Mar 1, 2009
Executives
Deb Wensel – SVP and CFO Doug Mackie – President and CEO
Analysts
Andy Kaplowitz – Barclays Capital Richard Paget – Morgan Joseph John Kasprzak – BB&T Capital Markets
Operator
Good day ladies and gentlemen and welcome to the Q4 2008 Great Lakes Dredge & Dock Corporation earnings conference call. My name is Antoine and I will your operator for today.
At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference.
(Operator instructions) I would now like to turn the call over to Deb Wensel, Chief Financial Officer. Please go ahead.
Deb Wensel
Thank you. This is Deb Wensel and I welcome you to our quarterly conference call.
I will begin our discussions by presenting the financial highlights for the quarter and year ended December 31, 2008 and Doug Mackie, Chief Executive Officer of Great Lakes, will share his market overview, which will provide a useful context within which to view my more detailed discussion of operating results. Following our comments there will be an opportunity for questions.
Before I begin, however, I need to remind you that certain matters discussed may be considered forward-looking statements and participants in this call are cautioned not to place undue reliance on such forward-looking statements. Furthermore, any forward-looking statements speak only as of the date hereof and Great Lakes assumes no obligation to provide any future updates.
I hope all of you had a chance to review our press release issued this morning, which includes financial highlights for the quarter and year ended December 31, 2008. Total revenue for the quarter ended December 31, 2008 was $163 million, up 4% from fourth quarter 2007 revenue of $156.9 million.
Foreign operations generated $53.4 million and domestic capital operations contributed a solid $39.8 million in revenue during the quarter. Work continued on several capital projects in the Ports of New York, New Jersey and Boston, and along the Columbia River in Oregon.
Gross profit was $18.1 million for the fourth quarter of 2008 versus $22.7 million a year earlier, resulting in a decrease in gross margin to 11.1% from 14.5%. During the quarter the Company was again negatively impacted by weather-related downtime both domestically and in the Middle East.
Fourth quarter gross profit was also negatively impacted by the assessment of a $2.2 million retroactive insurance premium by West of England, the protection and indemnity club, which provides injury insurance coverage for the Company’s maritime workforce. G&A expenses were down by more than 12% in the 2008 fourth quarter due to declines in incentive pay and profit sharing expense versus a year ago.
Nevertheless, operating income dropped by 30% to $7.6 million from $10.8 million in last year’s fourth quarter. Net interest expense was up $0.9 million for the period due to a reduction in interest income of $0.5 million and a reduction in the gain on the Company’s interest rate swaps.
The Company also recognized a $0.6 million decrease in earnings from its 50% owned joint venture, Amboy Aggregates. Amboy’s operations have been negatively impacted by the slowdown in housing and road construction.
These factors collectively resulted in pretax earnings of $3.1 million, down from $7.8 million last year. Net income for the 2008 fourth quarter was $1.8 million, or $0.03 per diluted share, versus $3.8 million, or $0.06 per diluted share, a year ago.
EBITDA of $16.1 million for the 2008 quarter compared with $17.4 million in the previous year. Revenue for the 2008 fiscal year of $586.9 million was up 14% from $515.8 million for the previous year, driven by foreign and domestic capital and maintenance operations.
Demolition activity was particularly robust in the first half of the year. Although gross profit was up for the year, gross margin of 11.8% decreased from 13.2% a year earlier, due to the negative impacts of unfavorable weather, the temporary loss of the Dredge New York, and the $2.2 million retroactive insurance premium and margin compression in the demolition segment.
Despite the increase in gross profit, higher general and administrative expenses in 2008, primarily from payroll and health care costs, resulted in operating income for 2008 of $26.1 million versus $29.0 million in the previous year. Further pressuring earnings was a $2 million reduction in Amboy’s earnings that more than offset a $0.5 million decrease in interest expense.
These factors resulted in pre-tax earnings for the year of $8.8 million, compared with $13.5 million a year earlier. Net income for the year ended December 31, 2008 was $5 million, or $0.09 per diluted share, down from $7.1 million, or $0.14 per diluted share, the year before.
The diluted weighted average number of shares outstanding for the year ended December 31, 2008 increased to 58.5 million from 52.2 million last year, as a result of the Company’s issuance of 18.4 million shares of stock upon exercise of warrants in mid-2007. Year to date 2008 EBITDA was $55.9 million, down $1.6 million from 2007.
