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GREAT LAKES DREDGE & DOCK CORPORATION
LEADING INNOVATION
For the last 127 years, Great Lakes Dredge & Dock Corporation has been the leading provider of dredging services
in the United States. The Company is also the only U.S. contractor with an international presence, having worked
in the Middle East for over two decades. In addition to dredging services, the Company is also a full-service provider
of infrastructure solutions, including environmental remediation and geotechnical services. During 2017, Great
Lakes took delivery of the Ellis Island, a state-of-the-art articulated tug and barge trailing suction hopper dredge,
which at 15,000 cubic yards capacity is the largest in the United States market. With this significant addition to the
fleet as well as a revitalized strategy, the Company looks forward to continuing to provide safe and successful
project execution for our clients in the coming decades.
2017 ANNUAL REPORT |
Great Lakes’ new 15,000 cubic yard ATB hopper dredge, Ellis Island
FINANCIAL HIGHLIGHTS
(In thousands, except per share amounts)
2017
2016
2015
2014
2013
Revenue
$ 702,503
$ 767,585
$ 856,878
$ 806,831
$ 731,418
Adjusted EBITDA from continuing operations* (a)
$ 34,723
$ 71,961
$ 83,014
$ 77,087
$ 98,880
Income (loss) from continuing operations (a)
$ (18,563)
$ (8,177)
$ (6,189)
$ 20,718
$ 19,857
Diluted (loss) Earnings**
$
(0.30)
$
(0.13)
$
(0.10)
$
0.34
$
0.33
Total Assets
Net Debt***
$ 832,357
$ 893,588
$ 901,625
$ 893,234
$ 852,645
$ 415,047
$ 381,700
$ 342,196
$ 287,847
$ 209,662
* Discussion and reconciliation of adjusted EBITDA from continuing operations to net income (loss) attributable to Great Lakes Dredge & Dock is included under Item 7
of our 10-K. | **Diluted earnings per share attributable to income from continuing operations. | ***Net Debt represents outstanding debt less cash | (a) Excluding
restructuring charges, Adjusted EBITDA from continuing operations was $57,348 and income (loss) from continuing operations was ($534).
| PAGE 1
LETTER TO SHAREHOLDERS
2017 at Great Lakes continued to be a transformational
have both fully adopted the Incident and Injury-Free®
year—one marked by significant change for the Company.
program and we have implemented informational gath-
At the start of the year, we welcomed four new Directors,
erings and training sessions for our subcontractors and
including myself as incoming Chief Executive Officer.
vendors as they are an important part of ensuring safe
I started my new role on May 1st and since then we have
operations at all levels.
worked to provide the Company with a solid financial
and operational platform by completing the refinancing
of our long-term unsecured notes as well as formulating
and implementing a major restructuring plan, both turn-
ing the Company toward a profitable future.
Our new 15,000 cubic yard trailing suction hopper
dredge Ellis Island was delivered in November of 2017
and she immediately started work on her first project in
Mississippi. During the initial three months of operation,
she has continuously improved her performance towards,
When I joined the Company as Chief Executive Officer in
and at times exceeding, her design parameters. We are
May, we started an analysis of the Company’s strategy,
pleased to have the largest and most advanced trailing
which led to an overall and more extensive analysis of
suction hopper dredge added to the domestic fleet. With
the entire Company’s operations—in all segments and at
the Ellis Island, we have added 70% capacity to our
all levels. This review resulted in some tough decisions,
hopper fleet capacity. She will play a key role in ensur-
parting ways with loyal and hardworking employees as
ing our clients’ projects are completed on time and on
well as implementing a plan for rationalization of certain
budget, securing the future success of Great Lakes.
underutilized and unproductive vessels in our fleet that
did not meet the requirements of the future market. We
also completed the divestiture of our lagging Terra ser-
vices business. These changes put us in a good position
for the future, focusing on our core businesses in dredg-
ing and geotechnical construction and reducing our debt
to a more manageable level. With a healthier balance
sheet, we can then start the renewal of our dredging
fleet both in our domestic and international markets.
During 2017, we saw the domestic focus on port deep-
ening projects move into a priority position—with multiple
deepening projects bid in the latter half of 2017. We
were awarded both the Charleston I and Charleston II
projects during 2017—the latter of which, at $213 million,
was the largest United States Army Corps of Engineers’
dredging award in history. The project will take the chan-
nel and port depth down to 52 feet making Charleston
the deepest port on the East Coast. This project will
The safety of our employees will always be a key priority
enable the port to accommodate the new generation of
at Great Lakes. 2017 was the safest year in the Company’s
Panamax container vessels. We will complete the
127-year history, showing results from a deep commit-
Savannah port deepening project in early 2018 and
ment to improving safety throughout the Company. This
then focus our effort on the massive Charleston projects
commitment, however, never stops. It is every day,
as well as bidding additional port deepening opportuni-
everywhere and we must never become complacent in
ties in 2018.
our commitment and efforts to ensure that all our
employees are able to go home safely to their families
and friends after each working session. The dredging
and environmental and infrastructure (“E&I”) segments
The international dredging market continued to struggle
in 2017, following some very active years. The collapse in
the crude oil price in 2014 resulted in a strong pullback
2017 ANNUAL REPORT |
of new projects in the Middle East and other previously
both at the executive management and board level; we
active markets. In response to this situation, we have
have the Ellis Island hopper dredge in operation; and
closed our Brazil operations, reduced costs in the
we are fully focused and committed to executing our
Middle East operations and repositioned cutter dredge
restructuring plan. Our domestic market is solid and our
capacity back to the domestic market to support our
international market is showing signs of improvements.
Charleston Port Deepening projects and participate in
I am confident that 2018 will be seen as a year marked
the active domestic port deepening market. Our inter-
by significant positive change. We believe the actions
national project backlog is sufficient to keep our interna-
taken in 2017 combined with the market conditions will
tional fleet occupied in 2018 and we expect the
position the Company well for a profitable future where
international markets to improve starting in 2019.
investment of capital is done in a reasonable and pru-
Our E&I segment saw strong improvement in 2017 as a
dent fashion, creating strong value for our stakeholders.
result of the divestiture of the Terra services business
We are thankful to our stakeholders who have remained
assets in 2016. The segment also improved perfor-
loyal to us through a challenging time. Your commitment
mance on all but one project, which was impacted by
is appreciated, and on behalf of the executive leadership
unresolved site condition claims. This one project loss
team, as well as our Board of Directors, I can ensure
significantly impacted the overall performance of the
you that we remain focused on realizing the Company’s
segment in 2017. Going forward, E&I is focused on proj-
value for all of our stakeholders.
ect opportunities that align well with our core geotech-
nical expertise and we anticipate improved results in
this segment.
In conclusion, we have confidence that the changes we
have implemented in 2017 will position the Company
well for the future. We have new leadership in place
LASSE PETTERSON
Chief Executive Officer
| PAGE 3
Feather River West Levee project, Sutter County, California
2017 ANNUAL REPORT |
2017 FORM 10-K
GREAT LAKES DREDGE & DOCK CORPORATION
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2017
or
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number: 001-33225
Great Lakes Dredge & Dock Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
2122 York Road, Oak Brook, IL
(Address of principal executive offices)
20-5336063
(I.R.S. Employer
Identification No.)
60523
(Zip Code)
(630) 574-3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Class
Common Stock, (Par Value $0.0001)
Name of each exchange on which registered
Nasdaq Stock Market, LLC
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ‘ No È
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ No È
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past
90 days. Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. È
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer
‘
‘ (Do not check if a smaller reporting company)
Non-accelerated filer
Emerging growth company ‘
Accelerated filer
È
Smaller reporting company ‘
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No È
The aggregate market value of voting stock held by non-affiliates of the Registrant was $257,204,723 at June 30, 2017. The aggregate market value was computed
using the closing price of the common stock as of that date on the Nasdaq Stock Market. (For purposes of a calculating this amount only, all directors and executive
officers of the registrant have been treated as affiliates.)
As of February 23, 2018, 61,619,680 shares of Registrant’s Common Stock, par value $.0001 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part of 10-K
Part III
Documents Incorporated by Reference
Portions of the Proxy Statement to be filed with
the Securities and Exchange Commission in connection
with the 2018 Annual Meeting of Stockholders.
GREAT LAKES DREDGE &
FORM 10-K
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TABLE OF CONTENTS
PART I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
Item 15. Exhibits, Financial Statement Schedules
Item 16.
SIGNATURES
Form 10-K Summary
PART IV
i
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Cautionary Note Regarding Forward-Looking Statements
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Certain statements in this Annual Report on Form 10-K may constitute “forward-looking” statements as
defined in Section 27A of the Securities Act of 1933 (the “Securities Act”), Section 21E of the Securities
Exchange Act of 1934 (the “Exchange Act”), the Private Securities Litigation Reform Act of 1995 (the
“PSLRA”) or in releases made by the Securities and Exchange Commission (“SEC”), all as may be amended
from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other
important factors that could cause the actual results, performance or achievements of Great Lakes Dredge &
Dock Corporation and its subsidiaries (“Great Lakes”), or industry results, to differ materially from any future
results, performance or achievements expressed or implied by such forward-looking statements. Statements that
are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among
other things, the use of forward-looking language, such as the words “plan,” “believe,” “expect,” “anticipate,”
“intend,” “estimate,” “project,” “may,” “would,” “could,” “should,” “seeks,” or “scheduled to,” or other similar
words, or the negative of these terms or other variations of these terms or comparable language, or by discussion
of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the
Exchange Act and the PSLRA with the intention of obtaining the benefits of the “safe harbor” provisions of such
laws. Great Lakes cautions investors that any forward-looking statements made by Great Lakes are not
guarantees or indicative of future performance. Important assumptions and other important factors that could
cause actual results to differ materially from those forward-looking statements with respect to Great Lakes,
include, but are not limited to, risks and uncertainties that are described in Item 1A. “Risk Factors” of this
Annual Report on Form 10-K for the year ended December 31, 2017, and in other securities filings by Great
Lakes with the SEC.
Although Great Lakes believes that our plans, intentions and expectations reflected in or suggested by such
forward-looking statements are reasonable, actual results could differ materially from a projection or assumption
in any forward-looking statements. Great Lakes’ future financial condition and results of operations, as well as
any forward-looking statements, are subject to change and inherent risks and uncertainties. The forward-looking
statements contained in this Annual Report on Form 10-K are made only as of the date hereof and we do not have
or undertake any obligation to update or revise any forward-looking statements whether as a result of new
information, subsequent events or otherwise, unless otherwise required by law.
Availability of Information
You may read and copy any materials Great Lakes files with the SEC, including without limitation the
Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C.
20549. Copies of such materials also can be obtained at the SEC’s website, www.sec.gov or by mail from the
Public Reference Room of the SEC, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further
information on the Public Reference Room. Great Lakes’ SEC filings are also available to the public, free of
charge, on our corporate website, www.gldd.com, as soon as reasonably practicable after Great Lakes
electronically files such material with, or furnishes it to, the SEC.
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Part I
Item 1. Business
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The terms “we,” “our,” “ours,” “us,” “Great Lakes” and “Company” refer to Great Lakes Dredge & Dock
Corporation and its subsidiaries.
Organization
Great Lakes is the largest provider of dredging services in the United States and is the only U.S. dredging
service provider with significant international operations. The Company was founded in 1890 as Lydon & Drews
Partnership and performed its first project in Chicago, Illinois. The Company changed its name to Great Lakes
Dredge & Dock Company in 1905 and was involved in a number of marine construction and landfill projects
along the Chicago lakefront and in the surrounding Great Lakes region. Great Lakes now provides dredging
services in the East, West, and Gulf Coasts of the United States and worldwide. The Company also owns
specialty contracting service providers which primarily offer environmental, remediation and geotechnical
services throughout the United States.
The Company operates in two operating segments: dredging and environmental & infrastructure which are
also the Company’s reportable segments and reporting units. Financial information about the Company’s
reportable segments and operating revenues by geographic region is provided in Note 10, Income Taxes and Note
18, Segment Information, to the Company’s consolidated financial statements included in Item 15 of this Annual
Report on Form 10-K.
During the fourth quarter of 2016, the Company sold assets associated with certain service lines of the
environmental & infrastructure segment’s business, excluding assets supporting the remediation service line.
Dredging Operations (84% of 2017 total revenues)
Dredging generally involves the enhancement or preservation of navigability of waterways or the protection
of shorelines through the removal or replenishment of soil, sand or rock. Domestically, our work generally is
performed in coastal waterways and deep water ports. The U.S. dredging market consists of four primary types of
work: capital, coastal protection, maintenance and rivers & lakes. The Company’s “bid market” is defined as the
aggregate dollar value of domestic dredging projects on which the Company bid or could have bid if not for
capacity constraints or other considerations. The Company experienced an average combined bid market share in
the U.S. of 42% over the prior three years, including 61%, 39%, 27% and 38% of the domestic capital, coastal
protection, maintenance and rivers & lakes sectors, respectively.
Over its 127 year history, the Company has grown to be a leader in capital, coastal protection and
maintenance dredging in the U.S. and is one of the oldest and most experienced dredging companies in the
United States. In addition, the Company is the only U.S. dredging service provider with significant international
operations. Over the prior three years, foreign dredging operations accounted for an average of 18% of the
Company’s dredging revenues. The Company’s foreign projects are typically categorized in the capital work
type, but are not included in the aforementioned bid market.
Capital (domestic is 31% of 2017 dredging revenues). Capital dredging consists primarily of port expansion
projects, which involve the deepening of channels and berthing basins to allow access by larger, deeper draft
ships and the provision of land fill used to expand port facilities. In addition to port work, capital projects also
include coastal restoration and land reclamations, trench digging for pipelines, tunnels and cables, and other
dredging related to the construction of breakwaters, jetties, canals and other marine structures. Although capital
work can be impacted by budgetary constraints and economic conditions, these projects typically generate an
immediate economic benefit to the ports and surrounding communities.
2
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Foreign (7% of 2017 dredging revenues). Foreign capital projects typically involve land reclamations,
channel deepening and port infrastructure development. The Company targets foreign opportunities that are well
suited to the Company’s equipment and where it faces reduced competition from its European competitors.
Maintaining a presence in foreign markets has enabled the Company to diversify its customer base and take
advantage of differences in global economic development. Over the last ten years, the Company has performed
dredging work in the Middle East, Africa, Australia, the Caribbean and Central and South America.
Coastal protection (32% of 2017 dredging revenues). Coastal protection projects generally involve moving
sand from the ocean floor to shoreline locations where erosion threatens shoreline assets. Beach erosion is a
continuous problem that has intensified with the rise in coastal development and has become an important issue
for state and local governments concerned with protecting beachfront tourism and real estate. Coastal protection
via beach nourishment is often viewed as a better response to erosion than trapping sand through the use of sea
walls and jetties, or relocating buildings and other assets away from the shoreline. Generally, coastal protection
projects take place during the fall and winter months to minimize interference with bird and marine life migration
and breeding patterns as well as coastal recreation activities.
Maintenance (23% of 2017 dredging revenues). Maintenance dredging consists of the re-dredging of
previously deepened waterways and harbors to remove silt, sand and other accumulated sediments. Due to
natural sedimentation, many channels require maintenance dredging every one to three years, thus creating a
recurring source of dredging work that is typically non-deferrable if adequate commercial navigability is to be
maintained. In addition, severe weather such as hurricanes, flooding and droughts can also cause the
accumulation of sediments and drive the need for maintenance dredging.
Rivers & lakes (7% of 2017 dredging revenues). Domestic rivers and lakes dredging and related operations
typically consist of lake and river dredging, inland levee and construction dredging, environmental restoration
and habitat improvement and other marine construction projects. Although the Mississippi River has a large
source of projects on which the Company bids, certain dredges used on these projects are more portable and able
to be transported to take advantage of the fragmented market. In addition, many of our dredges can be
transported to sites of waterway environmental remediation work to assist our environmental & infrastructure
segment on projects. Generally, inland river and lake projects in the northern U.S. take place in non-winter
months because frozen waterways significantly reduce contractors’ ability to operate and transport its equipment
in the relevant geographies.
Dredging Demand Drivers
The Company believes that the following factors are important drivers of the demand for its dredging
services:
• Deep port capital projects. Most of the East Coast and Gulf ports have expansion plans that include
deepening and widening in order to better compete for international trade. International trade,
particularly in the intermodal container shipping business, is undergoing significant change as a result
of the Panama Canal expansion, which was completed in 2016. Many shipping lines have announced
plans to deploy larger ships which, due to the channel dimension requirements, currently would not be
able to use many U.S. ports. Miami’s port deepening project was completed in 2015 and its port
channels are now able to accommodate larger vessels. Dredging began on the Savannah Harbor
Expansion Project in 2015 and is expected to continue through 2018. The initial stages of mobilization
began on the Charleston entrance channel projects during 2017. Dredging is expected to commence in
2018 and continue through 2020. The ports of Los Angeles and Long Beach are resuming expansion
efforts to remain competitive with deepened East Coast ports. In addition, the Water Resources Reform
and Development Act (“WRRDA”) signed in the second quarter of 2014, authorized the U.S. Army
Corps of Engineers (the “Corps”) to begin dredging to deepen the Savannah River channel, noted
above, as well as initiate studies to deepen the ports in the Gulf Coast. During the fourth quarter of
3
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2016, the House and the Senate passed the water resources development bill, rebranded as the Water
Infrastructure Improvements for the Nation Act (“WIIN”), which includes the Water Resources
Development Act of 2016. The Company views the bill as a positive catalyst for the domestic dredging
industry as it authorizes nearly $16 billion in critical infrastructure improvements that are needed
throughout the U.S. Further, the bill authorizes studies for future water resources improvements and
makes modifications to previous authorizations. The Company is encouraged by the current
administration’s focus on repairing and rebuilding America’s infrastructure, including our nation’s
ports and waterways. The Company believes that port deepening and expansion work authorized under
current and anticipated future legislation will continue to provide significant opportunities for the
domestic dredging industry.
• Gulf coast restoration. There has been continued focus on restoring the barrier islands and wetlands
that provide natural protection from storms in the Gulf Coast area. Many restoration projects have
commenced to repair coastal areas. Several additional projects are being planned by state and local
governments to restore natural barriers. The State of Louisiana has completed a master plan calling for
a $50 billion investment in its coastal infrastructure, with a significant portion involving dredging.
Additionally, during October 2015, BP plc settled the final Deepwater Horizon oil spill claims for
approximately $20 billion. This amount reflects the preliminary agreement which was reached in the
second quarter of 2015 and includes $5.5 billion related to Clean Water Act penalties. Several state and
local governments have already reached agreements that resolve their claims in the disaster. Many of
the Gulf States previously committed to spending a portion of the fines received to repair the natural
resources impacted by the oil spill including on coastal restoration projects that include dredging.
Although the bulk of the fines are to be paid over the next decade, the Company expects several coastal
restoration projects envisioned by the Gulf States to come to fruition in the next couple of years
providing a new source of domestic capital dredging projects on which the Company will bid. The
annual bid market for domestic capital dredging, which includes deep port capital dredging and Gulf
Coast restoration, averaged $369 million over the prior three years. During 2017, the Company was
awarded an $88 million coastal restoration project in the Gulf of Mexico. This project commenced
dredging in 2017 and is expected to be completed in 2018.
•
Substantial need for coastal protection. Beach erosion is a recurring problem due to the normal ebb and
flow of coastlines as well as the effects of severe storm activity. Growing populations in coastal
communities and vital beach tourism are drawing attention to the importance of protecting beachfront
assets. Over the past few years, both the federal government and state and local entities have funded
beach work recognizing the essential role these natural barriers play in absorbing storm energy and
protecting public and private property. Superstorm Sandy highlighted the need for projects that clear
the navigation channels, renourish damaged beaches and mitigate shore erosion from future storms.
Since the beginning of 2013, the Corps has let for bid over $1 billion in projects to repair shorelines in
New York and New Jersey damaged as a result of Superstorm Sandy. During February 2018, the U.S.
Senate Committee on Appropriations announced the supplemental appropriations for disaster relief and
recovery which includes $17.4 billion for the Corps to fund projects that will reduce the risk of future
damage from flood and storm events. Although it is uncertain the impact that this will have on the
dredging market, the Company believes it is a positive indicator for work in the coastal protection and
restoration markets. The annual bid market for coastal protection over the prior three years averaged
$429 million.
• Required maintenance of U.S. ports. The channels and waterways leading to U.S. ports have stated
depths on which shippers rely when entering those ports. Due to naturally occurring sedimentation and
severe weather, active channels require maintenance dredging to ensure that stated depths are at
authorized levels. Consequently, the need to maintain channel depth creates a recurring source of
dredging work that is non-deferrable if optimal navigability is to be preserved. The Corps is
responsible for federally funded projects related to navigation and flood control of U.S. waterways. The
maritime industry, including the ports, has repeatedly advocated for congressional efforts to ensure that
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a fully funded, recurring maintenance program is in place. WIIN, previously mentioned, emphasizes
previous WRRDA language which calls for full use of Harbor Maintenance Trust Fund (“HMTF”) for
its intended purpose of maintaining future access to the waterways and ports that support our nation’s
economy. Further, WIIN ensures that Harbor Maintenance Tax (“HMT”) funding targets will increase
by 3 percent over the prior year, even if the HMT revenue estimates decrease, to continue annual
progress towards full use of the HMT by 2025. Through the increased appropriation of HMTF monies,
the Company anticipates an increase in harbor projects to be let for bid throughout 2018 and beyond.
The annual bid market for maintenance dredging over the prior three years averaged $355 million.
• Need to maintain safe navigability of the U.S. river system. There are over twelve thousand miles of
commercially navigable inland waterways that move more than 566 million tons of commercial goods
annually. Transportation by barge requires less energy, and therefore is both better for the environment
and costs less to move cargo than transportation by airplane, railcar or truck. Many industries rely on
safe navigability of U.S. inland waterways as a primary means to transport goods and commodities
such as coal, chemicals, petroleum, minerals, stones, metals and agricultural products. Natural
sedimentation and other circumstances require that the inland waterway system be periodically dredged
so that it can be used as intended. The Corps recognizes the need to maintain the safe navigability of
U.S. waterways. The annual bid market for rivers and lakes dredging over the prior three years
averaged $107 million.
• Domestic and international energy transportation. The growth in demand for transportation of energy
worldwide has driven the need for dredging to support new terminals, harbors, channels and pipelines.
During 2014, Great Lakes completed dredging work on a project that will create a new shipping
channel for a liquefied natural gas (“LNG”) terminal being developed to export abundant energy
resources from the west coast of Australia. The Company was awarded a contract with Corpus Christi
Liquefaction, LLC (“CCL”) during 2015. CCL is developing an LNG export terminal at a site located
on Corpus Christi Bay in Texas. Great Lakes’ portion of the LNG project involves the dredging and
slope protection of two LNG carrier ship berths, dredging of a material offloading and tug mooring
basin, and expansion of an existing La Quinta Channel turning basin. The significant drop in crude oil
prices in during recent years may lead to a slowdown in the development of LNG export plants;
however, the Company continues to expect that future global energy demand will necessitate
improvements in the infrastructure base around sources of rich resources and in countries that import
global energy.
• Middle East market. Over the past ten years, the Middle East has been a strong market for dredging
services. With substantial income from oil revenues and significant real estate development, these
countries have been undergoing extensive infrastructure expansion. Historically lower oil prices and
the contraction in Middle East commercial and real estate development have slowed the rate of the
region’s infrastructure development in recent years. Despite the decline in recent years, urban
development continues to drive the need for land reclamation in the Middle East and the Company
expects growth in the area over the next few years. During 2015, the Company completed the widening
and deepening of a portion of the Suez Canal which expanded the seaborne cargo capacity of this
important waterway.
Environmental & Infrastructure Operations (approximately 16% of 2017 total revenues)
The environmental & infrastructure segment provides construction services on soil, water and sediment for
clients in both the public and private sectors in the United States. The segment’s services include environmental
and geotechnical construction as well as soil, water and sediment environmental remediation for the state, local
and private party markets. Environmental and geotechnical construction includes the creation, repair or
stabilization of environmental barriers including slurry walls, in-situ stabilization, coal combustion residuals
pond cap and close, dam and levee rehabilitation, deep soil mixing and other specialty civil construction.
Remediation involves the containment, immobilization or removal of contamination from an environment
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through the use of any combination of isolation, treatment, or exhumation techniques including off-site disposal
based on the quantity and severity of the contamination. During the fourth quarter of 2016, the Company sold
assets associated with certain service lines of the environmental & infrastructure segment’s business, excluding
assets supporting the remediation service line. The environmental & infrastructure segment leverages the
Company’s long term history of successfully executing projects on water and to offer turnkey environmental and
infrastructure solutions in water and upland.
Environmental & Infrastructure Demand Drivers
The Company believes that the following factors are important drivers of the demand for its
environmental & infrastructure services:
•
Increasing requirements for environmental services. Both the dredging and environmental &
infrastructure businesses have experienced requests for handling contaminated sediments, soils and
other media at project sites. The Environmental Protection Agency (“EPA”) and several state agencies
have begun to recognize the environmental hazards posed by stored industrial byproducts near
waterways. The release of regulated pollutants into major waterways, inland lakes, groundwater and
public and private lands requires the use of environmental remediation to remove the contaminated
media.
• Government mandated remediation. The EPA mandates remediation initiatives that are paid for
partially or in whole by responsible parties. The capability to provide the environmental clean-up of not
only the waterway, but also the processing of the contaminated sediment or any contaminated soil from
other brownfield sites as well as services related to new federal regulations over the storage and
disposal of coal ash provides a targeted growth opportunity for Great Lakes. The Company anticipates
additional contracting opportunities arising from the transformation of the U.S. energy infrastructure,
specifically related to the remediation requirements as mandated by the EPA’s rule to regulate the
disposal of coal combustion residuals from electric utilities promulgated in June 2015.
•
Levee formation and repair. Levees play a crucial role in protecting against widespread flood damage;
however many levees throughout the U.S. are currently deficient and in need of repair. Approximately
100,000 miles of levees exist in the U.S. and the average age is 54 years. The impacts of climate
change, including increased storms and flooding, will drive the need for levee repair. During 2015,
2016 and 2017, the Company worked on levee projects in California. The Company will continue to
work on levee projects throughout 2018. The Company believes that levee formation and repair will
provide significant opportunities for the environmental & infrastructure segment over the next several
years.
For additional details regarding Dredging Operations and Environmental & Infrastructure Operations,
including financial information regarding our international and U.S. revenues and long-lived assets, see Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 8.
“Financial Statements and Supplementary Data” in this Annual Report on Form 10-K, including Note 18,
Segment Information, to the Company’s consolidated financial statements.
Customers
Dredging
The dredging industry’s customers include federal, state and local governments, foreign governments and
both domestic and foreign private concerns, such as utilities, oil and other energy companies. Most dredging
projects are competitively bid, with the award going to the lowest qualified bidder. Customers generally have few
economical alternatives to dredging services. The Corps is the largest dredging customer in the U.S. and has
responsibility for federally funded projects related to navigation and flood control. In addition, the U.S. Coast
Guard and the U.S. Navy are responsible for awarding federal contracts with respect to their own facilities. In
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2017, approximately 63% of the Company’s dredging revenues were generated from 40 different contracts with
federal agencies or third parties operating under contracts with federal agencies.
Environmental & infrastructure
Environmental & infrastructure customers include general contractors, corporations, Superfund potentially
responsible parties, environmental engineering and construction firms that commission projects and federal as
well as municipal government agencies. This segment benefits from key relationships with certain customers in
the general contracting and environmental engineering industries. In 2017, two of the environmental &
infrastructure segment’s customers were each responsible for approximately 12% of the environmental &
infrastructure segment’s annual revenues; however, the loss of either or both of these customers would not have a
material adverse effect on Great Lakes as a whole.
Bidding Process
Dredging
Most of the Company’s dredging contracts are obtained through competitive bidding on terms specified by
the party inviting the bid. The types of equipment required to perform the specified service, project site
conditions, the estimated project duration, seasonality, location and complexity of a project affect the cost of
performing the contract and the price that dredging contractors will bid.
For contracts under its jurisdiction, the Corps typically prepares a fair and reasonable cost estimate based on
the specifications of the project. To be successful, a bidder must be determined by the Corps to be a responsible
bidder (i.e., a bidder that generally has the necessary equipment and experience to successfully complete the
project as well as the ability to obtain a surety bid bond) and submit the lowest responsive bid that does not
exceed 125% of the Corps’ original estimate. Contracts for state and local governments are generally awarded to
the lowest qualified bidder. Contracts for private customers are awarded based on the contractor’s experience,
equipment and schedule, as well as price. While substantially all of the Company’s dredging contracts are
competitively bid, some government contracts are awarded through a sole source procurement process involving
negotiation between the contractor and the government, while other projects are bid by the Corps through a
“request for proposal” process. The request for proposal process benefits both Great Lakes and its customers as
customers can award contracts based on factors beyond price, including experience, skill and specialized
equipment.
Environmental & infrastructure
The majority of the environmental & infrastructure segment’s projects are secured through competitive
bidding. When the environmental & infrastructure segment bids on a project, it evaluates the contract
specifications and develops a cost estimate to which it adds an acceptable margin. While there are numerous
competitors in the environmental & infrastructure services market, the Company benefits from its size,
relationships and reputation. Therefore, there are occasions where the Company is not the lowest bidder on a
contract, but is still awarded the project based on its reputation and qualifications.
Bonding and Foreign Project Guarantees
Dredging
For most domestic projects and some foreign projects, dredging service providers are required to obtain
three types of bonds: bid bonds, performance bonds and payment bonds. These bonds are typically provided by
large insurance companies. A bid bond is required to serve as a guarantee so that if a service provider’s bid is
chosen, the service provider will sign the contract. The amount of the bond is typically 20% of the service
provider’s bid, with a range generally between $1 and $10 million. After a contract is signed, the bid bond is
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replaced by a performance bond, the purpose of which is to guarantee that the job will be completed. If the
service provider fails to complete a job, the bonding company would be required to complete the job and would
be entitled to be paid the contract price directly by the customer. Additionally, the bonding company would be
entitled to be paid by the service provider for any costs incurred in excess of the contract price. A service
provider’s ability to obtain performance bonds with respect to a particular contract depends upon the size of the
contract, as well as the size of the service provider and its financial position. A payment bond is required to
protect the service provider’s suppliers and subcontractors in the event that the service provider cannot make
timely payments. Payment bonds are generally written at 100% of the contract value.
The Company has bonding agreements with Argonaut Insurance Company, Berkley Insurance Company,
Chubb Surety and Liberty Mutual Insurance Company, (collectively, the “Sureties”) under which the Company
can obtain performance, bid and payment bonds. The Company also has outstanding bonds with Travelers
Casualty and Surety Company of America and Zurich American Insurance Company (“Zurich”). Great Lakes has
never experienced difficulty in obtaining bonding for any of its projects and Great Lakes has never failed to
complete a marine project in its 127 year history. For most foreign dredging projects, letters of credit or bank
guarantees issued by foreign banks are required as security for the bid, performance and, if applicable, advance
payment guarantees. The Company obtains its letters of credit under the Credit Agreement (as defined below).
Foreign bid guarantees are usually 2% to 5% of the service provider’s bid. Foreign performance and advance
payment guarantees are each typically 5% to 10% of the contract value.
Environmental & infrastructure
The environmental & infrastructure segment contracts with both private, non-governmental customers and
governmental entities and may be required to secure bonding for projects with both governmental entities and
non-governmental customers. The Sureties also provide bonds for the environmental & infrastructure segment.
Competition
Dredging
The U.S. dredging industry is highly fragmented with approximately 250 entities in the U.S. presently
operating more than 850 dredges, primarily in maintenance dredging. Most of these dredges are smaller and
service the inland, as opposed to coastal, waterways, and therefore do not generally compete with Great Lakes
except in our rivers & lakes market. Competition is determined by the size and complexity of the job; equipment
bonding and certification requirements; and government regulations. Competition on rivers & lakes projects is
determined primarily based on geographic reach, project execution capability and price. Great Lakes and three
other companies comprised approximately 81% of the Company’s defined bid market related to domestic capital,
coastal protection, maintenance and rivers & lakes over the prior three years. Within the Company’s bid market,
competition is determined primarily on the basis of price. In addition, the Foreign Dredge Act of 1906, or
“Dredging Act,” and Section 27 of the Merchant Marine Act of 1920, or “Jones Act,” provide significant barriers
to entry with respect to foreign competition. Together these two laws prohibit foreign-built, chartered or operated
vessels from competing in the U.S. See “Business—Government Regulations” below.
Competition in the international market is dominated by four large European dredging companies all of
which operate larger equipment and fleets that are more extensive than the Company’s fleet. Recently, a large
Chinese dredging company has emerged as a key player in the international market. In addition, there are several
governmentally supported dredging companies that operate on a local or regional basis. The Company targets
opportunities that are well suited to its equipment and where it can be most competitive. Most recently, the
Company has focused on opportunities in the Middle East where the Company has cultivated close customer
relationships and has pursued contracts compatible with the size of the Company’s vessels.
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The U.S. environmental & infrastructure and related services industry is highly fragmented and is comprised
mostly of small regional companies. For larger projects, the Company will occasionally bid against larger
engineering and construction firms. The environmental & infrastructure segment is able to perform both smaller
and larger, more complex projects. The ability to deliver a wide range of interdisciplinary capabilities under a
single project team is another competitive attribute.
Equipment
Dredging
Great Lakes’ fleet of dredges, material barges and other specialized equipment is the largest and most
diverse in the U.S. The Company operates three principal types of dredging equipment: hopper dredges,
hydraulic dredges and mechanical dredges.
Hopper Dredges. Hopper dredges are typically self-propelled and have the general appearance of an ocean-
going vessel. The dredge has hollow hulls, or “hoppers,” into which material is suctioned hydraulically through
drag-arms. Once the hoppers are filled, the dredge sails to the designated disposal site and either (i) bottom
dumps the material or (ii) pumps the material from the hoppers through a pipeline to a designated site. Hopper
dredges can operate in rough waters, are less likely than other types of dredges to interfere with ship traffic, and
can be relocated quickly from one project to another. Hopper dredges primarily work on coastal protection and
maintenance projects. The Company completed construction of a dual mode articulated tug/barge trailing suction
hopper dredge (“ATB”), which is the largest domestic hopper dredge, during the fourth quarter of 2017.
Hydraulic Dredges. Hydraulic dredges remove material using a revolving cutterhead which cuts and churns
the sediment on the channel or ocean floor and hydraulically pumps the material by pipe to the disposal location.
These dredges are very powerful and can dredge some types of rock. Certain dredged materials can be directly
pumped for miles with the aid of multiple booster pumps. Hydraulic dredges work with an assortment of support
equipment, which help with the positioning and movement of the dredge, handling of the pipelines and the
placement of the dredged material. Unlike hopper dredges, relocating hydraulic dredges and all their ancillary
equipment requires specialized vessels and additional time, and their operations can be impacted by ship traffic
and rough waters. There is a wide range of hydraulic dredges from our smaller rivers & lakes vessels that use
pipe sizes ranging from 10” to 22” and operate at between 365 and 3,200 total horsepower, while the Company’s
other hydraulic dredges use pipe sizes ranging from 18” to 36” and operate at between 1,900 and 16,650 total
horsepower.
Mechanical Dredges. There are two basic types of mechanical dredges: clamshell and backhoe. In both
types, the dredge uses a bucket to excavate material from the channel or ocean floor. The dredged material is
placed by the bucket into material barges, or “scows,” for transport to the designated disposal area. The scows are
emptied by bottom-dumping, direct pump-out or removal by a crane with a bucket. Mechanical dredges are
capable of removing hard-packed sediments, blasted rock and debris and can work in tight areas such as along
docks or terminals. Clamshell dredges with specialized buckets are ideally suited to handle material requiring
environmentally controlled disposal. Additionally, the Company owns an electric clamshell dredge which
provides an advantage in those markets with stringent emissions standards.
Scows. The Company has the largest fleet of material barges in the domestic industry, which provides cost
advantages when dredged material is required to be disposed far offshore or when material requires controlled
disposal. The Company uses scows with its hydraulic dredges and mechanical dredges. Scows are an efficient
and cost effective way to move material and increase dredging production. The Company has twelve scows in its
fleet with a capacity ranging from 5,000 to 8,800 cubic yards.
In addition, the Company has numerous pieces of smaller equipment that support its dredging operations.
Great Lakes’ domestic dredging fleet is typically positioned on the East and Gulf Coasts, with a smaller number
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of vessels occasionally positioned on the West Coast, and with many of the rivers & lakes dredges on inland
rivers and lakes. The mobility of the fleet enables the Company to move equipment in response to changes in
demand. Great Lakes’ fleet also includes vessels currently positioned in the Middle East.
The Company continually assesses its need to upgrade and expand its dredging fleet to take advantage of
improving technology and to address the changing needs of the dredging market. The Company is also
committed to preventive maintenance, which it believes is reflected in the long lives of most if its equipment and
its low level of unscheduled downtime on jobs. To the extent that market conditions warrant the expenditures,
Great Lakes can prolong the useful life of its vessels.
During 2017, management initiated a strategic review to improve the Company’s financial results in both
domestic and international operations. As a result of this review, management began execution of a plan to retire
certain underperforming and underutilized assets. The retirement of these underperforming and underutilized
assets is expected to be completed in 2018.
Certification of equipment by the U.S. Coast Guard and establishment of the permissible loading capacity
by the American Bureau of Shipping (“A.B.S.”) are important factors in the Company’s dredging business. Many
projects, such as coastal protection projects with offshore sand borrow sites and dredging projects in exposed
entrance channels or with offshore disposal areas, are restricted by federal regulations to be performed only by
dredges or scows that have U.S. Coast Guard certification and a load line established by A.B.S. The certifications
indicate that the dredge is structurally capable of operating in open waters. The Company has more certified
dredging vessels than any of the Company’s domestic competitors and makes substantial investments to maintain
these certifications.
Environmental & infrastructure
The environmental & infrastructure segment owns and operates a wide range of specialty equipment
commonly used for geotechnical slurry wall construction including long-stick excavators, slurry batch plants,
de-sanders, and jet shear mixers as well as a number of mixing augers utilized for in-situ stabilization. The group
also owns and operates specialized remediation equipment, including a fleet of tracked excavators, haul trucks,
dozers, and other earth moving equipment commonly used for remediation earthwork. Specialty demolition
attachments used to support facility remediation includes a limited number of shears, pulverizers, processors,
grapples and hydraulic hammers that facilitate processing of construction and demolition debris for recycling,
reclamation and disposal. The Company rents additional equipment on a project-by-project basis, which allows
the Company flexibility to adjust costs to the level of project activity.
Seasonality
Seasonality generally does not have a significant impact on the Company’s dredging operations. However,
many East Coast coastal protection projects are limited by environmental windows that require work to be
performed in winter months to protect wildlife habitats. The Company can mitigate the impact of these
environmental restrictions to a certain extent because the Company has the flexibility to reposition its equipment
to project sites, if available, that are not limited by these restrictions. In addition, rivers and lakes in the northern
U.S. freeze during the winter, significantly reducing the Company’s ability to operate and transport its equipment
in the relevant geographies. Fish spawning and flooding can affect dredging operations as well.
The Company’s environmental & infrastructure segment operates across a national footprint. Similar to the
dredging segment, the environmental & infrastructure segment’s projects are impacted by the freezing rivers and
lakes in the northern climates during the winter and by the rainy season on the rivers and levees along the West
Coast. The Company’s broad spectrum capability and geographical footprint should increasingly allow it to
pursue and execute work in the warmer southern climates, eventually diminishing the effects of weather related
seasonality.
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The Company’s ability to perform its contracts may depend on weather conditions. Inclement or hazardous
weather conditions can delay the completion of a project, can result in disruption or early termination of a
project, unanticipated recovery costs or liability exposure and additional costs. As part of bidding on fixed price
contracts, the Company makes allowances, consistent with historical weather data, for project downtime due to
adverse weather conditions. In the event that the Company experiences adverse weather beyond these
allowances, a project may require additional days to complete, resulting in additional costs and decreased gross
profit margins. Conversely, favorable weather can accelerate the completion of the project, resulting in cost
savings and increased gross profit margins. Typically, Great Lakes is exposed to significant weather in the first
and fourth quarters, and certain projects are required to be performed in environmental windows that occur
during these periods. See “Business-Seasonality” above.
Weather is difficult to predict and historical records exist for only the last 100-125 years. Changes in
weather patterns may cause a deviation from project weather allowances on a more frequent basis and
consequently increase or decrease gross profit margin, as applicable, on a project-by-project basis. In a typical
year, the Company works on many projects in multiple geographic locations and experiences both positive and
negative deviations from project weather allowances. Accordingly, it is unlikely that future climate change will
have a material adverse effect on the Company’s results of operations.
Backlog
The Company’s contract backlog represents its estimate of the revenues that will be realized under the
portion of the contracts remaining to be performed. For dredging contracts these estimates are based primarily
upon the time and costs required to mobilize the necessary assets to and from the project site, the amount and
type of material to be dredged and the expected production capabilities of the equipment performing the work.
For environmental & infrastructure contracts, these estimates are based on the time and remaining costs required
to complete the project, relative to total estimated project costs and project revenues agreed to with the applicable
customer. However, these estimates are necessarily subject to variances based upon actual circumstances.
Because of these factors, as well as factors affecting the time required to complete each job, backlog is not
always indicative of future revenues or profitability. In addition, a significant amount of the Company’s dredging
backlog relates to federal government contracts, which can be canceled at any time without penalty, subject to
the Company’s right, in some cases, to recover the Company’s actual committed costs and profit on work
performed up to the date of cancellation. The Company’s backlog may fluctuate significantly from quarter to
quarter based upon the type and size of the projects the Company is awarded from the bid market. A quarterly
increase or decrease of the Company’s backlog does not necessarily result in an improvement or a deterioration
of the Company’s business. The Company’s backlog includes only those projects for which the Company has
obtained a signed contract with the customer. The components of the Company’s backlog including dollar
amount and other related information are addressed in more detail in Item 7. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Bidding Activity and Backlog.”
