Great Lakes Dredge & Dock Corp (GLDD) 2005 Q4 法說會逐字稿

Good day, everyone. Welcome to the 2005 fourth-quarter update conference. As a reminder, today's call is being recorded. At this time, I'd like to turn the conference over to Deb Wensel. Please go ahead, ma'am.

Thank you. This is Deb Wensel, Chief Financial Officer of Great Lakes. I welcome you to our quarterly update call. The purpose of this conference call is to provide you with a summary of Great Lakes' fourth quarter and full year 2005 financial results, operating and bidding activities, market outlook, debt and liquidity levels and other relevant information. Following the presentation, you will be given an opportunity to ask any questions you may have.

Before I begin however, I need to remind you that certain matters discussed may be considered forward-looking statements and the 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.

Turning to the overview for the quarter, our revenues for the quarter ended December 31, 2005 were $110.4 million as the Company continued to experience good utilization of its dredging fleet and compares to $108.3 million for the same period in 2004. Although fleet utilization was similar between the two periods, the margins in 2005 have improved significantly.

The Company's gross profit margin for the quarter ended December 31, 2005 improved to 15% compared to 8.6% for the same quarter of 2004. The lower profit margin generated in 2004 was a result of performing work that was won during the second half of 2003 and the first half of 2004 when there was a slowdown in bidding activity. During this period, the environment was highly competitive due to the uncertainty of refunding constraints within the Army Corps of Engineers. The bidding activity levels improved through the end of 2004 and through 2005 as the corresponding issues appeared to be moderating.

During 2005, pricing has improved although not to the levels seen in years prior to 2004. Accordingly, the Company achieved EBITDA of $14.2 million for the quarter ended December 31, 2005 compared to only $8.6 million for the same 2004 period. Revenues and EBITDA for the year ended December 31, 2005 were $423.4 million and $39.4 million respectively. However, EBITDA includes the impact of a non-cash write-down of goodwill and intangible assets of $5.7 million related to a demolition segment realized in the third quarter.

EBITDA would have been $45.1 million without inclusion of this item. This compares to $350.9 million and $31.7 million respectively for the same 2004 period. The 2005 revenues reflect the improvement in dredge fleet utilization from the increased bid market and the ability to perform on work in backlog that had been postponed related to the core funding constraints, as well as an increase in activity from the demolition business.

The improvement in 2005 EBITDA is a result of the increase in utilization and demolition activity coupled with an improvement in margins on the work performance.

Now I'd like to give a general overview of contracts contributing to the quarter's operations within the context of the dredging markets we serve and our demolition segment. Revenue during the quarter included $60 million of capital dredging, which includes $50 million of foreign, $22 million of beach work, $16 million of maintenance and $12 million of demolition for a total revenue of $110 million. The comparable numbers for the third quarter of '05 were 72 million of capital, including 16 million of foreign, 26 million of beach, $8 million of maintenance and $13 million for our demolition segment for a total of $119 million.

And then for the fourth quarter of 2004, we had $70 million of capital, which included $9 million of foreign, $6 million of beach work, $21 million of maintenance and $11 million for demolition for a total of $108 million.

Our capital dredging revenues for the quarter, as I said, totaled $16 million and was substantially generated by the following. We completed work on our Manatee Harbor, Florida deepening project and a Port Redwing project in the port of Tampa utilizing our hydraulic dredge Alaska. The Redwing Port project was a job bid earlier in the quarter and completed by year end.

Additionally, the Oakland deep port project was completed in the fourth quarter by the bucket dredge 53 and hydraulic dredge Florida. We continued to work on our other deepening project in New York, New York, Wilmington, North Carolina and Columbia River, Oregon.

During the quarter, we mobilized our dredge Florida from the West Coast to start up again on our deepening project in Brunswick, Georgia and we had our subcontractor begin work at our LNG project in Freeport, Texas. And finally we continued work on the Durrat land development project in Bahrain using our hydraulic dredge Carolina. We also mobilized a second hydraulic dredge, the California, to the Middle East, which began work in Durrat in October.

