7,527				16,005				(17,910	)			222,969
PROPERTY AND EQUIPMENT—Net			322,958				273				—				—				323,231
GOODWILL			97,799				250				—				—				98,049
OTHER INTANGIBLE ASSETS—Net			3,017				263				—				—				3,280
INVENTORIES — Noncurrent			27,128				—				—				—				27,128
INVESTMENTS IN JOINT VENTURES			7,329				—				—				—				7,329
INVESTMENTS IN SUBSIDIARIES			2,311				—				528,425				(530,736	)			—
OTHER ASSETS			7,704				—				4,350				(215	)			11,839
TOTAL		$	685,593			$	8,313			$	548,780			$	(548,861	)		$	693,825
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable		$	81,534			$	1,187			$	—			$	—			$	82,721
Payables to affiliates			14,151				3,655				—				(17,806	)			—
Accrued expenses			30,511				693				1,605				—				32,809
Billings in excess of contract revenues			14,121				467				—				(104	)			14,484
Current portion of note payable			2,500				—				—				—				2,500
Current portion of equipment debt			303				—				—				—				303
Total current liabilities			143,120				6,002				1,605				(17,910	)			132,817
LONG TERM NOTE PAYABLE			5,000				—				—				—				5,000
7 3/4% SENIOR SUBORDINATED NOTES			—				—				175,000				—				175,000
DEFERRED INCOME TAXES			—				—				92,681				(215	)			92,466
OTHER			9,048				—				2,669				—				11,717
Total liabilities			157,168				6,002				271,955				(18,125	)			417,000
Total Great Lakes Dredge & Dock Corporation Equity			528,425				2,311				278,953				(530,736	)			278,953
NONCONTROLLING INTERESTS			—				—				(2,128	)			—				(2,128	)
TOTAL EQUITY			528,425				2,311				276,825				(530,736	)			276,825
TOTAL		$	685,593			$	8,313			$	548,780			$	(548,861	)		$	693,825

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

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 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 before income taxes			16,459				(1,022	)			8,912				(15,072	)			9,277
Income tax provision			(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

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010

(In thousands)

 

		Subsidiary Guarantors				Non-Guarantor Subsidiaries				GLDD Corporation				Eliminations				Consolidated Totals
Contract revenues		$	172,655			$	2,229			$	—			$	(1,551	)		$	173,333
Costs of contract revenues			(139,825	)			(2,364	)			—				1,551				(140,638	)
Gross profit			32,830				(135	)			—				—				32,695
General and administrative expenses			15,396				179				1,065				—				16,640
Operating income (loss)			17,434				(314	)			(1,065	)			—				16,055
Interest expense, net			7				(22	)			(3,287	)			—				(3,302	)
Equity in earnings of subsidiaries			(336	)			—				17,278				(16,942	)			—
Equity in earnings of joint ventures			81				—				—				—				81
Income before income taxes			17,186				(336	)			12,926				(16,942	)			12,834
Income tax provision			92				—				(5,205	)			—				(5,113	)
Net income (loss)			17,278				(336	)			7,721				(16,942	)			7,721
Net income attributable to noncontrolling interests			—				—				(36	)			—				(36	)
Net income (loss) attributable to Great Lakes Dredge & Dock Corporation		$	17,278			$	(336	)		$	7,685			$	(16,942	)		$	7,685

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

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 of subsidiaries			1,422				—				42,982				(44,404	)			—
Equity in loss of joint ventures			(108	)			—				—				—				(108	)
Loss on foreign currency transactions, net			(526	)			(18	)			—				—				(544	)
Loss on extinguishment of debt			—				—				(5,145	)			—				(5,145	)
Intcome before income taxes			41,349				192				19,688				(44,404	)			16,825
Income tax provision			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

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010

(In thousands)

 

		Subsidiary Guarantors				Non-Guarantor Subsidiaries				GLDD Corporation				Eliminations				Consolidated Totals
Contract revenues		$	512,702			$	5,758			$	—			$	(3,592	)		$	514,868
Costs of contract revenues			(414,793	)			(5,899	)			—				3,592				(417,100	)
Gross profit			97,909				(141	)			—				—				97,768
General and administrative expenses			38,876				526				2,682				—				42,084
Operating income (loss)			59,033				(667	)			(2,682	)			—				55,684
Interest income (expense), net			3				(59	)			(9,461	)			—				(9,517	)
Equity in earnings (loss) of subsidiaries			(726	)			—				57,980				(57,254	)			—
Equity in loss of joint ventures			(772	)			—				—				—				(772	)
Income before income taxes			57,538				(726	)			45,837				(57,254	)			45,395
Income tax benefit (provision)			442				—				(18,549	)			—				(18,107	)
Net income (loss)			57,980				(726	)			27,288				(57,254	)			27,288
Net loss attributable to noncontrolling interests			—				—				531				—				531
Net income (loss) attributable to Great Lakes Dredge & Dock Corporation		$	57,980			$	(726	)		$	27,819			$	(57,254	)		$	27,819

