GREAT LAKES DREDGE & DOCK CORP - 10-Q Quarterly Report

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 November 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.

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, 2003


Part I	Financial Information

	Item 1	Financial Statements (Unaudited)	Page

		Condensed Consolidated Balance Sheets at September 30, 2003 and December 31, 2002	2

		Condensed Consolidated Statements of Income for the Three and Nine Months ended September 30, 2003 and 2002	3

		Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2003 and 2002	4

		Notes to Unaudited Condensed Consolidated Financial Statements	5

	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

	Item 3	Quantitative and Qualitative Disclosures About Market Risk	24

	Item 4	Controls and Procedures	24

Part II	Other Information

	Item 5	Other Information	25

	Item 6	Exhibits and Reports on Form 8-K	25

Signature			25

Exhibit Index			26

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


					September 30,			December 31,
					2003			2002

				Assets
Current assets:
Cash and equivalents					$	746		$	1,456
Accounts receivable, net						59,432			52,125
Contract revenues in excess of billings						14,691			13,052
Inventories						14,812			13,282
Prepaid expenses and other current assets						17,753			18,283

		Total current assets				107,434			98,198
Property and equipment, net						138,393			139,419
Goodwill						28,894			29,405
Inventories						10,211			9,828
Investments in joint ventures						7,192			5,552
Other assets						4,122			5,084

		Total assets			$	296,246		$	287,486

				Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable					$	41,886		$	31,598
Accrued expenses						22,533			30,114
Billings in excess of contract revenues						4,812			10,915
Current maturities of long-term debt						1,762			11,000

		Total current liabilities				70,993			83,627
Long-term debt						171,800			161,769
Deferred income taxes						48,228			46,363
Other						6,363			5,787

		Total liabilities				297,384			297,546
Minority interest						1,760			2,346
Commitments and contingencies (Note 13)						—			—
Stockholders’ deficit:
	Preferred stock, $.01 par value; 250,000 shares authorized: 45,000 issued; 44,857 outstanding in 2003 and 2002					1			1
	Common stock, $.01 par value; 2003: 500,000 shares authorized, 50,000 shares issued and 49,808.82 shares outstanding; 2002: 50,000,000 shares authorized, 5,000,000 shares issued and 4,980,882 shares outstanding					50			50
	Additional paid-in capital					50,457			50,457
	Accumulated deficit					(53,242	)		(62,787	)
	Accumulated other comprehensive income					47			103
	Treasury stock, at cost; 143 preferred shares and 19,118 common shares in 2003 and 2002					(162	)		(162	)
	Note receivable from stockholder					(49	)		(68	)

			Total stockholders’ deficit			(2,898	)		(12,406	)

		Total liabilities and stockholders’ deficit			$	296,246		$	287,486

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


		Three Months Ended						Nine Months Ended
		September 30,						September 30,

		2003			2002			2003			2002

Contract revenues		$	98,104		$	100,055		$	302,161		$	263,443
Costs of contract revenues			80,001			80,339			250,912			214,715

	Gross profit		18,103			19,716			51,249			48,728
General and administrative expenses			6,768			8,387			20,208			21,713

	Operating income		11,335			11,329			31,041			27,015
Interest expense, net			(5,181	)		(5,415	)		(15,374	)		(16,009	)
Equity in earnings of joint ventures			319			127			1,063			209
Minority interests			(72	)		(419	)		(2	)		902

	Income before income taxes		6,401			5,622			16,728			12,117
Income tax expense			(2,836	)		(2,682	)		(7,183	)		(1,697	)

	Net income	$	3,565		$	2,940		$	9,545		$	10,420

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


				Nine Months Ended
				September 30,

				2003			2002

Operating Activities
Net income				$	9,545		$	10,420
Adjustments to reconcile net income to net cash flows from operating activities:
	Depreciation				12,202			11,755
	Earnings of equity method investments				(1,063	)		(209	)
	Minority interests				2			(902	)
	Deferred income taxes				1,567			(506	)
	Gain on dispositions of property and equipment				(805	)		(428	)
	Other, net				1,824			1,325
	Changes in assets and liabilities:
		Accounts receivable, net			(7,307	)		(15,379	)
		Contract revenues in excess of billings			(1,639	)		9,929
		Inventories			(1,913	)		1,760
		Prepaid expenses and other current assets			3,158			1,760
		Accounts payable and accrued expenses			2,707			(10,187	)
		Billings in excess of contract revenues			(6,103	)		2,522

			Net cash flows from operating activities		12,175			11,860
Investing Activities
Purchases of property and equipment					(14,179	)		(14,862	)
Dispositions of property and equipment					838			5,413
Disposition of interest in Riovia investment					1,200			—
Purchase portion of minority interests’ share in North American Site Developers, Inc.					(75	)		—
Equity investment in land acquisition					(1,047	)		—

			Net cash flows from investing activities		(13,263	)		(9,449	)
Financing Activities
Repayments of long-term debt					(9,238	)		(8,000	)
Borrowings of revolving loans, net of repayments					10,000			6,000
Financing fees					(403	)		—
Repayment on note receivable from stockholder					19			18

			Net cash flows from financing activities		378			(1,982	)

Net change in cash and equivalents					(710	)		429
Cash and equivalents at beginning of period					1,456			2,590

Cash and equivalents at end of period				$	746		$	3,019

Supplemental Cash Flow Information
	Cash paid for interest			$	18,777		$	19,296

	Cash paid for taxes			$	6,294		$	4,002

Supplemental Schedule of Noncash Investing and Financing Activities
	Reclass of property and equipment to assets held for sale, a component of prepaid expenses and other current assets			$	2,970		$	—

	Issuance of common stock to certain members of management; shares issued from treasury stock			$	—		$	50

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

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.