Beach revenue for the fourth quarter totaled $22 million. Beach revenue represented a greater proportion of our revenues in 2005 as compared to prior years, which is to be expected given that Beach work comprised 41% of the domestic bid market this year compared to 15% of the market over the prior three years.

During the quarter, the Company's beach revenues were substantially generated by four large projects in Florida. One at Broward County, St. John's County, Ocean Ridge and Captiva/Sanibel Island. These were all added to backlog this year.

Beach renourishment work can be subject wide variations in margin given the inherent risks related to weather and the need to work in offshore conditions in order to obtain sand from the defined borrow sites. Since this is our risk, we always anticipate a certain amount of weather downtime in our project estimate. And despite experiencing extremely severe weather in the fourth quarter, we were able to achieve estimated margins.

Maintenance revenues for the fourth quarter totaled $16 million, which is up from recent quarters but consistent with earlier periods. The majority of the quarter's maintenance revenues relate to two rental projects along the Mississippi River, which were completed in the quarter utilizing two of our smaller hydraulic dredges, as well as two mechanical dredging projects; one in Baltimore, Maryland and the other in Grays Harbor, Washington, which were also substantially completed at the end of the quarter.

Nancy had another strong quarter generating approximately 12 million demolition revenue. Nancy has consistently generated this revenue level each quarter this year. The activity in the demolition sector has been solid with an increase in both the number projects and the number of larger projects in the range of 1 to $5 million. As I mentioned last quarter, in connection with our annual goodwill and intangible asset impairment analysis, we did record a 5.7 million non-cash impairment write-down related to the demolition segment. Although Nancy has shown improvement in earnings during 2005 and is expected to continue to achieve positive cash flows in the future, we did not believe this segment would meet the future returns contemplated when the goodwill was originally allocated through purchase accounting in 2003.

These downward revised projections for the demolition business are attributable to higher anticipated incentive compensation required to retain its key manager.

Looking at equipment and other spending, capital expenditures for the fourth quarter totaled $3.5 million bringing our year-to-date total to $14 million. The quarter spending included the completion of a new barge for one of our boosters, as well as acquisitions of smaller ancillary equipment and the typical enhancements to our current fleet.

The maintenance expense in the fourth quarter totaled $5 million bringing our year-to-date spending to $29.7 million. Again, these are equipment-related costs that are expensed in the year incurred. Our 2004 annual maintenance expense of $22.7 million was down from prior years since we experienced lower utilization in 2004.

Our 2005 annual maintenance spending was in line with our forecast and is required at this level to sustain the higher utilizations we achieved in 2005. The Company's general and administrative expense totaled $8.1 million for the quarter ended December 31, 2005 compared to $7.4 million for the same quarter of 2004 primarily as result of increased incentive compensation driven by the improvement in our dredging segment performance along with the additional incentive compensation required by our demolition segment.

Our 2005 fourth-quarter cash interest expense increased to 5.3 million compared to $4.4 million of cash interest in the fourth quarter of 2004 as result of higher underlying interest rates and larger spreads on the Company's variable rate debt given our current debt ratios. The 2005 fourth-quarter total interest reflects a minimal non-cash expense due to the valuation of the Company's fixed to floating interest rate swap, which was put in place in February of 2004. This compares to a non-cash interest expense of $24 million for the 2004 quarter on this same swap.

The Company achieved net income before income taxes of $2.3 million for the fourth quarter of 2005, which compares to a net loss before income taxes of $4 million for the comparable 2004 quarter.

Looking at debt and liquidity, our non-cash impairment write-down is excluded for covenant calculation purposes per the terms of the Company's very senior credit and surety agreements. So we were in compliance will all financial covenants at December 31, 2005. At quarter end, our interest coverage was 2.4 and senior leverage was 1.6. Our total leverage ratio was waived through 2005 and replaced with a minimum EBITDA measure with which we were also in compliance.

