Great Lakes Dredge & Dock Corporation
Q4 2007 Earnings Call Transcript

Published: 29 Feb 2008

[Operator:]

Good day, everyone, and welcome to the Great Lakes Dredge & Dock Corporation fourth quarter and year end 2007 earnings conference call. (Operator Instructions) At this time, I’d like to turn the conference over to Ms. Deb Wensel, Chief Financial Officer of Great Lakes.

[Deborah A. Wensel:]

I’d like to welcome you to our quarterly conference call. I’ll 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 be an opportunity to ask questions. Before I began, however, I need to remind you that certain matters discussed may be considered forward-looking statements and participants in this call are caution not to place undue reliance on such forward-looking statements. Furthermore, any forward-looking statements speak only as of date hereof and Great Lakes assumes no obligation to provide any future update. Revenue for the quarter ended December 31st, 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 unit. 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 had been delayed by funding and environment permitting issues. Our demolition business, North American Site Developers or NASDI generated 120% increase in revenue or $15.4 million, driven primarily by three large projects that will provide additional work through the first quarter of 2008. Gross profits 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 have been 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 was $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 of 2007, a reduction of $3.8 million from the 2006 fourth quarter. Lower debt levels resulted in interest saving of $1.7 million, and we recorded a $0.6 million favorable non-cash adjustment versus the 2006 quarter, 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 clearing $2 million of preferred stock dividends and recording a $2.8 million mark on the redemption of those shares was $3.1 million. As you remember prior to the Aldabra transaction completed in December 2006, GLDD Acquisition 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 31st, 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 cost of $2.7 million related to the secondary offering, expenses associated with being a publicly traded company, bad debt expense, and cost related efforts to reduce the company’s personal injury lawsuits in Texas, as we discussed in previous quarters. The 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 dividend and the $2.8 million loss in redemption, the company recorded a net loss of $8.8 million or $0.90 per diluted share. 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 the dredging market.

[Douglas B. Mackie:]

Through out 2007 the company experienced good utilization of its dredging fleet from both domestic and international work and contract margins remained 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 have liked. The company won a sizable share including the award of the 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, 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 for 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 settlement is to return to the biannual passage of a WRDA amendment bill, a process 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 or 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 in 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 co-mingled 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 proceeds generated from the funds to port maintenance, which would add approximately $500 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’s federal budget was finally passed, which includes a higher amount of funding for the Corp 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’s 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 Corp, 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, a start of another deepening project in Wilmington, North Carolina, as well as work in the channels of Pascagoula and Pensacola, and several smaller project that in aggregate are expected to total over $180 million by year end. In 2007, we generated approximately $60 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 were 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 two years. With respect to the beach nourishment market, during 2007, we saw a mix of both federally and privately funded contracts that produced $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 2008, we are seeing 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 non-federal 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 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 recorded strong growth throughout 2007. Last year, foreign operations generated 32% of our dredging revenues compared with 23% in 2006. Of these, $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 upgrade, 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 or for these dredges is to produce approximately 50% of their estimated annual cash flow. Also, we are sending two additional dredges in Ohio and in 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 cutter-hedge 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 U.S. flag and will be able to return to the U.S. when the market here warrants. 2007 has obviously been an important year for vessel acquisition 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 fleet 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 U.S. ports competitive with those internationally. Before turning the call back to Deb, I want to update you on the company 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 project in Newark Bay. The dredge is in dry dock undergoing repairs which are currently expected to be completed in June 2008. This estimated time table 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 hull, collision, and pollution exposures under the insurance coverage’s of Great Lakes. However, insurance related to loss of use of a vessel is not economically viable in the marine market. 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 result. Now, let me ask Deb to walk through a more detailed analysis of our fourth quarter performance.

[Deborah A. Wensel:]

I’ll start with a general overview of contracts contributing to the quarter’s performance within the context of the dredging market 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 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. And 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 total company revenue of $122 million. The majority of our $89 million of capital revenues 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 support expansion work in Freeport, Bahamas, and this project was completed in early 2008. And, finally, three projects in Bahrain

[Operator:]

(Operator Instructions) Our first question will come from Richard Paget - Morgan Joseph.

[Richard Paget:]

You talked about the domestic market in ‘08 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 will be able to get once those vessels are deployed over there?

[Douglas B. Mackie:]

Well, we have actually several projects we are working on right now. But we also have proposals in for several $100 million of additional work which we are in the process of negotiating. So we don’t necessarily want to talk about the ones that we are negotiating. But we’re going to get award of the second phase of Diyaar sometime in mid-year which is another $150 million. And we are looking at several other large projects.

[Richard Paget:]

Maybe you could just characterize them as the types, the big reclamation projects, is it new marinas, and is it going to be in some more maintenance work?

