<PAGE>
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, 1999
----------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --------- SECURITIES EXCHANGE ACT OF 1934
For the transition period from
----------------------------------
Commission File Number 333-64687
GREAT LAKES DREDGE & DOCK CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3634726
- - --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2122 YORK ROAD, OAK BROOK, ILLINOIS 60521
- -----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 574-3000
--------------
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
------------ ------------
As of August 10, 1999, there were outstanding 1,511,300 shares of Class A
Common Stock, 3,363,900 shares of Class B Common Stock and 44,550 shares of
Preferred Stock.
<PAGE>
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, 1999
INDEX
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets at 2
June 30, 1999 and December 31, 1998
Condensed Consolidated Statements of Income 3
for the Three and Six Months ended
June 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows 4
for the Six Months ended June 30, 1999 and 1998
Notes to Unaudited Condensed Consolidated 5
Financial Statements
Item 2 Management's Discussion and Analysis of 15
Financial Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 22
PART II OTHER INFORMATION
Item 1 Legal Proceedings 23
Item 6 Exhibits and Reports on Form 8-K 23
SIGNATURE 23
EXHIBIT INDEX 24
</TABLE>
1
<PAGE>
PART I - FINANCIAL INFORMATION
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents ................................................. $ 1,032 $ 758
Accounts receivable, net ............................................. 40,014 37,396
Contract revenues in excess of billings .............................. 18,836 15,936
Inventories .......................................................... 15,392 13,427
Prepaid expenses and other current assets ............................ 7,036 7,176
--------- ---------
Total current assets .......................................... 82,310 74,693
Property and equipment, net .......................................... 134,969 134,237
Inventories .......................................................... 7,465 6,905
Investments in joint ventures ........................................ 7,460 10,507
Other assets ......................................................... 8,590 8,745
--------- ---------
Total assets .................................................. $ 240,794 $ 235,087
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable ..................................................... $ 27,505 $ 26,220
Accrued expenses ..................................................... 22,267 18,630
Billings in excess of contract revenues .............................. 6,696 4,842
Current maturities of long-term debt ................................. 5,200 2,700
--------- ---------
Total current liabilities .................................... 61,668 52,392
Long-term debt ....................................................... 165,200 167,700
Deferred income taxes ................................................ 44,543 45,695
Foreign income taxes ................................................. 4,833 6,944
Other ................................................................ 6,782 6,496
--------- ---------
Total liabilities ............................................ 283,026 279,227
Minority interests ................................................... 2,318 4,594
Commitments and contingencies (Note 11) .............................. -- --
Stockholders' deficit:
Preferred stock, $.01 par value; 250,000 shares authorized:
45,000 issued; 44,550 and 45,000 outstanding
in 1999 and 1998, respectively ................................ 1 1
Common stock, $.01 par value; 50,000,000 shares authorized:
5,000,000 issued; 4,875,200 and 5,000,000 outstanding
in 1999 and 1998, respectively ................................. 50 50
Additional paid-in capital ........................................ 50,457 50,457
Accumulated deficit ............................................... (94,483) (99,242)
Less treasury stock, at cost (1999: 450 preferred shares,
124,800 common shares) ........................................ (575) --
--------- ---------
Total stockholders' deficit ............................... (44,550) (48,734)
--------- ---------
Total liabilities and stockholders' deficit ................. $ 240,794 $ 235,087
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
2
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Contract revenues ................... $ 77,941 $ 70,383 $ 150,260 $ 127,017
Costs of contract revenues .......... 63,879 57,981 122,984 105,933
--------- --------- --------- ---------
Gross profit...................... 14,062 12,402 27,276 21,084
General and administrative expenses 4,821 5,008 9,760 9,920
--------- --------- --------- ---------
Operating income ................. 9,241 7,394 17,516 11,164
Interest expense, net .............. (4,591) (965) (8,954) (2,123)
Equity in earnings of joint ventures 9 427 (315) 414
--------- --------- --------- ---------
Income before income taxes
and minority interests ........ 4,659 6,856 8,247 9,455
Income tax expense ................. (2,517) (2,482) (4,035) (3,411)
Minority interests.................. 375 (945) 547 (1,334)
--------- --------- --------- ---------
Net income ....................... $ 2,517 $ 3,429 $ 4,759 $ 4,710
========= ========= ========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------
1999 1998
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ......................................................... $ 4,759 $ 4,710
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation .................................................... 5,857 7,327
Earnings of joint ventures ...................................... 315 (414)
Minority interests .............................................. (547) 1,334
Deferred income taxes ........................................... (1,414) (352)
Gain on dispositions of property and equipment .................. (94) (366)
Other, net ...................................................... 441 135
Changes in assets and liabilities:
Accounts receivable .......................................... (2,618) (3,218)
Contract revenues in excess of billings ...................... (2,900) 8,780
Inventories .................................................. (2,525) (737)
Prepaid expenses and other current assets .................... 402 3,773
Accounts payable and accrued expenses ........................ 2,236 (8,131)
Billings in excess of contract revenues ...................... 1,854 (329)
--------- ----------
Net cash flows from operating activities ................. 5,766 12,512
INVESTING ACTIVITIES
Purchases of property and equipment ................................ (6,683) (5,920)
Dispositions of property and equipment ............................. 189 366
Distributions from and investments in joint ventures ............... 2,732 (1,125)
Distributions to minority interests ................................ (1,730) --
--------- ---------
Net cash flows from investing activities ................. (5,492) (6,679)
FINANCING ACTIVITIES
Borrowings (repayments) of revolving loans, net .................... -- (7,000)
--------- ---------
Net cash flows from financing activities ................. -- (7,000)
--------- ---------
Net increase (decrease) in cash and equivalents .................... 274 (1,167)
Cash and equivalents at beginning of period ........................ 758 1,717
--------- ---------
Cash and equivalents at end of period .............................. $ 1,032 $ 550
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest .......................................... $ 8,695 $ 2,113
========= =========
Cash paid for taxes ............................................. $ 1,261 $ 3,135
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles 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. 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 Special Financial Report filed on Form
10-K for the year ended December 31, 1998.
2. ALLOCATION OF EQUIPMENT COST
The Company can have significant fluctuations in equipment utilization
throughout the year. Accordingly, for interim reporting, the Company defers or
accrues fixed equipment costs and amortizes the expenses in proportion to
revenues recognized over the year to better match revenues and expenses.
