Great Lakes Dredge & Dock Corp (GLDD) 2006 Q3 法說會逐字稿

Good day and welcome to the Great Lakes Dredge & Dock third-quarter 2006 earnings results conference call. This call is being recorded. At this time, I would like to turn the call over to the Chief Financial Officer, Miss Deborah Wensel. Please go ahead, ma'am.

Thank you. This is Deb Wensel, Chief Financial Officer of Great Lakes, and I welcome you to our quarterly update call. The purpose of this conference call is to provide you with a summary of Great Lakes third-quarter 2006 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. Also joining me on this call today is Doug Mackie, Chief Executive Officer of Great Lakes, who will comment on the market and earnings outlook.

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 update.

Looking at the quarter, our revenues for the quarter ended September 30, 2006 were $81.7 million, which is a decrease from the third-quarter 2005 revenues of $119.7 million. As expected, quarterly results were negatively impacted due to mobilization to our new project in Bahrain and other domestic projects, dry dockings on certain vessels, and the deferral of beach projects and backlog due to typical environmental window restrictions at this time of year.

While contract margins increased between the periods, the Company's gross profit margin for the quarter ended September 30, 2006 declined to 11.6%, compared to 13.8% for the same quarter in 2005, due to a decrease in utilization relative to fixed costs for the quarter. The Company achieved EBITDA of $9.9 million for the quarter ended September 30, 2006, compared to $9.8 million for the same 2005 period.

In the third quarter of each year, the Company performs its annual test for impairment of goodwill. In 2005 Great Lakes renegotiated its compensation arrangement with the president of our demolition segment. As a result of the increased incentive compensation to be paid in the future, we raised future performance expectations -- we revised future performance expectations for this segment and wrote down the value of goodwill and certain intangible assets related to the segment by $5.7 million, which impacted EBITDA for the 2005 quarter.

There is no impairment in 2006. Therefore, comparatively, the 2006 third-quarter EBITDA was reduced from the 2005 period due to the reduction in revenues and utilization. Revenues and EBITDA for the nine months ended September 30, 2006 were $304.2 million and $37.0 million respectively, which compared to $313 million and $25.2 million for the same 2005 periods. Again, 2005 was impacted by the write-down of goodwill and intangibles. While revenues were similar between periods, EBITDA has increased as a result of a general increase in margins on the mix of dredging work performed this year.

Following is 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 capital of $51 million that included $23 million of foreign, beach work of $4 million, maintenance of $15 million, and demolition revenue of $12 million for total quarter revenue of $82 million. This compares to the second quarter of 2006 where we had $55 million of capital, which included $17 million of foreign, $34 million of beach, $12 million of maintenance, $13 million of demolition, for total quarter revenue of $114 million.

And the comparative numbers for the third quarter of 2005 was $72 million of capital, of which $16 million was foreign, $26 million of beach, $8 million of maintenance, and $13 million of demolition, for total company quarterly revenue of $119 million.

Our capital dredging revenues for this quarter totaled $51 million and was primarily generated by the following. We concluded work on the dredging project for a new LNG terminal in Freeport, Texas with our hydraulic dredge Texas, and this dredge then began work on a new LNG project in Golden Pass, Texas. We performed work on a Marine trench excavation project in New York, utilizing two of our clamshell dredges. We continued work with our backhoe dredge New York on the deepening of the Arthur Kill Waterway in New York.

We had a significant contribution from our continuing work on the Durrat project in Bahrain, with strong performance from our hydraulic dredges Carolina, California, Utah and Alabama. And finally, we began equipment modifications and mobilization activities for our new project at Diyaar in Bahrain.

Beach revenue in the third quarter totaled $4 million. Although beach work has represented a large portion of our revenues in 2006, as expected this quarter was impacted by the deferral of beach projects due to typical environmental window restrictions at this time of year, as well as required dry dockings on our vessel Liberty Island. We will perform a greater amount of beach work in the fourth quarter on three projects currently in backlog.

Maintenance revenue in the third quarter totaled $15 million, which is consistent with our average quarterly revenue over the last year. The majority of the quarter's maintenance revenues related to dredging in two ports in the Gulf of Mexico. NASDI had another strong quarter, generating approximately $12 million in demolition revenue. NASDI has consistently generated this revenue level over the last seven quarters. The activity in the demolition sector has been solid in both the number of projects and the number of larger projects performed.

