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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/x/ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2000
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 (State or other jurisdiction of incorporation or organization) |
13-3634726 (IRS Employer Identification No.) |
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2122 York Road, Oak Brook, Illinois (Address of principal executive offices) |
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60523 (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 November 10, 2000, there were outstanding 1,538,800 shares of Class A Common Stock, 3,363,900 shares of Class B Common Stock and 44,675 shares of Preferred Stock.
Great Lakes Dredge & Dock Corporation and Subsidiaries
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period ended September 30, 2000
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Part I | Financial Information | |||||
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Item 1 |
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Financial Statements (Unaudited) |
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Condensed Consolidated Balance Sheets at September 30, 2000 and December 31, 1999 |
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2 |
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Condensed Consolidated Statements of Income for the Three and Nine Months ended September 30, 2000 and 1999 |
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3 |
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Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2000 and 1999 |
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4 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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5 |
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Item 2 |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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15 |
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Item 3 |
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Quantitative and Qualitative Disclosures About Market Risk |
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22 |
Part II |
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Other Information |
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Item 6 |
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Exhibits and Reports on Form 8-K |
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23 |
Signature |
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24 |
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Exhibit Index |
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25 |
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1
Part I Financial Information
Great Lakes Dredge & Dock Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per
share amounts)
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September 30, 2000 |
December 31, 1999 |
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Assets | ||||||||||
Current assets: | ||||||||||
Cash and equivalents | $ | 1,000 | $ | 1,533 | ||||||
Accounts receivable, net | 45,385 | 33,392 | ||||||||
Contract revenues in excess of billings | 8,368 | 20,536 | ||||||||
Inventories | 13,773 | 14,714 | ||||||||
Prepaid expenses and other current assets | 14,703 | 11,968 | ||||||||
Total current assets | 83,229 | 82,143 | ||||||||
Property and equipment, net | 136,965 | 136,883 | ||||||||
Inventories | 9,022 | 8,838 | ||||||||
Investments in joint ventures | 7,103 | 7,101 | ||||||||
Other assets | 5,546 | 6,429 | ||||||||
Total assets | $ | 241,865 | $ | 241,394 | ||||||
Liabilities and Stockholders' Deficit |
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Current liabilities: | ||||||||||
Accounts payable | $ | 28,957 | $ | 25,227 | ||||||
Accrued expenses | 21,621 | 28,458 | ||||||||
Billings in excess of contract revenues | 11,437 | 8,548 | ||||||||
Current maturities of long-term debt | 8,700 | 6,700 | ||||||||
Total current liabilities | 70,715 | 68,933 | ||||||||
Long-term debt | 151,000 | 152,500 | ||||||||
Deferred income taxes | 43,548 | 44,286 | ||||||||
Foreign income taxes | | 1,525 | ||||||||
Other | 8,886 | 11,332 | ||||||||
Total liabilities | 274,149 | 278,576 | ||||||||
Minority interests | 2,556 | 2,373 | ||||||||
Commitments and contingencies (Note 9) | | | ||||||||
Stockholders' deficit: | ||||||||||
Preferred stock, $.01 par value; 250,000 shares authorized: 45,000 issued; 44,675 outstanding in 2000 and 1999 | 1 | 1 | ||||||||
Common stock, $.01 par value; 50,000,000 shares authorized: 5,000,000 issued; 4,902,700 outstanding in 2000 and 1999 | 50 | 50 | ||||||||
Additional paid-in capital | 50,457 | 50,457 | ||||||||
Accumulated deficit | (84,825 | ) | (89,519 | ) | ||||||
Treasury stock, at cost (2000: 325 preferred shares, 97,300 common shares; 1999: 325 preferred shares, 94,300 common shares) | (422 | ) | (419 | ) | ||||||
Notes receivable from stockholders | (101 | ) | (125 | ) | ||||||
Total stockholders' deficit | (34,840 | ) | (39,555 | ) | ||||||
Total liabilities and stockholders' deficit | $ | 241,865 | $ | 241,394 | ||||||
\ |
See notes to unaudited condensed consolidated financial statements.
2
Great Lakes Dredge & Dock Corporation and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands)
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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2000 |
1999 |
2000 |
1999 |
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Contract revenues | $ | 81,130 | $ | 76,034 | $ | 255,500 | $ | 226,294 | ||||||
Costs of contract revenues | 70,097 | 60,765 | 216,367 | 183,749 | ||||||||||
Gross profit | 11,033 | 15,269 | 39,133 | 42,545 | ||||||||||
General and administrative expenses | 5,191 | 5,176 | 15,837 | 14,936 | ||||||||||
Operating income | 5,842 | 10,093 | 23,296 | 27,609 | ||||||||||
Interest expense, net | (4,931 | ) | (4,595 | ) | (14,013 | ) | (13,549 | ) | ||||||
Equity in earnings (loss) of joint ventures | 51 | 140 | (82 | ) | (175 | ) | ||||||||
Income before income taxes and minority interests | 962 | 5,638 | 9,201 | 13,885 | ||||||||||
Income tax expense | (612 | ) | (2,404 | ) | (4,324 | ) | (6,441 | ) | ||||||
Minority interests | 549 | (408 | ) | (183 | ) | 139 | ||||||||
Net income | $ | 899 | $ | 2,826 | $ | 4,694 | $ | 7,583 | ||||||
See notes to unaudited condensed consolidated financial statements.
3
Great Lakes Dredge & Dock Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
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Nine months ended September 30, |
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2000 |
1999 |
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Operating Activities | ||||||||||
Net income | $ | 4,694 | $ | 7,583 | ||||||
Adjustments to reconcile net income to net cash flows from operating activities: | ||||||||||
Depreciation | 9,637 | 8,785 | ||||||||
Loss of joint ventures | 82 | 175 | ||||||||
Minority interests | 183 | (139 | ) | |||||||
Deferred income taxes | (476 | ) | (1,379 | ) | ||||||
Loss (gain) on dispositions of property and equipment | 258 | (223 | ) | |||||||
Other, net | (943 | ) | 456 | |||||||
Changes in assets and liabilities: | ||||||||||
Accounts receivable, net | (11,993 | ) | 4,014 | |||||||
Contract revenues in excess of billings | 12,168 | (1,410 | ) | |||||||
Inventories | 757 | (3,043 | ) | |||||||
Prepaid expenses and other current assets | (2,997 | ) | (620 | ) | ||||||
Accounts payable and accrued expenses | (3,107 | ) | (7,931 | ) | ||||||
Billings in excess of contract revenues | 744 | 4,351 | ||||||||
Net cash flows from operating activities | 9,007 | 10,619 | ||||||||
Investing Activities | ||||||||||
Purchases of property and equipment | (10,365 | ) | (9,503 | ) | ||||||
Dispositions of property and equipment | 388 | 309 | ||||||||
Distributions from and investments in joint ventures, net | (84 | ) | 3,589 | |||||||
Distributions to minority interests | | (1,730 | ) | |||||||
Net cash flows from investing activities | (10,061 | ) | (7,335 | ) | ||||||
Financing Activities | ||||||||||
Repayments of long-term debt | (4,500 | ) | (1,250 | ) | ||||||
Borrowings (repayments) of revolving loans, net | 5,000 | | ||||||||
Treasury stock activity, net | (3 | ) | (544 | ) | ||||||
Repayment on notes receivable from stockholders | 24 | | ||||||||
Net cash flows from financing activities | 521 | (1,794 | ) | |||||||
Net change in cash and equivalents | (533 | ) | 1,490 | |||||||
Cash and equivalents at beginning of period | 1,533 | 758 | ||||||||
Cash and equivalents at end of period | $ | 1,000 | $ | 2,248 | ||||||
Supplemental Cash Flow Information | ||||||||||
Cash paid for interest | $ | 16,532 | $ | 16,443 | ||||||
Cash paid for taxes | $ | 8,482 | $ | 3,175 | ||||||
See notes to unaudited condensed consolidated financial statements.