3. CHANGE IN ACCOUNTING ESTIMATE
Effective January 1, 1999, the Company made changes in the estimated
useful lives of certain operating equipment to better reflect the remaining
period over which the Company anticipates utilizing this equipment, with normal
repairs and maintenance. This change resulted in lower depreciation for the six
months ended June 30, 1999 by $1,463 than would have been expensed if the prior
useful lives had been used.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments included in current assets and
current liabilities approximates fair values due to the short-term maturities of
these instruments. The carrying value of long-term bank debt is a reasonable
estimate of its fair value as interest rates are variable, based on the
prevailing market rates. The fair value of the Company's $115,000 long-term
subordinated notes was $120,750 at June 30, 1999, based on quoted market prices.
The contract amount of letters of credit and guarantees is a reasonable estimate
of their fair value as the value for each is fixed over the life of the
commitment.
The Company uses financial hedge instruments to manage commodity price
and foreign currency exchange risks. Such instruments are not used for trading
purposes. Gains and losses on these hedges are deferred and are recognized in
income as part of the related transaction. In June 1999, the Company entered
into two foreign exchange forward contracts with a notional amount of $4,293 to
hedge payments related to its foreign tax liabilities. At June 30, 1999, the
fair value of the foreign currency contracts approximates the notional amount,
based on quoted market prices.
5
<PAGE>
In May 1999, the Company entered into an arrangement to hedge the
purchase of approximately sixteen million gallons of diesel fuel to be purchased
during the period May 1999 to September 2000. At June 30, 1999, the fair value
of this arrangement was estimated to be $171, based on quoted market prices.
5. ACCOUNTS RECEIVABLE
Accounts receivable at June 30, 1999 and December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- -----------
<S> <C> <C>
Completed contracts $ 15,210 $ 12,682
Contracts in progress 21,824 21,420
Retainage 3,879 4,193
---------- -----------
40,913 38,295
Allowance for doubtful accounts (899) (899)
---------- -----------
$ 40,014 $ 37,396
========== ===========
</TABLE>
6. CONTRACTS IN PROGRESS
The components of contracts in progress at June 30, 1999 and
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- --------------
<S> <C> <C>
Costs and earnings in excess of billings:
Accumulated costs and earnings for
contracts in progress $ 130,209 $ 108,064
Amounts billed (112,122) (93,431)
--------- ---------
Costs and earnings in excess of billings for
contracts in progress 18,087 14,633
Costs and earnings in excess of billings for
completed contracts 749 1,303
---------- ---------
$ 18,836 $ 15,936
========= =========
Billings in excess of costs and earnings:
Amounts billed $ (88,741) $ (45,808)
Accumulated costs and earnings for
contracts in progress 82,045 40,966
--------- ---------
Billings in excess of costs and earnings for
contracts in progress $ (6,696) $ (4,842)
========= =========
</TABLE>
6
<PAGE>
7. INVESTMENTS IN JOINT VENTURES
The Company has a 50% ownership interest in Amboy Aggregates Joint
Venture (Amboy), whose primary business is the dredge mining and sale of fine
aggregate, and a 17% ownership interest in Riovia S.A. (Riovia), a venture whose
sole business is the performance of a dredging contract in Argentina and
Uruguay. The Company's share of earnings in these joint ventures is included in
income as earned. The following presents summarized income statement information
for Amboy, based on its significance to the Company's annual pre-tax income.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 4,376 $ 4,983 $ 6,850 $ 7,710
Costs and expenses (4,361) (4,737) (7,526) (8,049)
-------- -------- -------- --------
Net income (loss) $ 15 $ 246 $ (676) $ (339)
======== ======== ======== ========
</TABLE>
Amboy has a mortgage loan with a bank, which contains certain restrictive
covenants, including limitations on the amount of distributions to its joint
venture partners. The Company has guaranteed 50% of the outstanding mortgage
principal and accrued interest, which totaled $4,566 at June 30, 1999.
8. ACCRUED EXPENSES
Accrued expenses at June 30, 1999 and December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- ------------
<S> <C> <C>
Insurance $ 5,166 $ 5,424
Income and other taxes 6,104 1,174
Payroll and employee benefits 2,428 5,817
Interest 5,169 5,195
Other 3,400 1,020
--------- ---------
$ 22,267 $ 18,630
========= =========
</TABLE>
9. TREASURY STOCK
In June 1999, the Company repurchased 450 shares and 124,800 shares
of its preferred and common stock, respectively, from a former officer of the
Company at a total cost of $575. At June 30, 1999, this amount is included in
accounts payable.
7
<PAGE>
10. SEGMENT INFORMATION
The Company and its subsidiaries operate in one reportable segment
of providing dredging services, which includes three primary types of
work: capital, maintenance and beach nourishment. Revenues by type of
work for the six and three-month periods ended June 30, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Capital $ 44,202 $ 36,267 $ 80,403 $ 63,551
Maintenance 19,502 15,743 44,901 33,883
Beach nourishment 14,237 18,049 24,956 28,248
Other -- 324 -- 1,335
---------- --------- ----------- ----------
$ 77,941 $ 70,383 $ 150,260 $ 127,017
========== ========= =========== ==========
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
At June 30, 1999, the Company is contingently liable, in the normal
course of business, for $12,036 in letters of credit related to contract bid
or performance guarantees.
In the normal course of business, the Company is a defendant in
various other legal proceedings. Resolution of these claims is not expected
to have a material impact on the financial position or operations of the
Company.
12. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Included in the Company's long-term debt is $115,000 of 11 1/4% senior
subordinated notes which will mature on August 15, 2008. The payment
obligations of the Company under the senior subordinated notes are guaranteed
by certain of the Company's wholly owned domestic subsidiaries ("Subsidiary
Guarantors"). Such guarantees are full, unconditional and joint and several.
Separate financial statements of the Subsidiary Guarantors are not presented
because the Company's management has determined that they would not be
material to investors. 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 subsidiaries and for the Company (GLD Corporation). During the
fourth quarter of 1998, Great Lakes International, Inc. (GLI), a wholly owned
guarantor subsidiary of the Company, was merged into GLD Corporation.
Therefore, the 1998 amounts presented in the following columns for GLD
Corporation include GLI amounts and activity as if GLI had been merged into
GLD Corporation at the beginning of 1998.
