GLDD Reports Dredging Profitable in 2012, Demolition Not So
Great Lakes Dredge & Dock Corp reporte financial results for the final quarter and year ended December 31, 2012.
Revenue increases in the quarter included:
◦ 123% increase in domestic capital dredging revenue driven by deepening work in the Ports of New York and New Jersey and coastal restoration in Louisiana;
◦ 118% increase in maintenance dredging revenue driven by a maintenance project in Baltimore, Maryland and concluding work on a maintenance project in Louisiana as well as other projects along the East Coast that were worked in the quarter;
◦ 112% increase in foreign capital dredging related to revenue recognized on the Wheatstone project as well as two land reclamation projects in Bahrain;
◦ The above increases were partially offset by decreases in demolition revenue (52%) and coastal protection (previously referred to as beach nourishment) revenue (27%). Significant work was done in the demolition segment in 2012 on projects where revenue was not recognized because of pending change orders. In addition, demolition revenue was higher in 2011 due to the revenue recorded on a large bridge demolition project in Louisiana that did not reoccur in 2012. Coastal protection revenue was atypically high in 2011.
Gross profit margin (gross profit divided by revenue) decreased due to:
◦ The impact of costs incurred in excess of revenue recognized related to pending change orders on certain demolition projects;
◦ This was partially offset by an increase in revenue in the dredging segment, specifically higher margin capital projects.
Restatement of Second and Third Quarters
During the preparation of its year-end financial statements, the Company identified instances in its demolition segment where revenue was recognized in a manner not consistent with Great Lakes' accounting policy. Great Lakes' 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.
The Company also 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. Mr. Biemeck served as Chief Financial Officer until August 20, 2012.
Commentary
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.
"On December 31, 2012 we purchased the assets of Terra Contracting, a respected provider of a wide variety of essential services for environmental, maintenance and infrastructure-related applications. With Terra's environmental expertise we expect to broaden the service offerings of our demolition and environmental businesses and expand their market reach."
William Steckel, Chief Financial Officer said "The dredging segment had a strong quarter, with record revenue of $190.1 million. The dredging segment safely and efficiently executed over 18 domestic projects in the quarter. Although our results in dredging were outstanding, we fell short of our high expectations for the fourth quarter. This was in part because three dredging projects shifted from the fourth quarter into the first quarter of 2013 and there were cost overruns in two other projects. The dredging segment had also expected to sell an underutilized dredge prior to year end. The buyer experienced funding delays and we now expect to realize the $4.0 million gain on the sale of this dredge in 2013.
