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2018
ANNUALREPORT
GREAT LAKES DREDGE &
DOCK CORPORATION
NORTH AMERICA’S LEADER
For the last 128 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 internationally for over two decades. During 2018, the domestic dredging market experienced
a boom of activity mainly focused around port deepening projects on the East and Gulf Coasts. As the
Company enters its 129th year of operation in 2019, it will be deepening a record five ports over the next year.
This solid market, combined with our recently completed asset rationalization and cost savings program, puts
the Company in a solid place to continue the successes experienced in 2018. The Company looks forward to
continuing to provide quality work to our clients, a safe work environment for our employees, and a positive
return for our shareholders for the coming decades.
2018 ANNUAL REPORT |
FINANCIAL HIGHLIGHTS
In thousands, except per share amounts
2018
2017
2016
2015
2014
Revenue
$620,795
$592,159
$637,468
$681,255
$697,712
Adjusted EBITDA from Continuing Operations* (a)
$100,419
$ 35,195
$ 78,662
$ 100,134
$ 81,751
Income (loss) from Continuing Operations (a)
$ 11,015
$ (15,368
)
$ 542
$ 14,694
$ 26,258
Diluted (loss) Earnings**
$ 0.17
$ (0.25
)
$ 0.01
$ 0.24
$ 0.43
Total Assets
Net Debt***
$730,271
$832,357
$893,588
$ 898,124
$888,725
$298,992
$413,502
$380,380
$337,364
$274,927
The historical environmental & infrastructure segment has been retrospectively presented as discontinued operations and is no longer reflected in continuing operations.
* 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) Adjusted EBITDA from
continuing operations, excluding restructuring, was $109,807 in 2018 and $57,177 in 2017. Net income from continuing operations, excluding restructuring, was $22,935
in 2018 and $2,270 in 2017.
MSCIP Comprehensive Barrier Island Restoration Plan—U.S. Gulf of Mexico, Offshore of Gulfport Mississippi
| PAGE 1
The 15,000 cubic yard capacity Ellis Island, the largest hopper dredge in the U.S.
LETTER TO SHAREHOLDERS
2018 was an exceptional year for Great Lakes—a year where
we executed on our plan to bring the Company back to
profitability and financial health.
Our plan included rationalizing certain underutilized and
unproductive vessels, implementing significant cost reduction
throughout the company and building a solid backlog of
large port deepening projects. As a result of these initiatives,
we reduced our net debt by over $110 million, our Adjusted
EBITDA from continued operations increased from $35 million
to $100 million and we ended 2018 with a backlog of $707
million including five large port deepening projects.
Other changes were implemented during the year such as the
continued refreshment of our Board as we welcomed two new
Directors and Larry Dickerson took over as Chairman.
We also continued our review of the Environmental and
Infrastructure segment and concluded that whilst the segment
had significantly improved over the last three years, the
business itself does not align well enough with our core
dredging business to continue operating it under our portfolio
of assets. We expect to divest of this business during the first
half of 2019.
Safety of our employees will always be a key value at Great
Lakes. In 2018, we continued on our Incident and Injury Free®
journey, ensuring deep commitment throughout our operations
to improving safety every day, everywhere. We are committed
to never becoming complacent in our efforts to ensure that all
our employees are able to go home safely to their families and
friends after each working session. Through this commitment
we were able to decrease our recordable injuries by more than
27% in 2018.
Our coastal environment is important to all of us. As a
dredging company, we have a particular responsibility to
protect the marine environment we work and live in. We are
committed to follow best-in-class environmental, social and
governance processes in all we do and to mitigate impacts on
the environment and sea life by executing our projects to the
highest standards. Our Environmental, Social and Governance
report is now available on our website at www.gldd.com.
As the nation’s leading dredging contractor, we have sharpened
our business focus on winning and executing large, complex
and challenging port deepening projects. With our extensive
and diverse dredging fleet and a long history of port deepening
work, we believe we can execute these projects safely, on time
and on budget, providing better returns for the company and
better value for our shareholders. 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 and in 2018, we
were awarded the Jacksonville, Tampa, Delaware and Corpus
Christi port deepening projects. Through securing a strong
backlog of large projects, we generated solid returns during
2018; most significantly in the third and fourth quarters. I am
confident this will continue into 2019.
2018 ANNUAL REPORT |
The international dredging market continued to struggle in 2018
and we expect the market to improve at the earliest in 2020/21.
Currently, we are now mobilized on a large land reclamation
project in Bahrain which will keep our small international fleet
busy for most of 2019, although at a break-even contribution.
and demands in our fleet. As a market leader we must remain
vigilant and prepared for these changes, hence we have
started design work for potential new vessel additions. The
final investment decision will be made prudently and in the
context of our results and financial health.
Throughout 2018, we saw strong operational performance on
all projects. Our new 15,000 cubic yard trailing suction hopper
dredge Ellis Island was delivered in December of 2017 and
completed her run-in period in 2018 with strong operational
performance validating her design parameters. She has
completed her first project building the massive Mississippi
Barrier Island which is designed to protect the Mississippi
delta and New Orleans from hurricane storm surge. Currently
she is performing port deepening work in Charleston before
continuing with beach renourishment on the East Coast later in
2019. We are confident in the Ellis Island’s performance on a
variety of different tasks and she will play a key role in ensuring
our client’s projects are completed on time and on budget.
The domestic dredging bid market was very strong in 2018.
We expect this trend to continue for the coming years as U.S.
ports continue to fund projects to deepen and improve their
facilities allowing them to remain competitive with their peers.
With the addition of Ellis Island and the rationalization of older
assets, our fleet is well adjusted to the current and upcoming
market. However, market conditions, changes in technology
and new regulatory standards will drive new requirements
In conclusion, we are confident that the decisions made and
changes implemented over the last 18 months have positioned
the Company well for the future. We have a sharp focus on
our core market, a solid backlog of large projects secured,
the Ellis Island hopper dredge in full operation and a healthy
financial position. Great Lakes Dredge & Dock Corporation
is the United States’ premier dredging company and we
will secure this position for the future with continued strong
operational focus and reasonable and prudent investments.
We are thankful to our shareholders who have remained
loyal to us through a challenging time. Your commitment is
appreciated, and on behalf of the executive leadership team,
as well as our Board of Directors, I can ensure you that we
remain focused on realizing the Company’s value for all of our
stakeholders.
LASSE PETTERSON
Chief Executive Officer
Dredge Alaska at Sunset—Big Bend Channel Port Deepening, Tampa Bay, Florida
| PAGE 3
Whiskey Island Coastal Protection Project East End—Terrebonne Bay, Louisiana
Clamshell Dredge 54 Performing Maintenance Dredging—Baltimore, Maryland
2018 ANNUAL REPORT |
2018 FORM 10-K
GREAT LAKES DREDGE & DOCK CORPORATION
3_GLDD_2018AR_34077_10-K_extras.indd 1
3/4/19 1:03 PM
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, 2018
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 every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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.
Large accelerated filer
‘
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 $315,856,963 at June 30, 2018. 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 22, 2019, 62,645,515 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 2019 Annual Meeting of Stockholders.
GREAT LAKES DREDGE &
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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
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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, 2018, 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.
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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 operates in one operating segment, which is also the Company’s sole reportable segment and
reporting unit.
In the fourth quarter of 2018, the management team proposed, and the board of directors approved, a plan to
sell the Company’s historical environmental & infrastructure business. The Company has retained a financial
advisor to assist with the process and expects to finalize disposition of the environmental & infrastructure
business in the first half of 2019. The historical environmental & infrastructure segment has been retrospectively
presented as discontinued operations and assets and liabilities held for sale and is no longer reflected in
continuing operations. Refer to Note 14, Business Dispositions, to the Company’s consolidated financial
statements included in Item 15 of this Annual Report on Form 10-K.
Operations
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 46% over the prior three years, including 77%, 40%, 28% and 14% of the domestic capital, coastal
protection, maintenance and rivers & lakes sectors, respectively.
Over its 128 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 13% 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 54% of 2018 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.
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Foreign (2% of 2018 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 (28% of 2018 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 (9% of 2018 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 2018 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. 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.
Demand Drivers
The Company believes that the following factors are important drivers of the demand for its 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. The first phase of a multi-year deepening effort
of the Savannah Harbor Expansion Project was completed in 2018. Dredging commenced on two
Charleston Entrance Channel projects during 2018 and is expected to continue through 2020. The ports
of Los Angeles and Long Beach are resuming expansion efforts to remain competitive with deepened
East Coast ports. Deepening projects in Boston, Jacksonville, Tampa and Corpus Christi were recently
awarded. Further, projects to deepen the Mississippi River and Port of Norfolk, Virginia are being
expedited. In addition, during the fourth quarter of 2018, the President signed America’s Water
Infrastructure Act of 2018/Water Resources Development Act (“WRDA 2018”) into law. The
Company views the bill as a positive catalyst for the domestic dredging industry as it authorizes
funding for 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
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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 $382 million over the prior three years. During 2018, the Company
continued work on the $88 million Mississippi coastal restoration project in the Gulf of Mexico which
is expected to be completed in early 2019. Additional phases of the project are expected to bid in 2019.
•
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. With continued funding available for projects in the Northeast
from the Superstorm Sandy supplemental appropriations, the Company expects to continue to see an
increase in projects let for bid in the coastal protection market. As a result of the extreme storm
systems last year involving Hurricanes Harvey, Irma, and Maria, the U.S. Senate Committee on
Appropriations passed supplemental appropriations for disaster relief and recovery which includes
$17.4 billion for the U.S. Army Corps of Engineers (the “Corps”) to fund projects that will reduce the
risk of future damage from flood and storm events. The Corps is beginning to provide visibility on its
plans for this money, and it is currently believed that over $1 billion is expected to be added to its
dredging related budget over the next few years. Most of this work is anticipated to be coastal
protection related, but some funding may be provided for channel maintenance. During the fourth
quarter of 2018, Congress passed an additional $1.7 billion of supplemental appropriations for disaster
relief funding as a result of Hurricane Florence. The annual bid market for coastal protection over the
prior three years averaged $315 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
a fully funded, recurring maintenance program is in place. In March 2018, Congress approved and the
President signed an omnibus spending bill through fiscal year 2018. The spending bill continues the
increases in the budget for the Corps and exceeds the increase in Harbor Maintenance Trust Fund
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(“HMTF”) spending for maintenance dredging as required by the 2014 Water Resources and
Development Act. As noted above, WRDA 2018 was signed into law during the fourth quarter of 2018.
Similar to past versions of the bill, WRDA 2018 language 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, WRDA 2018 ensures that Harbor Maintenance Tax (“HMT”) funding targets will
increase by three 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 2019 and
beyond. Congress has improved spending from the HMTF by providing the Corps with record annual
budgets including 94% utilization of the HMTF in FY 2018 and 91% proposed in the FY 2019 budget.
The annual bid market for maintenance dredging over the prior three years averaged $391 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 $70 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 created a new greenfield port for
a liquefied natural gas (“LNG”) terminal 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. During 2018, the Company was awarded a project to
widen the 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.
For additional details regarding 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.
Customers
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
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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
2018, approximately 75% of the Company’s dredging revenues were generated from 30 different contracts with
federal agencies or third parties operating under contracts with federal agencies.
Bidding Process
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 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 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.
Bonding and Foreign Project Guarantees
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
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 128 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.
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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 four
other companies comprised approximately 85% 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.
Equipment
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, the Ellis Island, 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
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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
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 executed a plan to retire certain
underperforming and underutilized assets. The retirement of these underperforming and underutilized assets was
substantially 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.
Seasonality
Seasonality generally does not have a significant impact on the Company’s 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.
Weather
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
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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. 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. 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 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
At December 31, 2018, the Company employed 399 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 2018, the
Company employed an average of approximately 684 hourly personnel to meet domestic project requirements.
At December 31, 2018, the Company employed 8 expatriates, 15 foreign nationals and 41 local staff to
manage and administer its Middle East operations. During 2018, the Company also employed a daily average of
45 hourly personnel to meet project requirements in the Middle East.
Safety
Safety of its employees is one of the Company’s core values. The Company employs behavioral and system
based programs 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
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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 master contract with IUOE, Local 25 was ratified in February 2019 and
expires in September 2021. Two ancillary contracts with IUOE, Local 25 expired in September 2018 and will be
re-negotiated now that the master contract is completed. 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
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.
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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
62
57
62
56
39
Position
Chief Executive Officer and Director
Chief Financial Officer and Senior Vice President
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
had 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, Senior Vice President and Chief Financial Officer
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
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
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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.
Availability of Information
You may read and obtain copies of 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, free of charge, at the SEC’s website, www.sec.gov. Great Lakes’
SEC filings are also available to the public, free of charge, on our corporate website, www.gldd.com, at
“Investors—Financial & Filings”, as soon as reasonably practicable after Great Lakes electronically files such
material with, or furnishes it to, the SEC. The reference to the Company’s website does not constitute
incorporation by reference of information contained on or accessible through such website.
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, 2018,
2017 and 2016 were as follows:
Federal government revenue (in US $1,000)
Percent of revenue from federal government
$468,422
$375,276
$409,942
75%
63%
64%
Year Ended December 31,
2018
2017
2016
Amounts spent by the federal government on dredging 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 projects for any
specified period. In addition, Congress must approve budgets that govern spending by many of the federal
agencies we support. When Congress is unable to agree on budget priorities, and thus is unable to pass the annual
budget on a timely basis, Congress typically enacts a continuing resolution. A continuing resolution allows U.S.
federal government agencies to operate at spending levels approved in the previous budget cycle. Under a
continuing resolution, funding may not be available for new projects or may be delayed on current projects. Any
such delays would likely result in new projects being delayed or canceled and could have a material adverse
effect on our revenue and operating results. Furthermore, a failure to complete the budget process and fund
government operations pursuant to a continuing resolution may result in a U.S. federal government shutdown,
such as the recent shutdowns in 2018 and early 2019. While the impact on the Company of the shutdowns in
2018 and early 2019 was not material, an extended shutdown may result in us incurring substantial costs without
reimbursement under our contracts and the delay or cancellation of key projects, which could have a material
adverse effect on our revenue and operating results.