 

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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 settlement of 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 (used in) financing activities			30,045				5,762				26,984				—				62,791
Effect of exchange rate changes on cash and cash equivalents			—				(396	)			—				—				(396	)
Net change in cash and 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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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010

(In thousands)

 

		Subsidiary Guarantors				Non-Guarantor Subsidiaries				GLDD Corporation				Eliminations				Consolidated Totals
OPERATING ACTIVITIES:
Net cash flows provided by (used in) operating activities		$	140,462			$	345			$	(32,493	)		$	—			$	108,314
INVESTING ACTIVITIES:
Purchases of property and equipment			(18,283	)			—				—				—				(18,283	)
Proceeds from dispositions of property and equipment			361				—				—				—				361
Net cash flows used in investing activities			(17,922	)			—				—				—				(17,922	)
FINANCING ACTIVITIES:
Dividends paid			—				—				(2,990	)			—				(2,990	)
Dividend equivalents paid on restricted stock units			—				—				(17	)			—				(17	)
Net change in accounts with affiliates			(45,963	)			(67	)			46,030				—				—
Repayments of equipment debt			(1,074	)			—				—				—				(1,074	)
Exercise of stock options			—				—				470				—				470
Borrowings under revolving loans			—				—				14,968				—				14,968
Repayments of revolving loans			—				—				(25,968	)			—				(25,968	)
Net cash flows provided by (used in) financing activities			(47,037	)			(67	)			32,493				—				(14,611	)
Net change in cash and equivalents			75,503				278				—				—				75,781
Cash and cash equivalents at beginning of period			3,028				222				—				—				3,250
Cash and cash equivalents at end of period		$	78,531			$	500			$	—			$	—			$	79,031

 

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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 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 requirements and obligations, international operations, government regulation, restrictive debt covenants and fluctuations in quarterly operations, as well as those 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, 2010 and in other securities filings by Great Lakes with the SEC.

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

General

The Company is the largest provider of dredging services in the United States. In addition, the Company is the only U.S. dredging service provider with significant international operations, which represented 15% of its dredging revenues for the first nine months of 2011, compared with the Company’s three year average of 23%. The mobility of the Company’s fleet enables the Company to move equipment in response to changes in demand for dredging services.

Dredging generally involves the enhancement or preservation of the navigability of waterways or the protection of shorelines through the removal or replenishment of soil, sand or rock. The U.S. dredging market consists of three primary types of work: capital, beach nourishment and maintenance. The Company experienced an average combined bid market share in the U.S. of 39% over the last three years, including 44%, 32% and 52% of the capital, beach nourishment and maintenance sectors, respectively. The Company’s bid market is defined as the aggregate dollar value of domestic projects on which the Company bid or could have bid if not for capacity constraints (“bid market”). With the acquisition of L.W. Matteson, Inc. (“Matteson”), on January 1, 2011 the Company began to provide the following additional dredging and other services: inland lake and river dredging, inland levee and construction dredging, environmental restoration and habitat improvement and other marine construction. The foregoing bid market shares do not reflect Matteson’s activities prior to December 31, 2010.

The Company’s largest domestic dredging customer is the Army Corps of Engineers (the “Corps”), which has responsibility for federally funded projects related to navigation and flood control of U.S. waterways. In the first nine months of 2011, the Company’s dredging revenues earned from contracts with federal government agencies, including the Corps as well as other federal entities such as the U.S. Coast Guard and the U.S. Navy, were approximately 53% of dredging revenues, down slightly from the Company’s three year average of 60%.

The Company’s demolition subsidiaries are headquartered in the Boston, Massachusetts area. In the first nine months of 2011, demolition revenues accounted for 15% of total revenues, above the prior three year average of 12%. The demolition segment’s principal services consist of interior and exterior demolition of commercial and industrial buildings, salvage and recycling of related materials and removal of hazardous substances and materials. The majority of the work has historically been performed in New England; however, the primary demolition subsidiary, NASDI, LLC (“NASDI”) continues to expand its footprint into the New York area and the marine demolition market, and specifically into bridge demolition projects. Effective as of January 1, 2011, NASDI became a wholly owned subsidiary of the Company. See Note 11 to Condensed Consolidated Financial Statements.