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.

Total comprehensive income comprises net income and net unrealized gains and losses on cash flow hedges. Total comprehensive income for the three months ended September 30, 2003 and 2002 was $3,436 and $3,176, respectively. Total comprehensive income for the nine months ended September 30, 2003 and 2002 was $9,489 and $11,307, respectively.

The Company uses derivative instruments to manage commodity price and foreign currency exchange risks. Such instruments are not used for trading purposes. As of September 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 September 30, 2003, there were 8.0 million gallons remaining on these contracts. Under these agreements, the Company will pay fixed prices ranging from $0.72 to $0.78 per gallon. At September 30, 2003 and December 31, 2002, the fair value on these contracts was estimated to be $77 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 September 30, 2003 will be reclassified into earnings over the next thirteen months, corresponding to the period during which the hedged fuel is expected to be utilized.

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 September 30, 2003 and December 31, 2002, the Company had long-term subordinated notes outstanding with a recorded book value of $154,800 and $154,769, respectively. The fair value of these notes was $163,525 and $161,386 at September 30, 2003 and December 31, 2002, respectively, based on quoted market prices.

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


		September 30,			December 31,
		2003			2002

Costs and earnings in excess of billings:
	Costs and earnings for contracts in progress	$	273,601		$	190,837
	Amounts billed		(260,059	)		(179,468	)

Costs and earnings in excess of billings for contracts in progress			13,542			11,369
Costs and earnings in excess of billings for completed contracts			1,149			1,683

		$	14,691		$	13,052

Prepaid contract costs (included in prepaid expenses and other current assets)		$	901		$	3,218

Billings in excess of costs and earnings:
	Amounts billed	$	(105,660	)	$	(69,909	)
	Costs and earnings for contracts in progress		100,848			58,994

		$	(4,812	)	$	(10,915	)

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.

The Company has authorized and issued 250,000 and 45,000 shares, respectively, of preferred stock. The preferred stock has a stated value of $1,000 per share and is entitled to annual dividends, if declared. Such dividends are cumulative, whether or not declared, and accrue at the rate of 12%, compounding annually. The preferred stock may be redeemed at any time at the option of the Company at its stated value plus cumulative dividends accrued and unpaid thereon. At September 30, 2003 and December 31, 2002, dividends in arrears on the preferred stock were $35,053 and $28,719, respectively. At December 31, 2002, the Company had authorized and issued 25,000,000 and 1,636,100 shares, respectively, of class A voting common stock, and 25,000,000 and 3,363,900 shares, respectively, of class B nonvoting common stock, with a par value of $.01 per share. 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, in total, and the number of issued and outstanding shares reduced accordingly

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.

11. Purchase of minority interest’s share in North American Site Developers, Inc.

On September 30, 2003, the Company paid $75 to purchase all the shares of one of the management stockholders of North American Site Developers, Inc. (“NASDI”), in connection with his voluntary termination from NASDI. The purchase price was determined in accordance with the terms of the NASDI Stock Purchase Agreement. The Company applied purchase accounting on a preliminary basis, which resulted in a reduction of goodwill in the amount of $511. This accounting is subject to adjustment; however, the Company does not expect that such adjustments will have a material effect on its consolidated financial statements.

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:


		Three Months Ended				Nine Months Ended
		September 30,				September 30,

		2003		2002		2003		2002

Dredging
	Contract revenues	$	88,028	$	82,223	$	274,225	$	224,573
	Operating income		9,879		7,806		29,002		20,276
Demolition
	Contract revenues	$	10,076	$	17,832	$	27,936	$	38,870
	Operating income		1,456		3,523		2,039		6,739
Total
	Contract revenues	$	98,104	$	100,055	$	302,161	$	263,443
	Operating income		11,335		11,329		31,041		27,015

In the third quarter of 2003, the Company entered into an agreement to construct a barge for approximately $5,000 to be delivered in January 2004. 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 $2,970 related to the tugboats has been reclassified to assets held for sale as of September 30, 2003.

Also in the third quarter of 2003, the Company committed to purchase two dredging vessels and certain ancillary equipment, all of which was under an operating lease, for approximately $15,000 under terms consistent with the lease agreement. The purchase was concluded in October using borrowings under the Company’s revolving credit facility.

At September 30, 2003, the Company is contingently liable, in the normal course of business, for $16,376 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 $159 at September 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 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 $2,276 and is included in other current and non-current assets on the Company’s consolidated balance sheet at September 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 September 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 September 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 September 30, 2003, the Company had outstanding performance bonds valued at approximately $380 million; however the revenue value remaining in backlog related to these projects totaled approximately $190 million at September 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.

