Great Lakes Dredge & Dock Corp (GLDD) 2008 Q2 法說會逐字稿

Good morning, and welcome to the Great Lakes Dredge & Dock Corporation second quarter 2008 earnings call. As a reminder today's call is being recorded. At this time I would like to turn the call over to Ms. Deborah Wensel, Chief Financial Officer of Great Lakes. Please go ahead, ma'am.

Thank you. This is Deb Wensel and I welcome you to our quarterly conference call. I will begin our discussion by presenting the financial highlights for the three and six months ended June 30, 2008. Then Doug Mackie, our Chief Executive Officer will share his market view which will provide a useful context within to view a more detailed discussion of operating results. Following our comments there will be an opportunity for questions.

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

Turning to the financial highlights. Revenue for the quarter ended June 30, 2008, was $145.3 million up almost 26% from $115.6 million a year earlier. Dredging revenue increased by more than 8% led by strong foreign operations. Revenue for the Company's demolition business North American Site Developers more than doubled to $34.8 million versus $13.7 million last year. NASD has been generating increased activity during the third quarter 2007 and continued at these higher levels during first half 2008.

Domestic capital work accounted for 41% of dredging revenue as projects in the New York/New Jersey Harbors, the Columbia River in Oregon and Barber's Coast Texas contributed to the quarter. The dredging in New York went back to work on the Newark Bay project early in August and therefore did not contribute to second quarter results, as they continue to undergo repairs to the entire period. Foreign dredging operations continue to be strong producing 32% of dredging revenues in this quarter versus 27% last year. The Company's maintenance work almost doubled from last year to $20.9 million as market demand continued to increase in the aftermath of spring flooding along the Mississippi River and the Gulf Coast. Beach work was down as State and local governments experienced delays during the two prior quarters and getting the necessary approvals to put projects out to bid. This phenomenon has become increasingly significant as these jurisdictions play a greater role in funding beach nourishment projects.

Gross profit for the second quarter of 2008 grew by 19% driven by revenue growth; however gross profit margin for the period was 14.9% versus 15.7% for the second quarter of 2007. Contract margins continued to experience pressure from the weak domestic market most notably the decline in beach projects as well as less demand for projects utilizing hydraulic cutter head equipment. In addition maintenance work which comprised 45% of the year to date domestic bid market typically has lower margins than beach or capital work. Maintenance projects represented 19% of the Company's total dredging revenue for the 2008 second quarter versus 13% a year ago. Also the projects that drove increased revenue for the companies demolition business included substantial subcontract work which produced lower gross margins comparatively for the quarter.

Operating income in the 2008 second quarter was $10.3 million, up 17% from a year ago despite the 21% increase in general and administrative expenses. G&A expenses were up due to increases in incentive pay in the demolition unit and in payroll and healthcare costs for the Company overall. EBITDA of $15.9 million for the 2008 quarter was on par with the previous year. Interest expense of $4.9 million for the second quarter of 2008 a reduction of $1.7 million from last year. The decrease from the prior year was driven by several factors including the write-off of $0.8 million in financing fees during the second quarter of 2007 in connection with the Company's refinancing of its revolving credit facility. In addition lower interest rates provided interest expense savings and the unrealized loss in the Company's interest rate swaps with [23] million less than last years. Net income of 3 million or $0.05 per diluted share was up from $1.7 million or $0.04 per diluted share a year ago. The number of shares outstanding at June 30, 2008, increased to $58.5 million from $41 million last year as a result of the Company's having called $18.4 million of outstanding warrants in June of 2007 that were subsequently exercised resulting in the issuance of the additional shares.

Revenues for the six-month period ended June 30, 2008, increased by almost 16% to $281 million compared with $242.4 million for the same 2007 period primarily as a result of the increase in demolition activity. Gross profit margin decreased to 11.9% from 13.2% a year earlier largely due to lower utilization as the dredge Texas was repositioned to the Middle East and repairs were being made to the dredge in New York. Other contributing factors were the continuing softness in demand for domestic beach and hydraulic cutter head dredge work and the substantial subcontract work driving increased demolition activity. Operating activity decreased to $12 million from $14.5 million due to the lower gross margin and higher general and administrative expenses. Year-to-date 2008 EBITDA decreased to $25.2 million from $28.3 million for the same period of 2007. Interest expense for the six-month period decreased by $2.3 million to $8.6 million primarily as a result of lower interest rates. Net income was $1.8 million or $0.03 per diluted share versus $22.6 million or $0.07 per diluted share a year earlier. At this point I'd like to turn the call over to Doug Mackie our CEO who will give you an overview of what's going on in our markets.