At this point I would like to turn the call over to Doug Mackie our CEO, who will give you and overview of what’s going on in the judging market.
Doug Mackie
Thank you Deb. With another active domestic dredging bid market in the fourth quarter generating a $190 million of work with projects contributing from all sectors capital, beach, and maintenance.
The beach bid market for the fourth quarter of $55 million was the largest quarter for beach work since the third quarter of 2007. The full-year 2008, domestic bid market was $783 million, almost a 30% increase from the 2007 bid market of $603 million.
Maintenance work was the primary source of this increase. With $351 million of awards nearly doubled the 2007 market of $188 million.
The Company won contracts totaling $300 million or 38% of the total bid domestic market on a par with its five average of 40%, and only $21 million less than in 2007, during which it achieved an especially 53% win percentage. We were also pleased to see a return of the beach bid market after a weak first nine months in 2008, Looking forward, we see more than a $100 million of beach work scheduled to be bid during the next 12 months as many beaches along the East and Gulf Coast are at critical stages.
In early 2008, we had talked about the number of projects growing by year-end. Because of this deferral work beginning in the third quarter of 2007, due predominantly to permitting issues, while we feel there will continue to be some funding and permitting issues, we see a better outlook for beach work at this time last year.
Continuing resolution passed on October 1, 2008 expires on March 6th, however there is an un-ended [ph] sale in congress and pas a budget for the remainder of the Governments’ fiscal year. This is good news for the quarter because when they are working under a continuing resolution the approval process to fund projects is typical longer.
And the core is working under an approved budget, they have a set amount of funds to work with and they do not have to get approval to bid individual projects. Late November, there was a $750 million supplemental appropriation pass related to recurring Gulf Coast starting damage.
And fortunately the core has a difficulty gaining assets to access to these funds and to date very little has been spent. We are still waiting for the Mobile and Galveston district to put out several large projects.
This is our understanding that the Galveston district has a backlog of over three projects ready to go. Last week the President signed the American recovery and Reinvestment Act, a $787 billion stimulus plan.
The focus of this plan is clearly on near-term spending that create jobs next the date of recovery. An emphasis on infrastructure spending has resulted in approximately $111 billion being designated for this work.
Funds of approximately $1 billion appear to be included for port maintenance and insure line protection, a good portion of which we expect to be spent on dredging. The core will publish in the near term a list of priority projects for which it plans to request funds.
It is expected that it will take another three to six months to put this work out to bid. While the stimulus package should create a needed uptick in the funds spent on maintenance dredging, a long term solution still remains a harbor maintenance trust fund initiative.
Maintenance dredging in our nation’s ports has an underfunded for several years leaving many of them at considerably less than their authorized debt. This has had a negative impact on US Commerce by virtue of increasing cost on imports and exports.
Through the efforts of RAMP or Realize America's Maritime Promise, congress has increasingly recognized the need to maintain our ports to enable more efficient movements on shipping traffic thereby reducing cost and promoting economic growth. The success of RAMPs initiative is critical, having a 100% of the harbor maintenance trust funds go for their intended purpose will ensure our harbors are continually maintained at their stated depth.
In addition the attention that has been directed towards the stimulus plan there is continued momentum for support of the harbor maintenance trust fund legislation. We are hopeful that this legislation could be passed as early as this summer.
For additional information concerning this effort you can go to www.ramphmtf.org. Near-term domestic capital projects include another section of the New York Harbor; a project in Tampa, work for the Navy in Norfolk, and other deepening work along these coasts.
In addition, there have been a couple of programs put in place to support ongoing funding with sure projection and Barrier Island restoration. First, is the coastal impact assistance program, a federal plan to provide money’s from offshore oils drilling to six coastal states.
Second longer-term plan is the offshore continental shelf program, which are portions money from offshore oil drilling leases back to the impacted states. While none of these dollars have been spent yet, we are seeing efforts by Louisiana and industry coalitions including the oil and gas industry to push for these expenditures to be made and expect that several coastal restoration projects in Louisiana should be coming out soon.
In total, we see capital projects, which in the aggregate could provide more than $200 million of opportunities over the next 12 months. The $5.25 billion expansion plan for the Panama Canal that is stated for completion in 2014, continues to move forward.