On November 12, 2003, Great Lakes Dredge & Dock Corporation signed a definitive agreement along with its current majority-owner, Vectura Holding Company LLC, a portfolio company of Citigroup Venture Capital Ltd., to sell the Company to an affiliate of Chicago-based private equity investment firm, Madison Dearborn Partners, LLC, for $340 million in cash. All financing necessary to complete the transaction has been committed and the sale is currently targeted to close by the end of 2003.

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 nine months ended September 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.

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


			Guarantor		Other		GLD						Consolidated
			Subsidiaries		Subsidiaries		Corporation			Eliminations			Totals

ASSETS
Current assets:
	Cash and equivalents		$	734	$	12	$	—		$	—		$	746
	Accounts receivable, net			59,432		—		—			—			59,432
	Receivables from affiliates			23,974		2,952		6,000			(32,926	)		—
	Contract revenues in excess of billings			14,691		—		—			—			14,691
	Inventories			14,812		—		—			—			14,812
	Prepaid expenses and other current assets			16,101		—		1,652			—			17,753

		Total current assets		129,744		2,964		7,652			(32,926	)		107,434
Property and equipment, net				103,424		38		34,931			—			138,393
Goodwill				28,894		—		—			—			28,894
Investments in subsidiaries				5,294		—		145,007			(150,301	)		—
Notes receivable from affiliates				—		—		10,500			(10,500	)		—
Inventories				10,211		—		—			—			10,211
Investments in joint ventures				7,192		—		—			—			7,192
Other assets				2,293		—		1,829			—			4,122

			$	287,052	$	3,002	$	199,919		$	(193,727	)	$	296,246

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
	Accounts payable		$	41,881	$	—	$	—		$	5		$	41,886
	Payables to affiliates			12,992		—		13,932			(26,924	)		—
	Accrued expenses			16,083		—		6,450			—			22,533
	Billings in excess of contract revenues			4,812		—		—			—			4,812
	Current maturities of long-term debt			6,000		—		1,762			(6,000	)		1,762

		Total current liabilities		81,768		—		22,144			(32,919	)		70,993
Long-term debt				3,000		—		168,800			—			171,800
Notes payable to affiliates				10,500		—		—			(10,500	)		—
Deferred income taxes				37,034		7		11,187			—			48,228
Other				5,677		—		686			—			6,363

		Total liabilities		137,979		7		202,817			(43,419	)		297,384
Minority interests				—		—		—			1,760			1,760
Stockholders’ equity (deficit)				149,073		2,995		(2,898	)		(152,068	)		(2,898	)

			$	287,052	$	3,002	$	199,919		$	(193,727	)	$	296,246

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


			Guarantor		Other		GLD						Consolidated
			Subsidiaries		Subsidiaries		Corporation			Eliminations			Totals

ASSETS
Current assets:
	Cash and equivalents		$	1,451	$	5	$	—		$	—		$	1,456
	Accounts receivable, net			52,125		—		—			—			52,125
	Receivables from affiliates			7,970		2,983		—			(10,953	)		—
	Contract revenues in excess of billings			13,052		—		—			—			13,052
	Inventories			13,282		—		—			—			13,282
	Prepaid expenses and other current assets			17,132		—		1,151			—			18,283

		Total current assets		105,012		2,988		1,151			(10,953	)		98,198
Property and equipment, net				101,889		86		37,444			—			139,419
Goodwill				29,405		—		—			—			29,405
Investments in subsidiaries				3,044		—		126,494			(129,538	)		—
Notes receivable from affiliates				—		—		21,000			(21,000	)		—
Inventories				9,828		—		—			—			9,828
Investments in joint ventures				5,552		—		—			—			5,552
Other assets				2,671		—		2,413			—			5,084

			$	257,401	$	3,074	$	188,502		$	(161,491	)	$	287,486

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
	Accounts payable		$	31,809	$	—	$	(108	)	$	(103	)	$	31,598
	Payables to affiliates			3,945		—		7,008			(10,953	)		—
	Accrued expenses			18,658		—		11,456			—			30,114
	Billings in excess of contract revenues			10,915		—		—			—			10,915
	Current maturities of long-term debt			6,000		—		11,000			(6,000	)		11,000

		Total current liabilities		71,327		—		29,356			(17,056	)		83,627
Long-term debt				3,000		—		158,769			—			161,769
Notes payable to affiliates				15,000		—		—			(15,000	)		—
Deferred income taxes				34,233		30		12,100			—			46,363
Other				5,104		—		683			—			5,787

		Total liabilities		128,664		30		200,908			(32,056	)		297,546
Minority interests				—		—		—			2,346			2,346
Stockholders’ equity (deficit)				128,737		3,044		(12,406	)		(131,781	)		(12,406	)

			$	257,401	$	3,074	$	188,502		$	(161,491	)	$	287,486

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, 2003


		Guarantor			Other			GLD						Consolidated
		Subsidiaries			Subsidiaries			Corporation			Eliminations			Totals

Contract revenues		$	98,104		$	—		$	—		$	—		$	98,104
Costs of contract revenues			(79,719	)		(15	)		(267	)		—			(80,001	)

	Gross profit (loss)		18,385			(15	)		(267	)		—			18,103
General and administrative expenses			(6,738	)		(16	)		(14	)		—			(6,768	)

	Operating income (loss)		11,647			(31	)		(281	)		—			11,335
Interest expense, net			(613	)		—			(4,568	)		—			(5,181	)
Equity in (loss) earnings of subsidiaries			(27	)		—			6,519			(6,492	)		—
Equity in earnings of joint ventures			319			—			—			—			319
Minority interests			—			—			—			(72	)		(72	)