 

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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 mining sand from the entrance channel to the New York harbor in order to provide sand and aggregate for use in road and building construction and for clean land fill. Amboy also imports stone from Nova Scotia and distributes it throughout the New York area. TerraSea is focused on environmental services through its ability to remediate contaminated soil and dredged sediment treatment. The Company’s investments in Amboy and TerraSea are accounted for using the equity method.

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

Results of Operations

The following tables set forth the components of net income (loss) attributable to Great Lakes Dredge & Dock Corporation and Adjusted EBITDA, as defined below, as a percentage of contract revenues for the three months and nine months ended September 30, 2011 and 2010:

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Contract revenues			100.0	%			100.0	%			100.0	%			100.0	%
Costs of contract revenues			(82.7	)			(81.1	)			(84.1	)			(81.0	)
Gross profit			17.3				18.9				15.9				19.0
General and administrative expenses			8.0				9.6				8.2				8.2
Gain on sale of assets, net			(0.1	)			—				(0.6	)			—
Operating income			9.4				9.3				8.3				10.8
Interest expense, net			(3.5	)			(1.9	)			(3.5	)			(1.8	)
Equity in earnings (loss) of joint ventures			0.4				—				—				(0.1	)
Loss on foreign currency transactions, net			(0.3	)			—				(0.1	)			—
Loss on extinguishment of debt			—				—				(1.1	)			—
Income before income taxes			6.0				7.4				3.6				8.9
Income tax provision			(2.3	)			(2.9	)			(1.4	)			(3.5	)
Net income			3.7				4.5				2.2				5.4
Net (income) loss attributable to noncontrolling interests			—				—				(0.1	)			0.1
Net income attributable to Great Lakes Dredge & Dock Corporation			3.7	%			4.5	%			2.1	%			5.5	%
Adjusted EBITDA			16.4	%			13.9	%			14.5	%			15.8	%

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

 

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		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Net income attributable to Great Lakes Dredge & Dock Corporation		$	5,602			$	7,685			$	9,700			$	27,819
Adjusted for:
Loss on extinguishment of debt			—				—				5,145				—
Interest expense, net			5,571				3,302				16,432				9,517
Income tax expense			3,618				5,113				6,600				18,107
Depreciation and amortization			11,195				8,027				29,999				26,020
Adjusted EBITDA		$	25,986			$	24,127			$	67,876			$	81,463

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

 

		Three Months Ended												Nine Months Ended
		September 30,												September 30,
Revenues (in thousands)		2011				2010				Change				2011				2010				Change
Dredging:
Capital—U.S.		$	39,778			$	104,092				(62	)%		$	130,287			$	220,343				(41	)%
Capital—foreign			21,843				20,917				4	%			59,779				60,129				(1	)%
Beach			41,714				4,180				898	%			87,947				85,884				2	%
Maintenance			16,583				19,918				(17	)%			92,525				97,391				(5	)%
Rivers & Lakes*			14,673				—				—	%			25,735				—				—	%
Dredging Revenue			134,591				149,107				(10	)%			396,273				463,747				(15	)%
Demolition			23,877				24,226				(1	)%			72,492				51,121				42	%
Total Revenue		$	158,468			$	173,333				(9	)%		$	468,765			$	514,868				(9	)%

 

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

Total revenue for the 2011 third quarter was $158.5 million, down 9% from $173.3 million during the 2010 third quarter. Most of this decline was attributable to a decrease in domestic capital revenue, offset, in part, by increases in beach nourishment and the addition of rivers & lakes revenue. Demolition revenue for the quarter was $23.9 million, down slightly from $24.2 million a year ago. Total revenue for the nine months ended September 30, 2011 was down $46.1 million or 9% compared to the prior year due to decreases in domestic capital dredging revenue, offset, in part, by contributions from rivers & lakes and a significant increase in demolition revenues.

Capital projects include large port deepenings and other infrastructure projects such as land reclamations. Domestic capital revenues in the third quarter and nine months ended September 30, 2011 were primarily generated by work in the Ports of New York and Norfolk, as well as projects in Florida. Domestic capital dredging revenue decreased $64.3 million, or 62%, in the 2011 third quarter compared to the 2010 third quarter. Domestic capital dredging revenue in the third quarter of 2010 included $58.7 million from sand berm construction off the coast of Louisiana, which did not repeat in 2011. Domestic capital dredging revenue decreased $90.1 million, or 41%, in the nine months ended September 30, 2011 compared to the same period in 2010. In the nine months ended September 30, 2010, the Company earned $65.0 million from the sand berm construction mentioned above and approximately $20 million of additional deepening work that was not repeated by the Company in the current year.