Earlier this month the Panama Canal has already announced that it is prepared to load the largest contract under the expansion program, which is for the design and construction of the new set of lots on both the Pacific and Atlantic entrances of the Canal. Only one contract has been awarded for dredging work to date, but we anticipate there will be several more projects that will come out in the next couple of years, which will provide good opportunities for employing our equipment.
Even more importantly the Panama Canal expansion program will make maintaining and deepening our East and Gulf Coast ports even more critical. The deeper draft vessels are too large to navigate in our ports, goods lessened for the US will bare higher transportation cost.
In summary, the domestic market has seen some improvement during 2008 particularly in maintenance and then in the fourth quarter beach work. However during the year, overall funding constraints were evident.
Looking forward we anticipate an increase in work coming out to bid from the supplemental strong preparations and the stimulus plans. Through the clear focus on infrastructure spending by the new administration and with the democratic majority in the entire (inaudible) there is reason to anticipate that the annual appropriation process will get back on track.
For the long-term, the growth in foreign commerce, which is expected to accelerate with the expansion of the Panama Canal, should apply real pressure on this country to bring our ports to competitive standards. And there is a heightened expectation that maintenance – of our maintenance trust fund will be used for the intended purpose of funding maintenance dredging to keep our ports competitive.
These reasons we feel positive about the domestic dredging market going forward. Overall, 2008 was a very strong year for foreign operations.
However the decline in oil prices and contraction in the regions real estate market in the recent months has began to slow robust economic growth in the Middle East. During the last few weeks the Company has been asked to enter into discussions to restructure up to 50% of the remaining contracted backlog for the DR project through an option status allowing the customer flexibility on timing of execution.
Therefore the Company is working with the customer to come to a mutually beneficial agreement. The customer has been very public about their intent to complete the project and therefore we currently feel positive that any option work will be awarded to us overtime.
At this point we are hopeful of being able to maintain good utilization of our overseas efforts in DR and other shorter-term projects. However it is unclear when the additional work we have been negotiating will be awarded.
Given the uncertain timing of projects in this region, we will continue to review the opportunity to reposition vessels to US in light of developments here in conjunction with the stimulus plan and other anticipated funding legislation. Now let me ask Deb to walk through a more detailed analysis of our fourth quarter performance.
Deb Wensel
Thank you Doug. I will start by giving revenue detail for the quarter.
For the quarter ended December 31, 2008 we had $40 million of domestic capital, $53 million of foreign capital, $29 million of beach, $28 million of maintenance, and $13 million of demolition, for total quarter revenue of $163 million. The comparable numbers for the third quarter of 2008, we had $37 million domestic capital, $51 million of foreign capital, $7 million of beach, $29 million of maintenance, and $99 million for demolition for total quarter revenue of $143 million.
And finally, the comparable numbers for the fourth quarter of 2007 were $44 million domestic capital, $45 million foreign capital, $20 million beach, $20 million maintenance, and $28 million demolition for total quarter revenue of $157 million. Capital revenues for the fourth quarter totaled $93 million and were up from $89 million a year ago, a majority of the recent quarter’s capital revenues were generated by our dredge DR clamshell dredges, continuing work on deepening projects in the New York, New Jersey, and Boston harbors.
Continuing work on the Columbia River deepening project on the West Coast with our hopper dredge Terrapin Island, work on a Louisiana coastal restoration project with our hydraulic dredge Alaska, and finally we employed our five hopper dredges and our three large hydraulic dredges, throughout the quarter on a variety of projects in Bahrain. The Company also began work on a cruise terminal in Honduras with the Claim Shale dredge 53.
Beach revenue was $29 million in the fourth quarter compared with $19 million a year earlier as the Company worked on projects in South Carolina, Georgia, and New York. However total 2008 beach revenue was down compared with 2007, as a result of permitting delays in getting work out to bid earlier in New Year.
Maintenance revenue in the fourth quarter was $28 million, up from $20 million a year ago. As previously mentioned, the maintenance market has continued to be strong throughout this year, totaling $350 million in 2008, nearly double the 2007 market of $188 million.
Number of maintenance projects contributed to this quarter's revenue, including dredging in the New York and New Jersey harbors, Maryland, (inaudible) Mississippi River, and along the West Coast. Looking over to just over 300 million of domestic projects this year, contract and backlog at December 31, 2008 totaled $418 million compared with $322 million at December 31, 2007.
