**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

 

**For the quarterly period endedJune 30, 2006**

**OR**

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

 

**For the transition period from           to           **

**Commissionfile 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)

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

x  Yes    o  No

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer.  Seedefinition of accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act.  (Check one):

Large Accelerated Filer o           Accelerated Filer o                 Non-Accelerated Filer x

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-z of theExchange Act).

o  Yes    x  No

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

As of August 10, 2006, there were outstanding 1,000shares of Common Stock and zero 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 June 30, 2006**

##### **INDEX**

| **Part I**         | **Financial  Information** |                                                                                                       |
|--------------------|----------------------------|------------------------------------------------------------------------------------------------------------|
| ** **         | ** **                 |                                                                                                       |
|               | Item 1                     | Financial Statements (Unaudited)                                                                           |   |
|               |                       |                                                                                                       |   |
|               |                       | Condensed Consolidated Balance Sheets at June 30, 2006  and December 31, 2005                              |   |
|               |                       |                                                                                                       |   |
|               |                       | Condensed Consolidated Statements of Operations for  the Three and Six Months ended June 30, 2006 and 2005 |   |
|               |                       |                                                                                                       |   |
|               |                       | Condensed Consolidated Statements of Cash Flows for  the Six Months ended June 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 6                     | Exhibits                                                                                                   |   |
|               |                       |                                                                                                       |   |
| **Signature**      |                       |
| ** **         |                       |
| **Exhibit  Index** |                       |

 

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###### **PARTI – Financial Information**

**Great Lakes Dredge & Dock Corporation andSubsidiariesCondensed Consolidated Balance Sheets****(Unaudited)(in thousands, except share and per share amounts)**
| ** **                                                         | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                         | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| **Assets**                                                         | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current assets:                                                    |       |              |       |                  |       |
| Cash and equivalents                                               |       | $                 | 572        |                  | $          | 601 |   |
| Accounts receivable,  net                                          |       | 80,780            |       | 85,114                |       |
| Contract revenues in  excess of billings                           |       | 14,196            |       | 14,352                |       |
| Inventories                                                        |       | 16,137            |       | 17,084                |       |
| Prepaid expenses and  other current assets                         |       | 18,605            |       | 17,113                |       |
| Total current  assets                                              |       | 130,290           |       | 134,264               |       |
| Property and equipment,  net                                       |       | 241,700           |       | 240,849               |       |
| Goodwill                                                           |       | 98,747            |       | 98,747                |       |
| Other intangible  assets, net                                      |       | 1,399             |       | 1,579                 |       |
| Inventories                                                        |       | 11,206            |       | 11,206                |       |
| Investments in joint  ventures                                     |       | 8,538             |       | 8,605                 |       |
| Other assets                                                       |       | 11,185            |       | 11,987                |       |
| Total assets                                                       |       | $                 | 503,065    |                  | $          | 507,237 |   |
| ** **                                                         | ** ** | ** **        | ** ** | ** **            | ** ** |
| **Liabilities  and Stockholder’s Equity**                     | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current liabilities:                                               |       |              |       |                  |       |
| Accounts payable                                                   |       | $                 | 43,964     |                  | $          | 50,836 |   |
| Accrued expenses                                                   |       | 31,689            |       | 24,264                |       |
| Billings in excess of  contract revenues                           |       | 7,590             |       | 8,108                 |       |
| Current maturities of  long-term debt                              |       | 1,950             |       | 1,950                 |       |
| Total current  liabilities                                         |       | 85,193            |       | 85,158                |       |
| Long-term debt                                                     |       | 242,875           |       | 248,850               |       |
| Deferred income taxes                                              |       | 86,951            |       | 88,154                |       |
| Other                                                              |       | 5,395             |       | 4,473                 |       |
| Total  liabilities                                                 |       | 420,414           |       | 426,635               |       |
| Minority interest                                                  |       | 1,975             |       | 1,850                 |       |
| Commitments and  contingencies (Note 10)                           |       | —            |       | —                |       |
| Stockholder’s equity:                                         |       |              |       |                  |       |
| Common stock,  $.01 par value; 1,000 shares issued and outstanding |       | —            |       | —                |       |
| Additional  paid-in capital                                        |       | 97,000            |       | 97,000                |       |
| Accumulated  deficit                                               |       | (16,595           | )          | (18,039               | )          |
| Accumulated  other comprehensive income (loss)                     |       | 271               |       | (209                  | )          |
| Total  stockholder’s equity                                   |       | 80,676            |       | 78,752                |       |
| Total  liabilities and stockholder’s equity                   |       | $                 | 503,065    |                  | $          | 507,237 |   |

 

See notes to unauditedcondensed consolidated financial statements.

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**Great Lakes Dredge & Dock Corporation and SubsidiariesCondensed Consolidated Statements of Operations****(Unaudited)(in thousands)**
| ** **                            | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                            | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                            | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                  |       |                             |       |                           |       |   |   |   |   |
| Contract  revenues                    |       | $                                | 114,060    |                           | $          | 93,391 |   | $ | 222,487 |   | $ | 193,294 |   |
| Costs of  contract revenues           |       | 96,501                           |       | 81,958                         |       | 193,317 |   | 174,821 |   |
| Gross profit                          |       | 17,559                           |       | 11,433                         |       | 29,170 |   | 18,473 |   |
| General and  administrative expenses  |       | 7,121                            |       | 6,982                          |       | 14,430 |   | 13,737 |   |
| Subpoena-related  expenses            |       | 69                               |       | 931                            |       | 429 |   | 1,810 |   |
| Amortization of  intangible assets    |       | 104                              |       | 220                            |       | 180 |   | 400 |   |
| Operating income                      |       | 10,265                           |       | 3,300                          |       | 14,131 |   | 2,526 |   |
| Interest  expense, net                |       | (6,015                           | )          | (4,593                         | )          | (12,216 | ) | (10,866 | ) |
| Equity in  earnings of joint ventures |       | 465                              |       | 928                            |       | 582 |   | 762 |   |
| Minority  interests                   |       | (87                              | )          | (192                           | )          | (125 | ) | (220 | ) |
| Income (loss) before income taxes     |       | 4,628                            |       | (557                           | )          | 2,372 |   | (7,798 | ) |
| Income tax  (expense) benefit         |       | (1,650                           | )          | 52                             |       | (928 | ) | 2,621 |   |
| Net income  (loss)                    |       | $                                | 2,978      |                           | $          | (505 | ) | $ | 1,444 |   | $ | (5,177 | ) |

 

See notes tounaudited condensed consolidated financial statements.

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**Great Lakes Dredge & Dock Corporation andSubsidiariesCondensed Consolidated Statements of Cash Flows****(Unaudited)(in thousands)**
| ** **                                                                               | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                               | ** ** | **June 30,**              | ** ** |
| ** **                                                                               | ** ** | **2006**                       | ** ** | **2005** | ** ** |
| **Operating  Activities**                                                                | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Net income  (loss)                                                                       |       | $                              | 1,444      |   | $ | (5,177 | ) |
| Adjustments to  reconcile net income (loss) to net cash flows from operating activities: |       |                           |       |   |   |
| Depreciation and amortization                                                            |       | 12,528                         |       | 12,330 |   |
| Earnings of joint ventures                                                               |       | (582                           | )          | (762 | ) |
| Distribution from equity joint ventures                                                  |       | 650                            |       | 500 |   |
| Minority interests                                                                       |       | 125                            |       | 220 |   |
| Deferred income taxes                                                                    |       | (3,466                         | )          | (3,170 | ) |
| Gain on dispositions of property and equipment                                           |       | (380                           | )          | (98 | ) |
| Other, net                                                                               |       | 899                            |       | 837 |   |
| Changes in assets and liabilities:                                                       |       |                           |       |   |   |
| Accounts receivable                                                                      |       | 4,334                          |       | (58 | ) |
| Contract revenues in excess of billings                                                  |       | 156                            |       | (7,079 | ) |
| Inventories                                                                              |       | 947                            |       | (1,468 | ) |
| Prepaid expenses and other current assets                                                |       | 907                            |       | (6,459 | ) |
| Accounts payable and accrued expenses                                                    |       | 426                            |       | 6,385 |   |
| Billings in excess of contract revenues                                                  |       | (518                           | )          | 1,287 |   |
| Other noncurrent assets and liabilities                                                  |       | (86                            | )          | 54 |   |
| Net cash flows from operating activities                                                 |       | 17,384                         |       | (2,658 | ) |
|                                                                                     |       |                           |       |   |   |
| **Investing  Activities**                                                                | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Purchases of  property and equipment                                                     |       | (11,604                        | )          | (7,082 | ) |
| Dispositions of  property and equipment                                                  |       | 857                            |       | 4,665 |   |
| Net cash flows from investing activities                                                 |       | (10,747                        | )          | (2,417 | ) |
|                                                                                     |       |                           |       |   |   |
| **Financing  Activities**                                                                | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Repayments of  long-term debt                                                            |       | (3,975                         | )          | (975 | ) |
| Borrowings under  revolving loans, net of repayments                                     |       | (2,000                         | )          | 5,000 |   |
| Repayment of  capital lease debt                                                         |       | (691                           | )          | (541 | ) |
| Net cash flows from financing activities                                                 |       | (6,666                         | )          | 3,484 |   |
| Net change in  cash and equivalents                                                      |       | (29                            | )          | (1,591 | ) |
| Cash and  equivalents at beginning of period                                             |       | 601                            |       | 1,962 |   |
| Cash and  equivalents at end of period                                                   |       | $                              | 572        |   | $ | 371 |   |
|                                                                                     |       |                           |       |   |   |
| **Supplemental  Cash Flow Information**                                                  | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Cash paid for  interest                                                                  |       | $                              | 10,818     |   | $ | 9,946 |   |
| Cash paid (refunded)  for taxes                                                          |       | $                              | 598        |   | $ | 244 |   |

 

See notes tounaudited condensed consolidated financial statements.

