Mary Morrissey - Mark W. Marinko - Chief Financial Officer and Senior Vice President Jonathan W. Berger - Chief Executive Officer and Executive Director.

Scott Justin Levine - Imperial Capital, LLC, Research Division Trey Grooms - Stephens Inc., Research Division Vlad Bystricky - Barclays Capital, Research Division Jonathan Tanwanteng - CJS Securities, Inc. David J. Olkovetsky - Jefferies LLC, Fixed Income Research Richard G.

D'Auteuil - Columbia Funds Series Trust I - Columbia Small Cap Core Fund Richard Shannon Paget - Imperial Capital, LLC, Research Division John B. Rogers - D.A. Davidson & Co., Research Division Shu Haur Tang.

Good day, ladies and gentlemen, and welcome to your Q3 2014 Great Lakes Dredge and Dock Corp. Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would like to now introduce your host for today's call, Ms. Mary Morrissey. Ma'am, you may begin..

Thank you. Good morning. This is Mary Morrissey, and I welcome you to our quarterly conference call. Jon Berger, our Chief Executive Officer; and Mark Marinko, our Chief Financial Officer, will discuss the operational and financial results for the quarter ended September 30, 2014. Following their comments, there will be an opportunity for questions.

During this call, we will make certain forward-looking statements to help you understand our business. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations.

Certain risk factors inherent in our business are set forth in our filings with the SEC, including our 2013 Form 10-K and subsequent filings.

During this call, we will also refer to certain non-GAAP financial measures, including adjusted EBITDA from continuing operations, which are explained in the net income to adjusted EBITDA reconciliation attached to our earnings release and posted on our Investor Relations website, along with certain other operating data.

I would first like to turn the call over to Mark Marinko, our CFO..

Increase the total facility to $210 million; secured and collateralized the facility with liens on certain vessels; we decreased the required ratio of aggregate, orderly liquidation value of pledged collateral from 1.5x to 1.27x the aggregate revolving commitment; and we enabled the full use of the facility for the issuance of letters of credit.

This last modification provides us more flexibility in pursuing international jobs. Now I will turn the call over to Jon Berger, who is going to discuss some of the highlights of the quarter as well as considerations that may affect our business for moving forward..

Thank you, Mark, and good morning. Although our third quarter results were not where we wanted them to be, there are several positive developments that are setting the stage for elevated performance going forward.

I'll address some of the challenges that we faced during the quarter and will also highlight the good news that makes us optimistic about the future. As Mark mentioned, our Dredging segment's revenue grew 8% compared to the third quarter last year, but operating income declined to $5.7 million. There are a few key factors that impacted our results.

As we stated during our last earnings call, we expected bidding activity for Superstorm Sandy-related coastal protection work to pick up earlier than it did. Very few projects were put forward that could be executed during the third quarter.

In our bidding market, only 2 projects put out to bid were Sandy related, one of which we won, an $11 million coastal restoration project in New Jersey. We took advantage of the deferral of Superstorm Sandy work in the coastal protection market by accelerating the dry dock of the Liberty Island, bringing it forward to the third quarter.

While in dry dock, the Liberty Island was outfitted with a bulbous bow that will improve the vessel's fuel efficiency and carrying capacity, giving us a competitive advantage when we bid on work going forward.

So during the third quarter, we had 2 dredges in our domestic fleet that not only were idle, but were also generating significant shipyard cost. Our Dredging segment was also adversely impacted by a project being executed by one of our joint ventures.

Higher-than-expected administrative costs and equipment mobilization delays have extended the duration of the project, which is forcing the work to be done in 2 seasons instead of 1. As a result, we will have to demobilize for the winter and remobilize in the spring, which is leading to increased costs in executing the project.

For the quarter, this was a $5 million impact. Both sides of the joint venture have mutually agreed to dissolve the JV upon completion of the job.

While Great Lakes originally entered into the joint venture as a method to achieve progress in the Environmental & Remediation Dredging segment of our business, we have made a decisive decision that successful growth of the segment can be better achieved outside of the JV.

In the Middle East, we also had underutilized equipment during the quarter that impacted our results. We completed the job in Saudi Arabia in the beginning of the quarter and did not begin work on the $32 million land reclamation project in Bahrain until the middle of August.

But through the rest of the year, this project will keep 3 of our vessels utilized. And in October, we were awarded a $140 million Suez Canal project. Great Lakes is performing this work as part of a joint venture with Dredging International.

We will be 1 of 6 dredging contractors working on the massive Suez project aimed at improving transit time for trade and fostering economic growth in the region. We are currently mobilizing 2 of our cutter dredges to Egypt to begin work in December.

With the land reclamation project in Bahrain and the Suez Canal project, plus another project -- small project in Brazil that we were awarded in October and the remaining work that we have on Wheatstone, we are lined up to have a significantly improved utilization of our foreign fleet, both in the fourth quarter and into next year.

I'd like to turn back to our domestic bidding market. I am very pleased to report to you that the soft bidding market is behind us. In October, we have won approximately $289 million in new work, including 3 Sandy-related projects in New Jersey, valued at over $254 million.

We expect to see additional Sandy projects to be bid through the end of the year. Also I'd like to point you to one project that we've been working on domestically and highlight is the Freeport Channel deepening project.

