Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
GLDD > SEC Filings for GLDD > Form 10-Q on 7-Nov-2012All Recent SEC Filings

Show all filings for GREAT LAKES DREDGE & DOCK CORP

Form 10-Q for GREAT LAKES DREDGE & DOCK CORP


7-Nov-2012

Quarterly Report


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, severe weather related costs, uncertainty related to pending litigation, government regulation, restrictive debt covenants and fluctuations in quarterly operations, and those factors, risks and uncertainties that are described in Item 1A "Risk Factors" of the Company's Annual Report on Form 10-K for the year ended December 31, 2011 and in other securities filings by Great Lakes with the SEC.

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

General

The Company is the largest provider of dredging services in the United States. In addition, the Company is the only U.S. dredging service provider with significant international operations, which represented 19% of its dredging revenues for the first nine months of 2012, compared with the Company's prior three year average of 17%. The mobility of the Company's fleet enables the Company to move equipment in response to changes in demand for dredging services.

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

The Company's largest domestic dredging customer is the U.S. Army Corps of Engineers (the "Corps"), which is responsible for federally funded projects related to navigation and flood control of U.S. waterways. In the first nine months of 2012, the Company's dredging revenues earned from contracts with federal government agencies, including the Corps as well as other federal entities such as the U.S. Coast Guard and the U.S. Navy, and third parties operating under contracts with federal agencies, were approximately 72% of dredging revenues, above the Company's prior three year average of 59%.

The Company's demolition subsidiaries are a major U.S. provider of commercial and industrial demolition services. Historically, the majority of the work was performed in the New England area. Through increased collaboration with Great Lakes' other lines of business, the demolition operations continue to expand into the New York area and marine demolition markets, specifically bridge demolition. In the first nine months of 2012, demolition revenues accounted for 19% 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.


Table of Contents

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

Results of Operations

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



                                                  Three Months Ended             Nine Months Ended
                                                    September 30,                  September 30,
                                                 2012            2011           2012           2011
Contract revenues                                100.0  %        100.0  %       100.0  %       100.0  %
Costs of contract revenues                        (92.2 )         (82.7 )        (88.3 )        (84.1 )

Gross profit                                        7.8            17.3           11.7           15.9
General and administrative expenses                 7.0             8.0            7.5            8.2
Gain on sale of assets-net                         (0.1 )          (0.1 )          0.0           (0.6 )

Operating income                                    0.9             9.4            4.2            8.3
Interest expense-net                               (3.1 )          (3.5 )         (3.2 )         (3.5 )
Equity in earnings (loss) of joint ventures         0.1             0.4            0.0            0.0
Loss on foreign currency transactions-net           0.0            (0.3 )          0.0           (0.1 )
Loss on extinguishment of debt                      0.0             0.0            0.0           (1.1 )

Income (loss) before income taxes                  (2.1 )           6.0            1.0            3.6
Income tax provision                                0.8            (2.3 )         (0.4 )         (1.4 )

Net income (loss)                                  (1.3 )           3.7            0.6            2.2
Net (income) loss attributable to
noncontrolling interests                            0.0             0.0            0.0           (0.1 )

Net income (loss) attributable to Great
Lakes Dredge & Dock Corporation                    (1.3 )%         3.7  %         0.6  %         2.1  %

Adjusted EBITDA                                    7.3  %         16.4  %         9.8  %        14.5  %

Adjusted EBITDA, as provided herein, represents net income (loss) attributable to Great Lakes Dredge & Dock Corporation, adjusted for net interest expense, income taxes, depreciation and amortization expense 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 (loss) attributable to Great Lakes Dredge & Dock Corporation:


Table of Contents
                                                    Three Months Ended            Nine Months Ended
                                                      September 30,                 September 30,
(in thousands)                                     2012            2011          2012           2011
Net income (loss) attributable to Great Lakes
Dredge & Dock Corporation                        $  (2,132 )     $  5,602      $   3,373      $  9,700
Adjusted for:
Loss on extinguishment of debt                          -              -              -          5,145
Interest expense-net                                 5,105          5,571         15,747        16,432
Income tax provision (benefit)                      (1,355 )        3,618          1,977         6,600
Depreciation and amortization                       10,514         11,195         26,637        29,999

Adjusted EBITDA                                  $  12,132       $ 25,986      $  47,734      $ 67,876

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                         Nine Months Ended
                                     September 30,                             September 30,
Revenues (in thousands)     2012          2011        Change          2012          2011        Change
Dredging:
Capital-U.S.              $  45,456     $  39,778        14.3 %     $ 117,066     $ 130,287       (10.1 )%
Capital-foreign              36,329        21,843        66.3 %        75,202        59,779        25.8 %
Beach nourishment            20,935        41,714       (49.8 )%       92,576        87,947         5.3 %
Maintenance                  26,060        16,583        57.1 %        85,299        92,525        (7.8 )%
Rivers & lakes               10,031        14,673       (31.6 )%       25,801        25,735         0.3 %