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

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

The accompanying unaudited condensed consolidated financial statementshave been prepared in accordance with accounting principles generally acceptedin the U.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.

The condensed consolidated results of operations for the interimperiods presented herein are not necessarily indicative of the results to beexpected for the full year.

**2.****             ****Comprehensive loss**

Total comprehensive loss is comprised of the Company’s net loss and netunrealized gains on cash flow hedges. Total comprehensive income (loss) for the three months ended June 30,2006 and 2005 was $3,174 and ($713), respectively.   Total comprehensive income (loss) for thesix months ended June 30, 2006 and 2005 was $1,924 and ($4,346), respectively.

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

The Company uses derivative instruments to managecommodity price, interest rate, and foreign currency exchange risks.  Such instruments are not used for tradingpurposes.  As of June 30, 2006, the Companywas party to various swap arrangements to hedge the price of a portion of itsdiesel fuel purchase requirements for work in its backlog to be performedthrough December 2006. As of June 30, 2006, there were 1.8 million gallonsremaining on these contracts.  Underthese agreements, the Company will pay fixed prices ranging from $1.75 to $2.07per gallon.  At June 30, 2006 andDecember 31, 2005, the fair value asset/(liability) on these contracts wasestimated to be $446 and $(344), respectively, based on quoted market prices,and is recorded in other current assets and accrued liabilities, respectively.Ineffectiveness related to these fuel hedge arrangements was determined to beimmaterial.  The remaining gains includedin accumulated other comprehensive income at June 30, 2006 will be reclassifiedinto earnings over the next six months, corresponding to the period duringwhich the hedged fuel is expected to be utilized.

In February 2004, the Company entered into aninterest rate swap arrangement to swap a notional amount of $50 million from afixed rate of 7.75% to a floating LIBOR-based rate in order to manage theinterest rate paid with respect to the Company’s 73⁄4% senior subordinateddebt.  The fair value liability of theswap at June 30, 2006 and December 31, 2005 was $2,197 and $1,598,respectively, and is recorded in accrued expenses.  The swap is not accounted for as a hedge;therefore, the changes in fair value are recorded as adjustments to interestexpense in each

5

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reporting period.   As of July 6,2006, the Company extended this interest rate swap arrangement through December15, 2013 in order to continue to better manage the interest rate paid.

Thecarrying values of other financial instruments included in current assets andcurrent liabilities approximate fair values due to the short-term maturities ofthese instruments.  The carrying value oflong-term bank debt is a reasonable estimate of its fair value as interestrates are variable, based on the prevailing market rates.  The fair value of the Company’s $175,000 of73⁄4% senior subordinated notes was $161,000 and $157,500 at June 30, 2006 andDecember 31, 2005, respectively, based on quoted market prices.

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

Accounts receivable at June 30, 2006 and December 31, 2005 are asfollows:
| ** **                       | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| Completed  contracts             |       | $                 | 29,372     |                  | $          | 33,818 |   |
| Contracts in  progress           |       | 36,427            |       | 41,885                |       |
| Retainage                        |       | 15,663            |       | 10,016                |       |
|                             |       | 81,462            |       | 85,719                |       |
| Allowance for  doubtful accounts |       | (682              | )          | (605                  | )          |
|                             |       |              |       |                  |       |
|                             |       | $                 | 80,780     |                  | $          | 85,114 |   |

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

Thecomponents of contracts in progress at June 30, 2006 and December 31, 2005 areas follows:
| ** **                                                                      | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                      | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| Costs and  earnings in excess of billings:                                      |       |              |       |                  |       |
| Costs and earnings for contracts in progress                                    |       | $                 | 116,181    |                  | $          | 196,846 |   |
| Amounts billed                                                                  |       | (105,931          | )          | (185,635              | )          |
| Costs and earnings  in excess of billings for contracts in progress             |       | 10,250            |       | 11,211                |       |
| Costs and  earnings in excess of billings for completed contracts               |       | 3,946             |       | 3,141                 |       |
|                                                                            |       |              |       |                  |       |
|                                                                            |       | $                 | 14,196     |                  | $          | 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                                                                  |       | $                 | (152,220   | )                     | $          | (113,243 | ) |
| Costs and earnings for contracts in progress                                    |       | 144,630           |       | 105,135               |       |
|                                                                            |       |              |       |                  |       |
|                                                                            |       | $                 | (7,590     | )                     | $          | (8,108 | ) |

 

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

The net book value of intangible assets is asfollows:
| ** **                         | ** ** | **Weighted**  | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** |
|------------------------------------|------------|---------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **                         | ** ** | **Average**   | ** ** | ** ** | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                         | ** ** | **Estimated** | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
| ** **                         | ** ** | **Life**      | ** ** | **Cost**   | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
| As of June 30,  2006:              |       |          |       |       |       |             |       |       |       |
|                               |       |          |       |       |       |             |       |       |       |
| Customer  contract backlog         |       |          |       | $          | 4,237      |             | $          | 4,237      |       | $ | — |   |
| Demolition  customer relationships |       | 7  years      |       | 1,093      |       | 549              |       | 544        |       |
| Software and  databases            |       | 8.5  years    |       | 1,209      |       | 354              |       | 855        |       |
|                               |       |          |       | $          | 6,539      |             | $          | 5,140      |       | $ | 1,399 |   |

 

**7.****              Investment in JointVentures**

The Company has a50% ownership interest in Amboy Aggregates (“Amboy”), whose primary business isthe dredge 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.

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| ** **            | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **            | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **            | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **            | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue               |       | $                                | 6,011      |                           | $          | 7,202 |   | $ | 10,395 |   | $ | 10,331 |   |
|                  |       |                             |       |                           |       |   |   |   |   |
| Costs and  expenses   |       | 5,081                            |       | 5,438                          |       | 9,231 |   | 8,899 |   |
|                  |       |                             |       |                           |       |   |   |   |   |
| Net income  (loss)    |       | $                                | 930        |                           | $          | 1,764 |   | $ | 1,164 |   | $ | 1,432 |   |
|                  |       |                             |       |                           |       |   |   |   |   |
| Great Lakes 50% share |       | $                                | 465        |                           | $          | 882 |   | $ | 582 |   | $ | 716 |   |

 

Amboy has a loanwith a bank, which contains certain restrictive covenants, includinglimitations on the amount of distributions to its joint venture partners. It isthe intent of the joint venture partners to periodically distribute Amboy’searnings, to the extent allowed by Amboy’s bank agreement. The term portion ofAmboy’s loan matured in October 2003, and the $2,000 revolving credit facilitywas set to expire in August 2005. The revolving credit facility was amended toextend the expiration to August 2007 and increase the facility to $3,000. TheCompany no longer guarantees any of the outstanding borrowings and accruedinterest under the facility.

In 2003, theCompany and its Amboy joint venture partner each purchased a 50% interest inland, which is adjacent to the Amboy property and may be used in connectionwith the Amboy operations. The Company’s share of the purchase price totaled$1,047 and is reflected in investments in joint ventures. Income from that landwas $46 for the six months ended June 30, 2005.

For the six months ended June 30, 2006 and 2005, the Companyreceived distributions from Amboy totaling $650 and $500, respectively.

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**8.****             ****Accrued expenses**

Accrued expenses at June 30, 2006 and December 31,2005 are as follows:
| ** **                     | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| Insurance                      |       | $                 | 11,659     |                  | $          | 6,387 |   |
| U.S. income and  other taxes   |       | 6,953             |       | 3,170                 |       |
| Payroll and  employee benefits |       | 4,626             |       | 8,927                 |       |
| Interest rate  swap liability  |       | 2,197             |       | 1,598                 |       |
| Equipment leases               |       | 1,404             |       | 933                   |       |
| Interest                       |       | 1,010             |       | 1,115                 |       |
| Other                          |       | 3,840             |       | 2,134                 |       |
|                           |       |              |       |                  |       |
|                           |       | $                 | 31,689     |                  | $          | 24,264 |   |

 

**9****.****             ****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** | ** ** | **Six Months Ended** | ** ** |
|-------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **              | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **              | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Dredging**            | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Contract revenues       |       | $                                | 101,339    |                           | $          | 81,082 |   | $ | 198,721 |   | $ | 169,346 |   |
| Operating income (loss) |       | 8,840                            |       | 1,175                          |       | 11,772 |   | (343 | ) |
|                    |       |                             |       |                           |       |   |   |   |   |
| **Demolition**          | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Contract revenues       |       | $                                | 12,721     |                           | $          | 12,309 |   | $ | 23,766 |   | $ | 23,948 |   |
| Operating income        |       | 1,425                            |       | 2,125                          |       | 2,359 |   | 2,869 |   |
|                    |       |                             |       |                           |       |   |   |   |   |
| **Total**               | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Contract revenues       |       | $                                | 114,060    |                           | $          | 93,391 |   | $ | 222,487 |   | $ | 193,294 |   |
| Operating income        |       | 10,265                           |       | 3,300                          |       | 14,131 |   | 2,526 |   |

 

In addition, foreigndredging revenue of $17,082 for the quarter was primarily attributable to workdone in Bahrain.  The majority of the Company’s long-lived assets are marine vessels andrelated equipment.  At any point in time,the Company may employ certain assets outside of the U.S., as needed, toperform work on the Company’s foreign projects. As of December 31, 2005 long-lived assets with a net book value of$48,878 were employed outside of the U.S.

