Exhibit 99.5

Great Lakes Dredge & Dock Corporation and Subsidiaries

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

Securities Exchange Act of 1934

For the Quarterly Period ended March 31, 2011

INDEX

 

						Page
Part I Financial Information (Unaudited)
		Item 1		Financial Statements
				Condensed Consolidated Balance Sheets at March 31, 2011 and December 31, 2010			2
				Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2011 and 2010			3
				Condensed Consolidated Statements of Equity for the Three Months ended March 31, 2011 and 2010			4
				Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2011 and 2010			5
				Notes to Condensed Consolidated Financial Statements			6

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)

 

		March 31, 2011				December 31, 2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	104,529			$	48,478
Accounts receivable—net			113,743				95,548
Contract revenues in excess of billings			20,897				24,842
Inventories			30,767				31,734
Prepaid expenses			3,433				3,448
Other current assets			23,592				18,919
Total current assets			296,961				222,969
PROPERTY AND EQUIPMENT—Net			316,376				323,231
GOODWILL			98,049				98,049
OTHER INTANGIBLE ASSETS—Net			2,633				3,280
INVENTORIES—Noncurrent			28,091				27,128
INVESTMENTS IN JOINT VENTURES			6,738				7,329
OTHER			16,963				11,839
TOTAL		$	765,811			$	693,825
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable		$	79,412			$	82,721
Accrued expenses			29,685				32,809
Billings in excess of contract revenues			16,071				14,484
Current portion of note payable			2,500				2,500
Current portion of equipment debt			179				303
Total current liabilities			127,847				132,817
LONG TERM NOTE PAYABLE			5,000				5,000
7 3/8% SENIOR NOTES			250,000				—
7 3/4% SENIOR SUBORDINATED NOTES			—				175,000
DEFERRED INCOME TAXES			91,957				92,466
OTHER			9,770				11,717
Total liabilities			484,574				417,000
COMMITMENTS AND CONTINGENCIES
EQUITY:
Common stock—$.0001 par value; 90,000,000 authorized, 58,813,584 and 58,770,369 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively.			6				6
Additional paid-in capital			266,809				266,329
Accumulated earnings			13,648				12,261
Accumulated other comprehensive income			923				357
Total Great Lakes Dredge & Dock Corporation Equity			281,386				278,953
NONCONTROLLING INTERESTS			(149	)			(2,128	)
Total equity			281,237				276,825
TOTAL		$	765,811			$	693,825

See notes to unaudited condensed consolidated financial statements.

 

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Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share data)

 

		Three Months Ended March 31,
		2011				2010
Contract revenues		$	155,338			$	161,400
Costs of contract revenues			127,638				130,916
Gross profit			27,700				30,484
General and administrative expenses			12,089				11,070
Operating income			15,611				19,414
Interest expense, net			(5,950	)			(3,220	)
Equity in loss of joint ventures			(591	)			(722	)
Loss on extinguishment of debt			(5,145	)			—
Income before income taxes			3,925				15,472
Income tax provision			(1,527	)			(6,239	)
Net income			2,398				9,233
Net (income) loss attributable to noncontrolling interests			(6	)			93
Net income attributable to Great Lakes Dredge & Dock Corporation		$	2,392			$	9,326
Basic earnings per share attributable to Great Lakes Dredge & Dock Corporation		$	0.04			$	0.16
Basic weighted average shares			58,785				58,548
Diluted earnings per share attributable to Great Lakes Dredge & Dock Corporation		$	0.04			$	0.16
Diluted weighted average shares			59,237				58,703
Dividends declared per share		$	0.02			$	0.02

See notes to unaudited condensed consolidated financial statements.

 

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Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

(Unaudited)

(in thousands, except per share amounts)

 

		Shares of Common Stock				Common Stock				Additional Paid-In Capital				Accumulated Earnings				Accumulated Other Comprehensive Income (Loss)				Noncontrolling Interests				Total
BALANCE—January 1, 2011			58,770,369			$	6			$	266,329			$	12,261			$	357			$	(2,128	)		$	276,825
Share-based compensation			43,215				—				520				—				—				—				520
Acquisition of noncontrolling interest in NASDI			—				—				(40	)			—				—				1,973				1,933
Dividends declared and paid			—				—				—				(1,005	)			—				—				(1,005	)
Comprehensive income (loss):
Net income			—				—				—				2,392				—				6				2,398
Reclassification of derivative gains to earnings (net of tax of $414)			—				—				—				—				(623	)			—				(623	)
Change in fair value of derivatives (net of tax of $790)			—				—				—				—				1,189				—				1,189
Total comprehensive income																							6				2,964
BALANCE—March 31, 2011			58,813,584			$	6			$	266,809			$	13,648			$	923			$	(149	)		$	281,237
		Shares of Common Stock				Common Stock				Additional Paid-In Capital				Accumulated (Deficit)				Accumulated Other Comprehensive Income (Loss)				Noncontrolling Interests				Total
BALANCE—January 1, 2010			58,542,038			$	6			$	263,579			$	(18,336	)		$	539			$	(1,239	)		$	244,549
Share-based compensation			17,856				—				300				—				—				—				300
Dividends declared and paid			—				—				—				(1,000	)			—				—				(1,000	)
Comprehensive income (loss):
Net income (loss)			—				—				—				9,326				—				(93	)			9,233
Reclassification of derivative gains to earnings (net of tax of $98)			—				—				—				—				(148	)			—				(148	)
Change in fair value of derivatives (net of tax of $20)			—				—				—				—				30				—				30
Total comprehensive income (loss)																							(93	)			9,115
BALANCE—March 31, 2010			58,559,894			$	6			$	263,879			$	(10,010	)		$	421			$	(1,332	)		$	252,964

