Great Lakes Dredge & Dock Corp (GLDD) 2007 Q2 法說會逐字稿

Good morning, and welcome to today's Great Lakes Dredge & Dock second quarter update conference call. As a reminder, today's call is being recorded. At this time I would like to turn the call over to Ms. Deb Wensel, Chief Financial Officer of Great Lakes. Please go ahead ma'am.

Thank you. I'd like to welcome you to our quarterly conference call. I'll begin our discussion by presenting the financial highlights for the second quarter of 2007. Then Doug Mackie, Chief Executive Officer of Great Lakes, will share his market overview, which will provide a useful context within which to view my more detailed discussion of operating results. Then following comments there will be an opportunity for questions.

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.

Turning to the financial highlights. Revenue for the quarter ended June 30, 2007 was $115.6 million, up slightly from the second quarter 2006 revenue of $114.1 million. Results in the quarter were driven by a similar mix of work across all market sectors as the prior year, with some increase in foreign capital offset by a decrease in domestic capital work.

Quarterly gross profit margins increased to 15.7% from 15.4% a year ago, as improvement in contract margins more than offset the impact of lower utilization resulting from the planned dry dockings of certain vessels.

Operating income in the second quarter was $8.8 million, down from $10.3 million in the second quarter of 2006. $1.2 million of this decrease was attributable to additional costs related to the Company's efforts to reduce personal injury claims in Texas and bad debt expense associated with a project completed in 2006. EBITDA for the second quarter was $15.9 million, which was down from $16.9 million in the previous year also as a result of these items.

Interest expense was $6.6 million for the second quarter of 2007, an increase of $0.6 million from the second quarter of 2006. Lower debt levels resulted in a decrease in cash interest expense of $1.1 million, but this was offset by non-cash interest expense of $0.8 million for the write off of financing fees in connection with the Company's refinancing of its revolving credit facility in June, as well as $0.9 million in unfavorable adjustments to the market value of the Company's interest rate swaps.

Net income was $1.7 million in the second quarter of 2007 as compared with net income of $3.0 million for the last year's second quarter. Prior to the Aldabra transaction, GLDD Acquisitions Corp. had shares of preferred stock outstanding on which dividends were accrued semiannually. In connection with the merger, those shares were exchanged for common stock of the Company. Therefore, there are no preferred dividends in 2007. In 2006, the net income available to common stockholders, after accruing $2.0 million of preferred stock dividends, was close to $1 million.

Revenues for the six-month period ended June 30, 2007 increased by almost 9% to $242.4 million compared with $222.5 million for the same 2006 period with comparable gross profit margins of slightly more than 13% in both periods.

Operating income increased to $14.5 million from $14.1 million, but was hampered by the items in the second quarter as discussed. EBITDA increased to $28.3 million from $27.1 million.

Net income increased for the six-month period to $2.6 million compared with $1.4 million for the same 2006 period, due in part to a $1.4 million reduction on interest expense resulting from lower debt levels. In 2006 the net loss of the [outlook] to common stock holders, after occurring formally in a preferred stock dividend, was $2.6 million.

At this point, I'll turn the call over to Doug Mackie, our CEO, who will give you an overview of what's going on in the dredging market.

Thanks, Deb. The Company experienced good utilization of its Dredging fleet from both domestic and international work during the first half of 2007 and contract margins continued to strengthen. The second quarter domestic bid market produced approximately $137 million of contract awards, which is up from the first quarter of 2007, but is less than we expected.

As I noted in last quarter, the Army Corps of Engineers is still challenged in getting projects out to bid, due to the ongoing funding issues. While the size of second quarter bids market was again smaller than anticipated, the year-to-date market of $252 million is in line with last year's six-month market of $256 million. Again, it is not necessarily predictive of the full-year bid market. Often we have talked about the unevenness of the bid market and how the timing of when a large project comes out to bid can sway one quarter significantly. In fact, during July the Company was low bidder on $105 million of domestic projects, including another section of the Port Jersey Channel for $85 million.

During the second quarter the Corps did award $28 million of the $64 million Newark Bay project that the Company won in January, so there is another $36 million to award on this project. The additional work on the Newark Bay project and the full amount of the $85 million Port Jersey project will be added to the bid market when they are awarded, which we expect to be by year-end.

Generally we feel that the letting of beach and capital projects will continue to suffer from the impact of the Corps' funding issues. In order to stage its funding, we expect the Corps to continue utilizing base-plus option bidding structure to get work out to bid this year. The continuing problem for Great Lakes and the industry overall is scheduling equipment and forecasting utilization since the contractor has to commit and reserve equipment for work when the timing and scope of the project are uncertain.

