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 March 31, 2007
OR
o	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)

 

(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   o

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   o     No   x

As of May 10, 2007, 40,327,289 shares of the Registrant’s Common Stock and 18,178,900 of warrants to purchase Common Stock, par value $.0001 per share, were outstanding.

Great Lakes Dredge & Dock Corporation and Subsidiaries

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

Securities Exchange Act of 1934

For the Quarterly Period ended March 31, 2007

 

INDEX

Part I	Financial Information
	Item 1	Financial Statements (Unaudited)		Page
		Condensed Consolidated Balance Sheets at March 31, 2007 and December 31, 2006		2
		Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2007 and 2006		3
		Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2007 and 2006		4
		Notes to Condensed Consolidated Financial Statements		5
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
	Item 3	Quantitative and Qualitative Disclosures About Market Risk		27
	Item 4	Controls and Procedures		28
Part II	Other Information
	Item 1	Legal Proceedings		28
	Item 1A	Risk Factors		29
	Item 6	Exhibits		29
Signature				30
Exhibit Index				31

 

PART I — Financial Information

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)

		March 31,			December 31,
		2007			2006
Assets
Current assets:
Cash and equivalents		$	286		$	3,640
Accounts receivable, net		107,010			89,505
Contract revenues in excess of billings		5,823			9,561
Inventories		26,647			21,082
Prepaid expenses and other current assets		25,592			30,458
Total current assets		165,358			154,246
Property and equipment, net		237,450			239,337
Goodwill		97,447			98,747
Other intangible assets, net		1,203			1,268
Inventories		13,389			13,353
Investments in joint ventures		10,008			9,996
Other assets		9,587			11,412
Total assets		$	534,442		$	528,359
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$	59,353		$	57,826
Accrued expenses		27,385			30,192
Billings in excess of contract revenues		23,636			19,195
Current maturities of long-term debt		1,950			4,085
Total current liabilities		112,324			111,298
Long-term debt		193,112			190,600
Deferred income taxes		82,737			84,825
Other		12,444			11,109
Total liabilities		400,617			397,832
Commitments and contingencies (Note 11)
Minority interest		2,014			2,005
Stockholders' equity:
Common stock—$.0001 par value; 90,000,000 authorized, 40,327,289 shares issued and outstanding		4			4
Additional paid-in capital		169,936			168,830
Accumulated deficit		(37,908		)	(39,030		)
Accumulated other comprehensive loss		(221		)	(1,282		)
Total stockholders' equity		131,811			128,522
Total liabilities and stockholders' equity		$	534,442		$	528,359

 

See notes to unaudited condensed consolidated financial statements.

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Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share data)

		Three Months Ended March 31
		2007			2006
Contract revenues		$	126,732		$	108,427
Costs of contract revenues		113,018			96,816
Gross profit		13,714			11,611
General and administrative expenses		7,993			7,309
Subpoena-related expenses		2			360
Amortization of intangible assets		65			76
Operating income		5,654			3,866
Interest expense, net		(4,261		)	(6,201		)
Equity in earnings of joint ventures		262			117
Minority interests		(9		)	(38		)
Income (loss) before income taxes		1,646			(2,256		)
Income tax (provision) benefit		(682		)	722
Net income (loss)		$	964		$	(1,534	)
Redeemable preferred stock dividends		—			(2,011		)
Net income (loss) available to common shareholders		$	964		$	(3,545	)
Basic earnings (loss) per share		$	0.02		$	(0.38	)
Basic weighted average shares		39,633			9,288
Diluted earnings (loss) per share		$	0.02		$	(0.38	)
Diluted weighted average shares		44,697			9,288
		.

 

See notes to unaudited condensed consolidated financial statements.