4
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 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, 1999.
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. 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. Fair value of financial instruments
The carrying 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 $113,563 and $120,175 at September 30, 2000 and December 31, 1999, respectively, based on quoted market prices. The Company is contingently liable under letters of credit and other financial guarantees. It is not practicable to estimate the fair value of these financial instruments; however, the Company does not expect any material losses to result from these financial instruments since performance is not likely to be required.
The Company uses derivative 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. On September 30, 2000, the company had one foreign exchange forward contract outstanding, with a notional amount of $2,165, intended to hedge payments related to its foreign tax liabilities. The unrealized loss on the outstanding foreign currency contracts at September 30, 2000 and December 31, 1999 was estimated to be $397 and $189, respectively, based on quoted market prices.
The Company has entered into 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 January of 2002. At September 30, 2000 and December 31, 1999, the unrealized gain on these contracts was estimated to be $145 and $540, respectively, based on quoted market prices.
5
4. Accounts receivable
Accounts receivable at September 30, 2000 and December 31, 1999 are as follows:
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September 30, 2000 |
December 31, 1999 |
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Completed contracts | $ | 16,053 | $ | 5,317 | ||||
Contracts in progress | 26,674 | 25,213 | ||||||
Retainage | 3,512 | 3,716 | ||||||
46,239 | 34,246 | |||||||
Allowance for doubtful accounts | (854 | ) | (854 | ) | ||||
$ | 45,385 | $ | 33,392 | |||||
5. Contracts in progress
The components of contracts in progress at September 30, 2000 and December 31, 1999 are as follows:
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September 30, 2000 |
December 31, 1999 |
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Costs and earnings in excess of billings: | |||||||||
Costs and earnings for contracts in progress | $ | 203,357 | $ | 230,014 | |||||
Prepaid contract costs | (2,206 | ) | (1,170 | ) | |||||
Amounts billed | (194,643 | ) | (209,978 | ) | |||||
Costs and earnings in excess of billings for contracts in progress | 6,508 | 18,866 | |||||||
Costs and earnings in excess of billings for completed contracts | 1,860 | 1,670 | |||||||
$ | 8,368 | $ | 20,536 | ||||||
Billings in excess of costs and earnings: |
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Amounts billed | $ | (146,511 | ) | $ | (64,085 | ) | |||
Costs and earnings for contracts in progress | 133,081 | 51,399 | |||||||
$ | (13,430 | ) | $ | (12,686 | ) | ||||
The Company received advanced payments related to a long-term foreign contract that are considered billings in excess of costs and earnings. These amounts will be earned as the work is performed over the duration of the contract, which is expected to be approximately four years. The amounts of $1,993 and $4,138 related to contract performance anticipated to be beyond one year are included in other long-term liabilities at September 30, 2000 and December 31, 1999, respectively.
6. Investments 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's share of earnings in this joint venture is included in income as earned using the equity method. The Company also has a 20% 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 accounts for its investment in Riovia at cost.
6
The following presents summarized income statement information for Amboy:
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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2000 |
1999 |
2000 |
1999 |
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Revenues | $ | 4,150 | $ | 4,416 | $ | 11,022 | $ | 11,266 | |||||||
Costs and expenses | (4,049 | ) | (4,167 | ) | (11,184 | ) | (11,693 | ) | |||||||
Net income (loss) | $ | 101 | $ | 249 | $ | (162 | ) | $ | (427 | ) | |||||
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 $3,390 at September 30, 2000.
7. Accrued expenses
Accrued expenses at September 30, 2000 and December 31, 1999 are as follows:
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September 30, 2000 |
December 31, 1999 |
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Foreign income taxes | $ | 7,079 | $ | 6,575 | |||
Payroll and employee benefits | 4,129 | 6,469 | |||||
Insurance | 3,768 | 4,228 | |||||
U.S. income and other taxes | 2,218 | 4,591 | |||||
Interest | 2,176 | 5,276 | |||||
Other | 2,251 | 1,319 | |||||
$ | 21,621 | $ | 28,458 | ||||
8. 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 three and nine-month periods ended September 30, 2000 and 1999 are as follows:
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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2000 |
1999 |
2000 |
1999 |
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Capital | $ | 63,327 | $ | 50,256 | $ | 185,466 | $ | 130,659 | |||||
Maintenance | 17,092 | 18,939 | 57,872 | 63,840 | |||||||||
Beach nourishment | 711 | 6,839 | 12,162 | 31,795 | |||||||||
$ | 81,130 | $ | 76,034 | $ | 255,500 | $ | 226,294 | ||||||
9. Commitments and contingencies
In November 1999, the Company entered into a construction agency agreement to manage the construction of a 5,000 cubic meter hopper dredge. The dredge is expected to cost approximately $50 million and be delivered by the end of 2001. The Company has indemnified the owner up to 85% of the costs during construction and has entered into a long-term operating lease to operate the dredge upon completion.
7
At September 30, 2000, the Company is contingently liable, in the normal course of business, for $12,765 in letters of credit related primarily to contract performance guarantees.
As is customary with negotiated 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 and 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 or operations of the Company.
In the normal course of business, the Company is a defendant in various legal proceedings. Resolution of these claims is not expected to have a material impact on the financial position or operations of the Company.
10. Supplemental condensed consolidating financial information
Included in the Company's long-term debt is $115,000 of 111/4% 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).