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. Furthermore, in February 2019 the U.S. President
declared a national emergency. This may allow the administration to divert funds previously budgeted for other
purposes. There is no guarantee that the administration will not divert funds away from the Corps or from our
other customers relying on funding from the federal government. There is also no guarantee that additional
national emergencies will not be declared in the future. A significant reduction in government funding for
dredging or remediation contracts, could materially adversely affect our business, operations, revenues and
profits.
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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
(e.g., cubic yard) of material dredged. 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,
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;
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•
•
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
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,
2018, 2017 and 2016 were as follows:
Year Ended December 31,
2017
2016
2018
Foreign revenue (in US $1,000)
Percent of revenue from foreign countries
$14,088
$42,306
$59,413
2%
7%
9%
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;
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•
•
•
•
•
•
•
•
•
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.
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 100%, 97% and 89%
of our foreign dredging revenues in the years ended December 31, 2018, 2017 and 2016, respectively. A single
customer contract represented 78% of the Company’s foreign dredging revenue from all sources in the year
ended December 31, 2018. 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
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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.
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
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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
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. 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. 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 backlog (83% in
2018) 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 backlog from federal government contracts as of December 31, 2018, 2017, and 2016 and the
percentage of those contracts to total backlog as of the same date.
Federal government backlog (in US $1,000)
Percentage of backlog from federal government
$586,568
$413,678
$269,362
83%
81%
58%
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
Year Ended December 31,
2018
2017
2016
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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.
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 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. In addition, on January 1, 2020, the International
Maritime Organization’s regulations regarding use of low sulfur fuel are expected to go into effect. We use low
sulfur fuel in many of our domestic operations, and the increased demand for low sulfur fuel may result in an
increase in price. 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 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 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.
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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.
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, 2018, 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
13
6
4
1
1
118
143
35
27
39
34
34
23
25
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, 2018 was 25 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.
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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:
•
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•
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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.
Divestitures and discontinued operations could negatively impact our business, and retained liabilities from
businesses that we sell or discontinue could adversely affect our financial results.
As part of our strategic process, we review our operations for assets and businesses which may no longer be
aligned with our strategic initiatives and long-term objectives. For example, we are currently marketing our
environmental & infrastructure business for sale and, over the past five years, we have divested our historical
demolition and certain service lines of our historical environmental & infrastructure business. We continue to
review our assets and strategy and may pursue additional divestitures. Divestitures pose risks and challenges that
could negatively impact our business, including required separation or carve-out activities and costs, disputes
with buyers or potential impairment charges. We may also dispose of a business such as the environmental &
infrastructure business at a price or on terms that are less than we had previously anticipated or fail to close a
transaction at all. Dispositions may also involve continued financial involvement, as we may be required to retain
responsibility for, or agree to indemnify buyers against contingent liabilities related to a businesses sold, such as
lawsuits, surety obligations, tax liabilities, or environmental matters. It may also be difficult to determine
whether a claim from a third party stemmed from actions taken by us or by another party and we may expend
21
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substantial resources trying to determine which party has responsibility for the claim. Under these types of
arrangements, performance by the divested businesses or other conditions outside of our control could affect
future financial results and such claims or conditions may divert management attention from our continuing
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. Moreover, we could face the same or similar risks
with the planned divestiture of the environmental & infrastructure business. As noted above, if there should be a
default (or alleged default) triggered under any of the surety bonds for either the historical demolition business or
the environmental & infrastructure business, 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.
If we do not realize the expected benefits or synergies of any divestiture transaction or if we underestimated
the valuation of the charge related to placing the asset held for sale in discontinued operations, our consolidated
financial position, results of operations and cash flows could be negatively impacted. Any divestiture may result
in a dilutive impact to our future earnings if we are unable to offset the dilutive impact from the loss of revenue
associated with the divestiture, as well as significant write-offs, including those related to goodwill and other
intangible assets, which could have a material adverse effect on our results of operations and financial condition.
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 the recently completed dual mode
articulated tug/barge trailing suction hopper dredge, the Ellis Island, which is now in full operation. As the
Company previously disclosed, the Ellis Island experienced greater than anticipated delays in ramping up to full
operation due to mechanical issues involving the port side gearbox. Although the Ellis Island is now in operation,
other unknown mechanical or engineering issues involving the Ellis Island, or other mechanical or engineering
issues 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
22
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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 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.
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.
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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; 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.
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 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. 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.
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New tariffs have resulted in increased prices and could adversely affect our business operations, revenues and
profits.
Recently, the United States imposed Section 232 tariffs on certain steel and aluminum products, such as
imported dredge-related machinery and pipes. These tariffs have increased the prices of these inputs. Increased
prices for imported steel and aluminum products have lead domestic sellers to respond with market-based
increases to prices for such inputs as well. We cannot be sure of the ultimate effect such tariffs or any additional
tariffs will have on our operating profits. If we are not able to pass these price increases on to our customers or to
secure adequate alternative sources for such inputs on a timely basis, the tariffs may have a material adverse
effect on our business operations, revenues and profits.
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 IUOE, Local 25 and the Seafarers International Union. The Company’s master
contract with IUOE, Local 25 was ratified in February 2019 and expires in September 2021. Two ancillary
contracts with IUOE, Local 25 expired in September 2018 and will be re-negotiated now that the master contract
is completed. 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.
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 business is 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.
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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
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
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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, data corruption,
cyber-based attacks 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, including to
transmit and store electronic information, to capture knowledge of our business including vessel operation
systems containing information about production, efficiency and vessel positioning, to conduct our accounting,
financial and treasury activities, to store historical financial, project and proprietary information, to monitor our
vessel maintenance and engine systems, and to communicate within the organization and with customers,
suppliers, partners and other third parties. 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 and computer system or network
failures. The Company’s IT systems may also be subject to cybersecurity attacks including malware, other
computer viruses or malicious software, spoofing or phishing email attacks, attempts to gain unauthorized access
to our data, the unauthorized release, corruption or loss of its data, loss or damage to its data delivery systems
and other electronic security breaches. 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 2019 and beyond will depend upon the pace of conversion. If implementation is not
executed successfully, this could result in business 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
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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 December 31, 2018, we had indebtedness of
$336.5 million, consisting of $325.0 million of our senior subordinated notes and $11.5 million of borrowings on
our revolving credit facility, in each case excluding approximately $37.7 million of undrawn letters of credit and
$174.6 million of additional borrowing capacity under our revolving credit facility and excluding contingent
obligations, including $1.4 billion of performance bonds outstanding under the Company’s agreements with the
Sureties and other bonding agreements. 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.
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;
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• make acquisitions;
•
•
pay dividends;
enter into transactions with affiliates;
• make capital expenditures;
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•
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.
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. Our Credit Agreement is scheduled to expire in
December 2019. There can be no assurance that we will be able to refinance the Credit Agreement on
commercially reasonable terms or at all, or that we will be able to secure any additional capacity or amend 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.
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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 currency to which the Company has exposure is the Bahraini dinar. 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 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.
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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, such as dredging of local navigable waterways and
lakes, coastal protection 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
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.
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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;
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
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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 66,343 square feet of office space that it leases with a term expiring in 2020. As of December 31,
2018 the Company owns or leases the following additional facilities:
Location
Staten Island, NY
Morgan City, LA
Norfolk, VA
Chickasaw, AL
Channelview, TX
Cape Girardeau, MO
Cape Girardeau, MO
Cape Girardeau, MO
Orange Park, FL
Type of
Facility
Yard
Yard
Yard
Yard
Office
Office
Storage
Yard
Office
Size
Acres
Acres
Acres
Acres
Square feet
Square feet
Square feet
Acres
Square feet
4.4
6.4
15.3
2.0
1,302
726
7,200
18.4
1,700
Leased or
Owned
Owned
Owned
Owned
Leased
Leased
Owned
Owned
Owned
Leased
The following facilities are leased by the Company’s historical environmental & infrastructure segment, which is
presented in discontinued operations:
Location
Centennial, Colorado
Portage, Michigan
Rocklin, CA
Rocklin, CA*
Rocklin, CA*
Cumming, GA
Denton, Texas
Brielle, New Jersey
Type of
Facility
Office
Office
Office
Yard
Storage
Office
Office
Office
Size
Square feet
Square feet
Square feet
Acres
Square feet
Square feet
Square feet
Square feet
5,464
1,344
12,623
5.0
14,731
2,400
3,766
4,800
Leased or
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
* The historical environmental & infrastructure segment leases the Rocklin, California facilities from the former
shareholders of Magnus Pacific Corporation pursuant to leases expiring in 2019. See Note 13, Related-Party
Transactions, to the Company’s consolidated financial statements.
Item 3.
Legal Proceedings
For a discussion of certain litigation involving the Company, see the disclosures under “Legal proceedings
and other contingencies” included within Note 12, Commitments and Contingencies, to the Company’s
consolidated financial statements.
33
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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 graph below shows the cumulative total return to stockholders of the Company’s common stock during
a five year period ending December 31, 2018, the last trading day of our 2018 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, 2013, in GLDD stock
(assuming reinvestment of all dividends paid during the period), the NASDAQ Composite Index and the peer
group companies, collectively.
COMPARISON OF 5 YEAR CUMULATIVE RETURN*
Among Great Lakes Dredge & Dock Corporation, Peer Average and NASDAQ Composite Index
$190
$170
$150
$130
$110
$90
$70
$50
$30
2013
2014
2015
2016
2017
2018
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
$ 93.04
91.73
113.40
$ 43.04
89.74
119.89
$ 45.65
128.18
128.89
$ 58.70
144.10
165.29
$ 71.96
146.70
158.87
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
12/31/2018
The peer group in the graph above is comprised of the following member companies:
Company
Aegion Corporation, successor to Insituform Technologies, Inc.
Ameresco
Badger Daylighting Ltd
Hill International
IES Holdings
Layne Christensen Company (prior to merger with Granite Construction Inc. on
June 14, 2018)
Matrix Service Company
Mistras Group
MYR Group Inc.
NV5 Global Inc
Orion Marine Group, Inc.
Primoris Services Corporation
Sterling Construction Company, Inc.
Team, Inc.
Willbros Group, Inc. (prior to merger with Primoris Services Corporation on
June 4, 2018)
Ticker
AEGN
AMRC
BADFF
HIL
IESC
LAYN
MTRX
MG
MYRG
NVEE
ORN
PRIM
STRL
TISI
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 22, 2019, the Company had approximately 25 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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Item 6.
Selected Financial Data
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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.
2018
Year Ended December 31,
2016
2015
2017
2014
Contract revenues
Costs of contract revenues
Gross profit
General and administrative expenses
(Gain) 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)
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
(in millions except shares in thousands and per share data)
$ 637.5
552.1
$ 681.3
569.5
$ 592.2
549.4
$ 620.8
509.3
$ 697.7
607.4
111.5
55.1
3.7
52.6
(33.6)
—
—
(2.6)
16.5
(5.4)
11.0
(17.3)
42.7
57.2
4.8
(19.3)
(26.0)
(1.5)
(2.3)
0.0
(49.1)
33.8
(15.4)
(15.9)
85.3
55.3
3.1
27.0
(23.5)
(2.4)
—
(0.8)
0.4
0.2
0.5
(8.7)
111.7
56.7
(0.9)
55.9
(23.7)
(6.1)
—
(0.3)
25.8
(11.1)
14.7
(20.9)
90.3
54.1
0.5
35.7
(19.8)
2.9
—
(0.4)
18.3
7.9
26.3
(16.0)
Net income (loss)
$
(6.3) $ (31.3) $
(8.2) $
(6.2) $
10.3
Basic earnings (loss) per share attributable to income (loss)
from continuing operations (1)
$
0.18
$ (0.25) $
0.01
$
0.24
$
0.44
Basic loss per share attributable to loss on discontinued
operations, net of income taxes
Basic earnings (loss) per share
Basic weighted average shares
Diluted earnings (loss) per share attributable to income
(0.28)
(0.26)
(0.14)
(0.35)
(0.26)
$ (0.10) $ (0.51) $ (0.13) $ (0.10) $
0.18
62,236
61,365
60,744
60,410
59,938
(loss) from continuing operations (1)
$
0.17
$ (0.25) $
0.01
$
0.24
$
0.43
Diluted loss per share attributable to loss on discontinued
operations, net of income taxes
Diluted earnings (loss) per share
Diluted weighted average shares
(0.27)
(0.26)
(0.14)
(0.34)
(0.26)
$ (0.10) $ (0.51) $ (0.13) $ (0.10) $
0.17
63,607
61,365
61,367
60,840
60,522
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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
2018
Year Ended December 31,
2015
2016
2017
2014
(in millions)
$100.4
137.7
(35.1)
(85.5)
50.4
44.2
53.7
$ 35.2 $ 78.7
38.7
(65.5)
30.8
54.8
54.8
84.3
21.5
(58.2)
34.2
56.0
50.1
63.9
$100.1
29.1
(73.1)
15.9
50.6
51.9
82.0
$ 81.8
48.8
(116.7)
35.1
43.6
53.5
79.2
(1) Refer to Note 2, Earnings per Share, in the Company’s consolidated financial statements for the years ended
December 31, 2018, 2017 and 2016 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.
2018
As of December 31,
2016
2015
2017
2014
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)
$ 34.5
43.6
730.3
322.0
214.9
$ 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
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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. In addition, the Company is
the only U.S. dredging service provider with significant international operations. The Company operates in one
reportable segment.
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 the fourth quarter of 2018, the management team proposed, and the board of directors approved, a plan to
sell the Company’s historical environmental & infrastructure business. The Company has retained a financial
advisor to assist with the process and expects to finalize disposition of the environmental & infrastructure
business in the first half of 2019. The historical environmental & infrastructure segment has been retrospectively
presented as discontinued operations and assets and liabilities held for sale and is no longer reflected in
continuing operations. Refer to Note 14, Business Dispositions, to our consolidated financial statements included
in Item 15 of this Annual Report on Form 10-K.