Freeport LNG, the project sponsor, plans to add liquification infrastructure at an existing LNG import terminal to provide export capacity. Great Lakes is widening the entrance and jetty sections of the port in the Freeport ship channel from the existing 400 feet width to 600 feet.

Not only are we attracting projects involving existing LNG import facilities -- export facilities, but we are also attracting potential new facilities that may be built. We certainly still consider the LNG market a potential opportunity for Great Lakes.

The combination of our $471 million in backlog at quarter end and the roughly $433 million of additional work that we have been low bidder on positions us for a significant fourth quarter, and we enter 2015 with significantly more of our fleet committed than in each of the last 5 years.

I'd like to give you at least one last update related to dredging, and that's the ATB. We cut steel in the new ATB dredge in September. We have 3 people on site at the shipyard monitoring and working with Eastern Shipyard group crew, and construction appears to be going well, with scheduled completion in the third or fourth quarter of 2016.

Now let's turn to our Environmental & Remediation segment. During the third quarter, Terra continued to execute on the Enbridge oil spill remediation project, a large redevelopment project -- brownfield redevelopment project in New Jersey, along with working on many additional jobs.

Segment gross profit margin and operating profit showed improvement during the quarter, and we are on track to achieve over $100 million in revenue for the year. I want to applaud Terra on having a good quarter on project execution after a challenging first half of the year.

The biggest news for our Environmental & Remediation segment is our recent acquisition of Magnus Pacific that we announced last night. Although this acquisition didn't occur in the third quarter, we have worked very hard over the last few months to bring them into the Great Lakes family.

We believe we paid a fair price and structured the transaction that provides for alignment of goals between both our businesses in the segment, and encourages quick, fulsome integration. As you know, part of the company's growth strategy has been to grow the Environmental & Remediation side of our business.

We find this market attractive for many reasons, but I'll mention a few. It is specialty niche contracting similar to dredging. There are opportunities on water and land, such as the Hudson River, the Passaic River, the Enbridge contract.

It is a fragmented market, where we see competitive advantage for a large, well-capitalized, safety and controls-focused entity, giving it clear advantages. And we see the size of the end users for these services to be getting bigger. Big oil, gas companies, the mining industries and the PRPs from major polluted sites, both on land and water.

Again, our size and the advantages this gives us are attractive to those purchasers of services. The Rivers and Lakes acquisition was the first step into acquiring assets to use in water-based remediation. The Terra Contracting acquisition in 2012 was the next step and Magnus is the next milestone.

Magnus, which is headquartered outside of Sacramento, California, is a very well-run company with a wonderful reputation of exemplary project execution and client satisfaction. It has an excellent team in place, with management having an average of 20 years' experience in environmental and geotechnical services.

Magnus executes work for government agencies, site owners, general contractors and engineering firms. Examples of the geotechnical work Magnus provides are construction of slurry wall cutoffs; permeable, reactive barriers; creative [ph] permeable reactive barriers and soil stabilization and ground improvement.

Some of the environmental services they offer include mine reclamation, deep soil mixing, in-situ and ex-situ stabilization. It also is active in specialty civil projects such as levee rehab and repair. These are capabilities and service offerings that are very complementary to the Terra platform.

In addition, Magnus' footprint is primarily on the West Coast, particularly California, Washington, Texas, Oregon and Colorado. Magnus joined us with approximately $90 million of backlog, the majority of which will be executed in 2015.

The combined platform of Terra and Magnus enables us to be a nationwide environmental and geotechnical service provider of considerable size, with the capabilities to execute on technically complex and large projects.

Moreover, the combined entity now gives us the scale to invest in equipment and people to serve these big clients that require our services. We are all very excited about the Magnus acquisition, and we are confident that we will successfully integrate Magnus into Great Lakes.

Over the course of due diligence, Magnus and Terra management have had several productive meetings, and we have already begun to identify potential opportunities, so we are excited about the future this combined entity will have. I'd like to talk a little bit about our sale of New York Sand & Stone.

One of the initiatives we discussed is getting rid of noncore assets to better focus on our core Dredging and Environmental & Remediation businesses. In October, Amboy Aggregates, the joint venture in which we have 50% interest, sold its New York Sand & Stone subsidiary.

The financial impact of this step is not significant and its impact on Great Lake's financials is not material, but these noncore assets use valuable time and resources that can be better spent on executing our strategy, so we are pleased to have the entity sold. Let's talk a minute about the future.

We are very pleased with the future opportunities we see for the domestic dredging marketplace. We see maritime infrastructure getting more focused in daily discussions in Washington and in all coastal communities.

A good example was Vice President Biden's visit to our dredge in Philadelphia to bring attention to the deepening of the Delaware River and how key maritime infrastructure is to create -- is needed to create good-paying manufacturing jobs in America.

We are optimistically expecting that the WRRDA bill and allocations of the Harbor Maintenance Trust Fund spend will increase year-over-year and provide key maintenance dollars for our waterways.

We also expect to see funding in the Gulf for major coastal restoration projects associated with the RESTORE Act and the resulting fines from the Horizon oil spill. Finally, we see renewed opportunities in the private sector of water infrastructure associated with projects that drive energy exports.