Foreign revenue increased $0.9 million, or 4%, for the third quarter of 2011 to $21.8 million as compared to $20.9 million in the 2010 third quarter. In the nine months ended September 30, 2011, foreign revenue decreased $0.4 million, or 1%, to $59.8 million from $60.1 million the same period of 2010. The Company has diversified its foreign revenue with projects in Bahrain, Brazil and Kuwait. Foreign revenues year to date also benefited from the resolution of outstanding project claims of approximately $3.8 million in the 2011 first quarter, offset by fewer projects in the Middle East.

Beach nourishment projects include rebuilding of shoreline areas that have been damaged by storm activity or ongoing erosion. Beach nourishment revenue in the 2011 third quarter increased $37.5 million, or nearly nine times that of the same 2010 quarter. Year to date 2011 beach revenue increased $2.1 million, or 2%, compared to the first nine months of 2010. Beach projects during the quarter were positively impacted as the Company was able to work on certain projects which were not subjected to environmental window restrictions typically incurred in the third quarter. In the 2011 third quarter, the Company worked on several beach projects, including projects in Delaware, Florida, New Jersey and North Carolina.

 

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Maintenance projects include routine dredging of ports, non-inland rivers and channels to remove the regular build up of sediment. Maintenance revenue in the 2011 third quarter decreased by $3.3 million, or 17%, compared to the 2010 third quarter. Maintenance revenue in the first nine months of 2011 decreased by $4.9 million, or 5%, compared to the same period in 2010. Maintenance revenue decreased compared to the prior year as $3.2 million of work typically included in maintenance revenue was shifted to the rivers & lakes division in 2011.

Rivers and lakes projects include inland lake and river dredging, environmental restoration and habitat improvement and other marine construction. Rivers and lakes revenue was $14.7 million and $25.7 million for the three and nine months ended September 30, 2011, respectively. The Company purchased its rivers and lakes operations on December 31, 2010. Rivers and lakes revenue increased in the 2011 third quarter in comparison to the first half of the year due to the work performed on the backlog established in previous quarters as first quarter revenue is generally limited by freezing conditions in the northern United States that are typical during that time of year.

Consolidated gross profit for the 2011 third quarter decreased by 16% to $27.4 million, from $32.7 million in the same 2010 quarter. Gross profit margin (gross profit divided by revenue) for the 2011 third quarter decreased to 17.3% from 18.9% in the 2010 third quarter. The decrease in gross profit and gross profit margin was primarily due to greater than anticipated weather delays caused by Hurricane Irene off the East Coast and other subsequent storms. Consolidated gross profit for the nine months ended September 30, 2011 decreased by $23.2 million to $74.6 million from $97.8 million in the same 2010 period, resulting in a decline in gross profit margin to 15.9% from 19.0%. The 2011 third quarter and year to date gross profit margin was impacted by a lower coverage of fixed costs resulting from a comparison to the atypical vessel utilization in the prior third quarter and year to date periods. In addition, gross profit margin benefited in the prior year from a favorable project mix and increased vessel utilization on a number of domestic capital dredging and beach nourishment projects. The negative gross profit margin from the demolition segment the first half of 2011 also contributed to the lower profit margin for the nine months ended September 30, 2011. The demolition segment continued to work on several projects, primarily in the New York market, that experienced cost overruns primarily recognized in previous quarters of 2011. These projects were commenced in 2010 as part of the demolition segment’s expansion into new markets.

The Company’s general and administrative expenses totaled $12.7 million and $38.4 million for the three and nine months ended September 30, 2011. General and administrative expenses totaled $16.6 million and $42.1 million for the three and nine months ended September 30, 2010. The decrease in 2011 is due largely to costs of $4.4 million and $7.2 million for the three and nine months ended September 30, 2010, respectively, for severance, legal and consulting charges that were recorded in conjunction with the senior management reorganization. The decrease is also attributable to a $1.1 million reduction in the third quarter of 2011 of the future liability related to the earnout due to previous owners of the Company’s rivers and lakes dredging operations. These factors were partially offset by additional amortization expense related to the rivers and lakes acquisition of $0.6 million and $1.7 million for the three and nine months ended September 30, 2011, respectively. Additionally, during the nine months ended September 30, 2011, the demolition segment recorded $1.6 million of investigation-related expenses resulting from two subpoenas received in April 2011 (see Note 10 to Condensed Consolidated Financial Statements).

