Filed Pursuant to Rule 424(b)(3)

 

Registration Statement No: 333-136861-01

PROSPECTUS

GREAT LAKES DREDGE & DOCK CORPORATION

18,178,900 Shares of Common Stock

This prospectus relates to the offer and sale of an aggregate of 18,178,900 shares of the common stock of Great Lakes Dredge & Dock Corporation, which Great Lakes may issue upon exercise of outstanding warrants of Aldabra Acquisition Corporation.  The warrants became exercisable for shares of common stock of Great Lakes in connection with the merger of Aldabra into a wholly owned subsidiary of Great Lakes on December 26, 2006.

Great Lakes common stock and warrants are traded on The Nasdaq Global Market under the symbols “GLDD” and “GLDDW,” respectively.  The last reported sales prices of Great Lakes’ common stock and warrants as reported by The Nasdaq Global Market on April 13, 2007 were $7.33 and $2.42, respectively, per share.


See “Risk Factors” beginning on page 6 for a discussion of certain factors which should be considered in an investment of securities offered hereby.


THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS.  ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.


The date of this prospectus is May 1, 2007.

 




TABLE OF CONTENTS

PROSPECTUS SUMMARY

 

 

RISK FACTORS

 

 

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

 

 

USE OF PROCEEDS

 

 

DIVIDEND POLICY

 

 

MARKET INFORMATION

 

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

 

 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

BUSINESS

 

 

MANAGEMENT

 

 

EXECUTIVE COMPENSATION

 

 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

 

PRINCIPAL STOCKHOLDERS

 

 

DESCRIPTION OF CAPITAL STOCK

 

 

PLAN OF DISTRIBUTION

 

 

LEGAL MATTERS

 

 

EXPERTS

 

 

WHERE YOU CAN FIND MORE INFORMATION

 

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

i




PROSPECTUS SUMMARY

This summary highlights the material information contained elsewhere in this prospectus.  This summary may not contain all of the information that you consider before exercising your warrants and buying shares of common stock.  You should carefully read this entire prospectus, including “Risk Factors” and our consolidated financial statements, before making an investment decision.

Overview

We are the largest provider of dredging services in the United States.  Dredging generally involves the enhancement or preservation of navigability of waterways or the protection of shorelines through the removal or replenishment of soil, sand or rock.  The U.S. dredging market consists of three primary types of work: capital, beach nourishment and maintenance.  Our “bid market” is defined as the population of domestic projects on which we bid or could have bid if not for capacity constraints.  We achieved a combined U.S. market share of the projects awarded within our bid market of 36%, 31% and 43% in 2006, 2005 and 2004, respectively.  In addition, we are the only U.S. dredging service provider with significant international operations, which averaged 18% of our dredging contract revenues over the last three years.  Our fleet of 27 dredges, 25 material transportation barges, two drillboats, and numerous other specialized support vessels is the largest and most diverse fleet in the U.S.  We estimate our fleet would cost in excess of $1.0 billion to build in the current market.

Our largest domestic dredging customer is the U.S. Army Corps of Engineers, or the “Corps,” which has responsibility for federally funded projects related to navigation and flood control.  In 2006, approximately 41% of our dredging revenues were earned from contracts with federal government agencies, including the Corps, as well as other federal entities such as the U.S. Coast Guard and U.S. Navy.

We also own 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, which is reflected as the minority interest in the Company’s consolidated financial statements.  Since the acquisition of NASDI in 2001, the Company has operated in two reportable segments: dredging and demolition.

Merger with Aldabra Acquisition Corporation

On December 26, 2006, GLDD Acquisitions Corp. merged with a subsidiary of Aldabra Acquisition Corporation.  Aldabra was a blank check company formed for the purpose of raising capital through an initial public offering with the intent to use the proceeds to merge with a business to build long term value.  The stockholders of GLDD Acquisitions Corp. received 28,906,189 shares of Aldabra common stock in exchange for all of GLDD Acquisitions Corp.’s common and preferred equity securities.  Aldabra then merged into an indirect wholly-owned subsidiary and, in connection with this holding company merger, the stockholders of Aldabra, including the former GLDD Acquisitions Corp. stockholders, received shares of our common stock and Aldabra’s warrants became exercisable for shares of our common stock. We refer to these transactions in this prospectus as the “Aldabra Merger.”

The Company is owned approximately 67% by Madison Dearborn Capital Partners IV, L.P. (“MDP”) and approximately 5% by Great Lakes’ management.  Included in the 28,906,189 of shares at December 31, 2006, were 516,658 shares held in escrow pending the delivery of closing financial statements of GLDD Acquisitions Corp. and the final determination of the working capital and net indebtedness amounts.  Such shares were released from escrow following finalization of these amounts.  In addition, an additional 120,511 shares were issued to the former GLDD Acquisitions Corp. shareholders as a result of the post-closing adjustment.

General

We are a Delaware corporation.  Our principal executive offices are located at 2122 York Road, Oak Brook, Illinois 60523.  The telephone number for our principal executive office is  (630) 574-3000.  Our internet address is gldd.com.  The information at this internet address is not part of this prospectus.

1




The Offering

The following summary highlights selected information about the terms of the warrants and the common stock issuable upon exercise of the warrants.  For a more detailed description of the common stock and warrants, see “Description of Capital Stock.”

Issuer

 

Great Lakes Dredge & Dock Corporation.

 

 

 

Equity Securities Offered

 

The warrants are exercisable for an aggregate of 18,178,900 shares of our common stock.

 

 

 

Common Stock Outstanding

 

40,106,189 shares as of March 31, 2007.

 

 

 

Expiration of Warrants

 

The warrants are scheduled to expire at 5:00 p.m. eastern standard time on February 16, 2009.

 

 

 

Exercise of Warrants

 

Each warrant is exercisable for one share of common stock at a price of $5.00 per share.

 

 

 

Redemption

 

The Company may redeem the warrants in whole and not in part, at the price of $.01 per warrant, at any time after the warrants became exercisable, upon not less than 30 days’ prior written notice of redemption to each warrant holder; provided that the last sales price of the common stock has been at least $8.50 per share, on each of 20 trading days within any 30 trading day period ending on the third business day prior to the date on which notice of redemption is given.

 

 

 

Listing of Warrants/Common Stock

 

The warrants are currently traded on The Nasdaq Global Market under the symbol “GLDDW.” Our common stock is currently traded on The Nasdaq Global Market under the symbol “GLDD.”

 

 

 

Dividends

 

We have never paid or declared any cash dividends on our common stock or other securities. Our ability to pay dividends is restricted by certain covenants contained in our senior credit agreement, as well as subject to limitations contained in the indenture relating to our subordinated debt.

 

 

 

Voting

 

Each share of our common stock is entitled to one vote per share on all matters to be voted upon by stockholders generally. So long as MDP, our principal stockholder, owns capital stock of the Company that possesses 50% or more of the voting power of all capital stock of the Company entitled to vote generally in the election of directors, MDP may designate up to two directors of the Company, each of whom must be a U.S. citizen under applicable maritime laws (as defined in the certificate of incorporation) to have four votes in each matter submitted to directors of the Company for vote. Any director designated as having four votes in each matter submitted to the directors will have four votes in each matter submitted to any committee on which such director serves.

 

 

 

Liquidation

 

Upon a dissolution or winding up of Great Lakes, holders of common stock will share proportionately in all assets available for distribution, after the satisfaction of all debts and other liabilities and amounts payable on shares of preferred stock, if any.

 

 

 

Registration Statement

 

We have agreed that we will maintain the effectiveness of the registration statement of which this prospectus is part to permit the holders of warrants to exercise their warrants until the date on which all of the warrants have been exercised (except in connection with a going private transaction).

 

2




Summary Historical Consolidated Financial Data

The following table sets forth certain financial data regarding the Company and should be read in conjunction with “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” and our audited consolidated financial statements and notes thereto.  The summary financial data presented below have been derived from the Company’s audited consolidated financial statements.  The merger with Aldabra was accounted for as a reverse acquisition. Under this method of accounting, Great Lakes was the acquiring company for financial reporting purposes. In accordance with applicable guidance, the Aldabra Merger was considered to be a recapitalization.  Accordingly, the merger was treated as the equivalent of Great Lakes issuing stock for the net monetary assets of Aldabra accompanied by a recapitalization. The net monetary assets of Aldabra, primarily cash, were stated at their fair value, which was equivalent to the carrying value, and accordingly no goodwill or other intangible assets were recorded. The following summary financial data as of and for the year ended December 31, 2006 reflects the financial position, results of operations and cash flows of Great Lakes including the effects of the Aldabra Merger from the date of such transaction. The summary financial data as of and for the years ended December 31, 2005 and 2004 reflect the financial position, results of operations and cash flows of GLDD Acquisitions Corp. prior to the Aldabra Merger. The accumulated deficit of GLDD Acquisitions Corp. was carried forward to the recapitalized company.

3




 

 

 

Year Ended December 31,

 

 

 

2006

 

2005

 

2004

 

 

 

(in millions except per share data)

 

Income Statement Data:

 

 

 

 

 

 

 

Contract revenues

 

$

426.0

 

$

423.4

 

$

350.9

 

Costs of contract revenues

 

(369.0

)

(372.0

)

(315.0

)

Gross profit

 

57.0

 

51.4

 

35.9

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

(30.5

)

(29.3

)

(26.7

)

Amortization of intangible assets

 

(0.3

)

(0.8

)

(4.2

)

Subpoena-related expenses

 

(0.6

)

(2.9

)

(2.3

)

Impairment of goodwill and intangible

 

 

(5.7

)

 

Sale-related expenses

 

 

 

(0.3

)

Operating income

 

25.6

 

12.7

 

2.4

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(24.3

)

(23.1

)

(20.3

)

Sale-related financing costs

 

 

 

 

Equity in earnings (loss) of joint ventures

 

2.0

 

2.3

 

2.3

 

Minority interests

 

(0.2

)

(0.2

)

0.1

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

3.2

 

(8.3

)

(15.5

)

 

 

 

 

 

 

 

 

Income tax benefit (provision)

 

(1.0

)

1.4

 

4.4

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

2.2

 

$

(6.9

)

$

(11.1

)

 

 

 

 

 

 

 

 

Redeemable preferred stock dividends (1)

 

(8.2

)

(7.7

)

(7.3

)

Redemption of preferred stock (1)

 

(2.8

)

 

 

Net income (loss) available to common stockholders

 

$

(8.8

)

$

(14.6

)

$

(18.4

)

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per share (1)

 

$

(0.90

)

$

(1.57

)

$

(1.98

)

Basic and diluted weighted average shares

 

9,780

 

9,288

 

9,288

 

 

 

 

Year Ended December 31,

 

 

 

2006

 

2005

 

2004

 

Other Data:

 

 

 

 

 

 

 

EBITDA (2)

 

$

52.6

 

$

39.4

 

$

31.7

 

Net cash flows from operating activities

 

33.9

 

10.3

 

17.4

 

Net cash flows from investing activities

 

(21.5

)

(7.2

)

(11.4

)

Net cash flows from financing activities

 

(9.4

)

(4.5

)

(6.8

)

Depreciation and amortization

 

25.1

 

24.9

 

26.9

 

Maintenance expense

 

32.7

 

29.7

 

22.7

 

Capital expenditures (3)

 

29.8

 

12.7

 

23.1

 

 

 

 

As of December 31,

 

 

 

2006

 

2005

 

Balance Sheet Data:

 

 

 

 

 

Cash and equivalents

 

$

3.6

 

$

0.6

 

Working capital

 

42.9

 

48.4

 

Total assets

 

528.4

 

507.5

 

Total debt

 

194.7

 

250.8

 

Total stockholder’s equity (deficit)

 

128.5

 

78.1

 


(1)          Refer to Note 1 in the Company’s Financial Statements for the years ended December 31, 2006, 2005 and 2004 for additional details regarding these amounts.

(2)          EBITDA in 2005 includes the impact of a non-cash write-down of goodwill and intangibles for $5.7 million for

4




the demolition business. For the definition of EBITDA and a reconciliation, please see the discussion immediately following.

(3)          Capital expenditures in 2006 include approximately $3.9 million spent to buy out certain equipment previously under long-term operating leases and $10.4 million related to the reconfiguration of a dredge into a material handling barge that was funded through a sale-leaseback under a long-term operating lease. Capital expenditures in 2004 include spending of approximately $12.7 million on equipment that was funded by sale-leaseback under an operating lease.

EBITDA, as provided herein, represents net income (loss), adjusted for net interest expense, income taxes, depreciation and amortization expense. The Company presents EBITDA as an additional measure by which to evaluate the Company’s operating trends.  The Company believes that EBITDA is a measure frequently used to evaluate performance of companies with substantial leverage and that all of its primary stakeholders (i.e. its stockholders, bondholders and banks) use EBITDA to evaluate the Company’s period to period performance.   Additionally, management believes that EBITDA provides a transparent measure of the Company’s recurring operating performance and allows management to readily view operating trends, perform analytical comparisons and identify strategies to improve operating performance. For this reason, EBITDA is the measure the Company uses to assess performance for purposes of determining compensation under its incentive plan.  EBITDA should not be considered an alternative to, or more meaningful than, amounts determined in accordance with GAAP including: (a) operating income as an indicator of operating performance; or (b) cash flows from operations as a measure of liquidity.  As such, the Company’s use of EBITDA, instead of a GAAP measure, has limitations as an analytical tool, including the inability to determine profitability or liquidity due to the exclusion of interest expense and the associated significant cash requirements and the exclusion of depreciation and amortization, which represent significant and unavoidable operating costs given the level of indebtedness and capital expenditures needed to maintain the Company’s business.  For these reasons, the Company uses operating income to measure its operating performance and uses EBITDA only as a supplement.  The following is a reconciliation of EBITDA to net income (loss).

 

Years Ended December 31,

 

 

 

2006

 

2005

 

2004

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

2.2

 

$

(6.9

)

$

(11.1

)

Adjusted for:

 

 

 

 

 

 

 

Interest expense, net

 

24.3

 

23.1

 

20.3

 

Income tax expense (benefit)

 

1.0

 

(1.4

)

(4.4

)

Depreciation and amortization

 

25.1

 

24.6

 

26.9

 

EBITDA

 

$

52.6

 

$

39.4

 

$

31.7

 

 

 

5




RISK FACTORS

Risks Related to our Business

We depend on our ability to continue to obtain federal government dredging contracts, and are therefore greatly impacted by the amount of government funding for dredging projects.  A reduction in government funding for dredging contracts can materially reduce our revenues and profits.

A substantial portion of our revenue is derived from federal government dredging contracts.  Revenues related to contracts with federal agencies or companies operating under contracts with federal agencies and its percentage as a total of dredging revenue for the years ended December 31, 2006, 2005, and 2004 were as follows:

 

 

Year Ended

 

 

 

2006

 

2005

 

2004

 

Federal government dredging revenue (in US $1,000)

 

$

156,348

 

$

297,101

 

$

235,622

 

Percent of dredging revenue from federal government

 

41

%

79

%

75

%

 

Our dredging operations depend on project funding by various government agencies and are adversely affected by decreased levels of, or delays in, government funding.  Beginning in the second half of 2003 and into the first half of 2004, the domestic dredging bid activity declined.  Although the Corps’ fiscal year 2003 and 2004 budgets were approved at similar levels to the preceding years, it appeared that funds were not being distributed to the Corps’ districts.  Based on conversations with the Corps’ representatives and others in the industry, our management attributed the decline to budgetary pressures given the state of the deficit and the diversion of funds to support the nation’s efforts in Iraq.  Additionally, during this time period the Corps underwent a reorganization of certain of its administration functions which also delayed its ability to request and receive funding.

As a result of these funding issues, our dredging fleet was underutilized through much of 2004, leading to intense competition and pricing pressures for work that was bid during this period.  Although the bidding activity levels improved towards the end of 2004 and throughout 2005, the industry did not have confidence in the market, and continued to bid very aggressively to gain utilization.  In the fourth quarter of 2005, as the industry’s backlog improved, the pricing finally began to moderate, although pricing has not recovered to the levels seen prior to 2004.

If we are unable, in the future, to obtain bonding for our dredging contracts, our ability to obtain future dredging contracts will be limited, thereby adversely affecting our business.

We, like all dredging service providers, are generally required to post bonds in connection with our domestic dredging contracts to ensure job completion upon our failure to finish a project.  We have entered into a bonding agreement with Travelers Casualty and Surety Company of America (“Travelers”) pursuant to which Travelers acts as surety, issues bid bonds, performance bonds and payment bonds, and obligates itself upon other contracts of guaranty required by us in the day-to-day operations of our dredging and marine construction business.  However, Travelers is not obligated under the bonding agreement to issue future bonds for us.  Therefore, if we were unable to obtain additional bonds, our ability to take on future work would be severely limited.

Our business is subject to significant operating risks and hazards that could result in damage or destruction to persons or property, which could result in losses or liabilities to us.

The dredging and demolition businesses are generally subject to a number of risks and hazards, including environmental hazards, industrial accidents, encountering unusual or unexpected geological formations, cave-ins below water levels, collisions with fixed objects, disruption of transportation services and flooding.  These risks could result in damage to, or destruction of, dredges, transportation vessels, other maritime structures and buildings, and could also result in personal injury, environmental damage, performance delays, monetary losses or legal liability.

 

6




We are subject to risks related to our international operations.

