On February 16 Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) (NASDAQ:GLDDW) reported financial results for the quarter and year ended December 31 2006.
The financial results for the company are compared with the results for the equivalent periods of GLDD Acquisitions Corporation which merged with a subsidiary of Aldabra Acquisitions Corporation (“Aldabra”) on December 26 2006. Following a holding company merger the surviving company was renamed Great Lakes Dredge & Dock Corporation. The merger was accounted for as the acquisition of Aldabra and was treated as a recapitalization. Accordingly the company’s core operating activities were not affected by the merger. Other matters primarily relating to share and per share data affecting comparability resulting from the merger with Aldabra are highlighted below.
Revenue for the quarter ended December 31 2006 was $121.8 million a 10 percent increase from the same quarter 2005 revenue of $110.4 million.
Middle East Projects
Results in the fourth quarter were driven by continued work in the Middle East. During the fourth quarter GLDD concluded primary operations on its two year project in Bahrain and began initial operations on a new three-year land reclamation project “Diyaar”. Throughout the quarter the company experienced good utilization of its fleet both domestically and internationally. This level of activity along with a mix of work with higher contract margins strengthened gross profit margins in the fourth quarter to 15.1 percent compared with 14.8 percent for the same quarter in 2005. Further improvement in gross profit margins was hampered by 0.9 percent from self-insured claims reserves the company recorded during the 2006 quarter.
Operating income was up by more than 14.0 percent despite an increase in general and administrative expenses resulting from payroll and incentive compensation. Interest expense of $5.6 million excluding a $1.4 million write-off of deferred financing fees was relatively unchanged from last year. EBITDA for the quarter was up by 9.6 percent to $15.6 million from $14.2 million in the previous year.
Net income of $1.7 million in the fourth quarter was down versus last year due to an increase in tax expense of $0.2 million. Prior to the Aldabra transaction GLDD Acquisitions Corp. had shares of preferred stock outstanding on which dividends were accrued semiannually. In connection with the mergers those shares were exchanged for common stock of the company. Net loss available to common stockholders after accruing $2.0 million of preferred stock dividends was $0.3 million.
With the funds received in connection with the Aldabra merger GLDD paid down its senior bank term debt of just over $50 million. As a result the company incurred a non-cash write-off of $1.4 million in deferred financing fees. The company’s $175 million of 7 ¾ percent Senior Subordinated Notes due in 2013 remain outstanding. This merger has allowed the company to delever which will allow more flexibility in pursuing various opportunities in 2007 and beyond.
At December 31 2006 the company had total debt of $194.7 million of which $2.0 million was current total cash and equivalents of $3.6 million and outstanding performance letters of credit totaling $39.3 million. The company also had no revolver borrowings outstanding and was in compliance with all the financial covenants in its senior credit agreements and surety agreement.
Revenues for the year ended December 31 2006 were $426.0 million up slightly from 2005 revenues of $423.4 million. While fleet utilization between years was similar the increase in gross margin to 13.4 percent from 12.1 percent a year ago was a result of the improvement in both domestic and foreign project margins despite the negative impact of the increases in the company’s self-insured claims reserves recorded during the year.
Operating income of $25.6 million more than doubled year-to-year due in large part to a non-cash write down of $5.7 million for the impairment of goodwill and intangible assets related to the demolition segment recognized during the third quarter of 2005. Despite a $2.3 million increase in tax expense from a year ago net loss available to common stockholders for the 2006 fiscal year was $6.0 million or $0.61 per diluted share compared with a net loss available to common stockholders of $14.6 million for 2005. Net losses available to common stockholders in both 2006 and 2005 included $8.2 million and $7.7 million respectively of accrued dividends on the company’s preferred stock. This preferred stock was exchanged in the merger and is no longer outstanding. EBITDA for 2006 grew by approximately 33 percent to $52.6 million from $39.4 million last year which included the $5.7 million impairment write down noted above.
Dredging Fleet Utilization
Throughout 2006 the company experienced good utilization of its dredging fleet and improvement in contract margins from both domestic and international work. Although the 2006 domestic bid market produced over $700 million of contract awards it continued to be negatively impacted by funding issues at the U.S. Army Corps of Engineers. Fortunately state and local authorities have been developing funding sources for beach work to protect vital tourism and beachfront property investments. In addition the developing market for new Liquefied Natural Gas (“LNG”) terminals has recently produced privately funded demand for dredging work. Both situations have filled the void in the domestic market caused by the Corps’ funding difficulties. In addition during 2006 GLDD expanded its presence in the Middle East by repositioning more vessels overseas and negotiating and signing two further projects in Bahrain for a combined value in excess of $50 million.
Bidding activity in the fourth quarter of 2006 produced $151.3 million of contract awards which resulted in a 2006 annual bid market of $714.0 million. The company won approximately a 26 percent share of the fourth quarter bid market bringing its 2006 domestic market share to nearly 36 percent. Given the company’s bidding success in the fourth quarter and the addition of the contracts in Bahrain dredging backlog at December 31 2006 totaled $352.6 million which compares with $260.8 million at December 31 2005. The Company’s December 31 2006 recorded backlog does not reflect approximately $186 million of low bids pending award and additional phases (“options”) pending on projects currently in backlog including approximately $156 million for the second phase of the Diyaar land reclamation contract. Demolition services backlog was $16.6 million compared with $17.4 million at December 31 2005.
Douglas B. Mackie president and chief executive officer said “As the company re-enters the public equity market I am very pleased with Great Lakes’ fourth quarter which has capped off a very successful operating year. Our continuing ability to win favorable contracts and to maintain high utilization rates for our equipment have contributed to a strong financial performance.
“In addition the Aldabra transaction by virtue of being able to reduce our financial leverage will benefit us in many respects which include providing the financial flexibility to pursue our international initiatives.
“As we look forward we are very encouraged about the opportunities presented by this enhanced competitive position in the international arena; coupled with the developing LNG market domestically we believe we can maintain our healthy utilization rates for the foreseeable future.”