Employees
Dredging
At December 31, 2017, the Company employed 380 full-time salaried personnel in the U.S., including those
in a corporate function. In addition, the Company employs U.S. hourly personnel, most of whom are unionized,
on a project-by-project basis. Crews are generally available for hire on relatively short notice. During 2017, the
Company employed an average of approximately 650 hourly personnel to meet domestic project requirements.
At December 31, 2017, the Company employed 10 expatriates, 37 foreign nationals and 50 local staff to
manage and administer its Middle East operations. During 2017, the Company also employed a daily average of
104 hourly personnel to meet project requirements in the Middle East.
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At December 31, 2017, the environmental & infrastructure segment employed 95 full-time salaried
administrative employees, in addition to an average of approximately 100 hourly employees, some of whom are
unionized. The hourly employees are hired on a project-by-project basis and are generally available for hire on
relatively short notice.
Safety
Safety of its employees is one of the Company’s core values. The Company employs behavioral and system
based programs, with both the dredging and the environmental & infrastructure segments utilizing an Incident &
Injury Free® (IIF) approach. The Company’s safety culture is committed to training, behavioral based awareness
and mutual responsibility for the wellbeing of its employees. The Company’s goal is sustainable safety excellence.
Incident prevention in all areas have top priority in the Company’s business planning, in the overall conduct of its
business, and in the operation and maintenance of our equipment (marine and land) and facilities.
Unions
The Company is a party to numerous collective bargaining agreements in the U.S. that govern its
relationships with its unionized hourly workforce. However, two unions represent a large majority of our
dredging employees—the International Union of Operating Engineers (“IUOE”), Local 25 and the Seafarers
International Union. The Company’s contracts with IUOE, Local 25 expire in September 2018. Our agreements
with Seafarers International Union expire in February 2023. The Company has not experienced any major labor
disputes in the past five years and believes it has good relationships with the unions that represent a significant
number of its hourly employees; however, there can be no assurances that the Company will not experience labor
strikes or disturbances in the future.
Government Regulations
The Company is subject to government regulations pursuant to the Dredging Act, the Jones Act, the
Shipping Act, 1916, or “Shipping Act,” and the vessel documentation laws set forth in Chapter 121 of Title 46 of
the United States Code. These statutes require vessels engaged in dredging in the navigable waters of the United
States to be documented with a coastwise endorsement, to be owned and controlled by U.S. citizens, to be
manned by U.S. crews, and to be built in the United States. The U.S. citizen ownership and control standards
require the vessel-owning entity to be at least 75% U.S. citizen owned and prohibit the chartering of the vessel to
any entity that does not meet the 75% U.S. citizen ownership test.
Environmental Matters
The Company’s operations, facilities and vessels are subject to various environmental laws and regulations
related to, among other things: dredging operations; the disposal of dredged material; protection of wetlands;
storm water and waste water discharges; demolition activities; asbestos removal; transportation and disposal of
wastes and materials; air emissions; and remediation of contaminated soil, sediments, surface water and
groundwater. The Company is also subject to laws designed to protect certain marine species and habitats.
Compliance with these statutes and regulations can delay appropriation and/or performance of particular projects
and increase related project costs. Non-compliance can also result in fines, penalties and claims by third parties
seeking damages for alleged personal injury, as well as damages to property and natural resources.
Certain environmental laws such as the U.S. Comprehensive Environmental Response, Compensation and
Liability Act of 1980, and the Oil Pollution Act of 1990 impose strict and, under some circumstances joint and
several, liability on owners and operators of facilities and vessels for investigation and remediation of releases
and discharges of regulated materials, and also impose liability for related damages to natural resources. The
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Company’s past and ongoing operations involve the use, and from time to time the release or discharge, of
regulated materials which could result in liability under these and other environmental laws. The Company has
remediated known releases and discharges as deemed necessary, but there can be no guarantee that additional
costs will not be incurred if, for example, third party claims arise or new conditions are discovered.
The Company’s projects may involve remediation, demolition, excavation, transportation, management and
disposal of hazardous waste and other regulated materials. Various laws strictly regulate the removal, treatment
and transportation of hazardous water and other regulated materials and impose liability for human health effects
and environmental contamination caused by these materials. The Company takes steps to limit its potential
liability by hiring qualified subcontractors from time to time to remove such materials from our projects, and
some project contracts require the client to retain liability for hazardous waste generation.
Based on the Company’s experience and available information, the Company believes that the future cost of
compliance with existing environmental laws and regulations (and liability for known environmental conditions)
will not have a material adverse effect on the Company’s business, financial position, results of operations or
cash flows. However, the Company cannot predict what environmental legislation or regulations will be enacted
in the future, how existing or future laws or regulations will be enforced, administered or interpreted, or the
amount of future expenditures that may be required to comply with these environmental or health and safety laws
or regulations or to respond to newly discovered conditions, such as future cleanup matters or other
environmental claims.
Executive Officers of the Registrant
The following table sets forth the names and ages of all of the Company’s executive officers and the positions
and offices presently held by them.
Name
Lasse J. Petterson
Mark W. Marinko
David E. Simonelli
Christopher P. Shea
Kathleen M. LaVoy
Age
Position
61 Chief Executive Officer and Director
56 Chief Financial Officer and Senior Vice President
61
55
38
President—Dredging Division
President—Environmental & Infrastructure Division
Senior Vice President, Chief Legal Officer and Corporate
Secretary
Lasse J. Petterson, Chief Executive Officer and Director
Mr. Petterson has served as Chief Executive Officer (“CEO”) since May 2017. Mr. Petterson most recently
has served as a private consultant to clients in the Oil & Gas sector and served as Chief Operating Officer
(“COO”) and Executive Vice President at Chicago Bridge and Iron (“CB&I”) from 2009 to 2013. Reporting
directly to the CEO, he was responsible for all of CB&I’s engineering, procurement and construction project
operations and sales. Prior to CB&I, Mr. Petterson was CEO of Gearbulk, Ltd., a privately held company that
owns and operates one of the largest fleets of gantry craned open hatch bulk vessels in the world. He was also
President and COO of AMEC Inc. Americas, a subsidiary of AMEC plc, a British multinational consulting,
engineering and project management company. Prior to joining AMEC, Mr. Petterson served in various
executive and operational positions for Aker Maritime, Inc., the deepwater division of Aker Maritime ASA of
Norway over the course of 20 years. He spent the first nine years of his career in various positions at Norwegian
Contractors, an offshore oil & gas platform contractor. Mr. Petterson holds both master’s and bachelor’s degrees
from the Norwegian University of Technology.
Mark W. Marinko, Chief Financial Officer and Senior Vice President
Mr. Marinko has served as Senior Vice President and Chief Financial Officer since June 2014. Mr. Marinko
was most recently President of the Consumer Services division at TransUnion leading the direct to consumer and
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business market, customer service, consumer compliance and marketing for the credit information company.
Prior to his position as President, Mr. Marinko has been in increasing accounting and financial roles as Controller
and Vice President of Finance at TransUnion since 1996. Prior to TransUnion, Mr. Marinko served as controller
of Official Airline Guides. In his over 30 years of professional experience, Mr. Marinko has held roles
specializing in accounting, finance, sales, systems and business operations. Mr. Marinko earned a Bachelor of
Arts degree in Accounting and Business Administration from Augustana College.
David E. Simonelli, President—Dredging Division
Mr. Simonelli was named President—Dredging Division in April 2010. Mr. Simonelli has overall
responsibility for the Dredging Division which includes safety, estimating, engineering, domestic and
international operations and plant and equipment. He was named a Vice President of the Company in 2002 and
Special Projects Manager in 1996. He joined the Company in 1978 as a Civil Engineer and has since held
positions of increasing responsibility in domestic and international operations and project management.
Mr. Simonelli earned a Bachelor of Science degree in Civil and Environmental Engineering from the University
of Rhode Island. He is a member of the Hydrographic Society, the American Society of Civil Engineers and the
Western Dredging Association.
Christopher P. Shea, President—Environmental & Infrastructure Division
Mr. Shea was named President—Environmental & Infrastructure Division in November 2015. Mr. Shea has
overall responsibility for the Environmental & Infrastructure Division. He has over 25 years of experience in
global engineering, environmental services and construction management services. Prior to joining Great Lakes,
Mr. Shea was at CH2M Hill, Inc., a global environmental and engineering consulting services firm, where he was
most recently President of the Environmental and Nuclear Business Group. Prior to his nine year tenure at CH2M
Hill, Mr. Shea was employed by Envirocon, Inc. as Senior Vice President of Business Development and Strategic
Planning. Mr. Shea started his career at Waste Management (formerly Chemical Waste Management) in 1986.
He received a BS in Chemistry from the University of Arizona.
Kathleen M. LaVoy, Senior Vice President, Chief Legal Officer and Corporate Secretary
Ms. LaVoy was appointed Senior Vice President, Chief Legal Officer and Corporate Secretary in January
2018. Previously, Ms. LaVoy served as our Interim Chief Legal Officer and Corporate Secretary since November
2015. Ms. LaVoy was appointed Vice President and General Counsel, Dredging Operations in July 2012. She
joined the Company in 2007 as Assistant General Counsel. Ms. LaVoy received her J.D. cum laude from
Northwestern University School of Law and was an associate in the litigation department of the Chicago law firm
Winston & Strawn LLP following graduation. Ms. LaVoy earned a Bachelor of Science degree with distinction
in Business Administration from the University of North Carolina—Chapel Hill.
Item 1A. Risk Factors
The following risk factors address the material risks and uncertainties concerning our business. You should
carefully consider the following risks and other information contained or incorporated by reference into this
Annual Report on Form 10-K when evaluating our business and financial condition and an investment in our
common stock. Should any of the following risks or uncertainties develop into actual events, such developments
could have material adverse effects on our business, financial condition, cash flows or results of operations. We
have grouped our Risk Factors under captions that we believe describe various categories of potential risk. For
the reader’s convenience, we have not duplicated risk factors that could be considered to be included in more
than one category.
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Risks Related to our Business
We depend on our ability to continue to obtain federal government dredging and other contracts, and are
therefore impacted by the amount of government funding for dredging and other projects. A reduction in
government funding for dredging or other contracts, or government cancellation of such contracts, could
materially adversely affect our business operations, revenues and profits.
A substantial portion of our revenue is derived from federal government contracts, particularly dredging
contracts. Revenues related to dredging contracts with federal agencies or companies operating under contracts
with federal agencies and the percentage as a total of dredging revenue for the years ended December 31, 2017,
2016 and 2015 were as follows:
Year Ended December 31,
2017
2016
2015
Federal government dredging revenue (in US $1,000)
Percent of dredging revenue from federal government
$375,276
$409,942
$437,072
63%
64%
64%
Amounts spent by the federal government on dredging and environmental and infrastructure are subject to
the budgetary and legislative processes. We would expect the federal government to continue to improve and
maintain ports as it has for many years, which will necessitate a certain level of federal spending. However, there
can be no assurance that the federal government will allocate any particular amount or level of funds to be spent
on dredging or environmental projects for any specified period.
In addition, potential contract cancellations, modifications, protests, suspensions or terminations may arise
from resolution of these issues and could cause our revenues, profits and cash flows to be lower. Federal
government contracts can be canceled at any time without penalty to the government, subject to, in most cases,
our contractual right to recover our actual committed costs and profit on work performed up to the date of
cancellation. Accordingly, there can be no assurance that the federal government will not cancel any federal
government contracts that have been or are awarded to us. Even if a contract is not cancelled, the government
may elect to not award further work pursuant to a contract. A significant reduction in government funding for
dredging or remediation contracts, could materially adversely affect our business, operations, revenues and
profits.
We depend on our ability to qualify as an eligible bidder under government contract criteria and to compete
successfully against other qualified bidders in order to obtain government dredging and other contracts. Our
inability to qualify or to compete successfully for certain contracts could materially adversely affect our
business operations, revenues and profits.
The U.S. government and various state, local and foreign government agencies conduct rigorous
competitive processes for awarding many contracts. Some contracts include multiple award task order contracts
in which several contractors are selected as eligible bidders for future work. We will face strong competition and
pricing pressures for any additional contract awards from the U.S. government and other domestic and foreign
government agencies, and we may be required to qualify or continue to qualify under various multiple award task
order contract criteria. Our inability to qualify as an eligible bidder under government contract criteria could
preclude us from competing for certain government contract awards. In addition, our inability to qualify as an
eligible bidder, or to compete successfully when bidding for certain government contracts and to win those
contracts, could materially adversely affect our business, operations, revenues and profits.
The nature of our contracts, particularly those that are fixed-price, subjects us to risks associated with cost
over-runs, operating cost inflation and potential claims for liquidated damages. If we are unable to accurately
estimate our costs to complete our projects, our profitability could suffer.
We conduct our business under various types of contracts where costs are estimated in advance of our
performance. Most dredging contracts are fixed-price contracts where the customer pays a fixed price per unit
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(e.g., cubic yard) of material dredged. In addition, most of our environmental and infrastructure contracts carry
similar risks as compared to our fixed-price dredging contracts that may be increased due to the fact that
environmental and infrastructure contracts may not involve projects where we have historical knowledge at the
same location or specific prior experience to draw from when estimating cost. Fixed-price contracts carry
inherent risks, including risks of losses from underestimating costs, operational difficulties, and other changes
that can occur over the contract period. In 2017, we experienced delays as a result of Hurricanes Harvey, Irma,
Maria and Jose, which caused work stoppages in the impacted areas. If our estimates prove inaccurate, if there
are errors or ambiguities as to contract specifications, or if circumstances change due to, among other things,
unanticipated conditions or technical problems, difficulties in obtaining permits or approvals, changes in local
laws or labor conditions, inclement or hazardous weather conditions, changes in cost of equipment or materials,
or our suppliers’ or subcontractor’s inability to perform, then cost over-runs and delays in performance are likely
to occur. We may not be able to obtain compensation for additional work performed or expenses incurred, or
may be delayed in receiving necessary approvals or payments. Additionally, we may be required to pay
liquidated damages upon our failure to meet schedule or performance requirements of our contracts. Our failure
to accurately estimate the resources and time required for fixed-price contracts or our failure to perform our
contractual obligations within the expected time frame and costs could result in reduced profits or, in certain
cases, a loss for that contract. If we were to significantly underestimate the costs on one or more significant
contracts, the resulting losses could have a material adverse effect on our business, operating results, cash flows
or financial condition.
Our results of operations depend on the award of new contracts and the timing of the performance of these
contracts. As a result, our quarterly and annual operating results may vary significantly.
Our quarterly and annual results of operations have fluctuated from period to period in the past and may
continue to fluctuate in the future. Accordingly, you should not rely on the results of any past quarter or quarters
as an indication of future performance in our business operations or valuation of our stock. Our operating results
could vary greatly from period to period due to factors such as:
•
•
•
•
•
•
the timing of contract awards and the commencement or progress of work under awarded contracts;
inclement or hazardous weather conditions that may result in underestimated delays in dredging or
environmental, disruption or early termination of projects, unanticipated recovery costs or liability
exposure, and additional contract expenses;
planned and unplanned equipment downtime;
our ability to recognize revenue from pending change orders, which is not recognized until the
recovery is probable and collectability is reasonably assured;
environmental restrictions requiring that certain projects be performed in winter months to protect
wildlife habitats; and
equipment mobilization to and from projects.
If our results of operations from quarter to quarter fail to meet the expectations of public market analysts
and investors, our stock price could be negatively impacted. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Primary Factors that Determine Operating Profitability.”
If we fail to comply with government contracting regulations, our revenue could suffer, and we could be
subject to significant potential liabilities.
Our contracts with federal, state local and foreign governmental customers are subject to various
procurement regulations and contract provisions. These regulations also subject us to examinations by
government auditors and investigators, from time to time, to ensure compliance and to review costs. Violations
of government contracting regulations could result in the imposition of civil and criminal penalties, which could
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include termination of contracts, forfeiture of profits, imposition of payments and fines and suspension or
debarment from future government contracting. If we fail to continue to qualify for or are suspended from work
under a government contract for any reason, we could suffer a material adverse effect on our business, operating
results, cash flows or financial condition.
In addition, we may be subject to litigation brought by private individuals on behalf of the government
relating to our government contracts, referred to in this annual report as “qui tam” actions, which could include
claims for up to treble damages. Qui tam actions are sealed by the court at the time of filing. The only parties
privy to the information in the complaint are the complainant, the U.S. government and the court. Therefore, it is
possible that qui tam actions have been filed against us and that we are not aware of such actions or have been
ordered by the court not to discuss them until the seal is lifted. Thus, it is possible that we are subject to liability
exposure arising out of qui tam actions.
We are subject to risks related to our international dredging operations.
Revenue from foreign contracts and its percentage to total dredging revenue for the years ended December 31,
2017, 2016 and 2015 were as follows:
Year Ended December 31,
2017
2016
2015
Foreign revenue (in US $1,000)
Percent of dredging revenue from foreign countries
$42,306
$59,413
$139,945
7%
9%
21%
The international dredging market is highly competitive and competition in the international market is
dominated by four large European dredging companies, all of which operate larger equipment and fleets that are
more modern and extensive than the Company’s. In addition, there are several governmentally supported
dredging companies that operate on a local or regional basis. Competing for international dredging projects
requires a substantial investment of resources, skilled personnel and capital investment in equipment and
technology, and may adversely affect our ability to deploy resources for domestic dredging projects.
International operations subject us to additional potential risks, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
uncertainties concerning import and export license requirements, tariffs and other trade barriers;
political and economic instability and risks of terrorist activities;
reduced demand as a result of fluctuations in the price of oil, the primary export in the Middle East;
difficulties in enforcing contractual rights and agreements through certain foreign legal systems;
requirements of, and changes in, foreign laws, policies and regulations;
local licensing, permitting and royalty issues, particularly with respect to our overseas operations in
Bahrain and the Middle East;
difficulties in staffing and managing international operations without additional expense;
taxation issues;
greater difficulty in accounts receivable collection and longer collection periods;
compliance with the U.S. Foreign Corrupt Practices Act and international anticorruption laws;
currency fluctuations;
logistical and communication challenges; and
inability to effectively insure against political, cultural and economic uncertainties, including acts of
terrorism, civil unrest, war or other armed conflict.
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In addition, our international operations are subject to U.S. and other laws and regulations regarding
operations in foreign jurisdictions. These numerous and sometimes conflicting laws and regulations include anti-
boycott laws, anti-competition laws, anti-corruption laws, tax laws, immigration laws, privacy laws and
accounting requirements. There is a risk that some provisions may be breached, for example through
inadvertence or mistake, fraudulent or negligent behavior of individual employees or of agents, or failure to
comply with certain formal documentation requirements or otherwise. Violations of these laws and regulations
could result in fines and penalties, criminal sanctions against us, our officers, or our employees, prohibitions on
the conduct of our business and on our ability to operate in one or more countries, and could have a material
adverse effect on our business, results of operations or financial condition. In addition, military action, terrorist
activities or continued unrest in the Middle East could affect the safety of our personnel in the region and
significantly increase the costs of, or disrupt our operations in, the region and could have a material adverse
effect on our business, operating results, cash flows or financial condition.
A significant portion of our international revenue is earned from large, single customer contracts.
The Company earns significant revenue from governmental entities and private parties in the Middle East.
Revenue from foreign projects has been concentrated in the Middle East which comprised 97%, 89% and 90% of
our foreign dredging revenues in the years ended December 31, 2017, 2016 and 2015, respectively. A large,
single customer contract represented 76% of the Company’s foreign dredging revenue from all sources in the
year ended December 31, 2017. The Company continues to maintain significant equipment in the Middle East
region and continues to pursue additional contracts in the region.
Certain factors have occurred suggesting that future revenues from projects with governments in the Middle
East could decrease. Historically lower oil prices and the contraction in Middle East commercial and real estate
development have slowed the rate of the region’s infrastructure development. If the diplomatic relationship of the
United States or our commercial relationship with governments in the Middle East is significantly negatively
impacted or terminated, or we encounter significant difficulties in obtaining licensing or permits to do business in
these countries, the Company’s international revenues would be materially and adversely impacted. If the
government of Bahrain or Saudi Arabia further curtails its infrastructure investment or diversifies its use of
dredging vendors, our revenue from these customers could decline further.
Other Middle East governments have national dredging companies and may be incentivized to use the
national dredging company of another Middle East government or have significant history with competitive
dredging vendors other than the Company. The Company could lose future contracts for work in the Middle East
to these competitors or could be forced to accept lower margins on contracts in order to utilize the equipment that
is located in the Middle East. In addition, the Company may be forced to shrink the workforce in place or
relocate dredging assets from this region in reaction to lower contract earnings. Lower utilization, workforce
reductions or asset relocations could have a material adverse effect on our business, operating results, cash flows
or financial condition.
Regional instability in the Middle East may adversely affect business conditions and may disrupt our
operations.
Saudi Arabia, Bahrain and other Middle East countries have experienced political turbulence in the recent
past. Political uprisings and conflicts, including armed hostilities and civil unrest, may affect the political
stability of the region. In addition, there has been a decline in the relationships between and amongst certain
governments in the Middle East, such as continued conflicts between Saudi Arabia and Iran and the boycott of
Qatar by Saudi Arabia, United Arab Emirates, Bahrain, and Egypt.
Deterioration in the political, economic, and social conditions or other relevant policies of the government,
such as changes in laws or regulations, export restrictions, expropriation of our assets or resource nationalization,
could materially and adversely affect our business, access to markets, financial condition, and results of
operations. Similar civil unrest and political turbulence has occurred in other countries in the region.
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In addition, such events may affect plans for infrastructure investment. If the government changes or
significant restrictions are established, our dredging operations in the Middle East, including the value of our
assets related to such operations, may be adversely affected.
Our financial results include certain estimates and assumptions that may differ from actual results.
In preparing our consolidated financial statements in conformity with accounting principles generally
accepted in the United States, a number of estimates and assumptions are made by management that affect the
amounts reported in the financial statements. These estimates and assumptions must be made because certain
information that is used in the preparation of our financial statements is either dependent on future events or
cannot be calculated with a high degree of precision from available data. In some instances, these estimates are
particularly uncertain and we must exercise significant judgment. Estimates are primarily used in our assessment
of the recognition of revenue for costs and estimated earnings under the percentage of completion method of
accounting as discussed above, the fair value of reporting units for goodwill impairment analysis, the assessment
of impairment of intangibles and other long-lived assets, the purchase price allocations of businesses acquired,
accrued insurance claims, income taxes, asset lives used in computing depreciation and amortization, stock-based
compensation expense for performance-based stock awards, and accruals for contingencies, including legal
matters. At the time they are made, we believe that such estimates are fair when considered in conjunction with
our consolidated financial position and results of operations taken as a whole. However, actual results could
differ from those estimates and such differences may be material to our financial statements.
Lapses in disclosure controls and procedures or internal control over financial reporting could materially and
adversely affect our operations, profitability or reputation.
There can be no assurance that our disclosure controls and procedures will be effective in the future or that
we will not experience a material weakness or significant deficiency in internal control over financial reporting.
Any such lapses or deficiencies may materially and adversely affect our business, operating results, cash flows or
financial condition, restrict our ability to access the capital markets, require us to expend significant resources to
correct the lapses or deficiencies, expose us to regulatory or legal proceedings, including litigation brought by
private individuals, subject us to fines, penalties or judgments, harm our reputation, or otherwise cause a decline
in investor confidence and our stock price.
Many of our contracts have penalties for late completion.
In many instances, including in our fixed-price contracts, we guarantee that we will complete a project by a
scheduled date. If we subsequently fail to complete the project as scheduled, we may be liable for any customer
losses resulting from such delay, generally in the form of contractually agreed-upon liquidated damages. In
addition, failure to maintain a required schedule could cause us to default on our government contracts, giving
rise to a variety of potential damages. To the extent that these events occur, the total costs of the project could
exceed our original estimates, and we could experience reduced profits or, in some cases, a loss for that project.
Force majeure events, including natural disasters and terrorists’ actions, could negatively impact our
business, which may affect our business, operations, revenues, cash flows and profits.
Force majeure or extraordinary events beyond the control of the contracting parties, such as natural and
man-made disasters, as well as terrorist actions, could negatively impact the economies in which we operate. We
typically negotiate contract language where we are allowed certain relief from force majeure events in private
client contracts and review and attempt to mitigate force majeure events in both public and private client
contracts. We remain obligated to perform our services after most extraordinary events subject to relief that may
be available pursuant to a force majeure clause.
If a contract contains a force majeure provision, we may be able to obtain an extension of time to complete
our obligations under such contract, but we will still be subject to our other contractual obligations in the event of
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such an extraordinary event. Because we cannot predict the length, severity or location of any potential force
majeure event, it is not possible to determine the specific effects any such event may have on us. Depending on
the specific circumstances of any particular force majeure event, or if we are unable to react quickly to such an
event, our operations may be affected significantly, our productivity may be affected, our ability to complete
projects in accordance with our contractual obligations may be affected, our payments from customers may be
delayed and we may incur increased labor and materials costs, which could have a negative impact on our
financial condition, relationships with customers or suppliers, and our reputation.
The amount of our estimated backlog is subject to change and not necessarily indicative of future revenues.
Our contract backlog represents our estimate of the revenues that we will realize under the portion of the
contracts remaining to be performed. For dredging contracts these estimates are based primarily upon the time
and costs required to mobilize the necessary assets to and from the project site, the amount and type of material
to be dredged and the expected production capabilities of the equipment performing the work. For environmental
and infrastructure contracts, these estimates are based on the time and remaining costs required to complete the
project relative to total estimated project costs and project revenues agreed to with the customer. However, these
estimates are necessarily subject to variances based upon actual circumstances. From time to time, changes in
project scope may occur with respect to contracts reflected in our backlog and could reduce the dollar amount of
our backlog and the timing of the revenue and profits that we actually earn. Projects may remain in our backlog
for an extended period of time because of the nature of the project and the timing of the particular services or
equipment required by the project.
Because of these factors, as well as factors affecting the time required to complete each job, backlog is not
necessarily indicative of future revenues or profitability. In addition, a significant amount of our dredging
backlog (81% in 2017) relates to federal government contracts, which can be canceled at any time without
penalty to the government, subject, in most cases, to our contractual right to recover our actual committed costs
and profit on work performed up to the date of cancellation.
Below is our dredging backlog from federal government contracts as of December 31, 2017, 2016, and 2015
and the percentage of those contracts to total backlog as of the same date.
Year Ended December 31,
2017
2016
2015
Federal government dredging backlog (in US $1,000)
Percentage of dredging backlog from federal government
$413,678
$269,362
$357,619
81%
58%
53%
At times we may have backlog with foreign governments that use local laws and regulations to change terms
of a contract in backlog or to limit our ability to receive payment on a timely basis. Other contracts in backlog are
with state and local municipalities or private companies that may have funding constraints or impose restrictions
on timing. The termination, modification or suspension of projects currently in backlog could have a material
adverse effect on our business, operating results, cash flows or financial condition.
Our business would be adversely affected if we failed to comply with Section 27 of the Merchant Marine Act of
1920 (the “Jones Act”) provisions on coastwise trade, or if those provisions were modified or repealed.
We are subject to the Jones Act and other federal laws that restrict dredging in U.S. waters and maritime
transportation between points in the United States to vessels operating under the U.S. flag, built in the
United States, at least 75% owned and operated by U.S. citizens and manned by U.S. crews. We are responsible
for monitoring the ownership of our common stock to ensure compliance with these laws. If we do not comply
with these restrictions, we would be prohibited from operating our vessels in the U.S. market, and under certain
circumstances we would be deemed to have undertaken an unapproved foreign transfer, resulting in severe
penalties, including permanent loss of U.S. dredging rights for our vessels, fines or forfeiture of the vessels.
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In the past, interest groups have unsuccessfully lobbied Congress to modify or repeal the Jones Act to
facilitate foreign flag competition for trades and cargoes currently reserved for U.S. flag vessels under the Jones
Act. We believe that continued efforts may be made to modify or repeal the Jones Act or other federal laws
currently benefiting U.S. flag vessels. If these efforts are ever successful, it could result in significantly increased
competition and have a material adverse effect on our business, results of operations, cash flows or financial
condition.
Our dependence on petroleum-based products increases our costs as the prices of such products increase,
which could adversely affect our business, operations, revenues and profits.
Fuel prices fluctuate based on market events outside of our control. We use diesel fuel and other petroleum-
based products to operate our equipment used in our dredging and environmental and infrastructure contracts.
Fluctuations in supplies relative to demand and other factors can cause unanticipated increases in their cost. Most
of our contracts do not allow us to adjust our pricing for higher fuel costs during a contract term and we may be
unable to secure price increases reflecting rising costs when renewing or bidding contracts. Future increases in
the costs of fuel and other petroleum-based products used in our business, particularly if a bid has been submitted
for a contract and the costs of those products have been estimated at amounts less than the actual costs thereof,
could result in a lower profit, or even a loss, on one or more contracts.
If we are unable, in the future, to obtain bonding or letters of credit for our contracts, our ability to obtain
future contracts will be limited, thereby adversely affecting our business, operating results, cash flows or
financial condition.
We are generally required to post bonds in connection with our domestic dredging or environmental
contracts and bonds or letters of credit with our foreign dredging contracts to ensure job completion if we ever
fail to finish a project. We have entered into bonding agreements with Argonaut Insurance Company, Berkley
Insurance Company, Chubb Surety and Liberty Mutual Insurance Company (collectively, the “Sureties”) to
which the Sureties act as surety, issue bid bonds, performance bonds and payment bonds, and provide guarantees
required by us in the day-to-day operations of our dredging business. The Company also has outstanding bonds
with Travelers Casualty and Surety Company of America and Zurich. However, under certain circumstances as
specified in the agreement, Zurich is not obligated under the Zurich Bonding Agreement to issue future bonds for
us. Historically, we have had a strong bonding capacity, but surety companies issue bonds on a project-by-project
basis and can decline to issue bonds at any time or require the posting of collateral as a condition to issuing any
bonds. With respect to our foreign dredging business, we generally obtain letters of credit under our Credit
Agreement. However, access to our senior credit facility under our Credit Agreement may be limited by failure
to meet certain levels of availability or other defined financial or other requirements. If we are unable to obtain
bonds or letters of credit on terms reasonably acceptable to us, our ability to take on future work would be
severely limited.
In connection with the sale of our historical demolition business, we were obligated to keep in place the
surety bonds on pending demolition projects for the period required under the respective contract for a project. In
2017, we were notified by Zurich of an alleged default triggered on a historical demolition surety performance
bond in the aggregate amount of approximately $20 million for failure of the contractor to perform in accordance
with the terms of a project. Zurich drew upon the letter of credit in the amount of $20.9 million. In order to fund
the draw on the letter of credit, we had to increase the borrowings on our revolving credit facility. As the
outstanding letters of credit previously reduced our availability under the revolving credit facility, this draw
down on our letter of credit did not impact our liquidity or capital availability. However, in the future, other
defaults (or alleged defaults) triggered under any of our surety bonds could have a material adverse effect on our
business, results of operations, cash flows or financial condition.
21
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Donnelley Financial
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Capital expenditures and other costs necessary to operate and maintain our vessels tend to increase with the
age of the vessel and may also increase due to changes in governmental regulations, safety or other equipment
standards, which could result in a decrease in our profits.
Capital expenditures and other costs necessary to operate and maintain our vessels tend to increase with the
age of the vessel. Accordingly, it is likely that the operating costs of our vessels will increase.
The average age of our more significant vessels as of December 31, 2017, by equipment type, is as follows:
Type of Equipment
Hydraulic Dredges
Hopper Dredges
Mechanical Dredges
Unloaders
Drillboats
Material and Other Barges
Total
Average
Age in
Years
Quantity
12
5
3
1
1
110
132
34
25
35
33
33
27
28
Remaining economic life has not been presented because it is not reasonably quantifiable because, to the
extent that market conditions warrant the expenditures, we can prolong the vessels’ lives. In our domestic
market, we operate in an industry where a significant portion of our competitors’ equipment is of a similar age. It
is common in the dredging industry to make maintenance and capital expenditures in order to extend the
economic life of equipment.
In addition, changes in governmental regulations, safety or other equipment standards, as well as
compliance with standards imposed by maritime self-regulatory organizations, standards imposed by vessel
classification societies and customer requirements or competition, may require us to make additional
expenditures. For example, if the U.S. Coast Guard enacts new standards, we may be required to incur
expenditures for alterations or the addition of new equipment (e.g. more fuel efficient engines). Other new
standard requirements could be significant. In order to satisfy any such requirement, we may need to take our
vessels out of service for extended periods of time, with corresponding losses of revenues.
We may experience equipment or mechanical failures, which could increase costs, reduce revenues and result
in penalties for failure to meet project completion requirements.
The successful performance of contracts requires a high degree of reliability of our vessels, barges and other
equipment. The average age of our marine fleet as of December 31, 2017 was 28 years. Breakdowns not only add
to the costs of executing a project, but they can also delay the completion of subsequent contracts, which are
scheduled to utilize the same assets. We operate a scheduled maintenance program in order to keep all assets in
good working order, but despite this, breakdowns can and do occur and may result in loss of revenue.
We may not realize all of the expected benefits from our restructuring activities.
In October 2017, we announced that we were executing a restructuring plan that would allow us to focus on
reducing debt, improving return on capital and enhancing our fleet (the “Restructuring Plan”). Actual total costs,
savings, benefits and timing of the Restructuring Plan may vary from our estimates. We therefore cannot ensure that
we will achieve the targeted savings or other benefits. Numerous factors may limit the extent to which the
anticipated benefits are realized. Unanticipated costs or unrealized savings in connection with the Restructuring
Plan could adversely affect our results of operations and financial condition, as well as our likelihood of realizing,
and the amount of, expected restructuring charges to be realized in connection with the Restructuring Plan.
22
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FORM 10-K
Donnelley Financial
ADGP64RS28
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Our current business strategy may include acquisitions which present certain risks and uncertainties. There
are integration and consolidation risks associated with acquisitions. Future acquisitions may result in
significant transaction expenses, unexpected liabilities and risks associated with entering new markets, and we
may be unable to profitably operate these businesses.
We may seek business acquisition activities as a means of broadening our offerings and capturing additional
market opportunities by our business units. We may be exposed to certain additional risks resulting from these
activities. Acquisitions may expose us to operational challenges and risks, including:
•
•
•
•
•
•
•
•
•
•
•
•
the effects of valuation methodologies which may not accurately capture the value proposition;
the failure to integrate acquired businesses into our operations, financial reporting and controls with the
efficiency and effectiveness initially expected resulting in a potentially significant detriment to our
financial results and our operations as a whole;
the management of the growth resulting from acquisition activities;
the inability to capitalize on expected synergies;
the assumption of liabilities of an acquired business (for example, litigation, tax liabilities,
environmental liabilities), including liabilities that were contingent or unknown at the time of the
acquisition and that pose future risks to our working capital needs, cash flows and the profitability of
related operations;
the assumption of unprofitable projects that pose future risks to our working capital needs, cash flows
and the profitability of related operations;
the risks associated with entering new markets;
diversion of management’s attention from our existing business;
failure to retain key personnel, customers or contracts of any acquired business;
potential adverse effects on our ability to comply with covenants in our existing debt financing;
potential impairment of acquired intangible assets; and
additional debt financing, which may not be available on attractive terms.
We may not have the appropriate management, financial or other resources needed to integrate any
businesses that we acquire. Any future acquisitions may result in significant transaction expenses and unexpected
liabilities.
We may in the future incur liabilities in connection with the disposition of our historical demolition business.
On April 24, 2014, the Company announced that it had completed the sale of its historical demolition
business. In connection with the sale, the Company retained responsibility for various pre-closing liabilities and
obligations and may incur costs and expenses related to these items and asset recoveries. It is possible that
claims, which could be material, could be made against the Company pursuant to the agreement pursuant to
which the Company’s historical demolition business was sold. In connection with the sale of our historical
demolition business, we were obligated to keep in place the surety bonds on pending demolition projects for the
period required under the respective contract for a project. As noted above, if there should be a default (or
alleged default) triggered under any of such surety bonds, it could have a material adverse effect on our ability to
obtain bonds and on our business, results of operations, cash flows or financial condition.
Our realignment, integration, and divestiture activities may not be sufficient to bring our environmental &
infrastructure segment back to profitability and could affect our project resourcing capabilities.
We acquired Terra in December 2012 and Magnus in November 2014. In 2015, we initiated activities in the
environmental & infrastructure segment to align costs with anticipated revenues and improve project execution.
23
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Donnelley Financial
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These realignment activities continued in 2016 and culminated in the divestiture of certain assets associated with
the service lines of the Terra unit. There can be no assurance that we will meet our cost reduction goals, although
we currently believe that we will, or that our goals were aggressive enough in the context of the segment’s needs
to reduce expenses. Moreover, we may lose key personnel during the process and that could have a negative
impact on our ability to deliver projects and, consequently, on our results of operations. In addition, following the
divestiture, the Company retained responsibility for various pre-closing liabilities and obligations and may incur
costs and expenses related to these items. In connection with the divestiture, the Company retained responsibility
for the collection of certain accounts receivable and work in progress that, if uncollected, may have a negative
effect on the Company’s cash flows or financial condition.
We continue to remain subject to risks and uncertainties associated with the environmental & infrastructure
segment and the incurrence of additional indebtedness to fund the Magnus acquisition. There could be additional
delays, disruptions or other unexpected challenges that arise in connection with our realignment activities which
could make it difficult to realize the expected benefits of the acquisitions. We currently have a substantial amount
of indebtedness, and if the environmental & infrastructure segment does not generate the earnings or cash flow
we expect, our liquidity and ability to continue to service our indebtedness could be adversely impacted. There
can be no assurance that we may not discover information that could affect our expectations of the
environmental & infrastructure segment’s ability to generate earnings and cash flow on a going forward basis. If
the environmental & infrastructure segment’s future results are different from the historical results provided to us
during the acquisition process, our results of operations or liquidity could be adversely affected.
Moreover, although we completed the acquisitions because we believe that they will be beneficial to us and
our stockholders, there is no assurance that we will be able to realign or integrate the operations of the
environmental & infrastructure segment into our operations and achieve these benefits without encountering
unexpected difficulties, including unanticipated costs, difficulty in retaining customers, challenges associated
with information technology integration and failure to retain key employees.
We could face liabilities and/or damage to our reputation as a result of certain legal and regulatory
proceedings.
From time to time, we are subject to legal and regulatory proceedings in the ordinary course of our business.
These include proceedings relating to aspects of our businesses that are specific to us and proceedings that are
typical in the businesses in which we operate. We are currently a defendant in a number of litigation matters,
including those described in Item 3. “Legal Proceedings” of this Annual Report on Form 10-K. In certain of these
matters, the plaintiffs are seeking large and/or indeterminate amounts of damages. These matters are subject to
many uncertainties, and it is possible that some of these matters could ultimately be decided, resolved or settled
adversely to the Company. An adverse outcome in a legal or regulatory matter could, depending on the facts,
have an adverse effect on our business, results of operations, cash flows or financial condition.
In addition to its potential financial impact, legal and regulatory matters can have a significant adverse
reputational impact. Allegations of improper conduct made by private litigants or regulators, whether the ultimate
outcome is favorable or unfavorable to us, as well as negative publicity and press speculation about us, whether
valid or not, may harm our reputation, which may be damaging to our business, results of operations, cash flows
or financial condition.
Our current business strategy includes the construction of new vessels. There are substantial uncertainties
associated with such construction, including the possibility of unforeseen delays and cost overruns.
We have previously disclosed our plans to build new vessels, including an ATB trailing suction hopper
dredge, which is now in full operation. As the Company previously disclosed, the ATB experienced some delays
in operation due to mechanical issues involving the port side gearbox. Although the ATB is now in operation,
other unknown mechanical or engineering issues involving the ATB, or other mechanical or engineering issues
24
GREAT LAKES DREDGE &
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Donnelley Financial
VDI-W7-PR3-1050
12.6.28
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involving other new vessels, could adversely affect the Company’s business, operating results, cash flows or
financial condition. Our future revenues and profitability will also be impacted to some extent by our ability to
secure financing for new vessels and bring them into service within the timeline anticipated by the Company.
The Company contracts with shipyards to build new vessels and currently has vessels under construction.
Construction projects are subject to risks of delay and cost overruns, resulting from shortages of equipment,
materials and skilled labor; lack of shipyard availability; unforeseen design and engineering problems; work
stoppages; weather interference; unanticipated cost increases; unscheduled delays in the delivery of material and
equipment; and financial and other difficulties at shipyards including labor disputes, shipyard insolvency and
inability to obtain necessary certifications and approvals. A significant delay in the construction of new vessels
or a shipyard’s inability to perform under the construction contract could negatively impact the Company’s
ability to fulfill contract commitments and to realize timely revenues with respect to vessels under construction.
Significant cost overruns or delays for vessels under construction could also adversely affect the Company’s
business, operating results, cash flows or financial condition. Changes in governmental regulations, safety or
other equipment standards, as well as compliance with standards imposed by maritime self-regulatory
organizations and customer requirements or competition, could also substantially increase the cost of such
construction beyond what we currently expect such costs to be.
We may become liable for the obligations of our joint ventures, partners and subcontractors.
Some of our projects are performed through joint ventures and similar arrangements with other parties. In
addition to the usual liability of contractors for the completion of contracts and the warranty of our work, if work
is performed through a joint venture or similar arrangement, we also have potential liability for the work
performed by the joint venture or arrangement or a performance or payment default by another member of the
joint venture or arrangement. In these projects, even if we satisfactorily complete our project responsibilities
within budget, we may incur additional unforeseen costs due to the failure of the other party or parties to the
arrangement to perform or complete work, fund expenditures, or make payments in accordance with contract
specifications. In some joint ventures and similar arrangements, we may not be the controlling member. In these
cases, we may have limited control over the actions of the joint venture. In addition, joint ventures or
arrangements may not be subject to the same requirements regarding internal controls and internal control over
financial reporting that we follow. To the extent the controlling member makes decisions that negatively impact
the joint venture or arrangement or internal control problems arise within the joint venture or arrangement, it
could have a material adverse impact on our business, results of operations, cash flows or financial condition.
