Great Lakes Dredge & Dock CORP - Quarter Report: 2012 March (Form 10-Q)

Great Lakes Dredge & Dock CORP - Quarter Report: 2012 March (Form 10-Q)

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2012

¨	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		20-5336063
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2122 York Road, Oak Brook, IL		60523
(Address of principal executive offices)		(Zip Code)

(630) 574-3000

(Registrant’s telephone number, including area code)

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of May 1, 2012, 59,110,847 shares of the Registrant’s Common Stock, par value $.0001 per share, were outstanding.

Great Lakes Dredge & Dock Corporation and Subsidiaries

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

Securities Exchange Act of 1934

For the Quarterly Period ended March 31, 2012

INDEX


			Page
Part I Financial Information (Unaudited)				3

	Item 1	Financial Statements		3

		Condensed Consolidated Balance Sheets at March 31, 2012 and December 31, 2011		3

		Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2012 and 2011		4

		Condensed Consolidated Statements of Comprehensive Income for the Three Months ended March 31, 2012 and 2011		5

		Condensed Consolidated Statements of Equity for the Three Months ended March 31, 2012 and 2011		6

		Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2012 and 2011		7

		Notes to Condensed Consolidated Financial Statements		8

	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22

	Item 3	Quantitative and Qualitative Disclosures About Market Risk		29

	Item 4	Controls and Procedures		30

Part II Other Information				31

	Item 1	Legal Proceedings		31

	Item 1A	Risk Factors		31

	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		31

	Item 3	Defaults Upon Senior Securities		31

	Item 4	Mine Safety Disclosures		31

	Item 5	Other Information		31

	Item 6	Exhibits		32

Signature				33

Exhibit Index				34

PART I — Financial Information

Item 1.

Financial Statements.

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)


	March 31, 2012		December 31, 2011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	85,618	$	113,288
Accounts receivable—net		119,860		120,268
Contract revenues in excess of billings		34,420		26,412
Inventories		33,595		33,426
Prepaid expenses and other current assets		41,553		32,384

Total current assets		315,046		325,778
PROPERTY AND EQUIPMENT—Net		310,810		310,520
GOODWILL AND OTHER INTANGIBLE ASSETS—Net		98,793		98,863
INVENTORIES—Noncurrent		31,803		30,103
INVESTMENTS IN JOINT VENTURES		6,908		6,923
OTHER		16,241		16,273

TOTAL	$	779,601	$	788,460

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	73,382	$	82,745
Accrued expenses		20,932		31,121
Billings in excess of contract revenues		23,753		13,627
Current portion of long term debt		2,813		3,033

Total current liabilities		120,880		130,526
LONG TERM NOTE PAYABLE		2,500		2,500
7³/8% SENIOR NOTES		250,000		250,000
DEFERRED INCOME TAXES		103,942		104,352
OTHER		8,483		8,545

Total liabilities		485,805		495,923

COMMITMENTS AND CONTINGENCIES (Note 7)
EQUITY:
Common stock—$.0001 par value; 90,000,000 authorized, 59,110,847 and 58,999,404 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively.		6		6
Additional paid-in capital		268,998		267,918
Retained earnings		23,858		24,042
Accumulated other comprehensive income		481		3

Total Great Lakes Dredge & Dock Corporation Equity		293,343		291,969
NONCONTROLLING INTERESTS		453		568

Total equity		293,796		292,537

TOTAL	$	779,601	$	788,460

See notes to unaudited condensed consolidated financial statements.

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share data)


	Three Months Ended
	March 31,
	2012			2011
Contract revenues	$	154,907		$	155,338
Costs of contract revenues		134,885			127,896

Gross profit		20,022			27,442
General and administrative expenses		13,267			12,089
Gain on sale of assets—net		(31	)		(258	)

Operating income		6,786			15,611
Interest expense—net		(5,259	)		(5,950	)
Equity in loss of joint ventures		(16	)		(591	)
Gain on foreign currency transactions—net		6			—
Loss on extinguishment of debt		—			(5,145	)

Income before income taxes		1,517			3,925
Income tax provision		(564	)		(1,527	)

Net income		953			2,398
Net (income) loss attributable to noncontrolling interests		115			(6	)

Net income attributable to Great Lakes Dredge & Dock Corporation	$	1,068		$	2,392

Basic earnings per share attributable to Great Lakes Dredge & Dock Corporation	$	0.02		$	0.04
Basic weighted average shares		59,038			58,785
Diluted earnings per share attributable to Great Lakes Dredge & Dock Corporation	$	0.02		$	0.04
Diluted weighted average shares		59,434			59,237
Dividends declared per share	$	0.02		$	0.02

See notes to unaudited condensed consolidated financial statements.

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(in thousands)


	Three Months Ended
	March 31,
	2012			2011
Net income	$	953		$	2,398
Currency translation adjustment—net of tax of $3, and $0, respectively		4			—
Reclassification of derivative gains to earnings—net of tax of ($269) and ($414), respectively		(406	)		(623	)
Change in fair value of derivatives—net of tax of $584 and $790, respectively		880			1,189

Other comprehensive income—net of tax		478			566

Comprehensive income		1,431			2,964
Comprehensive (income) loss attributable to noncontrolling interests		115			(6	)

Comprehensive income attributable to Great Lakes Dredge & Dock Corporation	$	1,546		$	2,958

See notes to unaudited condensed consolidated financial statements.

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

(Unaudited)

(in thousands, except share amounts)


	Great Lakes Dredge & Dock Corporation shareholders
	Shares of Common Stock		Common Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests			Total
BALANCE—January 1, 2012		58,999,404	$	6	$	267,918		$	24,042		$	3	$	568		$	292,537
Share-based compensation		93,876		—		1,015			—			—		—			1,015
Vesting of restricted stock units, including impact of shares withheld for taxes		9,449		—		(2	)		—			—		—			(2	)
Exercise of stock options		8,118		—		40			—			—		—			40
Excess income tax benefit from share based compensation		—		—		27			—			—		—			27
Dividends declared and paid		—		—		—			(1,240	)		—		—			(1,240	)
Dividend equivalents paid on restricted stock units		—		—		—			(12	)		—		—			(12	)
Net income		—		—		—			1,068			—		(115	)		953
Other comprehensive income—net of tax		—		—		—			—			478		—			478

BALANCE—March 31, 2012		59,110,847	$	6	$	268,998		$	23,858		$	481	$	453		$	293,796


	Great Lakes Dredge & Dock Corporation shareholders
	Shares of Common Stock		Common Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests			Total
BALANCE—January 1, 2011		58,770,369	$	6	$	266,329		$	12,261		$	357	$	(2,128	)	$	276,825
Share-based compensation		43,215		—		520			—			—		—			520
Acquisition of noncontrolling interest in NASDI, LLC		—		—		(40	)		—			—		1,973			1,933
Dividends declared and paid		—		—		—			(999	)		—		—			(999	)
Dividend equivalents paid on restricted stock units		—		—		—			(6	)		—		—			(6	)
Net income		—		—		—			2,392			—		6			2,398
Other comprehensive income—net of tax		—		—		—			—			566		—			566

BALANCE—March 31, 2011		58,813,584	$	6	$	266,809		$	13,648		$	923	$	(149	)	$	281,237

See notes to unaudited condensed consolidated financial statements.

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	Three Months Ended
	March 31,
	2012			2011
OPERATING ACTIVITIES:
Net income	$	953		$	2,398
Adjustments to reconcile net income to net cash flows used in operating activities:
Depreciation and amortization		7,764			9,566
Equity in loss of joint ventures		16			591
Loss on extinguishment of 7³/4% senior subordinated notes		—			5,145
Deferred income taxes		107			21
Gain on dispositions of property and equipment		(31	)		(267	)
Amortization of deferred financing fees		334			389
Unrealized foreign currency gain		(133	)		—
Share-based compensation expense		1,015			520
Excess income tax benefit from share based compensation		(27	)		—
Changes in assets and liabilities:
Accounts receivable		(1,842	)		(18,365	)
Contract revenues in excess of billings		(5,819	)		3,945
Inventories		(1,869	)		4
Prepaid expenses and other current assets		(7,399	)		(4,535	)
Accounts payable and accrued expenses		(21,263	)		(4,160	)
Billings in excess of contract revenues		10,126			1,587
Other noncurrent assets and liabilities		(176	)		(2,390	)

Net cash flows used in operating activities		(18,244	)		(5,551	)
INVESTING ACTIVITIES:
Purchases of property and equipment		(8,101	)		(4,420	)
Proceeds from dispositions of property and equipment		68			258

Net cash flows used in investing activities		(8,033	)		(4,162	)
FINANCING ACTIVITIES:
Proceeds from issuance of 7³/8% senior notes		—			250,000
Redemption of 7³/4% senior subordinated notes		—			(175,000	)
Senior subordinated notes redemption premium		—			(2,264	)
Deferred financing fees		—			(5,829	)
Dividends paid		(1,240	)		(999	)
Dividend equivalents paid on restricted stock units		(12	)		(6	)
Taxes paid on settlement of vested share awards		(2	)		—
Repayments of equipment debt		(238	)		(138	)
Exercise of stock options		40			—
Excess income tax benefit from share-based compensation		27			—

Net cash flows provided by (used in) financing activities		(1,425	)		65,764

Effect of foreign currency exchange rates on cash and cash equivalents		32			—

Net increase (decrease) in cash and cash equivalents		(27,670	)		56,051
Cash and cash equivalents at beginning of period		113,288			48,478

Cash and cash equivalents at end of period	$	85,618		$	104,529

Supplemental Cash Flow Information
Cash paid for interest	$	9,582		$	2,972

Cash paid (refunded) for income taxes	$	(2,926	)	$	1,084

Non-cash Investing and Financing Activities
Property and equipment purchased but not yet paid	$	4,957		$	6,766

Acquisition of noncontrolling interest in NASDI, LLC	$	—		$	40

See notes to unaudited condensed consolidated financial statements.

