**UNITED STATESSECURITIES AND EXCHANGE COMMISSION********Washington, D.C. 20549**

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**FORM 10-Q**
| ý | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|--------|----------------------------------------------------------------------------------------------|

**For the quarterly period ended September30, 2001**

**OR**
| o | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|---|-----------------------------------------------------------------------------------------------|

**For the transition period from________________**

**Commission File Number 333-64687**

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**GREAT LAKES DREDGE & DOCK CORPORATION******(Exactname of registrant as specified in its charter) 

 

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

 

Registrant's telephone number, including area code: **(630) 574-3000**

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                Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ý  No o

                As of November 9, 2001, therewere outstanding 1,556,982 shares of Class A Common Stock, 3,363,900 shares ofClass B Common Stock and 44,857 shares of Preferred Stock.

 

 

**Great Lakes Dredge &Dock Corporation and Subsidiaries**

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

### **Securities Exchange Act of 1934**

### **For the Quarterly Period ended September 30, 2001**

 

 

 
| **INDEX**         |
|-------------------|
|              |   |   |   |
| **Part I**        | **Financial Information** |   |
|              |   |   |   |
|              | Item 1 | Financial Statements  (Unaudited) |   |
|              |   |   |   |
|              |   | Condensed  Consolidated Balance Sheets at September 30, 2001 and December 31, 2000 |   |
|              |   |   |   |
|              |   | Condensed  Consolidated Statements of Income for the Three and Nine Months ended  September 30, 2001 and 2000 |   |
|              |   |   |   |
|              |   | Condensed  Consolidated Statements of Cash Flows for the Nine Months ended September 30,  2001 and 2000 |   |
|              |   |   |   |
|              |   | Notes  to Unaudited Condensed Consolidated Financial Statements |   |
|              |   |   |   |
|              | Item  2 | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|              |   |   |   |
|              | Item  3 | Quantitative  and Qualitative Disclosures About Market Risk |   |
|              |   |   |   |
| **Part II**       | **Other Information** |   |
|              |   |   |   |
|              | Item 6 | Exhibits and  Reports on Form 8-K |   |
|              |   |   |   |
| **Signature**     |   |   |   |
|              |   |   |   |
| **Exhibit Index** |   |   |   |
|                   |  |  |  |  |

 

**Part I - FinancialInformation**

** **

**Great Lakes Dredge & Dock Corporation andSubsidiaries**

**Condensed ConsolidatedBalance Sheets**

**(Unaudited)**

**(in thousands, except share and per shareamounts)**

** **

 
|                                                                                                  |   | **September 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------|--------|-------------------|------------|------------------|------------|
|                                                                                                  |   | **2001**          | ** ** | **2000**         | ** ** |
| **Assets**                                                                                            |   |              | ** ** |             | ** ** |
| Current assets:                                                                                       |   |              |       |             |       |
| Cash and  equivalents                                                                                 |   | $                 | 468        |             | $          | 1,137 |   |
| Accounts  receivable, net                                                                             |   | 48,676            |       | 40,578           |       |
| Contract  revenues in excess of billings                                                              |   | 16,448            |       | 18,542           |       |
| Inventories                                                                                           |   | 16,164            |       | 14,657           |       |
| Prepaid  expenses and other current assets                                                            |   | 18,448            |       | 17,243           |       |
| Total current  assets                                                                                 |   | 100,204           |       | 92,157           |       |
| Property and  equipment, net                                                                          |   | 138,635           |       | 137,662          |       |
| Goodwill, net  of amortization of $927                                                                |   | 29,361            |       | -                |       |
| Inventories                                                                                           |   | 7,478             |       | 6,773            |       |
| Investments  in joint ventures                                                                        |   | 6,993             |       | 6,394            |       |
| Other assets                                                                                          |   | 7,094             |       | 5,749            |       |
| Total assets                                                                                          |   | $                 | 289,765    |             | $          | 248,735 |   |
|                                                                                                  |   |              |       |             |       |
| **Liabilities  and Stockholders' Deficit**                                                            |   |              | ** ** |             | ** ** |
| Current  liabilities:                                                                                 |   |              |       |             |       |
| Accounts  payable                                                                                     |   | $                 | 34,333     |             | $          | 37,813 |   |
| Accrued  expenses                                                                                     |   | 20,908            |       | 25,636           |       |
| Billings in  excess of contract revenues                                                              |   | 7,817             |       | 7,863            |       |
| Current  maturities of long-term debt                                                                 |   | 10,664            |       | 9,000            |       |
| Total current  liabilities                                                                            |   | 73,722            |       | 80,312           |       |
| Long-term  debt                                                                                       |   | 186,335           |       | 146,000          |       |
| Deferred  income taxes                                                                                |   | 45,877            |       | 44,302           |       |
| Other                                                                                                 |   | 6,242             |       | 7,032            |       |
| Total  liabilities                                                                                    |   | 312,176           |       | 277,646          |       |
| Minority interests                                                                                    |   | 6,672             |       | 3,372            |       |
| Commitments  and contingencies (Note 11)                                                              |   | -                 |       | -                |       |
| Stockholders'  deficit:                                                                               |   |              |       |             |       |
| Preferred  stock, $.01 par value; 250,000 shares authorized: 45,000 issued; 44,675  outstanding       |   | 1                 |       | 1                |       |
| Common stock,  $.01 par value; 50,000,000 shares authorized: 5,000,000 issued; 4,902,700  outstanding |   | 50                |       | 50               |       |
| Additional  paid-in capital                                                                           |   | 50,457            |       | 50,457           |       |
| Accumulated  deficit                                                                                  |   | (78,651           | )          | (82,268          | )          |
| Accumulated  other comprehensive loss                                                                 |   | (432              | )          | -                |       |
| Treasury  stock, at cost (325 preferred shares, 97,300 common shares)                                 |   | (422              | )          | (422             | )          |
| Note  receivable from stockholder                                                                     |   | (86               | )          | (101             | )          |
| Total  stockholders' deficit                                                                          |   | (29,083           | )          | (32,283          | )          |
| Total  liabilities and stockholders' deficit                                                     |   | $                 | 289,765    |             | $          | 248,735 |   |

 

See notes to unaudited condensedconsolidated financial statements

 

**Great Lakes Dredge & Dock Corporation andSubsidiaries**

**Condensed ConsolidatedStatements of Income **

**(Unaudited)**

**(in thousands)**

 

 
|                                               |   | **Three Months Ended** |   | **Nine Months Ended** |   |
|----------------------------------------------------|--------|------------------------|--------|-----------------------|--------|
|                                               |   | **September 30,**      |   | **September 30,**     |   |
|                                               |   | **2001**               |   | **2000**              |   | **2001** |   | **2000** |   |
|                                               |   |                   |   |                  |   |   |   |   |   |   |   |   |   |
| Contract  revenues                                 |   | $                      | 82,680 |                  | $      | 81,130 |   | $ | 233,541 |   | $ | 255,500 |   |
| Costs of  contract revenues                        |   | 68,108                 |   | 70,097                |   | 190,516 |   | 216,367 |   |
| Gross profit                                       |   | 14,572                 |   | 11,033                |   | 43,025 |   | 39,133 |   |
| General and  administrative expenses               |   | 6,777                  |   | 5,191                 |   | 18,802 |   | 15,837 |   |
| Operating  income                                  |   | 7,795                  |   | 5,842                 |   | 24,223 |   | 23,296 |   |
| Interest  expense, net                             |   | (5,789                 | )      | (4,931                | )      | (15,504 | ) | (14,013 | ) |
| Equity in  earnings (loss) of joint ventures       |   | 482                    |   | 51                    |   | 599 |   | (82 | ) |
| Income before  income taxes and minority interests |   | 2,488                  |   | 962                   |   | 9,318 |   | 9,201 |   |
| Income tax  expense                                |   | (1,070                 | )      | (612                  | )      | (4,089 | ) | (4,324 | ) |
| Minority  interests                                |   | (494                   | )      | 549                   |   | (1,612 | ) | (183 | ) |
| Net income                                         |   | $                      | 924    |                  | $      | 899 |   | $ | 3,617 |   | $ | 4,694 |   |
| Other  comprehensive income, net of tax:           |   |                   |   |                  |   |   |   |   |   |
| Cumulative  effect of adopting SFAS 133            |   | -                      |   | -                     |   | (745 | ) | - |   |
| Reclassification  of derivative losses to earnings |   | 260                    |   | -                     |   | 662 |   | - |   |
| Net loss on  derivative instruments                |   | (234                   | )      | -                     |   | (349 | ) | - |   |
| Comprehensive  income                              |   | $                      | 950    |                  | $      | 899 |   | $ | 3,185 |   | $ | 4,694 |   |

 

See notes to unaudited condensed consolidated financialstatements.

 

** GreatLakes Dredge & Dock Corporation and Subsidiaries**

** Condensed Consolidated Statements of CashFlows**

**(Unaudited)**

**(in thousands)**

 

