Great Lakes Dredge & Dock Corp (GLDD) 2007 Q4 法說會逐字稿

Good day everyone, and welcome to the Great Lakes Dredge & Dock Corporation fourth-quarter and year-end 2007 earnings conference call. Just as a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Ms. Deb Wensel, Chief Financial Officer of Great Lakes. Please go ahead, ma'am.

This is Deb Wensel. I would like to welcome you to our quarterly conference call. I will begin our discussion by presenting the financial highlights for the fourth quarter and 2007 year. Then Doug Mackie, Chief Executive Officer of Great Lakes, will share his market overview which will provide a useful context with which to view my more detailed discussion of operating results. Following our comments, there will be an opportunity to ask 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.

Revenue for the quarter ended December 31, 2007 was $156.9 million, up by more than 28% from $121.8 million a year earlier. The 2007 fourth-quarter activity reflected solid utilization across all dredging sectors and a sizable contribution from the demolition units. Foreign dredging operations continued strong, producing 35% of dredging revenues in the quarter versus 27% last year. Additionally, work commenced on capital projects in the New York, New Jersey ports that have been delayed by funding and environmental permitting issues. Our demolition business, North American Site Developers, or NASDI, generated a 120% increase in revenues or $15.4 million driven primarily by three large projects that will provide additional work through the first quarter of 2008.

Gross profit for the fourth quarter increased by almost 24% to $22.7 million from $18.3 million a year earlier. Gross profit margin for the 2007 fourth quarter was 14.5% versus 15.1% for the 2006 fourth quarter as a result of the normal diversity of projects performed between quarters. Quarterly margins fluctuate due to the specific projects that are being performed in that quarter. Each project margin can differ significantly based on the type of work and equipment required.

Operating income in the 2007 fourth quarter increased by 27% to $10.8 million from $8.5 million a year ago, even though general and administrative expense was up $2.1 million from the 2006 quarter. EBITDA of $17.4 million for the 2007 quarter was up 12% from $15.6 million in the previous quarter. Interest expense was $3.2 million for the fourth quarter 2007, a reduction of $3.8 million from the 2006 fourth quarter. Lower debt levels resulted in interest savings of $1.7 million and we recorded a $0.6 million favorable non-cash adjustment versus the 2006 quarter to the market value of our interest rate swaps. Also in 2006, we wrote off $1.4 million of deferred financing fees in connection with the repayment of approximately $51 million of term debt.

Net income was $3.8 million in the fourth quarter of 2007, an increase of $2.1 million from 2006. In the fourth quarter of 2006, the net loss available to common stockholders after incurring $2 million of preferred stock dividends and recording a $2.8 million loss on the redemption of those shares was $3.1 million.

As you remember, prior to the Aldabra transaction completed in December 2006, GLDD Acquisitions Corp. had shares of preferred stock outstanding on which dividends were accrued semi-annually. In connection with the merger, those shares were exchanged for common stock of the Company, eliminating the preferred dividend.

Revenues for the year ended December 31, 2007 increased by 21% to $515.8 million compared with $426 million for the 2006 year. The improvement in revenue was attributable to foreign dredging and domestic demolition activities. Gross profit margin for the year of 13.2% was relatively unchanged from the prior year despite significant increase in maintenance spending that was substantially driven by increases in steel and labor costs.

Operating income increased 13% to $29 million from $25.6 million, even with additional general and administrative costs of $2.7 million related to the secondary offering, expenses associated with being a publicly traded company, bad debt expense, and costs related to efforts to reduce the Company's personal injury lawsuits in Texas as we discussed in previous quarters.

EBITDA for 2007 increased more than 9% to $57.5 million from $52.6 million in the previous year. Lower debt levels resulted in decreased interest expense for 2007 of $17.5 million versus $24.3 million a year earlier. Net income for 2007 was $7.1 million, or $0.14 per diluted share versus $22 million a year earlier. In 2006, after accounting for $8.2 million in preferred stock dividends and the $2.8 million loss on redemptions, the Company recorded a net loss of $8.8 million or $0.90 per diluted share.

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

Throughout 2007, the Company experienced good utilization of its dredging fleet from both domestic and international work and contract margins remains steady. Continued softness in the domestic bid market and increased maintenance costs presented challenges to our efforts to increase margins. Although as predicted, the $162 million fourth-quarter domestic bid market was less than we would've liked, the Company won a sizable share including the award of the -- of most of the Port Jersey Channel project, which we mentioned earlier in the call along with another option on the Newark Bay project, collectively totaling over $107 million in revenue.