Internationally, we have backlog to provide us solid utilization in 2015. Additionally, we see more bidding opportunities than this time last year internationally. Finally, we consider the environmental and geotechnical market as a growth market, and we are excited about our prospects and ability to grow our position in this market.

In conclusion, the record amount of dredging work in October that we won and that were low bidder on, the progress on the ATB and the Magnus acquisition provide us with strong tailwinds. We enter the remaining part of 2014 and '15 with renewed enthusiasm for where we are positioned as a company. And with that, we'd be glad to take questions..

[Operator Instructions] Our first question comes from the line of Scott Levine with Imperial Capital..

So first question really, I guess, on the dramatic change in the bid market. Maybe a little bit more color for U.S. dredging, a little bit more color on what the trigger point was there.

And it seems like most of this is tied in with coastal, maybe some broader thoughts about the market in general about your outlook for the Army Corps for spending on core projects. An update as well on the Port of Savannah, and expectations there..

Sure. Obviously, we've been talking about the coastal restoration projects, and I think we signaled for sure that we expect the projects to come out, and they were a little slow in coming out. But when they came out, they came out in great abundance. Great Egg Harbor, which we won, was about a $68 million project. We won Abscan [ph].

Absecon Island was about $42 million. And we also won Barnegat to Little Egg Harbor, $143 million, all in October. And there are other big projects coming out to bid for coastal restoration. I think it was clearly slow. We talked about that.

We kept a lot of dry powder waiting for these projects because we believe we can get nice margin on that, and I think what we're seeing is the margin we're bidding at is a couple of ticks up from the work in our backlog, but it was slow.

And -- but we -- looking at the schedule that's out there, there's a lot of work to come out to bid, and big, chunky projects. Like I said, Barnegat was $140 million, Great Egg was $68 million, $69 million. So real strong, larger projects.

And these are very exciting because we won all 3 of them, and if you look at where they are on the Jersey Shore, they're one right after the other. So we will have less mobilization, we'll have our equipment out there, our people can hit a real rhythm, so it's all good. The Savannah I actually believe bids on Monday now, the 10th.

It's going to be an interesting project. We see so much work out there. We're not going to chase it down on a low margin. There are some other good-size projects that are coming up to bid that probably aren't any different than the Savannah-size project, so we're going to run at it.

We're going to run at it hard, but we made the decision on -- because of the elevated market that we see that has come out, and the bidding activity we see, we're not going to chase margin down.

As I said in my prepared remarks, with our backlog and low bids pending in dredging, less the work we worked off in October, we're somewhere up about $850 million. I mean, and as you know, that's probably $300 million more than our highest backlog ever.

So we see no reason to chase low-margin projects if that's the case, because we believe we can hang tough on margin, and this is our time to do it. So -- and the Army Corps has been a good partner for us. Your question, there's a lot of work out there.

These are complex projects, so it takes some time to get them through the system and design it, but we're very happy with, obviously, our backlog, how do you not be happy, but also the opportunities that are out there for us. That's a long answer. I hope it helped..

No, that's helpful. And then just turning to Magnus really quickly. I think you mentioned some financials in the press release. Can you comment on -- are the margins comparable to your existing E&R business? Additional help in thinking about how to model that business would be helpful..

Yes. They are -- yes, they are similar in margin to our other business, should run in that 14% to 18% operating margin, something like that. And in the press release, I think we said it'll be significantly accretive to us.

And I think in my remarks, I suggested to you that we paid a fair price, we have downside protection, they have upside opportunity, and I think we structured it in a fashion that will facilitate the integration..

Got it. One last one, and then I'll hop off. For Mark, could you [indiscernible] during the -- your prepared comments on the tax. Was there -- I don't know if I got that down correctly. I think you mentioned that you guys would not be a cash taxpayer for 5 years. I was hoping you might be able to review that really quickly..

Right. So there's really 2 pieces that drive that. One is, there is a -- related to our demolition business that we sold earlier this year, we are working on taking a worthless stock deduction. And that is one benefit to us for tax purposes, moving forward. There should -- we will book that in Q4, so there'll be an impact in Q4.

And also, when the ATB hits the water, since that we -- that's on our balance sheet, we'll be able to take the advantage of accelerated tax depreciation..

Got it.

So -- and then, so is that just on the cash tax side? Or will your book tax rate effectively be 0?.

Yes, that's correct. Or -- both. Both..

And Scott, that is -- it's unbelievably interesting for us and exciting that -- what that'll do to our cash flow, obviously, for the next 5 years. And ultimately, we will end up owning this piece of equipment where historically, we've done leases, and at the end of 10-year leases, we still own 50% of this asset.

I think we've been very prudent of using operating cash flow to fund the second [ph] portion of it, and then, as Mark said, the note. But with the avoidance of tax, because of the depreciation, we will own this vessel free and clear, probably in a 5-year period or something like that, 7-year period, and it's significant for us..

Our next question comes from the line of Trey Grooms with Stephens..

Jon, you mentioned you're not going to chase margin with Savannah coming out, and then you said there are some other big projects out there.

Can you just talk generally about how the bid pricing environment looks today?.

Yes. I mean, to be fair, without going into too much detail, our margin and backlog is certainly up than where it's been, and the work that we're putting on the books right now is work that we're very happy with the margins here.