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(dollar amounts in thousands, except per share amounts or as otherwise noted)

Basis of presentation

The unaudited condensed consolidated financial statements and notes herein should be read in conjunction with the audited consolidated financial statements of Great Lakes Dredge & Dock Corporation and Subsidiaries (the “Company” or “Great Lakes”) and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The condensed consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the SEC’s rules and regulations, although management believes that the disclosures are adequate and make the information presented not misleading. In the opinion of management, all adjustments, which are of a normal and recurring nature (except as otherwise noted), that are necessary to present fairly the Company’s financial position as of March 31, 2012, and its results of operations and cash flows for the three months ended March 31, 2012 and 2011 have been included.

The components of costs of contract revenues include labor, equipment (including depreciation, maintenance, insurance and long-term rentals), subcontracts, fuel and project overhead. Hourly labor is generally hired on a project-by-project basis. Costs of contract revenues vary significantly depending on the type and location of work performed and assets utilized. Generally, capital projects have the highest margins due to the complexity of the projects, while beach nourishment projects have the most volatile margins because they are most often exposed to variability in weather conditions.

The Company’s cost structure includes significant annual equipment-related costs, including depreciation, maintenance, insurance and long-term rentals. These costs have averaged approximately 21% to 25% of total costs of contract revenues over the prior three years. During the year, both equipment utilization and the timing of fixed cost expenditures fluctuate significantly. Accordingly, the Company allocates these fixed equipment costs to interim periods in proportion to revenues recognized over the year, to better match revenues and expenses. Specifically, at each interim reporting date the Company compares actual revenues earned to date on its dredging contracts to expected annual revenues and recognizes equipment costs on the same proportionate basis. In the fourth quarter, any over or under allocated equipment costs are recognized such that the expense for the year equals actual equipment costs incurred during the year.

The Company operates in two reportable segments: dredging and demolition. These reportable segments are the Company’s operating segments and the reporting units at which the Company tests goodwill for impairment. The Company performed its most recent annual test of impairment as of July 1, 2011 for the goodwill in both the dredging and demolition segments with no indication of goodwill impairment as of the test date. As of the test date, the fair value of both the dredging segment and the demolition segment were in excess of their carrying values by approximately 35% and 8%, respectively. Given the small margin with which the demolition segment’s fair value is in excess of its carrying value, a more than insignificant decline in the demolition segment’s future operating results or cash flow forecasts versus the segment’s current forecasts could potentially cause a goodwill impairment charge to be recognized in a future period. The Company will perform its next scheduled annual test of goodwill in the third quarter of 2012 should no triggering events occur which would require a test prior to the next annual test.

The condensed consolidated results of operations and comprehensive income for the interim periods presented herein are not necessarily indicative of the results to be expected for the full year.

Earnings per share

Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similar to basic earnings per share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. For the three months ended March 31, 2012 and 2011, zero options to purchase shares of common stock, were excluded from the calculation of diluted earnings per share based on the application of the treasury stock method. The computations for basic and diluted earnings per share from continuing operations are as follows:


	Three Months Ended
	March 31,
	2012		2011
Net income attributable to common shareholders of Great Lakes Dredge & Dock Corporation	$	1,068	$	2,392
Weighted-average common shares outstanding — basic		59,038		58,785
Effect of stock options and restricted stock units		396		452

Weighted-average common shares outstanding — diluted		59,434		59,237

Earnings per share — basic	$	0.02	$	0.04
Earnings per share — diluted	$	0.02	$	0.04

Accounts receivable and contracts in progress

Accounts receivable at March 31, 2012 and December 31, 2011 are as follows:


	March 31,			December 31,
	2012			2011
Completed contracts	$	37,907		$	38,317
Contracts in progress		72,441			69,469
Retainage		20,078			20,692

		130,426			128,478
Allowance for doubtful accounts		(1,839	)		(1,839	)

Total accounts receivable	$	128,587		$	126,639

Current portion of accounts receivable—net	$	119,860		$	120,268
Long-term accounts receivable and retainage		8,727			6,371

Total accounts receivable	$	128,587		$	126,639

The components of contracts in progress at March 31, 2012 and December 31, 2011 are as follows:


	March 31,			December 31,
	2012			2011
Costs and earnings in excess of billings:
Costs and earnings for contracts in progress	$	223,829		$	173,187
Amounts billed		(191,222	)		(152,045	)

Costs and earnings in excess of billings for contracts in progress		32,607			21,142
Costs and earnings in excess of billings for completed contracts		1,813			7,459

Total contract revenues in excess of billings	$	34,420		$	28,601

Current portion of contract revenues in excess of billings	$	34,420		$	26,412
Portion included in other noncurrent assets		—			2,189

Total contract revenues in excess of billings	$	34,420		$	28,601

Billings in excess of costs and earnings:
Amounts billed	$	(449,287	)	$	(427,797	)
Costs and earnings for contracts in progress		425,534			414,170

Total billings in excess of contract revenues	$	(23,753	)	$	(13,627	)

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 March 31, 2012 and December 31, 2011, the Company held certain derivative contracts that it uses to manage foreign currency risk, commodity price risk and interest rate 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:


			Fair Value Measurements at Reporting Date Using
Description	At March 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Fuel hedge contracts	$	1,237	$	—	$	1,237	$	—
Interest rate swap contracts		838		—		838		—
Foreign exchange contracts		159		—		159		—

Total assets measured at fair value	$	2,234	$	—	$	2,234	$	—


			Fair Value Measurements at Reporting Date Using
Description	At December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Fuel hedge contracts	$	449	$	—	$	449	$	—
Interest rate swap contracts		755		—		755		—
Foreign exchange contracts		155		—		155		—

Total assets measured at fair value	$	1,359	$	—	$	1,359	$	—

Interest rate swap contracts

In May 2009, the Company entered into two interest rate swap arrangements, which are effective through December 15, 2012, to swap a notional amount of $50 million from a fixed rate of 7.75% to a floating LIBOR-based rate in order to manage the interest rate paid with respect to the Company’s 7.75% senior subordinated notes. Although the senior subordinated notes were redeemed in January 2011, the swaps remain in place. The swaps are not accounted for as a hedge; therefore, the changes in fair value are recorded as adjustments to interest expense in each reporting period.

The Company previously verified the fair value of the interest rate swap contracts using a quantitative model that contained both observable and unobservable inputs. The unobservable inputs related primarily to the implied LIBOR forward rate and the long-term nature of the contracts. As of December 31, 2011, the unobservable inputs began to be corroborated by observable market data and accordingly the Company transferred the swaps into Level 2 of the fair value hierarchy. The change in Level 3 interest rate swap contracts during the comparable quarter of the prior year was as follows:


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	2011
Interest rate swap contracts
Balance at January 1,	$	1,264
Total unrealized gains (losses) included in earnings		35

Balance at March 31,	$	1,299

Foreign exchange contracts

The Company has exposure 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 March 31, 2012 and December 31, 2011, the Company had one outstanding contract related to the Brazilian Real. This foreign exchange contract is not accounted for as a hedge.

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 fuel requirements for work in backlog.

As of March 31, 2012, 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 February 2013. As of March 31, 2012, there were 7.2 million gallons remaining on these contracts which represent approximately 68% of the Company’s forecasted fuel purchases through February 2013. Under these swap agreements, the Company will pay fixed prices ranging from $2.65 to $3.29 per gallon.