	Income (loss) before income taxes		11,326			(31	)		1,670			(6,564	)		6,401
Income tax (expense) benefit			(4,716	)		13			1,867			—			(2,836	)

	Net income (loss)	$	6,610		$	(18	)	$	3,537		$	(6,564	)	$	3,565

Condensed Consolidating Statement of Income for the three months ended September 30, 2002


		Guarantor			Other			GLD						Consolidated
		Subsidiaries			Subsidiaries			Corporation			Eliminations			Totals

Contract revenues		$	89,406		$	18,394		$	—		$	(7,745	)	$	100,055
Costs of contract revenues			(71,634	)		(15,983	)		(467	)		7,745			(80,339	)

	Gross profit (loss)		17,772			2,411			(467	)		—			19,716
General and administrative expenses			(6,829	)		(1,524	)		(34	)		—			(8,387	)

	Operating income (loss)		10,943			887			(501	)		—			11,329
Interest expense, net			(1,573	)		(101	)		(3,741	)		—			(5,415	)
Equity in earnings of subsidiaries			461			—			6,041			(6,502	)		—
Equity in earnings of joint ventures			127			—			—			—			127
Minority interests			—			—			—			(419	)		(419	)

	Income before income taxes		9,958			786			1,799			(6,921	)		5,622
Income tax (expense) benefit			(3,634	)		(189	)		1,141			—			(2,682	)

	Net income	$	6,324		$	597		$	2,940		$	(6,921	)	$	2,940

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, 2003


		Guarantor			Other			GLD						Consolidated
		Subsidiaries			Subsidiaries			Corporation			Eliminations			Totals

Contract revenues		$	302,161		$	—		$	—		$	—		$	302,161
Costs of contract revenues			(249,866	)		(47	)		(889	)		(110	)		(250,912	)

	Gross profit (loss)		52,295			(47	)		(889	)		(110	)		51,249
General and administrative expenses			(20,104	)		(38	)		(66	)		—			(20,208	)

	Operating income (loss)		32,191			(85	)		(955	)		(110	)		31,041
Interest expense, net			(1,950	)		—			(13,424	)		—			(15,374	)
Equity in (loss) earnings of subsidiaries			(78	)		—			18,554			(18,476	)		—
Equity in earnings of joint ventures			1,063			—			—			—			1,063
Minority interests			—			—			—			(2	)		(2	)

	Income (loss) before income taxes		31,226			(85	)		4,175			(18,588	)		16,728
Income tax (expense) benefit			(12,702	)		36			5,483			—			(7,183	)

	Net income (loss)	$	18,524		$	(49	)	$	9,658		$	(18,588	)	$	9,545

Condensed Consolidating Statement of Income for the nine months ended September 30, 2002


		Guarantor			Other			GLD						Consolidated
		Subsidiaries			Subsidiaries			Corporation			Eliminations			Totals

Contract revenues		$	232,817		$	50,510		$	—		$	(19,884	)	$	263,443
Costs of contract revenues			(183,253	)		(49,945	)		(1,401	)		19,884			(214,715	)

	Gross profit (loss)		49,564			565			(1,401	)		—			48,728
General and administrative expenses			(17,010	)		(4,577	)		(126	)		—			(21,713	)

	Operating income (loss)		32,554			(4,012	)		(1,527	)		—			27,015
Interest expense, net			(2,854	)		(419	)		(12,736	)		—			(16,009	)
Equity in (loss) earnings of subsidiaries			(3,682	)		—			20,355			(16,673	)		—
Equity in earnings of joint ventures			209			—			—			—			209
Minority interests			—			—			—			902			902

	Income (loss) before income taxes		26,227			(4,431	)		6,092			(15,771	)		12,117
Income tax (expense) benefit			(5,507	)		(518	)		4,328			—			(1,697	)

	Net income (loss)	$	20,720		$	(4,949	)	$	10,420		$	(15,771	)	$	10,420

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

Condensed Consolidating Cash Flows for the nine months ended September 30, 2003


			Guarantor			Other			GLD						Consolidated
			Subsidiaries			Subsidiaries			Corporation			Eliminations			Totals

Operating Activities
Net income (loss)			$	18,524		$	(49	)	$	9,658		$	(18,588	)	$	9,545
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
	Depreciation			9,808			48			2,346			—			12,202
	Earnings of subsidiaries and equity method investments			(985	)		—			(18,664	)		18,586			(1,063	)
	Minority interests			—			—			—			2			2
	Deferred income taxes			2,329			(23	)		(739	)		—			1,567
	Gain on dispositions of property and equipment			(805	)		—			—			—			(805	)
	Other, net			811			—			1,013			—			1,824
	Changes in assets and liabilities:						—
		Accounts receivable, net		(7,242	)		—			(65	)		—			(7,307	)
		Contract revenues in excess of billings		(1,639	)		—			—			—			(1,639	)
		Inventories		(1,913	)		—			—			—			(1,913	)
		Prepaid expenses and other current assets		3,642			—			(484	)		—			3,158
		Accounts payable and accrued expenses		7,514			—			(4,807	)		—			2,707
		Billings in excess of contract revenues		(6,103	)		—			—			—			(6,103	)