At December 31, 2005, the Company had total debt of $250.8 million of which $2 million is current, total cash and equivalents of $0.6 million and outstanding performance letters of credit totaling $20.1 million. At December 31, 2005, the Company had $2 million of revolver borrowings outstanding. Therefore, -- borrowing availability was $13 million. Effective February 1, 2006, the Company's borrowing availability reverted back to the full 16 million allowed under the original terms of its credit agreement with its senior lenders based on the attainment of a certain financial ratio in accordance with the terms of the September 2005 amendment to such credit agreement. Company management believes that the new level of borrowing availability will be sufficient for foreseeable operating cash needs.

Turning to some other matters. There is still nothing new to communicate with respect to the federal subpoena matter at this time. The Grand Jury that has heard the discussions to date has expired and a new jury has been seated in January of 2006. There has been no indication if our matter will be carried forward to the new jury, as well as no indication that it will not.

As I continue to mention, we have provided the documents that have been requested by the Justice Department to date and seven of the Company's employees or former employees have been interviewed or testified before the Grand Jury. The matter continues to remain unresolved and therefore we are incurring ongoing legal costs as our attorneys are still covering this matter. However, they have been reduced in recent months.

With regard to the new Hopper judge to be commissioned by Manson dredging, we have heard that the vessel is currently performing sea trials and could enter the bid market in a month or two. This dredge is over two times the size of our most recently constructed Hopper dredge at Liberty Island and is best suited for the maintenance rental market in the Mississippi Gulf outlet.

It is difficult to anticipate what effect of the entrance of this dredge to the market will be as in fact given the increased need for dredging in and around Louisiana and Mississippi due to the Hurricanes Katrina and Rita, it is possible the bid market will be sufficient to absorb the capacity at that time. Generally I guess we can say that it is additional capacity at a time of uncertainty in market conditions.

I'll also mention a dredge that another competitor, Weeks Marine, is building. This is a large clamshell bucket dredge that is suited for harbor maintenance work. Construction of this vessel has been underway for quite some time but as of now, we understand the hull is not yet underway and therefore, at this point, we are not aware of a completion date. But again, when this vessel does enter the market, it will be additional capacity for which the need is not clear yet.

I will also comment once more on the fuel situation. We continue to incur increased diesel fuel costs consistent with the rest of the economy. However as I mentioned on the last call, our projects our bid with fuel estimated at current prices. Therefore, our current bids already take into account increased pricing. Also we do make use of fuel commodity forward contracts to reduce the impacts of changing fuel prices from the time of award to the time of performance on the Company's domestic contract requirements. Given that there is typically no long time frame between the time the domestic work is bid and then awarded, we believe this procedure has adequately enabled us to manage our fuel pricing risk.

Another operating cost that has increased this year is the cost of insurance related to our hourly workforce. In 2003 and 2004, while incident rates were somewhat typical, the severity of claims increased. Therefore during 2005, we had to add to our deductible reserves for these claims and for 2006, we have just been given notice of a significant increase in premium due to the unfavorable experience from 2003 and 2004.

Beginning in 2004, we began an extensive safety awareness program aimed at reducing incidents and injuries and in 2005, we experienced a year more in line and maybe better than in years prior to 2003. We have seen in normal years in costs of incidents throughout our history and presumably these two years are not indicative of any fundamental change. However, the increased premiums will clearly impact results by approximately $1.4 million for at least the next two years.

Finally our contract with local 25 for the southern region is set to expire at the end of February. We are in negotiations with the union and expect to able to renew the agreement in a timely manner. We do not anticipate there to be any significant effect on operations with the new agreement.

Turning to our bid markets, the fourth quarter 2005 domestic dredging bid market representing work awarded during the period totaled $156 million bringing the 2005 full-year bid market to $727 million. This represents the second year in a row of a solid level of activity in the bid market. The full year bid market for 2004 was similar at $738 million and both years showed a significant improvement from 2003 of only $425 million. And we are on par with five-year historical average of $690 million.

The fourth quarter's bid market included an award of seven beach nourishment projects with a total value of $79 million. This brings year-to-date beach nourishment awards to $297 million, which is well in excess of the prior five-year historical annual average of approximately $110 million.