 
|                                                                              |   | **Nine Months Ended** |   |
|-----------------------------------------------------------------------------------|--------|-----------------------|--------|
|                                                                              |   | **September 30,**     |   |
|                                                                              |   | **2001**              |   | **2000** |   |
| **Operating Activities**                                                          |   |                  |   |   |   |
| Net income                                                                        |   | $                     | 3,617  |   | $ | 4,694 |   |
| Adjustments  to reconcile net income to net cash flows from operating activities: |   |                  |   |   |   |
| Depreciation  and amortization                                                    |   | 10,935                |   | 9,637 |   |
| (Income) loss  of joint ventures                                                  |   | (599                  | )      | 82 |   |
| Minority  interests                                                               |   | 1,612                 |   | 183 |   |
| Deferred  income taxes                                                            |   | 724                   |   | (476 | ) |
| (Gain) loss  on dispositions of property and equipment                            |   | (292                  | )      | 258 |   |
| Other, net                                                                        |   | 439                   |   | (943 | ) |
| Changes in  assets and liabilities:                                               |   |                  |   |   |   |
| Accounts  receivable, net                                                         |   | (591                  | )      | (11,993 | ) |
| Contract  revenues in excess of billings                                          |   | 4,056                 |   | 12,168 |   |
| Inventories                                                                       |   | (2,212                | )      | 757 |   |
| Prepaid  expenses and other current assets                                        |   | 492                   |   | (2,997 | ) |
| Accounts  payable and accrued expenses                                            |   | (16,856               | )      | (3,107 | ) |
| Billings in  excess of contract revenues                                          |   | (1,113                | )      | 744 |   |
| Net cash  flows from operating activities                                         |   | 212                   |   | 9,007 |   |
| **Investing Activities**                                                          |   |                  |   |   |   |
| Purchases of  property and equipment                                              |   | (6,140                | )      | (10,365 | ) |
| Dispositions  of property and equipment                                           |   | 606                   |   | 388 |   |
| Distributions  from and investments in joint ventures, net                        |   | -                     |   | (84 | ) |
| Purchase of  NASDI stock, net of cash acquired of $5,000                          |   | (30,800               | )      | - |   |
| Net cash  flows from investing activities                                         |   | (36,334               | )      | (10,061 | ) |
| **Financing Activities**                                                          |   |                  |   |   |   |
| Repayments of  long-term debt                                                     |   | (6,762                | )      | (4,500 | ) |
| Borrowings  (repayments) of revolving loans, net                                  |   | 5,000                 |   | 5,000 |   |
| Proceeds from  issuance of 11 1/4% subordinated notes                             |   | 39,700                |   | - |   |
| Financing  fees                                                                   |   | (2,500                | )      | - |   |
| Treasury  stock activity, net                                                     |   | -                     |   | (3 | ) |
| Repayment on  notes receivable from stockholders                                  |   | 15                    |   | 24 |   |
| Net cash  flows from financing activities                                         |   | 35,453                |   | 521 |   |
| Net change in  cash and equivalents                                               |   | (669                  | )      | (533 | ) |
| Cash and  equivalents at beginning of period                                      |   | 1,137                 |   | 1,533 |   |
| Cash and  equivalents at end of period                                            |   | $                     | 468    |   | $ | 1,000 |   |
| **Supplemental Cash Flow Information**                                            |   |                  |   |   |   |
| Cash paid for  interest                                                           |   | $                     | 17,639 |   | $ | 16,532 |   |
| Cash paid for  taxes                                                              |   | $                     | 4,603  |   | $ | 8,482 |   |
| **Supplemental Schedule of Noncash Investing and Financing Activities**           |   |                  |   |   |   |
| The Company  purchased 80% of the capital stock of NASDI for $38,800.             |   |                  |   |   |   |
| In  conjunction with the acquisition, liabilities were assumed, as follows:       |   |                  |   |   |   |
| Fair value of  assets acquired                                                    |   | $                     | 47,107 |   |   |   |
| Cash paid for  the capital stock                                                  |   | (35,800               | )      |   |   |
| Issuance of  NASDI stockholder notes                                              |   | (3,000                | )      |   |   |
| Liabilities  assumed                                                              |   | $                     | 8,307  |   |   |   |

 

See notes to unaudited condensed consolidated financialstatements.

 

GREAT LAKES DREDGE &DOCK CORPORATION AND SUBSIDIARIES

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

(Unaudited)

(dollars in thousands)

 

**1.             Basisof presentation**

 

The accompanyingunaudited condensed consolidated financial statements have been prepared inaccordance with generally accepted accounting principles 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 includeall adjustments (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 Report filedon Form 10-K for the year ended December 31, 2000.

 

The condensedconsolidated results of operations for the interim periods presented herein arenot necessarily indicative of the results to be expected for the full year.

 

**2.             Allocationof equipment cost**

 

The Company canhave significant fluctuations in dredging equipment utilization throughout theyear.  Accordingly, for interimreporting, the Company defers or accrues fixed equipment costs and amortizesthe expenses in proportion to revenues recognized over the year to better matchrevenues and expenses.

 

**3.             Financialinstruments and risk management**

 

Effective January 1, 2001, the Company adoptedFinancial Accounting Standards No. 133, “Accounting for Derivative Instrumentsand Hedging Activities” (SFAS 133), as amended, which requires that allderivative instruments be reported in the balance sheet at fair value andestablishes criteria for designation and effectiveness of hedgerelationships.  Changes in the fairvalue of derivative instruments designated as cash flow hedges are recognizedin other comprehensive income until the hedged item is recognized in earnings.Changes in the fair value of derivative instruments which do not qualify forhedge treatment or are designated as fair value hedges are recorded in earningsas the changes occur.   Any change infair value resulting from ineffectiveness, as defined by SFAS 133, is recognizedimmediately in earnings.

 

The Company uses derivative instruments to managecommodity price and foreign currency exchange risks.  Such instruments are not used for trading purposes.   As of September 30, 2001, the Company isparty to various swap arrangements to hedge the price of a portion of itsdiesel fuel purchase requirements for work in its backlog to be performedthrough January 2002.  As of September30, 2001, there were 7.3 million gallons remaining on these contracts.  Under these agreements, the Company will payfixed prices ranging from $0.71 to $0.84 per gallon.  At September 30, 2001 and December 31, 2000, the unrealized losson these contracts was estimated to be $721 and $1,200, respectively, based onquoted market prices.   The unrealizedloss at September 30, 2001 is recorded in accrued liabilities on the balancesheet.

Upon adoption of SFAS 133, the Company designatedthese fuel hedge arrangements as cash flow hedges, resulting in the followingactivity in accumulated other comprehensive loss (net of income taxes):

 
| Cumulative  effect of adopting SFAS 133 as of January 1, 2001                |   | $      | (745   | ) |
|------------------------------------------------------------------------------|--------|--------|--------|---|
| Losses  reclassified into earnings from accumulated other comprehensive loss |   | 662    |   |
| Change in fair  value of derivatives                                         |   | (349   | )      |
|                                                                         |   |   |   |
| Accumulated other  comprehensive loss as of September 30, 2001               |   | $      | (432   | ) |

 

                Ineffectivenessrelated to these fuel hedge arrangements was determined to be immaterial. Theremaining losses included in accumulated other comprehensive loss at September30, 2001 will be reclassified into earnings over the next fourteen months, theremaining term of the hedge arrangements.

 

                The carryingvalues of other financial instruments included in current assets and currentliabilities approximate 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.  At September 30, 2001 and December 31, 2000,the Company had long-term subordinated notes outstanding with a recorded bookvalue of $154,718 and $115,000, respectively. The fair value of these notes was$155,000 and $114,425 at September 30, 2001 and December 31, 2000,respectively, based on quoted market prices. The Company is contingently liable under letters of credit and otherfinancial guarantees.  It is notpracticable to estimate the fair value of these financial instruments; however,the Company does not expect any material losses to result from these financialinstruments since performance is not likely to be required.

 

**4.           Acquisitionof North American Site Developers, Inc.**

 

                In April 2001, theCompany purchased 80% of the capital stock of North American Site Developers,Inc. (“NASDI”), a demolition service provider located in the Boston,Massachusetts area.  The purchaseconsideration for the acquisition included (1) $35,000 in cash payable to thestockholders of NASDI, and (2) two junior subordinated promissory notestotaling $3,000 from NASDI payable to the NASDI management stockholders.The total purchase price including acquisitioncosts was $38,800.  The Company issued$40,000 of its 111⁄4% senior subordinated notes due 2008  to fund the cash portion of the acquisitionprice and pay related fees and expenses.

 

                The acquisitionwas accounted for by the purchase method of accounting and, accordingly, theresults of operations of NASDI are included in the Company’s consolidatedstatements of income from the date of the acquisition.  The purchase price has been allocated on apreliminary basis while the Company completes its final evaluation of the fairvalue of assets acquired and liabilities assumed.  Therefore, the allocation of purchase price is subject toadjustment; however, the Company does not expect that such adjustments willhave a material effect on its consolidated financial statements.    Preliminary goodwill in the amount of$30,288 has been recognized for the amount of the excess of the purchase pricepaid over the fair market value of the net assets acquired and is beingamortized on a straight-line basis over 15 years.

The following unaudited pro forma combined results ofoperations for the nine months ended September 30, 2001 and 2000 have beenprepared assuming the acquisition had occurred as of the beginning of each ofthe periods presented.  The pro formaamounts include adjustments to reflect amortization of goodwill, increasedinterest on debt incurred to finance the acquisition, and adjustment of certainbonus compensation paid to NASDI stockholders to reflect bonus amounts asallowed per the terms of the purchase agreement.  The unaudited pro forma operating results have been prepared forcomparative purposes only and are not necessarily indicative of the results ofoperations that may occur in the future or that would have occurred had thisacquisition been consummated at the beginning of the periods presented. 

 
|                                               |   | **Nine Months Ended** |       |
|----------------------------------------------------|--------|-----------------------|------------|
|                                               |   | **September 30,**     |       |
|                                               |   | **2001**              | ** ** | **2000** |   |
| Contract  revenues                                 |   | $                     | 244,675    |   | $ | 316,000 |   |
| Operating  income                                  |   | 26,531                |       | 40,354 |   |
| Income before  income taxes and minority interests |   | 10,006                |       | 22,840 |   |
| Net income                                         |   | 3,346                 |       | 10,749 |   |
|                                                    |        |                       |            |  |  |  |  |

 

**5.             Accounts receivable**

 

Accounts receivable at September 30, 2001 and December31, 2000 are as follows:

 
|                             |   | **September 30,** |   | **December 31,** |   |
|----------------------------------|--------|-------------------|--------|------------------|--------|
|                             |   | **2001**          |   | **2000**         |   |
| Completed  contracts             |   | $                 | 19,388 |             | $      | 8,935 |   |
| Contracts in  progress           |   | 26,023            |   | 29,102           |   |
| Retainage                        |   | 4,290             |   | 3,528            |   |
|                             |   | 49,701            |   | 41,565           |   |
| Allowance for  doubtful accounts |   | (1,025            | )      | (987             | )      |
|                             |   |              |   |             |   |
|                             |   | $                 | 48,676 |             | $      | 40,578 |   |

 

**6.             Contracts in progress**

 

The components ofcontracts in progress at September 30, 2001 and December 31, 2000 are asfollows:

 
|                                                                |   | **September 30,** |    | **December 31,** |   |
|---------------------------------------------------------------------|--------|-------------------|---------|------------------|--------|
|                                                                |   | **2001**          |    | **2000**         |   |
| Costs and  earnings in excess of billings:                          |   |              |    |             |   |
| Costs and  earnings for contracts in progress                       |   | $                 | 171,239 |             | $      | 265,765 |   |
| Prepaid  contract costs                                             |   | (4,107            | )       | (2,788           | )      |
| Amounts  billed                                                     |   | (152,063          | )       | (246,000         | )      |
| Costs and  earnings in excess of billings for contracts in progress |   | 15,069            |    | 16,977           |   |
| Costs and  earnings in excess of billings for completed contracts   |   | 1,379             |    | 1,565            |   |
|                                                                |   |              |    |             |   |
|                                                                |   | $                 | 16,448  |             | $      | 18,542 |   |
|                                                                |   |              |    |             |   |
| Billings in  excess of costs and earnings:                          |   |              |    |             |   |
| Amounts  billed                                                     |   | $                 | (77,261 | )                | $      | (77,837 | ) |
| Costs and  earnings for contracts in progress                       |   | 69,219            |    | 69,217           |   |
|                                                                |   |              |    |             |   |
|                                                                |   | $                 | (8,042  | )                | $      | (8,620 | ) |

The Company receivedadvanced payments related to a long-term foreign contract that are consideredbillings in excess of costs and earnings. The contract commenced in 1999 and is expected to be completed overapproximately four years.  These advancepayment amounts are being earned as the work is performed over the duration ofthe contract.  The amounts of $225 and$757 related to contract performance anticipated to be beyond one year areincluded in other long-term liabilities at September 30, 2001 and December 31,2000, respectively.