	Net cash flows from operating activities			23,941			(24	)		(11,742	)		—			12,175
Investing Activities
Purchases of property and equipment				(14,179	)		—			—			—			(14,179	)
Dispositions of property and equipment				838			—			—			—			838
Disposition of interest in Riovia investment				1,200			—			—			—			1,200
Purchase portion of minority interests’ share in North American Site Developers, Inc				(75	)		—			—			—			(75	)
Equity investment in land acquisition				(1,047	)		—			—			—			(1,047	)

	Net cash flows from investing activities			(13,263	)		—			—			—			(13,263	)
Financing Activities
Repayments of long-term debt				—			—			(9,238	)		—			(9,238	)
Borrowings of revolving loans, net of repayments				—			—			10,000			—			10,000
Net change in accounts with affiliates				(11,414	)		31			11,383			—			—
Financing fees				—			—			(403	)		—			(403	)
Repayments on note receivable from stockholder				19			—			—			—			19

	Net cash flows from financing activities			(11,395	)		31			11,742			—			378

	Net change in cash and equivalents			(717	)		7			—			—			(710	)
	Cash and equivalents at beginning of period			1,451			5			—			—			1,456

	Cash and equivalents at end of period		$	734		$	12		$	—		$	—		$	746

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, 2002


			Guarantor			Other			GLD						Consolidated
			Subsidiaries			Subsidiaries			Corporation			Eliminations			Totals

Operating Activities
Net income (loss)			$	20,720		$	(4,949	)	$	10,420		$	(15,771	)	$	10,420
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
	Depreciation			8,180			1,588			1,987			—			11,755
	Loss (earnings) of subsidiaries and equity method investments			3,682			—			(20,564	)		16,673			(209	)
	Minority interests			—			—			—			(902	)		(902	)
	Deferred income taxes			193			7			(706	)		—			(506	)
	Gain on dispositions of property and equipment			(428	)		—			—			—			(428	)
	Other, net			1,895			(26	)		(544	)		—			1,325
	Changes in assets and liabilities:
		Accounts receivable		(12,305	)		(3,074	)		—			—			(15,379	)
		Contract revenues in excess of billings		11,343			(1,414	)		—			—			9,929
		Inventories		1,723			37			—			—			1,760
		Prepaid expenses and other current assets		(176	)		2,138			(202	)		—			1,760
		Accounts payable and accrued expenses		(3,422	)		(2,098	)		(4,667	)		—			(10,187	)
		Billings in excess of contract revenues		2,098			424			—			—			2,522

	Net cash flows from operating activities			33,503			(7,367	)		(14,276	)		—			11,860
Investing Activities
Purchases of property and equipment				(14,177	)		(685	)		—			—			(14,862	)
Dispositions of property and equipment				5,413			—			—			—			5,413

	Net cash flows from investing activities			(8,764	)		(685	)		—			—			(9,449	)
Financing Activities
Repayments of long-term debt				—			—			(8,000	)		—			(8,000	)
Borrowings of revolving loans, net of repayments				—			—			6,000			—			6,000
Principal receipts (payments) on capital leases				—			(1,661	)		1,661			—			—
Net change in accounts with affiliates				(26,177	)		11,580			14,597			—			—
Repayment on note receivable from stockholder				—			—			18			—			18

	Net cash flows from financing activities			(26,177	)		9,919			14,276			—			(1,982	)

	Net change in cash and equivalents			(1,438	)		1,867			—			—			429
	Cash and equivalents at beginning of period			2,515			75			—			—			2,590

	Cash and equivalents at end of period		$	1,077		$	1,942		$	—		$	—		$	3,019

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 those described in the Risk Factors section of Item 1 of the Company’s Form S-4 Registration Statement (Registration No. 333-60300), 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.

The Company is the largest provider of dredging services in the United States. Dredging generally involves the enhancement or preservation of the 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 and Beach Nourishment, in which the Company experienced an average combined U.S. bid market share of 42% over the last three years. The Company’s bid market is defined as the population of projects on which it bid or could have bid if not for capacity constraints (“bid market”). In addition, the Company has continued its role as the only U.S. dredging contractor with significant international operations, which averaged 16% of its contract revenues over the last three years.

The Company also owns 85% of the capital stock of North American Site Developers, Inc. (“NASDI”), a demolition service provider located in the Boston, Massachusetts area. NASDI’s principal services consist of interior and exterior demolition of commercial and industrial buildings, salvage and recycling of related materials, and removal of hazardous substances and materials. One NASDI management stockholder retains a 15% non-voting interest in NASDI.

The Company’s equity in earnings of joint ventures relates to the Company’s 50% ownership interest in Amboy Aggregates (“Amboy”) which is accounted for using the equity method. Through November 2002, the Company conducted 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”). On November 25, 2002, the Company purchased its foreign minority partner’s interests in NATCO and North American for $4.5 million. These subsidiary entities were dissolved at the end of 2002, and all hopper dredging activities are now being conducted by Great Lakes Dredge & Dock Company, a wholly-owned dredging subsidiary of the Company. Therefore, minority interest solely reflects the NASDI management stockholder’s 15% interest in NASDI.