Turning to equipment and other spending, capital expenditures for the third quarter totaled $9.5 million. The quarter spending included $1.3 million to purchase two scows which had been financed under long-term operating lease arrangements. As I mentioned last quarter, the dredge Long Island is being reconfigured as a material rehandling barge to be used on Diyaar, the new land reclamation project in Bahrain.

The total cost of this upgrade is expected to be approximately $9.5 million and is being funded through the Company's revolver. This quarter included spending of $4.3 million. On completion the improvements to the vessel will be financed through a sale leaseback under a long-term operating lease arrangement.

In the third quarter, work began on the conversion of our hopper dredge Padre Island to a pump-out vessel, giving her the capability to compete in the future in the beach market. Also in this quarter there was spending on the construction of a new booster needed for the upcoming season of beach nourishment work and LNG projects, both involving significantly longer pumping distances than in the past.

In addition, the Company invested in equipment required for a contract in New Jersey for a processing plant for treating dredge material prior to upland disposal. Excluding the purchase of the dredge Victoria Island earlier this year and the two scows this quarter as well as the investment in the Long Island, capital expenditures for the year are expected to total $20 million, an increase of approximately $4 million from what we anticipated at the end of last quarter.

As a result of the ongoing funding shortages for core projects, many of the contracts being issued are smaller and, therefore, of shorter duration than in the past. Also more restrictive environmental controls on borrow area locations are requiring ever longer pumping distances. To improve mobilization times between projects, the Company is increasing its investment in inventory of pipe by approximately $2.5 million in the third quarter of this year and another $2 million by the end of the first quarter next year.

Third-quarter 2006 maintenance spending, which is equipment related costs that are expensed in the year incurred, totaled $8.1 million which was up from last quarter, due to the number of vessels undergoing dry docking and repairs. While year-to-date spending is on par with last year, we expect fourth-quarter costs to continue at the higher spending levels totaling approximately $32 million by year-end. This is higher than our recent annual average of $28 million and is the result of the high level of plant utilization, as well as two expensive equipment breakdowns during the year.

The Company's general and administrative expenses totaled $6.5 million for the third quarter of 2006, which is a reduction from $8.2 million for the same quarter of 2005, due primarily to decreased healthcare costs and adjustments to our incentive pay accruals. Year-to-date expense was similar to the prior period if federal subpoena related expenses are excluded from both periods. These expenses have materially decreased as little activity has occurred related to this matter in 2006.

The Company's 2006 third-quarter net interest expense of $5.2 million compares to $6.4 million of net interest expense for the 2005 quarter. The decrease relates primarily to a benefit for non-cash interest of $0.6 million related to the mark to market of our fixed to floating interest rate swap, compared to a $0.8 million of expense recorded in the 2005 period related to the same swap. Increased interest rates in the 2006 quarter compared to 2005 were offset by reduced average debt outstanding between the periods.

The Company generated a net loss of $1 million and net income of $0.5 million for the quarter and nine months ended September 30, 2006, which compares to a net loss of $3.7 million and $8.9 million for the comparable 2005 periods.

Taking a look at debt and liquidity, at September 30, 2006, the Company had total debt of $251.8 million, of which $2 million was current. We had total cash and equivalents of $2 million, and outstanding performance letters of credit totaling $18.8 million. At September 30, 2006, the Company had $7.5 million of revolver borrowings outstanding. The increased working capital requirements are related to the mobilization and vessel preparation costs for our Diyaar project in Bahrain. The Company had $33.7 million of borrowing availability at the end of the quarter.

During the 2006 third quarter, we anticipated that due to a downturn in earnings because of reduced contract activity and an increase in borrowing for spending on plant and mobilizations for Diyaar, it was possible that the Company would not meet its required total debt to EBITDA ratio. Therefore, we requested and received additional room for this covenant from our senior lenders, as well as a waiver from our surety on our minimum net worth requirement. However, at quarter and, given better earnings and reduced borrowings from anticipated levels, the Company was able to meet the original covenants. At quarter end without adjustment allowed by our senior credit agreements, our total average was 4.92, senior leverage was 1.50, and interest coverage was 2.42.

On September 29, 2006, Great Lakes secured a $20 million international letter of credit facility with Wells Fargo HSBC Trade Bank. This facility will be used for performance and advanced payment guarantees on foreign contracts, including the Diyaar contract. The obligations under the agreement are guaranteed by the Company's foreign accounts receivables.

In addition, the Export-Import Bank of the United States has issued a guarantee under their working capital guarantee program, which covers 90% of the obligations owing under the facility. The Company issued its first LC under this facility on October 30th for a portion of the performance guarantee on the Diyaar project.

