Great Lakes Dredge & Dock Corp (GLDD) 2004 Q2 法說會逐字稿

Good morning. My name is Edward and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Great Lakes Dredge & Dock 2004 second quarter update conference call. I lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a q-and-a period. (Operator Instructions). At this time, I'd like turn the call over to Ms. Deb Wensel, Chief Financial Officer of Great Lakes.

Good morning. I would like to welcome you to our quarterly update call. The purpose of this conference call is to provide you with a summary of Great Lakes' second-quarter 2004 financial results, debt and liquidity levels, operating and bidding activities, market outlook and other relevant information. Then following the presentation, you will be given an opportunity to ask any questions that you may have.

Before I begin, however, I need to remind you that certain matters discussed may be considered forward-looking statements and participants in this call are cautioned not to place undue reliance on such forward-looking statements. Furthermore, any forward-looking statements speak only as of the date hereof and Great Lakes assumes no obligation to provide any future updates.

Now I would like to start this quarter's call with a discussion of our operations during the period and then I'll provide you some updated information as to the current state of the domestic dredging industry and the impact it is likely to have on the remainder of our year.

Turning to our operations for the quarter -- as we anticipated, our revenue for the second quarter of 72.1 million is down from the 2004 first-quarter level of 103.9 million and the comparable 2003 second-quarter level of 104.4 million. The decline in revenues was in line with expectations due to the slowdown in domestic dredging bid activity that began in the second half of 2003 and has continued through the first half of 2004. This continuing lower-level of bid activity has launched intense competition within the industry for work that has been bid this year, which has significantly compressed margins. We've continued to maintain a higher percentage of capital dredging backlog. However, our performance on certain of these projects is being postponed by the Army Corps of Engineers due to a current lack of funding. This combination of the reduced bid market and the postponement of work resulted in decreased utilization of our fleet.

EBITDA for the second quarter of 2004 was 5.6 million, which compares to 13.4 million for the same period of 2003 with the decline driven by the reduction in dredging volume. Our EBITDA margin declined to 7.8 percent for the quarter ended June 30, 2004 compared to 12.8 percent for the same quarter of 2003. The margin decline is attributable in part to some reduction in contract margin resulting from the mix of work, which included a higher percentage of foreign, but more significantly to the impact of fixed costs relative to the reduced level of utilization. Revenues and EBITDA for the six-month period ended June 30, 2004 were 176 million and 20.4 million, respectively, which compared to 204.1 million and 28.6 million for the same 2003 periods. The reduction in revenues and EBITDA for the first half of 2004 was attributable primarily to the reduced domestic capital dredging revenue, which as I just mentioned, has declined due to the reduced bidding activity and the funding delays which have caused postponement of certain capital project worked within our backlog

Now I'll review some of the specifics for the contracts performed during the second quarter of within the context of the dredging markets and the demolition segments. Revenue during the quarter included capital work of 40 million, which included 17 million of foreign and we had 12 million of beach, 10 million of maintenance, 10 million of demolition for a total quarter revenue of 72 million. The comparable numbers for the first quarter of this year were 54 million of capital and in that number was 28 million of foreign. We had 30 million of beach, 13 million of maintenance, 7 million of demolition for a total of 104 million. And then the comparable numbers for the second quarter of 2003 was 76 million of capital and 19 million of that was foreign, 11 million of beach, 7 million of maintenance, 10 million of demolition, again, for a total of 104 million in revenue.

Capital dredging revenues totaled 40 million during the quarter and given the delays experienced in performing on certain of our domestic capital projects, a larger portion of our capital revenue continues to be generated by foreign projects. Specific capital dredging projects for the quarter included continuing work on three Deep Port projects, which added 16 million in revenue to the second quarter. We substantially completed the dredging on our 50-foot KDK5 (ph) project with a backhoe dredge in New York. Overall, the project has concluded at a solid margin. However, the second quarter results were reduced due to additional blasting along the channel slopes and some changes in equipment makes. During the quarter, we commenced dredging on the Houston channel deepening with our electrohydraulic dredge California. The margin on this project was already lower than our typical Deep Port projects due to a substantial subcontract component. It has also become apparent now that we have begun dredging that the shipping traffic within the channel is heavier than we had anticipated, which has hampered our performance. While we're focusing on methods to mitigate this impact, we've currently adjusted the contract estimate to reflect the reduced efficiency.

We originally expected to finish the base contract of our Manatee Harbor project in the second quarter, but this work actually did not began until the end of the second quarter and we will expect to complete this project in the fourth quarter this year. Our hydraulic dredge Texas is performing the work which will improve our performance on this project compared to its original estimate with an alternative dredge.

As I mentioned previously, the remaining work on our Wilmington project, approximately 20 million, has been deferred by the Corps to late 2005 due to Corps funding issues. Also, we were concerned that the remaining work on the L.A. deepening project would be deferred until 2005, but our latest indications are that funding will be available to complete this work in the fourth quarter.

Other domestic capital revenue in the quarter included continuing work on the Providence River project, which contributed another 5 million of revenue to the quarter. We had originally planned to employ two clamshells on this project during the quarter, but the Corps has slowed funding for the project, so we only used one dredge, our clamshell 54. Even with the (indiscernible) on funding, the project is on track to be completed this year in the fourth quarter. Approximately 13 million of the second quarter foreign capital dredging revenue was generated by two projects, one being the head terminal project in Bahrain, which continued to employ our hydraulic dredge Carolina and performed at estimate. The project is expected to be completed in the fourth quarter.

The second project was a joint venture in which we participated to dredge a channel and turning basin for an expanded port facility in India. While we expected this project to contribute more earnings to this quarter, the project encountered some difficulties with the temporary breakwall. The venture has insurance recourse and we're hopeful that once this matter is resolved, there will be some additional earnings on this project. During the second quarter, our harbor dredge Victoria Island and also performed a $2.5 million maintenance project in Um Qsar, Iraq, which is the second project we've completed in that country.

Finally in the second quarter, we received an arbitration settlement of certain claims with respect to our a Al Sutna (ph), Egypt joint venture project, which was concluded in 2002. This resulted in claim revenue to the Company of approximately 1.3 million with the possibility of additional upside.

Looking at our beach revenue in the second quarter, it totaled 12 million and primarily related to work on our $22 million Ebseekan (ph) Island project in New Jersey, which utilized the hydraulic dredge Illinois and performed as expected. Maintenance revenue in the second quarter totaled 10 million, which was generated by numerous projects, notably a $4 million maintenance project in Tampa harbor in the our Ella Fire (ph) River performed poorly during the quarter due to unforeseen conditions. However we're currently exploring a claim with the Corps to recover a portion of our additional costs.

During the quarter, we also generated approximately 1 million in mobilization revenue on the Oakland Richmond harbor project. This is a three-year maintenance project and the current' year's portion of the work will be performed by the clamshell dredge 53 in the third and fourth quarter of this year.

So while we continue to perform on a number of dredging projects from our backlog during the quarter, clearly, our volume was down relative to recent quarters and a number of dredges sat idle during the period. Therefore, the 2004 second quarter and year-to-date EBITDA margins reflect a greater proportion of fixed costs relative to the levels of revenue generated, given the lower than typical utilization level for the Company.

Looking at demolition, Nancy generated second quarter revenue of 10 million, representing a solid quarter for the demolition business. As usual, the majority of the quarter's demolition revenues were generated by numerous small projects. However, a few larger projects made a significant contribution as well, including 1.1 million from the continuation of our South Boston powerplant takedown and receipts from sale of scrap on that project; 1.3 million from two projects recently won in Florida, one of which involves demolition of six industrial warehouses in Tampa and the second being a hotel demolition in Miami to make way for a residential development; and finally, 2.1 million from the first phase of a $3 million project for one of Nancy's significant customers, Bekin Skanska (ph), which entails select interior demolition and asbestos removal within a Boston office building.