While the full year 2007 bid market of $603 million did not match 2006's $714 million, our 53% market share enabled us to exceed the amount of work we took on during the previous year. Included in the work, we took on four large capital projects -- the two in the ports of New York and New Jersey and one each in Boston and Oregon that will provide continuous work for certain dredges into 2009.

On November 8, 2007, an amendment to the Water Resources Development Act, or WRDA, was the primary vehicle for authorizing capital projects to deepen the nation's ports was enacted into law. This bill includes the authorization for three additional harbor deepening projects totaling $350 million and even more significantly for $3.7 billion in priority projects under the Louisiana coastal restoration plan, a good portion of which is expected to be foreign dredging projects. While we don't think anything in the current WRDA bill will be out in the near-term, the passage of the bill authorizes additional deep port and coastal restoration projects in the future.

Further, the current congressional sentiment is to return to the biannual passage of a WRDA Amendment Bill, a process of which has languished over the last five years due to a lack of focus on the country's infrastructure needs. However, this positive may be offset in the short-term due to the battle over earmarks for congressional add-ons which is typically how these capital projects get appropriated in the budget process. So, while the funding for capital projects will be impacted for these reasons, the Corps and industry are looking for ways to increase funding for maintenance projects.

The Corps has expressed a concern over the level at which they have been able to maintain our ports in recent years. Over the last 20 years, the Harbor Maintenance Trust Fund has collected tax revenue annually that was originally designated to fund harbor maintenance. However, since early on, these tax revenues have been comingled with general funding and only a portion has been allocated to dredging each year. There are efforts today to change this and dedicate all future tax receipts generated from the fund to port maintenance which would add approximately $500 million to $600 million a year. And while this will not impact 2008, the port and the Corps are targeting success by 2010.

In January 2008, the federal budget was finally passed which includes a higher amount of funding for the Corps versus the previous year. However, timing of implementation makes any additional dredging projects beyond what has already been announced uncertain. Looking further ahead, while the President 2009 budget was just released, it is not likely to be passed before the election so we may again be working under a continuing resolution into 2009.

With regard to the near-term capital projects from the Corps, we expect to see another New York contract come out in the second quarter of 2008. Additional capital bidding opportunities are not expected until much later in the year. At that time, we should see more work come out in the New York/New Jersey area; a port expansion project in Jacksonville Harbor, Florida; the start of another deepening project in Wilmington, North Carolina as well as work in the channels of Pascagoula and Pensacola and several smaller projects that in aggregate are expected to total over $180 million by year-end.

In 2007, we generated approximately [$16] million of revenue on capital contracts for private customers, a very similar number to the previous year. However, the bid market for 2007 did not include much volume for private customers for future projects. No significant LNG starts came out this year as various potential projects continue to work through permitting and sourcing issues. It appears that the next most probable dredging project for LNG terminals, one which we have been involved with for some time now, will not likely be bid until 2009. However, there continues to be a large number of potential projects on the drawing board that could provide dredging demand over the next few years.

With respect to the beach nourishment market, during 2007, we saw a mix of both federally and privately funded contracts that produced a $146 million bid market, up from 2006's $126 million. Funding from state and local municipalities represent 34% of the 2007 beach market. However, in the fourth quarter of 2007 and the first quarter of 2008, we have seen a number of both federally and privately funded projects postponed until later this year. With our 2007 year-end beach backlog down to $30 million compared to $56 million a year earlier, revenue will be negatively impacted in this year's first quarter.

In the last two years, beach work has been a big revenue producer early in the year. However, looking out, we still expect over $120 million of beach projects to be bid over the next 12 months with a good portion of the funding from nonfederal sources. So, while we do not see any real change in the domestic bid market in 2008, we see some potential good news on the longer-term horizon. There is recent evidence that Congress is softening on issues of continuing contracts and the ability of the Corps to redirect funding from one dredging project to another. This may provide flexibility for the Corps to get more work out in the future.

On the international side of the business, we reported strong growth throughout 2007. Last year, foreign operations generated 32% of our dredging revenues compared with 23% in 2006. Of the $62.6 million overall increase in dredging revenues, year-over-year 87% was generated by our foreign operations. The Middle East market continues to be very robust with many opportunities for our services, particularly in Bahrain.

Based on these market dynamics and our international backlog, we purchased two hopper dredges in the fourth quarter which had been operated in Brazil. In 2008, we mobilized these vessels to the Middle East. The total cost of these vessels including upgrades, mobilization, spare parts and supplies will approximate $34 million. Based on our current schedule, one vessel is expected to begin working on the Diyaar project by the second quarter and the second dredge would be ready sometime in the third quarter. Our expectations for this year are for these dredges to produce approximately 50% of their estimated annual cash flow.