The following table sets forth the components of net income and EBITDA as a percentage of contract revenues for the three and nine months ended September 30, 2003 and 2002:


		Three Months Ended						Nine Months Ended
		September 30,						September 30,

		2003			2002			2003			2002

Contract revenues			100.0	%		100.0	%		100.0	%		100.0	%
Costs of contract revenues			(81.5	)		(80.3	)		(83.0	)		(81.5	)

	Gross profit		18.5			19.7			17.0			18.5
General and administrative expenses			(6.9	)		(8.4	)		(6.7	)		(8.2	)

	Operating income		11.6			11.3			10.3			10.3
Interest expense, net			(5.3	)		(5.4	)		(5.1	)		(6.0	)
Equity in earnings of joint ventures			0.3			0.1			0.3			—
Minority interest			(0.1	)		(0.4	)		—			0.3

	Income before income taxes		6.5			5.6			5.5			4.6
Income tax expense			(2.9	)		(2.7	)		(2.4	)		(0.6	)

	Net income		3.6	%		2.9	%		3.1	%		4.0	%

EBITDA			15.7	%		15.2	%		14.3	%		14.7	%

“EBITDA,” as provided herein, represents earnings from continuing operations before interest expense (net), income taxes and depreciation expense, and excludes equity in earnings from joint ventures and minority interests. 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. The Company believes EBITDA is a useful measure for the users of its financial statements because it provides information that can be used to evaluate the effectiveness of the Company’s business from an operational perspective, exclusive of costs to finance its activities, income taxes, depreciation of operating assets, and equity in earnings from joint ventures and minority interests, none of which is directly relevant to the efficiency of its operations. The Company’s measure of EBITDA may not be comparable to similar measurements used by other companies and should not be construed as a substitute for other performance or liquidity measures such as net income, operating income or operating cash flows reported in accordance with accounting principles generally accepted in the United States of America (GAAP).

The following table sets forth, by segment and dredging type of work, the Company’s contract revenues for the three and nine months ended and backlog as of the periods indicated:


		Three Months Ended				Nine Months Ended
		September 30,				September 30,

Revenues (in thousands)		2003		2002		2003		2002

Dredging:
	Capital — U.S	$	54,717	$	35,923	$	165,145	$	80,969
	Capital — foreign		21,459		14,745		51,010		42,680
	Beach		298		13,335		31,371		64,112
	Maintenance		11,554		18,220		26,699		36,812
Demolition			10,076		17,832		27,936		38,870

		$	98,104	$	100,055	$	302,161	$	263,443

						September 30,

Backlog (in thousands)						2003		2002

Dredging:
	Capital — U.S					$	139,198	$	239,626
	Capital — foreign						32,371		64,264
	Beach						30,356		39,825
	Maintenance						16,345		13,721
Demolition							11,686		18,321

						$	229,956	$	375,757

Third quarter 2003 revenues were $98.1 million, compared to third quarter 2002 revenues of $100.0 million. Revenues for the first nine months of 2003 were $302.2 million, an increase of $38.8 million or 14.7% over revenues for the first nine months of 2002 of $263.4 million. While

the third quarter revenues for 2003 and 2002 were at similar levels, there was a proportionately higher amount of domestic and foreign capital dredging work in the 2003 period. On a year to date basis, the increase in 2003 revenues continues to be predominantly a result of additional domestic capital dredging work, much of which was in the 2002 year-end backlog. Gross profit margins for the third quarter of 2003 were 18.5% compared to 19.7% for the third quarter of 2002, and 17.0% compared to 18.5% for the first nine months of 2003 and 2002, respectively. Although revenues benefited from the additional capital work, 2003 gross profit margins for the third quarter and year to date declined from 2002 levels, due to the impact of lower margins achieved on certain demolition projects. While NASDI’s performance improved in the third quarter, NASDI continues to be impacted by additional competition in the demolition industry as the economy has slowed, and margins have tightened accordingly throughout 2003.

Capital projects include large port deepenings and other infrastructure projects. Domestic capital dredging revenue increased $18.8 million and $84.2 million and in the third quarter and first nine months of 2003, respectively, as compared to the same periods of 2002. As mentioned previously, this is a result of the significant amount of capital project backlog added in 2002. The 2002 domestic dredging bid market was significantly larger than in prior years and heavily weighted toward Deep Port capital work. The Company successfully bid and won over 60% of the 2002 Deep Port bid market and continues to perform on some of these projects. As discussed in previous filings, the Deep Port projects were authorized by the 1986 Water Resource Development Act (“WRDA”) and subsequent bills. In 1997, the Army Corps of Engineers (“Corps”) announced Deep Port work, authorized by WRDA, to be completed through 2005, with a value in excess of $2.0 billion, and supplemental authorizations have increased this amount to approximately $4.0 billion, with work to be completed through 2010. Since the 1997 announcement, numerous projects with a combined revenue value of over $1.3 billion have been let for bid and awarded through the third quarter of 2003. The Company has been the low bidder on projects with a total value in excess of $600 million, representing 46% of the total let for bid and awarded.

