**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM10-Q**

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

 

**For thequarterly period ended June 30, 2002**

 

**OR**

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

 

**For thetransition periodfrom                  **

 

**CommissionFile Number 333-64687**

 

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| **GREAT  LAKES DREDGE & DOCK CORPORATION**                   |
|------------------------------------------------------------------|
| (Exact name of  registrant as specified in its charter)          |
|                                                             |   |   |
| **Delaware**                                                     |   | **13-3634726** |
| (State or other  jurisdiction  of incorporation or organization) |   | (IRS Employer  Identification No.) |
|                                                             |   |   |
| **2122  York Road, Oak Brook, Illinois**                         |   | **60523** |
| (Address of principal  executive offices)                        |   | (Zip Code) |

 

Registrant’s telephonenumber, including area code:  **(630) 574-3000**

 

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Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes ý  No o

 

As of August 8, 2002, there were outstanding 1,556,982shares of Class A Common Stock, 3,363,900 shares of Class B Common Stock and44,857 shares of Preferred Stock.

 

 

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**GreatLakes Dredge & Dock Corporation and Subsidiaries**

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

**SecuritiesExchange Act of 1934**

**For theQuarterly Period ended June 30, 2002**

 

**INDEX**

 
| **Part I**        | **Financial Information** |
|-------------------|---------------------------|
|              |                      |
|              | Item 1                    | Financial Statements (Unaudited) |
|              |                      |   |
|              |                      | Condensed  Consolidated Balance Sheets at June 30, 2002 and December 31, 2001 |
|              |                      |   |
|              |                      | Condensed  Consolidated Statements of Income for the Three and Six Months ended June 30,  2002 and 2001 |
|              |                      |   |
|              |                      | Condensed  Consolidated Statements of Cash Flows for the Six Months ended June 30, 2002  and 2001 |
|              |                      |   |
|              |                      | 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 1                    | Legal Proceedings |
|              |                      |   |
|              | Item 5                    | Other Information |
|              |                      |   |
|              | Item 6                    | Exhibits and  Reports on Form 8-K |
|              |
| **Signature**     |
|              |
| **Exhibit Index** |

 

1

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**Part I - Financial Information**

 

**GreatLakes Dredge & Dock Corporation and Subsidiaries**

**CondensedConsolidated Balance Sheets**

**(Unaudited)**

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

 
|                                                                                     |   | **June 30,  2002** |        | **December 31,  2001** |       |
|------------------------------------------------------------------------------------------|--------|--------------------|-------------|------------------------|------------|
| **Assets**                                                                               |   |               | ** **  |                   | ** ** |
| Current assets:                                                                          |   |               |        |                   |       |
| Cash and  equivalents                                                                    |   | $                  |  2,161 |                   | $          |  2,590 |   |
| Accounts  receivable, net                                                                |   | 44,771             |        | 30,407                 |       |
| Contract  revenues in excess of billings                                                 |   | 14,963             |        | 23,215                 |       |
| Inventories                                                                              |   | 13,898             |        | 14,291                 |       |
| Prepaid expenses  and other current assets                                               |   | 20,111             |        | 18,486                 |       |
|                                                                                     |   |               |        |                   |       |
| Total current  assets                                                                    |   | 95,904             |        | 88,989                 |       |
| Property and  equipment, net                                                             |   | 145,007            |        | 141,313                |       |
| Goodwill, net of  amortization of $1,455                                                 |   | 29,405             |        | 29,405                 |       |
| Inventories                                                                              |   | 9,434              |        | 9,229                  |       |
| Investments in  joint ventures                                                           |   | 6,413              |        | 6,331                  |       |
| Other assets                                                                             |   | 6,197              |        | 6,956                  |       |
| Total assets                                                                             |   | $                  | 292,360     |                   | $          | 282,223 |   |
|                                                                                     |   |               |        |                   |       |
| **Liabilities and Stockholders'  Deficit**                                               |   |               | ** **  |                   | ** ** |
| Current  liabilities:                                                                    |   |               |        |                   |       |
| Accounts payable                                                                         |   | $                  | 36,169      |                   | $          | 30,913 |   |
| Accrued expenses                                                                         |   | 20,130             |        | 28,497                 |       |
| Billings in  excess of contract revenues                                                 |   | 2,897              |        | 4,873                  |       |
| Current  maturities of long-term debt                                                    |   | 12,000             |        | 11,000                 |       |
|                                                                                     |   |               |        |                   |       |
| Total current  liabilities                                                               |   | 71,196             |        | 75,283                 |       |
| Long-term debt                                                                           |   | 180,749            |        | 173,728                |       |
| Deferred income  taxes                                                                   |   | 45,939             |        | 45,593                 |       |
| Other                                                                                    |   | 7,946              |        | 7,917                  |       |
|                                                                                     |   |               |        |                   |       |
| Total  liabilities                                                                       |   | 305,830            |        | 302,521                |       |
| Minority  interests                                                                      |   | 4,375              |        | 5,696                  |       |
| Commitments and  contingencies (Note 11)                                                 |   | —             |        | —                 |       |
| Stockholders'  deficit:                                                                  |   |               |        |                   |       |
| Preferred stock,  $.01 par value; 250,000 shares authorized:                             |   |               |        |                   |       |
| 45,000 issued;  44,857 outstanding in 2002 and 2001                                      |   | 1                  |        | 1                      |       |
| Common stock,  $.01 par value; 50,000,000 shares authorized:                             |   |               |        |                   |       |
| 5,000,000  issued; 4,920,882 outstanding in 2002 and 2001                                |   | 50                 |        | 50                     |       |
| Additional  paid-in capital                                                              |   | 50,457             |        | 50,457                 |       |
| Accumulated  deficit                                                                     |   | (68,307            | )           | (75,787                | )          |
| Accumulated  other comprehensive income (loss)                                           |   | 244                |        | (407                   | )          |
|                                                                                     |   |               |        |                   |       |
| Treasury stock,  at cost; 143 preferred shares and 79,118 common shares in 2002 and 2001 |   | (222               | )           | (222                   | )          |
| Note receivable  from stockholder                                                        |   | (68                | )           | (86                    | )          |
| Total  stockholders' deficit                                                             |   | (17,845            | )           | (25,994                | )          |
| Total  liabilities and stockholders' deficit                                        |   | $                  | 292,360     |                   | $          | 282,223 |   |

 

See notes to unauditedcondensed consolidated financial statements.

 

2

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

**Condensed Consolidated Statements of Income**

**(Unaudited)**

**(in thousands)**

 
|                                              |   | **Three Months Ended  June 30,** |   | **Six Months Ended  June 30,** |   |
|---------------------------------------------------|--------|----------------------------------|--------|--------------------------------|--------|
|                                              |   | **2002**                         |   | **2001**                       |   | **2002** |   | **2001** |   |
|                                              |   |                             |   |                           |   |   |   |   |   |
| Contract revenues                                 |   | $                                | 84,415 |                           | $      | 78,301 |   | $ | 163,388 |   | $ | 150,861 |   |
| Costs of contract revenues                        |   | 69,619                           |   | 63,925                         |   | 134,376 |   | 122,408 |   |
|                                              |   |                             |   |                           |   |   |   |   |   |
| Gross profit                                      |   | 14,796                           |   | 14,376                         |   | 29,012 |   | 28,453 |   |
| General and administrative expenses               |   | 6,606                            |   | 6,564                          |   | 13,326 |   | 12,025 |   |
|                                              |   |                             |   |                           |   |   |   |   |   |
| Operating income                                  |   | 8,190                            |   | 7,812                          |   | 15,686 |   | 16,428 |   |
| Interest expense, net                             |   | (5,299                           | )      | (5,286                         | )      | (10,594 | ) | (9,715 | ) |
| Equity in earnings of joint ventures              |   | 403                              |   | 307                            |   | 82 |   | 117 |   |
| Income before income taxes and minority interests |   | 3,294                            |   | 2,833                          |   | 5,174 |   | 6,830 |   |
| Income tax benefit (expense)                      |   | 2,342                            |   | (1,224                         | )      | 985 |   | (3,019 | ) |
| Minority interests                                |   | 208                              |   | (480                           | )      | 1,321 |   | (1,118 | ) |
| Net income                                        |   | $                                | 5,844  |                           | $      | 1,129 |   | $ | 7,480 |   | $ | 2,693 |   |

 

See notes to unauditedcondensed consolidated financial statements.

 

