** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe quarterly period ended September 30, 2006**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe transition period from          to         **

**Commission file number:**

**333-64687**

**Great Lakes Dredge & Dock Corporation**

(Exact name of registrantas specified in its charter)

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

 

**(630) 574-3000**

(Registrant’s telephonenumber, including area code)

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

x  Yes  o  No

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):
| Large Accelerated Filer  o | Accelerated Filer  o | Non-Accelerated Filer  x |
|--------------------------------------|--------------------------------|------------------------------------|

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-z of the Exchange Act).

o  Yes  x  No

All of the Company’s common stock is held by a holdingcompany.

Asof November 10, 2006, there were outstanding 1,000 shares of Common Stock andzero shares of Preferred Stock.

 

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**GreatLakes Dredge & Dock Corporation and SubsidiariesQuarterly Report Pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934For the Quarterly Period ended September 30, 2006**

##### **INDEX**

|                   | ** **                 | ** ** | ** **                                                                                                        | ** ** | ** ** |
|-------------------|----------------------------|------------|-------------------------------------------------------------------------------------------------------------------|------------|------------|
| **Part I**        | **Financial  Information** |       |                                                                                                              |
|              |                       |       |                                                                                                              |       |       |
|              | Item 1                     |       | Financial Statements (Unaudited)                                                                                  |       |       |
|              |                       |       |                                                                                                              |       |       |
|              |                       |       | Condensed  Consolidated Balance Sheets at September 30, 2006 and December 31, 2005                                |       |       |
|              |                       |       |                                                                                                              |       |       |
|              |                       |       | Condensed  Consolidated Statements of Operations for the Three and Nine Months ended  September 30, 2006 and 2005 |       |       |
|              |                       |       |                                                                                                              |       |       |
|              |                       |       | Condensed  Consolidated Statements of Cash Flows for the Nine Months ended September 30,  2006 and 2005           |       |       |
|              |                       |       |                                                                                                              |       |       |
|              |                       |       | 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                                                       |       |       |
|              |                       |       |                                                                                                              |       |       |
|              | Item 4                     |       | Controls  and Procedures                                                                                          |       |       |
| ** **        | ** **                 |       |                                                                                                              |
| **Part II**       | **Other  Information**     |       |                                                                                                              |
|              |                       |       |                                                                                                              |       |       |
|              | Item 1                     |       | Legal  Proceedings                                                                                                |       |       |
|              | Item 1A                    |       | Risk Factors                                                                                                      |       |       |
|              | Item 5                |       | Other Information                                                                                                 |       |       |
|              | Item 6                     |       | Exhibits                                                                                                          |       |       |
| ** **        |                       |       |
| **Signature**     |                       |       |
| ** **        |                       |       |
| **Exhibit Index** |                       |       |

######  

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**PART I –Financial Information**

**Great Lakes Dredge& Dock Corporation and SubsidiariesCondensed Consolidated Balance Sheets**(Unaudited)(in thousands, except share and per share amounts)
| ** **                                                         | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                         | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| **Assets**                                                         |       |
| Current assets:                                                    |       |                   |       |                  |       |
| Cash and equivalents                                               |       | $                      | 2,007      |                  | $          | 601 |   |
| Accounts receivable,  net                                          |       | 73,124                 |       | 85,114                |       |
| Contract revenues in  excess of billings                           |       | 18,269                 |       | 14,352                |       |
| Inventories                                                        |       | 21,939                 |       | 17,084                |       |
| Prepaid expenses and  other current assets                         |       | 28,637                 |       | 17,113                |       |
| Total current  assets                                              |       | 143,976                |       | 134,264               |       |
| Property and equipment,  net                                       |       | 244,727                |       | 240,849               |       |
| Goodwill                                                           |       | 98,747                 |       | 98,747                |       |
| Other intangible  assets, net                                      |       | 1,334                  |       | 1,579                 |       |
| Inventories                                                        |       | 11,418                 |       | 11,206                |       |
| Investments in joint  ventures                                     |       | 9,230                  |       | 8,605                 |       |
| Other assets                                                       |       | 12,013                 |       | 11,987                |       |
| Total assets                                                       |       | $                      | 521,445    |                  | $          | 507,237 |   |
|                                                               |       |                   |       |                  |       |
| **Liabilities and Stockholder’s Equity**                      |       |
| Current liabilities:                                               |       |                   |       |                  |       |
| Accounts payable                                                   |       | $                      | 50,574     |                  | $          | 50,836 |   |
| Accrued expenses                                                   |       | 30,416                 |       | 24,264                |       |
| Billings in excess of  contract revenues                           |       | 13,899                 |       | 8,108                 |       |
| Current maturities of  long-term debt                              |       | 1,950                  |       | 1,950                 |       |
| Total current  liabilities                                         |       | 96,839                 |       | 85,158                |       |
| Long-term debt                                                     |       | 249,888                |       | 248,850               |       |
| Deferred income taxes                                              |       | 87,079                 |       | 88,154                |       |
| Other                                                              |       | 7,506                  |       | 4,473                 |       |
| Total  liabilities                                                 |       | 441,312                |       | 426,635               |       |
| Minority interest                                                  |       | 2,010                  |       | 1,850                 |       |
| Commitments and  contingencies (Note 13)                           |       | —                 |       | —                |       |
| Stockholder’s equity:                                         |       |                   |       |                  |       |
| Common stock,  $.01 par value; 1,000 shares issued and outstanding |       | —                 |       | —                |       |
| Additional  paid-in capital                                        |       | 97,000                 |       | 97,000                |       |
| Accumulated  deficit                                               |       | (17,565                | )          | (18,039               | )          |
| Accumulated  other comprehensive loss                              |       | (1,312                 | )          | (209                  | )          |
| Total  stockholder’s equity                                   |       | 78,123                 |       | 78,752                |       |
| Total  liabilities and stockholder’s equity                   |       | $                      | 521,445    |                  | $          | 507,237 |   |

 

See notes tounaudited condensed consolidated financial statements.

2

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**Great Lakes Dredge& Dock Corporation and SubsidiariesCondensed Consolidated Statements of Operations**(Unaudited)(in thousands)
| ** **                            | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                            | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                            | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                  |       |                             |       |                            |       |   |   |   |   |
| Contract revenues                     |       | $                                | 81,698     |                            | $          | 119,745 |   | $ | 304,185 |   | $ | 313,039 |   |
| Costs of contract  revenues           |       | 72,215                           |       | 103,184                         |       | 265,532 |   | 278,005 |   |
| Gross profit                          |       | 9,483                            |       | 16,561                          |       | 38,653 |   | 35,034 |   |
|                                  |       |                             |       |                            |       |   |   |   |   |
| General and  administrative expenses  |       | 6,262                            |       | 7,493                           |       | 20,692 |   | 21,230 |   |
| Subpoena-related  expenses            |       | 170                              |       | 459                             |       | 599 |   | 2,269 |   |
| Amortization of  intangible assets    |       | 65                               |       | 183                             |       | 245 |   | 583 |   |
| Impairment of  intangible assets      |       | —                           |       | 5,718                           |       | — |   | 5,718 |   |
| Operating income                      |       | 2,986                            |       | 2,708                           |       | 17,117 |   | 5,234 |   |
| Interest expense, net                 |       | (5,124                           | )          | (6,439                          | )          | (17,340 | ) | (17,305 | ) |
| Equity in earnings of  joint ventures |       | 693                              |       | 912                             |       | 1,275 |   | 1,674 |   |
| Minority interests                    |       | (35                              | )          | 36                              |       | (160 | ) | (184 | ) |
| Income (loss)  before income taxes    |       | (1,480                           | )          | (2,783                          | )          | 892 |   | (10,581 | ) |
| Income tax (expense)  benefit         |       | 510                              |       | (943                            | )          | (418 | ) | 1,678 |   |
| Net income (loss)                     |       | $                                | (970       | )                               | $          | (3,726 | ) | $ | 474 |   | $ | (8,903 | ) |

 

See notes tounaudited condensed consolidated financial statements.

3

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**Great Lakes Dredge& Dock Corporation and SubsidiariesCondensed Consolidated Statements of Cash Flows**(Unaudited)(in thousands)
| ** **                                                                      | ** ** | **Nine Months Ended**                                      | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                                                      | ** ** | **September**                                                        | ** ** |
| ** **                                                                      | ** ** | **     2006     ** | ** ** | **     2005     ** | ** ** |
| **Operating Activities**                                                        |       |                                                                 |       |   |   |
| Net income (loss)                                                               |       | $                                                                    | 474        |   | $ | (8,903 | ) |
| Adjustments to  reconcile net loss to net cash flows from operating activities: |       |                                                                 |       |   |   |
| Depreciation and  amortization                                                  |       | 18,768                                                               |       | 18,478 |   |
| Earnings of  joint ventures                                                     |       | (1,275                                                               | )          | (1,674 | ) |
| Distribution  from equity joint ventures                                        |       | 650                                                                  |       | 500 |   |
| Minority  interests                                                             |       | 160                                                                  |       | 184 |   |
| Deferred income  taxes                                                          |       | (4,110                                                               | )          | (2,830 | ) |
| Gain on  dispositions of property and equipment                                 |       | (768                                                                 | )          | (19 | ) |
| Impairment of  intangible assets                                                |       | —                                                               |       | 5,718 |   |
| Other, net                                                                      |       | 1,395                                                                |       | 1,283 |   |
| Changes in  assets and liabilities:                                             |       |                                                                 |       |   |   |
| Accounts  receivable                                                            |       | 11,990                                                               |       | (6,105 | ) |
| Contract  revenues in excess of billings                                        |       | (3,917                                                               | )          | (3,827 | ) |
| Inventories                                                                     |       | (5,067                                                               | )          | 109 |   |
| Prepaid expenses  and other current assets                                      |       | (7,360                                                               | )          | (5,721 | ) |
| Accounts payable  and accrued expenses                                          |       | 3,731                                                                |       | 8,287 |   |
| Billings in  excess of contract revenues                                        |       | 5,791                                                                |       | 3,136 |   |
| Other noncurrent  assets and liabilities                                        |       | 2,210                                                                |       | 16 |   |
| Net cash flows  from operating activities                                       |       | 22,672                                                               |       | 8,632 |   |
| ** **                                                                      |       |                                                                 |       |   |   |
| **Investing Activities**                                                        |       |                                                                 |       |   |   |
| Purchases of property  and equipment                                            |       | (21,011                                                              | )          | (9,437 | ) |
| Dispositions of  property and equipment                                         |       | 1,502                                                                |       | 4,596 |   |
| Loan  to related party                                                          |       | (1,407                                                               | )          | — |   |
| Net cash flows  from investing activities                                       |       | (20,916                                                              | )          | (4,841 | ) |
| ** **                                                                      |       |                                                                 |       |   |   |
| **Financing Activities**                                                        |       |                                                                 |       |   |   |
| Repayments of long-term  debt                                                   |       | (4,462                                                               | )          | (1,462 | ) |
| Borrowings under  revolving loans, net of repayments                            |       | 5,500                                                                |       | — |   |
| Financing Fees                                                                  |       | (361                                                                 | )          | — |   |
| Repayment of capital  lease debt                                                |       | (1,027                                                               | )          | (806 | ) |
| Net cash flows  from financing activities                                       |       | (350                                                                 | )          | (2,268 | ) |
| Net change in cash and  equivalents                                             |       | 1,406                                                                |       | 1,523 |   |
| Cash and equivalents at  beginning of period                                    |       | 601                                                                  |       | 1,962 |   |
| Cash and equivalents at  end of period                                          |       | $                                                                    | 2,007      |   | $ | 3,485 |   |
| ** **                                                                      |       |                                                                 |       |   |   |
| **Supplemental Cash Flow  Information**                                         |       |                                                                 |       |   |   |
| Cash paid for interest                                                          |       | $                                                                    | 12,440     |   | $ | 11,524 |   |
| Cash paid for taxes                                                             |       | $                                                                    | 3,043      |   | $ | 85 |   |

 

See notes tounaudited condensed consolidated financial statements.