Revenue from foreign contracts and its percentage to total dredging revenue for the years ended December 31, 2006, 2005 and 2004 is as follows:

 

 

Year ended

 

 

 

2006

 

2005

 

2004

 

Foreign revenue (in US $1000)

 

$

86,039

 

$

47,402

 

$

62,862

 

Percent of revenue from foreign contracts

 

23

%

13

%

20

%

 

International operations subject us to additional risks, including:

·                  uncertainties concerning import and export license requirements, tariffs and other trade barriers;

·                  restrictions on repatriating foreign profits back to the United States;

·                  changes in foreign policies and regulatory requirements;

·                  difficulties in staffing and managing international operations;

·                  taxation issues;

·                  greater difficulty in accounts receivable collection and longer collection periods;

·                  currency fluctuations; and

·                  political, cultural and economic uncertainties.

The amount of our estimated backlog is subject to change and not necessarily indicative of future revenues.

Our dredging contract backlog represents our estimate of the revenues that we will realize under contracts remaining to be performed based upon estimates relating to, among other things, the time required to mobilize the necessary assets to and from the project site, as well as the amount and type of material and the time it takes for that material to be dredged.  However, these estimates are necessarily subject to fluctuations based upon the amount and type of material that actually must be dredged, as well as factors affecting the time required to complete each job.  Consequently, backlog is not necessarily indicative of future revenues or profitability.  In addition, a significant amount of our dredging backlog relates to government contracts, which can be canceled at any time without penalty, subject to our right, in some cases, to recover our actual committed costs and profit on work performed up to the date of cancellation.

Below is our dredging backlog from federal government contracts as of December 31, 2006, 2005 and 2004 and the percentage to total backlog as of the same period.

 

 

December 31,

 

 

 

2006

 

2005

 

2004

 

Government contracts in backlog (in US$1,000)

 

$

75,315

 

$

99,630

 

$

233,482

 

Percent of government contracts in backlog

 

21

%

38

%

83

%

 

Our profitability is subject to inherent risks because of the fixed-price nature of most of our contracts.

Substantially all of our contracts with our customers are fixed-price contracts.  Under a fixed-price contract, the customer agrees to pay a specified price for our performance of the entire contract.  Fixed-price contracts carry inherent risks, including risks of losses from underestimating costs, operational difficulties and other changes that may occur over the contract period.  One of the most significant factors affecting the profitability of a dredging project is the weather at the project site.  Inclement or hazardous weather conditions can result in substantial delays in dredging and additional contract expenses.  Due to these factors, it is possible that we will not be able to perform our obligations under fixed-price contracts without incurring additional expenses.  If we were to significantly underestimate the costs on one or more significant contracts, the resulting losses could have a material adverse effect on us.

7




Our business could suffer in the event of a work stoppage by our unionized labor force.

We are a party to numerous collective bargaining agreements in the U.S. that govern our relationships with our unionized hourly workforce.  However, four primary agreements apply to approximately 84% of such employees.  The inability to successfully renegotiate contracts with these unions as they expire, any future strikes, employee slowdowns or similar actions by one or more unions could have a material adverse effect on our ability to operate our business.

Our business would be adversely affected if we failed to comply with the Jones Act provisions on coastwise trade, or if those provisions were modified or repealed.

We are subject to the Jones Act and other federal laws that restrict dredging in U.S. waters and maritime transportation between points in the United States to vessels operating under the U.S. flag, built in the United States, at least 75% owned and operated by U.S. citizens and manned by U.S. crews.  Compliance with these laws increases our operating costs in comparison to non-U.S. dredging operations.  We are responsible for monitoring the ownership of our common stock to ensure our compliance with these laws.  If we do not comply with these restrictions, we would be prohibited from operating our vessels in the U.S. market, and under certain circumstances we would be deemed to have undertaken an unapproved foreign transfer, resulting in severe penalties, including permanent loss of U.S. dredging rights for our vessels, fines or forfeiture of the vessels.

In the past, interest groups have lobbied Congress to modify or repeal the Jones Act to facilitate foreign flag competition for trades and cargoes currently reserved for U.S. flag vessels under the Jones Act.  Foreign vessels generally have lower construction costs and generally operate at significantly lower costs than we do in the U.S. markets, which would likely result in reduced pricing for dredging work.  We believe that continued efforts may be made to modify or repeal the Jones Act laws currently benefiting U.S. flag vessels.  If these efforts are successful, it could result in significantly increased competition and have a material adverse effect on our business, results of operations and financial condition.

We have a significant amount of indebtedness, which makes us more vulnerable to adverse economic and competitive conditions.

We have a significant amount of indebtedness.  As of December 31, 2006, we had outstanding long-term indebtedness of $194.7 million and stockholders’ equity of $128.5 million. This amount of debt is substantial and our debt could:

·                  require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;

·                  limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

·                  place us at a competitive disadvantage compared to our less leveraged competitors; or

·                  increase our vulnerability to both general and industry-specific adverse economic conditions; and limit, among other things, our ability to borrow additional funds.

For example, due to the reduction in our earnings in 2004, we needed to seek an amendment from our senior lenders of the covenants in our senior credit agreement to provide greater flexibility.  In exchange, our capital spending limits were reduced and our borrowing availability under our senior credit agreement was reduced.  In addition, we obtained certain waivers during 2005 on the minimum net worth requirements under our bonding agreement.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

8




Capital expenditures and other costs necessary to operate and maintain our vessels tend to increase with the age of the vessel and may also increase due to changes in governmental regulations, safety or other equipment standards.

Capital expenditures and other costs necessary to operate and maintain our vessels tend to increase with the age of the vessel.  Accordingly, it is likely that the operating costs of our older vessels will increase.

The average age of our more significant vessels, by equipment type, is as follows:

Type of Equipment

 

Quantity

 

Weighted Average 
Age in Years

 

Hydraulic Dredges

 

13

 

39

 

Hopper Dredges

 

8

 

24

 

Mechanical Dredges

 

6

 

33

 

Unloaders

 

1

 

22

 

Drillboats

 

2

 

30

 

Material Barges

 

95

 

27

 

 

 

 

 

 

 

Total

 

125

 

29

 

 

Remaining economic life has not been presented because it is difficult to quantify. To the extent that market conditions warrant the expenditures, we can prolong the vessels’ lives indefinitely.  We operate in an industry where a significant portion of competitors’ equipment is of a similar age.  It is common in the dredging industry to invest maintenance and capital expenditures into equipment to extend the economic life.

In addition, changes in governmental regulations, safety or other equipment standards, as well as compliance with standards imposed by maritime self-regulatory organizations and customer requirements or competition, may require us to make additional expenditures.  For example, if the U.S. Coast Guard enacts new standards, we may be required to make significant expenditures for alterations or the addition of new equipment. In order to satisfy any such requirement, we may be required to take our vessels out of service for extended periods of time, with corresponding losses of revenues.  In the future, market conditions may not justify these expenditures or enable us to operate our older vessels profitably during the remainder of their economic lives.

Our employees are covered by federal laws that may provide seagoing employees remedies for job-related claims in addition to those provided by state laws.

All of our seagoing employees are covered by provisions of the Jones Act and general maritime law.  These laws typically operate to make liability limits established by state workers’ compensation laws inapplicable to these employees and to permit these employees and their representatives to pursue actions against employers for job-related injuries in federal courts.  Because we are not generally protected by the limits imposed by state workers’ compensation statutes, we have greater exposure for claims made by these employees as compared to employers whose employees are not covered by these provisions.

For example, in the normal course of business, we are a party to various personal injury lawsuits.  We maintain insurance to cover claims that arise from injuries to our hourly workforce subject to a deductible. Over the last year, there has been an increase in suits filed in Texas due in large part to two Texas law firms aggressively pursuing personal injury claims on behalf of dredging workers resident in Texas.  Aggressive medical advice is increasing the seriousness of claimed injuries and the amount demanded in settlement. In fiscal 2006, $4.5 million was recorded for our self-insured portion of these liabilities.  While our recorded self insurance reserves represent our best estimate of the outcomes of these claims, should these trends persist, we could continue to be negatively impacted in the future.  See Note 18, “Commitments and Contingencies” in the notes to our audited consolidated financial statements.

Environmental regulations could force us to incur significant capital and operational costs.

Our operations and facilities are subject to various environmental laws and regulations relating to, among other things: dredging operations; the disposal of dredged material; protection of wetlands; storm water and waste water discharges; demolition activities; asbestos removal; transportation and disposal of other hazardous substances and materials; and air emissions.  We are also subject to laws designed to protect certain marine species and habitats.  Compliance with these statutes and regulations can delay performance of particular projects and increase related

9




project costs.  These delays and increased costs could have a material adverse effect on our results of operations.

Our projects may involve demolition, excavation, transportation, management and disposal of hazardous waste and other hazardous substances and materials.  Various laws strictly regulate the removal, treatment and transportation of hazardous waste and other hazardous substances and materials and impose liability for human health effects and environmental contamination caused by these materials.  Our demolition business, for example, requires us to transport and dispose of hazardous substances and materials, such as asbestos.  Services rendered in connection with hazardous substance and material removal and site development may involve professional judgments by licensed experts about the nature of soil conditions and other physical conditions, including the extent to which hazardous substances and materials are present, and about the probable effect of procedures to mitigate problems or otherwise affect those conditions. If the judgments and the recommendations based upon those judgments are incorrect, we may be liable for resulting damages that our clients incur, which may be material.  The failure of certain contractual protections, including any indemnification from our clients or subcontractors, to protect us from incurring such liability could have a material adverse effect on our business, financial condition or results of operations.

Our demolition business (NASDI) depends on key customer relationships and our reputation in the Boston contract market developed and maintained by our key operations manager.  Loss of any of these elements would materially reduce our demolition revenues and profits.

Demolition contracts are entered into on a project by project basis, so NASDI does not have continuing contractual commitments with its demolition customers beyond the terms of the current contract.  We benefit from key relationships with certain general and construction contractors in the Boston market.  We also benefit from our reputation in the Boston market developed over years of successfully performing on projects.  Both of these aspects of the business were developed and are maintained through the demolition business’ key manager.  The inability to maintain relationships with these customers or obtain new customers based on NASDI’s reputation would reduce the revenue and profitability from demolition contracts.  The inability of NASDI to retain its key demolition manager would have a material adverse affect on NASDI’s current customer relationships and reputation.

Risks Related to our Common Stock

Ownership of our common stock is highly concentrated and, as a result, our principal stockholder influences our affairs significantly.

MDP owns approximately 67% of our outstanding common stock. As a result, MDP has the voting power to significantly influence our policies, business and affairs, and the outcome of any corporate transaction or other matter, including mergers, consolidations and the sale of all, or substantially all, of our assets. This concentration in control may have the effect of delaying, deterring or preventing a change in control that otherwise could result in a premium in the price of our common stock.

In addition, as long as MDP owns our capital stock with 50% or more of the voting power of our capital stock, MDP will have the power to designate up to two directors who will be entitled to four votes in each matter submitted to our directors for vote. As a result of this provision, MDP will be able to determine the outcome of matters submitted to a vote of the board of directors, notwithstanding that representatives of MDP do not at the time constitute a majority of the board of directors.

Registration rights held by MDP and other stockholders may have an adverse effect on the market price of our common stock.

An investor rights agreement provides for certain registration rights with respect to shares held by those former Aldabra stockholders who are party to the investor rights agreements (the “Aldabra Registrable Securities”) and with respect to shares of common stock held by MDP (the “MDP Registrable Securities”) and with respect to shares held by certain other Great Lakes stockholders party to the investor rights agreement (the “Other Registrable Securities”). Approximately 28,805,439 shares are entitled to registration rights, or approximately 72% of our outstanding shares. Holders of at least a majority of MDP Registrable Securities, or Aldabra Registrable Securities after February 17, 2008, will have the right to demand

10




registration under the Securities Act of 1933, as amended, of all or any portion of their registrable securities subject to certain amount and time limitations. Holders of MDP Registrable Securities may demand three long-form registrations and an unlimited number of short-form registrations, while holders of Aldabra Registrable Securities may only demand one long-form registration and one short-form registration. Additionally, whenever we propose to register any of our securities under the Securities Act and the registration form used for the registration of registrable securities, parties to the investor rights agreement will have the right to request the inclusion of their registrable securities in such registration. The resale of these shares in the public market upon exercise of those registration rights could adversely affect the market price of our common stock.

Our charter will limit the ownership of our common stock by individuals or entities that are not U.S. citizens. This restriction could limit the liquidity of our common stock.

In order to ensure compliance with maritime laws, our charter prohibits persons who are not U.S. citizens for purposes of maritime laws from owning greater than 22.5% of our total outstanding stock or 90% of the stock permitted under maritime laws, whichever is less. This requirement may have an adverse impact on the liquidity or market value of our common stock, because holders may be unable to sell stock to non-U.S. citizens. Any purported transfer of common stock in violation of these provisions will be ineffective to transfer the common stock or any voting, dividend or other rights in respect of the common stock. See “Description of Capital Stock.”

Delaware law and our charter documents may impede or discourage a takeover that you may consider favorable.

The provisions of our certificate of incorporation and bylaws may also deter, delay or prevent a third-party from acquiring us. These provisions include:

·                  limitations on the ability of stockholders to amend our charter documents, including stockholder supermajority voting requirements;

·                  the inability of stockholders to act by written consent or to call special meetings after such time as the existing stockholders own less than 25% of our common stock;

·                  a classified board of directors with staggered three-year terms;

·                  advance notice requirements for nominations for election to the board of directors and for stockholder proposals;

·                  ability of MDP to elect directors that have the majority of the voting power of the board of directors; and

·                  the authority of our board of directors to issue, without stockholder approval, up to 1,000,000 shares of preferred stock with such terms as the board of directors may determine and to issue additional shares of our common stock.

We are also subject to the protections of Section 203 of the Delaware General Corporation Law, which prevents us from engaging in a business combination with a person who acquires at least 15% of our common stock for a period of three years from the date such person acquired such common stock, unless board or stockholder approval were obtained. See “Description of Capital Stock.”

These provisions could have the effect of delaying, deferring or preventing a change in control of our company, discourage others from making tender offers for our shares, lower the market price of our stock or impede the ability of our stockholders to change our management, even if such changes would be beneficial to our stockholders.

11




Our stockholders may not receive dividends because of restrictions in our debt agreements, Delaware law and state regulatory requirements.

Our ability to pay dividends is restricted by the agreements governing our debt, including our senior credit facilities and the indenture governing our senior subordinated notes, as well as Delaware law and state regulatory authorities. In addition, we and our subsidiaries are permitted under the terms of our debt agreements to incur additional indebtedness that may restrict or prohibit the payment of dividends.  Under Delaware law, our board of directors may not authorize payment of a dividend unless it is either paid out of our surplus, as calculated in accordance with the Delaware General Corporation Law, or, if we do not have a surplus, it is paid out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.  To the extent we do not have adequate surplus or net profits, we will be prohibited from paying dividends.

We are a “controlled company” within the meaning of the Nasdaq rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements.

We are a “controlled company” under the rules of The Nasdaq Stock Market. Under these rules, a company of which more than 50% of the voting power is held by a group is a “controlled company” and may elect not to comply with certain Nasdaq corporate governance requirements, including (1) the requirement that a majority of the board of directors consist of independent directors, (2) the requirement that the nominating committee be composed entirely of independent directors, and (3) the requirement that the compensation committee be composed entirely of independent directors.  We intend to rely on this exemption as long as it is available to us, and therefore do not have, and do not intend to have, a majority of independent directors or nominating and compensation committees consisting entirely of independent directors. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq’s corporate governance requirements.

Our quarterly operating results may vary significantly, which could negatively impact our stock price.

Our quarterly results of operations have fluctuated in the past and will continue to fluctuate in the future. You should not rely on the results of any past quarter or quarters as an indication of future performance in our business operations or stock price. Our operating results could vary greatly from quarter to quarter due to factors such as:

·                  inclement or hazardous weather conditions that may result in substantial delays in dredging and additional contract expenses;

·                  environmental restrictions requiring that certain projects be performed in winter months to protect wildlife habitats; and

·                  equipment mobilization to and from projects.

If our results of operations from quarter to quarter fail to meet the expectations of public market analysts and investors, our stock price could suffer or be negatively impacted.

12




CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be found throughout this prospectus, particularly under the headings “Prospectus Summary,” “Risk Factors,” “Dividend Policy,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” among others. Forward-looking statements typically are identified by the use of terms such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “estimate,” “intend” and similar words, although some forward-looking statements are expressed differently. You should consider statements that contain these words carefully because they describe our expectations, plans, strategies and goals and beliefs concerning future business conditions, our results of operations, financial position, and our business outlook or state other “forward-looking” information based on currently available information. The factors listed above under the heading “Risk Factors” and in the other sections of this prospectus provide a discussion of the most significant risks, uncertainties and events that could cause our actual results to differ materially from the expectations expressed in our forward-looking statements.

The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except to the extent required by applicable securities law.

13




USE OF PROCEEDS

We cannot predict whether some, all or none of the warrants will be exercised.  The warrants to which this prospectus relates are exercisable at an exercise price of $5.00 per share.  If all of the warrants were exercised, the gross proceeds to us would be $90,894,500.  We intend to use any net proceeds from the exercise of the warrants for general corporate purposes.

DIVIDEND POLICY

We have never paid or declared any cash dividends on our common stock or other securities. Our ability to pay dividends is restricted by certain covenants contained in our senior credit agreements, as well as subject to limitations contained in the indenture relating to our subordinated debt.

14




MARKET INFORMATION

Our common stock and warrants have been traded under the symbols “GLDD,” and “GLDDW,” respectively, on The NASDAQ Global Market since December 27, 2006. The table below sets forth, for the calendar quarters indicated, the high and low sales prices of the common stock and warrants as reported by NASDAQ.