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, except per share amounts)

 

		Three Months Ended March 31,
		2011				2010
OPERATING ACTIVITIES:
Net income		$	2,398			$	9,233
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
Depreciation and amortization			9,566				9,439
Equity in loss of joint ventures			591				722
Loss on extinguishment of 7 3/4% senior subordinated notes			5,145				—
Deferred income taxes			21				(1,031	)
Gain on dispositions of property and equipment			(267	)			(183	)
Amortization of deferred financing fees			389				402
Share-based compensation expense			520				300
Changes in assets and liabilities:
Accounts receivable			(18,365	)			27,549
Contract revenues in excess of billings			3,945				9,573
Inventories			4				458
Prepaid expenses and other current assets			(4,535	)			2,280
Accounts payable and accrued expenses			(4,160	)			(19,724	)
Billings in excess of contract revenues			1,587				(155	)
Other noncurrent assets and liabilities			(2,390	)			(1,664	)
Net cash flows provided by (used in) operating activities			(5,551	)			37,199
INVESTING ACTIVITIES:
Purchases of property and equipment			(4,420	)			(7,230	)
Proceeds from dispositions of property and equipment			258				158
Net cash flows used in investing activities			(4,162	)			(7,072	)
FINANCING ACTIVITIES:
Proceeds from issuance of 7 3/8% senior notes			250,000				—
Redemption of 7 3/4% senior subordinated notes			(175,000	)			—
Senior subordinated notes redemption premium			(2,264	)			—
Deferred financing fees			(5,829	)			—
Dividends paid			(1,005	)			(1,000	)
Repayments of long-term debt			(135	)			(451	)
Repayment of capital lease debt			(3	)			(1	)
Borrowings under revolving loans			—				14,968
Repayments of revolving loans			—				(25,968	)
Net cash flows provided by (used in) financing activities			65,764				(12,452	)
Net change in cash and cash equivalents			56,051				17,675
Cash and cash equivalents at beginning of period			48,478				3,250
Cash and cash equivalents at end of period		$	104,529			$	20,925
Supplemental Cash Flow Information
Cash paid for interest		$	2,972			$	265
Cash paid for income taxes		$	1,084			$	2,203
Non-cash Investing Activity
Property and equipment purchased but not yet paid		$	6,766			$	520
Property and equipment purchased on equipment notes		$	—			$	32
Non-cash Financing Activity
Acquisition of noncontrolling interest in NASDI, LLC		$	40			$	—

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)

(dollar amounts in thousands, except per share amounts or as otherwise noted)

1. Basis of presentation

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” or “Great Lakes”) and the notes thereto, included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2010. The condensed consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the SEC’s rules and regulations, although management believes that the disclosures are adequate and make the information presented not misleading. In the opinion of management, all adjustments, which are of a normal and recurring nature (except as otherwise noted), that are necessary to present fairly the Company’s financial position as of March 31, 2011 and its results of operations and cash flows for the three months ended March 31, 2011 and 2010 have been included.

The components of costs of contract revenues include labor, equipment (including depreciation, maintenance, insurance and long-term rentals), subcontracts, fuel and project overhead. Hourly labor is generally hired on a project-by-project basis. Costs of contract revenues vary significantly depending on the type and location of work performed and assets utilized. Generally, capital projects have the highest margins due to the complexity of the projects, while beach nourishment projects have the most volatile margins because they are most often exposed to variability in weather conditions.

The Company’s cost structure includes significant annual equipment-related costs, including depreciation, maintenance, insurance and long-term rentals. These costs have averaged approximately 21% to 22% of total costs of contract revenues over the last three years. During the year, both equipment utilization and the timing of fixed cost expenditures fluctuate significantly. Accordingly, the Company allocates these fixed equipment costs to interim periods in proportion to revenues recognized over the year to better match revenues and expenses. Specifically, at each interim reporting date the Company compares actual revenues earned to date on its dredging contracts to expected annual revenues and recognizes equipment costs on the same proportionate basis. In the fourth quarter, any over- and- under allocated equipment costs are recognized such that the expense for the year equals actual equipment costs incurred during the year.

The Company operates in two reportable segments: dredging and demolition. These reportable segments are the Company’s operating segments and the reporting units at which the Company tests goodwill for impairment. The Company performed its most recent annual test of impairment as of July 1, 2010 for the goodwill in both the dredging and demolition segments with no indication of goodwill impairment as of the test date. As of the test date, the fair value of both the dredging segment and the demolition segment were in excess of their carrying values by approximately 25%. No test was performed in the 2011 first quarter because, based on each segment’s current forecast, no triggering event occurred that would require a test to be performed. The Company will perform its next scheduled annual test of goodwill in the third quarter of 2011 unless a triggering event occurs that requires a test prior to the next annual test.