As I have discussed during the year, much of the 2005 beach work has been funded by an emergency supplemental bill passed in 2004 to pay for damage from the severe hurricane season experienced in 2004, particularly along the coast of Florida. Great Lakes won six of the beach projects awarded in the fourth quarter for a total of $69 million and was also a low bidder on an additional beach project worth $12 million in North Carolina.

Great Lakes awards included a $20 million project for Collier County beach and a $22 million project for Destin beach, both in Florida. The fourth-quarter market also included 11 maintenance projects with a total value of $63 million. This brings the full year 2005 maintenance market to $230 million, which is right on par with the prior five-year historical average of approximately $230 million. Great Lakes won three of the maintenance projects awarded in the fourth quarter for a total of $17 million.

The Company achieved a fourth-quarter marketshare of 57%, which is significantly higher than in the previous 2005 quarters and brings the Company's year-to-date marketshare to 31%. Throughout 2005, even with the increased activity in the bid market, the industry has continued to bid very aggressively to gain utilization. However we chose to bid the available opportunities at more reasonable margins and therefore our marketshare declined.

In the fourth quarter, presumably as competitors' backlog had improved, the pricing began to moderate and we took on a larger share of the work. So while our share was lower than historical, our margins have not been impacted as severely as they were in the prior year. Additionally, although our domestic marketshare has declined in 2005, we have still been able to maintain a high level of dredging backlog with the inclusion of our foreign work.

Given the recent dynamics in the domestic market, we have been able to take advantage of the strong market in the Middle East and have temporarily deployed an additional hydraulic dredge to this region, which will be repatriated once the domestic market warrants it.

Okay looking at backlog, dredging backlog. Despite the continued competitive bidding environment, we have still been able to maintain a solid dredging backlog, as I mentioned. Backlog at December 31, 2005 was $261 million. This compares to $266 million at September 30, 2005 and $280 million at December 31, 2004.

In addition, our December 31, 2005 recorded backlog does not include $30 million of low bids pending award, including the beach nourishment project in North Carolina mentioned earlier or other options pending on projects currently in backlog. These amounts will be reflected in backlog once they are awarded by the customers.

The demolition services backlog at December 31, 2006 was $17 million, which compares to $19 million at September 30, 2005 and is improved from December 31, 2004 backlog of $11 million. Opportunities in the demolition sector continue to develop and in the fourth quarter, Nancy added $2 million to a job in backlog related to an office building interior demo and abatement project in downtown Boston and a $1.3 million interior demo project at Fenway Park along with a number of its usual small to midsize projects.

Our backlog by segment at December 31, 2005 included $95 million of domestic capital work, $90 million of foreign capital, $61 million of beach, $15 million of maintenance for a total dredging backlog of $261 million. Adding $17 million for demolition gives a total Company backlog of $278 million. The comparable numbers for the third quarter of 2005 were $132 million of domestic capital, $104 million of foreign capital, $22 million of beach, $8 million of maintenance for a total dredging of $266 million. Adding $19 million of demolition for a total Company backlog of $285 million.

And finally those same numbers for the end of the fourth quarter 2004, we had $181 million of domestic capital, $43 million of foreign capital, $23 million of beach, $33 million of maintenance for a total dredging backlog of $280 million. If we add $11 million of demolition for a total Company backlog of $291 million.

Of course 2006 fiscal budget was passed at a level even higher than expected and certainly higher than in prior years. In addition, there are the special appropriations related to the cleanup and reconstruction efforts along the Gulf Coast due to the destruction from Hurricanes Katrina and Rita. However, as I mentioned last quarter, the dredging work related to these funds are being let through the IDIQ process, our indefinite quantity prequalification. We along with five other competitors are prequalified to perform work under 19 identified potential projects. Unfortunately this project has held up the progress of getting this work out due to some unrealistic constraints on projects size among other issues.

We do not expect these problems -- we do expect these problems to be resolved and are anticipating this work to come out in the near term.