 

 

Common Stock

 

Warrants

 

 

 

High

 

Low

 

High

 

Low

 

Fourth quarter 2006

 

$

7.50

 

$

5.00

 

$

1.65

 

$

1.45

 

First quarter 2007

 

$

7.48

 

$

6.11

 

$

2.39

 

$

1.50

 

Second quarter 2007 (through April 13, 2007)

 

$

7.45

 

$

6.67

 

$

2.45

 

$

1.84

 

 

On April 13, 2007, the reported closing sales prices of our common stock and warrants on The NASDAQ Global Market were $7.33 and $2.42 per share, respectively.

We made no repurchases of our equity securities during the fourth quarter of 2006 or first quarter 2007.

Holders of Record

As of March 31, 2007, we had approximately 39 shareholders of record of our common stock and one holder of record of our warrants.

15




UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

The following unaudited pro forma condensed consolidated statement of operations was derived by applying pro forma adjustments to Great Lakes’ consolidated financial statements included elsewhere in this registration statement.  The unaudited pro forma condensed consolidated statement of operations gives effect to the Aldabra Merger as if it had occurred at the beginning of the period (January 1, 2006).

The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2006 is for informational purposes only and should be read in conjunction with the historical financial statements of Great Lakes and Aldabra and the related notes thereto. The unaudited pro forma condensed consolidated information is not necessarily indicative of the results of operations that may have actually occurred had the Aldabra Merger taken place on the date indicated, or the operating results of the combined company.

The unaudited pro forma condensed consolidated financial statement was prepared treating the Aldabra Merger as a recapitalization of Great Lakes.  Because Aldabra was not an operating company, the Aldabra Merger was treated as the issuance of shares of Great Lakes for the net tangible assets (consisting principally of cash) of Aldabra and no goodwill was recorded in connection with the Aldabra Merger.

16




Unaudited Pro Forma Condensed Consolidated Statement of Operations

 

 

 

 

Year Ended December 31, 2006

 

 

 

Great Lakes

 

Adjustments

 

Pro Forma

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

Contract revenues

 

$

425,980

 

$

 

$

425,980

 

Costs of contract revenues

 

368,991

 

 

368,991

 

Gross profit

 

56,989

 

 

56,989

 

General and administrative expenses

 

31,376

 

(a)

31,376

 

Operating income

 

25,613

 

 

25,613

 

Interest expense, net

 

(24,343

)

6,061

(b)

(18,282

)

Equity in earnings of joint venture

 

2,041

 

 

2,041

 

Minority interests

 

(155

)

 

(155

)

Income before income taxes

 

3,156

 

6,061

 

9,217

 

Income tax benefit (expense)

 

(971

)

(2,390)

(c)

(3,361

)

Net income (loss)

 

$

2,185

 

$

3,671

 

$

5,856

 

 

 

 

 

 

 

 

 

Redeemable preferred stock dividends

 

(8,198

)

8,198

(d)

 

Redemption of preferred stock

 

(2,790

)

2,790

(d)

 

Net income (loss) available to common stockholders

 

$

(8,803

)

14,659

 

$

5,856

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

(8.80

)

 

 

$

0.15

 

 

 

 

 

 

 

 

 

Basic weighted average shares

 

1,000

 

 

(e)

40,106

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

(8.80

)

 

 

$

0.13

 

 

 

 

 

 

 

 

 

Diluted weighted average shares

 

1,000

 

 

(e)

44,176

 

 

17




 

Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations

(dollars in thousands)

 

 

Significant Assumptions and Adjustments

 

(a)                                  The historical expenses incurred by Aldabra consisted principally of professional fees relating to the search for an acquisition and to Aldabra’s SEC reporting requirements, franchise and capital based taxes, directors’ and officers’ insurance expenses, travel expenses principally related to the search for an acquisition, and administrative fees that are expected to be discontinued upon the finalization of the transaction with Great Lakes. It is not anticipated that these expenses will carryover to Great Lakes because (i) Great Lakes is already an SEC reporting company (ii) Aldabra merged into Great Lakes such that no additional franchise taxes will be payable; and (iii) Great Lakes has existing D&O insurance covering its officers and directors, who will continue to manage the Company.  Because Aldabra was not an operating company, its administrative expenses and search costs related to finding an acquisition candidate will not be incurred in the future.  Therefore, pro forma effect has not been given to Aldabra’s historical expenses.  Any incremental expenses that will be incurred by Great Lakes are not estimable at this time, but are not expected to be significant.

 

(b)                                 Great Lakes used the proceeds from the Aldabra Merger to paydown $51,300 in term debt. This adjustment reflects the reduction in interest expense from the paydown of that term debt.  Average interest rate on the senior bank term debt was 9.5% for the year ended December 31, 2006.

 

 

 

Year ended
December 31,
2006

 

Elimination of interest expense related to debt repaid

 

$

4,303

 

Reduction in amortization of deferred financing costs

 

1,758

 

 

 

$

6,061

 

 

 

(c)           To reflect the tax effect of the pro forma interest adjustment, using a combined federal, state and foreign statutory tax rate of 39.4%.

 

(d)           In connection with the purchase of the Company in 2003, Redeemable Preferred Stock was issued to the shareholders.  Dividends on the Company’s Series A and Series B Preferred Stock were cumulative semiannually and payable upon declaration at a rate of 8% commencing December 23, 2003.  The preferred stock was recorded at its redemption and liquidation value of $1,000 per share, or $87,000 plus accrued and unpaid dividends.  In 2006, $8,198 of preferred stock dividends were accrued.   The holders of Preferred Stock were entitled to payment before any capital distribution was made with respect to any Junior Securities and had no voting rights.  The fair value of stock received was in excess of the carrying value of the Redeemable Preferred Stock at the time of the exchange.  Therefore, the net loss available to common shareholders for the year ended December 31, 2006 was adjusted by $2,790.  The statement of operations gives effect to the merger on January 1, 2006 and therefore the accumulated dividends and effects of redemption of the preferred stock were reversed from the pro forma results.

 

(e)           40,106,189 shares were outstanding as a result of the merger, which includes 516,658 shares released from escrow and an additional 120,511 shares issued in finalization of the net indebtedness and working capital adjustments.  Those shares were used to calculate basic EPS on a pro forma basis.  Diluted EPS assumes conversion of all outstanding stock warrants at the current conversion price of $5.00 per warrant.  As a result, an additional 4,069,782 shares were included in diluted weighted average shares outstanding.

18




SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table sets forth selected financial data and should be read in conjunction with Management’s Discusion and Analysis of Financial Condition and Results of Operations and our audited consolidated financial statements and notes thereto.  The selected financial data presented below have been derived from the Company’s consolidated financial statements.  The acquisition of Great Lakes Dredge & Dock Corporation by MDP in December 2003 was accounted for as a purchase in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” resulting in a new basis of accounting subsequent to the transaction.  Therefore, for presentation below and throughout this prospectus, financial information relating to the Company prior to the acquisition by MDP is denoted as Predecessor Basis, while financial information relating to the Company subsequent to is denoted as Successor Basis.

The merger with Aldabra was accounted for as a reverse acquisition. Under this method of accounting, Great Lakes was the acquiring company for financial reporting purposes. In accordance with applicable guidance, the Aldabra Merger was considered to be a recapitalization.  Accordingly, the merger was treated as the equivalent of Great Lakes issuing stock for the net monetary assets of Aldabra accompanied by a recapitalization. The net monetary assets of Aldabra, primarily cash, were stated at their fair value, which was equivalent to the carrying value, and accordingly no goodwill or other intangible assets were recorded. The following selected financial data of and for the years ended December 31, 2006, 2005, 2004, 2003 and 2002 reflect the financial position, results of operations and cash flows of GLDD Acquisitions Corp. prior to the Aldaba Merger.  The accumulated deficit of GLDD Acquisitions Corp. was carried forward to the recapitalized Company.

 

 

Successor Company

 

 

Predecessor Company

 

 

 

Year Ended December 31,

 

 

 

2006

 

2005

 

2004

 

 

2003

 

2002

 

 

 

(in millions except per share data)

 

Income Statement Data:

 

 

 

 

 

 

 

 

 

 

 

 

Contract revenues

 

$

426.0

 

$

423.4

 

$

350.9

 

 

$

398.8

 

$

362.6

 

Costs of contract revenues

 

(369.0

)

(372.0

)

(315.0

)

 

(328.2

)

(294.6

)

Gross profit

 

57.0

 

51.4

 

35.9

 

 

70.6

 

68.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

(30.5

)

(29.3

)

(26.7

)

 

(27.9

)

(29.8

)

Amortization of intangible assets

 

(0.3

)

(0.8

)

(4.2

)

 

 

 

Subpoena-related expenses

 

(0.6

)

(2.9

)

(2.3

)

 

 

 

Impairment of goodwill and intangible

 

 

(5.7

)

 

 

 

 

 

 

 

Sale-related expenses

 

 

 

(0.3

)

 

(10.6

)

 

Operating income

 

25.6

 

12.7

 

2.4

 

 

32.1

 

38.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(24.3

)

(23.1

)

(20.3

)

 

(20.7

)

(21.1

)

Sale-related financing costs

 

 

 

 

 

(13.1

 

 

Equity in earnings (loss) of joint ventures

 

2.0

 

2.3

 

2.3

 

 

1.4

 

(0.1

)

Minority interests

 

(0.2

)

(0.2

)

0.1

 

 

 

0.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

3.2

 

(8.3

)

(15.5

)

 

(0.3

)

17.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax benefit (provision)

 

(1.0

)

1.4

 

4.4

 

 

(1.3

)

(4.4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

2.2

 

$

(6.9

)

$

(11.1

)

 

$

(1.6

)

$

13.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable preferred stock dividends (1)

 

(8.2

)

(7.7

)

(7.3

)

 

 

 

Redemption of preferred stock (1)

 

(2.8

)

 

 

 

 

 

Net income (loss) available to common stockholders

 

$

(8.8

)

$

(14.6

)

$

(18.4

)

 

$

(1.6

)

$

13.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per share (1)

 

$

(0.90

)

$

(1.57

)

$

(1.98

)

 

$

(32.0

)

$

260.0

 

Basic and diluted weighted average shares

 

9,780

 

9,288

 

9,288

 

 

50

 

50

 

 

 

 

Successor Company

 

 

Predecessor Company

 

 

 

Year Ended December 31,

 

 

 

2006

 

2005

 

2004

 

 

2003

 

2002

 

Other Data:

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA (2)

 

$

52.6

 

$

39.4

 

$

31.7

 

 

$

49.8

 

$

54.4

 

Net cash flows from operating activities

 

33.9

 

10.3

 

17.4

 

 

19.7

 

28.4

 

Net cash flows from investing activities

 

(21.5

)

(7.2

)

(11.4

)

 

(183.4

)

(17.2

)

Net cash flows from financing activities

 

(9.4

)

(4.5

)

(6.8

)

 

164.9

 

(12.3

)

Depreciation and amortization

 

25.1

 

24.9

 

26.9

 

 

16.3

 

15.9

 

Maintenance expense

 

32.7

 

29.7

 

22.7

 

 

27.9

 

25.9

 

Capital expenditures (3)

 

29.8

 

12.7

 

23.1

 

 

37.7

 

18.3

 

 

19




 

 

 

Successor Company

 

 

Predecessor Company

 

 

 

As of December 31,

 

 

 

2006

 

2005

 

2004

 

 

2003

 

2002

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and equivalents

 

$

3.6

 

$

0.6

 

$

2.0

 

 

$

2.8

 

$

1.5

 

Working capital

 

42.9

 

48.4

 

39.2

 

 

50.5

 

14.6

 

Total assets

 

528.4

 

507.5

 

508.6

 

 

522.9

 

287.5

 

Total debt

 

194.7

 

250.8

 

254.3

 

 

258.7

 

172.8

 

Total stockholder’s equity (deficit)

 

128.5

 

78.1

 

85.9

 

 

97.0

 

(12.4

)


(1) Refer to Note 1 of our audited financial statements included in this prospectus for additional details regarding these amounts.

(2) EBITDA in 2005 includes the impact of a non-cash write-down of goodwill and intangibles for $5.7 million for the demolition business. In 2003 EBITDA includes the impact of sale-related expenses totaling $10.6 million, related to the sale of the Company in 2003. For the definition of EBITDA and a reconciliation, please see the discussion immediately following.

(3) Capital expenditures in 2006 include approximately $3.9 million spent to buy out certain equipment previously under long-term operating leases and $10.4 million related to the reconfiguration of a dredge into a material handling barge that was funded through a sale-leaseback under a long-term operating lease. Capital expenditures in 2004 include spending of approximately $12.7 million on equipment that was funded by sale-leaseback under an operating lease. Capital expenditures in 2003 include approximately $15.0 million used to buy out certain operating equipment previously under operating lease, and $3.6 million related to a barge being constructed as part of a like-kind exchange.

EBITDA, as provided herein, represents net income (loss), adjusted for net interest expense, income taxes, depreciation and amortization expense. The Company presents EBITDA as an additional measure by which to evaluate the Company’s operating trends.  The Company believes that EBITDA is a measure frequently used to evaluate performance of companies with substantial leverage and that all of its primary stakeholders (i.e. its stockholders, bondholders and banks) use EBITDA to evaluate the Company’s period to period performance.   Additionally, management believes that EBITDA provides a transparent measure of the Company’s recurring operating performance and allows management to readily view operating trends, perform analytical comparisons and identify strategies to improve operating performance. For this reason, EBITDA is the measure the Company uses to assess performance for purposes of determining compensation under its incentive plan.  EBITDA should not be considered an alternative to, or more meaningful than, amounts determined in accordance with GAAP including: (a) operating income as an indicator of operating performance; or (b) cash flows from operations as a measure of liquidity.  As such, the Company’s use of EBITDA, instead of a GAAP measure, has limitations as an analytical tool, including the inability to determine profitability or liquidity due to the exclusion of interest expense and the associated significant cash requirements and the exclusion of depreciation and amortization, which represent significant and unavoidable operating costs given the level of indebtedness and capital expenditures needed to maintain the Company’s business.  For these reasons, the Company uses operating income to measure its operating performance and uses EBITDA only as a supplement.  The following is a reconciliation of EBITDA to net income (loss).

 

 

Successor Company

 

 

Predecessor Company

 

 

 

Years Ended December 31,

 

 

 

2006

 

2005

 

2004

 

 

2003

 

2002

 

 

 

                         (in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

2.2

 

$

(6.9

)

$

(11.1

)

 

$

(1.6

)

$

13.0

 

Adjusted for:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

24.3

 

23.1

 

20.3

 

 

20.7

 

21.1

 

Sale-related financing costs

 

 

 

 

 

13.1

 

 

Income tax expense (benefit)

 

1.0

 

(1.4

)

(4.4

)

 

1.3

 

4.4

 

Depreciation and amortization

 

25.1

 

24.6

 

26.9

 

 

16.3

 

15.9

 

EBITDA

 

$

52.6

 

$

39.4

 

$

31.7

 

 

$

49.8

 

$

54.4

 

 

20




MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements contained elsewhere in this prospectus. This discussion contains forward-looking statements based on current expectations that involve risks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements due to a number of factors, including those set forth in “Risk Factors” and elsewhere in this prospectus.

Overview

Great Lakes is the largest provider of dredging services in the United States.  Dredging generally involves the enhancement or preservation of navigability of waterways or the protection of shorelines through the removal or replenishment of soil, sand or rock.  The U.S. dredging market consists of three primary types of work: capital, beach nourishment and maintenance, in which sectors the Company has experienced an average combined bid market share in the U.S. of 37% over the past three years.  The Company’s largest domestic dredging customer is the U.S. Army Corps of Engineers, which has responsibility for federally funded projects related to navigation and flood control.  In 2006, approximately 41% of the Company’s dredging revenues were earned from contracts with federal government agencies, including the Corps as well as other federal entities such as the U.S. Coast Guard and U.S. Navy.  This percentage of revenues from the federal government is significantly down from the prior three year average (2003-2005) of 75%.  The Company anticipates this percentage will increase once the Corps’ funding issues are resolved.   Therefore, the Company tracks the annual appropriation process, to the extent that information is available, to assist it in planning for and managing its operations.  However, the Company continues to diversify its revenue base, taking on additional work overseas, as well as private work domestically. The Company has continued its role as the only U.S. dredging contractor with significant international operations, which represented an average of 18% of its dredging contract revenues over the past three years.  The international operations provide additional customer diversification, which can be particularly beneficial if there is a downturn in the domestic economy.

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, which is reflected as the minority interest in the Company’s consolidated financial statements.  Since the acquisition of NASDI in 2001, the Company has operated in two reportable segments: dredging and demolition.

Recent Developments

 

                In April 2007, Great Lakes announced it had entered into agreements to purchase two dredges.  On April 10, 2007, Great Lakes entered into agreements to purchase from affiliates of C.F. Bean LLC (“Bean”) the “Eagle I,” a 6,400 cubic yard hopper dredge and the “Meridian,” a hydraulic dredge, along with attendant plant, for an aggregate purchase price of $52.5 million.  The Company announced that it also intends to invest approximately $12 million of additional funds to upgrade and outfit certain equipment, for a total expenditure of $64.5 million.

 

                On April 13, 2007, Great Lakes assigned to Weeks Marine, Inc. its right to purchase the hydraulic dredge “Meridian” and its attendant plant.  Great Lakes will instead purchase from Weeks Marine the “Beachbuilder,” a large hydraulic dredge, for $13.3 million.  This transaction is advantageous to Great Lakes because the Beachbuilder’s larger size will allow the Company to modify this vessel to create a world class hydraulic cutterhead dredge well suited for capital and offshore beach nourishment work.  The acquisitions of the Eagle I from Bean and the Beachbuilder from Weeks, as well as the modifications to the Beachbuilder will be accomplished within the $64.5 million estimate of expenditures that had been previously announced by Great Lakes.