Depending on the nature of work required to complete the project, we may choose to subcontract a portion
of the project. In our industries, the prime contractor is often responsible for the performance of the entire
contract, including subcontract work. Thus, we are subject to the risk associated with the failure of one or more
subcontractors to perform as anticipated. In addition, in some cases, we pay our subcontractors before our
customers pay us for the related services. If we choose, or are required, to pay our subcontractors for work
performed for customers who fail to pay, or delay paying us for the related work, we could experience a material
decrease in profitability and liquidity.
Environmental regulations could force us to incur capital and operational costs.
Our industries, and more specifically, our operations, facilities and vessels and equipment, are subject to
various environmental laws and regulations relating to, among other things: dredging operations; the disposal of
dredged material; protection of wetlands; storm water and waste water discharges; environmental and infrastructure
activities; asbestos removal; transportation and disposal of hazardous wastes and other regulated materials; air
emissions; and disposal or remediation of contaminated soil, sediments, surface water and groundwater. We are also
subject to laws designed to protect certain marine or land species and habitats. Compliance with these statutes and
regulations can delay permitting and/or performance of particular projects and increase related project costs. These
delays and increased costs could have a material adverse effect on our business, results of operations, cash flows or
financial condition. Non-compliance can also result in fines, penalties and claims by third parties seeking damages
for alleged personal injury, as well as damages to property and natural resources.
25
GREAT LAKES DREDGE &
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Donnelley Financial
VDI-W7-PR3-1050
12.6.28
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Certain environmental laws such as the U.S. Comprehensive Environmental Response, Compensation and
Liability Act of 1980 and the Oil Pollution Act of 1990 impose strict and, under some circumstances, joint and
several, liability on owners and lessees of land and facilities as well as owners and operators of vessels. Such
obligations may include investigation and remediation of releases and discharges of regulated materials, and also
impose liability for related damages to natural resources. Our past and ongoing operations, particularly the
environmental and remediation operations of Terra and Magnus, involve the use, and from time to time the
release or discharge, of regulated materials which could result in liability under these and other environmental
laws. We have remediated known releases and discharges as deemed necessary, but there can be no guarantee
that additional costs will not be incurred if, for example, third party claims arise or new conditions are
discovered.
Our projects may involve excavation, remediation, demolition, transportation, management and disposal of
hazardous waste and other regulated materials. Various laws strictly regulate the removal, treatment and
transportation of hazardous waste and other regulated materials and impose liability for human health effects and
environmental contamination caused by these materials. Our environmental and infrastructure business
conducted by Terra and Magnus, for example, requires us to transport and dispose of hazardous substances and
other wastes, such as asbestos. Services rendered in connection with hazardous substance and material removal
and site development may involve professional judgments by licensed experts about the nature of soil conditions
and other physical conditions, including the extent to which hazardous substances and materials are present, and
about the probable effect of procedures to mitigate problems or otherwise affect those conditions. If the
judgments and the recommendations based upon those judgments are incorrect, we may be liable for resulting
damages, which may be material. The failure of certain contractual protections to protect us from incurring such
liability, such as staying out of the ownership chain for hazardous waste and other regulated materials and
securing indemnification obligations from our customers or subcontractors, could have a material adverse effect
on our business, results of operations, revenues or profits.
Environmental requirements have generally become more stringent over time, for example in the areas of air
emissions controls for vessels and ballast treatment and handling. New or stricter enforcement of existing laws,
the discovery of currently unknown conditions or accidental discharges of regulated materials in the future could
cause us to incur additional costs for environmental matters which might be significant.
Uncertainty regarding fiscal, immigration, and other policies of the current U.S. Presidential administration
or the impact of the Tax Cuts and Jobs Act may adversely affect our business.
The current U.S. Presidential administration has called for changes to fiscal, immigration and other policies,
which may include changes to infrastructure spending. We cannot predict the impact, if any, of these changes to
our business. Until we know what changes are enacted and when, we will not know whether in total we benefit
from, or are negatively affected by, such changes. In addition, the Company may not realize any expected
benefits associated with, and could be negatively impacted by, final implementation of the Tax Cuts and Jobs
Act.
Our business could suffer in the event of a work stoppage by our unionized labor force.
We are a party to numerous collective bargaining agreements in the U.S. that govern our industry’s
relationships with our unionized hourly workforce. However, two unions represent approximately 70% of our
hourly dredging employees—the International Union of Operating Engineers (“IUOE”), Local 25 and the
Seafarers International Union. The Company’s contracts with IUOE, Local 25 expire in September 2018. Our
agreements with Seafarers International Union expire in February 2023. The inability to successfully renegotiate
contracts with these unions as they expire, or any future strikes, employee slowdowns or similar actions by one
or more unions could have a material adverse effect on our ability to operate our business.
26
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Donnelley Financial
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Our employees are covered by federal laws that may provide seagoing employees remedies for job-related
claims in addition to those provided by state laws.
Substantially all of our maritime employees are covered by provisions of the Jones Act, the U.S. Longshore
and Harbor Workers’ Compensation Act, the Seaman’s Wage Act and general maritime law. These laws
typically operate to make liability limits established by state workers’ compensation laws inapplicable to these
employees and to permit these employees and their representatives to pursue actions against employers for
job-related injuries in federal or state courts. Because we are not generally protected by the limits imposed by
state workers’ compensation statutes with respect to our seagoing employees, we have greater exposure for
claims made by these employees as compared to industries whose employees are not covered by these provisions.
Our business is subject to significant operating risks and hazards that could result in damage or destruction to
persons or property, which could result in losses or liabilities to us.
The dredging and environmental and infrastructure businesses are generally subject to a number of risks and
hazards, including environmental hazards, industrial accidents, encountering unusual or unexpected geological
formations, cave-ins below water levels, collisions, disruption of transportation services and flooding. These
risks could result in personal injury, damage to, or destruction of, dredges, barges transportation vessels, other
maritime vessels, other structures, buildings or equipment, environmental damage, performance delays, monetary
losses or legal liability to third parties. We may also be exposed to disruption of our operations, early termination
of projects, unanticipated recovery costs and loss of use of our equipment that may materially adversely affect
our business, results of operations, cash flows or financial condition.
Our safety record is an important consideration for our customers. Some of our customers require that we
maintain certain specified safety record guidelines to be eligible to bid for contracts with these customers.
Furthermore, contract terms may provide for automatic termination or forfeiture of some of our contract revenue
in the event that our safety record fails to adhere to agreed-upon guidelines during performance of the contract.
As a result, if serious accidents or fatalities occur or our safety record was to deteriorate, we may be ineligible to
bid on certain work, and existing contracts could be terminated or less profitable than expected. Adverse
experience with hazards and claims could have a negative effect on our reputation with our existing or potential
new customers and our prospects for future work.
Our methods of accounting for recognizing revenue involve significant estimates and could result in a change
in previously recorded revenue and profit.
We recognize revenue on our projects using generally accepted accounting principles in the United States
(“GAAP”) including the percentage-of-completion method prior to December 31, 2017 and guidance from
Revenue from Contracts with Customers, as amended (commonly referred to as ASC 606) subsequent to
year-end. The majority of our work is performed on a fixed-price basis. Contract revenue is recorded over time
based on estimates which we develop from information known to us at the time of recording, but which may
change. The cumulative impact of revisions to estimates is reflected in the period in which these changes are
experienced or become known. Given the risks associated with the variables in these types of estimates, it is
possible for actual costs to vary from estimates previously made, which may result in reductions or reversals of
previously recorded net revenues and profits.
Our current insurance coverage may not be adequate, and we may not be able to obtain insurance at
acceptable rates, or at all.
We maintain various insurance policies, including hull and machinery, pollution liability, general liability
and personal injury. We partially self-insure risks covered by our policies. While we reserve for such self-insured
exposures when appropriate for accounting purposes, we are not required to, and do not, specifically set aside
funds for the self-insured portion of claims. We may not have insurance coverage or sufficient insurance
27
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Donnelley Financial
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coverage for all exposures potentially arising from a project. Furthermore, in situations where there is insurance
coverage, if multiple policies are involved, we may be subject to a number of self-retention or deductible
amounts which in the aggregate could have an adverse effect on our business, results of operations, cash flows or
financial condition. At any given time, we are subject to Jones Act personal injury claims and claims from
general contractors and other third parties for personal injuries. Our insurance policies may not be adequate to
protect us from liabilities that we incur in our business. We may not be able to obtain similar levels of insurance
on reasonable terms, or at all. Our inability to obtain such insurance coverage at acceptable rates or at all could
have a material adverse effect on our business, results of operations, cash flows or financial condition.
We could face adverse consequences if we are unable to attract and retain key personnel and skilled labor.
Our ability to attract and retain reliable, qualified personnel is a significant factor that enables us to
successfully bid for and profitably complete our work. This includes members of our board of directors,
management, project managers, estimators, skilled engineers, supervisors, foremen, equipment operators and
laborers. The loss of the services of any of our management could have a material adverse effect on us. If we do
not succeed in retaining our current key employees and attracting, developing and retaining new highly-skilled
employees, our reputation may be harmed and our operations and future earnings may be negatively impacted.
We may not be able to maintain an adequate skilled labor force necessary to operate efficiently and to support
our growth strategy. We have from time to time experienced, and may in the future experience, shortages of
certain types of qualified equipment operating personnel. The supply of experienced engineers, project managers,
field supervisors and other skilled workers may not be sufficient to meet current or expected demand. If we are
unable to hire employees with the requisite skills, we may also be forced to incur significant training expenses.
The occurrence of any of the foregoing could have an adverse effect on our business, results of operations, cash
flows or financial condition.
In addition, any abrupt changes in our management or board of directors may lead to concerns regarding the
direction or stability of our business, which may be exploited by our competitors, result in the loss of business
opportunities, cause concern to our current or potential customers or suppliers, or make it more difficult to retain
existing personnel or attract and retain new personnel. Changes in management or the board could be time-
consuming, result in significant additional costs to us and could be disruptive of our operations and divert the
time and attention of management and our employees away from our business operations and executing on our
strategic plan. The unexpected loss of any additional members of our Board of Directors or senior management
team could be disruptive to our operations, jeopardize our ability to raise additional funding and have an adverse
effect on our business. The failure of our directors or any new members of our Board of Directors or
management to perform effectively could have a significant negative impact on our business, financial condition
and results of operations.
We rely on information technology systems to conduct our business and disruption, failure or security
breaches of these systems could adversely affect our business and results of operations.
We rely on information technology (IT) systems in order to achieve our business objectives. Our portfolio
of hardware and software products, solutions and services and our enterprise IT systems may be vulnerable to
damage or disruption caused by circumstances beyond our control such as catastrophic events, power outages,
natural disasters, computer system or network failures, computer viruses, cyber attacks or other malicious
software programs. The failure or disruption of our IT systems to perform as anticipated for any reason could
disrupt our business and result in decreased performance, significant remediation costs, transaction errors, loss of
data, processing inefficiencies, downtime, failure to properly estimate the work or costs associated with projects,
litigation and the loss of customers or suppliers. A significant disruption or failure could have a material adverse
effect on our business, operating results, cash flows or financial condition. We are incurring costs associated with
designing and implementing a new enterprise resource planning software system (ERP) with the objective of
gradually migrating to the new system. Capital expenditures and expenses for the ERP for 2018 and beyond will
depend upon the pace of conversion. If implementation is not executed successfully, this could result in business
28
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interruptions. If we do not complete the implementation of the ERP timely and successfully, we may incur
additional costs associated with completing this project and a delay in our ability to improve existing operations,
support future growth and enable us to take advantage of new engineering and other applications and
technologies.
We may be affected by market or regulatory responses to climate change.
Increased concern about the potential impact of greenhouse gases (GHG), such as carbon dioxide resulting
from combustion of fossil fuels, on climate change has resulted in efforts to regulate their emission. Legislation,
international protocols, regulation or other restrictions on GHG emissions could also affect our customers. Such
legislation or restrictions could increase the costs of projects for our customers or, in some cases, prevent a
project from going forward, thereby potentially reducing the need for our services which could in turn have a
material adverse effect on our operations and financial condition. Additionally, in our normal course of
operations, we use a significant amount of fossil fuels. The costs of controlling our GHG emissions or obtaining
required emissions allowances in response to any regulatory change in our industry could increase materially.
We may be unable to identify and contract with qualified Minority Business Enterprise (“MBE”) or
Disadvantaged Business Enterprise (“DBE”) contractors to perform as subcontractors.
Certain of our government agency projects contain goals for minimum MBE and/or DBE participation
clauses. If we subsequently fail to reach our goals for the minimum MBE and/or DBE participation, we may be
held responsible for breach of contract, which may include restrictions on our ability to bid on future projects as
well as monetary damages. To the extent we are responsible for monetary damages, the total costs of the project
could exceed our original estimates, we could experience reduced profits or a loss for that project and there could
be a material adverse impact to our financial position, results of operations, cash flows and liquidity.
Risks Related to our Financing
We have indebtedness, which makes us more vulnerable to adverse economic and competitive conditions.
We currently have a substantial amount of indebtedness. As of (i) December 31, 2017, we had indebtedness
of $420.0 million, consisting of $325.0 million of our senior subordinated notes and $95.0 million of borrowings
on our revolving credit facility, in each case excluding approximately $34.3 million of undrawn letters of credit
and $76.8 million of additional borrowing capacity under our revolving credit facility and excluding contingent
obligations, including $1.3 billion of performance bonds outstanding under the Company’s Zurich Bonding
Agreement and agreements with the Sureties. Our debt could:
•
•
•
•
•
require us to dedicate a portion of our cash flow from operations to payments on our indebtedness,
thereby reducing the availability of our cash flow to fund working capital and capital expenditures, pay
dividends and other general corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and our industries;
affect our competitiveness compared to our less leveraged competitors;
increase our exposure to both general and industry-specific adverse economic conditions; and
limit, among other things, our ability to borrow additional funds.
We and our subsidiaries also may be able to incur substantial additional indebtedness in the future. The
terms of our revolving credit facility, the indenture under which our senior subordinated notes are issued, and our
term loan facility limit, but do not prohibit, us or our subsidiaries from incurring additional indebtedness. If new
indebtedness is added to our current debt levels, the related risks that we and our subsidiaries now face could
intensify.
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Covenants in our financing arrangements limit, and other future financing agreements may limit, our ability
to operate our business.
The credit agreement governing our senior revolving credit facility, the indenture governing our senior
subordinated notes and any of our other future financing agreements, may contain covenants imposing operating
and financial restrictions on our business.
For example, the credit agreement governing our senior revolving credit facility requires us to satisfy certain
net leverage and fixed charge coverage ratios. If we fail to meet or satisfy any of these covenants (after
applicable cure periods), we would be in default and the lenders (through the administrative agent or collateral
agent, as applicable) could elect to declare all amounts outstanding to be immediately due and payable, enforce
their interests in the collateral pledged/or and restrict our ability to make additional borrowings, as applicable.
The covenants and restrictions in the credit agreement, the indenture and the term loan facility, subject to
specified exceptions and to varying degrees, restrict our ability to, among other things:
•
•
•
incur additional indebtedness;
create, incur, assume or permit to exist any liens;
enter into sale and leaseback transactions;
• make investments, loans and advancements; merge or consolidate with, or dispose of all or
substantially all assets to, a third party;
•
sell assets;
• make acquisitions;
•
•
pay dividends;
enter into transactions with affiliates;
• make capital expenditures;
•
•
prepay other indebtedness; and
issue capital stock.
These restrictions may interfere with our ability to obtain financings or to engage in other business
activities, which could have a material adverse effect on our results of operations, cash flows or financial
condition.
Adverse capital and credit market conditions may affect our ability to meet liquidity needs, access to capital
and cost of capital.
The domestic and worldwide capital and credit markets may experience significant volatility, disruptions
and dislocations with respect to price and credit availability. Should we need additional funds or to refinance our
existing indebtedness, we may not be able to obtain such additional funds.
We need liquidity to pay our operating expenses, interest on our debt and dividends on our capital stock.
Without sufficient liquidity, we will be forced to curtail our operations, and our business will suffer. The
principal sources of our liquidity are cash flow from operations and borrowings under our senior revolving credit
facility. Earnings from our operations and our working capital requirements can vary significantly from period to
period based primarily on the mix of our projects underway and the percentage of project work completed during
the period. Capital expenditures may also vary significantly from period to period. While we manage cash
requirements for working capital and capital expenditure needs, unpredictability in cash collections and
payments has required us in the past and may require us to borrow on our line of credit from time to time to meet
the needs of our operations.
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In the event these resources do not satisfy our liquidity needs, we may have to seek additional financing.
The availability of additional financing will depend on a variety of factors such as market conditions, the general
availability of credit, the volume of trading activities, our credit ratings and credit capacity, as well as the
possibility that customers or lenders could develop a negative perception of our long- or short-term financial
prospects if the level of our business activity decreased due to a market downturn. If internal sources of liquidity
prove to be insufficient, we may not be able to successfully obtain additional financing on favorable terms, or at
all.
We may be unable to maintain or expand our credit capacity, which would adversely affect our operations and
business.
We use credit facilities to support our working capital and acquisition needs. If we exhaust our borrowing
capacity under our Credit Agreement, and cash flows from operations do not increase sufficiently, our ability to
fund the working capital, capital expenditure and other needs of our existing operations could be constrained and
our business and results of operations could be materially adversely affected. If we experience operational
difficulties or our operating results do not improve, we may need to increase our available borrowing capacity or
seek amendments to the terms of our Credit Agreement. There can be no assurance that we will be able to secure
any additional capacity or amendment to our Credit Agreement or to do so on terms that are acceptable to us, in
which case, our costs of borrowing could rise and our business and results of operations could be materially
adversely affected.
Regulatory requirements for derivative transactions could have an adverse impact on our ability to hedge risks
associated with our business.
We may enter into interest rate swap agreements to manage the interest rate paid with respect to our fixed
rate indebtedness, foreign exchange forward contracts to hedge currency risk and heating oil commodity swap
contracts to hedge the risk that fluctuations in diesel fuel prices will have an adverse impact on cash flows
associated with our domestic dredging contracts. The Dodd-Frank Wall Street Reform and Consumer Protection
Act (“Dodd-Frank”) and regulations adopted by a number of U.S. federal regulatory agencies created a
comprehensive statutory and regulatory framework for derivative transactions, including foreign currency and
other over-the-counter derivative hedging transactions. While a number of provisions of Dodd-Frank have been
implemented, certain key provisions have not yet been implemented or remain subject to uncertainty.
Furthermore, certain provisions of Dodd-Frank may be modified or repealed in the future. Any substantial
change in the financial regulatory environment could create additional new compliance costs for us or cause us to
alter the manner in which we manage risk, which could have a materially adverse effect on our business. The
rules adopted or to be adopted under Dodd-Frank may significantly reduce our ability to execute strategic hedges
to manage our interest expense, reduce our fuel commodity uncertainty and hedge our currency risk thus
protecting our cash flows. In addition, the banks and other derivatives dealers who are our contractual
counterparties are required to comply with extensive regulation under Dodd-Frank. The cost of our
counterparties’ compliance will likely be passed on to customers such as ourselves, thus potentially decreasing
the benefits to us of hedging transactions and potentially reducing our profitability.
We may be subject to foreign exchange risks, and improper management of that risk could result in large cash
losses.
We are exposed to market risk associated with changes in foreign currency exchange rates. The primary
foreign currencies to which the Company has exposure are the Bahraini dinar and the Brazilian real. Our
international contracts may be denominated in foreign currencies, which will result in additional risk of
fluctuating currency values and exchange rates, hard currency shortages and controls on currency exchange.
Changes in the value of foreign currencies could increase our U.S. dollar costs for, or reduce our U.S. dollar
revenues from, our foreign operations. Any increased costs or reduced revenues as a result of foreign currency
fluctuations could affect our profits. The value of the Bahraini dinar has historically been pegged to the value of
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the U.S. dollar, which has effectively eliminated the foreign currency risk with respect to that currency. However,
if the Bahraini dinar were no longer to be so pegged, whether due to civil unrest in Bahrain or otherwise, the
Company could become subject to additional, and substantial, foreign currency risk.
Changes in macroeconomic indicators, the overall business climate, and other factors could lead to our
goodwill and other intangible assets becoming impaired, which may require us to take significant non-cash
charges against earnings.
Under current accounting guidelines, we must assess, at least annually and potentially more frequently,
whether the value of our goodwill and other intangible assets have been impaired. Any impairment of goodwill
or other intangible assets as a result of such analysis would result in a non-cash charge against earnings, which
charge could materially adversely affect our business, operating results, cash flows or financial condition. We
test goodwill annually for impairment in the third quarter of each year, or more frequently should circumstances
dictate. A significant and sustained decline in our future cash flows, a significant adverse change in the economic
environment, slower growth rates or our stock price falling below our net book value per share for a sustained
period could result in the need to perform additional impairment analysis in future periods. If we were to
conclude that a future write-down of goodwill or other intangible assets is necessary, then we would be required
to record a non-cash charge against earnings, which, in turn, could have a material adverse effect on our business,
results of operations, cash flows or financial condition.
We have made and may continue to make debt or equity investments in privately financed projects in, or may
accept extended payment terms for, privately financed projects in which we could sustain significant losses.
We have participated and may continue to participate in privately financed projects that enable state and
local governments and other customers to finance dredging, environmental and infrastructure projects, such as
dredging of local navigable waterways and lakes, coastal protection and environmental and infrastructure
projects. These projects typically include the facilitation of non-recourse financing and the provision of dredging,
environmental, infrastructure, and related services. We may incur contractually reimbursable costs and may
accept extended payment terms, extend debt financing and/or make an equity investment in an entity prior to, in
connection with, or as part of project financing, and in some cases we may be the sole or primary source of the
project financing. Project financing may also involve the use of real estate, environmental, wetlands or similar
credits. If a project is unable to obtain other financing on terms acceptable to it in amounts sufficient to repay or
redeem our investments, we could incur losses on our investments and any related contractual receivables. After
completion of these projects, the return on our equity investments can be dependent on the operational success of
the project and market factors or sale of the aforementioned credits, which may not be under our control. As a
result, we could sustain a loss of part or all of our equity investments in such projects or have to recognize the
value of the credits at a lower amount than expected in the contract bid.
Risks Related to our Stock
Our common stock is subject to restrictions on foreign ownership.
We are subject to government regulations pursuant to the Dredging Act, the Jones Act, the Shipping Act and
the vessel documentation laws set forth in Chapter 121 of Title 46 of the United States Code. These statutes
require vessels engaged in the transport of merchandise or passengers or dredging in the navigable waters of the
U.S. to be owned and controlled by U.S. citizens. The U.S. citizenship ownership and control standards require
the vessel-owning entity to be at least 75% U.S.-citizen owned. Our certificate of incorporation contains
provisions limiting non-citizenship ownership of our capital stock. If our board of directors determines that
persons who are not citizens of the U.S. own more than 22.5% of our outstanding capital stock or more than
22.5% of our voting power, we may redeem such stock. The required redemption price could be materially
different from the current price of our common stock or the price at which the non-citizen acquired the common
stock. If a non-citizen purchases our common stock, there can be no assurance that he will not be required to
32
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divest the shares and such divestiture could result in a material loss. Such restrictions and redemption rights may
make our equity securities less attractive to potential investors, which may result in our common stock having a
lower market price than it might have in the absence of such restrictions and redemption rights.
Delaware law and our charter documents may impede or discourage a takeover that you may consider
favorable.
The provisions of our certificate of incorporation and bylaws may deter, delay or prevent a third-party from
acquiring us. These provisions include:
•
•
•
•
•
limitations on the ability of stockholders to amend our charter documents, including stockholder
supermajority voting requirements;
the inability of stockholders to call special meetings;
a classified board of directors with staggered three-year terms;
advance notice requirements for nominations for election to the board of directors and for stockholder
proposals; and
the authority of our board of directors to issue, without stockholder approval, up to 1,000,000 shares of
preferred stock with such terms as the board of directors may determine and to issue additional shares
of our common stock.
We are also subject to the protections of Section 203 of the Delaware General Corporation Law, which
prevents us from engaging in a business combination with a person who acquires at least 15% of our common
stock for a period of three years from the date such person acquired such common stock, unless board or
stockholder approval was obtained.
These provisions could have the effect of delaying, deferring or preventing a change in control of our
company, discourage others from making tender offers for our shares, lower the market price of our stock or
impede the ability of our stockholders to change our management, even if such changes would be beneficial to
our stockholders.
Our stockholders may not receive dividends because of restrictions in our debt agreements, Delaware law and
state regulatory requirements.
Our ability to pay dividends is restricted by the agreements governing our debt, including our Credit
Agreement, our bonding agreements and the indenture governing our senior unsecured notes. In addition, under
Delaware law, our board of directors may not authorize payment of a dividend unless it is either paid out of our
surplus, as calculated in accordance with the Delaware General Corporation Law, or, if we do not have a surplus,
it is paid out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal
year. To the extent we do not have adequate surplus or net profits, we will be prohibited from paying dividends.
The market price of our common stock may fluctuate significantly, and this may make it difficult for holders
to resell our common stock when they want or at prices that they find attractive.
The price of our common stock on the NASDAQ Global Market constantly changes. We expect that the
market price of our common stock will continue to fluctuate. The market price of our common stock may
fluctuate as a result of a variety of factors, many of which are beyond our control. These factors include:
•
•
•
changes in market conditions;
quarterly variations in our operating results;
operating results that vary from the expectations of management, securities analysts and investors;
33
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•
•
•
•
•
•
•
•
changes in expectations as to our future financial performance;
announcements of strategic developments, significant contracts, acquisitions and other material events
by us or our competitors;
the operating and securities price performance of other companies that investors believe are
comparable to us;
future sales of our equity or equity-related securities;
changes in the economy and the financial markets;
departures of key personnel;
changes in governmental regulations; and
geopolitical conditions, such as acts or threats of terrorism, political instability, civil unrest or military
conflicts.
In addition, in recent years, global stock markets have experienced extreme price and volume fluctuations.
This volatility has had a significant effect on the market price of securities issued by many companies for reasons
often unrelated to their operating performance. These broad market fluctuations may adversely affect the market
price of our common stock, regardless of our operating results.
Volatility in the financial markets could cause a decline in our stock price, which could trigger an
impairment of the goodwill of individual reporting units that could be material to our consolidated financial
statements. A significant drop in the price of our stock could also expose us to the risk of securities class action
lawsuits, which could result in substantial costs and divert management’s attention and resources, which could
adversely affect our business. Additionally, volatility or a lack of positive performance in our stock price may
adversely affect our ability to retain key employees, many of whom are awarded equity securities, the value of
which is dependent on the performance of our stock price.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The Company owns or leases the properties described below. The Company believes that its existing
facilities are adequate for its operations.
The Company’s headquarters are located at 2122 York Road, Oak Brook, Illinois 60523, with
approximately 64,275 square feet of office space that it leases with a term expiring in 2019. As of December 31,
2017 the Company owns or leases the following additional facilities:
Dredging
Location
Staten Island, New York
Morgan City, Louisiana
Norfolk, Virginia
Chickasaw, AL
Kingwood, Texas
Cape Girardeau, Missouri
Cape Girardeau, Missouri
Cape Girardeau, Missouri
Type of
Facility
Yard
Yard
Yard
Yard
Office
Office
Storage
Yard
Size
Acres
Acres
Acres
Acres
Square feet
Square feet
Square feet
Acres
4.4
6.4
15.3
2.0
750
726
7,200
18.4
Leased or
Owned
Owned
Owned
Owned
Leased
Leased
Owned
Owned
Owned
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Location
Centennial, Colorado
Portage, Michigan
Kalkaska, Michigan
Kalkaska, Michigan
Rocklin, CA
Rocklin, CA*
Rocklin, CA*
Roswell, Georgia
Denton, Texas
Brielle, New Jersey
Type of
Facility
Office
Office
Office
Yard
Office
Yard
Storage
Office
Office
Office
Size
Square feet
Square feet
Square feet
Acres
Square feet
Acres
Square feet
Square feet
Square feet
Square feet
5,464
1,344
8,200
7.0
12,623
5.0
14,731
1,494
3,766
4,800
Leased or
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
* The environmental & infrastructure segment leases the Rocklin, California facilities from the former
shareholders of Magnus pursuant to leases expiring in 2019. See Note 16, Related-Party Transactions, to the
Company’s consolidated financial statements.
Item 3. Legal Proceedings
Various legal actions, claims, assessments and other contingencies arising in the ordinary course of business
are pending against the Company and certain of its subsidiaries. These matters are subject to many uncertainties,
and it is possible that some of these matters could ultimately be decided, resolved, or settled adversely to the
Company. Although the Company is subject to various claims and legal actions that arise in the ordinary course
of business, except as described below, the Company is not currently a party to any material legal proceedings or
environmental claims. The Company records an accrual when it is probable a liability has been incurred and the
amount of loss can be reasonably estimated. Except as described below, the Company does not believe any of
these proceedings, individually or in the aggregate, would be expected to have a material effect on results of
operations, cash flows or financial condition.
On April 23, 2014, the Company completed the sale of NASDI, LLC (“NASDI”) and Yankee
Environmental Services, LLC (“Yankee”), which together comprised the Company’s historical demolition
business, to a privately owned demolition company. Under the terms of the divestiture, the Company retained
certain pre-closing liabilities relating to the disposed business. Certain of these liabilities and a legal action
brought by the Company to enforce the buyer’s obligations under the sale agreement are described below.
On January 14, 2015, the Company and our subsidiary, NASDI Holdings, LLC, brought an action in the
Delaware Court of Chancery to enforce the terms of the Company’s agreement to sell NASDI and Yankee. Under
the terms of the agreement, the Company received cash of $5.3 million and retained the right to receive
additional proceeds based upon future collections of outstanding accounts receivable and work in process
existing at the date of close. The Company seeks specific performance of buyer’s obligation to collect and to
remit the additional proceeds, and other related relief. Defendants have filed counterclaims alleging that the
Company misrepresented the quality of its contracts and receivables prior to the sale. The Company denies
defendants’ allegations and intends to vigorously defend against the counterclaims.
Item 4. Mine Safety Disclosures
Not applicable
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information
Our common stock is traded under the symbol “GLDD” on the NASDAQ Global Market. The table below
sets forth, for the calendar quarters indicated, the high and low sales prices of the common stock as reported by
NASDAQ from January 1, 2016 through December 31, 2017.
First Quarter 2016
Second Quarter 2016
Third Quarter 2016
Fourth Quarter 2016
First Quarter 2017
Second Quarter 2017
Third Quarter 2017
Fourth Quarter 2017
Common Stock
High
$3.92
$4.50
$4.97
$5.00
Low
$2.96
$3.42
$3.49
$3.05
Common Stock
High
$5.45
$4.90
$5.15
$5.70
Low
$3.85
$3.70
$3.60
$4.22
COMPARISON OF 5 YEAR CUMULATIVE RETURN*
Among Great Lakes Dredge & Dock Corporation, Peer Average and NASDAQ Composite Index
$240
$220
$200
$180
$160
$140
$120
$100
$80
$60
$40
2012
2013
2014
2015
2016
2017
GLDD
Peer Average
NASDAQ
* $100 invested on December 31, 2012 in stock or index, including reinvestment of dividends. Fiscal year ended December 31.
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Great Lakes Dredge & Dock Corp
Peer Average (see below)
NASDAQ Composite Index
$100.00
100.00
100.00
$103.02
127.41
138.32
$ 95.86
112.12
156.85
$ 44.35
104.51
165.84
$ 47.03
141.29
178.28
$ 60.47
137.36
228.63
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
The graph above shows the cumulative total return to stockholders of the Company’s common stock during
a five year period ending December 29, 2017, the last trading day of our 2017 fiscal year, compared with the
return on the NASDAQ Composite Index and a group of our peers which we use internally as a benchmark for
our performance. The graph assumes initial investments of $100 each on December 31, 2012, in GLDD stock
(assuming reinvestment of all dividends paid during the period), the NASDAQ Composite Index and the peer
group companies, collectively. The peer group is comprised of the following member companies:
Company
Aegion Corporation, successor to Insituform Technologies, Inc.
Ameresco
Granite Construction Inc.
Hill International
IES Holdings
Layne Christensen Company
Matrix Service Company
Mistras Group
MYR Group Inc.
Orion Marine Group, Inc.
Primoris Services Corporation
Sterling Construction Company, Inc.
Team, Inc.
TRC Companies, Inc. (prior to merger with affiliates of New Mountain Partners
IV, L.P. on June 21, 2017)
Willbros Group, Inc.
Ticker
AEGN
AMRC
GVA
HIL
IESC
LAYN
MTRX
MG
MYRG
ORN
PRIM
STRL
TISI
TRR
WG
Given the usage of this peer group for compensation purposes and the fact that each peer is a capital
intensive business, the Company deems it appropriate to also use this peer group for showing the comparative
cumulative total return to stockholders of Great Lakes.
Holders of Record
As of February 23, 2018, the Company had approximately 31 shareholders of record of the Company’s
common stock. A substantial number of holders of the Company’s common stock are “street name” or beneficial
holders, whose shares are held of record by banks, brokers and other financial institutions.
Dividends
The Company does not currently pay dividends to its common stockholders. The declaration and payment of
future dividends will be at the discretion of Great Lakes’ board of directors and depends on many factors,
including general economic and business conditions, the Company’s strategic plans, financial results and
condition, legal requirements including restrictions and limitations contained in the Company’s senior credit
agreement, bonding agreements and the indenture relating to the senior unsecured notes and other factors the
board of directors deems relevant. Accordingly, the Company cannot ensure the size of any such dividend or that
the Company will pay any future dividend.
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The following table sets forth selected financial data and should be read in conjunction with Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s
audited consolidated financial statements and notes thereto included elsewhere in this annual report. The selected
financial data presented below have been derived from the Company’s consolidated financial statements; items
may not sum due to rounding.
2017
Year Ended December 31,
2015
2014
2016
2013
Contract revenues
Costs of contract revenues
Gross profit
General and administrative expenses
Proceeds from loss of use claim
Impairment of goodwill
(Gain) loss on sale of assets—net
Operating income (loss)
Interest expense—net
Equity in earnings (loss) of joint ventures
Gain on bargain purchase agreement
Loss on extinguishment of debt
Other income (expense)
Income (loss) from continuing operations before
income taxes
Income tax (provision) benefit
Income (loss) from continuing operations
Loss from discontinued operations, net of income taxes
Net income (loss)
Net loss attributable to noncontrolling interests
Net income (loss) attributable to common stockholders of
(in millions except shares in thousands and per share data)
$ 856.9
761.0
$ 767.6
681.2
$ 806.8
714.3
$ 702.5
652.6
$ 731.4
631.1
49.9
68.3
—
—
5.1
(23.5)
(26.0)
(1.5)
—
(2.3)
(0.8)
(54.2)
35.6
(18.6)
(12.7)
(31.3)
—
86.4
65.5
—
—
6.2
14.7
(22.9)
(2.4)
—
—
(3.4)
(14.0)
5.8
(8.2)
—
(8.2)
—
95.9
71.1
—
2.8
(0.9)
23.0
(24.4)
(6.1)
—
—
(1.2)
(8.7)
2.5
(6.2)
—
(6.2)
—
92.5
67.9
—
—
0.7
23.9
(20.0)
2.9
2.2
—
0.2
9.2
11.5
20.7
(10.4)
10.3
—
100.3
68.0
(13.4)
—
(5.8)
51.4
(21.9)
1.2
—
—
(0.4)
30.3
(10.5)
19.9
(54.9)
(35.0)
0.6
Great Lakes Dredge & Dock Corporation
$ (31.3) $
(8.2) $
(6.2) $
10.3 $ (34.4)
Basic earnings (loss) per share attributable to income from
continuing operations (1)
$ (0.30) $ (0.13) $ (0.10) $
0.35 $
0.33
Basic loss per share attributable to loss on discontinued
operations, net of income taxes
(0.21)
—
—
(0.17)
(0.91)
Basic earnings (loss) per share attributable to common
stockholders of Great Lakes Dredge & Dock Corporation
$ (0.51) $ (0.13) $ (0.10) $
0.18
$ (0.58)
Basic weighted average shares
Diluted earnings (loss) per share attributable to income from
61,365
60,744
60,410
59,938
59,495
continuing operations (1)
$ (0.30) $ (0.13) $ (0.10) $
0.34 $
0.33
Diluted loss per share attributable to loss on discontinued
operations, net of income taxes
(0.21)
—
—
(0.17)
(0.90)
Diluted earnings (loss) per share attributable to common
stockholders of Great Lakes Dredge & Dock Corporation
$ (0.51) $ (0.13) $ (0.10) $
0.17
$ (0.57)
Diluted weighted average shares
61,365
60,744
60,410
60,522
60,101
38
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Other Data:
Adjusted EBITDA from continuing operations (2)
Net cash flows from operating activities
Net cash flows from investing activities
Net cash flows from financing activities
Depreciation and amortization
Maintenance expense
Capital expenditures
2017
Year Ended December 31,
2014
2015
2016
2013
(in millions)
$ 34.7
21.5
(51.1)
34.2
60.5
51.0
66.1
$ 72.0
38.7
(72.6)
30.8
63.0
57.1
85.2
$ 83.0
29.1
(73.1)
15.9
64.6
55.6
89.3
$ 77.1
48.8
(116.7)
35.1
50.1
57.4
92.1
$ 98.9
74.8
(46.3)
22.5
46.6
49.5
62.0
(1) Refer to Note 2, Earnings per Share, in the Company’s consolidated financial statements for the years ended
December 31, 2017, 2016 and 2015 and above information for additional details regarding these
calculations.
(2) See definition of Adjusted EBITDA from continuing operations in Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
2017
As of December 31,
2015
2014
2016
2013
Balance Sheet Data:
Cash and cash equivalents
Working capital
Total assets
Long-term debt, promissory notes and subordinated notes
Total stockholder’s equity
(in millions)
$ 15.9
111.9
832.4
428.1
221.3
$ 11.2
127.4
893.6
390.4
247.9
$ 14.2
124.0
898.1
345.8
252.2
$ 42.4
141.7
888.7
319.9
256.0
$ 75.3
167.2
848.8
281.2
242.1
39
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START PAGE
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company is the largest provider of dredging services in the United States and a major provider of
environmental and infrastructure services. In addition, the Company is the only U.S. dredging service provider
with significant international operations. The Company operates in two reportable segments: dredging and
environmental & infrastructure.
Dredging generally involves the enhancement or preservation of the navigability of waterways or the
protection of shorelines through the removal or replenishment of soil, sand or rock. Domestically, our work
generally is performed in coastal waterways and deep water ports. The U.S. dredging market consists of four
primary types of work: capital, coastal protection, maintenance and rivers & lakes. Capital dredging consists
primarily of port expansion projects, which involve the deepening of channels and berthing basins to allow
access by larger, deeper draft ships and the provision of land fill used to expand port facilities. In addition to port
work, capital projects also include coastal restoration and land reclamations, trench digging for pipelines, tunnels,
and cables, and other dredging related to the construction of breakwaters, jetties, canals and other marine
structures. Coastal protection projects involve moving sand from the ocean floor to shoreline locations where
erosion threatens shoreline assets. Maintenance dredging consists of the re-dredging of previously deepened
waterways and harbors to remove silt, sand and other accumulated sediments. Due to natural sedimentation, most
channels generally require maintenance dredging every one to three years, thus creating a recurring source of
dredging work that is typically non-deferrable if optimal navigability is to be maintained. In addition, severe
weather such as hurricanes, flooding and droughts can also cause the accumulation of sediments and drive the
need for maintenance dredging. Rivers & lakes dredging and related operations typically consist of lake and river
dredging, inland levee and construction dredging, environmental restoration and habitat improvement and other
marine construction projects. In 2017, dredging revenues accounted for 84% of the Company’s revenue.
The environment & infrastructure segment provides environmental and geotechnical construction as well as
soil, water and sediment environmental remediation for the state, local and private party markets. Environmental
and geotechnical construction includes the creation, repair or stabilization of environmental barriers including
slurry walls, in-situ stabilization, coal combustion residuals pond cap and close, dam and levee rehabilitation,
deep soil mixing and other specialty civil construction. Remediation involves the containment, immobilization or
removal of contamination from an environment through the use of any combination of isolation, treatment, or
exhumation techniques including off-site disposal based on the quantity and severity of the contamination. In
2017, environmental & infrastructure revenues accounted for 16% of total revenue.
In 2017, a strategic review was begun to improve the Company’s financial results in both domestic and
international operations enabling debt reduction, improvements in return on capital and the continued renewal of
our extensive fleet with new and efficient dredges to best serve our domestic and international clients. As a result
of this review, management began execution of a plan to reduce general and administrative and overhead
expenses, retire certain underperforming and underutilized assets, write-off pre-contract costs on a project that
was never formally awarded and that the Company no longer intends to pursue and closeout the Company’s
Brazil operations. These changes will result in a restructuring charge of approximately $42 million to
$47 million, including severance of approximately $3 million, asset retirements of approximately $30 million to
$34 million, pre-contract costs of approximately $6.5 million and closeout costs of approximately $2.5 million to
$3.5 million.
Approximately $38 million to $43 million of this charge will be non-cash and includes depreciation, loss on
sale of assets and other items, approximating totals of $12.5 million to $14.5 million, $3 million to $5 million
and $21.5 million to $23.5 million, respectively. The majority of the charge was recorded in the second half of
2017 with the remainder to be recognized in the dredging segment in the following year.
During the fourth quarter of 2016, the Company sold assets associated with certain service lines of the
environmental & infrastructure segment’s business, excluding assets supporting the remediation service line.
