**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**ý****          ****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended March 31, 2005**

 

**OR**

 

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

 

**For the transition period from              to              **

 

**Commission file number:**

**333-64687**

 

### **GreatLakes Dredge & Dock Corporation**

(Exact name of registrant as specified in its charter)

 
| **Delaware**                             | ** ** | **13-3634726**      |
|------------------------------------------|------------|---------------------|
| (State or other jurisdiction of          |       | (I.R.S. Employer    |
| incorporation or organization)           |       | Identification No.) |
|                                     |       |                |
| **2122 York Road, Oak Brook, IL**        | ** ** | **60523**           |
| (Address of principal executive offices) |       | (Zip Code)          |

 

**(630) 574-3000**

(Registrant’s telephone number, including area code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

ý  Yes     o  No

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Act).

o  Yes     ý  No

 

All of the Company’s commonstock is held by a holding company.

 

As of May 11, 2005,there were outstanding 1,000 shares of Common Stock and zero shares ofPreferred Stock.

 

 

----

 

**Great LakesDredge & Dock Corporation and Subsidiaries**

**QuarterlyReport Pursuant to Section 13 or 15(d) of the**

### **SecuritiesExchange Act of 1934**

### **For theQuarterly Period ended March 31, 2005**

 

##### **INDEX**

##### ** **

| ** **             |                      | **Page**                                                                                                  |
|------------------------|---------------------------|-----------------------------------------------------------------------------------------------------------|
|                   |                      |                                                                                                      |
| **Part I**        | **Financial Information** | ** **                                                                                                |
|                   |                      |                                                                                                      |
|                   | Item 1                    | Financial Statements (Unaudited)                                                                          |   |
|                   |                      |                                                                                                      |   |
|                   |                      | Condensed  Consolidated Balance Sheets at  March 31, 2005 and December 31, 2004                 | 2 |
|                   |                      |                                                                                                      |   |
|                   |                      | Condensed  Consolidated Statements of Operations for the  Three Months ended March 31, 2005 and 2004 | 3 |
|                   |                      |                                                                                                      |   |
|                   |                      | Condensed  Consolidated Statements of Cash Flows for the  Three Months ended March 31, 2005 and 2004 | 4 |
|                   |                      |                                                                                                      |   |
|                   |                      | Notes  to Unaudited Condensed Consolidated Financial Statements                                           | 5 |
|                   |                      |                                                                                                      |   |
|                   | Item  2                   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations               | 15 |
|                   |                      |                                                                                                      |   |
|                   | Item  3                   | Quantitative  and Qualitative Disclosures About Market Risk                                               | 22 |
|                   |                      |                                                                                                      |   |
|                   | Item 4                    | Controls and  Procedures                                                                                  | 23 |
|                   |                      |                                                                                                      |
| **Part II**       | **Other Information**     |                                                                                                      |
|                   |                      |                                                                                                      |
|                   | Item 5                    | Other Information                                                                                         | 24 |
|                   |                      |                                                                                                      |   |
|                   | Item 6                    | Exhibits                                                                                                  | 24 |
|                   |                      |
| **Signature**          | 25                        |
|                   |                      |
| **Exhibit Index** | 26                        |

 

----

 

###### **PART I – FinancialInformation**

###### ** **

**Great LakesDredge & Dock Corporation and Subsidiaries**

### **CondensedConsolidated Balance Sheets**

**(Unaudited)**

**(inthousands, except share and per share amounts)**

 
| ** **                                                         | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                         | ** ** | **2005**           | ** ** | **2004**              | ** ** |
| ** **                                                         |       |               |       |                  |       |
| **Assets**                                                         |       |               |       |                  |       |
| Current  assets:                                                   |       |               |       |                  |       |
| Cash and  equivalents                                              |       | $                  | 428        |                  | $          | 1,962 |   |
| Accounts  receivable, net                                          |       | 60,454             |       | 65,762                |       |
| Contract  revenues in excess of billings                           |       | 21,515             |       | 12,439                |       |
| Inventories                                                        |       | 17,438             |       | 16,497                |       |
| Prepaid  expenses and other current assets                         |       | 17,584             |       | 15,654                |       |
| Total  current assets                                              |       | 117,419            |       | 112,314               |       |
| Property and  equipment, net                                       |       | 253,728            |       | 256,594               |       |
| Goodwill                                                           |       | 103,563            |       | 103,563               |       |
| Other  intangible assets, net                                      |       | 3,087              |       | 3,267                 |       |
| Inventories                                                        |       | 11,278             |       | 11,278                |       |
| Investments  in joint ventures                                     |       | 7,799              |       | 7,965                 |       |
| Other assets                                                       |       | 13,262             |       | 13,654                |       |
| Total assets                                                       |       | $                  | 510,136    |                  | $          | 508,635 |   |
|                                                               |       |               |       |                  |       |
| **Liabilities  and Stockholder’s Equity**                     |       |               |       |                  |       |
| Current  liabilities:                                              |       |               |       |                  |       |
| Accounts  payable                                                  |       | $                  | 48,475     |                  | $          | 46,770 |   |
| Accrued  expenses                                                  |       | 22,510             |       | 17,676                |       |
| Billings in  excess of contract revenues                           |       | 4,640              |       | 6,706                 |       |
| Current  maturities of long-term debt                              |       | 1,950              |       | 1,950                 |       |
| Total  current liabilities                                         |       | 77,575             |       | 73,102                |       |
| Long-term  debt                                                    |       | 255,813            |       | 252,300               |       |
| Deferred  income taxes                                             |       | 87,912             |       | 90,429                |       |
| Other                                                              |       | 4,951              |       | 5,314                 |       |
| Total  liabilities                                                 |       | 426,251            |       | 421,145               |       |
| Minority  interest                                                 |       | 1,627              |       | 1,599                 |       |
| Commitments  and contingencies (Note 9)                            |       | —             |       | —                |       |
| Stockholder’s  equity:                                        |       |               |       |                  |       |
| Common  stock, $.01 par value; 1,000 shares issued and outstanding |       | —             |       | —                |       |
| Additional  paid-in capital                                        |       | 97,000             |       | 97,000                |       |
| Accumulated  deficit                                               |       | (15,759            | )          | (11,087               | )          |
| Accumulated  other comprehensive income (loss)                     |       | 1,017              |       | (22                   | )          |
| Total  stockholder’s equity                                   |       | 82,258             |       | 85,891                |       |
| Total  liabilities and stockholder’s equity                   |       | $                  | 510,136    |                  | $          | 508,635 |   |

 

See notes to unaudited condensed consolidatedfinancial statements.

 

2

----

 

**Great LakesDredge & Dock Corporation and Subsidiaries**

### **CondensedConsolidated Statements of Operations**

**(Unaudited)**

**(inthousands)**

 
| ** **                                  | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------|------------|------------------------|------------|
| ** **                                  | ** ** | **March 31,**     | ** ** |
| ** **                                  | ** ** | **2005**               | ** ** | **2004** | ** ** |
|                                        |       |                   |       |   |   |
| Contract  revenues                          |       | $                      | 99,903     |   | $ | 103,947 |   |
| Costs of  contract revenues                 |       | 92,863                 |       | 87,548 |   |
| Gross profit                                |       | 7,040                  |       | 16,399 |   |
| General and  administrative expenses        |       | 6,755                  |       | 7,110 |   |
| Subpoena-related  expenses                  |       | 879                    |       | 13 |   |
| Amortization  of intangible assets          |       | 180                    |       | 1,792 |   |
| Operating  (loss) income                    |       | (774                   | )          | 7,484 |   |
| Interest  expense, net                      |       | (6,273                 | )          | (4,610 | ) |
| Equity in  (loss) earnings of joint venture |       | (166                   | )          | 149 |   |
| Minority  interests                         |       | (28                    | )          | 6 |   |
| (Loss)  income before income taxes          |       | (7,241                 | )          | 3,029 |   |
| Income tax  benefit (expense)               |       | 2,569                  |       | (1,271 | ) |
| Net (loss)  income                          |       | $                      | (4,672     | ) | $ | 1,758 |   |

 

See notes to unaudited condensed consolidatedfinancial statements.