4

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GREAT LAKES DREDGE &DOCK CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(dollars in thousands)

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

Theaccompanying unaudited condensed consolidated financial statements have beenprepared in accordance with accounting principles generally accepted in theU.S. for interim 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 31,2005.

Thecondensed consolidated results of operations for the interim periods presentedherein are not necessarily indicative of the results to be expected for thefull year.

**2.****             ****Proposed Transaction**

On June 20, 2006, GLDD Acquisitions Corp., the parent company of GreatLakes, signed an Agreement and Plan of Merger (“Agreement”) with AldabraAcquisition Corporation.  Aldabra is ablank check company formed for the purpose of investing in a business to buildlong term value.  Under the terms of theAgreement, Great Lakes’ parent company will merge with a subsidiary of Aldabraand GLDD Acquisitions’ stockholders will receive common stock of Aldabra.  Aldabra will then merge into an indirectwholly-owned subsidiary and, in connection with this holding company merger,the stockholders of Aldabra (including the former GLDD Acquisitions’ stockholders)will receive stock in a new holding company, which will shortly after closingbe renamed Great Lakes Dredge & Dock Corporation.  The surviving corporation will be ownedapproximately 67% by MDP and approximately 5% by Great Lakes’ management (basedon Aldabra’s price per share of $5.70 as of November 3, 2006 and assuming noexercise of conversion rights by Aldabra stockholders), before giving effect tothe exercise of any outstanding Aldabra warrants.  The available cash of Aldabra will be used topay down the Company’s senior bank term debt and to pay transactionexpenses.  GLDD’s $175,000 of 73⁄4% SeniorSubordinated Notes due 2013 will remain outstanding.

Thetransaction has been approved by the boards of both Great Lakes and Aldabra,but is subject to customary closing conditions including review under theHart-Scott-Rodino Act and the approval of Aldabra’s stockholders.  In addition, the closing is conditioned onthe holders of fewer than 20% of the shares of common stock of Aldabra issuedin its initial public offering voting against the transaction and electing toconvert those shares into cash, as permitted by Aldabra’s certificate ofincorporation.  The transaction isanticipated to close by the end of 2006.

5

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**3.****             ****Comprehensive loss**

Totalcomprehensive loss is comprised of the Company’s net loss and net unrealizedgains (losses) on cash flow hedges. Total comprehensive loss for the three months ended September 30, 2006and 2005 was $2,553 and $3,578, respectively.  Total comprehensive loss for the nine monthsended September 30, 2006 and 2005 was $629 and $7,924, respectively.

**4.****             ****Risk management activities**

The Company uses derivative instruments to manage commodity price,interest rate, and foreign currency exchange risks.  Such instruments are not used for tradingpurposes.  As of September 30, 2006, theCompany was party to various swap arrangements to hedge the price of a portionof its diesel fuel purchase requirements for work in its backlog to beperformed through December 2006. As of September 30, 2006, there were 5.6million gallons remaining on these contracts. Under these agreements, the Company will pay fixed prices ranging from $1.75to $2.21 per gallon.  At September 30,2006 and December 31, 2005, the fair value liability on these contracts wasestimated to be $2,163 and $344, respectively, based on quoted market prices,and is recorded in accrued liabilities. Ineffectiveness related to these fuelhedge arrangements was determined to be immaterial.  The remaining losses included in accumulatedother comprehensive income at September 30, 2006 will be reclassified intoearnings over the next twelve months, corresponding to the period during whichthe hedged fuel is expected to be utilized.

In February 2004, the Company entered into an interest rate swaparrangement, which in July 2006 was extended through December 15, 2013, to swapa notional amount of $50 million from a fixed rate of 7.75% to a floatingLIBOR-based rate in order to manage the interest rate paid with respect to theCompany’s 73⁄4% senior subordinated debt. The fair value liability of the swap at September 30, 2006 and December31, 2005 was $1,649 and $1,598, respectively, and is recorded in accrued liabilities.  The swap is not accounted for as a hedge;therefore, the changes in fair value are recorded as adjustments to interestexpense in each reporting period.

The carrying values of otherfinancial instruments included in current assets and current liabilitiesapproximate fair values due to the short-term maturities of theseinstruments.  The carrying value of theCompany’s variable rate debt (primarily bank debt) approximates fair values,based on prevailing market rates.  Thefair value of the Company’s $175,000 of 73⁄4% senior subordinated notes was $162,750and $157,500 at September 30, 2006 and December 31, 2005, respectively, basedon quoted market prices.

**5.****             ****Accounts receivable**

Accounts receivable at September 30, 2006 and December 31, 2005 are asfollows:
|                                  | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| Completed contracts              |       | $                      | 19,567     |                  | $          | 33,818 |   |
| Contracts in progress            |       | 44,955                 |       | 41,885                |       |
| Retainage                        |       | 9,321                  |       | 10,016                |       |
|                             |       | 73,842                 |       | 85,719                |       |
| Allowance for doubtful  accounts |       | (718                   | )          | (605                  | )          |
|                             |       |                   |       |                  |       |
|                             |       | $                      | 73,124     |                  | $          | 85,114 |   |

 

6

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**6.****             ****Contracts in progress**

Thecomponents of contracts in progress at September 30, 2006 and December 31, 2005are as follows:
|                                                                                 | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                      | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| Costs and  earnings in excess of billings:                                      |       |                   |       |                  |       |
| Costs and earnings for contracts in progress                                    |       | $                      | 121,983    |                  | $          | 196,846 |   |
| Amounts billed                                                                  |       | (106,514               | )          | (185,635              | )          |
| Costs and  earnings in excess of billings for contracts in progress             |       | 15,469                 |       | 11,211                |       |
| Costs and  earnings in excess of billings for completed contracts               |       | 2,800                  |       | 3,141                 |       |
|                                                                            |       |                   |       |                  |       |
|                                                                            |       | $                      | 18,269     |                  | $          | 14,352 |   |
|                                                                            |       |                   |       |                  |       |
| Prepaid contract  costs (included in prepaid expenses and other current assets) |       | $                      | 2,296      |                  | $          | 1,541 |   |
|                                                                            |       |                   |       |                  |       |
| Billings in  excess of costs and earnings:                                      |       |                   |       |                  |       |
| Amounts billed                                                                  |       | $                      | (144,342   | )                     | $          | (113,243 | ) |
| Costs and earnings for contracts in progress                                    |       | 130,443                |       | 105,135               |       |
|                                                                            |       |                   |       |                  |       |
|                                                                            |       | $                      | (13,899    | )                     | $          | (8,108 | ) |

 

**7.****             ****Intangible assets**

The net book value of intangible assets is as follows:
|                                    | ** ** | **Weighted Average** | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** |
|------------------------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                         | ** ** | **Estimated**             | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
| ** **                         | ** ** | **Life**                  | ** ** | **Cost**   | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
| As of September 30,  2006:         |       |                      |       |       |       |             |       |       |       |
| Customer contract  backlog         |       | —                    |       | $          | 4,237      |             | $          | 4,237      |       | $ | — |   |
| Demolition customer  relationships |       | 7 years                   |       | 1,093      |       | 579              |       | 514        |       |
| Software and databases             |       | 8.5 years                 |       | 1,209      |       | 389              |       | 820        |       |
|                               |       |                      |       | $          | 6,539      |             | $          | 5,205      |       | $ | 1,334 |   |

 

7

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**8.****              Investment in JointVentures**

The Company has a 50%ownership interest in Amboy Aggregates (“Amboy”), whose primary business is thedredge mining and sale of fine aggregate. The Company accounts for itsinvestment in Amboy using the equity method. The following table includes Amboy’ssummarized financial information for the periods presented.
|                       | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **            | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **            | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **            | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue               |       | 7,181                            |       | 8,508                           |       | 17,576 |   | 18,839 |   |
|                  |       |                             |       |                            |       |   |   |   |   |
| Costs and  expenses   |       | 5,795                            |       | 6,684                           |       | 15,026 |   | 15,583 |   |
|                  |       |                             |       |                            |       |   |   |   |   |
| Net income            |       | $                                | 1,386      |                            | $          | 1,824 |   | $ | 2,550 |   | $ | 3,256 |   |
|                  |       |                             |       |                            |       |   |   |   |   |
| Great Lakes 50% share |       | $                                | 693        |                            | $          | 912 |   | $ | 1,275 |   | $ | 1,628 |   |

 

Amboy has a loan with abank, which contains certain restrictive covenants, including limitations onthe amount of distributions to its joint venture partners. It is the intent ofthe joint venture partners to periodically distribute Amboy’s earnings, to theextent allowed by Amboy’s bank agreement.

In 2003, the Company andits Amboy joint venture partner each purchased a 50% interest in land, which isadjacent to the Amboy property and may be used in connection with the Amboyoperations. The Company’s share of the purchase price totaled $1,047 and isreflected in investments in joint ventures. There was no income from that land in2006 and $46 for the nine months ended September 30, 2005.

For the nine months endedSeptember 30, 2006 and 2005, the Company received distributions from Amboytotaling $650 and $500, respectively.

8

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**9.****             ****Accrued expenses**

Accrued expenses at September 30, 2006 and December 31, 2005 are asfollows:
|                                | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| Insurance                      |       | $                      | 9,713      |                  | $          | 6,387 |   |
| Payroll and  employee benefits |       | 5,229                  |       | 8,927                 |       |
| Income and other  taxes        |       | 5,379                  |       | 3,817                 |       |
| Interest                       |       | 4,570                  |       | 1,115                 |       |
| Fuel hedge  liability          |       | 2,163                  |       | 344                   |       |
| Equipment leases               |       | 1,274                  |       | 933                   |       |
| Interest rate  swap liability  |       | 219                    |       | 1,598                 |       |
| Other                          |       | 1,869                  |       | 1,143                 |       |
|                           |       |                   |       |                  |       |
|                           |       | $                      | 30,416     |                  | $          | 24,264 |   |

 

**10.****      ****Segment information**

The Company operates in tworeportable segments: dredging and demolition. The Company’s financial reporting systems present various data formanagement to run the business, including profit and loss statements preparedaccording to the segments presented.  Managementuses operating income to evaluate performance between the two segments. Segment information for the periods presentedis as follows:
|                          | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **               | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **               | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Dredging**             |       |                             |       |                            |       |   |   |   |   |
| Contract  revenues       |       | $                                | 69,449     |                            | $          | 106,353 |   | $ | 268,170 |   | $ | 275,699 |   |
| Operating income         |       | 2,073                            |       | 8,895                           |       | 13,845 |   | 8,552 |   |
|                     |       |                             |       |                            |       |   |   |   |   |
| **Demolition**           |       |                             |       |                            |       |   |   |   |   |
| Contract  revenues       |       | $                                | 12,249     |                            | $          | 13,392 |   | $ | 36,015 |   | $ | 37,340 |   |
| Operating income  (loss) |       | 913                              |       | (6,187                          | )          | 3,272 |   | (3,318 | ) |
|                     |       |                             |       |                            |       |   |   |   |   |
| **Total**                |       |                             |       |                            |       |   |   |   |   |
| Contract  revenues       |       | $                                | 81,698     |                            | $          | 119,745 |   | $ | 304,185 |   | $ | 313,039 |   |
| Operating income         |       | 2,986                            |       | 2,708                           |       | 17,117 |   | 5,234 |   |

 

In the third quarter of eachyear the Company performs its annual test for impairment of goodwill. Quarterand year-to-date 2005 Demolition operating income was impacted due to the writedown the value of goodwill and certain intangible assets. In 2005, Great Lakesrenegotiated its compensation arrangements with the president of its demolitionsegment. As a result of the increased incentive compensation to be paid in thefuture, Great Lakes revised future performance expectations for this segment,and wrote down the value of goodwill and certain intangible assets related tothe segment by $5.7 million. There is no impairment in 2006. In addition,foreign dredging revenue of $22,598 for the quarter was primarily attributableto work done in Bahrain. The majorityof the Company’s long-lived assets are marine vessels and related equipment. Atany point in time, the Company may employ certain assets outside of the U.S.,as needed, to perform work on the Company’s foreign projects.

