Aug 8, 2013
Executives
Katherine M. Hayes - Treasurer and Assistant Secretary William S.
Steckel - Chief Financial Officer, Principal Accounting Officer and Senior Vice President Jonathan W. Berger - Chief Executive Officer and Executive Director
Analysts
Cory Mitchell - D.A. Davidson & Co., Research Division Trey Grooms - Stephens Inc., Research Division Vlad Bystricky - Barclays Capital, Research Division Scott Justin Levine - Imperial Capital, LLC, Research Division Jonathan Tanwanteng - CJS Securities, Inc.
Philip Volpicelli - Deutsche Bank AG, Research Division Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund Anthony R.
Raab - Perimeter Capital Partners LLC
Operator
Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 Great Lakes Dredge & Dock Corporation Earnings Conference Call. My name is Mary, and I'll be your coordinator for today.
[Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Ms.
Katie Hayes, Treasurer and Director of Investor Relations. Please proceed.
Katherine M. Hayes
Thank you. Good morning.
This is Katie Hayes, and I welcome you to our quarterly conference call. Jon Berger, our Chief Executive Officer; and Bill Steckel, our Chief Financial Officer, will discuss the operational and financial results for the quarter and 6 months ended June 30, 2013.
Following their comments, there will be an opportunity for questions. During this call, we'll 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 2012 Form 10-K and subsequent filings.
During this call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA, 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 Bill Steckel, our CFO.
William S. Steckel
Thank you, Katie. I hope you all had a chance to review the press release we issued this morning.
The release contained a great deal of information, and I will cover the highlights. After 6 months of near record revenue, dredging activity slowed in the second quarter as several vessels were off-line for scheduled maintenance, and some projects expected to contribute to revenue were delayed into the second half of the year.
Minor delays were experienced at the Wheatstone Project where we started dredging in the first week of July, and in the Gulf where flood levels on the Mississippi River delayed the start of the project. Positively impacting the second quarter results was the receipt of $13.3 million for the settlement of our dredge New York loss of use claim.
We were pleased to receive payment on this judgment more than 5 years after our dredge New York was struck by a cargo vessel in Port Newark, New Jersey. As we look forward, dredging has nearly $460 million in backlog, and another $143 million in low bids and options pending award.
We currently expect an increase in activity in the dredging segment for the remainder of this year and into 2014. Operationally, the demolition segment benefited from the addition of Terra in 2013 with this business contributing $10 million of demolition revenue in the second quarter.
There were, however, 2 significant items that impacted the second quarter results for demolition. The first was a noncash write-off of $21.5 million of goodwill.
Continuing losses and declining expected cash flows prompted us to accelerate the test for goodwill impairment into the second quarter. As a result of this testing, we recorded an estimated charge in Q2.
We will complete an analysis of the NASDI goodwill and finalize the impairment amount in the third quarter. We also identified certain pending change orders for one demolition project which no longer qualify for revenue recognition according to the company's accounting policy.
New developments in June included filing a lawsuit against the project's general contractor to preserve our contractual rights, and we received additional communication from the general contractor and the owner. Our accounting policy allowed us to record revenues in early periods.
However, as a result of these new developments, we appropriately reversed revenue of $5.6 million in the current period. We continue our efforts to achieve a favorable outcome related to these change orders, and are currently working with the general contractor and the owner in this regard.
General and administrative expenses increased by approximately $6.9 million from the same quarter last year related to certain legal and professional expenses related to the revenue recognition issues discovered at year-end, bad debt expense, as well as the addition of Terra Contracting with $1.8 million of G&A expenses. The company recorded an operating loss for the quarter of $21.4 million, primarily due to the write-off of goodwill and the reversal of revenue noted above, as well as the quarter slowdown in dredging, which was partially offset by proceeds from the loss of use claim.
The domestic dredging bid market for the 6 months ended June 30, 2013, totaled $558 million compared to $353 million in 2012. The company won 62% of the overall domestic bid market through the first 6 months, which is above our prior 3-year average of 37%.