 

                The acquisitions and modifications are expected to be financed through a combination of long term lease financing and a new senior credit facility.  It is expected that these two dredges will enhance the Company’s competitive strength in capital and beach dredging. Also, with the increase in capacity Great Lakes will be able to take on additional domestic and foreign work.  It is the Company’s intention to employ both the Eagle I and the Beachbuilder in 2007.  The Beachbuilder will operate while the new fabrications for this dredge are being constructed

Contract Revenues

Most of the Company’s dredging contracts are obtained through competitive bidding on terms specified by the party inviting the bid.  The nature of the specified services dictates the types of equipment, material and labor involved, all of which affect the cost of performing the contract and the price that dredging contractors will bid.

The Company recognizes contract revenues under the percentage-of-completion method, based on the Company’s engineering estimates of the physical percentage completed for dredging projects and using a cost-to-cost approach for demolition projects.  For dredging projects, costs of contract revenues are adjusted to reflect the gross profit percentage expected to be achieved upon ultimate completion of each dredging project.  For demolition projects, contract revenues are adjusted to reflect the estimated gross profit percentage.  Provisions for estimated losses on contracts in progress are made in the period in which such losses are determined.  Claims for additional compensation due the Company are not recognized in contract revenues until such claims are settled.   Billings on contracts are generally submitted after verification with the customers of physical progress and may not match the timing of revenue recognition.  The difference between amounts billed and recognized as revenue is reflected in the balance sheet as either contract revenues in excess of billings or billings in excess of contract revenues.  Modifications may be negotiated when a change from the original contract specifications is encountered, necessitating a change in project scope or performance methodology and/or material disposal. Significant expenditures incurred incidental to major contracts are deferred and recognized as costs of contracts based on contract performance over the duration of the related project.  These expenditures are reported as prepaid expenses.

21




Costs and Expenses

The components of costs of contract revenues include labor, equipment (including depreciation, insurance, fuel, maintenance and supplies), subcontracts, rentals, lease expense, and project overhead.  The hourly labor is generally hired on a project basis and laid off upon the completion of the project.  Costs of contract revenues vary significantly depending on the type and location of work performed and assets utilized.  Generally, capital projects have the 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 weather conditions.

The Company’s cost structure includes significant annual fixed costs, including depreciation, maintenance, insurance and long-term equipment rentals, averaging approximately 22% to 25% of total costs of contract revenues.  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 fixed equipment costs.  In the fourth quarter, any over and under allocated fixed equipment costs are recognized such that the expense for the year equals actual fixed equipment costs.  As a result of this methodology, the recorded expense in any interim period may be higher or lower than the actual fixed equipment costs incurred.

Critical Accounting Policies and Estimates

The Company’s significant accounting policies are discussed in the notes to the financial statements.  The application of certain of these policies 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 bases its estimates on historical experience and other assumptions that it believes are reasonable.   If actual amounts are ultimately different from previous estimates, the revisions are included in the Company’s results of operations for the period in which the actual amounts become known.  The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating the Company’s reported financial results.

Percentage-of-completion method of revenue recognition. The Company’s contract revenues are recognized under the percentage-of-completion method, which is by its nature based on an estimation process.  For dredging projects, the Company uses engineering estimates of the physical percentage of completion.  For demolition projects, the Company uses estimates of remaining costs-to-complete to determine project percent complete.  In preparing its estimates, the Company draws on its extensive experience in the dredging and demolition businesses and its database of historical information to assure that its estimates are as accurate as possible, given current circumstances.   Provisions for estimated losses on contracts in progress are made in the period in which such losses are determined.  Claims for additional compensation are not recognized in contract revenues until such claims are settled.  It is reasonably possible that cost and profit estimates may be reviewed on a periodic basis to reflect changes in expected project performance.

Impairment of goodwil. SFAS No. 142. “Goodwill and Other Intangible Assets” requires that goodwill be tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. Great Lakes believes that this estimate is a critical accounting estimate because: (1) goodwill is a material asset and (2) the impact of an impairment could be material to the consolidated balance sheets, as well as the consolidated statement of operations.

The Company assesses the fair value of the reporting unit considering the market approach and income approach. Under the market approach, the fair value of the Company was based on a valuation by a third party in conjunction with the Aldabra Merger. Under the income approach, the fair value of the reporting unit is based on the present value of estimated future cash flows. The income approach is dependent on a number of factors including estimates of future market growth trends, forecasted revenues and expenses, expected periods the assets will be utilized, appropriate discount rates and other variables. The estimates are based on assumptions that the Company believes to be reasonable, but which are unpredictable and inherently uncertain. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment. Actual future results may differ from those estimates.

22




At December 31, 2006, goodwill represents the purchase price in excess of the net amount assigned to assets acquired and liabilities assumed by MDP on December 23, 2003. Goodwill was allocated between the Company’s two reporting units, Dredging and Demolition at that time based on the value assigned to each unit.  At December 31, 2006 and 2005, Dredging goodwill was $79 million and Demolition goodwill was $19 million.  Goodwill was tested for impairment during the third quarter of 2006. At which time it was concluded that the fair value of the reporting unit was in excess of the carrying value. The next annual impairment test will be performed on September 30, 2007.

Impairment of long-lived assets. In assessing the recoverability of the Company’s long-lived assets, primarily operating equipment and intangible assets other than goodwill, the Company makes assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. As it relates to its operating equipment, the Company may estimate cash flows and make assumptions regarding useful lives based on internal historical operating data.  If these estimates or their related assumptions change the fair value of these assets in the future, the Company may be required to record impairment charges.

Self-insurance reserves. The Company self-insures estimated costs associated with workers’ compensation claims, hull and equipment liability and general business liabilities, up to certain limits.  Insurance reserves are established for estimates of the loss that the Company will ultimately incur on reported claims, as well as estimates of claims that have been incurred but not yet reported.  In determining its estimates, the Company incorporates historical loss experience and judgments about the present and expected levels of cost per claim.  Trends in actual experience are a significant factor in determination of such reserves.

Income taxes. The Company calculates its current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year.  Adjustments based on filed returns are recorded when identified, which is generally in the third quarter of the subsequent year for U.S. federal and state provisions.  The amount of income taxes the Company pays is subject to ongoing audits by federal, state and foreign tax authorities, which may result in proposed assessments.  The Company’s estimate for the potential outcome for any uncertain tax issue is highly judgmental.  Management believes it has adequately provided for potential losses that are both probable and reasonably estimable related to these matters.  However, the Company’s future results may include favorable or unfavorable adjustments to estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire.

23




Quarterly Results of Operations

The following tables set forth the components of net income (loss) on a quarterly basis for the years ended December 31, 2006 and 2005.

 

 

Quarter Ended

 

 

 

March 31

 

June 30

 

Sept. 30

 

Dec. 31

 

 

 

(in millions except per share data)

 

2006

 

 

 

 

 

 

 

 

 

Contract revenues

 

$

108.4

 

$

114.1

 

$

81.7

 

$

121.8

 

Costs of contract revenues

 

(96.8

)

(96.5

)

(72.2

)

(103.5

)

Gross profit

 

11.6

 

17.6

 

9.5

 

18.3

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

(7.3

)

(7.1

)

(6.3

)

(9.8

)

Amortization of intangible assets

 

(0.1

)

(0.1

)

(0.1

)

(0.1

)

Subpoena-related expenses

 

(0.3

)

(0.1

)

(0.2

)

 

Operating income

 

3.9

 

10.3

 

2.9

 

8.4

 

Interest expense, net

 

(6.2

)

(6.0

)

(5.1

)

(7.0

)

Equity in earnings of joint ventures

 

0.1

 

0.5

 

0.7

 

0.8

 

Minority interest

 

0.0

 

(0.1

)

(0.0

)

 

Income (loss) before income taxes

 

(2.2

)

4.7

 

(1.5

)

2.2

 

 

 

 

 

 

 

 

 

 

 

Income tax benefit (provision)

 

0.7

 

(1.7

)

0.5

 

(0.5

)

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(1.5

)

$

3.0

 

$

(1.0

)

$

1.7

 

 

 

 

 

 

 

 

 

 

 

Redeemable preferred stock dividends

 

(2.0

)

(2.0

)

(2.2

)

(2.0

)

Redemption of preferred stock

 

 

 

 

(2.8

)

Net income (loss) available to common stockholders

 

$

(3.5

)

$

1.0

 

$

(3.2

)

$

(3.1

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per share

 

$

(0.38

)

$

(0.10

)

$

(0.35

)

$

(0.27

)

Basic and diluted weighted average shares

 

9,288

 

9,288

 

9,288

 

11,256

 

 

24




 

 

 

Quarter Ended

 

 

 

March 31

 

June 30

 

Sept. 30

 

Dec. 31

 

 

 

(in millions except per share data)

 

2005

 

 

 

 

 

 

 

 

 

Contract revenues

 

$

99.9

 

$

93.4

 

$

119.7

 

$

110.4

 

Costs of contract revenues

 

(92.9

)

(82.0

)

(103.1

)

(94.0

)

Gross profit

 

7.0

 

11.4

 

16.6

 

16.4

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

(6.7

)

(7.0

)

(7.5

)

(8.1

)

Amortization of intangible assets

 

(0.2

)

(0.2

)

(0.2

)

(0.2

)

Subpoena-related expenses

 

(0.9

)

(0.9

)

(0.5

)

(0.6

)

Impairment of goodwill and intangible

 

 

 

(5.7

)

 

Operating income (loss)

 

(0.8

)

3.3

 

2.7

 

7.5

 

Interest expense, net

 

(6.3

)

(4.6

)

(6.4

)

(5.8

)

Equity in earnings of joint ventures

 

(0.1

)

0.9

 

1.0

 

0.5

 

Minority interest

 

0.0

 

(0.2

)

(0.1

)

0.1

 

Income (loss) before income taxes

 

(7.2

)

(0.6

)

(2.8

)

2.3

 

 

 

 

 

 

 

 

 

 

 

Income tax benefit (provision)

 

2.5

 

0.1

 

(0.9

)

(0.3

)

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(4.7

)

$

(0.5

)

$

(3.7

)

$

2.0

 

 

 

 

 

 

 

 

 

 

 

Redeemable preferred stock dividends

 

(1.8

)

(1.9

)

(2.0

)

(2.0

)

Net income (loss) available to common stockholders

 

$

(6.5

)

$

(2.4

)

$

(5.7

)

$

(0.0

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per share

 

$

(0.70

)

$

(0.26

)

$

(0.61

)

$

(0.00

)

Basic and diluted weighted average shares

 

9,288

 

9,288

 

9,288

 

9,288

 

 

Results of Operations — Fiscal Years

The following table sets forth the components of net income as a percentage of contract revenues for the years ended December 31.

 

 

2006

 

2005

 

2004

 

 

 

 

 

 

 

 

 

Contract revenues

 

100.0

%

100.0

%

100.0

%

Costs of contract revenues

 

(86.6

)

(87.9

)

(89.8

)

Gross profit

 

13.4

 

(12.1

)

10.2

 

General and administrative expenses

 

(7.1

)

(6.9

)

(7.6

)

Amortization of intangible assets

 

(0.1

)

(0.2

)

(1.2

)

Subpoena-related expenses

 

(0.1

)

(0.7

)

(0.7

)

Impairment of goodwill and intangible

 

 

(1.3

)

 

Operating income

 

6.1

 

3.0

 

0.7

 

Interest expense, net

 

(5.8

)

(5.5

)

(5.8

)

Equity in earnings of joint ventures

 

0.4

 

0.5

 

0.7

 

Minority interest

 

 

 

 

Income (loss) before income taxes

 

0.7

 

(2.0

)

(4.4

)

Income tax benefit (provision)

 

(0.2

)

0.3

 

1.2

 

Net income (loss)

 

0.5

%

(1.7

)%

(3.2

)%

 

 

25




Components of Contract Revenues and Backlog

The following tables set forth, by segment and type of work, the Company’s contract revenues for the years ended and backlog as of December 31 (in thousands).

 

2006

 

2005

 

2004

 

Revenues

 

 

 

 

 

 

 

Dredging:

 

 

 

 

 

 

 

Capital — U.S.

 

$

127,205

 

$

161,125

 

$

141,674

 

Capital — foreign

 

86,039

 

47,402

 

62,862

 

Beach nourishment

 

94,476

 

92,746

 

51,289

 

Maintenance

 

69,514

 

72,989

 

57,982

 

Demolition

 

48,746

 

49,137

 

37,055

 

 

 

$

425,980

 

$

423,399

 

$

350,862

 

 

 

2006

 

2005

 

2004

 

Backlog

 

 

 

 

 

 

 

Dredging:

 

 

 

 

 

 

 

Capital — U.S.

 

$

72,037

 

$

94,504

 

$

180,886

 

Capital — foreign

 

184,814

 

90,043

 

42,617

 

Beach nourishment

 

56,018

 

61,391

 

23,178

 

Maintenance

 

39,691

 

14,883

 

33,075

 

Demolition

 

16,645

 

17,365

 

11,361

 

 

 

$

369,205

 

$

278,186

 

$

291,117

 

 

The year ended December 31, 2006 was another solid year for the Company.  While the Corps continued to struggle with various funding issues, the Company worked to diversify its revenue base.  The Corps has been hampered in getting projects out to bid due to the current federal budget constraints; the change over to central control in Washington governing the release of Corps funds; and new restrictions on the use of “continuing contracts” that require the Corps to have funding for the entire contract, not just the current year’s work, before letting the contract out for bid.    Fortunately, state and local authorities have been developing funding sources for beach work to protect vital tourism and beachfront property investments.  In addition, the developing market for new liquefied natural gas (“LNG”) terminals has recently produced privately funded demand for dredging work. Both situations have filled the void in the domestic market caused by the Corps’ funding difficulties.   The 2006 bid market was on par with the 2005 bid market and Great Lakes won a sizable share at 36%.  In 2006, the Company concluded primary operations on its two year project in Bahrain and began initial operations on a three year land reclamation project, “Diyaar,” also in Bahrain.  Land reclamation projects involve the creation of land off-shore for the development of housing, recreational, port or other facilities. Additionally, toward the end of 2006, the Company expanded its presence in the Middle East by repositioning more vessels overseas and signing two further projects in Bahrain for a combined value in excess of $50 million. Throughout the year, the Company experienced good utilization of its fleet, both domestically and internationally, with stronger contract margins on the projects performed.

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Revenues for the year ended December 31, 2006 were $426.0 million, up slightly from 2005 revenues of $423.4 million.  While fleet utilization between years was similar, the increase in gross margin to 13.4% from 12.1% a year ago was a result of the improvement in both domestic and foreign project margins despite the negative impact of the increases in the Company’s self-insured claims reserves recorded during the year.

Dredging revenues were $377.2 million in 2006, an increase of $3.0 million over 2005 revenue.   Detail of the mix of revenue is below.  Dredging gross profit was 13.1% in 2006 compared to 11.6% in 2005; again, this is due to improvement in margins on both domestic and foreign projects.

·                  Domestic capital dredging revenues decreased $33.9 million, or 21%, to $127.2 million in 2006 from $161.2 million in 2005. Capital work was down over last year due to the continued funding issues at the Corps that delayed capital work put out for bid.  However, privately funded work helped offset this decline in the federally funded capital market.  The developing market for new LNG terminals has recently produced privately funded demand for dredging work, providing more than $70 million in

26




revenue in 2006.  The Company completed its first LNG terminal project in Freeport, Texas in the third quarter of 2006 and began another LNG terminal project in Golden Pass, Texas.  Approximately one third of this $70 million project was completed in the fourth quarter of 2006 and the remainder of the work will be completed in 2007.

·                  The Company’s 2006 revenue from beach nourishment projects of $94.5 million was on par with revenue of $92.8 million in 2005.  The market experienced a reduction in beach nourishment work during 2006 to $126 million following the 2005 record market of $297 million.  However, the beach nourishment market remained robust and was above the beach market in years prior to 2005. Fortunately, while the Corps’ funding has been minimal, more beach communities have taken over the responsibility for developing funding sources to meet their beach nourishment needs and are putting out their own projects for bid. Great Lakes completed over $80 million of beach work in 2006 for non-federally funded customers.

·                  Revenues from maintenance projects in 2006 of $69.5 million were similar to 2005 revenues of $73.0 million. The 2006 maintenance market was above the prior five year historical annual average markets as the Corps continues to put maintenance work out to bid despite struggling to fund capital work.

·                  Revenues from foreign dredging operations in 2006 totaled $86.0 million, which is an increase of $38.6 million, or 82% from 2005 revenues of $47.4 million, as the Company performed work on a large land reclamation project in Bahrain throughout the year and mobilized and began dredging on the three year, multi-phase Diyaar project also in Bahrain.

NASDI’s 2006 demolition revenue was $48.7 million, on par with 2005 revenues of $49.1 million.  The demolition sector has consistently generated this level over the past several years.  The activity in the Boston area continues to provide constant opportunities for NASDI to take on a good number of small projects and a number of larger projects in the range of $1 to $5 million. The gross profit margin attributable to NASDI’s demolition business was 15.2%, down compared to 16.4% in 2005. This decrease was the result of more interior demolition projects.  Interior demolition requires more labor and precision processes than exterior work and has more volatile margins.