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. Earnings per share

Basic earnings per share is computed by dividing net income attributable to Great Lakes Dredge & Dock Corporation by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similar to basic earnings per share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. At March 31, 2011 and 2010, the impact of options to purchase shares of common stock was dilutive and, accordingly, no options are excluded from the calculation of diluted earnings per share based on the application of the treasury stock method. In addition, the impact of restricted stock units was dilutive. The computations for basic and diluted earnings per share from continuing operations are as follows:

 

		Three Months Ended March 31,
		2011				2010
Numerator:
Net income attributable to Great Lakes Dredge & Dock Corporation - numerator for basic and diluted earnings per share		$	2,392			$	9,326
Denominator:
Denominator for basic earnings per share - weighted average shares outstanding			58,785				58,548
Dilutive impact of outstanding restricted stock units issued			238				127
Dilutive impact of outstanding stock options issued			214				28
Denominator for diluted earnings per share adjusted weighted average shares			59,237				58,703
Basic earnings per share attributable to Great Lakes Dredge & Dock Corporation		$	0.04			$	0.16
Diluted earnings per share attributable to Great Lakes Dredge & Dock Corporation		$	0.04			$	0.16

 

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3. Fair value measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy has been established by GAAP that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The accounting guidance describes three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. At March 31, 2011, the Company held certain derivative contracts that it uses to manage commodity price risk and interest rate risk. Such instruments are not used for trading purposes. The fair value of these derivative contracts is summarized as follows:

 

						Fair Value Measurements at Reporting Date Using
Description		At March 31, 2011				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Fuel hedge contracts		$	1,536			$	—			$	1,536			$	—
Interest rate swap contracts-assets			1,299				—				—				1,299
Total assets measured at fair value		$	2,835			$	—			$	1,536			$	1,299
						Fair Value Measurements at Reporting Date Using
Description		At December 31, 2010				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable  Inputs (Level 3)
Fuel hedge contracts		$	595			$	—			$	595			$	—
Interest rate swap contracts-assets			1,264				—				—				1,264
Total assets measured at fair value		$	1,859			$	—			$	595			$	1,264

 

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In May 2009, the Company entered into two interest rate swap arrangements, which are effective through December 15, 2012, to swap a notional amount of $50 million from a fixed rate of 7.75% to a floating LIBOR-based rate in order to manage the interest rate paid with respect to the Company’s 7.75% senior subordinated notes. Although the senior subordinated notes were redeemed in January 2011, the swaps remained in place. The current portion of the fair value asset of the swaps at March 31, 2011 is $1,206 and is recorded in other current assets. The long-term portion of the fair value asset of the swaps at March 31, 2011 is $93 and is recorded in other assets. The current portion of the fair value asset of the swaps at December 31, 2010 was $816 and was recorded in other current assets. The long-term portion of the fair value asset of the swaps at December 31, 2010 was $448 and was recorded in other assets. The swap is not accounted for as a hedge; therefore, the changes in fair value are recorded as adjustments to interest expense in each reporting period.

The Company verifies the fair value of the interest rate swaps using a quantitative model that contains both observable and unobservable inputs. The unobservable inputs relate primarily to the LIBOR rate and long-term nature of the contracts. The Company believes that these unobservable inputs are significant and accordingly the Company determines the fair value of these interest rate swap contracts using Level 3 inputs.

 

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Interest Rate Swaps				Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Interest Rate Swaps
		2011				2010
Balance at January 1,		$	1,264			$	(20	)
Total unrealized gains included in earnings			35				794
Total gains included in other comprehensive income			—				—
Purchases			—				—
Settlements			—				—
Balance at March 31,		$	1,299			$	774

The Company is exposed to certain market risks, primarily commodity price risk as it relates to the diesel fuel purchase requirements that occur in the normal course of business. The Company enters into heating oil commodity swap contracts to hedge the risk that fluctuations in diesel fuel prices will have an adverse impact on cash flows associated with its domestic dredging contracts. The Company does not hold or issue derivatives for speculative or trading purposes. The Company’s goal is to hedge approximately 80% of the fuel requirements for work in backlog.

As of March 31, 2011, the Company was party to various swap arrangements to hedge the price of a portion of its diesel fuel purchase requirements for work in its backlog to be performed through December 2011. As of March 31, 2011, there were 4.2 million gallons remaining on these contracts which represent approximately 66% of the Company’s forecasted fuel purchases through December 2011. Under these swap agreements, the Company will pay fixed prices ranging from $2.14 to $3.10 per gallon.