Total dredging revenues     138,811       134,591         3.1 %       395,944       396,273        (0.1 )%
Demolition                   27,952        23,877        17.1 %        92,258        72,492        27.3 %

Total revenues            $ 166,763     $ 158,468         5.2 %     $ 488,202     $ 468,765         4.1 %

Total revenue for the 2012 third quarter was $166.8 million, up $8.3 million or 5% from $158.5 million during the 2011 third quarter. For the nine months ended September 30, 2012, total revenue increased to $488.2 million from $468.8 million during such period in 2011, an increase of 4%. Dredging contract revenues for the nine months ended September 30, 2012 are net of $1.4 million in intersegment revenues. Demolition contract revenues for the nine months ended September 30, 2012 are net of $0.1 million in intersegment revenues. For the nine months ended September 30, 2012, total dredging revenues were in line with dredging revenues from the first nine months of 2011 with foreign capital revenue and beach nourishment revenue increasing and domestic capital revenue and maintenance revenue decreasing and rivers & lakes maintaining from the respective period in the prior year. Demolition revenue for the nine months ended September 30, 2012 increased $19.8 million, or 27% compared to the prior year adding to the increased total revenues for the Company.

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 to $45.5 million, adding $5.7 million, or 14%, in the 2012 third quarter compared to the 2011 third quarter. Domestic capital dredging revenue decreased $13.2 million, or 10%, in the first nine months of 2012 compared to the same period in 2011. Domestic capital dredging revenues in the quarter and nine months ended September 30, 2012 continued to be generated by work in the Ports of New York, as well as projects in Florida, Delaware and Louisiana. Capital dredging for the first nine 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 strongly increased $14.5 million, or 66%, for the third quarter of 2012 to $36.3 million, and increased $15.4 million to $75.2 million for the nine months ended September 30, 2012. The third quarter 2012 foreign revenue was driven by several projects in Bahrain, primarily our East Hidd land reclamation project as well as the early stages of mobilization for the Wheatstone LNG project in Western Australia.

Beach nourishment projects involve moving sand from the ocean floor to shoreline locations where erosion threatens shoreline assets. Beach nourishment revenue in the 2012 third quarter decreased $20.8 million, or 50%, from the 2011 third quarter. Year to date 2012 beach nourishment revenue increased $4.6 million, or 5%, compared to the first three quarters of 2011. In the prior year, a significant number of beach nourishment jobs were bid and awarded in the second and third quarter which drove prior year third quarter revenue higher as the dredging work was performed and revenue was earned. This drove the change from the prior year period. In the 2012 third quarter, the Company worked on beach nourishment projects in Florida, Virginia and California.


Table of Contents

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 third quarter increased by $9.5 million, or 57%, compared to the 2011 third quarter. In the quarter ended September 30, 2012, maintenance revenue included a large project in Louisiana and projects on the Mississippi River that were unique due to the drought in the Midwest U.S. during 2012. Maintenance revenue in the first nine months of 2012 decreased by $7.2 million, or 8%, compared to the first nine months of 2011. Maintenance revenue in the first half of 2011 was atypically high as the Company performed maintenance projects that had been delayed from 2010 in order to work on construction of sand berms off the coast of Louisiana, partially offset by the increase in Mississippi River projects mentioned above. In addition to performing maintenance dredging on the Mississippi River and in Louisiana, the Company also had projects in Delaware and Maryland during the third quarter of 2012.

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 third quarter of 2012 was $10.0 million, a decrease of $4.6 million or 32% compared to the third quarter of 2011. The decrease in the current quarter relates to a large dollar value contract in the third quarter of 2011 that did not reoccur in the current year. Rivers & lakes revenue in the first nine months of 2012 was $25.8 million, in line with the revenue reported for the first nine months of 2011. Rivers & lakes continued work on its large municipal lake project in Texas as well as other projects along the Mississippi River during the third quarter of 2012.

Consolidated gross profit for the 2012 third quarter decreased by 52% to $13.0 million, from $27.4 million in the third quarter of 2011. Gross profit margin (gross profit divided by revenue) for the 2012 third quarter decreased to 7.8% from 17.3% in the 2011 third quarter. The decrease in consolidated gross profit and gross profit margin in the 2012 third quarter was primarily due to lower fixed cost coverage as Hurricane Isaac delayed four large dredging projects, as well as reduced equipment production that delayed the schedule and margin on existing projects. Gross profit for the nine months ended September 30, 2012 decreased by 24% to $56.9 million from $74.6 million in the same 2011 period, resulting in a decline in gross profit margin to 11.7% from 15.9%. The nine month 2012 gross profit margin was lower due to weather impacts in the first and third quarters of 2012 and equipment production delays both of which lower dredge fixed cost coverage.

The Company's general and administrative expenses totaled $11.7 million and $36.4 million for the three and nine months ended September 30, 2012. General and administrative expenses totaled $12.7 million and $38.4 million for the three and nine months ended September 30, 2011. In the third quarter of 2011, there was a $1.1 million reduction of the liability related to the earnout potentially payable, related to the Matteson acquisition that was unique to that period. Also, the current quarter ended September 30, 2012 reflects $1.6 million in lower legal and bad debt expense as compared to the same period in the prior year. 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 $0.6 million and $1.7 million for the quarter and nine months ended 2012 over the same periods in the prior year.