8
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET AT JUNE 30, 1999
<TABLE>
<CAPTION>
GUARANTOR OTHER GLD CONSOLIDATED
ASSETS SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and equivalents ................................... $ 961 $ 71 $ -- $ -- $ 1,032
Accounts receivable .................................... 32,821 7,187 6 -- 40,014
Receivables from affiliates ............................ 5,446 4,072 -- (9,518) --
Current portion of net investment in
direct financing leases .......................... -- 5,132 3,074 (8,206) --
Contract revenues in excess of billings ................ 17,492 1,344 -- -- 18,836
Inventories............................................. 12,108 3,284 -- -- 15,392
Prepaid expenses and other current assets .............. 6,282 (358) 734 378 7,036
----------- ---------- ---------- ---------- ----------
Total current assets.............. 75,110 20,732 3,814 (17,346) 82,310
Property and equipment, net ................................ 72,048 16,174 46,747 -- 134,969
Net investment in direct financing leases .................. -- 6,168 4,344 (10,512) --
Investments in subsidiaries ................................ 11,808 -- 131,514 (143,322) --
Notes receivable from affiliates ........................... 29,411 890 -- (30,301) --
Inventories ................................................ 7,465 -- -- -- 7,465
Investments in joint ventures .............................. 7,460 -- -- -- 7,460
Other....................................................... 3,597 -- 4,993 -- 8,590
----------- ---------- ---------- ---------- ----------
$ 206,899 $ 43,964 $ 191,412 $ (201,481) $ 240,794
=========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ....................................... $ 22,748 $ 4,123 $ 624 $ 10 $ 27,505
Payables to affiliates ................................. 4,557 2,521 2,440 (9,518) --
Accrued expenses and other ............................. 10,099 1,535 10,255 378 22,267
Current portion of obligations under capital leases..... -- 8,206 -- (8,206) --
Billings in excess of contract revenues ................ 5,416 1,280 -- -- 6,696
Current maturities of long-term debt ................... 200 -- 5,000 -- 5,200
----------- ---------- ---------- ---------- ----------
Total current liabilities............... 43,020 17,665 18,319 (17,336) 61,668
Long-term debt ............................................. 200 -- 165,000 -- 165,200
Obligations under capital leases ........................... -- 10,512 -- (10,512) --
Note payable to affiliate .................................. -- -- 30,301 (30,301) --
Deferred income taxes ...................................... 26,075 2,400 16,068 -- 44,543
Foreign income taxes ....................................... -- -- 4,833 -- 4,833
Other....................................................... 4,921 420 1,441 -- 6,782
----------- ---------- ---------- ---------- ----------
Total liabilities....................... 74,216 30,997 235,962 (58,149) 283,026
Minority interests ......................................... -- -- -- 2,318 2,318
Stockholders' equity (deficit).............................. 132,683 12,967 (44,550) (145,650) (44,550)
----------- ---------- ---------- ---------- ----------
$ 206,899 $ 43,964 $ 191,412 $ (201,481) $ 240,794
=========== ========== ========== ========== ==========
</TABLE>
9
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
GUARANTOR OTHER GLD CONSOLIDATED
ASSETS SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
---------------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and equivalents ........................... $ 490 $ 268 $ -- $ -- $ 758
Accounts receivable ............................ 33,601 3,789 6 -- 37,396
Receivables from affiliates .................... 5,664 16,148 111 (21,923) --
Current portion of net investment in
direct financing leases .................. -- 4,767 3,228 (7,995) --
Contract revenues in excess of billings ........ 13,350 2,586 -- -- 15,936
Inventories .................................... 10,111 3,316 -- -- 13,427
Prepaid expenses and other current assets ...... 4,856 168 2,152 -- 7,176
------------- ----------- ----------- ----------- ----------
Total current assets ..... 68,072 31,042 5,497 (29,918) 74,693
Property and equipment, net ............................. 71,021 16,265 46,951 -- 134,237
Net investment in direct financing leases ............... -- 8,829 5,766 (14,595) --
Investments in subsidiaries ............................. 18,957 -- 120,177 (139,134) --
Notes receivable from affiliates ........................ 27,902 1,204 -- (29,106) --
Inventories ............................................. 6,905 -- -- -- 6,905
Investments in joint ventures ........................... 10,507 -- -- -- 10,507
Other ................................................... 3,647 -- 5,098 -- 8,745
------------- ----------- ----------- ----------- ----------
$ 207,011 $ 57,340 $ 183,489 $ (212,753) $ 235,087
============= =========== =========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ............................... $ 21,578 $ 4,509 $ 123 $ 10 $ 26,220
Payables to affiliates ......................... 16,624 2,747 2,552 (21,923) --
Accrued expenses and other ..................... 11,757 1,165 5,708 -- 18,630
Current portion of obligations under capital
leases ..................................... -- 7,995 -- (7,995) --
Billings in excess of contract revenues ........ 3,533 1,309 -- -- 4,842
Current maturities of long-term debt ........... 200 -- 2,500 -- 2,700
------------- ----------- ----------- ----------- ----------
Total current liabilities. 53,692 17,725 10,883 (29,908) 52,392
Long-term debt .......................................... 200 -- 167,500 -- 167,700
Obligations under capital leases ........................ -- 14,595 -- (14,595) --
Note payable to affiliate ............................... -- -- 29,106 (29,106) --
Deferred income taxes ................................... 26,833 2,572 16,290 -- 45,695
Foreign income taxes .................................... -- -- 6,944 -- 6,944
Other ................................................... 4,567 429 1,500 -- 6,496
------------- ----------- ----------- ----------- ----------
Total liabilities ........ 85,292 35,321 232,223 (73,609) 279,227
Minority interests ...................................... -- -- -- 4,594 4,594
Stockholders' equity (deficit) .......................... 121,719 22,019 (48,734) (143,738) (48,734)
------------- ----------- ----------- ----------- ----------
$ 207,011 $ 57,340 $ 183,489 $ (212,753) $ 235,087
============= =========== =========== =========== ==========
</TABLE>
10
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE QUARTER ENDED JUNE 30, 1999
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
-------------- -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Contract revenues....................................... $ 64,132 $ 13,809 $ - $ - $ 77,941
Costs of contract revenues.............................. (50,351) (13,240) (288) - (63,879)
----------- ------------ ----------- ---------- ---------
Gross profit..................................... 13,781 569 (288) - 14,062
General and administrative expenses..................... (3,522) (1,276) (23) - (4,821)
----------- ------------ ----------- ---------- ---------
Operating income (loss)........................... 10,259 (707) (311) - 9,241
Interest, net........................................... (38) (142) (4,411) - (4,591)
Equity in earnings of subsidiaries...................... (680) - 6,139 (5,459) -
Equity in earnings of joint ventures.................... 9 - - - 9
----------- ------------ ----------- ---------- ---------
Income(loss) before income taxes,
minority interests and extraordinary item.... 9,550 (849) 1,417 (5,459) 4,659
Income tax (expense) benefit............................ (3,396) (221) 1,100 - (2,517)
Minority interests...................................... - - - 375 375
----------- ------------ ----------- ---------- ---------
Net income (loss)................................. $ 6,154 $ (1,070) $ 2,517 $ (5,084) $ 2,517
=========== ============ =========== ========== =========
CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE QUARTER ENDED JUNE 30, 1998
<CAPTION>
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
-------------- -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Contract revenues....................................... $ 59,386 $ 10,997 $ - $ - $ 70,383
Costs of contract revenues.............................. (51,213) (6,206) (562) - (57,981)