9

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**11.****       Related Party Transactions**

In 2005 the president and minority owner ofthe demolition business purchased land and a building to accommodate new andexpanded office and garage facilities for NASDI.  During 2006 various improvements to the land,building and interior office space were funded by NASDI.  A portion of these expenditures were for thebenefit of the owner of the property and therefore at September 30, 2006 thereis a receivable from the president of NASDI of $1,407 related to those expenditures.  The remaining expenditures relate toleasehold improvements owned by NASDI and were capitalized and will beamortized over the lease term.  NASDIwill sign a long term lease with the president and begin to occupy thefacilities in the fourth quarter of this year.

**12.****      ****Long-Term Debt**

OnAugust 28, 2006, Great Lakes entered into an amendment of its Credit Agreementwith its senior secured lenders to increase the Company’s total leverage ratioto 5.6 to 1.0 for the four consecutive fiscal quarters ending September 30,2006.  Also in September of 2006, GreatLakes entered into an amendment to its equipment loan to increase the maximumtotal leverage ratio to 5.6 to 1.0 for the four consecutive fiscal quartersending September 30, 2006 and obtained a waiver under its bonding agreement ofcompliance with the net worth requirement for the fiscal quarter endingSeptember 30, 2006.  Although amendmentsand waivers were obtained for the aforementioned covenants, at September 30,2006, Great Lakes was in compliance with all the original financial covenantsin its senior credit agreements and surety agreement.

OnSeptember 29, 2006, Great Lakes secured a $20 million International Letter ofCredit Facility with Wells Fargo HSBC Trade Bank.  This facility will be used for performanceand advance payment guarantees on foreign contracts, including the Diyaarcontract.  The Company’s obligationsunder the agreement are guaranteed by the Company’s foreign accountsreceivable.  In addition, theExport-Import Bank of the United States (“Ex-Im”) has issued a guarantee under theEx-Im Bank’s Working Capital Guarantee Program which covers 90% of theobligations owing under the facility. The Company issued its first Letter of Credit under this facility onOctober 30, 2006 for a portion of the performance guarantee on the Diyaarproject.

**13.****      ****Commitments and contingencies**

At September 30, 2006, the Company was contingentlyliable, in the normal course of business, for $18,792 in undrawn letters ofcredit, relating to foreign contract performance guarantees and insurancepayment liabilities.

The Company finances certain key vessels used in itsoperations and office facilities with operating lease arrangements withunrelated lessors, requiring annual rentals decreasing from $14,000 to $8,000over the next five years.  Certain ofthese operating leases contain default provisions that are triggered by anacceleration of debt maturity under the terms of the Company’s CreditAgreement. Additionally, the leases typically contain provisions whereby theCompany indemnifies the lessors for the tax treatment attributable to suchleases based on the tax rules in place at lease inception. The taxindemnifications do not have a contractual dollar limit.  To date, no lessors have asserted any claimsagainst the Company under these tax indemnification provisions.

Borrowings under the Company’s Credit Agreement are secured by firstlien mortgages on certain operating equipment of the Company with a net bookvalue of approximately $80,000 at December 31, 2005.  Additionally, the Company obtains itsperformance and bid bonds

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throughan underwriting and indemnity agreement with a surety company that has beengranted a security interest in a substantial portion of the Company’s operatingequipment with a net book value of approximately $84,000 at December 31,2005.  The Company also has an equipmentterm loan, which is secured by a first lien mortgage on certain operatingequipment with a net book value of approximately $20,000 at December 31, 2005.The net book value of equipment serving as collateral under these agreements atSeptember 30, 2006 does not materially differ from the values at December 31,2005.  These agreements containprovisions requiring the Company to maintain certain financial ratios andrestricting the Company’s ability to pay dividends, incur indebtedness, createliens, and take certain other actions. The Company was in compliance with all required covenants at September30, 2006.

The performance and bid bonds issued under the bondingagreement are customarily required for dredging and marine constructionprojects, as well as some demolition projects. Bid bonds are generally obtained for a percentage of bid value andaggregate amounts outstanding typically range from $5,000 to $10,000.  Performance bonds typically cover 100% of thecontract value with no maximum bond amounts. At September 30, 2006, the Company had outstanding performance bonds valuedat approximately $237,080; however the revenue value remaining in backlogrelated to these projects totaled approximately $204,453 at September 30, 2006.

Certain foreign projects performed by the Companyhave warranty periods, typically spanning no more than three to five yearsbeyond project completion, whereby the Company retains responsibility tomaintain the project site to certain specifications during the warrantyperiod.  Generally, any potentialliability of the Company is mitigated by insurance, shared responsibilitieswith consortium partners, and/or recourse to owner-provided specifications.

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

As is customary with negotiated contracts andmodifications or claims to competitively-bid contracts with the federalgovernment, the government has the right to audit the books and records of theCompany to ensure compliance with such contracts, modifications or claims and theapplicable federal laws.  The governmenthas the ability to seek a price adjustment based on the results of suchaudit.  Any such audits have not had andare not expected to have a material impact on the financial position, operationsor cash flows of the Company.

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

On February 10, 2004, the Company was served with a subpoena to producedocuments in connection with a federal grand jury convened in the United StatesDistrict Court for the District of South Carolina.  The Company believes the grand jury has beenconvened to investigate the United States dredging industry in connection withwork performed for the U.S. Army Corp of Engineers.  As of September 12, 2006 the Company believesit has fully complied with all requests related to the federal subpoena matterand has delivered its affidavit to that effect. The Company has received no additional communications from the JusticeDepartment since that date; however, the matter continues to remain open. TheCompany continues to incur legal costs although at a much reduced level fromlast year.  These expenses totaled approximately$170 and $599 for the three and nine months ended September 30, 2006 comparedto $459 and $2,269 for the same periods in 2005.

11

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In the normal course of business, the Company is a party to variouspersonal injury lawsuits.  The Company maintainsinsurance to cover claims that arise from injuries to its hourly workforce subjectto a deductible. Recently there has been an increase in suits filed inTexas.  Two Texas law firms areaggressively pursuing personal injury claims on behalf of dredging workersresident in certain areas of Texas.  Anunprecedented number of lawsuits are being filed for incidents that would nothave likely escalated to claims in the past. However, aggressive legal representation and medical advice isincreasing the seriousness of claimed injuries and the amount demanded insettlement.  In the first quarter of thisyear a $2.0 million charge was recorded to increase the Company’s reserves for theself-insured portion of these liabilities. In the second quarter the Company recorded another $1.3 million charge relatedprimarily to new lawsuits filed during the quarter and based on claims activityduring the third quarter these reserves have remained adequate. The Company’srecorded self insurance reserves represent its best estimate of the outcomes ofthese claims and the Company does not believe that it is reasonably possiblethere will be a material adverse impact to the Company’s financial position orresults of operations or cash flows related to such claims.  However, the occurrence in the future of newclaims of a similar nature is not possible to predict and while the Companydoes not believe that additional claims would have a material impact on theCompany’s financial position, it is possible they could be material to theresults of operations and cash flows in future periods.

On April 24, 2006, a class action complaint (Reed v. United States) wasfiled in the U.S. District Court for the Eastern District of Louisiana, onbehalf of Louisiana citizens who allegedly suffered property damage from the floodwatersthat flooded New Orleans and surrounding areas when Hurricane Katrina hit thearea on August 29, 2005 (the “Katrina Claims”). The Reed suit names asdefendants the U.S. government, Great Lakes Dredge & Dock Company, andnumerous other dredging companies that completed dredging projects on behalf ofthe Army Corps of Engineers in the Mississippi River Gulf Outlet (“MRGO”)between 1993 and 2005. The Reed complaint alleges that dredging of MRGO causedthe destruction of the Louisiana wetlands, which had provided a natural barrieragainst some storms and hurricanes. The complaint alleges that this loss ofnatural barriers contributed to the failure of the levees as Katrinafloodwaters damaged plaintiffs’ property. The Reed complaint asserts claims ofnegligence, warranty, concealment and violations of the Water Pollution ControlAct. Other plaintiffs have filed similar class action complaints. In addition,plaintiffs have filed one mass tort case. All these cases raise the same claimsas Reed. One dredging company has filed a cross-claim seeking contribution andindemnification. The amount of claimed damages is not stated, but is presumedto be significant. On October 19, 2006, Great Lakes filed for exoneration orlimitation of liability under the Limitation of Liability Act in federaldistrict court. This limitation action stays all outstanding Katrina lawsuitsagainst Great Lakes, including the lawsuits mentioned above, pending resolutionof Great Lakes’ exoneration and limitation claims. Great Lakes believes it hasmeritorious claims to either exoneration from all liability or limitation ofliability at not more than $55 million, which is the value of the vessels whichconducted the MRGO dredging work. These defenses include arguments for bothstatutory and constitutional immunity from liability for the Katrina Claims. Inaddition, Great Lakes maintains $150 million in insurance coverage for theKatrina Claims. Great Lakes does not believe it is reasonably possible that theKatrina Claims will have a material adverse impact on its financial conditionor results of operations and cash flows.

**14.****      ****Effects of recently issued accounting pronouncements**

In July 2006, the FASB issued FASB InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 isan interpretation of FASB Statement No. 109, “Accounting for Income Taxes,”and it seeks to reduce the diversity in practice associated with certainaspects of measurement and recognition in accounting for income taxes. Inaddition, FIN 48 requires

12

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expanded disclosure with respect to the uncertaintyin income taxes and is effective as of the beginning of our 2007 fiscal year.The Company is currently evaluating the impact, if any, that FIN 48 will haveon the financial statements.

InSeptember 2006, the FASB issued SFAS No. 157, Fair Value Measurements”.  SFAS 157 defines fair value, establishes aframework for measuring fair value in generally accepted accounting principlesand expands disclosures about fair value measurements.  This statement is effective for financialstatements issued for fiscal years beginning after November 15, 2007.  Great Lakes is currently evaluating theimpact of adopting SFAS 157 on the consolidated financial statements.

In September 2006, theSecurities and Exchange Commission issued Staff Accounting Bulletin No. 108,(SAB108).  SAB 108 considers the effectsof prior year misstatements when quantifying misstatements in current year financialstatements.  It is effective forfinancial statements issued after November 15, 2006.  Great Lakes does not believe the adoption ofSAB 108 will have a material impact on the consolidated financial statements.

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**15.****      ****Supplemental condensedconsolidating financial information**

Includedin the Company’s long-term debt is $175,000 of 73⁄4% senior subordinated noteswhich will mature on December 15, 2013. The payment obligations of the Company under the senior subordinatednotes are guaranteed by the Company’s domestic subsidiaries (the “SubsidiaryGuarantors”).  Such guarantees are full,unconditional and joint and several.  Thefollowing supplemental financial information sets forth, on a combined basis,the balance sheets, statements of operations and statements of cash flows forthe Subsidiary Guarantors, the Company’s non-guarantor subsidiary and for theCompany (“GLD Corporation”).