 

**7.             Investmentsin joint ventures**

 

                The Company has a20% ownership interest in Riovia S.A. (“Riovia”), a venture whose sole businessis the performance of a dredging contract in Argentina and Uruguay.   In the third quarter of 2001, the Companychanged its method of accounting for its investment in Riovia to the equitymethod from the cost method.    Theimpact of this change was insignificant to the Company’s financial position andresults of operations.   The Companycontinues to account for  its investmentin Amboy, its other joint venture investee, using the equity method.

 

**8.             Accrued expenses**

 

**               **Accruedexpenses at September 30, 2001 and December 31, 2000 are as follows:

 
|                           |   | **September 30,** |   | **December 31,** |   |
|--------------------------------|--------|-------------------|--------|------------------|--------|
|                           |   | **2001**          |   | **2000**         |   |
| Payroll and  employee benefits |   | $                 | 5,079  |             | $      | 5,787 |   |
| Foreign  income taxes          |   | 4,288             |   | 6,341            |   |
| Insurance                      |   | 3,885             |   | 4,341            |   |
| U.S. income  and other taxes   |   | 3,138             |   | 2,518            |   |
| Interest                       |   | 2,565             |   | 5,310            |   |
| Other                          |   | 1,953             |   | 1,339            |   |
|                           |   |              |   |             |   |
|                           |   | $                 | 20,908 |             | $      | 25,636 |   |

 

**9.           Long-termdebt**

 

                In April 2001, theCompany issued $40,000 of its 111⁄4% senior subordinated notes due 2008 tofinance the acquisition of NASDI.   Thenotes were issued at a discount of $300, which is being amortized to interestexpense over the remaining term of the notes. At the time of the acquisition, the Company amended its bank creditagreement to allow for the issuance of additional debt and revise certainfinancial covenants to be consistent with the increased debt levels andactivity resulting from the acquisition.

 

              Also in connection with the acquisition, the Companyissued two junior subordinated promissory notes totaling $3,000 from NASDIpayable to the NASDI management stockholders.    Interest on these notes is calculated at the rate of 6.0%,payable annually; the principal is payable in a single installment on March 31,2004, subject to the right to defer payment until

December 31, 2004 basedon the financial performance of NASDI.

 

**10.        Segmentinformation**

 

              Segment information is presented in accordance withSFAS 131, “Disclosures about Segments of an Enterprise and RelatedInformation.”  The Company and itssubsidiaries operate in two reportable segments: dredging and demolition.  The Company’s financial reporting systemspresent various data for management to run the business, including profit andloss statements prepared according to the segments presented.

** **
|                           |   | **Three Months Ended** |       | **Nine Months Ended** |       |
|--------------------------------|--------|------------------------|------------|-----------------------|------------|
|                           |   | **September 30,**      |       | **September 30,**     |       |
|                           |   | **2001**               |       | **2000**              |       | **2001** |   | **2000** | ** ** |
| **Dredging**                   |   |                   | ** ** |                  | ** ** |   | ** ** |   | ** ** |
| Contract  revenues             |   | $                      | 74,347     |                  | $          | 81,130 |   | $ | 216,537 |   | $ | 255,500 |   |
| Operating  income              |   | 7,444                  |       | 5,842                 |       | 22,953 |   | 23,296 |   |
| Depreciation  and amortization |   | 3,177                  |       | 3,264                 |       | 9,557 |   | 9,637 |   |
|                           |   |                   |       |                  |       |   |   |   |   |
| **Demolition**                 |   |                   |       |                  |       |   |   |   |   |
| Contract  revenues             |   | $                      | 8,333      |                  | $          | - |   | $ | 17,004 |   | $ | - |   |
| Operating  income              |   | 351                    |       | -                     |       | 1,270 |   | - |   |
| Depreciation  and amortization |   | 765                    |       | -                     |       | 1,378 |   | - |   |
|                           |   |                   |       |                  |       |   |   |   |   |
| **Total**                      |   |                   |       |                  |       |   |   |   |   |
| Contract  revenues             |   | $                      | 82,680     |                  | $          | 81,130 |   | $ | 233,541 |   | $ | 255,500 |   |
| Operating  income              |   | 7,795                  |       | 5,842                 |       | 24,223 |   | 23,296 |   |
| Depreciation  and amortization |   | 3,942                  |       | 3,264                 |       | 10,935 |   | 9,637 |   |

 
|                                   |   | **As of**     |       |
|----------------------------------------|--------|---------------|------------|
|                                   |   | **Sept. 30,** |       | **Dec. 31,** |   |
|                                   |   | **2001**      | ** ** | **2000** | ** ** |
| **Dredging**                           |   |          | ** ** |   | ** ** |
| Total assets                           |   | $             | 241,098    |   | $ | 248,735 |   |
| Working  capital                       |   | 22,592        |       | 11,845 |   |
| Property and  equipment, net           |   | 133,330       |       | 137,662 |   |
| Investment in  equity method investees |   | 6,993         |       | 5,108 |   |
| Additions to  property and equipment   |   | 5,728         |       | 14,128 |   |
|                                   |   |          |       |   |   |
| **Demolition**                         |   |          |       |   |   |
| Total assets                           |   | $             | 48,667     |   | $ | - |   |
| Working  capital                       |   | 3,890         |       | - |   |
| Property and  equipment, net           |   | 5,305         |       | - |   |
| Investment in  equity method investees |   | -             |       | - |   |
| Additions to  property and equipment   |   | 412           |       | - |   |
|                                   |   |          |       |   |   |
| **Total**                              |   |          |       |   |   |
| Total assets                           |   | $             | 289,765    |   | $ | 248,735 |   |
| Working  capital                       |   | 26,482        |       | 11,845 |   |
| Property and  equipment, net           |   | 138,635       |       | 137,662 |   |
| Investment in  equity method investees |   | 6,993         |       | 5,108 |   |
| Additions to  property and equipment   |   | 6,140         |       | 14,128 |   |

**11.        Commitmentsand contingencies**

 

              InNovember 1999, the Company entered into a construction agency agreement tomanage the construction of a 5,000 cubic meter hopper dredge.  The dredge is expected to cost approximately$50 million and be delivered by the end of 2001.  The Company has indemnified the owner up to 85% of the costsduring construction and has entered into a long-term operating lease to operatethe dredge upon completion.

 

              AtSeptember 30, 2001, the Company is contingently liable, in the normal course ofbusiness, for $13,863 in letters of credit related primarily to contractperformance guarantees.

 

              TheCompany’s joint venture equity investee, Amboy Aggregates, has a mortgage loanwith 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 mortgage principal and accrued interest, which totaled $2,196 at September30, 2001.

 

              Asis customary with negotiated contracts with the federal government, thegovernment has the right to audit the books and records of the Company toensure compliance with such contracts and applicable federal laws.  The government has the ability to seek aprice adjustment based on the results of such audit.  Any such audits have not had and are not expected to have amaterial impact on the financial position or operations of the Company.

 

              In the normal course of business,the Company is a defendant in various legal proceedings.  Resolution of these claims is not expectedto have a material impact on the financial position or operations of theCompany.

 

**12.        Effect ofrecently issued accounting pronouncements**

 

In June 2001, the FinancialAccounting Standards Board issued Statements of Financial Accounting StandardsNo. 141, “Business Combinations” (SFAS 141) and No. 142, “Goodwill and OtherIntangible Assets” (SFAS 142).  SFAS 141requires the purchase method of accounting for business combinations initiatedafter June 30, 2001 and eliminates the pooling-of-interests method.  Additionally, SFAS 141 has transitionprovisions which apply to business combinations accounted for by the purchasemethod that were completed prior to July 1, 2001 which could require possiblereclassification of certain separately recognized intangible assets or goodwillcomponents.   SFAS 142 requires thatgoodwill and other intangible assets with indefinite useful lives no longer beamortized, but instead tested for impairment at least annually.  The Company will be required to adopt thesestatements at the beginning of 2002. Management is currently evaluating the impact of the adoption of thesestatements, but does not anticipate that the adoption of these statements willhave a material impact on the Company’s financial position or results ofoperations or cash flows.

 

**13.        Supplementalcondensed consolidating financial information**

 

            Includedin the Company’s long-term debt is $155,000 of 111⁄4% senior subordinated noteswhich will mature on August 15, 2008. The payment obligations of the Company under the senior subordinatednotes are guaranteed by the Company’s wholly owned domestic subsidiaries andNASDI (the “Subsidiary Guarantors”). Such guarantees are full, unconditional and joint and several.  Separate financial statements of theSubsidiary Guarantors are not presented because the Company’s management hasdetermined 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 subsidiaries and for the Company (“GLD Corporation”).