3

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

**Condensed Consolidated Statements of Cash Flows**

**(Unaudited)**

**(in thousands)**

 
|                                                                              |   | **Six Months Ended  June 30,** |   |
|-----------------------------------------------------------------------------------|--------|--------------------------------|--------|
|                                                                              |   | **2002**                       |   | **2001** |   |
| **Operating Activities**                                                          |   |                           |   |   |   |
| Net income                                                                        |   | $                              | 7,480  |   | $ | 2,693 |   |
| Adjustments to reconcile net income to net cash flows from operating  activities: |   |                           |   |   |   |
| Depreciation and amortization                                                     |   | 7,912                          |   | 6,993 |   |
| Earnings of joint ventures                                                        |   | (82                            | )      | (117 | ) |
| Minority interests                                                                |   | (1,321                         | )      | 1,118 |   |
| Deferred income taxes                                                             |   | 318                            |   | (72 | ) |
| Gain on dispositions of property and equipment                                    |   | (406                           | )      | (292 | ) |
| Other, net                                                                        |   | 809                            |   | 557 |   |
| Changes in assets and liabilities:                                                |   |                           |   |   |   |
| Accounts receivable, net                                                          |   | (14,364                        | )      | (3,044 | ) |
| Contract revenues in excess of billings                                           |   | 8,252                          |   | 3,417 |   |
| Inventories                                                                       |   | 188                            |   | (2,431 | ) |
| Prepaid expenses and other current assets                                         |   | (1,616                         | )      | (1,695 | ) |
| Accounts payable and accrued expenses                                             |   | (2,441                         | )      | (15,053 | ) |
| Billings in excess of contract revenues                                           |   | (1,976                         | )      | (1,769 | ) |
| Net cash flows from operating activities                                          |   | 2,753                          |   | (9,695 | ) |
| **Investing Activities**                                                          |   |                           |   |   |   |
| Purchases of property and equipment                                               |   | (11,755                        | )      | (3,798 | ) |
| Dispositions of property and equipment                                            |   | 555                            |   | 606 |   |
| Purchase of NASDI stock, net of cash acquired of $5,000                           |   | —                         |   | (30,800 | ) |
| Net cash flows from investing activities                                          |   | (11,200                        | )      | (33,992 | ) |
| **Financing Activities**                                                          |   |                           |   |   |   |
| Repayments of long-term debt                                                      |   | (5,000                         | )      | (4,175 | ) |
| Borrowings of revolving loans, net of repayments                                  |   | 13,000                         |   | 11,000 |   |
| Proceeds from issuance of 11 1/4% subordinated notes                              |   | —                         |   | 39,700 |   |
| Financing fees                                                                    |   | —                         |   | (2,500 | ) |
| Repayment on note receivable from stockholder                                     |   | 18                             |   | 15 |   |
| Net cash flows from financing activities                                          |   | 8,018                          |   | 44,040 |   |
| Net change in cash and equivalents                                                |   | (429                           | )      | 353 |   |
| Cash and equivalents at beginning of period                                       |   | 2,590                          |   | 1,137 |   |
| Cash and equivalents at end of period                                             |   | $                              | 2,161  |   | $ | 1,490 |   |
| **Supplemental Cash Flow Information**                                            |   |                           |   |   |   |
| Cash paid for interest                                                            |   | $                              | 9,751  |   | $ | 8,512 |   |
| Cash paid for taxes                                                               |   | $                              | 3,980  |   | $ | 2,848 |   |

 

See notes to unauditedcondensed consolidated financial statements.

 

4

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GREAT LAKES DREDGE &DOCK CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(dollars in thousands)

 

**1.****              Basisof presentation**

 

The accompanyingunaudited condensed consolidated financial statements have been prepared inaccordance with accounting principles generally accepted in the U.S. forinterim financial information. Accordingly, these financial statements do not include all theinformation in the notes required by generally accepted accounting principlesfor complete financial statements.  Inthe opinion of management, the unaudited condensed consolidated financialstatements include all adjustments (consisting of normal recurring adjustments)considered necessary for a fair presentation of the financial position, resultsof operations and cash flows as of and for the dates presented.  The unaudited condensed consolidatedfinancial statements and notes herein should be read in conjunction with theaudited consolidated financial statements of Great Lakes Dredge & DockCorporation and Subsidiaries (the “Company”) and the notes thereto, included inthe Company’s Annual Report filed on Form 10-K for the year ended December 31,2001.

 

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 can havesignificant 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.****              Comprehensiveincome**

 

Total comprehensiveincome is comprised of net income and net unrealized gains and losses on cashflow hedges.  Total comprehensive incomefor the three months ended June 30, 2002 and 2001 was $5,681 and $1,272,respectively.  Total comprehensiveincome for the six months ended June 30, 2002 and 2001 was $8,131 and $2,235,respectively.

 

**4.****              Riskmanagement activities**

 

The Company uses derivative instruments to managecommodity price and foreign currency exchange risks.  Such instruments are not used for trading purposes.   As of June 30, 2002, the Company is partyto various swap arrangements to hedge the price of a portion of its diesel fuelpurchase requirements for work in its backlog to be performed through March2003.  As of June 30, 2002, there were5.8 million gallons remaining on these contracts.  Under these agreements, the Company will pay fixed prices rangingfrom $0.55 to $0.71 per gallon.  At June30, 2002 and December 31, 2001, the fair value on these contracts was estimatedto be a gain (loss) of $399 and $(670), respectively, based on quoted marketprices.   The fair value at June 30,2002 and December 31, 2001 is recorded in other current assets and accruedliabilities, respectively. Ineffectiveness related to these fuel hedgearrangements was determined to be immaterial. The remaining gains included in accumulated other comprehensive incomeat June 30, 2002 will be reclassified into earnings over the next nine months,corresponding to the period during which the hedged fuel is expected to beutilized.

 

5

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The carrying values of other financial instrumentsincluded in current assets and current liabilities approximate fair values dueto the short-term maturities of these instruments.  The carrying value of long-term bank debt is a reasonableestimate of its fair value as interest rates are variable, based on theprevailing market rates.  At June 30,2002 and December 31, 2001, the Company had long-term subordinated notesoutstanding with a recorded book value of $154,749 and $154,728,respectively.   The fair value of thesenotes was $162,750 and $158,294 at June 30, 2002 and December 31, 2001, respectively,based on quoted market prices.  TheCompany is contingently liable under letters of credit and other financialguarantees.  It is not practicable toestimate the fair value of these financial instruments; however, the Companydoes not expect any material losses to result from these financial instrumentssince performance is not likely to be required.

 

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

 

In April 2001, the Companypurchased 80% of the capital stock of North American Site Developers, Inc.(“NASDI”), a demolition service provider located in the Boston, Massachusettsarea.  The acquisition wasaccounted 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 results of operations for the six months endedJune 30, 2002 include the results of NASDI.  The following pro forma combined results of operations for the sixmonths ended June 30, 2001 have been prepared assuming the acquisition hadoccurred as of the beginning of the period. The pro forma amounts include adjustments to reflect increased intereston debt incurred to finance the acquisition and exclude goodwill amortization.The pro forma operating results have been prepared for comparative purposesonly and are not necessarily indicative of the results of operations that mayoccur in the future or that would have occurred had this acquisition beenconsummated at the beginning of the period presented.

 
|                                               |   | **Six Months  Ended  June 30,** |    |
|----------------------------------------------------|--------|---------------------------------|---------|
|                                               |   | **Actual  2002**                |    | **Pro forma  2001** |   |
| Contract  revenues                                 |   | $                               | 163,388 |   | $ | 159,567 |   |
| Operating income                                   |   | 15,686                          |    | 19,320 |   |
| Income before  income taxes and minority interests |   | 5,174                           |    | 8,499 |   |
| Net income                                         |   | 7,480                           |    | 3,489 |   |
|                                                    |        |                                 |         |  |  |  |  |

 

**6.****              Accountsreceivable**

 

Accounts receivable atJune 30, 2002 and December 31, 2001 are as follows:

 
|                            |   | **June 30,  2002** |   | **December 31,  2001** |   |
|---------------------------------|--------|--------------------|--------|------------------------|--------|
| Completed contracts             |   | $                  | 18,844 |                   | $      | 11,776 |   |
| Contracts in progress           |   | 21,879             |   | 16,774                 |   |
| Retainage                       |   | 4,958              |   | 3,228                  |   |
|                            |   | 45,681             |   | 31,778                 |   |
| Allowance for doubtful accounts |   | (910               | )      | (1,371                 | )      |
|                            |   |               |   |                   |   |
|                            |   | $                  | 44,771 |                   | $      | 30,407 |   |

 

6

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**7.****              Contractsin progress**

 

The components ofcontracts in progress at June 30, 2002 and December 31, 2001 are as follows:

 
|                                                                            |   | **June 30,  2002** |    | **December 31,  2001** |   |
|---------------------------------------------------------------------------------|--------|--------------------|---------|------------------------|--------|
| Costs and earnings in excess of billings:                                       |   |               |    |                   |   |
| Costs and earnings for contracts in progress                                    |   | $                  | 120,904 |                   | $      | 156,539 |   |
| Amounts billed                                                                  |   | (108,005           | )       | (136,401               | )      |
| Costs and earnings in excess of billings for contracts in progress              |   | 12,899             |    | 20,138                 |   |
| Costs and earnings in excess of billings for completed contracts                |   | 2,064              |    | 3,077                  |   |
|                                                                            |   |               |    |                   |   |
|                                                                            |   | $                  | 14,963  |                   | $      | 23,215 |   |
|                                                                            |   |               |    |                   |   |
| Prepaid contract costs (included in prepaid expenses and other current  assets) |   | $                  | 4,490   |                   | $      | 5,390 |   |
|                                                                            |   |               |    |                   |   |
| Billings in excess of costs and earnings:                                       |   |               |    |                   |   |
| Amounts billed                                                                  |   | $                  | (32,741 | )                      | $      | (77,860 | ) |
| Costs and earnings for contracts in progress                                    |   | 29,844             |    | 72,987                 |   |
|                                                                            |   |               |    |                   |   |
|                                                                            |   | $                  | (2,897  | )                      | $      | (4,873 | ) |

 

**8.****              Accruedexpenses**

 

Accrued expenses at June30, 2002 and December 31, 2001 are as follows:

 
|                          |   | **June 30,  2002** |   | **December 31,  2001** |   |
|-------------------------------|--------|--------------------|--------|------------------------|--------|
| Interest                      |   | $                  | 6,883  |                   | $      | 6,721 |   |
| Insurance                     |   | 4,954              |   | 5,386                  |   |
| Payroll and employee benefits |   | 4,689              |   | 6,273                  |   |
| U.S. income and other taxes   |   | 1,398              |   | 6,492                  |   |
| Equipment leases              |   | 1,052              |   | 1,313                  |   |
| Other                         |   | 1,154              |   | 2,312                  |   |
|                          |   |               |   |                   |   |
|                          |   | $                  | 20,130 |                   | $      | 28,497 |   |

 

**9.****              Incometaxes**

 

In 1992, an underwaterutility tunnel in the City of Chicago failed adjacent to a construction sitecompleted by Great Lakes Dredge & Dock Company ("GLDD"), awholly-owned subsidiary of the Company. The failure resulted in a flooding of the tunnel and building basementsserviced by the tunnel.  Numerous suitswere filed against GLDD for claims of flood damage to building basements andlosses due to business interruption. During 1997, all outstanding claims were settled related to the floodlitigation and settlement payments totaling $11,000 were made by theCompany.  Based on a favorable judgmentby the U.S. District Court, the Company recorded a receivable for reimbursementby its insurer of the settlement amounts paid. As part of the recapitalization in 1998, the right to receive anyinsurance reimbursement for these amounts was assigned to the

 

7

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Company’s former owner for book purposes.  In 2001, the favorable decision wasoverturned but then appealed.  On April15, 2002, the decision was upheld and finalized by the Supreme Court of theUnited States confirming that amounts paid by the Company will not be recoveredfrom the insurer.  As a result, theCompany’s tax provision for the three and six months ended June 30, 2002reflects a benefit to tax expense of $3,740 related to these settlementpayments.  Due to the impact of thissignificant deduction, the Company’s effective tax rate for the six monthsended June 30, 2002 was a benefit of 14.1%, compared to an expense rate of48.4% for same period of 2001.