Also, we are sending two additional dredges, the Ohio and the Texas, to the Middle East. The Ohio is expected to work a portion of the year in its current configuration as we continue to fabricate portions of the upgrades that will convert the vessel to a world class hydraulic cutterhead dredge similar to the Texas in dredging capabilities. We expect the deployment of these two dredges to the Middle East to provide the best opportunities to maximize utilization. It should be noted that both the Ohio and the Texas will remain under US flag and will be able to return to the US when the market here warrants.

2007 has obviously been an important year for vessel acquisitions by the Company. In addition to the two dredges from Brazil, earlier this year, we purchased two dredges previously operated by competitors in the domestic market. We expect that these vessels will also provide increased flexibility, efficiency, and capacity to fuel growth in our revenues and profitability in the long term. While there continues to be short-term uncertainty with regard to the corresponding issues, the capabilities which our fleets now provide positions us to take advantage of the strong market in the Middle East. At the same time, we maintain the flexibility that will enable us to respond to the expected return of more capital work in the domestic market in the future that will be critical to keep US ports competitive with those internationally.

Before turning the call back to Deb, I want to update you on the Company's dredge, New York, which on January 24 sustained extensive damage as a result of being struck by an orange juice tanker in the approach channel to Port Newark, New Jersey. At the time of the collision, the New York had commenced dredging on the Company's capital projects in Newark Bay. The dredge and the drydock undergoing repairs which are currently expected to be completed in June 2008. This estimated timetable allows the Company to meet its obligations under both the Newark Bay and Port Jersey contracts with the Army Corps of Engineers.

The New York is fully insured for whole, collision, and pollution exposures under the insurance coverages of Great Lakes. However, insurance related to loss of use of a vessel is not economically viable in the remarket. Consequently, we are pursuing a claim against the vessel which struck the New York. Nevertheless, the loss of the dredge New York will negatively impact this year's financial results.

Now, let me ask Deb to walk through a more detailed analysis of our fourth-quarter performance.

I'll start with a general overview of contracts contributing to the quarter's performance within the context of the dredging markets we serve in our demolition segment. Revenue during the fourth quarter of 2007 included $44 million of domestic capital, $45 million of foreign capital, $20 million of beach, $20 million of maintenance, and $28 million of demolition for a total revenue of $157 million.

The comparable numbers for the third quarter of 2007 include $39 million of domestic capital, $42 million of foreign capital, $3 million of beach, $9 million of maintenance, and $23 million of demolition for total quarter revenue of $116 million. Then, the comparable numbers for the fourth quarter of 2006 were $38 million of domestic capital, $29 million of foreign capital, $15 million of beach, $26 million of maintenance, and $13 million of demolition for a total company revenue of $122 million.

The majority of our $89 million of capital revenue in the fourth quarter of 2007 were generated by our backhoe and clamshell dredges beginning work on deepening projects in Newark Bay and Port Jersey; completion of work on the Golden Pass LNG project with our hydraulic dredge, Alaska; continuing work by the dredge Texas on our contract for port expansion work in Freeport, Bahamas and this project was completed in early 2008; and finally, three projects in Bahrain -- Diyaar, Bahrain Investment Wharf and Durrat Marina, where we employed four hopper dredges and two hydraulic dredges working for most of the quarter which produced $30.2 million of revenue in the fourth quarter.

Our beach revenue was $20 million in the fourth quarter compared with $16 million a year earlier. After a typically slow third quarter for beach revenue due to environmental windows which only allow beach work in the October/November to April/May time frame, the fourth quarter picked up as expected. Two projects in Florida and one in South Carolina accounted for most of the revenue.

Maintenance revenue in the fourth quarter was $20 million, a slight drop from the fourth quarter of 2006 but still a strong quarter for maintenance work. A number of maintenance and rental projects contribute to the quarter's revenue including dredging in Kings Bay, Georgia and Columbia River in Oregon.

NASDI had another very strong quarter generating approximately $28 million in demolition revenue. Over the last two years, NASDI has been consistently producing $11 million to $13 million of revenue per quarter. So, this quarter and third quarter's revenue of $23 million are up significantly. The increase is due primarily to two large contracts NASDI won in the second quarter and an additional project in the third quarter for demolition and site work. A good portion of these projects include subcontract work so the margins are not as high as NASDI typically generates. But, nevertheless, the work is expected to lead to additional direct demolition activity for NASDI yielding more typical margins. These projects should provide a higher level of revenues for NASDI through the first quarter of 2008.