Turning to general Company matters. Our G&A expense in the second quarter was 6.2 million, which compares to 6.5 million in the same period of 2003. For the six months periods, general and administrative expense was comparable at 13.4 million in both of '04 and '03. However, the expense for the six months ended June 30, '04 also include approximately 1 million of incremental legal and other costs related to the provision of documents in response to the Department of Justice's subpoena. Capital expenditures for the second quarter of 2004 were 4.7 million, bringing our six-month total to 10.1 million. This includes 3.1 million related to construction of two barges, which once constructed, we intend to sale and lease back under operating leases with GE Capital. Additionally, the year-to-date spending includes 1.5 million related to the final construction of another barge, which was funded by the proceeds from the sale of two tugboats in 2003 and part of a like-kind exchange. Excluding the items mentioned above, our revised 2004 forecast contemplates spending of 10 million with a significant portion of this spending related to improvements to equipment slated to work in the third and fourth quarters.

As a result of sale transaction in December of '03, our debt levels increased to approximately 260 million at December 31, 2003. However, despite the increased debt levels, our debt service requirements have been reduced. These are the lower interest rates on the new debt and reduced amortization requirements. Therefore, cash interest expense related to our senior and subordinated debt for the quarter and six months ended June 30, 2004 has remained relatively consistent with the expense for the same period of 2003. In 2004, we entered into an interest rate swap arrangement to swap a portion of our fixed rate debt to floating to manage the interest rate paid with respect our 7-3/4 senior subordinated debt. At June 30, 2004, the fair value accounting for the swap resulted in 1.8 million of an additional non-cash charge to interest expense. While this represents the current fair value of the swap arrangement based on the anticipated the future rates, we did receive a payment of approximately 300,000 in the second quarter on this swap arrangement. So it is, as expected, currently benefiting us from a cash-flow perspective. Also as mentioned earlier, we did make a $2.5 million voluntary prepayment on our senior term debt in the first quarter.

Now I'd like to provide an update with respect to a couple of other matters that I discussed in recent quarters. First, as you may remember from previous calls, in an effort to provide a more level playing field for all competitors, the industry has been pursuing a legislative solution to close the grandfather clause loophole which has allowed Bean Stuyvesant (ph) to expand its domestic dredging operations, despite its control by Boskalis, a Dutch company and one of the largest dredging contractors in the world. In the third quarter of 2003, one of the industry's domestic dredging companies protested a bid which it lost to Bean Stuyvesant on the grounds that they could not be awarded to Bean Stuyvesant since they are operating illegally in the U.S. on the basis that they are less than 75 percent owned by U.S. citizens. The case was heard in the Court of Claims, where it was decided that Bean Stuyvesant was not operating under the intent of the law. But as expected, Bean Stuyvesant appealed the decision. The appeal was heard in the second quarter and the ruling was overturned. The domestic competitor has requested a rehearing, but it is unclear as to whether the courts will respond. Therefore, the industry will continue to pursue a legislative solution to this matter.

Also, there's been no new information with respect to the federal subpoena for documentation production that the Company received in February of this year. As we've disclosed previously, the Company received a subpoena in connection with the federal grand jury convened in the United States District Court of the District of South Carolina to produce company documents and records covering the period from January 1, 1999 to February 2004. The request covers a very broad range of company documents and records relating to work performed for the U.S. Army Corps of Engineers. We do know that others in our industry have been served with similar subpoenas requesting documents. As previously stated, it appears that the grand jury has been convened to investigate the dredging industry in connection with work performed for the Corps of Engineers. We continue to comply with the Justice Department's request and have provided substantially everything they have asked for at this point. We are not sure how long the investigation will continue, however, we are advised that 12-18 months is typical in these types of investigations.

In another point of no -- related to our dredging operations is that our union contract with Local 12 in Southern California expires in August. We entered into negotiations with the union this month and do not expect these negotiations to affect our September start-up for the L.A. deepening project.

Turning to the bid markets, the second quarter of 2004 domestic dredging bid market, representing work awarded during the period, totaled 113 million and brings the year-to-date market to 221 million. As I've mentioned, the 2004 bidding activity has remained sluggish, coming off of a low market for 2003 which only totaled 425 million. This compares to a domestic bid market of over 900 million in 2002 and an average of by the five preceding years of approximately 650 million. Although the Corps' budgets have remained at similar levels in recent years, we continue to believe that the market is being impacted by the diversion of Corps personnel and financial resources to the reconstruction efforts in Iraq, as well as distractions related to the reorganization within the Corps and general uncertainty surrounding the upcoming elections and the impact on the 2005 fiscal year budget.

The decline in the current bid market has significantly impacted pricing in the short-term as competition within the industry has increased for the work that is being bid. In fact, some of the work has recently been won by competitors at prices equal to our cash costs. We've determined that we are not willing to take on work and put wear and tear on our equipment without some level of recovery. Thus, for the second quarter, Great Lakes was awarded only 5 million for two small maintenance projects, representing only 4 percent of the quarter's awards. During the quarter, the final phase of the 43-foot Arthur Kill (ph) Deep Port project was bid. This was the only Deep Port project bid during the quarter and the Company was a successful bidder at 66 million. To date, the project has not yet been awarded and we have just learned that a competitor is protesting awarded of this project. However, we feel that the protest has no merit. We still anticipate receiving award of this project in the third quarter, as well as the award of the $66 million Brunswick interchannel project, which bid in 2002 and recently had court resolution in our favor on our disagreement with the Corps' estimate. We plan to commence dredging on both of these projects in the fourth quarter of this year.

During the second quarter, three beach nourishment projects were bid and awarded at a value of approximately 19 million, including a $13 million project in Cape Payne (ph), New Jersey, all of which were won by competitors. There were over 15 maintenance projects bid during the quarter and the majority were won by competitors at very low margins. The six-month maintenance market approximated 100 million, which on an annualized basis, is consistent with the five-year average annual market of approximately 200 million. However, the 2004 market includes the $31 million Richmond Oakland Harbor maintenance project, which is a three-year project and larger than a typical maintenance bid, therefore skewing the size of the market somewhat.

On the foreign front, we were recently notified that we will be awarded a $30 million LNG terminal project in Ocean Cay, Bahamas, pending final contract negotiations. We have to start this project by mid-November.

Our dredging backlog continues to be impacted by the slow domestic dredging bid market and due to the minimal backlog added during the quarter, our dredging backlog declined to 129.1 million at June 30, 2004 as we primarily worked off backlog during the second quarter. Comparable numbers for March 31, 2004 were 189.2 million and for June 30th, 2003, was 244.7 million. However our June 30, 2004 recorded backlog does not reflect an additional 171 million of low bids pending award, and that includes both the Arthur Kale and the Brunswick projects, which I mentioned previously, as well as other options pending on projects currently in our backlog. This revenue will be reflected in backlog upon the execution of the signed agreements for the work.

Now I will give you the breakout of backlog. We had at the end of the second quarter this year, domestic capital work of 95 million, foreign capital work of 19 million, 4 million of beach and 11 million of maintenance backlog for a total dredging backlog of 129, adding 13 million for the demolition segment, brings total company backlog to 142. In the same numbers for the first quarter were 113 million for domestic capital work, 31 million for foreign capital, 13 million beach, 32 million maintenance, for a total dredging backlog of 189; 15 million of demolition backlog, bringing total company backlog to 214. And then the numbers for the end of the second quarter 2003 were 177 million of domestic capital, 51 million of foreign capital, 3 million of beach, 14 million of maintenance for a total dredging backlog of 245, adding 15 million of demolition backlog for a total company of 260.