A few other matters; as of September 12, 2006, the Company believes it has fully complied with all requests related to the federal subpoena matter and has delivered its affidavit to that effect. We have received no additional communications from the Justice Department since that date. However, the matter continues to remain open. We are continuing to incur legal costs, although at a much reduced level from last year.

We have continued to express increased costs on personal injury claims from our hourly Jones Act workforce. The two Texas law firms continue to aggressively pursue personal injury claims on behalf of a certain sector of the industry's workforce, that along with aggressive medical advice is increasing the seriousness of claimed injuries and the amount demanded in settlement.

In the first quarter of this year, we recorded a $2 million charge to increase our reserves for our self-insured portion of these liabilities. In the second quarter, we recorded another $1.3 million related primarily to new lawsuits. And based on our experience during the third quarter, these reserves have remained adequate.

The Company along with industry has worked diligently to defend ourselves against these claims and reduce the potential for more claims of this type. However, the occurrence in the future of new claims of a similar nature is not possible to predict, and while we do not believe that additional claims would have a material impact on the Company's financial position, it is possible they could be material to the results of operations and cash flows of future periods.

Finally, unfortunately, the current Water Resources Development Act or WRDA legislation did not pass before Congress recessed at the end of September. There is some optimism that the bill will pass when Congress returns in November. However, as a result of the recent elections, the significant changes in Congress could impact the passage of the bill. In addition, the provision for higher federal cost sharing on deepening projects below 50 feet has been removed.

The important positives for the industry still included in the current WRDA are authorization of various additional harbor deepening projects and the authorization for 12 priority projects under the Louisiana Coastal Restoration Plan. Given the current climate, this legislation could languish until next fall. However, since funding for currently authorized deep port work has been substantially reduced in 2005 and year-to-date in 2006, a new authorization bill would not appear to have much impact in the near term.

Looking at our bid market, the third quarter 2006 domestic dredging bid market representing work awarded during the period totaled $306 million, and was a larger market than the first two quarters combined. Great Lakes obtained a 45.3% share of this third-quarter bid market. During the 2000 (sic) third quarter, $151.6 million of capital work was awarded, including a new LNG project that Great Lakes won for over $60 million, and an upland disposal deepening project in New York for over $60 million won by a competitor.

Upland disposal projects in this area require extensive and costly pretreatment. Therefore, these contracts frequently include significant non-dredging activities which inflate the dredge market statistics for these types of projects. Beach nourishment bids for the quarter totaled $39.1 million, of which Great Lakes was low bidder on only one contract for $1.7 million. The remainder of the quarter's market of $115.5 million was maintenance work, on which Great Lakes won a large share, $74 million or 64% for the quarter.

Although the domestic market has generated $563 million to date in 2006, the Corps of Engineers is still struggling with how to run its dredging program given the lower level funding available for contracts, the change to central control in Washington governing the release of funds, and new restrictions concerning obligation of funds for contracts that roll into future years.

The Corps' new strategy for this year has been to structure contracts with a modest base scope of work and a large number of add-on options that can be awarded depending on the available funds in the future. Most of the bids let during August, September and October were designed with the intent of being ready to award the base contracts immediately and then award the options based on 2007 appropriations.

A current contract that has been impacted by this is the $115 million deepening project in Oakland that I mentioned last quarter, which was won by a joint venture of two of our competitors but not awarded at that time. This contract has since been awarded during the fourth quarter for a $45 million scope of work. Additional options are expected to be awarded in 2007, and these options will be included in the bid statistics when awarded.

Our dredging backlog, with the addition of $138 million in domestic backlog and the lower level of utilization in the third quarter, our dredging backlog increased to $350.3 million at September 30, 2006, from $286.8 million at June 30, 2006, and compares favorably to $266 million at September 30, 2005. In addition, the Company's September 30, 2006 reported backlog does not reflect approximately $230 million of low bids pending award and other options pending on projects currently in backlog, including approximately $156 million for the second phase of the Diyaar contract in Bahrain.

The demolition services backlog at September 30, 2006 was $20.1 million, which compares to $10 million at June 30, 2006 and $19 million at September 30, 2005. Backlog was up significantly from last quarter due to the addition of five projects, each in excess of $1 million, including a building demolition project at the Russian Wharf and two more projects that include asbestos abatement, a total building demolition of a housing complex and a hospital.