Thank you, Deborah. In the second quarter earnings bounced back from a slow start earlier this year, both the first and second quarters were affected by temporary loss of the dredge in New York, the low level of beach backlog resulting from a weak beach bid market and the mobilization of four vessels to the Middle East. However, the second quarter benefited from more domestic utilization on our capital projects in New York, New Jersey, Texas, and Oregon. Despite the lower level of beach work coming on to bid, the total domestic bid market in the second quarter totaled $188 million. This was another good quarter that included more capital work in the Harbors of New York and New Jersey and non-federally funded capital project for Louisiana Coastal restoration, and similar to last quarter, a significant amount of maintenance work.

Through the first six months of 2008 the Company won 46% of the $398 million year-to-date bid market, which was primarily comprised of maintenance and capital work. These projects awards added $183 million to our backlog during the first six months resulting in a total backlog at June 30, of $356 million up nearly 50% from this time last year. With our increased backlog a significant portion of our dredging fleet is booked through the remainder of 2008.

There are no major developments with regard to the federal funding situation. There has been little impact from the passage of 2008 fiscal budget earlier this year. Fortunately, during the first six months, maintenance spending totaled $174 million versus $84 million in 2007. Significant maintenance work on the West Coast as well in the Mississippi River and Gulf Coast regions has driven the market. The core has been able to reprogram funds from other areas during the first seven months of the year to meet the emergency needs.

The Presidents 2009 proposed budget includes some money for capital work but no mention of projects authorized by the latest [WARTA] Bill passed last October; however the reality is that the democratically controlled Congress and the White House are at odds over spending and will not be able to compromise in time to pass the 2009 budget this year. It appears the current sentiment in Washington is that the appropriation process is not functioning efficiently and rather than waste time, they will wait until a new administration is in place in hopes of improvement. As a result, it is likely the government will operate under a continuing resolution and the current status of the domestic market will remain substantially unchanged.

The one issue that has positive momentum building is with regard to the Harbor Maintenance Trust Funds. This fund has over the last 20 years collected tax revenue annually that was originally designated to fund Harbor Maintenance. In recent years the gap between what was collected under the tax and what has been allocated to Harbor maintenance activities has grown significantly and the unallocated funds has been used for general budget purposes.

The maritime industry has formed an alliance that is working under the initiative referred to as RAMP, or Realized Americas Maritime Promise which is focused on dedicating all future tax receipts collected under the trust fund to port maintenance work. This would add approximately 500 million to $700 million a year to address the central port maintenance dredging needs. There are currently more than 100 members of this coalition including representation from ports across the country and members of the shipping industry. The coalition is hopeful of gaining support through concurrent resolution during this years Congressional session which would allow for a possible Bill to be proposed next year. For additional information concerning this effort you can go to www.ramphmtf.org.

With regard to the near term capital projects, as anticipated, another New York contract came out for bid in the second quarter 2008 which the Company won. The next federal capital bidding opportunities are not expected until late in the year. The projects on the horizon include another project in the New York, New Jersey channel, a port expansion project in Jacksonville Harbor, Florida, working the channels of Paskagula and Pensacola as well as several smaller projects that in aggregate are expected to total over $140 million to be bid in the next 12 months. Additionally it is likely that a former dredging disposal site in Norfolk, Virginia at Craney Island will be expanded to provide a new container terminal facility. Planning for this project is progressing and at this time, there looks to be over $85 million in dredging work beginning some time in 2009.

There's nothing new to report regarding the potential LNG terminals. No significant LNG starts have come this year and none are expected for some time as various potential projects continue to work through permitting and sourcing issues. With regard to non-federally funded Louisiana Coastal restoration projects that we have talked about in previous quarters, two of the four were bid in the first quarter. The Company was awarded one of these for $34.7 million this quarter. The two additional projects are expected to be bid in the next 12 months, although one of those projects is not suitable for our large hydraulic dredges.

In March, a large project was bid for work on the Panama Canal which is the start of a $7 billion expansion plan for the canal a that is expected to be completed over the next six years. We anticipate there will be several more projects that will come out in the next couple of years that will be good opportunities for employing our equipment. In addition, the completion of the Panama Canal expansion will make maintaining and deepening our ports even more critical. Otherwise, cargo ships that are too large to navigate in our ports will choose to go to deeper ports outside the US and goods will have to be imported into the country via a more expensive method.

With respect to the beach nourishment market, the Company's second quarter revenues were negatively impacted by the postponement of federally and privately-funded projects and as a result, our second quarter backlog is a modest $20 million. The 2008 second quarter beach bid market was only $17 million bringing the year-to-date market total to $39 million. However, looking out, we do see a number of beach projects totaling over $200 million that are currently scheduled to be bid during the next 12 months. The number has grown with a deferral of projects from the prior year coupled with new projects for this year. While we feel there will continue to be some funding and permitting issues, we are encouraged and believe there is a better outlook now for beach work than there was at this time last year. So while the market to date has been fairly robust compared with last year, funding continues to be an issue and we do not see any significant change in the domestic dredging bid market for the remainder of 2008. However, we continue to feel positive about the longer term horizon given the growing need for maintenance dredging in many of our ports which have continued to deteriorate with the growth in the foreign commerce which will accelerate with the expansion of the Panama Canal, there is real pressure to improve our ports to remain competitive.