This win rate, driven by the award of the first phase of the Port Miami projects and by capturing 63% of the coastal protection market, sets the stage for a busy second half of this year and into 2014. Please remember that variability in contract wins from quarter-to-quarter is not unusual, and the win rate for 1 quarter is not indicative of the win rate that the company is likely to achieve for the full year.
Through the second quarter, Great Lakes won 77% or $232 million of the capital projects awarded; 63% or $81 million of the coastal protection projects awarded; and 24% or $29 million of the maintenance projects awarded. There were 2 rivers & lakes projects bid in the first 6 months, and we won one of them.
Dredging backlog and pending domestic awards at June 30, 2013 reached $602 million, one of the highest levels the company has achieved. Comparatively, this amount was $470 million at December 31, 2012.
The company's contracted dredging backlog without pending domestic awards was $458 million at June 30, 2013, compared to $389 million at December 31, 2012. Since June 30, the company was low bidder on $110 million of work, including an $81 million coastal restoration project in Louisiana.
Demolition segment backlog was $92.9 million at June 30, 2013, including $33 million from Terra compared to $60 million at December 31, 2012. Demolition was also awarded 2 projects in July, totaling $25 million, including a $20 million of demolition work associated with razing the Bayonne Bridge.
Our investment and working capital largely remained in place at June 30. We have collected approximately $36 million from the Scofield project since the start of the year.
We will continue to recover our investment as we finish Scofield and as we execute on the next project at Shell Island. Wheatstone working capital investments exceeding $40 million will begin to be recovered now that dredging commenced in the third quarter.
In addition, we spent $28 million on equipment in the first 6 months of 2013, including $13 million on the ATB vessel. As we progress further with the ATB build, we will complete construction financing, and ultimately execute a long-term lease for the vessel.
We also paid a note in the first quarter related to the Terra acquisition in the amount of $10.5 million from cash. We currently remain in compliance with the covenants in our revolving credit facility.
We are mindful of our investment in working capital, and we are actively working to increase our free cash flow and pay down our revolver over the course of the second half of the year. I'd like to now turn the call over to Jon Berger, who's going to discuss some of the initiatives that we referred to, as well as strategic planning and growth considerations for moving forward.
Jonathan W. Berger
Thank you, Bill. I would like to start by highlighting to you our backlog and low bids pending award as of June 30, and our recent bidding success up to the call.
As Bill has stated, the combined backlog in our dredging and demolition segments is up over 23% since last December 31. And importantly, the mix and quality of work in backlog is encouraging.
This includes significant capital work in our dredging division, and larger, better quality customers, which have been a significant focus of our demolition segment. Now let's turn to our markets and any updates since our May call.
In the second quarter -- Sandy funding, let's start with that. In the second quarter, 5 projects for coastal protection needed as a result of Hurricane Sandy were bid.
We were awarded 3 of them, totaling $75 million. And additionally, we won one in July for $19 million.
We foresee a shift of Sandy projects to the Southeast in the coming months. Over the longer term, we expect more funding for projects in the Northeast that will be critical to rebuild and fortify the Northeast coastline.
Coastal restoration. This week, we are low bidder on $81 million coastal restoration project in Louisiana, which will commence dredging in the first quarter of 2014.
This is another significant project in the long-term rebuilding of the Gulf Coast in Louisiana, and will be executed with funding from the CWWPRA, the Coastal Wetlands Protection and Restoration Act. So this is actually not funded from the BP settlements, just so everybody's clear.
And additionally, this is a project that will not use our empire pipeline that we bid, so it's in a different area of Louisiana. We are pleased last quarter when the State of Louisiana announced that BP has agreed to fund approximately $340 million in restoration projects.
Louisiana specifically identified 4 projects that had been planned to put out to bid, which they're waiting for funding. These projects have been on our radar for some time, and though the timing of when they will bid is not known, we currently expect them more than likely to bid the early part of next year.
Let's turn to port deepening. As was demonstrated by Port Miami deepening process, it was a long and arduous process to get these projects to bid, and the states and port authorities are increasingly getting more aggressive in looking at alternative funding mechanisms than the traditional wait-for-Washington route.