 

# **Condensed Consolidating Balance Sheet at September 30,2001**

 
|                                                         |   | **Guarantor**    |       | **Other**        |       | **GLD**         |       |             |       | **Consolidated** | ** ** |
|--------------------------------------------------------------|--------|------------------|------------|------------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| **ASSETS**                                                   |   | **Subsidiaries** |       | **Subsidiaries** |       | **Corporation** |       | **Eliminations** |       | **Totals**       | ** ** |
| Current assets:                                              |   |             |       |             |       |            |       |             |       |             |       |
| Cash and  equivalents                                        |   | $                | 422        |             | $          | 46              |       | $                | -          |             | $          | - |   | $ | 468 |   |
| Accounts  receivable, net                                    |   | 39,468           |       | 9,208            |       | -               |       | -                |       | 48,676           |       |
| Receivables from  affiliates                                 |   | 4,106            |       | 6,759            |       | 8,433           |       | (19,298          | )          | -                |       |
| Current portion  of net investment indirect financing leases |   | -                |       | 1,952            |       | 1,964           |       | (3,916           | )          | -                |       |
| Contract  revenues in excess of billings                     |   | 16,448           |       | -                |       | -               |       | -                |       | 16,448           |       |
| Inventories                                                  |   | 11,344           |       | 4,820            |       | -               |       | -                |       | 16,164           |       |
| Prepaid expenses  and other current assets                   |   | 17,814           |       | (188             | )          | 822             |       | -                |       | 18,448           |       |
| Total current  assets                                        |   | 89,602           |       | 22,597           |       | 11,219          |       | (23,214          | )          | 100,204          |       |
| Property and  equipment, net                                 |   | 83,318           |       | 14,367           |       | 40,950          |       | -                |       | 138,635          |       |
| Goodwill, net of  amortization                               |   | 29,361           |       | -                |       | -               |       | -                |       | 29,361           |       |
| Net investment  in direct financing leases                   |   | -                |       | 451              |       | 171             |       | (622             | )          | -                |       |
| Investments in  subsidiaries                                 |   | 20,411           |       | -                |       | 138,065         |       | (158,476         | )          | -                |       |
| Notes receivable  from affiliate                             |   | 28,862           |       | -                |       | 22,500          |       | (51,362          | )          | -                |       |
| Inventories                                                  |   | 7,478            |       | -                |       | -               |       | -                |       | 7,478            |       |
| Investments in  joint ventures                               |   | 6,993            |       | -                |       | -               |       | -                |       | 6,993            |       |
| Other assets                                                 |   | 3,539            |       | -                |       | 3,555           |       | -                |       | 7,094            |       |
|                                                         |   | $                | 269,564    |             | $          | 37,415          |       | $                | 216,460    |             | $          | (233,674 | ) | $ | 289,765 |   |
|                                                         |   |             |       |             |       |            |       |             |       |             |       |
| **LIABILITIES AND STOCKHOLDERS'  EQUITY (DEFICIT)**          |   |             | ** ** |             | ** ** |            | ** ** |             | ** ** |             | ** ** |
| Current  liabilities:                                        |   |             |       |             |       |            |       |             |       |             |       |
| Accounts payable                                             |   | $                | 29,680     |             | $          | 4,309           |       | $                | 335        |             | $          | 9 |   | $ | 34,333 |   |
| Payables to  affiliates                                      |   | 18,063           |       | 1,235            |       | -               |       | (19,298          | )          | -                |       |
| Accrued expenses                                             |   | 10,250           |       | 2,031            |       | 8,627           |       | -                |       | 20,908           |       |
| Current portion  of obligations under capital leases         |   | -                |       | 3,916            |       | -               |       | (3,916           | )          | -                |       |
| Billings in  excess of contract revenues                     |   | 5,894            |       | 1,923            |       | -               |       | -                |       | 7,817            |       |
| Current  maturities of long-term debt                        |   | 164              |       | -                |       | 10,500          |       | -                |       | 10,664           |       |
| Total current  liabilities                                   |   | 64,051           |       | 13,414           |       | 19,462          |       | (23,205          | )          | 73,722           |       |
| Long-term debt                                               |   | 3,618            |       | -                |       | 182,717         |       | -                |       | 186,335          |       |
| Obligations  under capital leases                            |   | -                |       | 622              |       | -               |       | (622             | )          | -                |       |
| Note payable to  affiliate                                   |   | 22,500           |       | -                |       | 28,862          |       | (51,362          | )          | -                |       |
| Deferred income  taxes                                       |   | 32,726           |       | 24               |       | 13,127          |       | -                |       | 45,877           |       |
| Other                                                        |   | 4,533            |       | 334              |       | 1,375           |       | -                |       | 6,242            |       |
| Total  liabilities                                           |   | 127,428          |       | 14,394           |       | 245,543         |       | (75,189          | )          | 312,176          |       |
| Minority  interests                                          |   | -                |       | -                |       | -               |       | 6,672            |       | 6,672            |       |
| Stockholders'  equity (deficit)                              |   | 142,136          |       | 23,021           |       | (29,083         | )          | (165,157         | )          | (29,083          | )          |
|                                                         |   | $                | 269,564    |             | $          | 37,415          |       | $                | 216,460    |             | $          | (233,674 | ) | $ | 289,765 |   |

** Condensed Consolidating Balance Sheet at December 31, 2000**

 
|                                                         |   | **Guarantor**    |       | **Other**        |       | **GLD**         |       |             |       | **Consolidated** |       |
|--------------------------------------------------------------|--------|------------------|------------|------------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| **ASSETS**                                                   |   | **Subsidiaries** |       | **Subsidiaries** |       | **Corporation** |       | **Eliminations** |       | **Totals**       |       |
| Current assets:                                              |   |             |       |             |       |            |       |             |       |             |       |
| Cash and equivalents                                         |   | $                | (654       | )                | $          | 1,791           |       | $                | -          |             | $          | - |   | $ | 1,137 |   |
| Accounts receivable,  net                                    |   | 37,558           |       | 3,020            |       | -               |       | -                |       | 40,578           |       |
| Receivables from  affiliates                                 |   | 7,956            |       | 6,186            |       | 9               |       | (14,151          | )          | -                |       |
| Current portion  of net investment indirect financing leases |   | -                |       | 1,714            |       | 1,830           |       | (3,544           | )          | -                |       |
| Contract revenues in  excess of billings                     |   | 17,254           |       | 1,288            |       | -               |       | -                |       | 18,542           |       |
| Inventories                                                  |   | 10,694           |       | 3,963            |       | -               |       | -                |       | 14,657           |       |
| Prepaid expenses and  other current assets                   |   | 15,651           |       | 844              |       | 748             |       | -                |       | 17,243           |       |
| Total current  assets                                        |   | 88,459           |       | 18,806           |       | 2,587           |       | (17,695          | )          | 92,157           |       |
| Property and  equipment, net                                 |   | 79,881           |       | 14,454           |       | 43,327          |       | -                |       | 137,662          |       |
| Net investment  in direct financing leases                   |   | -                |       | 1,946            |       | 1,661           |       | (3,607           | )          | -                |       |
| Investments in  subsidiaries                                 |   | 16,105           |       | -                |       | 119,326         |       | (135,431         | )          | -                |       |
| Notes receivable  from affiliate                             |   | 15,815           |       | -                |       | -               |       | (15,815          | )          | -                |       |
| Inventories                                                  |   | 6,773            |       | -                |       | -               |       | -                |       | 6,773            |       |
| Investments in  joint ventures                               |   | 6,394            |       | -                |       | -               |       | -                |       | 6,394            |       |
| Other assets                                                 |   | 2,109            |       | -                |       | 3,640           |       | -                |       | 5,749            |       |
|                                                         |   | $                | 215,536    |             | $          | 35,206          |       | $                | 170,541    |             | $          | (172,548 | ) | $ | 248,735 |   |
|                                                         |   |             |       |             |       |            |       |             |       |             |       |
|                                                         |   |             |       |             |       |            |       |             |       |             |       |
| **LIABILITIES  AND STOCKHOLDERS' EQUITY (DEFICIT)**          |   |             | ** ** |             | ** ** |            | ** ** |             | ** ** |             | ** ** |
| Current  liabilities:                                        |   |             |       |             |       |            |       |             |       |             |       |
| Accounts payable                                             |   | $                | 34,901     |             | $          | 2,903           |       | $                | -          |             | $          | 9 |   | $ | 37,813 |   |
| Payables to affiliates                                       |   | 5,310            |       | 5,482            |       | 3,359           |       | (14,151          | )          | -                |       |
| Accrued expenses                                             |   | 10,141           |       | 2,005            |       | 13,490          |       | -                |       | 25,636           |       |
| Current portion  of obligations under capital leases         |   | -                |       | 3,544            |       | -               |       | (3,544           | )          | -                |       |
| Billings in excess of  contract revenues                     |   | 7,863            |       | -                |       | -               |       | -                |       | 7,863            |       |
| Current maturities of  long-term debt                        |   | -                |       | -                |       | 9,000           |       | -                |       | 9,000            |       |
| Total current  liabilities                                   |   | 58,215           |       | 13,934           |       | 25,849          |       | (17,686          | )          | 80,312           |       |
| Long-term debt                                               |   | -                |       | -                |       | 146,000         |       | -                |       | 146,000          |       |
| Obligations  under capital leases                            |   | -                |       | 3,607            |       | -               |       | (3,607           | )          | -                |       |
| Note payable to  affiliate                                   |   | -                |       | -                |       | 15,815          |       | (15,815          | )          | -                |       |
| Deferred income  taxes                                       |   | 30,310           |       | 168              |       | 13,824          |       | -                |       | 44,302           |       |
| Other                                                        |   | 5,416            |       | 280              |       | 1,336           |       | -                |       | 7,032            |       |
| Total  liabilities                                           |   | 93,941           |       | 17,989           |       | 202,824         |       | (37,108          | )          | 277,646          |       |
| Minority  interests                                          |   | -                |       | -                |       | -               |       | 3,372            |       | 3,372            |       |
| Stockholders'  equity (deficit)                              |   | 121,595          |       | 17,217           |       | (32,283         | )          | (138,812         | )          | (32,283          | )          |
|                                                         |   | $                | 215,536    |             | $          | 35,206          |       | $                | 170,541    |             | $          | (172,548 | ) | $ | 248,735 |   |