At each balance sheet date, unrealized gains and losses on fuel hedge contracts are recorded as a component of accumulated other comprehensive income (loss) in the condensed consolidated balance sheets. Gains and losses realized upon settlement of fuel hedge contracts are reclassified from accumulated other comprehensive income (loss) as the fuel is utilized, as a reduction of fuel expense, which is a component of costs of contract revenues in the condensed consolidated statements of operations.

At March 31, 2012 and December 31, 2011, the fair value asset of the fuel hedge contracts was estimated to be $1,237 and $449, respectively, and is recorded in other current assets. The gain reclassified to earnings from changes in fair value of derivatives, net of cash settlements and taxes, for the period ended March 31, 2012 was $406. The remaining gains included in accumulated other

comprehensive income at March 31, 2012 will be reclassified into earnings over the next eleven months, corresponding to the period during which the hedged fuel is expected to be utilized. The fair values of fuel hedges are corroborated using inputs that are readily observable in public markets; therefore, the Company determines fair value of these fuel hedges using Level 2 inputs.

The fair value of the foreign exchange contracts, interest rate and fuel hedge contracts outstanding as of March 31, 2012 and December 31, 2011 is as follows:


		Fair Value at
		March 31,		December 31,
	Balance Sheet Location	2012		2011
Asset derivatives:
Derivatives designated as hedges
Fuel hedge contracts	Other current assets	$	1,237	$	449
Derivatives not designated as hedges
Interest rate swaps	Other current assets		838		755
Foreign exchange contracts	Other current assets		159		155

Total asset derivatives		$	2,234	$	1,359

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. In January 2011, the Company issued $250,000 of 7.375% senior notes due February 1, 2019, which were outstanding at March 31, 2012. The senior notes are senior unsecured obligations of the Company and its subsidiaries that guarantee the senior notes. The fair value of the senior notes was $255,625 at March 31, 2012, which is a Level 1 fair value measurement as the senior notes value was obtained using quoted prices in active markets.

Accrued expenses

Accrued expenses at March 31, 2012 and December 31, 2011 are as follows:


	2012		2011
Insurance	$	6,571	$	8,285
Payroll and employee benefits		6,534		10,763
Interest		3,186		7,759
Income and other taxes		2,109		1,261
Percentage of completion adjustment		1,294		1,855
Other		1,238		1,198

Total accrued expenses	$	20,932	$	31,121

Segment information

The Company and its subsidiaries currently operate in two reportable segments: dredging and demolition. The Company’s financial reporting systems present various data for management to run the business, including profit and loss statements prepared according to the segments presented. Management uses operating income to evaluate performance between the two segments. Segment information for the periods presented is provided as follows:


	Three Months Ended
	March 31,
	2012		2011
Dredging
Contract revenues	$	122,361	$	136,597
Operating income		4,899		17,821
Demolition
Contract revenues	$	32,546	$	18,741
Operating income		1,887		(2,210	)
Total
Contract revenues	$	154,907	$	155,338
Operating income		6,786		15,611

Dredging contract revenues for the three months ended March 31, 2012 are net of $1,312 in intersegment revenues. In addition, foreign dredging revenue of $18,909 and $21,871 for the three months ended March 31, 2012 and 2011, respectively, was primarily attributable to 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.

Commitments and contingencies

Commercial commitments

In June 2007, the Company entered into a credit agreement (as amended, the “Credit Agreement”) with Bank of America N.A. (successor by merger to LaSalle Bank National Association) as administrative agent and issuing lender, various other financial institutions as lenders and certain subsidiaries of the Company as loan parties. The Credit Agreement provides for a revolving credit facility of up to $145,000 in borrowings and includes sublimits for the issuance of letters of credit and swingline loans. The revolving credit facility matures on June 12, 2012. The revolving credit facility bears interest at rates selected at the option of Great Lakes, currently equal to either LIBOR plus an applicable margin or the Base Rate (as defined in the Credit Agreement), plus an applicable margin. The applicable margins for LIBOR loans and Base Rate loans, as well as any non-use fee, are subject to adjustment based upon the Company’s ratio of Total Funded Debt to Adjusted Consolidated EBITDA (each as defined in the Credit Agreement). The obligations of Great Lakes under the Credit Agreement are unconditionally guaranteed by its direct and indirect domestic subsidiaries as well as various liens on certain operating equipment, intercompany receivables and trade receivables. As of March 31, 2012, the Company had no borrowings and $23,600 of letters of credit outstanding, resulting in $121,400 of availability under the Credit Agreement. At March 31, 2012, the Company was in compliance with its various covenants under its Credit Agreement.

Performance and bid bonds are customarily required for dredging and marine construction projects, as well as some demolition projects. In September 2011, the Company entered into a new bonding agreement with Zurich American Insurance Company (“Zurich”) under which the Company can obtain performance, bid and payment bonds. The new bonding agreement contains no restrictive covenants and lesser collateral requirements than the previous bonding agreement. The Company has used Zurich for all bonding requirements beginning in September 2011. The existing bonding agreement with Travelers Casualty and Surety Company of America (“Travelers”) will remain in place until outstanding bonds expire as the projects underlying the bonds issued thereunder are completed. Pursuant to the existing bonding agreement, Travelers has been granted a security interest in a substantial portion of the Company’s operating equipment with a net book value of $62,682 at December 31, 2011.

The Travelers bonding agreement contains provisions requiring the Company to maintain certain financial ratios and restricting the Company’s ability to pay dividends, incur indebtedness, create liens and take certain other actions. At March 31, 2012, the Company was in compliance with its various covenants under the bonding agreement with Travelers. Bid bonds are generally obtained for a percentage of bid value and amounts outstanding typically range from $1,000 to $10,000. At March 31, 2012, the Company had outstanding performance bonds valued at approximately $372,343; however, the revenue value remaining in backlog related to these projects totaled approximately $247,689.

The Company has a $24,000 international letter of credit facility that it uses for the performance and advance payment guarantees on the Company’s foreign contracts. As of March 31, 2012, Great Lakes had $11,725 of letters of credit outstanding under this facility.

At March 31, 2012, the Company also had $250,000 of 7.375% senior notes outstanding, which mature in February 2019. 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 accrues reserves 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.

The Company or its former subsidiary, NATCO Limited Partnership, was named as a defendant in approximately 251 asbestos-related personal injury lawsuits, the majority of which were filed between 1989 and 2000. The claims were filed on behalf of seamen or their personal representatives alleging injury or illness from exposure to asbestos while employed as seamen on Company-owned vessels. In these cases, the Company is typically one of many defendants, including manufacturers and suppliers of products containing asbestos, as well as other vessel owners. Following certain administrative proceedings, counsel for plaintiffs agreed to name a group of cases that they intended to pursue and to dismiss the remaining cases without prejudice. Plaintiffs previously named 40 cases against the Company that they intended to pursue, each of which involves one plaintiff. The remaining cases against the Company were dismissed without prejudice. Plaintiffs in the dismissed cases could file a new lawsuit if they develop a new disease allegedly caused by exposure to asbestos on board our vessels. Of the 40 named cases, three were subsequently dismissed, leaving 37 cases remaining. The Company is presently unable to quantify the amounts of damages being sought in the remaining lawsuits because none of the complaints specify a damage amount. Based on preliminary discovery and settlement demands received to date, the Company does not believe that it is probable that losses from these claims could be material, and an estimate of a range of losses relating to these claims cannot reasonably be made. Based on the foregoing, management does not believe that any of the remaining 37 lawsuits, individually or in the aggregate, will have a material impact on our business, financial position, results of operations or cash flows.

On August 26, 2009, the Company’s subsidiary, NASDI, LLC (“NASDI”), received a letter stating that the Attorney General for the Commonwealth of Massachusetts is investigating alleged violations of the Massachusetts Solid Waste Act. The Company believes that the Massachusetts Attorney General is investigating illegal dumping activities at a dump site NASDI contracted with to have waste materials disposed of between September 2007 and July 2008. Per the Massachusetts Attorney General’s request, NASDI executed a tolling agreement regarding the matter in 2009 and engaged in further discussions with the Massachusetts Attorney General’s office in the second quarter of 2011 but has had no further contact with the Massachusetts Attorney General’s office since then. The matter remains open, and, to the Company’s knowledge, no proceedings have currently been initiated against NASDI. Should a claim be brought, NASDI intends to defend itself vigorously. Based on consideration of all of the facts and circumstances now known, the Company does not believe this claim will have a material impact on its business, financial position, results of operations or cash flows.

On March 27, 2011, NASDI received a subpoena from a federal grand jury in the District of Massachusetts directing NASDI to furnish certain documents relating to certain projects performed by NASDI since January 2005. The Company conducted an internal investigation into this matter and continues to fully cooperate with the federal grand jury subpoena. Based on the early stage of the U.S. Department of Justice’s investigation and the limited information known to the Company, the Company cannot predict the outcome of the investigation, the U.S. Attorney’s views of the issues being investigated, any action the U.S. Attorney may take, or the impact, if any, that this matter may have on the Company’s business, financial position, results of operations or cash flows.

