XNAS:GLDD Great Lakes Dredge & Dock Corp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended June 30, 2012

OR

 

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

For the transition period from                     to                    

Commission file number: 001-33225

 

 

Great Lakes Dredge & Dock Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   20-5336063

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

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

(630) 574-3000

(Registrant’s telephone number, including area code)

 

 

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

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

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

 

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

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

As of August 3, 2012, 59,220,422 shares of the Registrant’s Common Stock, par value $.0001 per share, were outstanding.

 

 

 


Table of Contents

Great Lakes Dredge & Dock Corporation and Subsidiaries

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

Securities Exchange Act of 1934

For the Quarterly Period ended June 30, 2012

INDEX

 

         Page  
Part I Financial Information (Unaudited)      3   
      Item 1  

Financial Statements

     3   
 

Condensed Consolidated Balance Sheets at June 30, 2012 and December 31, 2011

     3   
 

Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2012 and 2011

     4   
 

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months ended June 30, 2012 and 2011

     5   
 

Condensed Consolidated Statements of Equity for the Six Months ended June 30, 2012 and 2011

     6   
 

Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2012 and 2011

     7   
 

Notes to Condensed Consolidated Financial Statements

     8   
      Item 2  

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

     25   
      Item 3  

Quantitative and Qualitative Disclosures About Market Risk

     33   
      Item 4  

Controls and Procedures

     34   
Part II Other Information      35   
      Item 1  

Legal Proceedings

     35   
      Item 1A  

Risk Factors

     35   
      Item 2  

Unregistered Sales of Equity Securities and Use of Proceeds

     35   
      Item 3  

Defaults Upon Senior Securities

     35   
      Item 4  

Mine Safety Disclosures

     35   
      Item 5  

Other Information

     35   
      Item 6  

Exhibits

     36   
Signature      37   
Exhibit Index      38   

 

2


Table of Contents

PART I — Financial Information

Item 1. Financial Statements.

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)

 

     June 30,     December 31,  
     2012     2011  

ASSETS

    

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 70,791     $ 113,288  

Accounts receivable—net

     112,897       120,268  

Contract revenues in excess of billings

     50,889       26,412  

Inventories

     48,696       33,426  

Prepaid expenses and other current assets

     42,932       32,384  
  

 

 

   

 

 

 

Total current assets

     326,205       325,778  

PROPERTY AND EQUIPMENT—Net

     316,460       310,520  

GOODWILL AND OTHER INTANGIBLE ASSETS—Net

     98,729       98,863  

INVENTORIES—Noncurrent

     23,206       30,103  

INVESTMENTS IN JOINT VENTURES

     6,899       6,923  

OTHER

     18,461       16,273  
  

 

 

   

 

 

 

TOTAL

   $ 789,960     $ 788,460  
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

CURRENT LIABILITIES:

    

Accounts payable

   $ 80,652     $ 82,745  

Accrued expenses

     27,477       31,121  

Billings in excess of contract revenues

     19,999       13,627  

Current portion of long term debt

     2,658       3,033  
  

 

 

   

 

 

 

Total current liabilities

     130,786       130,526  

LONG TERM NOTE PAYABLE

     2,500       2,500  

7 3/8% SENIOR NOTES

     250,000       250,000  

DEFERRED INCOME TAXES

     102,920       104,352  

OTHER

     8,153       8,545  
  

 

 

   

 

 

 

Total liabilities

     494,359       495,923  
  

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 9)

    

EQUITY:

    

Common stock—$.0001 par value; 90,000,000 authorized, 59,220,422 and 58,999,404 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively.

     6       6  

Additional paid-in capital

     269,613       267,918  

Retained earnings

     27,043       24,042  

Accumulated other comprehensive income (loss)

     (1,289     3  
  

 

 

   

 

 

 

Total Great Lakes Dredge & Dock Corporation equity

     295,373       291,969  

NONCONTROLLING INTERESTS

     228       568  
  

 

 

   

 

 

 

Total equity

     295,601       292,537  
  

 

 

   

 

 

 

TOTAL

   $ 789,960     $ 788,460  
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

3


Table of Contents

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share amounts)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012     2011  

Contract revenues

   $ 166,532     $ 154,959     $ 321,439     $ 310,297  

Costs of contract revenues

     142,643       135,193       277,528       263,089  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     23,889       19,766       43,911       47,208  

General and administrative expenses

     11,456       13,622       24,723       25,711  

Gain on sale of assets—net

     (93     (2,513     (124     (2,771
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     12,526       8,657       19,312       24,268  

Interest expense—net

     (5,383     (4,911     (10,642     (10,861

Equity in loss of joint ventures

     (8     (123     (24     (714

Loss on foreign currency transactions—net

     (21     —          (15     —     

Loss on extinguishment of debt

     —          —          —          (5,145
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     7,114       3,623       8,631       7,548  

Income tax provision

     (2,768     (1,455     (3,332     (2,982
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     4,346       2,168       5,299       4,566  

Net (income) loss attributable to noncontrolling interests

     91       (462     206       (468
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Great Lakes Dredge & Dock Corporation

   $ 4,437     $ 1,706     $ 5,505     $ 4,098  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 0.07     $ 0.03     $ 0.09     $ 0.07  

Basic weighted average shares

     59,171       58,875       59,105       58,830  

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

   $ 0.07     $ 0.03     $ 0.09     $ 0.07  

Diluted weighted average shares

     59,534       59,184       59,493       59,228  

Dividends declared per share

   $ 0.02     $ 0.02     $ 0.04     $ 0.04  

See notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(in thousands)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012     2011  

Net income

   $ 4,346     $ 2,168     $ 5,299     $ 4,566  

Currency translation adjustment—net of tax (1)

     (8     —          (4     —     

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

     143       (444     (263     (1,067

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

     (1,905     (370     (1,025     819  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)—net of tax

     (1,770     (814     (1,292     (248
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     2,576       1,354       4,007       4,318  

Comprehensive (income) loss attributable to noncontrolling interests

     91       (462     206       (468
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Great Lakes Dredge & Dock Corporation

   $ 2,667     $ 892     $ 4,213     $ 3,850  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Net of income tax (expense) benefit of $(5) and $0 for the three months ended June 30, 2012 and 2011, respectively, and $(3) and $0 for the six months ended June 30, 2012 and 2011, respectively.
(2) Net of income tax (expense) benefit of $94 and $(295) for the three months ended June 30, 2012 and 2011, respectively, and $(175) and $(709) for the six months ended June 30, 2012 and 2011, respectively.
(3) Net of income tax (expense) benefit of $(1,265) and $(246) for the three months ended June 30, 2012 and 2011, respectively, and $(681) and $544 for the six months ended June 30, 2012 and 2011, respectively.

See notes to unaudited condensed consolidated financial statements.

 

5


Table of Contents

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

(Unaudited)

(in thousands, except share amounts)

 

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

BALANCE—January 1, 2012

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

Share-based compensation

     122,136        —           1,714       —          —          —          1,714  

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

     81,640        —           (212     —          —          —          (212

Exercise of stock options

     17,242        —           75       —          —          —          75  

Excess income tax benefit from share based compensation

     —           —           118       —          —          —          118  

Dividends declared and paid

     —           —           —          (2,482     —          —          (2,482

Dividend equivalents paid on restricted stock units

     —           —           —          (22     —          —          (22

Distributions paid to noncontrolling interests

     —           —           —          —          —          (134     (134

Net income

     —           —           —          5,505       —          (206     5,299  

Other comprehensive loss—net of tax

     —           —           —          —          (1,292     —          (1,292
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE—June 30, 2012

     59,220,422      $ 6      $ 269,613     $ 27,043     $ (1,289   $ 228     $ 295,601  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

BALANCE—January 1, 2011

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

Share-based compensation

     57,215        —           843       —          —          —          843  

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

     81,387        —           (250     —          —          —          (250

Exercise of stock options

     6,278        —           27       —          —          —          27  

Excess income tax benefit from share based compensation

     —           —           52       —          —          —          52  

Acquisition of noncontrolling interest in NASDI, LLC

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

Dividends declared and paid

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

Dividend equivalents paid on restricted stock units

     —           —           —          (11     —          —          (11

Net income

     —           —           —          4,098       —          468       4,566  

Other comprehensive loss—net of tax

     —           —           —          —          (248     —          (248
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE—June 30, 2011

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

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

     Six Months Ended
June 30,
 
(in thousands)    2012     2011  

OPERATING ACTIVITIES:

    

Net income

   $ 5,299     $ 4,566  

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

    