40
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The Company’s bid dredging market is defined as the aggregate dollar value of domestic dredging projects
on which the Company bid or could have bid if not for capacity constraints or other considerations (“bid
market”). The Company experienced an average combined bid market share in the U.S. of 42% over the prior
three years, including 61%, 39%, 27% and 38% of the domestic capital, coastal protection, maintenance and
rivers & lakes sectors, respectively. The bid market for environmental & infrastructure work is highly
fragmented and similar bid market statistics are not easily available.
The Company’s fleet of 20 dredges, of which one is deployed internationally, 16 material transportation
barges, one drillboat, and numerous other support vessels is the largest and most diverse fleet of any U.S.
dredging company. For the dredging segment, the Company’s fleet of dredging equipment can be utilized on one
or many types of work and in various geographic locations. This flexible approach to the Company’s fleet
utilization, driven by the project scope and equipment, enables us to move equipment in response to changes in
demand for dredging services to take advantage of the most attractive opportunities.
The Company’s largest domestic dredging customer is the U.S. Army Corps of Engineers (the “Corps”),
which has responsibility for federally funded projects related to navigation and flood control of U.S. waterways.
Multi-jurisdictional cost sharing arrangements are allowing the Corps to utilize funds from sources other than the
federal budget to prioritize additional projects where waterway infrastructure improvements can have an impact
to large regions. Although some of a project’s funding may ultimately be derived from multiple sources, the
Corps maintains the authority over the project and is the Company’s customer. In 2017, the Company’s dredging
revenues earned from contracts with federal government agencies were approximately 63% of dredging
revenues, down slightly from the Company’s prior three year average of 66%.
The Company and a New Jersey aggregates company each owned 50% of Amboy Aggregates (“Amboy”)
and 50% of Lower Main Street Development, LLC (“Lower Main”). Amboy was formed in December 1984 to
mine sand from the entrance channel to New York Harbor to provide sand and aggregate for use in road and
building construction and for clean land fill. Lower Main was organized in February 2003 to hold land for
development or sale in conjunction with Amboy. Amboy sold its interest in a stone import business and Amboy
and Lower Main sold their holdings in land during 2014. Amboy and Lower Main were dissolved in 2017.
The Company and a European based remediation company each owned 50% of TerraSea Environmental
Solutions LLC (“TerraSea”), a remediation business. TerraSea provided water and land based environmental
services in the area of clean up and remediation of sediments, soil and groundwater for both marine and land
based projects. TerraSea was dissolved in 2017.
On April 24, 2014, the Company announced that it had completed the sale of NASDI, LLC and Yankee
Environmental Services, LLC, which together comprised the Company’s historical demolition business, to a
privately owned demolition company for $5.3 million plus retention of certain assets and preclosing liabilities.
The historical demolition business is no longer reflected in continuing operations. See Note 17, Business
Combinations and Dispositions, to our consolidated financial statements included in Item 15 of this Annual
Report on Form 10-K.
Contract Revenues
Most of the Company’s contracts are obtained through competitive bidding on terms specified by the party
inviting the bid. The types of equipment required to perform the specified service, project site conditions, the
estimated project duration, seasonality, location and complexity of a project affect the cost of performing the
contract and the price that contractors will bid.
The Company recognizes contract revenues under the percentage-of-completion method based on the
Company’s engineering estimates of the physical percentage completed for dredging projects and based on costs
incurred to date compared to total estimated costs for environmental & infrastructure projects. For dredging
41
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projects, costs of contract revenues are adjusted to reflect the gross profit percentage expected to be achieved
upon ultimate completion of each dredging project. For environmental & infrastructure projects, contract
revenues are adjusted to reflect the estimated gross profit percentage. Provisions for estimated losses on contracts
in progress are made in the period in which such losses are determined. Change orders are not recognized in
revenue until the recovery is probable and collectability is reasonably assured. Claims for additional
compensation due to the Company are not recognized in contract revenues until such claims are settled. Billings
on contracts are generally submitted after verification with the customers of physical progress and may not match
the timing of revenue recognition. The difference between amounts billed and recognized as revenue is reflected
in the balance sheet as either contract revenues in excess of billings or billings in excess of contract revenues.
Contract modifications may be negotiated when a change from the original contract specifications is
encountered, necessitating a change in project scope or performance methodology and/or material disposal.
Significant expenditures incurred incidental to major contracts are deferred and recognized as contract costs
based on contract performance over the duration of the related project. These expenditures are reported as
prepaid expenses.
Costs and Expenses
The components of costs of contract revenues include labor, equipment (including depreciation,
maintenance, insurance and long-term rentals), subcontracts, fuel, supplies, short-term rentals and project
overhead. Hourly labor generally is hired on a project-by-project basis. Project costs, excluding labor, have
averaged approximately 23% of total costs of contract revenues over the prior three years. Much of our domestic
dredging hourly labor force is represented by labor unions with collective bargaining agreements that expire at
various dates during 2018 through 2023, which historically have been extended without disruption. The
environmental & infrastructure segment’s hourly labor force is made up of union and non-union employees.
During the year, both dredging equipment utilization and the timing of fixed cost expenditures fluctuate
significantly. Accordingly, the Company allocates these fixed equipment costs to interim periods in proportion to
dredging revenues recognized over the year to better match revenues and expenses. Specifically, at each interim
reporting date the Company compares actual dredging revenues earned to date on the Company’s dredging
contracts to expected annual revenues and recognizes dredging equipment costs on the same proportionate basis.
In the fourth quarter, any over or under allocated equipment costs are recognized such that the expense for the
year equals actual equipment costs incurred during the year. As a result of this methodology, the recorded
expense in any interim period may be higher or lower than the actual equipment costs incurred in that interim
period.
For some environmental & infrastructure contracts, the Company has entered into unincorporated
construction joint ventures under which certain portions of a larger project are performed. These investments are
accounted for under the proportionate consolidation method for income statement reporting and under the equity
method for balance sheet reporting. The Company’s interests in any profits and assets and proportionate share in
any losses and liabilities are recognized based on the Company’s stated percentage partnership interest in the
project. For projects related to proportionately consolidated joint ventures, we include only the Company’s
percentage ownership of each joint venture’s backlog.
Primary Factors that Determine Operating Profitability
Dredging. The Company’s results of operations for its dredging segment for a calendar or quarterly period
are generally determined by the following three factors:
• Bid wins and dredge employment—The Company’s dredging segment generates revenues when the
Company wins a bid for a dredging contract and starts that project. Although the Company’s dredging
equipment is subject to downtime for scheduled periodic maintenance and repair, the Company seeks
to maximize its revenues by employing its dredging equipment on a full-time basis, allowing for
42
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scheduled down time and mobilization. If a dredge is idle (i.e., the dredge is not employed on a
dredging project or undergoing scheduled periodic maintenance and repair), the Company does not
earn revenue with respect to that dredge during the time period for which it is idle.
• Project and dredge mix—The Company’s domestic dredging projects generally involve domestic
capital, maintenance, coastal protection and rivers & lakes work and its foreign dredging projects
generally involve capital work. In addition, the Company’s dredging projects vary in duration and, in
general, projects of longer duration result in less dredge downtime in a given period. Moreover, the
Company’s dredges have different physical capabilities and typically work on certain types of dredging
projects. Accordingly, the Company’s dredges have different daily revenue generating capacities.
The Company generally expects to achieve different levels of gross profit margin (i.e., gross profit
divided by revenues) for work performed on the different types of dredging projects and for work
performed by different types of dredges. The Company’s expected gross margin for a project is based
upon the Company’s estimates at the time of the bid. Although the Company seeks to bid on and win
projects that will maximize its gross margin, the Company cannot control the type of dredging projects
that are available for bid from time to time, the type of dredge that is needed to complete these projects,
the competitive landscape at the time of bid or the time schedule upon which these projects are
required to be completed. As a result, in some quarters the Company works on a mix of dredging
projects that, in the aggregate, have relatively high expected gross margins (based on project type and
dredges employed) and in other quarters, the Company works on a mix of dredging projects that, in the
aggregate, have relatively low expected gross margins (based on project type and dredges employed).
• Project execution—The Company seeks to execute all of its dredging projects consistent with or at a
higher production than its as-bid project estimates. In general, the Company’s ability to achieve its
project estimates depends upon many factors including soil conditions, weather, variances from
estimated project conditions, equipment mobilization time periods, unplanned equipment downtime or
other events or circumstances beyond the Company’s control. If the Company experiences any of these
events and circumstances, the completion of a dredging project will often be accelerated or delayed, as
applicable, and, consequently, the Company will experience project results that are better or worse than
its estimates. The Company does its best to estimate for events and circumstances that are not within its
control; however, these situations are inherent in dredging.
Environmental & infrastructure. The Company’s environmental & infrastructure segment generates
revenues when the Company is awarded a contract and starts the project. The Company’s revenues from its
environmental & infrastructure segment increase or decrease based upon market demand. Like the Company’s
dredging segment, results of operations for the Company’s environmental & infrastructure segment fluctuate
based upon project mix and the Company’s ability to execute its projects consistent with its estimates.
Environmental & infrastructure margins are based upon the specified service, the estimated project duration,
seasonality, location and complexity of a project.
Critical Accounting Policies and Estimates
Our significant accounting policies are discussed in the Notes to our consolidated financial statements
included in Item 15 of this Annual Report on Form 10-K. The application of certain of these policies requires
significant judgments or an estimation process that can affect the Company’s results of operations, financial
position and cash flows, as well as the related footnote disclosures. The Company bases its estimates on
historical experience and other assumptions that it believes are reasonable. If actual amounts are ultimately
different from previous estimates, the revisions are included in the Company’s results of operations for the period
in which the actual amounts become known. The following accounting policies comprise those that management
believes are the most critical to aid in fully understanding and evaluating the Company’s reported financial
results.
43
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Percentage-of-completion method of revenue recognition—The Company’s contract revenues are
recognized under the percentage-of-completion method, which is by its nature based on an estimation process.
For dredging projects, the Company uses engineering estimates of the physical percentage of completion. For
environmental & infrastructure projects, the Company uses estimates of costs incurred to date compared to total
estimated costs to determine the percentage of project completion. In preparing estimates, the Company draws on
its extensive experience in the dredging and environmental & infrastructure businesses. In its dredging segment,
the Company utilizes its database of historical dredging information and technical computations to ensure that its
estimates are as accurate as possible, given current circumstances. Provisions for estimated losses on contracts in
progress are made in the period in which such losses are determined. Change orders are not recognized in
revenue until the recovery is probable and collectability is reasonably assured. Claims for additional
compensation are not recognized in contract revenues until such claims are settled. Cost and profit estimates are
reviewed on a periodic basis to reflect changes in expected project performance.
The Company adopted Accounting Standard Update No. 2014-09, Revenue from Contracts with Customers
(Topic 606), and subsequently issued other Accounting Standard Updates related to Accounting Standards
Codification Topic 606 (collectively, “ASC 606”) as of January 1, 2018, under the modified retrospective
method where the cumulative effect is recognized at the date of initial application. The cumulative net
adjustment to the beginning retained earnings balance is expected to be less than $5 million. The Company has
evaluated the impact of ASC 606 and has determined that fixed-price contracts, which comprise substantially all
of the Company’s revenue, will most often represent a single performance obligation. The Company will
measure progress toward completion utilizing the cost-to-cost method, which represents a change from our prior
practice of measuring completion based on engineering estimates of the physical percentage completed for
dredging projects. Also the Company will be required to capitalize certain pre-contract and pre-construction costs
and defer recognition over the life of the contract. In contrast, contract fulfillment costs will be required to be
recognized in the income statement when incurred. Accordingly, the adoption of ASC 606 may result in a change
in the timing of recognition of both contract revenue and cost from our prior practices. In addition, the Company
expects to add qualitative and quantitative disclosures around disaggregation of revenue, remaining performance
obligation, and other impacts to the Company’s contract revenue balances. The Company does not anticipate that
the adoption of ASC 606 will have a material effect on the Company’s consolidated financial statements.
Impairment of goodwill—Goodwill is tested for impairment at the reporting unit level on an annual basis
and between annual tests if an event occurs or circumstances change that would more likely than not reduce the
fair value of the reporting unit below its carrying value. The Company believes that this estimate is a critical
accounting estimate because: (i) goodwill is a material asset and (ii) the impact of an impairment could be
material to the consolidated balance sheet and consolidated statement of operations. The Company performs its
annual impairment test as of July 1 each year. The Company has two operating segments: dredging and
environmental & infrastructure, which are also the Company’s two reportable segments and reporting units.
The Company assesses the fair values of its reporting units using both a market-based approach and an
income-based approach. Under the income approach, the fair value of the reporting unit is based on the present
value of estimated future cash flows. The income approach is dependent on a number of factors, including
estimates of future market growth trends, forecasted revenues and expenses, appropriate discount rates and other
variables. The estimates are based on assumptions that the Company believes to be reasonable, but such
assumptions are subject to unpredictability and uncertainty. Changes in these estimates and assumptions could
materially affect the determination of fair value, and may result in the impairment of goodwill in the event that
actual results differ from those estimates.
The market approach measures the value of a reporting unit through comparison to comparable companies.
Under the market approach, the Company uses the guideline public company method by applying estimated
market-based enterprise value multiples to the reporting unit’s estimated revenue and Adjusted EBITDA. The
Company analyzes companies that performed similar services or are considered peers. Due to the fact that there
are no public companies that are direct competitors, the Company weighs the results of this approach less than
the income approach.
44
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The Company performed its annual goodwill impairment test as of July 1, 2017 with no indication of
impairment as of the test date. As of the test date, the fair value of the reporting units was substantially in excess
of their carrying values. The Company will perform its next scheduled annual test of goodwill in the third quarter
of 2018 should no triggering events occur which would require a test prior to the next annual test. At
December 31, 2017 and 2016, the dredging segment’s goodwill was $76.6 million. At December 31, 2017 and
2016, the environmental & infrastructure segment’s goodwill was $7.0 million.
Results of Operations—Fiscal Years Ended December 31, 2017, 2016 and 2015
The following table sets forth the components of net income attributable to common stockholders of Great
Lakes Dredge & Dock Corporation and Adjusted EBITDA from continuing operations, as defined below, as a
percentage of contract revenues for the years ended December 31:
Contract revenues
Costs of contract revenues
Gross profit
General and administrative expenses
Impairment of goodwill
Loss on sale of assets—net
Operating income (expense)
Interest expense—net
Equity in loss of joint ventures
Loss on extinguishment of debt
Other expense
Income from continuing operations before income taxes
Income tax benefit
Loss from continuing operations
Loss from discontinued operations, net of income taxes
Net loss
Adjusted EBITDA from continuing operations
2017
2016
2015
100.0% 100.0% 100.0%
(88.7)
(92.9)
(88.8)
7.1
(9.7)
—
(0.7)
11.3
(8.5)
—
(0.8)
2.0
(3.0)
(0.3)
(3.3)
(3.7)
(0.2)
(0.3) —
(0.1)
(0.4)
(7.6)
5.1
(1.7)
0.8
(2.5)
(1.8) —
(0.9)
11.2
(8.3)
(0.3)
0.1
2.7
(2.8)
(0.7)
—
(0.1)
(1.0)
0.3
(0.7)
—
(4.3)
4.9%
(0.9)
9.4%
(0.7)
9.7%
Adjusted EBITDA from continuing operations
Adjusted EBITDA from continuing operations, as provided herein, represents net income attributable to
common stockholders of Great Lakes Dredge & Dock Corporation, adjusted for net interest expense, income
taxes, depreciation and amortization expense, debt extinguishment, accelerated maintenance expense for new
international deployments, goodwill or asset impairments and gains on bargain purchase acquisitions. Adjusted
EBITDA from continuing operations is not a measure derived in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). The Company presents Adjusted EBITDA from continuing
operations as an additional measure by which to evaluate the Company’s operating trends. The Company
believes that Adjusted EBITDA from continuing operations is a measure frequently used to evaluate performance
of companies with substantial leverage and that the Company’s primary stakeholders (i.e., its stockholders,
bondholders and banks) use Adjusted EBITDA from continuing operations to evaluate the Company’s period to
period performance. Additionally, management believes that Adjusted EBITDA from continuing operations
provides a transparent measure of the Company’s recurring operating performance and allows management to
readily view operating trends, perform analytical comparisons and identify strategies to improve operating
performance. For this reason, the Company uses a measure based upon Adjusted EBITDA from continuing
operations to assess performance for purposes of determining compensation under the Company’s incentive plan.
Adjusted EBITDA from continuing operations should not be considered an alternative to, or more meaningful
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than, amounts determined in accordance with GAAP including: (a) operating income as an indicator of operating
performance; or (b) cash flows from operations as a measure of liquidity. As such, the Company’s use of
Adjusted EBITDA from continuing operations, instead of a GAAP measure, has limitations as an analytical tool,
including the inability to determine profitability or liquidity due to the exclusion of accelerated maintenance
expense for new international deployments, goodwill or asset impairments, gains on bargain purchase
acquisitions, interest and income tax expense and the associated significant cash requirements and the exclusion
of depreciation and amortization, which represent significant and unavoidable operating costs given the level of
indebtedness and capital expenditures needed to maintain the Company’s business. For these reasons, the
Company uses operating income to measure the Company’s operating performance and uses Adjusted EBITDA
from continuing operations only as a supplement. The following is a reconciliation of Adjusted EBITDA from
continuing operations to net income attributable to common stockholders of Great Lakes Dredge & Dock
Corporation (in thousands):
Year Ended December 31,
2016
2017
2015
Net loss
Loss from discontinued operations, net of income taxes
$(31,260)
(12,697)
$ (8,177)
—
$ (6,189)
—
Loss from continuing operations
Adjusted for:
Interest expense—net
Income tax benefit
Depreciation and amortization
Impairment of goodwill
Loss on extinguishment of debt
(18,563)
(8,177)
(6,189)
26,046
(35,610)
60,520
—
2,330
22,907
(5,792)
63,023
—
—
24,365
(2,497)
64,585
2,750
—
Adjusted EBITDA from continuing operations
$ 34,723
$71,961
$83,014
Components of Contract Revenues
The following table sets forth, by segment and type of work, the Company’s contract revenues for the years
ended December 31, (in thousands):
Revenues
Dredging:
Capital—U.S.
Capital—foreign
Coastal protection
Maintenance
Rivers & lakes
Total dredging revenues
Environmental & infrastructure
Intersegment revenue
Total revenues
2017
2016
2015
$185,113
42,306
191,070
134,923
38,747
$219,914
59,413
215,041
92,274
50,826
$207,058
139,945
184,060
120,055
30,137
592,159
112,607
(2,263)
637,468
133,637
(3,520)
681,255
181,710
(6,087)
$702,503
$767,585
$856,878
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Total revenue was $702.5 million in 2017, a decrease of $65.1 million, or 8.5%, from 2016 total revenue of
$767.6 million. The decrease was largely attributable to a decline in domestic and foreign capital, coastal
protection, environmental & infrastructure and rivers & lakes revenues during 2017 as compared to the prior
year. These decreases were partially offset by an increase in revenues from maintenance projects during the year
ended December 31, 2017 as compared to 2016. The Company categorizes revenue by service type to understand
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the market in which the Company operates and to assess how the Company is performing on bidding work or
projects and is generating revenue from backlog.
Domestic capital dredging revenues decreased $34.8 million, or 15.8%, to $185.1 million in 2017 compared
to 2016 revenues of $219.9 million. The decrease in domestic capital dredging revenue was mostly attributable to
a greater amount of revenue earned on the Savannah Harbor deepening project, a liquefied natural gas (“LNG”)
project in Texas and a deepening project on the Delaware River during the year ended 2016 when compared to
2017. The Company experienced delays associated with Hurricane Harvey, Irma, Maria and Jose which caused
work stoppage on the Company’s projects in the impacted areas. The decline in revenue from these projects was
partially offset by revenue earned during the current year from coastal restoration projects in Louisiana and
Mississippi as well as revenue from the initial stages of mobilization on a deepening project in South Carolina. In
2017, the Company earned 72% of its backlog carried forward from December 31, 2016.
Revenues from foreign dredging operations in 2017 totaled $42.3 million, a decrease of $17.1 million, or
28.8%, from 2016 revenues of $59.4 million. Foreign dredging revenue in 2017 was down compared to 2016 due
to a greater amount of revenue earned on projects in Saudi Arabia, Brazil and Bahrain during the prior year. The
Company earned 100% of its backlog carried forward from December 31, 2016.
Coastal protection revenues were $191.1 million in 2017, a decrease of $23.9 million, or 11.1%, from
$215.0 million in 2016. For the year ended December 31, 2017, the decrease in coastal protection revenue was
the result of a greater amount of revenue earned in the prior year on large projects in New Jersey and New York
for the repair of shorelines damaged as a result of Superstorm Sandy and winter storms as compared to 2017.
Further, a greater amount of revenue was earned on projects in Florida during the prior year as compared to the
current year. These negative impacts on revenue were partially offset by greater revenue earned on coastal
protection projects in Virginia, North Carolina, South Carolina and Maryland during the current year as
compared to 2016. The Company earned 100% of its backlog carried forward from December 31, 2016.
Revenues from maintenance dredging projects in 2017 were $134.9 million, an increase of $42.6 million, or
46.2%, from $92.3 million in 2016. The increase in maintenance revenue during the current year was largely
attributable to work on two large projects in Delaware in addition to projects in Florida, North Carolina, Oregon
and California. The increase in revenue from these projects in the current year was partially offset by a greater
amount of revenue earned on projects in Pennsylvania and Florida during the prior year. The Company earned
100% of its backlog carried forward from December 31, 2016.
Rivers & lakes revenues were $38.7 million for 2017, a decrease of $12.1 million, or 23.8%, from
$50.8 million in 2016. A greater amount of revenue earned on a reservoir project in Kansas and a large lake
project in Illinois in 2016 resulted in a decrease in revenue for the year ended December 31, 2017. The decrease
in revenue was partially offset by revenue earned on projects in Florida and New Jersey during 2017. The
Company earned 63% of its backlog carried forward from December 31, 2016.
The environmental & infrastructure segment recorded revenues of $112.6 million for the year ended
December 31, 2017, down 15.7% compared to $133.6 million for the year ended December 31, 2016. The
decline in revenue during the current year was largely attributable to revenue earned on a large mine project in
Washington during 2016 that did not recur in 2017. Further, the Company earned a greater amount of revenue in
the segment’s services lines of business in the prior year as these services lines did not operate during 2017.
Revenue earned on remediation projects in Florida, New Jersey and Colorado and geotechnical projects in
California during the current year partially offset the declines in revenue noted above. The Company earned 91%
of its backlog carried forward from December 31, 2016.
Consolidated gross profit for the year ended December 31, 2017 decreased by $36.5 million, or 42.3%, to
$49.9 million from $86.4 million for the year ended December 31, 2016. Gross profit margin (gross profit
divided by revenue) for the full year 2017 was 7.1%, lower than prior year gross profit margin of 11.3%. The
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lower gross profit for 2017 was driven by restructuring charges incurred during the current year. The Company
recorded $23.0 million of additional cost of contract revenues related to restructuring which negatively impacted
margin for the year ended December 31, 2017. The majority of this amount is related to asset retirement charges
of $15.8 million and $6.4 million of pre-contract costs incurred on a project that was never formally awarded and
that the Company no longer plans to pursue. Further, the Company experienced lower contract margin in the
dredging segment, specifically on the Company’s smaller domestic inland projects, and decreased absorption of
fixed costs due to lower utilization of the fleet during the current year as compared to 2016. Further, the
environmental & infrastructure segment also experienced a project loss of $6.1 million during the current year
that negatively impacted gross profit in 2017. These decreases were slightly offset by lower overhead in the
environmental & infrastructure segment during 2017, primarily related to the service lines of the
environmental & infrastructure segment’s business that did not operate during the current year.
General and administrative expenses totaled $68.3 million for the year ended December 31, 2017, up from
$65.5 million for the year ended December 31, 2016. The overall increase in general and administrative expense
for the full year 2017 as compared to 2016 was largely attributable to the reduction of the remaining fair value of
the Great Lakes Environmental & Infrastructure (“Great Lakes E&I”) contingent earnout by $8.0 million to zero
during the prior year. An increase in technical and consulting fees of $2.4 million during 2017 also contributed to
the year over year increase. The increase in general and administrative expenses was partially offset by a
$4.5 million decrease in payroll and benefits expenses, mostly related to the service lines of the environmental &
infrastructure segment’s business that did not operate during 2017, legal and professional fees of $2.1 million,
amortization expense of $0.7 million and personnel and recruiting costs of $0.4 million. General and
administrative expense for the year ended December 31, 2017 includes $1.8 million of charges associated with
restructuring, mostly related to severance but was offset by the decrease in payroll and benefits expense, as noted
above.
Operating loss for the year ended December 31, 2017 was $23.5 million compared to operating income of
$14.7 million for the year ended December 31, 2016. The change in operating income during the current year
was driven by restructuring charges incurred during 2017, as noted above. During the current year, the Company
recorded a $5.1 million loss to (gain) loss on sale of assets, mostly related to asset restructuring charges. In
comparison, the Company recorded a loss of $6.2 million to (gain) loss on sale of assets for the year ended
December 31, 2016.
Equity in loss of joint ventures for the year ended December 31, 2017 was $1.5 million compared to equity
in loss of joint ventures of $2.4 million for the year ended December 31, 2016. During 2017, the Company and
the partner of the TerraSea joint venture agreed to a final resolution of the net advances through additional
funding of the joint venture. As a result of this agreement, the Company recorded additional losses of
$1.5 million during the year ended December 31, 2017. The TerraSea, Amboy and Lower Main joint ventures
were dissolved in 2017.
The Company’s net interest expense for 2017 totaled $26.0 million compared with $22.9 million in 2016.
The increase in interest expense was largely attributable to interest expense related to the higher principal on the
Company’s new senior notes and higher interest expense associated with the Company’s senior secured
revolving credit facility, which had a greater amount outstanding during the current year. The increase in interest
expense was partially offset by a decrease in expense related to the Company’s senior secured term loan facility,
which was paid in full during the fourth quarter of 2016.
Income tax benefit in 2017 was $35.6 million, up from an income tax benefit of $5.8 million in 2016. Of
this $29.8 million change, $15.7 million is attributable the recent Tax Cuts and Jobs Act enacted in the fourth
quarter of 2017. The balance is primarily related to the lower pretax net income described above, partially offset
by the prior year revision of the deferred state tax rate which provided an additional benefit in 2016,
For the year ended December 31, 2017, net loss from continuing operations was $18.6 million compared to
$8.2 million for the year ended December 31, 2016. The change in net loss from continuing operations was
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negatively impacted by a decrease in operating income and increased interest expense during 2017, as described
above. Further contributing to the net loss from continuing operations was a $2.3 million loss on extinguishment
of debt related to the Company’s new senior notes issued during the current year. These items were partially
offset by the positive change in equity loss of joint ventures, as noted above and a positive change in other
expense of $2.6 million, mostly related to expenses incurred at the Company’s historical environmental &
infrastructure business in 2016 that did not repeat during the current year.
Adjusted EBITDA from continuing operations (as defined and reconciled on page 46) was $34.7 million
and $72.0 million for the years ended December 31, 2017 and 2016, respectively. Restructuring charges incurred
during the current year drove the decrease of $37.3 million, or 51.8%. Additionally, other changes in
consolidated gross profit and in general and administrative described above negatively impacted current year
EBITDA from continuing operations when compared to 2016. These negative impacts on EBITDA from
continuing operations were slightly offset by the positive changes in (gain) loss on sale of assets, equity in loss of
joint ventures, and other expense, as described above.
Results by segment
Dredging
Dredging revenues for the year ended December 31, 2017 were $592.2 million a decrease of $45.3 million,
or 7.1%, compared to $637.5 million for the year ended December 31, 2016. The decline in revenue during the
current year was the result of lower foreign and domestic capital revenues, coastal protection revenues and
rivers & lakes revenues as compared to the prior year. These decreases were partially offset by improvements in
maintenance revenues during the year ended December 31, 2017. The decrease in dredging revenue for the year
ended December 31, 2017 was driven by a greater amount of revenue earned in the prior year on large coastal
protection projects in New Jersey and New York for the repair of shorelines damaged as a result of Superstorm
Sandy and winter storms. Further, greater amounts of revenue were earned on the Savannah Harbor deepening
project, an LNG project in Texas and a deepening project on the Delaware River during the year ended 2016
when compared to 2017. The Company experienced an increase in maintenance revenue during the current year,
largely attributable to work on two large projects in Delaware in addition to projects in Florida, North Carolina,
Oregon and California which partially offset the decreases noted above. Dredging revenues in the current year
included coastal restoration projects in Louisiana and Mississippi as well as revenue from the initial stages of
mobilization on a deepening project in South Carolina. Coastal protection projects in Virginia, North Carolina,
South Carolina and Maryland also contributed to revenue for the year ended December 31, 2017.
Dredging segment gross profit in 2017 decreased 49.9% to $42.7 million from $85.3 million in 2016, and
dredging segment gross profit margin (dredging gross profit divided by dredging revenue) was 7.2% in 2017, a
decrease from 13.4% in 2016. The lower dredging segment gross profit for 2017 was driven by restructuring
charges incurred during the current year. The Company recorded $23.0 million of additional cost of contract
revenues related to restructuring which negatively impacted margin for the year ended December 31, 2017. The
majority of this amount is related to asset retirement charges of $15.8 million and $6.4 million of pre-contract
costs incurred on a project that was never formally awarded and that the Company no longer plans to pursue.
Further, the Company experienced lower contract margin in the dredging segment, specifically on the
Company’s smaller domestic inland projects, and decreased absorption of fixed costs due to lower utilization of
the fleet during the current year as compared to 2016.
Dredging segment operating income declined 139.3% to an operating loss of $13.4 million in 2017, from
operating income of $34.1 million in 2016 as a result of restructuring charges incurred during the current year, as
described above. Dredging segment operating income was negatively impacted by a $4.7 million loss recorded to
(gain) loss on the sale of assets during 2017, mostly related to asset restructuring charges. An increase in
technical and consulting fees and a one-time charge of $1.2 million related to severance also contributed to the
change in dredging segment operating income during the current year. The decrease in dredging segment
operating income was partially offset by a decrease in legal and professional fees of $2.4 million for the year
ended December, 31, 2017.
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The environmental & infrastructure segment recorded revenues in 2017 of $112.6 million, a $21.0 million,
or 15.7%, decrease from $133.6 million in 2016. The decline in revenue during the current year was largely
attributable to revenue earned on a large mine project in Washington during 2016 that did not recur in 2017.
Further, the Company earned a greater amount of revenue in the segment’s services lines of business in the prior
year as these services lines did not operate during 2017. Revenue earned on remediation projects in Florida, New
Jersey and Colorado and geotechnical projects in California during the current year partially offset the declines in
revenue noted above.
The environmental & infrastructure segment experienced gross profit of $7.2 million for year ended
December 31, 2017, up $6.1 million from gross profit of $1.0 million for the year ended December 31, 2016,
with a gross profit margin of 6.4% and 0.8%, respectively. The increase in gross profit was driven by lower
overhead in the environmental & infrastructure segment during 2017, primarily related to the service lines of the
environmental & infrastructure segment’s business that did not operate during the current year. Partially
offsetting this increase, the environmental & infrastructure segment experienced a project loss of $6.1 million
during the current year that negatively impact gross profit in 2017.
Environmental & infrastructure segment operating loss was $10.2 million for 2017, compared to
$19.4 million in 2016. The change in operating loss was mostly attributable to the higher segment gross profit
described above. Higher gross profit was partially offset by an increase in general and administrative expenses
during the current year. During the prior year, the Company reduced the remaining fair value of the Great Lakes
E&I contingent earnout by $8.0 million to zero which contributed to the change in the environmental &
infrastructure operating loss for 2017 when compared to 2016. The Company incurred a one-time charge of
$0.6 million related to severance during the current year which was offset by a decrease in payroll and benefits
costs, related to the service lines of the environmental & infrastructure segment’s business that did not operate
during 2017. The environmental & infrastructure segment experienced a decrease in amortization expense of
$0.7 million which partially offset the increase in general and administrative expenses. Further, the Company
experienced a positive change in (gain) loss on sale of assets for the year ended December 31, 2017. The prior
year was negatively impacted by a $2.8 million loss for the sale of assets associated with certain service lines of
the environmental & infrastructure segment.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Total revenue was $767.6 million in 2016, a decrease of $89.3 million, or 10.4%, from 2015 total revenue of
$856.9 million. The decrease was largely attributable to lower foreign capital, environmental & infrastructure
and maintenance revenues during 2016. These decreases were partially offset by increases in coastal protection,
rivers & lakes and domestic capital revenues during the year ended December 31, 2016. The Company
categorizes revenue by service type to understand the market in which the Company operates and to assess how
the Company is performing on bidding work or projects and is generating revenue from backlog.
Domestic capital dredging revenues increased $12.8 million, or 6.2%, to $219.9 million in 2016 compared
to 2015 revenues of $207.1 million. The increase in domestic capital dredging revenue was primarily attributable
to revenue earned on coastal restoration projects in Louisiana and the Savannah Harbor deepening project during
2016. The increased revenue from these projects was partially offset by revenue earned on the PortMiami
deepening project during 2015 that did not repeat in 2016. Work on a deepening project on the Delaware River
and a LNG project in Texas also contributed to revenues for the year ended December 31, 2016. In 2016, the
Company earned 49% of its backlog carried forward from December 31, 2015.
Revenues from foreign dredging operations in 2016 totaled $59.4 million, a decrease of $80.5 million, or
57.5%, from 2015 revenues of $139.9 million. Foreign dredging revenue in 2016 was driven by a project in
Saudi Arabia, three projects in Bahrain, two projects in Brazil and the final stages of demobilization on the
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project to widen and deepen the Suez Canal project. In comparison, revenue for 2015 was driven by a
significantly greater amount of revenue earned on the Suez Canal project. The Company earned 100% of its
backlog carried forward from December 31, 2015.
Coastal protection revenues were $215.0 million in 2016, an increase of $30.9 million, or 16.8%, from
$184.1 million in 2015. For the year ended December 31, 2016, the increase in coastal protection revenue was
attributable to a greater amount of revenue earned on large projects in New Jersey and New York for the repair of
shorelines damaged as a result of Superstorm Sandy and recent winter storms. Work on projects in Florida and
Delaware also contributed to revenue during 2016. The Company earned 100% of its backlog carried forward
from December 31, 2015.
Revenues from maintenance dredging projects in 2016 were $92.3 million, a decrease of $27.8 million, or
23.2%, from $120.1 million in 2015. The decrease in maintenance revenue during 2016 was mostly attributable
to a greater amount of revenue earned on maintenance work in New York and New Jersey as well as harbor work
in Texas and Delaware in 2015 that did not repeat during 2016. Maintenance work in Pennsylvania and harbor
work in Maryland contributed to revenue during the year ended December 31, 2016. The Company earned 100%
of its backlog from December 31, 2015.
Rivers & lakes revenues were $50.8 million for 2016, an increase of $20.7 million, or 68.7%, from
$30.1 million in 2015. The increase in revenue for the year ended December 31, 2016 was mostly attributable to
revenue earned on a reservoir project in Kansas as well as on projects in Mississippi and New Jersey during
2016. Further, the Company continued to work on the large lake project in Illinois. The Company earned 61% of
its backlog carried forward from December 31, 2015.
The environmental & infrastructure segment recorded revenues of $133.6 million for the year ended
December 31, 2016, down 26.5% compared to $181.7 million for the year ended December 31, 2015. The
decrease in revenue during 2016 was attributable to lower revenue in the segment’s services lines of business.
Additionally, a greater amount of revenue was earned on three geotechnical projects in California and a
remediation project in Washington during the prior year. A large mine project in Washington and remediation
projects in Michigan and Indiana also contributed to revenue during 2016. The Company earned 100% of its
backlog carried forward from December 31, 2015.
Consolidated gross profit for the year ended December 31, 2016 decreased by $9.5 million, or 9.9%, to
$86.4 million from $95.9 million for the year ended December 31, 2015. Gross profit margin (gross profit
divided by revenue) for the full year 2016 was 11.3%, in line with the prior year gross profit margin of 11.2%.
The lower gross profit for 2016 was driven by the absence of the strong contract margin on the Suez Canal
deepening project during 2016. This decrease was partially offset by strong margins on rivers & lakes projects
and improved project execution in the environmental & infrastructure segment during 2016 as compared to the
prior year. In comparison, gross profit in the prior year was negatively impacted by unforeseen circumstances
that led to project delays on two of the environmental & infrastructures segment’s largest projects in addition to
losses on several other environmental & infrastructure projects during 2015.
General and administrative expenses totaled $65.5 million for the year ended December 31, 2016, down
from $71.1 million for the year ended December 31, 2015. The decrease in general and administrative expense
for the full year 2016 as compared to 2015 was driven by a decrease of $5.2 million in amortization expense,
mostly attributable to the environmental & infrastructure segment and a $3.3 million decrease in payroll and
benefits. These decreases were partially offset by an increase in legal and professional fees of $2.2 million as
well as personnel and recruiting costs of $0.6 million. Further, the Company reduced the remaining fair value of
the GLEI contingent earnout by $8.0 million to zero during 2016. Similarly, general and administrative expenses
for 2015 include a reduction in the fair value of the Great Lakes E&I seller note payable of $7.0 million.
Operating income for the year ended December 31, 2016 was $14.7 million compared to $23.0 million for
the year ended December 31, 2015. In addition to the decrease in gross profit partially offset by lower general
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and administrative expenses described above, the Company recorded a $6.2 million loss on sale of assets during
2016. This loss was related to the sale of an underutilized asset during 2016 as well as the sale of assets
associated with certain service lines of the environmental & infrastructure segment in the fourth quarter of 2016.
Further, operating income was negatively impacted by a $2.7 million loss recorded to (gain) loss on the sale of
assets for assets reclassified to assets held for sale, representing the fair value less cost to sell, during the fourth
quarter of 2016. In comparison, the prior year includes a $2.8 million goodwill impairment charge at the Terra
reporting unit and a $0.8 million gain on sale of underutilized assets.
Equity in loss of joint ventures for the year ended December 31, 2016 was $2.4 million compared to equity
in loss of joint ventures of $6.1 million for the year ended December 31, 2015. During the fourth quarter of 2016,
the Company accrued $2.6 million for the estimated share of additional losses to be assumed from the TerraSea
joint venture which negatively impacted equity in loss of joint ventures for the year ended December 31, 2016. In
comparison, the Company experienced a $3.9 million loss related to the TerraSea joint venture and a $2.3 million
loss related to the wind down of the Amboy joint venture during 2015.
The Company’s net interest expense for 2016 totaled $22.5 million compared with $24.4 million in 2015.
The decrease in interest expense was mostly attributable to the reversal of interest expense associated with the
Great Lakes E&I contingent earnout and lower interest expense associated with the Company’s revolving credit
facility during 2016.
Income tax benefit in 2016 was $5.8 million, up from an income tax benefit of $2.5 million in 2015. This
$3.3 million change is primarily attributable to a revision of the deferred state tax rate which provided an
additional benefit in 2016.
For the year ended December 31, 2016, net loss from continuing operations was $8.2 million compared to
$6.2 million for the year ended December 31, 2015. Net income from continuing operations was negatively
impacted by a decrease in operating income during 2016, as described above, in addition to a $2.1 million
increase in other expense, mostly attributable to a contract incentive payment in 2015 which positively impacted
the prior year. These items were offset by the losses incurred at the Company’s joint ventures during the prior
year and increased income tax benefit during 2016.
Adjusted EBITDA from continuing operations (as defined and reconciled on page 46) was $72.0 million
and $83.0 million for the years ended December 31, 2016 and 2015, respectively. The decrease of $11.0 million,
or 13.3%, is mostly attributable the loss on sale of assets and the decrease in consolidated gross profit during
2016, as described above.
Results by segment
Dredging
Dredging revenues for the year ended December 31, 2016 were $637.5 million a decrease of $43.8 million,
or 6.4%, compared to $681.3 million for the year ended December 31, 2015. The decrease was largely
attributable to lower foreign capital and maintenance revenues during 2016. These decreases were partially offset
by increases in coastal protection, rivers & lakes and domestic capital revenues during the year ended
December 31, 2016. The decrease in dredging revenue is mostly attributable to the significantly greater amount
of revenue earned on the Suez Canal project during 2015 and revenue earned on the PortMiami project which did
not repeat in 2016. Revenues for the year ended December 31, 2016 were driven by large coastal protection
projects in New Jersey and New York for the repair of shorelines damaged as a result of Superstorm Sandy and
recent winter storm events, a reservoir project in Kansas, maintenance work in Pennsylvania, harbor work in
Maryland, coastal restoration projects in Louisiana and the Savannah Harbor deepening project.
Dredging segment gross profit in 2016 decreased 23.6% to $85.3 million from $111.7 million in 2015, and
dredging segment gross profit margin (dredging gross profit divided by dredging revenue) was 13.4% in 2016, a
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decrease from 16.4% in 2015. The lower gross profit margin for 2016 was driven by the absence of the strong
contract margin on the Suez Canal deepening project during 2016. This decrease was partially offset by strong
margins on rivers & lakes projects during 2016.
Dredging segment operating income for 2016 decreased 46.8% to $34.1 million, from $64.1 million in 2015
as a result of the strong margins on the Suez Canal project in the prior year, as described above. Additionally,
dredging segment operating income was negatively impacted by a loss on the sale of an underutilized asset
during 2016 as compared to a gain on the sale of assets in the prior year. Further, operating income was
negatively impacted by a $2.4 million loss recorded to (gain) loss on the sale of assets for assets reclassified to
assets held for sale, representing the fair value less cost to sell, during the fourth quarter of 2016. Dredging
general and administrative expenses were flat year over year.
Environmental & infrastructure
The environmental & infrastructure segment recorded revenues in 2016 of $133.6 million, a $48.1 million,
or 26.5%, decrease from $181.7 million in 2015. The decrease in revenue during 2016 was attributable to a
greater amount of revenue earned within the segment’s services lines of business during the prior year as well as
a greater amount of revenue earned on three geotechnical projects in California and a remediation project in
Washington during the prior year, although a large mine project in Washington and remediation projects in
Michigan and Indiana contributed to revenue during 2016.