The demolition services backlog at June 30, as I said, was approximately 13 million. It includes five projects with over 1 million remaining in backlog as well as a typical complement of midsize projects. The New England demolition market continues to be competitive, however, the bidding activity has been increasing in recent months. Nancy continues to follow a number of other larger projects in the $3 to $5 million range that it expects will be awarded in the next few months, which should enable Nancy to maintain its operations at a level consistent with the first half of this year.

Turning to the market outlook, I will start with Deep Ports. As I mentioned on previous calls, the Water Resources Development, or WRTA legislation, forms the basis for authorizing the Corps' civil works projects, including the Deep Port projects and is generally enacted every other year. The most recent WRTA bill passed by Congress was in 2000 and the recent Deep Port work that has come out for bid and those projects expected for '04 and '05 bidding have already been authorized by this or prior WRTA legislation. While no bill was passed in '02 or '03, a 2004 WRTA bill has been introduced. As I mentioned previously, the 2004 WRTA bill includes a change to increase the federal cost sharing percentages as ports are brought to greater depth, which should provide some incentive for certain state legislators to push for its adoption. However, the bill in its current form, as has been approved by the Senate Environment and Public Works Committee, includes a proposal to create additional environmental regulations for beach nourishment projects. This provision was apparently added to the bill, even though the committee held no hearings on the environmental effects of beach nourishment projects. Thus, the American Share and Beach Preservation Association has objected to the legislation and has requested that such provision be removed from the bill. So, given the controversial nature of the new language, it is expected that the bill will be tabled in hopes that the political environment will be more friendly next year for passage of a WRTA bill.

We continue to track the progress of the major Deep Port projects which h8ave been authorized and may provide bidding opportunities in the near term. These include the New York harbor, or the KVK projects, which is the largest of the authorized deepenings and appears to have secured funding. Once we finish our KVK 5 project, the 45-foot project will be complete at a total cost of approximately 350 million. The first phase of the 50-foot deepening is currently scheduled to bid in the fourth quarter of 2004. The total 50-foot deepening project is expected to have a cost substantially in excess of the 45-foot projects due to the additional amount of rock to be drilled and blasted before removal.

There is also Arthur Keil (ph) in New York, and as I said, we were low bidder in April on the 66 million final contract to bring the channel down 43 feet. This channel is also authorized to go to 50 feet, which will provide substantial future work. Port Jersey, N.J., the final segment of this 43-foot channel deepening, was bid in December of 2003 and we were low bidder at approximately 35 million. Port Jersey has also been authorized to go to 50 feet and the initial phase of the 50-foot project is currently expected to bid in the fourth quarter of this year.

Norfolk Harbor -- the initial phase of this $40 million port deepening project is underway with the next portion of the project scheduled to bid in the third quarter this year. Wilmington, North Carolina -- there is a final project planned for the inner harbor at Wilmington and it is expected to bid in 2005. However, this is the same district that has asked us to defer our current deepening project in Wilmington, pending additional funding. The Port of Miami 45-foot deepening project obtained its local cost sharing approval in January of this year but it appears to continue to incur federal funding delays. Currently, it's scheduled to bid in the third quarter of 2004 by RFP (ph).

Brunswick, Georgia, as I've mentioned, we received word in the second quarter that this $66 million project, which was bid in 2002, to deepen the entrance and interchannel to 36 feet, will be awarded to Great Lakes. The Corps has indicated that they expect to award the project in the third quarter of 2004. However, given budget constraints, we can only perform a portion of the work in 2004 and in the first quarter of 2005. And we will have to return in late 2005 or possibly again in 2006 to complete the work, depending on the amount of available funding in each of the next two years.

Columbia River, Oregon -- this is $180 million project to deepen the Columbia River, its shipping channel, to 43 feet and it has encountered many permitting and environmental delays. Right now, the first phase is scheduled to bid in early 2005. Oakland, California -- there are two more dredging phases of this project to deepen the harbor to 50 feet, and they are scheduled for bidding in the third quarter of this year. The larger the two of requires the use of an electric cutterhead dredge and represents a good opportunity for the Company, while the smaller one is primarily construction related with only a small amount of dredging.

Tampa, Florida -- this smaller project was authorized for approximately 12 billion to deepen to 41 feet and widen the channel serving the Port of Tampa. It's currently scheduled to bid in the fourth quarter of this year. Finally, San Diego, California. There are indications that this $80 million deepening project has funding and it is currently scheduled to bid in the third quarter of this year.

So in summary, there are Deep Port projects valued in excess of 300 million which have currently been identified for bidding through the remainder of this year and into next year. Additionally, we have recently submitted proposals for over 40 million in dredging services solicited by private customers, primarily for LNG projects in the Texas area. And it is likely that some of this work will materialize over the next few months. In the past, I've mentioned projects that have been identified to dredge PCB contaminated material from the Hudson River and Fox River and these appear to be gaining additional momentum. In particular, dredging along the Fox River in Wisconsin could commence as soon as late 2005 and we've been working with environmental consultants to provide a proposal for the initial stages of the project to the principal responsible parties that will be funding this work. This entire project has the potential to add 300 million or more to the dredging market over the next 5-10 years.

Looking at beach, although there continues to be much uncertainty surrounding the future of the federal funding of beach projects, we've identified projects valued in excess of 100 million that are scheduled for '04 or '05 bidding including work in Dooley (ph), Delaware, Longboat Key, Walton Beach and Destin Beaches in Florida and Baldwin County, Alabama, among others. The majority of the beach work is typically bid in the second half of the year since the work is generally performed in the months from September-October to February-March due to environmental restrictions. It appears that a significant portion of the identified beach projects have secured local funding, so we're very interested to see whether federal funds will be made available and whether this work will be bid as planned. Beach work often employs hopper dredges and given excess capacity in the hopper industry, there is likely to be significant competition for the work that is let for bid, although certain of our competitors have in the past shown reluctance to take on large beach projects and their equipment is not as capable in difficult weather circumstances.

In addition to the typical beach projects, there's also a large project expected to come out in the fall related to the Louisiana coastal restoration plan. This project has secured funding through the National Oceanic and Atmospheric Administration, or NOAA, so it should not be subject to the Corps funding issues. In the maintenance market, as I mentioned earlier, excluding the multi-year Richmond Oakland Harbor project, maintenance work does appear to be at a lower than typical volume through the second quarter. However, it's not unusual for maintenance dredging to fluctuate, depending on precipitation levels and the impact on channel shoaling. We've seen that the pricing of recent maintenance work has been very low as the industry tends to employ its assets that are not currently employed on capital or beach projects.

And finally in the foreign markets, as I mentioned previously as well, we were recently notified of the intent to award the $30 million Ocean Cay, Bahamas project to Great Lakes, pending final contract negotiations. We've also received a letter of intent related to a land reclamation project in Darat (ph), Bahrain, which could occupy the hydraulic dredge Carolina once it completes its current assignment in Bahrain. We also have proposals pending relating to two projects to deepen the entrance channels to the Panama Canal, valued in excess of 40 million, and a large project for the Port of America in Puerto Rico. Additionally, we continue to target a number of other opportunities, including some additional dredging at the Um Qsar Port of Iraq, as well as a land large land reclamation project to expand the airport in Doha, Qatar. If some of these projects materialize, it may present an opportunity for us to employ additional dredging assets abroad.