** **

# **Condensed Consolidating Statement of Income for thethree months ended September 30, 2001**

 
|                                                             |   | **Guarantor**    |          | **Other**        |          | **GLD**         |   |             |   | **Consolidated** |       |
|------------------------------------------------------------------|--------|------------------|---------------|------------------|---------------|-----------------|--------|------------------|--------|------------------|------------|
|                                                             |   | **Subsidiaries** |          | **Subsidiaries** |          | **Corporation** |   | **Eliminations** |   | **Totals**       | ** ** |
| Contract  revenues                                               |   | $                | 64,083        |             | $             | 19,529          |   | $                | -      |             | $          | (932 | ) | $ | 82,680 |   |
| Costs of  contract revenues                                      |   | (53,239          | )             | (15,286          | )             | (515            | )      | 932              |   | (68,108          | )          |
| Gross profit  (loss)                                             |   | 10,844           |          | 4,243            |          | (515            | )      | -                |   | 14,572           |       |
| General and  administrative expenses                             |   | (5,049           | )             | (1,701           | )             | (27             | )      | -                |   | (6,777           | )          |
| Operating income  (loss)                                         |   | 5,795            |          | 2,542            |          | (542            | )      | -                |   | 7,795            |       |
| Interest expense,  net                                           |   | (995             | )             | (107             | )             | (4,687          | )      | -                |   | (5,789           | )          |
| Equity in  earnings of subsidiaries                              |   | 1,701            |          | -                |          | 4,357           |   | (6,058           | )      | -                |       |
| Equity in  earnings of joint ventures                            |   | 482              |          | -                |          | -               |   | -                |   | 482              |       |
| Income (loss)  before income taxes and  minority  interests |   | 6,983            |     | 2,435            |     | (872            | )      | (6,058           | )      | 2,488            |       |
| Income tax  (expense) benefit                                    |   | (2,679           | )             | (187             | )             | 1,796           |   | -                |   | (1,070           | )          |
| Minority  interests                                              |   | -                |          | -                |          | -               |   | (494             | )      | (494             | )          |
| Net income                                                       |   | $                | 4,304         |             | $             | 2,248           |   | $                | 924    |             | $          | (6,552 | ) | $ | 924 |   |
| Other  comprehensive income, net of tax:                         |   |             |          |             |          |            |   |             |   |             |       |
| Reclassification  of derative losses to earnings                 |   | 260              |          | -                |          | -               |   | -                |   | 260              |       |
| Net loss on  derivative instruments                              |   | (234             | )             | -                |          | -               |   | -                |   | (234             | )          |
| Comprehensive  income                                            |   | $                | 4,330         |             | $             | 2,248           |   | $                | 924    |             | $          | (6,552 | ) | $ | 950 |   |

 

**Condensed Consolidating Statement ofIncome for the three months ended September 30, 2000**

 
|                                                             |   | **Guarantor**    |   | **Other**        |   | **GLD**         |   |             |   | **Consolidated** | ** ** |
|------------------------------------------------------------------|--------|------------------|--------|------------------|--------|-----------------|--------|------------------|--------|------------------|------------|
|                                                             |   | **Subsidiaries** |   | **Subsidiaries** |   | **Corporation** |   | **Eliminations** |   | **Totals**       | ** ** |
| Contract  revenues                                               |   | $                | 81,782 |             | $      | 8,984           |   | $                | -      |             | $          | (9,636 | ) | $ | 81,130 |   |
| Costs of  contract revenues                                      |   | (69,640          | )      | (9,891           | )      | (202            | )      | 9,636            |   | (70,097          | )          |
| Gross profit  (loss)                                             |   | 12,142           |   | (907             | )      | (202            | )      | -                |   | 11,033           |       |
| General and  administrative expenses                             |   | (4,300           | )      | (861             | )      | (30             | )      | -                |   | (5,191           | )          |
| Operating income  (loss)                                         |   | 7,842            |   | (1,768           | )      | (232            | )      | -                |   | 5,842            |       |
| Interest  expense, net                                           |   | 24               |   | (516             | )      | (4,439          | )      | -                |   | (4,931           | )          |
| Equity in  earnings (loss) of subsidiaries                       |   | (2,006           | )      | -                |   | 3,843           |   | (1,837           | )      | -                |       |
| Equity in  earnings of joint ventures                            |   | 51               |   | -                |   | -               |   | -                |   | 51               |       |
| Income (loss)  before income taxes and  minority  interests |   | 5,911            |   | (2,284           | )      | (828            | )      | (1,837           | )      | 962              |       |
| Income tax  (expense) benefit                                    |   | (2,862           | )      | 523              |   | 1,727           |   | -                |   | (612             | )          |
| Minority  interests                                              |   | -                |   | -                |   | -               |   | 549              |   | 549              |       |
| Net income  (loss).                                              |   | $                | 3,049  |             | $      | (1,761          | )      | $                | 899    |             | $          | (1,288 | ) | $ | 899 |   |

# ** **

#  

# **Condensed Consolidating Statement of Income for the ninemonths ended September 30, 2001**

 
|                                                                        |   | **Guarantor**    |          | **Other**        |          | **GLD**         |   |             |   | **Consolidated** | ** ** |
|-----------------------------------------------------------------------------|--------|------------------|---------------|------------------|---------------|-----------------|--------|------------------|--------|------------------|------------|
|                                                                        |   | **Subsidiaries** |          | **Subsidiaries** |          | **Corporation** |   | **Eliminations** |   | **Totals**       | ** ** |
| Contract  revenues                                                          |   | $                | 192,724       |             | $             | 50,396          |   | $                | -      |             | $          | (9,579 | ) | $ | 233,541 |   |
| Costs of  contract revenues                                                 |   | (159,066         | )             | (39,463          | )             | (1,566          | )      | 9,579            |   | (190,516         | )          |
| Gross profit  (loss)                                                        |   | 33,658           |          | 10,933           |          | (1,566          | )      | -                |   | 43,025           |       |
| General and  administrative expenses                                        |   | (15,030          | )             | (3,675           | )             | (97             | )      | -                |   | (18,802          | )          |
| Operating income  (loss)                                                    |   | 18,628           |          | 7,258            |          | (1,663          | )      | -                |   | 24,223           |       |
| Interest expense,  net                                                      |   | (1,466           | )             | (490             | )             | (13,548         | )      | -                |   | (15,504          | )          |
| Equity in  earnings of subsidiaries                                         |   | 4,708            |          | -                |          | 13,369          |   | (18,077          | )      | -                |       |
| Equity in  earnings of joint venture                                        |   | 599              |          | -                |          | -               |   | -                |   | 599              |       |
| Income (loss)  before income taxes and    minority interests |   | 22,469           |     | 6,768            |     | (1,842          | )      | (18,077          | )      | 9,318            |       |
| Income tax  (expense) benefit                                               |   | (8,984           | )             | (564             | )             | 5,459           |   | -                |   | (4,089           | )          |
| Minority  interests                                                         |   | -                |          | -                |          | -               |   | (1,612           | )      | (1,612           | )          |
| Net income                                                                  |   | $                | 13,485        |             | $             | 6,204           |   | $                | 3,617  |             | $          | (19,689 | ) | $ | 3,617 |   |
| Other  comprehensive income, net of tax:                                    |   |             |          |             |          |            |   |             |   |             |       |
| Cumulative  effect of adopting SFAS 133                                     |   | (745             | )             | -                |          | -               |   | -                |   | (745             | )          |
| Reclassification  of derivative losses to earnings                          |   | 662              |          | -                |          | -               |   | -                |   | 662              |       |
| Net loss on  derivative instruments                                         |   | (349             | )             | -                |          | -               |   | -                |   | (349             | )          |
| Comprehensive  income                                                       |   | $                | 13,053        |             | $             | 6,204           |   | $                | 3,617  |             | $          | (19,689 | ) | $ | 3,185 |   |
|                                                                             |        |                  |               |                  |               |                 |        |                  |        |                  |            |  |  |  |  |  |  |  |

** **

**Condensed Consolidating Statement ofIncome for the nine months ended September 30, 2000**

 
|                                                      |   | ** Guarantor**    |          | **Other**        |          | **GLD**         |    |             |   | **Consolidated** |   |
|-----------------------------------------------------------|--------|------------------------|---------------|------------------|---------------|-----------------|---------|------------------|--------|------------------|--------|
|                                                      |   | ** Subsidiaries** |          | **Subsidiaries** |          | **Corporation** |    | **Eliminations** |   | **Totals**       |   |
|                                                      |   |                   |          |             |          |            |    |             |   |             |   |
| Contract  revenues                                        |   | $                      | 251,193       |             | $             | 29,393          |    | $                | -      |             | $      | (25,086 | ) | $ | 255,500 |   |
| Costs of  contract revenues                               |   | (215,389               | )             | (25,557          | )             | (507            | )       | 25,086           |   | (216,367         | )      |
| Gross profit  (loss)                                      |   | 35,804                 |          | 3,836            |          | (507            | )       | -                |   | 39,133           |   |
| General and  administrative expenses                      |   | (13,164                | )             | (2,643           | )             | (30             | )       | -                |   | (15,837          | )      |
| Operating income  (loss)                                  |   | 22,640                 |          | 1,193            |          | (537            | )       | -                |   | 23,296           |   |
| Interest  expense, net.                                   |   | (271                   | )             | (633             | )             | (13,109         | )       | -                |   | (14,013          | )      |
| Equity in  earnings of subsidiaries                       |   | 390                    |          | -                |          | 12,991          |    | (13,381          | )      | -                |   |
| Equity in loss of  joint ventures                         |   | (82                    | )             | -                |          | -               |    | -                |   | (82              | )      |
| Income (loss)  before income taxes and minority interests |   | 22,677                 |     | 560              |     | (655            | )  | (13,381          | )      | 9,201            |   |
| Income tax  (expense) benefit                             |   | (9,625                 | )             | (48              | )             | 5,349           |    | -                |   | (4,324           | )      |
| Minority  interests                                       |   | -                      |          | -                |          | -               |    | (183             | )      | (183             | )      |
| Net income                                                |   | $                      | 13,052        |             | $             | 512             |    | $                | 4,694  |             | $      | (13,564 | ) | $ | 4,694 |   |

 

 