8
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)
Condensed Consolidating Balance Sheet at September 30, 2000
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Guarantor Subsidiaries |
Other Subsidiaries |
GLD Corporation |
Eliminations |
Consolidated Totals |
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ASSETS | ||||||||||||||||||
Current assets: | ||||||||||||||||||
Cash and equivalents | $ | 833 | $ | 167 | $ | | $ | | $ | 1,000 | ||||||||
Accounts receivable, net | 42,430 | 2,955 | | | 45,385 | |||||||||||||
Receivables from affiliates | 5,137 | 6,414 | 421 | (11,972 | ) | | ||||||||||||
Current portion of net investment in direct financing leases | | 2,359 | 1,788 | (4,147 | ) | | ||||||||||||
Contract revenues in excess of billings | 7,749 | 619 | | | 8,368 | |||||||||||||
Inventories | 10,006 | 3,767 | | | 13,773 | |||||||||||||
Prepaid expenses and other current assets | 13,262 | 668 | 773 | | 14,703 | |||||||||||||
Total current assets | 79,417 | 16,949 | 2,982 | (16,119 | ) | 83,229 | ||||||||||||
Property and equipment, net | 78,693 | 14,572 | 43,700 | | 136,965 | |||||||||||||
Net investment in direct financing leases | | 2,403 | 2,135 | (4,538 | ) | | ||||||||||||
Investments in subsidiaries | 13,188 | | 132,568 | (145,756 | ) | | ||||||||||||
Notes receivable from affiliate | 35,001 | | | (35,001 | ) | | ||||||||||||
Inventories | 9,022 | | | | 9,022 | |||||||||||||
Investments in joint ventures | 7,103 | | | | 7,103 | |||||||||||||
Other assets | 1,710 | | 3,836 | | 5,546 | |||||||||||||
$ | 224,134 | $ | 33,924 | $ | 185,221 | $ | (201,414 | ) | $ | 241,865 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
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Current liabilities: | ||||||||||||||||||
Accounts payable | $ | 25,718 | $ | 3,230 | $ | | $ | 9 | $ | 28,957 | ||||||||
Payables to affiliates | 4,535 | 5,087 | 2,350 | (11,972 | ) | | ||||||||||||
Accrued expenses | 12,121 | 1,738 | 7,762 | | 21,621 | |||||||||||||
Current portion of obligations under capital leases | | 4,147 | | (4,147 | ) | | ||||||||||||
Billings in excess of contract revenues | 10,819 | 618 | | | 11,437 | |||||||||||||
Current maturities of long-term debt | 200 | | 8,500 | | 8,700 | |||||||||||||
Total current liabilities | 53,393 | 14,820 | 18,612 | (16,110 | ) | 70,715 | ||||||||||||
Long-term debt | | | 151,000 | | 151,000 | |||||||||||||
Obligations under capital leases | | 4,538 | | (4,538 | ) | | ||||||||||||
Note payable to affiliate | | | 35,001 | (35,001 | ) | | ||||||||||||
Deferred income taxes | 29,156 | 280 | 14,112 | | 43,548 | |||||||||||||
Other | 6,854 | 696 | 1,336 | | 8,886 | |||||||||||||
Total liabilities | 89,403 | 20,334 | 220,061 | (55,649 | ) | 274,149 | ||||||||||||
Minority interests | | | | 2,556 | 2,556 | |||||||||||||
Stockholders' equity (deficit) | 134,731 | 13,590 | (34,840 | ) | (148,321 | ) | (34,840 | ) | ||||||||||
$ | 224,134 | $ | 33,924 | $ | 185,221 | $ | (201,414 | ) | $ | 241,865 | ||||||||
9
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)
Condensed Consolidating Balance Sheet at December 31, 1999
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Guarantor Subsidiaries |
Other Subsidiaries |
GLD Corporation |
Eliminations |
Consolidated Totals |
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ASSETS | ||||||||||||||||||
Current assets: | ||||||||||||||||||
Cash and equivalents | $ | 284 | $ | 1,249 | $ | | $ | | $ | 1,533 | ||||||||
Accounts receivable, net | 29,989 | 3,403 | | | 33,392 | |||||||||||||
Receivables from affiliates | 5,313 | 6,087 | | (11,400 | ) | | ||||||||||||
Current portion of net investment in direct financing leases | | 5,168 | 2,275 | (7,443 | ) | | ||||||||||||
Contract revenues in excess of billings | 19,400 | 1,136 | | | 20,536 | |||||||||||||
Inventories | 10,797 | 3,917 | | | 14,714 | |||||||||||||
Prepaid expenses and other current assets | 11,084 | 403 | 797 | (316 | ) | 11,968 | ||||||||||||
Total current assets | 76,867 | 21,363 | 3,072 | (19,159 | ) | 82,143 | ||||||||||||
Property and equipment, net | 75,411 | 16,373 | 45,099 | | 136,883 | |||||||||||||
Net investment in direct financing leases | | 3,660 | 3,491 | (7,151 | ) | | ||||||||||||
Investments in subsidiaries | 13,036 | | 119,708 | (132,744 | ) | | ||||||||||||
Notes receivable from affiliates | 20,334 | 516 | | (20,850 | ) | | ||||||||||||
Inventories | 8,838 | | | | 8,838 | |||||||||||||
Investments in joint ventures | 7,101 | | | | 7,101 | |||||||||||||
Other assets | 1,828 | | 4,601 | | 6,429 | |||||||||||||
$ | 203,415 | $ | 41,912 | $ | 175,971 | $ | (179,904 | ) | $ | 241,394 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
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Current liabilities: | ||||||||||||||||||
Accounts payable | $ | 22,430 | $ | 2,787 | $ | | $ | 10 | $ | 25,227 | ||||||||
Payables to affiliates | 4,053 | 4,916 | 2,431 | (11,400 | ) | | ||||||||||||
Accrued expenses | 12,240 | 1,327 | 14,891 | | 28,458 | |||||||||||||
Current portion of obligations under capital leases | | 7,443 | | (7,443 | ) | | ||||||||||||
Billings in excess of contract revenues | 6,571 | 1,977 | | | 8,548 | |||||||||||||
Current maturities of long-term debt | 200 | | 6,826 | (326 | ) | 6,700 | ||||||||||||
Total current liabilities | 45,494 | 18,450 | 24,148 | (19,159 | ) | 68,933 | ||||||||||||
Long-term debt | | | 152,500 | | 152,500 | |||||||||||||
Obligations under capital leases | | 7,151 | | (7,151 | ) | | ||||||||||||
Notes payable to affiliates | | | 20,850 | (20,850 | ) | | ||||||||||||
Deferred income taxes | 27,109 | 1,964 | 15,213 | | 44,286 | |||||||||||||
Foreign income taxes | | | 1,525 | | 1,525 | |||||||||||||
Other | 9,133 | 909 | 1,290 | | 11,332 | |||||||||||||
Total liabilities | 81,736 | 28,474 | 215,526 | (47,160 | ) | 278,576 | ||||||||||||
Minority interests | | | | 2,373 | 2,373 | |||||||||||||
Stockholders' equity (deficit) | 121,679 | 13,438 | (39,555 | ) | (135,117 | ) | (39,555 | ) | ||||||||||