**CondensedConsolidating Balance Sheet at September 30, 2006**
| ** **                                     | ** ** | **Guarantor**    | ** ** | **Other**        | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|------------------------------------------------|------------|------------------|------------|------------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                                     | ** ** | **Subsidiaries** | ** ** | **Subsidiaries** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
| **ASSETS**                                     | ** ** | ** **       | ** ** | ** **       | ** ** | ** **      | ** ** | ** **       |       |             | ** ** |
| Current assets:                                |       |             |       |             |       |            |       |             |       |             |       |
| Cash and  equivalents                          |       | $                | 1,997      |             | $          | 10              |       | $                | —     |             | $          | — |   | $ | 2,007 |   |
| Accounts  receivable, net                      |       | 73,124           |       | —           |       | —          |       | —           |       | 73,124           |       |
| Receivables from  affiliates                   |       | 12,929           |       | 2,838            |       | 4,540           |       | (20,307          | )          | —           |       |
| Contract  revenues in excess of billings       |       | 18,269           |       | —           |       | —          |       | —           |       | 18,269           |       |
| Inventories                                    |       | 21,939           |       | —           |       | —          |       | —           |       | 21,939           |       |
| Prepaid expenses  and other current assets     |       | 18,137           |       | —           |       | 10,500          |       | —           |       | 28,637           |       |
| Total current  assets                          |       | 146,395          |       | 2,848            |       | 15,040          |       | (20,307          | )          | 143,976          |       |
| Property and equipment,  net                   |       | 241,152          |       | —           |       | 3,575           |       | —           |       | 244,727          |       |
| Goodwill                                       |       | 98,747           |       | —           |       | —          |       | —           |       | 98,747           |       |
| Other intangible  assets, net                  |       | 1,334            |       | —           |       | —          |       | —           |       | 1,334            |       |
| Investments in  subsidiaries                   |       | 2,848            |       | —           |       | 371,717         |       | (374,565         | )          | —           |       |
| Notes receivable from  affiliates              |       | —           |       | —           |       | 22,702          |       | (22,702          | )          | —           |       |
| Inventories                                    |       | 11,418           |       | —           |       | —          |       | —           |       | 11,418           |       |
| Investments in joint  ventures                 |       | 9,230            |       |             |       | —          |       | —           |       | 9,230            |       |
| Other assets                                   |       | 3,090            |       |             |       | 8,923           |       | —           |       | 12,013           |       |
|                                           |       | $                | 514,214    |             | $          | 2,848           |       | $                | 421,957    |             | $          | (417,574 | ) | $ | 521,445 |   |
|                                           |       |             |       |             |       |            |       |             |       |             |       |
| **LIABILITIES  AND STOCKHOLDER’S EQUITY** |       |             |       |             |       |            |       |             |       |             |       |
| Current liabilities:                           |       |             |       |             |       |            |       |             |       |             |       |
| Accounts payable                               |       | $                | 50,573     |             | $          | —          |       | $                | 1          |             | $          | — |   | $ | 50,574 |   |
| Payables to  affiliates                        |       |  7,437      |       | —           |       | 12,871          |       | (20,308          | )          | —           |       |
| Accrued expenses                               |       | 22,335           |       | —           |       | 8,081           |       | —           |       | 30,416           |       |
| Billings in  excess of contract revenues       |       | 13,899           |       | —           |       | —          |       | —           |       | 13,899           |       |
| Current  maturities of long-term debt          |       | 1,950            |       | —           |       | —          |       | —           |       | 1,950            |       |
| Total current  liabilities                     |       |  96,194     |       | —           |       | 20,953          |       | (20,308          | )          | 96,839           |       |
| Long-term debt                                 |       | 16,088           |       | —           |       | 233,800         |       | —           |       | 249,888          |       |
| Notes payable to affiliates                    |       | 22,702           |       | —           |       | —          |       | (22,702          | )          | —           |       |
| Deferred income taxes                          |       | 1,291            |       | —           |       | 85,788          |       | —           |       | 87,079           |       |
| Other                                          |       | 5,525            |       | —           |       | 1,981           |       | —           |       | 7,506            |       |
| Total  liabilities                             |       | 141,800          |       | —           |       | 342,522         |       | (43,010          | )          | 441,312          |       |
| Minority interests                             |       | —           |       | —           |       | —          |       | 2,010            |       | 2,010            |       |
| Stockholder’s equity                      |       | 372,414          |       | 2,848            |       | 79,435          |       | (376,574         | )          | 78,123           |       |
|                                           |       | $                | 514,214    |             | $          | 2,848           |       | $                | 421,957    |             | $          | (417,574 | ) | $ | 521,445 |   |

 

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**CondensedConsolidating Balance Sheet at December 31, 2005**
| ** **                                    | ** ** | **Guarantor**    | ** ** | **Other**      | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------|------------|------------------|------------|----------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                                    | ** ** | **Subsidiaries** | ** ** | **Subsidiary** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
| **ASSETS**                                    |       |             |       |           |       |            |       |             |       |             |       |
| Current assets:                               |       |             |       |           |       |            |       |             |       |             |       |
| Cash and equivalents                          |       | $                | 596        |           | $          | 5               |       | $                | —     |             | $          | — |   | $ | 601 |   |
| Accounts receivable, net                      |       | 85,114           |       | —         |       | —          |       | —           |       | 85,114           |       |
| Receivables from affiliates                   |       | 9,202            |       | 2,876          |       | 4,542           |       | (16,620          | )          | —           |       |
| Contract revenues in excess of billings       |       | 14,352           |       | —         |       | —          |       | —           |       | 14,352           |       |
| Inventories                                   |       | 17,084           |       | —         |       | —          |       | —           |       | 17,084           |       |
| Prepaid expenses and other current assets     |       | 10,742           |       | —         |       | 6,371           |       | —           |       | 17,113           |       |
| Total current assets                          |       | 137,090          |       | 2,881          |       | 10,913          |       | (16,620          | )          | 134,264          |       |
| Property and  equipment, net                  |       | 228,393          |       | —         |       | 12,456          |       | —           |       | 240,849          |       |
| Goodwill                                      |       | 98,747           |       | —         |       | —          |       | —           |       | 98,747           |       |
| Other intangible  assets, net                 |       | 1,579            |       | —         |       | —          |       | —           |       | 1,579            |       |
| Investments in  subsidiaries                  |       | 2,881            |       | —         |       | 355,388         |       | (358,269         | )          | —           |       |
| Notes receivable  from affiliates             |       | —           |       | —         |       | 22,702          |       | (22,702          | )          | —           |       |
| Inventories                                   |       | 11,206           |       | —         |       | —          |       | —           |       | 11,206           |       |
| Investments in  joint ventures                |       | 8,605            |       | —         |       | —          |       | —           |       | 8,605            |       |
| Other assets                                  |       | 2,010            |       | —         |       | 9,977           |       | —           |       | 11,987           |       |
|                                          |       | $                | 490,511    |           | $          | 2,881           |       | $                | 411,436    |             | $          | (397,591 | ) | $ | 507,237 |   |
|                                          |       |             |       |           |       |            |       |             |       |             |       |
| **LIABILITIES AND STOCKHOLDER’S EQUITY** | ** ** | ** **       | ** ** | ** **     | ** ** | ** **      | ** ** | ** **       | ** ** | ** **       | ** ** |
| Current  liabilities:                         |       |             |       |           |       |            |       |             |       |             |       |
| Accounts payable                              |       | $                | 50,836     |           | $          | —          |       | $                | —     |             | $          | — |   | $ | 50,836 |   |
| Payables to affiliates                        |       | 7,754            |       | —         |       | 8,866           |       | (16,620          | )          | —           |       |
| Accrued expenses                              |       | 19,460           |       | —         |       | 4,804           |       | —           |       | 24,264           |       |
| Billings in excess of contract revenues       |       | 8,108            |       | —         |       | —          |       | —           |       | 8,108            |       |
| Current maturities of long-term debt          |       | 1,950            |       | —         |       | —          |       | —           |       | 1,950            |       |
| Total current liabilities                     |       | 88,108           |       | —         |       | 13,670          |       | (16,620          | )          | 85,158           |       |
| Long-term debt                                |       | 17,550           |       | —         |       | 231,300         |       | —           |       | 248,850          |       |
| Notes payable to  affiliates                  |       | 22,702           |       | —         |       | —          |       | (22,702          | )          | —           |       |
| Deferred income  taxes                        |       | 1,199            |       | —         |       | 86,955          |       | —           |       | 88,154           |       |
| Other                                         |       | 3,923            |       | —         |       | 550             |       | —           |       | 4,473            |       |
| Total liabilities                             |       | 133,482          |       | —         |       | 332,475         |       | (39,322          | )          | 426,635          |       |
| Minority  interests                           |       | —           |       | —         |       | —          |       | 1,850            |       | 1,850            |       |
| Stockholder’s  equity                    |       | 357,029          |       | 2,881          |       | 78,961          |       | (360,119         | )          | 78,752           |       |
|                                          |       | $                | 490,511    |           | $          | 2,881           |       | $                | 411,436    |             | $          | (397,591 | ) | $ | 507,237 |   |

 

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**CondensedConsolidating Statement of Operations for the Three months ended September 30,2006**
| ** **                                 | ** ** | **Guarantor**    | ** ** | **Other**      | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|--------------------------------------------|------------|------------------|------------|----------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                                 | ** ** | **Subsidiaries** | ** ** | **Subsidiary** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
|                                       |       |             |       |           |       |            |       |             |       |             |       |
| Contract  revenues                         |       | $                | 81,698     |           | $          | —          |       | $                | —     |             | $          | — |   | $ | 81,698 |   |
| Costs of  contract revenues                |       | (72,370          | )          | —         |       | 155             |       | —           |       | (72,215          | )          |
| Gross profit                               |       | 9,328            |       | —         |       | 155             |       | —           |       | 9,483            |       |
| General and  administrative expenses       |       | (6,244           | )          | (16            | )          | (2              | )          | —           |       | (6,262           | )          |
| Subpoena-related  expenses                 |       | (170             | )          | —         |       | —          |       | —           |       | (170             | )          |
| Amortization of  intangible assets         |       | (65              | )          | —         |       | —          |       | —           |       | (65              | )          |
| Impairment of  intangible assets           |       | —           |       | —         |       | —          |       | —           |       | —           |       |
| Operating income (loss)                    |       | 2,849            |       | (16            | )          | 153             |       | —           |       | 2,986            |       |
| Interest  expense, net                     |       | (1,096           | )          | —         |       | (4,028          | )          | —           |       | (5,124           | )          |
| Equity in (loss)  earnings of subsidiaries |       | (11              | )          | —         |       | 3,285           |       | (3,274           | )          | —           |       |
| Equity in loss  of joint ventures          |       | 693              |       | —         |       | —          |       | —           |       | 693              |       |
| Minority  interests                        |       | —           |       | —         |       | —          |       | (35              | )          | (35              | )          |
| Income (loss) before income taxes          |       | 2,435            |       | (16            | )          | (590            | )          | (3,309           | )          | (1,480           | )          |
| Provision for  income taxes                |       | 878              |       | 5              |       | (1,763          | )          | 1,390            |       | 510              |       |
| Net income (loss)                          |       | $                | 3,313      |           | $          | (11             | )          | $                | (2,353     | )                | $          | (1,919 | ) | $ | (970 | ) |

 