Depreciation and amortization

     16,123       18,804  

Equity in loss of joint ventures

     24       714  

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

     —          5,145  

Deferred income taxes

     (478     1,010  

Gain on dispositions of property and equipment

     (124     (2,771

Gain on adjustment of contingent earnout

     (240     —     

Amortization of deferred financing fees

     669       775  

Unrealized foreign currency loss

     378       —     

Share-based compensation expense

     1,714       843  

Excess income tax benefit from share based compensation

     (118     (52

Changes in assets and liabilities:

    

Accounts receivable

     4,301       (13,025

Contract revenues in excess of billings

     (22,288     (2,278

Inventories

     (8,653     (362

Prepaid expenses and other current assets

     (5,873     (12,432

Accounts payable and accrued expenses

     (11,771     (5,523

Billings in excess of contract revenues

     6,371       (2,165

Other noncurrent assets and liabilities

     (519     (3,694
  

 

 

   

 

 

 

Net cash flows used in operating activities

     (15,185     (10,445

INVESTING ACTIVITIES:

    

Purchases of property and equipment

     (22,428     (13,583

Proceeds from dispositions of property and equipment

     226       7,275  
  

 

 

   

 

 

 

Net cash flows used in investing activities

     (22,202     (6,308

FINANCING ACTIVITIES:

    

Proceeds from issuance of 7 3/8% senior notes

     —          250,000  

Redemption of 7 3/4% senior subordinated notes

     —          (175,000

Senior subordinated notes redemption premium

     —          (2,264

Deferred financing fees

     (2,039     (5,829

Distributions paid to minority interests

     (133     —     

Dividends paid

     (2,482     (2,236

Dividend equivalents paid on restricted stock units

     (22     (11

Taxes paid on settlement of vested share awards

     (212     (250

Repayments of equipment debt

     (426     (217

Exercise of stock options

     75       27  

Excess income tax benefit from share-based compensation

     118       52  
  

 

 

   

 

 

 

Net cash flows provided by (used in) financing activities

     (5,121     64,272  
  

 

 

   

 

 

 

Effect of foreign currency exchange rates on cash and cash equivalents

     11       —     
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (42,497     47,519  

Cash and cash equivalents at beginning of period

     113,288       48,478  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 70,791     $ 95,997  
  

 

 

   

 

 

 

Supplemental Cash Flow Information

    

Cash paid for interest

   $ 9,602     $ 2,728  
  

 

 

   

 

 

 

Cash paid (refunded) for income taxes

   $ (6,371   $ 5,155  
  

 

 

   

 

 

 

Non-cash Investing and Financing Activities

    

Property and equipment purchased but not yet paid

   $ 6,231     $ 4,303  
  

 

 

   

 

 

 

Acquisition of noncontrolling interest in NASDI, LLC

   $ —        $ 40  
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

1. Basis of presentation

The unaudited condensed consolidated financial statements and notes herein should be read in conjunction with the audited consolidated financial statements of Great Lakes Dredge & Dock Corporation and Subsidiaries (the “Company” or “Great Lakes”) and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The condensed consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the SEC’s rules and regulations, although management believes that the disclosures are adequate and make the information presented not misleading. In the opinion of management, all adjustments, which are of a normal and recurring nature (except as otherwise noted), that are necessary to present fairly the Company’s financial position as of June 30, 2012, and its results of operations for the three and six months ended June 30, 2012 and 2011 and cash flows for the six months ended June 30, 2012 and 2011 have been included.

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

The Company’s cost structure includes significant annual equipment-related costs, including depreciation, maintenance, insurance and long-term rentals. These costs have averaged approximately 21% to 25% of total costs of contract revenues over the prior three years. During the year, both equipment utilization and the timing of fixed cost expenditures fluctuate significantly. Accordingly, the Company allocates these fixed equipment costs to interim periods in proportion to revenues recognized over the year, to better match revenues and expenses. Specifically, at each interim reporting date the Company compares actual revenues earned to date on its dredging contracts to expected annual revenues and recognizes equipment costs on the same proportionate basis. In the fourth quarter, any over or under allocated equipment costs are recognized such that the expense for the year equals actual equipment costs incurred during the year.

The Company operates in two reportable segments: dredging and demolition. These reportable segments are the Company’s operating segments and the reporting units at which the Company tests goodwill for impairment. The Company performed its most recent annual test of impairment as of July 1, 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 with which 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 Company will perform its next scheduled annual test of goodwill in the third quarter of 2012.

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

2. Earnings per share

Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similar to basic earnings per share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. For the three and six months ended June 30, 2012 and 2011, zero options to purchase shares of common stock were excluded from the calculation of diluted earnings per share based on the application of the treasury stock method. The computations for basic and diluted earnings per share from continuing operations are as follows:

 

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Table of Contents
     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2012      2011      2012      2011  

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

   $ 4,437      $ 1,706      $ 5,505      $ 4,098  

Weighted-average common shares outstanding — basic

     59,171        58,875        59,105        58,830  

Effect of stock options and restricted stock units

     363        309        388        398  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average common shares outstanding — diluted

     59,534        59,184        59,493        59,228  
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share — basic

   $ 0.07      $ 0.03      $ 0.09      $ 0.07  

Earnings per share — diluted

   $ 0.07      $ 0.03      $ 0.09      $ 0.07  

3. Accounts receivable and contracts in progress

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

 

     June 30,     December 31,  
     2012     2011  

Completed contracts

   $ 30,713     $ 38,317  

Contracts in progress

     71,506       69,469  

Retainage

     21,220       20,692  
  

 

 

   

 

 

 
     123,439       128,478  

Allowance for doubtful accounts

     (1,500     (1,839
  

 

 

   

 

 

 

Total accounts receivable—net

   $ 121,939     $ 126,639  
  

 

 

   

 

 

 

Current portion of accounts receivable—net

   $ 112,897     $ 120,268  

Long-term accounts receivable and retainage

     9,042       6,371  
  

 

 

   

 

 

 

Total accounts receivable—net

   $ 121,939     $ 126,639  
  

 

 

   

 

 

 

 

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

 

     June 30,     December 31,  
     2012     2011  

Costs and earnings in excess of billings:

    

Costs and earnings for contracts in progress

   $ 366,985     $ 173,187  

Amounts billed

     (317,477     (152,045
  

 

 

   

 

 

 

Costs and earnings in excess of billings for contracts in progress

     49,508       21,142  

Costs and earnings in excess of billings for completed contracts

     1,381       7,459  
  

 

 

   

 

 

 

Total contract revenues in excess of billings

   $ 50,889     $ 28,601  
  

 

 

   

 

 

 

Current portion of contract revenues in excess of billings

   $ 50,889     $ 26,412  

Portion included in other noncurrent assets

     —          2,189  
  

 

 

   

 

 

 

Total contract revenues in excess of billings

   $ 50,889     $ 28,601  
  

 

 

   

 

 

 

Billings in excess of costs and earnings:

    

Amounts billed

   $ (383,047   $ (427,797

Costs and earnings for contracts in progress

     363,048       414,170  
  

 

 

   

 

 

 

Total billings in excess of contract revenues

   $ (19,999   $ (13,627
  

 

 

   

 

 

 

4. Fair value measurements

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

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

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

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

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. At June 30, 2012 and December 31, 2011, the Company held certain derivative contracts that it uses to manage foreign currency risk, commodity price risk and interest rate risk. The Company does not hold or issue derivatives for speculative or trading purposes. The fair values of these financial instruments are summarized as follows:

 

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          Fair Value Measurements at Reporting Date Using  

Description

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

Assets

       

Interest rate swap contracts

  $ 416     $ —        $ 416     $ —     

Foreign exchange contracts

    137       —          137       —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total assets measured at fair value

  $ 553     $ —        $ 553     $ —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

       

Fuel hedge contracts

  $ 1,695     $ —        $ 1,695     $ —     
 

 

 

   

 

 

   

 

 

   

 

 

 
          Fair Value Measurements at Reporting Date Using  

Description

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

Fuel hedge contracts

  $ 449     $ —        $ 449     $ —     

Interest rate swap contracts

    755       —          755       —     

Foreign exchange contracts

    155       —          155       —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total assets measured at fair value

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

 

 

   

 

 

   

 

 

   

 

 

 

Interest rate swap contracts

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

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

 

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

Interest rate swap contracts

 

Balance at January 1,

  $ 1,264  

Total unrealized gains (losses) included in earnings

    (568

Settlements

    445  
 

 

 

 

Balance at June 30,

  $ 1,141  
 

 

 

 

Balance at April 1,

  $ 1,299  

Total unrealized gains (losses) included in earnings

    (603

Settlements

    445  
 

 

 

 

Balance at June 30,

  $ 1,141  
 

 

 

 

 

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Foreign exchange contracts

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

Fuel hedge contracts

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

As of June 30, 2012, the Company was party to various swap arrangements to hedge the price of a portion of its diesel fuel purchase requirements for work in its backlog to be performed through February 2013. As of June 30, 2012, there were 5.0 million gallons remaining on these contracts which represent approximately 80% of the Company’s forecasted fuel purchases through February 2013. Under these swap agreements, the Company will pay fixed prices ranging from $2.65 to $3.29 per gallon.