With a change in administration, there's reason to anticipate that the appropriate probation process will get back on track and money will start to be spent on the countries infrastructure needs. In more specifically for dredging that the harbor maintenance trust fund be directed for their intend purpose of funding dredging operations. On the international side of business, strong growth throughout 2007 and the first half of 2008 has set the stage for another outstanding year. Last year, foreign operations generated 32% of our dredging revenues and this level of work is expected to be maintained throughout 2008. Our four vessels have now reached the (inaudible). The hydraulic dredge Texas started working in the second quarter and the hydraulic dredge Ohio and Hopper dredge Ream Island will begin in the third quarter. The Ohio will continue to work until fabrications are ready to configure it to a similar platform as the Dredge Texas. The Hopper dredge Noon Island will go into drydock in August and should begin working in the fourth quarter.

The Middle East market continues to be very robust with many opportunities for our services predominantly in Bahrain. Recently, we signed two letters of intent for additional land reclamation projects, one in June for approximately $100 million and one subsequent to the quarter end for approximately $200 million. All together, we expect that during the first quarter of 2009 we'll have contracts for work in the Middle East that will occupy our equipment there continuously for three years.

Finally, with regard to the Company's dredge New York, which sustained extensive damage as a result of being struck by an orange juice tanker in the approach channel to Port Newark, New Jersey in January, we are happy to report the dredge began working in early August. This dredge currently has backlog and options pending which will keep it fully occupied for the next three years. With the dredge back in service, the Company believes it will be able to meet its obligation under the Newark Bay, Port Jersey, and recently awarded Kilbank Hall projects all with the Army Corps. of Engineers. The New York is fully insured for hull, collision, and pollution exposures under the insurance coverage of the Great Lakes. However, insurance related to loss of the use of a vessel is not economically viable in the marine market. Consequently, we are pursuing a claim against the owner of the vessel which struck the New York. Now let me ask Deb to walk you through a more detailed analysis of our second quarter performance.

Thank you. I'll start with a general overview of contracts contributing to the quarters performance within the context of the dredging markets we serve and our demolition segment. So in the first quarter, I'm sorry, for the second quarter of 2008 we had $45 million of domestic capital, $35 million of foreign capital, $9 million of beach, $21 million of maintenance and $35 million of demolition revenue for a total quarter revenue of $145 million. A comparative number for the first quarter of 2008 were $31 million of domestic capital, $33 million of foreign capital, $18 million of beach, $18 million of maintenance, and $36 million of demolition for a total of $136 million of revenue. And then just to give you comparative numbers for the second quarter of 2007, we had $30 million of domestic capital, $28 million of foreign capital, $31 million of beach, $13 million of maintenance, and $14 million of demolition for a total revenue of $116 million.

The majority of our $80 million of capital revenues were generated by our Clamshell dredges continuing work on deepening projects in Newark Bay, Port Jersey and Boston. Continuing work on our Columbia River Deepening project on the West Coast with our Hopper dredge Liberty Island and three projects in Bahrain, DR, Derarri ,and Durot Marina which produced $32 million of revenue in quarter. We employed four hopper dredges and three hydraulic dredges including the recently mobilized dredge Texas which worked for six weeks of the quarter.

Beach revenue was $9 million in the second quarter compared with $31 million a year earlier. Due primarily to the low amount of beach backlog at the end of the first quarter 2008 and decreased level of beach work bid in the previous two quarters as many entities are still delaying projects until later in 2008 due to permitting difficulties. Two projects in New Jersey accounted for most of the beach revenue. Maintenance revenue in the second quarter was $21 million, up from $13 million a year ago, as previously mentioned the maintenance market was strong in the first half of the year reaching $174 million nearly as much as the total 2007 market of $188 million. A number off maintenance projects contributed to this quarters revenue including dredging in Baltimore, and the Mississippi River and along the West Coast.

NASD had another very strong quarter generating $35 million in demolition revenue. NASD revenues have increased significantly beginning in the third quarter of last year. At that time, NASD took on several large contracts for work, that had substantial subcontract requirements which resulted in record revenue for this segment over last year. Due to the subcontract components of the work, the margin on these projects were lower than for NASD's typical demolition projects. By the end of the second quarter this year NASD had substantially completed these projects. We anticipate that their successful completion will lead to future more typical demolition work for NASD.