As all of you know, the President have spoken numerous times about speeding up the process for approval of major infrastructure projects, and state governments are speaking regularly about alternative funding mechanisms. So we expect this market segment to continue to support capital dredging in the years to come.
Our expectation is that Savannah is the next major port deepening to bid, and our expectation is that, that will happen in 2014. One last note on our dredging segment.
We're expected to have shipyard quotes in for our ATB in August, and quickly negotiate with the selected yard. As you are aware, we separated from the shipyard we initially selected, but we have not slowed down in the detailed engineering work that was scheduled to be done and have maintained the order for critical components for this important addition to our fleet.
Although clearly behind schedule from where we initially expected to have this vessel in production, we are moving ahead and we expect delivery in late 2005 [ph] or early 2016. Let's switch to Washington for a moment.
The President's budget as well as the House and Senate, have presented included increase for navigational funding. This is very good news, considering the difficult funding process in Washington.
We continue to feel good about the focus on navigational spending and the resistance to cuts in that area of the budget. As I've mentioned earlier, the President has also spoken numerous times about investment in infrastructure and focused his discussions on investment infrastructure as a way to quickly deal with the high rate of unemployment, and therefore, jobs creation, with the significant benefit of very long-term benefit for the economy for investment infrastructure.
As we're all aware, the Senate passed their version of WRDA in May. The House under the leadership of Congressman Shuster has worked through the spring and summer and has a House version of the WRDA, almost complete and ready to be released after the August recess.
Although the House has been very good in not leaking many details on the bill, they have demonstrated significant bipartisan behavior in the closing dates prior to recess. This hope is that hopper [ph] will be released in early September and brought to the floor of the House in the fall.
Now let me turn to the demolition segment. As we have said, we are making structural changes within the organization to bring more operational skills into executive leadership.
We continue to focus our NASDI subsidiary -- focus on our NASDI subsidiary and our demolition segment. We're upgrading our project management capabilities, and we have dedicated significant resources at corporate and in the field to improve execution and internal controls.
And we have made strides since the beginning of the year. We are also evaluating opportunities to combined operations to reduce support cost and focusing on improving margins through more selective bidding and better project execution.
As Bill has mentioned, we've been getting more aggressive in the process of working through pending change orders and collections of work under dispute in this division. We expect to see improved results in the segment in the second half and are working on alternative structures for this segment if we are not successful in our execution during the third and fourth quarter.
As Bill discussed earlier, we have had too much capital tied up on our balance sheet. Some intentionally, such as the known investment inventory to allow us to win key projects in the Gulf and the known investments required to make for the Wheatstone Project.
However, such as long-term AR collections in the Middle East and the potential change orders in the demolition division have the full attention of our senior management. Turning this around is a key focus of our management team in the second half of the year.
Finally, we will not be giving formal guidance at this time. With recent events and results in our demolition business, we feel it is not prudent to issue forward-looking guidance.
We appreciate the support of our shareholders, employees and business partners, and we thank you for joining us to discuss important developments and initiatives in our business. With that, we'd be glad to open it up for questions.
Operator
[Operator Instructions] Our first question comes from Cory Mitchell from D.A. Davidson.
Cory Mitchell - D.A. Davidson & Co., Research Division
I've got a few questions. First, how much of the gross margin decline was from lower utilization?
Was there a higher competitive environment? Was there any cost increases associated with that?
And then with Ictus [ph], has that started? And if so, is that proceeding as planned?
And then lastly, how should we be thinking about your cost structure associated with the structural changes to corporate? Is it 10% to 12% for SG&A as a percentage of revenue a new run rate?
Or do you expect that to revert back down like a 7% to 8% range?
Jonathan W. Berger
No. So you have 3 questions, I'm going to try -- Bill and I will try to get to all 3 of them.
The second one, I think, I had trouble understanding. The first one was the question of any significant structural issues in our lower gross margin in the second quarter.
And I don't think we're seeing anything from a contractual bidding process and projects and backlog margin that is concerning to us at all. I think the margins have stayed positive.
And Bill, help me out, but I think it's really just a reflection on just lower utilization.