 

**10.****       Segmentinformation**

 

TheCompany and its subsidiaries operate in two reportable segments: dredging anddemolition.  Prior to the acquisition ofNASDI in April 2001, the Company’s only reportable segment was dredging.  The Company’s financial reporting systemspresent various data for management to run the business, including profit andloss statements prepared according to the segments presented.   Segment information for the periodspresented is as follows:

 
|              |   | **Three Months Ended  June 30,** |   | **Six Months Ended  June 30,** |   |
|-------------------|--------|----------------------------------|--------|--------------------------------|--------|
|              |   | **2002**                         |   | **2001**                       |   | **2002** |   | **2001** |   |
| **Dredging**      |   |                             |   |                           |   |   |   |   |   |
| Contract revenues |   | $                                | 72,047 |                           | $      | 69,630 |   | $ | 142,350 |   | $ | 142,190 |   |
| Operating income  |   | 6,383                            |   | 6,893                          |   | 12,470 |   | 15,509 |   |
|              |   |                             |   |                           |   |   |   |   |   |
| **Demolition**    |   |                             |   |                           |   |   |   |   |   |
| Contract revenues |   | $                                | 12,368 |                           | $      | 8,671 |   | $ | 21,038 |   | $ | 8,671 |   |
| Operating income  |   | 1,807                            |   | 919                            |   | 3,216 |   | 919 |   |
|              |   |                             |   |                           |   |   |   |   |   |
| **Total**         |   |                             |   |                           |   |   |   |   |   |
| Contract revenues |   | $                                | 84,415 |                           | $      | 78,301 |   | $ | 163,388 |   | $ | 150,861 |   |
| Operating income  |   | 8,190                            |   | 7,812                          |   | 15,686 |   | 16,428 |   |

 

**11.****       Commitmentsand contingencies**

 

At June 30, 2002, the Company iscontingently liable, in the normal course of business, for $11,422 in lettersof credit related primarily to contract performance guarantees.

 

Amboy Aggregates, a jointventure in which the Company has a 50% equity interest, 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 $1,541 atJune 30, 2002.

 

As is customary withnegotiated contracts with the federal government, the government has the rightto audit the books and records of the Company to ensure compliance with suchcontracts and applicable federal laws. The government has the ability to seek a price adjustment based on theresults of such audit.  Any such auditshave not had and are not expected to have a material impact on the financialposition or operations of the Company.

 

In the normal course ofbusiness, 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.

 

8

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**12.****       Effectsof recently issued accounting pronouncements**

 

The Company has adopted Statement of FinancialAccounting Standards ("SFAS") No. 141, “Business Combinations” as ofJanuary 1, 2002.   This statementrequires the purchase method of accounting for business combinations initiatedafter June 30, 2001 and eliminates the pooling-of-interests method.

 

The Company has also adopted SFAS No. 142, “Goodwilland Other Intangible Assets” as of January 1, 2002.  This statement requires that goodwill and other intangible assetswith indefinite useful lives no longer be amortized, but instead be assessedannually for impairment with the initial assessment to be completed within thefirst six months following adoption of the standard.   The required initial impairment evaluation was performed in thefirst quarter of 2002 resulting in no impairment in the value of the Company’sgoodwill.   The Company’s goodwillrelates solely to its acquisition of NASDI, which took place in the secondquarter of 2001. Through June 30, 2001, the Company had recorded goodwillamortization totaling $421.

 

In June 2001, the Financial Accounting Standards Board("FASB") also issued SFAS No. 143, “Accounting for Asset RetirementObligations,” which addresses the recognition and remeasurement of obligationsassociated with the retirement of tangible long-lived assets.   SFAS No. 143 is effective for financialstatements issued for fiscal years beginning after June 15, 2002.  The Company is currently assessing theimpact of adopting this statement, but does not anticipate that adoption willhave a material effect on its financial position or results of operations.

 

In August 2001, the FASB issued SFAS No. 144,“Accounting for Impairment or Disposal of Long-Lived Assets,” which supersedesprevious guidance and provides additional clarification as to when and how tomeasure a loss upon impairment or disposal of long-lived assets.  The Company adopted SFAS No. 144 effectiveJanuary 1, 2002, and its initial evaluation resulted in no impairment in thevalue of the Company’s long-lived assets.

 

**13.  Subsequentevent**

 

On July 31, 2002, Hidrovia S.A.("Hidrovia"), an Argentine corporation, filed a complaint against theCompany alleging that the Company tortuously interfered with Hidrovia'scontractual rights relating to the dredging and maintenance of certainnavigable waterways in Argentina.  Thecomplaint seeks injunctive relief and damages of an unspecified amount.  The Company believes it has meritoriousdefenses and intends to vigorously defend the case.

 

**14.****       Supplementalcondensed consolidating financial information**

 

Included in the Company’s long-term debt is $155,000of 111⁄4% senior subordinated notes which will mature on August 15, 2008.  The payment obligations of the Company underthe senior subordinated notes are guaranteed by the Company’s wholly owneddomestic subsidiaries and NASDI (the “Subsidiary Guarantors”).  Such guarantees are full, unconditional andjoint and several.  Separate financialstatements of the Subsidiary Guarantors are not presented because the Company’smanagement has determined that they would not be material to investors.  The following supplemental financialinformation sets forth, on a combined basis, the balance sheets, statements ofoperations and statements of cash flows for the Subsidiary Guarantors, theCompany’s non-guarantor subsidiaries and for the Company (“GLD Corporation”).

 

9

----

 

**GREATLAKES DREDGE & DOCK CORPORATION AND SUNSIDIARIES**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**(Inthousands)**

 

**Condensed Consolidating Balance Sheetat June 30, 2002**

** **
|                                                          |   | **Guarantor  Subsidiaries** |       | **Other  Subsidiaries** |       | **GLD  Corporation** |       | **Eliminations** |       | **Consolidated  Totals** |       |
|---------------------------------------------------------------|--------|-----------------------------|------------|-------------------------|------------|----------------------|------------|------------------|------------|--------------------------|------------|
| **ASSETS**                                                    |   |                        |       |                    |       |                 |       |             |       |                     |       |
| Current assets:                                               |   |                        |       |                    |       |                 |       |             |       |                     |       |
| Cash and  equivalents                                         |   | $                           | 2,079      |                    | $          | 82                   |       | $                | —     |                     | $          | — |   | $ | 2,161 |   |
| Accounts  receivable, net                                     |   | 39,013                      |       | 5,758                   |       | —               |       | —           |       | 44,771                   |       |
| Receivables from  affiliates                                  |   | 15,689                      |       | 13,423                  |       | 6,000                |       | (35,112          | )          | —                   |       |
| Current portion  of net investment in direct financing leases |   | —                      |       | 882                     |       | 508                  |       | (1,390           | )          | —                   |       |
| Contract  revenues in excess of billings                      |   | 12,476                      |       | 2,487                   |       | —               |       | —           |       | 14,963                   |       |
| Inventories                                                   |   | 9,106                       |       | 4,792                   |       | —               |       | —           |       | 13,898                   |       |
| Prepaid expenses  and other current assets                    |   | 20,434                      |       | (1,451                  | )          | 1,128                |       | —           |       | 20,111                   |       |
| Total current  assets                                         |   | 98,797                      |       | 25,973                  |       | 7,636                |       | (36,502          | )          | 95,904                   |       |
| Property and  equipment, net                                  |   | 91,849                      |       | 14,307                  |       | 38,851               |       | —           |       | 145,007                  |       |
| Goodwill, net of  amortization of $1,455                      |   | 29,405                      |       | —                  |       | —               |       | —           |       | 29,405                   |       |
| Investments in  subsidiaries                                  |   | 12,734                      |       | —                  |       | 137,714              |       | (150,448         | )          | —                   |       |
| Notes receivable  from affiliates                             |   | 11,043                      |       | —                  |       | 18,000               |       | (29,043          | )          | —                   |       |
| Inventories                                                   |   | 9,434                       |       | —                  |       | —               |       | —           |       | 9,434                    |       |
| Investments in  joint ventures                                |   | 6,413                       |       | —                  |       | —               |       | —           |       | 6,413                    |       |
| Other assets                                                  |   | 3,390                       |       | —                  |       | 2,807                |       | —           |       | 6,197                    |       |
|                                                          |   | $                           | 263,065    |                    | $          | 40,280               |       | $                | 205,008    |                     | $          | (215,993 | ) | $ | 292,360 |   |
|                                                          |   |                        |       |                    |       |                 |       |             |       |                     |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIT)**      |   |                        | ** ** |                    | ** ** |                 | ** ** |             | ** ** |                     | ** ** |
| Current  liabilities:                                         |   |                        |       |                    |       |                 |       |             |       |                     |       |
| Accounts payable                                              |   | $                           | 32,335     |                    | $          | 3,834                |       | $                | —     |                     | $          | — |   | $ | 36,169 |   |
| Payables to  affiliates                                       |   | 15,531                      |       | 19,581                  |       | —               |       | (35,112          | )          | —                   |       |
| Accrued expenses                                              |   | 10,905                      |       | 1,884                   |       | 7,341                |       | —           |       | 20,130                   |       |
| Current portion  of obligations under capital leases          |   | —                      |       | 1,390                   |       | —               |       | (1,390           | )          | —                   |       |
| Billings in  excess of contract revenues                      |   | 2,897                       |       | —                  |       | —               |       | —           |       | 2,897                    |       |
| Current  maturities of long-term debt                         |   | —                      |       | —                  |       | 12,000               |       | —           |       | 12,000                   |       |
| Total current  liabilities                                    |   | 61,668                      |       | 26,689                  |       | 19,341               |       | (36,502          | )          | 71,196                   |       |
| Long-term debt                                                |   | 3,000                       |       | —                  |       | 177,749              |       | —           |       | 180,749                  |       |
| Notes payable to  affiliates                                  |   | 18,000                      |       | —                  |       | 11,043               |       | (29,043          | )          | —                   |       |
| Deferred income  taxes                                        |   | 33,378                      |       | 176                     |       | 12,385               |       | —           |       | 45,939                   |       |
| Other                                                         |   | 5,112                       |       | 499                     |       | 2,335                |       | —           |       | 7,946                    |       |
| Total  liabilities                                            |   | 121,158                     |       | 27,364                  |       | 222,853              |       | (65,545          | )          | 305,830                  |       |
| Minority  interests                                           |   | —                      |       | —                  |       | —               |       | 4,375            |       | 4,375                    |       |
| Stockholders’  equity (deficit)                          |   | 141,907                     |       | 12,916                  |       | (17,845              | )          | (154,823         | )          | (17,845                  | )          |
|                                                          |   | $                           | 263,065    |                    | $          | 40,280               |       | $                | 205,008    |                     | $          | (215,993 | ) | $ | 292,360 |   |