And so -- and incrementally, we see elevated bidding opportunity to continue into next year, so we're not going to chase it down. So if someone wants to take it at a lower margin than we're comfortable with, and we think we can earn, we'll let them do it. And that's been our strategy for the last 9 months.

We see the opportunities out there, you see the schedule out there, and we just think it's the time, both for ourselves and quite honestly for the whole dredging industry, to take advantage of our investment and our equipment and the fact that there is a elevated demand for our product.

So it's certainly -- our margin has ticked back up there, and it's my expectation, certainly for the rest of this year and next year, that our utilization will also be at a higher level, and we all know what that means when you're in a fixed asset business..

Sure, sure. Okay. And then, kind of looking at the acquisition you guys did, it seems to make a lot of sense. Is there -- I mean, I realize that's going to give you guys some geographic exposure you don't currently have.

Is there any other synergies that we can think about as you look to add acquisitions in this environmental remediation space?.

Yes. And to be fair, we have a big job of integration. We did a wonderful job of integrating Terra. We took a business that was making $50 million and they'll do probably $100 million to $110 million or $115 million this year in 2 years, but that was 1 business. Now we have to integrate the 2 of them together.

As privately owned businesses, they tend to run relatively lean, so I'm not sure there are tremendous cost savings. I think where you'll see savings and where you'll see the real synergies is, they overlap on services, but they utilize each other's services.

On the West Coast, Magnus has used one of our competitors to do some dredging work in the past. Obviously, that'll be done internally, either by Terra or Rivers and Lakes or our big dredging. On Terra's side, they have historically outsourced deep soil mixing, and that work that we can now do.

But I think where you're going to see the real synergies is, we now have a platform that I can go to the big mining companies, the big oil companies and offer the full array of services from a national platform, have enough depth of management, have enough to be able to make those investments.

We're going to obviously apply our safety culture, our pricing structure and discipline. So this is one where there are certainly some small cost savings, but this is one where I think you're going to see it on the revenue side. And I think you're going to see it relatively quickly, in my view.

I think there's some real opportunities that we're talking about already..

Great. One last one from me. You're talking about, obviously, higher utilization, and you guys have been more focused on maintaining the higher margin with -- in the backlog, you said over the last 9 months or so.

With that higher utilization and higher margins embedded in backlog, is there any reason why we shouldn't think that the margins in 2015 couldn't look a lot like they have in other periods where you've just had really nice utilization? I guess the point is, we should see pretty considerable margin improvement, I would think, going into '15.

And just wondering if you could comment on that at all..

Yes. I mean, yes. Trey, I mean, we've-- it's been an up-and-down year or 2, but I think we -- '15 -- the end of '14 and '15 is shaping up, for lack of a term [ph], what I would say is a pretty special year for this business.

We've had ups and downs internationally, and now we look like we have solid backlog for the vast majority of our equipment, or at least big chunks of our equipment internationally for the next year. We still will be running off in the first quarter, at least Wheatstone.

Domestically, as we said, we moved forward a dry dock that we anticipate to be in '15 and took the cost associated with that. And that's both capital cost we move forward, but there's also some cost that run through our P&L that we took in this quarter for the dry dock, for the maintenance.

So we will not have a regulatory dry dock that we expect in '15. And those vessels are -- to a certain extent, the hoppers are scheduled up for a good part of the year already. And as I said, we're entering '15 with way more work already scheduled and not to have to capture than any of the 5 years I've been around here.

And I emphasize all the time, but with higher utilization also comes absorption of overhead. We have significant fixed costs here. And when we get higher utilization, we absorb that over a much higher revenue base. So yes, I think we're looking forward to '15 as a company, as a management team, and your premise is right..

Our next question comes from the line of Andrew Kaplowitz with Barclays..

Hi. It's Vlad Bystricky on for Andy.

So I guess you guys talked about this a little, but maybe as I think about the acquisition of Magnus Pacific, I mean, it's a fairly sizable acquisition for you guys, so how should we think about the risks associated with the transaction, how you're working to mitigate those risks? And then also, just looking out further, the potential for further consolidation in the space..

Great. Let me get it. First, I believe we paid a very fair price. I mean, I think it's certainly something under 4x, really, probably even a little less without giving out total margins.

Secondly, the way we structured the transaction, it has both a note that is contingent upon performance in '14 and '15, and also the equity component -- the equity link component also has some performance and ties us in.

And structurally, the equity is -- value is triggered upon the combined performance of our Environmental and Geotechnical segment so that we want them to perform together and we incentivize them to perform together. Where are the risks? I think the risks are always in integration.

I think we -- we're ahead of the game here, because we did this very well in Terra. We started the process before we did the transaction. We are putting in our safety culture, as we speak, for them. We are putting in controls in bidding. We will quickly get them on our ERP system. We've got a schedule to do that by the end of the first quarter.

So I think we'll have -- the next 4 or 5 months are going to be very focused internally in making sure we lay the platform straight and then go to market. But we very much like the go-to-market story. We have some clients that already are interested in the story, and I think it's going to raise us and our client base to a different level.

So with any acquisition, it's a people business, we've locked in their most senior professionals for a 5-year period. And we have excellent tailwinds with the vast majority of their revenue expectations, I think I said $90 million of contracted backlog that will be executed in 2015.