----------- ------------ ----------- ---------- ---------
Gross profit..................................... 8,173 4,791 (562) - 12,402
General and administrative expenses..................... (3,903) (980) (125) - (5,008)
----------- ------------ ----------- ---------- ---------
Equity incentive plan and other compensation expenses... - - - -
Recapitalization related expenses - - - - -
----------- ------------ ----------- ---------- ---------
Operating income (loss).......................... 4,270 3,811 (687) - 7,394
Interest, net........................................... (131) (18) (816) - (965)
Equity in earnings of subsidiaries...................... 1,988 - 4,641 (6,629) -
Equity in earnings of joint ventures.................... 531 - (104) - 427
----------- ------------ ----------- ---------- ---------
Income before income taxes and
minority interests.......................... 6,658 3,793 3,034 (6,629) 6,856
Income tax (expense) benefit............................ (2,676) (231) 425 - (2,482)
Minority interests...................................... - - (30) (915) (945)
----------- ------------ ----------- ---------- ---------
Net income....................................... $ 3,982 $ 3,562 $ 3,429 $ (7,544) $ 3,429
=========== ============ =========== ========== =========
</TABLE>
11
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1999
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
-------------- -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Contract revenues....................................... $ 127,449 $ 23,578 $ - $ (767) $ 150,260
Costs of contract revenues.............................. (101,514) (22,059) (178) 767 (122,984)
----------- ------------ ---------- ---------- ---------
Gross profit ................................ 25,935 1,519 (178) - 27,276
General and administrative expenses..................... (7,092) (2,589) (79) - (9,760)
----------- ------------ ---------- ---------- ---------
Operating income (loss)...................... 18,843 (1,070) (257) - 17,516
Interest, net .......................................... (145) (144) (8,665) - (8,954)
Equity in earnings of subsidiaries ..................... (1,243) - 11,191 (9,948) -
Equity in earnings of joint ventures ................... (315) - - - (315)
----------- ------------ ---------- ---------- ---------
Income(loss) before income taxes,
minority interests and extraordinary item.. 17,140 (1,214) 2,269 (9,948) 8,247
Income tax (expense) benefit ........................... (6,084) (441) 2,490 - (4,035)
Minority interests ..................................... - - - 547 547
----------- ------------ ---------- ---------- ---------
Net income (loss) ........................... $ 11,056 $ (1,655) $ 4,759 $ (9,401) $ 4,759
=========== ============ ========== ========== =========
CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1998
<CAPTION>
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
-------------- -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Contract revenues....................................... $ 104,930 $ 22,471 $ - $ (384) $ 127,017
Costs of contract revenues.............................. (90,650) (14,541) (1,126) 384 (105,933)
----------- ------------ ---------- ---------- ---------
Gross profit..................................... 14,280 7,930 (1,126) - 21,084
General and administrative expenses..................... (7,501) (2,168) (251) - (9,920)
----------- ------------ ---------- ---------- ---------
Equity incentive plan and other compensation expenses... - - - -
Recapitalization related expenses - - - - -
----------- ------------ ---------- ---------- ---------
Operating income (loss).......................... 6,779 5,762 (1,377) - 11,164
Interest, net........................................... (232) (101) (1,790) - (2,123)
Equity in earnings of subsidiaries...................... 2,866 - 7,096 (9,962) -
Equity in earnings of joint ventures.................... 518 - (104) - 414
----------- ------------ ---------- ---------- ---------
Income before income taxes and
minority interests.......................... 9,931 5,661 3,825 (9,962) 9,455
Income tax (expense) benefit............................ (3,861) (465) 915 - (3,411)
Minority interests...................................... - - (30) (1,304) (1,334)
----------- ------------ ---------- ---------- ---------
Net income....................................... $ 6,070 $ 5,196 $ 4,710 $ (11,266) $ 4,710
=========== ============ ========== ========== =========
</TABLE>
12
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
-------------- -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income ............................................... $ 11,056 $ (1,655) $ 4,759 $ (9,401) $ 4,759
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation ................................... 4,076 1,578 203 - 5,857
Earnings of subsidiaries and joint ventures..... 1,558 - (11,191) 9,948 315
Minority interests.............................. - - - (547) (547)
Deferred income taxes........................... (777) (172) (465) - (1,414)
Gain (loss) on dispositions of property
and equipment................................ (188) 94 - - (94)
Other, net ..................................... 476 (8) (27) - 441
Changes in assets and liabilities:
Accounts receivable......................... 780 (3,398) - - (2,618)
Contract revenues in excess of billings..... (4,142) 1,242 - - (2,900)
Inventories................................. (2,557) 32 - - (2,525)
Prepaid expenses and other current assets... (1,426) 754 1,074 - 402
Accounts payable and accrued expenses....... (446) (245) 2,927 - 2,236
Billings in excess of contract revenues..... 1,883 (29) - - 1,854
--------- ---------- ---------- ---------- ---------
Net cash flows from operating activities........ 10,293 (1,807) (2,720) - 5,766
INVESTING ACTIVITIES
Purchases of property and equipment....................... (5,103) (1,580) - - (6,683)
Dispositions of property and equipment 189 - - - 189
Distributions from joint ventures......................... 2,732 - - - 2,732
Distributions to minority interests....................... - - - (1,730) (1,730)
Principal payments (receipts) on direct
financing leases..................................... - 2,296 (2,296) - -
Payments (receipts) on note with affiliate................ - 345 (345) - -
--------- ---------- ---------- ---------- ---------
Net cash flows from investing activities........ (2,182) 1,061 (2,641) (1,730) (5,492)
FINANCING ACTIVITIES
Principal receipts (payments) on capital leases........... - (3,872) 3,872 - -
Net change in accounts with affiliates.................... (13,310) 11,821 1,489 - -
Dividends................................................. 5,670 (7,400) - 1,730 -
--------- ---------- ---------- ---------- ---------
Net cash flows from financing activities........ (7,640) 549 5,361 1,730 -
--------- ---------- ---------- ---------- ---------
Net increase (decrease) in cash and equivalents. 471 (197) - - 274
Cash and equivalents at beginning of period..... 490 268 - - 758
--------- ---------- ---------- ---------- ---------
Cash and equivalents at end of period........... $ 961 $ 71 $ - $ - $ 1,032
========= ========== ========== ========== =========
</TABLE>
13
<PAGE>
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998
GUARANTOR OTHER GLD CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ELIMINATIONS TOTALS
-------------- -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income ............................................... $ 6,070 $ 5,196 $ 4,710 $ (11,266) $ 4,710
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation.................................... 4,187 2,014 1,126 - 7,327
Earnings of subsidiaries and joint ventures..... (3,280) - (7,096) 9,962 (414)
Minority interests ............................. - - 30 1,304 1,334
Deferred income taxes........................... (352) - - - (352)
Gain on dispositions of property and equipment.. (366) - - - (366)
Other, net ..................................... (712) 498 349 - 135
Changes in assets and liabilities:
Accounts receivable......................... (2,076) (1,236) 94 - (3,218)
Contract revenues in excess of billings..... 8,079 701 - - 8,780
Inventories................................. (737) - - - (737)
Prepaid expenses and other current assets... 6,047 - (2,274) - 3,773
Accounts payable and accrued expenses....... (4,774) (2,075) (1,282) - (8,131)