 

10

----

 

**Condensed Consolidating Balance Sheetat December 31, 2001**

 
|                                                          |   | **Guarantor  Subsidiaries** |       | **Other  Subsidiaries** |       | **GLD  Corporation** |       | **Eliminations** |       | **Consolidated  Totals** |       |
|---------------------------------------------------------------|--------|-----------------------------|------------|-------------------------|------------|----------------------|------------|------------------|------------|--------------------------|------------|
| **ASSETS**                                                    |   |                        |       |                    |       |                 |       |             |       |                     |       |
| Current assets:                                               |   |                        |       |                    |       |                 |       |             |       |                     |       |
| Cash and  equivalents                                         |   | $                           | 2,515      |                    | $          | 75                   |       | $                | —     |                     | $          | — |   | $ | 2,590 |   |
| Accounts  receivable, net                                     |   | 27,629                      |       | 2,778                   |       | —               |       | —           |       | 30,407                   |       |
| Receivables from  affiliates                                  |   | 5,051                       |       | 6,613                   |       | 6,000                |       | (17,664          | )          | —                   |       |
| Current portion  of net investment in direct financing leases |   | —                      |       | 1,946                   |       | 1,661                |       | (3,607           | )          | —                   |       |
| Contract  revenues in excess of billings                      |   | 21,120                      |       | 2,095                   |       | —               |       | —           |       | 23,215                   |       |
| Inventories                                                   |   | 9,691                       |       | 4,600                   |       | —               |       | —           |       | 14,291                   |       |
| Prepaid expenses  and other current assets                    |   | 16,878                      |       | 778                     |       | 830                  |       | —           |       | 18,486                   |       |
| Total current  assets                                         |   | 82,884                      |       | 18,885                  |       | 8,491                |       | (21,271          | )          | 88,989                   |       |
| Property and  equipment, net                                  |   | 85,942                      |       | 15,118                  |       | 40,253               |       | —           |       | 141,313                  |       |
| Goodwill, net of  amortization of $1,455                      |   | 29,405                      |       | —                  |       | —               |       | —           |       | 29,405                   |       |
| Net investment  in direct financing leases                    |   | —                      |       | —                  |       | —               |       | —           |       | —                   |       |
| Investments in  subsidiaries                                  |   | 18,932                      |       | —                  |       | 121,345              |       | (140,277         | )          | —                   |       |
| Notes receivable  from affiliate                              |   | 12,796                      |       | —                  |       | 21,000               |       | (33,796          | )          | —                   |       |
| Inventories                                                   |   | 9,229                       |       | —                  |       | —               |       | —           |       | 9,229                    |       |
| Investments in  joint ventures                                |   | 6,331                       |       | —                  |       | —               |       | —           |       | 6,331                    |       |
| Other assets                                                  |   | 3,651                       |       | —                  |       | 3,305                |       | —           |       | 6,956                    |       |
|                                                          |   | $                           | 249,170    |                    | $          | 34,003               |       | $                | 194,394    |                     | $          | (195,344 | ) | $ | 282,223 |   |
|                                                          |   |                        |       |                    |       |                 |       |             |       |                     |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIT)**      |   |                        | ** ** |                    | ** ** |                 | ** ** |             | ** ** |                     | ** ** |
| Current  liabilities:                                         |   |                        |       |                    |       |                 |       |             |       |                     |       |
| Accounts payable                                              |   | $                           | 26,294     |                    | $          | 4,619                |       | $                | —     |                     | $          | — |   | $ | 30,913 |   |
| Payables to  affiliates                                       |   | 14,966                      |       | 2,698                   |       | —               |       | (17,664          | )          | —                   |       |
| Accrued expenses                                              |   | 13,887                      |       | 3,951                   |       | 10,659               |       | —           |       | 28,497                   |       |
| Current portion  of obligations under capital leases          |   | —                      |       | 3,607                   |       | —               |       | (3,607           | )          | —                   |       |
| Billings in  excess of contract revenues                      |   | 4,873                       |       | —                  |       | —               |       | —           |       | 4,873                    |       |
| Current  maturities of long-term debt                         |   | —                      |       | —                  |       | 11,000               |       | —           |       | 11,000                   |       |
| Total current  liabilities                                    |   | 60,020                      |       | 14,875                  |       | 21,659               |       | (21,271          | )          | 75,283                   |       |
| Long-term debt                                                |   | 3,000                       |       | —                  |       | 170,728              |       | —           |       | 173,728                  |       |
| Note payable to  affiliate                                    |   | 21,000                      |       | —                  |       | 12,796               |       | (33,796          | )          | —                   |       |
| Deferred income  taxes                                        |   | 32,549                      |       | 172                     |       | 12,872               |       | —           |       | 45,593                   |       |
| Foreign income  taxes                                         |   | —                      |       | —                  |       | —               |       | —           |       | —                   |       |
| Other                                                         |   | 5,090                       |       | 494                     |       | 2,333                |       | —           |       | 7,917                    |       |
| Total  liabilities                                            |   | 121,659                     |       | 15,541                  |       | 220,388              |       | (55,067          | )          | 302,521                  |       |
| Minority  interests                                           |   | —                      |       | —                  |       | —               |       | 5,696            |       | 5,696                    |       |
| Stockholders’  equity (deficit)                          |   | 127,511                     |       | 18,462                  |       | (25,994              | )          | (145,973         | )          | (25,994                  | )          |
|                                                          |   | $                           | 249,170    |                    | $          | 34,003               |       | $                | 194,394    |                     | $          | (195,344 | ) | $ | 282,223 |   |

 

11

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**Condensed Consolidating Statement ofIncome for the three months ended June 30, 2002**

** **
|                                                      |   | **Guarantor  Subsidiaries** |   | **Other  Subsidiaries** |   | **GLD  Corporation** |   | **Eliminations** |   | **Consolidated  Totals** |   |
|-----------------------------------------------------------|--------|-----------------------------|--------|-------------------------|--------|----------------------|--------|------------------|--------|--------------------------|--------|
|                                                      |   |                        |   |                    |   |                 |   |             |   |                     |   |
| Contract  revenues                                        |   | $                           | 74,767 |                    | $      | 16,656               |   | $                | — |                     | $      | (7,008 | ) | $ | 84,415 |   |
| Costs of  contract revenues                               |   | (60,580                     | )      | (15,457                 | )      | (590                 | )      | 7,008            |   | (69,619                  | )      |
| Gross profit  (loss)                                      |   | 14,187                      |   | 1,199                   |   | (590                 | )      | —           |   | 14,796                   |   |
| General and  administrative expenses                      |   | (4,843                      | )      | (1,671                  | )      | (92                  | )      | —           |   | (6,606                   | )      |
| Operating income  (loss)                                  |   | 9,344                       |   | (472                    | )      | (682                 | )      | —           |   | 8,190                    |   |
| Interest  expense, net                                    |   | (597                        | )      | (197                    | )      | (4,505               | )      | —           |   | (5,299                   | )      |
| Equity in (loss)  earnings of subsidiaries                |   | (604                        | )      | —                  |   | 9,196                |   | (8,592           | )      | —                   |   |
| Equity in  earnings of joint ventures                     |   | 403                         |   | —                  |   | —               |   | —           |   | 403                      |   |
| Income (loss)  before income taxes and minority interests |   | 8,546                       |   | (669                    | )      | 4,009                |   | (8,592           | )      | 3,294                    |   |
| Income tax  benefit (expense)                             |   | 662                         |   | (155                    | )      | 1,835                |   | —           |   | 2,342                    |   |
| Minority  interests                                       |   | —                      |   | —                  |   | —               |   | 208              |   | 208                      |   |
| Net income  (loss)                                        |   | $                           | 9,208  |                    | $      | (824                 | )      | $                | 5,844  |                     | $      | (8,384 | ) | $ | 5,844 |   |

 