However as Doug indicated there are ongoing discussions with our customer regarding the DR contracts then they shift a portion of the DR backlog to option spending status. Additionally, this December 31, 2008 dredging backlog does now reflect approximately 107 million of domestic projects, domestic loan bids pending award, and additional phases selling our project for a main backlog.
Revenue for the Company’s demolition business, NASDI, LLC was $12.9 million, down from $28.1 million last year. Beginning in the third quarter of 2007, NASDI generated record revenues for four consecutive quarters due to a series of larger projects.
However, as expected, that revenue is now moderating to levels experienced prior to the third quarter of 2007. Demolition services backlog at December 31, 2008 was $24 million compared with $39 million at the end of the fourth quarter of 2007.
Due to the completion of the large projects just mentioned, backlog has returned levels existing prior to the 2007 second quarter. Recently NASDI has taken in several projects in the New York market and is looking to stand its presence there in 2009.
Our backlog by judging work type and segment at December 31, 2008 was $176 million of domestic capital; $196 million of foreign capital; $19 million of beach; $27 million of maintenance, for total dredging backlog of $418 million. NASDI’s $24 million again plus total Company backlog of $442 million.
The comparable numbers for the end of the third quarter were $186 million of domestic capital, $212 million of foreign capital, $24 million beach, $31 million maintenance, for a total dredging backlog of $453 million. Adding NASDI’s $19 million of backlog gave us total Company backlog then of $472 million.
And finally converted numbers for the end of the fourth quarter of 2007 were $175 million of domestic capital, $107 million of foreign capital, $31 million of beach, $9 million of maintenance, for a total dredging backlog of $322 million. Demolition backlog of $39 million, and total Company backlog of $361 million.
Capital expenditures for the fourth quarter totaled $11.6 million. This included spending of $2.9 million on the dredges Ohio, and Noon Island related to upgrades in placing these vessels into service.
$1.1 million was spent this quarter on final construction on the power barge that will enhance the utilization and operating efficiency of our dredge Florida. Work on this vessel was completed in October with refinance through sale leaseback transaction.
Additional $1.6 million was spent on the expansion and renovation of the Company’s corporate offices in Oak Brook, Illinois. Substantially all the cost of build-out and finishing are being funded by the landlord as an incentive for spending a long-term leased renewal.
The remaining $6 million included work on a variety of dredges, as well as the purchase of smaller ancillary equipment for dredging operations. Fourth quarter 2008 maintenance spending, which is equipment-related costs that are expensed in the year incurred, was $11.8 million, up from the 2007 fourth quarter.
However maintenance expense for the 2008 year was down nearly $2 million compared with 2007. As of December 31, 2008, senior and subordinated debt, net of $10.5 million in cash and cash equivalents was $206 million, including $41.5 million of borrowings under the revolving credit facility.
During the quarter, the Company completed the sale lease debt of the power barge netted above for $16.7 million. At the end of the fourth quarter of 2008 outstanding performance letters of credit totaled $34.6 million including $18 million outstanding on the Company’s revolving credit facility.
The Company’s $155 million facility matures in June 2012 and includes an $85 million sublimit for the issuance of letters of credit. At the end of September, Lehman Brothers, a 6.5% participant in our credit facility started funding its share of all the revolver borrowings.
However, since we have sufficient capacity or significant capacity on the revolver, this has not impacted our ability to fund working capital needs. Availability at December 31, 2008 was $88.2 million, excluding $7.3 million attributable to Lehman.
Leading positions in our credit are held by Bank of America, Charter One, GE Capital Corporation, and Wells Fargo Bank. At quarter-end our total leverage was 2.65 times and interest coverage was 3.71 times.
In terms of working capital requirement during 2008, we increased our investment in pipe inventory for both our international and domestic operations. In addition, its foreign operations grew last year, we increased our spare parts inventory, receivables and retain its leases for the overseas work.
This was partially offset by one domestic project and which has been receiving advanced maintenance. In spite of the challenges that we face throughout the year, including the negative weather impact the reduction and demolition margins later in the year and the year-end insurance premium cost, 2008 results were in line with our expectations.
As we have indicated there is an exceptional amount of them of economic uncertainty looking out into 2009. A strong backlog domestically and a possibility of additional opportunities from the recently stimulus plant and 2009 federal budget bodes well for our domestic operations this year.