 

3

----

 

**Great LakesDredge & Dock Corporation and Subsidiaries**

### **CondensedConsolidated Statements of Cash Flows**

**(Unaudited)**

**(inthousands)**

 
| ** **                                                                               | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                               | ** ** | **March 31,**     | ** ** |
| ** **                                                                               | ** ** | **2005**               | ** ** | **2004** | ** ** |
| **Operating  Activities**                                                                |       |                   |       |   |   |
| Net (loss)  income                                                                       |       | $                      | (4,672     | ) | $ | 1,758 |   |
| Adjustments  to reconcile net (loss) income to net cash flows from operating activities: |       |                   |       |   |   |
| Depreciation  and amortization                                                           |       | 6,145                  |       | 7,125 |   |
| Loss (earnings)  of joint ventures                                                       |       | 166                    |       | (149 | ) |
| Minority  interests                                                                      |       | 28                     |       | (6 | ) |
| Deferred  income taxes                                                                   |       | (2,701                 | )          | (802 | ) |
| Loss (gain)  on dispositions of property and equipment                                   |       | (93                    | )          | 12 |   |
| Other, net                                                                               |       | 392                    |       | 398 |   |
| Changes in  assets and liabilities:                                                      |       |                   |       |   |   |
| Accounts receivable                                                                      |       | 5,308                  |       | 7,005 |   |
| Contract  revenues in excess of billings                                                 |       | (9,076                 | )          | (4,560 | ) |
| Inventories                                                                              |       | (941                   | )          | (1,031 | ) |
| Prepaid  expenses and other current assets                                               |       | (743                   | )          | 3,701 |   |
| Accounts  payable and accrued expenses                                                   |       | 6,530                  |       | (6,868 | ) |
| Billings in  excess of contract revenues                                                 |       | (2,066                 | )          | 183 |   |
| Other  noncurrent assets and liabilities                                                 |       | 77                     |       | 94 |   |
| Net cash  flows from operating activities                                                |       | (1,646                 | )          | 6,860 |   |
| **Investing  Activities**                                                                |       |                   |       |   |   |
| Purchases of  property and equipment                                                     |       | (3,264                 | )          | (5,361 | ) |
| Dispositions  of property and equipment                                                  |       | 94                     |       | — |   |
| Cash  released from equipment escrow                                                     |       | —                 |       | 2,451 |   |
| Net cash  flows from investing activities                                                |       | (3,170                 | )          | (2,910 | ) |
|                                                                                     |       |                   |       |   |   |
| **Financing  Activities**                                                                |       |                   |       |   |   |
| Repayments  of long-term debt                                                            |       | (487                   | )          | (2,987 | ) |
| Borrowings  under revolving loans, net of repayments                                     |       | 4,000                  |       | — |   |
| Repayment of  capital lease debt                                                         |       | (231                   | )          | — |   |
| Financing  fees                                                                          |       | —                 |       | (74 | ) |
| Net cash  flows from financing activities                                                |       | 3,282                  |       | (3,061 | ) |
| Net change  in cash and equivalents                                                      |       | (1,534                 | )          | 889 |   |
| Cash and  equivalents at beginning of period                                             |       | 1,962                  |       | 2,775 |   |
| Cash and  equivalents at end of period                                                   |       | $                      | 428        |   | $ | 3,664 |   |
| ** **                                                                               |       |                   |       |   |   |
| **Supplemental  Cash Flow Information**                                                  |       |                   |       |   |   |
| Cash paid  for interest                                                                  |       | $                      | 781        |   | $ | 1,380 |   |
| Cash paid  (refunded) for taxes                                                          |       | $                      | 178        |   | $ | (5,355 | ) |

 

See notes to unaudited condensed consolidatedfinancial statements.

 

4

----

 

GREAT LAKES DREDGE & DOCKCORPORATION AND SUBSIDIARIES

NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(dollars in thousands)

 

**1.****    ****Basis of presentation**

 

The accompanying unauditedcondensed consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the U.S. for interim financialinformation.  Accordingly, thesefinancial statements do not include all the information in the notes requiredby generally accepted accounting principles for complete financialstatements.  In the opinion ofmanagement, the unaudited condensed consolidated financial statements include alladjustments (consisting of normal recurring adjustments) considered necessaryfor a fair presentation of the financial position, results of operations andcash flows as of and for the dates presented. The unaudited condensed consolidated financial statements and notesherein should be read in conjunction with the audited consolidated financialstatements of Great Lakes Dredge & Dock Corporation and Subsidiaries(the “Company”) and the notes thereto, included in the Company’s Annual Reportfiled on Form 10-K for the year ended December 31, 2004.

 

The condensed consolidatedresults of operations for the interim periods presented herein are notnecessarily indicative of the results to be expected for the full year.

 

**2.****    ****Comprehensive (loss) income**

 

Total comprehensive (loss)income comprises net (loss) income and net unrealized gains and losses on cashflow hedges.  Total comprehensive (loss)income for the three months ended March 31, 2005 and 2004 was $(3,633) and$1,745, respectively.

 

**3.****    ****Risk management activities**

 

The Company uses derivative instruments to managecommodity price, interest rate, and foreign currency exchange risks.  Such instruments are not used for tradingpurposes.  As of March 31, 2005, theCompany was party to various swap arrangements to hedge the price of a portionof its diesel fuel purchase requirements for work in its backlog to beperformed through November 2005.  Asof March 31, 2005, there were 6.1 million gallons remaining on thesecontracts.  Under these agreements, theCompany will pay fixed prices ranging from $0.92 to $1.56 per gallon.  At March 31, 2005 and December 31,2004, the fair value on these contracts was estimated to be $1,671 and $(36),respectively, based on quoted market prices, and is recorded in other currentassets and accrued liabilities, respectively. Ineffectiveness related to thesefuel hedge arrangements was determined to be immaterial.   The remaining gains included in accumulatedother comprehensive income at March 31, 2005 will be reclassified intoearnings over the next eight months, corresponding to the period during whichthe hedged fuel is expected to be utilized.

 

5

----

 

In February 2004, the Company entered into aninterest rate swap arrangement to swap a notional amount of $50 million from a fixedrate of 7.75% to a floating LIBOR-based rate in order to manage the interestrate paid with respect to the Company’s 73⁄4% senior subordinated debt.  The fair value of the swap at March 31,2005 and December 31, 2004 was $(1,681) and $(662), respectively, and isrecorded in accrued expenses.  The swapis not accounted for as a hedge; therefore, the changes in fair value arerecorded as adjustments to interest expense in each reporting period.

 

The carrying values of otherfinancial instruments included in current assets and current liabilitiesapproximate fair values due to the short-term maturities of theseinstruments.  The carrying value oflong-term bank debt is a reasonable estimate of its fair value as interestrates are variable, based on the prevailing market rates.  The fair value of the Company’s $175,000 of73⁄4% senior subordinated notes was $147,000 and $157,938 at March 31, 2005and December 31, 2004, respectively, based on quoted market prices.

 

**4.****    ****Accounts receivable**

 

Accounts receivable at March 31, 2005 and December 31,2004 are as follows:

 
| ** **                       | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|----------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **2005**           | ** ** | **2004**              | ** ** |
| Completed  contracts             |       | $                  | 24,810     |                  | $          | 13,971 |   |
| Contracts in  progress           |       | 28,601             |       | 43,088                |       |
| Retainage                        |       | 7,548              |       | 9,211                 |       |
|                             |       | 60,959             |       | 66,270                |       |
| Allowance  for doubtful accounts |       | (505               | )          | (508                  | )          |
|                             |       |               |       |                  |       |
|                             |       | $                  | 60,454     |                  | $          | 65,762 |   |

 

6

----

 

**5.****    ****Contracts in progress**

 

The components of contractsin progress at March 31, 2005 and December 31, 2004 are as follows:

 
| ** **                                                                      | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                      | ** ** | **2005**           | ** ** | **2004**              | ** ** |
| Costs and  earnings in excess of billings:                                      |       |               |       |                  |       |
| Costs and  earnings for contracts in progress                                   |       | $                  | 275,980    |                  | $          | 232,994 |   |
| Amounts  billed                                                                 |       | (257,269           | )          | (221,243              | )          |
| Costs and  earnings in excess of billings for contracts in progress             |       | 18,711             |       | 11,751                |       |
| Costs and  earnings in excess of billings for completed contracts               |       | 2,804              |       | 688                   |       |
|                                                                            |       |               |       |                  |       |
|                                                                            |       | $                  | 21,515     |                  | $          | 12,439 |   |
|                                                                            |       |               |       |                  |       |
| Prepaid  contract costs (included in prepaid expenses and other current assets) |       | $                  | 836        |                  | $          | 718 |   |
|                                                                            |       |               |       |                  |       |
| Billings in  excess of costs and earnings:                                      |       |               |       |                  |       |
| Amounts  billed                                                                 |       | $                  | (121,033   | )                     | $          | (196,639 | ) |
| Costs and  earnings for contracts in progress                                   |       | 116,393            |       | 189,933               |       |
|                                                                            |       |               |       |                  |       |
|                                                                            |       | $                  | (4,640     | )                     | $          | (6,706 | ) |

 

**6.****    ****Intangible assets**

 

The net book value of intangible assets is asfollows:

 
| ** **                         | ** ** | **Estimated** | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
|------------------------------------|------------|---------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                         | ** ** | **Life**      | ** ** | **Cost**   | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
| As of March 31,  2005:        |       |          |       |       |       |             |       |       |       |
|                               |       |          |       |       |       |             |       |       |       |
| Customer  contract backlog         |       | 13-24 mos.    |       | $          | 4,237      |             | $          | 3,821      |       | $ | 416 |   |
| Demolition  customer relationships |       | 7 years       |       | 1,995      |       | 356              |       | 1,639      |       |
| Software and  databases            |       | 7-10 years    |       | 1,209      |       | 177              |       | 1,032      |       |
|                               |       |          |       | $          | 7,441      |             | $          | 4,354      |       | $ | 3,087 |   |
| As of December 31,  2004:     |       |          |       |       |       |             |       |       |       |
|                               |       |          |       |       |       |             |       |       |       |
| Customer  contract backlog         |       | 13-24 mos.    |       | $          | 4,237      |             | $          | 3,747      |       | $ | 490 |   |
| Demolition  customer relationships |       | 7 years       |       | 1,995      |       | 285              |       | 1,710      |       |
| Software and  databases            |       | 7-10 years    |       | 1,209      |       | 142              |       | 1,067      |       |
|                               |       |          |       | $          | 7,441      |             | $          | 4,174      |       | $ | 3,267 |   |

 

7

----

 

**7.   Accruedexpenses**

 