**Condensed Consolidating Statement ofIncome for the three months ended June 30, 2001**

 
|                                                      |   | **Guarantor  Subsidiaries** |   | **Other  Subsidiaries** |   | **GLD  Corporation** |   | **Eliminations** |   | **Consolidated  Totals** |   |
|-----------------------------------------------------------|--------|-----------------------------|--------|-------------------------|--------|----------------------|--------|------------------|--------|--------------------------|--------|
|                                                      |   |                        |   |                    |   |                 |   |             |   |                     |   |
| Contract  revenues                                        |   | $                           | 61,232 |                    | $      | 17,416               |   | $                | — |                     | $      | (347 | ) | $ | 78,301 |   |
| Costs of  contract revenues                               |   | (48,838                     | )      | (14,825                 | )      | (609                 | )      | 347              |   | (63,925                  | )      |
| Gross profit  (loss)                                      |   | 12,394                      |   | 2,591                   |   | (609                 | )      | —           |   | 14,376                   |   |
| General and  administrative expenses                      |   | (5,564                      | )      | (930                    | )      | (70                  | )      | —           |   | (6,564                   | )      |
| Operating income  (loss)                                  |   | 6,830                       |   | 1,661                   |   | (679                 | )      | —           |   | 7,812                    |   |
| Interest  expense, net                                    |   | (627                        | )      | (180                    | )      | (4,479               | )      | —           |   | (5,286                   | )      |
| Equity in  earnings of subsidiaries                       |   | 986                         |   | —                  |   | 4,337                |   | (5,323           | )      | —                   |   |
| Equity in  earnings of joint ventures                     |   | 307                         |   | —                  |   | —               |   | —           |   | 307                      |   |
| Income (loss)  before income taxes and minority interests |   | 7,496                       |   | 1,481                   |   | (821                 | )      | (5,323           | )      | 2,833                    |   |
| Income tax  (expense) benefit                             |   | (2,982                      | )      | (192                    | )      | 1,950                |   | —           |   | (1,224                   | )      |
| Minority  interests                                       |   | —                      |   | —                  |   | —               |   | (480             | )      | (480                     | )      |
| Net income                                                |   | $                           | 4,514  |                    | $      | 1,289                |   | $                | 1,129  |                     | $      | (5,803 | ) | $ | 1,129 |   |

 

12

----

** **

**Condensed Consolidating Statement ofIncome for the six months ended June 30, 2002**

 
|                                                      |   | **Guarantor  Subsidiaries** |          | **Other  Subsidiaries** |   | **GLD  Corporation** |   | **Eliminations** |         | **Consolidated  Totals** |   |          |
|-----------------------------------------------------------|--------|-----------------------------|---------------|-------------------------|--------|----------------------|--------|------------------|--------------|--------------------------|--------|---------------|
|                                                      |   |                        |          |                    |   |                 |   |             |         |                     |   |          |
| Contract  revenues                                        |   | $                           |  143,411 |                    | $      |  32,116         |   | $                |  — |                     | $      |  (12,139 | ) | $ |  163,388 |   |
| Costs of contract  revenues                               |   | (111,619                    | )             | (33,962                 | )      | (934                 | )      | 12,139           |         | (134,376                 | )      |
| Gross profit  (loss)                                      |   | 31,792                      |          | (1,846                  | )      | (934                 | )      | —           |         | 29,012                   |   |
| General and  administrative expenses                      |   | (10,181                     | )             | (3,053                  | )      | (92                  | )      | —           |         | (13,326                  | )      |
| Operating income  (loss)                                  |   | 21,611                      |          | (4,899                  | )      | (1,026               | )      | —           |         | 15,686                   |   |
| Interest  expense, net                                    |   | (1,281                      | )             | (318                    | )      | (8,995               | )      | —           |         | (10,594                  | )      |
| Equity in (loss)  earnings of subsidiaries                |   | (4,143                      | )             | —                  |   | 14,314               |   | (10,171          | )            | —                   |   |
| Equity in  earnings of joint ventures                     |   | 82                          |          | —                  |   | —               |   | —           |         | 82                       |   |
| Income (loss)  before income taxes and minority interests |   | 16,269                      |          | (5,217                  | )      | 4,293                |   | (10,171          | )            | 5,174                    |   |
| Income tax  (expense) benefit                             |   | (1,873                      | )             | (329                    | )      | 3,187                |   | —           |         | 985                      |   |
| Minority  interests                                       |   | —                      |          | —                  |   | —               |   | 1,321            |         | 1,321                    |   |
| Net income  (loss)                                        |   | $                           |  14,396  |                    | $      |  (5,546         | )      | $                |  7,480  |                     | $      |  (8,850  | ) | $ |  7,480 |   |
|                                                           |        |                             |               |                         |        |                      |        |                  |              |                          |        |               |  |  |  |  |  |  |

 

**Condensed Consolidating Statement ofIncome for the six months ended June 30, 2001**

 
|                                                      |   | **Guarantor  Subsidiaries** |          | **Other  Subsidiaries** |   | **GLD  Corporation** |   | **Eliminations** |         | **Consolidated  Totals** |   |
|-----------------------------------------------------------|--------|-----------------------------|---------------|-------------------------|--------|----------------------|--------|------------------|--------------|--------------------------|--------|
|                                                      |   |                        |          |                    |   |                 |   |             |         |                     |   |
| Contract  revenues                                        |   | $                           |  128,641 |                    | $      |  30,867         |   | $                |  — |                     | $      |  (8,647 | ) | $ |  150,861 |   |
| Costs of  contract revenues                               |   | (105,827                    | )             | (24,177                 | )      | (1,051               | )      | 8,647            |         | (122,408                 | )      |
| Gross profit  (loss)                                      |   | 22,814                      |          | 6,690                   |   | (1,051               | )      | —           |         | 28,453                   |   |
| General and  administrative expenses                      |   | (9,981                      | )             | (1,974                  | )      | (70                  | )      | —           |         | (12,025                  | )      |
| Operating income  (loss)                                  |   | 12,833                      |          | 4,716                   |   | (1,121               | )      | —           |         | 16,428                   |   |
| Interest  expense, net                                    |   | (471                        | )             | (383                    | )      | (8,861               | )      | —           |         | (9,715                   | )      |
| Equity in  earnings of subsidiaries                       |   | 3,007                       |          | —                  |   | 9,012                |   | (12,019          | )            | —                   |   |
| Equity in  earnings of joint venture                      |   | 117                         |          | —                  |   | —               |   | —           |         | 117                      |   |
| Income (loss)  before income taxes and minority interests |   | 15,486                      |          | 4,333                   |   | (970                 | )      | (12,019          | )            | 6,830                    |   |
| Income tax  (expense) benefit                             |   | (6,305                      | )             | (377                    | )      | 3,663                |   | —           |         | (3,019                   | )      |
| Minority  interests                                       |   | —                      |          | —                  |   | —               |   | (1,118           | )            | (1,118                   | )      |
| Net income                                                |   | $                           |  9,181   |                    | $      |  3,956          |   | $                |  2,693  |                     | $      |  (13,137 | ) | $ |  2,693 |   |

 

13

----

 

**Condensed Consolidating Statement ofCash Flows for the six months ended June 30, 2002**

** **
|                                                                                     |   | **Guarantor  Subsidiaries** |   | **Other  Subsidiaries** |   | **GLD  Corporation** |   | **Eliminations** |   | **Consolidated  Totals** |   |
|------------------------------------------------------------------------------------------|--------|-----------------------------|--------|-------------------------|--------|----------------------|--------|------------------|--------|--------------------------|--------|
|                                                                                     |   |                        |   |                    |   |                 |   |             |   |                     |   |
| **Operating  Activities**                                                                |   |                        |   |                    |   |                 |   |             |   |                     |   |
| Net income  (loss)                                                                       |   | $                           | 14,396 |                    | $      | (5,546               | )      | $                | 7,480  |                     | $      | (8,850 | ) | $ | 7,480 |   |
| Adjustments to  reconcile net income (loss) to net cash flows from operating activities: |   |                        |   |                    |   |                 |   |             |   |                     |   |
| Depreciation                                                                             |   | 5,528                       |   | 1,059                   |   | 1,325                |   | —           |   | 7,912                    |   |
| Loss (earnings)  of subsidiaries and joint ventures                                      |   | 4,143                       |   | —                  |   | (14,396              | )      | 10,171           |   | (82                      | )      |
| Minority  interests                                                                      |   | —                      |   | —                  |   | —               |   | (1,321           | )      | (1,321                   | )      |
| Deferred income  taxes                                                                   |   | 801                         |   | 4                       |   | (487                 | )      | —           |   | 318                      |   |
| Gain on  dispositions of property and equipment                                          |   | (406                        | )      | —                  |   | —               |   | —           |   | (406                     | )      |
| Other, net                                                                               |   | 304                         |   | 5                       |   | 500                  |   | —           |   | 809                      |   |
| Changes in  assets and liabilities:                                                      |   |                        |   | —                  |   |                 |   |             |   |                     |   |
| Accounts  receivable, net                                                                |   | (11,384                     | )      | (2,980                  | )      | —               |   | —           |   | (14,364                  | )      |
| Contract  revenues in excess of billings                                                 |   | 8,644                       |   | (392                    | )      | —               |   | —           |   | 8,252                    |   |
| Inventories                                                                              |   | 380                         |   | (192                    | )      | —               |   | —           |   | 188                      |   |
| Prepaid expenses  and other current assets                                               |   | (3,723                      | )      | 2,229                   |   | (122                 | )      | —           |   | (1,616                   | )      |
| Accounts payable  and accrued expenses                                                   |   | 3,322                       |   | (2,852                  | )      | (2,911               | )      | —           |   | (2,441                   | )      |
| Billings in  excess of contract revenues                                                 |   | (1,976                      | )      | —                  |   | —               |   | —           |   | (1,976                   | )      |
| Net cash flows  from operating activities                                                |   | 20,029                      |   | (8,665                  | )      | (8,611               | )      | —           |   | 2,753                    |   |
| **Investing  Activities**                                                                |   |                        |   |                    |   |                 |   |             |   |                     |   |
| Purchases of  property and equipment                                                     |   | (11,507                     | )      | (248                    | )      | —               |   | —           |   | (11,755                  | )      |
| Dispositions of  property and equipment                                                  |   | 555                         |   | —                  |   | —               |   | —           |   | 555                      |   |
| Net cash flows  from investing activities                                                |   | (10,952                     | )      | (248                    | )      | —               |   | —           |   | (11,200                  | )      |
| **Financing  Activities**                                                                |   |                        |   |                    |   |                 |   |             |   |                     |   |
| Repayments of  long-term debt                                                            |   | —                      |   | —                  |   | (5,000               | )      | —           |   | (5,000                   | )      |
| Borrowings of  revolving loans, net of repayments                                        |   | —                      |   | —                  |   | 13,000               |   | —           |   | 13,000                   |   |
| Principal  receipts (payments) on capital leases                                         |   | —                      |   | (1,153                  | )      | 1,153                |   | —           |   | —                   |   |
| Net change in  accounts with affiliates                                                  |   | (9,513                      | )      | 10,073                  |   | (560                 | )      | —           |   | —                   |   |
| Financing fees                                                                           |   | —                      |   | —                  |   | —               |   | —           |   | —                   |   |
| Repayment on  note receivable from stockholder                                           |   | —                      |   | —                  |   | 18                   |   | —           |   | 18                       |   |
| Net cash flows  from financing activities                                                |   | (9,513                      | )      | 8,920                   |   | 8,611                |   | —           |   | 8,018                    |   |
| Net change in  cash and equivalents                                                      |   | (436                        | )      | 7                       |   | —               |   | —           |   | (429                     | )      |
| Cash and  equivalents at beginning of period                                             |   | 2,515                       |   | 75                      |   | —               |   | —           |   | 2,590                    |   |
| Cash and  equivalents at end of period                                                   |   | $                           | 2,079  |                    | $      | 82                   |   | $                | — |                     | $      | — |   | $ | 2,161 |   |