The environmental & infrastructure segment experienced gross profit of $1.0 million for year ended
December 31, 2016, up $16.8 million from negative gross profit of $15.8 million for the year ended
December 31, 2015, with a gross profit margin of 0.8% and negative gross profit margin of 8.7%, respectively.
This increase in gross profit was a result of improved project execution during 2016 as compared to the prior
year. In comparison, gross profit in the prior year was negatively impacted by unforeseen circumstances that led
to project delays on two of the environmental & infrastructures segment’s largest projects in addition to losses on
several other projects during 2015.
Environmental & infrastructure segment operating loss was $19.4 million for 2016, compared to
$41.1 million in 2015. The change in operating loss was mostly attributable to the higher segment gross profit
described above and a $5.1 million decrease in amortization expense during 2016. These positive impacts on
operating income were partially offset by a $2.8 million loss for the sale of assets associated with certain service
lines of the environmental & infrastructure segment in the fourth quarter of 2016. In comparison, the prior year
includes a $2.8 million goodwill impairment charge at the Terra reporting unit. During the third quarter of 2016,
the Company reduced the remaining fair value of the GLEI contingent earnout by $8.0 million to zero. Similarly,
general and administrative expenses in 2015 included a reduction in the value of the GLEI seller note payable of
$7.0 million.
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The following table sets forth, by segment and type of dredging work, the Company’s backlog as of the
dates indicated (in thousands):
Backlog
Dredging:
Capital—U.S.
Capital—foreign
Coastal protection
Maintenance
Rivers & lakes
Dredging Backlog
Environmental & infrastructure
Total Backlog
December 31,
2017
December 31,
2016
December 31,
2015
$383,577
8,575
76,460
23,662
19,046
511,320
35,357
$234,575
22,025
109,871
56,929
44,298
467,698
37,645
$411,506
1,750
118,858
77,995
67,589
677,698
73,349
$546,677
$505,343
$751,047
The Company’s contract backlog represents its estimate of the revenues that will be realized under the
portion of the contracts remaining to be performed. For dredging contracts these estimates are based primarily
upon the time and costs required to mobilize the necessary assets to and from the project site, the amount and
type of material to be dredged and the expected production capabilities of the equipment performing the work.
For environmental & infrastructure contracts, these estimates are based on the time and remaining costs required
to complete the project relative to total estimated project costs and project revenues agreed to with the customer.
However, these estimates are necessarily subject to variances based upon actual circumstances. Because of these
factors, as well as factors affecting the time required to complete each job, backlog is not always indicative of
future revenues or profitability. Also, 81% of the Company’s 2017 dredging backlog relates to federal
government contracts, which can be canceled at any time without penalty to the government, subject to the
Company’s contractual right to recover the Company’s actual committed costs and profit on work performed up
to the date of cancellation. The Company’s backlog may fluctuate significantly from quarter to quarter based
upon the type and size of the projects the Company is awarded from the bid market. A quarterly increase or
decrease of the Company’s backlog does not necessarily result in an improvement or a deterioration of the
Company’s business. The Company’s backlog includes only those projects for which the Company has obtained
a signed contract with the customer.
Approximately 72% of the Company’s backlog at December 31, 2017 is expected to be completed and
converted to revenue in 2018.
Dredging
The 2017 domestic dredging bid market totaled $1,216 million, a 25.2% increase from the 2016 domestic
dredging bid market of $971.6 million. The increase in bid market for 2017 is primarily related to the award of
two large deepening projects in Charleston, South Carolina during the current year. The 2017 bid market was
also driven by the award of a deepening project on the Delaware River, two coastal restoration projects in the
Gulf of Mexico, multiple coastal protection projects in Maryland, South Carolina, Florida, New Jersey and
Delaware and maintenance projects in Pennsylvania, Virginia, Mississippi and New York. The Company won
49% of the overall 2017 domestic bid market, up significantly from its 29% win rate of the overall 2016 domestic
bid market and the Company’s prior three-year average win rate of 42%. The award of the two deepening
projects in Charleston, South Carolina drove the Company’s higher bid market win rate during the current year.
Variability in contract wins from period to period is not unusual. The Company believes trends in its win rate
over the prior three year periods provide a historical background against which current year results can be
compared.
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The Company’s December 31, 2017 contracted dredging backlog was $511.3 million. This represents an
increase of $43.6 million, or 9.3%, over the Company’s December 31, 2016 dredging backlog of $467.7 million.
These amounts do not reflect approximately $69.9 million of domestic low bids pending formal award and
additional phases (“options”) pending on projects currently in backlog. At December 31, 2016, the amount of
domestic low bids pending award was $24.6 million. Backlog at December 31, 2017 includes two deepening
projects in Charleston, South Carolina and two coastal restoration projects in Louisiana totaling approximately
$344 million.
The Company won 71%, or $349.0 million, of the domestic capital dredging projects awarded in 2017, a
significant increase from 22%, or $27.2 million, in the prior year. During 2017, the Company was awarded two
deepening projects in Charleston and a coastal restoration project in Mississippi which will continue into 2018.
In comparison, the awards during the prior year included a coastal restoration project in Louisiana. Domestic
capital dredging work made up $383.6 million, or 75%, of the Company’s December 31, 2017 contracted
dredging backlog. Domestic capital dredging backlog at December 31, 2017 was $149.0 million higher than the
prior year. The Company expects about 65% of its domestic capital backlog at December 31, 2017 to be
performed in 2018. The Panama Canal expansion was completed during the second quarter of 2016, which
continues to put pressure on the ports on the East Coast to continue with their studies and plans to deepen and
widen in anticipation of the post-Panamax vessels. Further, additional phases of the Jacksonville port continue to
look promising to potentially bid in 2018. In April 2016, the federal court in New Orleans approved the October
2015 settlement, of approximately $20 billion, between the United States, the five Gulf States and BP for
damages from the Deepwater Horizon oil spill. Louisiana will receive a minimum of $6.8 billion for claims
related to natural resource damages under the Oil Pollution Act, Clean Water Act as civil penalties, and the
State’s various economic claims. Many of the Gulf States previously committed to spending a portion of the fines
received to repair the natural resources impacted by the oil spill, including on coastal restoration projects that
include dredging. Although the bulk of the fines are to be paid over the next decade, the Company expects
several coastal restoration projects envisioned by the Gulf States to come to fruition in the next couple of years
providing a new source of domestic capital dredging projects on which the Company will bid. Further, the
Company is encouraged by the current administration’s focus on repairing and rebuilding America’s
infrastructure, including our nation’s ports and waterways.
Foreign capital dredging backlog decreased to $8.6 million at December 31, 2017 from $22.0 million at the
end of 2016. During 2017, the Company was awarded two sand supply projects and an LNG trench project in the
Middle East. During the second quarter of 2017, the Company was the low bidder on a $68 million land
reclamation project in Bahrain which the Company expects to be awarded in the first quarter of 2018. The
Company expects about 100% of its foreign capital backlog at December 31, 2017 to be performed in 2018.
Upcoming projects expected to be awarded are not being completed under the tight time constraints that were
required on prior years’ large infrastructure projects. As a result, anticipated margins in the current year are
expected to be lower than margins experienced internationally over the past several years. The world’s need for
reclaimed land continues to expand to support global energy consumption, seaborne trade, population growth and
tourism all of which are expected to add nearly 400 viable dredging projects over the next six years. The
Company expects the additional opportunities globally to provide a continued source of future international
dredging revenue.
The Company won 56%, or $145.1 million, of the coastal protection projects awarded in 2017, compared to
39%, or $163.6 million, in the prior year. During 2017, the Company was awarded a $26 million coastal
protection project in South Carolina, a $18 million project in New Jersey and six additional coastal protection
projects in Maryland, South Carolina, Florida and Pennsylvania as well as an option on a coastal protection
project in New Jersey. In comparison, the prior year included large projects in Virginia and North Carolina as
well as two projects in Florida and three Superstorm Sandy appropriated projects in New Jersey and New York.
The Company has contracted dredging backlog related to coastal protection of $76.5 million at December 31,
2017 compared to $109.9 million at the end of 2016. The decrease in backlog at December 31, 2017 is due to
revenue earned in 2017 on projects in backlog at December 31, 2016. The Company expects about 100% of its
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coastal protection backlog at December 31, 2017 to be performed in 2018. Funding related to Northeastern U.S.
beach replenishment continues to be released and the Company is anticipating these new dredging projects along
the coast to continue in 2018. Federal and state government actions continue to support the repair and
improvement of America’s coastline through the completion of protective beaches and berms. During February
2018, the U.S. Senate Committee on Appropriations announced the supplemental appropriations for disaster
relief and recovery which includes $17.4 billion for the Corps to fund projects that will reduce the risk of future
damage from flood and storm events. Although it is uncertain the impact that this will have on the dredging
market, the Company believes it is a positive indicator for work in the coastal protection and restoration markets.
The Company won 22%, or $93.5 million, of the maintenance dredging projects awarded in 2017 compared
to 23%, or $68.0 million, in 2016. During the year ended December 31, 2017, the Company was awarded
maintenance projects in North Carolina, Louisiana, Maryland, Virginia and projects on the Columbia and
Delaware Rivers. The Company continued to earn revenue on projects in Maryland, Massachusetts,
Pennsylvania, Florida and Delaware which were in backlog at December 31, 2016. The Company’s contracted
maintenance dredging backlog at December 31, 2017 of $23.7 million is $33.3 million lower than the backlog of
$56.9 million at December 31, 2016. The Company expects about 90% of its maintenance dredging backlog at
December 31, 2017 to be performed in 2018. The budget for fiscal year 2017 provides for a record budget for the
Corps of $6 billion and exceeds the increase in Harbor Maintenance Trust Fund (“HMTF”) spending for
maintenance dredging as required by the 2014 Water Resources and Development Act. Further, the water
resources development bill, rebranded as the Water Infrastructure Improvements for the Nation Act (“WIIN”)
was enacted during the fourth quarter of 2016. WIIN emphasizes previous Water Resources Reform and
Development Act (“WRRDA”) language which calls for full use of the HMTF for its intended purpose of
maintaining future access to the waterways and ports that support our nation’s economy. Further, WIIN ensures
that Harbor Maintenance Tax (“HMT”) funding targets will increase by three per cent over the prior year, even if
the HMT revenue estimates decrease, to continue annual progress towards full use of the HMT by 2025. Through
the increased appropriation of HMTF monies, the Company anticipates an increase in harbor projects to be let for
bid throughout 2018 and beyond.
The Company won 8%, or $2.6 million, of the rivers & lakes projects in the markets where the group
operates during the current year, compared to 16%, or $21.7 million, in 2016. During the current year, the
Company was awarded a rivers & lakes project in New Jersey. In comparison, rivers & lakes awards during the
prior year included projects in New Jersey, Mississippi and Florida. The Company has contracted dredging
backlog related to rivers & lakes of $19.0 million at December 31, 2017, which is $25.3 million lower than the
backlog of $44.3 million at December 31, 2016. The decrease at December 31, 2017 is the result of the Company
continuing to earn revenue on its large lake project in Illinois during 2017. The Company expects about 60% of
its rivers & lakes backlog at December 31, 2017 to be performed in 2018.
Environmental & infrastructure
Environmental & infrastructure segment backlog was $35.4 million and $37.6 million at December 31, 2017
and 2016, respectively, a decrease of $2.3 million year over year. During the year ended December 31, 2017, the
Company was awarded three levee projects in California, remediation projects in California, New Jersey, South
Dakota, Colorado and Texas and two geotechnical projects in California. The small decline during the current
year was driven by revenue earned on a remediation project in New Jersey and the completion of a remediation
project in Florida during 2017. The Company expects about 81% of its environmental & infrastructure backlog at
December 31, 2017 to be performed in 2018. As part of the environmental & infrastructure segment’s initiatives,
the Company will focus on geographical expansion in the geotechnical services business. The Company
anticipates an increase in levee work in 2018 due to the recent flooding in the Northwest. Further, the Company
anticipates additional contracting opportunities arising from the transformation of the U.S. energy infrastructure,
specifically related to the remediation requirements as mandated by the EPA’s rule to the regulate the disposal of
coal combustion residuals from electric utilities promulgated in June 2015.
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The Company’s principal sources of liquidity are net cash flows provided by operating activities,
borrowings under the Company’s revolving credit facility and proceeds from issuances of long-term debt. See
Note 8, Long-Term Debt, to our consolidated financial statements included in Item 15 of this Annual Report on
Form 10-K. The Company’s principal uses of cash are to meet debt service requirements, finance capital
expenditures, and provide working capital and other general corporate purposes.
The Company’s net cash provided by operating activities of continuing operations for the years ended
December 31, 2017, 2016 and 2015 totaled $42.4 million, $38.7 million and $29.1 million, respectively. Normal
increases or decreases in the level of working capital relative to the level of operational activity impact cash flow
from operating activities. The change in net cash provided by operating activities of continuing operations in the
current year was driven by a lower investment in working capital during 2017. Cash provided by operating
activities for the year ended December 31, 2016 was up compared to 2015 due to lower investment in working
capital, specifically related to the final billings and collections on large projects completed late in 2015 but
collected during 2016. This positive impact of working capital was slightly offset by lower net income during
2016 as compared to 2015.
The Company’s net cash flows used in investing activities of continuing operations for the years ended
December 31, 2017, 2016 and 2015 totaled $51.1 million, $72.6 million and $73.1 million, respectively.
Investing activities in all periods primarily relate to normal course upgrades and capital maintenance of the
Company’s dredging fleet. For the years ended December 31, 2017, 2016 and 2015, the Company spent
$43.3 million, $53.9 million and $34.5 million, respectively, on the construction of the ATB. The ATB was
placed in service during the fourth quarter of 2017. During 2017, the Company also received $10.1 million in
proceeds from dispositions of property and equipment, mostly related to the refinancing of two dredges. For the
year ended December 31, 2016, the Company received $18.3 million in proceeds from the sale of underutilized
equipment and the sale of assets associated with certain service lines of the environmental & infrastructure
segment compared to $1.3 million in proceeds in 2015. Further, in connection with the termination of the
Company’s former revolving credit agreement, the Company was required to issue cash collateral of $7.0 million
related to two letters of credit during 2016. During the first quarter of 2017, new letters of credit were issued
under the Company’s new credit facility, and the cash used to collateralize the previous letters of credit was paid
back in full to the Company.
The Company’s net cash flows provided by financing activities of continuing operations for the years ended
December 31, 2017, 2016 and 2015 totaled $34.2 million, $30.8 million and $15.9 million, respectively. Net cash
flows provided by financing activities for the year ended December 31, 2017 increased due to the issuance of the
Company’s $325 million of 8% senior notes during the second quarter of 2017. The Company used a portion of
the net proceeds to redeem its $275 million of 7 3/8% senior notes and repay a portion of the Company’s
revolver. The changes in net cash flows provided by financing activities were further impacted by net borrowings
on the Company’s revolving credit facility. The Company repaid $9.1 million of borrowing during 2017 while
net borrowings were $84.1 million and $20.0 million for the years ended December 31, 2016 and 2015,
respectively. The Company also paid $5.0 million in financing fees on the issuance of the senior notes during the
current year period. The senior secured term loan facility was paid in full during the fourth quarter of 2016.
Credit agreement
On December 30, 2016, the Company, Great Lakes Dredge & Dock Company, LLC, NASDI Holdings,
LLC, Great Lakes Dredge & Dock Environmental, Inc., Great Lakes Environmental & Infrastructure Solutions,
LLC and Great Lakes Environmental & Infrastructure, LLC (collectively, the “Credit Parties”) entered into a
revolving credit and security agreement, as subsequently amended, (the “Credit Agreement”) with certain
financial institutions from time to time party thereto as lenders, PNC Bank, National Association, as Agent, PNC
Capital Markets, The PrivateBank and Trust Company, Suntrust Robinson Humphrey, Inc., Capital One,
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National Association and Bank of America, N.A., as Joint Lead Arrangers and Joint Bookrunners, Texas Capital
Bank, National Association, as Syndication Agent and Woodforest National Bank, as Documentation Agent. The
Credit Agreement, which replaced the Company’s former revolving credit agreement, provides for a senior
secured revolving credit facility in an aggregate principal amount of up to $250 million, subfacilities for the
issuance of standby letters of credit up to a $250 million sublimit and swingline loans up to a $25 million
sublimit. The maximum borrowing capacity under the Credit Agreement is determined by a formula and may
fluctuate depending on the value of the collateral included in such formula at the time of determination. The
Credit Agreement also includes an increase option that will allow the Company to increase the senior secured
revolving credit facility by an aggregate principal amount of up to $100 million. This increase is subject to
lenders providing incremental commitments for such increase, the Credit Parties having adequate borrowing
capacity and provided that no default or event of default exists both before and after giving effect to such
incremental commitment increase.
On December 6, 2017, the Company and the Credit Parties entered into a Consent and Amendment No. 3
(the “Credit Amendment”) to the Credit Agreement with the Agent, and the other required lenders thereunder.
The Credit Amendment was entered into to, among other things, obtain consent from the required lenders under
the Credit Agreement to permit the Company to consummate certain asset sales, retirements and other
restructuring activities described therein, as part of the Company’s plan to reduce overhead, retire certain
underperforming and underutilized assets and close out the Company’s Brazilian operations. This consent is
subject to a number of important conditions, qualifications, limitations and exceptions that are described in the
Credit Amendment.
The Credit Amendment also amends the Credit Agreement to provide that (i) with respect to the Company’s
2017 and 2018 fiscal years, upon written election from the Company to Agent, including supporting
documentation in form and substance satisfactory to Agent, up to an aggregate of $20 million of expenses related
to the buy-out of operating leases shall not constitute capital expenditures under the Credit Agreement; and (ii) if
the amount of capital expenditures incurred by all Credit Parties in fiscal year 2017 does not exceed $75 million
then any amount remaining may be carried forward to be incurred in fiscal year 2018; provided further that, the
aggregate amount of all capital expenditures incurred by all Credit Parties in fiscal years 2017 and 2018 does not
exceed $135 million. Additionally, the Credit Amendment contains acknowledgments and agreements from the
Agent and the required lenders with respect to certain EBITDA add-backs for fiscal years 2017 and 2018
described therein.
The Credit Agreement contains customary representations and affirmative and negative covenants,
including a springing financial covenant that requires the Credit Parties to maintain a fixed charge coverage ratio
(ratio of earnings before income taxes, depreciation and amortization, net interest expenses, non-cash charges
and losses and certain other non-recurring charges, minus capital expenditures, income and franchise taxes, to net
cash interest expense plus scheduled cash principal payments with respect to debt plus restricted payments paid
in cash) of not more than 1.10 to 1.00. The Company is required to maintain this ratio if its availability under the
Credit Agreement falls below $31.3 million for five consecutive days or $25.0 million for one day. The Credit
Parties are also restricted in the amount of capital expenditures they may make in each of the next three fiscal
years. The Credit Agreement also contains customary events of default (including non-payment of principal or
interest on any material debt and breaches of covenants) as well as events of default relating to certain actions by
the Company’s surety bonding providers. The obligations of the Credit Parties under the Credit Agreement will
be unconditionally guaranteed, on a joint and several basis, by each existing and subsequently acquired or formed
material direct and indirect domestic subsidiary of the Company. Borrowings under the Credit Agreement will be
used to refinance existing indebtedness under the Company’s former revolving credit agreement, refinance
existing indebtedness under the Company’s former term loan agreement, pay fees and expenses related to the
Credit Agreement, finance acquisitions permitted under the Credit Agreement, finance ongoing working capital
and for other general corporate purposes. The Credit Agreement matures on December 30, 2019.
The obligations under the Credit Agreement are secured by substantially all of the assets of the Credit
Parties. The outstanding obligations thereunder shall be secured by a valid first priority perfected lien on
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substantially all of the vessels of the Credit Parties and a valid perfected lien on all domestic accounts receivable
and substantially all other assets of the Credit Parties, subject to the permitted liens and interests of other parties
(including the Company’s surety bonding providers).
Interest on the senior secured revolving credit facility of the Credit Agreement is equal to either a Base Rate
option or LIBOR option, at the Company’s election. The Base Rate option is (1) the base commercial lending
rate of PNC Bank, National Association, as publically announced plus (2)(a) an interest margin of 2.0% or
(b) after the date on which a borrowing base certificate is required to be delivered under Section 9.2 of the Credit
Agreement (commencing with the fiscal quarter ending December 31, 2017, the “Adjustment Date”), an interest
margin ranging between 1.5% and 2.0% depending on the quarterly average undrawn availability on the senior
secured revolving credit facility. The LIBOR option is the sum of (1) LIBOR and (2) (a) an interest margin of
3.0% or (b) after the Adjustment Date, an interest rate margin ranging between 2.5% to 3.0% per annum
depending on the quarterly average undrawn availability on the senior secured revolving credit facility. The
Credit Agreement is subject to an unused fee ranging from 0.25% to 0.375% per annum depending on the
amount of average daily outstandings under the senior secured revolving credit facility.
The obligations of Great Lakes under the Credit Agreement are unconditionally guaranteed, on a joint and
several basis, by each existing and subsequently acquired or formed material direct and indirect domestic
subsidiary of the Company. During a year, the Company frequently borrows and repays amounts under its
revolving credit facility. As of December 31, 2017, the Company had $95.0 million of borrowings on the
revolver and $34.3 million of letters of credit outstanding, resulting in $76.8 million of availability under the
Credit Agreement.
Term loan facility
In conjunction with the Credit Agreement entered into on December 30, 2016, the Term Loan Facility was
paid in full.
Surety agreements
Performance and bid bonds are customarily required for dredging and marine construction projects, as well
as some environmental & infrastructure projects. The Company has a bonding agreement with the Sureties under
which the Company can obtain performance, bid and payment bonds. The Company also has outstanding bonds
with Travelers Casualty and Surety Company of America and Zurich. Bid bonds are generally obtained for a
percentage of bid value and amounts outstanding typically range from $1 million to $10 million. At
December 31, 2017, the Company had outstanding performance bonds valued at approximately $1,340.8 million
of which $41.1 million relates to projects accounted for in discontinued operations. The revenue value remaining
in backlog related to the projects of continuing operations totaled approximately $515.3 million.
In connection with the sale of our historical demolition business, the Company was obligated to keep in
place the surety bonds on pending demolition projects for the period required under the respective contract for a
project and issued Zurich a letter of credit related to this exposure. In February 2017, the Company was notified
by Zurich of an alleged default triggered on a historical demolition surety performance bond in the aggregate of
approximately $20 million for failure of the contractor to perform in accordance with the terms of a project. In
May 2017, Zurich drew upon the letter of credit in the amount of $20.9 million. In order to fund the draw on the
letter of credit, the Company had to increase the borrowings on its revolving credit facility. As the outstanding
letters of credit previously reduced our availability under the revolving credit facility, this draw down on our
letter of credit does not impact our liquidity or capital availability.
Pursuant to the terms of sale of our historical demolition business, the Company received an indemnification
from the buyer for losses resulting from the bonding arrangement. The Company intends to aggressively pursue
enforcement of the indemnification provisions if the buyer of the historical demolition business is found to be in
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default of its obligations. The Company cannot estimate the amount or range of recoveries related to the
indemnification or resolution of the Company’s responsibilities under the surety bond. The surety bond claim
impact has been included in discontinued operations and is discussed in Note 14, Commitments and
Contingencies, to the Company’s condensed consolidated financial statements.
Senior notes
In May 2017, the Company issued $325 million in aggregate principal amount of its 8% senior notes (“8%
Senior Notes”) due May 15, 2022. Approximately $283 million of the net proceeds from the issuance of the 8%
Senior Notes were used to prepay all of the Company’s 7.375% senior notes due February 2019, including a
tender premium and accrued and unpaid interest. Interest on the 8% Senior Notes is payable semi-annually in
arrears on May 15 and November 15 of each year, beginning on November 15, 2017. The 8% Senior Notes are
senior unsecured obligations of the Company and will be guaranteed on a senior unsecured basis by the
guarantors and any other subsidiary guarantors that from time to time become parties to the indenture. The terms
of the indenture will, among other things, limit the ability of the Company and its restricted subsidiaries to (i) pay
dividends, or make certain other restricted payments or investments; (ii) incur additional indebtedness and issue
disqualified stock; (iii) create liens on their assets; (iv) transfer and sell assets; (v) enter into certain business
combinations with third parties or into certain other transactions with affiliates; (vi) create restrictions on
dividends or other payments by the Company’s restricted subsidiaries; and (vii) create guarantees of indebtedness
by restricted subsidiaries. These covenants are subject to a number of important limitations and exceptions that
are described in the indenture.
Other
The future declaration and payment of dividends will be at the discretion of the Company’s board of
directors and will depend on many factors, including general economic and business conditions, the Company’s
strategic plans, its financial results and condition and legal requirements, including restrictions and limitations
contained in the Credit Agreement, bonding agreement and the indenture relating to its senior notes.
Accordingly, the Company cannot make any assurances as to the size of any such dividend or that it will pay any
such dividend in future quarters.
The impact of changes in functional currency exchange rates against the U.S. dollar on non-U.S. dollar cash
balances, primarily the Australian dollar and the Brazilian real, is reflected in the cumulative translation
adjustment—net within accumulated other comprehensive income (loss). Cash held in non-U.S. dollar currencies
primarily is used for project-related and other operating costs in those currencies reducing the Company’s
exposure to future realized exchange gains and losses.
The Company believes its cash and cash equivalents, its anticipated cash flows from operations and
availability under its revolving credit facility will be sufficient to fund the Company’s operations, capital
expenditures and the scheduled debt service requirements for the next twelve months. Beyond the next twelve
months, the Company’s ability to fund its working capital needs, planned capital expenditures, scheduled debt
payments and dividends, if any, and to comply with all the financial covenants required under the Credit
Agreement, depends on its future operating performance and cash flows, which in turn are subject to prevailing
economic conditions and to financial, business and other factors, some of which are beyond the Company’s
control.
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Contractual Obligations
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The following table summarizes the Company’s contractual cash obligations at December 31, 2017.
Additional information related to these obligations can be found in Note 8, Long-Term Debt, and Note 14,
Commitments and Contingencies, to the Company’s consolidated financial statements.
Obligations coming due in year(s) ending:
Equipment notes payable (2)
Senior notes (3)
Notes payable (4)
Long term bank debt (5)
Operating lease commitments
Total
2019-
2021
2022-
2024
2025 and
beyond
Total (1)
2018
$
$ 1.5
1.8
26.0
439.8
16.3
2.0
95.0 —
21.3
82.5
$
0.3
78.0
6.9
95.0
44.0
$ —
335.8
7.4
—
17.2
$635.4
$50.8
$224.3
$360.4
$—
—
—
—
—
$—
(1) Excluded from the above table are $0.2 million in liabilities for uncertain tax positions for which the period
of settlement is not determinable.
Includes cash interest payments calculated at stated fixed rate of 8.000%.
(2) Represents principal and interest on ten capital equipment leases.
(3)
(4) Represents the principal on one piece of vessel financing and all corresponding interest payments.
(5) Represents the Credit Agreement. At December 31, 2017, total outstanding on this facility was $95 million.
Includes cash interest payments calculated at variable rates between 4.37% and 6.50%.
Other Off-Balance Sheet and Contingent Obligations
The Company had outstanding letters of credit relating to foreign contract guarantees and insurance
payment liabilities totaling $34.8 million at December 31, 2017. The Company has granted liens on a substantial
portion of its owned operating equipment as security for borrowings under its Credit Agreement and other
indebtedness.
The Company finances certain key vessels, office space, and other equipment used in its operations with
off-balance sheet operating lease arrangements with unrelated lessors, requiring annual rentals of $21.3 million in
2018 which will decline to $2.9 million over the next seven years subject to future lease arrangements. These
off-balance sheet leases contain default provisions, which are triggered by an acceleration of debt maturity under
the terms of the Company’s Credit Agreement. Additionally, the leases typically contain provisions whereby the
Company indemnifies the lessors for the tax treatment attributable to such leases based on the tax rules in place
at lease inception. The tax indemnifications do not have a contractual dollar limit. To date, no lessors have
asserted any claims against the Company under these tax indemnification provisions.
At December 31, 2017, the Company had outstanding performance bonds with a notional amount of
$1,340.8 million of which $41.1 million relates to projects from the Company’s historical environmental &
infrastructure businesses. The revenue value remaining in backlog related to the projects of continuing operations
totaled $515.3 million.
In connection with the sale of our historical demolition business, the Company was obligated to keep in
place the surety bonds on pending demolition projects for the period required under the respective contract for a
project and issued Zurich a letter of credit related to this exposure. In February 2017, the Company was notified
by Zurich of an alleged default triggered on a historical demolition surety performance bond in the aggregate of
approximately $20 million for failure of the contractor to perform in accordance with the terms of a project. In
May 2017, Zurich drew upon the letter of credit in the amount of $20.9 million. In order to fund the draw on the
letter of credit, the Company had to increase the borrowings on its revolving credit facility. As the outstanding
61
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letters of credit previously reduced the Company’s availability under the revolving credit facility, the draw down
on the Company’s letter of credit does not impact its liquidity or capital availability.
Certain foreign projects performed by the Company have warranty periods, typically spanning no more than
one to three years beyond project completion, whereby the Company retains responsibility to maintain the project
site to certain specifications during the warranty period. Generally, any potential liability of the Company is
mitigated by insurance, shared responsibilities with consortium partners, and/or recourse to owner-provided
specifications.
The Company considers it unlikely that it would have to perform under any of the aforementioned
contingent obligations, other than operating leases.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
A significant portion of the Company’s current dredging operations are conducted outside of the U.S.,
primarily in the Middle East. It is the Company’s policy to hedge foreign currency exchange risk on contracts
denominated in currencies other than the U.S. dollar, if available. Currently, the majority of the Company’s
foreign dredging work is in the Middle East. The currency in Bahrain, the Bahraini Dinar, is linked to the U.S.
dollar; therefore, there is no foreign currency exposure on these transactions. At December 31, 2017, the
Company had no foreign exchange forward contracts outstanding.
At December 31, 2017, the Company had long-term senior notes outstanding with a recorded face value of
$325.0 million. The fair value of these existing notes, which bear interest at a fixed rate of 8.000%, was
$340.0 million at December 31, 2017 based on market prices. Assuming a 10% decrease in interest rates from the
rates at December 31, 2017 the fair value of this fixed rate debt would have increased to $349.3 million.
A significant operating cost for the Company is diesel fuel, which represents approximately 6% of the
Company’s costs of contract revenues. The Company uses fuel commodity forward contracts, typically with
durations of less than one year, to reduce the impacts of changing fuel prices on operations. The Company does
not purchase fuel hedges for trading purposes. Based on the Company’s 2018 projected domestic fuel
consumption, a 10% increase in the average price per gallon of fuel would have an immaterial effect on fuel
expense, after the effect of fuel commodity contracts in place at December 31, 2017. At December 31, 2017 the
Company had outstanding arrangements to hedge the price of a portion of its fuel purchases related to domestic
dredging work in backlog, representing approximately 80% of its anticipated domestic fuel requirements through
December 2017. As of December 31, 2017, there were 9.8 million gallons remaining on these contracts. Under
these agreements, the Company will pay fixed prices ranging from $1.53 to $2.02 per gallon. At December 31,
2017, the fair value asset on these contracts was estimated to be $2.5 million, based on quoted market prices and
is recorded in other current assets. A 10% change in forward fuel prices would result in an immaterial change in
the fair value of fuel hedges outstanding at December 31, 2017.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements (including financial statement schedules listed under Item 15 of this
Report) of the Company called for by this Item, together with the Report of Independent Registered Public
Accounting Firm dated February 28, 2018, are set forth on pages 71 to 112 inclusive, of this Report, and are
hereby incorporated by reference into this Item. Financial statement schedules not included in this Report have
been omitted because they are not applicable or because the information called for is shown in the consolidated
financial statements or notes thereto.
Quarterly Results of Operations (Unaudited)
The following tables set forth our unaudited quarterly results of operations for 2017 and 2016. We have
prepared this unaudited information on a basis consistent with the audited consolidated financial statements
contained in this report and this unaudited information includes all adjustments, consisting only of normal
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recurring adjustments that we consider necessary for a fair presentation of our results of operations for the
quarters presented. You should read this quarterly financial data along with the Condensed Consolidated
Financial Statements and the related notes to those statements included in our Quarterly Reports on Form 10-Q
filed with the Commission. The operating results for any quarter are not necessarily indicative of the results for
the annual period or any future period.
March 31,
Quarter Ended
June 30,
September 30, December 31,
2017
Contract revenues
Costs of contract revenues
Gross profit
General and administrative expenses
Loss on sale of assets—net
Operating income (loss)
Interest expense—net
Equity in earnings (loss) of joint ventures
Loss on extinguishment of debt
Other income (expense)
Loss before income taxes
Income tax benefit
Loss from continuing operations
Income (loss) from discontinued operations, net of income
taxes
Net loss
Basic loss per share attributable to continuing operations
Basic loss per share attributable to discontinued operations, net
of tax
Basic loss per share
Basic weighted average shares
Diluted loss per share attributable to continuing operations
Diluted loss per share attributable to discontinued operations,
net of tax
Diluted loss per share
Diluted weighted average shares
Unaudited
(dollars in millions except shares in thousands and per
share data)
$ 170.6
(154.4)
$ 176.9
(151.1)
$ 163.3
(146.6)
$ 191.7
(200.5)
16.2
(16.8)
(0.0)
(0.6)
(5.6)
0.0
—
0.2
(6.0)
2.3
(3.7)
25.8
(17.3)
(0.2)
8.3
(6.4)
(1.5)
(2.3)
(0.3)
(2.2)
1.1
(1.1)
16.7
(17.5)
(0.2)
(1.0)
(6.4)
0.0
—
(0.3)
(7.7)
2.7
(5.0)
(13.1)
0.4
—
(8.8)
(16.7)
(4.7)
(30.2)
(7.6)
(0.0)
—
(0.4)
(38.3)
29.5
(8.8)
—
$ (16.8) $
(0.7)
$
(5.0)
$
(8.8)
$ (0.06) $ (0.02)
$ (0.08)
$ (0.14)
(0.21)
—
$ (0.27) $ (0.02)
61.3
61.1
—
$ (0.08)
61.5
—
$ (0.14)
61.6
$ (0.06) $ (0.02)
$ (0.08)
$ (0.14)
(0.21)
—
$ (0.27) $ (0.02)
61.3
61.1
—
$ (0.08)
61.5
—
$ (0.14)
61.6
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2016
Contract revenues
Costs of contract revenues
Gross profit
General and administrative expenses
Gain on sale of assets—net
Operating income (loss)
Interest expense—net
Equity in earnings (loss) of joint ventures
Other expense
Income (loss) before income taxes
Income tax (provision) benefit
Net income (loss)
Basic earnings (loss) per share
Basic weighted average shares
Diluted earnings (loss) per share
Diluted weighted average shares
Note: Items may not sum due to rounding.
Quarter Ended
March 31,
June 30,
September 30, December 31,
Unaudited
(dollars in millions except shares in thousands and per
share data)
$ 163.1
(143.1)
$ 192.2
(167.9)
$ 198.9
(178.8)
$ 213.4
(191.3)
20.0
(20.1)
—
(0.1)
(5.7)
(0.1)
(0.8)
(6.7)
2.7
$
(4.0) $
24.3
(19.8)
(0.7)
3.8
(5.9)
0.1
(0.5)
(2.5)
0.8
(1.7)
$ (0.07) $ (0.03)
60.7
60.5
$ (0.07) $ (0.03)
60.7
60.5
20.0
(7.2)
—
12.9
(4.8)
—
(0.6)
7.4
(2.9)
$
4.6
$ 0.07
60.8
$ 0.07
61.5
22.1
(18.5)
(5.5)
(1.9)
(6.5)
(2.4)
(1.5)
(12.2)
5.2
$
(7.0)
$ (0.11)
60.9
$ (0.11)
60.9
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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures.
a) Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the Company’s disclosure controls and procedures, as required by Rule 13a-15(b)
under the Securities Exchange Act of 1934 (the “Exchange Act”) as of December 31, 2017. Our disclosure
controls and procedures are designed to ensure that information required to be disclosed in the reports that we file
or submit under the Exchange Act (a) is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure and
(b) is recorded, processed, summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms.
Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that
the Company’s disclosure controls and procedures, as designed and implemented, were effective as of
December 31, 2017. Notwithstanding the foregoing, a control system, no matter how well designed, implemented
and operated can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the
Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.
b) Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act) during the fiscal quarter ended December 31, 2017 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
c) Management’s annual report on internal control over financial reporting
The management of Great Lakes Dredge & Dock Corporation, including its Chief Executive Officer and
Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rules 13a-15(f), and 15d-15(f) under the Securities Exchange Act of 1934). Management
has used the framework set forth in the report entitled Internal Control—Integrated Framework (2013) published
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) to evaluate the
effectiveness of the Company’s internal control over financial reporting.
The phrase internal control over financial reporting refers to the process designed by, or under the
supervision of, our Chief Executive Officer and Chief Financial Officer, and overseen by our Board of Directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles, and includes those policies and procedures that:
•
•
•
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with general accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of management
and directors of the Company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of the Company’s assets that could have a material effect on the financial statements.
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Neither internal control over financial reporting nor disclosure controls and procedures can provide absolute
assurance of achieving financial reporting objectives because of their inherent limitations. Internal control over
financial reporting and disclosure controls are processes that involve human diligence and compliance, and are
subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial
reporting and disclosure controls also can be circumvented by collusion or improper management override.
Because of such limitations, there is a risk that material misstatements may not be prevented, detected or reported
on a timely basis by internal control over financial reporting or disclosure controls. However, these inherent
limitations are known features of the financial reporting process. Therefore, it is possible to design safeguards for
these processes that will reduce, although may not eliminate, these risks.
Our independent registered public accounting firm, Deloitte & Touche LLP, who audited Great Lakes’
consolidated financial statements included in this Annual Report on Form 10-K, has issued a report on Great
Lakes’ internal control over financial reporting, which is included herein.
Management has concluded that our internal control over financial reporting was effective as of
December 31, 2017.
/s/ MARK W. MARINKO
Mark W. Marinko
Senior Vice President and Chief Financial Officer
February 28, 2018
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Great Lakes Dredge & Dock Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Great Lakes Dredge & Dock Corporation and
subsidiaries (the “Company”) as of December 31, 2017, based on criteria established in Internal Control—Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control—Integrated Framework (2013) issued by
COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for
the year ended December 31, 2017, of the Company and our report dated February 28, 2018, expressed an
unqualified opinion on those financial statements and financial statement schedule.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 28, 2018
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Item 9B. Other Information
None.
Part III
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Item 10. Directors, Executive Officers and Corporate Governance
Information regarding our executive officers is incorporated by reference herein from the discussion under
Item 1. Business—Executive Officers of the Registrant in this Annual Report on Form 10-K.
Code of Ethics
The Company has adopted a written code of business conduct and ethics that applies to all of its employees,
including its principal executive officer, principal financial officer, controller, and persons performing similar
functions. The Company’s code of ethics can be found on its website at www.gldd.com. The Company will post
on our website any amendments to or waivers of the code of business conduct and ethics for executive officers or
directors, in accordance with applicable laws and regulations.
The remaining information called for by this Item 10 is incorporated by reference herein from the
discussions under the headings “Election of Directors,” “Board of Directors and Corporate Governance” and
“Security Ownership of Certain Beneficial Owners and Management” and “Section 16(a) Beneficial Ownership
Reporting Compliance” in the definitive Proxy Statement for the 2018 Annual Meeting of Stockholders.
Item 11. Executive Compensation
The information required by Item 11 of Form 10-K is incorporated by reference herein from the discussions
under the headings “Executive Compensation Tables”, “Compensation Discussion and Analysis”, “Board of
Directors and Corporate Governance” and “CEO Pay Ratio” in the definitive Proxy Statement for the 2018
Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by Item 12 of Form 10-K is incorporated by reference herein from the discussion
under the heading “Security Ownership of Certain Beneficial Owners and Management” and “Equity
Compensation Plan Information” in our definitive Proxy Statement for the 2018 Annual Meeting of
Stockholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 of Form 10-K is incorporated by reference herein from the discussions
under the headings “Board of Directors and Corporate Governance” and “Change of Control of the Company”
and “Certain Relationships and Related Transactions” in the definitive Proxy Statement for the 2018 Annual
Meeting of Stockholders.
Item 14. Principal Accounting Fees and Services
The information required by Item 14 of Form 10-K is incorporated by reference herein from the discussion
under the heading “Matters Related to Independent Registered Public Accounting Firm” in the definitive Proxy
Statement for the 2018 Annual Meeting of Stockholders.
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Part IV
Item 15. Exhibits, Financial Statement Schedules
(a) Documents filed as part of this report
1. Financial Statements
The financial statements are set forth on pages 71 to 112 of this Report and are incorporated by reference in
Item 8 of this Report.
2. Financial Statement Schedules
All other schedules, except Schedule II—Valuation and Qualifying Accounts on page 113, are omitted
because they are not required or the required information is shown in the financial statements or notes thereto.
3. Exhibits
The exhibits required to be filed by Item 601 of Regulation S-K are listed in the “Exhibit Index” which is
attached hereto and incorporated by reference herein.
Item 16. Form 10-K Summary
None.