Accrued expenses at March 31, 2005 and December 31,2004 are as follows:

 
| ** **                     | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2005**           | ** ** | **2004**              | ** ** |
| Insurance                      |       | $                  | 6,068      |                  | $          | 5,022 |   |
| Interest                       |       | 4,878              |       | 799                   |       |
| U.S. income  and other taxes   |       | 3,486              |       | 2,564                 |       |
| Payroll and  employee benefits |       | 3,245              |       | 4,700                 |       |
| Interest  rate swap liability  |       | 1,681              |       | 662                   |       |
| Demolition  litigation expense |       | 1,275              |       | 1,275                 |       |
| Equipment  leases              |       | 764                |       | 719                   |       |
| Other                          |       | 1,113              |       | 1,935                 |       |
|                           |       |               |       |                  |       |
|                           |       | $                  | 22,510     |                  | $          | 17,676 |   |

 

**8****.    Segment information**

 

The Company operates in two reportablesegments: dredging and demolition.  TheCompany’s financial reporting systems present various data for management torun the business, including profit and loss statements prepared according tothe segments presented.  Segmentinformation for the periods presented is as follows:

 
| ** **         | ** ** | **Three Months Ended** | ** ** |
|--------------------|------------|------------------------|------------|
| ** **         | ** ** | **March 31,**     | ** ** |
| ** **         | ** ** | **2005**               | ** ** | **2004** | ** ** |
| **Dredging**       |       |                   |       |   |   |
| Contract  revenues |       | $                      | 88,264     |   | $ | 96,800 |   |
| Operating  income  |       | (1,518                 | )          | 7,236 |   |
|               |       |                   |       |   |   |
| **Demolition**     |       |                   |       |   |   |
| Contract  revenues |       | $                      | 11,639     |   | $ | 7,147 |   |
| Operating  income  |       | 744                    |       | 248 |   |
|               |       |                   |       |   |   |
| **Total**          |       |                   |       |   |   |
| Contract  revenues |       | $                      | 99,903     |   | $ | 103,947 |   |
| Operating  income  |       | (774                   | )          | 7,484 |   |

 

**9.   Commitments and contingencies**

 

At March 31, 2005, the Company was contingentlyliable, in the normal course of business, for $13,933 in undrawn letters ofcredit, relating to foreign contract performance guarantees and insurancepayment liabilities.

 

Amboy Aggregates (“Amboy”), a joint venture in whichthe Company has a 50% equity interest, has a $2,000 revolving credit facilitywith a bank, which contains certain restrictive covenants, includinglimitations on the amount of distributions to its joint venture partners.  The Company has guaranteed 50% of theoutstanding borrowings and accrued interest. Amboy had no outstanding borrowings at March 31, 2005.

 

8

----

 

The Company finances certain key vessels used in itsoperations with operating lease arrangements with unrelated lessors, requiringannual rentals decreasing from $14 to $11 million over the next fiveyears.  These operating leases contain defaultprovisions that are triggered by an acceleration of debt maturity under theterms of the Company’s Credit Agreement. Additionally, the leases typicallycontain provisions whereby the Company indemnifies the lessors for the taxtreatment attributable to such leases based on the tax rules in place atlease inception. The tax indemnifications do not have a contractual dollarlimit.  To date, no lessors have assertedany claims against the Company under these tax indemnification provisions.  The Company has additional rental commitmentsfor office facilities and dozer leases totaling approximately $1 million to $2million, annually.

 

Borrowings under the Company’s Credit Agreement aresecured by first lien mortgages on certain operating equipment of the Companywith a net book value of approximately $86,000 at December 31, 2004.  Additionally, the Company obtains itsperformance and bid bonds through an underwriting and indemnity agreement witha surety company that has been granted a security interest in a substantialportion of the Company’s operating equipment with a net book value ofapproximately $88,000 at December 31, 2004.  The Company also has an equipment term loan,which is secured by a first lien mortgage on certain operating equipment with anet book value of approximately $22,000 at December 31, 2004. The net bookvalue of equipment serving as collateral under these agreements at March 31,2005 does not materially differ from the values at December 31, 2004.  These agreements contain provisions requiringthe Company to maintain certain financial ratios and restricting the Company’sability to pay dividends, incur indebtedness, create liens, and take certainother actions.   As a result of theCompany’s reduced earnings over recent quarters, the Company’s net worthdropped below the minimum level required in its underwriting and indemnityagreement with its surety company.  TheCompany has obtained a waiver of this requirement for the quarter ended March 31,2005 from its surety company.  Therefore,the Company was in compliance with all required covenants at March 31,2005.

 

The performance and bid bonds issued under thebonding agreement are customarily required for dredging and marine constructionprojects, as well as some demolition projects. Bid bonds are generally obtained for a percentage of bid value andaggregate amounts outstanding typically range from $5 to $10 million.  Performance bonds typically cover 100% of thecontract value with no maximum bond amounts. At March 31, 2005, the Company had outstanding performance bondsvalued at approximately $426 million; however the revenue value remaining inbacklog related to these projects totaled approximately $183 million at March 31,2005.

 

Certain foreign projects performed by the Company havewarranty periods, typically spanning no more than three to five years beyondproject completion, whereby the Company retains responsibility to maintain theproject site to certain specifications during the warranty period.  Generally, any potential liability of theCompany is mitigated by insurance, shared responsibilities with consortiumpartners, and/or recourse to owner-provided specifications.

 

The Company considers it unlikely that it would haveto perform under any of these aforementioned contingent obligations andperformance has never been required in any of these circumstances in the past.

 

As is customary with negotiated contracts andmodifications or claims to competitively-bid contracts with the federalgovernment, the government has the right to audit the books and records of theCompany to ensure compliance with such contracts, modifications or claims andthe applicable federal laws.  Thegovernment has the ability to seek a price adjustment based on the results ofsuch audit.  Any such audits have not hadand are not expected to have a material impact on the financial position,operations or cash flows of the Company.

 

9

----

 

In the normal course of business, the Company is a defendant in variouslegal proceedings.  Except as describedbelow, the Company is not currently a party to any material legal proceedingsor environmental claims.

 

On February 10, 2004, the Company was served with a subpoena toproduce documents in connection with a federal grand jury convened in theUnited States District Court for the District of South Carolina.  The Company believes the grand jury has beenconvened to investigate the United States dredging industry in connection withwork performed for the U.S. Army Corp of Engineers. The Company continues tocomply with the Justice department’s requests and Company management believesthat it has provided substantially all of the documents that have beenrequested to this point.  In addition tothe documents requested, seven employees or former employees of the Companyhave now been interviewed or have testified before the grand jury.  In connection with the investigation, theCompany continues to incur legal expenses, which totaled $0.9 million for thethree months ended March 31, 2005.

 

In 1999, the Boston Housing Authority (“BHA”), for whom the Company’sdemolition business, NASDI, had worked, asserted that NASDI and itssubcontractors were responsible for improperly disposing of some contaminatedmaterials.  At the time the Companyacquired NASDI in 2001, it was believed that NASDI had sufficient recourse inthe matter and that any potential liability would be minimal.  However, since 2001, certain of the insurancecarriers that would be responsible for this matter have gone bankrupt.  Negotiations between the parties havecontinued to progress, and in the third quarter of 2004, the case went before ajudge in the Massachusetts court system, who advised NASDI and thesubcontractors to accept a settlement with the BHA.  While NASDI could continue to pursue thematter, it was determined that settlement may be more cost effective.  Therefore, in the third quarter of 2004, theCompany recorded a $1.3 million charge for NASDI’s share of this potentialsettlement liability.

 

On January 19, 2005, the Company, along with its joint-venturepartners on the Port of Los Angeles Deepening Project, received a request forinformation from the United States Environmental Protection Agency (“EPA”)pursuant to section 308(a) of the Clean Water Act.  The EPA is investigating alleged dredging ofunauthorized material and unauthorized discharge of that material at variouslocations in federally regulated waters of the U.S. relating to this project.   The Company intends to comply with therequest for information.  The Company wasperforming this project under a contract with the Los Angeles district of theCorps and believes it was in compliance with the contract specifications. Nofines have been assessed to date, and the Corps is currently addressing thismatter with the EPA.

 

**10.   Supplemental condensed consolidating financial information**

 

Included in the Company’slong-term debt is $175,000 of 73⁄4% senior subordinated notes which will matureon December 15, 2013.  The paymentobligations of the Company under the senior subordinated notes are guaranteedby the Company’s domestic subsidiaries (the “Subsidiary Guarantors”).  Such guarantees are full, unconditional andjoint and several.  Separate financialstatements of the Subsidiary Guarantors are not presented because the Company’smanagement has determined that they would not be material to investors.  The following supplemental financialinformation sets forth, on a combined basis, the balance sheets, statements ofoperations and statements of cash flows for the Subsidiary Guarantors, theCompany’s non-guarantor subsidiary and for the Company (“GLD Corporation”).