$ | 203,415 | $ | 41,912 | $ | 175,971 | $ | (179,904 | ) | $ | 241,394 | ||||||||
10
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)
Condensed Consolidating Statement of Income for the three months ended September 30, 2000
|
Guarantor Subsidiaries |
Other Subsidiaries |
GLD Corporation |
Eliminations |
Consolidated Totals |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contract revenues | $ | 81,782 | $ | 8,984 | $ | | $ | (9,636 | ) | $ | 81,130 | |||||||
Costs of contract revenues | (69,640 | ) | (9,891 | ) | (202 | ) | 9,636 | (70,097 | ) | |||||||||
Gross profit (loss) | 12,142 | (907 | ) | (202 | ) | | 11,033 | |||||||||||
General and administrative expenses | (4,300 | ) | (861 | ) | (30 | ) | | (5,191 | ) | |||||||||
Operating income (loss) | 7,842 | (1,768 | ) | (232 | ) | | 5,842 | |||||||||||
Interest expense, net | 24 | (516 | ) | (4,439 | ) | | (4,931 | ) | ||||||||||
Equity in earnings of subsidiaries | (2,006 | ) | | 3,843 | (1,837 | ) | | |||||||||||
Equity in earnings of joint ventures | 51 | | | | 51 | |||||||||||||
Income (loss) before income taxes and minority interests | 5,911 | (2,284 | ) | (828 | ) | (1,837 | ) | 962 | ||||||||||
Income tax (expense) benefit | (2,862 | ) | 523 | 1,727 | | (612 | ) | |||||||||||
Minority interests | | | | 549 | 549 | |||||||||||||
Net income (loss) | $ | 3,049 | $ | (1,761 | ) | $ | 899 | $ | (1,288 | ) | $ | 899 | ||||||
Condensed Consolidating Statement of Income for the three months ended September 30, 1999
|
Guarantor Subsidiaries |
Other Subsidiaries |
GLD Corporation |
Eliminations |
Consolidated Totals |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contract revenues | $ | 66,052 | $ | 10,749 | $ | | $ | (767 | ) | $ | 76,034 | |||||||
Costs of contract revenues | (53,435 | ) | (7,896 | ) | (201 | ) | 767 | (60,765 | ) | |||||||||
Gross profit (loss) | 12,617 | 2,853 | (201 | ) | | 15,269 | ||||||||||||
General and administrative expenses | (4,094 | ) | (1,071 | ) | (11 | ) | | (5,176 | ) | |||||||||
Operating income (loss) | 8,523 | 1,782 | (212 | ) | | 10,093 | ||||||||||||
Interest expense, net | (56 | ) | (145 | ) | (4,394 | ) | | (4,595 | ) | |||||||||
Equity in earnings of subsidiaries | 1,027 | | 5,435 | (6,462 | ) | | ||||||||||||
Equity in earnings of joint ventures | 140 | | | | 140 | |||||||||||||
Income before income taxes and minority interests | 9,634 | 1,637 | 829 | (6,462 | ) | 5,638 | ||||||||||||
Income tax (expense) benefit | (4,064 | ) | (337 | ) | 1,997 | | (2,404 | ) | ||||||||||
Minority interests | | | | (408 | ) | (408 | ) | |||||||||||
Net income | $ | 5,570 | $ | 1,300 | $ | 2,826 | $ | (6,870 | ) | $ | 2,826 | |||||||
11
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)
Condensed Consolidating Statement of Income for the nine months ended September 30, 2000
|
Guarantor Subsidiaries |
Other Subsidiaries |
GLD Corporation |
Eliminations |
Consolidated Totals |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contract revenues | $ | 251,193 | $ | 29,393 | $ | | $ | (25,086 | ) | $ | 255,500 | |||||||
Costs of contract revenues | (215,389 | ) | (25,557 | ) | (507 | ) | 25,086 | (216,367 | ) | |||||||||
Gross profit (loss) | 35,804 | 3,836 | (507 | ) | | 39,133 | ||||||||||||
General and administrative expenses | (13,164 | ) | (2,643 | ) | (30 | ) | | (15,837 | ) | |||||||||
Operating income (loss) | 22,640 | 1,193 | (537 | ) | | 23,296 | ||||||||||||
Interest expense, net | (271 | ) | (633 | ) | (13,109 | ) | | (14,013 | ) | |||||||||
Equity in earnings of subsidiaries | 390 | | 12,991 | (13,381 | ) | | ||||||||||||
Equity in loss of joint ventures | (82 | ) | | | | (82 | ) | |||||||||||
Income (loss) before income taxes and minority interests | 22,677 | 560 | (655 | ) | (13,381 | ) | 9,201 | |||||||||||
Income tax (expense) benefit | (9,625 | ) | (48 | ) | 5,349 | | (4,324 | ) | ||||||||||
Minority interests | | | | (183 | ) | (183 | ) | |||||||||||
Net income | $ | 13,052 | $ | 512 | $ | 4,694 | $ | (13,564 | ) | $ | 4,694 | |||||||
Condensed Consolidating Statement of Income for the nine months ended September 30, 1999
|
Guarantor Subsidiaries |
Other Subsidiaries |
GLD Corporation |
Eliminations |
Consolidated Totals |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contract revenues | $ | 193,501 | $ | 34,327 | $ | | $ | (1,534 | ) | $ | 226,294 | |||||||
Costs of contract revenues | (154,949 | ) | (29,955 | ) | (379 | ) | 1,534 | (183,749 | ) | |||||||||
Gross profit (loss) | 38,552 | 4,372 | (379 | ) | | 42,545 | ||||||||||||
General and administrative expenses | (11,186 | ) | (3,660 | ) | (90 | ) | | (14,936 | ) | |||||||||
Operating income (loss) | 27,366 | 712 | (469 | ) | | 27,609 | ||||||||||||
Interest expense, net | (201 | ) | (289 | ) | (13,059 | ) | | (13,549 | ) | |||||||||
Equity in earnings of subsidiaries | (216 | ) | | 16,626 | (16,410 | ) | | |||||||||||
Equity in loss of joint ventures | (175 | ) | | | | (175 | ) | |||||||||||
Income before income taxes and minority interests | 26,774 | 423 | 3,098 | (16,410 | ) | 13,885 | ||||||||||||
Income tax (expense) benefit | (10,148 | ) | (778 | ) | 4,485 | | (6,441 | ) | ||||||||||
Minority interests | | | | 139 | 139 | |||||||||||||
Net income (loss) | $ | 16,626 | $ | (355 | ) | $ | 7,583 | $ | (16,271 | ) | $ | 7,583 | ||||||
12
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)
Condensed Consolidating Statement of Cash Flows for the nine months ended September 30, 2000
|
Guarantor Subsidiaries |
Other Subsidiaries |
GLD Corporation |
Eliminations |
Consolidated Totals |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating Activities | ||||||||||||||||||
Net income | $ | 13,052 | $ | 512 | $ | 4,694 | $ | (13,564 | ) | $ | 4,694 | |||||||
Adjustments to reconcile net income to net cash flows from operating activities: | ||||||||||||||||||
Depreciation | 5,065 | 2,438 | 2,134 | | 9,637 | |||||||||||||
Earnings of subsidiaries and joint ventures | (308 | ) | | (12,991 | ) | 13,381 | 82 | |||||||||||