NASDI has consistently been able to generate stable revenues and backlog for the last year and a half and is expected to maintain this trend as there continues to be good demand for demolition works in the Boston area. Our backlog by dredging work type and segment at September 30, 2006 was $98 million of domestic capital, $162 million of foreign capital, $43 million of beach work, $47 million of maintenance work, for a total dredging backlog of $350 million; adding $20 million for demolition backlog for a total Company backlog of $370 million.

The comparative numbers for the end of the second quarter of 2006 were $52 million of domestic capital, $174 million of foreign capital, $45 million of beach work, $16 million of maintenance, for a total dredging backlog of $287 million; adding $10 million of demolition backlog for a total Company backlog of $297 million.

And finally, the statistics at the end of the third quarter of 2005 was $132 million of domestic capital, $104 million of foreign capital, $22 million of beach work, and $8 million in maintenance for a total dredging backlog of $266 million; adding $19 million of demolition backlog for a total Company backlog of $285 million.

So with that, I will now turn the call over to Doug Mackie, our CEO, to discuss the market and earnings outlook.

Thank you, Deb. The third quarter bid market was very good. As a result, the 2006 year-to-date market has jumped to $563 million. With the award of the Oakland project early in the fourth quarter and the anticipated bids and awards in the fourth quarter, the 2006 total year bid market should exceed the last two years.

There continues to be significant funding difficulties with our largest customer, the Corps of Engineers. The issue for this quarter is the failure of Congress to pass the budget and the resulting operation of the government under a continuing resolution. As was noted last quarter, appropriate money was going unspent due to the issue of continuing contracts.

Since the Corps did not have enough funding for the particular projects in the last fiscal year, they carried over the money to be combined with this year's appropriations. However, under the current continuing resolution, none of this money can be spent until a budget is passed, which has not been the situation in past continuing resolution years.

As discussed earlier, many districts are bidding projects that include a base amount of work which can be more easily funded, plus options that can be awarded as additional funds are released. Under the system, the Corps runs the risk of paying more for the contract than they might otherwise, since the low bidder on the total contract often may not be the low bidder on the scope ultimately awarded.

The problem for the industry is the scheduling of equipment and forecasting, since the contractor has to obligate and reserve equipment for a scope of work that may never be awarded. We continue to track U.S. future port development, including another phase of Port Jersey, New Jersey 50-foot deepening project, another phase of the New York Harbor 50-foot deepening project, a port expansion project in Jacksonville Harbor, two deepening projects in Portland, Oregon, and several port expansion projects in the Tampa area, which in aggregate could generate over $250 million of bidding opportunities to the market over the next 12 months.

The beach nourishment work year-to-date has seen a reduction in the amount of beach projects put out for bid, since federal funding has been minimal. Year to date, beach bids total $112 million, which is on par with this segment's five-year average. This follows the 2005 record market of $297 million. Fortunately, more beach communities have taken over the responsibility for developing funding sources to meet their beach nourishment needs and are putting out their own projects for bid.

Great Lakes has performed over [$6 million] of beach work in 2006 for non-federally funded customers. Based on discussions with numerous local communities and the Corps, we have identified beach projects from both federally funded and non-federally funded customers valued at approximately $100 million that look possible for bidding in the next 6 to 12 months.

Dredging work related to the development of LNG terminals continues to grow. We recently completed the dredging for the LNG terminal project in Freeport, Texas, and began work this quarter on another LNG terminal in Golden Pass Texas. We are also involved in several significant project solicitations with private customers for additional LNG work.

During the quarter, we removed three of our hopper vessels from the domestic market. During the last six months, we have seen Manson Construction, a competitor, new dredge enter the market adding significant capacity to a stagnant dredging sector that is under continued downward pressure due to the shortage of contract funds. At the beginning of the year, we could foresee that excess capacity would most certainly drive down bids, possibly below the low levels of 2005.

Consequently, we decided to seek work outside of the United States to occupy some of our hopper equipment in order to maintain the supply and demand level of hopper equipment in the U.S. at a more stable level. As a result of our efforts, we were able to secure a contract this summer for the Diyaar project in Bahrain which will provide work for two Manhattan class hopper dredges and the Northerly Island hopper dredge for up to five years.

We are carefully studying the future requirements of the long-term hopper market in the U.S. in order to design and build a new hopper dredge or acquire additional hopper dredge to take over market share when the demand in the market sector improves.