However, we expect to offset this by the continuation of state and local funding of vital beach projects to protect tourism and beachfront property investments. We also see several liquefied natural gas terminal projects and one private port development project possible by year-end. And finally, as indicated by the Louisiana Department of Natural Resources and NOAA, we should see up to four projects in the fourth quarter of 2007 and first quarter of 2008 funded by federal agencies other than the Corps.

Recently there was positive news regarding the passage of the new WRDA authorization bill this year. The Water Resources Development Act, or WRDA, is the primary vehicle for authorizing capital projects to deepen the nation's ports. The current WRDA bill passed by both the House and the Senate, has been reconciled in Committee. The House, last Friday passed the compromised bill by quite a large margin and the bill is expected to be passed by the Senate by a similar margin. The President has threatened to veto this bill as a result of the last minute addition of $5 billion in authorizations for water treatment facilities. It appears that Congress has the votes to override the President's veto.

An important positive for the industry in the current bill is the authorization of additional harbor deepening projects. Even more significant is the authorization of $3.7 billion for priority projects under the Louisiana Coastal Restoration Plan. A significant amount of this authorization is expected to be for dredging projects. While passage of the bill will not alleviate the current funding issues for all dredging work, it would provide support for continuing deep port projects in the future.

Also we are tracking authorized projects, including another phase of the New York Harbor 50-foot deepening project, two deepening projects in Tampa, Florida, a port expansion project in Jacksonville, Florida, the start of another deepening project in Wilmington, North Carolina, and several port expansion projects in the Gulf area. In aggregate, these are expected to generate over $240 million of bidding opportunities from the Corps for the market in 2007 and in 2008.

On the private capital work front, in the second quarter Great Lakes began work on a $26 million port expansion project in Freeport, the Bahamas. This is some of the private port work I've been talking about, along with the expansion of ports for LNG facilities. We continue to follow several smaller and two larger LNG related port expansion projects that should provide a sizeable amount of capital work to supplement the work put out by the Corps.

In the longer-term, if even a small portion of the currently planned facilities happen, it will continue to be a boost for the industry for the next several years.

With respect to beach nourishment market, we see a mix of both federally and privately funded contracts that should produce in 2007, a better market than last year's total of $126 million. Year-to-date, $78 million of beach work has been put out to bid. Positive here again is the amount of funding that is committed from the state and local municipalities, which represents 30% of the beach market to date.

In addition, the Corps is funding approximately 50% of over $200 million of projects expected to be bid over the next 12 to 18 months.

We continue to believe that the international dredging work will continue to be an important source of revenue for us. The international work we currently have in backlog is sufficient to occupy the equipment we presently have in Bahrain into 2009 and beyond. We believe the Middle East region to be one of the most robust markets for dredging services, including in excess of $2.5 billion in work suitable for our fleet to be bid over the next two to five years. We anticipate substantial additional opportunities that could support more of our equipment in the region.

During the second quarter, the Company purchased two dredges that had previously been operated by competitors in the domestic market. The first vessel, renamed the Ohio, was purchased for approximately $12 million and we plan to spend approximately $18 million to modify this dredge into a world class hydraulic cutterhead dredge well suited for capital in offshore beach nourishment work.

The second, a hopper vessel named the Terrapin Island, was purchased for $25.5 million. Through these acquisitions the Company was able to enlarge its fleet, while not increasing overall market capacity. The increase in the Company's capacity should enhance its competitive position with regard to domestic dredging opportunities, as well as enabling us to take on additional foreign work.

In addition to these new equipment purchases, we intend to spend approximately $10 million to construct an auxiliary vessel to support our electric cutterhead dredge, Florida. We expect this to yield significant efficiency improvements and increase the versatility of the Florida, expanding deployment opportunities and utilization rates for the vessel.

We expect that the acquisitions and the auxiliary vessel, coupled with consolidated domestic capacity will contribute to our revenue growth and overall profitability. Depending on general end market conditions, once the modifications to the Ohio are complete, and the newly acquired dredges and the auxiliary vessel are fully deployed, we anticipate that these vessels will generate approximately $9 to $13 million of incremental EBITDA on an annualized basis.

On June 19th, 2007 the Company called its warrants. In total from all warrants exercised prior to and after the call, the Company received cash of almost $92 million. Then on August 1st, the Company completed a secondary offering of 13,340,000 shares of its common stock. The combination of these two actions has enhanced the Company's capital structure and provided increased trading liquidity for the Company's common stock.