9

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**10.****       Commitments andcontingencies**

At June 30, 2006, theCompany was contingently liable, in the normal course of business, for $15,730in undrawn letters of credit, relating to foreign contract performanceguarantees and insurance payment liabilities.

The Company finances certainkey vessels used in its operations and office facilities with operating leasearrangements with unrelated lessors, requiring annual rentals decreasing from$14,000 to $8,000 over the next five years. Certain of these operating leases contain default provisions that are triggeredby an acceleration 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’sCredit Agreement are secured by first lien mortgages on certain operatingequipment of the Company with a net book value of approximately $80,000 atDecember 31, 2005.  Additionally, theCompany obtains its performance and bid bonds through an underwriting and indemnityagreement with a surety company that has been granted a security interest in asubstantial portion of the Company’s operating equipment with a net book valueof approximately $84,000 at December 31, 2005. The Company also has an equipment term loan, which is secured by a firstlien mortgage on certain operating equipment with a net book value ofapproximately $20,000 at December 31, 2005. The net book value of equipmentserving as collateral under these agreements at June 30, 2006 does notmaterially differ from the values at December 31, 2005.  These agreements contain provisions requiringthe Company to maintain certain financial ratios and restricting the Company’sability to pay dividends, incur indebtedness, create liens, and take certainother actions.  The Company was incompliance with all required covenants at June 30, 2006.

The performance and bidbonds issued under the bonding agreement are customarily required for dredgingand marine construction projects, as well as some demolition projects.  Bid bonds are generally obtained for apercentage of bid value and aggregate amounts outstanding typically range from$5,000 to $10,000.  Performance bondstypically cover 100% of the contract value with no maximum bond amounts.  At June 30, 2006, the Company had outstandingperformance bonds valued at approximately $205,478; however the revenue valueremaining in backlog related to these projects totaled approximately $106,600at June 30, 2006.

Certain foreign projectsperformed by the Company have warranty periods, typically spanning no more thanthree to five years beyond project completion, whereby the Company retainsresponsibility to maintain the project site to certain specifications duringthe warranty period.  Generally, anypotential liability of the Company is mitigated by insurance, sharedresponsibilities with consortium partners, and/or recourse to owner-providedspecifications.

The Company considers itunlikely that it would have to perform under any of these aforementionedcontingent obligations and performance has never been required in any of thesecircumstances in the past.

As is customary withnegotiated contracts and modifications or claims to competitively-bid contractswith the federal government, the government has the right to audit the booksand

10

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records of the Company to ensure compliance withsuch contracts, modifications or claims and the applicable federal laws.  The government has the ability to seek aprice adjustment based on the results of such audit.  Any such audits have not had and are notexpected to have a material impact on the financial position, operations orcash flows of the Company.

Inthe normal course of business, the Company is a defendant in various legalproceedings.  Except as described below,the Company is not currently a party to any material legal proceedings orenvironmental claims.

OnFebruary 10, 2004, the Company was served with a subpoena to produce documentsin connection with a federal grand jury convened in the United States DistrictCourt for the District of South Carolina. The Company believes the grand jury has been convened to investigate theUnited States dredging industry in connection with work performed for the U.S.Army Corp of Engineers. The Company complied with the Justice department’s requestsand Company management believes that it has provided substantially all of thedocuments that have been requested to this point.  In addition to the documents requested, sevenemployees or former employees of the Company have now been interviewed or havetestified before the grand jury.  Inconnection with the investigation, the Company continues to incur legalexpenses, albeit to a much lesser degree. These expenses totaled approximately$70 and $400 for the three and six months ended June 30, 2006 compared to $900and $1,800 for the same periods in 2005.

Inthe normal course of business, the Company is a party to various personalinjury lawsuits.  The Company maintainsinsurance to cover claims that arise from injuries to its hourly workforcesubject to a deductible.  Recently therehas been an increase in suits filed in Texas. Two Texas law firms are aggressively pursuing personal injury claims onbehalf of dredging workers resident in certain areas of Texas.  An unprecedented number of lawsuits are beingfiled for incidents that would not have likely escalated to claims in thepast.  However, aggressive legalrepresentation and medical advice is increasing the seriousness of claimedinjuries and the amount demanded in settlement. In the first quarter of this year a $2.0 million charge was recorded toincrease the Company’s reserves for the self-insured portion of theseliabilities.  In the second quarter theCompany recorded another $1.3 million charge related primarily to new lawsuitsfiled during the quarter. The Company’s recorded self insurance reservesrepresent its best estimate of the outcomes of these claims.  Additionally, should these trends persist,the Company could continue to be impacted negatively in the future.

OnApril 24, 2006, a class action complaint was filed in the U.S. District Courtfor the Eastern District of Louisiana, on behalf of citizens of Louisiana whosuffered property damage from the waters that flooded New Orleans afterHurricane Katrina hit the area.  The suitnames Great Lakes Dredge & Dock Company, along with numerous other dredgingcompanies who have completed projects on behalf of the Army Corps of Engineersin the Mississippi River Gulf Outlet (“MRGO”), and the Federal government asdefendants.  The complaint alleges thatdredging of MRGO caused the destruction of the Louisiana wetlands which providea natural barrier against storms and hurricanes.  This loss of natural barriers thencontributed to the failure of the levees upon the impact of Hurricane Katrina whichallowed the floodwaters to damage plaintiffs’ property.  Among other assertions is negligence inviolation of the Water Pollution Control Act.  The amount ofdamages is not stated but would be presumed to be significant.  The Company believes it has meritoriousdefenses and does not believe this claim will have a material adverse impact onthe business.

OnJune 20, 2006, GLDD Acquisitions Corp., the parent company of Great Lakes,signed an Agreement and Plan of Merger (“Agreement”) with Aldabra AcquisitionCorporation.  Aldabra is a blank checkcompany formed for the purpose of investing in a business to build long termvalue.  Under the terms of the Agreement,Great Lakes’ parent company will merge with a subsidiary of Aldabra and GLDDAcquisitions’ stockholders will receive common stock of

11

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Aldabra.  Aldabra will then mergeinto an indirect wholly-owned subsidiary and, in connection with this holdingcompany merger, the stockholders of Aldabra (including the former GLDDAcquisitions’ stockholders) will receive stock in a new holding company, whichwill shortly after closing be renamed Great Lakes Dredge & DockCorporation.  The surviving corporationwill be owned approximately 67% by affiliates of MDP and approximately 5% byGreat Lakes’ management (based on Aldabra’s current price per share andassuming no exercise of conversion rights by Aldabra stockholders), beforegiving effect to the 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 during the fall of 2006.

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

In July 2006, the FASB issued FASBInterpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN48”). FIN 48 is an interpretation of FASB Statement No. 109, “Accountingfor Income Taxes,” and it seeks to reduce the diversity in practice associatedwith certain aspects of measurement and recognition in accounting for incometaxes. In addition, FIN 48 requires expanded disclosure with respect to theuncertainty in income taxes and is effective as of the beginning of our 2007fiscal year. The Company is currently evaluating the impact, if any, that FIN48 will have on the financial statements.