Minority interests | | | | 183 | 183 | |||||||||||||
Deferred income taxes | 1,152 | (1,684 | ) | 56 | | (476 | ) | |||||||||||
(Gain) loss on dispositions of property and equipment | (29 | ) | | 287 | | 258 | ||||||||||||
Other, net | (556 | ) | (280 | ) | (107 | ) | | (943 | ) | |||||||||
Changes in assets and liabilities: | ||||||||||||||||||
Accounts receivable | (12,441 | ) | 448 | | | (11,993 | ) | |||||||||||
Contract revenues in excess of billings | 11,651 | 517 | | | 12,168 | |||||||||||||
Inventories | 607 | 150 | | | 757 | |||||||||||||
Prepaid expenses and other current assets | (2,178 | ) | (265 | ) | (554 | ) | | (2,997 | ) | |||||||||
Accounts payable and accrued expenses | 3,169 | 854 | (7,130 | ) | | (3,107 | ) | |||||||||||
Billings in excess of contract revenues | (615 | ) | 1,359 | | | 744 | ||||||||||||
Net cash flows from operating activities | 18,569 | 4,049 | (13,611 | ) | | 9,007 | ||||||||||||
Investing Activities | ||||||||||||||||||
Purchases of property and equipment | (9,727 | ) | (638 | ) | | | (10,365 | ) | ||||||||||
Proceeds from dispositions of property and equipment | 388 | | | | 388 | |||||||||||||
Distributions from joint venture | (84 | ) | | | | (84 | ) | |||||||||||
Principal payments (receipts) on direct financing leases | | 4,067 | (4,067 | ) | | | ||||||||||||
Payments (receipts) on note with affiliate | | 516 | (516 | ) | | | ||||||||||||
Net cash flows from investing activities | (9,423 | ) | 3,945 | (4,583 | ) | | (10,061 | ) | ||||||||||
Financing Activities | ||||||||||||||||||
Repayments of long-term debt | | | (4,500 | ) | | (4,500 | ) | |||||||||||
Borrowing (repayments) of revolving loans, net | | | 5,000 | | 5,000 | |||||||||||||
Principal receipts (payments) on capital leases | 4,067 | (5,910 | ) | 1,843 | | | ||||||||||||
Net change in accounts with affiliates | (13,024 | ) | (2,806 | ) | 15,830 | | | |||||||||||
Treasury stock activity, net | | | (3 | ) | | (3 | ) | |||||||||||
Repayment on notes receivable from stockholders | | | 24 | | 24 | |||||||||||||
Dividends | 360 | (1,800 | ) | 1,440 | | | ||||||||||||
Contributions from partners | | 1,440 | (1,440 | ) | | | ||||||||||||
Net cash flows from financing activities | (8,597 | ) | (9,076 | ) | 18,194 | | 521 | |||||||||||
Net change in cash and equivalents | 549 | (1,082 | ) | | | (533 | ) | |||||||||||
Cash and equivalents at beginning of year | 284 | 1,249 | | | 1,533 | |||||||||||||
Cash and equivalents at end of year | $ | 833 | $ | 167 | $ | | $ | | $ | 1,000 | ||||||||
13
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)
Condensed Consolidating Statement of Cash Flows for the nine months ended September 30, 1999
|
Guarantor Subsidiaries |
Other Subsidiaries |
GLD Corporation |
Eliminations |
Consolidated Totals |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating Activities | ||||||||||||||||||
Net income (loss) | $ | 16,626 | $ | (355 | ) | $ | 7,583 | $ | (16,271 | ) | $ | 7,583 | ||||||
Adjustments to reconcile net income to net cash flows from operating activities: | ||||||||||||||||||
Depreciation | 6,114 | 2,261 | 410 | | 8,785 | |||||||||||||
Earnings of subsidiaries and joint ventures | 391 | | (16,626 | ) | 16,410 | 175 | ||||||||||||
Minority interests | | | | (139 | ) | (139 | ) | |||||||||||
Deferred income taxes | (766 | ) | (183 | ) | (430 | ) | | (1,379 | ) | |||||||||
(Gain) loss on dispositions of property and equipment | (315 | ) | 92 | | | (223 | ) | |||||||||||
Other, net | 766 | | (310 | ) | | 456 | ||||||||||||
Changes in assets and liabilities: | ||||||||||||||||||
Accounts receivable | 2,432 | 1,582 | | | 4,014 | |||||||||||||
Contract revenues in excess of billings | (2,753 | ) | 1,343 | | | (1,410 | ) | |||||||||||
Inventories | (2,955 | ) | (88 | ) | | | (3,043 | ) | ||||||||||
Prepaid expenses and other current assets | (2,221 | ) | (345 | ) | 1,946 | | (620 | ) | ||||||||||
Accounts payable and accrued expenses | (4,119 | ) | (1,755 | ) | (2,057 | ) | | (7,931 | ) | |||||||||
Billings in excess of contract revenues | 3,470 | 881 | | | 4,351 | |||||||||||||
Net cash flows from operating activities | 16,670 | 3,433 | (9,484 | ) | | 10,619 | ||||||||||||
Investing Activities | ||||||||||||||||||
Purchases of property and equipment | (7,281 | ) | (2,222 | ) | | | (9,503 | ) | ||||||||||
Dispositions of property and equipment | 309 | | | | 309 | |||||||||||||
Investments in and distributions from joint ventures | 3,589 | | | | 3,589 | |||||||||||||
Distributions to minority interests | | | | (1,730 | ) | (1,730 | ) | |||||||||||
Principal payments (receipts) on direct financing leases | | 3,509 | (3,509 | ) | | | ||||||||||||
Payments (receipts) on note with affiliate | | 516 | (516 | ) | | | ||||||||||||
Net cash flows from investing activities | (3,383 | ) | 1,803 | (4,025 | ) | (1,730 | ) | (7,335 | ) | |||||||||
Financing Activities | ||||||||||||||||||
Repayments of long-term debt | | | (1,250 | ) | | (1,250 | ) | |||||||||||
Principal receipts (payments) on capital leases | | (5,901 | ) | 5,901 | | | ||||||||||||
Net change in accounts with affiliates | (18,941 | ) | 9,539 | 9,402 | | | ||||||||||||
Treasury stock activity, net | | | (544 | ) | | (544 | ) | |||||||||||
Dividends | 5,670 | (7,400 | ) | | 1,730 | | ||||||||||||
Net cash flows from financing activities | (13,271 | ) | (3,762 | ) | 13,509 | 1,730 | (1,794 | ) | ||||||||||
Net increase in cash and equivalents | 16 | 1,474 | | | 1,490 | |||||||||||||
Cash and equivalents at beginning of period | 490 | 268 | | | 758 | |||||||||||||
Cash and equivalents at end of period | $ | 506 | $ | 1,742 | $ | | $ | | $ | 2,248 | ||||||||
14
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 experienced a combined U.S. market share of the projects on which it bids ("bid market") of 44% in 1999. In addition, the Company has continued its role as the only U.S. dredging contractor with significant international operations, which averaged 17% of its contract revenues over the last three years.