Turning to the bid market the second quarter 2008 domestic dredging bid market representing work awarded during the period totaled $188 million bringing the year-to-date bid market to $398 million. Great Lakes was low bidder on $183 million of this work representing a 45% share of the market -- 46% share of the market, I'm sorry. It was a strong quarter for the capital work for the Company as we won a non-federally funded Louisiana Coastal restoration project and received a partial award for deepening work in the [Killivan Cull] channel in the New York-New Jersey area. The remainder of the market was comprised primarily of maintenance projects in the Gulf area. The Company won a portion of these maintenance projects and two small beach projects.The work from the Newark Bay, Port Jersey and Killivan Cull projects will provide solid utilization for our mechanical back hoe dredge New York into 2011 and a Clamshell dredge in our drill boat Apache through 2009.

Given the Company's bidding success over the last few quarters dredging backlog at June 30, 2008, totaled $356 million compared with $240 million at June 30, 2007. Additionally the June 30, 2008, dredging backlog does not reflect approximately $396 million of low bids pending award, letters of intent on foreign projects and additional phases pending on projects currently in backlog. This number consists of approximately $307 million for projects in Bahrain and $89 million relating to domestic work. Projects in Bahrain include the second phase of the DR land reclamation contract and two additional land reclamation projects all expected to be awarded this year. The June 30, 2007, dredging backlog excluded approximately $237 million of pending work, $156 million for work in Bahrain and $81 million domestic work. Subsequent to quarter end the Company signed a letter of intent on another foreign project for approximately $200 million.

Demolition services backlog at June 30, 2008, was approximately $23 million compared with almost $42 million a year earlier. The second quarter 2000 backlog for the demolition business increased significantly. Higher backlog levels translated into record revenue for this segment during the second half of last year and the first half of this year, with a completion of several large projects in the second quarter, backlog has begun to moderate to levels existing prior to the 2007 second quarter. Current backlog still includes numerous projects was $1 million or more in remaining revenue.

Our backlog by dredging work type and segment at June 30, 2008, included $218 million of domestic capital, $91 million of foreign capital, $21 million of beach, $26 million of maintenance, for total dredging backlog of $356 million, adding $22 million for the demolition segment, for total Company backlog of $378 million. The comparative numbers for the end of the first quarter of 2008 were $164 million of domestic capital, $90 million of foreign capital, $20 million of beach, $26 million of maintenance, for total dredging backlog of $300 million, NASD had $29 million of of backlog for total Company backlog of $329 million. The numbers for the end of the second quarter in 2007 were $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 NASD backlog of $41 million for a total Company backlog of $281 million.

Capital Expenditures for the second quarter totaled $7.8 million, this including spending of $2.7 million on mobilization of the dredges Ohio, Ream Island, and Noon Island and other activities related to upgrades in placing these vessels into service. The remaining $4.5 million included work on a variety of dredges including steel renewals and other upgrades to the Illinois and Victoria Island as well as the purchase of smaller ancillary equipment for dredging operations. $0.6 million was spent this quarter on continuing construction of power barge that will enhance the utilization and operating efficiency of the dredge Florida. We expect to complete this vessel near the end of the third quarter.

Second quarter 2008 maintenance spending which is equipment related costs that are expensed in the year incurred was $10.4 million on par with first quarter and down $2.3 million from the prior year. Maintenance costs are still being impacted by higher steel prices and labor rates which continue to rise. However, maintenance costs are down compared with the same quarter last year as there were several vessels in drydock in the second quarter 2007 versus this year. As of June 30, 2008, senior and subordinated debt net of $4.8 million cash and cash equivalents was $212.7 million including $42 million of borrowings under the revolving credit facility. At the end of the second quarter 2008 outstanding performance letters of credit totaled $46.2 million. At quarter end our total leverage was 3.81 times and our interest coverage was 3.75 times.

In the second quarter 2008 we experienced an increase in working capital due to an approximately $3.5 million increase in pipe and other spare parts inventories overseas. In addition there was a temporary build in foreign receivables of approximately $10 million that were collected subsequent to quarter end. The remaining increase in working capital for the quarter was due to typical fluctuations in the timing of receivables and payables. Most of the build up in working capital is not expected to be permanent, however with increase in the number of projects taken on overseas our retaining requirements will increase which may require longer term add to working capital in the future. Retaining refers to hold back and payment of a portion of billings until completion of the project. We're changing the typical practice on foreign projects but not generally on domestic ones.

Finally, with regard to personal injury claims related to our ROE workforce residing in Texas we had no new claims filed against the Company during the second quarter and several more were settled. We're still hopeful that with the venue law change enacted last year, we will see an ongoing reduction in the number of costs of these types of personal injury suits that the dredging industry faced over the last two years.