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**12.****      ****Supplemental condensed consolidating 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 June 30, 2006**
| ** **                                     | ** ** | **Guarantor**    | ** ** | **Other**      | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|------------------------------------------------|------------|------------------|------------|----------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                                     | ** ** | **Subsidiaries** | ** ** | **Subsidiary** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
| **ASSETS**                                     |       |             |       |           |       |            |       |             |       |             |       |
| Current assets:                                |       |             |       |           |       |            |       |             |       |             |       |
| Cash and equivalents                           |       | $                | 567        |           | $          | 5               |       | $                | —     |             | $          | — |   | $ | 572 |   |
| Accounts receivable, net                       |       | 80,780           |       | —         |       | —          |       | —           |       | 80,780           |       |
| Receivables from affiliates                    |       | 18,760           |       | 2,853          |       | 4,540           |       | (26,153          | )          | —           |       |
| Contract revenues in excess of billings        |       | 14,196           |       | —         |       | —          |       | —           |       | 14,196           |       |
| Inventories                                    |       | 16,137           |       | —         |       | —          |       | —           |       | 16,137           |       |
| Prepaid expenses and other current assets      |       | 10,307           |       | —         |       | 8,298           |       | —           |       | 18,605           |       |
| Total current assets                           |       | 140,747          |       | 2,858          |       | 12,838          |       | (26,153          | )          | 130,290          |       |
| Property and  equipment, net                   |       | 229,976          |       | —         |       | 11,724          |       | —           |       | 241,700          |       |
| Goodwill.                                      |       | 98,747           |       | —         |       | —          |       | —           |       | 98,747           |       |
| Other intangible  assets, net                  |       | 1,399            |       | —         |       | —          |       | —           |       | 1,399            |       |
| Investments in  subsidiaries                   |       | 2,858            |       | —         |       | 367,093         |       | (369,951         | )          | —           |       |
| Notes receivable  from affiliates              |       | —           |       | —         |       | 22,702          |       | (22,702          | )          | —           |       |
| Inventories                                    |       | 11,206           |       | —         |       | —          |       | —           |       | 11,206           |       |
| Investments in  joint ventures                 |       | 8,538            |       |           |       | —          |       | —           |       | 8,538            |       |
| Other assets                                   |       | 1,979            |       |           |       | 9,206           |       | —           |       | 11,185           |       |
|                                           |       | $                | 495,450    |           | $          | 2,858           |       | $                | 423,563    |             | $          | (418,806 | ) | $ | 503,065 |   |
|                                           |       |             |       |           |       |            |       |             |       |             |       |
| **LIABILITIES  AND STOCKHOLDER’S EQUITY** | ** ** | ** **       | ** ** | ** **     | ** ** | ** **      | ** ** | ** **       | ** ** | ** **       | ** ** |
| Current  liabilities:                          |       |             |       |           |       |            |       |             |       |             |       |
| Accounts payable                               |       | $                | 43,963     |           | $          | —          |       | $                | 1          |             | $          | — |   | $ | 43,964 |   |
| Payables to affiliates                         |       | 4,540            |       | —         |       | 21,613          |       | (26,153          | )          | —           |       |
| Accrued expenses                               |       | 22,846           |       | —         |       | 8,843           |       | —           |       | 31,689           |       |
| Billings in excess of contract revenues        |       | 7,590            |       | —         |       | —          |       | —           |       | 7,590            |       |
| Current maturities of long-term debt           |       | 1,950            |       | —         |       | —          |       | —           |       | 1,950            |       |
| Total current liabilities                      |       | 80,889           |       | —         |       | 30,457          |       | (26,153          | )          | 85,193           |       |
| Long-term debt                                 |       | 16,575           |       | —         |       | 226,300         |       | —           |       | 242,875          |       |
| Notes payable to  affiliates                   |       | 22,702           |       | —         |       | —          |       | (22,702          | )          | —           |       |
| Deferred income  taxes                         |       | 1,100            |       | —         |       | 85,851          |       | —           |       | 86,951           |       |
| Other                                          |       | 4,845            |       | —         |       | 550             |       | —           |       | 5,395            |       |
| Total liabilities                              |       | 126,111          |       | —         |       | 343,158         |       | (48,855          | )          | 420,414          |       |
| Minority  interests                            |       | —           |       | —         |       | —          |       | 1,975            |       | 1,975            |       |
| Stockholder’s  equity                     |       | 369,339          |       | 2,858          |       | 80,405          |       | (371,926         | )          | 80,676           |       |
|                                           |       | $                | 495,450    |           | $          | 2,858           |       | $                | 423,563    |             | $          | (418,806 | ) | $ | 503,065 |   |

13

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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 June 30, 2006**

 
| ** **                                 | ** ** | **Guarantor**    | ** ** | **Other**      | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|--------------------------------------------|------------|------------------|------------|----------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                                 | ** ** | **Subsidiaries** | ** ** | **Subsidiary** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
|                                       |       |             |       |           |       |            |       |             |       |             |       |
| Contract revenues                          |       | $                | 114,060    |           | $          | —          |       | $                | —     |             | $          | — |   | $ | 114,060 |   |
| Costs of contract  revenues                |       | (96,651          | )          | —         |       | 150             |       | —           |       | (96,501          | )          |
| Gross profit                               |       | 17,409           |       | —         |       | 150             |       | —           |       | 17,559           |       |
| General and  administrative expenses       |       | (7,096           | )          | (15            | )          | (10             | )          | —           |       | (7,121           | )          |
| Subpoena-related  expenses.                |       | (69              | )          | —         |       | —          |       | —           |       | (69              | )          |
| Amortization of intangible  assets         |       | (104             | )          | —         |       | —          |       | —           |       | (104             | )          |
| Impairment of  intangible assets           |       | —           |       | —         |       | —          |       | —           |       | —           |       |
| Operating income  (loss)                   |       | 10,140           |       | (15            | )          | 140             |       | —           |       | 10,265           |       |
| Interest expense, net                      |       | (1,102           | )          | —         |       | (4,913          | )          | —           |       | (6,015           | )          |
| Equity in (loss)  earnings of subsidiaries |       | (9               | )          | —         |       | 10,106          |       | (10,097          | )          | —           |       |
| Equity in loss of joint  ventures          |       | 465              |       | —         |       | —          |       | —           |       | 465              |       |
| Minority interests                         |       | —           |       | —         |       | —          |       | (87              | )          | (87              | )          |
| Income (loss)  before income taxes..       |       | 9,494            |       | (15            | )          | 5,333           |       | (10,184          | )          | 4,628            |       |
| Income tax (expense)  benefit              |       | 693              |       | 6              |       | (6,626          | )          | 4,278            |       | (1,650           | )          |
| Net income (loss)                          |       | $                | 10,187     |           | $          | (9              | )          | $                | (1,293     | )                | $          | (5,906 | ) | $ | 2,978 |   |

 

**CondensedConsolidating Statement of Operations for the three months ended June 30, 2005**

 
| ** **                                 | ** ** | **Guarantor**    | ** ** | **Other**      | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|--------------------------------------------|------------|------------------|------------|----------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                                 | ** ** | **Subsidiaries** | ** ** | **Subsidiary** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
|                                       |       |             |       |           |       |            |       |             |       |             |       |
| Contract revenues                          |       | $                | 93,391     |           | $          | —          |       | $                | —     |             | $          | — |   | $ | 93,391 |   |
| Costs of contract  revenues                |       | (81,992          | )          | —         |       | 34              |       | —           |       | (81,958          | )          |
| Gross profit                               |       | 11,399           |       | —         |       | 34              |       | —           |       | 11,433           |       |
| General and  administrative expenses       |       | (6,613           | )          | (15            | )          | (354            | )          | —           |       | (6,982           | )          |
| Subpoena-related  expenses.                |       | (931             | )          | —         |       | —          |       | —           |       | (931             | )          |
| Amortization of  intangible assets         |       | (220             | )          | —         |       | —          |       | —           |       | (220             | )          |
| Operating income  (loss)                   |       | 3,635            |       | (15            | )          | (320            | )          | —           |       | 3,300            |       |
| Interest expense, net                      |       | (1,030           | )          | —         |       | (3,563          | )          | —           |       | (4,593           | )          |
| Equity in (loss)  earnings of subsidiaries |       | (10              | )          | —         |       | 2,111           |       | (2,101           | )          | —           |       |
| Equity in earnings of  joint ventures      |       | 928              |       | —         |       | —          |       | —           |       | 928              |       |
| Minority interests                         |       | —           |       | —         |       | —          |       | (192             | )          | (192             | )          |
| Income (loss)  before income taxes..       |       | 3,523            |       | (15            | )          | (1,772          | )          | (2,293           | )          | (557             | )          |
| Income tax (expense)  benefit              |       | (1,219           | )          | 5              |       | 303             |       | 963              |       | 52               |       |
| Net income (loss)                          |       | $                | 2,304      |           | $          | (10             | )          | $                | (1,469     | )                | $          | (1,330 | ) | $ | (505 | ) |

 

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**Condensed Consolidating Statement ofOperations for the six months ended June 30, 2006**
| ** **                                 | ** ** | **Guarantor**    | ** ** | **Other**      | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|--------------------------------------------|------------|------------------|------------|----------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                                 | ** ** | **Subsidiaries** | ** ** | **Subsidiary** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
|                                       |       |             |       |           |       |            |       |             |       |             |       |
| Contract revenues                          |       | $                | 222,487    |           | $          | —          |       | $                | —     |             | $          | — |   | $ | 222,487 |   |
| Costs of contract  revenues                |       | (193,617         | )          | —         |       | 300             |       | —           |       | (193,317         | )          |
| Gross profit                               |       | 28,870           |       | —         |       | 300             |       | —           |       | 29,170           |       |
| General and  administrative expenses       |       | (14,385          | )          | (30            | )          | (15             | )          | —           |       | (14,430          | )          |
| Subpoena-related  expenses.                |       | (429             | )          | —         |       | —          |       | (429             | )          |             |       |
| Amortization of  intangible assets         |       | (180             | )          | —         |       | —          |       | —           |       | (180             | )          |
| Impairment of  intangible assets           |       | —           |       | —         |       | —          |       | —           |       | —           |       |
| Operating income  (loss)                   |       | 13,876           |       | (30            | )          | 285             |       | —           |       | 14,131           |       |
| Interest expense, net                      |       | (2,167           | )          | —         |       | (10,049         | )          | —           |       | (12,216          | )          |
| Equity in earnings  (loss) of subsidiaries |       | (23              | )          | —         |       | 13,689          |       | (13,666          | )          | —           |       |
| Equity in earnings of  joint venture       |       | 582              |       | —         |       | —          |       | —           |       | 582              |       |
| Minority interests                         |       | —           |       | —         |       | —          |       | (125             | )          | (125             | )          |
| Income (loss)  before income taxes         |       | 12,268           |       | (30            | )          | 3,925           |       | (13,791          | )          | 2,372            |       |
| Income tax (expense)  benefit              |       | 1,596            |       | 7              |       | (8,323          | )          | 5,792            |       | (928             | )          |
| Net income  (loss)                         |       | $                | 13,864     |           | $          | (23             | )          | $                | (4,398     | )                | $          | (7,999 | ) | $ | 1,444 |   |