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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017 AND 2016, AND FOR
THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
71
72
73
74
75
76
78
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Great Lakes Dredge & Dock Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Great Lakes Dredge & Dock Corporation and
subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of
operations, comprehensive loss, equity, and cash flows for each of the three years in the period ended
December 31, 2017, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to
as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,
based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2018, expressed an
unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 28, 2018
We have served as the Company’s auditor since 1991
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Great Lakes Dredge & Dock Corporation and Subsidiaries
Consolidated Balance Sheets
As of December 31, 2017 and 2016
(in thousands, except per share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable—net
Contract revenues in excess of billings
Inventories
Prepaid expenses
Other current assets
Total current assets
PROPERTY AND EQUIPMENT—Net
GOODWILL
OTHER INTANGIBLE ASSETS—Net
INVENTORIES—Noncurrent
INVESTMENTS IN JOINT VENTURES
ASSETS HELD FOR SALE— Noncurrent
OTHER
TOTAL
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable
Accrued expenses
Billings in excess of contract revenues
Current portion of long-term debt
Total current liabilities
LONG-TERM DEBT
REVOLVING CREDIT FACILITY
DEFERRED INCOME TAXES
OTHER
Total liabilities
COMMITMENTS AND CONTINGENCIES (Note 14)
EQUITY:
Common stock—$.0001 par value; 90,000 authorized, 61,897 and 61,240 shares
issued; 61,619 and 60,962 outstanding at December 31, 2017 and December 31,
2016, respectively.
Treasury stock, at cost
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
Total equity
TOTAL
See notes to consolidated financial statements.
72
2017
2016
$ 15,852
75,533
90,788
34,600
5,183
40,228
262,184
407,294
83,576
908
54,023
2,714
8,530
13,128
$ 11,167
88,091
95,012
37,137
12,407
63,412
307,226
413,008
83,576
1,499
52,602
4,734
9,299
21,644
$832,357
$893,588
$ 87,659
56,218
3,615
2,758
$103,185
69,043
5,141
2,465
150,250
333,141
95,000
25,561
7,109
179,834
286,291
104,111
68,449
7,013
611,061
645,698
6
(1,433)
289,821
(67,101)
3
6
(1,433)
286,303
(35,841)
(1,145)
221,296
247,890
$832,357
$893,588
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Great Lakes Dredge & Dock Corporation and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31, 2017, 2016 and 2015
(in thousands, except per share amounts)
CONTRACT REVENUES
COSTS OF CONTRACT REVENUES
GROSS PROFIT
OPERATING EXPENSES:
GENERAL AND ADMINISTRATIVE EXPENSES
IMPAIRMENT OF GOODWILL
(GAIN) LOSS ON SALE OF ASSETS—Net
Total operating income (loss)
OTHER EXPENSE:
Interest expense—net
Equity in loss of joint ventures
Loss on extinguishment of debt
Other expense
Total other expense
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
INCOME TAX BENEFIT
LOSS FROM CONTINUING OPERATIONS
Loss from discontinued operations, net of income taxes
NET LOSS
Basic loss per share attributable to loss from continuing operations
Basic loss per share attributable to loss on discontinued operations, net of
income taxes
Basic loss per share
Basic weighted average shares
Diluted loss per share attributable to loss from continuing operations
Diluted loss per share attributable to loss on discontinued operations, net of
income taxes
Diluted loss per share
Diluted weighted average shares
2017
2016
2015
$702,503
652,620
$767,585
681,197
$856,878
760,955
49,883
86,388
95,923
68,331
—
5,077
(23,525)
(26,046)
(1,484)
(2,330)
(788)
(30,648)
(54,173)
35,610
(18,563)
(12,697)
65,533
—
6,175
14,680
(22,907)
(2,365)
—
(3,377)
(28,649)
(13,969)
5,792
(8,177)
—
71,069
2,750
(855)
22,959
(24,365)
(6,051)
—
(1,229)
(31,645)
(8,686)
2,497
(6,189)
—
$ (31,260) $ (8,177) $ (6,189)
$
(0.30) $
(0.13) $
(0.10)
(0.21)
—
—
$
$
(0.51) $
(0.13) $
61,365
60,744
(0.30) $
(0.13) $
(0.10)
60,410
(0.10)
(0.21)
—
—
$
(0.51) $
(0.13) $
61,365
60,744
(0.10)
60,410
See notes to consolidated financial statements.
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Great Lakes Dredge & Dock Corporation and Subsidiaries
Consolidated Statements of Comprehensive Loss
For the Years Ended December 31, 2017, 2016 and 2015
(in thousands)
2017
2016
2015
Net loss
Currency translation adjustment—net of tax (1)
Net unrealized loss on derivatives—net of tax (2)
Other comprehensive income (loss)—net of tax
Comprehensive loss
$(31,260) $(8,177) $(6,189)
(1,249)
—
(41)
1,189
508
330
1,148
838
(1,249)
$(30,112) $(7,339) $(7,438)
(1) Net of income tax (provision) benefit of $44, $(338) and $827 for the years ended December 31, 2017, 2016
and 2015, respectively.
(2) Net of income tax benefit of $1,048 and $216 for the years ended December 31, 2017 and 2016,
respectively.
See notes to consolidated financial statements.
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Great Lakes Dredge & Dock Corporation and Subsidiaries
Consolidated Statements of Equity
For the Years Ended December 31, 2017, 2016 and 2015
(in thousands)
Great Lakes Dredge & Dock Corporation shareholders
Shares of
Common
Stock
Common
Stock
Shares of
Treasury
Stock
Treasury
Stock
Additional
Paid-In
Capital
BALANCE—January 1, 2015
Share-based compensation
Vesting of restricted stock units, including
impact of shares withheld for taxes
Exercise of stock options and purchases from
employee stock plans
Excess income tax benefit from share-based
compensation
Purchase of treasury stock
Net loss
Other comprehensive loss—net of tax
60,170
$
6
154 —
115 —
270 —
—
—
—
—
—
—
—
—
BALANCE—December 31, 2015
60,709
$
6
Share-based compensation
Vesting of restricted stock units, including
impact of shares withheld for taxes
Exercise of stock options and purchases from
employee stock purchase plan
Excess income tax benefit from share-based
compensation
Net loss
Other comprehensive income—net of tax
148 —
74 —
309 —
—
—
—
—
—
—
—
—
—
—
—
(278)
—
—
(278)
—
—
—
—
—
—
Accumulated
Other
Comprehensive
Income
(Loss)
Total
$ (734)
—
$255,963
4,040
—
—
—
—
—
(1,249)
(267)
1,365
(57)
(1,433)
(6,189)
(1,249)
Accumulated
Deficit
$(21,475)
—
—
—
—
—
(6,189)
—
— $278,166
4,040
—
—
—
—
(1,433)
—
—
(267)
1,365
(57)
—
—
—
(1,433) $283,247
$(27,664)
$(1,983)
$252,173
—
—
—
—
—
—
2,455
(171)
905
(133)
—
—
—
—
—
—
(8,177)
—
—
—
—
—
—
838
2,455
(171)
905
(133)
(8,177)
838
BALANCE—December 31, 2016
61,240
$
6
(278)
(1,433) $286,303
$(35,841)
$(1,145)
$247,890
Share-based compensation
Vesting of restricted stock units, including
impact of shares withheld for taxes
Exercise of stock options and purchases from
employee stock purchase plan
Net loss
Other comprehensive income—net of tax
248 —
147 —
262 —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,963
(328)
—
—
883
—
—
—
(31,260)
—
—
—
—
—
1,148
2,963
(328)
883
(31,260)
1,148
BALANCE—December 31, 2017
61,897
$
6
(278) $(1,433) $289,821
$(67,101)
$
3
$221,296
See notes to consolidated financial statements.
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Great Lakes Dredge & Dock Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2017, 2016 and 2015
(in thousands)
OPERATING ACTIVITIES:
Net loss
Loss from discontinued operations, net of income taxes
Loss from continuing operations
Adjustments to reconcile net loss to net cash flows provided by operating
activities:
Depreciation and amortization
Equity in (earnings) loss of joint ventures
Loss on extinguishment of 7 3/8% senior subordinated notes
Cash distributions from joint ventures
Deferred income taxes
(Gain) loss on dispositions of property and equipment
Impairment of goodwill
Gain on adjustment of contingent consideration
Other non-cash restructuring items
Amortization of deferred financing fees
Unrealized foreign currency (gain) loss
Unrealized net (gain) loss from mark-to-market valuations of
derivatives
Share-based compensation expense
Excess income tax benefit from share-based compensation
Changes in assets and liabilities:
Accounts receivable
Contract revenues in excess of billings
Inventories
Prepaid expenses and other current assets
Accounts payable and accrued expenses
Billings in excess of contract revenues
Other noncurrent assets and liabilities
Net cash flows provided by operating activities of continuing
operations
Net cash flows used in operating activities of discontinued operations
Cash provided by operating activities
INVESTING ACTIVITIES:
Purchases of property and equipment
Proceeds from dispositions of property and equipment
Changes in restricted cash
Cash used in investing activities
2017
2016
2015
$ (31,260) $
(12,697)
(8,177) $
—
(18,563)
(8,177)
(6,189)
—
(6,189)
60,520
(5,008)
2,330
8,486
(34,684)
5,077
—
—
15,678
3,280
(206)
1,747
2,963
—
12,544
4,254
(2,237)
(1,170)
(9,579)
(1,347)
(1,667)
63,023
(4,494)
—
5,129
(6,109)
6,175
—
(8,940)
—
2,922
477
(6,135)
2,455
133
41,274
(13,554)
(6,239)
(5,310)
(17,762)
(2,002)
(4,196)
42,418
(20,900)
21,518
38,670
—
38,670
64,585
771
—
8,384
(2,689)
(855)
2,750
(8,444)
—
2,766
(1,054)
1,359
4,040
57
(20,190)
48
(6,612)
(9,730)
306
2,325
(2,506)
29,122
—
29,122
(68,229)
10,077
7,035
(83,798)
18,257
(7,035)
(74,455)
1,322
—
(51,117)
(72,576)
(73,133)
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FINANCING ACTIVITIES:
Proceeds from issuance of debt
Repayments of debt
7 3/8% senior notes tender premium
Deferred financing fees
Taxes paid on settlement of vested share awards
Exercise of stock options and purchases from employee stock plans
Excess income tax benefit from share-based compensation
Purchase of treasury stock
Borrowings under revolving loans
Repayments of revolving loans
Cash provided by financing activities
Effect of foreign currency exchange rates on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
2017
2016
2015
326,241
(277,750)
(744)
(5,022)
(328)
883
—
—
124,925
(134,036)
34,169
115
4,685
11,167
—
(47,085)
—
(6,817)
(171)
905
(133)
—
288,611
(204,500)
30,810
79
(3,017)
14,184
3,050
(6,644)
—
(111)
(267)
1,365
(57)
(1,433)
179,500
(159,500)
15,903
(97)
(28,205)
42,389
Cash and cash equivalents at end of period
$ 15,852
$ 11,167
$ 14,184
Supplemental Cash Flow Information Cash paid for interest
$ 34,789
$ 26,563
$ 25,391
Cash paid for income taxes
Non-cash Investing and Financing Activities
Property and equipment purchased but not yet paid
Property and equipment purchased on capital leases and equipment notes
Property & equipment purchased on notes payable
$
$
$
$
365
$
200
$
586
4,255
$
8,795
$
7,380
— $
— $
2,190
— $
— $ 15,569
See notes to consolidated financial statements.
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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF December 31, 2017 AND 2016 AND FOR THE
YEARS ENDED December 31, 2017, 2016 AND 2015
(In thousands, except per share amounts or as otherwise noted)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization—Great Lakes Dredge & Dock Corporation and its subsidiaries (the “Company” or “Great
Lakes”) are in the business of marine construction, primarily dredging, and soil, water and sediment
environmental and remediation services. The Company’s primary dredging customers are domestic and foreign
government agencies, as well as private entities, and its environmental and remediation customers are general
contractors, corporations, environmental engineering and construction firms that commission projects and local
government and municipal agencies.
Principles of Consolidation and Basis of Presentation—The consolidated financial statements include the
accounts of Great Lakes Dredge & Dock Corporation and its majority-owned subsidiaries. All intercompany
accounts and transactions are eliminated in consolidation. The equity method of accounting is used for
investments in unconsolidated investees in which the Company has significant influence, but not control. Other
investments, if any, are carried at cost.
Use of Estimates—The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from
those estimates.
Revenue and Cost Recognition on Contracts—Substantially all of the Company’s contracts for dredging
services are fixed-price contracts, which provide for remeasurement based on actual quantities dredged. The
majority of the Company’s environmental & infrastructure contracts, previously referred to as environmental &
remediation, are also fixed-price contracts, with others performed on a time-and-materials basis. Contract
revenues are recognized under the percentage-of-completion method based on the Company’s engineering
estimates of the physical percentage completed for dredging projects and based on costs incurred to date
compared to total estimated costs for fixed-price environmental & infrastructure projects. For dredging projects,
costs of contract revenues are adjusted to reflect the gross profit percentage expected to be achieved upon
ultimate completion. For environmental & infrastructure contracts, contract revenues are adjusted to reflect the
estimated gross profit percentage. Revisions in estimated gross profit percentages are recorded in the period
during which the change in circumstances is experienced or becomes known. As the duration of most of the
Company’s contracts is one year or less, the cumulative net impact of these revisions in estimates, individually
and in the aggregate across our projects, does not significantly affect our results across annual reporting periods.
Provisions for estimated losses on contracts in progress are made in the period in which such losses are
determined. Change orders are not recognized in revenue until the recovery is probable and collectability is
reasonably assured. Claims for additional compensation due to the Company are not recognized in contract
revenues until such claims are settled. Billings on contracts are generally submitted after verification with the
customers of physical progress and may not match the timing of revenue recognition. The difference between
amounts billed and recognized as revenue is reflected in the balance sheet as either contract revenues in excess of
billings or billings in excess of contract revenues. Modifications may be negotiated when a change from the
original contract specification is encountered, and a change in project scope, performance methodology and/or
material disposal is necessary. Thus, the resulting modification is considered a change in the scope of the original
project to which it relates. Significant expenditures incurred incidental to major contracts are deferred and
recognized as contract costs based on contract performance over the duration of the related project. These
expenditures are reported as prepaid expenses.
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The components of costs of contract revenues include labor, equipment (including depreciation,
maintenance, insurance and long-term rentals), subcontracts, fuel, supplies, short-term rentals and project
overhead. Project costs, excluding labor, have averaged approximately 23% of total costs of contract revenues
over the prior three years. Hourly labor generally is hired on a project-by-project basis. Much of our domestic
dredging hourly labor force is represented by labor unions with collective bargaining agreements that expire at
various dates during 2018 through 2023, which historically have been extended without disruption. The
environmental & infrastructure segment’s hourly labor force is made up of union and non-union employees.
During the year, both dredging equipment utilization and the timing of fixed cost expenditures fluctuate
significantly. Accordingly, the Company allocates these fixed equipment costs to interim periods in proportion to
dredging revenues recognized over the year, to better match revenues and expenses. Specifically, at each interim
reporting date the Company compares actual dredging revenues earned to date on the Company’s dredging
contracts to expected annual revenues and recognizes dredging equipment costs on the same proportionate basis.
In the fourth quarter, any over or under allocated equipment costs are recognized such that the expense for the
year equals actual equipment costs incurred during the year. As a result of this methodology, the recorded
expense in any interim period may be higher or lower than the actual equipment costs incurred in that interim
period.
For some environmental & infrastructure contracts, the Company has entered into unincorporated
construction joint ventures under which certain portions of a larger project are performed. These investments are
accounted for under the proportionate consolidation method for income statement reporting and under the equity
method for balance sheet reporting. The Company’s interests in any profits and assets and proportionate share in
any losses and liabilities are recognized based on the Company’s stated percentage partnership interest in the
project. For projects related to proportionately consolidated joint ventures, we include only the Company’s
percentage ownership of each joint venture’s backlog.
Classification of Current Assets and Liabilities—The Company includes in current assets and liabilities
amounts realizable and payable in the normal course of contract completion, unless completion of such contracts
extends significantly beyond one year.
Cash Equivalents—The Company considers all highly liquid investments with a maturity at purchase of
three months or less to be cash equivalents.
Accounts Receivable—Accounts receivable represent amounts due or billable under the terms of contracts
with customers, including amounts related to retainage. The Company anticipates collection of retainage
generally within one year, and accordingly presents retainage as a current asset. The Company provides an
allowance for estimated uncollectible accounts receivable when events or conditions indicate that amounts
outstanding are not recoverable.
Inventories—Inventories consist of pipe and spare parts used in the Company’s dredging operations. Pipe
and spare parts are purchased in large quantities; therefore, a certain amount of pipe and spare part inventories is
not anticipated to be used within the current year and is classified as long-term. Spare part inventories are stated
at weighted average historical cost, and are charged to expense when used in operations. Pipe inventory is
recorded at cost and amortized to expense over the period of its use.
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Property and Equipment—Capital additions, improvements, and major renewals are classified as property
and equipment and are carried at depreciated cost. Maintenance and repairs that do not significantly extend the
useful lives of the assets or enhance the capabilities of such assets are charged to expenses as incurred.
Depreciation is recorded over the estimated useful lives of property and equipment using the straight-line method
and the mid-year depreciation convention. The estimated useful lives by class of assets are:
Class
Useful Life (years)
Buildings and improvements
Furniture and fixtures
Vehicles, dozers, and other light operating equipment
and systems
Heavy operating equipment (dredges and barges)
10
5-10
3-5
10-30
Leasehold improvements are amortized over the shorter of their remaining useful lives or the remaining
terms of the leases.
Goodwill and Other Intangible Assets—Goodwill represents the excess of acquisition cost over fair value
of the net assets acquired. Other identifiable intangible assets mainly represent developed technology and
databases, customer relationships, and customer contracts acquired in business combinations and are being
amortized over a one to five-year period. Goodwill is tested annually for impairment in the third quarter of each
year, or more frequently should circumstances dictate. GAAP requires that goodwill of a reporting unit be tested
for impairment between annual tests if an event occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying amount.
The Company assesses the fair values of its reporting units using both a market-based approach and an
income-based approach. Under the income approach, the fair value of the reporting unit is based on the present
value of estimated future cash flows. The income approach is dependent on a number of factors, including
estimates of future market growth trends, forecasted revenues and expenses, appropriate discount rates and other
variables. The estimates are based on assumptions that the Company believes to be reasonable, but such
assumptions are subject to unpredictability and uncertainty. Changes in these estimates and assumptions could
materially affect the determination of fair value, and may result in the impairment of goodwill in the event that
actual results differ from those estimates.
The market approach measures the value of a reporting unit through comparison to comparable companies.
Under the market approach, the Company uses the guideline public company method by applying estimated
market-based enterprise value multiples to the reporting unit’s estimated revenue and Adjusted EBITDA. The
Company analyzes companies that performed similar services or are considered peers. Due to the fact that there
are no public companies that are direct competitors, the Company weighs the results of this approach less than
the income approach.
The Company has two operating segments: dredging and environmental & infrastructure, which are also the
Company’s two reportable segments and reporting units.
Long-Lived Assets—Long-lived assets are comprised of property and equipment and intangible assets
subject to amortization. Long-lived assets to be held and used are reviewed for possible impairment whenever
events indicate that the carrying amount of such assets may not be recoverable by comparing the undiscounted
cash flows associated with the assets to their carrying amounts. If such a review indicates an impairment, the
carrying amount would be reduced to fair value. No triggering events were identified in 2017 or 2016. If long-
lived assets are to be disposed, depreciation is discontinued, if applicable, and the assets are reclassified as held
for sale at the lower of their carrying amounts or fair values less estimated costs to sell.
Self-insurance Reserves—The Company self-insures costs associated with its seagoing employees covered
by the provisions of Jones Act, workers’ compensation claims, hull and equipment liability, and general business
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liabilities up to certain limits. Insurance reserves are established for estimates of the loss that the Company may
ultimately incur on reported claims, as well as estimates of claims that have been incurred but not yet reported. In
determining its estimates, the Company considers historical loss experience and judgments about the present and
expected levels of cost per claim. Trends in actual experience are a significant factor in the determination of such
reserves.
Income Taxes—The provision for income taxes includes federal, foreign, and state income taxes currently
payable and those deferred because of temporary differences between the financial statement and tax basis of
assets and liabilities. Recorded deferred income tax assets and liabilities are based on the estimated future tax
effects of differences between the financial and tax basis of assets and liabilities, given the effect of currently
enacted tax laws. The Company’s current policy is to repatriate all earnings from foreign subsidiaries’ operations
as generated and at this time no amounts are considered to be permanently reinvested in those operations. On
December 22, 2017, the U.S. government enacted comprehensive tax legislation referred to as the Tax Cuts and
Jobs Act. See Note 10.
Hedging Instruments—At times, the Company designates certain derivative contracts as a cash flow hedge
as defined by GAAP. Accordingly, the Company formally documents, at the inception of each hedge, all
relationships between hedging instruments and hedged items, as well as our risk-management objective and
strategy for undertaking hedge transactions. This process includes linking all derivatives to highly-probable
forecasted transactions.
The Company formally assesses, at inception and on an ongoing basis, the effectiveness of hedges in
offsetting changes in the cash flows of hedged items. Hedge accounting treatment may be discontinued when
(1) it is determined that the derivative is no longer highly effective in offsetting changes in the cash flows of a
hedged item (including hedged items for forecasted future transactions), (2) the derivative expires or is sold,
terminated or exercised, (3) it is no longer probable that the forecasted transaction will occur or (4) management
determines that designating the derivative as a hedging instrument is no longer appropriate. If management elects
to stop hedge accounting, it would be on a prospective basis and any hedges in place would be recognized in
accumulated other comprehensive income (loss) until all the related forecasted transactions are completed or are
probable of not occurring.
Foreign Currency Translation—The financial statements of the Company’s foreign subsidiaries where the
operations are primarily denominated in the foreign currency are translated into U.S. dollars for reporting.
Balance sheet accounts are translated at the current foreign exchange rate at the end of each period and income
statement accounts are translated at the average foreign exchange rate for each period. Gains and losses on
foreign currency translations are reflected as a currency translation adjustment, net of tax, in accumulated other
comprehensive income (loss). Foreign currency transaction gains and losses are included in other income
(expense).
Recent Accounting Pronouncements—In January 2017, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standard Update No. 2017-04 (“ASU 2017-04”), Intangibles—Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill Impairment. The amendment removes the requirement to compare
the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. The
guidance is effective for fiscal years beginning after December 15, 2019. The Company does not anticipate that
the adoption of ASU 2017-04 will have a material effect on the Company’s consolidated financial statements.
In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard
Update No. 2016-18 (“ASU 2016-18”), Statement of Cashflows (Topic 230): Restricted Cash. The amendments
require that the statement of cash flows explain the changes during the period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore amounts
generally described as restricted cash or restricted cash equivalents should be included with the cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of
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cash flows. The guidance is effective for fiscal years beginning after December 15, 2017. The Company does not
anticipate that the adoption of ASU 2016-18 will have a material effect on the Company’s consolidated financial
statements.
In August 2016, the FASB issued Accounting Standard Update No. 2016-15 (“ASU
2016-15”), Classification of Certain Cash Receipts and Cash Payments which amends FASB’s standards for
reporting cash flows in general-purpose financial statements. The amendments address the diversity in practice
related to the classification of certain cash receipts and payments. The guidance is effective for fiscal years
beginning after December 15, 2017. The Company does not anticipate that the adoption of ASU 2016-15 will
have a material effect on the Company’s consolidated financial statements.
In February 2016, the FASB issued Accounting Standard Update No. 2016-02 (“ASU 2016-02”), Leases
(Topic 842). The Board issued this update to increase the transparency and comparability among organizations
by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing
arrangements. The guidance is effective for fiscal years beginning after December 15, 2018, including interim
periods within those annual periods. The Company is currently evaluating the impact of ASU 2016-02 on its
consolidated financial statements.
In May 2014, the FASB issued Accounting Standard Update No. 2014-09, Revenue from Contracts with
Customers (Topic 606), and subsequently issued other Accounting Standard Updates related to Accounting
Standards Codification Topic 606 (collectively, “ASC 606”) which supersedes the existing revenue recognition
requirements. ASC 606 is based on the principle that revenue is recognized to depict the transfer of goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. The Company adopted ASC 606 as of January 1, 2018, under the modified
retrospective method where the cumulative effect is recognized at the date of initial application. The cumulative
net adjustment to the beginning retained earnings balance is expected to be less than $5,000. The Company has
evaluated the impact of ASC 606 and has determined that fixed-price contracts, which comprise substantially all
of the Company’s revenue, will most often represent a single performance obligation. The Company will
measure progress toward completion utilizing the cost-to-cost method, which represents a change from our prior
practice of measuring completion based on engineering estimates of the physical percentage completed for
dredging projects. Also, the Company will be required to capitalize certain pre-contract and pre-construction
costs, and defer recognition over the life of the contract. In contrast, contract fulfillment costs will be required to
be recognized in the income statement when incurred. Accordingly, the adoption of ASC 606 may result in a
change in the timing of recognition of both contract revenue and cost from our prior practices. In addition, the
Company expects to add qualitative and quantitative disclosures around disaggregation of revenue, remaining
performance obligation, and other impacts to the Company’s contract revenue balances. The Company does not
anticipate that the adoption of ASU 2014-09 will have a material effect on the Company’s consolidated financial
statements.
2. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income attributable to common stockholders by the
weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share
is computed similar to basic earnings per share except that it reflects the potential dilution that could occur if
dilutive securities or other obligations to issue common stock were exercised or converted into common stock.
For the years ended December 31, 2017, 2016 and 2015 the dilutive effect of 716 thousand, 623 thousand and
431 thousand stock options (“NQSO”) and restricted stock units (“RSU”), respectively, were excluded from the
diluted weighted-average common shares outstanding as the Company incurred a loss during these periods. For
the years ended December 31, 2017, 2016 and 2015 2,476 thousand, 1,594 thousand and 1,179 thousand NQSOs
and RSUs, respectively, were excluded from the calculation of diluted earnings per share based on the
application of the treasury stock method, as such NQSOs and RSUs were determined to be anti-dilutive.
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The computations for basic and diluted loss per share for the years ended December 31, 2017, 2016 and
2015 are as follows:
(shares in thousands)
Loss from continuing operations
Loss on discontinued operations, net of income taxes,
attributable to Great Lakes Dredge & Dock
Corporation
Net loss attributable to common stockholders of Great
Lakes Dredge & Dock Corporation
Weighted-average common shares outstanding—basic
Effect of stock options and restricted stock units
2017
2016
2015
$(18,563)
$ (8,177)
$ (6,189)
(12,697)
—
—
$(31,260)
61,365
—
$ (8,177)
60,744
—
$ (6,189)
60,410
—
Weighted-average common shares outstanding—diluted
61,365
60,744
60,410
Loss per share from continuing operations—basic
Loss per share from continuing operations—diluted
$
$
(0.30)
(0.30)
$ (0.13)
$ (0.13)
$ (0.10)
$ (0.10)
3. RESTRICTED AND ESCROWED CASH
At December 31, 2017, the Company had restricted cash of $3,742, of which $1,500 was included in other
noncurrent assets and $2,242 was included in other current assets. Restricted cash included in other noncurrent
assets relates to cash held in escrow as security for the Company’s lease rental obligation under a long-term
equipment operating lease. Restricted cash included in other current assets relates to cash held in escrow related
to an outstanding lawsuit at our historical demolition business.
At December 31, 2016, the Company had restricted cash of $10,777 of which $8,535 was included in other
noncurrent assets and $2,242 was included in other current assets. Restricted cash included in other noncurrent
assets relates to $7,035 of cash collateral issued for two letters of credit in connection with the termination of the
Company’s former revolving credit agreement and $1,500 relates to cash held in escrow as security for the
Company’s lease rental obligation under a long-term equipment operating lease. Restricted cash included in other
current assets relates to cash held in escrow related to an outstanding lawsuit at our historical demolition
business.
4. ACCOUNTS RECEIVABLE AND CONTRACTS IN PROGRESS
Accounts receivable at December 31, 2017 and 2016 are as follows:
Completed contracts
Contracts in progress
Retainage
Allowance for doubtful accounts
Total accounts receivable—net
Current portion of accounts receivable—net
Long-term accounts receivable and retainage
Total accounts receivable—net
83
2017
2016
$15,974
42,759
21,866
$18,727
53,137
21,399
80,599
(591)
93,263
(747)
$80,008
$92,516
$75,533
4,475
$88,091
4,425
$80,008
$92,516
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The components of contracts in progress at December 31, 2017 and 2016 are as follows:
Costs and earnings in excess of billings:
Costs and earnings for contracts in progress
Amounts billed
2017
2016
$ 558,557
(490,732)
$ 587,371
(511,548)
Costs and earnings in excess of billings for contracts in progress
Costs and earnings in excess of billings for completed contracts
67,825
22,963
75,823
19,189
Total contract revenues in excess of billings
$ 90,788
$ 95,012
Billings in excess of costs and earnings:
Amounts billed
Costs and earnings for contracts in progress
Total billings in excess of contract revenues
$(325,350)
321,735
$(268,754)
263,613
$
(3,615)
$
(5,141)
The Company has $17,860 included in costs in excess of billings that are dependent upon the sale of
environmental credits earned for a wetland mitigation project. The sale of these credits is subject to market
factors that could cause the amount of expected revenue to be higher or lower than currently estimated. If the
amount of proceeds received from the sale of the environmental credits is lower than our expectations, we could
sustain a loss of part or all of costs incurred related to this project. Additionally, the timing of realization may be
impacted by the timing of a delay in the sale of these environmental credits, requiring a longer period required to
recover our investment.
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2017 and 2016 are as follows:
Land
Buildings and improvements
Furniture and fixtures
Operating equipment
Total property and equipment
Accumulated depreciation
Property and equipment—net
2017
2016
$
9,992
5,092
12,990
805,748
833,822
$
9,992
5,133
11,998
788,989
816,112
(426,528)
(403,104)
$ 407,294
$ 413,008
Operating equipment of $8,530 and $9,299 was classified as held for sale, excluded from property and
equipment, as of December 31, 2017 and 2016, respectively. A $2,330 and $2,744 loss was recorded to (gain)
loss on sale of assets—net for held for sale assets reclassified from property and equipment representing the fair
value less cost to sell for the years ended December 31, 2017 and 2016, respectively.
Depreciation expense was $59,927, $61,694 and $58,050, for the years ended December 31, 2017, 2016 and
2015, respectively.
For more information about changes in assets held for sale and depreciation expense related to the
Company’s restructuring refer to Note 13, Restructuring Charges.
6. GOODWILL AND OTHER INTANGIBLE ASSETS
The Company’s annual goodwill impairment test is conducted in the third quarter of each year and interim
evaluations are performed when the Company determines that a triggering event has occurred that would more
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likely than not reduce the fair value of goodwill below its carrying value. The Company performed its annual
goodwill impairment test as of July 1, 2017 with no indication of impairment. As of the test date, the fair value of
the remaining reporting units was in excess of their carrying values. The Company will perform its next
scheduled annual test of goodwill in the third quarter of 2018 should no triggering events occur which would
require a test prior to the next annual test.
During 2015, due to a decline in the overall financial performance and declining cash flows in the Terra
reporting unit, the Company concluded there was a triggering event that required an interim goodwill impairment
test for the reporting unit. The Company performed step one of the goodwill impairment test as of June 30, 2015,
which compared the fair value of the Terra reporting unit against its carrying amount, including goodwill. In
deriving the fair value of the Terra reporting unit, the Company used both a market-based approach and an
income-based approach. Under the income approach, the fair value of the reporting unit is based on the present
value of estimated future cash flows. Under the market approach, the Company uses the guideline public
company method by applying estimated market-based enterprise value multiples to the reporting unit’s estimated
revenue and Adjusted EBITDA from continuing operations. Based on the first step analysis, management
concluded that the fair value of the Terra reporting unit was less than its carrying value; therefore, the Company
performed step two of the goodwill impairment analysis.
Step two of the goodwill impairment analysis measures the impairment charge by allocating the reporting
unit’s fair value to all of the assets and liabilities of the reporting unit in a hypothetical analysis that calculates
implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business
combination. Any excess of the carrying value of the reporting unit’s goodwill over the implied fair value of the
reporting unit’s goodwill is recorded as a loss on impairment of goodwill.
Management determined that the Terra reporting unit’s implied fair value of goodwill was below the
carrying value as of June 30, 2015. As a result, the Company recorded an impairment charge of $2,750 in the
second quarter of 2015.
The change in the carrying amount of goodwill during the years ended December 31, 2017 and 2016 is as
follows:
Balance—January 1, 2015
Impairment of goodwill
Balance—December 31, 2016
Balance—December 31, 2017
Dredging Segment
Environmental &
Infrastructure Segment
$76,576
—
76,576
$76,576
$ 9,750
(2,750)
7,000
$ 7,000
Total
$86,326
(2,750)
83,576
$83,576
At December 31, 2017 and 2016, the net book value of identifiable intangible assets was as follows:
As of December 31, 2017
Non-compete agreements
Other
As of December 31, 2016
Non-compete agreements
Other
Cost
$2,377
781
$3,158
$2,377
781
$3,158
Accumulated
Amortization
$1,753
497
$2,250
$1,317
342
$1,659
Net
$ 624
284
$ 908
$1,060
439
$1,499
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Amortization expense was $591, $1,329 and $6,535, for the years ended December 31, 2017, 2016 and
2015, respectively, and is included as a component of general and administrative expenses. Amortization expense
related to intangible assets is estimated to be $534 in 2018, $214 in 2019, $80 in 2020 and $80 in 2021.
7. ACCRUED EXPENSES
Accrued expenses at December 31, 2017 and 2016 are as follows:
Insurance
Payroll and employee benefits
Accrued rent
Interest
Percentage of completion adjustment
Income and other taxes
Accumulated deficit in joint venture
Other
Total accrued expenses
8. LONG-TERM DEBT
Long-term debt at December 31, 2017 and 2016 is as follows:
Revolving credit facility
Equipment notes payable
Notes payable
8% senior notes
7.375% senior notes
Subtotal
Current portion of equipment note payable
Current portion of note payable
Capital leases (included in other long term liabilities)
Total
Credit agreement
2017
2016
$22,941
8,747
6,519
4,210
3,591
2,794
—
7,416
$18,114
10,028
738
8,660
3,322
3,208
17,016
7,957
$56,218
$69,043
2017
2016
$ 95,000
2,318
13,296
321,057
—
431,671
(1,546)
(1,212)
(772)
$104,111
2,680
14,438
—
272,998
394,227
(1,320)
(1,145)
(1,360)
$428,141
$390,402
On December 30, 2016, the Company, Great Lakes Dredge & Dock Company, LLC, NASDI Holdings,
LLC, Great Lakes Dredge & Dock Environmental, Inc., Great Lakes Environmental & Infrastructure Solutions,
LLC and Great Lakes Environmental & Infrastructure, LLC (collectively, the “Credit Parties”) entered into a
revolving credit and security agreement, as subsequently amended, (the “Credit Agreement”) with certain
financial institutions from time to time party thereto as lenders, PNC Bank, National Association, as Agent, PNC
Capital Markets, The PrivateBank and Trust Company, Suntrust Robinson Humphrey, Inc., Capital One,
National Association and Bank of America, N.A., as Joint Lead Arrangers and Joint Bookrunners, Texas Capital
Bank, National Association, as Syndication Agent and Woodforest National Bank, as Documentation Agent. The
Credit Agreement, which replaced the Company’s former revolving credit agreement, provides for a senior
secured revolving credit facility in an aggregate principal amount of up to $250,000, subfacilities for the issuance
of standby letters of credit up to a $250,000 sublimit and swingline loans up to a $25,000 sublimit. The
maximum borrowing capacity under the Credit Agreement is determined by a formula and may fluctuate
depending on the value of the collateral included in such formula at the time of determination. The Credit
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Agreement also includes an increase option that will allow the Company to increase the senior secured revolving
credit facility by an aggregate principal amount of up to $100,000. This increase is subject to lenders providing
incremental commitments for such increase, the Credit Parties having adequate borrowing capacity and provided
that no default or event of default exists both before and after giving effect to such incremental commitment
increase.
On December 6, 2017, the Company and the Credit Parties entered into a Consent and Amendment No. 3
(the “Credit Amendment”) to the Credit Agreement with the Agent, and the other required lenders thereunder.
The Credit Amendment was entered into to, among other things, obtain consent from the required lenders under
the Credit Agreement to permit the Company to consummate certain asset sales, retirements and other
restructuring activities described therein, as part of the Company’s plan to reduce overhead, retire certain
underperforming and underutilized assets and close out the Company’s Brazilian operations (see Note 13,
Restructuring Charges). This consent is subject to a number of important conditions, qualifications, limitations
and exceptions that are described in the Credit Amendment.
The Credit Amendment also amends the Credit Agreement to provide that (i) with respect to the Company’s
2017 and 2018 fiscal years, upon written election from the Company to Agent, including supporting
documentation in form and substance satisfactory to Agent, up to an aggregate of $20,000 of expenses related to
the buy-out of operating leases shall not constitute capital expenditures under the Credit Agreement; and (ii) if
the amount of capital expenditures incurred by all Credit Parties in fiscal year 2017 does not exceed $75,000 then
any amount remaining may be carried forward to be incurred in fiscal year 2018; provided further that, the
aggregate amount of all capital expenditures incurred by all Credit Parties in fiscal years 2017 and 2018 does not
exceed $135,000. Additionally, the Credit Amendment contains acknowledgments and agreements from the
Agent and the required lenders with respect to certain EBITDA add-backs for fiscal years 2017 and 2018
described therein.
The Credit Agreement contains customary representations and affirmative and negative covenants,
including a springing financial covenant that requires the Credit Parties to maintain a fixed charge coverage ratio
(ratio of earnings before income taxes, depreciation and amortization, net interest expenses, non-cash charges
and losses and certain other non-recurring charges, minus capital expenditures, income and franchise taxes, to net
cash interest expense plus scheduled cash principal payments with respect to debt plus restricted payments paid
in cash) of not more than 1.10 to 1.00. The Company is required to maintain this ratio if its availability under the
Credit Agreement falls below $31,250 for five consecutive days or $25,000 for one day. The Credit Parties are
also restricted in the amount of capital expenditures they may make in each of the next three fiscal years. The
Credit Agreement also contains customary events of default (including non-payment of principal or interest on
any material debt and breaches of covenants) as well as events of default relating to certain actions by the
Company’s surety bonding providers. The obligations of the Credit Parties under the Credit Agreement will be
unconditionally guaranteed, on a joint and several basis, by each existing and subsequently acquired or formed
material direct and indirect domestic subsidiary of the Company. Borrowings under the Credit Agreement have
been or will be used to refinance existing indebtedness under the Company’s former revolving credit agreement,
refinance existing indebtedness under the Company’s former term loan agreement, pay fees and expenses related
to the Credit Agreement, finance acquisitions permitted under the Credit Agreement, finance ongoing working
capital and for other general corporate purposes. The Credit Agreement matures on December 30, 2019.
The obligations under the Credit Agreement are secured by substantially all of the assets of the Credit
Parties. The outstanding obligations thereunder shall be secured by a valid first priority perfected lien on
substantially all of the vessels of the Credit Parties and a valid perfected lien on all domestic accounts receivable
and substantially all other assets of the Credit Parties, subject to the permitted liens and interests of other parties
(including the Company’s surety bonding provider).
Interest on the senior secured revolving credit facility of the Credit Agreement is equal to either a Base Rate
option or LIBOR option, at the Company’s election. The Base Rate option is (1) the base commercial lending
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rate of PNC Bank, National Association, as publically announced plus (2)(a) an interest margin of 2.0% or
(b) after the date on which a borrowing base certificate is required to be delivered under Section 9.2 of the Credit
Agreement (commencing with the fiscal quarter ending December 31, 2017, the “Adjustment Date”), an interest
margin ranging between 1.5% and 2.0% depending on the quarterly average undrawn availability on the senior
secured revolving credit facility. The LIBOR option is the sum of (1) LIBOR and (2) (a) an interest margin of
3.0% or (b) after the Adjustment Date, an interest rate margin ranging between 2.5% to 3.0% per annum
depending on the quarterly average undrawn availability on the senior secured revolving credit facility. The
Credit Agreement is subject to an unused fee ranging from 0.25% to 0.375% per annum depending on the
amount of average daily outstandings under the senior secured revolving credit facility.
As of December 31, 2017, the Company had $95,000 of borrowings on the revolver and $34,290 of letters
of credit outstanding, resulting in $76,819 of availability under the Credit Agreement.
Prior revolving credit agreement and term loan facility
In conjunction with the Credit Agreement entered into on December 30, 2016, the senior revolving credit
agreement with an aggregate principal amount of up to $199,000 and the senior secured term loan facility
consisting of a term loan in an aggregate principal amount of $50,000 was paid in full. Depending on the
Company’s consolidated leverage ratio, previous borrowings under the revolving credit facility bore interest at
the option of the Company at either a LIBOR rate plus a margin of between 1.50% to 2.50% per annum or a base
rate plus a margin of between 0.50% to 1.50% per annum. The previous borrowings under the Term Loan
Facility bore interest at a fixed rate of 4.655% per annum.
Senior notes
The Company has outstanding $325,000 of 8.000% senior notes (“8% Senior Notes”) due May 15, 2022.
The 8% Senior Notes were issued at 100% of face value resulting in net proceeds of $321,653, net of
underwriting fees. In connection with the issuance of the 8% Senior Notes, the Company retired all of its
$275,000 of 7.375% senior notes due February 2019 for $282,638, which included a tender premium and accrued
and unpaid interest. The Company used the remaining net proceeds from the debt offering to reduce the
Company’s indebtedness under its Credit Agreement.
Other
The Company enters into note arrangements to finance certain vessels and ancillary equipment. During the
first quarter of 2015, the Company financed the $15,569 acquisition of a vessel previously under an operating
lease with a note bearing interest at 5.75% to maturity in 2023.
The scheduled principal payments through the maturity date of the Company’s long-term debt, excluding
equipment notes and capital leases, at December 31, 2017, are as follows:
Years Ending December 31,
2018
2019
2020
2021
2022
Thereafter
Total
$
1,212
96,502
1,816
1,922
327,035
4,843
$433,330
The Company incurred amortization of deferred financing fees for its long term debt of $3,280, $2,438 and
$1,729 for each of the years ended December 31, 2017, 2016 and 2015. Such amortization is recorded as a
component of interest expense.