William S. Steckel
Yes, if you take out the demolition segment and the issues we had there, if you look at the dredging business, the contract margin is holding and, actually, is a little bit better year-over-year. The phenomenon that takes place, though, is as we earn credit for fleet utilization, we had a little bit less of that in the second quarter because we had vessels off-line.
So there's an element of earned plant that is definitely different than it was a year ago and is less favorable this year. That eventually comes through work in process and gets billed and that flows through.
But when you look at the P&L for the quarter, the earned plant part of it is definitely different than it was a year ago, but from a competitive and a market standpoint, the margins are holding up fine in the dredging side of the business.
Jonathan W. Berger
Yes. And to remember, I mean, the fourth quarter and the first quarter of dredging were at an exceedingly high utilization.
And so we had some work we couldn't do in the second quarter, so we took some of these dredges off, but we had -- and did some work on them. Now your second quarter -- second question, Cory, I don't think any of us really got it clearly, can you state it again?
Cory Mitchell - D.A. Davidson & Co., Research Division
Yes, just on Ictus [ph] , has that started? And then how is it proceeding towards your expectations?
Katherine M. Hayes
What are you -- how is what proceeding?
Cory Mitchell - D.A. Davidson & Co., Research Division
Ictus [ph]
Jonathan W. Berger
I'm confused, what is Ictus [ph]? Do you mean the Wheatstone Project?
Cory Mitchell - D.A. Davidson & Co., Research Division
Yes.
Jonathan W. Berger
Okay. Yes, I mean, the Wheatstone Project, obviously, has started slower than we expected.
We expected it to be dredging really by March, and we really didn't start getting out there until toward the end of June. We had certainly some complaint, some delay claims and other things that worked in.
But the margin is holding solid right now as we forecast and we did a deep dive in the end of the second quarter, where we basically reestimated the whole project from our standpoint. And the margin has stayed consistent the way we liked it to be.
So other than starting out slow, and ultimately, with the main contract of who we're working for, it's a $1.2 billion project. So there's a significant amount of work, and you always expect ups and downs.
But the margin did say -- did stay where we expected it, which is a very good sign with all the stops and starts of getting it started. And your third question was on G&A, and I'll have Bill address it, but obviously, we have significant onetime G&A costs that we don't think will be a continual run rate.
William S. Steckel
We had $6 million more this quarter than we did a year ago. And a large portion of that was for legal expenses.
We took some bad debt write-offs this quarter. Also, we have some consulting that is related to the efforts that are underway.
So we've clearly got a few million dollars per quarter in that number that is onetime expenses. Now the legal things, with what's going on, we'll continue to incur a little bit of extra expense there.
We'll still have some extra effort going into some of our remediation efforts, but that should ratchet back a little bit in the second half of the year.
Jonathan W. Berger
And I think you may also have asked, specifically, what some of the structural changes we're doing at NASDI. Ultimately, I think, when we're all done with them, they should be -- our G&A should ultimately be lower there.
We're bringing some work back -- some staff functions back to Great Lakes, such as purchasing, financial accounting, HR. So we expect that we'll get some economies of scale.
We're looking at doing some other structural things associated with them in our Terra to take advantage of people that are in similar markets. So ultimately, I think, we'll be able to, once the dust settles, reduce some of that G&A also there.
Operator
Our next question comes from Trey Grooms from Stephens.
Trey Grooms - Stephens Inc., Research Division
I'm sorry, I got on the call a little bit late. But can -- if you addressed this, I'm sorry.
But can you talk about kind of what you guys are going to have to see in the market? How much tighter do things need to get before you guys can really start kind of pushing pricing here and really moving the margins up over and above, just what we could expect from utilization?
Jonathan W. Berger
Yes, good question. I mean, we've been very -- we have been very disciplined in our bidding in the last quarter and a half.
After the Sandy work came out, we have held margins. We didn't chase a lot of work.
The real determinant of our margins going to shoot up, I think, is will the Army Corps let more contracts? And -- or are they just keeping it very kind of close to the vest?