The Company has not accrued any amounts with respect to these two NASDI 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.

During the quarter ended March 31, 2012, a favorable judgment was rendered in the Company’s loss of use claim related to the dredge New York allision in the approach channel to Port Newark, New Jersey. In January 2008, the Company filed suit against the M/V Orange Sun and her owners for damages incurred by the Company in connection with the allision. Following a bench trial in the

United States District Court in the Southern District of New York, the Court issued an opinion and order in the Company’s favor, entitling Great Lakes to $11,736 in damages plus pre-judgment interest. Judgment was rendered in the aggregate amount of $13,272. Defendants timely appealed the judgment to the United States Court of Appeals for the Second Circuit, and briefing on the appeal will commence this summer. The Company cannot be assured when the appeal will be heard or predict the outcome of the appellate process.

Acquisition of noncontrolling interest

The Company previously owned 65% of the profits interests of NASDI. Effective January 1, 2011 the Company reacquired Mr. Christopher Berardi’s 35% membership interest in NASDI for no cost per the terms of NASDI’s limited liability company agreement. This resulted in the elimination of noncontrolling interest of $1,973 during the first quarter ended March 31, 2011. The Company now owns 100% of NASDI.

In March 2011, Mr. Berardi resigned his employment with the Company’s demolition segment effective April 29, 2011. Mr. Berardi’s resignation and the repurchase of his NASDI membership interest also resulted in the reversal of a $1,933 accrual established in conjunction with a prior restructuring of ownership interest in NASDI. This reversal was recorded directly to equity as part of the reacquisition of the noncontrolling interest.

Subsequent events

On April 3, 2012, the Company purchased a parcel of real estate in Norfolk, Virginia. The proceeds held in escrow from the sale of real estate in Texas during 2011 were used to fund the purchase of the acquired real estate.

10.

Subsidiary guarantors

The Company’s long-term debt at March 31, 2012 includes $250,000 of 7.375% senior notes due February 1, 2019. The Company’s obligations under these senior unsecured notes are guaranteed by the Company’s wholly-owned domestic subsidiaries. Such guarantees are full, unconditional and joint and several.

The following supplemental financial information sets forth for the Company’s subsidiary guarantors (on a combined basis), the Company’s non-guarantor subsidiaries (on a combined basis) and Great Lakes Dredge & Dock Corporation, exclusive of its subsidiaries (“GLDD Corporation”):

(i)

balance sheets as of March 31, 2012 and December 31, 2011;

(ii)

statements of operations and comprehensive income for the three months ended March 31, 2012 and 2011; and

(iii)

statements of cash flows for the three months ended March 31, 2012 and 2011.

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MARCH 31, 2012

(In thousands)


	Subsidiary Guarantors		Non- Guarantor Subsidiaries		GLDD Corporation		Eliminations			Consolidated Totals
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	85,425	$	193	$	—	$	—		$	85,618
Accounts receivable — net		119,573		287		—		—			119,860
Receivables from affiliates		48,632		7,411		6,619		(62,662	)		—
Contract revenues in excess of billings		34,324		144		—		(48	)		34,420
Inventories		33,595		—		—		—			33,595
Prepaid expenses and other current assets		29,227		134		12,192		—			41,553

Total current assets		350,776		8,169		18,811		(62,710	)		315,046
PROPERTY AND EQUIPMENT—Net		310,755		55		—		—			310,810
GOODWILL AND OTHER INTANGIBLE ASSETS—Net		98,422		371		—		—			98,793
INVENTORIES — Noncurrent		31,803		—		—		—			31,803
INVESTMENTS IN JOINT VENTURES		6,908		—		—		—			6,908
INVESTMENTS IN SUBSIDIARIES		2,623		—		634,420		(637,043	)		—
OTHER		11,019		3		5,214		5			16,241

TOTAL	$	812,306	$	8,598	$	658,445	$	(699,748	)	$	779,601

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	72,887	$	495	$	—	$	—			73,382
Payables to affiliates		52,271		3,333		8,368		(63,972	)		—
Accrued expenses		16,789		691		3,452		—			20,932
Billings in excess of contract revenues		23,783		83		—		(113	)		23,753
Current portion of long term debt		2,813		—		—		—			2,813

Total current liabilities		168,543		4,602		11,820		(64,085	)		120,880
LONG TERM NOTE PAYABLE		2,500		—		—		—			2,500
7³/8% SENIOR NOTES		—		—		250,000		—			250,000
DEFERRED INCOME TAXES		497		—		103,440		5			103,942
OTHER		7,719		—		764		—			8,483

Total liabilities		179,259		4,602		366,024		(64,080	)		485,805
Total Great Lakes Dredge & Dock Corporation Equity		633,047		3,996		293,343		(637,043	)		293,343
NONCONTROLLING INTERESTS		—		—		453		—			453

TOTAL EQUITY		633,047		3,996		293,796		(637,043	)		293,796

TOTAL	$	812,306	$	8,598	$	659,820	$	(701,123	)	$	779,601

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2011

(In thousands)


	Subsidiary Guarantors		Non-Guarantor Subsidiaries		GLDD Corporation		Eliminations			Consolidated Totals
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	108,985	$	4,303	$	—	$	—		$	113,288
Accounts receivable — net		118,530		1,738		—		—			120,268
Receivables from affiliates		79,683		7,729		49,724		(137,136	)		—
Contract revenues in excess of billings		26,323		153		—		(64	)		26,412
Inventories		33,426		—		—		—			33,426
Prepaid expenses and other current assets		15,929		125		16,330		—			32,384

Total current assets		382,876		14,048		66,054		(137,200	)		325,778
PROPERTY AND EQUIPMENT—Net		310,459		61		—		—			310,520
GOODWILL AND OTHER INTANGIBLE ASSETS—Net		98,474		389		—		—			98,863
INVENTORIES — Noncurrent		30,103		—		—		—			30,103
INVESTMENTS IN JOINT VENTURES		6,923		—		—		—			6,923
INVESTMENTS IN SUBSIDIARIES		4,385		—		627,754		(632,139	)		—
OTHER		10,729		3		5,547		(6	)		16,273

TOTAL	$	843,949	$	14,501	$	699,355	$	(769,345	)	$	788,460

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	81,971	$	774	$	—	$	—		$	82,745
Payables to affiliates		85,865		7,234		44,053		(137,152	)		—
Accrued expenses		22,445		629		8,047		—			31,121
Billings in excess of contract revenues		13,607		68		—		(48	)		13,627
Current portion of long term debt		3,033		—		—		—			3,033

Total current liabilities		206,921		8,705		52,100		(137,200	)		130,526
LONG TERM NOTE PAYABLE		2,500		—		—		—			2,500
7³/4% SENIOR SUBORDINATED NOTES		—		—		250,000		—			250,000
DEFERRED INCOME TAXES		399		—		103,959		(6	)		104,352
OTHER		7,786		—		759		—			8,545

Total liabilities		217,606		8,705		406,818		(137,206	)		495,923
Total Great Lakes Dredge & Dock Corporation Equity		626,343		5,796		291,969		(632,139	)		291,969
NONCONTROLLING INTERESTS		—		—		568		—			568

TOTAL EQUITY		626,343		5,796		292,537		(632,139	)		292,537

TOTAL	$	843,949	$	14,501	$	699,355	$	(769,345	)	$	788,460

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(In thousands)


	Subsidiary Guarantors			Non-Guarantor Subsidiaries			GLDD Corporation			Eliminations			Consolidated Totals
Contract revenues	$	155,444		$	1,799		$	—		$	(2,336	)	$	154,907
Costs of contract revenues		(135,167	)		(2,054	)		—			2,336			(134,885	)

Gross profit		20,277			(255	)		—			—			20,022
OPERATING EXPENSES:
General and administrative expenses		12,569			186			512			—			13,267
Gain on sale of assets—net		(42	)		—			11			—			(31	)

Operating income (loss)		7,750			(441	)		(523	)		—			6,786
Interest expense—net		(281	)		(28	)		(4,950	)		—			(5,259	)
Equity in earnings of subsidiaries		(379	)		—			6,347			(5,968	)		—
Equity in loss of joint ventures		(16	)		—			—			—			(16	)
Gain on foreign currency transactions—net		6			—			—			—			6

Income (loss) before income taxes		7,080			(469	)		874			(5,968	)		1,517
Income tax (provision) benefit		(643	)		—			79			—			(564	)

Net income (loss)		6,437			(469	)		953			(5,968	)		953
Net loss attributable to noncontrolling interests		—			—			115			—			115