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Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

		Three Months Ended March 31
		2007			2006
Operating Activities
Net income (loss)		$	964		$	(1,534	)
Adjustments to reconcile net income (loss) to net cash flows
from operating activities:
Depreciation and amortization		6,481			6,250
Earnings of joint ventures		(262		)	(117		)
Distribution from equity joint ventures		250			250
Minority interests		9			38
Deferred income taxes		(867		)	(1,494		)
Gain on dispositions of property and equipment		(73		)	(195		)
Amortization of financing fees		467			449
Changes in assets and liabilities:
Accounts receivable		(17,505		)	(2,549		)
Contract revenues in excess of billings		3,738			463
Inventories		(5,601		)	167
Prepaid expenses and other current assets		3,851			34
Accounts payable and accrued expenses		5,150			926
Billings in excess of contract revenues		4,441			1,393
Other noncurrent assets and liabilities		(78		)	34
Net cash flows from operating activities		965			4,115
Investing Activities
Purchases of property and equipment		(7,117		)	(6,897		)
Dispositions of property and equipment		49			564
Repayment from related party		1,703			—
Net cash flows used in investing activities		(5,365		)	(6,333		)
Financing Activities
Repayments of long-term debt		(2,623		)	(488		)
Borrowings under revolving loans, net of repayments		3,000			3,000
Cash proceeds from conversion of warrants		1,105
Repayment of capital lease debt		(436		)	(381		)
Net cash flows from financing activities		1,046			2,131
Net change in cash and equivalents		(3,354		)	(87		)
Cash and equivalents at beginning of period		3,640			601
Cash and equivalents at end of period		$	286		514
Supplemental Cash Flow Information
Cash paid for interest		$	797		$	1,874
Cash paid for taxes		$	3,213		$	306

 

See notes to unaudited condensed consolidated financial statements.

4

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(dollars in thousands)

1.              Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information. Accordingly, these financial statements do not include all the information in the notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations and cash flows as of and for the dates presented. 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”) and the notes thereto, included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2006.

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

2.              Comprehensive income

Total comprehensive income (loss) is comprised of the Company’s net income (loss) and net unrealized gains (losses) on cash flow hedges as discussed in Note 3 below. Total comprehensive income (loss) for the three months ended March 31, 2007 and 2006 was $2,025 and ($1,250), respectively.

3.              Risk management activities

The Company uses derivative instruments to manage commodity price, interest rate, and foreign currency exchange risks. Such instruments are not used for trading purposes. As of March 31, 2007, 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 November 2007. As of March 31, 2007, there were 5.2 million gallons remaining on these contracts. Under these agreements, the Company will pay fixed prices ranging from $1.56 to $2.21 per gallon. At March 31, 2007 and December 31, 2006, the fair value liability on these contracts was estimated to be $365 and $2,113, respectively, based on quoted market prices, and is recorded in accrued liabilities. Ineffectiveness related to these fuel hedge arrangements was determined to be immaterial. The remaining losses included in accumulated other comprehensive income at March 31, 2007 will be reclassified into earnings over the next eight months, corresponding to the period during which the hedged fuel is expected to be utilized.

In February 2004, the Company entered into an interest rate swap arrangement, which is effective through December 15, 2013, 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 7¾% senior subordinated debt. The current portion of the fair value liability of the swap at March 31, 2007 and December 31, 2006 was $155 and $201, respectively, and is recorded in accrued liabilities. The long term portion of the fair value liability of the swap at March 31, 2007 and December 31, 2006 was $1,124 and $1,279, respectively and is recorded in other long term liabilities. The swap is not accounted for as a hedge; therefore, the changes in fair value are recorded as adjustments to interest expense in each reporting period.

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The carrying values of other financial instruments included in current assets and current liabilities approximate fair values due to the short-term maturities of these instruments.  The carrying value of the Company’s variable rate debt (primarily bank debt) approximates fair values, based on prevailing market rates.   The fair value of the Company’s $175,000 of 7¾% senior subordinated notes was $173,688 and $168,000 at March 31, 2007 and December 31, 2006, respectively, based on quoted market prices.