But I think, as Bill just said, I think our margin's actually ticked up in the second quarter. We just had -- on the dredging side, at least, we had just a -- not as strong a utilization as with those 2 quarters where we really worked hard.
So I'm not unhappy at all. I think our margins and backlog are solid on the dredging side, but it is kind of project-specific.
And if we saw a little bit more in the Northeast come out on some of the big projects that we're expecting, I think you could see situations where margins could tick up a little bit more.
Trey Grooms - Stephens Inc., Research Division
And just on backlog, did -- so, you said that they're solid. Is that relative to last year, relative to the most recent quarter?
How do we think about that?
William S. Steckel
I think it's really both. I think it's strengthened over the course of this year and certainly compared to last year, where we're measurably ahead.
Trey Grooms - Stephens Inc., Research Division
Okay. And looking -- I guess, looking at the demolition business.
Jonathan W. Berger
Yes.
Trey Grooms - Stephens Inc., Research Division
You mentioned making a decision on something by year-end. What are the different options you're looking at here?
Jonathan W. Berger
Sure, and fair question. Maybe I could take this opportunity to step back and give you a little bit more color how I see the demolition business.
And I will give you this based on my experience of 30 years and a certain -- clearly, a reasonable amount of work in reshaping companies that have gone through significant issues. It's kind of a 3-step process, no different than somewhere in a car accident.
You triage, you stop the bleeding, you diagnose the problem, then you treat the problem. And I think we need to remind everybody that situation where we've had management for over 10 years in that company that was acting in a manner that we certainly could not operate under.
So we turned over almost all the executive management and a significant portion of the operating management. And this occurred in April 2011, and we're still chasing down issues left by prior management.
And I think most of those, from an operating perspective, are close to done, and now it's just the cleanup. And that includes more internal controls, many tailing legal issues and a culture that needs to be changed.
So we've focused tremendously in this last 6 months, but what do we have to see and what -- we have to see minimal slippage in contract margin. I think, we're bidding work, we're getting the type of work we like and see very good opportunities, and we're getting margins that are acceptable to us right now.
But I have to see us operate without slippage in margins. And I have to see us operate in a way that we've managed the change order process.
What are the alternatives if we don't see demonstrable success? I mean it would be some sort of significant reduction in that business, potentially combining it totally with our Terra business that does a little bit of demolition, to ultimately shutting it down and winding it down or trying to sell it to somebody.
Everything is on the table. If we don't see, as I said, significant signs of improvement by the fourth quarter, in good conscience we cannot operate the way we're operating it, and we have too many other things that are going on in our business that actually are good.
And our backlog is tremendous that we will not keep -- we will not operate it the way we're operating it.
Trey Grooms - Stephens Inc., Research Division
And my last question is on your comment earlier about will the Corps of Engineers start to let more projects? Or will they keep it kind of close to the vest?
In your experience, and kind of given where the budget is and the situation there, what would cause the Corps of Engineers to kind of loosen the purse strings, I guess? What would drive them to do that?
Jonathan W. Berger
I mean, yes, let's not forget. We're talking about money that's allocated separately for all this Sandy, Hurricane Sandy.
I just think it's more an issue of they're dealing with some tremendous onetime things, and to get these things structurally ready to go out to bid takes a lot of time, takes a lot of effort. And I don't think any organization can ramp up as quickly to do that as they could.
So we've seen some things get postponed, pushed back. And this is not a, at all, a negative comment on the Corps.
I think they've done a tremendous job of addressing this. It's just, yes, there's just a lot of projects that to be out there, and to put it bid at once is a significant endeavor for them and so I think it's just them doing that -- their diligence.
I don't think it's a funding issue, because funding is separate and distinct from the regular Army Corps budget.
Operator
Our next question comes from Andrew Kaplowitz from Barclays.
Vlad Bystricky - Barclays Capital, Research Division
This is Vlad Bystricky on for Andy. So when you say you're looking at opportunities to combine operations to reduce support costs, is there any way that you can help us scope out the potential cost savings that you think you might be able to find in terms of annual dollars that you think you might be able to save?