**CondensedConsolidating Statement of Operations for the Three Months Ended September 30,2005**
| ** **                                 | ** ** | **Guarantor**    | ** ** | **Other**      | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|--------------------------------------------|------------|------------------|------------|----------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                                 | ** ** | **Subsidiaries** | ** ** | **Subsidiary** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
|                                       |       |             |       |           |       |            |       |             |       |             |       |
| Contract  revenues                         |       | $                | 119,745    |           | $          | —          |       | $                | —     |             | $          | — |   | $ | 119,745 |   |
| Costs of  contract revenues                |       | (103,332         | )          | —         |       | 148             |       | —           |       | (103,184         | )          |
| Gross profit                               |       | 16,413           |       | —         |       | 148             |       | —           |       | 16,561           |       |
| General and  administrative expenses       |       | (7,691           | )          | (20            | )          | 218             |       | —           |       | (7,493           | )          |
| Subpoena-related  expenses                 |       | (459             | )          | —         |       | —          |       | —           |       | (459             | )          |
| Amortization of  intangible assets         |       | (183             | )          | —         |       | —          |       | —           |       | (183             | )          |
| Impairment of  intangible assets           |       | (5,718           | )          | —         |       | —          |       | —           |       | (5,718           | )          |
| Operating income (loss)                    |       | 2,362            |       | (20            | )          | 366             |       | —           |       | 2,708            |       |
| Interest  expense, net                     |       | (1,028           | )          | —         |       | (5,411          | )          | —           |       | (6,439           | )          |
| Equity in (loss)  earnings of subsidiaries |       | (13              | )          | —         |       | 4,013           |       | (4,000           | )          | —           |       |
| Equity in loss  of joint ventures          |       | 912              |       | —         |       | —          |       | —           |       | 912              |       |
| Minority  interests                        |       | —           |       | —         |       | —          |       | 36               |       | 36               |       |
| Income (loss) before income taxes          |       | 2,233            |       | (20            | )          | (1,032          | )          | (3,964           | )          | (2,783           | )          |
| Provision for  income taxes                |       | 857              |       | 7              |       | (3,473          | )          | 1,666            |       | (943             | )          |
| Net income  (loss)                         |       | $                | 3,090      |           | $          | (13             | )          | $                | (4,505     | )                | $          | (2,298 | ) | $ | (3,726 | ) |

 

16

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**CondensedConsolidating Statement of Operations for the Nine Months Ended September 30,2006**
| ** **                                 | ** ** | **Guarantor**    | ** ** | **Other**      | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|--------------------------------------------|------------|------------------|------------|----------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                                 | ** ** | **Subsidiaries** | ** ** | **Subsidiary** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
| Contract  revenues                         |       | $                | 304,185    |           | $          | —          |       | $                | —     |             | $          | — |   | $ | 304,185 |   |
| Costs of  contract revenues                |       | (265,987         | )          | —         |       | 455             |       | —           |       | (265,532         | )          |
| Gross profit                               |       | 38,198           |       | —         |       | 455             |       | —           |       | 38,653           |       |
| General and  administrative expenses       |       | (20,629          | )          | (46            | )          | (17             | )          | —           |       | (20,692          | )          |
| Subpoena-related  expenses                 |       | (599             | )          | —         |       | —          |       | (599             | )          |             |       |
| Amortization of  intangible assets         |       | (245             | )          | —         |       | —          |       | —           |       | (245             | )          |
| Impairment of  intangible assets           |       | —           |       | —         |       | —          |       | —           |       | —           |       |
| Operating income (loss)                    |       | 16,725           |       | (46            | )          | 438             |       | —           |       | 17,117           |       |
| Interest  expense, net                     |       | (3,263           | )          | —         |       | (14,077         | )          | —           |       | (17,340          | )          |
| Equity in  earnings (loss) of subsidiaries |       | (34              | )          | —         |       | 16,975          |       | (16,941          | )          | —           |       |
| Equity in  earnings of joint venture       |       | 1,275            |       | —         |       | —          |       | —           |       | 1,275            |       |
| Minority  interests                        |       | —           |       | —         |       | —          |       | (160             | )          | (160             | )          |
| Income (loss) before income taxes          |       | 14,703           |       | (46            | )          | 3,336           |       | (17,101          | )          | 892              |       |
| Provision for  income taxes                |       | 2,474            |       | 12             |       | (10,086         | )          | 7,182            |       | (418             | )          |
| Net income  (loss)                         |       | $                | 17,177     |           | $          | (34             | )          | $                | (6,750     | )                | $          | (9,919 | ) | $ | 474 |   |

 

**CondensedConsolidating Statement of Operations for the Nine Months Ended September 30,2005**
| ** **                                 | ** ** | **Guarantor**    | ** ** | **Other**      | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|--------------------------------------------|------------|------------------|------------|----------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                                 | ** ** | **Subsidiaries** | ** ** | **Subsidiary** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
|                                       |       |             |       |           |       |            |       |             |       |             |       |
| Contract  revenues                         |       | $                | 313,039    |           | $          | —          |       | $                | —     |             | $          | — |   | $ | 313,039 |   |
| Costs of  contract revenues                |       | (278,337         | )          | —         |       | 332             |       | —           |       | (278,005         | )          |
| Gross profit                               |       | 34,702           |       | —         |       | 332             |       | —           |       | 35,034           |       |
| General and  administrative expenses       |       | (21,031          | )          | (50            | )          | (149            | )          | —           |       | (21,230          | )          |
| Subpoena-related  expenses                 |       | (2,269           | )          | —         |       | —          |       |             |       | (2,269           | )          |
| Amortization of  intangible assets         |       | (583             | )          | —         |       | —          |       | —           |       | (583             | )          |
| Impairment of  intangible assets           |       | (5,718           | )          | —         |       | —          |       | —           |       | (5,718           | )          |
| Operating income (loss)                    |       | 5,101            |       | (50            | )          | 183             |       | —           |       | 5,234            |       |
| Interest  expense, net                     |       | (3,022           | )          | —         |       | (14,283         | )          | —           |       | (17,305          | )          |
| Equity in  earnings (loss) of subsidiaries |       | (33              | )          | —         |       | 4,821           |       | (4,788           | )          | —           |       |
| Equity in earnings  of joint venture       |       | 1,674            |       | —         |       | —          |       | —           |       | 1,674            |       |
| Minority  interests                        |       | —           |       | —         |       | —          |       | (184             | )          | (184             | )          |
| Income (loss) before income taxes          |       | 3,720            |       | (50            | )          | (9,279          | )          | (4,972           | )          | (10,581          | )          |
| Provision for  income taxes                |       | 436              |       | 17             |       | (864            | )          | 2,089            |       | 1,678            |       |
| Net income  (loss)                         |       | $                | 4,156      |           | $          | (33             | )          | $                | (10,143    | )                | $          | (2,883 | ) | $ | (8,903 | ) |

 

17

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**CondensedConsolidating Cash Flows for the Nine months ended September 30, 2006**

**Successor Basis**
| ** **                                           | ** ** | **Guarantor**    | ** ** | **Other**      | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------|------------|------------------|------------|----------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                                           | ** ** | **Subsidiaries** | ** ** | **Subsidiary** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
|                                                 |       |             |       |           |       |            |       |             |       |             |       |
| **Operating  Activities**                            | ** ** | ** **       | ** ** | ** **     | ** ** | ** **      | ** ** | ** **       | ** ** | ** **       | ** ** |
| Net cash flows from operating activities             |       | $                | 47,159     |           | $          | (34             | )          | $                | (24,453    | )                | $          | — |   | $ | 22,672 |   |
| **Investing  Activities**                            | ** ** | ** **       | ** ** | ** **     | ** ** | ** **      | ** ** | ** **       | ** ** | ** **       | ** ** |
| Purchases of  property and equipment                 |       | (21,011          | )          | —         |       | —          |       | —           |       | (21,011          | )          |
| Dispositions of  property and equipment              |       | 1,502            |       | —         |       | —          |       | —           |       | 1,502            |       |
| Loan to related  party                               |       | (1,407           | )          | —         |       | —          |       | —           |       | (1,407           | )          |
| Net cash flows from investing activities             |       | (20,916          | )          | —         |       | —          |       | —           |       | (20,916          | )          |
| **Financing  Activities**                            | ** ** | ** **       | ** ** | ** **     | ** ** | ** **      | ** ** | ** **       | ** ** | ** **       | ** ** |
| Repayments of  long-term debt                        |       | (4,462           | )          | —         |       | —          |       | —           |       | (4,462           | )          |
| Borrowings under  revolving loans, net of repayments |       | —           |       | —         |       | 5,500           |       | —           |       | 5,500            |       |
| Net change in  accounts with affiliates              |       | (18,992          | )          | 39             |       | 18,953          |       | —           |       | —           |       |
| Financing fees                                       |       | (361             | )          |           |       |            |       |             |       | (361             | )          |
| Repayment of  capital lease debt                     |       | (1,027           | )          | —         |       | —          |       | —           |       | (1,027           | )          |
| Net cash flows from financing activities             |       | (24,842          | )          | 39             |       | 24,453          |       | —           |       | (350             | )          |
| Net change in cash and equivalents                   |       | 1,401            |       | 5              |       | —          |       | —           |       | 1,406            |       |
| Cash and equivalents at beginning of year            |       | 596              |       | 5              |       | —          |       | —           |       | 601              |       |
| Cash and  equivalents at end of year                 |       | $                | 1,997      |           | $          | 10              |       | $                | —     |             | $          | — |   | $ | 2,007 |   |

 

**CondensedConsolidating Cash Flows for the Nine months ended September 30, 2005**
| ** **                                        | ** ** | **Guarantor**    | ** ** | **Other**      | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------|------------|------------------|------------|----------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                                        | ** ** | **Subsidiaries** | ** ** | **Subsidiary** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
|                                              |       |             |       |           |       |            |       |             |       |             |       |
| **Operating  Activities**                         |       |             |       |           |       |            |       |             |       |             |       |
| Net cash flows from operating activities          |       | $                | 13,985     |           | $          | (20             | )          | $                | (5,333     | )                | $          | — |   | $ | 8,632 |   |
|                                              |       |             |       |           |       |            |       |             |       |             |       |
| **Investing  Activities**                         |       |             |       |           |       |            |       |             |       |             |       |
| Purchases of  property and equipment              |       | (9,437           | )          | —         |       | —          |       | —           |       | (9,437           | )          |
| Dispositions of  property and equipment           |       | 4,596            |       | —         |       | —          |       | —           |       | 4,596            |       |
| Net cash flows from investing activities          |       | (4,841           | )          | —         |       | —          |       | —           |       | (4,841           | )          |
|                                              |       |             |       |           |       |            |       |             |       |             |       |
| **Financing  Activities**                         |       |             |       |           |       |            |       |             |       |             |       |
| Repayments of  long-term debt                     |       | (1,462           | )          | —         |       | —          |       | —           |       | (1,462           | )          |
| Borrowings of  revolving loans, net of repayments |       | —           |       | —         |       | —          |       | —           |       | —           |       |
| Net change in accounts  with affiliates           |       | (5,353           | )          | 20             |       | 5,333           |       | —           |       | —           |       |
| Repayment of  capital lease debt                  |       | (806             | )          | —         |       | —          |       | —           |       | (806             | )          |
| Net cash flows from financing activities          |       | (7,621           | )          | 20             |       | 5,333           |       | —           |       | (2,268           | )          |
|                                              |       |             |       |           |       |            |       |             |       |             |       |
| Net change in cash and equivalents                |       | 1,523            |       | —         |       | —          |       | —           |       | 1,523            |       |
| Cash and equivalents at beginning of period       |       | 1,957            |       | 5              |       | —          |       | —           |       | 1,962            |       |
| Cash and  equivalents at end of period            |       | $                | 3,480      |           | $          | 5               |       | $                | —     |             | $          | — |   | $ | 3,485 |   |

 

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**Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

**Statement Underthe Private Securities Litigation Reform Act**

Certain information in this Quarterly Report on Form 10-Q, includingbut not limited to the Management’s Discussion and Analysis of FinancialCondition and Results of Operations, may constitute forward-looking statementsas such term is defined in Section 27A of the Securities Exchange Act of 1933(the “Securities Act”) and Section 21E of the Securities Exchange Act of1934.  Certain forward-looking statementscan be identified by the use of forward-looking terminology such as, “believes,”“expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,”“estimates,” “anticipates,” or “hopeful,” or the negative thereof or othercomparable terminology, or by discussions of strategy, plans or intentions.  Forward-looking statements involve risks anduncertainties, including those described in the Risk Factors section of theCompany’s Annual Report on Form 10-K for the year ended December 31, 2005,which could cause actual results to be materially different than those in theforward-looking statements, which speak only as of the date hereof.  The Company assumes no obligation to updatesuch forward-looking information.