4.              Accounts receivable

Accounts receivable at March 31, 2007 and December 31, 2006 are as follows:

		March 31, 2007			December 31, 2006
Completed contracts		38,573			18,252
Contracts in progress		$	54,375		$	60,522
Retainage		14,819			11,488
		107,767			90,262
Allowance for doubtful accounts		(757		)	(757		)
		$	107,010		$	89,505

 

5.              Contracts in progress

The components of contracts in progress at March 31, 2007 and December 31, 2006 are as follows:

		March 31, 2007			December 31, 2006
Costs and earnings in excess of billings:
Costs and earnings for contracts in progress		$	87,407		$	172,263
Amounts billed		(82,152		)	(163,821		)
Costs and earnings in excess of billings for contracts in progress		5,255			8,442
Costs and earnings in excess of billings for completed contracts		568			1,119
		$	5,823		$	9,561
Prepaid contract costs (included in prepaid expenses and other current assets)		$	5,723		$	7,602
Billings in excess of costs and earnings:
Amounts billed		$	(305,246)		$	(216,218)
Costs and earnings for contracts in progress		281,610			197,023
		$	(23,636	)	(19,195		)

 

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6.              Intangible assets

The net book value of intangible assets is as follows:

		Cost			Accumulated Amortization			Net
As of March 31, 2007
Demolition customer relationships		1,093			639			454
Software and databases		1,209			460			749
		$	2,302		$	1,099		$	1,203
As of December 31, 2006		Cost			Accumulated Amortization			Net
Customer contract backlog		4,237			4,237			—
Demolition customer relationships		1,093			609			484
Software and databases		1,209			425			784
Total		$	6,539		$	5,271		$	1,268

 

7.              Investment in Joint Ventures

The Company has a 50% ownership interest in Amboy Aggregates (“Amboy”), whose primary business is the dredge mining and sale of fine aggregate. The Company accounts for its investment in Amboy using the equity method. The following table includes Amboy’s summarized financial information for the periods presented.

		Three Months Ended March 31,
		2007			2006
Revenue		$	5,012		$	4,102
Gross Profit		$	1,229		$	538
Net income		$	524		$	234
Great Lakes 50% share		$	262		$	117

 

Amboy has a revolving loan with a bank for up to $3,000 which contains certain restrictive covenants, including limitations on the amount of distributions to its joint venture partners. It is the intent of the joint venture partners to periodically distribute Amboy’s earnings, to the extent allowed by Amboy’s bank agreement. The Company

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does not guarantee any of the outstanding borrowings and accrued interest under the facility.

In 2003, the Company and its Amboy joint venture partner each purchased a 50% interest in land, which is adjacent to the Amboy property and may be used in connection with the Amboy operations. The Company’s share of the purchase price totaled $1,047 and is reflected in investments in joint ventures.

For the three months ended March 31, 2007 and 2006, the Company received distributions from Amboy and the adjacent land venture totaling $250 and $250, respectively. In 2006, Amboy deposited $2,000 on property in New Jersey with the intent to purchase. In 2007, Amboy canceled the agreement and anticipates the return of this deposit. The Joint Venture is actively seeking a new site for its operations facility due to the impending sale of their current location.

8.              Accrued expenses

Accrued expenses at March 31, 2007 and December 31, 2006 are as follows:

		March 31, 2007			December 31, 2006
Insurance		$	9,067		$	8,798
Interest		4,201			1,003
Income and other taxes		2,655			5,897
Payroll and employee benefits		3,688			9,159
Equipment leases		1,639			1,284
Fuel hedge liability		365			2,113
Other		5,770			1,938
		$	27,385		$	30,192

 

9.              Income Taxes

Effective January 1, 2007, Great Lakes adopted FASB Interpretation No. 48, “Accounting for Uncertainties in Income Taxes” (“FIN 48”).  FIN 48 requires a company to evaluate whether the tax position taken by a company will more likely than not be sustained upon examination by the appropriate taxing authority.  It also provides guidance on how a company should measure the amount of benefit that the company is to recognize in its financial statements.  The Company also adopted FASB Staff Position No. FIN 48-1, “Definition of Settlement in FASB Interpretation No. 48”

As a result of the implementation of FIN 48, the Company recognized a $1,458 decrease in the liability for unrecognized tax benefits.  This was accounted for as an increase in retained earnings of $158 and an adjustment to goodwill of $1,300.  At January 1, 2007, the Company had $1,939 in unrecognized tax benefits, the recognition of which would have an impact of $862 on the effective tax rate.  During the quarter ended March 31, 2007, the Company recorded additional unrecognized tax benefits of $108.  The Company does not anticipate the total amount of unrecognized tax benefits will significantly change by December 31, 2007.