Operating income for the three and nine months ended September 30, 2011 decreased 7.9% and 29.9% to $14.8 million and $39.1 million, respectively, compared to the same periods of 2010 as a result of decreased dredging revenue and the resulting decline in gross profit.

Interest expense totaled $5.6 million and $16.4 million for the three and nine months ended September 30, 2011, respectively, an increase from $3.3 million and $9.5 million from the same periods of 2010, primarily due to the Company’s issuance of $250 million of 7.375% senior notes and the related redemption of the Company’s $175 million of 7.75% senior subordinated notes in the 2011 first quarter. Due to timing requirements, both of these note issuances were outstanding and accruing interest for approximately 30 days in the 2011 first quarter, resulting in duplicative interest expense of approximately $1.1 million. In addition, although the senior notes accrue interest at a lower interest rate, the increase in principal outstanding results in an increased amount of interest expense. Additionally, the Company recorded gains on interest rate swaps of $0.1 million and $0.4 million for the three and nine months ended September 30, 2011, compared to gains of $0.6 million and $2.2 million for the three and nine months ended September 30, 2010, respectively, as interest rates generally declined steeply in 2010. While rates have continued to decline during 2011, the magnitude of the decline has lessened, resulting in smaller gains in the current year.

Income tax expense for the three and nine months ended September 30, 2011 was $3.6 million and $6.6 million, respectively, compared to $5.1 million and $18.1 million for the same 2010 periods. This decrease was primarily attributable to lower earnings generated in 2011. The effective tax rate for the nine months ended September 30, 2011 was 39.2%, which is substantially consistent with the effective tax rate of 39.9% for the same period of 2010. The Company expects the tax rate for the full year to remain at 39.2%.

Net income attributable to Great Lakes Dredge & Dock Corporation was $5.6 million and earnings per diluted share were $0.09 for the 2011 third quarter as compared to $7.7 million and $0.13 for the same 2010 period. Net income attributable to Great Lakes

 

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Dredge & Dock Corporation and earnings per diluted share for the nine months ended September 30, 2011 were $9.7 million and $0.16, respectively, compared to $27.8 million and $0.47 for the same 2010 period. The decrease is due to the lower operating income and increased interest expense for the period, as well as approximately $6.2 million of expense associated with the redemption of the $175 million senior subordinated notes (consisting of a $2.9 million non-cash write off of deferred financing fees, a $2.2 million redemption premium, and $1.1 million interest expense on the $175 million notes that were outstanding for 30 days after the debt was called).

Adjusted EBITDA (as defined on page 22) was $26.0 million and $67.9 million for the three and nine months ended September 30, 2011, respectively, compared with $24.1 million and $81.5 million in the same 2010 periods, primarily for the reasons discussed above. Although operating income for the 2011 third quarter was lower than the same period in the prior year, the Company recorded $11.2 million of non-cash depreciation and amortization expense for the three months ended September 30, 2011 that is included as a component of operating income, but excluded for the purposes of calculating Adjusted EBITDA. The depreciation and amortization expense recorded in the three months ended September 30, 2010 was only $8.0 million.

Results by segment

Dredging

Dredging revenues for the three and nine months ended September 30, 2011 were $134.6 million and $396.3 million, respectively, compared to $149.1 million and $463.7 million for the same periods of 2010. Dredging revenues for the nine months ended September 30, 2011 were driven by continued domestic capital work with significant contributions from strong third quarter beach revenue offset by a small decline year over year in maintenance revenue. The decline in dredging revenue for the nine months ended September 30, 2011 from the same period in the previous year was due to a decline in domestic capital, which was partially offset by the revenue contribution of the rivers and lakes projects. Domestic capital revenue in the prior year was atypically high due to $65.0 million from sand berm construction off the coast of Louisiana. Gross profit margin in the dredging segment was 17.5% and 18.4% for the three and nine months ended September 30, 2011 compared to gross profit margin in the dredging segment of 20.5% and 20.2% for the three and nine months ended September 30, 2010, respectively, as lower dredging revenues from increased vessel downtime resulted in lower coverage of fixed costs. In addition, gross profit margin benefited in the prior year from a favorable project mix and increased vessel utilization on a number of domestic capital dredging and beach nourishment projects. Dredging segment operating income was $13.6 million and $45.0 million for the three and nine months ended September 30, 2011, compared to operating income of $15.8 million and $56.8 million for the three and nine months ended September 30, 2010, respectively. The decrease reflects the decreased revenues and gross profit margin in the nine months ended September 30, 2011 compared to the same period in 2010.