Looking at the fourth-quarter bid market, as Doug indicated, the fourth-quarter 2007 domestic dredging bid market representing work awarded during the period totaled $162 million, of which Great Lakes won a sizable share. It was a strong quarter for capital work with the Port Jersey Channel project being awarded as well as another option in the Newark Bay, New Jersey project totaling approximately $107 million. There is still one more option for each project to be awarded collectively totaling $20 million. The work from these New Jersey projects will provide solid utilization for our mechanical backhoe dredge New York once it's back in service and two clamshell dredges through mid-2009. The Company has also won several smaller maintenance projects and a beach project in the quarter.

With the significant amount of work awarded to Great Lakes during the fourth quarter, dredging backlog at December 31, 2007 was $321.5 million versus $290.9 million at September 30, 2007 and $352.6 million a year earlier. The December 31, 2007 dredging backlog does not reflect approximately $234 million of low bid spending award and additional phases pending on projects currently in backlog. The largest component is approximately $150 million for the second phase of the Diyaar land reclamation contract expected to be awarded this year with a balance of $84 million related to domestic projects.

The 2006 year-end backlog included approximately -- excluded approximately $186 million of pending work, $156 million for the Diyaar project and $30 million of domestic work. Demolition services backlog was $38.9 million compared with $37.4 million at September 30, 2007 and $16 million at December 31, 2006. This is another strong backlog at quarter end for the demolition unit.

Our backlog by dredging work, type and segment at December 31, 2007 was $175 million of domestic capital, $107 million of foreign capital, $31 million of beach, $9 million of maintenance for total dredging backlog of $322 million. Adding $39 million for our demolition backlog gives us a total company backlog of $361 million. These numbers compared to the end of the third quarter in 2007 where we had $103 million of domestic capital work, $128 million of foreign capital, $44 million of beach, $16 million of maintenance for total dredging backlog of $291 million. NASDI had $37 million of backlog for total company backlog of $328 million.

Those comparable numbers for December 31, 2006 were $72 million of domestic capital, $185 million of foreign capital, $56 million of beach, $40 million of maintenance for total dredging backlog of $353 million. NASDI had $16 million of backlog for total company backlog then of $369 million.

Capital expenditures for the fourth quarter totaled $4.6 million including spending on fuel renewal on two of our large scouts that are used to support our mechanical dredges. An additional $2.1 million was spent this quarter on the construction of the power barge that will enhance the utilization and operating efficiency of our dredge Florida. This brings the year-to-date total spend on the barge to $7.2 million. We expect to complete this vessel mid-2008.

We've mentioned the purchase of the two dredges in Brazil, now named the Reem Island and the Noon Island, for which we spent $26.4 million by year-end. In the first half of the year, the Company acquired the dredge Ohio, an attendant plant for $14 million and bought out operating leases for the dredges Texas and Pontchartrain and two scouts for a total of $14.6 million. In June, the Company purchased the Terrapin Island dredge for $25.5 million and in the third quarter this purchase was refinanced through a long-term operating lease. So, in total, dredge acquisitions buyouts and construction of auxiliary equipment for 2007 totaled approximately $90 million, or $65 million net of the proceeds received on the Terrapin refinancing.

Our non-acquisition related capital spending during last year totaled $21.8 million. Fourth-quarter 2007 maintenance spending which is equipment related costs that are expensed in the year incurred was $9 million, bringing the 2007 total spend on maintenance to $43.8 million. This is an increase from our historic yearly spend of approximately $32 million as several dredges located in the Middle East went into drydock for repairs after working steadily for well over a year. But more significant was the impact from inflation related to steel prices and labor rates that increased maintenance expenses.

As previously announced, Great Lakes merged with Aldabra Acquisition Corporation, a publicly traded blank check company, on December 26, 2006 and it is now traded on the NASDAQ under the symbol "'GLDD." This merger has allowed the Company to delever which enabled us to respond to recent vessel acquisition opportunities. By virtue of the funds received in conjunction with the merger, the Company paid in full its senior bank term debt of just over $50 million by year-end 2006. The Company's $175 million of 7.75 senior subordinated notes due 2013 remain outstanding.

In the third quarter, all the Company's outstanding warrants were either exercised or redeemed. In total, $91.8 million was received by the Company as a result of the warrants exercised in 2007. In addition, the Company completed a secondary offering in early August of 13,340,000 shares of its common stock. All proceeds of the secondary were received by the selling shareholders and not by the Company. The combination of these two actions have enhanced the Company's capital structure and provided increased trading and liquidity for the Company's common stock.