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.
Substantially all of the Company's contracts for dredging services are fixed-price contracts, which provide for remeasurement based on actual quantities dredged. 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. Costs of contract revenues are adjusted to reflect the gross profit percentage expected to be achieved upon ultimate completion of each project. 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. Billings on contracts are generally submitted after verification with the customers of physical quantities completed and may not match the timing of revenue recognition. The difference between amounts billed and recognized as revenue is reflected in the balance sheet as either contract revenues in excess of billings or billings in excess of contract revenues. 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.
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. Generally, capital projects have the lowest costs of contract revenues as a percent of contract
15
revenues and beach nourishment have the highest. Of capital work, domestic projects typically have lower costs of contract revenues than foreign projects.
The Company's cost structure includes significant fixed costs, averaging approximately 20% to 22% 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.
In 2000, the Company's equity in earnings of joint ventures relates to the Company's 50% ownership interest in Amboy, which is accounted for using the equity method. In 1999, equity in earnings of joint ventures also included the Company's share of earnings in Riovia, a venture in which the Company made an initial investment in 1996 for the purpose of performing a dredging contract in Argentina and Uruguay. During 1999, Riovia entered into the maintenance phase of the dredging contract upon completion of the capital works portion. The Company has less involvement in the project operations going forward, and therefore, in the fourth quarter of 1999, the Company began accounting for its investment in Riovia at cost. 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 three and nine-month periods ended September 30, 2000 and 1999:
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
2000 |
1999 |
2000 |
1999 |
|||||||
Contract revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||
Costs of contract revenues | (86.4 | ) | (79.9 | ) | (84.7 | ) | (81.2 | ) | |||
Gross profit | 13.6 | 20.1 | 15.3 | 18.8 | |||||||
General and administrative expenses | (6.4 | ) | (6.8 | ) | (6.2 | ) | (6.6 | ) | |||
Operating income | 7.2 | 13.3 | 9.1 | 12.2 | |||||||
Interest expense, net | (6.0 | ) | (6.0 | ) | (5.5 | ) | (6.0 | ) | |||
Equity in earnings of joint ventures | | 0.1 | | (0.1 | ) | ||||||
Income before income taxes and minority interests | 1.2 | 7.4 | 3.6 | 6.1 | |||||||
Provision for income tax | (0.8 | ) | (3.2 | ) | (1.7 | ) | (2.8 | ) | |||
Minority interests | 0.7 | (0.5 | ) | (0.1 | ) | 0.1 | |||||
Net income | 1.1 | % | 3.7 | % | 1.8 | % | 3.4 | % | |||
EBITDA |
|
11.2 |
% |
17.1 |
% |
12.9 |
% |
16.0 |
% |
||
"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
16
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 three and nine-month periods ended and backlog as of the periods indicated:
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2000 |
1999 |
2000 |
1999 |
|||||||||
Revenues (in thousands) | |||||||||||||
Capital U.S. | $ | 48,076 | $ | 45,936 | $ | 129,336 | $ | 107,369 | |||||
Capital foreign | 15,251 | 4,320 | 56,130 | 23,290 | |||||||||
Maintenance | 17,092 | 18,939 | 57,872 | 63,840 | |||||||||
Beach | 711 | 6,839 | 12,162 | 31,795 | |||||||||
$ | 81,130 | $ | 76,034 | $ | 255,500 | $ | 226,294 | ||||||
|
|
|
September 30, |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
|
|
|
2000 |
1999 |
||||||
Backlog (in thousands) | ||||||||||
Capital U.S. | $ | 125,423 | $ | 176,984 | ||||||
Capital foreign | 71,650 | 22,761 | ||||||||
Maintenance | 8,583 | 20,585 | ||||||||
Beach | 26,060 | 13,234 | ||||||||
$ | 231,716 | $ | 233,564 | |||||||
Third quarter 2000 revenues were $81.1 million, which was down from the preceding two quarters, but exceeded the 1999 third quarter revenues of $76.0 million. Revenues for the nine months ended September 30, 2000 were $255.5 million compared to $226.3 million for the same period of 1999, an increase of 12.9%. Gross profit of $11.0 million for the third quarter of 2000 was down 27.7% from the third quarter of 1999, while gross profit for the nine months of 2000 declined from the comparable 1999 level by 8.0%. Although revenues have increased in 2000, gross profit continues to be impacted by the higher level of revenues from foreign projects, which are traditionally performed at lower margins than domestic projects. Additionally, a provision for loss was established in the first quarter for the Company's joint venture project in Egypt, which had experienced problems due to the existence of harder materials than contemplated by the contract estimate. This project was completed in the third quarter of 2000. The third quarter also included the results of certain domestic projects which operated below margin levels experienced in recent years due to competitive pricing pressures experienced in the bid market in the first two quarters of 2000.
The year to date growth in 2000 revenues continues to be attributable to both domestic and foreign capital dredging projects. Revenues from domestic capital projects increased for the three and nine month periods of 2000 by $2.1 million and $22.0 million, respectively, over the same periods of 1999. Revenues from foreign capital projects also increased for the three and nine month periods of 2000 by $10.9 million and $32.8 million, respectively, over the same periods of 1999.
