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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended June 30, 2003

OR

For the transition period from

Commission File Number 333-64687

GREAT LAKES DREDGE & DOCK CORPORATION

Registrant’ 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 o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes o   No x

     As of August 11, 2003, there were outstanding 16,169.82 shares of Class A Common Stock, 33,639 shares of Class B Common Stock and 44,857 shares of Preferred Stock.

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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, 2003

INDEX

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PART I — Financial Information

Great Lakes Dredge & Dock Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share amounts)

See notes to unaudited condensed consolidated financial statements.

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Great Lakes Dredge & Dock Corporation and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands)

See notes to unaudited condensed consolidated financial statements.

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Great Lakes Dredge & Dock Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)

See notes to unaudited condensed consolidated financial statements.

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands)

1.

Basis of presentation

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information. Accordingly, these financial statements do not include all the information in the notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations and cash flows as of and for the dates presented. The unaudited condensed consolidated financial statements and notes herein should be read in conjunction with the audited consolidated financial statements of Great Lakes Dredge & Dock Corporation and Subsidiaries (the “Company”) and the notes thereto, included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2002.

     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 dredging 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.

Comprehensive income

     Total comprehensive income comprises net income and net unrealized gains and losses on cash flow hedges. Total comprehensive income for the three months ended June 30, 2003 and 2002 was $2,534 and $5,681, respectively. Total comprehensive income for the six months ended June 30, 2003 and 2002 was $6,053 and $8,131, respectively.

4.

Risk management activities

     The Company uses derivative instruments to manage commodity price and foreign currency exchange risks. Such instruments are not used for trading purposes. As of June 30, 2003, the Company is party to various swap arrangements to hedge the price of a portion of its diesel fuel purchase requirements for work in its backlog to be performed through October 2004. As of June 30, 2003, there were 8.6 million gallons remaining on these contracts. Under these agreements, the Company will pay fixed prices ranging from $0.72 to $0.75 per gallon. At June 30, 2003 and December 31, 2002, the fair value on these contracts was estimated to be $290 and $169, respectively, based on quoted market prices, and is recorded in other current assets. Ineffectiveness related to these fuel hedge arrangements was determined to be immaterial. The remaining gains included in accumulated other comprehensive income at June 30, 2003 will be reclassified into earnings over the next sixteen months, corresponding to the period during which the hedged fuel is expected to be utilized.

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     The carrying values of other financial instruments included in current assets and current liabilities approximate fair values due to the short-term maturities of these instruments. The carrying value of long-term bank debt is a reasonable estimate of its fair value as interest rates are variable, based on the prevailing market rates. At June 30, 2003 and December 31, 2002, the Company had long-term subordinated notes outstanding with a recorded book value of $154,790 and $154,769, respectively. The fair value of these notes was $164,300 and $161,386 at June 30, 2003 and December 31, 2002, respectively, based on quoted market prices.

5.

Accounts receivable

     Accounts receivable at June 30, 2003 and December 31, 2002 are as follows:

6.

Contracts in progress

     The components of contracts in progress at June 30, 2003 and December 31, 2002 are as follows:

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7.

Accrued expenses

     Accrued expenses at June 30, 2003 and December 31, 2002 are as follows:

8.

Long-term debt

     In March 2003, the Company amended its Credit Agreement to increase its revolving credit facility from $70,000 to $80,000. The revolving credit facility may be used for borrowings or for letters of credit; it expires in 2006.

9.

Reverse stock split

     On April 29, 2003, the Company affected a 100 for 1 reverse stock split of its common stock, such that the number of authorized shares was reduced to 50,000 and the number of outstanding and issued shares reduced accordingly.

10.

Sale of interest in Riovia S.A.

     In May 2003, the Company concluded the sale of its interest in Riovia S.A., a venture whose sole business is the performance of a dredging contract in Argentina and Uruguay. The Company realized a gain of $470, which is reflected in equity from earnings of joint ventures in the statement of income.

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11.

Segment information

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

12.