8

The Company’s continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. At January 1, 2007, the Company had approximately $523 accrued for interest and penalties, net of tax. An additional amount of $40, net of tax, was accrued for interest and penalties during the first quarter.

The Company files income tax returns at the U.S. federal level and in various state and foreign jurisdictions. U.S. federal income tax years prior to 2003 are closed and no longer subject to examination. With few exceptions, the statute of limitations in state taxing jurisdictions in which the Company operates has expired for all years prior to 2002. The Company is not currently under examination by the U.S. federal government or any state jurisdiction. In foreign jurisdictions in which the Company operates all significant years prior to 2003 are closed and are no longer subject to examination. Ongoing, routine examinations of post-2002 years in Egypt, India and Mexico are not expected to result in any material adjustments.

10.       Segment information

The Company operates 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 as follows:

		Three Months Ended March 31,
		2007			2006
Dredging
Contract revenues		$	115,372		$	97,382
Operating income		4,811			2,932
Demolition
Contract revenues		$	11,360		$	11,045
Operating income		843			934
Total
Contract revenues		$	126,732		$	108,427
Operating income		5,654			3,866

 

In addition, foreign dredging revenue of $25,384 for the quarter was primarily attributable to work done in Bahrain. 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.

11.       Commitments and contingencies

 At March 31, 2007, the Company was contingently liable, in the normal course of business, for $46,333 in undrawn letters of credit, relating to foreign contract performance guarantees and insurance payment liabilities.

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The Company finances certain key vessels used in its operations and office facilities with operating lease arrangements with unrelated lessors, requiring annual rentals decreasing from $15,000 to $10,000 over the next five years. Certain of these operating leases contain default provisions that are triggered by an acceleration of debt maturity under the terms of the Company’s Credit Agreement. Additionally, the leases typically contain provisions whereby the Company indemnifies the lessors for the tax treatment attributable to such leases based on the tax rules in place at lease inception. The tax indemnifications do not have a contractual dollar limit. To date, no lessors have asserted any claims against the Company under these tax indemnification provisions.

Borrowings under the Company’s Credit Agreement are secured by first lien mortgages on certain operating equipment of the Company with a net book value of approximately $77,000 at December 31, 2006. Additionally, the Company obtains its performance and bid bonds through an underwriting and indemnity agreement with a surety company that has been granted a security interest in a substantial portion of the Company’s operating equipment with a net book value of approximately $80,000 at December 31, 2006. The Company also has an equipment term loan, which is secured by a first lien mortgage on certain operating equipment with a net book value of approximately $20,000 at December 31, 2006. The net book value of equipment serving as collateral under these agreements at March 31, 2007 does not materially differ from the values at December 31, 2006. These agreements contain provisions requiring the Company to maintain certain financial ratios and restricting the Company’s ability to pay dividends, incur indebtedness, create liens, and take certain other actions. The Company was in compliance with all required covenants at March 31, 2007.

The performance and bid bonds issued under the bonding agreement are customarily required for dredging and marine construction projects, as well as some demolition projects. Bid bonds are generally obtained for a percentage of bid value and aggregate amounts outstanding typically range from $5,000 to $10,000. Performance bonds typically cover 100% of the contract value with no maximum bond amounts. At March 31, 2007, the Company had outstanding performance bonds valued at approximately $235,272; however the revenue value remaining in backlog related to these projects totaled approximately $109,597 at March 31, 2007.

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.

The Company considers it unlikely that it would have to perform under any of these aforementioned contingent obligations and performance has never been required in any of these circumstances in the past.

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.

In the normal course of business, the Company is a defendant in various legal proceedings. Except as described below, the Company is not currently a party to any material legal proceedings or environmental claims.