Final I guess outlook here -- as expected, the quarter's earnings were down significantly from what has been typical for the Company over the last few years. We had anticipated this, given the deferral on work on certain projects within our backlog, coupled with the slow bidding in recent quarters and the inability to obtain and perform on new work to contribute to the period. Uncertainties have been continuing over the past three months with respect to the funding of all types of work within the Army Corps of Engineers' program and there is ongoing debate in the Corps' civil work budget for 2005. In February, the President presented his budget announcing more budget levels. (indiscernible) typically happens when it reached the Senate, they added an additional 700 million to the appropriation request. But the bill's increased funding is facing opposition as it moves through the House. Even if the appropriation level is agreed to, it is unclear whether a budget will even be passed in the current year due to the impending elections, in which case the Corps will be faced to operate under a continuing resolution as it was the case going into 2003.

The current legislation also targets changes to beach nourishment funding, proposing that the administration no longer honor any cost-sharing agreements for shoreline protection and no longer provide funding for investigations, studies or the preparation of plans and specifications for such projects. Thus, the local communities and state agencies would be required to fund and administer these projects in the future. The federal funding of shoreline protection has often been the target of an administration seeking to control spending, but the resulting congressional lobbies generally have been successful in amending the budget and restoring federal funding. However, given the state of the deficit and the diversion of funds to support the nation's efforts in Iraq, many continue to be concerned for the future of the beach program. Although funds have been appropriated for the 2004 fiscal year program, we continue to receive indications that projects are on hold pending a decision on funding. If the current legislation is successful and federal funding is not made available, in our view, the local agencies are not prepared either financially or administratively to execute their contracts in the near-term. The effects on the industry of this uncertain funding environment continue to be evident as we enter the third quarter and it appears that most of the industry's hopper dredge fleet may remain idle with no backlog and no indication of when the environment might change.

In June, the Corps held an industry meeting and a few of us from the Company attended. While the Corps acknowledged that current funding for projects is down, they don't provide any clear explanation as to why or as to when the situation may change. In the meeting, it also became evident that the Corps is in the process of reorganizing from separate autonomous districts to more of an integrated team approach to administrating its operations in response to past criticisms regarding their process for cost justification for various projects. We're concerned that the Corps' reorganization efforts may also be hampering or delaying their ability to request and obtain funding.

In summary, we're currently in an industry market unlike any experienced in recent years. While there are a number of factors contributing to uncertainty regarding project funding and timing, this work will not go away. At some point in the future, all of the work deferred currently will need to be performed. The Deep Port projects underway are not fully functional until all parts of the channel are taken to their final depth and other authorized projects have been proven to be necessary to accommodate the deeper draft vessels that are already in use throughout the world. Similarly, the maintenance dredging that's now performed currently will grow and accumulate in volume as channels continue to fill with sedimentation eventually to the point where ships can no longer safely navigate into the ports. Beach nourishment work will reach a point of urgency as waterfront assets and recreational communities become jeopardized.

Therefore, we feel strongly that the current environment represents only a deferral of work and not any permanent reduction in the industry. In fact, at the industry meeting, the Corps expressed concerns as to whether private industry even has sufficient capacity to take on all of the work that they have in the pipeline. However, how long the deferral will continue is just not clear at this point.

Given the second quarter's results and the continued uncertainty in the industry, we anticipate a similar situation for the third quarter in that it will be difficult at this point to obtain additional work to benefit the quarter. We do expect our fourth-quarter operations to pick up with the jobs mentioned earlier that will start in the third and fourth quarters. But given the impact of the second and third quarters, we're currently expecting our 2004 EBITDA to be in the range of 35 to 37 million. This (indiscernible) based on substantially on work already in backlog or jobs pending award and only requires that we pick up a nominal amount of additional work for our hopper fleet.

In light of our lower revenue and earnings projections, we've taken steps to reduce headcount and contain maintenance and capital spending by deferring maintenance and capital work that is not essential for current year operations for a Coast Guard certification. At this reduced level of EBITDA, combined with decreased capital spending, we still expect to generate sufficient cash flow to meet our current annual debt service requirements of approximately 20 million. At June 30, 2004, our total debt to EBITDA was 4.66 and our EBITDA interest coverage was 2.71. Our borrowing availability at June 30, 2004 was 43.8 million, which is net of revolver borrowings and performance letters of credit of 15.2 million and remain sufficient for all foreseeable operating cash needs.

However, while we're currently in compliance with all debt covenants and expect to be through the third quarter, our new agreements put in place in December in connection with the sale transaction did not contemplate the reduced EBITDA levels that we anticipate achieving by the end of the year. Therefore, we will likely exceed our total leverage ratio by the end of the year.

We held a bank meeting in June to apprise our bank group of the situation and have initiated further discussions with our administrative bank. We expect to have some resolution with our bank group for the time we report for the third quarter. Fortunately, we have worked with our administrative agent for years as well as a number of our significant banks in our group and are comfortable that they understand our business and the ups and downs of the industry.

Additionally, our surety, Travelers, has also been apprised of our lower earnings expectations and we expect that they will be supportive in working with us through this period.

This concludes the formal portion of the update. I would like to note that we will provide a summary of the operating and backlog information provided herein, as well as a reconciliation of our EBITDA, which is a non-GAAP measure to net income, a GAAP measure, in the financial section of our company's website at gldd.com. I will now open up the call for any questions that you might have.

Sarah Thompson, Lehman Brothers.

I actually have a bunch of questions, so I'm just going to ask a few and then get back into queue. I guess the first question that you kind of touched on a little bit and I've gotten questions from lots of accounts on is -- how long can this stuff really be delayed? And I know you kind of talked about it anecdotally, but is there any way to put some numbers around it?

I really don't think there is, Sarah. We're watching as much as we can. We see things come out and being advertised. Some say they have permitting issues or funding issues. That is not unusual when we hear that when a job comes out. But this time around, we don't know. We just have to see as months go by here what does finally come out for bid.

And on the beach projects, and this is going to tell my ignorance around your equipment, but if the beach stuff does go away, let's say, for a couple of years while the local sides figure how to fund it or it goes back to federal funding, can any of those pieces of fleet then be used for capital, in which case, you have more competition in that market?

Yes. The different types of equipment really can do basically all types of work. It just depends specifically what needs to be done. It is just that hopper dredges tend to do more beach and they tend to do a lot of maintenance so they're already mostly in those two markets. Usually with capital work, it is only if they have entrance channels requirements that usually you can use hopper dredges. It's not very typical to use hopper on a lot of capital work.

Okay. And then as we are -- I think at a couple points along here, you had said you had a couple of little projects in here that had some problems. Does the problems mean that they have gone -- that you're going to recognize a loss on them? And if that's the case, that you recognize the loss in the quarter?

No, as is typical with any project, we have an estimate that we are booking to. And at any point in time, the job is either performing a little better than estimate or a little worse than estimate. That's very typical for us to have projects going both directions that usually makes no impact. The lower revenue you have, I mean, the little more of an effect that each job kind of gives. but a couple that we indicated here, we probably did not indicate other ones that were doing better. Clearly, there is no losses on these jobs. It's just a reduction in the margins that we originally expected.

Okay, that's helpful. I'll let somebody else get on.

Joseph VonMeister, Jeffries & Co.

Hi, how are you? I'm looking for, first off, a few bookkeeping items, if I might. And I got on the call about five minutes late. What was your CapEx number in the quarter?

Our total cap spending for the quarter was just over 10 million, I think 10.1 for the quarter -- I'm sorry -- 4.7 for the quarter.

Where do you expect that to be for the balance of this year?