Net income (loss) attributable to Great Lakes Dredge & Dock Corporation	$	6,437		$	(469	)	$	1,068		$	(5,968	)	$	1,068

Comprehensive income (loss) attributable to Great Lakes Dredge & Dock Corporation	$	6,911		$	(465	)	$	1,546		$	(6,446	)	$	1,546

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2011

(In thousands)


	Subsidiary Guarantors			Non-Guarantor Subsidiaries			GLDD Corporation			Eliminations			Consolidated Totals
Contract revenues	$	154,039		$	3,317		$	—		$	(2,018	)	$	155,338
Costs of contract revenues		(126,909	)		(3,005	)		—			2,018			(127,896	)

Gross profit		27,130			312			—			—			27,442
OPERATING EXPENSES:
General and administrative expenses		11,204			213			672			—			12,089
Gain on sale of assets—net		(258	)		—			—			—			(258	)

Operating income (loss)		16,184			99			(672	)		—			15,611
Interest expense—net		(80	)		(45	)		(5,825	)		—			(5,950	)
Equity in earnings (loss) of subsidiaries		54			—			16,551			(16,605	)		—
Equity in loss of joint ventures		(591	)		—			—			—			(591	)
Loss on extinguishment of debt		—			—			(5,145	)		—			(5,145	)

Income (loss) before income taxes		15,567			54			4,909			(16,605	)		3,925
Income tax benefit (provision)		984			—			(2,511	)		—			(1,527	)

Net income (loss)		16,551			54			2,398			(16,605	)		2,398
Net income attributable to noncontrolling interests		—			—			(6	)		—			(6	)

Net income (loss) attributable to Great Lakes Dredge & Dock Corporation	$	16,551		$	54		$	2,392		$	(16,605	)	$	2,392

Comprehensive income (loss) attributable to Great Lakes Dredge & Dock Corporation	$	17,117		$	54		$	2,958		$	(17,171	)	$	2,958

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(In thousands)


	Subsidiary Guarantors			Non-Guarantor Subsidiaries			GLDD Corporation			Eliminations		Consolidated Totals
OPERATING ACTIVITIES:
Net cash flows provided by (used in) operating activities	$	(5,200	)	$	801		$	(13,845	)	$	—	$	(18,244	)
INVESTING ACTIVITIES:
Purchases of property and equipment		(8,101	)		—			—			—		(8,101	)
Proceeds from dispositions of property and equipment		68			—			—			—		68

Net cash flows used in investing activities		(8,033	)		—			—			—		(8,033	)
FINANCING ACTIVITIES:
Dividends paid		—			—			(1,240	)		—		(1,240	)
Dividend equivalents paid on restricted stock units		—			—			(12	)		—		(12	)
Taxes paid on settlement of vested share awards		—			—			(2	)		—		(2	)
Net change in accounts with affiliates		(10,089	)		(4,978	)		15,067			—		—
Capital contributions		—			35			(35	)		—		—
Repayments of equipment debt		(238	)		—			—			—		(238	)
Exercise of stock options		—			—			40			—		40
Excess income tax benefit from share-based compensation		—			—			27			—		27

Net cash flows provided by (used in) financing activities		(10,327	)		(4,943	)		13,845			—		(1,425	)

Effect of foreign currency exchange rates on cash and cash equivalents		—			32			—			—		32

Net decrease in cash and cash equivalents		(23,560	)		(4,110	)		—			—		(27,670	)
Cash and cash equivalents at beginning of period		108,985			4,303			—			—		113,288

Cash and cash equivalents at end of period	$	85,425		$	193		$	—		$	—	$	85,618

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2011

(In thousands)


	Subsidiary Guarantors			Non-Guarantor Subsidiaries			GLDD Corporation			Eliminations		Consolidated Totals
OPERATING ACTIVITIES:
Net cash flows provided by (used in) operating activities	$	942		$	(992	)	$	(5,501	)	$	—	$	(5,551	)
INVESTING ACTIVITIES:
Purchases of property and equipment		(4,420	)		—			—			—		(4,420	)
Proceeds from dispositions of property and equipment		258			—			—			—		258

Net cash flows used in investing activities		(4,162	)		—			—			—		(4,162	)
FINANCING ACTIVITIES:
Proceeds from issuance of 7³/8% senior notes		—			—			250,000			—		250,000
Redemption of 7³/4% senior subordinated notes		—			—			(175,000	)		—		(175,000	)
Senior subordinated notes redemption premium		—			—			(2,264	)		—		(2,264	)
Deferred financing fees		—			—			(5,829	)		—		(5,829	)
Dividends paid		—			—			(999	)		—		(999	)
Dividend equivalents paid on restricted stock units		—			—			(6	)		—		(6	)
Net change in accounts with affiliates		59,097			1,304			(60,401	)		—		—
Repayments of equipment debt		(138	)		—			—			—		(138	)

Net cash flows provided by financing activities		58,959			1,304			5,501			—		65,764

Net increase in cash and cash equivalents		55,739			312			—			—		56,051

Cash and cash equivalents at beginning of period		48,416			62			—			—		48,478

Cash and cash equivalents at end of period	$	104,155		$	374		$	—		$	—	$	104,529

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q 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 (the “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 the “Company”), 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 associated with Great Lakes’ leverage, fixed price contracts, dependence on government contracts and funding, bonding requirement and obligations, international operations, backlog, uncertainty related to pending litigation, government regulation, restrictive debt covenants and fluctuations in quarterly operations, and those factors, risks and uncertainties that are described in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 and in other securities filings by Great Lakes with the SEC.

Although the Company believes that its 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, results of operations and cash flows, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made only as of the date hereof and Great Lakes does 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.

General

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, which represented 16% of its dredging revenues for the first three months of 2012, compared with the Company’s prior three year average of 17%. The mobility of the Company’s fleet enables the Company to move equipment in response to changes in demand for dredging services.

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. The U.S. dredging market consists of three primary types of work: capital, beach nourishment and maintenance. The Company’s “bid market” is defined as the aggregate dollar value of domestic projects on which the Company bid or could have bid if not for capacity constraints. The Company experienced an average combined bid market share in the U.S. of 39% over the prior three years, including 41%, 60% and 32% of the domestic capital, beach nourishment and maintenance sectors, respectively. The foregoing bid market data does not reflect rivers & lakes activities which are separately categorized. The Company’s bid market share of rivers & lakes in the prior year of activity is 39%.

The Company’s largest domestic dredging customer is the U.S. Army Corps of Engineers (the “Corps”), which is responsible for federally funded projects related to navigation and flood control of U.S. waterways. In the first three months of 2012, the Company’s dredging revenues earned from contracts with federal government agencies, including the Corps as well as other federal entities such as the U.S. Coast Guard and the U.S. Navy, and third parties operating under contracts with federal agencies were approximately 75% of dredging revenues, above the Company’s prior three year average of 59%.

The Company’s demolition subsidiaries are a major U.S. provider of commercial and industrial demolition services. Historically, the majority of the work was performed in the New England area. Through increased collaboration with Great Lakes’ other lines of business, the demolition operations continue to expand into the New York area and marine demolition markets, specifically bridge demolition. In the first three months of 2012, demolition revenues accounted for 21% of total revenues, above the prior three year average of 12%. The demolition segment’s principal services consist of exterior and interior demolition of commercial and industrial buildings, dismantling and disposal of aged or failing bridges, site development, salvage and recycling of related materials and removal of hazardous substances and materials. The Company’s demolition operations are one of a few providers in New England with the required licenses, operating expertise, equipment fleet and access to bonding to execute larger, complex industrial demolition projects.

The Company also owns 50% of Amboy Aggregates (“Amboy”) and 50% of TerraSea Environmental Solutions (“TerraSea”) as joint ventures. Amboy’s primary business is dredging sand from the entrance channel to the New York harbor in order to provide sand and aggregate for use in road and building construction and for clean land fill. Amboy also imports stone from upstate New York and Nova Scotia and distributes it throughout the New York area. TerraSea is engaged in the environmental services business through its ability to remediate contaminated soil and dredged sediment treatment. The Company operates in two reportable segments: dredging and demolition. These reportable segments are the Company’s operating segments and the reporting units at which the Company tests goodwill for impairment.