# **Condensed Consolidating Statement of Cash Flows forthe nine months ended September 30, 2001**

 

|                                                                              |   | **Guarantor  Subsidiaries** |   | **Other  Subsidiaries** |   | **GLD****Corporation** |   | **Eliminations** |   | **Consolidated********Totals** |   |
|-----------------------------------------------------------------------------------|--------|-----------------------------|--------|-------------------------|--------|------------------------|--------|------------------|--------|--------------------------------|--------|
| **Operating  Activities**                                                         |   |                        |   |                    |   |                   |   |             |   |                           |   |
| Net income                                                                        |   | $                           | 13,485 |                    | $      | 6,204                  |   | $                | 3,617  |                           | $      | (19,689 | ) | $ | 3,617 |   |
| Adjustments to  reconcile net income to net cash flows from operating activities: |   |                        |   |                    |   |                   |   |             |   |                           |   |
| Depreciation and  amortization                                                    |   | 7,417                       |   | 1,410                   |   | 2,108                  |   | -                |   | 10,935                         |   |
| Earnings of  subsidiaries and joint venture                                       |   | (5,191                      | )      | -                       |   | (13,485                | )      | 18,077           |   | (599                           | )      |
| Minority  interests                                                               |   | -                           |   | -                       |   | -                      |   | 1,612            |   | 1,612                          |   |
| Deferred income  taxes                                                            |   | 1,565                       |   | (144                    | )      | (697                   | )      | -                |   | 724                            |   |
| Gain on  dispositions of property and equipment                              |   | (292                        | )      | -                       |   | -                      |   | -                |   | (292                           | )      |
| Other, net                                                                        |   | 248                         |   | 67                      |   | 124                    |   | -                |   | 439                            |   |
| Changes in  assets and liabilities:                                               |   | -                           |   |                    |   |                   |   |             |   |                           |   |
| Accounts  receivable                                                              |   | 5,597                       |   | (6,188                  | )      | -                      |   | -                |   | (591                           | )      |
| Contract  revenues in excess of billings                                          |   | 2,768                       |   | 1,288                   |   | -                      |   | -                |   | 4,056                          |   |
| Inventories                                                                       |   | (1,355                      | )      | (857                    | )      | -                      |   | -                |   | (2,212                         | )      |
| Prepaid expenses  and other current assets                                        |   | (466                        | )      | 1,032                   |   | (74                    | )      | -                |   | 492                            |   |
| Accounts payable  and accrued expenses                                            |   | (12,697                     | )      | 1,423                   |   | (5,582                 | )      | -                |   | (16,856                        | )      |
| Billings in  excess of contract revenues                                          |   | (3,036                      | )      | 1,923                   |   | -                      |   | -                |   | (1,113                         | )      |
| Net cash flows  from operating activities                                         |   | 8,043                       |   | 6,158                   |   | (13,989                | )      | -                |   | 212                            |   |
| **Investing  Activities**                                                         |   |                        |   |                    |   |                   |   |             |   |                           |   |
| Purchases of  property and equipment                                              |   | (4,817                      | )      | (1,323                  | )      | -                      |   | -                |   | (6,140                         | )      |
| Proceeds from  dispositions of property and equipment                        |   | 502                         |   | -                       |   | 104                    |   | -                |   | 606                            |   |
| Investment in  NASDI, net of cash                                                 |   | -                           |   | -                       |   | (30,800                | )      | -                |   | (30,800                        | )      |
| Principal  payments (receipts on direct financing leases)                         |   | -                           |   | 1,257                   |   | (1,257                 | )      | -                |   | -                              |   |
| Payments  (receipts) on note with affiliate                                       |   | -                           |   | 841                     |   | (841                   | )      | -                |   | -                              |   |
| Net cash flows  from investing activities                                         |   | (4,315                      | )      | 775                     |   | (32,794                | )      | -                |   | (36,334                        | )      |
| **Financing  Activities**                                                         |   |                        |   |                    |   |                   |   |             |   |                           |   |
| Repayments of  long-term debt                                                     |   | (262                        | )      | -                       |   | (6,500                 | )      | -                |   | (6,762                         | )      |
| Borrowing  (repayments) of revolving loans, net                                   |   | -                           |   | -                       |   | 5,000                  |   | -                |   | 5,000                          |   |
| Proceeds from  issuance of 11 1/4 %  subordinated notes                           |   | -                           |   | -                       |   | 39,700                 |   | -                |   | 39,700                         |   |
| Principal  receipts (payments on capital leases)                                  |   | -                           |   | (2,613                  | )      | 2,613                  |   | -                |   | -                              |   |
| Net change in  accounts with affiliates                                           |   | (2,790                      | )      | (5,665                  | )      | 8,455                  |   | -                |   | -                              |   |
| Financing fees                                                                    |   | -                           |   | -                       |   | (2,500                 | )      | -                |   | (2,500                         | )      |
| Repayment on  notes receivable from stockholders                                  |   | -                           |   | -                       |   | 15                     |   | -                |   | 15                             |   |
| Dividends                                                                         |   | 1,600                       |   | (2,000                  | )      | -                      |   | 400              |   | -                              |   |
| Contributions  from partners                                                      |   | (1,200                      | )      | 1,600                   |   | -                      |   | (400             | )      | -                              |   |
| Net cash flows  from financing activities                                         |   | (2,652                      | )      | (8,678                  | )      | 46,783                 |   | -                |   | 35,453                         |   |
| Net change in  cash and equivalents                                               |   | 1,076                       |   | (1,745                  | )      | -                      |   | -                |   | (669                           | )      |
| Cash and  equivalents at beginning of year                                        |   | (654                        | )      | 1,791                   |   | -                      |   | -                |   | 1,137                          |   |
| Cash and  equivalents at end of year                                              |   | $                           | 422    |                    | $      | 46                     |   | $                | -      |                           | $      | - |   | $ | 468 |   |

 

 

** Condensed Consolidating Statement of Cash Flows for the ninemonths ended September 30, 2000**

 
|                                                                             |   | **Guarantor  Subsidiaries** |   | **Other  Subsidiaries** |   | **GLD  Corporation** |   | **Eliminations** |   | **Consolidated  Totals** |   |
|----------------------------------------------------------------------------------|--------|-----------------------------|--------|-------------------------|--------|----------------------|--------|------------------|--------|--------------------------|--------|
| **Operating  Activities**                                                        |   |                        |   |                    |   |                 |   |             |   |                     |   |
| Net income                                                                       |   | $                           | 13,052 |                    | $      | 512                  |   | $                | 4,694  |                     | $      | (13,564 | ) | $ | 4,694 |   |
| Adjustments to  reconcile net income to netcash flows from operating activities: |   |                        |   |                    |   |                 |   |             |   |                     |   |
| Depreciation                                                                     |   | 5,065                       |   | 2,438                   |   | 2,134                |   | -                |   | 9,637                    |   |
| Earnings of  subsidiaries and joint ventures                                     |   | (308                        | )      | -                       |   | (12,991              | )      | 13,381           |   | 82                       |   |
| Minority  interests                                                              |   | -                           |   | -                       |   | -                    |   | 183              |   | 183                      |   |
| Deferred income  taxes                                                           |   | 1,152                       |   | (1,684                  | )      | 56                   |   | -                |   | (476                     | )      |
| (Gain) loss on  dispositions of property and equipment                           |   | (29                         | )      | -                       |   | 287                  |   | -                |   | 258                      |   |
| Foreign  income taxes                                                            |   |                        |   | -                       |   |                 |   |             |   |                     |   |
| Compensation  expense related to exercise of options                             |   |                        |   |                    |   |                 |   |             |   |                     |   |
| Extraordinary  item                                                              |   |                        |   | 0                       |   |                 |   |             |   |                     |   |
| Other, net                                                                       |   | (556                        | )      | (280                    | )      | (107                 | )      | -                |   | (943                     | )      |
| Changes in  assets and liabilities:                                              |   |                        |   |                    |   |                 |   |             |   |                     |   |
| Accounts  receivable                                                             |   | (12,441                     | )      | 448                     |   | -                    |   | -                |   | (11,993                  | )      |
| Contract revenues  in excess of billings                                         |   | 11,651                      |   | 517                     |   | -                    |   | -                |   | 12,168                   |   |
| Inventories                                                                      |   | 607                         |   | 150                     |   | -                    |   | -                |   | 757                      |   |
| Prepaid expenses  and other current assets                                       |   | (2,178                      | )      | (265                    | )      | (554                 | )      | -                |   | (2,997                   | )      |
| Accounts payable  and accrued expenses                                           |   | 3,169                       |   | 854                     |   | (7,130               | )      | -                |   | (3,107                   | )      |
| Billings in  excess of contract revenues                                         |   | (615                        | )      | 1,359                   |   | -                    |   | -                |   | 744                      |   |
| Net cash flows  from operating activities                                        |   | 18,569                      |   | 4,049                   |   | (13,611              | )      | -                |   | 9,007                    |   |
| **Investing  Activities**                                                        |   |                        |   |                    |   |                 |   |             |   |                     |   |
| Purchases of  property and equipment                                             |   | (9,727                      | )      | (638                    | )      | -                    |   | -                |   | (10,365                  | )      |
| Proceeds from  dispositions of property and equipment                            |   | 388                         |   | -                       |   | -                    |   | -                |   | 388                      |   |
| Distributions  from joint venture                                                |   | (84                         | )      | -                       |   | -                    |   | -                |   | (84                      | )      |
| Distributions to minority interests                                              |   |                        |   |                    |   |                 |   |             |   |                     |   |
| Principal  payments (receipts) on direct financing leases                        |   | -                           |   | 4,067                   |   | (4,067               | )      | -                |   | -                        |   |
| Payments  (receipts) on note with affiliate                                      |   | -                           |   | 516                     |   | (516                 | )      | -                |   | -                        |   |
| Net cash flows  from investing activities                                        |   | (9,423                      | )      | 3,945                   |   | (4,583               | )      | -                |   | (10,061                  | )      |
| **Financing  Activities**                                                        |   |                        |   |                    |   |                 |   |             |   |                     |   |
| Repayments of  long-term debt                                                    |   | -                           |   | -                       |   | (4,500               | )      | -                |   | (4,500                   | )      |
| Borrowing  (repayments) of revolving loans, net                                  |   | -                           |   | -                       |   | 5,000                |   | -                |   | 5,000                    |   |
| Principal  receipts (payments) on capital leases                                 |   | 4,067                       |   | (5,910                  | )      | 1,843                |   | -                |   | -                        |   |
| Net change in  accounts with affiliates                                          |   | (13,024                     | )      | (2,806                  | )      | 15,830               |   | -                |   | -                        |   |
| Treasury stock  activity, net                                                    |   | -                           |   | -                       |   | (3                   | )      | -                |   | (3                       | )      |
| Repayment on  notes receivable from stockholders                                 |   | -                           |   | -                       |   | 24                   |   | -                |   | 24                       |   |
| Dividends                                                                        |   | 360                         |   | (1,800                  | )      | 1,440                |   | -                |   | -                        |   |
| Contributions  from partners                                                     |   | -                           |   | 1,440                   |   | (1,440               | )      | -                |   | -                        |   |
| Net cash flows  from financing activities.                                       |   | (8,597                      | )      | (9,076                  | )      | 18,194               |   | -                |   | 521                      |   |
| Net change in  cash and equivalents                                              |   | 549                         |   | (1,082                  | )      | -                    |   | -                |   | (533                     | )      |
| Cash and  equivalents at beginning of year                                       |   | 284                         |   | 1,249                   |   | -                    |   | -                |   | 1,533                    |   |
| Cash and  equivalents at end of year                                             |   | $                           | 833    |                    | $      | 167                  |   | $                | -      |                     | $      | - |   | $ | 1,000 |   |

 

 

**Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations**

 

###### **Statement Underthe Private Securities Litigation Reform Act**

 

Certain information in this quarterly report on Form 10-Q, includingbut not limited to the Management’s Discussion and Analysis of FinancialCondition and Results of Operations, may constitute forward-looking statementsas such term is defined in Section 27A of the Securities Exchange Act of 1933(the “Securities Act”) and Section 21E of the Securities Exchange Act of1934.  Certain forward-lookingstatements can be identified 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 of Item 1of the Company’s Form S-4 Registration Statement (Registration No. 333-60300),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**

 

The Company is the largest provider of dredging services in the UnitedStates.  Dredging generally involves theenhancement or preservation of the navigability of waterways or the protectionof shorelines 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 a combinedU.S. market share of the projects on which it bids (“bid market”) of 37% in2000.  In addition, the Company hascontinued its role as the only U.S. dredging contractor with significantinternational operations, which averaged 17% of its contract revenues duringthe period 1998-2000.