The Company began 2008 with a solid domestic backlog, complementing the continued momentum in the international market. In the first six months the domestic market has provided us some good, longer term opportunities, specifically in the New York and New Jersey Harbors. And with the recent signing of letters of intent on several projects in the Middle East, we have substantial opportunities for the equipment committed overseas. With our current backlog, letters of intent and options pending award a significant portion of our dredging fleet is expected to be booked through the remainder of 2008. In addition we are currently in negotiations on a claim, a project claim for additional compensation that results from a change by the customer in the original scope of work. While not frequent it is not unusual to have contract claims typically on capital projects. Although we are not in a position to provide additional detail about this claim at this time, we anticipate that when finalized it will positively impact our results for this year. Therefore, as a result of the strength of our backlog, and our expectations for recognizing a portion of the contract claim this year, we are increasing our guidance for total year 2008 EBITDA to the range of 58 million to $63 million.

Also, we remain on target for upgrades to our recently acquired vessels. The Ohio and Noon Island and completion of work on the power barge for the dredge Florida. Total spending for which will approximate $28 million. We still anticipate base capital spending of approximately $23 million for the year, which reflects the labor and steel cost increases that are also impacting our maintenance costs. In total then we expect capital spending for 2008 on the specific vessels mentioned and days capital spending to be just over $50 million.

This concludes our prepared remarks but I would also note we will provide a summary of the operating and backlog information provided herein as well as 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 the call for questions.

(OPERATOR INSTRUCTIONS) We'll go first to Richard Paget of Morgan Joseph.

Good morning everyone.

Good morning.

How should we think about gross margins going forward kind of as a result of the higher utilization. I mean it sounds like you guys are booked throughout the rest of the year on a bunch of vessels you have New York on Board now, maybe a little bit of a slowdown in emergency work on some of the maintenance. I mean just going forward sequentially, do you see potential for upside there?

Yes, I think what we, the jobs that we are are working on in the first quarter here clearly will experience some of that domestic softness but I think with the New York work and some of the other capital work we've picked up we would expect to see some increase in gross margins and additionally, the additional work we picked up overseas which we should start here in the second quarter, second half of the year would have some higher margins as well.

Okay, so the 7 million bump in EBITDA guidance is the majority of that from the operating, I know you can't give the specific number for what the claim could be, but I just want to kind of get a sense of magnitude.

I mean, it is a substantial number but we also have some nice increase in utilization and gross profit as well in that guidance.

Okay, so you probably would have raised guidance regardless of--?

Yes.

Of the claim?

Yes, we would would have.

Okay, and then going forward, kind of gave a landscape. Wondered with the upcoming election, you mentioned a change of administration could help the appropriations process. I mean, is that kind of irregardless of which candidate wins the election that there would be a general change or do you think one candidate might be a better catalyst for spending going forward versus the other?

Well, there's a lot of opinions about that, but I think any change will be helpful because I think just the Bush Administration is totally polarized with the Congress now and I think the US needs to address the domestics issues we have, so I think that either candidate will be positive; however historically, for infrastructure work, democratic administrations generally are a little bit more generous.

Okay, and then with this ramp program, I mean, if everything progressed as quickly as it could, I mean, when do you think those funds would start being spent? Is this like a 2010 case scenario?

Yes, I think it would have to be because we are, I would think if it goes as we hope and we could get it in front of Congress in the first quarter, hopefully -- we're focusing on maybe an October 1, which would be the 2010 fiscal. And October of 2009 hopefully we could see some of that coming in.

Okay, and then one last question. On the bid market, you said first half you guys got about 46% of the market. I know it was a bit higher in the first quarter which would suggest specifically in the second quarter and back of the envelope math maybe around 38 to 40% of the bid market which is a bit lower than you guys have been trending. I mean, is that just maybe the natural lumpiness of marine construction or have you seen the competition maybe getting a little bit more aggressive in their bidding?

I think you need to probably check the numbers in that. I think we could have a higher percentage in the second quarter. Clearly, with the capital work that we picked up but again, we're always conscience of not trying to focus on quarter to quarter because of the lumpiness that you're talking about so that's why we typically look at a longer period to say what our bid win percentage is.

I think our win percentage in the first quarter was closer to 30%.

Yes.

Okay, but must be looking at the wrong number then. Okay, I'll get back in queue. Thanks.

We'll go next to Andrew Kaplowitz of Lehman Brothers.

Good morning guys. Could you give us a little more color on the Middle East? Two questions there. One is Doug, these LOIs, do you book them in Q1 09? Is that the current expectation?

Well, I think we're hopeful that we've got three LOIs right now, and we're pretty positive that two of them will be booked in '08.

And we book them at the point in time when we sign the contract.

Right. And the other one we're shooting for year-end, the third one, so we're really hopeful that we'll have all three of them booked certainly by the end of the first quarter.

Okay, great. And it seems like a might point I guess use I'm going to ask it anyway around the competition in the Middle East because you said you're going to have your dredges fully utilized but in Bahrain, it seems like you have good market share there. Are you seeing anybody else in the market there and how are you doing in the UAE with prospects?