Billings in excess of contract revenues..... (513) 184 - - (329)
--------- ---------- ---------- ---------- ---------
Net cash flows from operating activities........ 11,573 5,282 (4,343) - 12,512
INVESTING ACTIVITIES
Purchases of property and equipment....................... (5,769) (151) - - (5,920)
Dispositions of property and equipment.................... 366 - - - 366
Investments in and distributions from joint venture....... (1,125) - - - (1,125)
Principal payments (receipts) on direct
financing leases..................................... - 1,986 (1,986) - -
Payments (receipts) on notes with affiliate............... - 345 (345) - -
--------- ---------- ---------- ---------- ---------
Net cash flows from investing activities........ (6,528) 2,180 (2,331) - (6,679)
FINANCING ACTIVITIES
Borrowing (repayments) of revolving loans, net............ - - (7,000) - (7,000)
Principal receipts (payments) on capital leases........... - (3,420) 3,420 - -
Net change in accounts with affiliates.................... (5,872) (4,382) 10,254 - -
--------- ---------- ---------- ---------- ---------
Net cash flows from financing activities........ (5,872) (7,802) 6,674 - (7,000)
--------- ---------- ---------- ---------- ---------
Net increase (decrease) in cash and equivalents. (827) (340) - - (1,167)
Cash and equivalents at beginning of period..... 1,285 432 - - 1,717
--------- ---------- ---------- ---------- ---------
Cash and equivalents at end of period........... $ 458 $ 92 $ - $ - $ 550
========= ========== ========== ========== =========
</TABLE>
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
Certain information in this quarterly report on Form 10-Q, including but not
limited to the Management's Discussion and Analysis of Financial Condition
and Results of Operations, may constitute forward-looking statements as such
term is defined in Section 27A of the Securities Exchange Act of 1933 (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934.
Certain forward-looking statements can be identified by the use of
forward-looking terminology such as, "believes," "expects," "may," "will,"
"should," "seeks," "approximately," "intends," "plans," "estimates,"
"anticipates," or "hopeful," or the negative thereof or other comparable
terminology, or by discussions of strategy, plans or intentions.
Forward-looking statements involve risks and uncertainties, including sales
initiatives and those described in the Risk Factors section of Item 1 of the
Company's Form S-4 Registration Statement (Registration No. 333-64687), which
could cause actual results to be materially different than those in the
forward-looking statements, which speak only as of the date hereof. The
Company assumes no obligation to update such information.
GENERAL
The Company is the largest provider of dredging services in the United
States. 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, Maintenance (including controlled
disposal dredging) and Beach Nourishment, in which the Company has
experienced a combined bid market share in the U.S. of 52% in 1998. In
addition, the Company has continued its role as the only U.S. dredging
contractor with significant international operations, which represented
approximately 20% of its contract revenues in 1998.
Most dredging contracts are obtained through competitive bidding on terms
specified by the party inviting the bid. The nature of the specified services
dictates the types of equipment, material and labor involved, all of which
affect the cost of performing the contract and the price that dredging
contractors will bid.
The Company recognizes contract revenues under the percentage-of-completion
method, based on the Company's engineering estimates of the physical
percentage completed of each project. Billings on contracts are generally
submitted after verification with the customers of physical quantities
completed. Costs of contract revenues are adjusted to reflect the gross
profit percentage expected to be achieved upon ultimate completion of each
project. Significant expenditures incurred incidental to major contracts are
deferred and recognized as costs of contracts based on contract performance
over the duration of the related project. These expenditures are reported as
prepaid expenses. Provisions for estimated losses on contracts in progress
are made in the period in which such losses are determined. Claims for
additional compensation due the Company are not recognized in contract
revenues until such claims are settled.
The components of costs of contract revenues are labor, equipment (including
depreciation, insurance, fuel, maintenance and supplies), subcontracts,
rentals, lease expense and project overhead. Hourly labor is generally hired
on a project basis and laid-off upon completion of the project. Costs of
contract revenues vary significantly depending on the type and location of
work performed and assets utilized.
15
<PAGE>
Generally, Capital projects have the lowest costs of contract revenues as a
percent of contract revenues and Beach Nourishment have the highest.
The Company's cost structure includes significant fixed costs, averaging
approximately 18% to 20% of total costs of contract revenues. The Company can
have significant fluctuations in equipment utilization throughout the year.
Accordingly, for interim reporting, the Company prepays or accrues fixed
equipment costs and amortizes the expenses in proportion to revenues
recognized over the year to better match revenues and expenses. Costs of
contract revenues also include the net gain or loss on dispositions of
property and equipment.
The Company's equity in earnings of joint ventures relates to the Company's
50% ownership interest in Amboy and 17% ownership interest in Riovia. The
Company accounts for its investments in each of Amboy and Riovia using the
equity method. The Company conducts certain hopper dredging activities,
primarily Maintenance and Beach Nourishment projects, through the operations
of NATCO Limited Partnership ("NATCO") and North American Trailing Company
("North American"). Minority interests reflects Ballast Nedam Group N.V.'s
respective 25% and 20% interest in NATCO and North American.
RESULTS OF OPERATIONS
The following table sets forth the components of net income and EBITDA as a
percentage of contract revenues for the six and three-month periods ended
June 30, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ----------------------
1999 1998 1999 1998
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Contract revenues .................................. 100.0 % 100.0 % 100.0 % 100.0 %
Costs of contract revenues.......................... (82.0) (82.4) (81.8) (83.4)
----- ----- ----- -----
Gross profit................................ 18.0 17.6 18.2 16.6
General and administrative expenses................. (6.2) (7.1) (6.5) (7.8)
----- ----- ----- -----
Operating income ............................ 11.8 10.5 11.7 8.8
Interest expense, net .............................. (5.9) (1.4) (6.0) (1.7)
Equity in earnings of joint ventures................ - 0.6 (0.2) 0.3
----- ----- ----- -----
Income before income taxes
and minority interests ................. 5.9 9.7 5.5 7.4
Income tax expense ................................. (3.2) (3.5) (2.7) (2.7)
Minority interests.................................. 0.5 (1.3) 0.4 (1.0)
----- ----- ----- -----
Net income ................................. 3.2 % 4.9 % 3.2 % 3.7 %
----- ----- ----- -----
EBITDA ............................................. 15.6 % 15.7 % 15.6 % 14.6 %
----- ----- ----- -----
</TABLE>
16
<PAGE>
"EBITDA," as provided herein, represents earnings from continuing operations
before net interest expense, income taxes and depreciation expense and excludes
equity earnings of joint ventures and minority interests. EBITDA is not intended
to represent cash flow from operations as defined by generally accepted
accounting principles. The Company's EBITDA is included as it is a basis upon
which the Company assesses its financial performance, and certain covenants in
the Company's borrowing arrangements are tied to similar measures. EBITDA should
not be considered in isolation or as an alternative to net income, cash flows
from continuing operations, or other consolidated income or cash flow data
prepared in accordance with generally accepted accounting principles as measures
of the Company's profitability or liquidity. EBITDA as defined herein may differ
from similarly titled measures presented by other companies.