Commitments and contingencies

Commitments:

     In the third quarter of 2003, the Company entered into an agreement to construct a barge for approximately $5,000 to be delivered in December. The Company also entered into an arrangement to sell two tugboats for approximately $5,200, which is expected to result in a financial gain to the Company upon receipt of the proceeds. The net book value of $2,897 related to the tugboats has been reclassified to assets held for sale of June 30, 2003.

Contingencies:

     At June 30, 2003, the Company is contingently liable, in the normal course of business, for $14,655 in undrawn letters of credit, with the majority relating primarily to contract performance guarantees and one covering the Company’s insurance payment liabilities.

     Amboy Aggregates, a joint venture in which the Company has a 50% equity interest, 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 $720 at June 30, 2003.

     In 1997, GLDD purchased rights to dispose of a certain quantity of dredged material in upland disposal sites in New Jersey at an original cost of $3,150 (land rights). In 2002, the Company entered into an agreement with the owner of the site setting forth amended terms and conditions that address the quantity and use of the land rights, among other matters. In 2003, the site owner utilized the remaining availability of the initial disposal site and Company management has learned that it is uncertain when future disposal sites will be made available for the Company to utilize its remaining disposal rights. The Company is currently pursuing action against the owner of the site, but based on the uncertainty of these circumstances, management believes there is a possibility that the Company’s recovery of the land rights at their recorded

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amount may be impaired. The Company will continue its assessment of whether its land rights may be impaired, as the outcome of these circumstances becomes known. The unused portion of the land rights is recorded at cost of $2,371 and is included in other current and non-current assets on the Company’s consolidated balance sheet at June 30, 2003.

     The Company finances certain key vessels used in its operations with off-balance sheet lease arrangements with unrelated lessors, requiring annual rentals of $17 to $18 million. These off-balance sheet leases contain default provisions which are triggered by an acceleration of debt maturity under the terms of the Company’s Credit Agreement. Additionally, the leases typically contain provisions whereby the Company indemnifies the lessors for the tax treatment attributable to such leases based on the tax rules in place at lease inception. The tax indemnifications do not have a contractual dollar limit. Additionally, it is impractical to develop an estimate of the maximum potential exposure under these lease indemnification arrangements, since it is entirely dependent on the unique tax circumstances of each lessor.

     Borrowings under the Company’s Credit Agreement are secured by first lien mortgages on certain operating equipment of the Company with a net book value of $35,892 at December 31, 2002. Additionally, the Company obtains its performance and bid bonds through a bonding agreement with a surety company that has been granted a security interest in a substantial portion of the Company’s operating equipment with a net book value of approximately $60,826 at December 31, 2002. The net book value of equipment serving as collateral under these agreements at June 30, 2003 does not materially differ from the values at December 31, 2002. Both the Credit Agreement and bonding agreement contain certain provisions and covenants; the Company is in compliance with such covenants at June 30, 2003. The performance and bid bonds are customarily required for dredging and marine construction projects, as well as some demolition projects. Bid bonds are generally obtained for a percentage of bid value and aggregate amounts outstanding typically range between $5 to $10 million. At June 30, 2003, the Company had outstanding performance bonds valued at approximately $400 million; however the revenue value remaining in backlog related to these projects totaled approximately $195 million at June 30, 2003.

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

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

     As is customary with negotiated contracts 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 adverse 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 adverse impact on the financial position or operations of the Company.

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13.

Supplemental condensed consolidating financial information

     Included in the Company’s long-term debt is $155,000 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 the Company’s domestic subsidiaries (the “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”). The Condensed Consolidating Statements of Operations and Cash Flows for the three and six months ended June 30, 2002 include the operations of NATCO Limited Partnership and North American Trailing Company within the non-guarantor subsidiary information. Pursuant to the Company’s acquisition of the minority partner’s remaining shares in November 2002, these entities were dissolved effective December 31, 2002 and all subsequent activity is conducted by Great Lakes Dredge & Dock Company, a wholly-owned subsidiary of the Company and a Subsidiary Guarantor.

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)

Condensed Consolidating Balance Sheet at June 30, 2003

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)

Condensed Consolidating Balance Sheet at December 31, 2002