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.
Management executed 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. The
cumulative amounts incurred to date as a result of this plan, including amounts presented in discontinued
operations, included severance costs of $3.5 million, asset retirements of $32.3 million, pre-contract costs of
$6.4 million and closeout costs of $4.2 million.
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 (“bid market”). The
Company experienced an average combined bid market share in the U.S. of 46% over the prior three years,
including 77%, 40%, 28% and 14% of the domestic capital, coastal protection, maintenance and rivers & lakes
sectors, respectively.
The Company’s fleet, including 23 dredges, of which two are 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. The Company’s fleet of dredging equipment can be utilized on one or many types of
39
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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 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 2018, the Company’s revenues
earned from contracts with federal government agencies were approximately 75% of total revenue, up from the
Company’s prior three year average of 64%.
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.
Fixed-price contracts, which comprise substantially all of the Company’s revenue, will most often represent
a single performance obligation as the promise to transfer the individual services is not separately identifiable
from other promises in the contracts and, therefore, not distinct. The Company capitalizes certain pre-contract
and pre-construction costs, and defers recognition over the life of the contract. The Company’s performance
obligations are satisfied over time and revenue is recognized using contract fulfillment costs incurred to date
compared to total estimated costs at completion, also known as cost-to-cost, to measure progress towards
completion. Contract modifications are changes in the scope or price (or both) of a contract that are approved by
the parties to the contract. The Company recognizes a contract modification when the parties to a contract
approve a modification that either creates new, or changes existing, enforceable rights and obligations of the
parties to the contract. Contract modifications are included in the transaction price only if it is probable that the
modification estimate will not result in a significant reversal of revenue. 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.
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. The Company is a party to numerous
collective bargaining agreements in the U.S. that govern its relationships with its unionized hourly workforce.
Effective beginning the first quarter of 2018, the Company changed the method of accounting for allocated
fixed equipment costs for interim periods such that fixed equipment costs are now recognized as incurred. The
Company adopted this change as a result of management’s belief that the new method is preferable and results in
a more objective measure of quarterly expense that will better support planning and resource allocation decisions
by management. The change has been applied retrospectively. The Company’s cost structure includes significant
annual equipment-related costs, including depreciation, maintenance, insurance and long-term rentals.
Previously, the Company allocated fixed equipment costs to interim periods in proportion to revenues recognized
over the year. Specifically, at each interim reporting date the Company compared actual revenues earned to date
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on its dredging contracts to expected annual revenues and recognized equipment costs on the same proportionate
basis. In the fourth quarter, any over or under allocated equipment costs were recognized such that the expense
for the year equals actual equipment costs incurred during the year.
Primary Factors that Determine Operating Profitability
The Company’s results of operations for a calendar or quarterly period are generally determined by the
following three factors:
• Bid wins and dredge employment—The Company 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 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 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 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 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.
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
41
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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.
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”) on January 1, 2018 under the modified retrospective method
such that the cumulative effect is recognized at the date of initial application. The adoption of ASC 606 resulted
in a change in the timing of recognition of both contract revenue and costs from our prior practices. Upon the
adoption of ASC 606, the Company recorded a cumulative net adjustment of $1,950 to the beginning retained
earnings balance. Refer to Note 9, Revenue, for further discussion of the adoption of ASC 606.
Cost-to-cost method of revenue recognition—Prior to January 1, 2018, the Company measured completion
based on engineering estimates of the physical percentage completed for dredging contracts. Under the new
accounting principle, revenue is recognized using contract fulfillment costs incurred to date compared to total
estimated costs at completion, also known as cost-to-cost, to measure progress towards completion. Additionally,
the Company capitalizes certain pre-contract and pre-construction costs, and defers recognition over the life of
the contract. The Company uses contract fulfillment costs incurred to date and engineering estimates of costs at
completion. In preparing estimates, the Company draws on its extensive experience in the dredging businesses.
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. The Company recognizes a contract
modification when the parties to a contract approve a modification that either creates new, or changes existing,
enforceable rights and obligations of the parties to the contract. Contract modifications are included in the
transaction price only if it is probable that the modification estimate will not result in a significant reversal of
revenue. Provisions for estimated losses on contracts in progress are made in the period in which such losses are
determined. Cost and profit estimates are reviewed on a periodic basis to reflect changes in expected project
performance.
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 assesses the fair values of its reporting unit 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 one operating segment which is also the Company’s one reportable segment and
reporting unit. The historical environmental & infrastructure segment has been retrospectively presented as
42
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discontinued operations and assets and liabilities held for sale and is no longer reflected in continuing operations.
The Company performed its annual goodwill impairment test as of July 1, 2018 with no indication of impairment
as of the test date. As of the test date, the fair value of the reporting unit was substantially in excess of its
carrying value. The Company will perform its next scheduled annual test of goodwill in the third quarter of 2019
should no triggering events occur which would require a test prior to the next annual test. At December 31, 2018
and 2017, the Company’s goodwill was $76.6 million.
Results of Operations—Fiscal Years Ended December 31, 2018, 2017 and 2016
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
Loss on sale of assets—net
Operating income (loss)
Interest expense—net
Equity in loss of joint ventures
Loss on extinguishment of debt
Other expense
2018
2017
2016
100.0% 100.0% 100.0%
(92.8)
(82.0)
(86.6)
18.0
(8.9)
(0.6)
7.2
(9.7)
(0.8)
13.4
(8.7)
(0.5)
8.5
(5.4)
—
—
(0.4) —
(3.3)
(4.4)
(0.3)
(0.4) —
4.2
(3.7)
(0.4)
(0.1)
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 loss
Adjusted EBITDA from continuing operations
2.7
(0.9)
1.8
(2.8)
(8.4) —
—
5.7
(2.7) —
(2.7)
(1.4)
(1.0)
16.2%
(5.4)
5.9% 12.3%
(1.4)
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 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 than, amounts determined
43
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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,
2017
2018
2016
Net loss
Loss from discontinued operations, net of income taxes
$ (6,293)
(17,309)
$(31,260)
(15,892)
$ (8,177)
(8,719)
Income (loss) from continuing operations
Adjusted for:
Interest expense—net
Income tax provision (benefit)
Depreciation and amortization
Loss on extinguishment of debt
11,016
(15,368)
542
33,578
5,437
50,389
—
26,032
(33,761)
55,962
2,330
23,471
(177)
54,826
—
Adjusted EBITDA from continuing operations
$100,420
$ 35,195
$78,662
Components of Contract Revenues
The following table sets forth, by type of work, the Company’s contract revenues for the years ended
December 31, (in thousands):
Revenues
Capital—U.S.
Capital—foreign
Coastal protection
Maintenance
Rivers & lakes
Total revenues
2018
2017
2016
$333,037
14,088
175,923
53,427
44,320
$185,113
42,306
191,070
134,923
38,747
$219,914
59,413
215,041
92,274
50,826
$620,795
$592,159
$637,468
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Total revenue was $620.8 million in 2018, an increase of $28.6 million, or 4.8%, from 2017 total revenue of
$592.2 million. The increase was largely attributable to an increase in domestic capital and rivers & lakes
revenues during 2018 as compared to the prior year. These increases were partially offset by decreases in
revenues from foreign capital, coastal protection and maintenance projects during the year ended December 31,
2018 as compared to 2017. 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 $147.9 million, or 79.9%, to $333.0 million in 2018 when
compared to 2017 revenues of $185.1 million. The increase in domestic capital dredging revenues was primarily
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related to a greater amount of revenue earned on the Charleston entrance channel deepening projects, coastal
restoration projects, LNG projects in Texas and deepening projects on the Delaware River as compared to the
prior year. The Company commenced dredging on the Tampa Harbor deepening project during the fourth quarter
of 2018 which also contributed to revenue for the year ended December 31, 2018. This increase was partially
offset by a greater amount of revenue earned on the Savannah Harbor deepening project in 2017 when compared
to the current year. In 2018, the Company earned 67% of its backlog carried forward from December 31, 2017.
Revenues from foreign dredging operations in 2018 totaled $14.1 million, a decrease of $28.2 million, or
66.7%, from 2017 revenues of $42.3 million. For the year ended December 31, 2018, revenue earned on two
projects in Bahrain was offset by revenue earned on a project in Saudi Arabia during 2017 that was not replaced
during the current year. Delays in the commencement of a large land reclamation project in Bahrain further
contributed to the change in revenue for the year ended December 31, 2018 compared to the prior year. During
the first quarter of 2018, the Company substantially completed the closeout of its Brazil operations. The absence
of projects in Brazil during the current year also contributed to the change in revenue during the current year as
compared to 2017. The Company earned 100% of its backlog carried forward from December 31, 2017.
Coastal protection revenues were $175.9 million in 2018, a decrease of $15.2 million, or 8.0%, from
$191.1 million in 2017. For the year ended December 31, 2018, the decrease in coastal protection revenue was
mostly attributable to a greater amount of revenue earned in the prior year on projects in New York, New Jersey,
Virginia, Maryland and North Carolina. This decrease was partially offset by revenue earned during the current
year on large projects in Florida, Delaware, Georgia and South Carolina. The Company earned 100% of its
backlog carried forward from December 31, 2017.
Revenues from maintenance dredging projects in 2018 were $53.4 million, a decrease of $81.5 million, or
60.4%, from $134.9 million in 2017. The change in maintenance revenue during the current year was mostly
attributable to a greater amount of revenue earned in the prior year on projects in Maryland, Florida, Delaware,
the Northwest, North Carolina and Massachusetts partially offset by an increase in the current year on projects in
Virginia. Maintenance projects in Texas and Maryland also contributed to revenue during 2018. The Company
earned 100% of its backlog carried forward from December 31, 2017.
Rivers & lakes revenues were $44.3 million for 2018, an increase of $5.6 million, or 14.5%, from
$38.7 million in 2017. The increase in rivers & lakes revenue during the current year was mostly attributable to
revenue earned on a large flood mitigation project in Texas, which was the first post-Hurricane Harvey project,
as well as revenue earned on a project in Louisiana. The increase in revenue was partially offset by a greater
amount of revenue earned on a large lake project in Illinois and on projects in Florida, Mississippi and New
Jersey during 2017. The Company earned 79% of its backlog carried forward from December 31, 2017.
Consolidated gross profit for the year ended December 31, 2018 increased by $68.8 million, or 161.0%, to
$111.5 million from $42.7 million for the year ended December 31, 2017. Gross profit margin (gross profit
divided by revenue) for the full year 2018 was 18.0%, higher than prior year gross profit margin of 7.2%. The
higher gross profit for 2018 was driven by strong performance on domestic capital and rivers & lakes projects
and lower plant costs, resulting from the retirement of certain underperforming and underutilized assets, when
compared to the prior year. This change was partially offset by lower margin experienced on maintenance and
coastal protection projects. Gross profit for 2018 includes $9.1 million of cost of contract revenues from
restructuring charges related to asset retirements and the closeout of the Company’s Brazil operations compared
to $23.0 million in the prior year. The majority of these amounts are related to asset retirement charges of
$6.8 million and $15.8 million in 2018 and 2017, respectively, and in 2017, $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.
General and administrative expenses totaled $55.1 million for the year ended December 31, 2018, down
from $57.2 million for the year ended December 31, 2017. The decrease in general and administrative expense
for the full year 2018 as compared to 2017 was attributable to decreases in legal and professional fees, technical
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and consulting fees and personnel and recruiting fees of $1.2 million, $3.7 million and $0.3 million, respectively,
partially offset by an increase in payroll and benefits of $3.3 million, mostly related to an increase in incentive
pay in the current year. General and administrative expense includes $0.2 and $1.2 million of charges associated
with restructuring for the year ended December 31, 2018 and 2017, respectively, mostly related to severance
expense.
Operating income for the year ended December 31, 2018 was $52.6 million compared to an operating loss
of $19.3 million for the year ended December 31, 2017. The change in operating income during the current year
was driven by gross profit earned during the year ended December 31, 2018 when compared to the prior year, as
noted above. The decrease in general and administrative expenses, noted above, also contributed to the increase
in operating income. Further, the Company recorded $3.7 million and $4.8 million to loss on sale of assets,
mostly related to asset restructuring charges, during the year ended December 31, 2018 and 2017, respectively.
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 joint venture
was dissolved in 2017.
The Company’s net interest expense for 2018 totaled $33.6 million compared to $26.0 million in 2017. The
increase in interest expense was primarily attributable to a decrease in the amount of interest expense that was
being capitalized during the construction of the Company’s dual mode articulated tug/barge trailing suction
hopper dredge, the Ellis Island, and an increase in interest expense related to the higher principal on the
Company’s 8% senior notes (“8% Senior Notes”) during the current year. Interest expense related to the
revolving credit facility declined during 2018 due to a lower amount of debt outstanding during the current year,
resulting from the Company’s initiative to reduce outstanding debt.
Income tax provision in 2018 was $5.4 million, compared to an income tax benefit of $33.8 million in 2017.
The change in income tax provision is related to higher pretax income during the current year, as described
above, as well as a $15.7 million benefit in 2017 attributable to the Tax Cuts and Jobs Act enacted in the fourth
quarter of 2017.
For the year ended December 31, 2018, net income from continuing operations was $11.0 million compared
to a net loss of $15.4 million for the year ended December 31, 2017. The increase in net income from continuing
operations for the year ended December 31, 2018 was driven by an increase in operating income, as described
above. Further contributing to the change in the current year were a $2.3 million loss on extinguishment of debt
resulting from the prepayment of the Company’s 7.375% senior notes during 2017 and a $1.5 million loss
associated with the Company’s TerraSea joint venture that negatively impacted net income from continuing
operations in the prior year. The increase in net income from continuing operations for 2018 was slightly offset
by an increase in interest expense, as described above, and a $2.3 million charge to other expense for the reversal
of the cumulative translation adjustment related to the liquidation of the investment of the Company’s Brazil and
Australia operations during the current year. The Company’s income tax provision was higher during 2018 as
result of higher earnings in the current year when compared to 2017 as well as the positive impact of the Tax
Cuts and Jobs Act during 2017, as described above.