And I think most contractors would be very happy to have kind of 3 quarters or more of their backlog already booked for next year at margins that are requisite to meet the plan. So work to be done, obviously, on the integration, but we think we have a program to get it done and the people focused on getting it done..

Okay. That's very helpful. And then maybe just 1 other quick question before I get back in the queue. On the demolition business that you previously sold, and sorry if I missed this, but you had mentioned before that you were still working with the buyer to pursue some claims on receivables, client [ph] claims.

Do you have any update on that? Is that still an opportunity for some cash at some point?.

We've had -- some money's trickling in, and we are on target to collect what we expect to collect. And we review that quarterly, obviously, with our orders and with our -- with the executive management who's empowered our other executives to work on it. So we're on target, and our financial statements have it in there, properly recorded..

Your next question comes from the line of Jon Tanwanteng from CJS securities..

Can you break out what the P&L impact of the dry dock costs were? And what period did you pull them from?.

The dry -- the Liberty Island was moved forward from '15..

$3 million..

And Mark is saying that, through the P&L, we probably took a $3 million hit..

On the Liberty, $3 million, and then on the Terra fin [ph], it was another $3 million for the quarter, but we -- that was its original schedule, so $6 million for the quarter, through the P&L..

And just to reassure, there are other costs that get capitalized, but certainly the maintenance cost, we do not capitalize. And as Mark said, about $3 million for each of the dredges..

Okay, great.

And then are you expecting any further charges from the JV delays going forwards?.

I hope not..

No..

No. I mean, obviously, accounting tells you to have to take your full estimate at the time of when it occurs. So....

Yes. Essentially, take the full loss of the project under the percentage of completion accounting, so that's what we've done, and that's why there is the $5 million hit in this quarter..

Okay, got it.

And then, do you have an expected onetime costs associated with Magnus for the quarter?.

Yes. I mean, there are certainly some legal costs that will flow through. We did the vast majority of the due diligence ourselves, other than legal due diligence, and our insurance brokers did the insurance diligence, but all the financial operating diligence, systems diligence, were all done internally.

My guess -- I haven't seen the final bills, but my guess is $300,000 to $400,000 of legal fees and things like that to get it closed..

Okay. And then just 1 more.

Jon, on the backlog and low bids that you have out there, can you talk about the timing of that? Do you think those projects extend beyond Q3 next year into 2016 at all?.

Yes. There will be some of that, that will be -- extend, but don't forget, part of this is windows. You only have certain windows to work on the beaches. And part of that is opportunistic. If they give you a long time to bid it and we can pick up incremental work and push that work out, we will do that, too.

So it gives us significant flexibility to be able to sit there and say, all right, there's another opportunity that's out there, that we can get good margins because of the way the market is. And the length of time some of these very large projects are, they may give you windows of 2.5 years or 3 years to do it.

And if we could slip something else in there and pick up good margin, obviously we would do it..

Got it.

Maybe a better way to ask the question is, what percentage or ballpark do you expect to fall within the next 12 months?.

Yes, a significant portion of it, yes. Obviously, the Suez is something that's supposed to be done by the third quarter of next year, so that whole $140 million is going to hit. The other international work we all have will all be between the end of the year and next year.

And a good bit of -- a good bit -- obviously, not all, but a good bit of the domestic business. I mean, because if you take out the international backlog, I guess $140 million plus $30 million, whatever -- I mean, if you take out that....

Domestic....

Yes....

$289 million, $290 million....

Plus the other work. My guess is, we're talking about $750 million of domestic backlog. If we did all -- we can't do $750 million. That's a big number. So some of this may trip, but, it'll be elevated, for sure..

Our next question comes from the line of David Olkovetsky with Jefferies..

First question relates to the credit docs or the updated credit agreement that you guys filed. There's a mention in there of an add-on to the 7 3/8 bonds. I just wanted to understand a little bit more of why you're doing that.

Would that just be cash just going to the balance sheet? And what's the reasoning behind that?.

Yes. The reasoning behind that is the cash that's going on the balance sheet, the $50 million notes -- term loan was used to pay for -- will be used to pay for the....

ATB..

The ATB. We are anticipating doing addition to the notes so that we can match long-term financing with the acquisition fee..

And that's long-term financing with the acquisition of Magnus, you mean?.

Exactly, yes..

Got it. Okay, in other words, $25 million is going out the door right now in cash, and the remainder, the remaining, the $25 million, I mean, essentially, you're going to overcapitalize with a bond, is that [indiscernible] of a bond..

Well, well, right. We funded Magnus off of cash on hand, but we'd like to replenish that so we have enough cash for operating and other uses. As we continue to grow our business, working capital obviously expands some. So basically, that -- we're going to use the notes to pay the purchase, the cash portion of the purchase..

Got it, okay. And then just to focus a little bit on Magnus, I'm a little bit confused by some of the wording in this Amendment #6 to the credit agreement, where it defines the Magnus seller note. In your press release, you talk about a maximum $14 million seller note. Just walk me through how you get that $14 million number.

Because what I'm seeing here is that it's Magnus' 2014 EBITDA, less $12 million x 2?.

Yes. It's tied to certain financial metrics of them hitting their 2014 numbers and also giving us some project -- some protection on their 2015 performance..

So the maximum amount is $14 million.