 

**CondensedConsolidating Statement of Operations for the six months ended June 30, 2005**
| ** **                                 | ** ** | **Guarantor**    | ** ** | **Other**      | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|--------------------------------------------|------------|------------------|------------|----------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                                 | ** ** | **Subsidiaries** | ** ** | **Subsidiary** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
|                                       |       |             |       |           |       |            |       |             |       |             |       |
| Contract revenues                          |       | $                | 193,294    |           | $          | —          |       | $                | —     |             | $          | — |   | $ | 193,294 |   |
| Costs of contract  revenues                |       | (175,005         | )          | —         |       | 184             |       | —           |       | (174,821         | )          |
| Gross profit                               |       | 18,289           |       | —         |       | 184             |       | —           |       | 18,473           |       |
| General and  administrative expenses       |       | (13,340          | )          | (30            | )          | (367            | )          | —           |       | (13,737          | )          |
| Subpoena-related  expenses                 |       | (1,810           | )          | (1,810         | )          |            |       |             |       |             |       |
| Amortization of  intangible assets         |       | (400             | )          | —         |       | —          |       | —           |       | (400             | )          |
| Operating income  (loss)                   |       | 2,739            |       | (30            | )          | (183            | )          | —           |       | 2,526            |       |
| Interest expense, net                      |       | (1,994           | )          | —         |       | (8,872          | )          | —           |       | (10,866          | )          |
| Equity in earnings  (loss) of subsidiaries |       | (20              | )          | —         |       | 808             |       | (788             | )          | —           |       |
| Equity in earnings of  joint ventures      |       | 762              |       | —         |       | —          |       | —           |       | 762              |       |
| Minority interests                         |       | —           |       | —         |       | —          |       | (220             | )          | (220             | )          |
| Income (loss)  before income taxes         |       | 1,487            |       | (30            | )          | (8,247          | )          | (1,008           | )          | (7,798           | )          |
| Income tax (expense)  benefit              |       | (421             | )          | 10             |       | 2,609           |       | 423              |       | 2,621            |       |
| Net income (loss)                          |       | $                | 1,066      |           | $          | (20             | )          | $                | (5,638     | )                | $          | (585 | ) | $ | (5,177 | ) |

16

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**Condensed Consolidating Cash Flowsfor the six months ended June 30, 2006**
| ** **                                           | ** ** | **Successor Basis** | ** ** | ** **     | ** ** | ** **      | ** ** | ** **       | ** ** |
|------------------------------------------------------|------------|--------------------------|------------|----------------|------------|-----------------|------------|------------------|------------|
| ** **                                           | ** ** | **Guarantor**            | ** ** | **Other**      | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
| ** **                                           | ** ** | **Subsidiaries**         | ** ** | **Subsidiary** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals** | ** ** |
|                                                 |       |                     |       |           |       |            |       |             |       |   |   |
| **Operating Activities**                             | ** ** | ** **               | ** ** | ** **     | ** ** | ** **      | ** ** | ** **       | ** ** | ** ** | ** ** |
| Net cash flows  from operating activities            |       | $                        | 33,596     |           | $          | (23             | )          | $                | (16,189    | ) | $ | — |   | $ | 17,384 |   |
| **Investing  Activities**                            | ** ** | ** **               | ** ** | ** **     | ** ** | ** **      | ** ** | ** **       | ** ** | ** ** | ** ** |
| Purchases of  property and equipment                 |       | (11,604                  | )          | —         |       | —          |       | —           |       | (11,604 | ) |
| Dispositions of  property and equipment              |       | 857                      |       | —         |       | —          |       | —           |       | 857 |   |
| Net cash flows from investing activities             |       | (10,747                  | )          | —         |       | —          |       | —           |       | (10,747 | ) |
| **Financing  Activities**                            | ** ** | ** **               | ** ** | ** **     | ** ** | ** **      | ** ** | ** **       | ** ** | ** ** | ** ** |
| Repayments of  long-term debt                        |       | (3,975                   | )          | —         |       | —          |       | —           |       | (3,975 | ) |
| Borrowings under  revolving loans, net of repayments |       | —                   |       | —         |       | (2,000          | )          | —           |       | (2,000 | ) |
| Net change in  accounts with affiliates              |       | (18,212                  | )          | 23             |       | 18,189          |       | —           |       | — |   |
| Repayment of  capital lease debt                     |       | (691                     | )          | —         |       | —          |       | —           |       | (691 | ) |
| Net cash flows  from financing activities            |       | (22,878                  | )          | 23             |       | 16,189          |       | —           |       | (6,666 | ) |
| Net change in  cash and equivalents                  |       | (29                      | )          | —         |       | 0               |       | —           |       | (29 | ) |
| Cash and  equivalents at beginning of year           |       | 596                      |       | 5              |       | —          |       | —           |       | 601 |   |
| Cash and  equivalents at end of year                 |       | $                        | 567        |           | $          | 5               |       | $                | 0          |   | $ | — |   | $ | 572 |   |

 

**CondensedConsolidating Cash Flows for the six months ended June 30, 2005**

 
| ** **                                           | ** ** | **Guarantor**    | ** ** | **Other**      | ** ** | **GLD**         | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------|------------|------------------|------------|----------------|------------|-----------------|------------|------------------|------------|------------------|------------|
| ** **                                           | ** ** | **Subsidiaries** | ** ** | **Subsidiary** | ** ** | **Corporation** | ** ** | **Eliminations** | ** ** | **Totals**       | ** ** |
|                                                 |       |             |       |           |       |            |       |             |       |             |       |
| **Operating  Activities**                            | ** ** | ** **       | ** ** | ** **     | ** ** | ** **      | ** ** | ** **       | ** ** | ** **       | ** ** |
| Net cash flows from operating activities             |       | $                | 853        |           | $          | (30             | )          | $                | (3,481     | )                | $          | — |   | $ | (2,658 | ) |
|                                                 |       |             |       |           |       |            |       |             |       |             |       |
| **Investing  Activities**                            | ** ** | ** **       | ** ** | ** **     | ** ** | ** **      | ** ** | ** **       | ** ** | ** **       | ** ** |
| Purchases of  property and equipment                 |       | (7,082           | )          | —         |       | —          |       | —           |       | (7,082           | )          |
| Dispositions of  property and equipment              |       | 4,665            |       | —         |       | —          |       | —           |       | 4,665            |       |
| Net cash flows from investing activities             |       | (2,417           | )          | —         |       | —          |       | —           |       | (2,417           | )          |
|                                                 |       |             |       |           |       |            |       |             |       |             |       |
| **Financing  Activities**                            | ** ** | ** **       | ** ** | ** **     | ** ** | ** **      | ** ** | ** **       | ** ** | ** **       | ** ** |
| Repayments of  long-term debt                        |       | (975             | )          | —         |       | —          |       | —           |       | (975             | )          |
| Borrowings under  revolving loans, net of repayments |       | —           |       | —         |       | 5,000           |       | —           |       | 5,000            |       |
| Net change in  accounts with affiliates              |       | 1,489            |       | 30             |       | (1,519          | )          | —           |       | —           |       |
| Repayment of  capital lease debt                     |       | (541             | )          | —         |       | —          |       | —           |       | (541             | )          |
| Net cash flows  from financing activities            |       | (27              | )          | 30             |       | 3,481           |       | —           |       | 3,484            |       |
|                                                 |       |             |       |           |       |            |       |             |       |             |       |
| Net change in  cash and equivalents                  |       | (1,591           | )          | —         |       | —          |       | —           |       | (1,591           | )          |
| Cash and  equivalents at beginning of period         |       | 1,957            |       | 5              |       | —          |       | —           |       | 1,962            |       |
| Cash and equivalents at  end of period               |       | $                | 366        |           | $          | 5               |       | $                | —     |             | $          | — |   | $ | 371 |   |

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

###### **Statement Under the Private SecuritiesLitigation 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 of 1934. Certainforward-looking statements can be identified by the use of forward-lookingterminology such as, “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,”“intends,” “plans,” “estimates,” “anticipates,” or “hopeful,” or the negativethereof or other comparable terminology, or by discussions of strategy, plansor intentions. Forward-looking statements involve risks and uncertainties,including those described in the Risk Factors section of the Company’s AnnualReport on Form 10-K for the year ended December 31, 2005, which could causeactual results to be materially different than those in the forward-lookingstatements, which speak only as of the date hereof. The Company assumes noobligation to update such 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 ofthree primary types of work:  Capital,Maintenance and Beach Nourishment, in which the Company experienced an averagecombined U.S. bid market share of 36% over the last three fiscal years (2003 to2005). The Company’s bid market is defined as the population of projects onwhich it bid or could have bid if not for capacity constraints (“bid market”). Inaddition, the Company has continued its role as the only U.S. dredgingcontractor with significant international operations, which averaged 16% of itscontract revenues 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’s principal services consist of interior andexterior demolition of commercial and industrial buildings, salvage andrecycling of related materials, and removal of hazardous substances andmaterials. One NASDI management stockholder retains a 15% non-voting interestin NASDI, 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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###### **Results of Operations**