On June 12, 2007, Great Lakes entered into a five-year $155 million senior revolving credit facility to refinance equipment term debt and provide for the Company's working capital and letter of credit needs at reduced interest rates. As of December 31, 2007, total debt net of $8.2 million of cash and equivalents was $188.2 million including $21.5 million of borrowing under the revolver facility. At quarter end, the outstanding performance letters of credit totaled $43.3 million.

In the fourth quarter, we liquidated short-term investments that accounted for the large cash balance we had on-hand at September 30 and used the cash as well as revolver borrowings to fund the purchase of the two dredges in Brazil. The cash balances at year-end include amounts held in Bahrain and Diyaar. With the recent pressure in the Middle East to appreciate their currencies, we are holding Diyaar to meet our Diyaar liabilities. Our contracts in Bahrain are denominated in the local currency and therefore we do not expect any unfavorable impact from a revaluation or change in the pay at the Bahrain and Diyaar.

At quarter end, our total leverage was 3.2 and interest coverage was 3.7 times. During the year, the Company's investment in working capital increased. A portion is related to the need to increase pipe inventory to support operations both domestically and internationally. Additional working capital investments were required by increased dredging activities overseas and a higher level of activity in the demolition segment. Therefore, we expect to carry this level of investment in working capital going forward.

Finally, during the second half of the year, no new personal injury claims were filed against the Company related to our hourly workforce residing in Texas. We believe this is due in part to the successful efforts of maritime jobs for Texas, a coalition of maritime employers that work to reform Texas spending law with regard to the type of personal injury suits the dredging industry has recently faced. During the fourth quarter, several outstanding claims were settled. As a result of those settlements, our backlog of claims has been significantly reduced from where it stood at the beginning of the year. The negative impact related to these types of claims on results during 2007 was approximately $4 million, down slightly from $4.5 million in 2006.

As we have discussed, throughout 2007, the Company experienced good utilization of its dredging fleet and increased activity in its demolition segment. In addition, having won 53% of the US bid market, the Company has a solid domestic backlog entering 2008, complementing the continuing momentum in the international market. However, we see no improvement in the funding difficulties or amount of work coming out for bid in the domestic market in the near term. For this reason, as Doug indicated, we are again moving more equipment from the US market to the Middle East where we see better opportunities to keep these vessels utilized.

During 2008, we will move forward on our committed capital projects for mobilizing additional vessels overseas, upgrading our recently acquired vessels -- the Ohio and Noon Island -- and completing work on the power barge for the dredge Florida which in total will approximate $28 million. We're also anticipating that we will refinance the power barge under a long-term operating lease and will receive approximately $15 million in proceeds in 2008. By making these expenditures, our dredging fleet will be well positioned to take advantage of market opportunities going forward whether they are in the domestic market or overseas.

This year, we are also anticipating base capital spending of approximately $23 million which is similar to 2007's spend of $22 million and reflects continued inflation costs by the same labor and steel cost increases that are impacting our maintenance costs. In total then, we expect estimated capital spending for 2008 to be just over $50 million.

While we believe there are demand drivers that will positively impact the domestic market in the future, we're countering the softness we foresee short-term by increasing our international activities. And although our new vessels -- the Terrapin Island, Ohio, Reem Island, and Noon Island -- will all be employed this year, most of them will not be fully employed until 2009. All of this coupled with the current state of the domestic market and the impact from the unexpected casualty of the dredge New York will temper 2008 results. Therefore, we anticipate a 2008 similar to that of 2007 with EBITDA in the range of $51 million to $56 million. And while we typically don't give guidance by quarter, the 2008 first quarter is expected to be weaker than the remaining quarters due to the low beach backlog at year-end, the mobilizations to the Middle East, and the dredge New York collision.

This concludes our prepared remarks. But I would also note that we will provide a summary on the operating and backlog information provided herein as well as the reconciliation of our EBITDA which is a non-GAAP measure to net income and GAAP measure in the financial section of our Company's website at GLDD.com. I would now like to open up the call for your questions.

(Operator Instructions). Richard Paget, Morgan Joseph.

You guys talked about the domestic market in 2008 and you see more opportunities over the Middle East and are redeploying some assets over there. Besides the projects that you are working on, maybe you could give us a little bit more information on what kind of new work you think you'll be able to get once those vessels are deployed over there?

We have actually several projects we're working on right now but we also have proposals in for several hundred million dollars of additional work which we are in the process of negotiating. So, we don't necessarily want to talk about the ones that we're negotiating but we do have -- we're going to get award of the second phase of Diyaar sometime in mid-year which is another $150 million. And, we're looking at several other large projects.

Maybe you could just characterize them as the types. Are these the big reclamation projects? Is it new marinas? Is it getting to be in some more maintenance work?