88
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Donnelley Financial
VDI-W7-PR3-0934
12.6.28
ADG amarb1sl
CHW
9. FAIR VALUE MEASUREMENTS
ˆ200Fql=@mWeYrm0tVŠ
7*
1C
498269 TX 89
PMT
PS
200Fql=@mWeYrm0tV
CLN
02-Mar-2018 07:39 EST
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. A fair value hierarchy has been established by GAAP that requires an
entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. The accounting guidance describes three levels of inputs that may be used to measure fair value:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair
value of the assets or liabilities.
The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The
market approach uses prices and other relevant information generated by market transactions involving identical
or comparable assets or liabilities. At times, the Company holds certain derivative contracts that it uses to
manage foreign currency risk or commodity price risk. The Company does not hold or issue derivatives for
speculative or trading purposes. The fair values of these financial instruments are summarized as follows:
Description
At December 31, 2017
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Fuel hedge contracts
$2,501
$—
$2,501
$—
Description
At December 31, 2016
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Fuel hedge contracts
$2,293
$—
$2,293
$—
Foreign exchange contracts
The Company has various exposures to foreign currencies that fluctuate in relation to the U.S. dollar. The
Company periodically enters into foreign exchange forward contracts to hedge this risk. At December 31, 2017
and 2016 there were no outstanding contracts.
Fuel hedge contracts
The Company is exposed to certain market risks, primarily commodity price risk as it relates to the diesel
fuel purchase requirements, which occur in the normal course of business. The Company enters into heating oil
commodity swap contracts to hedge the risk that fluctuations in diesel fuel prices will have an adverse impact on
cash flows associated with its domestic dredging contracts. The Company’s goal is to hedge approximately 80%
of the eligible fuel requirements for work in domestic backlog.
As of December 31, 2017, the Company was party to various swap arrangements to hedge the price of a
portion of its diesel fuel purchase requirements for work in its backlog to be performed through December 2018.
As of December 31, 2017, there were 9.8 million gallons remaining on these contracts which represent
approximately 80% of the Company’s forecasted domestic fuel purchases through December 2018. Under these
swap agreements, the Company will pay fixed prices ranging from $1.53 to $2.02 per gallon.
89
GREAT LAKES DREDGE &
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Donnelley Financial
ADGP64RS38
12.6.28
ADG pf_rend
CHW
ˆ200Fql=@mWctpPvtOŠ
4*
1C
498269 TX 90
PMT
PS
200Fql=@mWctpPvtO
CLN
02-Mar-2018 06:02 EST
At December 31, 2017 and December 31, 2016, the fair value asset of the fuel hedge contracts was
estimated to be $2,501 and $2,293, respectively, and is recorded in other current assets. For fuel hedge contracts
considered to be highly effective, the losses reclassified to earnings from changes in fair value of derivatives, net
of cash settlements and taxes, for the year ended December 31, 2017 were $218. The remaining gains and losses
included in the accumulated other comprehensive income (loss) at December 31, 2017 will be reclassified into
earnings over the next twelve months, corresponding to the period during which the hedged fuel is expected to be
utilized. Changes in the fair value of fuel hedge contracts not considered highly effective are recorded as cost of
contract revenues in the Statement of Operations. The fair value of fuel hedges are corroborated using inputs that
are readily observable in public markets; therefore, the Company determines fair values of these fuel hedges
using Level 2 inputs.
The Company is exposed to counterparty credit risk associated with non-performance of its various
derivative instruments. The Company’s risk would be limited to any unrealized gains on current positions. To
help mitigate this risk, the Company transacts only with counterparties that are rated as investment grade or
higher. In addition, all counterparties are monitored on a continuous basis.
The fair value of the fuel hedge contracts outstanding as of December 31, 2017 and 2016 is as follows:
Asset derivatives:
Derivatives designated as hedging
instruments
Fuel hedge contracts
Derivatives not designated as
hedging instruments
Fuel hedge contracts
Total asset derivatives
Balance Sheet Location
Fair Value at December 31,
2017
2016
Other current assets
2,501
546
Other current assets
$2,501
1,747
$2,293
Assets and liabilities measured at fair value on a nonrecurring basis
All other nonfinancial assets and liabilities measured at fair value in the financial statements on a
nonrecurring basis are subject to fair value measurements and disclosures. Nonfinancial assets and liabilities
included in our consolidated balance sheets and measured on a nonrecurring basis consist of goodwill and long-
lived assets, including other acquired intangibles. Assets included within assets held for sale are reclassified from
property and equipment at fair value less cost to sell. Goodwill and long-lived assets are measured at fair value to
test for and measure impairment, if any, at least annually for goodwill or when necessary for both goodwill and
long-lived assets.
In 2015, the Company estimated the fair value of our Terra Contracting Services, LLC, which was one of
the Company’s reporting units at the time, for our goodwill impairment test by using both a market-based
approach and an income-based approach. The income approach is dependent on a number of factors, including
estimates of future market growth trends, forecasted revenues and expenses based upon historical operating data,
appropriate discount rates and other variables. The market approach measures the value of a reporting unit
through comparison to comparable companies. Under the market approach, the Company uses the guideline
public company method by applying estimated market-based enterprise value multiples to the reporting unit’s
estimated revenue and Adjusted EBITDA from continuing operations. The Company analyzed companies that
performed similar services or are considered peers.
90
GREAT LAKES DREDGE &
FORM 10-K
Donnelley Financial
ADGP64RS38
12.6.28
ADG pf_rend
CHW
ˆ200Fql=@mWctulitÀŠ
4*
1C
498269 TX 91
PMT
PS
200Fql=@mWctulit
CLN
02-Mar-2018 06:02 EST
An impairment of goodwill was recorded in the amount of $2,750 in the second quarter of 2015. The fair
value of goodwill was determined using quantitative models that contained significant unobservable inputs and
accordingly is a Level 3 fair value measurement. See Note 6.
Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)
Goodwill
Balance at January 1,
Impairment of goodwill
Balance at December 31, 2015
$86,326
(2,750)
$83,576
Accumulated other comprehensive income (loss)
Changes in the components of the accumulated balances of other comprehensive income (loss) are as
follows:
Cumulative translation adjustments—net of tax
Derivatives:
Reclassification of derivative (gains) losses to earnings—
net of tax
Change in fair value of derivatives—net of tax
Net unrealized (gain) loss on derivatives—net of tax
2017
2016
2015
$ (41)
$508
$(1,249)
(218)
1,407
1,189
30
300
330
—
—
—
Total other comprehensive income (loss)
$1,148
$838
$(1,249)
Adjustments reclassified from accumulated balances of other comprehensive income (loss) to earnings are
as follows:
Derivatives:
Fuel hedge contracts
Statement of Operations Location
2017
2016
Costs of contract revenues
Income tax benefit
$(358)
140
$(218)
$50
20
$30
Other financial instruments
The carrying value of financial instruments included in current assets and current liabilities approximates
fair value due to the short-term maturities of these instruments. Based on timing of the cash flows and
comparison to current market interest rates, the carrying value of our senior revolving credit agreement
approximates fair value. In May 2017, the Company issued a total of $325,000 of 8.000% senior notes due
May 15, 2022, which were outstanding at December 31, 2017 (See Note 8, Long-Term Debt). The senior notes
are senior unsecured obligations of the Company and its subsidiaries that guarantee the senior notes. The fair
value of the senior notes was $340,048 at December 31, 2017, which is a Level 1 fair value measurement as the
senior notes value was obtained using quoted prices in active markets. It is impracticable to determine the fair
value of outstanding letters of credit or performance, bid and payment bonds due to uncertainties as to the
amount and timing of future obligations, if any.
91
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Donnelley Financial
ADGP64RS38
12.6.28
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CHW
ˆ200Fql=@mWct$YBMOŠ
5*
1C
498269 TX 92
PMT
PS
200Fql=@mWct$YBMO
CLN
02-Mar-2018 06:02 EST
10. INCOME TAXES
The Company’s income tax benefit from continuing and discontinued operations for the year ended
December 31, 2017 is as follows:
Income tax benefit from continuing operations
Income tax benefit from discontinued operations
Income tax benefit
2017
$35,610
8,203
$43,813
The Company’s loss from continuing operations before income tax from domestic and foreign continuing
operations for the years ended December 31, 2017, 2016 and 2015 is as follows:
Domestic operations
Foreign operations
2017
2016
2015
$(17,307)
(36,866)
$ (2,295)
(11,674)
$(35,996)
27,310
Total loss from continuing operations before income
tax
$(54,173)
$(13,969)
$ (8,686)
The benefit for income taxes from continuing operations as of December 31, 2017, 2016 and 2015 is as
follows:
Federal:
Current
Deferred
State:
Current
Deferred
Foreign:
Current
Deferred
Total
2017
2016
2015
$
(248)
(33,592)
260
(5,098)
$ —
(2,355)
29
(1,812)
54
(1,153)
13
—
146
—
115
(673)
416
—
$(35,610)
$(5,791)
$(2,497)
The Company’s income tax benefit from continuing operations reconciles to the provision at the statutory
U.S. federal income tax rate of 35% for the years ended December 31, 2017, 2016 and 2015 as follows:
Tax benefit at statutory U.S. federal income tax rate
State income tax—net of federal income tax benefit
Impact of Tax Cuts and Job Act
Charitable contributions
Adjustment to deferred tax depreciation
Change in deferred state tax rate
Research and development tax credits
Purchase price adjustment
Changes in unrecognized tax benefits
Changes in valuation allowance
Other
Income tax benefit
92
2017
2016
2015
$(18,958)
(2,488)
(15,720)
—
—
—
(170)
—
10
1,152
564
$(4,889)
(1,118)
—
—
—
(1,082)
(253)
—
10
1,031
510
$(3,040)
(676)
—
(469)
1,135
—
(286)
393
(186)
270
362
$(35,610)
$(5,791)
$(2,497)
GREAT LAKES DREDGE &
FORM 10-K
Donnelley Financial
ADGP64RS38
12.6.28
ADG pf_rend
CHW
ˆ200Fql=@mWcu88qMOŠ
5*
1C
498269 TX 93
PMT
PS
200Fql=@mWcu88qMO
CLN
02-Mar-2018 06:02 EST
On December 22, 2017, the U.S. government enacted comprehensive tax legislation referred to as the Tax
Act. The Tax Act makes broad and complex changes to the U.S. tax code, including but not limited to
(1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time
transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal
income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable
income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum
tax (AMT); (6) creating the base erosion anti-abuse tax (BEAT), a new minimum tax; (7) creating a new
limitation on deductible interest expense; and (8) changing rules related to uses and limitations of net operating
loss carryforwards created in tax years beginning after December 31, 2017.
The Company completed its calculation of the income tax effect of the Tax Act for the year ended
December 31, 2017. As the Company is in a net deferred tax liability position as of the date of enactment of the
Tax Act, the impact to the Company is a deferred income tax benefit of $15,720, primarily as a result of the
reduction in the U.S. federal income tax rate. The other changes in tax law do not materially impact the Company
for the year.
At December 31, 2017 and 2016, the Company had loss carryforwards for federal income tax purposes of
$207,875 and $51,158 respectively, which expire between 2034 and 2037.
At December 31, 2017 and 2016, the Company had gross net operating loss carryforwards for state income
tax purposes totaling $209,877 and $128,066, respectively, which expire between 2023 and 2037. Due to changes
in state tax law enacted during the year in a certain state, a valuation allowance in the amount of $767 was
established in 2016 for state net operating loss carryforwards. In 2017, the valuation allowance was increased by
$1,152.
The Company also has foreign gross net operating loss carryforwards of approximately $7,637 and $12,165
as of December 31, 2017 and 2016, of which $2,898 expires between 2018 and 2028. The remaining amount of
$4,739 may be carried forward indefinitely. At December 31, 2017 and 2016, a full valuation allowance has been
established for the deferred tax asset of $1,962 and $3,795 related to foreign net operating loss carryforwards,
respectively, as the Company believes it is more likely than not that the net operating loss carryforwards will not
be realized.
As of December 31, 2017 and 2016, the Company had $157 in unrecognized tax benefits, the recognition of
which would have an impact of $124 on the effective tax rate.
The Company does not expect that total unrecognized tax benefits will significantly increase or decrease
within the next 12 months. Below is a tabular reconciliation of the total amounts of unrecognized tax benefits at
the beginning and end of each period.
Unrecognized tax benefits—January 1
Gross increases—tax positions in prior period
Gross increases—current period tax positions
Gross decreases—expirations
Gross decreases—tax positions in prior period
Unrecognized tax benefits—December 31,
2017
2016
2015
$157
—
—
—
—
$157
$157
—
—
—
—
$157
$ 442
—
—
—
(285)
$ 157
The Company’s policy is to recognize interest and penalties related to income tax matters in income tax
expense. As of December 31, 2017 and 2016, the Company had approximately $53 and $37, respectively, of
interest and penalties recorded.
93
GREAT LAKES DREDGE &
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Donnelley Financial
ADGP64RS38
12.6.28
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CHW
ˆ200Fql=@mWcuGhst7Š
4*
1C
498269 TX 94
PMT
PS
200Fql=@mWcuGhst7
CLN
02-Mar-2018 06:02 EST
The Company files income tax returns at the U.S. federal level and in various state and foreign jurisdictions.
U.S. federal income tax years prior to 2014 are closed and no longer subject to examination. In 2016, the Internal
Revenue Service completed an examination of the Company’s 2011 and 2012 U.S. federal income tax returns.
The examinations did not result in any material adjustments. With few exceptions, the statute of limitations in
state taxing jurisdictions in which the Company operates has expired for all years prior to 2013. In foreign
jurisdictions in which the Company operates, years prior to 2012 are closed and are no longer subject to
examination.
The Company’s deferred tax assets (liabilities) at December 31, 2017 and 2016 are as follows:
Deferred tax assets:
Accrued liabilities
Federal NOLs
Foreign NOLs
State NOLs
Tax credit carryforwards
Charitable contribution
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation and amortization
Other liabilities
Total deferred tax liabilities
Net noncurrent deferred tax liabilities
2017
2016
$ 8,119
43,654
1,962
12,382
1,941
1,340
(4,294)
$ 16,194
17,905
3,795
5,989
5,970
1,883
(7,133)
65,104
44,603
(89,966)
(699)
(111,793)
(1,259)
(90,665)
(113,052)
$(25,561)
$ (68,449)
Deferred tax assets relate primarily to reserves and other liabilities for costs and expenses not currently
deductible for tax purposes as well as net operating loss and other carryforwards. Deferred tax liabilities relate
primarily to the cumulative difference between book depreciation and amounts deducted for tax purposes. The
Company evaluates its ability to realize deferred tax assets by considering all available positive and negative
evidence. This evidence includes the Company’s cumulative earnings or losses in recent years. The Company
further considers the impact on these cumulative earnings or losses of discontinued operations and other divested
operations and joint ventures, restructuring charges and other nonrecurring adjustments that are not indicative of
the Company’s ability to generate taxable income in future periods. The Company also considers sources of
taxable income, such as the amount and timing of realization of its deferred tax liabilities relative to the timing of
expiration of loss carryforwards. When it is estimated to be more likely than not that all or some portion of
deferred tax assets will not be realized, the Company establishes a valuation allowance for the amount of such
deferred tax assets considered to be unrealizable. After evaluating the positive and negative evidence for future
realization of deferred tax assets, the Company recorded valuation allowances for foreign net operating loss
carryforwards, foreign tax credits and certain state net operating loss carryforwards to reduce the balance of these
deferred tax assets at December 31, 2017 and 2016 as it was more likely than not that the balance of these tax
items would not be realized. By contrast, after evaluating the positive and negative evidence, the Company
concluded that it was more likely than not that the deferred federal income tax asset recorded at December 31,
2017 and 2016 would ultimately be realized and determined that no valuation allowance was required.
11. SHARE-BASED COMPENSATION
The Company’s 2017 Long-Term Incentive Plan (“Incentive Plan”) permits the granting of stock options,
stock appreciation rights, restricted stock and restricted stock units to its employees and directors for up to
3.3 million shares of common stock, plus an additional 1.7 million shares underlying equity awards issued under
94
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ˆ200Fql=@mWcuSB9MÁŠ
4*
1C
498269 TX 95
PMT
PS
200Fql=@mWcuSB9M`
CLN
02-Mar-2018 06:02 EST
the 2007 Long-Term Incentive Plan. The Company may also issue share-based compensation as inducement
awards to new employees upon approval of the Board of Directors.
Compensation cost charged to expense related to share-based compensation arrangements was $2,963,
$2,455 and $4,040, for the years ended December 31, 2017, 2016 and 2015, respectively.
Non-qualified stock options
The NQSO awards were granted with an exercise price equal to the market price of the Company’s common
stock at the date of grant. The option awards generally vest in three equal annual installments commencing on the
first anniversary of the grant date, and have ten year exercise periods.
The fair value of the NQSOs was determined at the grant date using a Black-Scholes option pricing model,
which requires the Company to make several assumptions. The risk-free interest rate is based on the U.S.
Treasury yield curve in effect for the expected term of the option at the time of grant. The annual dividend yield
on the Company’s common stock is based on estimates of future dividends during the expected term of the
NQSOs. The expected life of the NQSOs was determined from historical exercise data providing a reasonable
basis upon which to estimate the expected life. The volatility assumptions were based on historical volatility of
Great Lakes. There is not an active market for options on the Company’s common stock and, as such, implied
volatility for the Company’s stock was not considered. Additionally, the Company’s general policy is to issue
new shares of registered common stock to satisfy stock option exercises or grants of restricted stock. No NQSO
awards were granted in 2017, 2016 and 2015.
A summary of stock option activity under the Incentive Plan as of December 31, 2017, and changes during
the year ended December 31, 2017, is presented below:
Options
Outstanding as of January 1, 2017
Granted
Exercised
Forfeited or Expired
Outstanding as of December 31, 2017
Vested at December 31, 2017
Restricted stock units
Weighted
Average
Exercise
Price
Weighted-
Average
Remaining
Contract
Term (yrs)
Aggregate
Intrinsic
Value
($000’s)
$6.32
—
3.82
6.26
$6.34
$6.34
3.4
3.4
$195
$195
Shares
1,699
—
(4)
(318)
1,377
1,377
RSUs can either vest in equal portions over the three year vesting period or vest in one installment on the
third anniversary of the grant date. The fair value of RSUs was based upon the Company’s stock price on the date
of grant. A summary of the status of the Company’s non-vested RSUs as of December 31, 2017, and changes
during the year ended December 31, 2017, is presented below:
Nonvested Restricted Stock Units
Outstanding as of January 1, 2017
Granted
Vested
Forfeited
Outstanding as of December 31, 2017
Expected to vest at December 31, 2017
Shares
2,532
1,018
(222)
(1,132)
2,196
1,430
95
Weighted-Average Grant-
Date Fair Value
$5.23
4.42
5.66
5.72
$5.06
$4.60
GREAT LAKES DREDGE &
FORM 10-K
Donnelley Financial
ADGP64RS38
12.6.28
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CHW
ˆ200Fql=@mWcuZjCt}Š
4*
1C
498269 TX 96
PMT
PS
200Fql=@mWcuZjCt}
CLN
02-Mar-2018 06:02 EST
As of December 31, 2017, there was $3,171 of total unrecognized compensation cost related to non-vested
RSUs granted under the Plan. That cost for non-vested RSUs is expected to be recognized over a weighted-
average period of 1.9 years.
The Incentive Plan permits the employee to use vested shares from RSUs to satisfy the grantee’s U.S.
federal income tax liability resulting from the issuance of the shares through the Company’s retention of that
number of common shares having a market value as of the vesting date equal to such tax obligation up to the
minimum statutory withholding requirements. The amount related to shares used for such tax withholding
obligations was approximately $328 and $171 for the years ended December 31, 2017 and 2016, respectively.
Director compensation
The Company uses a combination of cash and share-based compensation to attract and retain qualified
candidates to serve on our Board of Directors. Compensation is paid to non-employee directors. Directors who
are employees receive no additional compensation for services as members of the Board or any of its committees.
Share-based compensation is paid pursuant to the Incentive Plan. Each non-employee director of the Company
receives an annual retainer of $155, payable quarterly in arrears, and is generally paid 50% in cash and 50% in
common stock of the Company. Directors may elect to receive some or all of the cash retainer in common stock.
In 2017, the Chairman of the Board received an additional $150 of annual compensation, paid 100% in common
stock.
In the years ended December 31, 2017, 2016 and 2015, 207 thousand, 86 thousand and 112 thousand shares,
respectively, of the Company’s common stock were issued to non-employee directors under the Incentive Plan.
12. RETIREMENT PLANS
The Company sponsors four 401(k) savings plans, one covering substantially all non-union salaried
employees (“Salaried Plan”), a second covering its hourly employees (“Hourly Plan”), a third plan specifically
for its employees that are members of a tugboat union and a fourth for the salary and non-union employees of
certain subsidiaries (“Affiliated Plan”). Under the Salaried Plan, the Hourly Plan and the Affiliated Plan,
individual employees may contribute a percentage of compensation and the Company will match a portion of the
employees’ contributions. The Salaried Plan and Affiliated Plan also include a discretionary profit-sharing
component, permitting the Company to make discretionary employer contributions to all eligible employees of
these plans. Additionally, the Company sponsors a Supplemental Savings Plan in which the Company makes
contributions for certain key executives. The Company’s expense for matching, discretionary and Supplemental
Savings Plan contributions for 2017, 2016 and 2015, was $6,236, $3,705 and $6,772, respectively.
The Company also contributes to various multiemployer pension plans pursuant to collective bargaining
agreements. In 2017, 2016 and 2015, the Company contributed $5,639, $6,298 and $4,990 respectively to all of
the multiemployer plans that provide pension benefits in our continuing operations. The information available to
the Company about the multiemployer plans in which it participates, whether via request to the plan or publicly
available, is generally dated due to the nature of the reporting cycle of multiemployer plans and legal
requirements under the Employee Retirement Income Security Act (“ERISA”) as amended by the Multiemployer
Pension Plan Amendments Act (“MPPAA”). Based upon these plans’ most recently available annual reports, the
Company’s contributions to these plans were less than 5% of each plan’s total contributions for all but one plan.
Information on significant multiemployer pension plans in which the Company participates is included in the
table below:
Pension Plan Legal Name
Pension Protection
Act of 2006 Certified
Zone Status at
December 31,
2017
2016
Federal
Identification
Number
Expiration of Collective
Bargaining Arrangement
with the Company
Company’s Contributions
2017
2016
2015
Seafarers Pension Trust
13-6100329 001 Green Green
February 28, 2018
$1,182
$1,102 $1,005
96
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12.6.28
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498269 TX 97
PMT
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200Fql=@mWcuf8GM/
CLN
02-Mar-2018 06:02 EST
The Company does not expect any future increased contributions to have a material negative impact on its
financial position, results of operations or cash flows for future years. The risks of participating in multiemployer
plans are different from single employer plans as assets contributed are available to provide benefits to
employees of other employers and unfunded obligations from an employer that discontinues contributions are the
responsibility of all remaining employers. In addition, in the event of a plan’s termination or the Company’s
withdrawal from a plan, the Company may be liable for a portion of the plan’s unfunded vested benefits.
However, information from the plans’ administrators is not available to permit the Company to determine its
share, if any, of unfunded vested benefits.
13. RESTRUCTURING CHARGES
In 2017, a strategic review was begun to improve the Company’s financial results in both domestic and
international operations enabling debt reduction, improvements in return on capital and the continued renewal of
our extensive fleet with new and efficient dredges to best serve our domestic and international clients. As a result
of this review, management began execution of a plan to reduce general and administrative and overhead
expenses, retire certain underperforming and underutilized assets, write-off pre-contract costs on a project that
was never formally awarded and that the Company no longer intends to pursue and closeout the Company’s
Brazil operations. These changes will result in a restructuring charge of approximately $42,000-$47,000,
including severance of approximately $3,000, asset retirements of approximately $30,000-$34,000, pre-contract
costs of approximately $6,500 and closeout costs of approximately $2,500-$3,500.
Approximately $38,000-$43,000 of this charge will be non-cash and includes depreciation, loss on sale of
assets and other items, approximating totals of $12,500-$14,500, $3,000-$5,000 and $21,500-$23,500,
respectively. The majority of the charge was recorded in the second half of 2017 with the remainder to be
recognized in the dredging segment in the following year.
Restructuring charges currently recognized for the above actions are summarized as follows:
Costs of contract revenues—depreciation
Costs of contract revenues—other
General and administrative expenses
Loss on sale of assets—net
Total Dredging
Costs of contract revenues—depreciation
Costs of contract revenues—other
General and administrative expenses
Total Environmental & Infrastructure
Costs of contract revenues—depreciation
Costs of contract revenues—other
General and administrative expenses
Loss on sale of assets—net
Total Consolidated
Twelve Months Ended
December 31, 2017
$ 6,859
16,102
1,189
4,691
28,841
—
7
637
644
6,859
16,109
1,826
4,691
29,485
The Company accrued rent expense of $5,930 and severance expense of $1,567 at December 31, 2017. Both
of these items are included in accrued expenses at December 31, 2017 and are expected to be settled in 2018.
14. COMMITMENTS AND CONTINGENCIES
Commercial commitments
Performance and bid bonds are customarily required for dredging and marine construction projects, as well
as some environmental & infrastructure projects. The Company has bonding agreements with Argonaut
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Insurance Company, Berkley Insurance Company, Chubb Surety and Liberty Mutual Insurance Company under
which the Company can obtain performance, bid and payment bonds. The Company also has outstanding bonds
with Travelers Casualty and Surety Company of America and Zurich American Insurance Company (“Zurich”).
Bid bonds are generally obtained for a percentage of bid value and amounts outstanding typically range from
$1,000 to $10,000. At December 31, 2017, the Company had outstanding performance bonds with a notional
amount of approximately $1,340,846, of which $41,085 relates to projects from the Company’s historical
environmental & infrastructure businesses. The revenue value remaining in backlog related to the projects of
continuing operations totaled approximately $515,332.
In connection with the sale of our historical demolition business, the Company was obligated to keep in
place the surety bonds on pending demolition projects for the period required under the respective contract for a
project and issued Zurich a letter of credit related to this exposure. In February 2017, the Company was notified
by Zurich of an alleged default triggered on a historical demolition surety performance bond in the aggregate of
approximately $20,000 for failure of the contractor to perform in accordance with the terms of a project. In May
2017, Zurich drew upon the letter of credit in the amount of $20,881. In order to fund the draw on the letter of
credit, the Company had to increase the borrowings on its revolving credit facility. As the outstanding letters of
credit previously reduced the Company’s availability under the revolving credit facility, the draw down on the
Company’s letter of credit does not impact its liquidity or capital availability.
Pursuant to the terms of sale of our historical demolition business, the Company received an indemnification
from the buyer for losses resulting from the bonding arrangement. The Company intends to aggressively pursue
enforcement of the indemnification provisions if the buyer of the historical demolition business is found to be in
default of its obligations. The Company cannot estimate the amount or range of recoveries related to the
indemnification or resolution of the Company’s responsibilities under the surety bond. The surety bond claim
impact has been included in discontinued operations and is discussed in Note 17, Business Combinations and
Dispositions.
Certain foreign projects performed by the Company have warranty periods, typically spanning no more than
one to three years beyond project completion, whereby the Company retains responsibility to maintain the project
site to certain specifications during the warranty period. Generally, any potential liability of the Company is
mitigated by insurance, shared responsibilities with consortium partners, and/or recourse to owner-provided
specifications.
Legal proceedings and other contingencies
As is customary with negotiated contracts and modifications or claims to competitively bid contracts with
the federal government, the government has the right to audit the books and records of the Company to ensure
compliance with such contracts, modifications, or claims, and the applicable federal laws. The government has
the ability to seek a price adjustment based on the results of such audit. Any such audits have not had, and are not
expected to have, a material impact on the financial position, operations, or cash flows of the Company.
Various legal actions, claims, assessments and other contingencies arising in the ordinary course of business
are pending against the Company and certain of its subsidiaries. These matters are subject to many uncertainties,
and it is possible that some of these matters could ultimately be decided, resolved, or settled adversely to the
Company. Although the Company is subject to various claims and legal actions that arise in the ordinary course
of business, except as described below, the Company is not currently a party to any material legal proceedings or
environmental claims. The Company records an accrual when it is probable a liability has been incurred and the
amount of loss can be reasonably estimated. The Company does not believe any of these proceedings,
individually or in the aggregate, would be expected to have a material effect on results of operations, cash flows
or financial condition.
On April 23, 2014, the Company completed the sale of NASDI, LLC (“NASDI”) and Yankee
Environmental Services, LLC (“Yankee”), which together comprised the Company’s historical demolition
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business, to a privately owned demolition company. Under the terms of the divestiture, the Company retained
certain pre-closing liabilities relating to the disposed business. Certain of these liabilities and a legal action
brought by the Company to enforce the buyer’s obligations under the sale agreement are described below.
On January 14, 2015, the Company and our subsidiary, NASDI Holdings, LLC, brought an action in the
Delaware Court of Chancery to enforce the terms of the Company’s agreement to sell NASDI and Yankee. Under
the terms of the agreement, the Company received cash of $5,309 and retained the right to receive additional
proceeds based upon future collections of outstanding accounts receivable and work in process existing at the
date of close. The Company seeks specific performance of buyer’s obligation to collect and to remit the
additional proceeds, and other related relief. Defendants have filed counterclaims alleging that the Company
misrepresented the quality of its contracts and receivables prior to the sale. The Company denies defendants’
allegations and intends to vigorously defend against the counterclaims.
The Company has not accrued any amounts with respect to the above matters as the Company does not
believe, based on information currently known to it, that a loss relating to these matters is probable, and an
estimate of a range of potential losses relating to these matters cannot reasonably be made.
Lease obligations
The Company leases certain operating equipment and office facilities under long-term operating leases
expiring at various dates through 2024. The equipment leases contain renewal or purchase options that specify
prices at the then fair value upon the expiration of the lease terms. The leases also contain default provisions that
are triggered by an acceleration of debt maturity under the terms of the Company’s Credit Agreement, or, in
certain instances, cross default to other equipment leases and certain lease arrangements require that the
Company maintain certain financial ratios comparable to those required by its Credit Agreement. Additionally,
the leases typically contain provisions whereby the Company indemnifies the lessors for the tax treatment
attributable to such leases based on the tax rules in place at lease inception. The tax indemnifications do not have
a contractual dollar limit. To date, no lessors have asserted any claims against the Company under these tax
indemnification provisions.
Future minimum operating lease payments at December 31, 2017, are as follows:
2018
2019
2020
2021
2022
Thereafter
Total minimum operating lease payments
$21,310
17,119
14,365
12,500
8,773
8,408
$82,475
Total rent expense under long-term operating lease arrangements for the years ended December 31, 2017,
2016 and 2015 was $27,218, $21,061 and $21,697, respectively. This excludes expenses for equipment and
facilities rented on a short-term, as-needed basis. For more information about charges to rent expense during
2017 related to the Company’s restructuring refer to Note 13, Restructuring Charges.
15. INVESTMENTS
Amboy Aggregates
The Company and a New Jersey aggregates company each owned 50% of Amboy Aggregates (“Amboy”).
Amboy was formed in December 1984 to mine sand from the entrance channel to New York Harbor to provide
sand and aggregate for use in road and building construction and for clean land fill. Amboy sold its interest in a
stone import business and its holdings in land during 2014. Amboy was dissolved in 2017.
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The Company accounts for this investment under the equity method. The following is summarized financial
information for this dissolved entity:
Revenue
Gross profit (loss)
Income (loss) from continuing operations
Net income (loss)
TerraSea Environmental Solutions
2017
2016
2015
$—
—
34
34
$—
758
758
758
$
139
(1,363)
(3,152)
(3,152)
The Company owned 50% of TerraSea Environmental Solutions (“TerraSea”) as a joint venture. TerraSea
was engaged in the environmental services business through its ability to remediate contaminated soil and
dredged sediment treatment. At December 31, 2016, the Company had net advances to TerraSea of $24,696,
which are recorded in other current assets. The Company had an accumulated deficit in joint ventures, which
represents losses recognized to date in excess of our investment in TerraSea, of $17,016 at December 31, 2016,
which is presented in accrued expenses.
During the second quarter of 2017, the Company and the joint venture partner agreed to a final resolution of
the net advances through additional funding of the joint venture. The Company recorded additional losses of
$1,458 related to this joint venture during the year ended December 31, 2017. TerraSea was dissolved in 2017.
The Company accounts for this investment under the equity method. The following is summarized financial
information for this dissolved entity:
Revenue
Gross loss
Net loss
2016
2015
$ —
(183)
(183)
$ 6,960
(3,800)
(3,800)
16. RELATED-PARTY TRANSACTIONS
The Company’s Environmental & Infrastructure Segment operated out of two facilities owned by the former
owner of Terra Contracting, LLC until November 11, 2016, when the lease was terminated. The Company paid
$195 and $243 on rent on these properties in 2016 and 2015, respectively.
Further, the Company’s Environmental & Infrastructure Segment operated out of two facilities owned by
Magnus Real Estate Group, LLC, which was owned by the former owners of Magnus Pacific Corporation
(“Magnus”). In 2017, 2016 and 2015, the Company paid rent of $263, $506 and $402, respectively, for these two
properties. In March 2017, one of the properties was sold to a non-related party.
17. BUSINESS COMBINATIONS AND DISPOSITIONS
Discontinued operations
On April 23, 2014, the Company entered into an agreement and completed the sale of NASDI, LLC and
Yankee Environmental Services, LLC, its two former subsidiaries that comprised the historical demolition
business. Under the terms of the agreement, the Company received cash of $5,309 and retained the right to
receive additional proceeds based upon future collections of outstanding accounts receivable and work in process
existing at the date of close, including recovery of outstanding claims for additional compensation from
customers, and net of future payments of accounts payable existing at the date of close, including any future
payments of obligations associated with outstanding claims. The amount and timing of the working capital
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settlement and the amount and timing of the realization of additional net proceeds may be impacted by the
litigation with the buyer of the historical demolition business (see Note 14, Commitment and Contingencies).
However, management believes that the ultimate resolution of these matters will not be material to the
Company’s consolidated financial position or results of operations.
As discussed in Note 14, the Company was notified by Zurich of an alleged default triggered on a historical
demolition surety performance bond in the aggregate of approximately $20,000 for failure of the contractor to
perform in accordance with the terms of a project. Zurich could be obligated to reimburse the loss, damage and
expense that may arise from the alleged default. The Company estimated its exposure to a surety bond claim,
including associated expense to be $20,900 and has recorded this amount in discontinued operations for the year
ended December 31, 2017 as follow:
Revenue
Loss before income taxes from discontinued operations
Income tax benefit
Loss from discontinued operations, net of income taxes
2017
$ —
$(20,900)
8,203
$(12,697)
Magnus Pacific acquisition
On November 4, 2014, the Company acquired Magnus, a California corporation, for an aggregate purchase
price of approximately $40 million. Under the terms of the acquisition, the aggregate purchase price is satisfied
by payment of $25,000 paid at closing, the issuance of a promissory note and an earnout payment.
Magnus did not reach the minimum EBITDA threshold for 2015 designated in the secured promissory note;
therefore, during 2015, the Company reduced the remaining fair value to zero. Under the terms of the acquisition,
as amended, the maximum potential aggregate earnout (the “Earnout Payment”) is $11,400 and will be
determined based on the attainment of an average Adjusted EBITDA target of Magnus, now referred to as Great
Lakes E&I, for the years ending December 31, 2017, December 31, 2018 and December 31, 2019. The Earnout
Payment may be paid in cash or shares of the Company’s common stock, at the Company’s option. The
Company remeasures the fair value of the contingent Earnout Payment based on projections of the earnings
target for the business. Based on the Company’s current projections, Great Lakes E&I is not expected to reach
the minimum Adjusted EBITDA threshold designated in the amended share purchase agreement. Accordingly,
during the third quarter of 2016, the Company reduced the remaining fair value of $8,940 to zero and the
corresponding change was reflected in general and administrative expenses and interest expense.
Other
During the fourth quarter of 2016, the Company sold assets associated with certain service lines of the
environmental & infrastructure segment’s business, excluding assets supporting the remediation service line. In
connection with the sale, the Company recorded a $2,758 loss to (gain) loss on sale of assets—net for the year
ended December 31, 2016.
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18. SEGMENT INFORMATION
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The Company and its subsidiaries currently operate in two reportable segments: dredging and
environmental & infrastructure. The Company’s financial reporting systems present various data for management
to run the business, including profit and loss statements prepared according to the segments presented.
Management uses operating income to evaluate performance between the two segments. Segment information for
2017, 2016 and 2015, is provided as follows:
Dredging:
Contract revenues
Operating income (loss)
Depreciation and amortization
Total assets
Property and equipment—net
Goodwill
Investment in joint ventures
Capital expenditures
Environmental & infrastructure:
Contract revenues
Operating loss
Depreciation and amortization
Total assets
Property and equipment—net
Goodwill
Investment in joint ventures
Capital expenditures
Intersegment:
Contract revenues
Total assets
Total:
Contract revenues
Operating income (loss)
Depreciation and amortization
Total assets
Property and equipment—net
Goodwill
Investment in joint ventures
Capital expenditures
2017
2016
2015
$ 592,159
(13,353)
55,962
878,458
396,925
76,576
—
63,912
$ 637,468
34,108
54,826
912,880
399,479
76,576
381
84,263
$ 681,255
64,073
50,556
872,297
397,468
76,576
1
82,000
112,607
(10,172)
4,558
78,806
10,369
7,000
2,714
2,156
133,637
(19,428)
8,197
81,166
13,529
7,000
4,353
949
181,710
(41,114)
14,029
127,907
32,742
7,000
3,760
7,279
(2,263)
(124,907)
(3,520)
(100,458)
(6,087)
(102,080)
702,503
(23,525)
60,520
832,357
407,294
83,576
2,714
66,068
767,585
14,680
63,023
893,588
413,008
83,576
4,734
85,212
856,878
22,959
64,585
898,124
430,210
83,576
3,761
89,279
The Company classifies the revenue related to its dredging projects into the following types of work:
Capital dredging—U.S.
Capital dredging—foreign
Coastal protection dredging
Maintenance dredging
Rivers & lakes
Total dredging
2017
2016
2015
$185,113
42,306
191,070
134,923
38,747
$219,914
59,413
215,041
92,274
50,826
$207,058
139,945
184,060
120,055
30,137
$592,159
$637,468
$681,255
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The Company derived revenues and gross profit from foreign project operations for the years ended
December 31, 2017, 2016, and 2015, as follows:
Contract revenues
Costs of contract revenues
Gross profit
2017
2016
2015
$ 42,306
(73,958)
$ 59,413
(66,729)
$ 139,945
(105,951)
$(31,652)
$ (7,316)
$ 33,994
In 2017, 2016 and 2015, foreign revenues were primarily from work done in the Middle East. The majority
of the Company’s long-lived assets are marine vessels and related equipment. At any point in time, the Company
may employ certain assets outside of the U.S., as needed, to perform work on the Company’s foreign projects. As
of December 31, 2017 and 2016, long-lived assets with a net book value of $47,563 and $63,729, respectively,
were located outside of the U.S.
The Company’s primary customer is the U.S. Army Corps of Engineers (the “Corps”), which has
responsibility for federally funded projects related to waterway navigation and flood control. In 2017, 2016 and
2015, 53.6%, 53.4% and 51.0%, respectively, of contract revenues were earned from contracts with federal
government agencies, including the Corps, as well as other federal entities such as the U.S. Coast Guard and U.S.
Navy. At December 31, 2017 and 2016, approximately 34.7% and 39.9%, respectively, of accounts receivable,
including contract revenues in excess of billings and retainage, were due on contracts with federal government
agencies. The Company depends on its ability to continue to obtain federal government contracts, and indirectly,
on the amount of federal funding for new and current government dredging projects. Therefore, the Company’s
operations can be influenced by the level and timing of federal funding.
The Company recognized an overall loss on a remediation project of $5,934 which if applied to the initial
year of the contract would have decreased gross profit by nearly the entire amount of the loss in the year ended
December 31, 2016. The Company recognized an overall loss on a remediation project of $7,260 which if
applied to the initial year of the contract would have decreased gross profit by nearly the entire amount of the
loss in the year ended December 31, 2015. The Company recognized a loss on a landfill project of $7,446 on
which the change in estimate to the gross profit percentage in the year resulted in a cumulative net impact on the
project margin, which decreased gross profit by extensively the entire amount of the loss in the year ended
December 31, 2015. The project was completed in 2016.
Revenue from foreign projects has been concentrated in the Middle East which comprised less than 10% in
2017 and 2016 and 14.7% of total revenue in 2015. At December 31, 2017 and 2016, less than 10% and
approximately 13.0%, respectively, of total accounts receivable, including retainage and contract revenues in
excess of billings, were due on contracts in the Middle East. There is a dependence on future projects in the
Middle East, as vessels are currently located there. However, some of the vessels located in Middle East can be
moved back to the U.S. or all can be moved to other international markets as opportunities arise.
19. SUBSIDIARY GUARANTORS
The Company’s long-term debt at December 31, 2017 includes $325,000 of 8.000% senior notes due
May 15, 2022. The Company’s obligations under these senior unsecured notes are guaranteed by certain of the
Company’s 100% owned domestic subsidiaries. Such guarantees are full, unconditional and joint and several.
In connection with the 8% Senior Notes issued in May 2017, certain of the Company’s 100% owned
domestic subsidiaries were released as subsidiary guarantors of the debt. Accordingly, the 2016 and 2015
financial information included below has been recast to reflect the release of these entities as subsidiary
guarantors.
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The following supplemental financial information sets forth for the Company’s subsidiary guarantors (on a
combined basis), the Company’s non-guarantor subsidiaries (on a combined basis) and Great Lakes Dredge &
Dock Corporation, exclusive of its subsidiaries (“GLDD Corporation”):
(i)
balance sheets as of December 31, 2017 and 2016;
(ii)
statements of operations and comprehensive income (loss) for the years ended December 31, 2017,
2016 and 2015; and
(iii) statements of cash flows for the years ended December 31, 2017, 2016 and 2015.