[Douglas B. Mackie:]

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

[Richard Paget:]

Could expand about your comments on the beach market? How much of this is potentially impacted by expected pressure on local tax received? Was this reflective of the real estate market? Or what do you think is really slowing it down or pushing back projects?

[Douglas B. Mackie:]

Well, I think the biggest problem is really their inability to get their permits, which I would say comes through the Corps of Engineers, which has really slowed down. And additionally some in the private area, there is a lot of pressure from local owners who don’t want their beaches re-nourished. So they are fighting some of these jobs in court, though none of them has been stopped permanently. So it’s generally a lot of these have funding, but they just weren’t able to get the permit so they could do the projects in the term windows.

[Richard Paget:]

Is it a kind of an administrative bottleneck why are these permits aren’t going through? Or is it getting caught up in courts with people fighting it?

[Douglas B. Mackie:]

I think its most of the bottleneck in just getting the permits. Again, they are very complex. Some of them could take anywhere from a year to two and half years to get a permit. So they are always working on the next job after they finish the last one. But 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 a efficient fashion.

[Richard Paget:]

And then, finally, I mean you were pretty acquisitive in terms of vessels. And I guess that’s probably a combination of you having the capital as well as both becoming available. I mean do you see as many opportunities to acquire more vessels going into ‘08? Or do you think this was more of a 2007 event?

[Douglas B. Mackie:]

Well, the domestic market, 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 based on the domestic market, I wouldn’t be surprised if there may be some opportunities in 2008. But 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.

[Operator:]

And our next question will come from Andy Kaplowitz - Lehman Brothers.

[Andy Kaplowitz:]

Doug, could you talk about maybe what the Army Corps of Engineers is doing lately? I mean it seems like we need these projects to get done. Yet, it seems like ‘08, they are still going to take sort of a hiatus here. Is this because there is too much crosscurrents from an election year? Is it that they are still too focused on Iraq? Just what’s going on with them? Is this the permitting issue that you were talking about? Why is this happening?

[Douglas B. Mackie:]

Well, they are clearly still focused on Iraq. It’s still taking a huge chunk out of all domestic programs including dredging. And you are 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 I think it’s mostly a focus on Iraq and also the fact that Congress is still taking control of the money flow to the Corps. I mean, there are 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 are 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 at 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 ‘08. So we are somewhat in the dark and the Corp is very frustrated as our industry is.

[Andy Kaplowitz:]

It’s seems like ‘09 is going to be a better year. I know it’s far out there now and it’s hard to sort of predict. But there seems like a number of catalysts here including WRDA and maybe the focus on Iraq changes, how optimistic are you that 2009 could be a significantly better year than 2008 for Great Lakes?

[Douglas B. Mackie:]

Historically election years, especially President Election years, are better for the following year. Because generally even though we have deficits, there is a lot pressure coming from I think both sides of the aisle to put out some infrastructure work because they know the infrastructure of the United States including harbors and ports are deteriorating. So we are cautiously optimistic, but at the same point we are taking a big move to the Middle East to make sure that we have very good base in the Middle East with high utilization and if ‘09 is better, we will have better international market this year and next year. And if the domestic market gets better whether it’s ‘09 or ‘010, I think we’ve positioned ourselves to take on very good work in the Middle East. And when the market comes back in the domestic market, I think we again will take the lion’s share of the work.

[Andy Kaplowitz:]

Deb, I know you gave guidance on ‘08 I am 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’s 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 U.S. 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 am missing?

[Deborah A. Wensel:]

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

[Andy Kaplowitz:]

Could you tell us Deb or Doug, how much of an impact you’re implying on the Newark being out of service for six months or five months approximately?

[Douglas B. Mackie:]

We are already in litigation over this. So we don’t really want to comment on it. I mean it is significant whatever that means. It is a big producer and we will lose six months. So I mean we really while we are 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 put out a number.

[Andy Kaplowitz:]

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

[Douglas B. Mackie:]

Yes.

[Deborah A. Wensel:]

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

[Andy Kaplowitz:]

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? You had talked about several projects actually over the last couple of quarters, when do we see the release of those projects in general.

[Douglas B. Mackie:]

Well, part of it is, as we said, permitting. The ones we are looking at are very large projects. There’s two or three that are over $50 million and some up to $100 million. 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 demand was greater in Europe for LNG than it was in the U.S. Because obviously just like the price of gasoline in the U.S. is 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. They obviously have to go back and we 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 those, sticker shock from the facility, competition for the sources, and permitting.

[Andy Kaplowitz:]

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?

[Douglas B. Mackie:]

Well, unfortunately in our world, this is not the first time this is happening to us or we have been on the other side of it. It is litigation which there is not a formula, but there is clear law on loss of use for vessels. We were somewhat positive that we can negotiate this without going into extended litigation. There will be experts. We have to get experts on this one. 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. And I think both sides want to resolve it, but we really can’t even present our claim until we have the dredge back working. And we are working on the claim right now. So I think it’ll either we resolved in the next 12 to 13 months, or if we go to litigation, it obviously could be a couple of years.