Well, we have been, obviously our most success in the recent years has been Bahrain, and we really haven't seen any new competition coming into the Bahrain market. I think the market is very hot throughout the Middle East, and so we really haven't seen any threat to our position in Bahrain. As far as the rest of the UAE, we've gotten a small job in Qatar, and there's other opportunities there but as we've put in some bids, one bid in Dubai, and one large one in Abu Dabi and haven't been successful so there's still a lot of work out there but right now, I think the landscape of Bahrain for us and our equipment as it is now is a lot more, it appears to be a lot more competitive in Bahrain than it is in other areas. So our equipment is, so but as the projects that have been coming out have been pretty much ideal for our equipment, and there's some of the others that has not been as ideal but that can change because there's several more large projects coming online throughout the UAE and Bahrain.

Okay, that sounds good. If I could shift for a second to utilization, I know what I'm trying to figure out is you had a nice bump in gross profit, gross profit margin between 1Q and 2Q and we know that some of your dredges were still sort of on their way over to the Middle East not really set yet, so as we go forward in looking at the difference between 1Q and 2Q could you give us any sort of lay of the land as to what your utilization looked like in 2Q versus 1Q? And then what it might look like going forward?

Well, Q2 versus 1Q, we really only the Texas participated and it was in the second quarter. The other, assuming and actually we're pretty much status quo over the first quarter, I shouldn't say that. We've added a little bit to domestic occupancy in the second quarter and as far as, so that's improved and then if we look towards the third quarter, I think we will add still a little bit more, obviously the New York is coming in, so that's going to add to the third quarter, the dredge New York and we'll have another couple two smaller dredges that will come on for a few months domestically in the third quarter and as far as our overseas, we should have the Ream Island should work a good -- will work a good probably four and a half months, five months in that area.

The Ohio which is working, will be working probably only three or four months but that will be at a much lower revenue than the Dredge Texas because this is a different type of dredge and we'll be taking that probably off line towards the end of the year to prepare it for fabrication so we'll get a little bit out of the Ohio but it won't be real solid revenues as it will be after we reconfigure the vessel. And then the Noon Island, in order to work over there you need to, you may not understand but we need to put a pump out system so they can pump out and build these islands and that vessel will go into drydock in August and hopefully in November it will, then it should be able to work for a long period of time. So we're phasing them in.

The biggest add would be the Texas for the Fall, second half of the year.

Yes.

Got you, and Doug, we're getting into beach booking season again I guess, and so what's the confidence that we're going to see a big uptick in beach bookings, some of that $200 million will come over the next couple of months because I would assume that's when you need to get it to do the winter beach work?

Right. That's correct, and there are, as we look at it, there is at a minimum $200 million of prospects. Now, the best, I mean there's several projects we will be bidding several projects this month and next month and probably the following month are coming out pretty steady. The majority of these projects are for hopper dredges. There's still a little weakness if I'm looking at current near term beach jobs, they're still a little bit weaker than we would like for the hydraulic Qatar hedges. There's always a lot of opportunities. The hydraulic dredging opportunities are coming probably at a heavier pace after the end of the year, but it looks like a very good market. We're going to have many many opportunities to take on some work in the beach market.

Do you notice any impact from sort of state and local funding woes on your beach business?

Well, I think there's some. I mean, we've had a lot of people question whether or not there's really beach work is going to come out, but it primarily has been permitting problem. We really, we haven't seen really towns backing off because of -- or cities or counties backing off because of a lack of funds. We're seeing coming out, there's certainly as much private or non-federal beach work as there is federal beach work coming out, so again, what we found is the reason is usually the non-federal jobs have a more difficult time getting their permits in place and also they have more difficulty with local groups trying to stop beach work just for whatever reason, just in one case in Palm Beach, a surfing group is trying to stop a beach job because they like there's no beach there because the waves will break better but they actually stop it in the Spring, so we're finding those things. The Federal Government jobs generally, these jobs generally don't get postponed but the State groups can delay jobs rather easily for a short-term.

And one more quick question if I could. Doug, the maintenance business, the floods in the Midwest, how much more work is there? Is there still a lot more work to do related to the floods or are we kind of done with that?

Well, right now, I mean, there is still a huge fleet of our competitors and our dredges in the Mississippi and down in the Gulf. There's still, it's pretty packed out there trying to get the outlet, the Gulf outlet and out of the Mississippi down to grade. I think that will continue certainly until September, so there's still, they just bidded a couple jobs last week, so those are still coming out. There's some work up the River in not only in the Mississippi but around Memphis, so it's still there and with the storms that hit in Texas, that will probably add some more work again, so I think it's just right now a tough year which is good for the dredging industry.

Got you. Thanks.

We'll go next to John Parker of Jefferies.

I'm sorry, I missed that website that you mentioned to follow the progress.