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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2017
(In thousands)
Subsidiary
Guarantors
Non-Guarantor
Subsidiaries
GLDD
Corporation Eliminations
Consolidated
Totals
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable—net
Contract revenues in excess of billings
Inventories
Prepaid expenses
Other current assets
Total current assets
PROPERTY AND EQUIPMENT—Net
GOODWILL
OTHER INTANGIBLE ASSETS—Net
INVENTORIES—Noncurrent
INVESTMENTS IN JOINT VENTURES
ASSETS HELD FOR SALE—Noncurrent
RECEIVABLES FROM AFFILIATES
INVESTMENTS IN SUBSIDIARIES
OTHER
$ 15,794
75,431
90,788
34,600
5,183
38,731
260,527
407,293
83,576
571
54,023
2,555
8,530
45,375
—
7,971
$
38
102
—
—
—
1,497
1,637
1
—
337
—
159
—
6,754
—
1
$
20
$
—
—
—
—
—
20
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
170,323
511,435
5,156
(222,452)
(511,435)
—
$ 15,852
75,533
90,788
34,600
5,183
40,228
262,184
407,294
83,576
908
54,023
2,714
8,530
—
—
13,128
TOTAL
$870,421
$ 8,889
$686,934
$(733,887)
$832,357
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable
Accrued expenses
Billings in excess of contract revenues
Current portion of long-term debt
Total current liabilities
LONG-TERM DEBT
REVOLVING CREDIT FACILITY
DEFERRED INCOME TAXES
PAYABLES TO AFFILIATES
INVESTMENTS IN SUBSIDIARIES
OTHER
Total liabilities
TOTAL EQUITY
TOTAL
$ 87,379
50,382
3,615
1,546
142,922
—
—
—
161,979
41,358
6,940
353,199
517,222
$
280
1,312
—
—
1,592
—
—
—
54,442
—
—
56,034
(47,145)
$ — $
4,524
—
1,212
5,736
333,141
95,000
25,561
6,031
—
169
465,638
221,296
—
—
—
—
—
—
—
—
(222,452)
(41,358)
—
(263,810)
(470,077)
$ 87,659
56,218
3,615
2,758
150,250
333,141
95,000
25,561
—
—
7,109
611,061
221,296
$870,421
$ 8,889
$686,934
$(733,887)
$832,357
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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2016
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable—net
Contract revenues in excess of billings
Inventories
Prepaid expenses
Other current assets
Total current assets
PROPERTY AND EQUIPMENT—Net
GOODWILL
OTHER INTANGIBLE ASSETS—Net
INVENTORIES—Noncurrent
INVESTMENTS IN JOINT VENTURES
ASSETS HELD FOR SALE—Noncurrent
RECEIVABLES FROM AFFILIATES
INVESTMENTS IN SUBSIDIARIES
OTHER
Subsidiary
Guarantors
Non-Guarantor
Subsidiaries
GLDD
Corporation Eliminations
Consolidated
Totals
$ 10,414
75,412
91,478
37,137
12,287
60,844
287,572
407,516
83,576
1,067
52,602
4,685
8,390
58,284
—
14,692
$
751
14,242
3,534
—
120
2,568
21,215
5,492
—
432
—
49
909
16,807
—
1
$
2
$
—
—
—
—
—
2
—
—
—
—
—
—
82,340
636,216
6,951
—
(1,563)
—
—
—
—
(1,563)
—
—
—
—
—
—
(157,431)
(636,216)
—
$ 11,167
88,091
95,012
37,137
12,407
63,412
307,226
413,008
83,576
1,499
52,602
4,734
9,299
—
—
21,644
TOTAL
$918,384
$ 44,905
$725,509
$(795,210)
$893,588
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable
Accrued expenses
Billings in excess of contract revenues
Current portion of long term-debt
Total current liabilities
LONG-TERM DEBT
REVOLVING CREDIT FACILITY
DEFERRED INCOME TAXES
PAYABLES TO AFFILIATES
INVESTMENTS IN SUBSIDIARIES
OTHER
Total liabilities
TOTAL EQUITY
TOTAL
$101,795
55,940
4,699
305
$ 2,879
3,222
499
1,015
162,739
—
—
(1,833)
80,769
32,000
5,925
279,600
638,784
7,615
—
—
—
70,921
—
937
79,473
(34,568)
$
17
9,881
—
1,145
11,043
286,291
104,111
70,282
5,741
—
151
477,619
247,890
$
(1,506)
—
(57)
—
(1,563)
—
—
—
(157,431)
(32,000)
—
(190,994)
(604,216)
$103,185
69,043
5,141
2,465
179,834
286,291
104,111
68,449
—
—
7,013
645,698
247,890
$918,384
$ 44,905
$725,509
$(795,210)
$893,588
106
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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEAR ENDED DECEMBER 31, 2017
(In thousands)
Contract revenues
Costs of contract revenues
Gross profit
OPERATING EXPENSES:
General and administrative expenses
Loss on sale of assets—net
Operating loss
Interest income (expense)—net
Equity in earnings (loss) of subsidiaries
Equity in loss of joint ventures
Loss on extinguishment of debt
Other income (expense)
Loss from continuing operations
before income taxes
Income tax (provision) benefit
Loss from continuing operations
Loss from discontinued operations, net of
income taxes
Net loss
Comprehensive loss
Subsidiary
Guarantors
Non-Guarantor
Subsidiaries
GLDD
Corporation Eliminations
Consolidated
Totals
$ 699,607
(647,467)
52,140
$ 5,163
(7,420)
(2,257)
67,175
4,801
(19,836)
1,054
38
(1,484)
—
(1,240)
(21,468)
(1,250)
(22,718)
1,156
276
(3,689)
(966)
—
—
—
452
(4,203)
(14)
(4,217)
$ —
—
$ (2,267)
2,267
$ 702,503
(652,620)
—
—
—
—
(26,134)
(26,973)
—
(2,330)
—
(55,437)
36,874
(18,563)
—
—
—
—
—
26,935
—
—
—
26,935
—
26,935
49,883
68,331
5,077
(23,525)
(26,046)
—
(1,484)
(2,330)
(788)
(54,173)
35,610
(18,563)
(20,900)
$ (43,618)
—
$(4,217)
(12,697)
$(31,260)
20,900
$47,835
(12,697)
$ (31,260)
$ (42,429)
$(4,258)
$(30,112)
$46,687
$ (30,112)
107
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GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)
FOR THE YEAR ENDED DECEMBER 31, 2016
(In thousands)
Contract revenues
Costs of contract revenues
Gross profit
OPERATING EXPENSES:
General and administrative expenses
Loss on sale of assets—net
Operating income (loss)
Interest income (expense)—net
Equity in earnings (loss) of subsidiaries
Equity in loss of joint ventures
Other expense
Income (loss) before income taxes
Income tax (provision) benefit
51,678
3,040
49,363
1,985
(31,488)
(2,365)
(2,626)
14,869
1,080
13,904
3,135
(34,732)
(1,497)
—
—
(751)
(36,980)
(144)
Subsidiary
Guarantors
Non-Guarantor
Subsidiaries
GLDD
Corporation Eliminations
Consolidated
Totals
$ 726,239
(622,158)
$ 44,086
(61,779)
$ —
—
$ (2,740)
2,740
$ 767,585
(681,197)
104,081
(17,693)
—
(49)
—
49
(23,395)
10,313
—
—
(13,033)
4,856
—
—
—
—
—
21,175
—
—
21,175
—
86,388
65,533
6,175
14,680
(22,907)
—
(2,365)
(3,377)
(13,969)
5,792
$
$
(8,177)
(7,339)
Net income (loss)
$ 15,949
$(37,124)
$ (8,177)
$21,175
Comprehensive income (loss)
$ 16,279
$(36,616)
$ (7,339)
$20,337
108
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02-Mar-2018 06:02 EST
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)
FOR THE YEAR ENDED DECEMBER 31, 2015
(In thousands)
Subsidiary
Guarantors
Non-Guarantor
Subsidiaries
GLDD
Corporation Eliminations
Consolidated
Totals
$ 778,337
(670,973)
$ 86,666
(98,107)
$ —
—
$ (8,125)
8,125
$ 856,878
(760,955)
95,923
71,069
2,750
(855)
22,959
(24,365)
—
(6,051)
(1,229)
(8,686)
2,497
(6,189)
(7,438)
$
$
Contract revenues
Costs of contract revenues
Gross profit
OPERATING EXPENSES:
General and administrative expenses
Impairment of goodwill
(Gain) loss on sale of assets—net
Operating income
Interest income (expense)—net
Equity in earnings of subsidiaries
Equity in earnings (loss) of joint ventures
Other income (loss)
Income (loss) before income taxes
Income tax (provision) benefit
107,364
(11,441)
58,682
—
(885)
49,567
872
34
(6,221)
(3,180)
41,072
1,641
12,387
2,750
30
(26,608)
(1,398)
—
170
1,951
(25,885)
(512)
—
—
—
—
—
(23,839)
16,282
—
—
(7,557)
1,368
—
—
—
—
—
—
(16,316)
—
—
(16,316)
—
Net income (loss)
$ 42,713
$(26,397)
$ (6,189)
$(16,316)
Comprehensive income (loss)
$ 42,713
$(27,646)
$ (7,438)
$(15,067)
109
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02-Mar-2018 07:13 EST
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2017
(In thousands)
Subsidiary
Guarantors
Non-Guarantor
Subsidiaries
GLDD
Corporation Eliminations
Consolidated
Totals
OPERATING ACTIVITIES:
Net cash flows provided by
operating activities of
continuing operations
Net cash flows used in operating
activities of discontinued
operations
Cash provided by (used in)
operating activities
INVESTING ACTIVITIES:
Purchases of property and
equipment
Proceeds from dispositions of
property and equipment
Changes in restricted cash
Net change in accounts with
affiliates
Transfer to parent
Cash used in investing
activities
FINANCING ACTIVITIES:
Proceeds from issuance of debt
Repayments of debt
7 3/8% senior notes tender premium
Deferred financing fees
Taxes paid on settlement of vested
share awards
Net change in accounts with affiliates
Transfer to parent
Exercise of stock options and
purchases from employee stock
plans
Borrowings under revolving loans
Repayments of revolving loans
Cash provided by (used in)
financing activities
Effect of foreign currency exchange
rates on cash and cash equivalents
Net increase (decrease) in cash and
cash equivalents
Cash and cash equivalents at beginning
of period
Cash and cash equivalents at end of
$ 64,610
$ 4,910
$ (27,102)
$ —
$ 42,418
(20,900)
—
—
43,710
4,910
(27,102)
(75,940)
7,711
8,620
7,035
3,732
—
1,457
—
—
(9,615)
—
—
—
—
—
—
—
—
(20,900)
21,518
(68,229)
10,077
7,035
(88,594)
81,184
84,862
(71,569)
—
—
(56,553)
(447)
(7,410)
13,293
(51,117)
1,241
(1,602)
—
—
—
90,153
(71,569)
—
—
—
—
—
(5,291)
—
325,000
(276,148)
(744)
(5,022)
—
—
—
(328)
—
—
—
(84,862)
71,569
326,241
(277,750)
(744)
(5,022)
(328)
—
—
—
—
—
—
—
—
883
124,925
(134,036)
—
—
—
883
124,925
(134,036)
18,223
(5,291)
34,530
(13,293)
34,169
—
115
5,380
10,414
(713)
751
—
18
2
—
—
—
115
4,685
11,167
period
$ 15,794
$
38
$
20
$ —
$ 15,852
110
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02-Mar-2018 08:02 EST
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
(In thousands)
OPERATING ACTIVITIES:
Cash provided by (used in) operating
activities
INVESTING ACTIVITIES:
Purchases of property and equipment
Proceeds from dispositions of property
and equipment
Changes in restricted cash
Net change in accounts with affiliates
Transfer to parent
Cash provided by (used in) investing
Subsidiary
Guarantors
Non-Guarantor
Subsidiaries
GLDD
Corporation Eliminations
Consolidated
Totals
$ 74,409
$(16,677)
$ (19,062) $ — $ 38,670
(83,777)
(21)
—
—
(83,798)
10,582
(7,035)
(5,100)
—
7,675
—
—
—
—
—
(36,172)
23,000
—
—
41,272
(23,000)
18,257
(7,035)
—
—
activities
(85,330)
7,654
(13,172)
18,272
(72,576)
FINANCING ACTIVITIES:
Repayments of debt
Deferred financing fees
Taxes paid on settlement of vested share
awards
Net change in accounts with affiliates
Transfer to parent
Exercise of stock options and purchases from
employee stock plans
Excess income tax benefit from share-based
compensation
Borrowings under revolving loans
Repayments of revolving loans
Cash provided by financing
activities
Effect of foreign currency exchange rates on
cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of
period
(296)
—
(1,128)
—
(45,661)
(6,817)
—
—
(47,085)
(6,817)
—
32,933
(23,000)
—
8,339
—
—
(171)
— (41,272)
23,000
—
—
—
—
—
—
—
—
—
905
(133)
288,611
(204,500)
—
—
—
—
(171)
—
—
905
(133)
288,611
(204,500)
9,637
7,211
32,234
(18,272)
30,810
—
79
(1,284)
(1,733)
11,698
2,484
—
—
2
—
—
—
79
(3,017)
14,184
Cash and cash equivalents at end of period
$ 10,414
$
751
$
2 $ — $ 11,167
111
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02-Mar-2018 08:02 EST
GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2015
(In thousands)
OPERATING ACTIVITIES:
Cash provided by (used in)
operating activities
INVESTING ACTIVITIES:
Purchases of property and equipment
Proceeds from dispositions of property
and equipment
Net change in accounts with affiliates
Subsidiary
Guarantors
Non-Guarantor
Subsidiaries
GLDD
Corporation Eliminations
Consolidated
Totals
75,489
(22,679)
(23,688)
(70,759)
(3,696)
—
—
—
29,122
(74,455)
1,102
(32,342)
220
—
—
(12,222)
—
44,564
1,322
—
Cash used in investing activities
(101,999)
(3,476)
(12,222)
44,564
(73,133)
FINANCING ACTIVITIES:
Proceeds from issuance of debt
Repayments of debt
Deferred financing fees
Taxes paid on settlement of vested share
awards
Net change in accounts with affiliates
Transfer to parent
Exercise of stock options and purchases from
employee stock plans
Excess income tax benefit from share-based
compensation
Purchase of treasury stock
Borrowings under revolving loans
Repayments of revolving loans
Cash provided by (used in)
financing activities
Effect of foreign currency exchange rates on
—
(195)
—
—
(23,491)
17,258
—
(1,006)
—
—
31,991
—
3,050
(5,443)
(111)
—
—
—
(267)
36,064
(17,258)
—
(44,564)
—
—
—
—
—
—
—
—
—
—
—
1,365
(57)
(1,433)
179,500
(159,500)
—
—
—
—
—
3,050
(6,644)
(111)
(267)
—
—
1,365
(57)
(1,433)
179,500
(159,500)
(6,428)
30,985
35,910
(44,564)
15,903
cash and cash equivalents
—
(97)
Net increase (decrease) in cash and cash
equivalents
(32,938)
4,733
—
—
Cash and cash equivalents at beginning of
period
44,636
(2,249)
2
—
—
—
(97)
(28,205)
42,389
Cash and cash equivalents at end of period
$ 11,698
$ 2,484
$
2 $ — $ 14,184
112
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02-Mar-2018 06:02 EST
Great Lakes Dredge & Dock Corporation
Schedule II—Valuation and Qualifying Accounts
For the Years Ended December 31, 2017, 2016 and 2015
(In thousands)
Description
Year ended December 31, 2015
Allowances deducted from assets to which they
apply:
Allowances for doubtful accounts
Valuation allowance for deferred tax assets
Total
Year ended December 31, 2016
Allowances deducted from assets to which they
apply:
Allowances for doubtful accounts
Valuation allowance for deferred tax assets
Total
Year ended December 31, 2017
Allowances deducted from assets to which they
apply:
Allowances for doubtful accounts
Valuation allowance for deferred tax assets
Total
Additions
Beginning
Balance
Charged to
costs and
expenses
Charged to
other
accounts
Deductions
Ending
balance
$ 578
6,579
$7,157
$ 176
270
$ 446
$ 754
6,101
$6,855
$ 389
1,032
$1,421
$ 747
7,133
$7,880
$ 415
1,152
$1,567
$—
$—
$—
$—
$—
$—
$ — $ 754
6,101
(748)
$ (748)
$6,855
$ (396)
$ 747
7,133
$ (396)
$7,880
$ (621)
(3,991)
$ 541
4,294
$(4,612)
$4,835
113
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07-Mar-2018 18:26 EST
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 the undersigned thereunto duly authorized.
Great Lakes Dredge & Dock Corporation
(registrant)
By:
/S/ MARK W. MARINKO
Mark W. Marinko
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer and
Duly Authorized Officer)
Date: February 28, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capabilities and on the dates indicated.
Signature
Date
Title
/s/ Lasse J. Petterson
February 28, 2018
Lasse J. Petterson
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Mark W. Marinko
February 28, 2018
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
February 28, 2018
Director
Mark W. Marinko
/s/ Carl A. Albert
Carl A. Albert
/s/ Lawrence R. Dickerson
February 28, 2018
Director
Lawrence R. Dickerson
/s/ Ryan J. Levenson
February 28, 2018
Director
Ryan J. Levenson
/s/ D. Michael Steuert
February 28, 2018
Director
D. Michael Steuert
/s/ Robert B. Uhler
Robert B. Uhler
/s/ Michael J. Walsh
Michael J. Walsh
/s/ Jason G. Weiss
Jason G. Weiss
February 28, 2018
Director
February 28, 2018
Director
February 28, 2018
Director
114
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07-Mar-2018 18:26 EST
Number
2.1
2.2
3.1
3.2
3.3
4.1
4.2
10.1
10.2
10.3
I. EXHIBIT INDEX
Document Description
Amended and Restated Agreement and Plan of Merger dated as of December 22, 2003, among
Great Lakes Dredge & Dock Corporation, GLDD Acquisitions Corp., GLDD Merger Sub, Inc. and
Vectura Holding Company LLC. (Incorporated by reference to Great Lakes Dredge & Dock
Corporation’s Current Report on Form 8-K filed with the Commission on January 6, 2004
(Commission file no. 333-64687)).
Agreement and Plan of Merger by and among GLDD Acquisitions Corp., Aldabra Acquisition
Corporation, and certain shareholders of Aldabra Acquisition Corporation and GLDD Acquisitions
Corp., dated as of June 20, 2006. (Incorporated by reference to Great Lakes Dredge & Dock
Corporation’s Current Report on Form 8-K filed with the Commission on June 22, 2006
(Commission file no. 333-64687)).
Amended and Restated Certificate of Incorporation of Great Lakes Dredge & Dock Holdings
Corp., effective December 26, 2006 (now renamed Great Lakes Dredge & Dock Corporation).
(Incorporated by reference to Great Lakes Dredge & Dock Corporation’s Registration Statement
on Form 8-A12B filed with the Commission on December 26, 2006 (Commission file
no. 001-33225)).
Amended and Restated Bylaws of Great Lakes Dredge & Dock Corporation, dated as of May 14,
2015. (Incorporated by reference to Great Lakes Dredge & Dock Corporation’s Current Report on
Form 8-K filed with the Commission on May 20, 2015 (Commission file no. 001-33225)).
Certificate of Ownership and Merger of Great Lakes Dredge & Dock Corporation with and into
Great Lakes Dredge & Dock Holdings Corp. (Incorporated by reference to Great Lakes Dredge &
Dock Corporation’s Current Report on Form 8-K filed with the Commission on December 29,
2006 (Commission file no. 001-33225)).
Indenture, dated May 24, 2017, by and among the Company, certain subsidiary guarantors named
therein and Wells Fargo Bank, National Association, as trustee. (Incorporated by reference to
Great Lakes Dredge & Dock Corporation’s Current Report on Form 8-K filed with the
Commission on May 24, 2017 (Commission file no. 001-33225)).
Specimen Common Stock Certificate for Great Lakes Dredge & Dock Corporation. (Incorporated
by reference to Great Lakes Dredge & Dock Corporation’s Annual Report on Form 10-K filed with
the Commission on March 22, 2007 (Commission file no. 001-33225)).
Agreement of Indemnity, dated as of April 7, 2015, by and among Great Lakes Dredge & Dock
Corporation, Great Lakes Dredge & Dock Company, LLC, Great Lakes Environmental &
Infrastructure Solutions, LLC, Magnus Pacific, LLC, Terra Contracting, LLC, Terra Fluid
Management, LLC and Liberty Mutual Insurance Company and its subsidiaries and affiliates.
(Incorporated by reference to Great Lakes Dredge & Dock Corporation’s Quarterly Report on
Form 10-Q filed with the Commission on May 6, 2015 (Commission file no. 001-33225)).
Agreement of Indemnity, dated as of April 13, 2015, by and among Great Lakes Dredge & Dock
Corporation, Great Lakes Dredge & Dock Company, LLC, Great Lakes Environmental &
Infrastructure Solutions, LLC, Magnus Pacific, LLC, Terra Contracting, LLC, Terra Fluid
Management, LLC and Berkley Insurance Company and/or Berkley Regional Insurance Company.
(Incorporated by reference to Great Lakes Dredge & Dock Corporation’s Quarterly Report on
Form 10-Q filed with the Commission on May 6, 2015 (Commission file no. 001-33225)).
Agreement of Indemnity, dated as of April 7, 2015, by and among Great Lakes Dredge & Dock
Corporation, Great Lakes Dredge & Dock Company, LLC, Great Lakes Environmental &
Infrastructure Solutions, LLC, Magnus Pacific, LLC, Terra Contracting, LLC, Terra Fluid
Management, LLC and Argonaut Insurance Company. (Incorporated by reference to Great Lakes
Dredge & Dock Corporation’s Quarterly Report on Form 10-Q filed with the Commission on
May 6, 2015 (Commission file no. 001-33225)).
115
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10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
Agreement of Indemnity, dated as of April 7, 2015, by and among Great Lakes Dredge & Dock
Corporation, Great Lakes Dredge & Dock Company, LLC, Great Lakes Environmental &
Infrastructure Solutions, LLC, Magnus Pacific, LLC, Terra Contracting, LLC, Terra Fluid
Management, LLC and Westchester Fire Insurance Company or any of its affiliates, including any
other company that is part of or added to ACE Holdings, Inc. (Incorporated by reference to Great
Lakes Dredge & Dock Corporation’s Quarterly Report on Form 10-Q filed with the Commission
on May 6, 2015 (Commission file no. 001-33225)).
Amended and Restated Management Equity Agreement dated December 26, 2006 by and among
Aldabra Acquisition Corporation, Great Lakes Dredge & Dock Holdings Corp. and each of the
other persons identified on the signature pages thereto. (Incorporated by reference to Great Lakes
Dredge & Dock Corporation’s Current Report on Form 8-K filed with the Commission on
December 29, 2006 (Commission file no. 001-33225)).†
Amended and Restated Employment Agreement between Great Lakes Dredge & Dock Corporation
and David E. Simonelli, dated as of May 8, 2014. (Incorporated by reference to Great Lakes
Dredge & Dock Corporation’s Quarterly Report on Form 10-Q filed with the Commission on
August 4, 2015 (Commission file no. 001-33225)).†
Amended and Restated Employment Agreement with Jonathan W. Berger, dated as of May 8,
2014. (Incorporated by reference to Great Lakes Dredge & Dock Corporation’s Quarterly Report
on Form 8-K filed with the Commission on May 13, 2014 (Commission file no. 001-33225)).†
Employment Agreement between Great Lakes Dredge & Dock Corporation and Christopher P.
Shea. (Incorporated by reference to Great Lakes Dredge & Dock Corporation’s Current Report on
Form 10-K filed with the Commission on February 28, 2017 (Commission file no. 001-33225). †
Separation Agreement, dated January 18, 2017, between Great Lakes Dredge & Dock Corporation
and Jonathan W. Berger. (Incorporated by reference to Great Lakes Dredge & Dock Corporation’s
Current Report on Form 10-K filed with the Commission on February 28, 2017 (Commission file
no. 001-33225)).†
Employment Agreement between Great Lakes Dredge & Dock Corporation and Lasse Petterson,
dated as of April 28, 2017. (Incorporated by reference to Great Lakes Dredge & Dock
Corporation’s Current Report on Form 8-K filed with the Commission on May 1, 2017
(Commission file no. 001-33225)).†
Second Amended and Restated Great Lakes Dredge & Dock Company, LLC Annual Bonus Plan
effective as of January 1, 2012 (Incorporated by reference to Great Lakes Dredge & Dock
Corporation’s Current Report on Form 8-K filed with the Commission on January 17, 2012
(Commission file no. 001-33225)).†
401(k) Savings Plan. (Incorporated by reference to Great Lakes Dredge & Dock Corporation’s
Annual Report on Form 10-K filed with the Commission on March 30, 2005 (Commission file
no. 333-64687)).†
Amended and Restated Great Lakes Dredge & Dock Corporation Supplemental Savings Plan
effective January 1, 2014. (Incorporated by reference to Great Lakes Dredge & Dock
Corporation’s Annual Report on Form 10-K filed with the Commission on March 11, 2014
(Commission file no.001-33225)).†
Form of Investor Rights Agreement among Aldabra Acquisition Corporation, Great Lakes
Dredge & Dock Holdings Corp., Madison Dearborn Capital Partners IV, L.P., certain stockholders
of Aldabra Acquisition Corporation and certain stockholders of GLDD Acquisitions Corp.
(Incorporated by reference to Great Lakes Dredge & Dock Holding Corp.’s Registration Statement
on Form S-4 filed with the Commission on August 24, 2006 (Commission file
no. 333-136861-01)).
116
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10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
Great Lakes Dredge & Dock Corporation 2007 Long-Term Incentive Plan. (Incorporated by
reference to Great Lakes Dredge & Dock Corporation’s Definitive Proxy Statement on Schedule
14A, filed with the Commission on April 4, 2012 (Commission file no. 001-33225)).†
Great Lakes Dredge & Dock Corporation 2017 Long-Term Incentive Plan (Incorporated by
reference to Great Lakes Dredge & Dock Corporation’s Current Report on Form 8-K filed with the
Commission on May 17, 2017 (Commission file no. 001-33225)).†
Form of Great Lakes Dredge & Dock Corporation Restricted Stock Unit Award Agreement
pursuant to the Great Lakes Dredge & Dock Corporation 2007 Long-Term Incentive Plan.
(Incorporated by reference to Great Lakes Dredge & Dock Corporation’s Current Report on
Form 8-K filed with the Commission on July 1, 2011 (Commission file no. 001-33225)).†
Form of Great Lakes Dredge & Dock Corporation Performance Vesting RSU Award Agreement
pursuant to the Great Lakes Dredge & Dock Corporation 2007 Long-Term Incentive Plan.
(Incorporated by reference to Great Lakes Dredge & Dock Corporation’s Current Report on
Form 8-K filed with the Commission on July 1, 2011 (Commission file no. 001-33225)).†
Form of Great Lakes Dredge & Dock Corporation Restricted Stock Unit Award Agreement
pursuant to the Great Lakes Dredge & Dock Corporation 2007 Long-Term Incentive Plan.
(Incorporated by reference to Great Lakes Dredge & Dock Corporation’s Quarterly Report on
Form 10-Q filed with the Commission on May 3, 2016 (Commission file no. 001-33225)).†
Form of Great Lakes Dredge & Dock Corporation Performance Vesting RSU Award Agreement
pursuant to the Great Lakes Dredge & Dock Corporation 2007 Long-Term Incentive Plan.
(Incorporated by reference to Great Lakes Dredge & Dock Corporation’s Quarterly Report on
Form 10-Q filed with the Commission on May 3, 2016 (Commission file no. 001-33225)).†
Form of Great Lakes Dredge & Dock Corporation Cash Performance Award Agreement pursuant
to the Great Lakes Dredge & Dock Corporation 2007 Long-Term Incentive Plan. (Incorporated by
reference to Great Lakes Dredge & Dock Corporation’s Quarterly Report on Form 10-Q filed with
the Commission on May 3, 2016 (Commission file no. 001-33225)).†
Restricted Stock Unit Award Agreement, dated as of March 9, 2016, by and between Great Lakes
Dredge & Dock Corporation and Jonathan W. Berger (Incorporated by reference to Great Lakes
Dredge & Dock Corporation’s Quarterly Report on Form 10-Q filed with the Commission on
May 3, 2016 (Commission file no. 001-33225)).†
Performance Vesting RSU Award Agreement, dated as of March 9, 2016, by and between Great
Lakes Dredge & Dock Corporation and Jonathan W. Berger (Incorporated by reference to Great
Lakes Dredge & Dock Corporation’s Quarterly Report on Form 10-Q filed with the Commission
on May 3, 2016 (Commission file no. 001-33225)).†
Cash Performance Award Agreement, dated as of March 9, 2016, by and between Great Lakes
Dredge & Dock Corporation and Jonathan W. Berger (Incorporated by reference to Great Lakes
Dredge & Dock Corporation’s Quarterly Report on Form 10-Q filed with the Commission on
May 3, 2016 (Commission file no. 001-33225)).†
Great Lakes Dredge & Dock Corporation Director Deferral Plan †*
Share Purchase Agreement dated November 4, 2014 among Great Lakes Environmental and
Infrastructure Solutions, LLC and Magnus Pacific Corporation. (Incorporated by reference to
Great Lakes Dredge & Dock Corporation’s Annual Report on Form 10-K/A filed with the
Commission on September 24, 2015 (Commission file no. 001-33225)).##
Amendment to the Share Purchase Agreement, dated as of September 8, 2016, by and among
Magnus Pacific Corporation, now known as Great Lakes Environmental and Infrastructure, LLC
and Great Lakes Environmental and Infrastructure Solutions, LLC. (Incorporated by reference to
Great Lakes Dredge & Dock Corporation’s Quarterly Report on Form 10-Q filed with the
Commission on November 2, 2016 (Commission file no. 001-33225)).##
117
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10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
Purchase Agreement, dated November 19, 2014, by and among the Company, certain subsidiary
guarantors named therein and Deutsche Bank Securities Inc., as the initial purchaser. (Incorporated
by reference to Great Lakes Dredge & Dock Corporation’s Current Report on Form 8-K filed with
the Commission on November 24, 2014 (Commission file no. 001-33225)).
Purchase Agreement, dated May 18, 2017, by and among the Company, certain subsidiary
guarantors named therein and Deutsche Bank Securities Inc., as representative of the initial
purchasers named therein. (Incorporated by reference to Great Lakes Dredge & Dock
Corporation’s Current Report on Form 8-K filed with the Commission on May 24, 2017
(Commission file no. 001-33225)).
Registration Rights Agreement, dated January 28, 2011, by and among the Company, certain
subsidiary guarantors named therein and the initial purchasers named therein. (Incorporated by
reference to Great Lakes Dredge & Dock Corporation’s Current Report on Form 8-K filed with the
Commission on January 28, 2011 (Commission file no. 001-33225)).
Registration Rights Agreement, dated November 24, 2014, by and among the Company, certain
subsidiary guarantors named therein and Deutsche Bank Securities Inc., as the initial purchaser.
(Incorporated by reference to Great Lakes Dredge & Dock Corporation’s Current Report on
Form 8-K filed with the Commission on November 24, 2014 (Commission file no. 001-33225)).
Registration Rights Agreement, dated May 24, 2017, by and among the Company, certain subsidiary
guarantors named therein and Deutsche Bank Securities Inc., as representative of the initial purchasers
named therein. (Incorporated by reference to Great Lakes Dredge & Dock Corporation’s Current Report
on Form 8-K filed with the Commission on May 24, 2017 (Commission file no. 001-33225)).
Revolving Credit and Security Agreement dated as of December 30, 2016 by and among Great
Lakes Dredge & Dock Corporation, as Borrower, each other Credit Party party hereto from time to
time, the financial institutions which are now or which hereafter become a party hereto as lenders,
PNC Capital Markets, The PrivateBank and Trust Company, Capital One, National Association,
Suntrust Robinson Humphrey, Inc., and Bank of America, N.A., as joint lead arrangers and joint
bookrunners, Texas Capital Bank, National Association, as syndication agent, Woodforest Nation
Bank, as documentation agent, and PNC Bank, National Association, as agent for lenders.
(Incorporated by reference to Great Lakes Dredge & Dock Corporation’s Current Report on Form
10-K filed with the Commission on February 28, 2017 (Commission file no. 001-33225)).##
Waiver and Amendment No. 1 to the Revolving Credit and Security Agreement, dated as of
February 27, 2017, by and among Great Lakes Dredge & Dock Corporation, as Borrower, each
other Credit Party party hereto from time to time, the financial institutions which are now or which
hereafter become a party hereto as lenders, PNC Capital Markets, The PrivateBank and Trust
Company, Capital One, National Association, Suntrust Robinson Humphrey, Inc., and Bank of
America, N.A., as joint lead arrangers and joint bookrunners, Texas Capital Bank, National
Association, as syndication agent, Woodforest Nation Bank, as documentation agent, and PNC
Bank, National Association, as agent for lenders. (Incorporated by reference to Great Lakes
Dredge & Dock Corporation’s Current Report on Form 10-K filed with the Commission on
February 28, 2017 (Commission file no. 001-33225)).
Second Amendment to Amended and Restated Credit Agreement, dated May 18, 2017, by and
among the Company, the subsidiaries of the Company named therein, and PNC Bank, N.A. as
lender and agent, and certain other lenders named therein. (Incorporated by reference to Great
Lakes Dredge & Dock Corporation’s Current Report on Form 8-K filed with the Commission on
May 24, 2017 (Commission file no. 001-33225)).
Consent and Amendment No. 3 to Amended and Restated Credit Agreement, dated December 6,
2017, by and among the Company, the subsidiaries of the Company named therein, and PNC
Bank, N.A. as lender and agent, and certain other lenders named therein.#*
118
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10.37
10.38
10.39
10.40
10.41
10.42
12.1
14.1
21.1
23.1
23.2
23.3
31.1
31.2
Agreement of Indemnity, dated as of September 7, 2011, by and among Great Lakes Dredge &
Dock Corporation, Great Lakes Dredge & Dock Company, LLC, Lydon Dredging and
Construction Company, Ltd., Fifty-Three Dredging Corporation, Dawson Marine Services
Company, Great Lakes Dredge & Dock Environmental, Inc. f/k/a Great Lakes Caribbean
Dredging, Inc., NASDI, LLC, NASDI Holdings Corporation, Yankee Environmental Services,
LLC, Great Lakes Dredge & Dock (Bahamas) Ltd. and Zurich American Insurance Company and
its subsidiaries and affiliates. (Incorporated by reference to Great Lakes Dredge & Dock
Corporation’s Annual Report on Form 10-K filed with the Commission on March 29, 2013
(Commission file no. 001-33225)).
First Rider to the General Agreement of Indemnity, dated as of June 4, 2012, by and among Great
Lakes Dredge & Dock Corporation, Great Lakes Dredge & Dock Company, LLC, Lydon Dredging
and Construction Company, Ltd., Fifty-Three Dredging Corporation, Dawson Marine Services
Company, Great Lakes Dredge & Dock Environmental, Inc. f/k/a Great Lakes Caribbean
Dredging, Inc., Great Lakes Dredge & Dock (Bahamas) Ltd. and Zurich American Insurance
Company and its subsidiaries and affiliates. (Incorporated by reference to Great Lakes Dredge &
Dock Corporation’s Quarterly Report on Form 10-Q filed with the Commission on August 4, 2015
(Commission file no. 001-33225)).
Loan Agreement dated as of November 4, 2014 by and among Great Lakes Dredge & Dock
Corporation, as Borrower, the Lenders from time to time party hereto and Bank of America, N.A.,
as Administrative Agent. (Incorporated by reference to Great Lakes Dredge & Dock Corporation’s
Annual Report on Form 10-K/A filed with the Commission on September 24, 2015 (Commission
file no. 001-33225)).##
Vessel Construction Agreement, dated January 10, 2014 by and between Eastern Shipbuilding
Group, Inc. and Great Lakes Dredge & Dock Company, LLC. (Incorporated by reference to Great
Lakes Dredge & Dock Corporation’s Current Report on Form 10-K filed with the Commission on
March 11, 2014 (Commission file no. 001-33225)).##
Amendment to Vessel Construction Agreement, dated December 23, 2016 by and between Eastern
Shipbuilding Group, Inc. and Great Lakes Dredge & Dock Company, LLC. (Incorporated by
reference to Great Lakes Dredge & Dock Corporation’s Current Report on Form 10-K filed with
the Commission on February 28, 2017 (Commission file no. 001-33225)).##
Agreement dated December 27, 2016. (Incorporated by reference to Great Lakes Dredge & Dock
Corporation’s Current Report on Form 8-K filed with the Commission on December 30, 2016
(Commission file no. 001-33225)).
Ratio of Earnings to Fixed Charges. *
Code of Business Conduct and Ethics. (Incorporated by reference to Great Lakes Dredge & Dock
Corporation’s Current Report on Form 8-K filed with the Commission on May 18, 2016
(Commission file no. 001-33225)).
Subsidiaries of Great Lakes Dredge & Dock Corporation. *
Consent of Deloitte & Touche LLP. *
Consent of CohnReznick LLP. *
Consent of CohnReznick LLP. *
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. *
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. *
119
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32.1
32.2
99.1
99.2
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *
Financial Statements of TerraSea Environmental Solutions, LLC as of December 31, 2016
(Unaudited), and for the Period from January 1, 2017 to August 28, 2017 (Unaudited) and for the
Years Ended December 31, 2016 (Unaudited) and 2015.*
Financial Statements of Amboy Aggregates Joint Venture and Subsidiaries as of December 31,
2016 (unaudited) and for the Period from January 1, 2017 to December 29, 2017 (unaudited), the
Year Ended December 31, 2016 (unaudited) and for the Periods from January 1, 2015 to June 30,
2015 and July 1, 2015 to December 31, 2015.*
101.INS
XBRL Instance Document. *
101.SCH
XBRL Taxonomy Extension Schema. *
101.CAL
XBRL Taxonomy Extension Calculation Linkbase.*
101.DEF
XBRL Taxonomy Extension Definition Linkbase.*
101.LAB
XBRL Taxonomy Extension Label Linkbase.*
101.PRE
XBRL Taxonomy Extension Presentation Linkbase.*
*
†
#
Filed herewith
Compensatory plan or arrangement
Portions of this exhibit have been omitted pending a determination by the Securities and Exchange
Commission as to whether these portions should be granted confidential treatment.
## Portions of this exhibit have been previously granted confidential treatment by the Securities and Exchange
Commission.
120
GLDD_2017AR_FN.indd 2
3/8/18 12:02 PM
ANNUAL MEETINGWEDNESDAY, MAY 2, 2018, 1PM (CST)Le Méridien Hotel, Chicago/Oakbrook2100 Spring RoadOak Brook, IL 60523INVESTOR INQUIRIESFor additional financial documents and information, please visit our investor relations web page at glddcorp.com. Contact us by phone at 630.574.3024 or by email at investorrelations@gldd.com.STOCK LISTINGGreat Lakes Dredge & Dock Corporation stock is listed on the NASDAQ under the symbol GLDD.TRANSFER AGENTBROADRIDGE CORPORATE ISSUER SOLUTIONS, INC.1155 Long Island AvenueEdgewood, NY 11717Committed to creating an Incident- and Injury-Free (IIF) working environment.Registered to do business worldwide.Established 1890.Certified ISO 9001:2000 for International Operations. An equal-opportunity employer.NASDAQ: GLDDCORPORATE & DREDGING OPERATIONS OFFICE GREAT LAKES DREDGE & DOCK CORPORATION2122 York Road, Oak Brook, Illinois 60523 630.574.3000 | info@gldd.com | gldd.comREGIONAL DREDGING OFFICESMIDDLE EASTImpact HouseFlat 22, 2nd FloorBldg. No. 662, Road 2811Block 428Al Seef DistrictP.O. Box 50628, Kingdom of BahrainTel. No. +973 17471929 | MEinfo@gldd.comINTERNATIONAL2122 York Road, Oak Brook, Illinois 60523 630.574.3000 TEXAS2605 W. Lake Houston Pkwy., Suite CKingwood, Texas 77339 | TXinfo@gldd.comYARD LOCATIONSStaten Island, New YorkNorfolk, Virginia Morgan City, LouisianaChickasaw, AlabamaCape Girardeau, MissouriLittle Rock, ArkansasGREAT LAKES ENVIRONMENTAL & INFRASTRUCTURECORPORATE HEADQUARTERS2122 York Road, Oak Brook, Illinois 60523630.574.3000 | info@glei.com | glei.comREGIONAL OFFICESRocklin, CaliforniaSalt Lake City, UtahDenton, TexasCentennial, ColoradoRoswell, GeorgiaPortage, MichiganBrielle, New JerseyBOARD OF DIRECTORSCarl AlbertDirectorLarry DickersonChairman of the BoardRyan LevensonDirectorLasse PettersonDirectorMike SteuertDirectorRobert UhlerDirectorMike WalshDirectorJason WeissDirectorCORPORATE INFORMATIONGREAT LAKES DREDGE & DOCK CORPORATION GLDD_2017AR_FN.indd 23/2/18 12:42 PM Former MGP Site Remediation, Norwich, New York
2017 ANNUAL REPORT |
189 0
IT ALL STARTS WITH
DREDGING
The Ellis Island and tug Douglas B. Mackie commenced dredging operations in early December 2017 on Phase 1 of
the MSCIP Comprehensive Barrier Island Restoration Plan. Located in the U.S. Gulf of Mexico offshore of Gulfport
Mississippi, the project involves the dredging, transport and placement of seven million cubic yards of sand to reconnect
Ship Island East and West. Once one land mass, the islands were separated by Hurricane Camille in 1969.
2017 ANNUAL REPORT |
2122 York Road, Oak Brook, IL 60523 | glddcorp.com