 

10

----

 

**Condensed Consolidating Balance Sheet at March 31, 2005**

 
| ** **                                     | ** ** | **Guarantor**    | ** ** | **Other**        | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|------------------------------------------------|------------|------------------|------------|------------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                                     | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
| **ASSETS**                                     |       |             |       |             |       |            |       |             |       |             |       |
| Current  assets:                               |       |             |       |             |       |            |       |             |       |             |       |
| Cash and  equivalents                          |       | $                | 423        |             | $          | 5               |       | $                | —     |             | $          | — |   | $ | 428 |   |
| Accounts  receivable, net                      |       | 60,454           |       | —           |       | —          |       | —           |       | 60,454           |       |
| Receivables  from affiliates                   |       | 8,873            |       | 2,891            |       | 4,540           |       | (16,304          | )          | —           |       |
| Contract  revenues in excess of billings       |       | 21,515           |       | —           |       | —          |       | —           |       | 21,515           |       |
| Inventories                                    |       | 17,438           |       | —           |       | —          |       | —           |       | 17,438           |       |
| Prepaid  expenses and other current assets     |       | 15,793           |       | —           |       | 1,791           |       | —           |       | 17,584           |       |
| Total  current assets                          |       | 124,496          |       | 2,896            |       | 6,331           |       | (16,304          | )          | 117,419          |       |
| Property and  equipment, net                   |       | 240,173          |       | —           |       | 13,555          |       | —           |       | 253,728          |       |
| Goodwill                                       |       | 103,563          |       | —           |       | —          |       | —           |       | 103,563          |       |
| Other  intangible assets, net                  |       | 3,087            |       | —           |       | —          |       | —           |       | 3,087            |       |
| Investments  in subsidiaries                   |       | 2,914            |       | —           |       | 281,912         |       | (284,826         | )          | —           |       |
| Notes  receivable from affiliates              |       | —           |       | —           |       | 22,702          |       | (22,702          | )          | —           |       |
| Inventories                                    |       | 11,278           |       | —           |       | —          |       | —           |       | 11,278           |       |
| Investments  in joint ventures                 |       | 7,799            |       | —           |       | —          |       | —           |       | 7,799            |       |
| Other assets                                   |       | 2,058            |       | —           |       | 11,204          |       | —           |       | 13,262           |       |
|                                           |       | $                | 495,368    |             | $          | 2,896           |       | $                | 335,704    |             | $          | (323,832 | ) | $ | 510,136 |   |
|                                           |       |             |       |             |       |            |       |             |       |             |       |
| **LIABILITIES  AND STOCKHOLDER’S EQUITY** |       |             |       |             |       |            |       |             |       |             |       |
| Current  liabilities:                          |       |             |       |             |       |            |       |             |       |             |       |
| Accounts  payable                              |       | $                | 48,475     |             | $          | —          |       | $                | —     |             | $          | — |   | $ | 48,475 |   |
| Payables to  affiliates                        |       | 9,415            |       | —           |       | 2,349           |       | (11,764          | )          | —           |       |
| Accrued  expenses                              |       | 12,912           |       | —           |       | 9,598           |       | —           |       | 22,510           |       |
| Billings in  excess of contract revenues       |       | 4,640            |       | —           |       | —          |       | —           |       | 4,640            |       |
| Current  maturities of long-term debt          |       | 6,490            |       | —           |       | —          |       | (4,540           | )          | 1,950            |       |
| Total  current liabilities                     |       | 81,932           |       | —           |       | 11,947          |       | (16,304          | )          | 77,575           |       |
| Long-term  debt                                |       | 19,013           |       | —           |       | 236,800         |       | —           |       | 255,813          |       |
| Notes  payable to affiliates                   |       | 22,702           |       | —           |       | —          |       | (22,702          | )          | —           |       |
| Deferred  income taxes                         |       | 82,898           |       | (18              | )          | 5,032           |       | —           |       | 87,912           |       |
| Other                                          |       | 4,267            |       | —           |       | 684             |       | —           |       | 4,951            |       |
| Total  liabilities                             |       | 210,812          |       | (18              | )          | 254,463         |       | (39,006          | )          | 426,251          |       |
| Minority  interests                            |       | —           |       | —           |       | —          |       | 1,627            |       | 1,627            |       |
| Stockholder’s  equity                     |       | 284,556          |       | 2,914            |       | 81,241          |       | (286,453         | )          | 82,258           |       |
|                                           |       | $                | 495,368    |             | $          | 2,896           |       | $                | 335,704    |             | $          | (323,832 | ) | $ | 510,136 |   |
|                                                |            |                  |            |                  |            |                 |            |                  |            |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

11

----

 

**Condensed Consolidating Balance Sheet at December 31,2004**

 
| ** **                                     | ** ** | **Guarantor**    | ** ** | **Other**      | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|------------------------------------------------|------------|------------------|------------|----------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                                     | ** ** | **Subsidiaries** | ** ** | **Subsidiary** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
| **ASSETS**                                     |       |             |       |           |       |            |       |             |       |             |       |
| Current assets:                                |       |             |       |           |       |            |       |             |       |             |       |
| Cash and  equivalents                          |       | $                | 1,957      |           | $          | 5               |       | $                | —     |             | $          | — |   | $ | 1,962 |   |
| Accounts  receivable, net                      |       | 65,762           |       | —         |       | —          |       | —           |       | 65,762           |       |
| Receivables  from affiliates                   |       | 8,422            |       | 2,906          |       | 4,540           |       | (15,868          | )          | —           |       |
| Contract  revenues in excess of billings       |       | 12,439           |       | —         |       | —          |       | —           |       | 12,439           |       |
| Inventories                                    |       | 16,497           |       | —         |       | —          |       | —           |       | 16,497           |       |
| Prepaid  expenses and other current assets     |       | 13,780           |       | —         |       | 1,874           |       | —           |       | 15,654           |       |
| Total  current assets                          |       | 118,857          |       | 2,911          |       | 6,414           |       | (15,868          | )          | 112,314          |       |
| Property and  equipment, net                   |       | 242,672          |       | —         |       | 13,922          |       | —           |       | 256,594          |       |
| Goodwill                                       |       | 103,563          |       | —         |       | —          |       | —           |       | 103,563          |       |
| Other  intangible assets, net                  |       | 3,267            |       | —         |       | —          |       | —           |       | 3,267            |       |
| Investments  in subsidiaries                   |       | 2,924            |       | —         |       | 281,813         |       | (284,737         | )          | —           |       |
| Notes  receivable from affiliates              |       | —           |       | —         |       | 22,702          |       | (22,702          | )          | —           |       |
| Inventories                                    |       | 11,278           |       | —         |       | —          |       | —           |       | 11,278           |       |
| Investments  in joint ventures                 |       | 7,965            |       | —         |       | —          |       | —           |       | 7,965            |       |
| Other assets                                   |       | 2,073            |       | —         |       | 11,581          |       | —           |       | 13,654           |       |
|                                           |       | $                | 492,599    |           | $          | 2,911           |       | $                | 336,432    |             | $          | (323,307 | ) | $ | 508,635 |   |
|                                           |       |             |       |           |       |            |       |             |       |             |       |
| **LIABILITIES  AND STOCKHOLDER’S EQUITY** |       |             |       |           |       |            |       |             |       |             |       |
| Current  liabilities:                          |       |             |       |           |       |            |       |             |       |             |       |
| Accounts  payable                              |       | $                | 46,770     |           | $          | —          |       | $                | —     |             | $          | — |   | $ | 46,770 |   |
| Payables to  affiliates                        |       | 4,143            |       | —         |       | 7,185           |       | (11,328          | )          | —           |       |
| Accrued  expenses                              |       | 13,238           |       | —         |       | 4,438           |       | —           |       | 17,676           |       |
| Billings in  excess of contract revenues       |       | 6,706            |       | —         |       | —          |       | —           |       | 6,706            |       |
| Current  maturities of long-term debt          |       | 6,490            |       | —         |       | —          |       | (4,540           | )          | 1,950            |       |
| Total  current liabilities                     |       | 77,347           |       | —         |       | 11,623          |       | (15,868          | )          | 73,102           |       |
| Long-term  debt                                |       | 19,500           |       | —         |       | 232,800         |       | —           |       | 252,300          |       |
| Notes  payable to affiliates                   |       | 22,702           |       | —         |       | —          |       | (22,702          | )          | —           |       |
| Deferred  income taxes                         |       | 85,311           |       | (13            | )          | 5,131           |       | —           |       | 90,429           |       |
| Other                                          |       | 4,630            |       | —         |       | 684             |       | —           |       | 5,314            |       |
| Total  liabilities                             |       | 209,490          |       | (13            | )          | 250,238         |       | (38,570          | )          | 421,145          |       |
| Minority  interests                            |       | —           |       | —         |       | —          |       | 1,599            |       | 1,599            |       |
| Stockholder’s  equity                     |       | 283,109          |       | 2,924          |       | 86,194          |       | (286,336         | )          | 85,891           |       |
|                                           |       | $                | 492,599    |           | $          | 2,911           |       | $                | 336,432    |             | $          | (323,307 | ) | $ | 508,635 |   |
|                                                |            |                  |            |                |            |                 |            |                  |            |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