Is that correct?.

Correct. That is correct..

It's not -- okay, got it.

And is there a minimum amount, essentially? Or no?.

Is there a minimum amount?.

No, there isn't....

I don't really understand what the minimum is based on. Is it based on their 2014 or their 2015 or a combination of the 2? It's just a little bit confusingly worded here..

It's a combination, but it really is there just to protect us, that they don't provide what they told us they were going to provide, in basic terms. So I wouldn't expect to see the note significantly change from what we told you, but there is downside protection for us..

Okay. And then with respect to 2013 for Magnus, can you just give us a sense? Because you guys mentioned, I think the 2014 was around $118 million in revenues. Or that's, I guess, kind of the projection. Is this a fairly steady business? Is it highly volatile? Talk about [indiscernible]....

It's a business that's grown. I mean, the business has certainly grown, so they have continually ramped up. It had been in existence for, I think, 6 years. Prior to that, they were a division, a West Coast division of a major environmental company and civil contractor. They wanted to grow faster than the parent company wanted them to, so they separated.

As best we could tell, they separated 6 years ago on friendly terms, because they did some joint venture projects with the parent company they were with. And they've grown nicely.

And as with many of these companies, they grow to where their span of control and their own individual capital is hard to continue, and that's the reason why they put themselves into play. But it's a growing business..

Got it.

And how much of that business did management own?.

100%. It was management owned. It was not any -- it was not private equity. There was not....

So it was a management buyout, essentially?.

Yes..

Okay, got it.

And then your acquisition, and I apologize for all these questions, but your acquisition of Magnus, was it a competitive bidding process? How did you find them?.

Yes, they had an investment banker. We actually met with them a while ago. I think they were sold on our platform and our story, but we were very clear, until we sold our demolition business, I was not going to derail my management's focus away from getting that done. But we stayed in contact with them.

We actually usurped the process, to a certain extent. Got them to put it on hold, and then we re-engaged in April, May, after we sold NASDI. But there was an investment banker. There were other bidders. And I'm not told for sure, but I'm told that we necessarily weren't the highest-paying bidder..

Got it, okay. And then if I could ask just one more question, with respect to the capital structure. I guess I just want to understand exactly, because there's a lot of moving parts here.

What do you anticipate your final working -- or capital structure looking like, pro forma for Magnus and pro forma for the add-on and the term loan and so forth? Like what are the dollar amounts and what are the different pieces going forward, and cash position as well?.

Yes. So well, the movement, we have $250 million of senior notes now, so you add $25 million to that, that'll go to $275 million. And we'll still have the $210 million revolver credit facility, and then the $50 million term loan..

Sorry, it's 20 -- you're doing -- you're anticipating a $25 million add-on to the notes? Not a $50 million?.

We have the ability to do up to $50 million..

Got it, okay.

Would there be a reason to upsize other than just working capital, additional working capital and that sort of thing?.

We're just looking at other alternatives, but we wanted to get the flexibility to be able to do $25 million to $50 million. So we're having those discussions with our board right now..

And how much approximately CapEx does Magnus require? And just give us a sense for what you guys are thinking about CapEx in terms of 2015? I'm assuming you've gone through, or are going through the budget process right now..

Well, we're starting the budgeting process. Magnus, like our Terra business, does not have the same unique -- as many unique pieces of equipment or specialty equipment. So we have the flexibility to lease or rent equipment if we could, but it's not going to be tens of millions of dollars of equipment, anywhere near that.

I mean, a big year, maybe $3 million to $5 million for specialized equipment because they have some very interesting jobs, and it makes more sense to buy it versus rent it or lease it.

Yes, and just one more thing, David, I mean, one of the things that we're looking forward to is obviously, though, is being able to combine both the equipment from Terra and Magnus to be able to get higher utilization out of our equipment.

So that's one of the things we identified in diligence, and is one of the first things from an integration standpoint, is to be able to get everybody visibility on the equipment because there's no reason that they can't jointly share equipment.

It's mostly yellow equipment, with special attachments, things like that, that can go on lowboys in a day, and be moved from the Midwest to the Pacific Northwest, things like that. So....

Our next question comes from the line of Rick D'Auteuil with Columbia Management..

So a couple of things.

On the JV loss, is there any recourse? And maybe you can -- what happened to cause the problem of the pushout?.

Yes. I mean, one, it's a pure 50-50 joint venture, so there's no recourse either way with our partners. It was a project that honestly just got ahead of us.

We didn't get mobilized in time, and it's causing us to lay up over the winter, and taking equipment off the water, having to demobilize it and then remobilize it is what's cost us some -- has cost us the big loss..

And that late start was due to the JV, not the customer?.

We believe there's a little bit of both, but we've taken the full cost, and hopefully we'll be able to find some common ground with the customer..

So that -- you are seeking some recourse?.

Yes, but like for accounting purposes you take -- and the recourse is not going to be 80% of what we took the hit on, so. It's just, yes -- sometimes you have a bad job, and unfortunately this was one of them..

Okay. And the demo litigation that you guys retain the upside to, if you have any wind [ph].

Any luck on moving any of that forward?.

Yes. I mean, we keep picking up small claims here and there. We obviously are trying to settle things as opposed to letting the legal community take the vast majority of the upside. But we're slowly but surely picking up unrecorded claims there..