It's www.rampharbormaintenancetrustfund or hmtf.

I've got it.

I have to do it by memory.

I've got it. I've got it. That's perfect.

Dot org.

Now you mentioned the Louisiana Coastal recovery work is non-federally funded. Where is that funding coming from?

That's the Louisiana Department of Natural Resources.

Okay and any idea how much, how deep their pockets are for future work?

Well, they have two more scheduled for sure which is total 40 million to $50 million of work this year and the next year. I think there's some other smaller jobs that they're doing but beyond that, we don't know though, we know they're raising money still, but beyond that, we only know of those two jobs right now, those two big jobs now.

And you mentioned in your press release the New York is going to, you had some expenditures to increase your debt levels that come back in the form of insurance claim. Can you give us any idea of the timing and the amount of those insurance reimbursements?

Most of the reimbursements from the insurers which relate to pollution control activities and the repair of the dredge work coming here in the second quarter, third quarter, I'm sorry. They should come in the third quarter now that the repairs are complete. There are deductibles related to insurance policies that will be collected until we go through our claim with the vessel, the owners of the vessel that struck the New York.

And any idea on the amount that that will improve your net debt position?

It's just a part of the borrowing for this year, but that will again as I said the other pieces too we think will come down by the end of the year, so most of the borrowing that we've seen should come down. We also have, we will complete the sale lease back of the power barge that we're constructing for the Florida and that we expect to happen in the third quarter as well.

Okay. And I think I missed part of your comments about the foreign sales cycle and I heard you had $200 million of LOIs but also it seems during the quarter you picked up roughly $30 million of new business in Bahrain. Were those mostly small projects or can you comment on how you're kind of picking up incremental business and also what's the status of the Phase II $150 million project?

Yes. I think during the quarter, we did pick up some typically they were additions to contracts that we were currently working on. We have as we mentioned 307 million of either options which includes the second phase of DR, or letters of intent that totaled 307 million and then we signed a further letter of intent for another 200 million. So we have pending about 507 million in contracts and that's what Doug was talking about that we would be expected to be awarded by the end of this year or certainly in the first quarter of '09.

All right well, that's all I have for new. Thank you are very much for your help.

(OPERATOR INSTRUCTIONS) We'll go next to Seth Weber of Banc of America.

Hi. Good morning. Most of my questions have been asked but just a couple quick follow-ups. Did I hear you say that your margins on the overseas business, the foreign business are starting to come up and can you characterize, do you see them on par with the domestic business over the next I don't know, 12-18 months or so?

Well, I mean, there again, they are coming up and if you wanted to average our domestic versus our foreign, I think based on 2008 probably our new domestic wins are probably a little bit higher than the foreign, but they are catching up. Let's put it that way. I mean, when we finally sign this, it will be sign up $500 million of additional work, we'll have a much better idea but I think it will, I think they will be substantially different than what we started with about three or four years ago, and I think that's a factor of bigger demand. Obviously the oil price is going up and there's a tremendous amount throughout the Middle East of infrastructure work being done and I think that the weakness of the dollar, I think has allowed us to get higher margins since our competitors are euro based.

Right. Okay, and then your comments on the Panama Canal opportunity, I didn't catch exactly what you said. I mean, are you looking at that opportunity as to be an active bidder or just to kind of soak up some supply which will then help you on the other side?

I think it's some of both. I mean, we could easily take, it's faster to get from New Orleans to the Panama Canal than it is to get all the way up to Los Angeles or San Francisco or Oregon, So we consider even as a foreign job, the Panama Canal would be what we consider we would use our domestic market if we thought of some weakness in the domestic market hydraulically dredging, we would go hard after some of that work in the Panama Canal. On the other hand, if I think it's just really good news that they're going to spend $7 billion and get that Canal down to a 50 feet which I believe will put pressure on the Gulf Ports and the East Coast to get down to 50 feet.

Okay, and then last question, can you just, the New York contract that you won in the second quarter is it and I'm sorry if you addressed this but can you characterize the pricing environment around that? Do you have any sense to how aggressive your competitors were on it or was there anything unusual that you guys did to win that deal?

The New York market has become less competitive. I mean we have fewer competitors. We only had three bids and we were much more aggressive in trying to raise our margin on that job, and we succeeded, but so we think that market because of the absence of our ex-competitor being Stiveson and the removal of now three large back hoes have been removed from the country, I think some of our competitors have seen they cannot compete with us, but we still have weeks bidding against us and a combination of a couple small guys bid against us, but we think the margins are loosening up in that market and hopefully we'll discourage our competitors a little bit more in the future.

Okay, thanks very much.

(OPERATOR INSTRUCTIONS) We'll go next to (inaudible).

Yes, good morning. A couple of quick questions. The Ohio goes into drydock by the end of the calendar year and about how long will it take to upgrade that?