In the international side of the business there is significant unknowns. We have also one vessel available to work here throughout 2009, but the situation remains fluid.
The pace of current project and the prospect of the future maybe further affected by the current economic turn around. Therefore at this time we are not providing specific EBITDA guidance for 2009.
We do believe 2009 should be better than 2008 and if there is potential upside from the stimulus plan in the 2009 budget. However as the year progresses and the impact of the variable dimension becomes clearer it may allow us to provide more clarity when EBITDA resolves for 2009.
This concludes our prepared remarks, I would also note that we would provide a summary of the operating and backlog information provided herein as well as the reconciliation of our EBITDA, which is a non-GAAP measure to net income or GAAP measure, in the financial section of our Company’s website at gldd.com. And now let’s open up the call for your questions.
Operator
(Operator instructions) Your first question comes from the line of Andy Kaplowitz with Barclays Capital. Please proceed with your question.
Andy Kaplowitz – Barclays Capital
Good morning guys can you hear me okay?
Deb Wensel
Yes Andy we can.
Andy Kaplowitz – Barclays Capital
So – I know you are not giving EBITDA guidance, but when I look into 2009, can you talk about cash flow generation in 2009 to the best of your ability, you know what are we spending money on, you know what should we look for in terms of cash generation in ’09?
Deb Wensel
Well again I mean that – while we do give guidance on normally is our EBITDA, which is really the cash flow measure. I guess the only other item to think about there that –
Andy Kaplowitz – Barclays Capital
CapEx?
Deb Wensel
– is the Cap spending. And we’ve talked before that with our current equipment we need to spend something around $22 million annually on the equipment.
And that being said you know there is some allowance there for a change in utilization and that number can go down or up as necessary, but I think that’s really the only other number that we sort of talk about and I think we will sort of gauge that number depending on what we see going forward for 2009.
Andy Kaplowitz – Barclays Capital
Okay thanks. And Doug have you seen, I mean you kind of alluded to it, but it doesn’t seem like you have seen much impact on the business in the US from the slowing economy, but what do you see out there in the US?
Has the business been effected in ways that, you know, like as – how the state and local business, how are the pieces of the business that you would expect to be sensitive to the economy?
Doug Mackie
Well it is clear that over the last 12 months that domestically the federal government has provided most of the revenue for domestic businesses and we have a very good domestic backlog, you know it is a strong backlog domestically, but we are – need to see some of the stimulus money to come out to really get upside. We are seeing good utilization for our equipments through the first six months.
There might be – you know there is a few holds out there in the third and fourth quarter, but we are pretty optimistic about, you know to fill that in, if we could get any type of funding coming out of either the program or the restoration of the Gulf which hopefully last November and of course the new stimulus plan. So, we are hopeful for upside.
Andy Kaplowitz – Barclays Capital
When did you make the decision? I know it is a hard question, but when you make the decision to take some dredges back from the Middle East like what are – is there anything that we can look for to get a view on when utilization would start to suffer in the Middle East and you would have to bring some dredges back?
Doug Mackie
We are fairly occupied for the first part of the year. And we don’t feel any risk there.
So, we have time, but what we are looking at is we are obviously going through some negotiations and we are assessing our opportunities that we have bids pending, and that’s one side. I mean, obviously it could be a – if we believe that we can better return, I mean that is what we always look at, if we could better return bringing one or two dredges back to United States, we will not hesitate.
We still have enough capacity in the US for what we see right at the moment, but there is a surge of stimulus money and there is a weakness in the Middle East and we will make that move. We already have – just like the military we have plans based on what we see and what results we have in our negotiations.
Andy Kaplowitz – Barclays Capital
Doug, I would imagine that since you are working on some of these big projects in the US and the Middle East you haven’t seen much pricing competition yet, but can you give us sort of the landscape as to – you know, I also would imagine given your market share in the US that you are okay going forward, but maybe just the landscape on what’s going on in the US and the Middle East as you view your competitors?
Doug Mackie
Well I think overall for the last quarter, we have seen margins continue to stay good. It usually is a pretty good market, fourth quarter and first quarter because the result as you know those are strongest quarters because that is when the government seems to put out all the work or as a result of all the windows that closed during the summer.