We expect our total capital spend should be 10 million. Now there's two other pieces in which we are spending. On one barge that we completed in the first quarter, but we had funds already from a sale of tugboats last year. So that is funding neutral. And then we have two barges we're currently constructing that we are anticipating doing a sale leaseback with GE Capital in the fourth quarter. The basic cap spending for the year, the open cap spending, will be 10 million.

So the uncapitalized portion of your capital spending will be $10 million?

That is correct.

Balance sheet details. Any chance I can get inventories, receivables, payables, other current liabilities?

Yes. Obviously when we report on the Q, you get a lot of that detail. What we put out on the Website currently is really only income statement items. So I prefer maybe not on this call to go through that much detail. If you feel you need it before we file the Q, you can certainly give me a call.

The only way that you could actually give that out is to give it out to everybody at the same time. And if you have it handy there, that would be great because my model doesn't like missing items.

I'm usually not prepared to give out such detailed information, so I guess you have to wait until the Q comes out. I don't think there's anything unusual in any of those numbers. There is not some unusual items in receivables, payables or inventories.

You've spent a lot of time on the call so far talking about the backlog and what -- can you give us your estimate of the probability of your winning the Arthur Keil project that you were talking about?

Well, we were low bidder on it, so we have won it. It is just a timing issue between when the project, when you are low bidder to when you actually sign the contract. And so the definition of our backlog is the work that's remaining on all signed contracts. We don't feel that there's going to be any difficulty in getting that project and putting it into backlog sometime here in the third quarter.

So your backlog right now at the end of the second quarter were to include the contracts that you feel certain about would be how much higher than the 142 million given out? Would it be 60 and 60 -- 60 for Arthur Keil and 60 --.

The number I had given was I believe 171 million of pending award projects that we feel comfortable about, the pending awards.

And where do you see backlog by the end of this year, given the current environment? Because some businesses -- we're not going to see the ebullient times that we had in the last two years.

That's a very difficult question to answer. I wish I could -- I know that answer. What I did is identify for you numerous projects that are currently scheduled to bid. If we bid, we don't see any reason that we would not be able to pick up our typical share of that. Obviously, there would be some question as to what the pricing will be because that will depend upon how much of it comes out. That being said, at this point, we just don't know. Normally in the prior years, we would say yes, we feel pretty comfortable that a certain amount of work will come out. We just don't know.

I'll jump off. Thank you very much. It was a great preamble, by the way. Lots of good detail in there.

Thank you.

Larry Taylor, CSFB.

Good morning. A couple of different questions. One is -- you referred to some funds that came in from the disputes that you have had in each -- does that resolve those disputes? I know you said there was a little more upside, but does it eliminate the downside in the sense that you have won that arbitration?

Yes. It clearly eliminates any downside on it, and it's just a matter of clarifying the award to us as why there might be some upside. So we were a little bit conservative in what we booked.

When you look at areas potentially to cut costs, I wonder if you could spend a second just sort of walking us through the main areas that you could cut costs and what you see your fixed versus variable costs in the business?

Obviously, we have to kind of decide what we think is going to be going forward. Right off the bat here, we did some headcount reductions, mostly in sales personnel. We also instituted a voluntary leave of absence for a number of our field personnel engineers and we've had a good response to that program. So actually, that's nice, because that is immediate reduction in cost. And then it's equipment spending. There's the typical amount of spending that just goes on and we can defer a good amount of that if that equipment is not slated to be working. That's what we can do in a short period of time and that is what we've instituted.

Anything beyond that, we have to see how long we think this might go on or really make decisions here over the next couple of months. We can certainly take equipment out of commission completely. We can look at selling assets if we think the market is going to be that depressed. Obviously, we're stepping up the foreign side as best we can because that is a good opportunity or maybe a good opportunity to employ some assets that are idle now.

So right now, we are really in the midst of the unknown and we're doing a certain amount that we can do here in the short-term. We do see utilization activity coming back in the fourth quarter, so we don't want to get rid of too many of our field people and not be able to do the work. But it will certainly be telling over the next 3-6 months whether we need to do more or whether we are okay and we will ramp back up.

Thanks. A couple of related questions. The order of magnitude of the short-term potential cuts here -- what we talking about? Those first three headcount, leave of absence and deferred equipment spending?

Probably all told, we're somewhere in about 1.5 to 2 million. Now of course when you let people go, you have severance so the actual savings don't really start to come into play for four to six months.

Okay. And in terms of thinking through some of the assumptions in your guidance and the emergence of some increased activity in the fourth quarter, what percentage -- and I'm not sure the right way to ask the question -- but some order of magnitude, how much of that is capital versus the other two categories if both beach and maintenance are likely to be more competitive from a price standpoint?

I think if you look at what's in our backlog, we are clearly the weighted to the capital side. And really what we're saying going forward as we don't anticipate picking up very much work, some for our hopper dredges, which would be either beach work or maintenance work. So I think you're going to see a pretty high percentage being capital work.

Great. Thank you very much.

David Frey, Stanfield Capital Partners.

Hi. David Frey at Stanfield. You talked about the bonding facility Travelers being supportive. Can you just talk about what financial covenants or anything related might need to be amended there, and how long your relationship has been with them? And then secondly, remind us of what equipment is unencumbered by that facility in the credit agreement? Thanks.

Our association with Travelers goes back I think about four years now. So it hasn't been long. But we were with Reliance for a long time prior to that and had a very good relationship with Reliance. But then Travelers bought out the Reliance surety business. And we had to prove ourselves to Travelers. They didn't know anything about us and of course being a highly leveraged entity, they day did not like our balance sheet. But I think over the years, they have learned our business and they feel comfortable in the position that they're sitting in. Because basically, they just need to perform the work on the projects. And we rarely have losses on our projects, certainly never cash losses on our projects, and they understand that. They do have security in that they have about 80 million of what we call liquidation value equipment, which is first collateral for them and then they have another 70 million of second collateral that the banks have a first on. Then that is substantially our fleet. There's maybe another 20 to 30 million of other ancillary equipment that could be added in there. So I think they feel very comfortable and know the business and know the risks to the business. And obviously from their point of view, it's more of a financial bank side than it is certainly the operations side, which is really where their risk really lies.

Great, thank you.

Robert Ryan, Banc of America Securities.

Thank you, good morning. A lot of questions have been asked. Is the view in the industry that the slowdown or the uncertainty surrounding the bid market is a function of normal political cyclicality? That is, you would expect something along these lines in the quarters and your ahead of the election? Or it is it more a function of the administration that is in the White House right now and its views on spending?

Well, I would say we're at a point where there is more sway to what administration is currently in, and the situation that is going on, which I think is Iraq. Typically, the Army Corps budget has never been a really controversial aspect. And certainly, our portion of their budget is not all that large. We're talking 650 million a year. That's not a big amount of money. So I don't think there's been a lot of discussion with it. You know, sometimes cautionary gets discussed, beach work in that. It has never really been an item I would imagine on the radar scope, so to speak.

But that being said, the Army Corps of Engineers right now is now on the radar scope. Their operations, their work in Iraq, their administrative reorganizations -- all of a sudden, all of these things together are having a big impact on I think their budget and their operations. So I do think it is a little bit more specific, well, to the administration to the Iraq War.

And you referenced in your comments some of the proposals that have been winding their way around Capitol Hill. Is it your view or the industry's view that if Congress had its (indiscernible) that the business environment today would be that much more favorable?

Typically, Congress does, because their constituency is who is looking for this funding. It's their ports in their states, which is -- all of these projects have to go through a cost benefit analysis. And they have to be at a certain level to even get authorized, which means that the benefit far outweigh the cost of spending this money. So these projects in the past have really never had an issue, but they mean a lot to the local communities. And so that is why individual senators and representatives have always been able to get funding. And I think we will have to going forward too.