At March 31, 2011 and December 31, 2010, the fair value asset on the fuel hedge contracts was estimated to be $1,536 and $595, respectively, and is recorded in other current assets. The gain reclassified to earnings from changes in fair value of derivatives, net of cash settlements and taxes, for the period ended March 31, 2011 was $1,189. The remaining gains included in accumulated other comprehensive income at December 31, 2010 will be reclassified into earnings over the next nine months, corresponding to the period during which the hedged fuel is expected to be utilized. The fair values of fuel hedges are corroborated using inputs that are readily observable in public markets; therefore, the Company determines fair value of these fuel hedges using Level 2 inputs.

 

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The fair value of interest rate and fuel hedge contracts outstanding as of March 31, 2011 and December 31, 2010 is as follows:

 

		Fair Value of Derivatives
		At March 31, 2011
		Balance Sheet Location		Fair Value Asset				Balance Sheet Location		Fair Value Liability
Fuel hedge contracts		Other current assets		$	1,536			Accrued expenses		$	—
Interest rate swaps		Other current assets			1,206			Accrued expenses			—
Interest rate swaps		Other noncurrent assets			93			Other Liabilities			—
Total Derivatives				$	2,835					$	—
		Fair Value of Derivatives
		At December 31, 2010
		Balance Sheet Location		Fair Value Asset				Balance Sheet Location		Fair Value Liability
Interest rate swaps		Other current assets		$	816			Other Liabilities		$	—
Interest rate swaps		Other noncurrent assets			448			Other Liabilities			—
Fuel hedge contracts		Other current assets			595			Accrued expenses			—
Total Derivatives				$	1,859					$	—

Other financial instruments

The carrying value of financial instruments included in current assets and current liabilities approximates fair value due to the short-term maturities of these instruments. At December 31, 2010, the Company had long-term senior subordinated notes outstanding with a recorded book value of $175,000. The fair value of the senior subordinated notes was $177,188 at December 31, 2010, based on indicative market prices. In January 2011, the Company redeemed all of the senior subordinated notes for $180,014, which included a redemption premium and accrued and unpaid interest. Also in January 2011, the Company issued $250,000 of 7.375% senior notes due February 1, 2019. The senior notes were issued at 100% of face value resulting in net proceeds of $244,171. The senior notes are senior unsecured obligations of the Company and its subsidiaries that guarantee the senior notes. Each of the Company’s existing and future wholly owned domestic subsidiaries are required to guarantee the senior notes. At March 31, 2011, the Company had long-term senior notes outstanding with a recorded book value of $250,000. The fair value of the senior notes was $253,125 at March 31, 2011, based on indicative market prices.

4. Accounts receivable

Accounts receivable at March 31, 2011 and December 31, 2010 are as follows:

 

		March 31, 2011				December 31, 2010
Completed contracts		$	21,586			$	20,093
Contracts in progress			79,710				64,399
Retainage			14,086				12,711
			115,382				97,203
Allowance for doubtful accounts			(1,639	)			(1,655	)
Total accounts receivable		$	113,743			$	95,548

At March 31, 2011 and December 31, 2010, $6,093 and $5,923, respectively, of retainage was not expected to be collected within the next twelve months and is classified as other non-current assets.

 

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5. Contracts in progress

The components of contracts in progress at March 31, 2011 and December 31, 2010 are as follows:

 

		March 31, 2011				December 31, 2010
Costs and earnings in excess of billings:
Costs and earnings for contracts in progress		$	140,408			$	287,291
Amounts billed			(120,919	)			(263,665	)
Costs and earnings in excess of billings for contracts in progress			19,489				23,626
Costs and earnings in excess of billings for completed contracts			1,408				1,216
Total contract revenues in excess of billings		$	20,897			$	24,842
Billings in excess of costs and earnings:
Amounts billed		$	(519,513	)		$	(429,688	)
Costs and earnings for contracts in progress			503,442				415,204
Total billings in excess of contract revenues		$	(16,071	)		$	(14,484	)

6. Accrued expenses

Accrued expenses at March 31, 2011 and December 31, 2010 are as follows:

 

		March 31, 2011				December 31, 2010
Insurance		$	11,328			$	11,039
Payroll and employee benefits			7,081				13,573
Percentage of completion adjustment			3,289				3,232
Interest			3,228				604
Income and other taxes			2,911				2,977
Other			1,848				1,384
Total accrued expenses		$	29,685			$	32,809

7. Segment information

The Company and its subsidiaries currently 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. Management uses operating income to evaluate performance between the two segments. Segment information for the periods presented, is provided as follows:

 

		Three Months Ended March 31,
		2011				2010
Dredging
Contract revenues		$	136,597			$	149,041
Operating income			17,821				19,569
Demolition
Contract revenues		$	18,741			$	12,359
Operating loss			(2,210	)			(155	)
Total
Contract revenues		$	155,338			$	161,400
Operating income			15,611				19,414

 

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In addition, foreign dredging revenue of $21,871 and $25,572 for the three months ended March 31, 2011 and March 31, 2010, respectively, was primarily attributable to work done in Bahrain.

The majority of the Company’s long-lived assets are marine vessels and related equipment. At any point in time, the Company may employ certain assets outside of the U.S., as needed, to perform work on the Company’s foreign projects.