So, we haven’t seen, we are still seeing good margins overall. We’ve as far as in the foreign market, there is pressure, downward pressure on pricing for jobs.
There are several large competitors in the Middle East who have had to slow down jobs and larger jobs that we haven’t been bidding, have been delayed or cancelled. So, we are seeing overall pressure in the Middle East.
And, but we are now looking out towards other areas outside the United States for some of our equipment.
Andy Kaplowitz – Barclays Capital
I don’t know if you can answer this question Doug, is there anyway to quantify that pressure in terms of margins, is it 10% or 20%, or is it like third, you know or more?
Doug Mackie
Well right now, we haven’t submitted a new bid. We still have several bids pending and we haven’t really got to the point of them – of the owners putting pressure on it, I mean we – I wouldn’t be surprised if they were, but right now they are more looking at the designs of the projects and whether or not the projects that are in the pipeline will be smaller or be in, you know based on an option mode.
So, we are – it has slowed down on the awards, but there is still some being awarded in the Middle East, several have awarded in the Middle East in the last couple of months. So – and there is some in the pipeline.
Andy Kaplowitz – Barclays Capital
Okay. One more quick clarification like the debt, is there a way to tell us how much the repairs on the New York were approximately in the quarter and or the weather impact in the quarter, you know how that impacted margins?
Deb Wensel
No, we don’t specifically identify those. I mean obviously we look out to the particular jobs that have impacted, but you know what we usually try to highlight to are those larger items that impact the quarter, but again a lot of it is the total mix of what is going on.
So, just to get to those numbers that will necessarily give you the whole picture either.
Andy Kaplowitz – Barclays Capital
I understand thank you.
Operator
Your next question comes from the line of Richard Paget with Morgan Joseph. Please proceed with your question.
Richard Paget – Morgan Joseph
Good morning everyone.
Deb Wensel
Hi Richard.
Doug Mackie
Good morning.
Richard Paget – Morgan Joseph
Just getting back to the Middle East, may be in the press release you said you have about $140 million left on the DR project, does that, can we just extrapolate that, you have about a quarter, maybe a quarter two left off work on existing terms and the at 50% the rebid would be work for the second half?
Doug Mackie
Well I mean this is – we are still in negotiations. This is what the owner would like to happen, but we are looking at trying to get a benefit out or this is some ways.
So, that’s what the owner is suggesting. But if we do – you know, if it turns out to be 50%, you are right, we would probably only have about 25% of the job left in the base work and then we would have to look to the option work.
Richard Paget – Morgan Joseph
And then what is your sense of some of your domestic competitors, you know like just for example that have sense of their vessels over into foreign markets you know over the couple of years that if the Middle Eastern market in particular continues to be a bit challenging they might send boats back to the US?
Doug Mackie
To my knowledge they are not weeks in Madison and has no vessels outside of the United States, no operations outside the United States.
Richard Paget – Morgan Joseph
Okay. So, you wouldn’t expect any real new capacity coming into the market?
Doug Mackie
No. I wouldn’t expect that at all.
Richard Paget – Morgan Joseph
Okay and then just getting back to the domestic market, I mean, you guys – it seems like you have been more positive on potential catalyst then in a long time and just looking at the army course budget, I mean it looks like they could see 30% to 40% upside in their budget just from the stimulus package if you look at some of the line items that is getting directed towards them. I mean is that the sense of magnitude we could expect from the stimulus package for the market that would trickle down to dredging?
Doug Mackie
Well that’s trying to guess what the core of engineers would do is, well let’s put this way, we failed miserably trying to predict what the core is going to do. A little bit different we understand is that sometime in the next 30 to 60 days they will give us a list of projects that will be coming out timing and priorities.
You know we are hopeful you know that the 30% to 40% would be – you know could come to us, but until we see it and we are waiting and ready to go and they say it could be two to three quarters before the funds come out. That would be very good if it really happens.
There is still – when I say there is still some, we are seeing the districts are we will start to put out meetings, Galveston has put out a meeting concerning potential stimulus work in Gulf Coast. The Gulf Coast reconstruction now the West Coast, most of the core districts are now having meetings and they are giving us outlines of what they think they will put out, so we will have a lot more news over the next two months about what we will get.
Richard Paget – Morgan Joseph
Okay. And then the insurance charge of 2.2 million.