Demolition

Demolition revenues for the three and nine months ended September 30, 2011 totaled $23.9 million and $72.5 million, respectively, compared to $24.2 million and $51.1 million for the same 2010 periods. The demolition segment experienced higher revenue levels in the nine months ended September 30, 2011 than from the same period in the prior year as the segment continued several large jobs that were included in backlog at year end 2010. The demolition segment generated operating income of $1.2 million and an operating loss of $5.9 million for the three and nine months ended September 30, 2011, respectively, compared to operating income of $0.3 million and an operating loss of $1.1 million for the same periods of 2010. Gross profit margin in the demolition segment was 15.8% and 2.2% for the three and nine months ended September 30, 2011 compared to gross profit margin of 8.0% and 7.4% for the three and nine months ended September 30, 2010, respectively. For the nine months ended September 30, 2011, the demolition segment’s greater operating loss and lower gross profit margin is primarily the result of losses recognized to date on projects in backlog at December 31, 2010. In the third quarter of 2011, the demolition segment stabilized the cost overruns on projects in the New York market and believes that the future losses already have been recognized in the results of the segment. The demolition segment also recognized $1.6 million of additional legal and consulting expenses in the nine months ended September 30, 2011 relating to the subpoenas received in April 2011 which impacted the segment’s operating income.

Bidding Activity and Backlog

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

 

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		September 30,				December 31,				September 30,
Backlog (in thousands)		2011				2010				2010
Dredging:
Capital—U.S.		$	109,568			$	117,866			$	143,207
Capital—foreign			40,675				65,334				29,285
Beach			117,543				18,080				17,702
Maintenance			16,187				56,140				31,190
Rivers & Lakes*			13,391				25,116				—
Dredging Backlog			297,364				282,536				221,384
Demolition			68,029				80,984				54,878
Total Backlog		$	365,393			$	363,520			$	276,262

 

*	Rivers & lakes was established by the Company on December 31, 2010 in connection with the Matteson acquisition, and was not part of the Company for the period ended September 30, 2010.

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

The domestic dredging bid market for the 2011 third quarter totaled $513.9 million, an increase of $158.2 million from the same period in the prior year, resulting in a total amount of contracts awarded for the nine months ended September 30, 2011 of $847.3 million, compared to $658.3 million in the same period of 2010. The Company won 64%, or $188.1 million, of the beach nourishment projects awarded through September 30, 2011, as well as 31%, or $69.2 million, of the maintenance projects and 31%, or $92.8 million, of capital projects awarded through September 30, 2011. The Company won 42% of the overall domestic bid market through September 30, 2011, slightly above its three year average of 39%. The third quarter bid market benefited from many projects let to bid before the fiscal year end of many governmental entities. Given that the size of the year to date bid market is similar to the full year bid market in 2010, the Company expects the full year 2011 bid market to be larger than the full year 2010 bid market. Variability in contract wins from quarter to quarter is not unusual and one quarter’s win rate is generally not indicative of the win rate the Company is likely to achieve for a full year.

The Company’s contracted dredging backlog was $297.4 million at September 30, 2011 compared to $282.5 million as of December 31, 2010. These amounts do not reflect approximately $78.2 million of domestic low bids pending formal award and additional phases (“options”) pending on projects currently in backlog. At December 31, 2010 the amount of domestic low bids pending award was $39.9 million.

Domestic capital dredging backlog at September 30, 2011 was $8.2 million less than at December 31, 2010 as the Company worked off its prior backlog related to deepening projects in the ports of New York and New Jersey and won new capital projects including $41 million for channel deepening in New York’s Ambrose Channel and $43 million for Louisiana costal restoration. The Company believes that the new focus in Washington D.C. on marine infrastructure is evidenced by the bipartisan interest in addressing deferred and long overdue navigational improvement needs. Federal capital projects are being prioritized by the Corps as it begins its appropriation of annual funding for projects. The Company believes the Corps will continue to let work to bid during the remainder of this year and into 2012. However, as in prior years, the Company has limited visibility as to future Corps projects. In addition, the Company continues to be optimistic about the passage of a Harbor Maintenance Trust Fund (“HMTF”) bill that allocates existing funding to maintenance dredging as intended. The industry has seen strong support from both Democrats and Republicans for this bill which politicians argue both creates domestic jobs and does not require new taxation.

Beach dredging backlog at September 30, 2011 was $99.5 million higher than at December 31, 2010 primarily due to six coastal protection/beach re-nourishment projects along the East Coast that were awarded near the end of the third quarter totaling $95.1 million and remain in backlog. The beach nourishment market has continued to be robust and the Company expects to commence the recently awarded projects in the fourth quarter of 2011, as well as work through the resulting backlog through mid-2012.