Okay. Magnus margins, you talked about -- you talked about it having a growth profile.

Under your roof, will -- do you expect it to have a growth profile? Have they been constrain -- capital constrained in any way?.

They've been both capital constrained. I don't think they have -- though they've run a very safe operation, I don't think they have the disciplined, safety documentation support you need to work on certain locations. And there are some projects and things that we believe the next step of this we can really help them with.

Walking into very high levels at the executive suite of mining companies, at utilities, at energy companies, where they have consistent large spend year-over-year, and we want to get -- we want to be one of the 2 or 3 people that have share of wallet there.

And we think between them and Terra now, and the size we have, the discipline we have, that's really where we think we'll see the upside..

Okay.

This may have come out, but I didn't see it, the rate on the note, that -- the $14 million note?.

5%..

Yes. I'm not sure if it's out, but it's 5%..

All right.

Triggers for their note are out, but is that over several years?.

Yes, it's financial metrics over a period of years, so I'm not actually sure it is out. And from a legal perspective, since it's, I think, it's 13 individuals, we've tried to just keep it. But it does give us, I will say, protections on the downside..

Okay.

Post Savannah, what's the next large port contract to come up? And is it -- I mean, I don't know if the Army Corps -- what -- [indiscernible] time these things, or the bidder's trying to time these things, so nobody gets a great margin, they'll stagger them?.

No, it's really job-by-job. If I was to be a betting man, I'd say Charleston or one of the other Florida ports, but what we're seeing, just to be clear, we're seeing big beach jobs, big coastal restoration jobs that are being talked about, that are the same size as, my guess is, what Savannah ends up being..

Well, Savannah is $600 million or so, so you're saying your piece of it would have been....

Yes, but -- right. To be sure, I mean, the dredging side is probably $100 million to $200 million. We just -- we don't know, and we're not going to share that, because we're bidding it on Monday..

Right. No, I'm not trying to pull your hand here, obviously..

Right. But understand, the $600 million includes a tremendous amount of work outside of dredging..

We have a question from the line of Richard Paget with Zapita [ph] Capital..

Jon, could you remind us of how lower fuel prices are going to potentially impact your margins in the near future?.

Yes, and good question, and I think maybe Mark did mention it. When we are announced as the low bidder, we immediately go hedge our fuel. So we price fuel at what we believe the -- what is the current market on a project, and then when we're awarded -- or we're announced low bid domestically, we immediately hedge.

So the hedges we've been using I think are fuel oil. They don't necessarily track perfectly. And so we've actually had to change our accounting method for hedging, and we took a $1 million hit this quarter. Obviously, that hit will be recouped as we purchase fuel on the projects that we hedged.

But we just look to take that risk off our table when we bid jobs. So it's -- the fact that fuel oil is going down really doesn't give us incremental margin. It's just -- it's still kind of the margin is driven by the marketplace, and we just try to take that risk off the table for us..

Okay. So there might be, if fuel is a smaller proportion of a contract going forward, given the drop in prices, it'll give you a little bit margin, because there's not as much pass-through, but it's not going to be a big impact..

No, I would not look for that to be a driver of incremental margin tremendously, no..

Our next question comes from the line of John Rogers from D.A. Davidson & Company..

Jon, I just wanted to follow up, in terms -- I appreciate your comments about backlog and, I mean, it sounds like you're going to finish the year if all this stuff gets to contract, I mean, with a record backlog.

I guess what I'm trying to understand is, what's the utilization rate if you work on -- if you do this work into 2015? Because the last time you had backlogs of these levels, the next couple of years, you had double-digit margins in dredging.

I mean, is that even realistic in this environment?.

Yes, I mean, a lot of this is hopper work, which is, garners the highest margin. We need to, of course, get the rest of the fleet utilized. But we talked about this earlier. I think you're right.

I mean, with higher utilization, our overall margins go up and we have the dual effect of not only incremental work at arguably a little uptick in margin percentage, but we also cover significantly more overhead, and that's fixed. So we get, for lack of a better term, we get a double bump from an EBITDA standpoint.

So I think the premise that we talked about earlier and your premise is correct..

And as we think about the risks into 2015, I mean, besides just specific project execution, I mean, obviously you have weather early in the year, and -- but what about moving equipment around? I mean, is that in the plan, especially out of Australia, or maybe we should be....

Yes. Actually, even though the dredging, there's still some work going on. Our portion of that project, our major equipment is being loaded right now, and coming back to the U.S. We have a submersible going to the Middle East, if it's not there already, in the next couple of weeks.

We're prepping to load the 2 big cutters and support equipment and pipe to go to the Suez. But we get paid for that. We've done that numerous times. And we will have a significant amount of our vessels sitting in the Northeast, off of Jersey. The beauty of those 3 projects we won are just up and down the Jersey Coast.

So it's not like we're going to be sailing from the Jersey Coast to the Gulf, back to the Jersey Coast, stuff like that. So those aren't risks that, the mobilization risks of the submersibles. We've done that before. We're used to it. It's tried-and-true technology. These submersible companies are very sophisticated.

So I don't think we view that as a tremendous risk for us..

Okay.

And then just lastly, in terms of the spend on the ATB in 2015, how much will flow through your books? And what are you planning there?.