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On February 10, 2004, the Company was served with a subpoena to produce documents in connection with a federal grand jury convened in the United States District Court for the District of South Carolina. The Company believes the grand jury has been convened to investigate the United States dredging industry in connection with work performed for the U.S. Army Corp of Engineers. For over six months the Company received no additional communications from the Justice Department however in April some follow-up requests for additional information were received. The Company is in the process of preparing information to comply with this request. As noted previously, the matter continues to remain open and the Company is continuing to incur legal costs although at a much reduced level from 2004 and 2005. These expenses totaled approximately $2 for the three months ended March 31, 2007 compared to $360 for the same period in 2006.

The Company’s results continue to be negatively impacted from the increase in reserves related to injury claims from our hourly workforce residing in Texas. In the normal course of business, the Company is party to various personal injury lawsuits for which it maintains insurance to cover claims that arise subject to a deductible. Over the last two years there has been a substantial increase in suits filed in Texas due, in large part, to two Texas law firms aggressively pursuing personal injury claims on behalf of dredging workers resident in Texas. Over the last several months, Maritime Jobs for Texas, a coalition of maritime employers has been working to reform Texas law with regard to the type of personal injury suits the dredging industry has recently faced. If enacted, these legislative reforms could alleviate the increasing number of meritless personal injury suits facing the industry in Texas. The Company’s recorded self-insurance reserves represent its best estimate of the outcomes of outstanding claims and the Company does not believe that it is reasonably possible there will be a material adverse impact to the Company’s financial position or results of operations or cash flows related to outstanding claims. However, the occurrence in the future of new claims of a similar nature is not possible to predict and while the Company does not believe that additional claims would have a material impact on the Company’s financial position, it is possible they could be material to the results of operations and cash flows in future periods. In the first quarter of 2007, the Company recorded an additional $900 for these claims; compared to $2,000 in the first quarter of 2006.

On April 24, 2006, a class action complaint was filed in the U.S. District Court for the Eastern District of Louisiana, on behalf of Louisiana citizens who allegedly suffered property damage from the floodwaters that flooded New Orleans and surrounding areas when Hurricane Katrina hit the area on August 29, 2005 (the “Katrina Claims”) (Reed v. United States). The Reed suit names as defendants the U.S. government, Great Lakes Dredge & Dock Company, and numerous other dredging companies which completed dredging projects on behalf of the Army Corps of Engineers in the Mississippi River Gulf Outlet (“MRGO”) between 1993 and 2005. The Reed complaint alleges that dredging of MRGO caused the destruction of the Louisiana wetlands, which had provided a natural barrier against some storms and hurricanes. The complaint alleges that this loss of natural barriers contributed to the failure of the levees as Katrina floodwaters damaged plaintiffs’ property. The Reed complaint asserts claims of negligence, warranty, concealment and violations of the Water Pollution Control Act. Other plaintiffs have filed similar class action complaints. In addition, plaintiffs have filed one mass tort case. All these cases raise the same claims as Reed. One dredging company has filed a cross-claim seeking contribution and indemnification. The amount of claimed damages is not stated, but is presumed to be significant. On October 19, 2006, Great Lakes filed for exoneration or limitation of liability under the Limitation of Liability Act in federal district court. This limitation action stays all outstanding Katrina lawsuits against Great Lakes, including the lawsuits mentioned above, pending resolution of Great Lakes’ exoneration and limitation claims. Great Lakes believes it has meritorious claims to either exoneration from all liability or limitation of liability at not more than $55 million,

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which is the value of the vessels which conducted the MRGO dredging work. These defenses include arguments for both statutory and constitutional immunity from liability for the Katrina Claims. On March 9, 2007, the District Court dismissed with prejudice the Reed claim and one mass tort claim against Great Lakes and those plaintiffs have filed an appeal to the U.S. Court of Appeals for the Fifth Circuit. Great Lakes continues to prosecute its limitation of liability proceeding against all the plaintiffs in the District Court on similar grounds that lead to the dismissals in both claims. On April 20, 2007, the District Court set July 30, 2007 as the deadline by which all Katrina Claims against Great Lakes must be filed in the limitation of liability proceeding; any claims not filed by that time will be barred. In addition, Great Lakes maintains $150 million in insurance coverage for the Katrina Claims. Great Lakes does not believe it is reasonably possible that the Katrina Claims will have a material adverse impact on its financial condition or results of operations and cash flows.