 

In April 2001, the Company purchased 80% of the capital stock of NorthAmerican Site Developers, Inc. (“NASDI”), a demolition service provider locatedin the Boston, Massachusetts area.  Thepurchase consideration for the acquisition included (1) $35.0 million in cashpayable to the stockholders of NASDI, and (2) two junior subordinatedpromissory notes totaling $3.0 million from NASDI payable to the NASDImanagement stockholders.  The Companyissued $40.0 million of its 111⁄4% senior subordinated notes due 2008 to fund thecash portion of the acquisition price and pay related fees and expenses.

 

The Company’s equity in earnings (loss) of joint ventures relates tothe Company’s 50% ownership interest in Amboy Aggregates (“Amboy”) and 20%ownership interest in Riovia S.A. (“Riovia”), which are accounted for using theequity method.  The Company conductscertain hopper dredging activities, primarily maintenance and beach nourishmentprojects, through the operations of NATCO Limited Partnership (“NATCO”) andNorth American Trailing Company (“North American”).  Minority interests reflects Ballast Nedam Group N.V.’s respective25% and 20% interest in NATCO and North American, as well as NASDI managementstockholders’ 20% interest in NASDI.

 

 

**Resultsof Operations**

 

The following table sets forth the components of net income and EBITDAas a percentage of contract revenues for the three and nine months endedSeptember 30, 2001 and 2000:

** **
|                                               |   | **Three Months Ended** | **Nine Months Ended** |
|----------------------------------------------------|--------|------------------------|-----------------------|
|                                               |   | **September 30,**      | **September 30,**     |
|                                               |   | **2001**               |                  | **2000** |   | **2001** |   | **2000** |   |
| Contract  revenues                                 |   | 100.0                  | %                     | 100.0 | % | 100.0 | % | 100.0 | % |
| Costs of  contract revenues.                       |   | (82.4                  | )                     | (86.4 | ) | (81.6 | ) | (84.7 | ) |
| Gross profit                                       |   | 17.6                   |                  | 13.6 |   | 18.4 |   | 15.3 |   |
| General and  administrative expenses               |   | (8.2                   | )                     | (6.4 | ) | (8.0 | ) | (6.2 | ) |
| Operating  income.                                 |   | 9.4                    |                  | 7.2 |   | 10.4 |   | 9.1 |   |
| Interest  expense, net                             |   | (7.0                   | )                     | (6.0 | ) | (6.6 | ) | (5.5 | ) |
| Equity in  earnings (loss) of joint ventures       |   | 0.6                    |                  | - |   | 0.2 |   | - |   |
| Income before  income taxes and minority interests |   | 3.0                    |                  | 1.2 |   | 4.0 |   | 3.6 |   |
| Income tax  expense                                |   | (1.3                   | )                     | (0.8 | ) | (1.8 | ) | (1.7 | ) |
| Minority  interests                                |   | (0.6                   | )                     | 0.7 |   | (0.7 | ) | (0.1 | ) |
| Net income                                         |   | 1.1                    | %                     | 1.1 | % | 1.5 | % | 1.8 | % |
|                                               |   |                   |                  |   |   |   |   |   |   |
| EBITDA                                             |   | 14.2                   | %                     | 11.2 | % | 15.1 | % | 12.9 | % |

 

“EBITDA,” as provided herein, represents earnings from continuingoperations before net interest expense, income taxes and depreciation andamortization expense and excludes equity earnings of joint ventures andminority interests.  EBITDA is notintended to represent cash flows from operations as defined by generallyaccepted accounting principles in the United States of America.  The Company’s EBITDA is included as it is abasis upon which the Company assesses its financial performance, and certaincovenants in the Company’s borrowing arrangements are tied to similar measures.  EBITDA should not be considered in isolationor as an alternative to net income, cash flows from continuing operations, orother consolidated income or cash flow data prepared in accordance withgenerally accepted accounting principles in the United States of America asmeasures of the Company’s profitability or liquidity.  EBITDA as defined herein may differ from similarly titledmeasures presented by other companies.

##  

The following table sets forth, by segment and dredging type of work,the Company’s contract revenues for the three and nine months ended and backlogas of the periods indicated:

 
|                        |   | **Three Months Ended** |       | **Nine Months Ended** |       |
|-----------------------------|--------|------------------------|------------|-----------------------|------------|
|                        |   | **September 30,**      |       | **September 30,**     |       |
| **Revenues (in thousands)** |   | **2001**               |       | **2000**              |       | **2001** |   | **2000** | ** ** |
| Dredging:                   |   |                   | ** ** |                  | ** ** |   | ** ** |   | ** ** |
| Capital -  U.S.             |   | $                      | 33,379     |                  | $          | 48,076 |   | $ | 89,606 |   | $ | 129,336 |   |
| Capital -  foreign          |   | 5,106                  |       | 15,251                |       | 23,953 |   | 56,130 |   |
| Beach                       |   | 16,689                 |       | 711                   |       | 62,879 |   | 12,162 |   |
| Maintenance                 |   | 19,173                 |       | 17,092                |       | 40,099 |   | 57,872 |   |
| Demolition                  |   | 8,333                  |       |                  |       | 17,004 |   | - |   |
|                        |   | $                      | 82,680     |                  | $          | 81,130 |   | $ | 233,541 |   | $ | 255,500 |   |

 
|                       |   | **September 30,** | ** ** |
|----------------------------|--------|-------------------|------------|
| **Backlog (in thousands)** |   | **2001**          |       | **2000** | ** ** |
| Dredging:                  |   |              | ** ** |   | ** ** |
| Capital -  U.S.            |   | $                 | 61,436     |   | $ | 125,423 |   |
| Capital -  foreign         |   | 42,413            |       | 71,650 |   |
| Beach                      |   | 29,822            |       | 26,060 |   |
| Maintenance                |   | 25,811            |       | 8,583 |   |
| Demolition                 |   | 30,771            |       | - |   |
|                       |   | $                 | 190,253    |   | $ | 231,716 |   |

## ** **

Third quarter 2001 revenues, which include the revenues of NASDI,totaled $82.7 million, which is slightly higher than the third quarter 2000revenues of $81.1 million.  Dredgingrevenues declined $6.8 million for the quarter.   Consolidated revenues for the nine months ended September 30,2001 were $233.5 million compared to $255.5 million for the same period of2000, representing a decrease of 8.6%. The decline in both 2001 third quarter dredging revenues and total yearto date revenues is attributable primarily to a reduction in foreign dredgingrevenue, which decreased $10.1 million and $32.2 million in the respectiveperiods.  Gross profit of $14.6 millionfor the third quarter of 2001 represents an increase of 32.1% over the thirdquarter of 2000, while 2001 year to date gross profit increased 9.9% comparedto the same period of 2000.  Althoughtotal revenues have decreased in 2001, gross profit has been positivelyimpacted by the mix of projects. Specifically, 2001 has benefited from a greater proportion of highermargin domestic dredging projects and from the addition of NASDI’s demolitionprojects.

 

Capital projects include large port deepenings and other infrastructureprojects.   Capital dredging revenuedeclined $14.7 million and $39.7 million during the quarter and nine monthsended September 30, 2001, respectively, as compared to the same periods of2000.  This decline is due primarily dueto a greater allocation of dredging resources to other work types, such asbeach nourishment, during the 2001 periods.   However, the Company expects the domestic capital market to remainstrong as Deep Port projects, authorized by the 1986 Water Resource DevelopmentAct and subsequent bills, continue to be announced by the Army Corps ofEngineers (“Corps”).    Since 1997, theCorps has announced new Deep Port work and expanded existing projects with arevenue value in excess of $2.0 billion, to be completed through 2005.   Since this time, 26 projects with a totalrevenue value of $823.6 million, have been let for bid through the thirdquarter of 2001.  The Company was thelow bidder on twelve of these projects, with a value of $345.4 million,representing 41.9% of the total let for bid.

 

During the third quarter of 2001, contract revenues from domesticcapital projects included $9.0 million, $7.1 million and $5.3 million fromchannel deepening projects in Baltimore, Maryland; Charleston, South Carolina;and Wilmington, North Carolina; respectively.  Additionally, the foreign capital project in Ghana contributed $3.7million to third quarter 2001 revenues.

 

Beach nourishment projects include rebuilding of shoreline areas whichhave been damaged by storm activity or ongoing erosion.  Third quarter  and year to date 2001 revenues from beach nourishment projectsincreased $16.0 million and $50.7 million, respectively, compared to the sameperiods of 2000.  The Company hascontinued to perform on numerous beach projects won in recent quarters, duringwhich the beach market has experienced a resurgence in bidding activity.  Significant beach nourishment projects inSunny Isles, Florida and San Diego, California contributed $8.5 million and$6.3 million, respectively, to third quarter revenues.

 

Maintenance projects include routine dredging of ports, rivers andchannels to remove the regular build up of sediment. Year to date 2001 revenuesfrom maintenance projects decreased $17.8 million compared to the same periodof 2000, primarily due to the low level of maintenance backlog atyear-end.  However, maintenance revenuesfor the third quarter of 2001 compared to the third quarter of 2000 increased$2.1 million, due to several projects bid and won during 2001  as a result of the increased maintenancerequirements arising from the greater precipitation  levels experienced in the Midwest this spring.  Third quarter 2001 maintenance revenuesincluded $5.7 million from three river rental projects and $4.4 million from aproject in the Mississippi River Gulf Outlet.