So year to date, or through the third quarter, we've spent $30 million this year, for a total of $50 million from the prior years. We'll have a couple more payments in before the end of the year in the $10 million range. So you'll see about $40 million of capital this year related to the ATB..

So an incremental $10 million from where are in the [indiscernible]....

From -- yes, from -- in fourth quarter..

Okay. But, Mark, in terms of the spend in 2015, I mean, you know what the budget is for the ATB.

And how are you looking at that, especially given the financing plan? I mean, does it still flow through your capital budgets in 2015?.

Well, it does, but, obviously, taking the $50 million, the next $50 million of spend will be utilizing....

The financing..

The financing, so I don't have the spread in front of me. But there's usual -- usually a reasonable payment at the back end when you take delivery. So my guess is, cash off our balance sheet, other than that $50 million, probably the vast majority of that would be in '16.

Is that a fair statement?.

Yes, later in -- right..

Yes, late '15 or '16. Yes..

Right. So we actually, as we put $50 million into it from cash for operations up to now. Now we've got the $50 million financing, and then the last $40 million will come from operations again. And you'll see that late '15 and into '16..

And we have a follow-up from the line of Rick D'Auteuil from Columbia Management..

Is it fair to say both Miami and Wheatstone are tracking your expectation from timing and cost and margins?.

Yes, yes. I mean, I think it's safe to say that. I think, it's safe to say that the Wheatstone has been a marvelous contract for us. And I guess we're -- we will be done in the first quarter, potentially some small cleanup in the second quarter, but Wheatstone is -- will go down the books as a very, very successful project for us.

And Miami is going along kind of as expectations. Yes..

Okay. And at one point you thought there might be some follow-on work in Australia, but now it sounds like you're bringing equipment back, so....

Yes. I mean, with energy prices, there've been a lot of projects that have been shelved in Australia. And so we're bringing the pieces of equipment back to New York, just because we see opportunities potentially to utilize it here..

Okay. And about -- we haven't really focused on Gulf of Mexico, BPE-related.

What -- anything -- what are the prospects look like there?.

Yes. I mean, I think there's been cash -- there's been some money released to the states, so we actually expect to see some nice-size projects let in 2015. So, I mean, and I think -- I said it in the opening remarks, all the things we've talked about that are drivers are -- of the domestic marketplace are happening. Savannah's going out to bid.

Harbor Maintenance Trust Fund has been passed. We hear good things about where the executive branch is coming out on their budget next year for that, I think we take as a hopeful sign. Biden coming out and talking about infrastructure and the importance and what it drives for employment. And the Gulf has some real opportunities, no question about it.

And we're seeing private work, too. Freeport is one of them, but we're certainly tracking other energy-related projects in North America..

The -- so the -- your win rate was lower. Presumably, you wanted to bid them on your margin, and you were okay to lose them if the margin wasn't there, knowing that there was more work behind it. What's the competitive environment? And then, even more importantly, you track their equipment and its utilization on the competitive front.

Are they pretty much fully utilized now, or close to it?.

Yes, I mean, and, yes, and to be sure, if once you roll our October numbers in, that percentage changes dramatically, right, because you start saying, all right, we won close to $300 million, a $300 million bid. There's some -- maybe it was $300 million or $375 million or $350 million. I can't remember what else bid in October.

But I think that, as a general comment, it's extremely, extremely tight in the hopper market. The cutters, there is some work there, it's -- but there's more opportunity in the mechanical or smaller market that we've had good success with. But I think it's going to be elevated utilization for the whole industry..

And therefore pricing, I assume, right?.

That has been our thesis, and I would suggest to you that, in the bidding we've seen in the last month, we've stayed disciplined, and I think we're all happy with the margins we've gotten out of it..

We have a question from the line of Shu Haur Tang with Morgan Stanley Investment Management..

I was wondering if you guys could provide some color in terms of the add-on to your senior unsecured notes, the $25 million? Why wouldn't you -- because your senior unsecured notes will become callable in 2015, I was just wondering, could you just shed some light on the decision of adding on, as opposed to refinancing the whole senior unsecured notes, and actually just bring a bigger notes to the market?.

Yes. And if you've tracked the notes market, the marketplace goes up and down, up and down. Really isn't a tremendously expensive exercise just to do the add-on. As you well know, our notes do step down, I think February 1 of '15.

And depending on what the marketplace looks like, I can tell you that we would not then just go and opportunistically look at redoing it and setting up another 10 -- 8- or 10-year note.

But we just wanted to be disciplined, get our balance sheet in order right now by doing the add-on to the notes and then, as the marketplace tells us, we'll look at -- what the proper capital structure going forward..

Got it. So it's not completely off the table yet [indiscernible]....

No. It's just that the market -- we look at everything. We're opportunistic, but we're certainly cognizant of what the notes market's like..

[Operator Instructions] And I'm showing no more questions in the queue at this time. I'd like to turn the call back over to management for closing remarks..

Okay. We appreciate the support of our shareholders, employees and business partners, and we thank you for joining us in discussion about the important developments and initiatives in our business. We look forward to speaking with you during our next earnings discussion in February. Thank you..

Ladies and gentlemen, thank you for your participation. This concludes the presentation. You may now disconnect..