For the year ended December 31, 2006, general and administrative expenses totaled $31.4 million, compared to $38.7 million in 2005.  2005 includes the impact of a non-cash write-down of goodwill and intangible assets of $5.7 million, related to the Company’s demolition segment.  In the third quarter of each year the Company performs its annual test for impairment of goodwill.  In 2005, Great Lakes renegotiated its compensation arrangements with the president of its demolition segment.  As a result of the increased incentive compensation to be paid in the future, Great Lakes revised future performance expectations for this segment, and wrote down the value of goodwill and certain intangible assets related to the segment by $5.7 million, which impacted the 2005 quarter.  There was no impairment in 2006.  2006 expense included $0.6 million of expense for legal fees and other costs related to the provision of documents in response to the Department of Justice’s subpoena, a significant decrease compared to 2005 expense of $2.9 million.  This decrease is a result of the minimal activity related to this matter throughout 2006.   This matter is discussed further in “Legal Proceedings.”

Operating income for the dredging segment was $21.9 million, up $6.7 over 2005 operating income of $15.2.  This is due to improved margins on projects performed throughout year.   Demolition operating income was $3.7 million in 2005 compared to operating loss of $2.5 million in 2005.  The increase in 2006 for NASDI was a result of the negative impact from the impairment of goodwill and intangibles of $5.7 million discussed above in 2005.

The Company’s net interest expense for the year ended December 31, 2006 totaled $24.3 million compared to $23.1 million in 2005.  Included in interest expense is $1.4 million in deferred financing fees that were written off as a result of the Aldabra Merger. Additionally, a decrease in the company’s average debt outstanding offset an increase in the underlying interest rates.

As a result of its 2006 net income, the Company incurred income tax expense of $1.0 million.  In 2005, the Company had an income tax benefit of $1.3 million.  Tax expense in 2006 resulted from the return to profitability but was offset by an increase in work performed in foreign locations that have more favorable tax rates.

27




For the year ended December 31, 2006, the Company generated net income of $2.2 million compared to a net loss of $6.9 million for the year ended December 31, 2005.  2006 generated net income as a result of improved margins on work performed throughout the year and the 2005 net loss included the $5.7 million non-cash write-down of goodwill and intangible assets.

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

The Company’s revenues for 2005 were $423.4 million, representing an increase of $72.5 million, or 20.7%, compared to 2004 revenues of $350.9 million.  The increase in revenues was driven by the increase in domestic dredging revenue resulting from performing certain capital projects in backlog that the Corps had postponed in 2004, coupled with the increase in bidding activity as discussed previously, as well as an increase in activity from the demolition business.  The Company experienced improved equipment utilization and increased revenue throughout the year.

The Company’s 2005 gross profit margin was 12.1%, which improved from the 2004 level of 10.2%. The improvement in 2005’s gross profit margin was primarily attributable to the mix of projects performed during the year, including more capital work with improved margins and the decreased impact of fixed costs relative to the increased level of utilization for the year.

Dredging revenues were $374.3 million in 2005, an increase of $60.5 million over 2004 revenue.   Detail of the revenue increase is below.  Dredging gross profit was 11.6% in 2005 compared to 9.4% in 2004.  Again, this is due to increased fleet utilization throughout the year as more work in backlog was performed and the bid market continued to strengthen.

·                  Domestic capital dredging revenues increased $19.5 million, or 13.7%, to $161.2 million in 2005 from $141.7 million in 2004.  As mentioned above, the increase resulted in part from the Corps’ funding capital projects that were in the Company’s backlog but had been previously postponed, including work at the Company’s projects in Brunswick, GA and Wilmington, NC.  The Company also performed work on capital projects in Miami, FL, Arthur Kill, NY and Oakland, CA.

·                  The Company’s 2005 revenues from beach nourishment projects of $92.8 million were significantly greater than the 2004 level of $51.3 million.  The 2005 beach bid market was $297 million, well in excess of the prior five year historical annual average of approximately $114 million. Much of the 2005 beach work was funded by an emergency supplemental bill passed in 2004 to pay for damage from the severe hurricane season experienced in 2004, particularly along the coasts of Florida.

·                  Revenues from maintenance projects in 2005 increased $15 million, or 26.9%, to $73.0 million compared to $58.0 million in 2004. The 2005 maintenance market was on par with the prior five year historical annual average markets.  The Company’s portion of revenues generated from maintenance work fluctuates depending on the Company’s availability of equipment for such work.

·                  Revenues from foreign dredging operations in 2005 totaled $47.4 million, which is down $15.5 million, or 24.6% from 2004 revenues of $62.9 million, as the Company completed one large project in Bahrain and began a second sizable job in the same country.

NASDI’s 2005 demolition revenues of $49.1 million, increased $12.0 million, or 32.3%, over 2004 revenues of $37.1 million.  The demolition sector had solid activity in 2005 with an increase in both the number of projects and the number of larger projects (in the range of $1 to $5 million). The gross profit margin attributable to NASDI’s demolition business stayed relatively consistent at 16.4% compared to 16.8% in 2004.

For the year ended December 31, 2005, general and administrative expenses totaled $38.7 million, compared to $33.5 million in 2004.  2005 includes the impact of a non-cash write-down of goodwill and intangible assets of $5.7 million, related to the Company’s demolition segment.  Although NASDI has shown improvement in earnings during 2005 and is expected to continue to achieve positive cash flows in the future, Company management does not believe it will meet the future returns contemplated when the goodwill was originally allocated through purchase accounting in 2003.  These downward revised projections for the demolition business are attributable to

28




higher anticipated incentive compensation required to retain its key manager.  Included in both years’ expense is amortization of intangibles, which decreased in 2005 to $0.8 million from $4.2 million in 2004 due to the relatively short term nature of the most significant intangibles, recorded in purchase accounting in 2003.  In addition, both 2005 and 2004 include significant expense of $2.9 and $2.3 million respectively, for legal fees and other costs related to the provision of documents in response to the Department of Justice’s subpoena.  2004 expense also includes $1.3 million for the settlement cost of litigation related to NASDI.  Therefore, excluding the incremental costs in each year, the Company’s 2005 general and administrative expenses would have been approximately $3.9 million greater, primarily as a result of increased incentive compensation, driven by the improvement in the Company’s dredging segment, along with the additional incentive compensation recorded by the Company’s demolition segment.

Operating income for the dredging segment was $15.2 million, up $13.7 over 2004 operating income of $1.5.  This is due to the increased revenue in 2005 as well as the increased utilization throughout the year.   Demolition operating loss was $2.5 million in 2005 compared to operating income of $0.9 million in 2004.  Although NASDI had a strong year and significantly increased revenue, the impairment of goodwill and intangibles write-down of $5.7 million discussed above negatively impacted operating income.

The Company’s net interest expense for the year ended December 31, 2005 totaled $23.1 million compared to $20.3 million in 2004.  The increase was due to the higher underlying interest rates and larger spreads on the Company’s variable rate debt.

As a result of its 2005 net operating loss, the Company generated an income tax benefit of $1.3 million.  In 2004, the resulting income tax benefit was $4.4 million.

For the year ended December 31, 2005, the Company incurred a net loss of $6.9 million compared to a net loss of $11.1 million for the year ended December 31, 2004.  The 2005 net loss, which includes the $5.7 million non-cash write-down of goodwill and intangible assets, is improved over the 2004 net loss primarily due to the increased utilization and gross margins as described above.

Bidding Activity and Backlog

The Company’s contract backlog represents management’s estimate of the revenues that 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 results.  The Company’s backlog includes only those projects for which the customer has provided an executed contract.

Dredging.  The domestic dredging bid market for the 2006 year totaled just over $714 million and was on par with the last two years.  While last year the beach market surged to almost $300 million, with the special appropriations related to hurricane damage, this year it returned to a more typical level of $126 million.  At the same time, the maintenance work let this year continued to increase, reaching almost $350 million compared with an average of $260 million for last three years.  Capital work increased as well with the addition of private LNG terminal development projects.  Great Lakes’ share of the overall market in 2006 was 36%, which is in line with historical averages over the last five years.

The Company’s dredging backlog at December 31, 2006 totaled $352.6 million, which compares to $260.8 million at December 31, 2005.

Approximately 20% of the Company’s year-end dredging backlog of $352.6 million consists of Deep Port or other domestic capital dredging work, which will be substantially performed in 2007.  Only three federally funded capital projects, which were also Deep Port projects, were awarded in 2006 with a total value of $137 million.  While this is more Deep Port work than came out in 2005, the size of these traditionally large projects has shrunk.  In 2006, the Corps began bidding projects that include a base amount of work which can be more easily funded, plus options for additional work that can be awarded as more funds are released. The problem for Great Lakes and the

29




industry overall is the scheduling of equipment and forecasting utilization because the contractor has to commit and reserve equipment for a scope of work that may never be awarded. The 2006 market also included other capital projects not funded by the federal government valued at approximately $112 million and the Company won 56%, or $62 million, of this work.

The domestic capital dredging market includes “Deep Port” projects that are authorized under the 1986 Water Resources Development Act, or “WRDA”, which had typically been amended or supplemented every two years up until December of 2000.  Unfortunately, the 2006 version of the bill did not pass before Congress ended its session in November last year.  There is optimism that the bill will pass in the new Congress within the next few months.  The important positives for the industry included in the current WRDA are authorization of various additional harbor deepening projects and approval of 12 priority projects under the Louisiana Coastal Restoration Plan. Given the current funding issues for all dredging work, a new authorization bill would not have much impact in the near term but would provide support for continuing Deep Port projects in the future.

Beach backlog decreased slightly to $56.0 million in 2006 from $61.4 million at the end of 2005. The 2006 beach nourishment bid market totaled $126 million, which is below the  average bid market over the last five years of $147 million, primarily due to the record bid market of $297 million in 2005.  Exclusive of this anomaly in 2005, the 2006 bid beach bid market was solid.  The Company won $72 million, or 57%, of this work, bringing the Company’s beach backlog to $56 million at December 31, 2006. While the 2005 beach nourishment market clearly benefited from the supplemental federal funding passed in 2004,  the 2006 Corps’ funding was minimal. Fortunately, more beach communities have taken over the responsibility for developing funding sources to meet their beach nourishment needs and are putting out their own projects for bid. Great Lakes completed over $80 million of beach work in 2006 for non-federally funded customers.  Based on discussion with numerous local communities and the Corps, the Company has identified beach projects from both federally funded and non-federally funded customers valued at approximately $190 million that management believes may be bid in the next 6 to 12 months.

Maintenance backlog was $39.7 million at the end of 2006, a significant increase from $14.9 million at the end of 2005.  The 2006 maintenance bid market totaled $341.8 million, which is well above the average maintenance market over the last five years of $273.4 million.  Despite the Corps’ chronic funding issues, maintenance work continues to be put out to bid and provides steady work.  The Company’s share of the 2006 market was 34%.

Foreign capital backlog increased to $185 million at the end of 2006 compared to $90 million at the end of 2005.  This increase is due to the addition of the Diyaar land reclamation project in Bahrain.  Phase one of the project has been awarded with revenues of approximately $150 million to Great Lakes.  Work began on this project in the fourth quarter of 2006.  Phase one will require approximately three years to complete.  The second phase, which can be awarded by the customer any time prior to June of 2009, would also result in revenue of approximately $150 million to Great Lakes if awarded and will take an additional two years to complete.  At December 31, 2006, including the second phase of Diyaar, the Company had dredging work pending award valued at $186.0 million.  The revenue value of these low bids and options pending award will be reflected in the Company’s backlog upon execution of signed agreements for the work.

Demolition.  The Company’s demolition backlog at December 31, 2006 totaled $16.6 million, which compares to $17.4 million at December 31, 2005.  The 2006 year-end backlog includes five new projects each valued in excess of $1 million and a typical complement of mid-size projects. With an improved economy in the New England area, NASDI anticipates opportunities to bid on a number of larger projects over the next year, increasing the potential for improved volume and margins in this segment.

Changes in Financial Condition

As discussed in the notes to the consolidated financial statements, the Company accounted for the acquisition of Great Lakes Dredge & Dock Corporation by MDP as a purchase, in accordance with SFAS No. 141, “Business Combinations.”  This resulted in a new basis of accounting, effective December 31, 2003, at which point the Company reflected its assets and liabilities at fair value.  The excess of the purchase price paid over the net assets acquired was allocated primarily to property and equipment and other intangible assets, and deferred taxes related thereto, with the remaining excess recorded as goodwill. Each year the Company performs its annual assessment for

30




the impairment of goodwill and intangibles.  As previously noted, in 2005 a $5.7 million non-cash write-down was recorded related to the goodwill and intangibles in the demolition business that had been established as a result of the 2003 purchase price allocation.  There was no impairment in 2006.

The Company’s operations were previously held by GLDD Acquisitions Corp., which merged with a subsidiary of Aldabra Acquisition Corporation on December 26, 2006.  Aldabra was a blank check company formed for the purpose of raising capital through an initial public offering with the intent to use the proceeds to merge with a business to build long term value.  Under the terms of the Agreement and Plan of Merger entered into on June 20, 2006, the stockholders of GLDD Acquisitions Corp. received 28,906,189 shares of Aldabra stock in exchange for all common and preferred stock outstanding.  Aldabra then merged into an indirect wholly-owned subsidiary and, in connection with this holding company merger, the stockholders of Aldabra, including the former GLDD Acquisitions Corp. stockholders, received stock in a new holding company that was subsequently renamed “Great Lakes Dredge & Dock Corporation.”

The Company is owned approximately 67% by MDP, and approximately 5% by Great Lakes’ management, with the remaining shares held by the former Aldabra shareholders.  At December 31, 2006, 516,658 of shares were held in escrow pending the delivery of closing financial statements of GLDD Acquisitions Corp. and the final determination of the working capital and net indebtedness amounts.  Such shares were released from escrow following finalization of these amounts.  In addition, an additional 120,511 shares were issued to the former GLDD Acquisitions Corp. shareholders as a result of the post-closing adjustment.

Liquidity and Capital Resources

Historical

The Company’s principal sources of liquidity are cash flow generated from operations and borrowings under its senior credit facility (see Note 11, “Long-term Debt” in the Notes to Consolidated Financial Statements).  The Company’s principal uses of cash are to meet debt service requirements, finance its capital expenditures, provide working capital and meet other general corporate purposes.

The Company’s net cash flows provided by operating activities for the years ended December 31, 2006, 2005 and 2004 totaled $33.9 million, $10.3 million and $17.4 million, respectively.  The increase in 2006 is a result of improved earnings as well as temporary reduction in working capital on favorable contract billing terms.  The decrease in 2005 compared to 2004 was a result of the differing levels of activity.  The increased activity in 2005 used cash versus the 2004 decline in activity.  In 2006, 2005 and 2004, the Company also received distributions from its equity joint ventures totaling $0.6 million $1.6 million and $1.9 million, respectively. In 2004, the Company’s cash flows from operations benefited from the receipt of income tax refunds.

The Company’s net cash flows used in investing activities for the years ended December 31, 2006, 2005 and 2004 were $21.5 million, $7.2 million and $11.4 million, respectively.  The use of cash relates primarily to equipment acquisitions, offset by proceeds on the sale of equipment.  In 2006, the Company incurred capital expenditures of $29.8 million.  Capital spending included $10.4 million related to the conversion of the dredge Long Island into a material re-handling barge and in December it was sold for $12 million and leased back under a long term operating lease arrangement. Also, included in the years total spending was $3.9 million for the purchase of the dredge Victoria Island and two scows upon exercise of the early buy-out options related to the long term operating lease arrangements of these vessels. NASDI’s spending has also increased from prior years related to leasehold improvements for a new office and garage facility on which $1 million was spent.   In 2005, the Company incurred capital expenditures of $12.7 million.  This was offset by proceeds of $5.5 million, of which $4.4 million was for a rock barge that was constructed in 2005 and then sold and leased back under an operating lease.  No gain was recognized on this transaction.  In 2004, the Company incurred capital expenditures of $23.1 million.  This was offset by proceeds of $10.3 million, which included $4.6 million for a rock barge that was constructed in 2004 and then sold and leased back under an operating lease, $4.7 million for capital improvements on the Company’s mechanical dredges that were reimbursed and financed by the lessor, and proceeds for other miscellaneous equipment disposals.

The Company’s net cash flows used in financing activities for the years ended December 31, 2006, 2005 and 2004 were $9.4, $4.5 million and $6.8 million, respectively.  In 2006, a voluntary prepayment of $3.0 million

31




was made on the Tranche B Term Loan facility.  Additionally, as a result of the merger with Aldabra, the Company received $48.7 million in net proceeds that were used to pay off its senior bank facility Term Loan B.  Previous years’ cash flows primarily related to scheduled payments under the Company’s senior Equipment Term Loan and voluntary prepayments made under the Company’s senior bank facility Term Loan B of $3.5 million and $2.5 million, respectively.  In 2004, the Company also incurred financing fees of $1.1 million to obtain an amendment to its credit agreement with its senior secured leaders (“Credit Agreement”) and Equipment Term Loan (collectively, “Senior Credit Agreements”), as discussed below.

Prospective

The Company’s Credit Agreement contains various restrictive covenants. It prohibits the Company from prepaying other indebtedness, including the senior subordinated notes, and it requires the Company to satisfy financial condition tests and to maintain specified financial ratios, such as a maximum total leverage ratio, maximum senior leverage ratio, minimum interest coverage ratio and maximum capital expenditures.  It also prohibits the Company from declaring or paying any dividends and from making any payments with respect to the senior subordinated notes if it fails to perform its obligations under, or fails to meet the conditions of, the Credit Agreement or if payment creates a default under the Credit Agreement.  The Company’s bonding agreement and Equipment Term Loan contain similar restrictive covenants and financial condition tests.