During the third quarter of 2003, the Company continued work on the Deep Port projects in Kill Van Kull, New York; Jacksonville Harbor, Florida; and Wilmington Harbor, North Carolina, which contributed combined revenue to the quarter of $35.0 million. The Deep Port projects in Houston, Texas and Los Angeles, California contributed an additional $3.1 million; however most of this revenue was related to subcontractors and other preparatory work being performed prior to commencement of the dredging portion of these projects. The new work capital project along the Providence River and harbor in the Rhode Island area added another $6.5 million of revenue to the quarter. During the quarter, the Company completed its dredging assignment in Umm Qasr, Iraq, the purpose of which was to enable aid ships to enter the port area to offload. Revenue for this work in Iraq, along with continuing work on the projects in Bahrain; Ghana; and Alexandria, Egypt totaled $20.6 million for the quarter.

Beach nourishment projects include rebuilding of shoreline areas which have been damaged by storm activity or ongoing erosion. Third quarter and year to date 2003 revenues from beach nourishment projects decreased $13.0 million and $32.7 million, respectively, due primarily to the low volume of beach bidding activity in the first half of 2003. The Company performed only minimal beach work during the quarter relating to the start-up of an emergency dredging project to repair a breach caused by Hurricane Isabel in the outer banks at Cape Hatteras, North Carolina.

Maintenance projects include routine dredging of ports, rivers and channels to remove the regular build up of sediment. Maintenance revenues declined $6.7 million and $10.1 million in the third quarter and first nine months of 2003, respectively, compared to the same periods of 2002. The

decline in maintenance revenue was anticipated as the Company’s fleet continues to be highly utilized performing capital dredging projects, which is generally higher margin work. Third quarter maintenance revenues were primarily derived from a number of dredge rental projects along the Mississippi River, as well as a few other typical Corps maintenance projects.

NASDI’s demolition revenue for the third quarter and first nine months of 2003 declined $7.8 million and $10.9 million, respectively, from the same periods of 2002, as a result of the slow down in the economy. NASDI’s third quarter activity included work on a large number of small demolition and site remediation projects in the Boston area, as well as continuing work on a couple of larger projects including Quarry Street in Quincy and the Equity Office Building in Boston.

Net interest expense for the third quarter and first nine months of 2003 declined slightly from the same periods of 2002, due to a reduction in the Company’s bank borrowings. Minority interest for the 2003 periods reflects the expense to the Company due solely to NASDI’s earnings in the periods, whereas the 2002 minority interest amounts also include the impact of NATCO’s operations.

The Company’s effective income tax rate for the third quarter and first nine months of 2003 was approximately 43% compared to approximately 42% and 13% for the same periods of 2002. On a year to date basis, 2002 benefited from a significant tax deduction taken in the second quarter. Net income was $3.6 million for the third quarter of 2003, compared to $2.9 million for the third quarter of 2002. For the first nine months of 2003, net income was $9.5 million compared to $10.4 million for the same period of 2002. Net income for the 2002 year to date period was favorably impacted by the significant tax deduction. EBITDA (as defined on page 18) was $15.4 million and $43.2 million for the quarter and nine months ended September 30, 2003, compared to $15.2 million and $38.8 million for the same periods of 2002. EBITDA improved in 2003 as a result of the increase in domestic capital dredging revenues, but was impacted by the lower margins achieved in the demolition segment.

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 a substantial portion of the Company’s backlog relates to government contracts, the Company’s backlog can be canceled at any time without penalty. However, the Company can generally recover the 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 September 30, 2003, the Company had dredging backlog of $218.3 million, which compares to dredging backlog of $357.4 million at September 30, 2002 and $244.7 million at June 30, 2003. Bidding activity through the first half of 2003 was unusually slow and resulted in a dredging bid market for the six months totaling only $162 million. However, as anticipated, bidding activity did accelerate in the third quarter resulting in a third quarter dredging bid market of $185 million, bringing the year to date bid market to $347 million. As a result of the reduced bid market early in the year, competition was increased for those bids that did come out. This, coupled with the Company’s equipment commitments resulting from its successful bidding

performance in 2002, contributed to the Company winning only 25% of the work bid and awarded through September 2003. While lower than its average historical bid market share of recent years, the Company has still won more of the 2003 work than any other individual competitor, as a result of two second-tier competitors each winning a significant project in the first part of 2003, which more greatly dispersed the results. Based on recent bid schedules provided by the Corps, it is anticipated that the fourth quarter bid market should continue to reflect typical bidding levels, but it is unlikely that the annual bid market will approach the levels seen in recent years.

Backlog at September 30, 2003 continues to be concentrated in the domestic capital dredging market. The Deep Port capital work, which is generally higher margin work, makes up approximately 41% of total backlog and much of this work will be performed throughout the remainder of 2003 and into 2004. Domestic capital backlog at September 30, 2003 includes work remaining on Deep Port projects in Kill Van Kull, New York; Los Angeles, California; Houston, Texas; Wilmington, North Carolina; and Manatee Harbor, Florida. Foreign capital project backlog, which comprises $32 million or 14% of the September 30, 2003 backlog, relates primarily to the long-term project in Bahrain, as well as work remaining on the projects in Ghana, which is substantially complete and in the process of demobilizing, and Alexandria, Egypt, which was bid and won in the first quarter of 2003.