Going back to the guidance -- was it 35 to 37? Is that the context for any amendments that you'll be negotiating with your bank group when we do see an amendment filed -- is that sort of the number that we'd look to see the covenants built around?

Yes. That's what we have shared with the banks.

Thanks.

Kathy Nolan, Salomon Asset Management.

Good morning. Could you tell me, what is the gross CapEx number for the year if you were not to do the sale leaseback with GE on the two barges?

Okay. I believe the total spend on those two barges is somewhere around 7.5 million for the year.

On each, or in total?

In total.

Okay. So it would be 17.5 million then, right?

Right.

Okay. I just wanted to make sure I understood your comments about the beach projects. Because of I guess the uncertain finding environment, it sounds as if you're not getting or seeing the same level of work in July '04 as you would versus July '03 due to the uncertainty. Is that accurate?

Well, you wouldn't just look at just July. Really what we're very interested in now is what's coming up in the next three months probably, September, October. That tends to be when most of the bigger beach projects are bid. There are environmental restrictions that force a lot of beach work to be done as I said in the timeframe from September, October, maybe February or March, which means that that work has to bid. And beach work doesn't usually bid too far in advance.

So you're not really sure yet about that, but I guess you're concerned about that?

We're not sure because as we said, it seems that -- certainly the local communities have their money and their finding and they're ready. So it will just be a matter of whether the federal side kicks in and the job gets done.

Okay. But right now, there's some kind of a fund sharing arrangement?

yes. The current is that the federal performs -- I think it's 60 percent and locals 40, somewhere along that.

So the concern is about the federal component of that?

It's not so much -- I think the local communities can get the funding. I think going forward, the easier part for the communities will be to get the dollars because it is so important for their economies. And the amount of spending on the dredging is much less than the amount of money they make having the beaches replaced. But the issue is the administration of it. The Corps has always administered these projects. And that is where probably the concern is more so in the short-term that if they don't get the administrative support from the Corps, that is what will defer these projects.

Okay. And although these are important to the local communities, I guess it could be different a year?

It could be.

Okay. And also, could you describe -- you mentioned that you had won the Arthur Keel project of 66 million, but your competitor is contesting that. On what kind of basis -- if you were the low bid, how can somebody contest your bid and you winning the project?

There's a lot of technicalities in any particular bid. So what you can put forth is to say that you haven't complied with some of these technicalities or deadlines. We have actually protested in the past actually that we didn't feel the competitor could do the project and have the appropriate commitment or experience level, and we were successful. Now that was a small competitor. Obviously, they're not contesting that for us. They're looking at some technicality of a submission of -- and it comes down to a word in the contract. That's why we feel there's really no merit to it. And there is certainly no reason on the Corps' side to want to spend another 10 million on this project for some smaller competitor who --.

Okay, so they're 10 million higher?

I said that number -- don't quote me on that.

But they're higher -- you were the low bid?

But not only that, we have the equipment and the ability to do this job and do it in the right amount of time. I think -- although the Corps cannot be preferential to any competitor, obviously, the local who is doing the operating of this project would much rather see Great Lakes do the projects than not. So there has to be a real issue with the bid, if they would ever overturn it.

Just taking a step back and listening to some of your statements about -- I guess your largest customer is the Corps. There sounds like there is a lot going on there. There is basically delays in project funding. There is an administrative reorganization. And then outside of that, and there's a Justice Department investigation with regard to just generally Corps business. And that doesn't affect you it, but it affects the whole industry.

I'd like to interject -- really, I think that that has nothing to do with any of the funding issues or anything that is facing the industry. I believe that is just a totally separate issue.

Even if it's separate, there seems to be just a lot going on. And I guess when you take a step back given your industry experience, what do you make of it? Is it just Iraq, or is there something else going on here that we should be concerned about or at least focused on?

I don't think that there's any sort of --.

Is there fundamental -- or is at least there an investigation or a consideration in terms of doing business in a fundamentally different way with yourself and your competitors?

I couldn't imagine what that would be. The country needs to have dredging done. So I guess the only fundamental changes is that the federal government isn't going to be a part of it. That is fairly hard to believe. There is a big component of dredging that is seen as national security. Nobody wants -- and that is why we have the protection we have that companies have to be U.S. owned, equipment has to be U.S. built. I don't think anybody wants to see in the Port of New York a Chinese dredger. So there is an aspect of national security related to dredging.

No, I don't think that there is some fundamental change to dredging. Dredging is not very complicated. It kind of is what it is. I don't think there's a lot of alternatives to dredging. There really is not. So I truly believe it's the current environment and that there just happens to be a number of things all going on at the same time that all result in a deferral of jobs getting done.

In difficult market conditions.

Yes.

Thank you.

Ike Segal (ph), Regiment Capital Advisors.

Hi. I just wanted to follow up Kathy's questions. If these situations persist, say, for the next year or two, which of your competitors might have to actually closed their door?

Well, it's (indiscernible) clear. Our two biggest competitors are Bean Stuyvesant, who has right now a significant foreign investor. They have been very aggressive. So it is unlikely they will be the ones that would move. Weeks (ph) Dredging is our second one of our second biggest competitors. They are family-owned, they have other businesses as well. So you look at like Manson Dredging, Norfolk Dredging, probably the next tier, family-owned businesses.

So you think they could withstand further (inaudible)?

You can look at it both ways. They could sustain it for awhile or they could say -- why are we throwing more money at the dredging industry? So I think you have possibilities that you will see competitors that will be backing out. It's hard to say, though, exactly who.

You mentioned that you have had a supportive relationship with your banks and your bonding company. How about with Madison Dearborn? At this point -- you sensed that they been maybe more supportive, plus the kicking in, more equity if the situation were to persist?

Well, we've certainly kept them apprised. They have told us that they're supportive of us, and obviously, the relationship is fairly new. I guess I can say is you probably know better than I do why their sponsors ever kick in more equity. I've never heard of it, I've never seen it. I don't see in this sort of temporary situation we're in that that is even necessary. If you're talking about two to three years down the road and nothing changes, maybe there would be a reason for that. But it seems pretty extreme for them to put in more equity right now when we don't need it.

Well, you don't need it now, but I'm projecting a year or two and in reality --.

(indiscernible) I don't know, two years, that would be hard to predict.

And the recent trend, of course, is for sponsors to throw equity, we've all been there. Last question about the investigation from the Justice Department. What has the Company done internally, in terms of trying to find any kind of malfeasance that may have happened? I emphasize may. I imagine you provide these documents, but I would hope that that probably triggered an investigation internally?

I really cannot comment on what has been done. We obviously are working with our lawyers. As I said in our last conversation that we have policies and procedures in place and we feel that the Company has followed all of those.

I will get back in queue, thanks.

Sarah Thompson, Lehman Brothers.

Hi, just a quack follow up. You has given the 35 to 37 million for the year, and it sounds like from your comment that the fourth quarter is going to be a lot stronger. Is that fair directionally to say that more of the 15 or so million of EBITDA for the balance of the year is going to be in the fourth quarter than the third?

Clearly, yes. Because we will be ramping up here in the third. But clearly, there will be more work going on in the fourth quarter.

And at this point, I am assuming -- I know you have never given quarterly guidance, you don't want to do that now?

No. I think the only guidance I've given is that we feel that we will be okay covenant-wise.

Okay. We can back in the numbers from that. Thank you.

Clark Orsky, KDP Asset Management.

Hi. I just had a few. I understand there's a harbor maintenance trust fund that has quite a bit of funds in it, and there's some reluctance. Or it's my understanding for the draw out of that to fund maintenance projects. I'm just wondering if you could kind of explain that or how that plays into the funding situation?