 

Third quarter 2001 and year to date revenues of the Company’s NATCOhopper dredging subsidiary increased $10.5 million and $20.8 million,respectively, due to the increase in beach work and the recent improvement inthe maintenance market.

 

NASDI’s demolition revenue for the third quarter of 2001 totaled $8.3million, bringing total revenue since the acquisition by the Company in April2001 to $17.0 million.   NASDI’s 2001year to date revenues have been lower than anticipated due to delays in thestart-up of two major projects in NASDI’s backlog.  

###### ** **

General and administrative expenses increased $1.6 million and $3.0million for the quarter and nine months ended September 30, 2001, due to theinclusion of NASDI’s general and administrative costs and amortization ofgoodwill arising from the NASDI acquisition.

###### ** **

Non-operating expenses have increased for the quarter and nine monthsended September 31, 2001 as a result of interest expense on the additional$40.0 million subordinated debt issuance used to fund the NASDI acquisition,partially offset by a decline in the variable interest rates on the Company’ssenior bank debt.  Minority interestexpense has increased for the 2001 periods as compared to 2000 due to theinclusion of NASDI minority interests and increased expense to NATCO’s minorityinterests resulting from NATCO’s improved earnings.

 

Net income was $0.9 million for the third quarter of both 2001 and2000.  Year to date 2001 net income was$3.6 million compared to $4.7 million for the same period of 2000.   Net income in 2001 has declined due to theimpact of goodwill amortization  andadditional interest and financing costs resulting from the NASDIacquisition.   EBITDA (as defined onpage 18) was $11.8 million and $35.2 million for the quarter and nine monthsended September 30, 2001, respectively, which increased over the 2000 levels of$9.1 million and $32.9 million, respectively, despite the decline in revenuesin the 2001 periods.    The improvementin 2001 EBITDA relative to the reduced level of revenues reflects the improvedmargins realized in the 2001 periods resulting from the greater proportion ofhigher margin domestic dredging revenues and the inclusion of NASDI’s highermargin demolition revenues.

 

**Liquidityand Capital Resources**

 

The Company’s primary sources of liquidity are cash flows fromoperations and borrowings under the revolving line of credit with the Company’ssenior lenders.  The Company’s primaryuses of cash are funding working capital, capital expenditures and debtservice.

 

The Company’s net cash generated by operating activities for the ninemonths ended September 30, 2001 totaled $0.2 million compared to $9.0 millionin the comparable period of 2000.  Thereduction in cash flows from operating activities for the 2001 period was dueto increased working capital requirements associated with normal timingdifferences on the recognition and billing of revenues on certain projects,including the Wilmington, North Carolina Deep Port project and the Ghanaproject.

 

In April 2001, the Company purchased 80% of the capital stock of NASDIfor a total purchase price of $38.8 million, including acquisition costs.  Purchase consideration included cash of$35.8 million and two junior subordinated promissory notes totaling $3.0million from NASDI payable to NASDI management stockholders.  Because assets acquired included $5.0million in cash, the net cash used to make the acquisition was $30.8 million,as reflected by the increased cash flows used for investing activities.  The cash portion of the acquisition price wasfunded by the issuance of additional subordinated notes, as reflected by theincrease in cash generated by financing activities in the 2001 period.

 

Management believes cash flows from operations and available creditwill be sufficient to finance operations, planned capital expenditures and debtservice requirements for the foreseeable future. The Company’s ability to fundits working capital needs, planned capital expenditures, scheduled debtpayments and to comply with all of the financial covenants under its debtagreements, depends on its future operating performance and cash flows, whichin turn, are subject to prevailing economic conditions and to financial,business and other factors, some of which are beyond the Company’s control.

 

 

###### **Backlog**

 

The Company’s contract backlog represents management’s current estimateof the revenues which will be realized under the portion of the contractsremaining to be performed. Such estimates are subject to fluctuations basedupon the amount of material actually dredged, as well as factors affecting the timerequired to complete the job. In addition, because substantially all of theCompany’s dredging backlog relates to government contracts, the Company’sbacklog can be canceled at any time without penalty.  However, the Company will recover actual committed costs andprofit on work performed up to the date of cancellation.  Consequently, backlog is not necessarilyindicative of future revenues. The Company’s backlog includes only thoseprojects for which the customer has provided an executed contract.

 

As of September 30, 2001, the Company had dredging backlog of $159.5million, which compares to dredging backlog of $143.4 million at June 30, 2001and $231.7 million September 30, 2000. During the third quarter, domestic projects valued in excess of $300 millionwere let for bid, making this the most active bidding quarter of the year andenabling the Company to add backlog with good margins in each of its types ofwork.   Due to the high volume ofbidding activity late in the quarter, the Company had a number of projectspending award at September 30, 2001, with a total revenue value of $72.0million, which will be added to backlog once the contract is executed.   During the third quarter, a significantDeep Port project in Houston was bid and lost to a competitor.   Despite this loss, the Company’s thirdquarter winning bids resulted in a market share of 44%, which is consistentwith the Company’s historical market share.

 

Domestic capital projects make up $54.3 million or 34.0% of theSeptember 30, 2001 backlog.  Thisincludes work remaining on Deep Port capital projects in San Juan; Wilmington,North Carolina; Jacksonville, Florida and New York.  The foreign capital project backlog relates to the project inGhana.

 

Beach backlog increased to $29.8 million at September 30, 2001 from$17.3 million at June 30, 2001.  The2001 beach market has been very strong, with the year’s bidding volume likelyto approximate $200 million.   Duringthe third quarter, beach projects valued at $88.6 million were let for bid andthe Company was low bidder on beach work totaling $70.2 million.  Backlog at September 30, 2001 includes workremaining on beach projects in  SeaBright, New Jersey and Fire Island, New York with a combined revenue value of$23.0 million.

 

Maintenance backlog of $25.8 million atSeptember 30, 2001, continues to improve over 2000 levels. The abundantprecipitation experienced in the Midwest this spring has resulted in increasedmaintenance opportunities at improved margins along the Mississippi River.

 

The demolition backlog level at September 30, 2001 was $30.8 million,which compares to $37.2 million at June 30, 2001 and $21.2 million at March 31,2001.   Included in backlog at September30, 2001 were two significant projects with a combined value of $21.0 million.

#### ** **

#### ** **

#### **Effect of Recently Issued Accounting Standards**

 

In June 2001, the Financial AccountingStandards Board issued Statements of Financial Accounting Standards No. 141,“Business Combinations” (SFAS 141) and No. 142, “Goodwill and Other Intangible Assets”(SFAS 142).  SFAS 141 requires thepurchase method of accounting for business combinations initiated after June30, 2001 and eliminates the pooling-of-interests method.  Additionally, SFAS 141 has transitionprovisions which apply to business combinations accounted for by the purchasemethod that were completed prior to July 1, 2001 which could require possiblereclassification of certain separately recognized intangible assets or goodwillcomponents.  SFAS 142 requires thatgoodwill and other intangible assets with indefinite useful lives nolonger  be amortized, but instead testedfor impairment at least annually.   TheCompany will be required to adopt these statements at the beginning of2002.   Management is currentlyevaluating the impact of the adoption of these standards, but does notanticipate that the adoption of these statements will have a material impact onthe Company’s financial position or results of operations or cash flows.

#### ** **

#### **Item3.  Quantitative and QualitativeDisclosures About Market Risk**

 

The market risk of the Company’s financial instruments as of September30, 2001 has not significantly changed since December 31, 2000.  The market risk profile of the Company onDecember 31, 2000 is disclosed in the Company’s 2000 Annual Report on Form10-K.

 

 

# **Part II**

 
| **Item  6  Exhibits and Reports on Form 8-K** |
|----------------------------------------------------|
|                                               |   |   |
| (a)                                                |   | Exhibits |
|                                               |   |   |
| (b)                                                |   | Reports on Form 8-K |
|                                               |   |   |
|                                               |   | No reports on Form 8-K were filed during the third  quarter of 2001. |

 

 

**SIGNATURE**

** **

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
|                    |   |   |   |   | Great Lakes Dredge & Dock Corporation                                              |
|-------------------------|--------|--------|--------|--------|----------------------------------------------------------------------------------------|
|                    |   |   |   |   |                                                                                   |
|                    |   |   |   |   |                                                                                   |
|                    |   |   |   |   |                                                                                   |
| Date:   11/13/2001 |   |   |   |   | By: /s/   Deborah A. Wensel                                                       |
|                    |   |   |   |   | Deborah A. Wensel                                                                      |
|                    |   |   |   |   | Vice President and Chief Financial Officer                                             |
|                    |   |   |   |   |                                                                                   |
|                    |   |   |   |   | (Principal Financial and Accounting Officer and  Duly Authorized Officer)

  |

 

**EXHIBITINDEX**

 

 
| Number |   | Document Description                                                                                                                                                                                                                              |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                              |
| 2.01   |   | Plan and Agreement of Merger dated as of August 19,  1998 between the Company and Great Lakes Dredge & Dock Acquisition, Inc.  (1)                                                                                                            |
| 2.02   |   | Stock Purchase Agreement by and among Great Lakes  Dredge & Dock Corporation and Great Lakes/North American Site Developers,  Inc. and North American Site Developers, Inc. and the Stockholders of North  American Site Developers, Inc. (2) |
| 3.01   |   | Restated Certificate of Incorporation of the  Company. (1)                                                                                                                                                                                        |
| 3.02   |   | Bylaws of the Company. (1)                                                                                                                                                                                                                        |
| 4.01   |   | Indenture dated as of August 19, 1998 among the  Company, the Subsidiary Guarantors and the Bank of New York, as Trustee. (1)                                                                                                                     |
| 4.02   |   | Form of 11 1⁄4% Senior Subordinated Note due 2008  (included in Exhibit 4.01). (1)                                                                                                                                                             |

----

| (1)    |   | Incorporated by reference to Form S-4 Registration  Statement of the Company (File No.333-64687) filed with the Securities and  Exchange Commission on September 29, 1998. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                       |
| (2)    |   | Incorporated by reference to the Company’s Current  Report on Form 8-K filed with the Securities and Exchange Commission on April  24, 2001.                          |