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

At June 30, 2012, the fair value liability of the fuel hedge contracts was estimated to be $1,695 and is recorded in accrued expenses. At December 31, 2011 the fair value asset of the fuel hedge contracts was estimated to be $449 and is recorded in other current assets. The loss reclassified to earnings from changes in fair value of derivatives, net of cash settlements and taxes, for the six months ended June 30, 2012 was $263. The remaining gains and losses included in accumulated other comprehensive income (loss) at June 30, 2012 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 foreign exchange contracts, interest rate and fuel hedge contracts outstanding as of June 30, 2012 and December 31, 2011 is as follows:

 

    

Balance Sheet Location

   Fair Value at  
          June 30,
2012
     December 31,
2011
 

Asset derivatives:

        

Derivatives designated as hedges

        

Fuel hedge contracts

   Other current assets    $ —         $ 449  

Derivatives not designated as hedges

        

Interest rate swaps

   Other current assets      416        755  

Foreign exchange contracts

   Other current assets      137        155  
     

 

 

    

 

 

 

Total asset derivatives

      $ 553      $ 1,359  
     

 

 

    

 

 

 

Liability derivatives:

        

Derivatives designated as hedges

        

Fuel hedge contracts

   Accrued expenses    $ 1,695      $ —     
     

 

 

    

 

 

 

Other financial instruments

The carrying value of financial instruments included in current assets and current liabilities approximates fair value due to the short-term maturities of these instruments. In January 2011, the Company issued $250,000 of 7.375% senior notes due February 1, 2019, which were outstanding at June 30, 2012. The senior notes are senior unsecured obligations of the Company and its subsidiaries that guarantee the senior notes. The fair value of the senior notes was $250,000 at June 30, 2012, which is a Level 1 fair value measurement as the senior notes value was obtained using quoted prices in active markets.

 

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5. Accrued expenses

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

 

     2012      2011  

Insurance

   $ 7,736      $ 8,285  

Interest

     7,717        7,759  

Payroll and employee benefits

     6,608        10,763  

Income and other taxes

     1,868        1,261  

Fuel hedge liability

     1,695        —     

Percentage of completion adjustment

     525        1,855  

Other

     1,328        1,198  
  

 

 

    

 

 

 

Total accrued expenses

   $ 27,477      $ 31,121  
  

 

 

    

 

 

 

6. Long-term debt

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

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

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

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

7. Share-based compensation

The Company’s 2007 Long-Term Incentive Plan permits the granting of stock options, stock appreciation rights, restricted stock and restricted stock units to its employees and directors for up to 5.8 million shares of common stock.

In June 2012, the Company granted 497 thousand options to purchase shares of common stock and 273 thousand restricted stock units to certain employees pursuant to the plan. In addition, all non-employee directors on the Company’s board of directors are paid a portion of their board related compensation in stock grants. Compensation cost charged to expense related to these share-based compensation arrangements was $699 and $1,714, respectively, for the three and six months ended June 30, 2012 and $323 and $843, respectively, for the three and six months ended June 30, 2011.

 

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8. Segment information

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

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012      2011  

Dredging

         

Contract revenues

   $ 134,772     $ 125,085     $ 257,133      $ 261,682  

Operating income

     12,974       13,594       17,873        31,415  

Demolition

         

Contract revenues

   $ 31,760     $ 29,874     $ 64,306      $ 48,615  

Operating income (loss)

     (448     (4,937     1,439        (7,147

Total

         

Contract revenues

   $ 166,532     $ 154,959     $ 321,439      $ 310,297  

Operating income

     12,526       8,657       19,312        24,268  

Dredging contract revenues for the three and six months ended June 30, 2012 are net of $62 and $1,374 in intersegment revenues. Demolition contract revenues for both the three and six months ended June 30, 2012 are net of $75 in intersegment revenues. In addition, foreign dredging revenue of $20,848 and $38,873 for the three and six months ended June 30, 2012, respectively, and $16,065 and $37,936 for the three and six months ended June 30, 2011, respectively, was primarily attributable to work done in the Middle East.

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

9. Commitments and contingencies

Commercial commitments

The obligations of Great Lakes under the Credit Agreement are unconditionally guaranteed, on a joint and several basis, by each existing and subsequently acquired or formed material direct and indirect domestic subsidiary of the Company. As of June 30, 2012, the Company had no borrowings and $33,447 of letters of credit outstanding, resulting in $141,553 of availability under the Credit Agreement. At June 30, 2012, the Company was in compliance with its various covenants under its Credit Agreement.

Performance and bid bonds are customarily required for dredging and marine construction projects, as well as some demolition projects. In September 2011, the Company entered into a new bonding agreement with Zurich American Insurance Company (“Zurich”) under which the Company can obtain performance, bid and payment bonds. The new bonding agreement contains no restrictive covenants and lesser collateral requirements than the previous bonding agreement. The Company has used Zurich for all bonding requirements beginning in September 2011. Bid bonds are generally obtained for a percentage of bid value and amounts outstanding typically range from $1,000 to $10,000. At June 30, 2012, the Company had outstanding performance bonds valued at approximately $269,419; however, the revenue value remaining in backlog related to these projects totaled approximately $147,080.

The Company has a $24,000 international letter of credit facility that it uses for the performance and advance payment guarantees on the Company’s foreign contracts. As of June 30, 2012, Great Lakes had $11,725 of letters of credit outstanding under this facility. At June 30, 2012, the Company also had $250,000 of 7.375% senior notes outstanding, which mature in February 2019.

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

 

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Table of Contents

Legal proceedings and other contingencies

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

Various legal actions, claims, assessments and other contingencies arising in the ordinary course of business are pending against the Company and certain of its subsidiaries. These matters are subject to many uncertainties, and it is possible that some of these matters could ultimately be decided, resolved, or settled adversely to the Company. Although the Company is subject to various claims and legal actions that arise in the ordinary course of business, except as described below, the Company is not currently a party to any material legal proceedings or environmental claims. The Company records an accrual when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. The Company does not believe any of these proceedings, individually or in the aggregate, would be expected to have a material effect on results of operations, cash flows or financial condition.

The Company or its former subsidiary, NATCO Limited Partnership, was named as a defendant in approximately 251 asbestos-related personal injury lawsuits, the majority of which were filed between 1989 and 2000. The claims were filed on behalf of seamen or their personal representatives alleging injury or illness from exposure to asbestos while employed as seamen on Company-owned vessels. In these cases, the Company is typically one of many defendants, including manufacturers and suppliers of products containing asbestos, as well as other vessel owners. Following certain administrative proceedings, counsel for plaintiffs agreed to name a group of cases that they intended to pursue and to dismiss the remaining cases without prejudice. Plaintiffs previously named 40 cases against the Company that they intended to pursue, each of which involves one plaintiff. The remaining cases against the Company were dismissed without prejudice. Plaintiffs in the dismissed cases could file a new lawsuit if they develop a new disease allegedly caused by exposure to asbestos on board our vessels. Of the 40 named cases, three were subsequently dismissed, leaving 37 cases remaining. The Company is presently unable to quantify the amounts of damages being sought in the remaining lawsuits because none of the complaints specify a damage amount. Based on preliminary discovery and settlement demands received to date, the Company does not believe that it is probable that losses from these claims could be material, and an estimate of a range of losses relating to these claims cannot reasonably be made. Based on the foregoing, management does not believe that any of the remaining 37 lawsuits, individually or in the aggregate, will have a material impact on our business, financial position, results of operations or cash flows.