Is that in the gross margin line or is that part of SG&A?
Deb Wensel
Within gross margins.
Richard Paget – Morgan Joseph
Okay. Alright thanks, I’ll get back in queue.
Deb Wensel
Okay.
Operator
(Operator Instructions) Your next question comes from the line of John Kasprzak with BB&T Capital Markets. Please proceed with your question.
John Kasprzak – BB&T Capital Markets
Thanks good morning. I wanted to ask about the core as well on the stimulus plan, it is my understanding that the money is going to made available almost right away and – so why wouldn’t the impact be more clear and immediate for a benefit – clear and immediate for 2008, I am sorry for 2009 than what you guys seem to be indicating, is it just a product of being burned on trying to predict the core in the past or is it really down uncertainly?
Doug Mackie
I mean it is based on what we are hearing from our representatives in Washington and it will be one to two quarters before – as our money comes out for whatever reason. That is the only information we have.
The core pretty much it says the same thing, though they at the one meeting we went to they weren’t really sure either, but our representatives in Washington who follow this situation still believes it will be third or fourth quarter funding at best.
John Kasprzak – BB&T Capital Markets
And the billion dollars that you guys mentioned in the press release, I think core got in the stimulus package 4.6 billion, if there is not a list of projects out yet, where does the billion dollar estimate come from?
Doug Mackie
Well that does come from the core of engineers.
John Kasprzak – BB&T Capital Markets
Okay.
Doug Mackie
But some of it administrative, some of the stimulus money is referred, you know locks and downs and I mean into your work that they do along the water ways you know has been.
John Kasprzak – BB&T Capital Markets
And is there a figure about what it cost to move a dredge back and forth from the Middle East that you can give us sort of typical estimate you might use for moving a dredge?
Doug Mackie
Well it all depends on the type of dredge. I mean you can see as little as $1 million or $1.5 million to $4 million to $5 million.
All depends on and how much the type of vessel you bring back, how much pipe you bring back and the (inaudible), which we will have to assess you know once – you know when we are looking at jobs in the US it will be very dependent on which vessels we bring back in and how much of our inventory we bring back.
John Kasprzak – BB&T Capital Markets
Given the – if the stimulus money does kick-in in the second half of ’09 and some of the other opportunities on the domestic market, it seemed to be out there, would you expect to see a domestic bid market in ’09 that grows similar rate that it grew in ’08 that is 30% or so or will that be too optimistic?
Doug Mackie
Well it maybe a little optimistic as they start funding in the fourth quarter.
John Kasprzak – BB&T Capital Markets
Right.
Doug Mackie
2010 you might be able to see that growth.
John Kasprzak – BB&T Capital Markets
We are still – but does seem like on the domestic side, we are still on a period of time where we can see very robust growth similar to what we saw sort of accelerate in the back half of ’08.
Doug Mackie
In the – also you have to put in high remain trust fund, which we are very positive with and that is – I mean it was $1.4 billion last year. I think the revenue this year might be $1 billion or $1.1 billion as it sounds, but even $1 billion coming in with no strength is very important to our industry not only for 2009, 2010, and 2011, but going forward.
John Kasprzak – BB&T Capital Markets
Yeah great, thanks for the color.
Operator
Your next question is a follow-up question from the line of Richard Paget with Morgan Joseph. Please proceed with your question.
Richard Paget – Morgan Joseph
Just want to – since we have been in some what of a deflationary environment any cause whether it is fuel or the cost of some of your piping, will you benefit on your margins of anything of that or is that just kind of strictly pass through?
Doug Mackie
Well eventually it will. I mean, a lot of our inventory, well fuel obviously, but you know the fuel since we hedge it, as fuel comes down you know all our competitors will get the same benefit.
That’s just the pass through. As far as inventory height, modestly we bought a lot of it over the last four or five years at higher prices of steel, now that it is come down as we – when we have to buy more pipes and I see more inventory, it will certainly be in lower cost.
It will average out over time.
Richard Paget – Morgan Joseph
Okay thanks that’s it.
Operator
And there are no further questions at this time. I would now like to turn the call back over to management.
Deb Wensel
Well, thank you for joining our fourth quarter update and we look forward to talking to you after the first quarter of 2009. Bye, bye.
Operator
Thank you for your participation in today’s conference. This concludes the presentation, you may now disconnect, good day.