I'm not really familiar -- I obviously know that there is the funds out there. There has been a lot of talk about why we can and can't spend out of that fund. To be honest with you, I don't know the reasonings. But I think you are correct in that they don't want to spend maintenance or general operating out of that. Because the beach and the maintenance work come out of what is considered sort of the general operating budget of the Corps. It does not come out of any specific funds.

Okay. But would that not be available to fund capital projects?

To be honest, I don't know how it feeds into the funding now.

I just wanted to clarify -- when you talk about the EBITDA of 35 to 37 based on the backlog loss pending work -- the backlog plus pending work -- what is the assumption there in terms of the funding availability for that?

Well, we have looked at each one of the projects. So in the case of Brunswick, we know that the funds are somewhat limited, so we have only put in enough of what we've been told. New York seems to have their funding. So whatever work we can get in this year we presume is funded. So what we have scheduled for backlog to do in the third and fourth quarter, we have taken into account anything that we know related to funding issues.

And you get that information through the Corps basically?

You get it from the district. Once you have the project, you start working with the district and actually an operations person is responsible for that. They're called the contracting Officer. You partner with the Corps, you have meetings with them and they tell you how they think this job is going to go.

I think you said the SG&A included like $1 million of legal costs this quarter. Should that dissipate going forward?

Yes. We clearly feel that a heavier amount of work has been done because we were doing a huge amount of document production, copying, marketing and all. SO I do think there will be some additional expenses going forward, but not clearly of that magnitude.

Okay. And I guess I just wanted to -- you mentioned cash flow to cover debt service, but I didn't hear the number that you quoted for the debt services. Is it 2 million?

Do you mean amortization of debt?

I think that's what you were --.

Our required amortization is 2 million, yes, approximately.

Okay. And as far as the bank waivers, do you have a sense of sort of the duration of relief you are looking for from the banks?

I think the impact on the company we're seeing here is clearly to 2 to 3 quarters. So we're going to have to -- it's a rolling four quarter, so you're going to have to roll out that many quarters.

Okay, thank you.

Ed Siegel, Raymond James.

Hi, good morning. Regarding the projects that you have in backlog, is there any risk that the scope of the projects get changed because of funding concerns going forward and you might be forced to rebid? I guess my primary concern is not only funding, but could margins on some of these projects be changed than the original expectations?

No, they cannot change the scope of the work. Well, that being said, they can always change the scope of work with that because of modification contract. So if we were to change any scope, just the modification and that you go in and say whether it costs you more or it costs you less to do that. So I don't see any change in that. The Corps cannot just cancel and decide to go out because the market's better now and they get better pricing. So that sort of issue is not there. I don't think that what we have in backlog, that there is any risks of canceling because of funding issues. That's not a reason they can cancel this work.

If we look forward, then, if we say the projects that you might be bidding on for 2005, 2006, would you expect that margin to be lower as a result of current funding that it would be expected over that period of time? Or do you think the industry will remain disciplined and keep the margins close to historic levels?

Well, obviously, we've seen in this quarter that are competitors that are willing to go pretty low just to keep things going, one of the competitors being Stuyvesant and having the sort of foreign influence. I think that generally speaking, they're probably more willing to go along at lower prices just to get utilization -- that has been their sort of game plan. So, obviously, margins that were bid in this quarter, this last three months, are low, probably the first three months as well. It will all depend upon how much work comes out, what sequence it comes out and what type of equipment it's for, who has what capacity and who has what appetite for what is coming out. Which is what is typical in any of our margin scenarios. So it's really hard to tell. Now if the work level remains low, clearly, there will be pressure on the margins for the next -- until the market picks up volume-wise.

And in terms of how you plan or -- obviously you have to have long-term plans beyond just the end of this year. Have you changed how you're thinking about the business, now that funding has gone to such dramatic levels and effectively where almost a full-year in having this very weak environment? How has your longer-term forward planning changed?

I think I kind of said that. What I said is that we do think that this is a temporary deferral, that there is a huge amount of work. The Corps admits that there's a huge amount of work. And the fact that they can even they can even tell an industry that is crying for work that we don't think you have enough equipment to do it all, a little but of disconnect there. But, clearly, we think it's a deferral of work. We've done what we need to in the short-term to meet that short-term crisis. At this point, we don't think that it is going to be long-term, so we have not changed our strategy and that is something obviously that we have to think about as each week goes by, as each month goes by, to reassess that.

Thanks, Deb.

John VonMeister.

My question has been answered.

John Maither (ph), Rand (ph) Merchant Bank.

Hello. I'm wondering, based on past experience, how long realistically can deep port jobs be delayed before becoming an absolute necessity?

Deep port, obviously, they are done because there is an economic benefit to that port to the cost of importing goods. The issue is obviously if we started a deep port project, it doesn't mean anything, it doesn't allow any ships to come in that are bigger until the whole channel is done. So from that point of view, any money you spend today is worth nothing until you complete the project. So I think there is big push to not throw away money certainly. Now the ones who have not started, certainly, there can be delays there. How long they can go on? It's very difficult to say. I think the demand side of it will tell you it cannot be very long. But the supply side of the dollars may say, hey, we will fund you over three years, which is what they're doing in Savannah potentially.

Perhaps just in terms of absolute necessity, does it at any point become an absolute necessity?

Well, I think from an economic point of view, it doesn't because the ships around the world are bigger. They're already too big to come in our ports full. So I guess it's just a matter of whether we want to continue to pay more for the implication of goods because we cannot accommodate these ships and they have to come in light, they have to lighter offshore. It's pretty desperate. If you look around the world, ports around the world are more like 60 to 70 feet deep. In the U.S., you heard most of these ports are just trying to get to 43 feet and the necessity is to get to at least 50. And you can see in New York -- they have a necessity. They've signed a big contract with two of the big shippers in the world -- Maersk and SeaLand -- that they have to have that port down to 50 feet or Maersk and SeaLand can go elsewhere. So there is a clear commitment in New York. And I think that is why the funds are falling in New York because it is a necessity for them. They have a particular deadline. You L.A. managing theirs pretty well. These other ports, though, I think are affected by the general political situation. And while they may feel desperate, I don't know that the other end recognizes it yet.

So perhaps to what extent are the existing ports competitive with their existing dimensions?

Different ports are more competitive for different types of throughput. Obviously, New York is making a huge play here to get these two big shippers in. I think they will take a lot of the volume once they get down to 50 feet. But I think the U.S. is pretty dependent on getting goods in and out of the country and I don't think -- maybe rail can do some of it within -- that would be a huge infrastructure investment. You just can't ship things by plane. You're going to have to have to bring them in by the water.

Given the existing situation, how many months or years do you believe you can continue to survive, especially with reduced margins?

I just think that's not an (indiscernible) question to answer really. We don't know. I don't know how to answer that. Sorry.

I will get off now. Thanks.

Perry Coker (ph), WM Advisors.

Hi. I'm from WM advisers. You had mentioned that there is roughly potentially 300 million of bid projects through the middle of next year. Does that include or not include the ones that you have already -- have been awarded a little bit?

It does not include. Those are 300 million of additional projects that have not been bid.

How much of your debt have you swapped?

50 million.

50 or 15?

50.

Thank you, that's all I have.

Clarke Orsky.

I just was wondering about whether working capital will be a source or use this year and any cash taxes?