Foreign markets. With all the uncertainty in the domestic market, we are happy to report that our overseas operations in the Middle East continue to generate opportunities to utilize a dredging plant that might otherwise become idle. The Diyaar project is scheduled to commence work in the fourth quarter, and we have just secured another contract in Bahrain worth approximately $30 million. The projects that we now have in backlog commit our equipment in the region into 2008 and beyond.

However, the Middle East market is continuing to boom over the last five years and shows little sign of abating. We will only be able to increase our international sector by deploying more U.S. sources or gaining access to more equipment through acquisition or building.

Outlook for 2006. The third quarter of 2006 was down from previous quarters as anticipated, due to significant mobilizations on domestic and foreign projects, dry dockings on certain vessels, and the deferral of one of our large beach projects due to typical environmental window restrictions. Our year-to-date EBITDA at September 30, 2006 was still strong despite third-quarter challenges.

In addition, the domestic bidding activity continued to strengthen in the third quarter, and there is still work scheduled to bid in the fourth quarter, including LNG projects that should provide opportunities to add to our backlog in the upcoming months. Currently, we have adequate backlog and contracts pending at September 30, 2006 to produce a robust fourth quarter, including the start of Diyaar, environmental window work, and the new LNG terminal project.

Therefore, we are revising our 2006 EBITDA expectations for the year to a range of $48 million to $52 million. At this level of EBITDA, we expect to generate significant cash flow to meet our current annual debt service requirements of approximately $22 million and to fund our necessary capital expenditures. However, due to increased working capital need generated by our mobilization to Diyaar investment in inventory, we would not anticipate any further voluntary prepayments on our senior debt facility.

Regarding the pending merger with Aldabra Acquisition Corporation as mentioned previously, upon the completion of the merger the combined corporation will be owned approximately 67% by affiliates of Madison Dearborn Partners and approximately 5% by Great Lakes management.

The available cash of Aldabra, which is approximately $50 million at June 30, 2006, will be used to pay down the Company's senior bank term debt. There will be no resulting change of control and, therefore, our $175 million 7 3/4 senior subordinated notes will remain outstanding. The transaction has been approved by the Boards of both Great Lakes and Aldabra, but is subject to customary closing conditions and the approval of Aldabra's shareholders. The transaction is still anticipated to close before year-end.

On November 8, 2006, Aldabra filed a registration statement on Amendment Number 2 to Form S4, which includes a prospectus, the Aldabra proxy statement and pro formas. The registration statement was declared effective yesterday, November 9th. For questions regarding the Aldabra transaction, we refer you to Aldabra's proxy statement prospectus that is on file with the SEC.

A special meeting of the shareholders of Aldabra regarding the merger will be held on December 14, 2006, at 10 a.m. at Sidley and Austin, LLP, 787 7th Avenue, New York, New York.

This concludes the formal portion of the update, but I would also 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 website at GLDD.com.

I would now like to open the call for your questions regarding Great Lakes' third-quarter earnings.

(OPERATOR INSTRUCTIONS) John Parker with Jefferies.

Hi, guys. I'm wondering, the beach number was way down in the quarter but it wasn't down as much in the prior-year quarter. How were you able to do it last year in the environmental window and not this year?

Again, it depends on the projects that you have. Not all are affected by environmental windows. A lot of them are, and it happened to be that what we had in backlog at this point in time, we were not able to work during this third quarter.

Okay. It seems like you still have a strong backlog there, so that should open up in the fourth quarter?

Yes, it should.

LNG terminals I think there are a lot of projects on the drawing board in the U.S. in particular, and I am not sure how many of them will get done but when you guys do planning, I mean you have worked on two now and you have a couple of other proposals out. But how many do you think there could be in the United States. And then a follow-up to that is what about overseas LNG opportunities?

Well, as far as what we foresee in the United States, it is a little bit of an art to predict how many are going to come out. We are focusing in the United States right now over the next two years, five or six, that will come out to bid for proposal. It seems that there are 15 or 20 more that are going through the steps of developing LNG facilities in the Gulf and some possibly in the Southeast, but it is very difficult to predict exactly which ones will come to bid since they have to get through the permit process and also have the source for the material and somebody to buy the material.

So right now, we see a good five or six opportunities, but difficult to go beyond that, though. As you know, there are 20 or 30 out there planning to build facilities. As far as foreign, LNGs, we have not seen that market grow very big. There is possibly some in Mexico and we haven't seen anything else other than a couple in India. So the major development is U.S.

Okay. So shifting to foreign, I saw an article about the Bahrain Wharf project. Was that the $30 million project you mentioned earlier?

That is.