The following table sets forth the components of net income (loss) andEBITDA as a percentage of contract revenues for the three and six months endedJune 30, 2006 and 2005:
| ** **                            | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                            | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                            | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                  |       |                             |       |                           |       |   |   |   |   |
| Contract  revenues                    |       | 100.0                            | %          | 100.0                          | %          | 100.0 | % | 100.0 | % |
| Costs of  contract revenues           |       | (84.6                            | )          | (87.8                          | )          | (86.9 | ) | (90.4 | ) |
| Gross profit                          |       | 15.4                             |       | 12.2                           |       | 13.1 |   | 9.6 |   |
| General and  administrative expenses  |       | (6.2                             | )          | (7.5                           | )          | (6.5 | ) | (7.2 | ) |
| Subpoena-related  expenses            |       | (0.0                             | )          | (1.0                           | )          | (0.2 | ) | (0.9 | ) |
| Amortization of  intangible assets    |       | (0.1                             | )          | (0.2                           | )          | 0.0 |   | (0.2 | ) |
| Operating income                      |       | 9.1                              |       | 3.5                            |       | 6.4 |   | 1.3 |   |
| Interest  expense, net                |       | (5.3                             | )          | (4.9                           | )          | (5.5 | ) | (5.6 | ) |
| Equity in  earnings of joint ventures |       | 0.4                              |       | 1.0                            |       | 0.3 |   | 0.4 |   |
| Minority  interest                    |       | (0.1                             | )          | (0.2                           | )          | (0.1 | ) | (0.1 | ) |
| Income (loss) before income taxes     |       | 4.1                              |       | (0.6                           | )          | 1.1 |   | (4.0 | ) |
| Income tax  (expense) benefit         |       | (1.5                             | )          | 0.1                            |       | (0.4 | ) | 1.3 |   |
| Net income (loss)                     |       | 2.6                              | %          | (0.5                           | )%         | 0.7 | % | (2.7 | )% |
|                                  |       |                             |       |                           |       |   |   |   |   |
| EBITDA                                |       | 14.8                             | %          | 10.9                           | %          | 12.2 | % | 8.0 | % |

EBITDA, as provided herein, represents netincome (loss), adjusted for net interest expense, income taxes, depreciationand amortization expense. The Company presents EBITDA as an additional measureby which to evaluate the Company’s operating trends. The Company believes thatEBITDA is a measure frequently used to evaluate performance of companies withsubstantial leverage and that all of its primary stakeholders (i.e. itsbondholders, banks and investors) use EBITDA to evaluate the Company’s periodto period performance. Additionally, management believes that EBITDA provides atransparent measure of the Company’s recurring operating performance and allowsmanagement to readily view operating trends, perform analytical comparisons andidentify strategies to improve operating performance. For this reason, EBITDAis the measure the Company uses to assess performance for purposes ofdetermining compensation under its incentive plan. EBITDA should not beconsidered an alternative to, or more meaningful than, amounts determined inaccordance with GAAP including: (a) operating income as an indicator ofoperating performance; or (b) cash flows from operations as a measure ofliquidity. As such, the Company’s use of EBITDA, instead of a GAAP measure, haslimitations as an analytical tool, including the inability to determineprofitability or liquidity due to the exclusion of interest expense and theassociated significant 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 tomeasure its operating performance and uses EBITDA only as a supplement. EBITDAis reconciled to net income (loss) in the table of financial results.

19

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Thefollowing table reconciles net income (loss) to EBITDA for the periodsindicated:
| ** **                    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                    | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                    | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
|                          |       |                             |       |                           |       |   |   |   |   |
| Net income  (loss)            |       | $                                | 2,978      |                           | $          | (505 | ) | $ | 1,444 |   | $ | (5,177 | ) |
| Adjusted for:                 |       |                             |       |                           |       |   |   |   |   |
| Interest expense, net         |       | 6,015                            |       | 4,593                          |       | 12,216 |   | 10,866 |   |
| Income tax expense (benefit)  |       | 1,650                            |       | (52                            | )          | 928 |   | (2,621 | ) |
| Depreciation and amortization |       | 6,278                            |       | 6,185                          |       | 12,528 |   | 12,330 |   |
| EBITDA                        |       | $                                | 16,921     |                           | $          | 10,221 |   | $ | 27,116 |   | $ | 15,398 |   |

The following table setsforth, by segment and dredging type of work, the Company’s contract revenuesfor the three and six months ended and backlog as of the periods indicated:
| ** **                            | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                            | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **Revenues (in thousands)** | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Dredging:                             |       |                             |       |                           |       |   |   |   |   |
| Capital - U.S.                        |       | $                                | 38,070     |                           | $          | 30,121 |   | $ | 61,105 |   | $ | 59,778 |   |
| Capital - foreign                     |       | 16,953                           |       | 10,328                         |       | 34,180 |   | 16,231 |   |
| Beach                                 |       | 34,506                           |       | 22,439                         |       | 75,204 |   | 44,850 |   |
| Maintenance                           |       | 11,810                           |       | 18,194                         |       | 28,232 |   | 48,487 |   |
| Demolition                            |       | 12,721                           |       | 12,309                         |       | 23,766 |   | 23,948 |   |
|                                  |       | $                                | 114,060    |                           | $          | 93,391 |   | $ | 222,487 |   | $ | 193,294 |   |

 
| ** **                           | ** ** | **June 30,** | ** ** |
|--------------------------------------|------------|-------------------|------------|
| **Backlog (in thousands)** | ** ** | **2006**          | ** ** | **2005** | ** ** |
| Dredging:                            |       |              |       |   |   |
| Capital - U.S.                       |       | $                 | 52,404     |   | $ | 142,078 |   |
| Capital - foreign                    |       | 173,800           |       | 115,846 |   |
| Beach                                |       | 44,748            |       | 31,039 |   |
| Maintenance                          |       | 15,890            |       | 5,970 |   |
| Demolition                           |       | 9,871             |       | 16,581 |   |
|                                 |       | $                 | 296,713    |   | $ | 311,514 |   |

Consolidated revenues forthe second quarter of 2006 were $114.1 million, representing an increase of$20.7 million, or 22.1%, over second quarter 2005 revenues of $93.4 million.Revenues for the first half of 2006 were $222.5 million, an increase of $29.2million, or 15.1%, over revenues for the first half of 2005 of $193.3 million. Secondquarter 2006 revenues increased as the Company continued to experience goodutilization of its dredging fleet especially with regard to beach nourishmentand foreign capital work. While contract margins were similar between theperiods, the Company’s gross profit margin for the quarter ended June 30, 2006improved to 15.4%, compared to 12.2% for the same quarter in 2005, with theincrease in utilization relative to fixed costs. In addition, the margins inthe second quarter of 2006 

20

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continued to be negativelyimpacted by increases in our self-insured reserves related to our Texas basedpersonal injury claims.

Capital projects include large port deepenings and other infrastructureprojects. Domestic capital dredging revenue increased $7.9 million and $1.3million in the second quarter and first half of 2006, respectively, compared tothe same periods of 2005. The Company’s domestic capital revenues of $38million in the second quarter of 2006 were substantially generated bycontinuing work on port deepening projects in Arthur Kill Channel, New York;and Wilmington, North Carolina and the LNG terminal project in Freeport, Texas.The Company also began work on an option to its Miami Harbor deepening projectand an extension to its Oakland Harbor deepening project. Foreign capitalrevenue in the second quarter and first half of 2006 increased $6.6 million and$17.9 million, respectively, compared to the same periods of 2005. The 2006second quarter’s foreign revenues were substantially generated by continuingwork on the Durrat land development project in Bahrain, which will continuethrough first quarter of 2007.

Beach nourishment projects include rebuilding of shoreline areas thathave been damaged by storm activity or ongoing erosion. Second quarter 2006revenues from beach nourishment projects totaled $34.5 million, a $12.1 millionincrease over the same period of 2005, bringing the year-to-date beach revenueto $75.2 million, a $30.4 million increase over the 2005 year-to-date revenue. Theincrease is to be expected, given that beach work contributed to 41% of thedomestic bid market in 2005. And even though the beach bid market has begun tomoderate in 2006, it still represented 29% of the domestic bid market in thefirst half of 2006. In addition, the Company has won a 78% share of the beachwork put out this year. The Company’s 2006 second quarter beach revenues weresubstantially generated by two large projects in Florida (Collier County andDestin) and two in South Carolina (Edisto Beach and Hunting Island).

Maintenance projects include routine dredging of ports, rivers andchannels to remove the regular build up of sediment. Maintenance revenuestotaled $11.8 million and $28.2 million for the second quarter and first halfof 2006, respectively, compared to $18.2 million and $48.5 million for the same2005 periods. The majority of the quarter’s maintenance revenues relate to arental project along the Mississippi River, which was completed in the quarteras well as two clamshell projects, one in Wilmington Harbor, NC and the otherin Cape Henry, VA. 2005 revenue was favorably impacted by a large rentalproject in the Mississippi River Gulf Outlet.

The Company’s general and administrative expenses totaled $7.1 millionfor the second quarter of 2006, which is comparable to the same quarter of 2005.Year to date expenses totaled $14.4 million compared to $13.7 million for thefirst half of 2005. The year-to-date increase is primarily a result of higherincentive compensation in the demolition segment. In the second quarter of2006, the Company incurred $0.1 million of legal expenses related to thefederal subpoena matter, which is down from $.9 million in the second quarterof 2005 as discussed further in Note 10 to the Financial Statements.