8. Commitments and contingencies

Commercial commitments

The Company entered into a credit agreement (the “Credit Agreement”) with Bank of America N.A. as Administrative Agent and Issuing Lender, various other financial institutions as lenders and certain subsidiaries of the Company as Loan Parties. The Credit Agreement provides for a revolving credit facility of up to $145,000 in borrowings and includes sublimits for the issuance of letters of credit and swingline loans. The revolving credit facility matures on June 12, 2012. The revolving credit facility bears interest at rates selected at the option of Great Lakes, currently equal to either LIBOR plus an applicable margin or the Base Rate plus an applicable margin. The applicable margins for LIBOR loans and Base Rate loans, as well as any non-use fee, are subject to adjustment based upon the Company’s ratio of Total Funded Debt to Adjusted Consolidated EBITDA (each as defined in the Credit Agreement). As of March 31, 2011, the Company had no borrowings and $9,468 of letters of credit outstanding, resulting in $135,532 of availability under the Credit Agreement.

The Company obtains its performance, bid and payment bonds through a bonding agreement (the “Bonding Agreement”) with Travelers Casualty and Surety Company of America. The bonds issued under the Bonding Agreement are customarily required for dredging and marine construction projects, as well as demolition projects. As of March 31, 2011, Great Lakes had outstanding bonds valued at $296,469; however, the revenue value remaining in backlog related to these projects totaled approximately $139,582.

The Company has a $24,000 international letter of credit facility that it uses for the performance and advance payment guarantees on the Company’s foreign contracts. As of March 31, 2011, Great Lakes had $15,703 of letters of credit outstanding under this facility.

The Company also has $250,000 of 7.375% senior notes outstanding, which mature in February 2019.

The Company’s obligations under the Credit Agreement and Bonding Agreement are secured by liens on a substantial portion of Great Lakes’ assets. As of December 31, 2010, the net book value of the Company’s operating equipment securing the Company’s obligations under the Credit Agreement and Bonding Agreement was approximately $95,658 and $70,662, respectively. Great Lakes’ obligations under its international letter of credit facility are secured by the Company’s foreign accounts receivable. Great Lakes’ obligations under its senior notes are unsecured.

The Credit Agreement, the Bonding Agreement and the Indenture relating to the senior notes contain various restrictive covenants, including a limitation on dividends, limitations on redemption and repurchases of capital stock, limitations on the incurrence of indebtedness and requirements to maintain certain financial covenants.

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

Legal proceedings and other contingencies

Various legal actions, claims, assessments and other contingencies arising in the ordinary course of business are pending against the Company and certain of its subsidiaries. These matters are subject to many uncertainties, and it is possible that some of these matters could ultimately be decided, resolved, or settled adversely. Although the Company is subject to various claims and legal actions that arise in the ordinary course of business, except as described below, the Company is not currently a party to any material legal proceedings or environmental claims.

The Company or its former subsidiary, NATCO Limited Partnership, is named as a defendant in approximately 251 asbestos-related personal injury lawsuits, the majority of which were filed between 1989 and 2000. All of the cases, filed against the Company prior to 1996, were administratively dismissed in May 1996 and any cases filed since that time have similarly been administratively transferred to the inactive docket. Over the last year, hundreds of lawsuits have been reactivated in an effort to clean out the administrative docket. Prior to the commencement of discovery in any of the reactivated cases, counsel for plaintiffs agreed to name a group of cases that they intended to pursue and to dismiss the remaining cases without prejudice. Plaintiffs have currently named 38 cases against the Company that they intend to pursue, each of which involves one plaintiff. The remaining cases against the Company either

 

11

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have been or will be dismissed. Plaintiffs in the dismissed cases could file a new lawsuit if they develop a new disease allegedly caused by exposure to asbestos on board our vessels. The Company is presently unable to quantify the amounts of damages being sought in these lawsuits because none of the complaints specify a damage amount; therefore, the Company has not accrued any amounts in respect of these lawsuits. The Company does not believe that it is probable that losses from these claims could be material, and an estimate of a range of losses relating to these claims cannot reasonably be made. Based on the foregoing, management does not believe that any of the 38 lawsuits will have a material adverse impact on our consolidated financial statements.

On August 26, 2009, the Company’s subsidiary NASDI, LLC (“NASDI”) received a letter stating that the Attorney General for the Commonwealth of Massachusetts is investigating alleged violations of the Massachusetts Solid Waste Act. The Company believes that the Massachusetts Attorney General is investigating illegal dumping activities at a dump site NASDI contracted with to have waste materials disposed of between September 2007 and July 2008. Per the Massachusetts Attorney General’s request, NASDI executed a tolling agreement regarding the matter and has engaged in further discussions with the Massachusetts Attorney General’s office. The matter remains open, and, to the Company’s knowledge, no proceedings have currently been initiated against NASDI in this matter. Should a claim be brought, NASDI intends to defend itself vigorously. Based on consideration of all of the facts and circumstances now known, the Company does not believe this claim will have a material adverse impact on its business, financial position, results of operations or cash flows.

