On April 17 Great Lakes Dredge & Dock Company (GLDD) announced that it had terminated its contract with shipyard Signal International Inc. for building a new trailing suction hopper dredge.
In a news release and on its website GLDD stated:
“As announced on August 3 2012 GLDD contracted with a shipyard to perform the functional design drawings detailed design drawings and follow on construction of a new ATB trailing suction hopper dredge based on GLDD’s patent pending concept design and performance specification. Major components and steel have been ordered in preparation for commencement of vessel construction. As disclosed in GLDD’s annual report GLDD previously notified the shipyard of its intent to terminate the contract if certain defaults were not timely cured. On April 3 2013 GLDD terminated the shipyard. GLDD intends to pursue all rights and remedies available to it under the contract. GLDD is in discussions with other shipyards to proceed with construction of the vessel.
“GLDD remains committed to building its innovative and proprietary tug-barge hopper dredge. When combined with the optimized tug and barge hull design the ATB hopper dredge is expected to provide ship-like productivity and efficiency at the lower operating cost of an ATB.”
2012 Annual Report
In its 2012 annual report GLDD announced the departure of Bruce J. Biemeck president and chief operating officer effective March 13 2013 with recognition of his years of service as an officer and member of the board of directors. Biemeck served as chief financial officer until August 20 2012.
GLDD officers also announced in the annual report that the company would amend its September 30 2012 and June 30 2012 quarterly reports and that it would identify a material weakness in internal control over financial reporting.
GLDD wrote: “During the preparation of its year-end financial statements GLDD identified instances in its demolition segment where revenue was recognized in a manner not consistent with Great Lakes’ accounting policy. The company’s policy regarding pending change orders is to immediately recognize the costs but defer the recognition of the related revenue until the recovery is probable and collectability is reasonably assured. Certain pending change orders where client acceptance had not been finalized were included as revenue in the financial reports. After a review the company concluded that 2012 second and third quarter demolition segment revenues were overstated by $3.9 million and $4.3 million respectively. The company believes recognition of a significant portion of these amounts is a timing issue but cannot provide assurance that the revenue from these pending change orders is certain to be realized.
“Restatements of the financial statements to be included in the amended quarterly reports …for the second and third quarters of 2012 will also include adjustments to dredging operating income to record $1.3 million and $0.9 million respectively of expenses previously capitalized and incurred in the preparation of vessels for the Wheatstone Australia LNG project. These expenses were incurred as a strategic decision to minimize downtime and positively impact the project gross margin while we work in a remote area of Australia in 2013 and 2014” according to the statement.
“For the fourth quarter $5.6 million of demolition revenue originally expected to be realized did not meet the company’s revenue recognition standards. The company also believes recognition of a significant portion of these amounts is a timing issue (but) cannot provide assurance the revenue from these pending change orders is certain to be realized.”
Jonathan Berger chief executive officer said “I am deeply disappointed with the issues in our demolition segment which contributed to the need to restate our second and third quarter financial results and deferral of the recognition of revenue and adjusted EBITDA. We will be focusing on improving controls at our demolition segment and throughout the Company. We at Great Lakes are committed to growing our business and increasing shareholder value. The demolition segment is a key part of our growth strategy and we are committed to having the right personnel and tools in place to effectively grow the segment while maintaining adequate operational and financial controls.”
In response to these errors the law office of Todd Garber in Los Angeles instituted a class action lawsuit against GLDD on behalf of “purchasers of Great Lakes securities between August 7 2012 and March 14 2013” giving members of the class until May 20 2013 to respond.