Jonathan W. Berger
Not yet, unfortunately. But we're very...
William S. Steckel
Not yet. I mean, the answer is not yet.
We're very cognizant that we've got to get our operating and G&A costs down in our demolition business to a level that supports the run rate in the marketplace that we believe we'll garner from the type of clients we want. So I can't give it -- I can't give you that number yet, but that's stuff that -- we have teams working on with each of those businesses.
So I guess, I'll just have to say you'll have to maybe check back with us in a certain period of time.
Vlad Bystricky - Barclays Capital, Research Division
Okay, and then just as a follow-up. Given the ramp in dredging activity that it seems like you're expecting in the back half of the year here, is there a way to think about how utilization -- how positively it should impact gross margin going forward here?
I mean, can we get back to 1Q levels of gross margin or better in the near term?
William S. Steckel
Yes, I think -- yes, you could look at the past couple of quarters that we've had, and those have been good utilization quarters. And I think that's about all we can say about that.
And in terms of how it might roll out going forward is if you look at our historical performance and look at quarters where we've had good utilization, look at those P&Ls and see what you see there.
Operator
Our next question comes from Scott Levine from Imperial Capital.
Scott Justin Levine - Imperial Capital, LLC, Research Division
I can appreciate the reasons that you wouldn't provide fiscal '13 guidance here. But I'm going to try for maybe a little bit more clarity on the dredging side of the business, any outlook there?
So it seems like contract pricing is consistent, but utilization rates down here in the quarter. Would your expectation be, given your projection for burn rates in these projects that we would see a quick return to utilization rates you guys posted the preceding 2 quarters?
Or does it take a couple of quarters to get there? Maybe a little bit more color on how you foresee utilization trends impacting margins in that business over the next few quarters.
William S. Steckel
As we've said, we started dredging in Australia in July. There was a delay in the Gulf.
We expect the second half to be busy. And that is really all we can comment on as far as forward-looking.
Scott Justin Levine - Imperial Capital, LLC, Research Division
Okay. And then turning, I guess, on the demolition side.
This one project that you cited the reversal on. Is that a new issue?
Or is that one of the other projects that you guys had flagged as being problematic in that business for the last couple of quarters?
William S. Steckel
It's related to the project that we've been talking about since our year-end numbers. There had been new developments related to that project.
Scott Justin Levine - Imperial Capital, LLC, Research Division
Got it.
Jonathan W. Berger
Yes, I mean -- let's be clear, this is a project that, Bill, I guess we started in late '10?
William S. Steckel
In 2010, yes.
Jonathan W. Berger
In 2010. So it clearly is a project that's been around for awhile.
Scott Justin Levine - Imperial Capital, LLC, Research Division
Okay. So, I mean, have there been any new projects that have surfaced as, call it, I don't know if you want to call it a troubled project or what have you, but has there been any new projects that have become more burdened during the last quarter?
Or is it still the same legacy-type projects that just need to burn through to completion here?
William S. Steckel
Yes, the issues that we're discussing and the issues we're dealing with are related to projects that we've been talking about.
Scott Justin Levine - Imperial Capital, LLC, Research Division
Got it.
Jonathan W. Berger
There hasn't been any project that we bid and started work on in the last, probably, 6 or 9 months that we've had -- that are burdensome like you said.
Scott Justin Levine - Imperial Capital, LLC, Research Division
Got it. One last one, if I may.
On the Army Corps, and the budget outlook for the Army Corps, I know that the fiscal year-end is September 30. And there's a fiscal '14 budget proposal.
I mean, how important is that issue in whether you get a continuing resolution in the length of that CR as opposed to a fiscal '14 budget in terms of what you foresee from the Army Corps in terms of lettings?
Jonathan W. Berger
Yes, I mean, I think, we're talking -- the President's budget, I think, had $1 billion in for O&M basis, and I think that the House was similarly. So, clearly, if they had to go under a CR, I think last year's was a something like the 8 20, 8 30 or something like that.
So it would slow down -- it would slow, but a lot of that is the maintenance work. And it wouldn't slow down.