Another concern that has been developing due to the funding constraints of the Corps is the issue of continuing contracts. There is a push by Congress to allow only projects to go forward that are fully funded. In the past, a project could be bid if there were appropriations for the current year only and the contract could be continued into the next year. The remaining funding would be taken out of the following year's appropriations. If continuing contracts are not allowed, this will become an obstacle to the Corps in getting work out, especially on longer-term projects. Ultimately, the work has to come out for bid but this is just one more roadblock to overcome in the near term that is disrupting the orderly flow of activity in the bid market.

The Water Resources Development Act, or WRDA legislation, which includes authorization of the Corps civil works projects, was again not passed in 2005 as various other issues took precedent, not the least of which was a large authorization bill for transportation. This transportation bill was passed in 2005 and now the feeling is that the water bill should be next. And it is a high priority for passage in early 2006.

Positives for the industry included in the current WRDA are the retirement of the Corps dredge McFarland, which should add work for the industry, the reduction in local cost sharing required on projects that go below 50 feet and authorization for 12 priority projects under the Louisiana Coastal Restoration Plan, as well as the authorization of various additional harbor deepenings. Passage of this bill will give assurance of continuing commitment to capital dredging work out in the future.

In the near term, we continue to follow a number of currently authorized deep port projects that are valued in excess of $250 million that are expected to bid over the next year. These include the next phases of the Columbia River, Oregon deepening project and the Oakland, California 50 foot deepening project, also the initial phase of the Port Jersey, New Jersey 50 foot deepening project and two other phases of the New York Harbor 50 foot deepening project, another deepening project at Wilmington, North Carolina along with a Jacksonville Harbor, Florida deepening project and potentially two port expansion projects in the Tampa area.

Clearly the 2005 beach nourishment market has benefited from the supplemental federal funding passed in 2004. However there continues to be uncertainty regarding funding for beach renourishment work going forward as the current new administration does not support federal funding for this work. Current schedules indicate beach nourishment projects valued at approximately $100 million for bidding through mid 2006. A number of these projects are sponsored by localities in Florida that have secured the funding for their projects through bond issues and taxes since they recognize the cost benefits to performing this work.

As more municipalities devise the means to fund their individual projects, this will help to sustain the beach nourishment market even if the federal government reduces its commitment to beach renourishment.

As I've mentioned all year, we continue to monitor a number of opportunities for dredging services related to the development of LNG terminals, particularly along the Gulf Coast of Texas. We have outstanding proposals for over $50 million in dredging services solicited by private customers, typically large energy companies. Additionally, we have the first LNG project in Freeport, Texas, which we began during the fourth quarter of 2005. As we have all gotten to experience the higher prices of domestically produced natural gas from our heating bills these past two months, certainly with the increased cost competitiveness of importing LNG, we expect to see more of this work materialize in the near future.

Now looking at our foreign markets. As I mentioned earlier, we now have two large hydraulic dredges working in Bahrain on the Durrat land development project, which will provide good work for these vessels for the next twelve months. As I mentioned last quarter, we are a minority partner in a consortium that is performing a large land reclamation project for a new airport development in Doha, Qatar, although we're providing only a small portion of the works overall. And we continue to follow a number of large reclamation projects in the Middle East, particularly in Qatar and Bahrain, countries that generally welcome relationships with U.S. contractors.

Given the volume of work being generated in the region, there appear to be opportunities for employing equipment, which may otherwise become idle in the U.S. due to overcapacity. We are carefully reassessing the funding issues in the U.S. and exploring opportunities in all markets to try to ensure higher utilization of our fleet.

Finally our outlook. 2005, while still challenging, was certainly a much improved year for the Company. As we anticipated, utilization and earnings improved through the third and fourth quarters and we were able to exceed our financial targets. While the bidding activity has been robust throughout the year, pricing has remained competitive. However given our backlog levels during the year, including a sizable amount of foreign work, we have been able to maintain a rational domestic bidding strategy and have taken on new work with improving margins compared to those on projects won in 2004.

And in the fourth quarter, we saw some moderating in the pricing of bids and the Company took a 57% share of the fourth-quarter market. Given the passage of the Corps budget at levels over prior years, the special appropriations for work in Louisiana and Mississippi and additional LNG projects on the horizon, this should produce another sound bid market for 2006.