 

14

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**Condensed Consolidating Statement ofCash Flows for the six months ended June 30, 2001**

 
|                                                                              |   | **Guarantor  Subsidiaries** |       | **Other  Subsidiaries** |       | **GLD  Corporation** |       | **Eliminations** |       | **Consolidated  Totals** |       |
|-----------------------------------------------------------------------------------|--------|-----------------------------|------------|-------------------------|------------|----------------------|------------|------------------|------------|--------------------------|------------|
|                                                                              |   |                        | ** ** |                    | ** ** |                 | ** ** |             | ** ** |                     | ** ** |
| **Operating  Activities**                                                         |   |                        |       |                    |       |                 |       |             |       |                     |       |
| Net income                                                                        |   | $                           | 9,181      |                    | $          | 3,956                |       | $                | 2,693      |                     | $          | (13,137 | ) | $ | 2,693 |   |
| Adjustments to  reconcile net income to net cash flows from operating activities: |   |                        |       |                    |       |                 |       |             |       |                     |       |
| Depreciation and  amortization                                                    |   | 4,635                       |       | 940                     |       | 1,418                |       | —           |       | 6,993                    |       |
| Earnings of  subsidiaries and joint venture                                       |   | (2,955                      | )          | —                  |       | (9,181               | )          | 12,019           |       | (117                     | )          |
| Minority  interests                                                               |   | —                      |       | —                  |       | —               |       | 1,118            |       | 1,118                    |       |
| Deferred income  taxes                                                            |   | 504                         |       | (100                    | )          | (476                 | )          | —           |       | (72                      | )          |
| Gain on  dispositions of property and equipment                                   |   | (292                        | )          | —                  |       | —               |       | —           |       | (292                     | )          |
| Other, net                                                                        |   | 1,601                       |       | 126                     |       | (1,170               | )          | —           |       | 557                      |       |
| Changes in  assets and liabilities:                                               |   |                        |       | —                  |       |                 |       |             |       |                     |       |
| Accounts  receivable, net                                                         |   | 6,658                       |       | (9,702                  | )          | —               |       | —           |       | (3,044                   | )          |
| Contract  revenues in excess of billings                                          |   | 2,304                       |       | 1,113                   |       | —               |       | —           |       | 3,417                    |       |
| Inventories                                                                       |   | (1,569                      | )          | (862                    | )          | —               |       | —           |       | (2,431                   | )          |
| Prepaid expenses  and other current assets                                        |   | (3,428                      | )          | 1,323                   |       | 410                  |       | —           |       | (1,695                   | )          |
| Accounts payable  and accrued expenses                                            |   | (15,010                     | )          | 676                     |       | (719                 | )          | —           |       | (15,053                  | )          |
| Billings in  excess of contract revenues                                          |   | (2,157                      | )          | 388                     |       | —               |       | —           |       | (1,769                   | )          |
| Net cash flows  from operating activities                                         |   | (528                        | )          | (2,142                  | )          | (7,025               | )          | —           |       | (9,695                   | )          |
| **Investing  Activities**                                                         |   |                        |       |                    |       |                 |       |             |       |                     |       |
| Purchases of  property and equipment                                              |   | (2,753                      | )          | (1,045                  | )          | —               |       | —           |       | (3,798                   | )          |
| Proceeds from  dispositions of property and equipment                             |   | 502                         |       | —                  |       | 104                  |       | —           |       | 606                      |       |
| Purchase of  NASDI stock, net of cash acquired of $5,000                          |   | —                      |       | —                  |       | (30,800              | )          | —           |       | (30,800                  | )          |
| Principal  payments (receipts) on direct financing leases                         |   | —                      |       | 820                     |       | (820                 | )          | —           |       | —                   |       |
| Payments  (receipts) on note with affiliate                                       |   | —                      |       | 344                     |       | (344                 | )          | —           |       | —                   |       |
| Net cash flows  from investing activities                                         |   | (2,251                      | )          | 119                     |       | (31,860              | )          | —           |       | (33,992                  | )          |
| **Financing  Activities**                                                         |   |                        |       |                    |       |                 |       |             |       |                     |       |
| Repayments of  long-term debt                                                     |   | (175                        | )          | —                  |       | (4,000               | )          | —           |       | (4,175                   | )          |
| Borrowings of  revolving loans, net of repayments                                 |   | —                      |       | —                  |       | 11,000               |       | —           |       | 11,000                   |       |
| Proceeds from  issuance of 11 1/4% subordinated notes                             |   | —                      |       | —                  |       | 39,700               |       | —           |       | 39,700                   |       |
| Financing fees                                                                    |   | —                      |       | —                  |       | (2,500               | )          | —           |       | (2,500                   | )          |
| Principal  receipts (payments) on capital leases                                  |   | —                      |       | (1,714                  | )          | 1,714                |       | —           |       | —                   |       |
| Net change in  accounts with affiliates                                           |   | 4,637                       |       | 2,407                   |       | (7,044               | )          | —           |       | —                   |       |
| Repayment on  note receivable from stockholder                                    |   | —                      |       | —                  |       | 15                   |       | —           |       | 15                       |       |
| Dividends                                                                         |   | 1,600                       |       | (2,000                  | )          | —               |       | 400              |       | —                   |       |
| Contributions  from partners                                                      |   | (1,200                      | )          | 1,600                   |       | —               |       | (400             | )          | —                   |       |
| Net cash flows  from financing activities                                         |   | 4,862                       |       | 293                     |       | 38,885               |       | —           |       | 44,040                   |       |
| Net change in  cash and equivalents                                               |   | 2,083                       |       | (1,730                  | )          | —               |       | —           |       | 353                      |       |
| Cash and  equivalents at beginning of period                                      |   | (654                        | )          | 1,791                   |       | —               |       | —           |       | 1,137                    |       |
| Cash and  equivalents at end of period                                            |   | $                           | 1,429      |                    | $          | 61                   |       | $                | —     |                     | $          | — |   | $ | 1,490 |   |

 

15

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**Item 2.  Management’s Discussion and Analysis of Financial Condition andResults 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 negativethereof or other comparable terminology, or by discussions of strategy, plansor intentions.  Forward-lookingstatements involve risks and uncertainties, including those described in theRisk Factors section of Item 1 of the Company’s Form S-4 Registration Statement(Registration No. 333-60300), which could cause actual results to be materiallydifferent than those in the forward-looking statements, which speak only as ofthe date hereof.  The Company assumes noobligation to update such 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 39% in2001.  In addition, the Company hascontinued its role as the only U.S. dredging contractor with significantinternational operations, which averaged 14% of its contract revenues over thelast three years.

 

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 subordinated promissorynotes totaling $3.0 million from NASDI payable to the NASDI managementstockholders.  The Company issued $40.0million of its senior subordinated notes to fund the cash portion of theacquisition price and pay related fees and expenses.   The NASDI management stockholders retained a 20% non-votinginterest in NASDI.

 

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.

 

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###### **Resultsof Operations**

 

   The following table setsforth the components of net income and EBITDA as a percentage of contractrevenues for the three and six months ended June 30, 2002 and 2001:

 
|                                               |   | **Three Months Ended  June 30,** |   | **Six Months Ended  June 30,** |   |
|----------------------------------------------------|--------|----------------------------------|--------|--------------------------------|--------|
|                                               |   | **2002**                         |   | **2001**                       |   | **2002** |   | **2001** |   |
|                                               |   |                             |   |                           |   |   |   |   |   |
| Contract  revenues                                 |   | 100.0                            | %      | 100.0                          | %      | 100.0 | % | 100.0 | % |
| Costs of  contract revenues                        |   | (82.5                            | )      | (81.6                          | )      | (82.2 | ) | (81.1 | ) |
| Gross profit                                       |   | 17.5                             |   | 18.4                           |   | 17.8 |   | 18.9 |   |
| General and  administrative expenses               |   | (7.8                             | )      | (8.4                           | )      | (8.1 | ) | (8.0 | ) |
| Operating income                                   |   | 9.7                              |   | 10.0                           |   | 9.7 |   | 10.9 |   |
| Interest  expense, net                             |   | (6.3                             | )      | (6.8                           | )      | (6.5 | ) | (6.5 | ) |
| Equity in  earnings of joint ventures              |   | 0.5                              |   | 0.4                            |   | — |   | 0.1 |   |
| Income before  income taxes and minority interests |   | 3.9                              |   | 3.6                            |   | 3.2 |   | 4.5 |   |
| Income tax  expense                                |   | 2.8                              |   | (1.6                           | )      | 0.6 |   | (2.0 | ) |
| Minority  interests                                |   | 0.2                              |   | (0.6                           | )      | 0.8 |   | (0.7 | ) |
| Net income                                         |   | 6.9                              | %      | 1.4                            | %      | 4.6 | % | 1.8 | % |
|                                               |   |                             |   |                           |   |   |   |   |   |
| EBITDA                                             |   | 14.5                             | %      | 14.8                           | %      | 14.4 | % | 15.5 | % |

 

“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 accountingprinciples generally accepted 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.