Results of Operations

The following tables set forth the components of net income (loss) attributable to Great Lakes Dredge & Dock Corporation and Adjusted EBITDA, as defined below, as a percentage of contract revenues for the three months ended March 31, 2012 and 2011:


	Three Months Ended March 31,
	2012			2011
Contract revenues		100.0	%		100.0	%
Costs of contract revenues		(87.1	)		(82.3	)

Gross profit		12.9			17.7
General and administrative expenses		8.5			7.8
Gain on sale of assets—net		0.0			(0.1	)

Operating income		4.4			10.0
Interest expense—net		(3.4	)		(3.8	)
Equity in loss of joint ventures		0.0			(0.4	)
Gain on foreign currency transactions—net		0.0			0.0
Loss on extinguishment of debt		0.0			(3.3	)

Income before income taxes		1.0			2.5
Income tax provision		(0.4	)		(1.0	)

Net income		0.6			1.5
Net (income) loss attributable to noncontrolling interests		0.1			0.0

Net income attributable to Great Lakes Dredge & Dock Corporation		0.7	%		1.5	%

Adjusted EBITDA		9.5	%		15.8	%

Adjusted EBITDA, as provided herein, represents net income (loss) attributable to Great Lakes Dredge & Dock Corporation, adjusted for net interest expense, income taxes, depreciation and amortization expense and debt extinguishment. Adjusted EBITDA is not a measure derived in accordance with accounting principles generally accepted in the United States of America (“GAAP”) The Company presents Adjusted EBITDA as an additional measure by which to evaluate the Company’s operating trends. The Company believes that Adjusted EBITDA 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 to evaluate the Company’s period to period performance. Additionally, management believes that Adjusted EBITDA 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 should not be considered an alternative to, or more meaningful than, amounts determined in accordance with GAAP including: (a) operating income as an indicator of operating performance; or (b) cash flows from operations as a measure of liquidity. As such, the Company’s use of Adjusted EBITDA, instead of a GAAP measure, has limitations as an analytical tool, including the inability to determine profitability or liquidity due to the exclusion of 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 only as a supplement. The following is a reconciliation of Adjusted EBITDA to net income attributable to Great Lakes Dredge & Dock Corporation:


	Three Months Ended March 31,
	2012		2011
(in thousands)
Net income attributable to Great Lakes Dredge & Dock Corporation	$	1,068	$	2,392
Adjusted for:
Loss on extinguishment of debt		—		5,145
Interest expense—net		5,259		5,950
Income tax expense		564		1,527
Depreciation and amortization		7,764		9,566

Adjusted EBITDA	$	14,655	$	24,580

The following table sets forth, by segment and type of work, the Company’s contract revenues for each of the periods indicated:


	Three Months Ended March 31,
Revenues (in thousands)	2012		2011		Change
Dredging:
Capital—U.S.	$	26,907	$	46,029		(41.5	)%
Capital—foreign		18,025		21,871		(17.6	)%
Beach nourishment		31,183		17,857		74.6	%
Maintenance		39,233		47,239		(16.9	)%
Rivers & lakes		7,013		3,601		94.8	%

Total dredging revenues		122,361		136,597		(10.4	)%
Demolition		32,546		18,741		73.7	%

Total revenue	$	154,907	$	155,338		(0.3	)%

Total revenue for the 2012 first quarter was $154.9 million, down $0.4 million or less than 1% from $155.3 million during the 2011 first quarter. Total dredging revenues for the three months ended March 31, 2012 are net of $1,312 in intersegment revenues. The increases in beach nourishment and rivers & lakes revenue were offset by a decline in domestic capital and maintenance revenue. Demolition revenue for the quarter was $32.5 million, a 74% increase from $18.7 million a year ago.

Capital dredging consists primarily of port expansion projects, which involve the deepening of channels 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 land reclamations, trench digging for pipelines, tunnels and cables, and other dredging related to the construction of breakwaters, jetties, canals and other marine structures. Domestic capital dredging revenues in the first quarter ended March 31, 2012 were primarily generated by work in the Ports of New York, as well as projects in Florida and Louisiana. Domestic capital dredging revenue decreased $19.1 million, or 42%, in the 2012 first quarter compared to the 2011 first quarter. Capital dredging for the 2011 first quarter included remaining work on the construction of sand berms off the coast of Louisiana, which accounted for approximately $15.7 million of the quarter’s revenue, that did not reoccur in 2012.

Foreign dredging revenue decreased $3.9 million, or 18%, for the first quarter of 2012 to $18.0 million. Nearly 70% of first quarter 2012 foreign revenue was driven by two projects in Bahrain. Foreign revenues in the 2011 first quarter benefited from the resolution of outstanding project claims of approximately $3.8 million.

Beach nourishment projects involve moving sand from the ocean floor to shoreline locations where erosion threatens shoreline assets. Beach nourishment revenue in the 2012 first quarter increased $13.3 million, or 75%, from the 2011 first quarter. The significant increase in beach nourishment awards in the prior year created a larger supply of projects in backlog, of which the Company continued to convert into revenue. In the comparable quarter of 2011, several vessels that would typically be allocated to beach nourishment projects were utilized on the construction of sand berms off the coast of Louisiana. In the 2012 first quarter, the Company worked on several beach projects, including projects in Delaware, Florida, New Jersey and South Carolina and Virginia.

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. Maintenance revenue in the 2012 first quarter decreased by $8.0 million, or 17%, compared to the 2011

first quarter. Maintenance revenue in the first quarter of 2011 was atypically high as the Company was able to work on maintenance projects that had been delayed from 2010 in order to work on construction of sand berms off the coast of Louisiana. During the first quarter of 2012, the Company performed maintenance dredging in Baltimore Harbor as well as important shipping channels in Georgia, North Carolina and Texas.

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. Rivers & lakes revenue in the first quarter of 2012 was $7.0 million, an increase of $3.4 million or 95% compared to the first quarter of 2011. In the first quarter of 2011, rivers and lakes revenues were minimal, due to freezing conditions in the northern United States. The first quarter of 2012 was uncharacteristically warm allowing work to progress in the northern U.S. In addition, the Company performed work on a significant project in Texas which was not hindered by adverse weather conditions.

Consolidated gross profit for the 2012 first quarter decreased by 27% to $20.0 million, from $27.4 million in the first quarter of 2011. Gross profit margin (gross profit divided by revenue) for the 2012 first quarter decreased to 12.9% from 17.7% in the 2011 first quarter. The mix of project types in the first quarter of 2012 impacted gross profit margin as well as offshore weather conditions, primarily wind that produced rough seas, and subsequent lower dredge utilization that resulted in lower fixed cost coverage. The demolition segment continued to work on projects with increased profit margins, led by bridge demolition projects as well as improved market conditions from the economic recovery in the segment’s primary market.

The Company’s general and administrative expenses totaled $13.3 million for the three months ended March 31, 2012. General and administrative expenses totaled $12.1 million for the three months ended March 31, 2011. The increase in 2012 is due largely to additional legal costs of $0.7 million relating to the trial on the dredge New York allision loss of use claim and additional payroll and benefit expenses of $1.3 million for the three months ended March 31, 2012. This was partially offset by a decrease in amortization costs of $0.6 million as certain intangible assets acquired in the Matteson acquisition have become fully amortized.

Operating income for the three months ended March 31, 2012 decreased 56.5% to $6.8 million, respectively, compared to the same periods of 2011 as a result of the decline in gross profit.

Interest expense totaled $5.3 million for the three months ended March 31, 2012, a decrease from $6.0 million from the first quarter of 2011, primarily due to the Company’s issuance of $250 million of 7.375% senior notes and the related redemption of the Company’s $175 million of 7.75% senior subordinated notes in the 2011 first quarter. Due to timing requirements, both of these note issuances were outstanding and accruing interest for approximately 30 days in the 2011 first quarter, resulting in duplicative interest expense of approximately $1.1 million.

Income tax expense for the three months ended March 31, 2012 was $0.6 million, compared to $1.5 million for the same 2011 period. This decrease was mainly attributable to lower earnings generated in 2012. The effective tax rate for the three months ended March 31, 2012 was 37.2%, which is substantially consistent with the effective tax rate of 38.9% for the same period of 2011. The Company expects the tax rate for the full year to remain at 37.2%.

Net income attributable to Great Lakes Dredge & Dock Corporation was $1.1 million and earnings per diluted share were $0.02 for the 2012 first quarter as compared to $2.4 million and $0.04 for the first quarter of 2011. The decrease is due to the lower operating income for the period, partially offset by the lower interest expense in the first quarter of 2012 as well as the $5.1 million loss on extinguishment of debt that reduced net income in the first quarter of 2011.

Adjusted EBITDA (as defined above) was $14.7 million for the three months ended March 31, 2012, compared with $24.6 million in the same 2011 periods, primarily for the reasons discussed above, as operating income has declined by $8.8 million. The lower operating income included depreciation and amortization expense for the quarter ended March 31, 2012 of $7.8 million compared to $9.6 million in the quarter ended March 31, 2011. Depreciation expense, a component of equipment fixed cost expenditures, is allocated to interim periods in proportion to revenues recognized over the year, to better match revenues and expenses. Specifically, at each interim reporting date the Company compares actual revenues earned to date on its dredging contracts to expected annual revenues and recognizes equipment costs on the same proportionate basis.