As previously noted Great Lakes merged with a subsidiary of Aldabra Acquisition Corporation, a publicly traded blank check company on December 26, 2006 and is now traded on the NASDAQ. By virtue of the funds received in conjunction with the merger, the Company paid down in full its senior bank term debt of just over $50 million.  The Company’s $175 million of 7¾% Senior Subordinated Notes due 2013 remain outstanding.  This merger has allowed the Company to de-lever which will allow more flexibility in pursuing opportunities in 2007 and beyond.  At December 31, 2006, the Company had total debt of $194.7 million, total cash and equivalents of $3.6 million, and outstanding performance letters of credit totaling $39.3 million.  The Company had no revolver borrowings outstanding and therefore total availability was $39.2 million.  At December 31, 2006, Great Lakes was in compliance with all financial covenants in its senior credit agreements and surety agreement.

The Company current facility expires in December 2008.  The Company anticipates, in the coming year, refinancing this loan to seek to obtain more favorable terms and greater flexibility.

Company management believes its anticipated cash flows from operations and current available credit under its revolving credit facility or a refinanced facility will be sufficient to fund the Company’s operations and its capital expenditures, and meet its current annual debt service requirements of approximately $18 million for the next twelve months.

Beyond the next twelve months, the Company’s ability to fund its working capital needs, planned capital expenditures and scheduled debt payments, and to comply with all of the financial covenants under its senior credit agreements and bonding agreement, 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 February 2004, the Company entered into an interest rate swap arrangement, which in July 2006 was extended through December 15, 2013, 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 senior subordinated notes.  The fair value accounting for the swap resulted in a non cash gain of $0.2 million in 2006 and an additional non-cash charge to interest expense of $0.9 million in 2005.   This represents the current fair value of the swap arrangement based on the anticipated future rates.  The Company made payments of approximately $0.6 million and $0.2 million in 2006 and 2005, respectively, on this swap arrangement.  The swap is not accounted for as a hedge, so the fair value is recorded directly to interest expense, thereby introducing potential income volatility on a quarter-by-quarter basis.

The Company has entered into operating lease agreements for certain dredging assets and office space, which require annual operating lease payments declining from $16 million to $10 million over the next five years.  See Note 14 “Lease Commitments” in the Notes to Consolidated Financial Statements.  As previously mentioned, in 2006 the Company entered into a sale-lease back transaction for the dredge Long Island. Proceeds from the sale were $12 million, of which $1.5 million was placed in an escrow account, to be distributed upon

32




termination of the lease.  The lease is appropriately accounted for as an operating lease and a deferred gain was recorded that will be recognized over the life of the lease.  Additionally, the Company expects to incur annual maintenance expenses of approximately $28 million.  Amounts expended for operating leases and maintenance expenses are charged to operations on an annual basis. Planned capital expenditures, which primarily include support equipment and equipment upgrades, are expected to require spending of approximately $13 million to $18 million annually, to the extent permitted by the Company’s revised Senior Credit Agreements.

Contractual Obligations

The following table summarizes the Company’s contractual cash obligations at December 31, 2006.  Additional information related to these obligations can be found in Notes 11 and 14 to Consolidated Financial Statements.

 

 

 

 

Obligations coming due in year(s) ending:

 

 

 

 

 

 

 

2008-

 

2011-

 

2014 and

 

 

 

Total

 

2007

 

2010

 

2013

 

beyond

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Long term bank debt (1)

 

$

2.4

 

$

2.4

 

$

 

$

 

$

 

Equipment term debt (1)

 

24.7

 

3.6

 

9.6

 

11.5

 

 

Senior subordinated notes (2)

 

269.9

 

13.6

 

40.7

 

215.7

 

 

Operating lease commitments

 

115.2

 

15.5

 

37.5

 

28.5

 

33.7

 

Capital lease obligations

 

2.1

 

1.0

 

1.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

414.4

 

$

36.1

 

$

88.9

 

$

255.7

 

$

33.7

 


(1)          Includes cash interest calculated at weighted average borrowing rates at December 31, 2006, assuming required principal payments are made in accordance with the agreement terms.

(2)          Includes cash interest payments calculated at stated fixed rate of 7.75%.

Other Off-Balance Sheet and Contingent Obligations

The Company had outstanding letters of credit relating to foreign contract performance guarantees and insurance payment liabilities totaling $39.3 million at December 31, 2006.  All were undrawn at year-end.

The Company has granted liens on certain of its operating equipment with net book values at December 31, 2006 of $76.7 million, as security for borrowings under its Credit Agreement.  The Company’s Credit Agreement also contains provisions that require the Company to maintain certain financial ratios and restrict its ability to pay dividends, incur indebtedness, create liens, and take certain other actions.

The Company finances certain key vessels used in its operations with off-balance sheet lease arrangements with unrelated lessors, requiring annual rentals of $16 million to $10 million over the next five years.  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.  To date, no lessors have asserted any claims against the Company under these tax indemnification provisions.

Performance and bid bonds are customarily required for dredging and marine construction projects, as well as some demolition projects.  The Company obtains its performance and bid bonds through a bonding agreement with Travelers, which has been granted a security interest in a substantial portion of the Company’s operating equipment with a net book value of approximately $80.4 million at December 31, 2006. The bonding agreement also contains provisions that require the Company to maintain certain financial ratios and restrict its ability to pay dividends, incur indebtedness, create liens, and take certain other actions.  Bid bonds are generally obtained for a percentage of bid value and amounts outstanding typically range from $5 to $10 million. At December 31, 2006, the Company had outstanding performance bonds valued at approximately $289.8 million; however, the revenue value remaining in backlog related to these projects totaled approximately $168.4 million.

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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.

Quantitative and Qualitative Disclosures about Market Risk

A portion of the Company’s current dredging operations are conducted outside of the U.S., primarily in the Middle East.  It is the Company’s policy to hedge foreign currency exchange risk on contracts denominated in currencies other than the U.S. dollar, if available. Currently, the majority of the Company’s work is in Bahrain where the currency is the Bahraini Dinar that is linked to the U.S. dollar.  Therefore, the Company has not purchased any forward exchange contracts for trading purposes and has none outstanding at December 31, 2006 or 2005.

The Company’s obligations under its Senior Credit Agreements expose its earnings to changes in short-term interest rates since interest rates on this debt are variable.  If the variable interest rates on the Company’s outstanding debt were to increase in 2007 by 10% from the rates at December 31, 2006, assuming scheduled principal payments are made, interest expense would increase by $0.2 million.

At December 31, 2006 and 2005, the Company had long-term senior subordinated notes outstanding with a recorded book value of $175.0 million.   The fair value of these notes, which bear interest at a fixed rate of 7.75%, was $168.0 million at December 31, 2006 based on quoted market prices.  Assuming a 10% decrease in interest rates from the rates at December 31, 2006 the fair value of this fixed rate debt would have increased to $177.2 million.

In February 2004, the Company entered into an interest rate swap arrangement, which in July 2006 was extended until December 2013, to swap a notional amount of $50.0 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.  The fair value liability of the swap at December 31, 2006 and 2005 was $1.5 million and $1.6 million, respectively.  Assuming a 10% increase in interest rates at December 31, 2006, the fair value of the swap would decline to $2.6 million.

A significant operating cost for the Company is diesel fuel, which represents approximately 11.5% of the Company’s costs of contract revenues.  The Company uses fuel commodity forward contracts, typically with durations of less than two years, to reduce the impacts of changing fuel prices on operations.  The Company does not purchase fuel hedges for trading purposes.  Based on the Company’s 2007 projected domestic fuel consumption, a ten cent increase in the average price per gallon of fuel would increase its fuel expense by less than $0.1 million, after the effect of fuel commodity contracts in place as of December 31, 2006. At December 31, 2006 and 2005, the Company had outstanding arrangements to hedge the price of a portion of its fuel purchases related to domestic dredging work in backlog, representing approximately 81% of its anticipated domestic fuel requirements for 2006.

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BUSINESS

Organization

Great Lakes is the largest provider of dredging services in the United States.  The Company was founded in 1890 as Lydon & Drews Partnership and contracted its first project in Chicago, Illinois.  The Company changed its name to Great Lakes Dredge & Dock Company in 1905 and was involved in a number of marine construction and landfill projects along the Chicago lakefront and in the surrounding Great Lakes region.

On April 24, 2001, the Company purchased 80% of the capital stock of North American Site Developers, Inc. (“NASDI”), a demolition services provider located in the Boston, Massachusetts area.   In 2003, the Company increased its ownership in NASDI to 85%.  One NASDI management stockholder retains a 15% non-voting interest in NASDI.  With the acquisition of NASDI, the Company began operating in two reportable segments: dredging and demolition.  Financial information about the Company’s segments is provided in Note 16, “Segment information” in the Notes to Consolidated Financial Statements.

On December 22, 2003, Madison Dearborn Capital Partners IV, L.P., an affiliate of Chicago-based private equity investment firm Madison Dearborn Partners, LLC, acquired control of Great Lakes from its former owner, Vectura, for approximately $361.6 million, including fees and expenses, in a transaction accounted for as a purchase. The acquisition was effected by a new company established for this purpose, GLDD Acquisitions Corp., which acquired 100% of the equity securities of the Company. As a result, certain members of Great Lakes Dredge & Dock Corporation’s management owned approximately 15% of outstanding common stock of GLDD Acquisitions Corp. and MDP and certain of its co-investors owned the remaining 85%.

On December 26, 2006, GLDD Acquisitions Corp. merged with a subsidiary of Aldabra Acquisition Corporation.  Aldabra was a blank check company formed for the purpose of raising capital through an initial public offering with the intent to use the proceeds to merge with a business to build long term value.  Under the terms of the Agreement and Plan of Merger entered into on June 20, 2006,  the stockholders of GLDD Acquisitions Corp. received 28,906,189 shares of Aldabra common stock in exchange for all of GLDD Acquisitions Corp.’s common and preferred equity.  Aldabra then merged into an indirect wholly-owned subsidiary and, in connection with this holding company merger, the stockholders of Aldabra, including the former GLDD Acquisitions Corp. stockholders, received stock in a new holding company that was subsequently renamed “Great Lakes Dredge & Dock Corporation.”

Dredging Operations

Dredging generally involves the enhancement or preservation of navigability of waterways or the protection of shorelines through the removal or replenishment of soil, sand or rock.  The U.S. dredging market consists of three primary types of work: capital, beach nourishment and maintenance.  The Company’s bid market is defined as the population of domestic projects on which it bid or could have bid if not for capacity constraints (“bid market”). The Company achieved a combined U.S. market share of the projects awarded within its bid market of 36%, 31% and 43% in 2006, 2005 and 2004, respectively.  In addition, the Company is the only U.S. dredging service provider with significant international operations, which averaged 18% of its dredging contract revenues over the last three years.  The Company’s fleet of 27 dredges, 25 material transportation barges, two drillboats, and numerous other specialized support vessels is the largest and most diverse fleet in the U.S.  The Company estimates its fleet would cost in excess of $1.0 billion to build in the current market.

Domestic Dredging Operations.  Over its 116-year history, the Company has grown to be a leader in each of its primary dredging activities in the U.S., including:

·                  Capital (approximately 34% of 2006 dredging revenues). Capital dredging projects are primarily port expansion projects, which involve the deepening of channels to allow access by larger, deeper draft ships and the providing of land fill for building additional port facilities.  Capital projects also include other land reclamations, trench digging for pipes, tunnels and cables, and other dredging related to the construction of breakwaters, jetties, canals and other marine structures.  Although capital work can be impacted by budgetary constraints and economic conditions, these projects typically generate an

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                        immediate economic benefit to the ports and surrounding communities.  The Company’s bid market share of total U.S. capital projects averaged 41% over the last three years.

·                  The U.S. capital market includes “Deep Port” projects authorized under the 1986 Water Resource Development Act as amended and supplemented, most recently in December 2000.  Without significant deepening efforts, many major U.S. ports risk losing their competitive position as a result of being unable to accommodate larger cargo vessels.  The WRDA legislation provides the authorization for federal funding for the deepening of these major domestic ports.  While Deep Port work has historically comprised a substantial portion of past bid markets, in the last three years, Deep Port work has only averaged 21% of the bid market (see discussion below).  The Company still obtains a large share of the Deep Port projects, winning an average of 44% over the last three years.

·                  Beach Nourishment (approximately 25% of 2006 dredging revenues).  Beach nourishment projects generally involve moving sand from the ocean floor to shoreline locations when erosion has progressed to a stage that threatens substantial shoreline assets. Beach nourishment is often viewed as a better response to erosion than trapping sand through the use of sea walls and jetties, or relocating buildings and other assets away from the shoreline.  Beach nourishment also facilitates shoreline real estate development and recreational activities. Generally, beach nourishment projects take place during the fall and winter months to minimize interference with bird and marine life migration and breeding patterns and coastal recreation activities. The Company’s bid market share of U.S. beach nourishment projects averaged 44% over the last three years.

·                  Maintenance (approximately 18% of 2006 dredging revenues).  Maintenance dredging consists of the re-dredging of previously deepened waterways and harbors to remove silt, sand and other accumulated sediments. Due to natural sedimentation, active channels generally require maintenance dredging every one to three years, thus creating a recurring source of dredging work that is typically non-deferrable if optimal navigability is to be maintained.  The Company’s bid market share of U.S. maintenance projects averaged 28% over the last three years.

Foreign Dredging Operations (approximately 23% of 2006 dredging revenues).   Foreign capital projects typically relate to channel deepening, port infrastructure development and land reclamations.   Since the early 1990’s, the Company has targeted opportunities that are well suited to its equipment and where competition from its European competitors is reduced.  While the Company has only a minor share of the international dredging market, it has maintained its presence in the foreign markets to enable it to diversify, particularly at times when there is anticipation of a decrease in domestic demand.  Over the last ten years, the Company has worked in Europe, the Middle East, Africa, India, Mexico and South America.  In recent years, the Middle East region has presented the most attractive prospects.  Therefore, the Company currently maintains certain dredging assets located in Middle East; however, these assets are mobile and may be repositioned according to project requirements. Revenues from foreign capital projects averaged 18% of the Company’s dredging revenues over the last three years.

The Company believes that the following factors are important drivers of the demand for dredging services in the U.S. market:

·                  Deep Port capital projects.  Historically, the average controlling depth of the 10 largest U.S. ports has been 45 feet compared to over 50 feet for the ten largest non-U.S. ports worldwide.  Without continuing significant deepening efforts, most major U.S. ports risk being unable to accommodate the larger cargo vessels increasingly in use throughout the world, which renders them less competitive with deeper ports.  Funding for Deep Port projects had represented an average of 35% of the market for the three year period of 2002 to 2004 but has declined over the last three years to 21% due to the funding issues of the Army Corps of Engineers as discussed below. However, the Company continues to believe that Deep Port work will provide significant opportunities for the domestic dredging industry over at least the next ten years.

·                  Substantial need for beach nourishment.   Beach erosion is a continuous problem and there is a growing awareness among state and local governments as to the importance of beachfront assets to the multi-billion dollar tourism and coastal real estate industries.  Beach nourishment projects are

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                        generally funded by both federal and state and local monies; therefore, a downturn in the economy can impact the amount of available funding, particularly from state and local sources.  The recent annual beach bid markets, however, have grown due to the effects of severe storm activity, especially in Florida.  The annual bid market over the last three years has averaged $178 million, and current bid schedules provided by project owners identify beach projects up for bidding in 2007 valued in excess of $190 million.

·                  Additional significant long-term opportunities.  Other capital projects make consistent contributions to the Company’s annual revenues, and, although not part of the Deep Port program, require similar technical expertise and equipment capabilities.  For instance, the Company completed one project in 2006 and commenced operations on another to provide ship access to LNG terminals in Texas.  The Company is involved in several significant project solicitations with private customers for additional LNG terminal work.  This private market appears to be gaining momentum as the global supply of LNG has increased and importation of fuel becomes more cost-competitive, due to the higher prices of domestically-produced natural gas.  Therefore, it is likely that this work will provide supplemental opportunities in the near term as the private contractors work to develop the infrastructure necessary for new LNG terminals.  Additionally, there are anticipated to be significant capital dredging opportunities related to projects to contain the erosion of wetlands and coastal marshes particularly in Louisiana (“Louisiana Coastal Restoration”).  This work has the potential to drive substantial increases in the dredging market for approximately the next eight to ten years.

While these market conditions provide stimulus for the domestic dredging industry, recently some negative funding developments have occurred related to the Corps, the Company’s largest domestic customer.  The Corps has been hampered in getting projects out to bid due to the current federal budget constraints, the change over to central control in Washington governing the release of Corps funds and new restrictions concerning obligation of funds for contracts that roll into future years.

In September 2006, Congress failed to pass the federal budget and this has resulted in the operation of the government under a continuing resolution.  This has been particularly problematic for the dredging industry when combined with the restrictions on the Corps on the use of “continuing contracts.”  In the past a project could be bid if appropriations were identified for the current year’s work only and the rest of the contract could be continued into the next year. The remaining funding would be taken out of the following year’s appropriations. However, in 2006 Congress mandated that only projects that are fully funded can go forward.    Unfortunately, since the Corps did not have enough funding for every project proposed in the last fiscal year, certain amounts were carried over to be combined with this year’s appropriations. However, because the government is operating under a continuing resolution, none of this money can be spent until a budget is passed.  Due to the inability to fund “continuing contracts,” the Corps is bidding projects that include a base amount of work, which can be more easily funded out of the current year’s appropriations, plus options that can be awarded as additional funds are released.  The problem for the industry overall is the scheduling of equipment and forecasting utilization since the contractor has to commit and reserve equipment for a scope of work that may never be awarded.