Beach backlog at September 30, 2003 totaled $30.4 million, the majority of which was added in the third quarter. Beach work is often bid in the second half of the year, since the work is generally performed between the months of September to March, due to environmental restrictions. During the quarter, seven beach projects were bid and awarded with a value of approximately $60 million, of which the Company won four valued at $43 million, although a portion of this represents project options which are still pending award at September 30, 2003 and have therefore not been reflected in backlog. The Company continues to monitor schedules provided by project owners which identify additional beach nourishment projects valued in excess of $100 million, the majority of which are expected to bid over the next six months. This includes a large project in Miami Beach which will be re-bid, a few other projects likely to be in excess of $10 million in Florida, North Carolina and Alabama, as well as numerous other smaller projects.

Maintenance backlog at September 30, 2003 was $16.3 million, which represents a typical level for the Company at this point in the year. There were numerous $3 to $5 million projects let for bid during the quarter, and the Company focused on obtaining those projects that would enable it to utilize its available equipment.

The demolition backlog level at September 30, 2003 was $11.7 million, which compares to $18.3 million at September 30, 2002 and $15.5 million at June 30, 2003. While NASDI has continued to encounter additional competition given the slow-down in the economy, the demolition bidding activity has started to increase and NASDI’s management anticipates that a few larger projects will be awarded within the next six months, which will have the potential to improve margins in this segment.

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’s net cash generated by operating activities for the nine months ended September 30, 2003 and 2002 totaled $12.2 million and $11.9 million, respectively. The fluctuation between years is primarily a result of the normal timing differences on the recognition and billing of revenues.

The Company’s net cash flows used in investing activities were $13.3 million compared to $9.4 million for the first nine months of 2003 and 2002, respectively. The use of cash relates primarily to equipment acquisitions, offset by proceeds on the sale of equipment, including approximately $4.8 million related to the sale of a barge in 2002, which was subsequently leased back under an operating lease. In 2003, the Company also utilized $1.0 million to purchase 50% of a real estate interest related to its Amboy joint venture and received $1.2 million related to the sale of its joint venture investment in Riovia.

In the third quarter of 2003, the Company entered into an agreement to construct a barge for approximately $5.0 million to be delivered in January 2004. The Company has also entered into an arrangement to sell two tugboats for approximately $5.2 million, which is expected to result in a financial gain to the Company upon receipt of the proceeds.

Also in the third quarter of 2003, the Company committed to purchase two dredging vessels and some ancillary equipment, all of which were under an operating lease, for approximately $15 million under terms consistent with the lease agreement. The purchase was concluded in October using borrowings under the Company’s revolving credit facility.

The Company’s net cash flows from financing activities for the first nine months of 2003 totaled $0.4 million compared to a use of $2.0 million in the same period of 2002. In 2003 period, the Company made increased payments on its term bank loan, but borrowed more on its revolver credit facility to fund its working capital investment.

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 and scheduled debt payments, to refinance its indebtedness, and to comply with all of the financial covenants under its debt agreements, depends on its future operating performance and cash flow, 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.

In preparing its consolidated financial statements, the Company follows accounting principles generally accepted in the United States of America. The application of these principles requires significant judgments or an estimation process that can affect the results of operations, financial position and cash flows of the Company, as well as the related footnote disclosures. The Company continually reviews its accounting policies and financial information disclosures. There have been no material changes in policies or estimates since December 31, 2002.

The market risk of the Company’s financial instruments as of September 30, 2003 has not significantly changed since December 31, 2002. The market risk profile of the Company on December 31, 2002 is disclosed in the Company’s 2002 Annual Report on Form 10-K.

(a) Evaluation of Disclosure Controls and Procedures. The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report. Based on that evaluation, such officers have concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion.

(b) Changes in Internal Controls. There have been no changes in our internal controls over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

31.1

Certification Pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2

Certification Pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

A Current Report on Form 8-K filed on July 22, 2003 regarding a press release announcing earnings information for the quarter ended June 30, 2003.

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.


Number		Document Description
30.1		Restated Certificate of Incorporation, dated November 6, 2003.*

31.1		Certification Pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2		Certification Pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

99.1		Press Release dated November 12, 2003.*


Delaware (State or other jurisdiction of incorporation or organization)		13-3634726 (IRS Employer Identification No.)

2122 York Road, Oak Brook, Illinois (Address of principal executive offices)		60523 (Zip Code)


		September 30,				December 31,
		2003				2002

Completed contracts	$		22,375		$		15,134
Contracts in progress			29,297				31,466
Retainage			8,510				6,511

			60,182				53,111
Allowance for doubtful accounts			(750	)			(986	)

	$		59,432		$		52,125


	September 30,		December 31,
	2003		2002

Payroll and employee benefits	$	5,939	$	8,615
Insurance		5,266		6,477
U.S. income and other taxes		5,036		4,721
Interest		2,301		6,880
Fixed equipment costs		1,808		—
Other		2,183		3,421

	$	22,533	$	30,114


	Great Lakes Dredge & Dock Corporation

Date: November 14, 2003	By:	/s/ Deborah A. Wensel

		Deborah A. Wensel
		Senior Vice President and Chief Financial Officer

	(Principal Financial and Accounting Officer and Duly Authorized Officer)

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x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934


PART I — Financial Information
		Condensed Consolidated Balance Sheets
		Condensed Consolidated Statements of Income
		Condensed Consolidated Statements of Cash Flows
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II — Other Information
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
EXHIBIT INDEX
Restated Certificate of Incorporation
Certification
Certification
Certification
Certification
Press Release