**General**

The Company is the largest provider of dredging services in the UnitedStates. Dredging generally involves the enhancement or preservation of thenavigability of waterways or the protection of shorelines through the removalor replenishment of soil, sand or rock. The U.S. dredging market consists of three primary types of work:  Capital, Maintenance and Beach Nourishment,in which the Company experienced an average combined U.S. bid market share of36% over the last three fiscal years (2003 to 2005).  The Company’s bid market is defined as thepopulation of projects on which it bid or could have bid if not for capacityconstraints (“bid market”).  In addition,the Company has continued its role as the only U.S. dredging contractor withsignificant international operations, which averaged 16% of its contractrevenues over the last three fiscal years.

The Company also owns 85% of the capital stock of North American SiteDevelopers, Inc. (“NASDI”), a demolition service provider located in theBoston, Massachusetts area.  NASDI’sprincipal services consist of interior and exterior demolition of commercialand industrial buildings, salvage and recycling of related materials, andremoval of hazardous substances and materials. One NASDI management stockholder retains a 15% non-voting interest inNASDI, which is reflected as a minority interest within the financialstatements.

The Company’s equity in earnings of joint ventures relates to theCompany’s 50% ownership interests in Amboy Aggregates (“Amboy”) and in itsinterest in an adjoining land investment joint venture, which are accounted forusing the equity method.

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

The following table sets forth the components of net income (loss) andEBITDA as a percentage of contract revenues for the three and nine months endedSeptember 30, 2006 and 2005:
| ** **                            | ** ** | **Three Months Ended**             | ** ** | **Nine Months Ended**              | ** ** |
|---------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                            | ** ** | **September 30,**                       | ** ** | **September 30,**                       | ** ** |
| ** **                            | ** ** | **   2006   ** | ** ** | **   2005   ** | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                  |       |                                         |       |                                         |       |   |   |   |   |
| Contract revenues                     |       | 100.0                                        | %          | 100.0                                        | %          | 100.0 | % | 100.0 | % |
| Costs of contract  revenues           |       | (88.4                                        | )          | (86.2                                        | )          | (87.3 | ) | (88.8 | ) |
| Gross profit                          |       | 11.6                                         |       | 13.8                                         |       | 12.7 |   | 11.2 |   |
| General and  administrative expenses  |       | (7.7                                         | )          | (6.3                                         | )          | (6.8 | ) | (6.8 | ) |
| Subpoena-related  expenses            |       | (0.2                                         | )          | (0.4                                         | )          | (0.2 | ) | (0.7 | ) |
| Amortization of  intangible assets    |       | (0.1                                         | )          | (0.1                                         | )          | (0.1 | ) | (0.2 | ) |
| Impairment of  intangible assets      |       | —                                       |       | (4.8                                         | )          | — |   | (1.8 | ) |
| Operating income  (loss)              |       | 3.6                                          |       | 2.2                                          |       | 5.6 |   | 1.7 |   |
| Interest expense, net                 |       | (6.3                                         | )          | (5.3                                         | )          | (5.7 | ) | (5.5 | ) |
| Equity in earnings of  joint ventures |       | 0.9                                          |       | 0.8                                          |       | 0.4 |   | 0.6 |   |
| Minority interest                     |       | (0.0                                         | )          | —                                       |       | (0.1 | ) | (0.1 | ) |
| Income (loss)  before income taxes    |       | (1.9                                         | )          | (2.3                                         | )          | 0.2 |   | (3.3 | ) |
| Income tax (expense)  benefit         |       | 0.8                                          |       | (0.8                                         | )          | (0.1 | ) | 0.5 |   |
| Net income  (loss)                    |       | (1.1                                         | )%         | (3.1                                         | )%         | 0.1 | % | (2.8 | )% |
|                                  |       |                                         |       |                                         |       |   |   |   |   |
| EBITDA                                |       | 12.1                                         | %          | 8.2                                          | %          | 12.2 | % | 8.1 | % |

 

EBITDA, as provided herein, represents net income (loss), adjusted fornet interest expense, income taxes, depreciation and amortization expense. TheCompany presents EBITDA as an additional measure by which to evaluate theCompany’s operating trends.  The Companybelieves that EBITDA is a measure frequently used to evaluate performance ofcompanies with substantial leverage and that all of its primary stakeholders(i.e. its bondholders, banks and investors) use EBITDA to evaluate the Company’speriod to period performance.  Additionally, management believes that EBITDA provides a transparentmeasure of the Company’s recurring operating performance and allows managementto readily view operating trends, perform analytical comparisons and identifystrategies to improve operating performance. For this reason, EBITDA is themeasure the Company uses to assess performance for purposes of determining compensationunder its incentive plan.  EBITDA shouldnot be considered an alternative to, or more meaningful than, amountsdetermined in accordance with GAAP including: (a) operating income as anindicator of operating performance; or (b) cash flows from operations as ameasure of liquidity.  As such, theCompany’s use of EBITDA, instead of a GAAP measure, has limitations as ananalytical tool, including the inability to determine profitability orliquidity due to the exclusion of interest expense and the associatedsignificant cash requirements and the exclusion of depreciation andamortization, which represent significant and unavoidable operating costs giventhe level of indebtedness and capital expenditures needed to maintain theCompany’s business.  For these reasons,the Company uses operating income to measure its operating performance and usesEBITDA only as a supplement.  EBITDA isreconciled to net income (loss) in the table of financial results.

20

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The following tablereconciles net income (loss) to EBITDA for the periods indicated:
| ** **                    | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                    | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                    | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|                          |       |                             |       |                            |       |   |   |   |   |
| Net income  (loss)            |       | $                                | (970       | )                               | $          | (3,726 | ) | $ | 474 |   | $ | (8,903 | ) |
| Adjusted for:                 |       |                             |       |                            |       |   |   |   |   |
| Interest expense, net         |       | 5,124                            |       | 6,439                           |       | 17,340 |   | 17,305 |   |
| Income tax expense (benefit)  |       | (510                             | )          | 943                             |       | 418 |   | (1,678 | ) |
| Depreciation and amortization |       | 6,240                            |       | 6,149                           |       | 18,768 |   | 18,479 |   |
| EBITDA                        |       | $                                | 9,884      |                            | $          | 9,805 |   | $ | 37,000 |   | $ | 25,203 |   |

 

The following table sets forth, by segment and dredging type of work,the Company’s contract revenues for the three and nine months ended and backlogas of the periods indicated:
| ** **                   | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                   | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                   | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Revenues  (in thousands)** |       |                             |       |                            |       |   |   |   |   |
| Dredging:                    |       |                             |       |                            |       |   |   |   |   |
| Capital - U.S.               |       | $                                | 28,521     |                            | $          | 56,100 |   | $ | 89,626 |   | $ | 115,878 |   |
| Capital - foreign            |       | 22,598                           |       | 16,033                          |       | 56,778 |   | 32,264 |   |
| Beach                        |       | 3,731                            |       | 26,081                          |       | 78,935 |   | 70,931 |   |
| Maintenance                  |       | 14,599                           |       | 8,139                           |       | 42,831 |   | 56,626 |   |
| Demolition                   |       | 12,249                           |       | 13,392                          |       | 36,015 |   | 37,340 |   |
|                         |       | $                                | 81,698     |                            | $          | 119,745 |   | $ | 304,185 |   | $ | 313,039 |   |

 
| ** **                  | ** ** | **September 30,** | ** ** |
|-----------------------------|------------|------------------------|------------|
| ** **                  | ** ** | **2006**               | ** ** | **2005** | ** ** |
| **Backlog  (in thousands)** |       |                   |       |   |   |
| Dredging:                   |       |                   |       |   |   |
| Capital - U.S.              |       | $                      | 98,011     |   | $ | 132,470 |   |
| Capital - foreign           |       | 161,948                |       | 104,258 |   |
| Beach                       |       | 42,654                 |       | 21,588 |   |
| Maintenance                 |       | 47,719                 |       | 7,746 |   |
| Demolition                  |       | 20,134                 |       | 19,004 |   |
|                        |       | $                      | 370,466    |   | $ | 285,066 |   |

 

Consolidated revenues for the third quarter of 2006 were $81.7 millioncompared to third quarter 2005 revenues of $119.7 million, a decrease of $38.0million or 31.8%.  Revenues for the ninemonths ended September 30, 2006 were $304.2 million, down $8.9 million or 2.8%from the same period in 2005.  Revenuesfor the third quarter of 2006 decreased in comparison to revenues for the thirdquarter of 2005 due to the timing of mobilizations to the Company’s new projectin Bahrain and several domestic projects, dry dockings on certain vessels andthe inability to work on certain beach projects due to typical

21

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environmental window restrictions during this time of the year. Theyear-to-date revenues were consistent between years although the composition ofdredging work and timing of contracts varied between periods. The Company’sgross profit margin for the quarter ended September 30, 2006 decreased to11.6%, compared to 13.8% for the same quarter in 2005, as a result of thedecrease in utilization relative to fixed costs between quarters.  However, the gross profit margin for the ninemonths ended September 30, 2006 was 12.7%, an improvement over the gross profitmargin for the nine months ended September 30, 2005 of 11.2%, due to animprovement in dredging contract margins.

Capital projects include large port deepenings and other infrastructureprojects.  Domestic capital dredgingrevenue decreased $27.6 million and $26.3 million in the third quarter andfirst nine months of 2006, respectively, compared to the same periods of2005.  The Company’s domestic capitalrevenues of $28.5 million in the third quarter of 2006 were substantiallygenerated by continuing work on port deepening projects in the Arthur KillChannel, New York; and work on two LNG terminals in Texas, one in Freeport thatconcluded in the third quarter and the other in Golden Pass that beganoperations.  Foreign capital revenues inthe third quarter and first nine months of 2006 increased $6.6 million and$24.5 million, respectively, compared to the same periods of 2005.  The 2006 third quarter’s foreign revenueswere substantially generated by continuing work on the Durrat land developmentproject in Bahrain, which will continue through the end of 2006.

Beach nourishment projects include rebuilding of shoreline areas thathave been damaged by storm activity or ongoing erosion.  Third quarter 2006 revenues from beachnourishment projects totaled $3.7 million, a $22.4 million decrease from thesame period of 2005, but the Company’s year-to-date beach revenues totaled$78.9 million, an $8 million increase over the 2005 year-to-date revenues.  Beach work continues to represent a largeportion of revenues in 2006, as it had in 2005 due to the extensive damagewrought by hurricanes in 2004 and 2005.

Maintenance projects include routine dredging of ports, rivers andchannels to remove the regular build up of sediment.  Maintenance revenues totaled $14.6 millionand $42.8 million for the third quarter and first nine months of 2006,respectively, compared to $8.1 million and $56.6 million for the same 2005periods.  The majority of the quarter’smaintenance revenues related to dredging in two ports in the Gulf of Mexico.  2005 revenue was favorably impacted by alarge rental project in the Mississippi River Gulf Outlet.

The Company’s general and administrative expenses totaled $6.3 millionfor the third quarter of 2006, which is a decrease of $1.2 million from thesame quarter of 2005, primarily due to decreased healthcare costs andadjustments to incentive pay accruals. Year-to-date expenses totaled $20.7 million compared to $21.2 millionfor the first nine months of 2005. Quarter and year-to-date 2006 legal expenses related to the federalsubpoena matter were $0.2 million and $0.6 million, respectively, as comparedto $0.5 million and $2.3 million for and the same 2005 periods.  This decrease is a result of the minimalactivity related to this matter throughout 2006.   This matter is discussed further in Note 13to the Financial Statements.