On August 26, 2009, the Company’s subsidiary, NASDI, LLC (“NASDI”), received a letter stating that the Attorney General for the Commonwealth of Massachusetts is investigating alleged violations of the Massachusetts Solid Waste Act. The Company believes that the Massachusetts Attorney General is investigating illegal dumping activities at a dump site NASDI contracted with to have waste materials disposed of between September 2007 and July 2008. Per the Massachusetts Attorney General’s request, NASDI executed a tolling agreement regarding the matter in 2009 and engaged in further discussions with the Massachusetts Attorney General’s office in the second quarter of 2011 but has had no further contact with the Massachusetts Attorney General’s office since then. The matter remains open, and, to the Company’s knowledge, no proceedings have currently been initiated against NASDI. Should a claim be brought, NASDI intends to defend itself vigorously. Based on consideration of all of the facts and circumstances now known, the Company does not believe this claim will have a material impact on its business, financial position, results of operations or cash flows.

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

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

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

 

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10. Acquisition of noncontrolling interest

The Company previously owned 65% of the profits interests of NASDI. Effective January 1, 2011 the Company reacquired Mr. Christopher Berardi’s 35% membership interest in NASDI for no cost per the terms of NASDI’s limited liability company agreement. This resulted in the elimination of noncontrolling interest of $1,973 during the first quarter ended March 31, 2011. The Company now owns 100% of NASDI.

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

11. Subsidiary guarantors

The Company’s long-term debt at June 30, 2012 includes $250,000 of 7.375% senior notes due February 1, 2019. The Company’s obligations under these senior unsecured notes are guaranteed by the Company’s 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 June 30, 2012 and December 31, 2011;

 

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

 

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

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2012

(In thousands)

 

      Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
     GLDD
Corporation
     Eliminations     Consolidated
Totals
 

ASSETS

            

CURRENT ASSETS:

            

Cash and cash equivalents

   $ 70,623     $ 168      $ —         $ —        $ 70,791  

Accounts receivable — net

     112,289       608        —           —          112,897  

Receivables from affiliates

     56,184       8,344        7,685        (72,213     —     

Contract revenues in excess of billings

     50,932       191        —           (234     50,889  

Inventories

     48,696       —           —           —          48,696  

Prepaid expenses and other current assets

     36,429       30        6,473        —          42,932  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     375,153       9,341        14,158        (72,447     326,205  

PROPERTY AND EQUIPMENT—Net

     316,408       52        —           —          316,460  

GOODWILL AND OTHER INTANGIBLE ASSETS—Net

     98,369       360        —           —          98,729  

INVENTORIES — Noncurrent

     23,206       —           —           —          23,206  

INVESTMENTS IN JOINT VENTURES

     6,899       —           —           —          6,899  

INVESTMENTS IN SUBSIDIARIES

     3,397       —           645,270        (648,667     —     

OTHER

     11,539       3        6,919        —          18,461  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL

   $ 834,971     $ 9,756      $ 666,347      $ (721,114   $ 789,960  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND EQUITY

            

CURRENT LIABILITIES:

            

Accounts payable

   $ 79,668     $ 650      $ 334      $ —        $ 80,652  

Payables to affiliates

     60,546       3,659        8,180        (72,385     —     

Accrued expenses

     18,290       718        8,469        —          27,477  

Billings in excess of contract revenues

     19,939       122        —           (62     19,999  

Current portion of long term debt

     2,658       —           —           —          2,658  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     181,101       5,149        16,983        (72,447     130,786  

LONG TERM NOTE PAYABLE

     2,500       —           —           —          2,500  

7 3/8% SENIOR NOTES

     —          —           250,000        —          250,000  

DEFERRED INCOME TAXES

     (74     —           102,994        —          102,920  

OTHER

     7,384       —           769        —          8,153  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     190,911       5,149        370,746        (72,447     494,359  

Total Great Lakes Dredge & Dock Corporation Equity

     644,060       4,607        295,373        (648,667     295,373  

NONCONTROLLING INTERESTS

     —          —           228        —          228  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL EQUITY

     644,060       4,607        295,601        (648,667     295,601  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL

   $ 834,971     $ 9,756      $ 666,347      $ (721,114   $ 789,960  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

17


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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2011

(In thousands)

 

      Subsidiary
Guarantors
     Non-Guarantor
Subsidiaries
     GLDD
Corporation
     Eliminations     Consolidated
Totals
 

ASSETS

             

CURRENT ASSETS:

             

Cash and cash equivalents

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

Accounts receivable — net

     118,530        1,738        —           —          120,268  

Receivables from affiliates

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

Contract revenues in excess of billings

     26,323        153        —           (64     26,412  

Inventories

     33,426        —           —           —          33,426  

Prepaid expenses and other current assets

     15,929        125        16,330        —          32,384  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

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

PROPERTY AND EQUIPMENT—Net

     310,459        61        —           —          310,520  

GOODWILL AND OTHER INTANGIBLE ASSETS—Net

     98,474        389        —           —          98,863  

INVENTORIES — Noncurrent

     30,103        —           —           —          30,103  

INVESTMENTS IN JOINT VENTURES

     6,923        —           —           —          6,923  

INVESTMENTS IN SUBSIDIARIES

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

OTHER

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

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL

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

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND EQUITY

             

CURRENT LIABILITIES:

             

Accounts payable

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

Payables to affiliates

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

Accrued expenses

     22,445        629        8,047        —          31,121  

Billings in excess of contract revenues

     13,607        68        —           (48     13,627  

Current portion of long term debt

     3,033        —           —           —          3,033  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

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

LONG TERM NOTE PAYABLE

     2,500        —           —           —          2,500  

7 3/4% SENIOR SUBORDINATED NOTES

     —           —           250,000        —          250,000  

DEFERRED INCOME TAXES

     399        —           103,959        (6     104,352  

OTHER

     7,786        —           759        —          8,545  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

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

Total Great Lakes Dredge & Dock Corporation Equity

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

NONCONTROLLING INTERESTS

     —           —           568        —          568  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL EQUITY

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

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL

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

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

18


Table of Contents

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2012

(In thousands)

 

     Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    GLDD
Corporation
    Eliminations     Consolidated
Totals
 

Contract revenues

   $ 166,467     $ 2,251     $ —        $ (2,186   $ 166,532  

Costs of contract revenues

     (142,315     (2,514     —          2,186       (142,643
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     24,152       (263     —          —          23,889  

OPERATING EXPENSES:

          

General and administrative expenses

     10,679       162       615       —          11,456  

Gain on sale of assets—net

     (93     —          —          —          (93
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     13,566       (425     (615     —          12,526  

Interest expense—net

     (257     (23     (5,103     —          (5,383

Equity in earnings of subsidiaries

     (223     —          12,350       (12,127     —     

Equity in loss of joint ventures

     (8     —          —          —          (8

Loss on foreign currency transactions—net

     (21     —          —          —          (21
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     13,057       (448     6,632       (12,127     7,114  

Income tax (provision) benefit

     (482     —          (2,286     —          (2,768
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     12,575       (448     4,346       (12,127     4,346  

Net loss attributable to noncontrolling interests

     —          —          91       —          91  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Great Lakes

          

Dredge & Dock Corporation

   $ 12,575     $ (448   $ 4,437     $ (12,127   $ 4,437  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 10,813     $ (456   $ 2,667     $ (10,357   $ 2,667  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2011

(In thousands)

 

     Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    GLDD
Corporation
    Eliminations     Consolidated
Totals
 

Contract revenues

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

Costs of contract revenues

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     18,344       1,422       —          —          19,766  

OPERATING EXPENSES:

          

General and administrative expenses

     12,522       208       892       —          13,622  

Gain on sale of assets—net

     (2,513     —          —          —          (2,513
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

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

Interest expense—net

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

Equity in earnings (loss) of subsidiaries

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

Equity in loss of joint ventures

     (123     —          —          —          (123

Loss on extinguishment of debt

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

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

Income tax benefit (provision)

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

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

Net income attributable to noncontrolling interests

     —          —          (462     —          (462
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Great Lakes

          

Dredge & Dock Corporation

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 10,753     $ 1,160     $ 892     $ (11,913   $ 892  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Table of Contents

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2012

(In thousands)

 

     Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    GLDD
Corporation
    Eliminations     Consolidated
Totals
 

Contract revenues

   $ 321,911     $ 4,050     $ —        $ (4,522   $ 321,439  

Costs of contract revenues

     (277,482     (4,568     —          4,522       (277,528
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     44,429       (518     —          —          43,911  

OPERATING EXPENSES:

          

General and administrative expenses

     23,248       348       1,127       —          24,723  

Gain on sale of assets—net

     (135     —          11       —          (124
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     21,316       (866     (1,138     —          19,312  