Now let me ask Deb to walk you through a more detailed analysis of the second quarter performance.

Thank you. The following is a general overview of contracts contributing to the quarter's performance within the context of the dredging markets we serve and our demolition segment.

Revenue during the second quarter of 2007 included $30 million of domestic capital, $28 million of foreign capital, $31 million of beach work, $13 million of maintenance, $14 million of demolition, for a total quarter revenues of $116 million.

The comparative numbers for the first quarter of 2007 were $16 million of domestic capital, $25 million of foreign capital, $37 million of beach, $37 million of maintenance and $11 million of demolition, for total quarter revenue of $126 million.

And the breakout for the second quarter of 2006, we had $38 million of domestic capital, $17 million of foreign capital, $34 million of beach, $12 million of maintenance, $13 million of demolition, for a total quarter revenue of $114 million.

The majority of our second quarter $58 million of capital revenues were generated by our hydraulic dredge, Florida, returning to work on our deepening project in Brunswick, Georgia, the return to work on our LNG terminal project in Golden Pass, Texas after downtime in the first quarter as we waited for our customer to secure the necessary materials for continuation of the project. We recommenced this project with our hydraulic dredge, Alaska, as our dredge, Texas, was mobilized and began work at a private terminal expansion project in Freeport, Bahamas.

And finally, our three projects in Bahrain, Diyaar, Bahrain investment work and South Durrat, all made significant contributions to revenue in the second quarter.

The beach revenues contributed $31 million for the second quarter, which is a similar level to last quarter and the second quarter last year. One job in South Carolina and four in Florida all contributed to the revenue generated for the quarter.

And finally, maintenance revenue in the second quarter totaled $13 million, a more typical level of work compared with a very strong first quarter. The majority of the quarter's maintenance revenues related to dredging on the East Coast, including work in Baltimore Harbor and the channel in Newark Bay. Also the hydraulic dredge, Texas, completed work on the Atchafalaya River project in Louisiana before mobilized into Freeport.

NASDI had another solid quarter, generating approximately $14 million in demolition revenues. NASDI has consistently generated this quarterly revenue level over the past two years. The activity in the Boston area continues to provide constant opportunities for NASDI to take on a good amount of projects and a number of larger projects.

As Doug indicated, the second quarter 2007 domestic dredging bid market representing work awarded during the period, totaled $137 million, of which Great Lakes obtained close to a 25% share. Similar to last quarter, many of the projects awarded by the Corps were maintenance and rental work, with each project under $11 million. Great Lakes won two of these projects, totaling more than [inaudible].

During the second quarter the Corps did award $38 million in capital work, of which Great Lakes was awarded $28 million for the Newark Bay project, on which we were low bidder earlier this year. The remaining $36 million is expected to be awarded by year-end.

In July, Great Lakes bid and won an $85 million capital project for another section of the Port Jersey Channel deepening. This project is expected to be awarded and included in the bid market in the third quarter with work commencing in 2008. The work from these New Jersey projects will provide solid utilization for our mechanical dredge, New York, through mid-2009.

The year-to-date domestic market totaled $252 million of which Great Lakes won 23%. This year-to-date market is on par with the June 2006 year-to-date market of $256 million. Thanks to a strong second half, the domestic market generated $714 million of contract bids in 2006, including $502 million from the Corps of Engineers, who does continue to struggle with funding challenges, as Doug explained.

Looking at our backlog, the combination of a relatively modest bid market and a strong revenue resulted in the Company reducing its dredging backlog during the second quarter. At June 30, 2007 dredging backlog was $240 million compared with $267 million at March 31, 2007 and $287 million a year ago.

The Company's June 30, 2007 dredging backlog does not reflect approximately $237 million of low bids pending award and additional phases or options pending on projects currently in backlog. For example, contract options of approximately $156 million are expected to be awarded for the second phase of the Diyaar land reclamation project in Bahrain in the next six to eight months. Additionally, the remaining portion of the capital project in New Jersey for $36 million is expected to be awarded before year-end.

The $237 million of low-bids pending does not include the $105 million of domestic low-bids that Doug mentioned, which the Company won in July.

The demolition services backlog at June 30, 2007 was $41 million, which is a significant increase for NASDI and was driven by two large contracts for exterior and interior demolition as well as site work. Both of these projects were commenced in the second quarter and are expected to be completed in the first quarter of 2008. NASDI has been able to generate consistent backlog and is expected to maintain this trend as there continues to be a good demand for demolition services in the Boston area.