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12.       Effects of recently issued accounting pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Great Lakes is currently evaluating the impact of adopting SFAS 157 on the consolidated financial statements.

In February 2007, the FASB issued SFAS 159 which expands the scope of what companies may carry at fair value. It is effective for financials statements issued after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS 159 on the consolidated financial statements.

13.       Subsequent Events

In April 2007, Great Lakes announced it had entered into agreements to purchase two dredges. On April 10, 2007, Great Lakes entered into agreements to purchase from affiliates of C.F. Bean LLC (“Bean”) the “Eagle I”, a 6,400 cubic yard hopper dredge and the “Meridian”, a hydraulic dredge, along with attendant plant, for an aggregate purchase price of $52.5 million.

On April 13, 2007, Great Lakes assigned to Weeks Marine, Inc. its right to purchase the hydraulic dredge “Meridian” and its attendant plant. In turn, Great Lakes agreed to purchase from Weeks Marine the “Beachbuilder”, a large hydraulic dredge, for $11.8 million and attendant plant for $1.5 million. On April 25, 2007, the purchase of the Beachbuilder was completed and the vessel was renamed the “Ohio”. The Company anticipates closing the Eagle I purchase prior to June 15 of this year and the vessel will be renamed the “Terrapin Island”.

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14.          Supplemental Unaudited condensed consolidating financial information

Included in the Company’s long-term debt is $175,000 of 7¾% senior subordinated notes which will mature on December 15, 2013. The payment obligations of the Company under the senior subordinated notes are guaranteed by the Company’s domestic subsidiaries (the “Subsidiary Guarantors”). Such guarantees are full, unconditional and joint and several. The following supplemental financial information sets forth, on a combined basis, the balance sheets, statements of operations and statements of cash flows for the Subsidiary Guarantors, the Company’s non-guarantor subsidiary and for the Issuer (“GLD Corporation”).

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CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MARCH 31, 2007

UNAUDITED

(in thousdands)

ASSETS		Guarantor Subsidiaries			Other Subsidiary			GLD Corporation			Consolidated Eliminations			Totals
CURRENT ASSETS:
Cash and equivalents		$	281		$	5		$	—		$	—		$	286
Accounts receivable—net		107,010			—			—			—			107,010
Receivables from affiliates		7,786			2,821			4,540			(15,147		)	—
Contract revenues in excess of billings		5,823			—			—			—			5,823
Inventories		26,647			—			—			—			26,647
Prepaid expenses and other current assets		16,553			—			9,039			—			25,592
Total current assets		164,100			2,826			13,579			(15,147		)	165,358
PROPERTY AND EQUIPMENT—Net		237,450			—			—			—			237,450
GOODWILL		97,447			—			—			—			97,447
OTHER INTANGIBLE ASSETS—Net		1,203			—			—			—			1,203
INVESTMENTS IN SUBSIDIARIES		2,826			—			362,827			(365,653		)	—
NOTES RECEIVABLE FROM AFFILIATES		—			—			22,702			(22,702		)	—
INVENTORIES		13,389			—			—			—			13,389
INVESTMENTS IN JOINT VENTURES		10,008						—			—			10,008
OTHER ASSETS		2,645						6,942			—			9,587
TOTAL		$	529,068		$	2,826		$	406,050		$	(403,502	)	$	534,442
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	59,283		$	—		$	70		$	—		$	59,353
Payables to affiliates		9,727			—			5,420			(15,147		)	—
Accrued expenses		20,938			—			6,447			—			27,385
Billings in excess of contract revenues		23,636			—			—			—			23,636
Current portion of Long-Term Debt		1,950						—						1,950
Total current liabilities		115,534			—			11,937			(15,147		)	112,324
LONG-TERM DEBT		15,112			—			178,000			—			193,112
NOTES PAYABLE TO AFFILIATES		22,702			—			—			(22,702		)	—
DEFERRED INCOME TAXES		1,224			—			81,513			—			82,737
OTHER		9,874			—			2,570			—			12,444
Total liabilities		164,446			—			274,020			(37,849		)	400,617
REDEEMABLE PREFERRED STOCK
MINORITY INTEREST		—			—			—			2,014			2,014
STOCKHOLDERS' EQUITY (DEFICIT)		364,622			2,826			132,030			(367,667		)	131,811
TOTAL		$	529,068		$	2,826		$	406,050		$	(403,502	)	$	534,442