Adjusted EBITDA from continuing operations (as defined and reconciled on page 44) was $100.4 million
and $35.2 million for the years ended December 31, 2018 and 2017, respectively. The increase in Adjusted
EBITDA from continuing operations of $65.2 million, or 185.2% during 2018 was driven by higher gross profit,
excluding depreciation, and the decrease in general and administrative expenses, as described above. An increase
in other expense during the current year was offset by positive changes to loss on sale of assets and equity in loss
of joint ventures during the year ended December 31, 2018.
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Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Total revenue was $592.2 million in 2017, a decrease of $45.3 million, or 7.1%, from 2016 total revenue of
$637.5 million. The decrease was largely attributable to a decline in domestic and foreign capital, coastal
protection and rivers & lakes revenues during 2017 as compared to 2016. 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 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 2017 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 2016. 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 2016 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 2016 as compared to 2017. 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 2017 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 2017 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 2017 was partially offset by a greater amount of revenue earned on
projects in Pennsylvania and Florida during 2016. 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.
Gross profit for the year ended December 31, 2017 decreased by $42.6 million, or 49.9%, to $42.7 million
from $85.3 million for the year ended December 31, 2016. Gross profit margin (gross profit divided by revenue)
for the full year 2017 was 7.2%, lower than 2016 gross profit margin of 13.4%. The lower gross profit for 2017
was driven by restructuring charges incurred during 2017. The Company recorded $23.0 million of additional
cost of contract revenues related to restructuring which negatively impacted margin for the year ended
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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, specifically on the Company’s
smaller domestic inland projects, and decreased absorption of fixed costs due to lower utilization of the fleet
during 2017 as compared to 2016.
General and administrative expenses totaled $57.2 million for the year ended December 31, 2017, up from
$55.3 million for the year ended December 31, 2016. An increase in technical and consulting fees and payroll
and benefits expenses of $2.4 million and $0.8 million during 2017 contributed to the year over year increase.
The increase in general and administrative expenses was partially offset by a decrease in legal and professional
fees of $1.9 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 $19.3 million compared to operating income of
$27.0 million for the year ended December 31, 2016. The change in operating income during 2017 was driven by
restructuring charges incurred during the year, as noted above. During 2017, the Company recorded $4.8 million
to loss on sale of assets, mostly related to asset restructuring charges. In comparison, the Company recorded
$3.1 million to 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 $23.5 million in 2016.
The increase in interest expense was largely attributable to interest expense related to the higher principal on the
Company’s 8% Senior Notes and higher interest expense associated with the Company’s senior secured
revolving credit facility, which had a greater amount outstanding during 2017. 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 $33.8 million, up from an income tax benefit of $0.2 million in 2016. Of
this $33.6 million change, $15.7 million is attributable to the recent Tax Cuts and Jobs Act enacted in the fourth
quarter of 2017. The balance is primarily related to the lower pretax income described above, partially offset by
the 2016 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 $15.4 million compared to
net income of $0.5 million for the year ended December 31, 2016. The change in net income (loss) from
continuing operations was 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 prepayment of the Company’s 7.375%
senior notes during 2017. These items were partially offset by the positive change in equity loss of joint ventures,
as noted above.
Adjusted EBITDA from continuing operations (as defined and reconciled on page 44) was $35.2 million
and $78.7 million for the years ended December 31, 2017 and 2016, respectively. Restructuring charges incurred
during 2017 drove the decrease of $43.5 million, or 55.3%. Additionally, other changes in consolidated gross
profit and in general and administrative described above negatively impacted 2017 EBITDA from continuing
operations when compared to 2016. These negative impacts on EBITDA from continuing operations were
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slightly offset by the positive changes in loss on sale of assets and equity in loss of joint ventures, as described
above, as well as, a positive change in other expense.
Bidding Activity and Backlog
The following table sets forth, by type of work, the Company’s backlog as of the dates indicated (in
thousands):
Backlog
Capital—U.S.
Capital—foreign
Coastal protection
Maintenance
Rivers & lakes
Total Backlog
December 31,
2018
December 31,
2017
December 31,
2016
$447,139
73,112
81,068
56,189
49,583
$707,091
$383,577
8,575
76,460
23,662
19,046
$511,320
$234,575
22,025
109,871
56,929
44,298
$467,698
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. 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. 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, 83% of the Company’s 2018 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 78% of the Company’s backlog at December 31, 2018 is expected to be completed and
converted to revenue in 2019.
The 2018 domestic dredging bid market totaled $1,811 million, a 48.9% increase from the 2017 domestic
dredging bid market of $1,216 million. Domestic capital projects awarded during 2018 include harbor deepening
projects in Jacksonville, Tampa, Corpus Christi, Boston and on the Delaware River, a coastal restoration project
in Mississippi, a terminal deepening project in Massachusetts, the option on the Charleston entrance channel
deepening project and a channel widening project in Texas. Additional domestic projects awarded during 2018
include a flood mitigation project in Texas, multiple coastal protection projects in Florida, South Carolina, North
Carolina and New York and maintenance projects in Louisiana, Florida, North Carolina, Georgia, Pennsylvania
and on the West Coast. The Company won 45% of the overall 2018 domestic bid market, down from its 49% win
rate of the overall 2017 domestic bid market and in line with the Company’s prior three-year average win rate of
46%. The award of the flood mitigation project in Texas and deepening projects in Tampa, Jacksonville and
Corpus Christi, as well as option on the Charleston entrance channel deepening drove the Company’s 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.
The Company’s December 31, 2018 contracted backlog was $707.1 million. This represents an increase of
$195.8 million, or 38.3%, over the Company’s December 31, 2017 backlog of $511.3 million. These amounts do
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not reflect approximately $115.6 million of domestic low bids pending formal award and additional phases
(“options”) pending on projects currently in backlog. At December 31, 2017, the amount of domestic low bids
pending award was $69.9 million. Backlog at December 31, 2018 includes deepening projects in Charleston,
Jacksonville and Corpus Christi totaling approximately $394 million.
The Company won 62%, or $476.4 million, of the domestic capital dredging projects awarded in 2018,
compared to 71%, or $349.0 million, in the prior year. During 2018, the Company was awarded deepening
projects in Jacksonville, Corpus Christi, Tampa, on the Delaware River and the option on the entrance channel
deepening project in Charleston. In comparison, the awards during the prior year included two deepening projects
in Charleston and a coastal restoration project in Mississippi. Domestic capital dredging work made up
$447.1 million, or 63%, of the Company’s December 31, 2018 contracted backlog. Domestic capital dredging
backlog at December 31, 2018 was $63.6 million higher than the prior year. During the current year the
Company completed work on a coastal restoration project in Louisiana and the Savannah Harbor deepening
project which were both in backlog at December 31, 2017. The Company expects about 65% of its domestic
capital backlog at December 31, 2018 to be performed in 2019. Successful expansion of the Panama Canal in
recent years continues to put pressure on ports on the East and Gulf Coasts to deepen and widen in anticipation of
the neo-Panamax vessels. With several port expansions underway, several other port expansions are entering new
phases and several additional projects are being expedited. Deepening projects in Jacksonville, Tampa and
Corpus Christi were recently awarded. Further, projects to deepen the Mississippi River and Port of Virginia are
being expedited. The nation’s governors continue to show commitment to their respective ports through
engagement and funding. Finally, Congress has also shown a commitment to ports and waterways, providing
record annual budgets for the Corps for port deepening and channel maintenance.
Foreign capital dredging backlog increased to $73.1 million at December 31, 2018 from $8.6 million at the
end of 2017. During the fourth quarter the Company was awarded a $73 million project in Bahrain, for which the
Company was the low bidder in the second quarter of 2017. The Company expects about 75% of its foreign
capital backlog at December 31, 2018 to be performed in 2019. During 2018, the Company completed work on
projects in the Middle East which were in backlog at December 31, 2017. During 2018, the Company relocated
two of its dredges to our domestic fleet from their previous positions in the international market. The Company
expects the international market to be a break-even contributor in 2019, with potential for market improvement in
2020 and beyond.
The Company won 62%, or $170.6 million, of the coastal protection projects awarded in 2018, compared to
56%, or $145.1 million, in the prior year. During 2018, the Company was awarded four large coastal protection
projects in New York, North Carolina and South Carolina totaling approximately $152 million. The remaining
$18 million in awards for 2018 is for work on projects in Virginia, South Carolina and Georgia. The Company
has contracted backlog related to coastal protection of $81.1 million at December 31, 2018 compared to
$76.5 million at the end of 2017. During the year ended December 31, 2018, the Company completed coastal
protection projects in New Jersey, Delaware, South Carolina and Florida which were in backlog at December 31,
2017. The Company expects substantially all of its coastal protection backlog at December 31, 2018 to be
performed in 2019. Coastal protection and storm impacts continue to provide the major impetus for coastal
project investment at federal and state levels. With continued funding available for projects in the Northeast from
the Superstorm Sandy supplemental appropriations, the Company expects to continue to see an increase in
projects let for bid in the coastal protection market. As a result of the extreme storm systems last year involving
Hurricanes Harvey, Irma, and Maria, the U.S. Senate Committee on Appropriations passed 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. The Corps is beginning to provide visibility
on its plans for this money, and it is currently believed that over $1 billion is expected to be added to its dredging
related budget over the next few years. Most of this work is anticipated to be coastal protection related, but some
funding may be provided for channel maintenance. During the fourth quarter of 2018, Congress passed an
additional $1.7 billion of supplemental appropriations for disaster relief funding as a result of Hurricane
Florence.
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The Company won 13%, or $82.5 million, of the maintenance dredging projects awarded in 2018 compared
to 22%, or $93.5 million, in 2017. During 2018, the Company was awarded maintenance projects in the South
Atlantic, Florida, Maryland, New York, North Carolina and Texas. During the year ended December 31, 2018,
the Company continued to work on projects in Virginia, Maryland, Mississippi and Delaware which were in
backlog at December 31, 2017. The Company’s contracted maintenance dredging backlog at December 31, 2018
of $56.2 million is $32.5 million higher than the backlog of $23.7 million at December 31, 2017. The Company
expects about 82% of its maintenance dredging backlog at December 31, 2018 to be performed in 2019. In
March 2018, Congress approved and the President signed an omnibus spending bill through fiscal year 2018. The
spending bill continues the increases in the budget for the Corps and exceeds the increase in Harbor Maintenance
Trust Fund (“HMTF”) spending for maintenance dredging as required by the 2014 Water Resources and
Development Act. During the fourth quarter of 2018, the President signed America’s Water Infrastructure Act of
2018/Water Resources Development Act (“WRDA 2018”) into law. Similar to past versions of the bill, WRDA
2018 language 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, WRDA 2018 ensures that Harbor Maintenance
Tax (“HMT”) funding targets will increase by three 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. Congress has improved spending from the HMTF by providing the Corps with
record annual budgets including 94% utilization of the HMTF in FY 2018 and 91% proposed in the FY 2019
budget which was above its commitment.
The Company won 53%, or $82.2 million, of the rivers & lakes projects in the markets where the group
operates during the current year, compared to 8%, or $2.6 million, in 2017. During the current year, the Company
was awarded a $12 million project in Louisiana as well as a $70 million project in Texas which is the first major
Houston-area flood-control project after Hurricane Harvey. For the year ended December 31, 2018, the Company
continued to earn revenue on a lake project in Illinois and completed work on projects in New Jersey and
Mississippi, all of which were in backlog at December 31, 2017. The Company has contracted dredging backlog
related to rivers & lakes of $49.6 million at December 31, 2018, which is $30.6 million higher than the backlog
of $19.0 million at December 31, 2017. The Company expects a substantial portion of its rivers & lakes backlog
at December 31, 2018 to be performed in 2019.
Liquidity and Capital Resources
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 5, 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, 2018, 2017 and 2016 totaled $141.7 million, $34.0 million and $34.7 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 increase in cash provided by operating activities of continuing operations in 2018
was driven by a higher net income from continuing operations compared to the prior year and the recovery of
investment in working capital during 2018. Cash provided by operating activities for the year ended
December 31, 2017 was down compared to 2016 due to lower net income during 2017. This decrease in 2017
was partially offset by a lower investment in working capital during the year ended December 31, 2017 when
compared to the year ended December 31, 2016.
The Company’s net cash flows used in investing activities of continuing operations for the years ended
December 31, 2018, 2017 and 2016 totaled $35.5 million, $57.4 million and $72.8 million, respectively.
Investing activities in all periods primarily relate to normal course upgrades and capital maintenance of the
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Company’s dredging fleet. During 2018, the Company received $4.5 million in cash proceeds from a sale-
leaseback of a dredge as well as $9.4 million in proceeds from the sale of underperforming and underutilized
assets identified through the Company’s strategic review. The Company spent $43.3 and $53.9 million for the
years ended December 31, 2017 and 2016, respectively, on the Ellis Island, which was placed in service during
the fourth quarter of 2017. Further, the Company bought out two leases for $14.3 million as part of the
restructuring initiative of disposing underperforming assets during the year ended December 31, 2018. In 2017,
the Company received $8.6 million in proceeds from dispositions of property and equipment, mostly related to
the refinancing of two dredges.
The Company’s net cash flows provided by (used in) financing activities of continuing operations for the
years ended December 31, 2018, 2017 and 2016 totaled $(83.9) million, $34.5 million and $32.2 million,
respectively. The decrease in cash provided by financing activities primarily relates to the Company’s net
repayments on its revolving credit facility of $83.5 million during 2018. Comparatively, the Company had net
repayments of $9.1 million during 2017 and net borrowings of $84.1 million for the year ended December 31,
2016. Further, the Company issued $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 Company also paid $5.0 million in financing fees on the issuance of the
8% Senior Notes during the prior year. During the year ended December 31, 2016, the Company repaid the
senior secured term loan facility in full.