 

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Maintenance dredging backlog is $40.0 million lower at September 31, 2011 than at December 31, 2010. The Company continued to work through backlog in the third quarter from the projects won in the fourth quarter of 2010. The Company was awarded $11.5 million for maintenance work in Baltimore that will be worked on in the fourth quarter of 2011.

The $43 million Louisiana coastal restoration project won by Great Lakes in July, along with another coastal project that was let to bid, demonstrates that resources are being devoted to help restore the barrier islands and wetlands that provide natural protection from storms in the Gulf Coast area. The Company believes that numerous projects are being planned in the Gulf States resulting from a fund established following the Deepwater Horizon oil spill, which has not yet released projects. These projects have been long overdue to restore the eroding coastline. In addition, the Company expects a deepening project for the Port of Miami, Florida to be released for proposal in the first half of 2012 as domestic ports contemplate the need to facilitate larger draft vessels from international trade that will be coming through the deeper Panama Canal.

Although several Middle Eastern countries have experienced civil unrest and resulting governmental instability in the current year, recent international response and focus has contributed to increased stability within many of these nations, including Bahrain. The Company has maintained normal operations for its international projects and has a positive outlook for many of its foreign markets.

The Company continues to observe an increase in international dredging and has pursued new opportunities in strategic foreign markets. The Company’s development of opportunities in Brazil translated into new projects, some of which were completed in the third quarter of 2011. In the Middle East there are several new capital projects being let to bid that are well suited for the fleet of vessels that we currently maintain in the region. These foreign opportunities and those in other markets include several projects which fit well with Great Lakes’ expertise and equipment.

Demolition services backlog was $68.0 million and $81.0 million at September 30, 2011 and December 31, 2010, respectively, a decrease of $13.0 million. The Company continued to work through backlog related to the larger projects that existed at year end 2010. The integration of our demolition and dredging businesses has been a pivotal step to strengthen and grow the demolition segment. Bridge demolition continues to be a focus of future growth as the Company’s expertise on maritime projects provides additional support to these opportunities.

Liquidity and Capital Resources

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

The Company’s net cash provided by operating activities for the nine months ended September 30, 2011 and 2010 totaled $13.6 million, and $108.3 million, respectively. Normal increases or decreases in the level of working capital relative to the level of operational activity impact cash flow from operating activities. In the first nine months of 2011, net cash provided by operating activities was primarily the result of lower net income and changes in accounts receivable and other operating assets between periods. In the first nine months of 2010, lower activity in foreign dredging operations (which usually experience longer collection periods) coupled with payments being made on a foreign accounts receivable that had been outstanding throughout 2009, drove the increase in cash generated.

The Company’s net cash flows used in investing activities for the first nine months of 2011 and 2010 totaled $17.4 million and $17.9 million, respectively. Investing activities in both periods primarily relate to normal course upgrades and capital maintenance of the Company’s dredging fleet. During the nine months ended September 30, 2011, the Company sold the dredge Victoria Island for $6.6 million.

The Company’s net cash flows provided by (used in) financing activities for the nine months ended September 30, 2011 and 2010 totaled $62.8 million and $(14.6) million, respectively. The Company issued $250 million of 7.375% senior notes in the first nine months of 2011, resulting in $244.2 million of net proceeds. The Company used a portion of these net proceeds to redeem its $175 million of 7.75% senior subordinated notes in the first nine months of 2011 for $180.0 million, which included a redemption premium and unpaid interest. Cash flows used in financing activities in the first nine months of 2010 was primarily due to the net repayment of $11.0 million of revolving credit borrowings.

The Company paid $3.5 million in dividends in the first nine months of 2011. The declaration and payment of any future cash dividends will be at the discretion of the Company’s Board of Directors and will depend on many factors, including general economic and business conditions, the Company’s strategic plans, the Company’s financial results and condition, legal requirements, including restrictions and limitations contained in the Company’s Credit Agreement, bonding agreements through which it obtains performance, bid and payment bonds (the “Bonding Agreements”) and the Indenture relating to its senior notes, and other factors the Board of Directors deems relevant. Accordingly, the Company cannot make any assurances as to the amount of any such dividend or that it will pay any future dividend in future periods.

