UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2003
OR
| o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
Commission File Number 333-64687
GREAT LAKES DREDGE & DOCK CORPORATION
| Delaware (State or other jurisdiction of incorporation or organization) |
13-3634726 (IRS Employer Identification No.) |
|
| 2122 York Road, Oak Brook, Illinois (Address of principal executive offices) |
60523 (Zip Code) |
Registrant’ telephone number, including area code: (630) 574-3000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of August 11, 2003, there were outstanding 16,169.82 shares of Class A Common Stock, 33,639 shares of Class B Common Stock and 44,857 shares of Preferred Stock.
Great Lakes Dredge & Dock Corporation and Subsidiaries
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period ended June 30, 2003
INDEX
| Page | |||||||||
Part I Financial Information |
|||||||||
Item 1 |
Financial Statements (Unaudited) | ||||||||
| Condensed Consolidated Balance Sheets at | 2 | ||||||||
| June 30, 2003 and December 31, 2002 | |||||||||
| Condensed Consolidated Statements of Income | 3 | ||||||||
| for the Three and Six Months | |||||||||
| ended June 30, 2003 and 2002 | |||||||||
| Condensed Consolidated Statements of Cash Flows | 4 | ||||||||
| for the Six Months ended June 30, 2003 and 2002 | |||||||||
| Notes to Unaudited Condensed Consolidated | 5 | ||||||||
| Financial Statements | |||||||||
Item 2 |
Management's Discussion and Analysis of | 17 | |||||||
| Financial Condition and Results of Operations | |||||||||
Item 3 |
Quantitative and Qualitative Disclosures | ||||||||
| About Market Risk | 23 | ||||||||
Item 4 |
Controls and Procedures | 23 | |||||||
Part II Other Information |
|||||||||
Item 6 |
Exhibits and Reports on Form 8-K | 24 | |||||||
Signature |
24 | ||||||||
Exhibit Index |
25 | ||||||||
PART I — Financial Information
Great Lakes Dredge & Dock Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share amounts)
| June 30, | December 31, | |||||||||||
| 2003 | 2002 | |||||||||||
Assets |
||||||||||||
Current assets: |
||||||||||||
Cash and equivalents |
$ | 1,297 | $ | 1,456 | ||||||||
Accounts receivable, net |
61,870 | 52,125 | ||||||||||
Contract revenues in excess of billings |
14,441 | 13,052 | ||||||||||
Inventories |
14,866 | 13,282 | ||||||||||
Prepaid expenses and other current assets |
19,043 | 18,283 | ||||||||||
Total current assets |
111,517 | 98,198 | ||||||||||
Property and equipment, net |
137,705 | 139,419 | ||||||||||
Goodwill |
29,405 | 29,405 | ||||||||||
Inventories |
10,173 | 9,828 | ||||||||||
Investments in joint ventures |
6,668 | 5,552 | ||||||||||
Other assets |
4,506 | 5,084 | ||||||||||
Total assets |
$ | 299,974 | $ | 287,486 | ||||||||
Liabilities and Stockholders’ Deficit |
||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 44,636 | $ | 31,598 | ||||||||
Accrued expenses |
25,678 | 30,114 | ||||||||||
Billings in excess of contract revenues |
4,134 | 10,915 | ||||||||||
Current maturities of long-term debt |
4,525 | 11,000 | ||||||||||
Total current liabilities |
78,973 | 83,627 | ||||||||||
Long-term debt |
171,790 | 161,769 | ||||||||||
Deferred income taxes |
47,674 | 46,363 | ||||||||||
Other |
5,595 | 5,787 | ||||||||||
Total liabilities |
304,032 | 297,546 | ||||||||||
Minority interest |
2,276 | 2,346 | ||||||||||
Commitments and contingencies (Note 12) |
— | — | ||||||||||
Stockholders’ deficit: |
||||||||||||
Preferred stock, $.01 par value; 250,000 shares authorized: |
||||||||||||
45,000 issued; 44,857 outstanding in 2003 and 2002 |
1 | 1 | ||||||||||
Common stock, $.01 par value; 2003: 500,000 shares authorized,
50,000 shares issued and 49,808.82 shares outstanding;
2002: 50,000,000 shares authorized, 5,000,000 shares
issued and 4,980,882 shares outstanding |
50 | 50 | ||||||||||
Additional paid-in capital |
50,457 | 50,457 | ||||||||||
Accumulated deficit |
(56,807 | ) | (62,787 | ) | ||||||||
Accumulated other comprehensive income |
176 | 103 | ||||||||||
Treasury stock, at cost; 143 preferred shares and 19,118
common shares in 2003 and 2002 |
(162 | ) | (162 | ) | ||||||||
Note receivable from stockholder |
(49 | ) | (68 | ) | ||||||||
Total stockholders’ deficit |
(6,334 | ) | (12,406 | ) | ||||||||
Total liabilities and stockholders’ deficit |
$ | 299,974 | $ | 287,486 | ||||||||
See notes to unaudited condensed consolidated financial statements.