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, CIBC Bank USA, 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 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.
The Credit Agreement also provides for certain actions contemplated in the plan of restructuring with
respect to the Company’s 2017 and 2018 fiscal years including allowing up to an aggregate of $20 million of
expenses related to the buy-out of operating leases and allowing capital expenditures planned but not incurred by
all Credit Parties in fiscal year 2017 to be carried forward to fiscal year 2018; provided 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 Agreement 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
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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
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, 2018, the Company had $11.5 million of borrowings on the
revolver and $37.7 million of letters of credit outstanding, resulting in $174.6 million of availability under the
Credit Agreement. The availability under the Credit Agreement is suppressed by $26.2 million as of
December 31, 2018 as a result of certain limitations set forth in the Credit Agreement.
Surety agreements
Performance and bid bonds are customarily required for dredging and marine construction 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, 2018, the Company had outstanding
performance bonds valued at approximately $1,389.2 million of which $78.3 million relates to projects
accounted for in discontinued operations. The revenue value remaining in backlog related to the projects of
continuing operations totaled approximately $619.4 million.
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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
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 12, 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 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 are 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 and any future revolving credit facility yet to be negotiated will be
sufficient to fund the Company’s operations, capital expenditures and the scheduled debt service requirements
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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.
Contractual Obligations
The following table summarizes the Company’s contractual cash obligations at December 31, 2018.
Additional information related to these obligations can be found in Note 5, Long-Term Debt, and Note 12,
Commitments and Contingencies, to the Company’s consolidated financial statements.
Obligations coming due in year(s) ending:
Equipment notes payable (2)
Senior notes (3)
Revolving credit facility (4)
Operating lease commitments
Total
2020-
2022
2023-
2025
2026 and
beyond
Total (1)
2019
$
0.7
413.8
11.5
101.2
$ 0.6
26.0
11.5
28.1
$
0.1
$ —
387.8 —
—
17.8
—
55.3
$527.2
$66.2
$443.2
$17.8
$—
—
—
—
$—
(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.
(2) Represents principal and interest on four capital equipment leases. These capital leases relate to the
historical environmental & infrastructure business and are presented in assets and liabilities held for sale.
Refer to Note 14, Business Dispositions.
Includes cash interest payments calculated at stated fixed rate of 8.000%.
(3)
(4) Represents the Credit Agreement. At December 31, 2018, total outstanding on this facility was
$11.5 million. Includes cash interest payments calculated at variable rates between 5.25% and 5.46%.
Other Off-Balance Sheet and Contingent Obligations
The Company had outstanding letters of credit relating to foreign contract guarantees and insurance
payment liabilities totaling $37.7 million at December 31, 2018. 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 $28.1 million in
2019 which will decline to $2.6 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, 2018, the Company had outstanding performance bonds with a notional amount of
$1,389.2 million of which $78.3 million relates to projects from the Company’s historical environmental &
infrastructure businesses. The revenue value remaining in backlog related to the projects in continuing operations
totaled $619.4 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
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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 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 portion of the Company’s current 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, 2018, the Company had no foreign exchange
forward contracts outstanding.
At December 31, 2018, 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
$330.3 million at December 31, 2018 based on market prices. Assuming a 10% decrease in interest rates from the
rates at December 31, 2018 the fair value of this fixed rate debt would have increased to $338.1 million.
A significant operating cost for the Company is diesel fuel, which represents approximately 9% 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 2019 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, 2018. At December 31, 2018 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 2018. As of December 31, 2018, there were 7.8 million gallons remaining on these contracts. Under
these agreements, the Company will pay fixed prices ranging from $1.91 to $2.34 per gallon. At December 31,
2018, the fair value liability on these contracts was estimated to be $4.7 million, based on quoted market prices
and is recorded in accrued liabilities. A 10% change in forward fuel prices would result in an immaterial change
in the fair value of fuel hedges outstanding at December 31, 2018.
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 26, 2019, are set forth on pages 66 to 96 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.
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Quarterly Results of Operations (Unaudited)
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The following tables set forth our unaudited quarterly results of operations for 2018 and 2017. 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
recurring adjustments that we consider necessary for a fair presentation of our results of operations for the
quarters presented. The historical environmental & infrastructure segment has been retrospectively presented as
discontinued operations and is no longer reflected in continuing operations. 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.
2018
Contract revenues
Costs of contract revenues
Gross profit
General and administrative expenses
Gain (loss) on sale of assets—net
Operating income
Interest expense—net
Other income (expense)
Income (loss) before income taxes
Income tax (provision) benefit
Income (loss) from continuing operations
Loss from discontinued operations, net of income taxes
Quarter Ended
March 31,
June 30,
September 30, December 31,
Unaudited
(dollars in millions except shares in thousands and per
share data)
$ 133.6
(119.5)
$ 135.3
(113.1)
$ 178.7
(139.1)
$ 173.2
(137.6)
14.1
(13.1)
0.2
1.2
(8.7)
(2.1)
(9.5)
2.5
(7.0)
(2.3)
22.1
(12.2)
1.1
11.0
(9.0)
0.0
2.0
(0.8)
1.2
(2.2)
39.6
(14.3)
(1.5)
23.7
(8.1)
0.1
15.7
(3.9)
11.9
(0.2)
35.6
(15.4)
(3.5)
16.7
(7.9)
(0.6)
8.2
(3.2)
5.0
(12.7)
Net income (loss)
$
(9.3) $
(1.0)
$ 11.7
$
(7.7)
Basic earnings (loss) per share attributable to income (loss)
from continuing operations
$ (0.11)
0.02
$ 0.19
$ 0.08
Basic loss per share attributable to loss from discontinued
operations, net of tax
Basic earnings (loss) per share
Basic weighted average shares
Diluted earnings (loss) per share attributable to income (loss)
(0.04)
(0.04)
(0.00)
$ (0.15) $ (0.02)
62.3
61.8
$ 0.19
62.4
(0.20)
$ (0.12)
62.5
from continuing operations
$ (0.11) $ 0.02
$ 0.19
$ 0.08
Diluted loss per share attributable to loss from discontinued
operations, net of tax
Diluted earnings (loss) per share
Diluted weighted average shares
(0.04)
(0.04)
(0.01)
$ (0.15) $ (0.02)
62.7
61.8
$ 0.18
63.3
(0.20)
$ (0.12)
63.8
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2017
Contract revenues
Costs of contract revenues
Gross profit (loss)
General and administrative expenses
Gain (loss) on sale of assets—net
Operating income (loss)
Interest expense—net
Equity in 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
Quarter Ended
March 31,
June 30,
September 30, December 31,
Unaudited
(dollars in millions except shares in thousands and per
share data)
$ 153.1
(140.0)
$ 152.5
(136.5)
$ 133.9
(114.3)
$ 152.7
(158.7)
13.1
(13.9)
0.0
16.0
(14.3)
(0.3)
(0.8)
(5.6)
0.0
—
0.0
(6.3)
2.0
(4.3)
1.4
(6.4)
(1.5)
(2.3)
0.1
(8.7)
4.2
(4.5)
(13.3)
0.6
19.6
(15.3)
0.0
4.3
(6.4)
0.0
—
0.1
(2.0)
0.3
(1.7)
(1.5)
(5.9)
(13.7)
(4.6)
(24.2)
(7.6)
(0.0)
—
(0.2)
(32.0)
27.2
(4.9)
(1.7)
$ (17.6) $
(3.9)
$
(3.2)
$
(6.5)
Basic loss per share attributable to loss from continuing
operations
$ (0.07) $ (0.07)
$ (0.03)
$ (0.08)
Basic earnings (loss) per share attributable to income (loss)
from discontinued operations, net of tax
Basic loss per share
Basic weighted average shares
Diluted loss per share attributable to loss from continuing
$ (0.21) $ 0.00
$ (0.02)
$ (0.28) $ (0.07)
61.3
61.1
$ (0.05)
61.5
$ (0.03)
$ (0.11)
61.6
operations
$ (0.07) $ (0.07)
$ (0.03)
$ (0.08)
Diluted earnings (loss) per share attributable to income (loss)
from discontinued operations, net of tax
Diluted loss per share
Diluted weighted average shares
Note: Items may not sum due to rounding.
$ (0.21) $ 0.00
$ (0.02)
$ (0.28) $ (0.07)
61.3
61.1
$ (0.05)
61.5
$ (0.03)
$ (0.11)
61.6
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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, 2018. 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, 2018. 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, 2018 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, 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, 2018, 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, 2018, 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, 2018, of the Company and our report dated February 26, 2019, 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 26, 2019
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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 2019 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 2019
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 2019 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 2019 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 2019 Annual Meeting of Stockholders.
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IL0647AM022816
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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 66 to 96 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 97, 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, 2018 AND 2017, AND FOR
THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016
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
65
66
67
68
69
70
72
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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, 2018 and 2017, the related consolidated statements of
operations, comprehensive loss, equity, and cash flows for each of the three years in the period ended
December 31, 2018, 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, 2018 and 2017, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2018, 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, 2018,
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 26, 2019, expressed an
unqualified opinion on the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for
revenue in 2018 due to the adoption of Accounting Standard Update No. 2014-09, Revenue from Contracts with
Customers (Topic 606).
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 26, 2019
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, 2018 and 2017
(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
Assets held for sale
Total current assets
PROPERTY AND EQUIPMENT—Net
GOODWILL
INVENTORIES—Noncurrent
ASSETS HELD FOR SALE—Noncurrent
OTHER
TOTAL
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable
Accrued expenses
Billings in excess of contract revenues
Revolving credit facility
Current portion of long-term debt
Liabilities held for sale
Total current liabilities
LONG-TERM DEBT
REVOLVING CREDIT FACILITY
DEFERRED INCOME TAXES
LIABILITIES HELD FOR SALE—Noncurrent
OTHER
Total liabilities
COMMITMENTS AND CONTINGENCIES (Note 12)
EQUITY:
Common stock—$.0001 par value; 90,000 authorized, 62,830 and 61,897 shares
issued; 62,552 and 61,619 outstanding at December 31, 2018 and December 31,
2017, 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.
66
2018
2017
$ 34,458
64,779
17,953
28,112
4,710
31,907
24,779
206,698
369,863
76,576
61,264
5,110
10,760
$ 15,852
51,940
77,907
34,432
5,031
38,605
38,417
262,184
396,925
76,576
54,023
29,561
13,088
$730,271
$832,357
$ 71,537
48,351
17,793
11,500
—
13,940
163,121
321,950
—
22,846
146
7,280
$ 65,153
51,926
2,586
—
1,212
29,373
150,250
333,141
95,000
25,561
773
6,336
515,343
611,061
6
(1,433)
295,135
(74,971)
(3,809)
6
(1,433)
289,821
(67,101)
3
214,928
221,296
$730,271
$832,357
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Great Lakes Dredge & Dock Corporation and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31, 2018, 2017 and 2016
(in thousands, except per share amounts)
CONTRACT REVENUES
COSTS OF CONTRACT REVENUES
GROSS PROFIT
OPERATING EXPENSES:
GENERAL AND ADMINISTRATIVE EXPENSES
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 income (expense)
Total other 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 LOSS
Basic earnings (loss) per share attributable to income (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 earnings (loss) per share attributable to income (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
2018
2017
2016
$620,795
509,335
$592,159
549,429
$637,468
552,130
111,460
42,730
85,338
55,108
3,731
52,621
(33,578)
—
—
(2,590)
57,235
4,789
(19,294)
(26,032)
(1,484)
(2,330)
11
55,271
3,089
26,978
(23,471)
(2,365)
—
(777)
(36,168)
(29,835)
(26,613)
16,453
(5,437)
11,016
(17,309)
(49,129)
33,761
(15,368)
(15,892)
365
177
542
(8,719)
$ (6,293) $ (31,260) $ (8,177)
$
0.18
$
(0.25) $
0.01
(0.28)
(0.26)
(0.14)
$
(0.10) $
(0.51) $
62,236
61,365
(0.13)
60,744
$
0.17
$
(0.25) $
0.01
(0.27)
(0.26)
(0.14)
$
(0.10) $
(0.51) $
63,607
61,365
(0.13)
61,367
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, 2018, 2017 and 2016
(in thousands)
2018
2017
2016
Net loss
Currency translation adjustment—net of tax (1)
Net unrealized (gain) loss on derivatives—net of tax (2)
Other comprehensive income (loss)—net of tax
Comprehensive loss
$ (6,293) $(31,260) $(8,177)
508
330
1,513
(5,325)
(41)
1,189
(3,812)
1,148
838
$(10,105) $(30,112) $(7,339)
(1) Net of income tax (provision) benefit of (1,017), $44 and (338) for the years ended December 31, 2018,
2017 and 2016, respectively.