 

17

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## **The following table sets forth, by segment anddredging type of work, the Company’s contract revenues for the three and sixmonths ended and backlog as of the periods indicated:**

 
|                        |   | **Three Months Ended  June 30,** |       | **Six Months Ended  June 30,** |   |
|-----------------------------|--------|----------------------------------|------------|--------------------------------|--------|
| **Revenues (in thousands)** |   | **2002**                         |       | **2001**                       |   | **2002** |   | **2001** | ** ** |
| Dredging:                   |   |                             |       |                           |   |   |   |   |   |
| Capital - U.S.              |   | $                                | 18,632     |                           | $      | 26,569 |   | $ | 45,046 |   | $ | 56,227 |   |
| Capital -  foreign          |   | 17,421                           |       | 7,405                          |   | 27,935 |   | 18,847 |   |
| Beach                       |   | 24,203                           |       | 22,095                         |   | 50,777 |   | 46,190 |   |
| Maintenance                 |   | 11,791                           |       | 13,561                         |   | 18,592 |   | 20,926 |   |
| Demolition                  |   | 12,368                           |       | 8,671                          |   | 21,038 |   | 8,671 |   |
|                        |   | $                                | 84,415     |                           | $      | 78,301 |   | $ | 163,388 |   | $ | 150,861 |   |
|                        |   |                             |       |                           |   |   |   |   |   |
|                        |   |                             |       |                           |   | **June 30,** |   |
| **Backlog (in thousands)**  |   |                             | ** ** |                           |   | **2002** |   | **2001** |   |
| Dredging:                   |   |                             |       |                           |   |   |   |   |   |
| Capital - U.S.              |   |                             |       |                           |   | $ | 144,915 |   | $ | 55,452 |   |
| Capital -  foreign          |   |                             |       |                           |   | 79,392 |   | 49,125 |   |
| Beach                       |   |                             |       |                           |   | 25,671 |   | 17,318 |   |
| Maintenance                 |   |                             |       |                           |   | 16,671 |   | 21,470 |   |
| Demolition                  |   |                             |       |                           |   | 28,427 |   | 37,170 |   |
|                        |   |                             |       |                           |   | $ | 295,076 |   | $ | 180,535 |   |

 

Second quarter 2002 revenues were $84.4 million, an increase of $6.1million or 7.8%, over second quarter 2001 revenues of $78.3 million.  Revenues for the first half of 2002 were$163.4 million, an increase of $12.5 million or 8.3% over the revenues for thefirst half of 2001 of $150.9 million. The increase in second quarter and year to date revenues reflects increasedforeign dredging revenue and demolition services revenue.  Gross profit margins declined slightly inthe 2002 periods, due to the increased foreign dredging revenue which istypically at lower margins and the negative affect of adverse weather and operatingconditions experienced on certain of the Company’s domestic east coast dredgingprojects in the first quarter.

 

Capital projects include large port deepenings and other infrastructureprojects.   Domestic capital dredgingrevenue declined $7.9 million and $11.2 million during the second quarter andfirst half of 2002, respectively, as compared to the same periods of 2001, dueprimarily to a shift to beach nourishment revenues during the 2002 period.  However, the Company added a significantamount of capital backlog in the first half of 2002, and continues to expectthe domestic capital market to remain strong throughout 2002 as Deep Portprojects, authorized by the 1986 Water Resource Development Act and subsequentbills, continue to be scheduled and let for bid by the Army Corps of Engineers(“Corps”).  In 1997, the Corps announcednew Deep Port work and in subsequent years has expanded existing projects witha combined revenue value in excess of $2.0 billion, to be completed through2005.   Since this time, 30 projectswith a total revenue value of $952 million, have been let for bid and awardedthrough the second quarter of 2002.  TheCompany was the low bidder on fourteen of these projects, with a value of $437million, representing 45.9% of the total let for bid and awarded.   In May 2002, the Corps announced that itwill be reevaluating the justification for certain of the Deep Port projectswhich have not yet commenced. Although substantial work remains on Deep Portprojects that are currently 

 

18

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underway, this recent announcement could affect the program in futureyears if certain projects are postponed or suspended.

 

During the second quarter of 2002, the Company performed on two KillVan Kull, New York Deep Port projects, which contributed combined revenues forthe quarter of $6.0 million.  Inaddition, the quarter also included work or mobilization on three otherdeepening projects:  JacksonvilleHarbor, Florida; St. Lucie Inlet, Florida; and Wilmington Harbor, NorthCarolina. These projects all commenced in the second quarter of 2002 and addedrevenues of $6.7 million, collectively, to the quarter.  Additionally, work continued on two foreigncapital projects in Bahrain and Ghana, which contributed $14.6 million in totalrevenue to the quarter.

 

Beach nourishment projects include rebuilding of shoreline areas whichhave been damaged by storm activity or ongoing erosion.  Second quarter and year to date 2002revenues from beach nourishment projects increased $2.1 million and $4.6 million,respectively, as the volume of beach work let for bid has increased throughout2001 and 2002 to date.  As mentionedpreviously,  during the first quarter of2002, certain beach projects were affected by adverse weather and projectoperating conditions, contributing to the lower margins for the first half of2002.  There are inherent risks in theperformance of beach nourishment work, including the need to work offshoreexposed to sea conditions and the environmental restrictions related to seaturtles.  These risks can cause projectdelays and additional costs to the contractor, as the Company experienced inthe first quarter of 2002.   During thesecond quarter, beach nourishment projects were completed in Pine Knoll Shores,North Carolina; Anna Marie Beach, Florida; and Anastasia State Park, Florida,contributing $11.1 million to the quarter’s revenues.  Additionally, significant continuing projects in St. JohnsCounty, Florida; Sea Bright, New Jersey; Jupiter Beach, Florida; and BrevardCounty, Florida added to $12.3 million to 2002 second quarter revenues.

 

Maintenance projects include routine dredging of ports, rivers andchannels to remove the regular build up of sediment.   Maintenance revenues in the second quarter and first six monthsof 2002 declined slightly from levels for the same periods of 2001, but wereconsistent with typical maintenance dredging volume.   Second quarter 2002 revenues from maintenance projects included$4.8 million from three separate projects in the New York City vicinity, aswell as $9.5 million from four river maintenance projects.

 

NASDI’s demolition revenue for the second quarter and first six monthsof 2002 totaled $12.4 million and $21.0 million, respectively, and compares to$8.7 million earned by NASDI from mid-April 2001, the date of acquisition bythe Company, through the second quarter of 2001.  NASDI’s second quarter 2002 revenues included $3.9 million fromthe Saltonstall interior office building demolition in Boston and $1.1 millionfrom a new asbestos removal and demolition project at Delta Terminal A in theBoston Airport, with the remaining revenue being generated by numerous otherprojects.  Demolition activity startedslowly in the first quarter but picked up in March and continued at a strongpace throughout the second quarter and is expected to continue to do so throughthe remainder of this year.

 

Second quarter and year to date 2002 revenues of the Company’s NATCOhopper dredging subsidiary declined $6.4 million and $7.1 million,respectively, over the same periods of 2001, primarily due to adverse weatherand operating conditions encountered on certain beach nourishment projects onwhich NATCO was employed, necessitating downtime of the dredges.  This also negatively impacted NATCO’s grossprofit margins, which were zero for first half of 2002, compared to $7.7million for the first half of 2001.

 

19

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General and administrative expenses were comparable in the secondquarter of 2002 and 2001.  However, generaland administrative expenses for the first half of 2002 totaled $13.3 million,which is slightly higher than $12.0 million for the same 2001 period, due tothe inclusion of NASDI’s general and administrative costs for the full 2002period.

###### ** **

Net interest expense was comparable in the second quarter of 2002 and2001; however, it was approximately $0.8 million higher for the first half of2002, as a result of interest expense on the additional $40.0 millionsubordinated debt issuance used to fund the NASDI acquisition, partially offsetby a decline in the interest rates on the Company’s variable rate bankdebt.  Minority interests reflects again to the Company in the second quarter and first half of 2002, primarily dueto the allocation of NATCO’s loss to its minority partner.

 

For the second quarter and first half of 2002, the Company recorded anincome tax benefit of $2.3 million and $1.0 million, respectively, compared toincome tax expense of $1.2 million and $3.0 million for the same periods of2001.  Income taxes in 2002 wereimpacted by a tax deduction resulting from the final determination ofnon-recoverability of an insurance claim related to litigation settled in1998.  Settlement payments related tothe litigation were advanced prior to 1998; however, no tax deduction could beclaimed until all appeals were exhausted.

 

Net income was $5.8 million for the second quarter of 2002, compared to$1.1 million for the second quarter of 2001. For the first half of 2002, net income totaled $7.5 million compared to$2.7 million for the same period of 2001. The improvement in 2002 second quarter and year to date net income wasprimarily a result of the income tax benefit discussed above.   EBITDA (as defined on page 17) was $12.2million and $23.6 million for the quarter and six months ended June 30, 2002compared to $11.6 million and $23.4 million for the same periods of 2001.   EBITDA improved as a result of the increasein revenues, but included lower margin foreign revenue and on a year-to-datebasis was negatively affected by adverse weather and operating conditions oncertain of the Company’s east coast dredging projects during the first quarter.