2
Great Lakes Dredge & Dock Corporation and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands)
| Three Months Ended | Six Months Ended | |||||||||||||||||
| June 30, | June 30, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Contract revenues |
$ | 104,364 | $ | 84,415 | $ | 204,057 | $ | 163,388 | ||||||||||
Costs of contract revenues |
89,256 | 69,619 | 170,911 | 134,376 | ||||||||||||||
Gross profit |
15,108 | 14,796 | 33,146 | 29,012 | ||||||||||||||
General and administrative expenses |
6,499 | 6,606 | 13,440 | 13,326 | ||||||||||||||
Operating income |
8,609 | 8,190 | 19,706 | 15,686 | ||||||||||||||
Interest expense, net |
(5,137 | ) | (5,299 | ) | (10,193 | ) | (10,594 | ) | ||||||||||
Equity in earnings of joint venture |
677 | 403 | 744 | 82 | ||||||||||||||
Minority interests |
91 | 208 | 70 | 1,321 | ||||||||||||||
Income before income taxes |
4,240 | 3,502 | 10,327 | 6,495 | ||||||||||||||
Income tax benefit (expense) |
(1,747 | ) | 2,342 | (4,347 | ) | 985 | ||||||||||||
Net income |
$ | 2,493 | $ | 5,844 | $ | 5,980 | $ | 7,480 | ||||||||||
See notes to unaudited condensed consolidated financial statements.
3
Great Lakes Dredge & Dock Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
| Six Months Ended June 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
Operating Activities |
||||||||||||
Net income |
$ | 5,980 | $ | 7,480 | ||||||||
Adjustments to reconcile net income to net cash flows
from operating activities: |
||||||||||||
Depreciation |
8,135 | 7,912 | ||||||||||
Earnings of equity method investment |
(744 | ) | (82 | ) | ||||||||
Minority interests |
(70 | ) | (1,321 | ) | ||||||||
Deferred income taxes |
495 | 318 | ||||||||||
Gain on dispositions of property and equipment |
(110 | ) | (406 | ) | ||||||||
Other, net |
665 | 809 | ||||||||||
Changes in assets and liabilities: |
||||||||||||
Accounts receivable, net |
(9,745 | ) | (14,364 | ) | ||||||||
Contract revenues in excess of billings |
(1,389 | ) | 8,252 | |||||||||
Inventories |
(1,929 | ) | 188 | |||||||||
Prepaid expenses and other current assets |
2,442 | (1,616 | ) | |||||||||
Accounts payable and accrued expenses |
8,602 | (2,441 | ) | |||||||||
Billings in excess of contract revenues |
(6,781 | ) | (1,976 | ) | ||||||||
Net cash flows from operating activities |
5,551 | 2,753 | ||||||||||
Investing Activities |
||||||||||||
Purchases of property and equipment |
(9,337 | ) | (11,755 | ) | ||||||||
Dispositions of property and equipment |
129 | 555 | ||||||||||
Disposition of interest in Riovia investment |
1,200 | — | ||||||||||
Equity investment in land acquisition |
(843 | ) | — | |||||||||
Net cash flows from investing activities |
(8,851 | ) | (11,200 | ) | ||||||||
Financing Activities |
||||||||||||
Repayments of long-term debt |
(6,475 | ) | (5,000 | ) | ||||||||
Borrowings of revolving loans, net of repayments |
10,000 | 13,000 | ||||||||||
Financing fees |
(403 | ) | — | |||||||||
Repayment on note receivable from stockholder |
19 | 18 | ||||||||||
Net cash flows from financing activities |
3,141 | 8,018 | ||||||||||
Net change in cash and equivalents |
(159 | ) | (429 | ) | ||||||||
Cash and equivalents at beginning of period |
1,456 | 2,590 | ||||||||||
Cash and equivalents at end of period |
$ | 1,297 | $ | 2,161 | ||||||||
Supplemental Cash Flow Information |
||||||||||||
Cash paid for interest |
$ | 9,528 | $ | 9,751 | ||||||||
Cash paid for taxes |
$ | 6,010 | $ | 3,980 | ||||||||
See notes to unaudited condensed consolidated financial statements.
4
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands)
| 1. | Basis of presentation |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information. Accordingly, these financial statements do not include all the information in the notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations and cash flows as of and for the dates presented. The unaudited condensed consolidated financial statements and notes herein should be read in conjunction with the audited consolidated financial statements of Great Lakes Dredge & Dock Corporation and Subsidiaries (the “Company”) and the notes thereto, included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2002.