Well, it won't be in drydock the whole time. We're basically cutting off the front of the dredge and the back end of the dredge and it all will be fabricated and we're putting in a lot of new controls, a lot of new power packs and things like that, so it will be, we'll probably start, might put it to the dock around December and we will just be preparing it for the fabrications then. We'll have our crews just cutting away portions and things like that, but I think with this type of fabrication and rebuild, I wouldn't, I'm not as optimistic as some of our mechanical people. They don't seem to hit the target very often, so I would be hopeful that we could get 7.5, 8 months next year out of the Ohio. It's a big rebuild. Maybe I'll be, I'm sure some of the mechanical people would disagree with me but I haven't been wrong very often on this.

So maybe some time in the second quarter?

Yes.

Okay. And then basically all the barges that you've shipped over there will have been upgraded to your specs and be fully employed.

That's correct.

That's correct.

That would be the last.

Just a couple other quick things. So the boost in the guidance, is that primarily the result of then the extra maintenance work that came or were there some other factors?

I think it's a lot of factors. It's certainly the maintenance work helped.

And we think there's a large amount of capital work as well.

Yes, and we go additions in capital work that we had on the West Coast that they kept adding work on that. That helped. And so we had some very good smaller jobs in the Middle East which had good margins that filled in, and then we do, we are negotiating, it's really, we call it -- I mean we call it a claim but really there was no issue. It was just that they changed the scope of the work and we just, we're just negotiating how much additional money we're entitled for that.

Okay, that's helpful and then one last thing on NASD. I've got kind of a stream of questions here, but generally speaking, you guys kind of bought out I guess the ownership and now own 100% although it does sound complicated because I know there's some profit-sharing and sharing in terms of potential sales price, so I guess if you could talk a little bit about how we should think about your ownership structure to NASD, number one? Number two, kind of your intentions near term with it, do you see it as core, is it something that let's say you'd be interested in marketing or maybe in the process of or open to bids and then I guess three, kind of as you look out, obviously the backlog has been good and I guess apparently you are seeing even though some of these large projects are rolling off you are seeing some decent forward-looking business there but a lot of folks are concerned about commercial construction and looking at some leading indicators of it would give more concern. So kind of three questions on the ownership, how you view it in terms of an asset, in terms of your core operations and then maybe more medium term outlook for the business if we do see some slowing in commercial construction.

From the ownership perspective, technically you're correct. We do own 100% now of the equity of the entity, but in a sense of the Owner Operator who has been there from the beginning he's still a 35% profit interest in the LLC going forward which is basically the structure he's been working under for the last few years. We just did a more formal restructuring such as a bonus structure, it's now an ownership structure so we really don't expect any difference really in how we're managing the business and how he is rewarded for doing the business. So more of a form over substance I think change here.

Okay.

But obviously going forward, I mean NASD has had a good 12 months here with some additional business. It's not the core business but certainly, we did well by it and opens them up for some future work. They think in some of these area which is is their typical bread an butter work. Again, there is an issue about how much work is going on and we still seem to see a fair amount in the Boston area that's keeping him at least occupied at the level here going forward as he has been in the past. Which we think is a nice addition to the cash flow of the Company overall. If we can grow that business some or has some opportunity in the future we can take a look at it. It's not our core business obviously, it's not dredging but it has been sort of a nice additional cash flow hedge for us. I mean, they do well at different times an they aren't necessarily in any way tied into the dredging side of things. So yes, I think it's just an ongoing business here and they're doing fine and just to have a nice contribution to the Company overall.

And Mr. Berardi has also stretched out his and has taken on a couple nice jobs in the New York area. He's looking in New Jersey. He got a nice job in Pennsylvania. He's hired senior operating people from other companies who have lived in those areas and he's going slowly but he's trying to expand out a little bit because he's seeing a lot of large factories and utility groups that have to be taken down throughout the northeast, not necessarily in Boston, so he's stretching out a little bit and he's worked hard to get a much bigger operating team that can deal with these jobs.

Okay, so it's fair to say that the rejiggering of the ownership wasn't in kind of preparation of making for a clean sailor anything of that nature?

No.

Okay, fair enough. Thank you.

We'll take a follow-up question from John Parker of Jefferies.

Sorry. I just wanted to ask you, I know you're very busy with all that you have going on but do you see any other opportunities to buy additional dredges or businesses in the US domestic market for the consolidation there?

It's really been quiet. I really haven't seen anything recently. We heard some rumors going around that nothing significant to really talk about, no, and there's only a few players and when they come out, you're usually surprised.

Okay, thanks a lot.

We have no more questions in the queue. I'd like to turn the call back over to Ms. Wensel for additional remarks.

Thank you for joining our second quarter update and we lack forward to talking with you after the third quarter of 2008. Bye-bye.

Again that does conclude today's call. We do appreciate your participation. You may disconnect at this time.