Capital projects include large port deepenings and other infrastructure projects. The domestic capital dredging market has been expanding since 1998, with the announcement by the Army Corps of
17
Engineers ("Corps") of Deep Port work to be completed through 2005, with a value in excess of $2.0 billion. Since this announcement, twenty-one projects, with a total revenue value of $568.1 million, have been let for bid through the third quarter of 2000. The Company was the low bidder on ten of these projects, with a value of $330.3 million, representing 58% of the total let for bid. The Company's cumulative market share of deep port projects let for bid over the last five years was 66%. The Company's bid market share of total U.S. capital projects (including deep port projects) was 47% in 1999 and 45% through the first nine months of 2000.
During this quarter, significant contract revenues from domestic capital projects included $8.6 million, $7.8 million, $6.2 million and $6.1 million from channel deepening projects in Houston, San Juan, Los Angeles and Charleston, respectively. Additionally, the foreign capital project in Ghana contributed $11.9 million to third quarter revenues.
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 nine month periods ended September 30, 2000 decreased $1.8 million and $6.0 million, respectively, over the same periods of 1999. Maintenance revenues through the third quarter continued to be lower than 1999 levels as a result of reduced Mississippi River dredging requirements, due to lower than normal precipitation in the Midwest.
Beach nourishment projects include rebuilding of shoreline areas which have been damaged by storm activity or ongoing erosion. Third quarter and year to date 2000 revenues from beach projects decreased $6.1 million and $19.6 million, respectively, compared to the same periods of 1999. The reduced revenue levels continue to reflect the state of the beach market in 2000, which has been impacted by the postponement of some key projects by the project owners, resulting in fewer projects being let for bid during the first half of the year.
Third quarter 2000 and year to date revenues of the Company's NATCO hopper dredging subsidiary decreased $1.8 million and $4.9 million, respectively, in comparison to 1999, due primarily to the reduction in maintenance and beach work. However, NATCO's operating margins for the year to date 2000 period have increased over the same 1999 period, due to changes in requirements on two Corps projects in 1999 which adversely impacted their profitability. Claims have subsequently been submitted to the Corps based on the changed conditions of these projects. Partial payment was received on these claims in the third quarter of 2000 and we expect to receive a portion of the remaining amounts in the fourth quarter. Despite the overall improvement in NATCO's year to date 2000 margins, NATCO's margins in the third quarter of 2000 were lower than the third quarter of 1999, reflecting performance on a couple of projects which were recently bid at reduced margins, due to competitive pricing pressures in the market.
As mentioned previously, contract revenues from foreign operations for the three and nine months ended September 30, 2000 increased $10.9 million and $32.8 million, respectively, compared to the same periods of 1999, due to the performance on key projects in Egypt; Bangladesh; Ghana, West Africa; and Dabhol, India.
Backlog
The Company's contract backlog represents management's current estimate of the revenues which will be realized under the portion of the contracts remaining to be performed. 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
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Company's backlog includes only those projects for which the customer has provided an executed contract.
As of September 30, 2000, the Company had backlog of $231.7 million, which is comparable to backlog at September 30, 1999 of $233.6 million and reflects substantial improvement over backlog at June 30, 2000 of $172.6 million. The domestic bidding market accelerated in the third quarter of 2000, providing $269 million of bidding opportunities compared to only $190 million through the first six months of the year. During the quarter, the Company was the low bidder on work valued at $168 million, or 62% of the work let for bid during the period. This represents a significant change in the market as compared to the first half of 2000 when deep port and beach projects were postponed, resulting in aggressive bidding on the projects that were let for bid. Compounding the problem was the decline in the maintenance market from historical levels due to lower precipitation, which led to reduced Mississippi River dredging requirements. The strong bid market in the third quarter, however, restored the market to 1998 and 1999 levels. Additionally, the significant increase in bidding activity in the third quarter led to more favorable pricing and improved margins in the Company's backlog.
Domestic capital projects make up $125.4 million or 54.1% of the September 30, 2000 backlog. This includes work remaining on significant deep port capital projects in San Juan, Charleston, Long Beach, as well as additional work valued at $80.6 million relating to new projects in Wilmington and Baltimore. The majority of foreign capital project backlog is attributable to the projects in Ghana and India.
The beach market also saw improvement in the third quarter as a number of the beach nourishment projects which were postponed during the first half of the year due to administrative and funding delays, were subsequently let for bid. Projects valued at over $60 million were let for bid during the third quarter, and the Company added over $24 million to backlog for beach work. According to recent schedules provided by the Corps, additional beach projects, which the Company estimates are valued at approximately $90 million, remain scheduled for fourth quarter bids.
Results of Operations
Contract Revenues. Contract revenues were $81.1 million in the third quarter of 2000, an increase of 6.7%, from revenues of $76.0 million in the third quarter of 1999. For the nine months ended September 30, 2000, revenues increased 12.9% to $255.5 million from $226.3 million for the same period of 1999. The increase in 2000 third quarter and year to date revenues continues to be due to the high volume of domestic and foreign capital dredging projects, as well as high levels of equipment utilization due to favorable weather in the first quarter and improved mechanical equipment efficiency throughout the first half of the year.
Costs of Contract Revenues. Costs of contract revenues for the three months ended September 30, 2000 increased $9.3 million, or 15.4%, over the three months ended September 30, 1999. For the nine months ended September 30, 2000, costs of contract revenues increased $32.6 million, or 17.8%, over the same period of 1999. The increase in costs of contract revenues for the 2000 periods is a result of increased revenues. As a percentage of contract revenues, costs of contract revenues were 84.7% for the first three quarters of 2000 compared to 81.2% in the same 1999 period. Generally, contract margins continued to be strong through the first half of 2000 due to the favorable mix of higher margin domestic capital projects; however, this was offset by poor performance on the foreign joint venture project in Egypt, as well as anticipated lower margins on an increasing volume of foreign work in Ghana and India. Additionally, the third quarter was impacted by certain domestic projects which operated below margin levels of 1999 due to competitive pricing pressures in the bid market through the first half of the year.
Gross Profit. Gross profit was $11.0 million for the three months ended September 30, 2000, a decrease of $4.2 million or 27.7% over the three months ended September 30, 1999. For the nine
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months ended September 30, 2000, gross profit decreased $3.4 million or 8.0% over gross profit for the same period of 1999. The decline in 2000 was attributable to project mix, reflecting the increased proportion of lower margin foreign work and the reduced margins obtained on certain domestic projects.
General and Administrative Expenses. General and administrative expenses increased $0.9 million for the nine month period ended September 30, 2000, consistent with the overall growth in operations. Expenses for the 2000 and 1999 third quarters were essentially comparable.
Operating Income. Operating income was $5.8 million for the three months ended September 30, 2000, a decrease of $4.3 million compared to the three months ended September 30, 1999. For the nine months ended September 30, 2000, operating income declined $4.3 million, or 15.6% from the same period of 1999. The decline in 2000 continues to be a result of the project mix, with an increasing volume lower margin work.