The condensed consolidated results of operations for the interim periods presented herein are not necessarily indicative of the results to be expected for the full year.
| 2. | Allocation of equipment cost |
The Company can have significant fluctuations in dredging equipment utilization throughout the year. Accordingly, for interim reporting, the Company defers or accrues fixed equipment costs and amortizes the expenses in proportion to revenues recognized over the year to better match revenues and expenses.
| 3. | Comprehensive income |
Total comprehensive income comprises net income and net unrealized gains and losses on cash flow hedges. Total comprehensive income for the three months ended June 30, 2003 and 2002 was $2,534 and $5,681, respectively. Total comprehensive income for the six months ended June 30, 2003 and 2002 was $6,053 and $8,131, respectively.
| 4. | Risk management activities |
The Company uses derivative instruments to manage commodity price and
foreign currency exchange risks. Such instruments are not used for trading
purposes. As of June 30, 2003, the Company is party to various swap
arrangements to hedge the price of a portion of its diesel fuel purchase
requirements for work in its backlog to be performed through October 2004. As
of June 30, 2003, there were 8.6 million gallons remaining on these contracts.
Under these agreements, the Company will pay fixed prices ranging from $0.72 to
$0.75 per gallon. At June 30, 2003 and December 31, 2002, the fair value on
these contracts was estimated to be $290 and $169, respectively, based on
quoted market prices, and is recorded in other current assets. Ineffectiveness
related to these fuel hedge arrangements was determined to be immaterial. The
remaining gains included in accumulated other comprehensive income at June 30,
2003 will be reclassified into earnings over the next sixteen months,
corresponding to the period during which the hedged fuel is expected to be
utilized.
5
Table of Contents
The carrying values of other financial instruments included in current assets and current liabilities approximate fair values due to the short-term maturities of these instruments. The carrying value of long-term bank debt is a reasonable estimate of its fair value as interest rates are variable, based on the prevailing market rates. At June 30, 2003 and December 31, 2002, the Company had long-term subordinated notes outstanding with a recorded book value of $154,790 and $154,769, respectively. The fair value of these notes was $164,300 and $161,386 at June 30, 2003 and December 31, 2002, respectively, based on quoted market prices.
| 5. | Accounts receivable |
Accounts receivable at June 30, 2003 and December 31, 2002 are as follows:
| June 30, | December 31, | |||||||
| 2003 | 2002 | |||||||
Completed contracts |
$ | 8,131 | $ | 15,134 | ||||
Contracts in progress |
43,653 | 31,466 | ||||||
Retainage |
11,123 | 6,511 | ||||||
| 62,907 | 53,111 | |||||||
Allowance for doubtful accounts |
( 1,037 | ) | ( 986 | ) | ||||
| $ | 61,870 | $ | 52,125 | |||||
| 6. | Contracts in progress |
The components of contracts in progress at June 30, 2003 and December 31, 2002 are as follows:
| June 30, | December 31, | ||||||||
| 2003 | 2002 | ||||||||
Costs and earnings in excess of billings: |
|||||||||
Costs and earnings for contracts in progress |
$ | 264,884 | $ | 190,837 | |||||
Amounts billed |
(250,932 | ) | (179,468 | ) | |||||
Costs and earnings in excess of billings for
contracts in progress |
13,952 | 11,369 | |||||||
Costs and earnings in excess of billings for
completed contracts |
489 | 1,683 | |||||||
| $ | 14,441 | $ | 13,052 | ||||||
Prepaid contract costs (included in prepaid
expenses and other current assets) |
$ | 2,092 | $ | 3,218 | |||||
Billings in excess of costs and earnings: |
|||||||||
Amounts billed |
$ | (102,721 | ) | $ | (69,909 | ) | |||
Costs and earnings for contracts in progress |
98,587 | 58,994 | |||||||
| $ | (4,134 | ) | $ | (10,915 | ) | ||||
6
| 7. | Accrued expenses |
Accrued expenses at June 30, 2003 and December 31, 2002 are as follows:
| June 30, | December 31, | |||||||
| 2003 | 2002 | |||||||
Interest |
$ | 6,762 | $ | 6,880 | ||||
Insurance |
6,064 | 6,477 | ||||||
Payroll and employee benefits |
4,624 | 8,615 | ||||||
U.S. income and other taxes |
4,219 | 4,721 | ||||||
Fixed equipment costs |
1,650 | — | ||||||
Other |
2,359 | 3,421 | ||||||
| $ | 25,678 | $ | 30,114 | |||||
| 8. | Long-term debt |
In March 2003, the Company amen