However, as I mentioned, there continue to be various issues that delay the progress of the Corps in getting the work funded and out for bid. Unfortunately, these issues continue to promote uncertainty in the market and it is not clear if the moderation in pricing seen in the fourth quarter will continue. As a consequence, we continue to take a cautious view of our expectations and for the year 2006, we have developed an EBITDA forecast in the range of 45 to $48 million. At this level of EBITDA, we expect to generate sufficient cash flow to meet our current annual debt service requirements of approximately $22 million, to fund our necessary capital expenditures and allow for continued paydowns on our senior debt.

This concludes the formal portion of the update but I would also like to note that we have already provided a summary of the operating and backlog information given herein, as well as the reconciliation of our EBITDA, which is a non-GAAP measure to net income before income taxes, a GAAP measure, in the financial section of our Company's website at gldd.com. I would now like to open the call for your questions.

(OPERATOR INSTRUCTIONS). Sarah Thompson, Lehman Brothers.

A question for you. I guess we had spent some time on the last conference call being a little bit concerned that margins were going to come out worse in the fourth quarter and EBITDA was going to be worse on a sequential basis and you guys obviously did a fantastic job in the fourth quarter. So I am just curious what came in better than expected?

I think what we knew is that we wouldn't have full quarter from our New York job, which is one of our higher margin jobs and we had a lot of beach work and again beach work has a lot of weather risk in it and we did have some severe weather. However, we had estimated I guess appropriately and while we had some downtime, it didn't affect significantly the margins on that work. We did do quite a bit of beach work in the fourth quarter.

Okay. So I am just trying to read between the lines. You guys had put a conservative estimate out there because you weren't sure on weather and it came in better because on the one had you're saying it came in line with estimates but you significantly beat the numbers you gave us.

Yes, but I think if you look back at every time we have our third- quarter conference call, I always sort of give this cautiousness to the fourth quarter because of that fact. Fourth quarter has a lot of weather involved in it and it can impact results significantly. So I think it was nothing more than what I think we typically do at that time of the year.

That's fine. And then on -- do you have an estimate for CapEx for 2006?

It will be in line with what we spent for this year.

And then finally, on the maintenance expense, I know you had said it was a lot higher in 2005 versus 2004 because of the higher utilization levels. Was any of that catch up or is this kind of a good run rate number to use?

Well, you have to think there is a little bit of that because if the equipment wasn't working last year, we of course didn't do the maintenance on it. We didn't need to. But when that equipment began to work this year, we had to do that maintenance. You know I think it is a typical level. I think we've said in the past that we need to spend somewhere around 27 to $28 million. So I think it's pretty close to what we need going forward.

Terrific. And then last question is and I'm not sure if this impacts you guys or not but there have obviously been a lot of articles around the milder winter weather and concerns around the Missouri rivers being low and the reserves being low. Is that impacting the dredging at all? Of the Mississippi?

Clearly, weather impacts the Mississippi River and how much work needs to be done. So to the extent that -- typically it is when you have a lot of precipitation, a lot of sediments coming down and that has to be dredged and that can increase the market for that Mississippi Gulf outlet area. So yes, clearly weather conditions do make a big impact on that market.

But given that we're seeing the opposite, are you guys seeing any less work come out for bid?

Well, not right now. The maintenance market has been pretty steady this year and at this point, it appears that there will continue to be work down in the Mississippi/Louisiana area. So I mean maybe the weather will mitigate a little bit the needs that were produced by the hurricane but I don't know at this point in time.

That's all I had. Thank you.

[Rick Smore], FBR.

Getting back to gross margins, how should we think about that going forward? Do you see -- again, last quarter you said that you didn't think your gross margin would be as good in the fourth quarter as it was in the third and now we see that it was better. How about for first quarter, second quarter of 2006?

I think that the work that we have in backlog should produce margins that are similar to what we did here in the third and fourth quarters.

You're referring to your entire backlog, the dredging backlog overall?

Overall. Yes. Generally. So you know I think that's what we're looking here for the next couple of quarters and of course it depends upon the bid market that we do thereafter.