Operating income for the three months ended September 30, 2012 decreased 90% to $1.5 million, while operating income for the nine months ended September 30, 2012 decreased 47% to $20.8 million, respectively, compared to the same periods of 2011.

The Company's net interest expense totaled $5.1 million and $15.7 million, for the three and nine months ended September 30, 2012, respectively, compared to $5.6 million and $16.4 million from the same period of 2011. The net interest expense in the three months ended September 30, 2012 is slightly lower primarily due to a reduction in the amount and rates on our equipment capital leases. 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 nine months ended September 30, 2012 was a benefit of $1.4 million and a provision of $2.0 million, respectively, compared to $3.6 million and $6.6 million of provision for the same 2011 periods. This decrease was primarily attributable to the lower earnings generated in 2012. The effective tax rate for the nine months ended September 30, 2012 was 38.6%, which is substantially consistent with the effective tax rate of 39.2% for the same period of 2011. The Company expects the tax rate for the full year to remain near 39%.

Net loss attributable to Great Lakes Dredge & Dock Corporation was $2.1 million and the loss per diluted share was $0.04 for the 2012 third quarter compared to net income attributable to Great Lakes Dredge & Dock Corporation of $5.6 million and earnings per share of $0.09 for the same 2011 period. Net income attributable to Great Lakes Dredge & Dock Corporation and earnings per diluted share for the nine months ended September 30, 2012 was $3.4 million and $0.06, respectively, compared to $9.7 million and $0.16 for the same 2011 period. The decrease in the third quarter of 2012 is due to the lower operating income for the period described above, partially offset by the resulting income tax benefit. Net income in 2011 was reduced by a $5.1 million loss on extinguishment of debt.


Table of Contents

Adjusted EBITDA (as defined on page 26) was $12.1 million and $47.7 million for the three and nine months ended September 30, 2012, respectively, compared with $26.0 million and $67.9 million in the same 2011 periods, for the reasons discussed above.

Results by segment

Dredging

Dredging revenues for the three and nine months ended September 30, 2012 were $138.8 million and $395.9 million, respectively, compared to $134.6 million and $396.3 million for the same periods of 2011. Dredging revenues for the nine months ended September 30, 2012 were in line with dredging revenues from the same period in 2011. The dredging segment for the three months ended September 30, 2012 included increases in domestic and foreign capital as well as maintenance revenues. These increases for the quarter were partially offset by lower beach nourishment and rivers & lakes revenues. Dredging revenue for the nine months contained larger dollar valued contracts in foreign capital jobs which drove the increased revenue in this category over the same period in the prior year. The domestic production mix experienced increases in beach nourishment revenue, offset by decreases in domestic capital and maintenance revenue year to date in 2012.

Gross profit margin in the dredging segment was 9.0% and 13.0% for the three and nine months ended September 30, 2012 compared to gross profit margin in the dredging segment of 17.5% and 18.4% for the three and nine months ended September 30, 2011, respectively. Dredging gross profit declined as Hurricane Isaac delayed four large dredging projects as well as reduced equipment production that delayed the schedule and margin on existing projects. These also impacted the gross profit margin for the nine months ended September 30, 2012 along with lower margins in a slow first quarter of 2012, which had been impacted by the mix of project types and offshore weather conditions.

Dredging segment operating income was $2.7 million and $20.6 million for the three and nine months ended September 30, 2012, compared to operating income of $13.6 million and $45.0 million for the three and nine months ended September 30, 2011, respectively. The decrease in operating income for the nine months ended September 30, 2012 is a result of the decrease in gross profit in the first and third quarters of 2012, as mentioned above, along with additional general and administrative payroll and benefits of $2.4 million in the nine months ended September 30, 2012, the $2.1 million gain on the sale of the dredge Victoria Island in 2011 and a $1.1 million reduction in 2011 of the liability related to the earnout potentially payable, related to the Matteson acquisition. These items were partially offset as the nine months ended September 30, 2011 included a $1.7 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 nine months ended September 30, 2012 totaled $28.0 million and $92.3 million, respectively, compared to $23.9 million and $72.5 million for the same 2011 periods. The demolition segment experienced higher revenue levels in 2012 driven by bridge demolition work and large site development projects in New York as new demolition management has focused on large projects with higher margins.

Gross profit margin in the demolition segment was 2.0% and 5.9% for the three and nine months ended September 30, 2012 compared to a gross margin of 15.8% and 2.2% for the three and nine months ended September 30, 2011, respectively. The demolition segment generated an operating loss of $1.2 million and operating income of $0.2 million for the three and nine months ended September 30, 2012, respectively, compared to operating income of $1.2 million and an operating loss of $5.9 million for the same periods of 2011. The increase in operating income during the first nine months of 2012 is due to the increase in gross profit, and $1.6 million of higher legal expense in 2011, which did not occur in the current year.

. . .

  Add GLDD to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for GLDD - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.