The Corps’ funding limitations have predominantly impacted the letting of beach and capital projects. Fortunately, state and local authorities have been developing funding sources for beach work to protect vital tourism and beachfront property interests.  In addition, the developing market for new LNG terminals has recently produced privately funded demand for capital dredging work. Both situations have filled the void in the domestic market caused by the Corps’ funding difficulties.   Moreover, during this time period, the Company focused on the overseas market to utilize equipment that might otherwise have been idle in the U.S. market.  During 2006, the Company expanded its presence in the Middle East by repositioning more vessels to that market and signing several projects in Bahrain for a combined value in excess of $200 million.

Demolition Operations (approximately 11% of total 2006 revenue)

NASDI, founded in 1976, is a major U.S. provider of commercial and industrial demolition services. The majority of NASDI’s work is performed in the New England area. NASDI’s core business is exterior and interior demolition.  Exterior demolition involves the complete dismantling and demolition of structures and foundations.

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Interior demolition involves removing specific structures within a building.  Other business activities include site development and asbestos and other hazardous material removal. NASDI generally contracts hazardous material removal to insured subcontractors and does not take possession of hazardous materials, which remain the property of the site owner. NASDI typically performs numerous small projects (each generating revenue of $0.1 million to $0.5 million) but NASDI is one of a few providers in New England with the required licenses, operating expertise, equipment fleet and access to bonding to execute larger, complex industrial demolition projects.  For instance, in recent years, NASDI has successfully performed a large demolition project involving the dismantling and disposal of an aging power generation plant, as well as large projects at Logan Airport and various Boston-area office buildings and former manufacturing facilities.

Competitive Strengths

The Company possesses a number of competitive strengths that have allowed it to develop and maintain its leading position within the dredging industry.

·                  Favorable competitive dynamic.  The Company benefits from significant advantages relative to both existing and potential competitors, including (i) the requirements of the Foreign Dredge Act of 1906 (the “Dredging Act”) and Section 27 of the Merchant Marine Act of 1920 (the “Jones Act”), which effectively prohibit foreign dredges and, to a certain extent, foreign-owned dredging companies from competing in the U.S. (see “Business — Government Regulations”); (ii) the relatively long lead time and high capital cost associated with the construction of a new dredge, which the Company estimates to be two years and between $20 to $60 million, depending on the type of dredge; and (iii) the Company’s reputation for quality and customer service built up over its 116-year operating history, during which time it has never failed to complete a project.

·                  Largest and most diverse dredging fleet.  The Company operates the largest and most diverse dredging fleet in the U.S., with over 180 pieces of equipment, including the largest hydraulic dredges in the U.S.  The size, versatility and technical capabilities of the fleet improves the Company’s competitiveness by affording the Company the flexibility to select the most efficient equipment for a particular job and enabling the Company to perform multiple projects at the same time.  To maintain the value and effectiveness of its fleet, the Company emphasizes preventative maintenance to minimize downtime, increase profitability, extend vessel life and reduce replacement capital expenditure requirements.

·                  Specialized capability in capital projects. The Company is a leader in U.S. capital dredging, which generally requires specialized engineering expertise, specific combinations of equipment and experience in executing complex projects. The Company believes its extensive experience performing complex projects significantly enhances its ability to bid for and complete these contracts profitably.

·                  Proprietary and proven project costing methodologies.  Over the course of its 116-year operating history, the Company has developed an extensive proprietary database of publicly-available dredging production records from its own and its competitors’ activities and past bidding results.  The Company believes that this database, combined with its accumulated estimating and bidding expertise, is a significant competitive advantage in bidding for new dredging contracts.

·                  Diversified revenue base. The Company benefits from a dredging revenue base that is broadly diversified across the three dredging sectors, which have different demand drivers.  Capital projects primarily consist of port expansion and deepening work, which is driven by competitiveness between ports and growth in U.S. trade and commerce.  Beach nourishment and maintenance projects are more heavily influenced by weather and recurring natural sedimentation and erosion.  Revenue within each of the Company’s dredging sectors comes from a portfolio of separate contracts, which helps to mitigate project-specific risk.   For the year ended December 31, 2006, the Company’s U.S. dredging revenues were derived from over 70 separate dredging contracts, and no one contract represented more than 8% of its revenues. The Company’s foreign dredging operations and demolition operations further diversify its revenue and customer base.

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·                  Proven, experienced management team.  The Company’s top executive management has an average of 25 years of experience in the dredging industry. The Company believes that management’s experience provides it with a significant advantage over its competitors.

Customers

Dredging. The dredging industry’s customers include federal, state and local governments, foreign governments and both domestic and foreign private concerns, such as utilities and oil companies.  Most dredging projects are competitively bid, with the award going to the lowest qualified bidder.  There are generally few economical substitutes that customers can use for dredging services. The Corps is the largest dredging customer in the U.S. and has responsibility for federally funded projects related to navigation and flood control.  In addition, the U.S. Coast Guard and the U.S. Navy are responsible for awarding federal contracts with respect to their own facilities.   In 2006, approximately 41% of the Company’s dredging revenues were earned from approximately 50 different contracts with federal agencies or companies operating under contracts with federal agencies.

Foreign governments requiring infrastructure development are the primary dredging customers in international markets.  Approximately 23% of the Company’s 2006 dredging revenues were earned from contracts with foreign governments or companies operating under contracts with foreign governments, primarily in Bahrain.

Demolition. NASDI’s customers include general contractors, corporations that commission projects, non-profit institutions such as universities and hospitals, and local government and municipal agencies.  NASDI benefits from key relationships with certain customers in the general contracting and public infrastructure industries. The majority of the demolition services are concentrated in New England.  In 2006, no customer contributed more than 17% to NASDI’s annual revenues.

Bidding Process

Dredging.  Most of the Company’s dredging contracts are obtained through competitive bidding on terms specified by the party inviting the bid.  The nature of the specified services dictates the types of equipment, material and labor involved, all of which affect the cost of performing the contract and the resulting bid.

For contracts under its jurisdiction, the Corps typically prepares a fair and reasonable cost estimate based on the specifications of the project.  To be successful, a bidder must be determined by the Corps to be a responsible bidder (i.e., a bidder that generally has the necessary equipment and experience to successfully complete the project) and submit the lowest responsive bid that does not exceed 125% of the Corps’ original estimate.  Contracts for projects that are not administered by the Corps are generally awarded to the lowest qualified bidder. While substantially all of the Company’s dredging contracts are competitively bid, some government contracts are awarded through a sole source procurement process involving negotiation between the contractor and the government, while other projects are bid by the Corps through a “request for proposal” process.

Demolition.  NASDI negotiates the majority of its demolition contracts as fixed price (“lump sum”) contracts with other projects negotiated on a time-and-materials basis. NASDI frequently receives revenues from change orders on existing contracts.  NASDI has established a network of local contacts with developers and prime contractors that act as referral sources and frequently enable NASDI to procure demolition jobs on a sole-source basis.  When NASDI bids on a project, it evaluates the contract specifications and develops a cost estimate to which it adds a reasonable margin.  While there are numerous competitors in the demolition services market, NASDI benefits from its relationships and reputation.  Therefore, there are occasions where NASDI is not the lowest bidder on a contract, but is still awarded the project based on its reputation and qualifications.

Bonding and Foreign Project Guarantees

Dredging.  For most domestic projects and some foreign projects, dredging service providers are required to obtain three types of bonds, which are typically provided by large insurance companies.  A bid bond is required to serve as a guarantee that if a service provider’s bid is chosen, the service provider will sign the contract.  The amount of the bond is typically 20% of the service provider’s bid, up to a maximum bond of $3.0 million.  After a contract is signed, the bid bond is replaced by a performance bond, the purpose of which is to guarantee that the job

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will be completed.  A performance bond typically covers 100% of the contract value with no maximum bond amount.  If the service provider fails to complete a job, the bonding company assumes such obligation and pays to complete the job. If the Company were to default on a project, the bonding company would complete the defaulted contract and would be entitled to be paid the contract price directly by the customer. Additionally, the bonding company would be entitled to be paid by the Company for any costs incurred in excess of the contract price. A company’s ability to obtain performance bonds with respect to a particular contract depends upon the size of the contract, as well as the size of the service provider and its financial position. A payment bond is also required to protect the service provider’s suppliers and subcontractors in the event that the service provider cannot make timely payments.  Payment bonds are generally written at 100% of the contract value.

Great Lakes’ projects are currently bonded by Travelers.  Great Lakes’ has never experienced difficulty in obtaining bonding for any of its projects.    Travelers has been granted a security interest in a substantial portion of the Company’s operating equipment as collateral for its surety obligations.

For most foreign dredging projects, letters of credit or bank guarantees issued by foreign banks are required as security for the bid, performance and, if applicable, advance payment. The Company obtains its letters of credit under the Credit Agreement or letters of credit issued with the Export-Import Bank of the United States (“Ex-Im”) under the Ex-Im’s Working Capital Guarantee Program. Foreign bid guarantees are usually 2% to 5% of the service provider’s bid.  Foreign performance and advance payment guarantees are each typically 5% to 10% of the contract value.

Demolition.  NASDI’s contracts are primarily with private, non-government customers; thus, it often is not required to secure bonding.  When NASDI does have bonding requirements, the bonds are also provided by Travelers.

Competitive Environment

Dredging.  Competition is limited by the size and complexity of the job, equipment requirements, bonding requirements, certification requirements and government regulations.  Great Lakes and four other key competitors perform the majority of the work within the Company’s domestic dredging bid market.  On average over the last three years, Great Lakes’ share of the market was 37% with the other four entities obtaining a 45% share.  However, the Company has repositioned two medium size hopper dredges and one small hopper dredge to the Middle East from the U.S. at the same time a competitor began operating a new hopper dredge on a project in the Gulf Coast.  The result of these two changes is not yet known, but may shift the U.S. market share footprint in the future.

Competition in the international market is dominated by four large European dredging companies all of which operate larger equipment than Great Lakes.  However, Great Lakes has sought out work that suits the size of its fleet.  As a result Great Lakes has carved out a niche market primarily in the Middle East over the last few years.

The Dredging Act and the Jones Act provide a significant barrier to entry with respect to foreign competition.  Together the two regulations prohibit foreign-built, chartered or operated vessels from competing in the U.S.  See “Business — Government Regulations.”

Demolition.  The U.S. demolition and related services industry is highly fragmented and is comprised mostly of small regional companies.  Unlike many of its competitors, NASDI is able to perform both small and larger, more complex projects and competes in the demolition and related services industry primarily on the basis of its experience, reputation, equipment, key client relationships and price.

Equipment

Dredging.  Great Lakes’ fleet of dredges, material barges and other specialized equipment is the largest and most diverse in the U.S.  The Company operates three principal types of dredging equipment:  hopper dredges, hydraulic dredges and mechanical dredges.

·                  Hopper Dredges. Hopper dredges are typically self-propelled and have the general appearance of an ocean-going vessel.  The dredge has hollow hulls, or “hoppers,” into which material is suctioned

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                        hydraulically through drag-arms.  Once the hoppers are filled, the dredge sails to the designated disposal site and either (i) bottom dumps the material or (ii) pumps the material from the hoppers through a pipeline to a designated site.  Hopper dredges can operate in rough waters, are less likely than other types of dredges to interfere with ship traffic, and can be relocated quickly from one project to another.

·                  Hydraulic Dredges.  Hydraulic dredges remove material using a revolving cutterhead which cuts and churns the sediment on the ocean floor and hydraulically pumps the material by pipe to the disposal location.  These dredges are very powerful and can dredge some types of rock.  Certain dredged materials can be directly pumped as far as seven miles with the aid of a booster pump.  Hydraulic dredges work with an assortment of support equipment, which help with the positioning and movement of the dredge, handling of the pipelines, and the placement of the dredged material.  Great Lakes operates the only large electric hydraulic dredge in the U.S., which makes the Company particularly competitive in markets with stringent emissions standards, such as California and Houston.

·                  Mechanical Dredges.  There are two basic types of mechanical dredges operating in the U.S.:  clamshell and backhoe.  In both cases, the dredge uses a bucket to excavate material from the ocean floor.  The dredged material is placed by the bucket into material barges, or “scows,” for transport to the designated disposal area.  The scows are emptied by bottom-dumping, direct pump-out or removal by a crane with a bucket.  Mechanical dredges are capable of removing hard-packed sediments and debris and can work in tight areas such as along docks or terminals.  Clamshell dredges with specialized buckets are ideally suited to handle material requiring controlled disposal.  The Company has the largest fleet of material barges in the industry, which provides cost advantages when dredged material is required to be disposed far offshore or when material requires controlled disposal. Additionally, the Company recently converted one of its clamshell dredges to electric power to better compete in those markets with stringent emissions standards.

Great Lakes’ domestic dredging fleet is typically positioned on the East and Gulf Coasts, with a smaller number of vessels on the West Coast and on inland rivers.  The mobility of the fleet enables the Company to move equipment in response to changes in demand.  Great Lakes’ fleet also includes assets currently positioned internationally in the Middle East.

The Company continually assesses its need to upgrade and expand its dredging fleet to take advantage of improving technology and to address the changing needs of the dredging market.  The Company is also committed to preventive maintenance, which it believes is reflected in the long lives of most if its equipment and its low level of unscheduled downtime on jobs.  To the extent that market conditions warrant the expenditures, Great Lakes can prolong the useful life of its vessels indefinitely.  As such, the Company spent an average of $28 million on maintenance and $23 million on capital additions and enhancements, annually over the last three years. During this three year period, the Company’s capital expenditures included money to buy out certain operating equipment previously under operating lease, as well as expenditures  on equipment that was funded from the proceeds of sale-leasebacks under operating leases or the proceeds from the sale of certain equipment under a like-kind exchange transaction.  Therefore, in a typical year, the Company generally funds $13 to $18 million of capital expenditures with cash flow from its operations.

Demolition.  NASDI owns and operates specialized demolition equipment, including a fleet of excavators equipped with shears, pulverizers, processors, grapples, and hydraulic hammers that provide high-capacity processing of construction and demolition debris for recycling and reclamation. NASDI also owns and maintains a large number of skid-steer loaders, heavy-duty large-capacity loaders, cranes, recycling crushers, off-highway hauling units and a fleet of tractor-trailers for transporting equipment and materials to and from job sites. NASDI rents additional equipment on a project-by-project basis, which allows NASDI flexibility to adjust costs to the level of project activity.

Equipment Certification

Certification of equipment by the U.S. Coast Guard and establishment of the permissible loading capacity by the American Bureau of Shipping (“A.B.S.”) are important factors in Great Lakes’ dredging business.  Many

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projects, such as beach nourishment projects with offshore sand borrow sites, dredging projects in exposed entrance channels, and dredging projects with offshore disposal areas, are restricted by federal regulations to be performed only by dredges or scows that have U.S. Coast Guard certification and a load line established by the A.B.S.  The certifications indicate that the dredge is structurally capable of operating in open waters.  The Company has more certified vessels than any domestic competitor and makes substantial investments to maintain these certifications.

Seasonality

Seasonality does not currently have a significant impact on the Company’s dredging operations.  Some east coast beach nourishment projects are limited by environmental windows, which require that certain work be performed in winter months to protect wildlife habitats.  Environmental windows did impact operations in the third quarter of 2006. However, in recent years, this has been mitigated by the increased volume of capital and maintenance work in the market, which can generally be performed throughout the year.  The Company has been able to respond to these environmental restrictions since it has the flexibility to reposition its equipment and continue to utilize equipment on different projects that are not limited by these restrictions.    However, in the future, seasonality may become more of a factor if the project mix changes and the Company is unable to be as flexible in utilizing its equipment.   The Company’s demolition operations are not significantly impacted by seasonality.

Backlog

The Company’s contract backlog represents management’s estimate of the revenues which will be realized under the portion of the contracts remaining to be performed.  Such estimates are subject to fluctuations based on the amount of material actually dredged or scope of demolition services to be provided 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 actual committed costs and profit on work performed up to the date of cancellation. Consequently, backlog is not necessarily indicative of future results.  The Company’s backlog includes only those projects for which the customer has provided an executed contract.  The components of the Company’s backlog are addressed in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Employees

Dredging.  At December 31, 2006, the Company employed approximately 270 full-time salaried personnel, with additional U.S. hourly personnel, most of who are unionized and hired on a project-by-project basis.  During 2006, the Company employed an average of 500 hourly personnel to meet domestic project requirements.  Crews are generally available for hire on relatively short notice.  In addition, the Company employs approximately 23 expatriates and foreign nationals to manage and administer its overseas operations.  The Company’s overseas crews are generally provided through an employment agreement with a company in the Philippines.

Demolition.  At December 31, 2006, NASDI employed approximately 25 full-time salaried administrative employees, in addition to approximately 125 unionized employees who are party to four union agreements.  The unionized employees are hired on a project-by-project basis and are generally available for hire on relatively short notice.

The Company is a party to numerous collective bargaining agreements in the U.S. that govern its relationships with its unionized hourly workforce.  However, four primary agreements apply to approximately 84% of such employees.  The Company’s two contracts with Local 25 Operators Union for the northern and southern regions, representing approximately 51% of its unionized workforce were renewed in September 2006 and will expire in three years.  The Company’s other two union agreements, with Seafarers International Union and Local 3 Operating Engineers, both expire in July 2009.  The Company has not experienced any major labor disputes in the past five years and believes it has good relationships with its significant unions; however, there can be no assurances that the Company will not experience labor strikes or disturbances in the future.

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Joint Ventures

Amboy Aggregates

The Company and a New Jersey aggregates company each own 50% of Amboy Aggregates (“Amboy”).  Amboy was formed in December 1984 to mine sand from the entrance channel to the New York Harbor and to provide sand and aggregate for use in road and building construction.  Great Lakes’ dredging expertise and its partner’s knowledge of the aggregate market formed the basis for the joint venture.  The Company’s investment in Amboy is accounted for using the equity method.