I think what we will see here is that we'll have a lessening need for working capital. That should come down as levels come down, although we do expect to ramp back up in the fourth quarter. So probably, we'll get back to our regular investment in working capital by the end of the year. Cash taxes -- we actually had an inflow of tax receivable because of the transaction expenses in December of last year. So we actually received tax money. We will pay a very nominal amount here for state and some foreign taxes this year. But at this level of EBITDA, there's really not a tax liability.

Thank you very much.

Tricia O'Connor, Franklin.

Good morning. I just want to make sure I understand the Army Corps' role with the capital projects. Because it seems like beach could be postponed probably because of their administrative situation. But aren't they pretty involved in the capital projects also?

Absolutely.

So it is a matter of -- those might not get delayed because some of them just have to get done?

We spent a little time talking about do these capital projects have to be done. There's two separate budgets that fund these -- the maintenance and the beach work are considered to be more the general O&M budgets of the Corps, whereas the capital are specifically, or more specifically (indiscernible) you're not going to see them necessarily as a line item. But these are projects that have to, one, be authorized under the Florida legislation, which we talked about. And then once they're authorized, yes, they come under a separate budget in the Corps and they're administered by the Corps.

So there is some risk for those two? Because it seems like you're probably depending on the capital work going forward a little bit more than the beach?

Well the market has been capital over so many years. That is really what is going on in the industry or what fuels the industry.

Thank you.

John Lynch, Wells Fargo Bank.

I was curious. During the road show, you guys made a great point and you continue to make a great point regarding legislation that protects takes you from -- well, it creates a barrier of entry from outside of market participants. Yet in the call, you have discussed how a outside market participant has one legal standing, at least, on a couple of jobs recently. And you have also made comments to the regard that the Corps does not feel that the domestic providers have enough equipment to address that which is potentially in backlog. I was curious what you guys kind of see as the viability of this (indiscernible) considered quite a barrier to entry, how it looks going forward if the courts are ruling in favor of foreign operators and the Corps is telling you that you don't have enough equipment.

A couple of thoughts on that. One is that it's not just our industry, but it's the whole marine industry of transporting material of value within the United States. So it affects not only dredging, but barge transportation owners and tugboats. And it's a fairly large industry that has this protection. And so a lot of it is wrapped up in the U.S. Coast Guard regulations. It would be a dramatic change to reverse that legislation and it would not just affect the dredging, it would effect a whole broader range of shippers and marine industries.

The second thing with the dredging site, is as I mentioned before, there is always been a sort of national security aspect. And in fact, we have an agreement with the federal government that if in wartime situation, they can basically commandeer our dredges so that we can keep our ports running. And the ports include where we keep our submarines and our Navy ships and all. And we do all that dredging as well. So from those two points, once in a while it will come up to get rid of what is called the Jones Act is what's really the protection that we have. It's not ever gone anywhere and I don't see it going here anytime soon.

What was the legal basis of the (indiscernible) when they appealed that?

Originally when we were given the protection, it said that you had to have ships that were U.S. owned and U.S. built. At the time, you were -- the foreign company Boskalis built a dredge in the United States but had a bank own the dredge. And they basically paid them rental to the bank for it. Well, that obviously was a loophole in allowing a foreign company. But they had made the investment and the dredge was here. So when they updated the legislation, I believe it was in '92 somewhere around that time period, they were grandfathered. That dredge was grandfathered in. And obviously whenever it's legislative done, wording can be ambiguous. And we feel what happened here is that the wording that got put into the legislation to grandfather them was ambiguous. And what it said is that, well, the intent was -- if this dredge is in the middle of a project and it breaks down, they have to be able to rent the dredge to complete their contractual obligations. The way it was written, it was said that they can rent equipment. Now, here you have this foreign competitor because they have this dredge that is grandfathered in, they can rent equipment. And they can rent any U.S. equipment and that's what they've done.

One quick question that was asked earlier, this may be an easier way to ask it. Working --capital, what is your current ratio at the moment? Current assets to current liabilities? It was pretty high at almost two times in the first quarter (indiscernible) come an as you've lost contracts? Are you seeing that your current liabilities are starting to creep up on your current assets?

Our current ratio is 2.2.

You're still well ahead on a funding basis?

Yes.

Joseph VonMeister.

Would you give us the segment operating income which is typically given out in the Q for dredging and demolition?

You want the breakout on operating income between demolition and dredging?

Yes. (multiple speakers). You have revenue by type of work and backlog, but not --.

No, I don't have that in front of me. In fact, I guess it is not something that we typically do. We only give out revenue.

I know it appears in the Q, I just thought I would ask.

You're correct. In the Q, we do break that out, and so we will have those numbers for the Q.

that's it, thank you.

John Maither.

Hello. I was wondering -- perhaps could you help me out with determining the extent of the existing jobs that have been started but have not been delayed or postponed?

That we have in our current backlog?

Perhaps, are those projects already included in the backlog? I'm referring to the projects perhaps that have already started, but as a result of the funding issue, have been postponed?

Well, I'm not exactly sure what your question is. What I have identified is that we do have a few jobs in our backlog in which we would normally be doing some of the work now but they have asked us to postpone actually performing the work because of funding issues. That clearly is the Wilmington project, which we will not do until next year. That is in our backlog. We thought on our Providence project, and all said and done on that project is that, instead of being able to finish up that job probably here some time in the third quarter, it won't finish until the fourth quarter because they -- the funding will take us through that point in time. It does not affect our margin on the job because we just put one less dredge on it.

We thought L.A. would have an issue, but it appears they have funding so we will be starting that job. Brunswick, I think I indicated that they only have a certain amount of funds, so we will go to work there. We will expend all of the funds and then we will go off the project, until they have funds again. Now obviously on that project they will be having to find more because they're going to have to pay for these modes and de-modes which is not in the scope of the work right now. But they know that they will have to pay for those. So all that does is increase the scope of that work. And that I think is the major ones that we are seeing in our backlog that have some sort of deferral because of funding.

Okay. Thanks. You referred to the current quarter (indiscernible) as being temporary. How do you define temporary?

The what has been temporary?

The Corps' funding situation, or lack thereof, uncertainty around it. I'm just wondering how specific do you define temporary, the delay?

Well meaning, that it is not permanent, that it will not be going on forever. (MULTIPLE SPEAKERS). I'm sorry?

Do you have a time period to that?

I know everyone would like to put a time period on this. We would love to put a time period on it, absolutely. I don't know -- I'm being honest, I don't know.

Okay. Just another question perhaps on the swapping out 50 percent of the recent note issue from fixed to floating.

50 million.

50 million. I was wondering what the reason for that was, obviously going into a rising rate environment?

Well, because right now, you have a big upfront and you had to decide if rates are going to go up that quickly, and although obviously on the back end, I think rates are going up, is just a real cash flow plus for us right now.

(MULTIPLE SPEAKERS)

-- structure, we are very heavily fixed, so I don't feel that typically companies have a little bit more on the variable side. So we did that in order to take advantage of this current situation.

Thank you. I was just wondering perhaps do you disclose your capacity utilization?

We don't really have a good way of disclosing that because every dredge is a little different than other dredge. And so one day of one particular dredge does not necessarily produce the same revenue as another day and another dredge. So there's really know good way to give some sense of utilization. If we said are 70 percent utilized, well, that could be a lot or revenue, or a little revenue. It depends on what they're doing.

Okay, thank you very much.

There are no further questions.

Okay. If there are no further questions, I would like to thank you for joining our second-quarter update. We will put out, as I said, some operating and backlog information out on the Web site and that can be obtained and obviously our Q will be filed in a timely manner and you can get more detail that was I think being asked for. So I will expect to conduct the next call for our third quarter results on the week of October 18th. Thank you.

This concludes the Great Lakes Dredge and Dock 2004 second-quarter update.