In the third quarter of eachyear the Company performs its annual test for impairment of goodwill.  In 2005, Great Lakes renegotiated itscompensation arrangements with the president of its demolition segment.  As a result of the increased incentivecompensation to be paid in the future, Great Lakes revised future performanceexpectations for this segment, and wrote down the value of goodwill and certainintangible assets related to the segment by $5.7 million, which impacted EBITDAfor the 2005 quarter. There isno impairment in 2006.

Net interest expense for the third quarter and first nine months of2006 was $5.2 million and $17.3 million, respectively, compared to $6.4 millionand $17.3 million for the same periods in

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2005. The quarter over quarter interest decrease is primarily due to a$1.4 million change in the mark-to-market valuation of the Company’s fixed tofloating interest rate swap.  Increasedinterest rates in 2006 were offset by reduced average debt outstanding comparedto 2005.

The income tax benefit for the third quarter of 2006 was $0.5 millioncompared to expense of $0.9 million in the same period in 2005.   Income tax expense for the nine months endedSeptember 30, 2006 was $0.4 million compared to a benefit of $1.7 million forthe same period in 2005, due to the improved operating income.

The Company generated a net loss of $1.0 million and net income $0.5million for the quarter and nine months ended September 30, 2006, compared to anet loss of $3.7 million and $8.9 million for the same 2005 periods.  The improvement in 2006 is a result ofincreased revenues and margins as discussed, partially offset by self insurancereserves, as well as the impact of the goodwill impairment in 2005 noted above.

EBITDA (as defined on page 20)was $9.9 million and $9.8 million for the third quarter 2006 and 2005,respectively.  2005 was impacted by thewrite-down of goodwill and certain intangibles, therefore, comparatively the2006 third quarter EBITDA was reduced from the 2005 third quarter EBITDA.  This reduction in EBITDA is due to thereduction in revenue and utilization noted above. EBITDA for the nine monthsended September 30, 2006 was $37.0 million, compared to $25.2 million in2005.  The year-to-date increase****was due to both the negative impact on the 2005 period ofthe write down of the value of goodwill for the demolition segment as discussedabove, as well as improvements in operations in 2006.

**Results by segment**

***Dredging***

Dredging revenues for the quarter and nine months ended September 30,2006 were $69.5 million and $268.2 million, respectively, compared to $106.3million and $275.7 million for the same periods of 2005.  While the 2006 third quarter revenues were downfrom the 2005 quarter, year-to-date revenues were similar between periods asdiscussed above.    Operating incomegenerated by the dredging operations for the quarter ended September 30, 2006was $2.1 million and compares to $8.9 million for the same period of 2005.  Operating income for the nine months endedSeptember 30, 2006 was $13.8 million compared to $8.6 million for the sameperiod in 2005.  The improvement in the2006 was due to higher margins on the projects performed during the period.

***Demolition***

NASDI’s demolition revenue for the quarter and nine months endedSeptember 30, 2006 totaled $12.2 million and $36.0 million, respectively, andcompares to $13.4 million and $37.3 million, respectively, for the same periodsof 2005.  Both periods result from asolid market, whereby NASDI has experienced less competition on the projectsbid than was the experienced prior to 2005. The demolition segment generated operating income for the quarter endedSeptember 30, 2006 of $0.9 million, compared to an operating loss of $6.2million for the same period of 2005. Operating income was $3.3 million for the nine months ended September30, 2006 compared to an operating loss of $3.3 million for the same period in2005.  Quarter and year-to-date operatingresults in 2005 were impacted by the $5.7 million non-cash write-down ofgoodwill and intangibles related to the annual assessment of goodwill notedabove.  Operating margins were consistentbetween periods.

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**Bidding Activity and Backlog**

The Company’s contract backlog represents management’s current estimateof the revenues that will be realized under the portion of the contractsremaining to be performed.  Suchestimates are subject to fluctuations based upon the amount of materialactually dredged, as well as factors affecting the time required to completethe job. In addition, because a substantial portion of the Company’s backlogrelates to government contracts, the Company’s backlog can be canceled at anytime without penalty.  However, theCompany can generally recover the actual committed costs and profit on workperformed up to the date of cancellation. Consequently, backlog is not necessarily indicative of future revenues.The Company’s backlog includes only those projects for which the Company hasobtained a signed contract with the customer.

The third quarter 2006 domestic dredging bidmarket, representing work awarded during the period, totaled $306.2 million andwas a larger market then the first two quarters combined.   Great Lakes obtained a 45.3% share of thisthird quarter bid market.  During the2006 third quarter, $151.6 million of capital work was awarded, including a newLNG project that Great Lakes won for over $60 million and an upland disposaldeepening project in New York for over $60 million, won by a competitor. Uplanddisposal projects in the New York area require extensive and costly pre-treatment.Therefore, these contracts frequently include significant non-dredgingactivities, which inflate the dredge market statistics for these types ofcontracts. The beach nourishment bid market for the quarter totaled $39.1million. Great Lakes was low bidder on only one contract for $1.7 million. Theremainder of the quarter’s market of $115.5 million was maintenance work of whichGreat Lakes won $74 million or 65% for the quarter.

In 2005, the emergency beach work resulting from hurricane damage addedsignificantly to the market and filled in the gap from the lack of capital workin the 2005 year.  The 2006 beach market,while substantial, has decreased from the record year in 2005. Fortunately, LNGterminal construction projects, as well as additional maintenance work offsetthis decrease.

Although the domestic dredging bid markethas generated $563 million of contracts to date in 2006, work put out for bidby the Corps of Engineers continues to be negatively impacted by lower levelsof funding, central control in Washington governing the release of funds andnew restrictions concerning obligation of funds for contracts that roll intofuture years. The Corp’s new strategy for this year has been to structurecontracts with a very modest base scope of work with a large number of add onoptions that can be awarded depending on the available funding level. Most ofthe bids let during August, September and October were designed with the intentof being ready to award the base contracts immediately and then award theoptions based upon 2007 appropriations. A current project impacted by this is the $115 million capital deepeningproject in Oakland from the second quarter which was won by a joint venture oftwo competitors but not awarded at that time. It has since been awarded duringthe fourth quarter for only a $45 million scope of work. Additional options areexpected to be awarded in 2007 and these options will be included in the bidstatistics when awarded.

Dredging backlog at September 30, 2006 was $350.3 million.  This compares to $286.8 million at June 30,2006 and $266.0 million at September 30, 2005. Consistent with prior periods, the majority of the Company’s September30, 2006 dredging backlog, $260 million, is comprised of domestic and foreigncapital dredging work, including continuing domestic deepening projects in NewYork, NY and Brunswick, GA and the two overseas land reclamation projects inBahrain. The increase in total backlog at September 30, 2006 compared to lastquarter is primarily due to the addition of the new land reclamation project inBahrain mentioned above. Domestic capital work rebounded in the third quarterwith the addition of the new LNG terminal project in Texas.  And as noted earlier, the Company’s thirdquarter recorded backlog does not reflect approximately $14 million for twoadditional maintenance projects pending award as well as other options pendingon projects currently in backlog. The Company’s September 30, 2006

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beach backlog totaling $42.7 million continues to represent a solidlevel and is consistent with 2005 periods. The Company’s maintenance backlog totaled $47.7 million at September 30,2006, which is a significant increase over last quarter and includesmaintenance projects in New Jersey, Maryland, San Juan and the Gulf Coast.  In addition, the Company’s September 30, 2006recorded backlog does not reflect approximately $230 million of low bidspending award and other options pending on projects currently in backlog,including approximately $156 million for the second phase of the Diyaarcontract in Bahrain.  Demolition servicesbacklog was $20.1 million at September 30, 2006 compared to $9.9 million atJune 30, 2006 and $19.0 million at September 30, 2005.

###### **MarketOutlook**

The current Water Resources Development Act (“WRDA”) legislation didnot pass before Congress recessed at the end of September.  There is some optimism that the bill willpass when Congress returns in November; however, as a result of the recentelections, the significant changes in Congress could impact the passage of thebill.  In addition, the provision forhigher federal cost sharing on deepening projects below 50 feet has beenremoved. The important positives for the industry still included in the currentWRDA are authorization of various additional harbor deepening projects and theauthorization for 12 priority projects under the Louisiana Coastal RestorationPlan.  However, given the currentclimate, this legislation could languish until next fall.  Since funding for currently authorized deepport work has been substantially reduced in 2005 and year-to-date in 2006, anew authorization bill would not appear to have much impact in the near term.

Additionally, there continues to be significant funding difficultieswith the industry’s largest customer, the Army Corps of Engineers.  In September 2006, Congress failed to passthe budget and this has resulted in the operation of the government under acontinuing resolution.  As was noted lastquarter, appropriated money was going unspent due to the issue of “continuingcontracts”.  Since the Corps did not haveenough funding for their particular projects in the last fiscal year, theycarried over the money to be combined with this year’s appropriations, however,under the current continuing resolution, none of this money can be spent untila budget is passed.  As noted above, manydistricts are bidding projects that include a base amount of work, which can bemore easily funded plus options that can be awarded as additional funds arereleased.  The problem for the industryis scheduling equipment and forecasting, since the contractor has to obligateand reserve equipment for a scope of work that may never be awarded.

The Company continues to track planned future port developmentincluding another phase of the Port Jersey, NJ 50’ deepening project andanother phase of the NY Harbor 50’ deepening project; a port expansion projectin Jacksonville Harbor, FL, two deepening projects in Portland, OR, and severalport expansion projects in the Tampa area which in the aggregate could generateover $250 million of bidding opportunities to the market in 2007.

The market this year has seen a reduction in the amount of beachprojects put out for bid since federal funding is minimal. Year-to-date beachbids total $111.8 million.  This followsthe 2005 record market of $297 million. Fortunately more beach communities havetaken over the responsibility for developing funding sources to meet theirbeach nourishment needs and putting out their own projects for bid.  Great Lakes has performed over $66 million ofbeach work in 2006 for non-federally funded customers.  Based on discussion with numerous localcommunities and the Corps, the Company has identified beach projects from bothfederally funded and non-federally funded customers valued at approximately$100 million that look possible for bidding through the next twelve months.

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Dredging work related to the development of LNG terminals continues todevelop.  Work was completed on the LNGterminal project in Freeport, TX and work was started this quarter on anotherLNG terminal in Golden Pass Texas.  TheCompany is still involved in several significant project solicitations withprivate customers for additional LNG terminal work.

During the last six months a competitor’s new dredge has entered themarket adding additional capacity to a market sector that is presently weak. Atthe beginning of the year the Company anticipated that this additional capacitycould depress pricing. Consequently, the Company decided to seek work outsideof the U.S. to occupy some equipment to maintain the supply and demand level ofhopper equipment in the U.S. at a more stable level. As a result of theseefforts the Company was able to secure a contract this summer for the Diyarrproject in Bahrain which will provide work for two Manhattan class hopperdredges and the Northerly Island hopper dredge for up to five years.

The Company’s operations in the Middle East continue to generateopportunities to utilize dredging equipment that might otherwise becomeidle.  The Diyaar project is scheduled tocommence work in the fourth quarter and the Company just signed anothercontract in Bahrain worth approximately $30 million.  The projects now in backlog commit theCompany’s equipment in the region into 2008 and beyond.

In summary, the third quarter of 2006 was down from previous quartersas anticipated due to significant mobilizations to foreign and domesticprojects, dry dockings on certain equipment and the deferral of certain beachprojects in backlog due to typical environmental window restrictions.  Margins at September 30, 2006 remained strongdespite the third quarter challenges.  Inaddition the domestic bidding activity continued to strengthen in the thirdquarter and there is still work scheduled to be bid in the fourth quarter,including LNG work that should provide opportunities to add to backlog in theupcoming months.  Currently, there isadequate backlog and contracts pending award at September 30, 2006 to produce arobust fourth quarter including the start up of Diyaar, environmental windowwork and the new LNG terminal project.