(2) Net of income tax benefit of $775, $1,048 and $216 for the years ended December 31, 2018, 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, 2018, 2017 and 2016
(in thousands)
Great Lakes Dredge & Dock Corporation shareholders
BALANCE—January 1, 2016
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
Net loss
Other comprehensive income—net of
tax
Shares
of
Common
Stock
Common
Stock
Shares
of
Treasury
Stock
Treasury
Stock
Additional
Paid-In
Capital
60,709
148
$
6
—
(278)
—
(1,433) $283,247
2,455
—
74
—
309
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(171)
905
(133)
—
—
Accumulated
Deficit
$(27,664)
—
—
—
—
(8,177)
Accumulated
Other
Comprehensive
Income (Loss)
Total
$(1,983)
—
$252,173
2,455
—
—
—
—
(171)
905
(133)
(8,177)
—
838
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)
—
—
—
—
2,963
(328)
883
(31,260)
—
1,148
1,148
BALANCE—December 31, 2017
61,897
$
6
(278)
(1,433) $289,821
$(67,101)
$
3
$221,296
Cumulative effect of recent
accounting pronouncements
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 loss—net of tax
—
132
—
—
520
—
281
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,425
(1,577)
—
(1,205)
—
—
—
—
1,094
—
—
—
(6,293)
—
—
—
(3,812)
(1,577)
5,425
(1,205)
1,094
(6,293)
(3,812)
BALANCE—December 31, 2018
62,830
$
6
(278)
$(1,433) $295,135
$(74,971)
$(3,809)
$214,928
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, 2018, 2017 and 2016
(in thousands)
OPERATING ACTIVITIES:
Net loss
Loss from discontinued operations, net of income taxes
Income (loss) from continuing operations
Adjustments to reconcile net loss to net cash flows provided by operating
activities:
Depreciation and amortization
Equity in loss of joint ventures
Loss on extinguishment of 7 3/8% senior subordinated notes
Cash distributions from joint ventures
Deferred income taxes
Loss on dispositions of property and equipment
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) provided 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
Net cash flows used in investing activities of continuing operations
Net cash flows (used) provided by investing activities of discontinued
operations
Cash used in investing activities
2018
2017
2016
$ (6,293) $(31,260) $ (8,177)
(8,719)
(15,892)
(17,309)
11,016
(15,368)
542
50,389
—
—
—
5,760
3,731
2,337
3,504
(231)
—
4,643
—
(8,364)
54,881
(921)
11,976
(1,480)
7,524
(3,093)
55,962
1,484
2,330
340
(32,836)
4,789
15,678
3,280
(206)
1,747
2,917
—
5,354
10,939
(2,163)
(1,868)
(16,179)
(567)
(1,658)
54,826
2,365
—
—
(494)
3,089
—
2,439
474
(6,135)
2,651
133
15,129
(14,183)
(6,239)
(6,583)
(8,813)
(730)
(3,751)
141,672
33,976
34,720
(4,019)
(12,457)
3,950
137,653
21,518
38,670
(49,422)
13,880
(65,996)
8,586
(82,849)
10,049
(35,542)
(57,410)
(72,800)
425
(742)
7,259
(35,117)
(58,152)
(65,541)
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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
Borrowings under revolving loans
Repayments of revolving loans
Net cash flows (used) provided in financing activities of continuing
operations
Net cash flows used in financing activities of discontinued operations
Cash (used) provided in financing activities
Effect of foreign currency exchange rates on cash and cash equivalents
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
2018
2017
2016
—
(298)
—
—
(1,205)
1,094
—
29,000
(112,500)
(83,909)
(1,547)
(85,456)
26
17,106
17,352
325,000
(276,148)
(744)
(5,022)
(328)
883
—
124,925
(134,036)
—
(45,662)
—
(6,818)
(171)
905
(133)
288,611
(204,500)
34,530
(361)
34,169
115
(2,350)
19,702
32,232
(1,422)
30,810
79
4,018
15,684
Cash, cash equivalents and restricted cash at end of period
$ 34,458
$ 17,352
$ 19,702
Cash and cash equivalents
Restricted cash included in other long-term assets
$ 34,458
—
$ 15,852
1,500
$ 11,167
8,535
Cash, cash equivalents and restricted cash at end of period
$ 34,458
$ 17,352
$ 19,702
$ 30,855
$ 34,789
$ 26,563
290
$
365
$
200
7,303
$
$
4,255
$
8,795
— $
—
$
$
Supplemental Cash Flow Information
Cash paid for interest
Cash paid for income taxes
Non-cash Investing and Financing Activities
Property and equipment purchased but not yet paid
Repayments of debt with proceeds from sale-leaseback transactions
$ 13,034
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, 2018 AND 2017 AND FOR THE
YEARS ENDED December 31, 2018, 2017 AND 2016
(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. The Company’s primary customers are
domestic and foreign government agencies, as well as private entities.
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—Prior to January 1, 2018, the Company measured
completion based on engineering estimates of the physical percentage completed for dredging contracts. Under
the new accounting principle, revenue is recognized using contract fulfillment costs incurred to date compared to
total estimated costs at completion, also known as cost-to-cost, to measure progress towards completion.
Additionally, the Company capitalizes certain pre-contract and pre-construction costs, and defers recognition
over the life of the contract. Fixed-price contracts, which comprise substantially all of the Company’s revenue,
will most often represent a single performance obligation as the promise to transfer the individual services is not
separately identifiable from other promises in the contracts and, therefore, not distinct. The Company’s
performance obligations are satisfied over time and revenue is recognized using the cost-to-cost method,
described above. Contract modifications are changes in the scope or price (or both) of a contract that are
approved by the parties to the contract. The Company recognizes a contract modification when the parties to a
contract approve a modification that either creates new, or changes existing, enforceable rights and obligations of
the parties to the contract. Contract modifications are included in the transaction price only if it is probable that
the modification estimate will not result in a significant reversal of revenue. 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.
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. The Company is a party to numerous
collective bargaining agreements in the U.S. that govern its relationships with its unionized hourly workforce.
Effective beginning the first quarter of 2018, the Company changed the method of accounting for allocated
fixed equipment costs for interim periods such that fixed equipment costs are now recognized as incurred. The
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Company adopted this change as a result of management’s belief that the new method is preferable and results in
a more objective measure of quarterly expense that will better support planning and resource allocation decisions
by management. The change has been applied retrospectively. The Company’s cost structure includes significant
annual equipment-related costs, including depreciation, maintenance, insurance and long-term rentals.
Previously, the Company allocated fixed equipment costs to interim periods in proportion to revenues recognized
over the year. Specifically, at each interim reporting date the Company compared actual revenues earned to date
on its dredging contracts to expected annual revenues and recognized equipment costs on the same proportionate
basis. In the fourth quarter, any over or under allocated equipment costs were recognized such that the expense
for the year equals actual equipment costs incurred during the year.
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.
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 may represent developed technology and databases,
customer relationships, and customer contracts acquired in business combinations. 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.
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The Company assesses the fair values of its reporting unit 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 one operating segment which is also the Company’s one reportable segment and
reporting unit of which the Company tests goodwill for impairment. The historical environmental &
infrastructure segment has been retrospectively presented as discontinued operations and assets and liabilities
held for sale and is no longer reflected in continuing operations. The Company performed its most recent annual
test of impairment as of July 1, 2018 with no indication of impairment as of the test date. The Company will
perform its next scheduled annual test of goodwill in the third quarter of 2019 should no triggering events occur
which would require a test prior to the next annual test.
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 2018 or 2017. 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
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. In 2017, the U.S. government enacted comprehensive tax legislation referred to as the Tax Cuts
and Jobs Act. Refer to Note 7, Income Taxes.
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.
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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). During 2018, the Company substantially completed the liquidation of the investment in its Brazil and
Australia operations. Refer to Note 6, Fair Value Measurements, for further discussion of the closeout.
Recent Accounting Pronouncements—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”) on January 1, 2018
under the modified retrospective method such that the cumulative effect is recognized at the date of initial
application. The adoption of ASC 606 resulted in a change in the timing of recognition of both contract revenue
and costs from our prior practices. Upon the adoption of ASC 606, the Company recorded a cumulative net
adjustment of $1,950 to the beginning retained earnings balance. Refer to Note 9, Revenue, for further discussion
of the adoption of ASC 606.
The Company adopted Accounting Standard Update No. 2016-18 (“ASU 2016-18”), Statement of Cash
Flows (Topic 230): Restricted Cash on January 1, 2018. 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 cash flows. The impact of the
adoption of ASU 2016-18 has been applied retrospectively and the prior periods presented have been recast.
In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update
No. 2018-02 (“ASU 2018-02”), Income Statement—Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The new guidance
allows entities to reclassify from accumulated other comprehensive income to retained earnings stranded tax
effects resulting from the Tax Cut and Jobs Act. The Company elected to early adopt ASU 2018-02 during the
quarter ended March 31, 2018.
In January 2017, the 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 February 2016, the FASB issued Accounting Standard Update No. 2016-02 (“ASU 2016-02”), Leases
(Topic 842) and subsequently issued other Accounting Standard Updates related to the Accounting Standards
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Codification Topic 842 (collectively, “ASC 842”). The FASB issued ASC 842 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 adopted ASC 842 as of
January 1, 2019 using the package of practical expedients that allow entities to retain the classification of lease
contracts existing as of the date of adoption. Further, the Company adopted ASC 842 using the transition method
under which entities initially apply ASC 842 at the adoption date and recognize a cumulative-effect adjustment to
the opening balance of retained earnings in the period of adoption. Under this method, the comparative periods
presented in the financial statements prior to the adoption date would not be adjusted to apply ASC 842. The
Company expects the adoption of ASC 842 to result in a material increase of approximately $80,000 to $90,000
to assets and liabilities on its consolidated balance sheets. The Company does not anticipate the adoption of
ASC 842 to have a material effect on its consolidated statements of operations and statements of cash flows.
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.
The computations for basic and diluted earnings (loss) per share for the years ended December 31, 2018,
2017 and 2016 are as follows:
(shares in thousands)
Income (loss) from continuing operations
Loss on discontinued operations, net of income taxes
Net loss
Weighted-average common shares outstanding—basic
Effect of stock options and restricted stock units
2018
2017
2016
11,016
(17,309)
$ (6,293)
62,236
1,371
(15,368)
(15,892)
$(31,260)
61,365
—
542
(8,719)
$ (8,177)
60,744
623
Weighted-average common shares outstanding—diluted
63,607
61,365
61,367
Earnings (loss) per share from continuing operations—
basic
Earnings (loss) per share from continuing operations—
diluted
$
$
0.18
$ (0.25)
0.17
$ (0.25)
$
$
0.01
0.01
For the years ended December 31, 2018, 2017 and 2016 the following amounts of stock options (“NQSO”)
and restricted stock units (“RSU”) were excluded from the diluted weighted-average common shares outstanding
as the Company incurred a loss during these periods:
(shares in thousands)
Effect of stock options and restricted stock units
2018
2017
2016
—
716 —
For the years ended December 31, 2018, 2017 and 2016 the following amounts of NQSOs and RSUs 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:
(shares in thousands)
Effect of stock options and restricted stock units
2018
2017
2016
1,285
2,476
1,594
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3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2018 and 2017 are as follows:
Land
Buildings and improvements
Furniture and fixtures
Operating equipment
Total property and equipment
Accumulated depreciation
Property and equipment—net
2018
2017
$
9,992
5,071
14,087
710,128
739,278
$
9,992
5,071
12,453
783,211
810,727
(369,415)
(413,802)
$ 369,863
$ 396,925
Operating equipment of $3,537 and $8,460 was classified as held for sale, excluded from property and
equipment, as of December 31, 2018 and 2017, respectively.
Depreciation expense was $50,389, $55,962 and $54,826, for the years ended December 31, 2018, 2017 and
2016, respectively.
For more information about changes in assets held for sale and depreciation expense related to the
Company’s restructuring refer to Note 11, Restructuring Charges.
4. ACCRUED EXPENSES
Accrued expenses at December 31, 2018 and 2017 are as follows:
Payroll and employee benefits
Insurance
Fuel hedge contracts
Interest
Contract reserves
Income and other taxes
Accrued rent
Other
Total accrued expenses
5. LONG-TERM DEBT
Long-term debt at December 31, 2018 and 2017 is as follows:
Revolving credit facility
Notes payable
8% senior notes
Subtotal
Current portion of revolving credit facility
Current portion of notes payable
Total
77
2018
2017
$15,298
13,724
4,710
3,448
1,709
1,175
496
7,791
$ 7,658
21,943
—
4,210
2,720
1,764
6,519
7,112
$48,351
$51,926
2018
2017
$ 11,500
—
321,950
$ 95,000
13,296
321,057
333,450
(11,500)
—
429,353
—
(1,212)
$321,950
$428,141
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Credit agreement
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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, CIBC Bank USA, 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 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.
The Credit Agreement also provides for certain actions contemplated in the plan of restructuring with
respect to the Company’s 2017 and 2018 fiscal years including allowing up to an aggregate of $20 million of
expenses related to the buy-out of operating leases and allowing capital expenditures planned but not incurred by
all Credit Parties in fiscal year 2017 to be carried forward to fiscal year 2018; provided 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 Agreement 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).
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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.
As of December 31, 2018, the Company had $11,500 of borrowings on the revolver and $37,749 of letters
of credit outstanding, resulting in $174,555 of availability under the Credit Agreement. The availability under the
Credit Agreement is suppressed by $26,196 as of December 31, 2018 as a result of certain limitations set forth in
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 and subsidiary guarantors
The Company has outstanding $325,000 of 8.000% senior notes (“8% Senior Notes”) due May 15, 2022. In
May 2017, the Company issued the 8% Senior Notes 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.
The Company’s obligations under these Senior Notes are guaranteed by certain of the Company’s 100%
owned domestic subsidiaries. Such guarantees are full, unconditional and joint and several. The parent company
issuer has no independent assets or operations and all non-guarantor subsidiaries have been determined to be
minor.
Other
The Company enters into note arrangements to finance certain vessels and ancillary equipment. In February
2018, the Company completed a sale-leaseback of a vessel yielding net proceeds of $4,500. Included in this
transaction was the retirement of the asset and related equipment note, and the transaction resulted in a deferred
gain.
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The scheduled principal payments through the maturity date of the Company’s long-term debt, excluding
equipment notes and capital leases, at December 31, 2018, are as follows:
Years Ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total
$ 11,500
—
—
325,000
—
—
$336,500
The Company incurred amortization of deferred financing fees for its long term debt of $3,504, $3,280 and
$2,438 for each of the years ended December 31, 2018, 2017 and 2016. Such amortization is recorded as a
component of interest expense.
6. FAIR VALUE MEASUREMENTS
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, 2018
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
$4,710
$—
$4,710
$—
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
$—
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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, 2018
and 2017 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, 2018, 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 2019.
As of December 31, 2018, there were 7.8 million gallons remaining on these contracts which represent
approximately 80% of the Company’s forecasted domestic fuel purchases through December 2019. Under these
swap agreements, the Company will pay fixed prices ranging from $1.91 to $2.34 per gallon.