12

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**CondensedConsolidating Statement of Income for the three months ended March 31,2005**

 
| ** **                           | ** ** | **Guarantor**    | ** ** | **Other**      | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|--------------------------------------|------------|------------------|------------|----------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                           | ** ** | **Subsidiaries** | ** ** | **Subsidiary** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
|                                 |       |             |       |           |       |            |       |             |       |             |       |
| Contract  revenues                   |       | $                | 99,903     |           | $          | —          |       | $                | —     |             | $          | — |   | $ | 99,903 |   |
| Costs of  contract revenues          |       | (93,013          | )          | —         |       | 150             |       | —           |       | (92,863          | )          |
| Gross profit  (loss)                 |       | 6,890            |       | —         |       | 150             |       | —           |       | 7,040            |       |
| General and  administrative expenses |       | (6,727           | )          | (15            | )          | (13             | )          | —           |       | (6,755           | )          |
| Subpoena-related  expenses           |       | (879             | )          | —         |       | —          |       | —           |       | (879             | )          |
| Amortization  of intangible assets   |       | (180             | )          | —         |       | —          |       | —           |       | (180             | )          |
| Operating  (loss) income             |       | (896             | )          | (15            | )          | 137             |       | —           |       | (774             | )          |
| Interest  expense, net               |       | (964             | )          | —         |       | (5,309          | )          | —           |       | (6,273           | )          |
| Equity in  loss of subsidiaries      |       | (10              | )          | —         |       | (1,304          | )          | 1,314            |       | —           |       |
| Equity in  loss of joint venture     |       | (166             | )          | —         |       | —          |       | —           |       | (166             | )          |
| Minority  interests                  |       | —           |       | —         |       | —          |       | (28              | )          | (28              | )          |
| (Loss)  income before income taxes   |       | (2,036           | )          | (15            | )          | (6,476          | )          | 1,286            |       | (7,241           | )          |
| Income tax  benefit                  |       | 798              |       | 5              |       | 2,306           |       | (540             | )          | 2,569            |       |
| Net loss                             |       | $                | (1,238     | )              | $          | (10             | )          | $                | (4,170     | )                | $          | 746 |   | $ | (4,672 | ) |

 

**CondensedConsolidating Statement of Income for the three months ended March 31,2004**

 
| ** **                           | ** ** | **Guarantor**    | ** ** | **Other**        | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|--------------------------------------|------------|------------------|------------|------------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                           | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
|                                 |       |             |       |             |       |            |       |             |       |             |       |
| Contract  revenues                   |       | $                | 103,947    |             | $          | —          |       | $                | —     |             | $          | — |   | $ | 103,947 |   |
| Costs of  contract revenues          |       | (87,733          | )          | (10              | )          | 195             |       | —           |       | (87,548          | )          |
| Gross profit  (loss)                 |       | 16,214           |       | (10              | )          | 195             |       | —           |       | 16,399           |       |
| General and  administrative expenses |       | (7,011           | )          | (15              | )          | (84             | )          | —           |       | (7,110           | )          |
| Subpoena-related  expenses           |       | (13              | )          | —           |       | —          |       | —           |       | (13              | )          |
| Amortization  of intangible assets   |       | (1,792           | )          | —           |       | —          |       | —           |       | (1,792           | )          |
| Operating  income (loss)             |       | 7,398            |       | (25              | )          | 111             |       | —           |       | 7,484            |       |
| Interest  expense, net               |       | (1,124           | )          | —           |       | (3,486          | )          | —           |       | (4,610           | )          |
| Equity in  loss of subsidiaries      |       | (16              | )          | —           |       | 6,057           |       | (6,041           | )          | —           |       |
| Equity in  earnings of joint venture |       | 149              |       | —           |       | —          |       | —           |       | 149              |       |
| Minority  interests                  |       | —           |       | —           |       | —          |       | 6                |       | 6                |       |
| Income  (loss) before income taxes   |       | 6,407            |       | (25              | )          | 2,682           |       | (6,035           | )          | 3,029            |       |
| Income tax  (expense) benefit        |       | (2,538           | )          | 9                |       | (1,126          | )          | 2,384            |       | (1,271           | )          |
| Net income  (loss)                   |       | $                | 3,869      |             | $          | (16             | )          | $                | 1,556      |             | $          | (3,651 | ) | $ | 1,758 |   |

 

13

----

 

**CondensedConsolidating Cash Flows for the three months ended March 31, 2005**

 
| ** **                                           | ** ** | **Guarantor**    | ** ** | **Other**      | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------|------------|------------------|------------|----------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                                           | ** ** | **Subsidiaries** | ** ** | **Subsidiary** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
|                                                 |       |             |       |           |       |            |       |             |       |             |       |
| **Operating  Activities**                            |       |             |       |           |       |            |       |             |       |             |       |
| Net cash  flows from operating activities            |       | $                | (4,652     | )              | $          | (15             | )          | $                | 3,021      |             | $          | — |   | $ | (1,646 | ) |
|                                                 |       |             |       |           |       |            |       |             |       |             |       |
| **Investing  Activities**                            |       |             |       |           |       |            |       |             |       |             |       |
| Purchases of  property and equipment                 |       | (3,264           | )          | —         |       | —          |       | —           |       | (3,264           | )          |
| Dispositions  of property and equipment              |       | 94               |       | —         |       | —          |       | —           |       | 94               |       |
| Net cash  flows from investing activities            |       | (3,170           | )          | —         |       | —          |       | —           |       | (3,170           | )          |
|                                                 |       |             |       |           |       |            |       |             |       |             |       |
| **Financing  Activities**                            |       |             |       |           |       |            |       |             |       |             |       |
| Repayments  of long-term debt                        |       | (487             | )          | —         |       | —          |       | —           |       | (487             | )          |
| Borrowings  under revolving loans, net of repayments |       | —           |       | —         |       | 4,000           |       | —           |       | 4,000            |       |
| Net change  in accounts with affiliates              |       | 7,006            |       | 15             |       | (7,021          | )          | —           |       | —           |       |
| Repayment of  capital lease debt                     |       | (231             | )          | —         |       | —          |       | —           |       | (231             | )          |
| Net cash  flows from financing activities            |       | 6,288            |       | 15             |       | (3,021          | )          | —           |       | 3,282            |       |
|                                                 |       |             |       |           |       |            |       |             |       |             |       |
| Net change  in cash and equivalents                  |       | (1,534           | )          | —         |       | —          |       | —           |       | (1,534           | )          |
| Cash and  equivalents at beginning of period         |       | 1,957            |       | 5              |       | —          |       | —           |       | 1,962            |       |
| Cash and  equivalents at end of period               |       | $                | 423        |           | $          | 5               |       | $                | —     |             | $          | — |   | $ | 428 |   |

 

**CondensedConsolidating Statement of Cash Flows for the three months ended March 31,2004**

 
| ** **                                   | ** ** | **Guarantor**    | ** ** | **Other**        | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|----------------------------------------------|------------|------------------|------------|------------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                                   | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
|                                         |       |             |       |             |       |            |       |             |       |             |       |
| **Operating  Activities**                    |       |             |       |             |       |            |       |             |       |             |       |
| Net cash  flows from operating activities    |       | $                | 3,442      |             | $          | (11             | )          | $                | 3,429      |             | $          | — |   | $ | 6,860 |   |
|                                         |       |             |       |             |       |            |       |             |       |             |       |
| **Investing  Activities**                    |       |             |       |             |       |            |       |             |       |             |       |
| Purchases of  property and equipment         |       | (5,361           | )          | —           |       | —          |       | —           |       | (5,361           | )          |
| Cash  released from equipment escrow         |       | 2,451            |       | —           |       | —          |       | —           |       | 2,451            |       |
| Net cash  flows from investing activities    |       | (2,910           | )          | —           |       | —          |       | —           |       | (2,910           | )          |
|                                         |       |             |       |             |       |            |       |             |       |             |       |
| **Financing  Activities**                    |       |             |       |             |       |            |       |             |       |             |       |
| Repayments  of long-term debt                |       | (487             | )          | —           |       | (2,500          | )          | —           |       | (2,987           | )          |
| Net change  in accounts with affiliates      |       | 845              |       | 10               |       | (855            | )          | —           |       | —           |       |
| Financing  fees                              |       | —           |       | —           |       | (74             | )          | —           |       | (74              | )          |
| Net cash  flows from financing activities    |       | 358              |       | 10               |       | (3,429          | )          | —           |       | (3,061           | )          |
|                                         |       |             |       |             |       |            |       |             |       |             |       |
| Net change  in cash and equivalents          |       | 890              |       | (1               | )          | —          |       | —           |       | 889              |       |
| Cash and  equivalents at beginning of period |       | 2,766            |       | 9                |       | —          |       | —           |       | 2,775            |       |
| Cash and  equivalents at end of period       |       | $                | 3,656      |             | $          | 8               |       | $                | —     |             | $          | — |   | $ | 3,664 |   |

 

14

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**Item 2.  Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

###### **Statement Under the PrivateSecurities Litigation Reform Act**

###### ** **

Certaininformation in this Quarterly Report on Form 10-Q, including but notlimited to the Management’s Discussion and Analysis of Financial Condition andResults of Operations, may constitute forward-looking statements as such termis defined in Section 27A of the Securities Exchange Act of 1933 (the “SecuritiesAct”) and Section 21E of the Securities Exchange Act of 1934.  Certain forward-looking statements can beidentified by the use of forward-looking terminology such as, “believes,” “expects,”“may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,”“anticipates,” or “hopeful,” or the negative thereof or other comparableterminology, or by discussions of strategy, plans or intentions.  Forward-looking statements involve risks anduncertainties, including those described in the Risk Factors section ofthe Company’s Form S-4 Registration Statement (Registration No. 333-114059),which could cause actual results to be materially different than those in theforward-looking statements, which speak only as of the date hereof.  The Company assumes no obligation to updatesuch information.