Net interest expense for the second quarter and first half of 2006 was$6.0 million and $12.2 million, respectively, compared to $4.6 million and$10.9 million for the same periods in 2005. Underlying interest rates on thevariable portion of debt did increase from period to period, resulting in anincrease in year to date expense of $0.8 million. In addition, interestreflects a non-cash expense related to the valuation of the Company’sfixed-to-floating interest rate swap. Expense related to this swap was $0.6million for the six months ended June 30, 2006 compared to $0.1 million for thesame period in 2005.

Income tax expense for the second quarter was $1.6 million compared toa minimal benefit for the same period in 2005. The recognition of expense in2006 is a result of improved operating income between the two quarters. Incometax expense for the six months ended June 30, 2006 

21

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was $.9 million compared to a benefit of $2.6 million for the sameperiod in 2005, again due to the improved operating income.

The Company generated net income of $2.9 and $1.4 million for thequarter and six months ended June 30, 2006, compared to a net loss of $.5 and$5.2 million for the same 2005 periods. The improvement in 2006 is a result ofincreased revenues and margins as discussed.

EBITDA (as defined on page 16) was $16.9 million and $27.1 million forthe quarter and six months ended June 30, 2006, compared to $10.2 and $15.4million for the same periods of 2005, again reflecting the improvement inoperations.

**Results by segment**

***Dredging***

Dredging revenues for the quarter and six months ended June 30, 2006were $101.3 million and $198.7 million, respectively, compared to $81.1 millionand $169.3 million for the same periods of 2005, with the increase in 2006driven by greater utilization of the Company’s dredging fleet. Operating incomegenerated by the dredging operations for the quarter ended June 30, 2006 was$8.8 million and compares to   $1.2million for the same period of 2005. Operating income was $11.8 million for thesix months ended June 30, 2006 compared to an operating loss of $0.3 millionfor the same period in 2005. The improvement in the 2006 was due to theincreased revenue and higher margins on the projects performed during theperiod.

***Demolition***

NASDI’s demolition revenue for the quarter and six months ended June30, 2006 totaled $12.7 million and $23.8 million and compares to $12.3 millionand $23.9 million for the same periods of 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 generatedoperating income for the quarter ended June 30, 2006 of $1.4 million, comparedto operating income of $2.5 million for the same period of 2005. Operatingincome was $2.4 million for the six months ended June 30, 2006 compared to $2.9million for the same period in 2005. Margins were consistent period overperiod.

**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. Such estimates are subject to fluctuations basedupon the amount of material actually dredged, as well as factors affecting thetime required to complete the job. In addition, because a substantial portionof the Company’s backlog relates to government contracts, the Company’s backlogcan be canceled at any time without penalty. However, the Company can generallyrecover the actual committed costs and profit on work performed up to the dateof cancellation. Consequently, backlog is not necessarily indicative of futurerevenues. The Company’s backlog includes only those projects for which theCompany has obtained a signed contract with the customer.

The second quarter 2006 domestic dredging bid market, representing workawarded during the period, totaled $178 million. This was a larger bid market compared to last quarter and more inlinewith quarters prior to first quarter of 2006. Great Lakes won 31.5% of thesecond quarter 

22

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bid market. Great Lakes was also low bidderon a deep port project in New Jersey for $24 million that is expected to beawarded in the third quarter. In addition, a large capital project in Oaklandwas bid in the second quarter and won at $115 million by a joint venture of twocompetitors. However, the award of this contract has been postponed due tocertain funding issues. Those issues related to this project are expected to beresolved in the fall of this year and the project subsequently awarded. Of the$44 million in beach work bid this quarter, Great Lakes won $35 million or 79%.The remainder of the market consisted primarily of $121 million of maintenancework and one additional deep port project, which was won by a competitor for$13 million.

In 2005, a substantial portion of the bid market, 41%, came from thebeach nourishment sector. This was the result of the active hurricane season in2004 and the resulting special appropriations to fund this work. Previously(2002 — 2004) beach work averaged only 15% of the market. Offsetting thisincrease in beach work in 2005 was a decline in the amount of capital projects.Last year’s capital market was just over $200 million and represented only 28%of the market. Previously (2002 — 2004) capital work averaged over 45% of themarket. To date in 2006, with the addition of the two capital projectsmentioned above, the mix of work in the bid market has normalized to be more inline with the average mix experienced in 2002 to 2004.

During the quarter a new hopper dredge that was commissioned by one ofour competitors began operations on a project in the Gulf Coast and is nowactive in the bid market. This hopper dredge is over two-times the size of ourmost recently constructed hopper dredge, the Liberty Island, and is best suitedfor the maintenance rental market in the Mississippi Gulf Outlet. This dredgerepresents additional capacity in a presently weak market sector, and is likelyto depress pricing absent a reduction in capacity in this sector.

In the overseas markets, in June 2006 Great Lakes, along with its civilconstruction joint venture partner AA Nass Contracting, signed a contract forover $400 million to perform the Diyaar AL Muharraq project (“Diyaar”), a largedredging reclamation off the north coast of the Kingdom of Bahrain. This islandreclamation will enhance the further economic development of Bahrain. Phase oneof the project has been awarded with revenues of approximately $150 million toGreat Lakes. Phase one will require approximately three years to complete. Thesecond phase which can be awarded by the customer any time prior to June of2009 would also result in revenue of approximately $150 million to Great Lakesif awarded and will take an additional two years to complete. Mobilizationworks are already underway and the dredging work will commence in September ofthis year. This project requires the mobilization of two medium size hopperdredges and one small hopper dredge from the US as well as the reconfiguredLong Island rehandling barge. The uncertainty of the US dredging marketrequires the Company to look more aggressively to the strong market in theMiddle East for additional opportunities to deploy potentially idle assets fromthe US. Diyaar is primarily a hopper dredge project that was targeted to employhopper dredges from the Company’s U.S. fleet that could have been idled withthe decline in the rental market in the Mississippi Gulf Outlet and theaddition in this market of the competitor’s new hopper dredge. The deploymentof these dredges overseas mitigates the potential overcapacity and resultingdownward pressure on pricing noted above.

Dredging backlog at June 30, 2006 was $286.8 million. This compares to$204.1 million at March 31, 2006 and $294.9 million at June 30, 2005. Consistentwith prior periods, the majority of the Company’s June 30, 2006 dredgingbacklog, $226 million, is comprised of domestic and foreign capital dredgingwork, including continuing domestic deepening projects in New York, NY,Brunswick, GA and Wilmington, NC, and the two overseas land reclamationprojects in Bahrain. The increase in total backlog at June 30, 2006 compared tolast quarter is primarily due to the addition of the new land reclamationproject in Bahrain mentioned above. Domestic capital work has still declined,which is consistent with the decrease in the amount of capital projects in 

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the 2005 bid markets. And as noted earlier, the Company’s secondquarter recorded backlog does not reflect approximately $24 million for anadditional capital project pending award in Newark, New Jersey, as well asother options pending on projects currently in backlog. The Company’s June 30,2006 beach backlog totaling $44.7 million continues to represent a solid leveland is consistent with 2005 periods. The Company’s maintenance backlog totaled$15.8 million at June 30, 2006, which is an increase over last quarter. Demolitionservices backlog was $9.9 million at June 30, 2006 compared to $13.8 million atMarch 31, 2006 and $16.6 million at June 30, 2005.

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

To date the 2006 domestic bid market has generated $256 million of workawarded. However, this total to date does not include two sizable capitalprojects in Newark and Oakland as mentioned previously totaling $139 millionthat are expected to be awarded this year. The annualized 2006 bid market,including these projects, would be in line with the prior two years’ marketswhich generated over $700 million each year. The biggest hurdle to the nearterm market is the issue of continuing contracts. Congress has mandated thatonly projects that are fully funded can go forward. In the past a project couldbe bid if appropriations were identified for the current year only and the restof the contract could be continued into the next year. The remaining fundingwould be taken out of the following years appropriations. The restriction onthe Corps’ ability to utilize the continuing contracts mechanism has apparentlyresulted in the deferment of Corps’ projects with the thought they can carryover this year’s money and get the full appropriation for their project nextyear. The Corp’s opinion is that this change in policy will work its waythrough the system over the next two years and that during this time periodappropriated money will go unspent, but will be carried forward to the nextyear.

The Company is currently tracking projects that are probable to comeout on authorized Deep Port projects over the next six to twelve months. Theseprojects include:  another phase of thePort Jersey, NJ 50’ deepening project and two additional phases of the NYHarbor 50’ deepening project;  deepeningand land reclamation projects in Baltimore, MD, a port expansion project inJacksonville Harbor, FL, two deepening projects in Portland, OR: and severalport expansion projects in the Tampa area. In the aggregate, these Deep Portprojects could generate over $350 million of bidding opportunities to themarket over that time period.

Consistent with historical experience, funding continues to be an issuein the beach nourishment market. Although beach projects were numerous in 2005due to hurricanes and the resulting supplemental appropriations, this year’sfederal funding is back to being uncertain. Fortunately, over the past fewyears more beach communities have developed funding sources to meet their beachnourishment needs and more local and privately funded beach work is being put outto bid. In 2006, Great Lakes has performed over $62.5 million of beach work fornon-federally funded customers. Current schedules indicate potential beachprojects from both federally and non-federally funded customers valued atapproximately $100 million for bidding through the end of 2006.