 

15

CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2006

(in thousands)

		Guarantor			Other			GLD						Consolidated
ASSETS		Subsidiaries			Subsidiary			Corporation			Eliminations			Totals
CURRENT ASSETS:
Cash and equivalents		$	3,630		$	10		$	—		$	—		$	3,640
Accounts receivable—net		89,505			—			—			—			89,505
Receivables from affiliates		7,867			2,829			4,540			(15,236		)	—
Contract revenues in excess of billings		9,561			—			—			—			9,561
Inventories		21,082			—			—			—			21,082
Prepaid expenses and other current assets		18,114			—			12,344			—			30,458
Total current assets		149,759			2,839			16,884			(15,236		)	154,246
PROPERTY AND EQUIPMENT—Net		239,337			—			—			—			239,337
GOODWILL		98,747			—			—			—			98,747
OTHER INTANGIBLE ASSETS—Net		1,268			—			—			—			1,268
INVESTMENTS IN SUBSIDIARIES		2,839			—			359,294			(362,133		)	—
NOTES RECEIVABLE FROM AFFILIATES		—			—			22,702			(22,702		)	—
INVENTORIES		13,353			—			—			—			13,353
INVESTMENTS IN JOINT VENTURES		9,996						—			—			9,996
OTHER ASSETS		4,008						7,404			—			11,412
TOTAL		$	519,307		$	2,839		$	406,284		$	(400,071	)	$	528,359
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	57,382		$	—		$	444		$	—		$	57,826
Payables to affiliates		8,687			—			6,549			(15,236		)	—
Accrued expenses		23,432			—			6,760			—			30,192
Billings in excess of contract revenues		19,195			—			—			—			19,195
Current portion of Long-Term Debt		1,950						2,135						4,085
Total current liabilities		110,646			—			15,888			(15,236		)	111,298
LONG-TERM DEBT		15,600			—			175,000			—			190,600
NOTES PAYABLE TO AFFILIATES		22,702			—			—			(22,702		)	—
DEFERRED INCOME TAXES		1,225			—			83,600			—			84,825
OTHER		9,115			—			1,994			—			11,109
Total liabilities		159,288			—			276,482			(37,938		)	397,832
REDEEMABLE PREFERRED STOCK
MINORITY INTEREST		—			—			—			2,005			2,005
STOCKHOLDERS’ EQUITY (DEFICIT)		360,019			2,839			129,802			(364,138		)	128,522
TOTAL		$	519,307		$	2,839		$	406,284		$	(400,071	)	$	528,359

 

16

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2007

UNAUDITED

(in thousands)

		Guarantor			Other			GLD						Consolidated
		Subsidiaries			Subsidiary			Corporation			Eliminations			Totals
CONTRACT REVENUES		$	126,732		$	—		$	—		$	—		$	126,732
COST OF CONTRACT REVENUES		(113,018		)	—			—			—			(113,018		)
GROSS PROFIT		13,714			—			—			—			13,714
OPERATING EXPENSES
General and administrative expenses		(7,916		)	(20		)	(57		)	—			(7,993		)
Subpoena related expenses		(2		)	—			—						(2		)
Amortization of intangibles		(65		)	—			—			—			(65		)
Total operating income		5,732			(20		)	(57		)	—			5,654
INTEREST EXPENSE—Net		(1,016		)	—			(3,245		)	—			(4,261		)
EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES		(13		)	—			5,786			(5,773		)	—
EQUITY IN EARNINGS OF JOINT VENTURE		262			—			—			—			262
MINORITY INTEREST		—			—			—			(9		)	(9		)
INCOME (LOSS) BEFORE INCOME TAXES		4,964			(20		)	2,484			(5,782		)	1,646
INCOME TAX (PROVISION) BENEFIT		883			7			(4,001		)	2,429			(682		)
NET INCOME (LOSS)		$	5,848		$	(13	)	$	(1,517	)	$	(3,353	)	$	964