Interest expense—net

     (538     (51     (10,053     —          (10,642

Equity in earnings of subsidiaries

     (602     —          18,697       (18,095     —     

Equity in loss of joint ventures

     (24     —          —          —          (24

Loss on foreign currency transactions—net

     (15     —          —          —          (15
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     20,137       (917     7,506       (18,095     8,631  

Income tax (provision) benefit

     (1,125     —          (2,207     —          (3,332
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     19,012       (917     5,299       (18,095     5,299  

Net loss attributable to noncontrolling interests

     —          —          206       —          206  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Great Lakes

          

Dredge & Dock Corporation

   $ 19,012     $ (917   $ 5,505     $ (18,095   $ 5,505  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 17,724     $ (921   $ 4,213     $ (16,803   $ 4,213  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


Table of Contents

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2011

(In thousands)

 

     Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    GLDD
Corporation
    Eliminations     Consolidated
Totals
 

Contract revenues

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

Costs of contract revenues

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     45,474       1,734       —          —          47,208  

OPERATING EXPENSES:

          

General and administrative expenses

     23,726       421       1,564       —          25,711  

Gain on sale of assets—net

     (2,771     —          —          —          (2,771
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

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

Interest expense—net

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

Equity in earnings (loss) of subsidiaries

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

Equity in loss of joint ventures

     (714     —          —          —          (714

Loss on extinguishment of debt

     —          —          (5,145     —          (5,145
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

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

Income tax benefit (provision)

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

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

Net income attributable to noncontrolling interests

     —          —          (468     —          (468
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 27,870     $ 1,214     $ 3,850     $ (29,084   $ 3,850  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012

(In thousands)

 

     Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    GLDD
Corporation
    Eliminations      Consolidated
Totals
 

OPERATING ACTIVITIES:

           

Net cash flows provided by (used in) operating activities

   $ 9,512     $ 331     $ (25,028   $ —         $ (15,185

INVESTING ACTIVITIES:

           

Purchases of property and equipment

     (22,428     —          —          —           (22,428

Proceeds from dispositions of property and equipment

     226       —          —          —           226  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash flows used in investing activities

     (22,202     —          —          —           (22,202

FINANCING ACTIVITIES:

           

Deferred financing fees

     —          —          (2,039     —           (2,039

Distributions paid to minority interests

     —          —          (133     —           (133

Dividends paid

     —          —          (2,482     —           (2,482

Dividend equivalents paid on restricted stock units

     —          —          (22     —           (22

Taxes paid on settlement of vested share awards

     —          —          (212     —           (212

Net change in accounts with affiliates

     (25,246     (4,477     29,723       —           —     

Repayments of equipment debt

     (426     —          —          —           (426

Exercise of stock options

     —          —          75       —           75  

Excess income tax benefit from share-based compensation

     —          —          118       —           118  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash flows provided by (used in) financing activities

     (25,672     (4,477     25,028       —           (5,121
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Effect of foreign currency exchange rates on cash and cash equivalents

     —          11       —          —           11  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net decrease in cash and cash equivalents

     (38,362     (4,135     —          —           (42,497

Cash and cash equivalents at beginning of period

     108,985       4,303       —          —           113,288  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents at end of period

   $ 70,623     $ 168     $ —        $ —         $ 70,791  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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Table of Contents

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2011

(In thousands)

 

     Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    GLDD
Corporation
    Eliminations      Consolidated
Totals
 

OPERATING ACTIVITIES:

           

Net cash flows provided by (used in) operating activities

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

INVESTING ACTIVITIES:

           

Purchases of property and equipment

     (13,583     —          —          —           (13,583

Proceeds from dispositions of property and equipment

     7,275       —          —          —           7,275  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash flows used in investing activities

     (6,308     —          —          —           (6,308

FINANCING ACTIVITIES:

           

Proceeds from issuance of 7 3/8% senior notes

     —          —          250,000       —           250,000  

Redemption of 7 3/4% senior subordinated notes

     —          —          (175,000     —           (175,000

Senior subordinated notes redemption premium

     —          —          (2,264     —           (2,264

Deferred financing fees

     —          —          (5,829     —           (5,829

Dividends paid

     —          —          (2,236     —           (2,236

Dividend equivalents paid on restricted stock units

     —          —          (11     —           (11

Taxes paid on vested share awards

     —          —          (250        (250

Net change in accounts with affiliates

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

Repayments of equipment debt

     (217     —          —          —           (217

Exercise of stock options

     —          —          27       —           27  

Excess income tax benefit from share-based compensation

     —          —          52       —           52  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash flows provided by financing activities

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

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net increase in cash and cash equivalents

     47,182       337       —          —           47,519  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents at beginning of period

     48,416       62       —          —           48,478  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents at end of period

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

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

 

24


Table of Contents

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

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q may constitute “forward-looking” statements as defined in Section 27A of the Securities Act of 1933 (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) or in releases made by the Securities and Exchange Commission (the “SEC”), all as may be amended from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Great Lakes Dredge & Dock Corporation and its subsidiaries (“Great Lakes” or the “Company”), or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words “plan,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “may,” “would,” “could,” “should,” “seeks,” or “scheduled to,” or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the “safe harbor” provisions of such laws. Great Lakes cautions investors that any forward-looking statements made by Great Lakes are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements with respect to Great Lakes, include, but are not limited to, risks associated with Great Lakes’ leverage, fixed price contracts, dependence on government contracts and funding, bonding requirement and obligations, international operations, backlog, uncertainty related to pending litigation, government regulation, restrictive debt covenants and fluctuations in quarterly operations, and those factors, risks and uncertainties that are described in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 and in other securities filings by Great Lakes with the SEC.

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

General

The Company is the largest provider of dredging services in the United States. In addition, the Company is the only U.S. dredging service provider with significant international operations, which represented 15% of its dredging revenues for the first six months of 2012, compared with the Company’s prior three year average of 17%. The mobility of the Company’s fleet enables the Company to move equipment in response to changes in demand for dredging services.

Dredging generally involves the enhancement or preservation of navigability of waterways or the protection of shorelines through the removal or replenishment of soil, sand or rock. The U.S. dredging market consists of three primary types of work: capital, beach nourishment and maintenance. The Company’s “bid market” is defined as the aggregate dollar value of domestic projects on which the Company bid or could have bid if not for capacity constraints. The Company experienced an average combined bid market share in the U.S. of 39% over the prior three years, including 41%, 60% and 32% of the domestic capital, beach nourishment and maintenance sectors, respectively. The foregoing bid market data does not reflect rivers & lakes activities which are separately categorized. The Company’s bid market share of rivers & lakes in the prior year of activity is 39%.

The Company’s largest domestic dredging customer is the U.S. Army Corps of Engineers (the “Corps”), which is responsible for federally funded projects related to navigation and flood control of U.S. waterways. In the first six months of 2012, the Company’s dredging revenues earned from contracts with federal government agencies, including the Corps as well as other federal entities such as the U.S. Coast Guard and the U.S. Navy, and third parties operating under contracts with federal agencies were approximately 78% of dredging revenues, above the Company’s prior three year average of 59%.

The Company’s demolition subsidiaries are a major U.S. provider of commercial and industrial demolition services. Historically, the majority of the work was performed in the New England area. Through increased collaboration with Great Lakes’ other lines of business, the demolition operations continue to expand into the New York area and marine demolition markets, specifically bridge demolition. In the first six months of 2012, demolition revenues accounted for 20% of total revenues, above the prior three year average of 12%. The demolition segment’s principal services consist of exterior and interior demolition of commercial and industrial buildings, dismantling and disposal of aged or failing bridges, site development, salvage and recycling of related materials and removal of hazardous substances and materials. The Company’s demolition operations are one of a few providers in New England with the required licenses, operating expertise, equipment fleet and access to bonding to execute larger, complex industrial demolition projects.

 

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The Company also owns 50% of Amboy Aggregates (“Amboy”) and 50% of TerraSea Environmental Solutions (“TerraSea”) as joint ventures. Amboy’s primary business is dredging sand from the entrance channel to the New York harbor in order to provide sand and aggregate for use in road and building construction and for clean land fill. Amboy also imports stone from upstate New York and Nova Scotia and distributes it throughout the New York area. TerraSea is engaged in the environmental services business through its ability to remediate contaminated soil and dredged sediment treatment. The Company operates in two reportable segments: dredging and demolition. These reportable segments are the Company’s operating segments and the reporting units at which the Company tests goodwill for impairment.