COMPONENTS OF CONTRACT REVENUES
The following table sets forth, by type of work, the Company's contract revenues
for the six and three-month periods ended and backlog as of the period
indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ----------------------------
1999 1998 1999 1998
REVENUES (IN THOUSANDS) ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Capital - U.S. $ 36,274 $ 17,450 $ 61,433 $ 29,399
Capital - foreign 7,928 18,817 18,970 34,152
Maintenance 19,502 15,743 44,901 33,883
Beach 14,237 18,049 24,956 28,248
Other - 324 - 1,335
-------- -------- --------- ---------
$ 77,941 $ 70,383 $ 150,260 $ 127,017
======== ======== ========= =========
<CAPTION>
JUNE 30,
----------------------------
1999 1998
BACKLOG (IN THOUSANDS) ----------- -----------
<S> <C> <C>
Capital - U.S. $ 195,274 $ 101,203
Capital - foreign 13,842 16,271
Maintenance 25,175 17,002
Beach 7,549 43,856
--------- ---------
$ 241,840 $ 178,332
========= =========
</TABLE>
The Company's continued strong performance for the second quarter of 1999 is the
result of successfully performing projects from the record-level backlog. This
strong backlog represents work bid and won during the preceding twelve month
period of continuing market improvement both in volume and margins. Second
quarter revenues of $77.9 million and gross profit of $14.1 million were up
10.7% and 13.4%, respectively, from the second quarter of 1998.
The growth in revenues and earnings continues to be primarily attributable to
domestic capital dredging projects, which increased for the three and six
months ended June 30, 1999 by $18.8 million and $32.0 million, respectively,
over the same periods of 1998. Capital projects include large port deepenings
and other infrastructure projects. The capital market has been expanding
since 1998, with the announcement by the Army Corps of Engineers of the
scheduling of 18 new Deep Port projects to be completed over the next seven
years. The Corps estimates these projects will have an aggregate value in
excess of $2.0 billion. During 1998, approximately $80.0 million of Deep Port
work was let for bid. The Company was the successful bidder on 64% of this
work. In the first half of 1999, Deep Port projects valued at $166.0 million
were let for bid. The Company was the successful bidder on 54% of this work.
During the second quarter, contract revenues from capital projects included
$11.7 million from a deepening and reclamation
17
<PAGE>
project in Los Angeles which began work in 1997, and $5.1 million, $8.0
million, and $3.6 million from channel deepening projects in Boston, Houston,
and Charleston, respectively.
Maintenance projects include routine dredging of ports, rivers and channels
to remove the regular build up of sediment. Revenues from maintenance
projects for the three and six months ended June 30, 1999 increased $3.8
million and $11.0 million, respectively, over the same periods of 1998. The
increase in maintenance dredging revenues during the first half of 1999 is
partly attributed to a large project on the Mississippi River Gulf Outlet,
which contributed year to date revenue of $10.3 million and employed the
newly-acquired hydraulic dredge "Texas".
Beach nourishment projects include rebuilding of shoreline areas which have
been damaged by storm activity or ongoing erosion. Second quarter and year to
date 1999 revenues from beach projects decreased $3.8 million and $3.3
million, respectively, compared to the same periods of 1998. This decrease
was primarily due to the normal fluctuations in the number and size of
projects awarded from year to year.
During the three and six month periods ended June 30, 1999, revenues of the
Company's NATCO hopper dredging subsidiary declined due to lower than
historical emergency Mississippi River work. Additionally, during the first
half of 1999, certain dredges in the NATCO hopper fleet experienced down-time
due to routine overhauls and project delays, resulting in decreased
utilization for the period.
Revenues from foreign operations for the three months ended June 30, 1999,
declined $10.9 million, or 57.9%, compared to the same period of 1998. The
Company's joint venture project in Egypt, which began in the first quarter of
1999, contributed revenue of $5.2 million during the second quarter of 1999.
Due to the timing of foreign contracts and strength of the domestic markets,
1999 foreign revenues are below historical levels; however, the Company is
currently low bidder on two significant foreign projects scheduled to begin
in 2000.
BACKLOG
The Company's contract backlog represents management's estimate of the
revenues which will be realized under the portion of the contracts remaining
to be performed based upon current estimates. Such estimates are subject to
fluctuations based upon the amount of material actually dredged, as well as
factors affecting the time required to complete the job. In addition, because
substantially all of the Company's backlog relates to government contracts,
the Company's backlog can be canceled at any time without penalty. However,
the Company will recover actual committed costs and profit on work performed
up to the date of cancellation. Consequently, backlog is not necessarily
indicative of future revenues. The Company's backlog includes only those
projects for which the customer has provided an executed contract.
As of June 30, 1999, the Company had backlog of $241.8 million, which
represents an increase of $63.5 million, or 35.6% compared to backlog as of
June 30, 1998. Domestic capital projects make up $195.3 million or 80.7% of
the June 30, 1999 backlog, which is an increase of $94.1 million compared to
June 30, 1998. Backlog at June 30, 1999 includes work remaining on
significant Deep Port capital projects, as follows: $52.1 million on two
Houston projects, $49.2 million on the Charleston project, $17.9 million on
the Boston project, and $22.7 million on the New York project, which is
employing the newly-constructed backhoe dredge "New York".
18
<PAGE>
RESULTS OF OPERATIONS
CONTRACT REVENUES. Contract revenues were $77.9 million in the second quarter
of 1999, an increase of 10.7%, from revenues of $70.4 million in the second
quarter of 1998. In the first half of 1999, revenues increased 18.3% to
$150.3 million from $127.0 in the first half of 1998. The increase in 1999
second quarter and six-month revenues was due primarily to contributions from
higher margin capital dredging projects. Additionally, in the first quarter
of 1999 favorable weather conditions caused less downtime than experienced
during the same period of the prior year, contributing to the increased
revenues for the six-month period.