Results by segment

Dredging

Dredging revenues for the three months ended March 31, 2012 were $122.4 million, compared to $136.6 million for the same periods of 2011. Dredging revenues for the three months ended March 31, 2012 were driven by lower revenues on domestic capital projects primarily related to the construction of sand berms off the coast of Louisiana in the 2011 first quarter. This revenue did not reoccur in the current quarter and accounted for approximately $15.7 million of the decline between first quarter 2012 and 2011. Lower revenue on continued maintenance project work and a decline in foreign capital revenue were offset with significant contributions from strong beach nourishment revenue.

Gross profit margin in the dredging segment was 13.0% for the three months ended March 31, 2012 compared to gross profit margin in the dredging segment of 20.3% for the three months ended March 31, 2011, as the mix of project types impacted gross profit margin as well as offshore weather conditions, primarily wind that produced rough seas and subsequent lower dredge utilization that resulted in lower fixed cost coverage. Dredging segment operating income was $4.9 million for the three months ended March 31, 2012, compared to operating income of $17.8 million for the three months ended March 31, 2011.

Demolition

Demolition revenues for the three months ended March 31, 2012 totaled $32.5 million, compared to $18.7 million for the same 2011 periods. The demolition segment experienced higher revenue levels in the three months ended March 31, 2012 than from the same period in the prior year. The segment had several large jobs that were included in backlog at year end 2010, that were not executed until later quarters in 2011, while a significant portion of the backlog outstanding at the end of 2011 has been executed in the three months ended March 31, 2012.

The demolition segment generated operating income of $1.8 million for the three months ended March 31, 2012, compared to operating loss of $2.2 million for the same periods of 2011. Projects with increased profit margins, led by bridge demolition projects as well as improved market conditions from the economic recovery were contributors to the higher gross profit margin. Gross profit margin in the demolition segment was 12.5% for the three months ended March 31, 2012 compared to gross profit margin of (1.8%) for the three months ended March 31, 2011.

Bidding Activity and Backlog

The following table sets forth, by reporting segment and type of dredging work, the Company’s backlog as of the dates indicated:


	March 31,		December 31,		March 31,
Backlog (in thousands)	2012		2011		2011
Dredging:
Capital - U.S.	$	151,479	$	109,897	$	88,404
Capital - foreign		247,257		78,379		54,871
Beach		70,767		84,607		33,008
Maintenance		22,166		31,293		32,789
Rivers & lakes		32,273		15,256		23,439

Dredging Backlog		523,942		319,432		232,511
Demolition		60,427		50,672		79,598

Total Backlog	$	584,369	$	370,104	$	312,109

The Company’s contract backlog represents its estimate of the revenues that will be realized under the portion of the contracts remaining to be performed. For dredging contracts these estimates are based primarily upon the time and costs required to mobilize the necessary assets to and from the project site, the amount and type of material to be dredged and the expected production capabilities of the equipment performing the work. For demolition contracts, these estimates are based on the time and remaining costs required to complete the project, relative to total estimated project costs and project revenues agreed to with the customer. However, these estimates are necessarily subject to variances based upon actual circumstances. Because of these factors, as well as factors affecting the time required to complete each job, backlog is not always indicative of future revenues or profitability. In addition, 37% of the Company’s dredging backlog relates to federal government contracts, which can be canceled at any time without penalty to the government, subject to the Company’s contractual right to recover the Company’s actual committed costs and profit on work performed up to the date of cancellation. In addition, 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 domestic dredging bid market for the 2012 first quarter totaled $229.6 million, an increase of $32.1 million from the same period in the prior year. The Company won 76%, or $20.0 million, of the beach nourishment projects awarded through March 31, 2012, as well as 22%, or $23.5 million, of the maintenance projects along with 100%, or $53.4 million, of capital projects and 56% or $24.0 million, of the rivers & lakes projects awarded through March 31, 2012. The Company won 53% of the overall domestic bid market through March 31, 2012, above its prior three year average of 39%. Variability in contract wins from quarter to quarter is not unusual and one quarter’s win rate is generally not indicative of the win rate the Company is likely to achieve for a full year.

The Company’s contracted dredging backlog was $523.9 million at March 31, 2012 compared to $319.4 million as of December 31, 2011. These amounts do not reflect approximately $15.3 million of domestic low bids pending formal award and additional phases (“options”) pending on projects currently in backlog at March 31, 2012. At December 31, 2011 the amount of domestic low bids and options pending award was $36.1 million.

Domestic capital dredging backlog at March 31, 2012 was $41.6 million more than at December 31, 2011 as the Company was awarded a $46.5 million contract to restore and reinforce the existing shoreline of Scofield Island, located along the barrier shoreline in Plaquemines Parish, Louisiana. In another important market, the Gulf Coast, we expect additional coastal restoration projects to be let for bidding in the second half of the year, for which we have made a working capital investment in pipe and feel we will be well positioned to execute. The Company continues to believe that many states and Washington D.C. will continue to focus on marine infrastructure as significant port and harbor authorities recognize that the ongoing expansion of the Panama Canal and initiatives to increase exports heightens the need for the U.S. to deepen its East and Gulf Coast ports to facilitate larger draft vessels from international trade. The Company still anticipates a deepening project in Miami to be released in the second half of 2012. Florida officials and the Corps are actively working to responsibly resolve environmental concerns related to the execution methods and impact of this project to ensure timely execution.

Beach nourishment dredging backlog at March 31, 2012 was $13.8 million lower than at December 31, 2011 as the Company worked off its prior backlog related to beach projects in Delaware, Florida, New Jersey, South Carolina and Virginia. The Company added backlog in the quarter by winning the larger of the only two beach nourishment projects in the bid market in the first quarter of 2012. The dredge Liberty Island will travel to the West Coast in the third quarter to start a large beach project in San Diego.

Maintenance dredging backlog was $9.1 million lower at March 31, 2012 than at December 31, 2011. The decrease in backlog occurred as the Company continued to work through backlog won in the fourth quarter of 2011, partially offset by new projects and additional options on existing projects in Louisiana, Georgia and Baltimore Harbor. There has been progress in Washington D.C. as it relates to the Harbor Maintenance Trust Fund (“HMTF”). On April 18th, 2012 the House of Representatives approved passage of H.R. 4348 (Surface Transportation Extension Act of 2012, Part II) that, if ultimately passed, will have a positive impact on maritime commerce and restoring the Gulf Coast. The Company continues to encourage Congressional leaders to come to resolution on legislation that incorporates utilization of HMTF monies to pay for the intended maintenance of our important maritime waterways. The passage of a HMTF bill would be an important positive step for maritime commerce and transparency in federal spending.

Rivers & lakes backlog is $17.0 million higher at March 31, 2012 than at December 31, 2011. During 2011, the Company began to pursue municipal lake projects which expand the Company’s service capabilities using existing equipment. A large municipal lake project of $12.5 million was won in the first quarter of 2012 related to this initiative. During the first quarter of 2012, the Company also added new river work and levee repair projects on the Mississippi River and in Louisiana.

Foreign capital dredging backlog increased $168.9 million at March 31, 2012 from December 31, 2011, due primarily to the award of the dredging contract for the Wheatstone LNG Project in Western Australia. The Company currently expects to realize at least $180 million in revenue on this project with the potential for greater income as the project details are finalized. The Company anticipates mobilizing the dredge New York to Australia in the third quarter of 2012. The Company’s portion of the project is expected to take about 27 months to complete. The Company also sees additional opportunities in the Middle East, Southeast Asia and South America that it continues to pursue. The Company recently made strategic moves to bolster its international sales and marketing effort, and sees an abundance of opportunities ahead.

Demolition services backlog was $9.8 million higher at March 31, 2012 from December 31, 2011, as the Company was formally awarded a $22.2 million contract for a brownfield remediation project in New Jersey that was pending award at year end. There were also several options and change orders that were approved in the quarter, offset by the strong revenue that was recorded as the segment continued to work off backlog from the prior year.

Dredge New York litigation development

During the quarter ended March 31, 2012, a judgment in the aggregate amount of $13,272 was rendered in the Company’s favor in its litigation regarding the dredge New York loss of use claim. The defendants are appealing the judgment and the Company cannot be assured when the appeal will be heard or predict the outcome of the appellate process. For additional information regarding this matter, see Note 7 to the Company’s condensed consolidated financial statements.

Liquidity and Capital Resources

The Company’s principal sources of liquidity are net cash flows provided by operating activities and proceeds from previous issuances of long term debt. The Company’s principal uses of cash are to meet debt service requirements, finance capital expenditures, provide working capital and other general corporate purposes.

The Company’s net cash used in operating activities for the three months ended March 31, 2012 and 2011 totaled $18.2 million, and $5.6 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. In the first three months of 2012, the increase in net cash used in operating activities was primarily the result of lower net income and increased investment in working capital.