EBITDA. EBITDA decreased $3.9 million or 30.1% to $9.1 million for the three months ended September 30, 2000 from $13.0 million for the three months ended September 30, 1999. EBITDA for the nine months ended September 30, 2000 was $32.9 million, a decrease of $3.5 million over the same period of 1999. The decrease in the 2000 third quarter and year to date levels was due to the increased volume of lower margin work performed during the period.
Interest Expense, Net. Net interest expense increased 7.2% and 3.4% for the three and nine month periods ended September 30, 2000, respectively, compared to the same periods for 1999. The Company has reduced senior debt to $44.5 million at September 30, 2000 from $53.8 million at September 30, 1999; however, this has been offset by increasing interest rates, resulting in slightly higher interest expense in 2000.
Equity in Earnings (Loss) of Joint Ventures. Equity in earnings of joint ventures was a loss of $0.1 million and $0.2 million for the nine months ended September 30, 2000 and 1999, respectively. The third quarter resulted in nominal levels of income in both years due to the normal seasonality of Amboy's revenues. However, the year to date losses for 2000 and 1999 reflect the ongoing reduction in demand for Amboy's products, which is expected to continue in the foreseeable future.
Income Tax Expense. Income tax expense for the three and nine month periods ended September 30, 2000 decreased $1.8 million and $2.1 million, respectively, due to decreased earnings in 2000. The effective tax rate for the nine month periods was relatively comparable at 47.0% and 46.4% for 2000 and 1999, respectively.
Minority Interests. For the three months ended September 30, 2000, the loss attributable to minority interests was $0.5, compared to income of $0.4 million for the three months ended September 30, 1999. For the nine months ended September 30, 2000, earnings attributable to minority interests was $0.2 million compared to a loss of $0.1 million for the same 1999 period. The loss during the third quarter of 2000, which impacts the year to date income amount, was due to work performed during the third quarter by the NATCO hopper dredging operations at lower than typical margins due to the competitive pricing pressures at the time the work was bid.
Net Income. Net income was $0.9 million for the three months ended September 30, 2000 compared to $2.8 million for the three months ended September 30, 1999, a decrease of 68.2%. Through September 30, 2000, net income was $4.7 million, compared to $7.6 million for the first nine months of 1999. The 2000 decrease reflects the reduced margins resulting from the mix of projects performed during the period.
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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 nine months ended September 30, 2000 and 1999 of $9.0 million and $10.6 million, respectively. The reduction in cash flows from operating activities for the 2000 period was due primarily to an increase in working capital related to normal fluctuations in working capital requirements.
The Company's net cash used in investing activities for the nine months ended September 30, 2000 and 1999, totaled $10.1 million and $7.3 million, respectively. The use of cash for investing activities generally relates to capital expenditures, which have been higher in 2000. In the first half of 1999, capital expenditures were offset by distributions of $2.8 million received from Riovia and a distribution of earnings from Amboy of $0.8 million. Additionally, funds were used in 1999 to make distributions of $1.7 million to minority interests related to 1998 earnings. In the first quarter of 2000, a distribution of $0.4 million was due to the minority interests, relating to the 1999 earnings of North American. However, this distribution was retained and reinvested in NATCO; therefore, no cash has been paid out for distributions to minority interests in 2000.
The Company's net cash flows from financing activities for the nine months ended September 30, 2000 and 1999 were a source of $0.5 million and a use of $1.8 million, respectively. The cash flows generated in the 2000 period were primarily a result of net borrowings on the revolver of $5.0 million, necessary to fund the increase in working capital throughout the period, offset by scheduled repayments of the term debt totaling $4.5 million. The 1999 period reflects the use of cash necessary to repurchase a portion of the Company's shares from a former officer, along with scheduled repayments of the term debt.
On July 13, 2000, the Company's backhoe dredge New York, one of 25 dredges the Company operates, suffered a fire. Repairs have been underway throughout the quarter and are substantially complete. Although the dredge has been out of service during this period, the damage is fully insured and the Company has been able to substitute alternative equipment for a portion of the dredge's scheduled work during the repair period. However, some portion of the dredge's scheduled work for 2000 is expected to be deferred to 2001.
Management believes cash flows from operations and available credit will be sufficient to finance operations, planned capital expenditures and debt service requirements for the 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.
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, as amended, is 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 does not expect the adoption of SFAS 133 to have a material impact on the Company's financial position, results of operations or cash flows.
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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 nine month period ended September 30, 2000, approximately 22.0% 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 September 30, 2000, the Company had outstanding foreign currency forward contracts with a notional value of $2.2 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 twelve to eighteen months, to reduce the impacts of changing fuel prices on operations. The Company does not purchase fuel hedges for trading purposes. At September 30, 2000, the Company had outstanding arrangements to hedge the price of a portion 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 in respect of fuel purchases related to work in backlog 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, 1999 did not have a significant impact on the fair value of the Company's term and revolving bank debt or fixed rate debt at September 30, 2000.
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Item 6. Exhibits and Reports on Form 8-K
(a) | Exhibits | ||
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27.01 |
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Financial Data Schedule |
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(b) |
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Reports on Form 8-K |
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No reports on Form 8-K were filed during the third quarter of 2000. |
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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.
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Great Lakes Dredge & Dock Corporation |
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Date: |
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November 13, 2000 |
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By: |
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/s/ DEBORAH A. WENSEL Deborah A. Wensel Vice President and Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer) |
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Number |
Document Description |
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2.01 |
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Plan and Agreement of Merger dated as of August 19, 1998 between the Company and Great Lakes Dredge & Dock Acquisition, Inc.(1) |
3.01 |
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Restated Certificate of Incorporation of the Company.(1) |
3.02 |
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Bylaws of the Company.(1) |
4.01 |
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Indenture dated as of August 19, 1998 among the Company, the Subsidiary Guarantors and the Bank of New York, as Trustee.(1) |
4.02 |
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Form of 111/4% Senior Subordinated Note due 2008 (included in Exhibit 4.01).(1) |
10.01 |
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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 |
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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 |
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Employment Agreement between the Company and Douglas B. Mackie.(2) |
10.06 |
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Great Lakes Annual Cash Bonus Plan.(2) |
10.07 |
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Securities Purchase and Holders Agreement dated August 19, 1998 among the Company, Vectura and the Management Investors.(2) |
10.08 |
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Registration Rights Agreement dated August 19, 1998 among the Company, Vectura, and the Management Investors.(2) |
10.09 |
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Employment Agreement between the Company and Richard Lowry.(2) |
10.10 |
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Amendment No. 1 dated October 8, 1999 to the Credit Agreement.(3) |
10.11 |
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Great Lakes Non-Union Hourly Employees 401(k) Savings Plan.(3) |
27.01 |
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Financial Data Schedule (filed only electronically with the SEC).(4) |
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