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2006

UNAUDITED

(in thousands)

		Guarantor			Other			GLD						Consolidated
		Subsidiaries			Subsidiary			Corporation			Eliminations			Totals
CONTRACT REVENUES		$	108,427		$	—		$	—		$	—		$	108,427
COST OF CONTRACT REVENUES		(96,966		)	—			150			—			(96,816		)
GROSS PROFIT		11,461			—			150			—			11,611
OPERATING EXPENSES
General and administrative expenses		(7,289		)	(15		)	(5		)	—			(7,309		)
Subpoena related expenses		(360		)	—			—						(360		)
Amortization of intangibles		(76		)	—			—			—			(76		)
Total operating income		3,736			(15		)	145			—			3,866
INTEREST EXPENSE—Net		(1,065		)	—			(5,136		)				(6,201		)
EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES		(14		)	—			2,561			(2,547		)	—
EQUITY IN EARNINGS OF JOINT VENTURE		117			—			—						117
MINORITY INTEREST		—			—			—			(38		)	(38		)
INCOME (LOSS) BEFORE INCOME TAXES		2,774			(15		)	(2,430		)	(2,585		)	(2,256		)
INCOME TAX (PROVISION) BENEFIT		(119		)	1			(246		)	1,086			722
NET INCOME (LOSS)		$	2,655		$	(14	)	$	(2,676	)	$	(1,499	)	$	(1,534	)

 

17

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2007

UNAUDITED

(in thousands)

		Guarantor			Other			GLD						Consolidated
		Subsidiaries			Subsidiary			Corporation			Eliminations			Totals
Operating Activities
Net cash flows from operating activities		$	8,611		$	(13	)	$	(7,633	)	$	—		$	965
Investing Activities
Purchases of property and equipment		(7,117		)	—			—			—			(7,117		)
Dispositions of property and equipment		49			—			—			—			49
Repayment from related party		1,703			—			—			—			1,703
Net cash flows from investing activities		(5,365		)	—			—			—			(5,365		)
Financing Activities
Repayments of long-term debt		(2,623		)	—			—			—			(2,623		)
Borrowings under revolving loans, net of repayments		—			—			3,000			—			3,000
Net change in accounts with affiliates		(3,536		)	8			3,528			—			—
Proceeds from issuance of new shares		—						1,105						1,105
Repayment of capital lease debt		(436		)	—			—			—			(436		)
Net cash flows from financing activities		(6,595		)	8			7,633			—			1,046
Net change in cash and equivalents		(3,349		)	(5		)	—			—			(3,354		)
Cash and equivalents at beginning of year		3,630			10			—			—			3,640
Cash and equivalents at end of year		$	281		$	5		$	—		$	—		$	286

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2006

UNAUDITED

(in thousands)

		Guarantor			Other			GLD						Consolidated
		Subsidiaries			Subsidiary			Corporation			Eliminations			Totals
Operating Activities
Net cash flows from operating activities		$	8,051		$	(14	)	$	(3,922	)	$	—		$	4,115
Investing Activities
Purchases of property and equipment		(6,897		)	—			—			—			(6,897		)
Dispositions of property and equipment		564			—			—			—			564
Net cash flows from investing activities		(6,333		)	—			—			—			(6,333		)
Financing Activities
Repayments of long-term debt		(488		)	—			—			—			(488		)
Borrowings of revolving loans, net of repayments		—			—			3,000			—			3,000
Net change in accounts with affiliates		2,216			14			(2,230		)	—			—
Repayment of capital lease debt		(381		)	—			—			—			(381		)
Net cash flows from financing activities		1,347			14			770			—			2,131
Net change in cash and equivalents		3,065			—			(3,152		)	—			(87		)
Cash and equivalents at beginning of period		2,457			5			(1,861		)	—			601
Cash and equivalents at end of period		$	5,522		$	5		$	(5,013	)	$	—		$	514

 

 

18