###### **Liquidityand Capital Resources**

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

The Company’s net cash flows from operating activities for the ninemonths ended September 30, 2006 totaled $21.2 million, compared to $8.6 millionfor the nine months ended September 30, 2005. The fluctuation between periods results primarily from the normalincreases or decreases in the level of working capital relative to the level ofoperational activity.  Additional workingcapital is needed to fund increases in operations and working capital isreleased when operational levels fall. During the 2006 period the level of activity has decreased significantlyfrom December of 2005, resulting in a release of cash from to working capital,contrary to the same period in 2005 when activity increased and cash was used.

As a result of the recent funding shortages for the Corps’ projects,many of the contracts being issued are smaller and therefore of shorterduration than in the past.  Also, morerestrictive

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environmental controls on borrow area locations, where sand and fillare taken for beach nourishment and land reclamations requiring ever longerpumping distances. To improve mobilization times between projects the Companyis increasing its investment in inventory of pipe by approximately $1.6 millionin the third quarter and another $2.7 million by the end of the first quarternext year.

The Company’s net cash flows used in investing activities for the ninemonths ended September 30, 2006 totaled $19.5 million, compared to $4.9 millionfor the nine months ended September 30, 2005. The use of cash relates primarily to equipment acquisitions and capitalimprovements to existing equipment. Included in the 2006 year-to-date spending is $4.3 million for overhaulof the Hopper Dredge Long Island.  Thisdredge is being reconfigured as a material handling barge to assist with thenew land reclamation project in Bahrain. The total cost of this upgrade is expected to be approximately $9.5million and is to be funded through the Company’s revolver.  Once completed, the improvements to the vesselwill be financed through a sale/leaseback under a long term operating leasearrangement.  In addition, $3.9 millionwas spent to purchase the dredge Victoria Island and two scows that had beenoperated under a long term operating lease. NASDI’s spending has also increased related to refurbishing a new officeand garage facility on which $1 million was spent on leasehold improvements in2006. The Company’s 2005 cash flows used in investing activities includedproceeds of $4.4 million for a rock barge constructed by the Company and thensold and leased back under an operating lease in June of 2005.

The Company’s net cash flows used in financing activities for the ninemonths ended September 30, 2006 totaled $0.3 million, and includes pay down of$3 million of bank term debt offset by an increase in net borrowings under therevolver necessary to fund working capital needs in 2006.  This compares to $2.3 million of cash usedfor the nine months ended September 30, 2005. The Company had $33.7 million of borrowing availability at September 30,2006.

The Company’s Credit Agreement contains various restrictivecovenants.  It prohibits the Company fromprepaying other indebtedness, including the senior subordinated notes, and itrequires the Company to satisfy financial condition tests and to maintainspecified financial ratios, such as a maximum total leverage ratio, maximumsenior leverage ratio, minimum interest coverage ratio and limits on capitalexpenditures.  It also prohibits theCompany from declaring or paying any dividends and from making any paymentswith respect to the senior subordinated notes if it fails to perform itsobligations under, or fails to meet the conditions of, the Credit Agreement orif payment creates a default under the Credit Agreement.  The Company’s bonding agreement and EquipmentTerm Loan contain similar restrictive covenants and financial conditions tests.

During the 2006 third quarter the Company anticipated that due to adownturn in earnings, because of reduced contract activity, and an increase inborrowing for spending on plant and mobilizations for Diyaar it was possiblethat the Company would not meet its required total debt to EBITDA ratiorequired by the senior credit agreements at quarter end.  Therefore, on August 28, 2006, Great Lakesentered into an amendment of its Credit Agreement with its senior securedlenders to increase the Company’s total leverage ratio to 5.6 to 1.0 for thefour consecutive fiscal quarters ending September 30, 2006. Also in Septemberof 2006, Great Lakes entered into an amendment to its equipment loan toincrease the maximum total leverage ratio to 5.6 to 1.0 for the fourconsecutive fiscal quarters ending September 30, 2006 and obtained a waiverunder its bonding agreement of compliance with the net worth requirement forthe fiscal quarter ending September 30, 2006. Although amendments and waivers were obtained for the aforementionedcovenants, at September 30, 2006, Great Lakes was in compliance with all theoriginal financial covenants in its senior credit agreements and suretyagreement.

On September 29, 2006, Great Lakes secured a $20 million InternationalLetter of Credit Facility with Wells Fargo HSBC Trade Bank.  This facility will be used for performanceand advance payment guarantees on foreign contracts, including the Diyaarcontract.  The obligations under

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the agreement are guaranteed by the Company’s foreign accountsreceivable.  In addition, theExport-Import Bank of the United States (“Ex-Im”) has issued a guarantee underEx-Im Bank’s Working Capital Guarantee Program which covers 90% of theobligations owing under the facility. The Company issued its first letter of credit under this facility onOctober 30, 2006 for a portion of the performance guarantee on the Diyaarproject.

The required financial covenant levels under thesenior credit agreements and the bonding agreement are restrictive but Companymanagement believes the Company has positive relationships with its seniorlenders and surety provider, should it be necessary to request an additionalamendment or waiver to the financial covenants. However, if there is a future violation of any of the financialcovenants and the Company is not successful in obtaining an additionalamendment or waiver, a default could occur under the Company’s senior creditagreements or bonding agreement, which could result in a material adverseimpact on the Company’s financial condition.

The Company has continued to experience some timingissues on certain Corps receivables, but Company management believes itsanticipated cash flows from operations and current available credit under itsrevolving credit facility will be sufficient to fund the Company’s operationsand its revised capital expenditures, and meet its current annual debt servicerequirements of approximately $22 million for the next twelve months.

Beyond the next twelve months, the Company’s abilityto fund its working capital needs, planned capital expenditures and scheduleddebt payments, and to comply with all of the financial covenants under itssenior credit agreements and bonding agreement, depends on its future operatingperformance and cash flow, which in turn, are subject to prevailing economicconditions and to financial, business and other factors, some of which arebeyond the Company’s control.

###### **CriticalAccounting Policies and Estimates**

In preparing its consolidated financial statements, the Company followsaccounting principles generally accepted in the United States of America.  The application of these principles requires significantjudgments or an estimation process that can affect the results of operations,financial position and cash flows of the Company, as well as the relatedfootnote disclosures.  The Companycontinually reviews its accounting policies and financial informationdisclosures.  There have been no materialchanges in policies or estimates since December 31, 2005.

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

The market risk of the Company’s financial instruments as of September30, 2006 has not significantly changed since December 31, 2005.  The market risk profile of the Company onDecember 31, 2005 is disclosed in the Company’s 2005 Annual Report on Form 10-K.

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###### **Item4.  Controls and Procedures**

*(a) Evaluation of Disclosure Controls and Procedures*.  Asrequired each quarter, the Company’s management, with the participation of itsChief Executive Officer and Chief Financial Officer, have conducted anevaluation of the effectiveness of disclosure controls and procedures (as suchterm is defined in Rules 13a-15(e) and 15d-15(e) under the Securities ExchangeAct of 1934, as amended) as of the end of the period covered by this quarterlyreport. Based on that evaluation, such officers have concluded that thedisclosure controls and procedures are effective.

*(b) Changes in Internal Controls.*  Therehave been no changes in our internal controls over financial reporting duringthe most recent fiscal quarter that have materially affected, or are reasonablylikely to materially affect, our internal controls over financial reporting.

###### **PARTII — Other Information**

###### **Item1.  Legal Proceedings**

On April 24, 2006,a class action complaint was filed in the U.S.District Court for the EasternDistrict of Louisiana, on behalf of Louisiana citizens who allegedly sufferedproperty damage from the floodwaters that flooded New Orleans and surroundingareas when Hurricane Katrina hit the area on August 29, 2005 (the "KatrinaClaims").  Reed v. United States, etal., No. 06-2152 (E.D. La.).  The Reedsuit names as defendants the U.S. government, Great Lakes Dredge & DockCompany and numerous other dredging companies which completed dredging projectson behalf of the Army Corps of Engineers in the Mississippi River Gulf Outlet("MRGO") between 1993 and 2005. The Reed complaint alleges that the dredging of MRGO caused thedestruction of Louisiana wetlands, which had provided a natural barrier againstsome storms and hurricanes.  Thecomplaint alleges that this loss of natural barriers contributed to the failureof levees as Katrina floodwaters damaged plaintiffs' property.  The Reed complaint asserts claims ofnegligence, warranty, concealment and violations of the Water Pollution ControlAct.  Other plaintiffs have filed similarclass action complaints.  Anderson  v. U.S. et al., No. 06-5162 (E.D. La.) (filedAug. 28, 2006); Russell v. U.S. et al., No. 06-5155 (E.D. La.) (filed on Aug.28, 2006).  In addition, plaintiffs havefiled one mass tort case. Ackerson et al. v. Bean Dredging, LLC, No. 06-4066 (E.D. La. Aug. 1, 2006).  All these cases raise the same claims asReed.  One dredging company has filed across-claim seeking contribution and indemnification.  Manson Constr. Co. et al. v. Bean Dredging,LLC, No. 06-2824 (E.D. La.) (filed on July 14, 2006). The amount of claimeddamages in these claims is not stated, but is presumed to be significant.  On October 19, 2006, Great Lakes filed forexoneration or limitation of liability under the Limitation of Liability Act infederal district court.  In re GreatLakes Dredge & Dock Company, No. 06 C 8676 (U.S. Dist. Ct., E.D.Louisiana).  This limitation action staysall outstanding Katrina lawsuits against Great Lakes, including the lawsuitsmentioned above, pending resolution of Great Lakes' exoneration and limitationclaims.  Great Lakes believes that it hasmeritorious claims to either exoneration from all liability or limitation ofliability at not more than $55 million, which is was the value of the vesselswhich conducted the MRGO dredging work. These defenses include arguments for both statutory and constitutionalimmunity from liability for the Katrina Claims. In addition, Great Lakes maintains $150 million in insurance coveragefor the Katrina Claims.  Great Lakesbelieves that the Katrina claims will not have a material adverse impact on itsfinancial condition or results of operations and cash flows.

**Item 1A.Risk Factors**

There have been nomaterial changes to the risk factors previously disclosed in the Company’s Form10-K for the year ended December 31, 2005.

**Item 5.Other Information**

North American SiteDevelopers, Inc. (“NASDI”), a subsidiary of the Company, provided a loan to Mr.Christopher Berardi, president of NASDI, for final expenses paid forimprovements to premises that are expected to be leased by NASDI commencing inthe fourth quarter of 2006. The loan will be approximately $1,400,000 (not toexceed $1,500,000). The loan has a five year maturity, bears interest at theapplicable federal rate payable quarterly and is collateralized by thepremises.

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

| 10.1 | Terms and Conditions of Loan Transaction with  Christopher Berardi                                                                                                   |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1 | Certification Pursuant to Rules 13a-14 and 15d-14  under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002. |
| 31.2 | Certification Pursuant to Rules 13a-14 and 15d-14  under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                             |
| 32.2 | Certification Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                             |

 

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##### **SIGNATURE**

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:  November 14, 2006 | 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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**EXHIBITINDEX**
| Number | ** ** | **Document  Description**                                                                                                                                            |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1   |       | Terms and Conditions of Loan Transaction with  Christopher Berardi                                                                                                   |
| 31.1   |       | Certification Pursuant to Rules 13a-14 and 15d-14  under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002. |
| 31.2   |       | Certification Pursuant to Rules 13a-14 and 15d-14  under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002. |
| 32.1   |       | Certification Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                             |
| 32.2   |       | Certification Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                             |

 

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