This is generally all of the big reclamation projects. The Diyaar project is -- of course, it's a $300 million job of which phase II will be another $156 million. That's all reclamation. And with what's in our backlog now and -- it is pretty much all of them are reclamation jobs, though there are a couple we're bidding which are just channel deepening projects that we're bidding also.

Okay and then I wonder if you could expand about your comments on the beach market. How much of this is potentially impacted by expected pressure on local tax receipts? Or is this reflective of the real estate market or what do you think is really slowing it down or pushing back projects?

I think the biggest problem is really their inability to get their permits, which has -- obviously comes through the Corps of Engineers which has really slowed down. And additionally, some of the -- in the private area, there's a lot of pressure from local owners who don't want their -- believe it or not -- don't want their beaches renourished, so they are fighting some of these jobs in court. Though, none of them have been stopped permanently. But generally, we have -- a lot of these have funding but they just did not -- weren't able to get the permits so they could do the projects in the [turtle] windows.

Is it kind of an administrative bottleneck, why these permits aren't going through or is it getting caught up in courts with people fighting it?

I think it's mostly the bottleneck and just getting the permits. They are taking -- again, they are very complex. Some of them could take anywhere from 1 year to 2.5 years to get a permit. So they are always working on the next job after they finish the last one.

But it is -- there is somewhat of a bottleneck and some of these communities are probably not sophisticated enough or their engineer consultants aren't sophisticated enough to guide them through the permit process in an efficient fashion.

And then, finally, you guys were pretty acquisitive in terms of vessels and I guess that's probably a combination of you guys having the capital as well as both becoming available. Do you see as many opportunities to acquire more vessels going into 2008 or do you think there was just -- this is more of a 2007 event?

Well, if -- the domestic market it is -- we have as you could see very good backlog at the moment. Our competitors don't. We don't know of any opportunity right at the moment. But, I would -- based on the domestic market, I wouldn't be surprised if there may be some opportunities in 2008. But they just -- as what happened with the Bean Stuyvesant acquisition, it just pops up when the investors in these companies have decided they don't want to continue investing in the domestic market.

Andy Kaplowitz, Lehman Brothers.

Doug, could you talk about maybe what the Army Corps of Engineers is doing lately? It seems like we need these projects to get done; yet, it seems like 2008 they are still going to take sort of a hiatus here. Is this because there's too much crosscurrents from an election year? Is it that they are still too focused on Iraq? What's going on with them? Is this the permitting issue that you were talking about? Why is this happening?

Well, they are clearly still focused on Iraq. It's still taking as you know a huge chunk out of all domestic programs, including dredging. And, you're also seeing obviously some pressure on the States also who have budget problems, especially on the West Coast which is not as big a deal for us.

But, it is -- I think it is mostly a focus on Iraq and also the fact that Congress is still taking control of the money flow to the Corps. There's still certain subcommittees who have to approve any project over $10 million which doesn't make for an efficient use of funds. But I think we're seeing some give on the Congress to let the Corps run their funding going forward.

But, the 2008 budget definitely is 10% or 15% higher than what the 2007 was. But, we still are a little bit at a loss as what's going to come out of that 2008 budget because we still haven't gotten any real information even though the budget was passed in January of 2008. So, we're somewhat in the dark and the Corps is very frustrated as our industry is.

I understand. I guess the question that I have is, it seems like 2009 can be a better year. I know it's far out there now and it's hard to sort of predict. But, there's just so many -- there seems like a number of catalysts here including WRDA and maybe the focus on Iraq changes. How optimistic are you guys that 2009 could be a significantly better year than 2008 for Great Lakes?

We think -- historically, election years, especially President election years, are better for the following year. Because generally, even though we have deficits, there's a lot of pressure coming from I think both sides of the aisle to put out some infrastructure work because they know the infrastructure in the United States including harbors and ports are deteriorating. So, we are cautiously optimistic.

But at the same point, we're moving -- taking a big move to the Middle East to make sure that we have a very good base in the Middle East with high utilization. And, whether 2009 -- if 2009 is better, we will have a better international market this year and next year. And if the domestic market gets better, whether it's 2009 or in 2010, I think we positioned ourselves to take on very good work in the Middle East. And when the market comes back in the domestic market, I think again we will take the lion's share of the work.

Deb, I know you gave guidance on 2008. I'm just trying to think a little bit more about the parts. It seems like given your comments on the call that there is definitely some maintenance inflation that is pressuring margins a bit. And I would assume that as you shift work to the Middle East, your margins will be a little bit lower on that work versus the US capital work. Are those sort of the major pieces to think about on the margin side affecting the Company? Is there anything else that I'm missing?

No, I think those are the two big sort of determining factors right now given that there's not much more we can do here domestically with margins.