I know you mentioned some proposals for LNG activity. Have you seem more activity in LNG space in the fourth quarter?

We have. There's a lot more out there. We've had a lot more contacts in that but nothing that has become a solid contract at this point, other than the one that we have currently.

Do you know what your leverage ratio is based on the bank calculation of EBITDA?

Total leverage ratio?

Right. Or if you could give me your bank calculation of EBITDA.

I think that our ratio was 5.2 -- 5.2 total leverage ratio.

And then your next -- you have a covenant for the first quarter of 5.75.

I believe that's correct.

That will probably be okay there then. And then what was the CapEx number that you gave us?

(indiscernible)

For the fourth quarter.

$14 million.

14 million. That was for the year?

For the year. Right.

And just last question about the bid market, what percentage of the total bid market, as you define it, just referring to the fourth quarter, was left for bid by the Corps of Engineers versus privates and municipalities?

You know we don't keep that statistic. Our revenues, as I said, probably 75% of our dredging revenues is the Army Corps of Engineers.

Did you see any material changes to that in the fourth quarter?

No, not that I am aware of.

I appreciate your time.

Oliver Corlett, Jefferies & Co.

Your beach backlog is, as far as I can see, pretty much at a record level right now. Are you capacity constrained at all there in terms of what revenues you can generate out of that backlog over the next year?

Well, again, beach work is work that is done fairly quickly from bid to finish. Most beach work runs anywhere from two to four months in a time period. So we are not constrained right now with this work. We will work all through the available environmental window here and most of that will probably come in here in the first quarter.

So most of that -- you expect most of that beach backlog to be done in Q1?

I would expect a good portion of it to be done, yes.

Wow. That would be a pretty substantial level of revenues for that sector. And the seasonality factor, is that -- when does that start to kick in?

The environmental windows typically for dredging in the southern states starts in October/November time frame usually and continues into March/April, occasionally May but mostly March.

And as far as beach funding going forward, you mentioned the administration seems to be not very well disposed towards federal funding for that. What other prospects -- I mean how much of that backlog actually was funded through federal appropriations and where are they going to come from going forward as far as the local funding?

Well, I think a lot of -- as I've said, a lot of the local municipalities. The state of Florida itself provides a lot of the funding. Actually beach work requires a certain amount of local cost sharing. Even when it is a Corps project, it can be up to 50% local funding in there. And so it may be that the federal government just pushes more on the requirements for local sharing or it may be that the local governments will have to fund all of it in the future. But clearly states like Florida realize the need for it and they have put in mechanisms for finding the funding to do that.

And once again on the gross margins, the contract margins that you have locked up in the backlog right now, are they higher or lower or the same as they were a quarter ago?

They have been improving all year. So they are a little bit higher here at the end of the year than certainly they were last quarter, certainly than they were from the beginning of the year.

John Parker, Jefferies & Co.

Can you break down the total debt for me, please?

I'm sorry, I couldn't hear the question. Can you repeat that?

Let me get a better phone. Can you break down the total debt for me, please?

The total debt? We had $250 million approximately of total debt. 175 million of that are the bonds and the rest is our senior debt with our senior lenders and the equipment debt from GE.

Did you pay some of that down? I thought you said you had $2 million in revolver?

We paid down -- right, we borrowed $2 million on our revolver. We have paid down on our senior debt about $5.5 million or exactly $5.5 million.

Okay. And also on your marketshare of 57%, do you have any guidance you can offer for what that might be going forward?

No.

Clark Orsky, KDP Asset Management.

I just wanted to go back to your comments about continuing contracts. Could you explain a little bit more around that, where that pressure is coming from? And sort of how that gets implemented?

It's not really clear. There has just been sort of this -- there has been a lot of pressure about how the Corps has been funding. We have been talking now for I guess almost two years about the reorganization of the Corps, the way they get their funds and I think this is just one more sort of issue that has been thrown into the mix in requiring them to have full funding before a job is bid. I guess in a general sense, that was always supposed to be the case but practically, that wasn't always how it worked because a lot of this work, if it does go over the fiscal year for the government, has to be reappropriated.