Amboy is the only East Coast aggregate producer to mine sand from the ocean floor.  Amboy has a specially designed dredge for sand mining, de-watering and dry delivery.  No other vessel of this type operates in the U.S.  Amboy’s ocean-based supply of sand provides a long-term competitive advantage in the Northeast as land-based sand deposits are depleted or rendered less cost competitive by escalating land values.

Mining operations are performed pursuant to permits granted to Amboy by the federal government and the states of New York and New Jersey.  In 2002, Amboy was successful in obtaining approval for a new permit allowing it to mine deeper in its sand borrow areas.  Amboy’s revenues have remained strong over the past three years due to improvement in the construction market, the primary customers for Amboy’s product.

Government Regulations

The Company is subject to government regulations pursuant to the Dredging Act, the Jones Act, the Shipping Act, 1916, as amended, and the vessel documentation laws set forth in Chapter 121 of Title 46 of the United States Code (the “Vessel Documentation Act”).  These statutes require vessels engaged in dredging in the navigable waters of the United States to be documented with a coastwise endorsement, to be owned and controlled by U.S. citizens, to be manned by U.S. crews, and to be built in the United States.  The U.S. citizen ownership and control standards require the vessel-owning entity to be at least 75% U.S.-citizen owned and prohibit the chartering of the vessel to any entity that does not meet the 75% U.S. citizen ownership test.  These statutes, together with similar requirements for other sectors of the maritime industry, are collectively referred to as “cabotage” laws.

Certain of the above requirements were made applicable to the dredging industry in 1992, when Congress amended the Dredging Act to bring it into conformity with the U.S. citizenship requirements of the rest of the nation’s cabotage laws.  At that time, Congress included grandfather clauses to protect certain existing dredge operations affected by the change in law. A grandfather provision exempted the hopper dredge STUYVESANT from the 75% ownership and control requirement. The STUYVESANT is chartered to Stuyvesant Dredging Company, Inc., a foreign corporation and wholly-owned subsidiary of Royal Boskalis Westminster, NV, a Dutch company, one of the largest dredging service providers in the world.  In early 1999, the Stuyvesant Dredging Company exploited a loophole in the grandfather provision and expanded its control of additional dredging vessels through a joint-venture, Bean Stuyvesant LLC, in which it has a 50% ownership interest.  As of December 31, 2006, at least seven dredges plus other ancillary vessels operating in the United States were foreign controlled under this grandfather provision.

A coalition of U.S.-citizen dredging companies, labor unions, U.S. maritime operating companies and U.S. shipbuilders have joined together to try to close the STUYVESANT grandfather clause loophole, through a legislative solution to ensure more equitable treatment among the industry participants.

Environmental Matters

The Company’s operations and facilities are subject to various environmental laws and regulations related to, among other things: dredging operations; the disposal of dredged material; protection of wetlands; storm water and waste water discharges; demolition activities; asbestos removal; transportation and disposal of other hazardous substances and materials; and air emissions.  The Company is also subject to laws designed to protect certain marine species and habitats.  Compliance with these statutes and regulations can delay appropriation with respect to, and performance of, particular projects and increase related expenses.

The Company’s projects may involve demolition, excavation, transportation, management and disposal of

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hazardous waste and other hazardous substances and materials.  Various laws strictly regulate the removal, treatment and transportation of hazardous water and other hazardous substances and materials and impose liability for human health effects and environmental contamination caused by these materials. The Company’s demolition business, for example, requires it to transport and dispose of hazardous substances and materials, such as asbestos.   The Company takes steps to limit its potential liability by hiring qualified asbestos abatement subcontractors to remove such materials from its projects, and some project contracts require the client to retain liability for hazardous waste generation.

Based on the Company’s experience, its management believes that the future cost of compliance with existing environmental laws and regulations (and liability for known environmental conditions) will not have a material adverse effect on its business, financial condition or results of operations. However, the Company cannot predict what environmental legislation or regulations will be enacted in the future; how existing or future laws or regulations will be enforced, administered or interpreted; or the amount of future expenditures that may be required to comply with these environmental or health and safety laws or regulations or to respond to future cleanup matters or other environmental claims.  See “Risk Factors — Environmental regulations could force us to incur significant capital and operational costs.”

Properties

Dredging.  Great Lakes’ dredging fleet is the largest in the U.S. and one of the largest fleets in the world.  The fleet consists of over 200 pieces of equipment, including most of the large hydraulic dredges in the U.S., and is sufficient to meet the Company’s project requirements.

The following table provides a listing of the Company’s fleet of dredging equipment as of December 31, 2006, including equipment under long-term operating leases:

Type of Equipment

 

Quantity

 

Hydraulic Dredges

 

13

 

Hopper Dredges

 

8

 

Mechanical Dredges

 

6

 

Unloaders

 

1

 

Drillboats

 

2

 

Material Barges

 

25

 

Other Barges

 

70

 

Booster Pumps

 

7

 

Tugs

 

6

 

Launches and Survey Boats

 

53

 

Other ancillary equipment

 

30

 

 

 

 

 

Total

 

221

 

 

A significant portion of the Company’s operating equipment is subject to liens by the Company’s senior lenders and bonding company.  See Note 5 “Property and Equipment,” and Note 11, “Long-term Debt,” in the Notes to Consolidated Financial Statements.

The Company leases approximately 40,000 square feet of office facilities in Oak Brook, Illinois, which serves as its principal administrative facility.  The primary lease for this property will expire in 2008.  The Company also leases waterfront properties in Baltimore, Maryland and Green Cove Springs, Florida.  These locations serve as mooring sites for idle equipment and inventory storage.

Demolition.   NASDI leases 13,000 square feet of office, garage and maintenance facilities in Waltham, Massachusetts, from the president of NASDI which expires in 2016.  See Note 10 “Related Party” in the Notes to Consolidated Financial Statements.  NASDI maintains a fleet of operating equipment including excavators, loaders, trucks, and similar equipment,  to meet its project requirements.  Certain pieces of equipment are obtained under capital lease arrangements or rented on a project by project basis.

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Legal Proceedings

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, are named as defendants in approximately 280 lawsuits, the majority of which were filed between 1989 and 2000, and 18 of which were filed in the last three years.  In these lawsuits, the plaintiffs allege personal injury, primarily fibrosis or asbestosis, from exposure to asbestos on our vessels.  The vast majority of these lawsuits have been filed in the Northern District of Ohio and a few in the Eastern District of Michigan.  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.  Plaintiffs in these cases could seek to reinstate the cases at a future date without being barred by the statute of limitations.  However, to date, no plaintiffs with claims against the Company have sought reinstatement.  There are therefore no active pending cases against the Company.  Management does not believe that these cases will have a material adverse impact on the business.

On February 10, 2004, the Company was served with a subpoena to produce documents in connection with a federal grand jury convened in the United States District Court for the District of South Carolina.  The Company believes the grand jury has been convened to investigate the United States dredging industry in connection with work performed for the U.S. Army Corp of Engineers.  The Company believes it has fully complied with all requests related to the federal subpoena matter and has delivered its affidavit to that effect.   The Company has received no additional communications from the Justice Department since that date; however, the matter continues to remain open. The Company continues to incur legal costs although at a much reduced level from prior years.

On April 24, 2006, a class action complaint was filed in the U.S. District Court for the Eastern District of Louisiana, on behalf of Louisiana citizens who allegedly suffered property damage from the floodwaters that flooded New Orleans and surrounding areas when Hurricane Katrina hit the area on August 29, 2005 (the “Katrina Claims”).  Reed v. United States, et al., No. 06-2152 (E.D. La.).  The Reed suit names as defendants the U.S. government, Great Lakes Dredge & Dock Company and numerous other dredging companies that completed dredging projects on behalf of the Army Corps of Engineers in the Mississippi River Gulf Outlet (“MRGO”) between 1993 and 2005.  The Reed complaint alleges that the dredging of MRGO caused the destruction of Louisiana wetlands, which had provided a natural barrier against some storms and hurricanes.  The complaint alleges that this loss of natural barriers contributed to the failure of levees as Katrina floodwaters damaged plaintiffs’ property.  The Reed complaint asserts claims of negligence, warranty, concealment and violations of the Water Pollution Control Act.  Other plaintiffs have filed similar class action complaints.  Anderson  v. U.S. et al., No. 06-5162 (E.D. La.) (filed Aug. 28, 2006); Russell v. U.S. et al., No. 06-5155 (E.D. La.) (filed on Aug. 28, 2006).  In addition, plaintiffs have filed one mass tort case. Ackerson et al.  v. Bean Dredging, LLC, No. 06-4066 (E.D. La. Aug. 1, 2006).  All these cases raise the same claims as Reed.  One dredging company has filed a cross-claim seeking contribution and indemnification.  Manson Constr. Co. et al. v. Bean Dredging, LLC, No. 06-2824 (E.D. La.) (filed on July 14, 2006). The amount of claimed damages in these claims is not stated, but is presumed to be significant.  On October 19, 2006, Great Lakes filed for exoneration or limitation of liability under the Limitation of Liability Act in federal district court.  In re Great Lakes Dredge & Dock Company, No. 06 C 8676 (U.S. Dist. Ct., E.D. Louisiana).  This limitation action stays all outstanding Katrina lawsuits against Great Lakes, including the lawsuits mentioned above, pending resolution of Great Lakes exoneration and limitation claims.  Great Lakes believes that it has meritorious claims to either exoneration from all liability or limitation of liability at not more than $55 million, which is was the value of the vessels which conducted the MRGO dredging work.  These defenses include arguments for both statutory and constitutional immunity from liability for the Katrina Claims. In addition, Great Lakes maintains $150 million in insurance coverage for the Katrina Claims.  On March 9, 2007, the District Court dismissed with prejudice the Reed and Ackerson claims against Great Lakes and those plaintiff’s have filed an appeal to the U.S. Court of Appeals for the Fifth Circuit.  Great Lakes continues to prosecute its limitation of liability proceeding against all the plaintiffs in the District Court on similar grounds that lead to the dismissals in Reed and Ackerson.  Great Lakes believes that the Katrina claims will not have a material adverse impact on its financial condition or results of operations and cash flows.

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MANAGEMENT

Directors and Executive Officers and Corporate Governance

Set forth below are the names, ages and positions of the persons who serve as the directors and executive officers of the Company as of March 31, 2007:

Name

 

Age

 

Position

Douglas B. Mackie

 

54

 

President, Chief Executive Officer and Director

Richard M. Lowry

 

51

 

Executive Vice President and Chief Operating Officer

Deborah A. Wensel

 

45

 

Senior Vice President and Chief Financial Officer

Steven W. Becker

 

45

 

Vice President -Plant Equipment and Chief Mechanical Engineer

J. Christopher Gillespie

 

46

 

Vice President - Special Projects Manager

Bradley T.J. Hansen

 

53

 

Vice President - Division Manager

Kyle D. Johnson

 

45

 

Vice President — Chief Contract Manager

John F. Karas

 

45

 

Vice President - Chief Estimator

Steven F. O’Hara

 

52

 

Vice President - Division Manager

William F. Pagendarm

 

57

 

Vice President - Division Manager

David E. Simonelli

 

50

 

Vice President — Personnel Director of Field Operations

 

 

 

 

 

Jonathan W. Berger

 

47

 

Non-executive Director

Bruce J. Biemeck

 

57

 

Non-executive Director

Peter R. Deutsch

 

49

 

Non-executive Director

Douglas S. Grissom

 

38

 

Non-executive Director

Nathan D. Leight

 

47

 

Non-executive Director

Thomas S. Souleles

 

38

 

Non-executive Director

Jason G. Weiss

 

37

 

Non-executive Director

 

Douglas B. Mackie, President and Chief Executive Officer

Mr. Mackie has been President, Chief Executive Officer and a director of the Company since 1995.  He joined the Company in 1978 as Corporate Counsel.  In 1987 he was named Senior Vice President.  Mr. Mackie earned a MBA from the University of Chicago and a J.D. from Northern Illinois University.  He is a former President of the Dredging Contractors of America.

Richard M. Lowry, Executive Vice President and Chief Operating Officer

Mr. Lowry has been the Executive Vice President and Chief Operating Officer of the Company since 1995.  He joined the Company in 1978 as a Project Engineer and has since held positions of increasing responsibility in the engineering and operations areas of the Company.  In 1990 he was named Senior Vice President and Chief Engineer.  He is a member of the Society of American Military Engineers. Mr. Lowry received a Bachelors Degree (Honors) in Civil Engineering from Brighton Polytechnic in England.

Deborah A. Wensel, Senior Vice President and Chief Financial Officer

Ms. Wensel has been the Chief Financial Officer and Treasurer of the Company since April 1999 and was named Senior Vice President in 2002.  Ms. Wensel joined the Company in 1987 as Accounting and Financial Reporting Supervisor.  In 1989, she was named Controller and Chief Accounting Officer.  She is the current Treasurer of the Dredging Contractors of America.  Ms. Wensel is a Certified Public Accountant and also has a MBA from the University of Chicago.

Steven W. Becker, Vice President - Plant Equipment and Chief Mechanical Engineer

Mr. Becker has managed the Equipment Maintenance and Mechanical Engineering Departments since 1995.  He joined the Company in 1984 as a Field Engineer and holds a Bachelors degree in Mechanical Engineering from the University of Illinois.

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J. Christopher Gillespie, Vice President—Special Projects Manager

Mr. Gillespie was named Vice President and Special Projects Manager in 1997.  He joined the Company in 1987 as a Project Engineer and previously served as a Commissioned Officer in the U.S. Army Corps of Engineers.  Mr. Gillespie earned a BS in Civil Engineering from the U.S. Military Academy at West Point and a graduate degree in Environmental Engineering from the University of Tulane.  He is a member of the Society of American Military Engineers.

Bradley T. J. Hansen, Vice President & Division Manager—Hydraulic

Mr. Hansen has been a Vice President and Division Manager of the Company since 1994. He joined the Company in 1977 as an Area Engineer. He was named Vice President & General Superintendent of the Company in 1991.  Mr. Hansen earned a BS in Civil Engineering from Louisiana State University.   He is a member of the American Society of Civil Engineers.

Kyle D. Johnson, Vice President—Chief Contract Manager

Mr. Johnson has been Vice President and Production Engineering/Special Projects Manager since 1997.  Prior to joining the Company in 1983, he was a Project Manager with Healy Tibbits Builders.  Mr. Johnson earned a BSE in Ocean Engineering from Purdue University and a graduate degree in Construction Engineering & Management from Stanford University.  He is a member of the American Society of Civil Engineers.

John F. Karas, Vice President—Chief Estimator

Mr. Karas has been Vice President and Chief Estimator since 1992.  He joined the Company in 1983 as Project Engineer in the Hopper Division. Mr. Karas earned a Bachelors degree in Finance from University of Notre Dame.  He is a member of the Western Dredging Association.

Steven F. O’Hara, Vice President & Division Manager—Clamshell

Mr. O’Hara has been a Vice President and Division Manager of the Company since 1988.  He joined the Company in 1978 as Cost Accountant.  He is a member of the Society of American Military Engineers.  Mr. O’Hara received a BS from the University of Illinois.

William F. Pagendarm, Vice President & Division Manager—Hopper

Mr. Pagendarm has been a Vice President and Division Manager of the Company since 1985.  He joined the Company in 1979 as Project Superintendent.  Mr. Pagendarm is a former President and Chairman of the Western Dredging Association. He is also a former President of the World Dredging Association. Mr. Pagendarm holds a Bachelors degree in Civil Engineering from University of Notre Dame and a MBA from the University of Chicago.

David E. Simonelli, Vice President—Personnel Director of Field Operations

Mr. Simonelli was named Vice President and Special Projects Manager in 1996.  He joined the Company in 1978 as a Project Engineer and has since managed many of the Company’s large domestic and international projects.  Mr. Simonelli earned a BS in Civil and Environmental Engineering from University of Rhode Island.  He is a member of the Hydrographic Society and the American Society of Civil Engineers.

Jonathan W. Berger, Director

Mr. Berger became a director of the Company following the Aldabra Merger. He was a member of Aldabra’s board of directors from its inception until the completion of the Aldabra Merger. Mr. Berger has been associated with Navigant Consulting, Inc., a New York Stock Exchange-listed consulting firm, since December 2001, and is the managing director and co-practice area leader for the corporate finance practice. He has also been president of Navigant Capital Advisors, LLC, Navigant Consulting, Inc.’s registered broker-dealer, since October 2003. Mr. Berger is a director on the Board of Aldabra 2 Acquisition Corp. From January 2000 to March 2001, Mr. Berger was president of DotPlanet.com, an Internet services provider. From August 1983 to December 1999, Mr. Berger was employed by KPMG, LLP, an independent public accounting firm, and served as a partner from August 1991 to December 1999 where he was in charge of the corporate finance practice for three of those years. Mr. Berger received a B.S. from Cornell University and an M.B.A. from Emory University. Mr. Berger is a certified public accountant. Mr. Berger is the cousin of Nathan D. Leight.

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Bruce J. Biemeck, Director

Mr. Biemeck became a director of the Company following the Aldabra Merger.  Since April 1999, Mr. Biemeck has been a private real estate investor and developer and has acted as an independent consultant.  From 1994 to April 1999, Mr. Biemeck was Senior Vice President, Chief Financial Officer and Treasurer of Great Lakes Dredge & Dock Corporation.  Mr. Biemeck received a Bachelor of Science degree from St. Louis University and an M.B.A from the University of Chicago and is a Certified Public Accountant and member of the Financial Executives Institute.

Peter R. Deutsch, D