Could you tell us, Deb or Doug, how much of an impact you are implying on the New York being out of service for six months -- or five months approximately?

We're already in litigation over this. So, we don't really want to comment on it. It is significant, whatever that means. It is a big producer and we will lose six months. While we're in this litigation and once we finalize all the damages and finalize our loss of use claim, we will be quickly in negotiations and/or litigation. So, right at this point, we don't really want to put out a number.

I understand but I guess from our perspective we can think about it as that this was a very large project for you guys. And basically, we're talking about a six-month business interruption in this project. And we know what the numbers are that essentially you have gotten or you should get when the project is done and the bidding process. Is that all true basically?

Yes.

Yes. When you can look at it from a revenue side, I think that makes sense.

Then the other question I have is, you mentioned that it looks like LNG is being delayed as well. Maybe, Doug, you could comment on that a little bit more. Are these projects just being put off because of things like cost inflation or permitting? And when do you see -- you had talked about several projects actually over the last couple of quarters. When do we see the release of those projects in general?

Part of it is -- as we said, it is permitting. These are -- the ones we're looking at are very large projects. There's two or three that are over $50 million and some up to $100 million and they are -- so there are permitting issues.

But I think the other issue is also that the supply side. I think in some cases, some of them were delayed because the demand was greater in Europe for LNG than it was in the US. Because obviously, just like the price of gasoline is in the US is a lot cheaper than in Europe. So, some of the supply side delayed them going forward.

Also, they did find out with all the LNGs being built all over the world that the price of the LNG facility was anywhere from 25% to 40% higher than what they thought the price was going to be for the facility. So, they had to go back -- they obviously have to go back and rework their numbers and see what they can project out obviously over the next five years whether or not they can sustain a facility in that area. So it's a combination of all of those -- sticker shock from the facility, competition for the sources and permitting.

Then just one more follow-up question on Newark. I don't know if you can talk about this, Doug. But I'm just curious, is it possible to frame at all how long it might be before -- if you were to get back a claim you could get it? Or is that just something we shouldn't go for right now?

Unfortunately, in our world, this is not the first time this is happening to us or we've been on the other side of it. It is litigation, which it's -- there's not a formula but there is clear law on loss of use for vessels. We're somewhat positive that we can negotiate this without going into extended litigation. There will be experts. We'll have to get experts on this one (technical difficulties).

I would love to be able to tell you that we could resolve this thing in 2008 but I think that would be a little pie in the sky. It could happen. I think both sides want to resolve it. But, really we can't even present our claim until we have the dredge back working and we're working on the claim right now. So, I think it will either be resolved in the next 12 to 13 months. Or if we go to litigation, it obviously could be a couple of years.

John Parker, Jefferies & Company.

You've been putting up some very large market share numbers recently. Is there any concern internally or have you heard any concern out there that your market share might be getting too big and any competitive?

Not at all. I think as I've responded in many cases, we are part of what they -- for antitrust reasons, we're in the large defense area of I guess you'd say the antitrust laws. And you could just look at someone who is building a B-1 Bomber which is probably $1 billion each, there's often only one bidder or two bidders.

And because there's a budget on everything we bid, the federal government or the state governments, you have to bid within their budget. So, they are somewhat what is called a power buyer. And so we're not concerned. And as a matter-of-fact, I think our biggest client is glad that we have the biggest piece of the market.

Okay and then on the relocation of your two dredges to the Middle East, can you give us an idea of cost? And will those flow through as operating expenses to your income statement?

The new vessels which we're placing into service, mobilization costs are part of placing in service so they will be capitalized. And so they are in the numbers that I gave for this spend. Our dredge Texas is a mobilization and those mobilizations are typically expensed to the contracts. So that's what will happen with the dredge Texas.

And the Ohio and the Texas, can you give us an idea of how large that fixed vessel will be or do you not have that now?

No, there's a lot of aspects to that. So, no, we don't really have a number to give out on that.

Are you at all concerned that your demolition segment is sensitive to the housing slowdown or general recession?

Well, again, most of the demolition business is in Boston and they have actually seen sort of an uptick in demand. So, they don't work in small residential, that type of demolition. They are big buildings. A lot of them they are interior guts. So fortunately, we've seen that their market actually is picking up.

There's been a lot of press recently about the Great Lakes dredging situation. I know you haven't recently done work there. Would you be in a position to mobilize if some of these Great Lakes dredging projects materialize? Or is that not a market you focused on?