But in some sense, it doesn't make sense. You can't put a project out there for half of the work because it is going to go over a certain time period. So I think there are some practical issues here but there is this issue that they want these projects to be fully funded and not to have these I guess contracts go over the fiscal year. So it is an issue that is out there that is probably causing delay of getting certain funds out there as they work through this issue but as I said again, this work needs to be done. It is authorized. Some of the, especially in the deepening projects, they are just going to have to I guess come up with a mechanism to fund that because those are just longer-term projects.

The alternative is to break them up into smaller projects. But there is an affect then on the cost efficiency of having to mob and remob dredged continuously on a large project.

Is this issue coming up sort of in the context of authorizing the Corps funding? Is that --?

I think so. As I said, it's all part of this mix about how the funds get distributed.

What is your general sense of what is going on in the Corps? What is the body language you're getting from those guys?

Well, again I think there are still difficulties in getting work out, confusion about how much funding they have or don't have. It is certainly not back to what I would say somewhat of a status quo and so that is why we continue to say that there is some reason for concern.

However, if you look at a bid market of $727 million, that gives you some confidence that they are getting some work done out there.

And I guess the last question is what about dividends for Amboy for the year? Was there any -- I think there was a distribution last year.

There wasn't a similar distribution this year.

Larry Taylor, Credit Suisse.

This is [Prat Ranganathan] standing in for Larry. My first question was on the LNG terminals. When you were commenting on the projects, I think I missed the part about where you mentioned the size because in the last conference call, I remember you said you had submitted proposals amounting to around $50 million. Just wondering whether you had mentioned an amount and whether you have any size for 2006?

Well, we still have those -- those projects are still out there or those proposals are still out there and so that $50 million still applies. You know, other than -- I am not sure if you are asking --.

I'm wondering if there are any developments, whether the size has increased or whether you have any other proposals in the works.

No, there is nothing that is really definitive here.

My next question was when you were talking about use of cash flow for debt paydown, you were talking about the scheduled senior debt payments?

Right. We only have scheduled debt payments of $2 million a year. So we did do a voluntary payment this year.

Last question, just a clarification on the credit facility. You were mentioning the limits sprang back to the old limits on February 1.

That's correct.

There was a sort of -- there was a springing back on October 1 as well when the LC and revolver limits went back but I just wanted to clarify what is the February 1 reversal?

We had limitations of only $15 million on revolver borrowing and then February 1 now that limitation has been lifted and we have full accessibility to our total line of credit, which is $60 million.

Okay. That completes all the questions I have.

(OPERATOR INSTRUCTIONS). Sarah Thompson, Lehman Brothers.

Hi. Sorry. One I forgot to ask. I'm just trying to understand your guidance for 2006 is 45 to 48 of EBITDA and yet I mean your last two quarters have been very strong. You said the bid market looks like it is strong. Your margins are strong and you expect them to look like third and fourth quarters. So I'm just trying to figure out what the negative is in there that I am missing?

Well, again, as I said, it's sort of a cautious view of expectations. You know just because of all the continuing funding constraints that appear to be there for the Corps, I think the industry doesn't yet feel comfortable and so we don't know how things might go out with pricing. So I think at this point to say that we can do a 45 to 48, I don't think there is any indication that we shouldn't be able to do what we did in the prior year.

However to start to make an assumption that we are going to surpass that will depend on what the bid market is in the next six months.

Okay. But if you looked at what is coming up for call it the first quarter since I know you don't have a ton of visibility beyond that, but are we looking at something similar to what is going on in the third and the fourth?

Yes. I think we will have certainly higher quarter-over-quarter in the first two quarters of this year than we did in the quarter last year.

Terrific. Thank you.

(OPERATOR INSTRUCTIONS). Ms. Wensel, I show no further questions at this time. I'll turn the conference back over to you for any closing or further comments.

Okay, thank you and thank you for joining our fourth-quarter update. I will expect to conduct the next call for our first-quarter 2006 results the week of April 24. Thank you very much.

Again, that does conclude today's conference. We thank you all for joining us.