[Operator:]

And our next question will come from John Parker - Jefferies.

[John Parker:]

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?

[Douglas B. Mackie:]

Not at all, I think as I’ve responded in many cases, for anti-trust reasons, we are in the large defense area of the anti-trust laws. And you could just look at someone who is building a B-1 Bomber, which is probably a $1 billion each; there is often only one bidder or two bidders. And because there is 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 are not concerned. And as a matter of fact, I think our biggest client is glad that we have the biggest piece of the market.

[John Parker:]

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 in your income statement?

[Deborah A. Wensel:]

The new vessels which we are 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 the spend. Our dredge Texas is a mobilization and those mobilizations are typically expensed to the contract. So that’s what will happen with dredge Texas.

[John Parker:]

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

[Deborah A. Wensel:]

There are a lot of aspects to that. So, no, we don’t really have a number that to give out on that.

[John Parker:]

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

[Deborah A. Wensel:]

Well, again most of the demolishing businesses 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 demolishing. They are big buildings. A lot of them they are interior guts. So fortunately we’ve seen that their market is actually picking up.

[John Parker:]

There has 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 are focused on?

[Douglas B. Mackie:]

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 Great Lakes, which I am not aware of any right at the moment, it would be probably open to all competition and certainly we could if it was a major project, all our large competitors would be looking at the Great Lakes, as well as we would.

[John Parker:]

And what about any updates on the Philadelphia dredging potential, the Delaware River?

[Douglas B. Mackie:]

We know that 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.

[John Parker:]

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

[Deborah A. Wensel:]

$15.

[John Parker:]

That’s what I thought. And the EBITDA guidance, I missed that, what was that again for ‘08?

[Deborah A. Wensel:]

‘08 is the range of $51 to $56.

[Operator:]

And our next question will come from Seth Weber - Banc of America.

[Seth Weber:]

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

[Deborah A. Wensel:]

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

[Seth Weber:]

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 put a number around that and maybe talk about where utilization is versus maybe last year?

[Deborah A. Wensel:]

You mean ‘06 to ‘07?

[Douglas B. Mackie:]

‘07 to ’08, are you?

[Seth Weber:]

Well, I mean you mentioned utilization is high; can you give us an idea where it kind of stacks up today maybe versus ‘06 and maybe where you think utilization will be same time next year? That’s possible?

[Douglas B. Mackie:]

Well, you are meaning obviously ‘09.

[Seth Weber:]

Well, I am not, sorry for ‘08.

[Douglas B. Mackie:]

Utilization was good. We always have a lull generally in the third quarter. And ‘06 to ‘07 were very similar, but we had better margins in ‘07 than ‘06. I would think that ‘08 utilization will be pretty similar to ‘07 because even though we don’t expect as good a utilization in the domestic market, we have ships and vessels obviously in the Middle East where we will get higher percentage utilization. So I think, overall, for our fleet, we’ll have similar utilization. Now, three of those vessels going over there, actually all four because those are not going to be working much in the first quarter because they are being mobilized over to the Middle East, and 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 ‘07 and ‘06.

[Seth Weber:]

If you were to put a number around that, is it something 50, 60%, 70%?

[Douglas B. Mackie:]

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

[Seth Weber:]

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

[Douglas B. Mackie:]

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

[Seth Weber:]

And did the Ohio and Terrapin add to the ‘07 numbers at all?

[Deborah A. Wensel:]

No, not in ‘07. 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 the 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. No, the Terrapin was not material and Ohio was zero.

[Seth Weber:]

Did you give an EBITDA or op income contribution expectation from the Brazil, from the two new boats that you bought? You did add for the previous two barges or vessels that you’ve bought.

[Deborah A. Wensel:]

I think last quarter when we talked about the acquisition, we have said, I believe, it’s something like $6 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 of ‘08.

[Seth Weber:]

Can you just give us the demark either the operating income by the two segments or the margins by the two segments for dredging and then demo for the quarter.

[Deborah A. Wensel:]

We typically don’t do that. We just talked sort of about the revenue levels and components that make that up. I mean 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:]

And our next question will come from Sarah Thompson - Lehman Brothers.

[Dori Konig:]

This is Dori Konig for Sarah. Just one question to make sure that I understand this correctly, the EBITDA guidance that you provided for ‘08, does that include the contributions of the recently acquired dredges or does it exclude it?

[Deborah A. Wensel:]

No, it includes everything that we think will be working in ‘08. I mean it’s our estimate of what we think that utilization will be across their fleet.

[Dori Konig:]

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

[Deborah A. Wensel:]

That’s correct.

[Operator:]

At this time, there appears to be no further questions in the queue.

[Douglas B. Mackie:]

Thank you for joining us for our fourth quarter update, and we look forward to talking with you again after the first quarter of 2008.