 

###### **General**

###### ** **

TheCompany is the largest provider of dredging services in the United States.  Dredging generally involves the enhancementor preservation of the navigability of waterways or the protection ofshorelines through the removal or replenishment of soil, sand or rock.  The U.S. dredging market consists of threeprimary types of work:  Capital,Maintenance and Beach Nourishment, in which the Company experienced an averagecombined U.S. bid market share of 43% over the last three fiscal years (2002 to2004).  The Company’s bid market isdefined as the population of projects on which it bid or could have bid if notfor capacity constraints (“bid market”). In addition, the Company has continued its role as the only U.S.dredging contractor with significant international operations, which averaged16% of its contract revenues over the last three fiscal years.

 

TheCompany also owns 85% of the capital stock of North American Site Developers, Inc.(“NASDI”), a demolition service provider located in the Boston, Massachusettsarea.  NASDI’s principal services consistof interior and exterior demolition of commercial and industrial buildings,salvage and recycling of related materials, and removal of hazardous substancesand materials.  One NASDI managementstockholder retains a 15% non-voting interest in NASDI, which is reflected as aminority interest within the financial statements.

 

TheCompany’s equity in earnings of joint ventures relates to the Company’s 50%ownership interest in Amboy Aggregates (“Amboy”), which is accounted for usingthe equity method.

 

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###### **Results of Operations**

 

Thefollowing table sets forth the components of net (loss) income and EBITDA as apercentage of contract revenues for the three months ended March 31, 2005and 2004:

 
| ** **                                  | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------|------------|------------------------|------------|
| ** **                                  | ** ** | **March 31,**     | ** ** |
| ** **                                  | ** ** | **2005**               | ** ** | **2004** | ** ** |
|                                        |       |                   |       |   |   |
| Contract  revenues                          |       | 100.0                  | %          | 100.0 | % |
| Costs of  contract revenues                 |       | (93.0                  | )          | (84.2 | ) |
| Gross profit                                |       | 7.0                    |       | 15.8 |   |
| General and  administrative expenses        |       | (6.7                   | )          | (6.9 | ) |
| Subpoena-related  expenses                  |       | (0.9                   | )          | — |   |
| Amortization  of intangible assets          |       | (0.2                   | )          | (1.7 | ) |
| Operating  (loss) income                    |       | (0.8                   | )          | 7.2 |   |
| Interest  expense, net                      |       | (6.2                   | )          | (4.4 | ) |
| Equity in  (loss) earnings of joint venture |       | (0.2                   | )          | 0.1 |   |
| Minority  interests                         |       | —                 |       | — |   |
| (Loss)  income before income taxes          |       | (7.2                   | )          | 2.9 |   |
| Income tax  benefit (expense)               |       | 2.6                    |       | (1.2 | ) |
| Net (loss)  income                          |       | (4.6                   | )%         | 1.7 | % |
|                                        |       |                   |       |   |   |
| EBITDA                                      |       | 5.2                    | %          | 14.2 | % |

 

“EBITDA,” as providedherein, represents net (loss) income adjusted for net interest expense, incometaxes, depreciation and amortization expense. EBITDA should not be considered an alternative to, or more meaningfulthan, amounts determined in accordance with GAAP including: (a) operatingincome as an indicator of operating performance; or (b) cash flows fromoperations as a measure of liquidity.  The Company presents EBITDA as additional information because it isamong the bases upon which the Company assesses its financial performance, andcertain covenants in its borrowing arrangements are tied to similar measures.The Company believes EBITDA is a useful measure for the users of its financialstatements because it provides information that can be used to evaluate theeffectiveness of the Company’s business from an operational perspective,exclusive of costs to finance its activities, income taxes, depreciation ofoperating assets and amortization of intangible assets, none of which isdirectly relevant to the efficiency of its operations.  EBITDA is not calculated identically by allcompanies; therefore, the Company’s presentation of EBITDA may not becomparable to similarly titled measures of other companies.  The following table reconciles net (loss)income to EBITDA for the periods indicated:

 

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| ** **                     | ** ** | **Three Months Ended** | ** ** |
|--------------------------------|------------|------------------------|------------|
| ** **                     | ** ** | **March 31,**     | ** ** |
| ** **                     | ** ** | **2005**               | ** ** | **2004** | ** ** |
|                           |       |                   |       |   |   |
| Net (loss)  income             |       | $                      | (4,672     | ) | $ | 1,758 |   |
| Adjusted  for:                 |       |                   |       |   |   |
| Interest  expense, net         |       | 6,273                  |       | 4,610 |   |
| Income tax  (benefit) expense  |       | (2,569                 | )          | 1,271 |   |
| Depreciation  and amortization |       | 6,145                  |       | 7,125 |   |
| EBITDA                         |       | $                      | 5,177      |   | $ | 14,764 |   |

 

Thefollowing table sets forth, by segment and dredging type of work, the Company’scontract revenues for the three months ended and backlog as of the periodsindicated:

 
| ** **                  | ** ** | **Three Months Ended** | ** ** |
|-----------------------------|------------|------------------------|------------|
| ** **                  | ** ** | **March 31,**     | ** ** |
| **Revenues (in thousands)** | ** ** | **2005**               | ** ** | **2004** | ** ** |
| Dredging:                   |       |                   |       |   |   |
| Capital -  U.S.             |       | $                      | 29,657     |   | $ | 25,919 |   |
| Capital -  foreign          |       | 5,903                  |       | 27,766 |   |
| Beach                       |       | 22,411                 |       | 30,358 |   |
| Maintenance                 |       | 30,293                 |       | 12,757 |   |
| Demolition                  |       | 11,639                 |       | 7,147 |   |
|                        |       | $                      | 99,903     |   | $ | 103,947 |   |

 
| ** **                 | ** ** | **March 31,** | ** ** |
|----------------------------|------------|--------------------|------------|
| **Backlog (in thousands)** | ** ** | **2005**           | ** ** | **2004** | ** ** |
| Dredging:                  |       |               |       |   |   |
| Capital -  U.S.            |       | $                  | 154,225    |   | $ | 112,544 |   |
| Capital -  foreign         |       | 38,091             |       | 31,145 |   |
| Beach                      |       | 37,120             |       | 12,914 |   |
| Maintenance                |       | 12,274             |       | 32,607 |   |
| Demolition                 |       | 15,504             |       | 14,696 |   |
|                       |       | $                  | 257,214    |   | $ | 203,906 |   |

 

Consolidatedrevenues for the first quarter of 2005 were $99.9 million, compared to $103.9million for the same period in 2004.  TheCompany experienced good utilization of its dredging fleet in the first quarterof 2005; however, dredging revenue decreased approximately $8.5 million, or8.8%, relative to the first quarter of 2004, primarily as a result of the mixof equipment working on the projects performed in the 2005 period, as well asthe impact of competitive pricing at the time some of these projects were bid.  This decrease in dredging revenue waspartially offset by a $4.5 million, or 62.8%, increase in demolition revenuesin the 2005 quarter compared to the same period of 2004, reflecting an increasein activity in this segment.   Grossprofit margin declined to 7.0% for the quarter ended March 31, 2005compared to 15.8% for the same quarter of 2004. A decline was anticipated, given the lower contract margins inherent incertain of the dredging projects performed in the 2005 period, which were bidin a very competitive bidding market in 2004.

 

Capitalprojects include large port deepenings and other infrastructure projects.  Domestic capital dredging revenue in thefirst quarter of 2005 totaled $29.7 million, which compares to the 2004

 

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firstquarter amount of $25.9 million.  TheCompany’s domestic capital revenues in the first quarter of 2005 weresubstantially generated by continuing work on Deep Port projects in Houston,Texas; Manatee Harbor, Florida; and Oakland, California. During the quarter,the Company also completed the first phase of the Brunswick, Georgia deepeningproject and concluded the Los Angeles, California deepening project.  The Company also commenced its subcontractwork on the Arthur Kill, New York project in late March.  This was delayed from the planned start-up inmid-February, due to a lawsuit that was brought against the Army Corps ofEngineers by the Natural Resource Defense Council regarding dredging in the NewYork Harbor.  As a result, the Army Corpsdelayed all dredging in the area until a hearing was held in mid–March.  At that time, the restraining order waslifted, and the Company was able to begin the work on the Arthur Killproject.  Although this impacted theCompany’s dredging revenues for the quarter, Company management does not expectthis suit to have any further impact on dredging in the New York area.   Foreign capital revenues in the firstquarter of 2005 totaled $5.9 million, compared to $27.8 million for the sameperiod of 2004. This decrease is a result of the mix of foreign projectsunderway in the corresponding periods. In the 2005 first quarter, the Companyconcluded the long-term Hidd terminal project in Bahrain, and continued workingon the Durrat land development project, also in Bahrain, which began in thefourth quarter of 2004 and will continue through 2006. The 2004 quarterincluded work on the Hidd terminal project, along with additional revenuerelated to a joint-venture project in India, which concluded in 2004.

 

Beachnourishment projects include rebuilding of shoreline areas that have beendamaged by storm activity or ongoing erosion. First quarter 2005 revenues from beach nourishment projects totaled$22.4 million, relating primarily to work on a number of beach projects in theCompany’s backlog at December 31, 2004, including the West Hampton andShinnecock beaches in New York, the Buckroe and Ocean View beaches in Virginia,and the Rehobeth and Dewey beaches in Delaware.   Additionally, during the first quarter of2005, the Company began two new Florida beach projects in Broward and MartinCounties, both of which were added to backlog during the quarter.