Our backlog by dredging type and segment June 30, 2007 was $66 million of domestic capital, $161 million of foreign capital, $9 million of beach, $4 million of maintenance, for total dredging backlog of $240 million, adding demolition backlog of $41 million for a total Company backlog of $281 million.

This compares to where we were at the end of the first quarter of 2007, where we had $60 million of domestic capital, $159 million of foreign capital, $39 million of beach, $9 million of maintenance, for a total dredging backlog of $257 million, NASDI had $15 million for a total Company backlog of $282 million.

And the same numbers or breakout for the end of the second quarter in 2006 was $52 million of domestic capital, $174 million of foreign capital, $45 million of beach, $16 million of maintenance, for a total dredging backlog of $287 million, adding $10 million of demolition revenue for total Company backlog of $297 million.

Switching over to equipment spending, capital expenditures for the second quarter totaled $63.9 million, a large spend for the quarter that included significant equipment purchases. In April the Company purchased the dredge, Ohio, and attendant plant for a total of $13.6 million. In June the Company bought out operating leases for the dredges, Texas and Pontchartrain and two scouts for a total of $14.4 million.

Also in June the Company purchased the Terrapin Island dredge for $25.5 million. Subsequent to quarter end, this purchase was refinanced to a long-term operating lease. Additionally, $4 million was spent on construction of the auxiliary piece of plant that Doug discussed, which will enhance the utilization and operating efficiency of the dredge, Florida. It is expected that the total spend on this construction will be $10 million and should be completed early in 2008.

Exclusive of these special items, $6.4 million was spent during the quarter for typical required capital spending. Year-to-date our capital spending for other than these special items noted is $11.5 million and is still in line with our full-year expectations for $18 million.

For the last two quarters I've mentioned that the Company has been investing in pipe inventory to reduce dredge downtimes between domestic project requiring pipeline for removing dredge material. This is in response to the recent contraction and the size of the projects put out by the Corps. In addition, we increased our foreign pipe inventory to accommodate the expansion in backlog of projects in the Middle East. Over the last nine months we've increased inventory by approximately $7 million and have reached the level of investment we feel is necessary to support both our domestic and foreign pipe needs.

Second quarter 2007, maintenance spending, which is equipment-related costs that are expensed in the year incurred, was $12.7 million, which represents an increase from the first quarter in prior year, as several vessels were in drydock this quarter. We have found that preventative, rather than reactive maintenance has been a very effective strategy in maximizing utilization.

Looking at debt and liquidity. As previously announced, Great Lakes merged with Aldabra Acquisition Corporation, a publicly traded blank check company, on December 26th, 2006, and is now traded on the NASDAQ under the symbol GLDD. This merger has allowed the Company to de-lever which facilitated its recent purchase of two dredges. By virtue of the fund receiving connection with the merger the Company paid in full its senior bank term debt of just over $50 million. The Company's $175 million of 7.75% senior subordinated note due 2013, remain outstanding.

On June 12, 2007 Great Lakes entered into a new five-year $155 million senior revolving credit facility, refinancing equipment term debt and the borrowings outstanding under its previous senior credit facility. The Company has $49 million of revolver borrowings and has $30.6 million of letters of credit outstanding under this facility. Therefore, total availability at the end of the quarter was $75.4 million.

At June 30, 2007 Great Lakes was in compliance with all financial covenants and its new senior credit ensure the agreements. At June 30, 2007 the Company had total debt of $224 million, total cash and equivalents of $1.1 million and total outstanding performance letters of credit of $49.1 million.

At quarter end without adjustments allowed by our senior credit agreement, our total leverage was 4.1 times and interest coverage was [2.3] times.

As Doug mentioned, the Company called its warrants in June. Subsequent to the end of the quarter, all of the Company's outstanding warrants were either exercised or redeemed. In total, $91.8 million of cash was received by the Company, including $60.2 million received after the end of the quarter. Total leverage would have been approximately 3 times, adjusting for the additional warrant monies received after the end of the quarter.

I'll touch on a couple of other matters here before we finish. On February 10th, 2004, the Company was served with a subpoena to produce documents in connection with a federal grand jury convened in the United States District Court for the District of South Carolina. The Company believes the grand jury has been convened to investigate the United States dredging industry in connection with work performed for the US Army Corps of Engineers.

For over six months the Company received no additional communications from the Justice Department, however, in April some follow-up requests for additional information were received. The Company fully complied with these follow-up requests and has received no further communications. As noted previously, the matter remains open and the Company continues to incur legal costs, although at a much reduced level from 2004 and 2005.