On March 27, 2011, NASDI received a subpoena from a federal grand jury in the District of Massachusetts directing NASDI to furnish certain documents relating to certain projects performed by NASDI since January 2005. The Company is conducting an internal investigation into this matter and is fully cooperating with the federal grand jury subpoena. Based on the early stage of the U.S. Department of Justice’s investigation and the limited information known to the Company, the Company cannot predict the outcome of the investigation, the U.S. Attorney’s views of the issues being investigated, any action the U.S. Attorney may take or the impact, if any, that this matter may have on the Company’s business, financial position, results of operations or cash flows.

On April 6, 2011, NASDI received a subpoena from the District Attorney for Richmond County, New York in connection with a grand jury investigation. The subpoena directs NASDI to furnish certain documents relating to one project performed by NASDI and one of its subcontractors. The subpoena appears to be related to the activities of NASDI’s subcontractor for this project. The Company is conducting an internal investigation into this matter and is fully cooperating with the New York grand jury subpoena.

The Company has not accrued any amounts with respect to these NASDI matters as the Company does not believe, based on information currently known to it, that a loss relating to these matters is probable, and an estimate of a range of potential losses relating to these matters cannot reasonably be made.

9. Acquisition of noncontrolling interest

Effective January 1, 2011 the Company reacquired Mr. Christopher Berardi’s membership interest in NASDI for no cost per terms of NASDI’s limited liability company agreement. This resulted in the elimination of noncontrolling interest of $1,973 during the quarter ended March 31, 2011. The Company now owns 100% of NASDI.

In March 2011, Mr. Berardi resigned his employment with the Company’s demolition segment effective April 29, 2011. Mr. Berardi’s resignation and the repurchase of his NASDI membership interest also resulted in the reversal of a $1,933 accrual established in conjunction with a prior restructuring of ownership interest in NASDI. This reversal was recorded directly to equity as part of the reacquisition of the noncontrolling interest.

 

12

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10. Subsidiary Guarantors

The Company’s long-term debt at March 31, 2011 includes $250,000 of 7.375% senior notes due February 1, 2019. The Company’s obligations under these senior notes are guaranteed by the Company’s wholly-owned domestic subsidiaries. Such guarantees are full, unconditional and joint and several.

In connection with the private placement of the senior notes, the Company entered into an agreement giving registration rights to initial purchasers of the senior notes (the “Registration Rights Agreement”). The terms of the Registration Rights Agreement require, among other things, that the Company will use its commercially reasonable efforts to consummate an offer to exchange the senior notes for registered, publicly tradable notes that have substantially identical terms as the senior notes (the “Exchange Notes”). The Exchange Notes will be guaranteed by the Company’s wholly-owned domestic subsidiaries (the “Exchange Notes Guarantors”). The Exchange Note Guarantors are presented in this supplemental financial information as “Subsidiary Guarantors.” The Exchange Notes are not included in this supplemental financial information as they were issued subsequent to March 31, 2011.

The following supplemental financial information sets forth for the Company’s subsidiary guarantors (on a combined basis), the Company’s non-guarantor subsidiaries (on a combined basis) and Great Lakes Dredge & Dock Corporation, exclusive of its subsidiaries (“GLDD Corporation”):

 

(i)

balance sheets as of March 31, 2011 and December 31, 2010;

 

(ii)

statements of operations for the three months ended March 31, 2011 and 2010; and

 

(iii)

statements of cash flows for the three months ended March 31, 2011 and 2010.

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MARCH 31, 2011

(In thousands)

 

		Subsidiary Guarantors				Non-Guarantor Subsidiaries				GLDD Corporation				Eliminations				Consolidated Totals
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	104,155			$	374			$	—			$	—			$	104,529
Accounts receivable—net			111,951				1,792				—				—				113,743
Receivables from affiliates			22,664				6,834				68,461				(97,959	)			—
Contract revenues in excess of billings			20,897				87				—				(87	)			20,897
Inventories			30,767				—				—				—				30,767
Prepaid expenses			3,268				—				165				—				3,433
Other current assets			14,955				10				8,627				—				23,592
Total current assets			308,657				9,097				77,253				(98,046	)			296,961
PROPERTY AND EQUIPMENT—Net			316,159				217				—				—				316,376
GOODWILL			97,799				250				—				—				98,049
OTHER INTANGIBLE ASSETS—Net			2,401				232				—				—				2,633
INVESTMENTS IN SUBSIDIARIES			2,365				—				545,914				(548,279	)			—
NOTES RECEIVABLE FROM AFFILIATES			—				—				—				—				—
INVENTORIES—Noncurrent			28,091				—				—				—				28,091
INVESTMENTS IN JOINT VENTURES			6,738				—				—				—				6,738
OTHER ASSETS			10,981				—				6,555				(573	)			16,963
TOTAL		$	773,191			$	9,796			$	629,722			$	(646,898	)		$	765,811
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable		$	78,087			$	1,272			$	53			$	—				79,412
Payables to affiliates			92,445				4,720				420				(97,585	)			—
Accrued expenses			24,140				803				4,742				—				29,685
Billings in excess of contract revenues			15,896				636				—				(461	)			16,071
Current portion of note payable			2,500				—				—				—				2,500
Current portion of equipment debt			179				—				—				—				179
Total current liabilities			213,247				7,431				5,215				(98,046	)			127,847
LONG TERM NOTE PAYABLE			5,000				—				—				—				5,000
7 3/8% SENIOR SUBORDINATED NOTES			—				—				250,000				—				250,000
NOTES PAYABLE TO AFFILIATES			—				—				—				—				—
DEFERRED INCOME TAXES			—				—				92,530				(573	)			91,957
OTHER			9,030				—				740				—				9,770
Total liabilities			227,277				7,431				348,485				(98,619	)			484,574
Total Great Lakes Dredge & Dock Corporation Equity			545,914				2,365				281,386				(548,279	)			281,386
NONCONTROLLING INTERESTS			—				—				(149	)			—				(149	)
TOTAL EQUITY			545,914				2,365				281,237				(548,279	)			281,237
TOTAL		$	773,191			$	9,796			$	629,722			$	(646,898	)		$	765,811