Now, I don't have as strong a sense of what kind of competition you face overseas as I do domestically, and it seems your focus in Bahrain -- I guess can you categorize the other people you are competing with in Bahrain? And also I have read recently that you may be looking into India bid market, and what kind of competition you would face there?

Well, I don't remember anything that we said that we were focusing on the India market, though we have bid there and competed work -- and completed work there. However, we generally see the same four major bidders throughout the Middle East and the India market. That is Royal Boskalis, which is a Dutch company, along with Van Oord Dredging, which is a Dutch company. Then there's two Belgian companies, Dredging International and Jan De Nul. They are the four major players generally in the markets we compete in overseas.

Okay. In terms of size, how are they compared to you?

All four of them are at least twice our size.

Now, when you moved dredges recently, you reflagged them. Are all your vessels flagged -- I think it was the Marshall Islands -- are all your overseas vessels flagged there, or just some of them?

Currently, any foreign flagged vessels that we have are all with the Marshall Islands, and (indiscernible) that we are reflagging now will be with the Marshall Islands.

So all your dredges overseas are reflagged.

No, not all the dredges. We have one foreign owned -- or foreign built dredge that is Marshall Islands. We are reflagging three other vessels, the three that are being sent over currently, and it will only be those four. If we don't have to reflag a vessel, we don't do that, and we have other hydraulic vessels in the Middle East currently and those are U.S. flagged.

Our two biggest producers outside the United States are still U.S. flagged.

And why would you reflag some and not others? What is the advantage and disadvantage?

Well, a lot of it has to do with the cost of labor. Certain types of vessels, hopper vessels which we are reflagging, has a much higher percentage of the crew that has to be U.S. citizens. With other types of vessels, being either mechanical dredge or a hydraulic dredge, the number of U.S. required -- employees on our vessel required is a much lower percentage. So we don't have to -- we don't have the cost impact of labor, as much of a cost impact on labor on those vessels.

So can you just quickly run down the list of dredges that are currently deployed overseas? I think I have a count, but I just want to make sure I am accurate.

Well, we talked about there are the four hydraulic vessels which are currently working in Durrat, and that is the Carolina, the California, the Utah and the Alabama. And then we are now sending over three hopper dredges from the U.S. They are the Manhattan Island, the Sugar Island and the Northerly Island. We also have the Victoria Island which is a foreign built dredge, and it has always been employed overseas.

Now, is it difficult to -- I think you said you are thinking about building another dredge. And I know the U.S. shipbuilding capacity is extremely tight right now. I would assume that applies to the hopper dredges. Does it also apply to the hydraulic dredges in terms of tight capacity, or can you get shipyard capacity right now if you wanted to build a new dredge?

Well, first of all, obviously we would rather we acquire dredges rather than build, but there is at the moment a shortage of equipment. But yes, there is definitely shipyard capacity if you wanted to build.

Trying to piece together your income statement without full information, did Amboy Aggregates have a particularly strong quarter?

I think Amboy is what is typical.

It was typical, okay. I didn't quite get your net income number, but I guess I'll wait for your Q to get there. And just one more quick thing, I think you touched on it a little bit already; but it seems with kind of breaking out these projects into multiple bids, that would increase your kind of SG&A expense going forward. And I think you said it was going to be more expensive for the Corps to get these projects done.

But do you see kind of a little bit of a margin compression due to having to bid these jobs multiple times in the current regime?

Yes, you don't end up bidding multiple times. I mean, it is just that they put out a large scope of work, you bid it once and then they do the amount of work that they have funding for, which may not be the full amount. Now whether they go back and add on that scope of work at some later point in time, you know, they may do that. But it is not really an administrative add for us. I mean we have our estimating and bidding group, and they are always busy taking a look at projects.

So I don't think that that is a significant issue in this case. The biggest issue for us is not knowing whether you have a $20 million project or a $10 million project.

I got it. So once you win the initial contract, you don't have to rebid it; it's just a question of you're not sure if you'll get the follow-on work.

That's right. You get awarded a certain portion, and then there is a certain time periods over which they can award the remaining portion, and you are not guaranteed to be awarded that.

Very good. That's all. Thanks a lot for your help.

(OPERATOR INSTRUCTIONS). It appears we have no further questions at this time.

Okay. Well, I would like to thank you for joining our third-quarter update, and we expect to conduct the next call for our year-end 2006 results in late February or March of 2007. Thank you.

That does conclude today's teleconference. Thank you for your participation, and have a lovely day.