Also, the Company's results continue to be negatively impacted by the increase in reserves related to injury claims from our hourly workforce residing in Texas. However, over the last several months, Maritime Jobs for Texas, a coalition of maritime employers, has been working to reform Texas venue law with regards to the type of personal injury suits the dredging industry has recently faced. On May 24, 2007 the Texas legislature passed a bill, which removes in part certain venue rules favorable to would-be plaintiffs. As enacted, these legislative reforms could reduce the number of meritless personal injury suits facing the industry in Texas going forward.

However, the Company still has a significant backlog of claims to date for which is has reported reserves. As of the end of the quarter, our reserves represent our best estimate of the outcome of these claims as regards the Company.

And finally our outlook. Operations for the first half of 2007 were solid and in line with our expectations. Backlog continues to be sufficient with prospects for better market dynamics by year-end. Therefore, looking forward, our guidance for the Company's EBITDA remains in the range of $52 to $57 million for full-year 2007.

Again, this guidance does not include any impact from the acquisition of the two dredges or the construction on the new vessel as discussed. We would expect to give guidance with regard to their impact on year-end numbers by next quarter.

This concludes our prepared remarks, but I would also 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 site at GLDD.com.

I would now like to open the call for your questions.

(OPERATOR INSTRUCTIONS) Andy Kaplowitz with Lehman Brothers.

Despite the Corps funding issues, you know, as you've alluded to, Doug, the gross margins in the quarter still looked pretty good to me. Can we talk about that? I mean you obviously didn't change your outlook going forward and I know it's a lumpy business. But it seems like maybe pricing is coming back a little bit and it seems like margins are pretty good. How do you think it all plays out over the next six to 12 months in margins?

In the recent month to six weeks, we are seeing pricing being better, somewhat better. Whether it's just that the market is seeing -- or our competitors are seeing a better market going forward or it's the elimination of one competitor, I'm not sure. But we see, you know, some solid bidding opportunities, but every now and then a job will come where somebody will bid very low. But overall, I think it trained to be more solid going forward, based on what we see. I think over the next quarter we'll be able to be a little bit more informed and hopefully give you a better outlook then.

I understand. Doug, do you think that the Corps funding issues or similar to let's say six months ago? It seems like you've mentioned a bunch of new projects that could come along, you know, a bunch of new opportunities, so even though your backlog is down a little bit in the quarter, it seems to me that maybe the Corps is loosening up some of its funding going forward. Is that a fair statement or is that maybe reading too much into it?

Well, it's a fair statement. Though you have to remember, again, there is no real pattern, but we have seen in the last three years where the second half of the year had more bid opportunities than the first half. A lot of that has to do with the beach market, a lot of beach work is being bid in third and fourth quarters. But, if I look from a year ago, we do see more opportunities -- not a huge percentage, but we do see maybe 9 or 10% more work as we look out at the market, now versus last year. So it's certainly showing better. Of course, like you said, all we can do is bid the work that is let and it can be delayed, but we are optimistic about the market.

Doug, is there any way that you can give us the utilization numbers that correspond with the gross margins that you reported in the quarter?

We really don't, for many reasons, give out our utilization numbers, because they are -- it's a very complex formula, because so many of our dredges have such different revenue rates. Depending on the type of work we're doing, the type of dredge, it would just be misleading if we gave you an overall utilization rate. We have never really provided that information other than in a very general way. I mean, we can just say that right now the utilization is probably really on par with last year's at this moment.

Understand. Is it fair to say though that some of your larger dredges could be doing much better revenue maximizing projects if the Corps does come back into the market in a big way?

I mean it's always. We've always said that if we get more of the capital work coming out, whether it's Corps or private, and if again, a lot of this beach work keeps coming out, then that would be a better situation obviously than bidding into the maintenance market. We do see more capital in beach and as we look out over the 12 to 18 months, if that holds up, it would be very positive for us.

John Parker with Jefferies.

Deb, can you provide me any information about the revolver, what the interest rate or spread over LIBOR is on that revolver?

Well, there's a tier, it depends on total leverage. When we came out we locked that in at LIBOR plus 250, but that will change after -- I think it's a six-month period that we're locked in. Clearly we'll be lower than that, given our current leverage situation.

Okay. Now, there's been a lot of changes in terms of your operating lease commitments. Can you provide any indication of kind of run rate annual operating lease payments that you would make over the next year?