 

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2010

(In thousands)

 

		Subsidiary Guarantors				Non-Guarantor Subsidiaries				GLDD Corporation				Eliminations				Consolidated Totals
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	48,416			$	62			$	—			$	—			$	48,478
Accounts receivable—net			93,983				1,565				—				—				95,548
Receivables from affiliates			5,338				5,798				6,745				(17,881	)			—
Contract revenues in excess of billings			24,777				94				—				(29	)			24,842
Inventories			31,734				—				—				—				31,734
Prepaid expenses			3,246				—				202				—				3,448
Other current assets			9,853				8				9,058				—				18,919
Total current assets			217,347				7,527				16,005				(17,910	)			222,969
PROPERTY AND EQUIPMENT—Net			322,958				273				—				—				323,231
GOODWILL			97,799				250				—				—				98,049
OTHER INTANGIBLE ASSETS—Net			3,017				263				—				—				3,280
INVESTMENTS IN SUBSIDIARIES			2,311				—				528,425				(530,736	)			—
INVENTORIES—Noncurrent			27,128				—				—				—				27,128
INVESTMENTS IN JOINT VENTURES			7,329				—				—				—				7,329
OTHER ASSETS			7,704				—				4,350				(215	)			11,839
TOTAL		$	685,593			$	8,313			$	548,780			$	(548,861	)		$	693,825
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable		$	81,534			$	1,187			$	—			$	—			$	82,721
Payables to affiliates			14,151				3,655				—				(17,806	)			—
Accrued expenses			30,511				693				1,605				—				32,809
Billings in excess of contract revenues			14,121				467				—				(104	)			14,484
Current portion of note payable			2,500				—				—				—				2,500
Current portion of equipment debt			303				—				—				—				303
Total current liabilities			143,120				6,002				1,605				(17,910	)			132,817
LONG TERM NOTE PAYABLE			5,000				—				—				—				5,000
7 3/4% SENIOR SUBORDINATED NOTES			—				—				175,000				—				175,000
DEFERRED INCOME TAXES			—				—				92,681				(215	)			92,466
OTHER			9,048				—				2,669				—				11,717
Total liabilities			157,168				6,002				271,955				(18,125	)			(55,997	)
Total Great Lakes Dredge & Dock Corporation Equity			528,425				2,311				278,953				(530,736	)			278,953
NONCONTROLLING INTERESTS			—				—				(2,128	)			—				(2,128	)
TOTAL EQUITY			528,425				2,311				276,825				(530,736	)			276,825
TOTAL		$	685,593			$	8,313			$	548,780			$	(548,861	)		$	693,825

 

15

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING INCOME STATEMENT

FOR THE PERIOD ENDED MARCH 31, 2011

(In thousands)

 

		Subsidiary Guarantors				Non-Guarantor Subsidiaries				GLDD Corporation				Eliminations				Consolidated Totals
CONTRACT REVENUES		$	154,039			$	3,317			$	—			$	(2,018	)		$	155,338
COSTS OF CONTRACT REVENUES			(126,651	)			(3,005	)			—				2,018				(127,638	)
GROSS PROFIT (LOSS)			27,388				312				—				—				27,700
OPERATING EXPENSES
General and administrative expenses			(11,204	)			(213	)			(672	)			—				(12,089	)
Total operating income			16,184				99				(672	)			—				15,611
INTEREST EXPENSE (Net)			(80	)			(45	)			(5,825	)			—				(5,950	)
EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES			54				—				16,551				(16,605	)			—
EQUITY IN LOSS OF JOINT VENTURE			(591	)			—				—				—				(591	)
LOSS ON EXTENGUISHMENT OF DEBT			—				—				(5,145	)			—				(5,145	)
INCOME (LOSS) BEFORE INCOME TAXES			15,567				54				4,909				(16,605	)			3,925
INCOME TAX (PROVISION) BENEFIT			984				—				(2,511	)			—				(1,527	)
NET INCOME (LOSS)			16,551				54				2,398				(16,605	)			2,398
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS			—				—				(6	)			—				(6	)
NET INCOME (LOSS) ATTRIBUTABLE TO GREAT LAKES DREDGE & DOCK CORPORATION		$	16,551			$	54			$	2,392			$	(16,605	)		$	2,392