Well many of the projects that are in the Great Lakes are set aside for small businesses so we can't bid on that work. But if a major project came out in the Great Lakes which I'm not aware of any right at the moment, it would probably be open to all competition. And certainly we could if it was a major project, all our large competitors would be looking at on the Great Lakes work (technical difficulties) we would.

What about any updates on the Philadelphia dredging potential -- the Delaware River excuse me?

We know that they are -- they put out a couple of projects, small ones. But I still believe they are struggling with the disposal of the material. Most of the disposal of the Philadelphia project or the Philadelphia to the sea project right now is designated to go into New Jersey, of which New Jersey doesn't like that. So I think they are still struggling with the disposal issue. And I think with what's going on with the federal budget, I think that they are happy to put it off for another year.

I missed a couple of items, Deb, I think you went over earlier. The power barge refi was that $15 million or $50?

15, 15.

That's what I thought. And the EBITDA guidance, I missed that. What was that again for 2008?

For 2008, it's a range of $51 million to $56 million.

Seth Weber, Banc of America.

Deb, just a quick clarification on the EBITDA guidance. Does that assume flattish revenue as well?

Yes, I think it does assume that margins are somewhat similar overall.

Doug, I guess in the press release and then your prepared comments, a couple of times you talked about fleet utilization being at good levels. Can you give us an idea where -- can you put a number around that and maybe talk about where utilization is versus maybe last year?

2006 to 2007?

2007 to 2008, are you--?

Well, you mentioned utilization is high. Can you give us an idea of where it kind of stacks up today versus the prior -- maybe versus 2006 and maybe where you think utilization will be same time next year if that's possible?

Well, you mean next year meaning obviously 2009?

Well no, sorry for --

2008?

For 2008, yes.

Well utilization was good. We always have a lull; it's generally in the third quarter. And, in 2006 - 2007, we're very similar but we had better margins in 2007 than 2006. I would think that 2008 utilization would be pretty similar to 2007 because we -- even though we don't expect as good a utilization in the domestic market, we have shipped some vessels obviously to the Middle East where we will get higher percentage utilization. So, I think overall for our fleet, we will have a similar utilization.

Now, three of the vessels going over there will -- actually all four because there is -- are not going to be working much in the first quarter because they are being mobilized over to the Middle East and the Ohio will be taken out of service to do the refit. So, even having said that, I think we'll have about similar utilization to 2007 and 2006.

If you were to put a number around that, is it something 50%, 60%, 70%? Is that a fair (multiple speakers)?

In our world because of mobilizations and drydockings, I think 80% would be equal to 100%. So, I think we're in the 50% to 60% in that range over the last few years.

And with utilization coming down in the US market, have you noticed any change in the pricing environment? Has that gotten more competitive?

Yes, it has. On capital projects, there's always fewer competitors. But, on certain beach jobs, there's more competitors. But, yes, especially the maintenance work is very competitive. But again, there are complex jobs out there and capital projects where we hope to get at least decent margins because there is only so many bidders who can bid some of the capital jobs and some of the beach jobs.

And did the Ohio and the Terrapin add to the 2007 numbers at all?

No, not in 2007. The Terrapin did some work out in Columbia River but remember we said we took that job on mostly to mobilize out there because of anticipation of the capital project which that dredge will be doing this year in 2008. And the Ohio did not work at all in 2007.

Okay so, not -- non-material?

No, the Terrapin was not material and the Ohio was zero.

I'm sorry if I missed it but did you give an EBITDA or op income contribution expectation from the Brazil from the two new boats that you bought? You did that for the previous two barges or vessels that you bought.

I think last quarter when we talked about the acquisition, we had said I believe it was something around $6 million to $8 million of EBITDA that those vessels could do in a typical year. And they are obviously not fully employed next year and we gave sort of an indication of what we think they will do next year (technical difficulties) 2008.

Okay and then last question. Can you just give us either the operating income by the two segments or the margin by the two segments for dredging and then demo for the quarter?

For the quarter. You know, we typically don't do that. You know we just talked sort of about the revenue levels and the components that make that up. If you look at our MD&A, I think we do provide those. But I don't have those numbers in front of me.

(Operator instructions). Sarah Thompson, Lehman Brothers.

This is [Dori Konig] for Sarah. Just one question to make sure that I understand this correctly. The EBITDA guidance that you guys provided for 2008, does that include the contributions of the recently acquired dredges or does it exclude it?

No, it includes everything that we think will be working in 2008. It's our estimate of what we think their utilization will be across their fleet.

So, that includes the Brazilian, the Ohio, and the Terrapin?

That's correct.

(Operator Instructions). At this time, there appears to be no further questions in the queue.

Thank you for joining us for our fourth-quarter update. We will look forward to talking with you again after the first quarter of 2008.

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