 

Maintenanceprojects include routine dredging of ports, rivers and channels to remove theregular build up of sediment. Maintenance revenues totaled $30.3 million in the first quarter of 2005,which is slightly higher than in typical quarters, primarily due to work on afew large maintenance projects that spanned the entire quarter.  These included harbor maintenance projects inBaltimore, Maryland; Tampa, Florida; and Wilmington, North Carolina, which haveall now been completed, and a project in the Mississippi river Gulf Outlet,which will conclude in the second quarter.

 

TheCompany’s general and administrative expenses totaled $6.8 million for thefirst quarter of 2005, which compares to $7.1 million for same period of2004.  Additionally, in the first quarterof 2005, the Company incurred $0.9 million of legal expenses related to counselfor certain employees that have been interviewed by attorneys from theDepartment of Justice and subpoenaed to testify before the grand jury, inconnection with the grand jury investigation of the U.S. dredging industry thatconvened in February of 2004, as discussed further in the Company’s 2004 AnnualReport filed on Form 10-K.

 

TheCompany’s amortization expense declined to $0.2 million for the first quarterof 2005, from $1.8 million for the same quarter of 2004, since the mostsignificant of the Company’s intangible assets related to contract backlogacquired at the time of the Company’s sale in December 2003, which wasprimarily amortized in 2004.

 

Netinterest expense for the first quarter of 2005 was $6.3 million, compared to$4.6 million for the same period of 2004. This increase is attributable to a non-cash loss of $1.0 million on theCompany’s interest rate swap arrangement (as described in Note 3) in the 2005first quarter, compared with a non-cash gain of $0.7 million for the 2004 firstquarter.  The Company’s cash interest expense for the first quarter of2005 totaled $4.9 million, which is comparable to the amount incurred in thefirst quarter of 2004.  However, therates currently paid on the Company’s variable interest-rate debt haveincreased in 2005, since the underlying market rates have

 

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increasedand the Company is now paying a higher spread due to the amendment of itscredit facility, effective September 30, 2004.

 

TheCompany generated a net loss of $4.6 million for the quarter ended March 31,2005, as a result of the decreased contract margins and increased legalexpenses, as discussed previously.  Thiscompares to net income of $1.8 million for the quarter ended March 31,2004.

 

EBITDA(as defined on page 16) was $5.2 million for the quarter ended March 31,2005, compared to $14.8 million for the same period of 2004, with the declinealso being attributable to the reduction in earnings as discussed previously.

 

**Bidding Activity and Backlog**

 

TheCompany’s contract backlog represents management’s current estimate of therevenues that will be realized under the portion of the contracts remaining tobe performed.  Such estimates are subjectto fluctuations based upon the amount of material actually dredged, as well asfactors affecting the time required to complete the job. In addition, because asubstantial 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 theactual committed costs and profit on work performed up to the date ofcancellation.  Consequently, backlog isnot necessarily indicative of future revenues. The Company’s backlog includesonly those projects for which the Company has obtained a signed contract withthe customer.

 

Thefirst quarter 2005 domestic dredging bid market, representing work awardedduring the period, totaled $215 million, which represents a solid quarterrelative to the average annual bid market over the last three years (2002 to2004) of approximately $690 million. Approximately half of this work related to eight beach nourishmentprojects, as was expected given the severe hurricane season experienced in 2004and the need to replenish numerous beaches along the Florida coastline inadvance of the 2005 hurricane season. The quarter’s activity also included the first phase of the 50 foot KillVan Kull, New York deepening project, which was won by a competitor whose bidwas well below the Army Corps of Engineers’ (“Corps”) allowable estimate, aswell as the bids submitted by the Company and two other competitors.  Although the bidding activity has acceleratedfrom the slowdown experienced a year ago, on this bid, as well as others thisquarter, certain competitors have continued to bid at very low prices, oftenwell below the Company’s bids and the Corp’s allowable estimates.  As a result, the Company won only 18.5% ofthe 2005 first quarter’s awards, as the Company continued to bid theseopportunities with more reasonable margins. Given the additional volume of worktaken on by certain competitors over the most recent quarters, managementbelieves that the Company should now be well-positioned to win a greaterproportion of the upcoming bids, since much of the competitors’ key dredgingassets should be occupied.

 

TheCompany’s dredging backlog at March 31, 2005 totaled $241.7 million, whichdeclined from $280.0 million at December 31, 2004, but is significantlyhigher than the March 31, 2004 level of $189.2 million.  The Company’s March 31, 2005 recordedbacklog does not reflect approximately $110 million of low bids pending awardand other options pending on projects currently in backlog, including $80million for the remaining work on the Durrat, Bahrain project which wasformally awarded to the Company in April.

 

Overhalf of the Company’s March 31, 2005 dredging backlog is represented bydomestic capital dredging work, including Deep Port projects in the Arthur KillChannel, New York; Wilmington, North Carolina; and Miami, Florida, which willbe performed over the remainder of 2005 and should generate better contractmargins than certain capital projects performed in recent quarters.

 

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Withrespect to the Water Resources Development Act (“WRDA”), which forms the basisfor authorizing the Corps’ civil works projects, including the Deep Portprojects, no act was passed in 2004, but a 2005 version of the WRDA has alreadybeen introduced.  This version includesauthorization of additional federal cost sharing to 53 feet for port deepeningprojects, which could encourage some ports to pursue additional deepeningprojects as they would get more federal funding.  Additionally, the 2005 WRDA as currentlydrafted authorizes the decommissioning of the Corps-operated hopper dredgeMcFarland that works in the Delaware area, which is positive as this would makeadditional maintenance work available for performance by private industry.   The draft Act also authorizes the Corps tolift restrictions on the use of its two West Coast-based hopper dredges;however this would only add a small amount of additional work for thesedredges, so management believes this should not have much impact to privateindustry.  The WRDA legislation continuesto face environmental opposition, so it is unclear as to when the next act willpass.  However, passage of a new WRDA isnot critical at this point with respect to project authorizations.

 

Beachbacklog at March 31, 2005 totaled $37.1 million, the majority relating tothe $24 million Broward County, Florida beach project, which was bid in December of2004, but not awarded to Great Lakes and added to backlog until the firstquarter of 2005.  As mentionedpreviously, approximately half of the first quarter’s bid activity related tobeach work, much of which is being funded by the federal emergency supplementalbill passed towards the end of 2004 to pay for damage from the 2004hurricanes.  Bidding schedules indicatean additional $100 million of beach work to be bid through the remainder of2005, some of which will receive federal funding from the federal emergencysupplemental bill, and others which are expected to be funded by the countiesand localities.  The Corps fiscal year 2005budget did not appropriate funds for beach renourishment, but it appears thatthe current draft of the Corps’ fiscal year 2006 budget does reflect somefederal funding for certain beach projects.

 

Maintenancebacklog at March 31, 2005 was $12.3 million, relating primarily to a largeproject in the Mississippi river Gulf Outlet, which the Company will finish inthe second quarter of 2005.  Only $33million of maintenance work was bid in the first quarter of 2005; however, theCorps’ fiscal year 2005 budget contemplates a 2005 maintenance marketconsistent with historical averages of approximately $200 million.

 

Despitethe appropriations outlined in the Corps’ annual budget, the beach dredgingmarket and certain maintenance projects have continued to be the target ofpotential federal funding cutbacks over recent quarters.  However, the Senate recently passed anemergency supplemental bill for the Iraq reconstruction that included a $200million appropriation for the Corps’ domestic dredging operations andmaintenance budget, which funds the beach and maintenance projects.  This may help to alleviate some of thefunding pressures for certain of these projects.

 

Foreigncapital project backlog at March 31, 2005 totaled $38.1 million andrelated primarily to the $30 million LNG terminal project in Ocean Cay,Bahamas.  The Company expects to beginthis project in the third quarter of 2005, and the work will continue throughthe middle of 2006.  As mentionedpreviously, in April the Company was awarded the full scope of the landdevelopment project in Durrat, Bahrain, which will add approximately $80million to backlog in the second quarter of 2005.  This project will employ two large hydraulicdredges and one small hydraulic dredge for two years.

 

Thedemolition services backlog at March 31, 2005 increased to $15.5 millionfrom $11.0 million at December 31, 2004. Bid activity in the demolition sector has increased, and NASDI addedfive new demolition projects, each valued in excess of $1.0 million, to backlogduring the first quarter, along with a number of additional small to mid-sizeprojects.

 

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###### **Market Outlook**

 

2004proved to be a challenging year as the Company dealt with the impact of variousfunding issues within the Army Corps of Engineers’ dredging program.   There still appears to be a lack of claritywith respect to the Corps’ available funds and when these funds are madeavailable to the various Corps districts. As evidence of this, the Company hasreceived additional communications from various Corps districts cautioning thatfunds may not be available to complete certain projects which have been awardedand scheduled.  However, the Company hasnot been asked to stop or postpone its work with respect to these projects, andit appears that despite these warnings, the funds are generally being madeavailable.  Positively, the biddingactivity has remained strong through the first quarter of 2005, albeit verycompetitive, and the Company continues to maintain a solid level of backlogwith contract margins improving from the low levels experienced in mid-2004when the domestic bid market experienced a marked decline.  The Company has worked off some of itslower-margin backlog over the last two quarters, and expects to perform on anumber of Deep Port, beach and foreign projects in its backlog that have thepotential to produce better margins and provide good equipmentutilization.  Furthermore, if the biddingactivity continues at a similar pace to the last two quarters, the Company iswell-positioned to take on new work at better margins, since some of itscompetitors have recently obtained significant occupancy for their equipment.