 

16

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING INCOME STATEMENT

FOR THE PERIOD ENDED MARCH 31, 2010

(In thousands)

 

		Subsidiary Guarantors				Non-Guarantor Subsidiaries				GLDD Corporation				Eliminations				Consolidated Totals
CONTRACT REVENUES		$	160,829			$	1,826			$	—			$	(1,255	)		$	161,400
COSTS OF CONTRACT REVENUES			(130,532	)			(1,639	)			—				1,255				(130,916	)
GROSS PROFIT			30,297				187				—				—				30,484
OPERATING EXPENSES
General and administrative expenses			(10,184	)			(195	)			(691	)			—				(11,070	)
Total operating income (loss)			20,113				(8	)			(691	)			—				19,414
INTEREST EXPENSE (Net)			(7	)			(19	)			(3,194	)			—				(3,220	)
EQUITY IN EARNINGS (LOSS) OF SUBSIDIARIES			(27	)			—				19,348				(19,321	)			—
EQUITY IN LOSS OF JOINT VENTURE			(722	)			—				—				—				(722	)
INCOME (LOSS) BEFORE INCOME TAXES			19,357				(27	)			15,463				(19,321	)			15,472
INCOME TAX PROVISION			(9	)			—				(6,230	)			—				(6,239	)
NET INCOME (LOSS)			19,348				(27	)			9,233				(19,321	)			9,233
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS			—				—				93				—				93
NET INCOME (LOSS) ATTRIBUTABLE TO GREAT LAKES DREDGE & DOCK CORPORATION		$	19,348			$	(27	)		$	9,326			$	19,321			$	9,326

 

17

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE PERIOD ENDED MARCH 31, 2011

(In thousands)

 

		Subsidiary Guarantors				Non-Guarantor Subsidiaries				GLDD Corporation				Eliminations				Consolidated Totals
OPERATING ACTIVITIES—
Net cash flows provided by (used in) operating activities		$	942			$	(992	)		$	(5,501	)		$	—			$	(5,551	)
INVESTING ACTIVITIES:
Purchases of property and equipment			(4,420	)			—				—				—				(4,420	)
Dispositions of property and equipment			258				—				—				—				258
Net cash flows used in investing activities			(4,162	)			—				—				—				(4,162	)
FINANCING ACTIVITIES:
Proceeds from issuance of 7.375% senior notes			—				—				250,000				—				250,000
Redemption of 7.75% senior subordinated notes			—				—				(175,000	)			—				(175,000	)
Senior subordinated notes redemption premium			—				—				(2,264	)			—				(2,264	)
Deferred financing fees			—				—				(5,829	)			—				(5,829	)
Dividends paid			—				—				(1,005	)			—				(1,005	)
Net change in accounts with affiliates			59,097				1,304				(60,401	)			—				—
Repayments of long-term debt			(135	)			—				—				—				(135	)
Repayments of capital lease debt			(3	)			—				—				—				(3	)
Net cash flows provided by (used in) financing activities			58,959				1,304				5,501				—				65,764
NET CHANGE IN CASH AND EQUIVALENTS			55,739				312				—				—				56,051
CASH AND CASH EQUIVALENTS—Beginning of year			48,416				62				—				—				48,478
CASH AND CASH EQUIVALENTS—End of year		$	104,155			$	374			$	—			$	—			$	104,529

 

18

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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE PERIOD ENDED MARCH 31, 2010

(In thousands)

 

		Subsidiary Guarantors				Non-Guarantor Subsidiaries				GLDD Corporation				Eliminations				Consolidated Totals
OPERATING ACTIVITIES—
Net cash flows provided by (used in) operating activities		$	46,671			$	1,034			$	(10,506	)		$	—			$	37,199
INVESTING ACTIVITIES:
Purchases of property and equipment			(7,230	)			—				—				—				(7,230	)
Dispositions of property and equipment			158				—				—				—				158
Net cash flows used in investing activities			(7,072	)			—				—				—				(7,072	)
FINANCING ACTIVITIES:
Borrowings under revolving loans			—				—				14,968				—				14,968
Repayments of revolving loans			—				—				(25,968	)			—				(25,968	)
Dividends paid			—				—				(1,000	)			—				(1,000	)
Net change in accounts with affiliates			(21,434	)			(1,072	)			22,506				—				—
Repayments of long-term debt			(451	)			—				—				—				(451	)
Repayments of equipment debt			—				—				—				—				—
Repayments of capital lease debt			(1	)			—				—				—				(1	)
Net cash flows provided by (used in) financing activities			(21,886	)			(1,072	)			10,506				—				(12,452	)
NET CHANGE IN CASH AND EQUIVALENTS			17,713				(38	)			—				—				17,675
CASH AND CASH EQUIVALENTS—Beginning of year			3,028				222				—				—				3,250
CASH AND CASH EQUIVALENTS—End of year		$	20,741			$	184			$	—			$	—			$	20,925

 

19