At December 31, 2018, the fair value liability of the fuel hedge contracts was estimated to be $4,710 and is
recorded in accrued expenses. At December 31, 2017, the fair value asset of the fuel hedge contracts was
estimated to be $2,501, and is recorded in other current assets. For fuel hedge contracts considered to be highly
effective, the gains reclassified to earnings from changes in fair value of derivatives, net of cash settlements and
taxes, for the year ended December 31, 2018 were $1,569. The remaining gains and losses included in the
accumulated other comprehensive income (loss) at December 31, 2018 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, 2018 and 2017 is as follows:
Balance Sheet Location
Fair Value at December 31,
2018
2017
Asset derivatives:
Derivatives designated as hedging
instruments
Fuel hedge contracts
Other current assets
$ —
$2,501
Liability derivatives:
Derivatives designated as hedging
instruments
Fuel hedge contracts
Accrued expenses
$4,710
$ —
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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.
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
Total other comprehensive income (loss)
2018
2017
2016
$ 1,513
$ (41)
$508
(1,569)
(3,756)
(218)
1,407
(5,325)
1,189
30
300
330
$(3,812)
$1,148
$838
Adjustments reclassified from accumulated balances of other comprehensive income (loss) to earnings are
as follows:
Derivatives:
Fuel hedge contracts
Statement of Operations Location
2018
2017
2016
Costs of contract revenues
Income tax (provision) benefit
$(2,125)
(556)
$(358)
140
$(1,569)
$(218)
$50
20
$30
The Company substantially completed the liquidation of the investment in its Brazil and Australia
operations during 2018. This liquidation resulted in the reversal of the Company’s cumulative translation
adjustment. Adjustments reclassified from accumulated balances of other comprehensive income (loss) to
earnings are as follows:
Cumulative translation adjustment:
Other expense
Income tax benefit
$(2,337)
612
$(1,725)
$—
—
$—
$—
—
$—
Statement of Operations Location
2018
2017
2016
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, 2018 (See Note 5, Long-Term Debt). The 8% Senior
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Notes are senior unsecured obligations of the Company and its subsidiaries that guarantee the Senior Notes. The
fair value of the senior notes was $330,281 at December 31, 2018, 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.
7. INCOME TAXES
The Company’s income tax benefit from continuing and discontinued operations for the year ended
December 31, 2018 is as follows:
Income tax provision (benefit) from continuing
operations
Income tax benefit from discontinued operations
Income tax benefit
2018
2017
2016
$ 5,437
(6,162)
$(33,761)
(10,052)
$ (177)
(5,615)
$ (725)
$(43,813)
$(5,792)
The Company’s income (loss) from continuing operations before income tax from domestic and foreign
continuing operations for the years ended December 31, 2018, 2017 and 2016 is as follows:
Domestic operations
Foreign operations
2018
2017
2016
$ 26,878
(10,425)
$(12,263)
(36,866)
$ 12,039
(11,674)
Total income (loss) from continuing operations before
income tax
$ 16,453
$(49,129)
$
365
The provision (benefit) for income taxes from continuing operations as of December 31, 2018, 2017 and
2016 is as follows:
Federal:
Current
Deferred
State:
Current
Deferred
Foreign:
Current
Deferred
Total
2018
2017
2016
$ —
3,702
$
(248)
(31,957)
$ 260
(129)
48
1,687
29
(1,598)
54
(508)
—
—
13
—
146
—
$5,437
$(33,761)
$(177)
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The Company’s income tax benefit from continuing operations reconciles to the provision at the statutory
U.S. federal income tax rate of 21% for the year ended December 31, 2018 and 35% for the years ended
December 31, 2017 and 2016 as follows:
Tax provision (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
Change in state law regarding NOL carryforwards
Nondeductible officer compensation
Change in deferred state tax rate
Research and development tax credits
Changes in unrecognized tax benefits
Changes in valuation allowance
Other
2018
2017
2016
$3,455
937
—
658
201
—
(218)
14
116
274
$(17,194)
(1,746)
(15,720)
—
—
—
(170)
10
1,152
(93)
$
128
(227)
—
—
—
(1,043)
(253)
10
821
387
Income tax provision (benefit)
$5,437
$(33,761)
$ (177)
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, from continuing operations. As the Company was in a net deferred tax liability position as of
the date of enactment of the Tax Act, the impact to the Company was 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, 2018 and 2017, the Company had loss carryforwards for federal income tax purposes of
$168,650 and $207,875 respectively, which expire between 2034 and 2037.
At December 31, 2018 and 2017, the Company had gross net operating loss carryforwards for state income
tax purposes totaling $190,901 and $209,877, respectively, which expire between 2023 and 2028. 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 and by $116 in 2018.
The Company also has foreign gross net operating loss carryforwards of approximately $9,533 and $7,637
as of December 31, 2018 and 2017, of which $2,876 expires between 2018 and 2028. The remaining amount of
$6,657 may be carried forward indefinitely. At December 31, 2018 and 2017, a full valuation allowance has been
established for the deferred tax asset of $2,338 and $1,962 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, 2018 and 2017, the Company had $157 in unrecognized tax benefits, the recognition of
which would have an impact of $124 on the effective tax rate.
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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,
2018
2017
2016
$157
—
—
—
—
$157
$157
—
—
—
—
$157
$157
—
—
—
—
$157
The Company’s policy is to recognize interest and penalties related to income tax matters in income tax
expense. As of December 31, 2018 and 2017, the Company had approximately $71 and $53, respectively, of
interest and penalties recorded.
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 2015 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 2014. In foreign
jurisdictions in which the Company operates, years prior to 2013 are closed and are no longer subject to
examination.
The Company’s deferred tax assets (liabilities) at December 31, 2018 and 2017 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
2018
2017
$ 9,287
35,417
2,338
10,796
2,159
910
(4,786)
$ 8,119
43,654
1,962
12,382
1,941
1,340
(4,294)
56,121
65,104
(78,967)
—
(89,966)
(699)
(78,967)
(90,665)
$(22,846)
$(25,561)
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
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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, 2018 and 2017 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,
2018 and 2017 would ultimately be realized and determined that no valuation allowance was required.
8. 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
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 $4,643,
$2,917 and $2,651, for the years ended December 31, 2018, 2017 and 2016, 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 2018, 2017 and 2016.
A summary of stock option activity under the Incentive Plan as of December 31, 2018, and changes during
the year ended December 31, 2018, is presented below:
Options
Outstanding as of January 1, 2018
Granted
Exercised
Forfeited or Expired
Outstanding as of December 31, 2018
Vested at December 31, 2018
Weighted
Average
Exercise
Price
Weighted-
Average
Remaining
Contract
Term (yrs)
Aggregate
Intrinsic
Value
($000’s)
$6.34
—
4.78
5.60
$6.52
$6.52
2.8
2.8
$646
$646
Shares
1,377
—
(62)
(155)
1,160
1,160
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Restricted stock units
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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, 2018, and changes
during the year ended December 31, 2018, is presented below:
Nonvested Restricted Stock Units
Outstanding as of January 1, 2018
Granted
Vested
Forfeited
Outstanding as of December 31, 2018
Expected to vest at December 31, 2018
Shares
2,196
2,051
(758)
(501)
2,988
2,084
Weighted-Average Grant-
Date Fair Value
$5.06
4.83
4.95
5.44
$4.88
$4.63
As of December 31, 2018, there was $4,827 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 $1,205 and $328 for the years ended December 31, 2018 and 2017, 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 or deferred restricted stock units of the Company. Directors may elect to receive some or all of the
cash retainer in common stock or deferred restricted stock units. In 2018, the Chairman of the Board received an
additional $100 of annual compensation, paid 100% in common stock.
In the years ended December 31, 2018, 2017 and 2016, 156 thousand, 207 thousand and 86 thousand shares,
respectively, of the Company’s common stock or restricted stock units were issued to non-employee directors
under the Incentive Plan.
9. REVENUE
The Company’s revenue is derived from contracts for services with federal, state, local and foreign
governmental entities and private customers. Revenues are generally derived from the enhancement or
preservation of navigability of waterways or the protection of shorelines through the removal or replenishment of
soil, sand or rock.
Prior to January 1, 2018, the Company measured completion based on engineering estimates of the physical
percentage completed for dredging contracts. Under the new accounting principle, the Company measures
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progress toward completion on all contracts utilizing the cost-to-cost method. Additionally, the Company
capitalizes certain pre-contract and pre-construction costs, and defers recognition over the life of the contract. At
December 31, 2018, the impact of this change in accounting principle on the Consolidated Balance Sheets is as
follows:
ASSETS
Contract revenues in excess of billings
Other current assets
Other
LIABILITIES AND EQUITY
Accrued expenses
Billings in excess of contract revenues
Deferred taxes
Accumulated deficit
December 31, 2018
$(18,334)
8,953
4,176
(5,306)
5,834
(1,468)
$ (4,265)
For the year ended December 31, 2018, the impact of this change in accounting principle on the
Consolidated Statements of Operations is as follows:
Contract revenues
Cost of contract revenues
Income tax benefit
Loss from continuing operations
Net loss
Comprehensive loss
2018
$(14,696)
(11,360)
867
(2,469)
$ (2,469)
$ (2,469)
Performance obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer,
and is the unit of account upon which the Company’s revenue is calculated. A contract’s transaction price is
allocated to each distinct performance obligation and recognized as revenue as the performance obligation is
satisfied. Fixed-price contracts, which comprise substantially all of the Company’s revenue, will most often
represent a single performance obligation as the promise to transfer the individual services is not separately
identifiable from other promises in the contracts and, therefore, not distinct.
The Company capitalizes certain pre-contract and pre-construction costs, and defers recognition over the life
of the contract. The Company’s performance obligations are satisfied over time and revenue is recognized using
contract fulfillment costs incurred to date compared to total estimated costs at completion, also known as
cost-to-cost, to measure progress towards completion. As the Company’s performance creates an asset that
customer controls, this method provides a faithful depiction of the transfer of an asset to the customer. Generally,
the Company has an enforceable right to payment for performance completed to date.
The Company typically satisfies its performance obligations upon completion of service. The majority of
the Company’s contracts are completed in a year or less. At December 31, 2018, the Company had $707,091 of
remaining performance obligations, which the Company refers to as total backlog. Approximately 76% of the
Company’s backlog will be completed in 2019 with the remaining balance expected to be completed by 2020.
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The transaction price is calculated using the Company’s estimated costs to complete a project. These costs
are based on the types of equipment required to perform the specified service, project site conditions, the
estimated project duration, seasonality, location and complexity of a project.
The nature of the Company’s contracts gives rise to several types of variable consideration, including pay on
quantity dredged for dredging projects and contract modifications for both dredging and environmental &
infrastructure projects. Estimated pay quantity is the amount of material the Company expects to dredge for
which it will receive payment. Estimated quantity to be dredged is calculated using engineering estimates based
on current survey data and the Company’s knowledge based on historical project experience. Contract
modifications are changes in the scope or price (or both) of a contract that are approved by the parties to the
contract. The Company recognizes a contract modification when the parties to a contract approve a modification
that either creates new, or changes existing, enforceable rights and obligations of the parties to the contract.
Contract modifications are included in the transaction price only if it is probable that the modification estimate
will not result in a significant reversal of revenue. Contract modifications are routine in the performance of the
Company’s contracts. In most instances, contract modifications are for services that are not distinct, and,
therefore, are accounted for as part of the existing contract.
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.
Revenue by category
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. Foreign projects typically involve capital work.
The following table sets forth, by type of work, the Company’s contract revenues for the years ended
December 31, 2018, 2017 and 2016:
Revenues
Capital—U.S.
Capital—foreign
Coastal protection
Maintenance
Rivers & lakes
Total revenues
2018
2017
2016
$333,037
14,088
175,923
53,427
44,320
$185,113
42,306
191,070
134,923
38,747
$219,914
59,413
215,041
92,274
50,826
$620,795
$592,159
$637,468
The following table sets forth, by type of customer, the Company’s contract revenues for the years ended
December 31, 2018, 2017 and 2016:
Revenues
Federal government
State and local government
Private
Foreign
Total revenues
2018
2017
2016
$468,421
93,499
44,787
14,088
$375,276
145,196
29,381
42,306
$409,941
126,395
41,719
59,413
$620,795
$592,159
$637,468
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Foreign dredging revenue was $14,088, $42,306 and $59,413 for the years ended December 31, 2018, 2017
and 2016 respectively, and was mostly attributable to work done in the Middle East.
Contract balances
Billings on contracts are generally submitted after verification with the customers of physical progress and
are recognized as accounts receivable in the balance sheet. For billings that do 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. Certain pre-contract and
pre-construction costs are capitalized and reflected as contract assets in the balance sheet. Customer advances,
deposits and commissions are reflected in the balance sheet as contract liabilities.
Accounts receivable at December 31, 2018 and December 31, 2017 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
2018
2017
$ 8,592
48,418
7,969
64,979
(200)
$10,658
28,212
17,545
56,415
—
$64,779
$56,415
$64,779
—
$51,940
4,475
$64,779
$56,415
The components of contracts in progress at December 31, 2018 and December 31, 2017 are as follows:
2018
2017
Costs and earnings in excess of billings:
Costs and earnings for contracts in progress
Amounts billed
$ 433,093
(416,956)
$ 507,037
(451,829)
Costs and earnings in excess of billings for contracts in
progress
Costs and earnings in excess of billings for completed
contracts
16,137
55,208
3,928
22,699
Total contract revenues in excess of billings
$ 20,065
$ 77,907
Current portion of contract revenues in excess of
billings
Long-term contract revenues in excess of billings
Total contract revenues in excess of billings
Billings in excess of costs and earnings:
Amounts billed
Costs and earnings for contracts in progress
Total billings in excess of contract revenues
$ 17,953
2,112
$ 77,907
—
$ 20,065
$ 77,907
$(260,691)
242,898
$(301,788)
299,202
$ (17,793)
$
(2,586)
For amounts included in billings in excess of contract revenues balance at the beginning of the year, the
Company recognized nearly all of the related revenue during the year ended December 31, 2018.