Well, interesting, we did do a number of buyouts, which I indicated, here in June. And of course that will reduce our rental expense going forward. However, just subsequent to the end of the quarter, we did a sale-leaseback with a long-term financing arrangement for the Terrapin Island and so all those transactions net pretty close to zero.

Okay, so it would be similar to historic levels -- to recent levels I should say. On your CapEx plan, can you provide an update? I know you mentioned kind of the year-to-date maintenance CapEx was on target for what you guided before, but in terms of additional projects, especially related to the two new dredges, can you give me any guidance in terms of timing of those capital expenditures and the amount?

The two that we've committed to here are the $10 million auxiliary piece of plant, of which we've spent $4 million to date. The remaining $6 million will be spent by early 2008, so most of that won't happen this year. Then the $18 million related to the Ohio is somewhat variable. I mean, we have some options whether we want to speed that up or put it over a longer period of time, depending on what opportunities we see for this dredge in the near term. But we would expect that most likely that $18 million will be spent by the end of next year.

Okay. I guess you had a $85 million low bid offer in July and then in the press release also now you're mentioning $105 million total, but the $85 in particular for Port Jersey, is that a complete job, there's no options related to that?

It is, I mean it will be a bigger portion. I think in this case the base is close to $60 million of the $85 million, so when that is awarded, you know, it's a much bigger percentage that we had with the Newark Bay job. But we anticipate that we will get award late third quarter or early in the fourth quarter and it appears that we will get the option work within six months after that. They're moving fairly fast in this job.

Okay. So 60 and then another 25 down the road.

Right, next year, probably early first quarter or second quarter of '08.

Okay. I'm a little confused. Also you mentioned 105 on the call total, one in July, so there's another--?

Well, there's another 20 that makes up three jobs, smaller jobs that should all -- let me see. They should be completed this year or maybe a little bit into the first quarter of '08.

Okay, good. The Freeport job, is that accounted for as a domestic project?

No, we count that as foreign.

Okay. And was there an additional foreign contract win in the neighborhood of $30 million during the quarter? I'm just looking, your backlog went up more than I expected.

No. The only item that jumped in there in the second quarter was -- I think Freeport came in in the second quarter. Yes.

Okay, perfect. Thanks a lot for your help and nice results for the quarter.

Sarah Thompson with Lehman Brothers.

This is George [Koenig] for Sarah Thompson. Just a couple of questions. Deb, I'm trying to understand, with the $9 to $13 million EBITDA guidance, does that include the sale-leaseback? Is that lease expense in that?

No, it's just what the operations would generate. I'm sorry. That expense would be rental expense, so it would be included in that $9 to $13 million.

Right, so the rental expense is part of that?

That's correct.

Great. And just so I understand, subsequent to the second quarter, you received proceeds of $60.2 million from the warrants and then another $25.5 million from the sale-leaseback?

Yes.

(OPERATOR INSTRUCTIONS) Jeff Weber with Bank of America.

Deb, I know you're not updating guidance per se, but could you help us understand what the puts and takes with some of the modifications that are going on, maybe handicap, how much of these new vessels will be onboard in '07 and how much we can kind of bake in of that number into '08?

Well, again, the Terrapin Island will contribute to this year. We have a job and it's mobilizing to that project. So it will add something to this year. The construction of the auxiliary piece of equipment should be completed end of the year, early into next year, so that portion should mostly flow in all of '08.

But the Ohio is a longer-term item and while it will contribute something during the time period before it's upgraded, as we do some of our fabrications, then at some point when we take it out of service for a number of months and then put it back in service as upgraded. And that probably won't be complete until maybe the end of next year. So we're looking at 2009 before you would get the full impact on that 9 to 13.

Okay, so maybe a couple of million dollars this year and then maybe half of that 9 to 13 next year or something like that?

That may be reasonable.

Okay. Second question, can you just give us an idea what the pro forma balance sheet would look like after you get the warrant proceeds, I assume you pay down some debt and what the cash balance is going to look like after everything's settled out?

We had $49 million of borrowings from the revolver. We received another, as we said, $16 million in warrant money and then received $25 million from the sale-leaseback of the Terrapin Island. So that immediately nets to about $35 million of cash on the balance sheet, with $175 million of the senior subordinated note [inaudible].

(OPERATOR INSTRUCTIONS) At this time there appears to be no further questions in the queue.

Thank you for joining our second quarter update and we look forward to taking to you next quarter.

That does conclude our teleconference for today. We'd like to thank everyone for your participation and have a wonderful day.