USA: GLDD Reports Year-End Results

GLDD Reports Year-End Results

Great Lakes Dredge & Dock Corporation, the largest provider of dredging services in the United States and a major provider of commercial and industrial demolition and remediation services, today reported financial results for the quarter and year ended December 31, 2012.

For the three months ended December 31, 2012, Great Lakes reported Revenue of $207.1 million, Net Income attributable to Great Lakes of $0.3 million and Adjusted EBITDA of $21.3 million. For the year ended December 31, 2012, Great Lakes reported Revenue of $687.6 million, Net Loss attributable to Great Lakes of $2.7 million and Adjusted EBITDA of $60.9 million.

The Company will amend its September 30, 2012 and June 30, 2012 Quarterly Reports on Form 10-Q which will delay its filing of the 2012 Form 10-K. The Company expects to file its 2012 Form 10-K and amendments to its September 30, 2012 and June 30, 2012 Quarterly Reports on Form 10-Q by March 29, 2013. The Company will also identify and disclose a material weakness in internal control over financial reporting.

Restatement of Second and Third Quarters

During the preparation of its year-end financial statements, the Company identified instances in its demolition segment where revenue was recognized in a manner not consistent with Great Lakes’ accounting policy. Great Lakes’ policy regarding pending change orders is to immediately recognize the costs but defer the recognition of the related revenue until the recovery is probable and collectability is reasonably assured. Certain pending change orders where client acceptance has not been finalized were included as revenue. After a review, the Company concluded 2012 second and third quarter demolition segment revenues were overstated by $3.9 million and $4.3 million, respectively. The Company believes recognition of a significant portion of these amounts is a timing issue. However, the Company cannot provide assurance the revenue from these pending change orders is certain to be realized.

Restatements of the financial statements to be included in the amended Quarterly Reports on Form 10-Q for the second and third quarters of 2012 will also include adjustments to dredging operating income to record $1.3 million and $0.9 million, respectively, of expenses previously capitalized and incurred in the preparation of vessels for the Wheatstone Australia LNG project. These expenses were incurred as a strategic decision to minimize downtime and positively impact the project gross margin while we work in a remote area of Australia in 2013 and 2014.

Fourth Quarter

For the fourth quarter, $5.6 million of demolition revenue originally expected to be realized did not meet the Company’s revenue recognition standards. The Company also believes recognition of a significant portion of these amounts is a timing issue. However, the Company cannot provide assurance the revenue from these pending change orders is certain to be realized.

Executive Departure

The Company also announced the departure of Bruce J. Biemeck, President and Chief Operating Officer effective March 13, 2013 with recognition of his years of service as an officer and member of the Board of Directors. Mr. Biemeck served as Chief Financial Officer until August 20, 2012.

Commentary

Jonathan Berger, Chief Executive Officer, said “I am deeply disappointed with the issues in our demolition segment, which contributed to the need to restate our second and third quarter financial results, and deferral of the recognition of revenue and Adjusted EBITDA. We will be focusing on improving controls at our demolition segment and throughout the Company. We at Great Lakes are committed to growing our business and increasing shareholder value. The demolition segment is a key part of our growth strategy, and we are committed to having the right personnel and tools in place to effectively grow the segment while maintaining adequate operational and financial controls.

“On December 31, 2012 we purchased the assets of Terra Contracting, a respected provider of a wide variety of essential services for environmental, maintenance and infrastructure-related applications. With Terra’s environmental expertise we expect to broaden the service offerings of our demolition and environmental businesses and expand their market reach.”

William Steckel, Chief Financial Officer said “The dredging segment had a strong quarter, with record revenue of $190.1 million. The dredging segment safely and efficiently executed over 18 domestic projects in the quarter. Although our results in dredging were outstanding, we fell short of our high expectations for the fourth quarter. This was in part because three dredging projects shifted from the fourth quarter into the first quarter of 2013 and there were cost overruns in two other projects. The dredging segment had also expected to sell an underutilized dredge prior to year end. The buyer experienced funding delays and we now expect to realize the $4.0 million gain on the sale of this dredge in 2013.

We maintained our strategic investment in working capital for key projects and balanced these investments with our overall objective of maximizing shareholder value, with the decrease in cash in the quarter resulting primarily from our $15 million special dividend. As previously disclosed, we have committed substantial working capital to large projects this year with the most significant investments being Wheatstone and the Scofield island coastal restoration project in Louisiana. Across these two projects, we have invested nearly $60 million. We expect to recapture this working capital throughout 2013. We have a strong focus going forward on working capital management and generating positive cash flow.

During 2012 we incurred $4.7 million of accelerated maintenance expenses related to preparation of vessels for the Wheatstone project in Australia, which we expected to recognize in future periods based on project performance. In our amended June 30, 2012 and September 30, 2012 Form 10-Qs we will adjust dredging operating income to record $1.3 million and $0.9 million, respectively, of these expenses as a period cost. The remaining $2.5 million was expensed in the fourth quarter. The Company does not frequently incur significant accelerated maintenance as a part of its international deployments. We have therefore excluded these accelerated maintenance expenses from the calculation of Adjusted EBITDA that we are including in this earnings release. Exclusion of these expenses from the calculation of Adjusted EBITDA allows users of the financial statements to more easily compare our year-to-year results.

As a result of the matters described in this release, we did not meet one of our financial covenants in our senior revolving credit facility (“Credit Agreement”) and our International Letter of Credit Facility at December 31, 2012. Both the Credit Agreement and the International Letter of Credit Facility require us to maintain a minimum fixed charge coverage ratio of 1.25 to 1.0. Our fixed charge coverage ratio as of December 31, 2012 was 1.12x, resulting in a default under the Credit Agreement and International Letter of Credit Facility, and a potential default due to a change of condition under our bonding agreement. While there can be no guarantees, we expect to receive all necessary waivers from our banks and our surety prior to filing our Form 10-K and we anticipate being in full compliance will all financial covenants in the first quarter of 2013.”

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Press Release, March 15, 2013

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