COSTS OF CONTRACT REVENUES. Costs of contract revenues for the three months
ended June 30, 1999 increased $5.9 million, or 10.2%, over the three months
ended June 30, 1998. For the first half of 1999, costs of contract revenues
increased $17.1 million, or 16.1%, over the same period of 1998. The increase
in costs of contract revenues for the 1999 periods is a result of increased
revenues. As a percentage of contract revenues, costs of contract revenues
were 82.0% for the first half of 1999 compared to 82.4% in the same 1998
period. The improvement in costs of contract revenues as a percentage of
revenues in 1999 was primarily attributable to the project mix. In the first
half of 1999, there were more higher margin capital projects and fewer lower
margin beach nourishment and foreign projects.
GROSS PROFIT. Gross profit was $14.1 million for the three months ended June
30, 1999, an increase of $1.7 million or 13.4% over the three months ended
June 30, 1998. For the six months ended June 30, 1999, gross profit increased
$6.2 million or 29.4% over gross profit for the same period of 1998. The
improvement in 1999 is attributable to the increased volume of higher margin
work.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses have
remained relatively consistent in 1999 when compared to the same periods of
1998.
OPERATING INCOME. Operating income was $9.2 million for the three months
ended June 30, 1999, an increase of $1.8 million compared to the three months
ended June 30, 1998. For the first half of 1999, operating income increased
$6.4 million or 56.9% over the same period of 1998. The 1999 increase in
operating income is primarily a result of the increased volume of higher
margin work.
EBITDA. EBITDA increased $1.1 million or 10.1%, to $12.2 million for the
three months ended June 30, 1999 from $11.5 million for the three months
ended June 30, 1998. EBITDA for the six months ended June 30, 1999 increased
$4.9 million or 26.4% over EBITDA for the same period of 1998. The increase
is due to the increased volume of higher margin work in 1999.
INTEREST EXPENSE, NET. Net interest expense was $4.6 million for the three
months ended June 30, 1999, an increase of $3.6 million over the three months
ended June 30, 1998. Net interest expense for the six months ended June 30,
1999 increased $6.8 million or 321.8% over the same period of 1998. The
increase in 1999 interest expense is related to interest on the additional
debt incurred in connection with the Company's recapitalization effected in
August 1998.
EQUITY IN EARNINGS OF JOINT VENTURES. Equity in earnings of joint ventures
was insignificant for the three months ended June 30, 1999 compared to $0.4
million for the three months ended June 30, 1998. For the first half of 1999,
equity in earnings of joint ventures declined to a loss of $0.3 million from
income of $0.4 million in 1998. The decrease in 1999 continues to be
attributable to a reduction in demand for Amboy's products during the first
and second quarters, combined with commencement of the maintenance phase of
the Riovia project. The maintenance
19
<PAGE>
phase is anticipated to have lower revenues and margins than the capital
phase, which was substantially complete by the end of 1998.
INCOME TAX EXPENSE. The increase in income tax expense for the second quarter
of 1999 compared to the same period of 1998 was negligible. Income tax
expense for the six months ended June 30, 1999 increased 18% over the six
months ended June 30, 1998, due to increased earnings in the first half of
1999. The effective tax rate for the first half of 1999 increased to 48.9%,
compared to 36.1% for the first half of 1998, which was primarily a result of
the mix and timing of foreign income in relation to domestic income.
MINORITY INTERESTS. For the three months ended June 30, 1999, the loss
attributable to minority interests totaled $0.4 million, compared to income
of $0.9 million for the three months ended June 30, 1998. For the six months
ended June 30, 1999, earnings attributable to minority interests declined
$1.9 million over the same period of 1998. The decrease is due to lower
earnings from the NATCO hopper dredging operations during the first two
quarters of 1999 as compared to the same periods of 1998.
NET INCOME. Net income was $2.5 million for the three months ended June 30,
1999, a decrease of $0.9 million or 26.6% compared to the three months ended
June 30, 1998. Year to date, net income was substantially unchanged at
approximately $4.7 million for the first half of 1999 and 1998. Operating
earnings have increased in 1999 due to the increased volume of higher margin
work; however, this increase has been partially offset by increased interest
and income tax expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flows from operations and
borrowings under the revolving line of credit with the Company's senior
lenders. The Company's primary uses of cash are funding working capital,
capital expenditures and debt service.
The Company generated net cash flows from operating activities for the six
months ended June 30, 1999 and 1998 of $6.3 million and $11.4 million,
respectively. The reduction in cash flows from operating activities for the
first half of 1999 was due to an increase in working capital related to
normal fluctuations in working capital requirements.
Effective January 1, 1999, the Company changed the accounting estimates
regarding the useful lives of certain of its operating equipment, which
resulted in lower depreciation expense for the first half of 1999, compared
to the same period of 1998, by approximately $1.5 million.
The Company's net cash uses for investing activities for the six months ended
June 30, 1999 and 1998, totaled $5.5 million and $5.6 million, respectively.
Additional funds were used in the first half of 1999 to make distributions of
$1.7 million to minority interests related to 1998 earnings; such
distributions were made during the fourth quarter of 1997 for 1997 earnings.
The use of cash for investing activities in the first half of 1999 was offset
by distributions of $1.9 million received from Riovia and a distribution of
earnings from Amboy of approximately $0.8 million.
The Company had no net activity and no outstanding borrowings under its
revolving credit facility at June 30, 1999, compared to net cash outflows of
$7.0 million for the six months ended June 30, 1998. The additional working
capital requirements in the first half of 1999 have not required additional
borrowings due to the availability of cash generated from increased earnings.
Management believes cash flows from operations and available credit will be
sufficient to finance operations, planned capital expenditures and debt
service requirements for the
20
<PAGE>
foreseeable future. The Company's ability to fund its working capital needs,
planned capital expenditures, scheduled debt payments and to comply with all
of the financial covenants under its debt agreements, 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.
YEAR 2000 ISSUE
Historically, many computer programs have been written using two digits
rather than four to define the applicable year, which could result in the
program failing to recognize a year that begins with "20" instead of "19".
This, in turn, could result in major system failures or miscalculations, and
is generally referred to as the "Year 2000 issue".
In June 1996, the Company's MIS Department developed a plan to identify and
address issues related to Year 2000 compliance. The Company's internal
systems were the primary focus of the plan. At that time, the Company
compiled an inventory of its internally developed and third party software.
The Company also evaluated various solutions and techniques for making its
internally developed databases and programs Year 2000 ready. The Company
prioritized the tasks taking into account the likelihood of Year 2000
failure, the impact of Year 2000 failure on the business, and the effort
required to complete the task. In March 1997, senior management of the
Company reviewed the tasks and approved the plan.