The Company’s net cash flows used in investing activities for the first three months of 2012 and 2011 totaled $8.0 million and $4.2 million, respectively. Investing activities in both periods primarily relate to normal course upgrades and capital maintenance of the Company’s dredging fleet. During the three months ended March 31, 2012, the Company overhauled the engines on the dredge Alaska to provide increased useful life and efficiency. This engine overhaul added $3.4 million in investing capital expenditures during the quarter ended March 31, 2012.

The Company’s net cash flows provided by (used in) financing activities for the three months ended March 31, 2012 and 2011 totaled ($1.4) million and $65.8 million, respectively. The Company issued $250 million of 7.375% senior notes in the first three months of 2011, resulting in $244.2 million of net proceeds. The Company used a portion of these net proceeds to redeem its $175 million of 7.75% senior subordinated notes in the first three months of 2011 for $180.0 million, which included a redemption premium and unpaid interest.

The Company paid $1.2 million in dividends in the first three months of 2012. 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, financial results and condition and legal requirements, including restrictions and limitations contained in the revolving credit facility, bonding agreements through which it obtains performance, bid and payment bonds 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 Company’s obligations under the revolving credit facility and a bonding agreement are secured by liens on a substantial portion of the Company’s operating equipment. The Company’s obligations under its international letter of credit facility are secured by the Company’s foreign accounts receivable. The Company’s obligations under its senior notes are unsecured. The Company’s material agreements related to bonding and long term debt contain various restrictive covenants, including limitations on dividends, redemption and repurchases of capital stock, and the incurrence of indebtedness and requirements to maintain certain financial covenants. The Company is in compliance with its various covenants under the respective agreements as of March 31, 2012.

The Company’s revolving credit facility matures on June 12, 2012 and the Company is in discussions with lenders to finalize a successor credit facility with substantially similar capabilities and terms as the current revolving credit facility. The Company believes that it will finalize a successor credit facility early in the second quarter of 2012.

The impact of changes in functional currency exchange rates against the U.S. dollar on non-U.S. dollar cash balances, primarily the Brazilian Real, is reflected in the cumulative translation adjustment, net within accumulated other comprehensive income. Cash held in non-U.S. dollar currencies primarily is used for project-related and other operating costs in those currencies reducing the Company’s exposure to future realized exchange gains and losses.

The Company believes its cash and cash equivalents, its anticipated cash flows from operations and availability under its revolving credit facility will be sufficient to fund the Company’s operations, capital expenditures and the scheduled debt service requirements and pay any declared dividends 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 under the revolving credit facility and bonding 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.

Critical Accounting Policies and Estimates

In preparing its consolidated financial statements, the Company follows accounting principles generally accepted in the United States of America. The application of these principles requires significant judgments or an estimation process that can affect the results of operations, financial position and cash flows of the Company, as well as the related footnote disclosures. The Company continually reviews its accounting policies and financial information disclosures. There have been no material changes in the Company’s critical accounting policies or estimates since December 31, 2011.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

The market risk of the Company’s financial instruments as of March 31, 2012 has not materially changed since December 31, 2011. The market risk profile of the Company on December 31, 2011 is disclosed in Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Item 4.

Controls and Procedures.

a) Evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as required by Rule 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of March 31, 2012. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act 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 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in providing such reasonable assurance.

b) Changes in internal control over financial reporting.

There have been 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 March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — Other Information

Item 1.

Legal Proceedings.

See Note 7 “Commitments and Contingencies” in the Notes to Condensed Consolidated Financial Statements.

Item 1A.

Risk Factors.

There have been no material changes during the three months ended March 31, 2012 to the risk factors previously disclosed in Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

(a) None.

(b) None.

Item 3.

Defaults Upon Senior Securities.

(a) None.

(b) None.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information

(a) In 2011, the Financial Accounting Standards Board issued accounting guidance that requires presentation of net income and total comprehensive income, together with their components, either in a single continuous statement or in two separate but consecutive statements. The amendments do not alter any current recognition or measurement requirements in respect of items of other comprehensive income. The amendment was adopted and became effective for Great Lakes Dredge & Dock Corporation and its subsidiaries on January 1, 2012 and had no material impact on the consolidated financial statements. The financial information presented in Part I, Item 1 — Financial Statements of this Quarterly Report on Form 10-Q presents condensed consolidated statements of operations and condensed consolidated statements of comprehensive income in two separate and consecutive statements for the three months ended March 31, 2012 and 2011. The table below presents consolidated comprehensive income information for the retrospective application of this guidance for each of the three years ended December 31, 2011, 2010 and 2009.

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

(In thousands, except per share amounts)


	2011			2010			2009
Net income	$	17,251		$	33,720		$	14,734
Other comprehensive (income) loss
Currency translation adjustment—net of tax of ($177), $0 and $0, respectively		(267	)		—			—
Reclassification of derivative (gains) losses to earnings—net of tax of ($882), ($213) and $2,101, respectively		(1,437	)		(321	)		3,164
Change in fair value of derivatives —net of tax of $824, $92 and $524, respectively		1,350			139			790

Other comprehensive (loss) income		(354	)		(182	)		3,954

Comprehensive income		16,897			33,538			18,688
Comprehensive (income) loss attributable to noncontrolling interest		(723	)		889			2,734

Comprehensive income attributable Great Lakes Dredge & Dock Corporation	$	16,174		$	34,427		$	21,422

Retrospective application of the accounting guidance for our supplemental financial information on subsidiary guarantors would result in presentation of condensed consolidating comprehensive income for each of the three years ended December 31, 2011, 2010 and 2009 as follows.

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

FOR THE TWELVE MONTHS ENDED:

(In thousands)


	Subsidiary Guarantors		Non-Guarantor Subsidiaries			GLDD Corporation		Eliminations			Consolidated Totals
December 31, 2011
Comprehensive income (loss) attributable to Great Lakes Dredge & Dock Corporation	$	58,253	$	(90	)	$	16,174	$	(58,163	)	$	16,174

December 31, 2010
Comprehensive income (loss) attributable to Great Lakes Dredge & Dock Corporation	$	72,704	$	(1,721	)	$	34,427	$	(70,983	)	$	34,427

December 31, 2009
Comprehensive income (loss) attributable to Great Lakes Dredge & Dock Corporation	$	51,262	$	(613	)	$	21,422	$	(50,649	)	$	21,422

(b) Not applicable.

Item 6.

Exhibits


10.1		Employment Agreement dated as of January 9, 2012 between Great Lakes Dredge & Dock Corporation and Steven E. Pegg. *

10.2		Second Amended and Restated Great Lakes Dredge & Dock Company, LLC Annual Bonus Plan. (1)

10.3		Employment Agreement dated as of April 9, 2012 between Great Lakes Dredge & Dock Company, LLC and David E. Simonelli. (2)

10.4		Employment Agreement dated as of April 26, 2012 between Great Lakes Dredge & Dock Company, LLC and Kyle D. Johnson. (3)

10.5		Employment Agreement dated as of April 26, 2012 between Great Lakes Dredge & Dock Company, LLC and John F. Karas. (4)

31.1		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

31.2		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

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. *

(1)	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 17, 2012 (Commission file no. 001-33225).

(2)	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 13, 2012 (Commission file no. 001-33225).

(3)	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 2, 2012 (Commission file no. 001-33225).

(4)	Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 2, 2012 (Commission file no. 001-33225).

*	Filed herewith.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Great Lakes Dredge & Dock Corporation
(registrant)

By:		/s/ BRUCE J. BIEMECK
		Bruce J. Biemeck
		President and Chief Financial Officer
		(Principal Financial and Accounting Officer and Duly Authorized Officer)

Date: May 4, 2012

EXHIBIT INDEX


Number		Document Description

10.1		Employment Agreement dated as of January 9, 2012 between Great Lakes Dredge & Dock Corporation and Steven E. Pegg. *

10.2		Second Amended and Restated Great Lakes Dredge & Dock Company, LLC Annual Bonus Plan. (1)

10.3		Employment Agreement dated as of April 9, 2012 between Great Lakes Dredge & Dock Company, LLC and David E. Simonelli. (2)

10.4		Employment Agreement dated as of April 26, 2012 between Great Lakes Dredge & Dock Company, LLC and Kyle D. Johnson. (3)

10.5		Employment Agreement dated as of April 26, 2012 between Great Lakes Dredge & Dock Company, LLC and John F. Karas. (4)

31.1		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

31.2		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

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. *

(1)	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 17, 2012 (Commission file no. 001-33225).

(2)	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 13, 2012 (Commission file no. 001-33225).

(3)	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 2, 2012 (Commission file no. 001-33225).

(4)	Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 2, 2012 (Commission file no. 001-33225).

*	Filed herewith.

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