 

###### **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 six monthsended June 30, 2002 totaled $2.8 million compared to net cash used in operatingactivities of $9.7 million in the comparable period of 2001.  The increased use of operating cash flows inthe 2001 period reflects a build-up of working capital to an unusually highlevel, due to working capital investment in certain projects such as the 2001Wilmington, North Carolina Deep Port project and the Ghana project.  While working capital has decreased in the2002 period, it has still remained at a higher level due to certain projectrequirements.

 

The Company’s net cash flows used in investing activities were $11.2million compared to $34.0 million for the first half of 2002 and 2001,respectively.   In the 2001 period, theCompany used cash of $30.8 million to fund the acquisition of NASDI.  The remaining use of cash relates toequipment acquisitions, which increased by $8.0 million in the 2002period.  Despite the disproportionatelyhigh amount of capital spending on equipment in the first half of 2002, theCompany expects to meet its 2002 annual capital spending budget of $17 million,which is higher

 

20

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than in recent years due to an increase in dry dockings necessary tomeet certification requirements on certain hopper vessels.

 

The Company’s net cash flows from financing activities for the sixmonths ended June 30, 2002 totaled $8.0 million compared to $44.0 million inthe same period of 2001.  While theCompany’s  revolver borrowings were atsimilar levels in the respective periods, the 2001 period reflectsapproximately $37.0 net proceeds from the subordinated notes issued to fund theNASDI acquisition in April 2001.

 

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 thetime required to complete the job. In addition, because substantially all ofthe Company’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 June 30, 2002, the Company had dredging backlog of $266.6million, which compares to dredging backlog of $143.4 million at June 30, 2001and $210.5 million at March 31, 2002. During the second quarter, domestic projects valued at $139.0 millionwere let for bid, bringing the year to date bid market to approximately $390.0million, well in excess of the comparable six-month market in 2001 of $254.0million.  The Company was successfulbidder on $47.0 million, or 34%, of the domestic work let for bid in the secondquarter and has won approximately $169.0 million, or 44%, of the year-to-datemarket.  The Kill Van Kull (KVK), NewYork Deep Port project, which was bid in the first quarter at a value in excessof $40.0 million, is still pending award as the original low bidder did nothave a permitted disposal site as required in the project specifications andhas since been disqualified.  Therefore,the second lowest bidder has now been allowed a prescribed time-frame in whichto provide a permitted disposal site for the dredged material.  The Company was the third bidder on thisproject and does have a fully permitted disposal site.  In the second quarter of 2002, the Companywas awarded the $90.0 million Wilmington, North Carolina Deep Port project,which was solicited as a request-for-proposal and was pending award at the endof the first quarter.   Excluding theKVK project, additional work valued at $35.0 million was pending at June 30,2002 and the Company has subsequently been awarded $27.0 million of thesepending projects.

 

Backlog at June 30, 2002 continues to be concentrated in the capitalmarket, both domestic and foreign. Domestic capital dredging projects make up $144.9 million or 49.1% ofthe total June 30, 2002 backlog.  Thisincludes primarily work remaining on three Deep Port projects: 1) the

 

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new Wilmington, North Carolina project awarded in the second quarter of2002, 2) a deepening project in Jacksonville, Florida won in the first quarter,also on a request-for-proposal basis, and 3) work remaining on the phase of theKill Van Kull, New York project which was won in 2001.   Foreign capital project backlog, whichcomprises $79.4 million or 26.9% of the June 30, 2002 backlog, relatesprimarily to the long-term projects in Ghana and Bahrain.  Beach backlog at June 30, 2002 was $25.7million, which has improved from the beach backlog level at June 30, 2001.  Three beach projects were bid during thequarter with a total value of $38.9 million. The Company was low bidder on two of the projects, one of which was notawarded until July, for a total value of $26.5 million.  The beach bid market picked up somewhat inthe second quarter, bringing the year to date market to $47.0 million, andschedules provided by the Corps and local jurisdictions indicate that the 2002beach nourishment bid market should be in excess of $100 million.  Maintenance backlog at June 30, 2002 of$16.7 million declined slightly from the same period of 2001, but improvedsignificantly from the March 31, 2002 level of $2.2 million, as Midwestprecipitation during the second quarter was at average levels, necessitatingthe bidding of over 20 projects during the quarter.

 

The demolition backlog level at June 30, 2002 was $28.4 million, whichcompares to $37.2 million at June 30, 2001 and $26.7 million at March 31,2002.   NASDI increased revenues in thesecond quarter and added $14.1 million to backlog to maintain the backloglevel, which should be sufficient to provide a good source of revenue andearnings for the remainder of the year.

#### ** **

#### **Effects ofRecently Issued Accounting Standards**

 

The Company has adopted Statement of Financial Accounting Standards("SFAS") No. 141, “Business Combinations” as of January 1, 2002.   This statement requires the purchase methodof accounting for business combinations initiated after June 30, 2001 andeliminates the pooling-of-interests method.

 

The Company has also adopted SFAS No. 142, “Goodwill and OtherIntangible Assets” as of January 1, 2002. This statement requires that goodwill and other intangible assets withindefinite useful lives no longer be amortized, but instead be assessedannually for impairment with the initial assessment to be completed within thefirst six months following adoption of the standard.  The required initial impairment evaluation was performed in thefirst quarter of 2002 resulting in no impairment in the value of the Company’sgoodwill.  The Company’s goodwillrelates solely to its acquisition of NASDI, which took place in the secondquarter of 2001.  Through June 30, 2001,the Company had recorded goodwill amortization totaling $0.4 million.

 

In June 2001, the Financial Accounting Standards Board("FASB") also issued SFAS No. 143, “Accounting for Asset RetirementObligations,” which addresses the recognition and remeasurement of obligationsassociated with the retirement of tangible long-lived assets.   SFAS No. 143 is effective for financialstatements issued for fiscal years beginning after June 15, 2002.  The Company is currently assessing theimpact of adopting this statement, but does not anticipate that adoption willhave a material effect on its financial position or results of operations.

 

In August 2001, the FASB issued SFAS No. 144, “Accounting forImpairment or Disposal of Long-Lived Assets,” which supersedes previousguidance and provides additional clarification as to when and how to measure aloss upon impairment or disposal of long-lived assets.  The Company adopted SFAS No. 144 effectiveJanuary 1, 2002, and its initial evaluation resulted in no impairment in thevalue of the Company’s long-lived assets.

 

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#### **Item 3. Quantitative and Qualitative Disclosures About Market Risk**

 

The market risk of the Company’s financial instruments as of June 30,2002 has not significantly changed since December 31, 2001.  The market risk profile of the Company onDecember 31, 2001 is disclosed in the Company’s 2001 Annual Report on Form10-K.

 

**Part II**

 

**Item1.  Legal Proceedings**

 

On July 31, 2002, Hidrovia S.A. ("Hidrovia"), an Argentinecorporation, filed a complaint against the Company alleging that the Companytortuously interfered with Hidrovia's contractual rights relating to thedredging and maintenance of certain navigable waterways in Argentina.  The complaint seeks injunctive relief anddamages of an unspecified amount.  TheCompany believes it has meritorious defenses and intends to vigorously defendthe case.

 

# **Item 5.  Other Information**

 

NATCO, the hopper dredging subsidiary in which the Company owns a 75%equity interest, is currently in default of its intercompany lease and loanagreements.  Therefore, the Company isexploring several options, one of which may result in a dissolution ofNATCO.  If NATCO is dissolved, theCompany intends to complete the contracts entered into by NATCO, and wouldintend to continue in the hopper dredging business.  Management does not anticipate that any actions taken withrespect to NATCO will have a material adverse impact to its consolidatedfinancial statements.  NATCO is not aSubsidiary Guarantor under the senior subordinated notes.

 

###### **Item 6.  Exhibits and Reports on Form 8-K**

 

(a)                                  Exhibits

 

99.1                           CertificationPursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

 

99.2                           CertificationPursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

 

(b)                                 Reportson Form 8-K

 

No reports on Form 8-K were filed during the secondquarter of 2002.

 

 

##### **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:  |  August 9,  2002                           |   | By: | /s/ Deborah A. Wensel |   |
|   | Deborah A. Wensel                               |
|   | Senior Vice President                           |
|   | and Chief  Financial Officer                    |
|   |                                            |
|   | (Principal Financial and Accounting Officer and |
|   | Duly Authorized Officer)                        |
|        |                                                 |  |  |  |  |

 

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**EXHIBIT INDEX**

 

 
| **Number** |   | **Document Description**                                                                                                                                                                                                                          |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                              |
| 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)                                                                                                                                                             |
| 4.03       |   | First Supplemental Indenture dated as of June 15,  2000 among Great Lakes Caribbean Dredging, Inc., the Company, the other  Subsidiary Guarantors and the Bank of New York, as Trustee. (3)                                                       |
| 4.04       |   | Supplemental Indenture dated as of April 24, 2001  among the Company, North American Site Developers, Inc., the other subsidiary  Company and the Bank of New York, as Trustee. (4)                                                               |
| 99.1       |   | Certification Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (5)                                                                                                                      |
| 99.2       |   | Certification Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (5)                                                                                                                      |

 

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| (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.                          |
|   |   |                                                                                                                                                                       |
| (3)    |   | Incorporated by reference to the Company’s Annual  Report on Form 10-K for the Year Ended December 31, 2000 filed with the  Commission on March 21, 2001.             |
|   |   |                                                                                                                                                                       |
| (4)    |   | Incorporated by reference to From S-4 Registration  Statement of the Company (File No. 333-60300) filed with the Commission on  May 4, 2001.                               |
|   |   |                                                                                                                                                                       |
| (5)    |   | Filed herewith.                                                                                                                                                            |

 

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