The Company's Year 2000 Plan contemplated four phases - assessment,
implementation, testing and release/installation - which overlap to a degree.
In 1998 the Company completed all phases for its most critical systems. The
Company continued with the implementation, testing and installation phase for
its less critical systems through the first half of 1999. The Company
believes such systems are not material to its operations.
The Company has also considered and addressed the impact of the Year 2000 on
other aspects of the Company's operations, such as equipment navigational
systems.
The Company has received information concerning the Year 2000 status of
certain critical suppliers and is satisfied such suppliers have remediated
issues that have the potential to adversely affect the Company.
The Company currently estimates that the total cost of implementing its Year
2000 Plan, consisting primarily of increased staffing requirements and
outside consulting services, will not be material. This is based on actual
expenditures incurred and minimal remaining expenditures to be incurred.
If the Company's computer systems fail with respect to the Year 2000 Issue,
or if any applications or embedded chips critical to the Company's reporting
process are overlooked, there could be a material adverse effect on the
business, results of operations or financial condition of the Company.
Additionally, there can be no assurance that the systems of other companies
on which the Company's systems rely will be timely converted, or that failure
to convert by another company would not have material adverse effect on the
business, results of operations or financial condition of the Company. The
Company has not yet established a contingency plan in this regard, but is
determining what areas may require contingency plans and expects that any
such plans will be formulated in the fourth quarter of 1999.
21
<PAGE>
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133), which has been amended to be effective
for all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS
133 requires that all derivatives be recognized as either assets or
liabilities in the statement of financial position and be measured at fair
value. SFAS 133 additionally requires changes in the fair value of
derivatives be recorded in current earnings or comprehensive income based on
the intended use of the derivatives. Management is in the process of
evaluating the impact on the Company's financial position from adoption of
SFAS 133.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A portion of the Company's current operations are conducted outside of the
U.S. In the first half of 1999, approximately 13.0% of contract revenues was
attributable to overseas operations. It is the Company's policy to hedge
foreign currency exchange risk on contracts denominated in currencies other
than the U.S. dollar, if available. Forward currency exchange contracts,
typically with durations of less than one year, are used to minimize the
impact of foreign currency fluctuations on operations. The Company does not
purchase forward exchange contracts for trading purposes. At June 30, 1999,
the Company had outstanding foreign currency forward contracts with a
notional value of $4.3 million, designated as a hedge of its foreign currency
denominated tax liability. The Company expects that gains or losses on the
foreign currency forward contracts should offset gains or losses on the
underlying tax liability being hedged, such that the impact of a change in
the exchange rate would be immaterial to the Company's earnings.
A significant operating cost for the Company is diesel fuel. The Company uses
fuel commodity forward contracts, typically with durations of less than one
year, to reduce the impacts of changing fuel prices on operations. The
Company does not purchase fuel hedges for trading purposes. At June 30, 1999,
the Company had an outstanding arrangement to hedge the price of its fuel
purchases related to work in backlog. If the market price of fuel were to
increase or decrease, the Company anticipates that the resulting gain or loss
would be offset by the fuel arrangement. Therefore, changes in the market
price of fuel would not have a material impact on future earnings.
Changes in market interest rates from December 31, 1998 do not have a
significant impact on the fair value of the Company's term and revolving bank
debt or fixed rate debt at June 30, 1999.
22
<PAGE>
PART II
ITEM 1 LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceedings other than legal
proceedings occurring in the normal course of business, which resolution of are
not expected to have a material impact on the financial position or operations
of the Company.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.01 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the second quarter
of 1999.
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
Date: August 13, 1999 By: /s/ Deborah A. Wensel
--------------------------- ----------------------------------
Deborah A. Wensel
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
23
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Document Description
- ------ --------------------
<S> <C>
2.01 Plan and Agreement of Merger dated as of August 19, 1998 between the Company and Great Lakes
Dredge & Dock Acquisition, Inc. (1)
3.01 Restated Certificate of Incorporation of the Company. (1)
3.02 Bylaws of the Company. (1)
4.01 Indenture dated as of August 19, 1998 among the Company, the Subsidiary Guarantors and the Bank
of New York, as Trustee. (1)
4.02 Registration Rights Agreement dated as of August 19, 1998 among the Company, the Subsidiary
Guarantors and the Initial Purchaser. (1)
4.03 Form of 11 1/4% Senior Subordinated Note due 2008
(included in Exhibit 4.01). (1)
10.01 Credit Agreement dated as of August 19, 1998 among the Company
and the other loan parties thereto, as Borrowers, the
financial institutions from time to time party thereto, as
Lenders, Bank of Montreal, Chicago Branch, as Documentation
Agent, Bank of America National Trust and Savings Association,
as Issuing Lender and Administrative Agent and BancAmerica
Robertson Stephens, as Lead Arranger. (1)
10.02 Second Amended and Restated Underwriting and Continuing
Indemnity Agreement dated August 19, 1998 among the Company,
certain of its Subsidiaries, Reliance Insurance Company,
United Pacific Insurance Company, Reliance National Insurance
Company and Reliance Surety Company. (1)
10.05 Employment Agreement between the Company and Douglas B. Mackie. (2)
10.06 Great Lakes Annual Cash Bonus Plan. (2)
10.07 Securities Purchase and Holders Agreement dated August 19, 1998 among the Company, Vectura and the
Management Investors. (2)
10.08 Registration Rights Agreement dated August 19, 1998 among the Company, Vectura, and the Management
Investors. (2)
10.09 Employment Agreement between the Company and Richard Lowry. (2)
27.01 Financial Data Schedule (filed only electronically with the SEC). (3)
(1) Incorporated by reference to Form S-4 Registration Statement of the
Company (File No. 333-64687) filed with the Commission on September 29,
1998.
(2) Incorporated by reference to Amendment No. 1 to Form S-4 Registration Statement of the Company (File No.
333-64687) filed with the Commission on December 14, 1998.
(3) Filed herewith.
</TABLE>
24
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,032
<SECURITIES> 0
<RECEIVABLES> 59,749
<ALLOWANCES> 899
<INVENTORY> 22,857
<CURRENT-ASSETS> 82,310
<PP&E> 225,732
<DEPRECIATION> 90,763
<TOTAL-ASSETS> 240,794
<CURRENT-LIABILITIES> 61,668
<BONDS> 165,200
0
1
<COMMON> 50
<OTHER-SE> (44,601)
<TOTAL-LIABILITY-AND-EQUITY> 240,794
<SALES> 0
<TOTAL-REVENUES> 150,260
<CGS> 0
<TOTAL-COSTS> 122,984
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,954
<INCOME-PRETAX> 8,247
<INCOME-TAX> 4,035
<INCOME-CONTINUING> 4,759
<DISCONTINUED> 0
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