Results of Operations

The following tables set forth the components of net income (loss) attributable to Great Lakes Dredge & Dock Corporation and Adjusted EBITDA, as defined below, as a percentage of contract revenues for the three and six months ended June 30, 2012 and 2011:

 

     Three Months Ended     Six Months
Ended
 
     June 30,     June 30,  
     2012     2011     2012     2011  

Contract revenues

     100.0      100.0      100.0     100.0

Costs of contract revenues

     (85.7     (87.2     (86.3     (84.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     14.3       12.8       13.7       15.2  

General and administrative expenses

     6.9       8.8       7.7       8.3  

Gain on sale of assets—net

     (0.1     (1.6     0.0        (0.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     7.5       5.6       6.0       7.8  

Interest expense—net

     (3.2     (3.2     (3.3     (3.5

Equity in loss of joint ventures

     0.0        (0.1     0.0        (0.2

Loss on foreign currency transactions—net

     0.0        0.0        0.0        0.0   

Loss on extinguishment of debt

     0.0        0.0        0.0        (1.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     4.3       2.3       2.7       2.4  

Income tax provision

     (1.7     (0.9     (1.1     (1.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     2.6       1.4       1.6       1.4  

Net (income) loss attributable to noncontrolling interests

     0.1       (0.3     0.1       (0.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Great Lakes Dredge & Dock Corporation

     2.7      1.1      1.7      1.2 
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     12.6      11.2      11.1      13.5 
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents
     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
(in thousands)    2012      2011      2012      2011  

Net income attributable to Great Lakes Dredge & Dock Corporation

   $ 4,437      $ 1,706      $ 5,505      $ 4,098  

Adjusted for:

           

Loss on extinguishment of debt

     —           —           —           5,145  

Interest expense—net

     5,383        4,911        10,642        10,861  

Income tax provision

     2,768        1,455        3,332        2,982  

Depreciation and amortization

     8,359        9,238        16,123        18,804  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 20,947      $ 17,310      $ 35,602      $ 41,890  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
Revenues (in thousands)    2012      2011      Change     2012      2011      Change  

Dredging:

                

Capital—U.S.

   $ 44,703      $ 44,480        0.5   $ 71,610      $ 90,509        (20.9 )% 

Capital—foreign

     20,848        16,065        29.8     38,873        37,936        2.5

Beach nourishment

     40,458        28,376        42.6     71,641        46,233        55.0

Maintenance

     20,006        28,703        (30.3 )%      59,239        75,942        (22.0 )% 

Rivers & lakes

     8,757        7,461        17.4     15,770        11,062        42.6
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total dredging revenues

     134,772        125,085        7.7     257,133        261,682        (1.7 )% 

Demolition

     31,760        29,874        6.3     64,306        48,615        32.3
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total revenues

   $ 166,532      $ 154,959        7.5   $ 321,439      $ 310,297        3.6
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total revenue for the 2012 second quarter was $166.5 million, up $11.5 million or 8% from $155.0 million during the 2011 second quarter. Dredging contract revenues for the three and six months ended June 30, 2012 are net of $0.1 million and $1.4 million in intersegment revenues. Demolition contract revenues for both the three and six months ended June 30, 2012 are net of $0.1 million in intersegment revenues. The increases in beach nourishment, foreign capital and rivers & lakes revenue were offset by a decline in maintenance revenue. Demolition revenue for the quarter was $31.8 million, a 6% increase from $29.9 million a year ago. Revenue for the six months ended June 30, 2012 was up $11.1 million compared to the prior year, primarily due to an increase in demolition revenue.

Capital dredging consists primarily of port expansion projects, which involve the deepening of channels to allow access by larger, deeper draft ships and the provision of land fill used to expand port facilities. In addition to port work, capital projects also include land reclamations, trench digging for pipelines, tunnels and cables, and other dredging related to the construction of breakwaters, jetties, canals and other marine structures. Domestic capital dredging revenue increased slightly to $44.7 million, an increase of 1%, in the 2012 second quarter compared to the 2011 second quarter. Domestic capital dredging revenue decreased $18.9 million, or 21%, in the first six months of 2012 compared to the same period in 2011. Domestic capital dredging revenues in the quarter and six months ended June 30, 2012 were primarily generated by work in the Ports of New York, as well as projects in Florida and Louisiana. Capital dredging for the first six months of 2011 included the completion of our work on the construction of sand berms off the coast of Louisiana, which accounted for approximately $19.7 million of revenue, that did not reoccur in 2012.

Foreign dredging revenue increased $4.8 million, or 30%, for the second quarter of 2012 to $20.8 million, and increased $0.9 million to $38.9 million for the six months ended June 30, 2012. Over 75% of second quarter 2012 foreign revenue was driven by two projects in Bahrain that are new in 2012. The second quarter of 2011 included two projects in South America that did not reoccur in 2012.

Beach nourishment projects involve moving sand from the ocean floor to shoreline locations where erosion threatens shoreline assets. Beach nourishment revenue in the 2012 second quarter increased $12.1 million, or 43%, from the 2011 second quarter. Year to date 2012 beach nourishment revenue increased $25.4 million, or 55%, compared to the first half of 2011. The significant increase in beach nourishment awards in the prior year created a larger supply of projects in backlog, of which the Company continued to convert into revenue. In the 2012 second quarter, the Company worked on several beach projects, including projects in Florida, New Jersey and Virginia.

 

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Maintenance dredging consists of the re-dredging of previously deepened waterways and harbors to remove silt, sand and other accumulated sediments. Due to natural sedimentation, most channels generally require maintenance dredging every one to three years, thus creating a recurring source of dredging work that is typically non-deferrable if optimal navigability is to be maintained. In addition, severe weather such as hurricanes, flooding and droughts can also cause the accumulation of sediments and drive the need for maintenance dredging. Maintenance revenue in the 2012 second quarter decreased by $8.7 million, or 30%, compared to the 2011 second quarter. Maintenance revenue in the first six months of 2012 decreased by $16.7 million, or 22%, compared to the first six months of 2011. Maintenance revenue in the first six months of 2011 was atypically high as the Company was able to work on maintenance projects that had been delayed from 2010 in order to work on construction of sand berms off the coast of Louisiana. During the second quarter of 2012, the Company performed maintenance dredging in Louisiana, North Carolina and New York.

Domestic rivers & lakes dredging and related operations typically consist of lake and river dredging, inland levee and construction dredging, environmental restoration and habitat improvement and other marine construction projects. Rivers & lakes revenue in the second quarter of 2012 was $8.8 million, an increase of $1.3 million or 17% compared to the second quarter of 2011. Rivers & lakes revenue in the first six months of 2012 was $15.8 million, an increase of $4.7 million or 43% compared to the first six months of 2011. The majority of the change relates to better weather conditions in the first quarter of 2012 allowing additional work to progress than otherwise would be possible. Rivers & lakes continued work on its large municipal lake project in Texas as well as other projects along the Mississippi River during the second quarter of 2012.

Consolidated gross profit for the 2012 second quarter increased by 21% to $23.9 million, from $19.8 million in the second quarter of 2011. Gross profit margin (gross profit divided by revenue) for the 2012 second quarter increased to 14.3% from 12.8% in the 2011 second quarter. Gross profit for the six months ended June 30, 2012 decreased by 7% to $43.9 million from $47.2 million in the same 2011 period, resulting in a decline in gross profit margin to 13.7% from 15.2%. The six month 2012 gross profit margin was lower due to weather impacts and lower dredge fixed cost coverage from the 2012 first quarter.

The Company’s general and administrative expenses totaled $11.5 million and $24.7 for the three and six months ended June 30, 2012. General and administrative expenses totaled $13.6 million and $25.7 million for the three and six months ended June 30, 2011. The decrease in 2012 is due largely to legal costs of $1.3 million of investigation-related expenses resulting from two subpoenas received by the demolition segment in April 2011. These expenses did not reoccur in 2012. In addition, amortization costs related to intangible assets from the Matteson acquisition have become fully amortized representing a decrease in general and administrative expenses of $0.5 million and $1.1 million for the quarter and six months ended 2012 over the same periods in the prior year.

Operating income for the three months ended June 30, 2012 increased 45% to $12.5 million, while operating income for the six months ended June 30, 2012 decreased 20% to $19.3 million, respectively, compared to the same periods of 2011.

The Company’s net interest expense totaled $5.4 million and $10.6 million, for the three and six months ended June 30, 2012, respectively, compared to $4.9 million and $10.9 million from the same period of 2011. Higher interest expense in the second quarter of 2012 over the same period in 2011 primarily relates to adjustments recorded from changes in fair value on the Company’s interest rate swaps and interest expense from the foreign exchange forward contracts. In the first quarter of 2011, the Company had two debt issuances outstanding at the same time that added duplicative interest expense of $1.1 million.