 

###### **Liquidity and CapitalResources**

 

TheCompany’s principal sources of liquidity are cash flow generated fromoperations and borrowings under its senior credit facility.  The Company’s principal uses of cash are tomeet debt service requirements, finance its capital expenditures, provideworking capital and meet other general corporate purposes.

 

TheCompany’s net cash flows used in operating activities for the three monthsended March 31, 2005 were $1.6 million, compared to a source of cash of$6.9 million for the three months ended March 31, 2004.  The fluctuation between periods results fromthe normal timing differences on the recognition and billing of revenuesrelative to the current level of activity. Additionally, in 2004, the Company’s cash flows benefited from thereceipt of income tax refunds in connection with the payment of expensesrelated to the sale of the Company in December of 2003.

 

TheCompany’s net cash flows used in investing activities for the three monthsended March 31, 2005 totaled $3.2 million, compared to $2.9 million forthe three months ended March 31, 2004. The use of cash relates primarily to equipment acquisitions and capitalimprovements to existing equipment.  TheCompany’s capital expenditures in the first quarter of 2004 included spendingof for construction of a barge, which was funded by $2.5 million of escrowproceeds remaining from a like-kind exchange transaction in connection with thesale of two tugboats in 2003.

 

TheCompany’s net cash flows generated by financing activities for three monthsended March 31, 2005 totaled $3.2 million, as a result of net borrowingsunder its revolver necessary to fund working capital needs during thequarter.  This compares to a use of cashof $3.0 million for the three months ended March 31, 2004, since theCompany generated sufficient cash during this period to make a $2.5 millionvoluntary repayment on its term bank loan.

 

TheCompany believes its anticipated cash flows from operations and availablecredit under its revolving credit facility will be sufficient to fund theCompany’s operations and its revised capital expenditures, and meet its currentdebt service requirements of approximately $20 million for the year.

 

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TheCompany’s Credit Agreement and Equipment Term Loan (collectively, “seniorcredit agreements”) and its Underwriting and Indemnity Agreement (“bondingagreement”) with its surety provider contain certain provisions that requirethe Company to maintain a minimum net worth and certain other financial ratios,limit payment of dividends and restrict certain other transactions.   As a result of the Company’s reducedearnings over recent quarters, coupled with the impact of the non-cash interestexpense, and additional non-cash depreciation and amortization expense relatingto the revaluation of Company’s assets in connection with the 2003 sale, theCompany’s net worth at March 31, 2005 dropped below the minimum levelrequired in its bonding agreement with its surety company.  Therefore, the Company obtained a waiver ofthis requirement from its surety company for the quarter ended March 31, 2005.  The Company was otherwise in compliance withall of the financial covenants under its senior credit agreements and bondingagreement at March 31, 2005. The required financial covenant levels underthe senior credit agreements and the bonding agreement are restrictive in lightof the Company’s current level of earnings, but Company management believesthey have positive relationships with the Company’s senior lenders and suretyprovider, should it be necessary to request an additional amendment or waiverto the financial covenants. However, if there is a future violation of any ofthe financial covenants and the Company is not successful in obtaining anadditional amendment or waiver, a default could occur under the Company’ssenior credit agreements or bonding agreement, which could result in a materialadverse impact on the Company’s financial condition.

 

TheCompany’s ability to fund its working capital needs, planned capitalexpenditures and scheduled debt payments, and to comply with all of the financialcovenants under its senior credit agreements and bonding agreement, depends onits future operating performance and cash flow, which in turn, are subject toprevailing economic conditions and to financial, business and other factors,some of which are beyond the Company’s control.

 

###### **Critical Accounting Policiesand Estimates**

 

Inpreparing its consolidated financial statements, the Company follows accountingprinciples generally accepted in the United States of America.  The application of these principles requiressignificant judgments or an estimation process that can affect the results ofoperations, financial position and cash flows of the Company, as well as therelated footnote disclosures.  TheCompany continually reviews its accounting policies and financial informationdisclosures.  There have been no materialchanges in policies or estimates since December 31, 2004.

 

###### **Item 3.  Quantitative andQualitative Disclosures About Market Risk**

 

Themarket risk of the Company’s financial instruments as of March 31, 2005has not significantly changed since December 31, 2004.  The market risk profile of the Company on December 31,2004 is disclosed in the Company’s 2004 Annual Report on Form 10-K.

 

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**Item 4. Controls and Procedures**

 

Pursuant to an internal investigation conducted in the first quarter of2005, Company management discovered that an employee, whose responsibilitieswere primarily related to contractual issues including subcontractors, agentsand claims on certain foreign projects, had embezzled approximately $1.1million from the Company over a period from 2001 to 2004. The employee, who wasnot an officer of the Company, was terminated on April 4, 2005.  Management believes that any loss resultingfrom the employee’s embezzlement is covered by insurance, subject to a $50,000deductible, and should not have a material adverse effect on the Company’sfinancial position or results of operations.

 

As required each quarter, the Company’s management, with theparticipation of its Chief Executive Officer and Chief Financial Officer,conducted an evaluation of the Company’s disclosure controls and procedures (assuch term is defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended) and concluded that the Company’sdisclosure controls and procedures were not effective as of March 31,2005, due to inconsistent application of certain internal control proceduresrelating to vendor payments and the expenditure review process, which enabledthe embezzlement discussed in the preceding paragraph to occur.

 

As of the date of this filing, in response to these controldeficiencies, the Company has revised certain of its internal controlprocedures relating to its vendor payments and expenditure review process andreissued certain existing procedures to reinforce their consistent application.

 

In connection with this Form 10-Q, the Company’s management,with the participation of its Chief Executive Officer and Chief FinancialOfficer, evaluated the Company’s disclosure controls and procedures ascurrently in effect, including the changes discussed above, and such officershave concluded that, as of this date, the Company’s disclosure controls andprocedures are effective.

 

There were no changes in the Company’s internal controls over financialreporting during the quarter ended March 31, 2005, that materiallyaffected, or are reasonably likely to materially affect, its internal controlsover financial reporting.  However,subsequent to March 31, 2005, the Company made changes to its internalcontrol procedures, as described above.

 

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###### **PART II – Other Information**

 

###### **Item 5(a).  Other Information**

 

2004 401(k) Profit Sharing Contribution 

 

Atits meeting held on March 3, 2005, the Company’s Board of Directors, uponrecommendation of its Compensation Committee, approved a profit sharingcontribution of 3.8% of salaries for employees of Great Lakes Dredge &Dock Company and 6.9% of salaries for employees of North American SiteDevelopers, Inc., both subsidiaries of the registrant, to be paid tosalaried employees in accordance with the profit sharing provision of theCompany’s 401(k) Savings Plan.  Theprofit sharing contributions were determined on the basis of the subsidiaries’financial results for the year ended December 31, 2004.

 

2005 Base Salaries for Named Executive Officers

 

Alsoat its meeting held on March 3, 2005, the Board, upon recommendation ofits Compensation Committee, approved the following 2005 annual base salariesfor the Company’s named executive officers:

 
| Douglas B.  Mackie (President and CEO):       |   | $       | 378,000 |   |
|-----------------------------------------------|--------|---------|---------|--------|
| Richard M.  Lowry (EVP and COO):              |   | 355,000 |    |
| Deborah A.  Wensel (SVP and CFO):             |   | 225,000 |    |
| William P.  Pagendarm (VP, Division Manager): |   | 173,000 |    |
| Bradley T.J.  Hansen (VP, Division Manager):  |   | 167,000 |    |

 

Theforegoing base salaries were effective as of January 1, 2005.

 

Annual Cash Bonus Plan – 2005 Performance Goals 

 

Alsoat is meeting held on March 3, 2005, the Board approved the Company’s 2005budgeted EBITDA, which serves as the basis for bonus calculations under theterms of the Company’s Annual Cash Bonus Plan.

 

###### **Item6.  Exhibits**

 
| 10.1 |   | Second Supplemental Indenture, dated as of July 12, 2004, by and  among Great Lakes Dredge & Dock Corporation, and BNY Midwest Trust  Company, as trustee.        |
|------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1 |   | Certification  Pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of  1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of  2002. |
| 31.2 |   | Certification Pursuant to Rules 13a-14 and 15d-14 under the  Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.  |
| 32.1 |   | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                              |
| 32.2 |   | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                              |

 

 

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##### **SIGNATURE**

##### ** **

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|   |              | Great Lakes Dredge & Dock Corporation  |
|--------|-------------------|-------------------------------------------------|
|   |              |                                            |
|   |              |                                            |
| Date:  | May 12, 2005 | By:                                             | /s/ | Deborah A. Wensel |   |
|   |              |                                            | Deborah A. Wensel |
|   |              |                                            | Senior Vice President |
|   |              |                                            | and Chief Financial Officer |
|   |              |                                            |   |
|   |              | (Principal Financial and Accounting Officer and |
|   |              | Duly Authorized Officer)                        |

 

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**EXHIBIT INDEX**

 
| **Number** | ** ** | **Document  Description**                                                                                                                                                      |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                           |
| 10.1       |       | Second Supplemental Indenture, dated as of July 12, 2004, by and  among Great Lakes Dredge & Dock Corporation, and BNY Midwest Trust  Company, as trustee.       |
| 31.1       |       | Certification Pursuant to Rules 13a-14 and 15d-14 under the  Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002. |
| 31.2       |       | Certification Pursuant to Rules 13a-14 and 15d-14 under the  Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002. |
| 32.1       |       | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                             |
| 32.2       |       | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                             |

 

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