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At December 31, 2018 and January 1, 2018, costs to fulfill contracts with customers recognized as an asset
were $13,129 and $6,754, respectively, and are recorded in other current assets and other noncurrent assets.
These costs relate to pre-contract and pre-construction activities. During the year ended December 31, 2018, the
company amortized $15,411 of pre-construction costs, respectively.
The Company derived revenues and gross profit from foreign project operations for the years ended
December 31, 2018, 2017, and 2016, as follows:
Contract revenues
Costs of contract revenues
Gross profit
2018
2017
2016
$ 14,088
(19,866)
$ 42,306
(73,958)
$ 59,413
(66,729)
$ (5,778)
$(31,652)
$ (7,316)
In 2018, 2017 and 2016, 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, 2018 and 2017, long-lived assets with a net book value of $30,601 and $47,563, 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 2018, 2017 and
2016, 75.5%, 63.4% and 64.3%, 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, 2018 and 2017, approximately 65.3% and 42.8%, 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.
Revenue from foreign projects has been concentrated in the Middle East which comprised less than 10% in
2018, 2017 and 2016. At December 31, 2018 and 2017, less than 10% 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.
10. RETIREMENT PLANS
The Company sponsors two 401(k) savings plans, one covering substantially all non-union salaried
employees (“Salaried Plan”), a second covering its hourly employees (“Hourly Plan”). Under the Salaried Plan
and the Hourly Plan, individual employees may contribute a percentage of compensation and the Company will
match a portion of the employees’ contributions. The Salaried Plan also includes 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 2018, 2017 and 2016, was $5,060, $2,616 and $2,686, respectively.
The Company also contributes to various multiemployer pension plans pursuant to collective bargaining
agreements. In 2018, 2017 and 2016, the Company contributed $4,207, $4,699 and $4,793 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
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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.
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.
11. 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.
Management executed 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. The
cumulative amounts incurred to date for restructuring charges, including amounts presented in discontinued
operations, include severance of $3,549, asset retirements of $32,309, pre-contract costs of $6,441 and closeout
costs of $4,194. Restructuring activities were substantially completed in 2018.
Restructuring charges recognized for the above actions for the years ended December 31, 2018 and 2017 are
summarized as follows:
Costs of contract revenues—depreciation
Costs of contract revenues—other
General and administrative expenses
Loss on sale of assets—net
Other expense
Total
2018
2017
$ 6,759
2,292
185
4,572
2,337
$ 6,859
16,102
1,189
4,691
—
16,145
28,841
The Company accrued severance expense of $662 and $1,403 at December 31, 2018 and December 31,
2017, respectively, which are expected to be settled in 2019. Accrued severance is included in accrued expenses.
12. 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
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, 2018, the Company had outstanding performance bonds with a notional
amount of approximately $1,389,239, of which $78,314 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 $619,426.
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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 14, 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
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
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date of close. The Company seeks specific performance of the 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 is in the process of negotiating a Consent Order with the Florida Department of
Environmental Protection regarding alleged impacts to a seagrass habitat in connection with a project in
Charlotte County, Florida. The Company estimates the range of potential loss related to this matter as between
$200,000 and $250,000.
In September 2018, the EPA Region 4 informed the Company of the EPA’s intent to file an administrative
complaint against the Company relating to a project the Company performed at PortMiami from 2013-2015,
although no complaint has been filed to date, to the Company’s knowledge. The EPA is alleging violations of
Section 103 of the Marine Protection, Research, and Sanctuaries Act (“MPRSA”) and failure to report violations
of the MPRSA. The Company disagrees with the EPA on whether a violation occurred and, if a violation did
occur, the appropriate penalty calculation, and we will defend ourselves vigorously.
Except as noted above, 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 2025. 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, 2018, are as follows:
2019
2020
2021
2022
2023
Thereafter
Total minimum operating lease payments
$26,554
22,349
18,430
13,552
9,041
8,697
$98,623
Total rent expense under long-term operating lease arrangements for the years ended December 31, 2018,
2017 and 2016 was $21,160, $26,664 and $20,006, 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
2018 related to the Company’s restructuring refer to Note 11, Restructuring Charges.
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The Company’s historical 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 on rent on these properties in 2016.
Further, the Company’s historical 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. In March 2017, one of the properties was sold to a non-related party. In 2018, 2017 and 2016, the
Company paid rent of $222, $263 and $506, respectively, for these two properties.
14. BUSINESS DISPOSITIONS
Discontinued operations
Businesses or asset groups are reported as discontinued operations when the Company commits to a plan to
divest the business or group and the sale of the business or asset group is deemed probable within the next twelve
months. Further, the disposal must represent a strategic shift that has (or will have) a major effect on the
Company’s operations and financial results. In the fourth quarter, the management team proposed, and the Board
of Directors approved, a plan to sell the Company’s historical environmental & infrastructure business. The
Company has retained a financial advisor to assist with the process and expects to finalize disposition of the
environmental & infrastructure business in the first half of 2019. The disposal group of the historical
environmental & infrastructure business has therefore been classified as discontinued operations and assets and
liabilities held for sale for all periods presented.
Included in the results of discontinued operations for the year ended December 31, 2018 is a provision of
$14,110 to reduce the net assets of the historical environmental & infrastructure business to fair value less costs
to sell. Fair values were determined using expected sales terms and an evaluation of working capital. The loss on
disposition of assets held for sale is subject to change prior to completion of the disposition and could differ
materially from the Company’s estimate.
To the extent the Company incurs liabilities for exit costs, including severance, other employee benefit costs
and operating lease obligations, the liabilities will be measured at fair value and recorded when incurred.
The results of the business have been reported in discontinued operations as follows:
Revenue
Loss before income taxes from discontinued
operations
Preliminary loss on disposal of assets held for sale
Income tax benefit
Loss from discontinued operations, net of income
2018
2017
2016
$ 76,843
$112,607
$133,637
$ (9,361)
(14,110)
6,162
$ (25,944)
$ (14,334)
—
10,052
—
5,615
taxes
$(17,309)
$ (15,892)
$ (8,719)
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The major classes of assets and liabilities of businesses reported as discontinued operations are shown
below:
Assets:
Accounts receivable—net
Contract revenues in excess of billings
Other current assets
Assets held for sale
Property and equipment—net
Goodwill
Other intangible assets—net
Other assets
Reserve for loss on disposal
Assets held for sale—noncurrent
Liabilities:
Accounts payable
Accrued expenses
Other current liabilities
Liabilities held for sale
Other liabilities
2018
2017
$ 13,943
9,971
865
$23,593
12,881
1,943
$ 24,779
$38,417
6,612
7,000
372
1,699
(14,110)
10,369
7,000
907
2,825
—
$ 1,573
$21,101
$ 8,343
4,380
1,217
13,940
146
$22,505
4,292
2,576
29,373
773
Liabilities held for sale—noncurrent
$
146
$
773
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
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 12, 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 12, Commitments and Contingencies, 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.
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Great Lakes Dredge & Dock Corporation
Schedule II—Valuation and Qualifying Accounts
For the Years Ended December 31, 2018, 2017 and 2016
(In thousands)
Description
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
Year ended December 31, 2018
Allowances deducted from assets to which they apply:
Allowances for doubtful accounts
Valuation allowance for deferred tax assets
Total
Beginning
Balance
Additions Deductions
Ending
balance
$ 578
6,101
$ —
1,032
$ (320)
—
$ 258
7,133
$6,679
$1,032
$ (320)
$7,391
$ 258
7,133
$ —
1,152
$ (258)
(3,991)
$ —
4,294
$7,391
$1,152
$(4,249)
$4,294
$ —
4,294
$ 200
492
$ — $ 200
4,786
—
$4,294
$ 692
$ — $4,986
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Number
2.1
2.2
3.1
3.2
3.3
4.1
4.2
10.1
10.2
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)).
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10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
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)).
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). †
First Amendment to Employment Agreement between Great Lakes Dredge & Dock Corporation
and Christopher P. Shea, dated as of July 31, 2018 (Incorporated by reference to Great Lakes
Dredge & Dock Corporation’s Quarterly Report on Form 10-Q, filed with the Commission on
November 6, 2018 (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 Employment Agreement between Great Lakes Dredge & Dock
Corporation and Kathleen M. LaVoy, dated as of December 21, 2016. (Incorporated by reference
to Great Lakes Dredge & Dock Corporation’s Quarterly Report on Form 10-Q filed with the
Commission on May 4, 2018 (Commission file no. 001-33225)). †
99
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10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
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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)).
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)).†
100
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10.25
10.26
10.27
10.28
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10.32
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Form of Great Lakes Dredge & Dock Corporation Restricted Stock Unit Award Agreement
pursuant to the Great Lakes Dredge & Dock Corporation 2017 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 4, 2018 (Commission file no. 001-33225)). †
Form of Great Lakes Dredge & Dock Corporation Performance-Based Restricted Stock Unit
Award Agreement (Three Year Form) pursuant to the Great Lakes Dredge & Dock Corporation
2017 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 4, 2018
(Commission file no. 001-33225)). †
Form of Great Lakes Dredge & Dock Corporation Performance-Based Restricted Stock Unit
Award Agreement (Two Year Form) pursuant to the Great Lakes Dredge & Dock Corporation
2017 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 4, 2018
(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 (Incorporated by reference to
Great Lakes Dredge & Dock Corporation’s Annual Report on Form 10-K filed with the
Commission on February 28, 2018 (Commission file no. 001-33225)).†
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)).##
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)).
101
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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. (Incorporated by
reference to Great Lakes Dredge & Dock Corporation’s Annual Report on Form 10-K filed with
the Commission on February 28, 2018 (Commission file no. 001-33225)).##
102
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10.46
10.47
14.1
21.1
23.1
31.1
31.2
32.1
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)).
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. *
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. *
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *
103
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32.2
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *
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 previously granted confidential treatment by the Securities and Exchange
Commission.
104
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Donnelley Financial
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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 26, 2019
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 26, 2019
February 26, 2019
Lasse J. Petterson
/s/ Mark W. Marinko
Mark W. Marinko
/s/ Carl A. Albert
Carl A. Albert
Chief Executive Officer and Director
(Principal Executive Officer)
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
February 26, 2019
Director
/s/ Lawrence R. Dickerson
February 26, 2019
Director
Lawrence R. Dickerson
/s/ Ryan J. Levenson
February 26, 2019
Director
Ryan J. Levenson
/s/ Kathleen M. Shanahan
Kathleen M. Shanahan
/s/ Ronald R. Steger
Ronald R. Steger
/s/ D. Michael Steuert
D. Michael Steuert
/s/ Michael J. Walsh
Michael J. Walsh
February 26, 2019
Director
February 26, 2019
Director
February 26, 2019
Director
February 26, 2019
Director
105
CORPORATE INFORMATION
GREAT LAKES DREDGE & DOCK CORPORATION
CORPORATE & DREDGING
OPERATIONS OFFICE
GREAT LAKES DREDGE &
DOCK CORPORATION
2122 York Road
Oak Brook, IL 60523
630.574.3000 | info@gldd.com
REGIONAL DREDGING OFFICES
MIDDLE EAST
Impact House
Flat 22, 2nd Floor
Bldg. No. 662, Road 2811
Block 428, Al Seef District
P.O. Box 50628
Kingdom of Bahrain
+973 17471929 | MEinfo@gldd.com
INTERNATIONAL
2122 York Road
Oak Brook, IL 60523
630.574.3000 | info@gldd.com
TEXAS
2605 W. Lake Houston Parkway
Suite C
Kingwood, TX 77339
281.312.1066 | TXinfo@gldd.com
YARD LOCATIONS
Staten Island, NY
Norfolk, VA
Morgan City, LA
Chickasaw, AL
Cape Girardeau, MO
Little Rock, AR
GREAT LAKES ENVIRONMENTAL
& INFRASTRUCTURE
CORPORATE HEADQUARTERS
2122 York Road
Oak Brook, IL 60523
630.574.3000
info@glei.com
glei.com
REGIONAL OFFICES
Rocklin, CA
Denton, TX
Centennial, CO
Cumming, GA
Portage, MI
Brielle, NJ
BOARD OF DIRECTORS
Carl Albert Director
Larry Dickerson Chairman of the Board
Ryan Levenson Director
Lasse Petterson Director
Mike Steuert Director
Kathleen M. Shanahan Director
Mike Walsh Director
Ronald Steger Director
ANNUAL MEETING
THURSDAY, MAY 2, 2019, 8AM (CST)
Le Méridien Hotel, Chicago/Oakbrook
2100 Spring Road
Oak Brook, IL 60523
INVESTOR INQUIRIES
For additional financial documents and
information:
web
phone
email
glddcorp.com
630.574.3024
investorrelations@gldd.com
STOCK LISTING
Great Lakes Dredge & Dock Corporation
stock is listed on the NASDAQ under
the symbol GLDD.
TRANSFER AGENT
BROADRIDGE CORPORATE ISSUER
SOLUTIONS, INC.
1155 Long Island Avenue
Edgewood, NY 11717
GREAT LAKES DREDGE & DOCK
CORPORATION
Established 1890
Committed to creating an Incident and
Injury-Free™ (IIF™) working environment
Registered to do business worldwide
Certified ISO 9001:2000 for International
Operations
An equal-opportunity employer
NASDAQ: GLDD
3_GLDD_2018AR_34077_10-K_extras.indd 3
3/4/19 1:03 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 Backhoe Dredge New York, Delaware River Deepening Project
Dredge Liberty Island Creating Habitat from Deepening of Savannah Entrance Channel
2018 ANNUAL REPORT |
IT ALL
STARTS WITH
DREDGING
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2018 ANNUAL REPORT | GREAT LAKES DREDGE & DOCK CORPORATION | 2122 York Road, Oak Brook, IL 60523 | glddcorp.com
Charleston Deepening Project at Sunset