Dredging work related to the development of LNG terminals continues toexpand, particularly along the Gulf coast of Texas. Dredging work is nearcompletion on the Company’s LNG terminal project in Freeport, TX and theCompany recently signed a new $60 million contract for another LNG terminal inTexas. The Company is also still involved in several project solicitations withprivate customers for work valued at over $50 million that should provide workfor 2007.

With a view to the longer term, passage of the current Water ResourcesDevelopment Act, or WRDA legislation, now appears eminent. However, in the lastfew days of Senate debate the provision for the retirement of the Corps’ hopperdredge McFarland was removed from the bill.

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The industry will continue to work toward retirement of the Corps’dredges as the industry feels the work can more efficiently be performed byindustry capacity. Several positive provisions for the industry areincorporated in the current WRDA including authorization of various additionalharbor deepening projects, a reduction in local cost sharing required oncapital deepening projects that go below 50 feet and the authorization for 12priority projects under the Louisiana Coastal Restoration Plan. Passage of thisbill will provide assurance of Congress’ continuing commitment to capitaldredging work in the future.

The sizable foreign market has provided opportunities to offset theuncertainty in the domestic market. With the commencement of the new project inBahrain in the fourth quarter of 2006 the Company will be fully employing sixvessels. Upon completion of the Durrat contract in the first quarter of nextyear, the Company will have capacity to take on more work for the two hydraulicdredges working in Durrat. Given the volume of work being generated in theMiddle East region, there appear to be many potential opportunities foremploying this equipment.

In summary, the second quarter of 2006 was a solid quarter fromoperations and one the strongest quarters in the last few years. Margins atJune 30, 2006 continue to show improvement despite the added expense related toself-insured claims reserves. In addition, the domestic bidding activity forthe second quarter rebounded, and despite the Corps’ funding issues, there isstill work scheduled to come out for bid that should provide opportunities toincrease backlog for the remainder of year. However, although there is adequatebacklog and contracts pending award at June 30, the Company’s third quarter operationswill likely be impacted by significant mobilization to domestic and foreignprojects, required dry-dockings on certain vessel and the deferral of a largebeach project due to typical environmental window restrictions. In the fourthquarter, with the commencement of the Diyaar project and resumption ofenvironmental window work the Company’s operations will pick up again.

###### **Liquidity and Capital Resources**

The Company’s principal sources of liquidity are cash flow generatedfrom operations and borrowings under its senior credit facility. The Company’sprincipal uses of cash are to meet debt service requirements, finance itscapital expenditures, provide working capital and meet other general corporatepurposes.

The Company’s net cash flows from operating activities for the sixmonths ended June 30, 2006 totaled $17.4 million, compared to a use of cash of$2.7 million for the six months ended June 30, 2005. The fluctuation betweenperiods results primarily from the normal timing differences on the recognitionand billing of revenues relative to the current level of activity, as well asan increase in operating results. Subsequent to June 30, 2006, payment wasreceived for over $5 million from the Company’s Tampa project with the Corpsthat had remained outstanding for sometime.

The Company’s net cash flows used in investing activities for the sixmonths ended June 30, 2006 totaled $10.7 million, compared to $2.4 million forthe six months ended June 30, 2005. The use of cash relates primarily to equipmentacquisitions and capital improvements to existing equipment. Included in theyear to date spending was $1.1 million for overhaul of the hopper dredge LongIsland. This dredge is being reconfigured as a material handling barge toassist with the new land reclamation project in Bahrain. In addition, $1.6million was spent on significant enhancements to three other dredges and $1.0million in new demolition equipment. NASDI is also currently building a newoffice and garage facility and they spent $1 million on leasehold improvementsin the quarter. The Company’s year-to-date capital spending included $2.6million spent in the first quarter to purchase the dredge Victoria Island thathad been operated under a long term operating lease arrangement. The Company’s2005 cash flows used in investing 

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activities included proceeds of $4.4 million for a rock bargeconstructed by the Company and then sold and leased back under an operatinglease in June of 2005.

The Company’s net cash flows used in financing activities for the sixmonths ended June 30, 2006 totaled $6.7 million, and includes pay down of $3million of bank term debt. This compares to $3.5 million of cash generated forthe six months ended June 30, 2005 as a result of net borrowings under the revolvernecessary to fund working capital needs during the 2005 period. The Company had$44.3 million of borrowing availability at June 30, 2006.

The Company’s Credit Agreement contains various restrictive covenants. Itprohibits the Company from prepaying other indebtedness, including the seniorsubordinated notes, and it requires the Company to satisfy financial conditiontests and to maintain specified financial ratios, such as a maximum totalleverage ratio, maximum senior leverage ratio, minimum interest coverage ratioand maximum capital expenditures. It also prohibits the Company from declaringor paying any dividends and from making any payments with respect to the seniorsubordinated notes if it fails to perform its obligations under, or fails tomeet the conditions of, the Credit Agreement or if payment creates a defaultunder the Credit Agreement. The Company’s bonding agreement and Equipment TermLoan contain similar restrictive covenants and financial conditions tests. Upondelivering our compliance reporting for the first quarter of this year, thefinancial covenant requirements under our Senior Credit Facility reverted backto the pre-2004 amendment levels. At June 30, 2006, the Company was incompliance with all of the financial covenants under its senior creditagreements and bonding agreement.

The required financial covenant levels under the senior creditagreements and the bonding agreement are restrictive but Company managementbelieves the Company has positive relationships with its senior lenders andsurety provider, should it be necessary to request an additional amendment orwaiver to the financial covenants. However, if there is a future violation ofany of the financial covenants and the Company is not successful in obtainingan additional amendment or waiver, a default could occur under the Company’ssenior credit agreements or bonding agreement, which could result in a materialadverse impact on the Company’s financial condition.

The Company has continued to experience some timing issues on certainCorps receivables, but Company management believes its anticipated cash flowsfrom operations and current available credit under its revolving creditfacility will be sufficient to fund the Company’s operations and its revisedcapital expenditures, and meet its current annual debt service requirements ofapproximately $22 million for the remainder of the year. 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.

###### **Critical Accounting Policies and Estimates**

In preparing its consolidated financial statements, the Company followsaccounting principles generally accepted in the United States of America. Theapplication of these principles requires significant judgments or an estimationprocess that can affect the results of operations, financial position and cashflows of the Company, as well as the related footnote disclosures. The Companycontinually reviews its accounting policies and financial informationdisclosures. There have been no material changes in policies or estimates sinceDecember 31, 2005.

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###### **Item3. Quantitative and Qualitative Disclosures About Market Risk**

The market risk of the Company’s financial instruments as of June 30,2006 has not significantly changed since December 31, 2005. The market riskprofile of the Company on December 31, 2005 is disclosed in the Company’s 2005Annual Report on Form 10-K.

###### **Item 4. Controls and Procedures**

*(a) Evaluation of Disclosure Controls and Procedures*. As required each quarter, the Company’smanagement, with the participation of its Chief Executive Officer and ChiefFinancial Officer, have conducted an evaluation of the effectiveness ofdisclosure controls and procedures (as such term is defined in Rules 13a-15(e)and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of theend of the period covered by this quarterly report. Based on that evaluation,such officers have concluded that the disclosure controls and procedures areeffective.

*(b) Changes in Internal Controls.*There have been no changes in our internalcontrols over financial reporting during the most recent fiscal quarter thathave materially affected, or are reasonably likely to materially affect, ourinternal controls over financial reporting.

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

###### **Item 1. Legal Proceedings**

On April 24, 2006, a class action complaint was filed in the USDistrict Court for the Eastern District of Louisiana, on behalf of citizens ofLouisiana who suffered property damage from the waters that flooded New Orleansafter Hurricane Katrina hit the area. The suit names Great Lakes Dredge &Dock Company, along with numerous other dredging companies who have completedprojects on behalf of the Army Corps of Engineers in the Mississippi River GulfOutlet (“MRGO”), and the Federal government as defendants. The complaintalleges that dredging of MRGO caused the destruction of the Louisiana wetlandswhich provide a natural barrier against storms and hurricanes. This loss ofnatural barriers then contributed to the failure of the levees upon the impactof Hurricane Katrina which allowed the floodwaters to damage plaintiffs’property. Among other assertions is negligence in violation of the WaterPollution Control Act. The amount of damages is not stated but would bepresumed to be significant. The Company believes it has meritorious defensesand does not believe this claim will have a material adverse impact on thebusiness.

**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.

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###### **Item 6. Exhibits**

2.1                                 Agreement and Plan of Merger by and amongGLDD Acquisitions Corp., Aldabra Acquisitions Corporation and certainshareholders of Aldabra Acquisition Corporation and GLDD Acquisitions Corp.,dated as of June 20, 2006. *

31.1                           Certification Pursuant to Rules 13a-14 and15d-14 under the Securities Exchange Act of 1934, as Adopted Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002.

31.2                           Certification Pursuant to Rules 13a-14 and15d-14 under the Securities Exchange Act of 1934, as Adopted Pursuant toSection 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 of2002.

32.2         Certification Pursuant to 18 U.S.C.Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of2002.

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* Incorporated by reference to the Company’s Current Report on Form 8-Kfiled with the Commission on June 22, 2006

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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:  August 11, 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**                                                                                                                                             |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |       |                                                                                                                                                                 |
| 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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