 

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In January 2011, the Company issued $250 million aggregate principal amount of 7.375% senior notes due February 1, 2019 in a private placement. Approximately $180 million of the net proceeds from the issuance of the senior notes was used to redeem all of the Company’s 7.75% senior subordinated notes due December 2013, including a redemption premium and accrued and unpaid interest. The remaining net proceeds from the issuance of the senior notes were used to augment working capital and could be used in the future for acquisitions. The Indenture governing the senior notes, among other things, limits the ability of the Company and its restricted subsidiaries to (i) pay dividends, or make certain other restricted payments or investments; (ii) incur additional indebtedness and issue disqualified stock; (iii) create liens on its assets; (iv) transfer and sell assets; (v) merge, consolidate or sell all or substantially all of its assets; (vi) enter into certain transactions with affiliates; (vii) create restrictions on dividends or other payments by its restricted subsidiaries; and (viii) create guarantees of indebtedness by restricted subsidiaries. These covenants are subject to a number of important limitations and exceptions that are described in the Indenture governing the senior notes.

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

During the third quarter of 2011, the Company’s cash balance decreased by $0.4 million due to the impact of changes in functional currency exchange rates against the U.S. dollar on non-U.S. dollar cash balances, primarily the Brazilian Real. The unrealized loss on the Company’s cash balance resulting from this exchange rate movement is reflected in the cumulative translation adjustment, net within accumulated other comprehensive income. Cash held in non-U.S. dollar currencies primarily is used for project-related and other operating costs in those currencies reducing the Company’s exposure to future realized exchange gains and losses.

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

Critical Accounting Policies and Estimates

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

 

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Item 3.     Quantitative and Qualitative Disclosures about Market Risk

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

 

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Item 4.     Controls and Procedures

a) Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures, as required by Rule 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of September 30, 2011. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in providing such reasonable assurance.

b) Changes in internal control over financial reporting.

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II — Other Information

 

Item 1.				Legal Proceedings

See Note 10 “Commitments and Contingencies” in the Notes to Condensed Consolidated Financial Statements.

 

Item 1A.				Risk Factors

There have been no material changes during the three months and nine months ended September 30, 2011 to the risk factors previously disclosed in Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds
		(a) None.
		(b) None.
		(c) None.

 

Item 3.		Defaults Upon Senior Securities
		None.

 

Item 4.		Reserved

 

Item 5.		Other Information
		(a) None.
		(b) Not applicable.

 

Item 6.     Exhibits

 

10.1		Amendment No. 4 to Credit Agreement dated as of September 7, 2011 among Great Lakes Dredge & Dock Corporation, the other Loan Parties from time to time party to the Credit Agreement, the Lenders signatory thereto and Bank of America, N.A. (successor by merger to LaSalle Bank National Association) as Swing Line Lender, Issuing Lender and Administrative Agent. (1)
31.1		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

 

(1)	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 13, 2011 (Commission file no. 001-33225).

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: November 4, 2011

 

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EXHIBIT INDEX

 

Number		Document Description
10.1		Amendment No. 4 to Credit Agreement dated as of September 7, 2011 among Great Lakes Dredge & Dock Corporation, the other Loan Parties from time to time party to the Credit Agreement, the Lenders signatory thereto and Bank of America, N.A. (successor by merger to LaSalle Bank National Association) as Swing Line Lender, Issuing Lender and Administrative Agent. (1)
31.1		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

 

(1)	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 13, 2011 (Commission file no. 001-33225).

 

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Exhibit 31.1

CERTIFICATIONS PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Jonathan W. Berger, certify that:

 

1.	I have reviewed this quarterly report on Form 10-Q of Great Lakes Dredge & Dock Corporation;

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such an evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2011

 

/s/ Jonathan W. Berger

Jonathan W. Berger

Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Bruce J. Biemeck, certify that:

 

1.	I have reviewed this quarterly report on Form 10-Q of Great Lakes Dredge & Dock Corporation;

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such an evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2011

 

/s/    Bruce J. Biemeck

Bruce J. Biemeck

President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Great Lakes Dredge & Dock Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jonathan W. Berger, Chief Executive Officer of the Registrant, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)	The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by Great Lakes Dredge & Dock Corporation for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

/s/    Jonathan W. Berger

Jonathan W. Berger

Chief Executive Officer

Date: November 4, 2011

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Great Lakes Dredge & Dock Corporation and will be retained by Great Lakes Dredge & Dock Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Great Lakes Dredge & Dock Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bruce J. Biemeck, President and Chief Financial Officer, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)	The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by Great Lakes Dredge & Dock Corporation for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

/s/ Bruce J. Biemeck

Bruce J. Biemeck

President and Chief Financial Officer

Date: November 4, 2011

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Great Lakes Dredge & Dock Corporation and will be retained by Great Lakes Dredge & Dock Corporation and furnished to the Securities and Exchange Commission or its staff upon request.