Income tax expense for the three and six months ended June 30, 2012 was $2.8 million and $3.3 million, respectively, compared to $1.5 million and $3.0 million for the same 2011 periods. This increase was primarily attributable to higher earnings generated in 2012. The effective tax rate for the six months ended June 30, 2012 was 38.9%, which is substantially consistent with the effective tax rate of 39.5% for the same period of 2011. The Company expects the tax rate for the full year to remain near 39%.

Net income attributable to Great Lakes Dredge & Dock Corporation was $4.4 million and earnings per diluted share were $0.07 for the 2012 second quarter as compared to $1.7 million and $0.03 for the same 2011 period. Net income attributable to Great Lakes Dredge & Dock Corporation and earnings per diluted share for the six months ended June 30, 2012 was $5.5 million and $0.09, respectively, compared to $4.1 million and $0.07 for the same 2011 period. The increase in the second quarter of 2012 is due to the higher operating income for the period. Net income in 2011 was reduced by a $5.1 million loss on extinguishment of debt. Adjusted EBITDA (as defined on page 26) was $20.9 million and $35.6 million for the three and six months ended June 30, 2012, respectively, compared with $17.3 million and $41.9 million in the same 2011 periods, for the reasons discussed above.

Results by segment

Dredging

Dredging revenues for the three and six months ended June 30, 2012 were $134.8 million and $257.1 million, respectively, compared to $125.1 million and $261.7 million for the same periods of 2011. Dredging revenues for the six months ended June 30, 2012 were driven by domestic capital work and beach nourishment each generating $71.6 million for the period. The increase in dredging revenue for the three months was due to an increase in beach nourishment, which was partially offset by a decrease in maintenance revenue. Dredging revenue for the six months increased due to continued strong beach nourishment revenue, which was partially offset by decreases in domestic capital revenue during the first quarter of 2011 and lower maintenance revenue year to date in 2012.

 

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Table of Contents

Gross profit margin in the dredging segment was 17.1% and 15.2% for the three and six months ended June 30, 2012 compared to gross profit margin in the dredging segment of 17.3% and 18.9% for the three and six months ended June 30, 2011, respectively, as gross profit was essentially the same for the second quarter of 2012 in comparison to the second quarter of 2011, while decreasing in the six months ended June 30, 2012 due largely to a slow first quarter of 2012 as the mix of project types and offshore weather conditions lowered dredge utilization that resulted in lower fixed cost coverage.

Dredging segment operating income was $13.0 million and $17.9 million for the three and six months ended June 30, 2012, compared to operating income of $13.6 million and $31.4 million for the three and six months ended June 30, 2011, respectively. The decrease in operating income for the six months ended June 30, 2012 is a result of the decrease in gross profit in the first quarter of 2012, as mentioned above, along with additional payroll and benefits of $1.9 million in the six months ended June 30, 2012, and the $2.1 million gain on the sale of the dredge Victoria Island in 2011. These items were partially offset as the six months ended June 30, 2011 included $1.1 million of amortization costs related to intangible assets from the Matteson acquisition, which have become fully amortized and are not included in 2012.

Demolition

Demolition revenues for the three and six months ended June 30, 2012 totaled $31.8 million and $64.3 million, respectively, compared to $29.9 million and $48.6 million for the same 2011 periods. The demolition segment experienced higher revenue levels in 2012 driven by bridge demolition work and a large site development project in New York as new demolition management has focused on large projects with higher margins in the current year.

Gross profit margin in the demolition segment was 2.5% and 7.5% for the three and six months ended June 30, 2012 compared to a negative gross margin of 6.2% and 4.5% for the three and six months ended June 30, 2011, respectively. The demolition segment generated an operating loss of $0.5 million and operating income of $1.4 million for the three and six months ended June 30, 2012, respectively, compared to an operating loss of $4.9 million and $7.1 million for the same periods of 2011. The increase in operating income during the first six months of 2012 is due to the increase in gross profit, and the $1.3 million of investigation-related expenses resulting from two subpoenas received in April 2011, which did not occur in the current year.

Bidding Activity and Backlog

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

 

     June 30,      December 31,      June 30,  
Backlog (in thousands)    2012      2011      2011  

Dredging:

        

Capital - U.S.

   $ 104,283      $ 109,897      $ 49,086  

Capital - foreign

     225,999        78,379        53,941  

Beach nourishment

     34,111        84,607        62,228  

Maintenance

     10,907        31,293        12,935  

Rivers & lakes

     23,167        15,256        18,355  
  

 

 

    

 

 

    

 

 

 

Dredging Backlog

     398,467        319,432        196,545  

Demolition

     56,786        50,672        74,087  
  

 

 

    

 

 

    

 

 

 

Total Backlog

   $ 455,253      $ 370,104      $ 270,632  
  

 

 

    

 

 

    

 

 

 

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, 24% 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.

 

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Table of Contents

The domestic dredging bid market for the 2012 second quarter totaled $123.6 million, resulting in $353.2 million of work awarded during the first six months of 2012. This represents an increase of $19.8 million from the first half in the prior year. The second quarter of each year typically has fewer projects let to bid. The Company won 76%, or $20.0 million, of the beach nourishment projects awarded through June 30, 2012, as well as 16%, or $34.2 million, of the maintenance projects along with 96%, or $53.4 million, of capital projects and 42% or $24.1 million, of the rivers & lakes projects awarded year to date through June 30, 2012. The Company won 37% of the overall domestic bid market through June 30, 2012, which is in line with the Company’s prior three year average of 39%. 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.

Several important developments occurred in the second quarter of 2012 that the Company expects to increase the domestic dredging bid market throughout the remainder of the current year and into future years. At the end of June, leaders in Congress agreed in principal to a $105 billion bill that provides highway funding for two years. Within this bill were provisions related to maritime issues, in particular spending provisions related to the Harbor Maintenance Trust Fund (“HMTF”) and the RESTORE Act. Each of these sections of the bill has significant impacts to dredging appropriations. The bill represented strong bicameral and bipartisan support for the infrastructure needs of our nation and easily passed Congress and was signed by the President.

Included in the bill are provisions calling for appropriation of HMTF monies to the Corps so that total budget resources on harbor maintenance for a fiscal year will be equal to the level of receipts. The recognition of the need for additional investment in U.S. ports and waterways is expected to support an increase of appropriations to future Corps’ budgets for maintenance dredging. Also included in the bill was a complete version of the RESTORE Act which requires 80 percent of all administrative, civil, and criminal penalties paid by a responsible party in connection with the Deepwater Horizon oil spill, to be deposited into a fund, together with any additional appropriations provided by law. This allocation will be directed to the Gulf States affected by the incident, most of which is intended for coastal protection works that generally include significant dredging.

In July the Administration followed with an announcement in July that the Corps will accelerate the approval process by at least nine months for deepening projects in five key East Coast ports. The President has announced that there are 43 priority infrastructure projects in total that are expected to be expedited. The public investment in port infrastructure is necessary as the ongoing expansion of the Panama Canal and initiatives to increase exports heightens the need for the U.S. to deepen its East and Gulf Coast ports to facilitate larger draft vessels from international trade. The announced acceleration will likely streamline feasibility studies and permitting to allow the Corps to complete many of the projects on a schedule in anticipation of the increased traffic expected through the Panama Canal.

The Company’s contracted dredging backlog was $398.5 million at June 30, 2012 compared to $319.4 million as of December 31, 2011. These amounts do not reflect approximately $28.5 million of domestic low bids pending formal award and additional phases (“options”) pending on projects currently in backlog at June 30, 2012. At December 31, 2011 the amount of domestic low bids and options pending award was $36.1 million.

Domestic capital dredging backlog at June 30, 2012 was $5.6 million less than at December 31, 2011 as the Company continued to execute on its backlog previously awarded for capital projects in New York, Florida and Louisiana. Although few capital projects were let to bid in the second quarter, the Company still anticipates a strong capital dredging bid market in 2012 including the deepening project in Miami which is expected to be released in this year.

Beach nourishment dredging backlog at June 30, 2012 was $50.5 million lower than at December 31, 2011 as the Company worked off its prior backlog related to several beach projects on the East Coast and in Florida. There were no new beach nourishment projects let to bid in the quarter, but the Corps has announced the intention to bring several new beach nourishment projects in the next year. The Company’s backlog includes the large beach project in San Diego won in the first quarter of 2012.

Maintenance dredging backlog was $20.4 million lower at June 30, 2012 than at December 31, 2011. A significant contract for $10.8 million with pending options worth $6.0 million was added in the second quarter for channel maintenance in Louisiana. The additional contract was offset by continued work on existing projects in Louisiana, Georgia and Baltimore Harbor.

Rivers & lakes backlog is $7.9 million higher at June 30, 2012 than at December 31, 2011. Rivers & lakes continued to earn on projects in its backlog, including work on the large municipal lake project of $12.5 million and levee repair projects won in the first quarter of 2012. Rivers & lakes also has $7.3 million of pending options for rental work on the Mississippi River that are not included in backlog. The Corps is expected to let to bid several projects in the second half of 2012 related to flood repair on the Mississippi River and its tributaries that rivers & lakes expects to pursue.

Foreign capital dredging backlog increased $147.6 million at June 30, 2012 from December 31, 2011, due primarily to the award of the dredging contract for the Wheatstone LNG Project in Western Australia. The Company expects to realize at least $180 million in revenue on this project with the potential for greater income as the project details are finalized. The Company will deploy the dredge New York on the Company’s portion of the project for about 27 months to complete this significant international dredging opportunity. The Company also sees additional opportunities in the Middle East, Southeast Asia and South America that it continues to pursue.

 

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Demolition services backlog was $6.1 million higher at June 30, 2012 from December 31, 2011. New projects awarded in the six months ended June 30, 2012 include the $22.2 million brownfield remediation project in New Jersey that was pending award at year end and three large civil site development projects that are expected each to generate over $3 million of revenue. A large portion of the backlog earned in the first six months of 2012 relates to the new management’s focus on large complex projects such as municipal developments in New York and specialty work such as bridge demolition in Louisiana, New Hampshire and New York.

Dredge New York litigation development

During the prior quarter ended March 31, 2012, a judgment in the aggregate amount of $13.3 was rendered in the Company’s favor in its litigation regarding the dredge New York loss of use claim. The defendants are appealing the judgment and the Company cannot be assured when the appeal will be heard or predict the outcome of the appellate process. For additional information regarding this matter, see Note 9 to the Company’s condensed consolidated financial statements.

Liquidity and Capital Resources

The Company’s principal sources of liquidity are net cash flows provided by operating activities and proceeds from previous issuances of long term debt. The Company’s principal uses of cash are to meet debt service requirements, finance capital expenditures, provide working capital and other general corporate purposes.

The Company’s net cash used in operating activities for the six months ended June 30, 2012 and 2011 totaled $15.2 million, and $10.4 million, respectively. Normal increases or decreases in the level of working capital relative to the level of operational activity impact cash flow from operating activities. In the first six months of 2012, the increase in net cash used in operating activities was primarily the result of lower adjusted EBITDA and an increased investment in working capital as compared to the same period in the prior year.

The Company’s net cash flows used in investing activities for the first six months of 2012 and 2011 totaled $22.2 million and $6.3 million, respectively. Investing activities in both periods primarily relate to normal course upgrades and capital maintenance of the Company’s dredging fleet. During the six months ended June 30, 2012, the Company overhauled the engines on the dredge Alaska to provide increased useful life and efficiency. This engine overhaul added $5.3 million in investing capital expenditures during the six months ended June 30, 2012. Additionally, the Company purchased a $6.4 million storage yard during the six months ended June 30, 2012. During the six months ended June 30, 2011, the Company sold the dredge Victoria Island for $6.6 million of cash proceeds.

The Company’s net cash flows provided by (used in) financing activities for the six months ended June 30, 2012 and 2011 totaled ($5.1) million and $64.3 million, respectively. The Company issued $250 million of 7.375% senior notes in the first six months of 2011, resulting in $244.2 million of net proceeds. The Company used a portion of these net proceeds to redeem its $175 million of 7.75% senior subordinated notes in the first three months of 2011 for $180.0 million, which included a redemption premium and unpaid interest.

The Company paid $2.5 million in dividends in the first six months of 2012. The future declaration and payment of 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, financial results and condition and legal requirements, including restrictions and limitations contained in the revolving credit facility and the indenture relating to its senior notes. Accordingly, the Company cannot make any assurances as to the size of any such dividend or that it will pay any such dividend in future quarters.

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

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

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

 

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

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 material agreements related to long term debt contain various restrictive covenants, including limitations on dividends, redemption and repurchases of capital stock, and the incurrence of indebtedness and requirements to maintain certain financial covenants. The Company is in compliance with its various covenants under the respective agreements as of June 30, 2012.

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, is reflected in the cumulative translation adjustment, net within accumulated other comprehensive income (loss). 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, its anticipated cash flows from operations and availability under its revolving credit facility will be sufficient to fund the Company’s operations, capital expenditures and the scheduled 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 revolving credit facility and bonding agreement, depends on its future operating performance and cash flows, 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, 2011.

 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The market risk of the Company’s financial instruments as of June 30, 2012 has not materially changed since December 31, 2011. The market risk profile of the Company on December 31, 2011 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, 2011.

 

33


Table of Contents

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, has 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 June 30, 2012. 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 fiscal quarter ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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Table of Contents

PART II — Other Information

Item 1. Legal Proceedings.

See Note 9 “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 ended June 30, 2012 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, 2011.

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

(a) None.

(b) None.

(c) None.

Item 3. Defaults Upon Senior Securities.

(a) None.

(b) None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information

(a) None.

(b) Not applicable.

 

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Item 6. Exhibits

 

  10.1    Employment Agreement dated as of April 9, 2012 between Great Lakes Dredge & Dock Company, LLC and David E. Simonelli. (1)
  10.2    Employment Agreement dated as of April 26, 2012 between Great Lakes Dredge & Dock Company, LLC and Kyle D. Johnson. (2)
  10.3    Employment Agreement dated as of April 26, 2012 between Great Lakes Dredge & Dock Company, LLC and John F. Karas. (3)
  10.4    Credit Agreement dated as of June 4, 2012 by and among Great Lakes Dredge & Dock Corporation, as Borrower, the other Credit Parties party thereto, the financial institutions from time to time party thereto as lenders, Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and an Issuing Lender, Bank of America, N.A., as Syndication Agent and PNC Bank, National Association, BMO Harris Bank N.A. and Fifth Third Bank, as Co-Documentation Agents. (4)
  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 April 13, 2012 (Commission file no. 001-33225).
(2) Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 2, 2012 (Commission file no. 001-33225).
(3) Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 2, 2012 (Commission file no. 001-33225).
(4) Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 7, 2012 (Commission file no. 001-33225).
* Filed herewith.

 

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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.

 

Great Lakes Dredge & Dock Corporation

(registrant)

By: 

  /s/ BRUCE J. BIEMECK
  Bruce J. Biemeck
  President and Chief Financial Officer
  (Principal Financial and Accounting Officer and Duly Authorized Officer)

Date: August 7, 2012

 

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Table of Contents

EXHIBIT INDEX

 

Number   

Document Description

10.1    Employment Agreement dated as of April 9, 2012 between Great Lakes Dredge & Dock Company, LLC and David E. Simonelli. (1)
10.2    Employment Agreement dated as of April 26, 2012 between Great Lakes Dredge & Dock Company, LLC and Kyle D. Johnson. (2)
10.3    Employment Agreement dated as of April 26, 2012 between Great Lakes Dredge & Dock Company, LLC and John F. Karas. (3)
10.4    Credit Agreement dated as of June 4, 2012 by and among Great Lakes Dredge & Dock Corporation, as Borrower, the other Credit Parties party thereto, the financial institutions from time to time party thereto as lenders, Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and an Issuing Lender, Bank of America, N.A., as Syndication Agent and PNC Bank, National Association, BMO Harris Bank N.A. and Fifth Third Bank, as Co-Documentation Agents. (4)
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 April 13, 2012 (Commission file no. 001-33225).
(2) Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 2, 2012 (Commission file no. 001-33225).
(3) Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 2, 2012 (Commission file no. 001-33225).
(4) Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 7, 2012 (Commission file no. 001-33225).
* Filed herewith.

 

38

XNAS:GLDD Great Lakes Dredge & Dock Corp Quarterly Report 10-Q Filling

Great Lakes Dredge & Dock Corp XNAS:GLDD Stock - Get Quarterly Report SEC Filing of Great Lakes Dredge & Dock Corp XNAS:GLDD stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

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XNAS:GLDD Great Lakes Dredge & Dock Corp Quarterly Report 10-Q Filing - 6/30/2012
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