Sandy relief work won't slow down. The Gulf Coast restoration work that we expect to see and if you can -- and I think we built one through some of our bidding statistics.
And as we've always said, when -- we trade up away from kind of that O&M business to capital and beach nourishment work or coastal protection work when those markets are there. So -- and I think the statistics show it out.
I forgot what Bill called it, but we win -- we won 29% of the maintenance work, and we really traded up into coastal protection and capital work. So if we run on a CR, I'm not terribly worried that it's going to hurt us for a while.
Operator
Our next question comes from Jon Tanwanteng from CJS Securities.
Jonathan Tanwanteng - CJS Securities, Inc.
I also joined a bit late, so I apologize if any of these have been covered already. You guys obviously won a lot of the Hurricane Sandy restoration work.
I'm just wondering how far that extends into 2014 and if restoration is likely to be higher or lower, year-over-year, given that?
Jonathan W. Berger
I think certainly there'll be additional contracts for Sandy work into '14. No question about it.
I think what we're seeing now is the next projects to come out to bid are some of the damage on the southern -- Southeastern seaboard. But there's still a lot of work to be done in the Northeast that will come out to bid, probably back later in the fall to be done in the wonderful winter months and early spring up in the Northeast.
But I think we're -- I mean, certainly, some of that backlog we're doing will drift into next year right now, yes.
Jonathan Tanwanteng - CJS Securities, Inc.
Okay. And then just back to the pricing question.
Is there actually a lack of dredging capacity in the Northeast at all? And does that give you an opportunity to improve pricing?
William S. Steckel
Is there a lack of dredging...
Jonathan Tanwanteng - CJS Securities, Inc.
We just noticed that some projects didn't get any bid. So...
Jonathan W. Berger
Those have been Delaware projects that didn't get any bids, and -- because they just rescoped -- they scoped it, I think...
Katherine M. Hayes
They postponed the bid.
Jonathan W. Berger
They will postpone the bid because, I think, the dredging industry feels that the way it was quoted, there was significant more risk put on to the dredger. So we understand that it's coming back out in a more, what I'll call, equitable bidding structure.
There's dredging capacity, but I think depending -- there'll still be certain people that will shy away from Northeast work that probably gets bid late in the fall that has to be done during the winter. It's rougher out there.
And there's certainly some capacity to execute still in the marketplace. And certainly, we have some.
Jonathan Tanwanteng - CJS Securities, Inc.
Okay, got it. And then can you just clarify on Wheatstone?
Was that a delay on your part? Or something that was outside of your control?
Katherine M. Hayes
Wheatstone?
Jonathan W. Berger
Yes. Wheatstone, it was really...
Katherine M. Hayes
We just started to get it up and running.
Jonathan W. Berger
We've got it up and running but it wasn't necessarily -- it wasn't us or the main contractor we're working for. And then it's not unusual, especially when you move into a different country.
And the truth is, Australia is a tremendously interesting place to work. The environment is very important to them.
So it took a while to get all the vessels through and approved. But the initial delay was associated with actually the ability to have housing for the workers.
Jonathan Tanwanteng - CJS Securities, Inc.
Got it. And then finally, just any update on the status of the ATB and have you signed a new contractor?
Is there an impact from arbitration or anything like that?
Jonathan W. Berger
Yes. We are in the midst of rebidding.
The ATB, we expect to have bids in, in the next couple of weeks. And we will sign a new shipyard right after that.
The arbitration is ongoing, so I'd rather not comment much about that. But the process is moving along.
Operator
Our next question comes from Philip Volpicelli from Deutsche Bank.
Philip Volpicelli - Deutsche Bank AG, Research Division
First question is with regard to working capital. How much do you guys think you can get out by the end of the year?
And what would that bring your revolver balance down to by the end of the year?
Jonathan W. Berger
Bill, you want to talk about the working capital? Phil asked about the working capital and how we're going to drive it down?
William S. Steckel
Yes. Well, really, that's driven mostly by the execution of the projects.
I mean, we've got the Wheatstone, which has now started dredging. The recovery of this working capital basically comes as we do the dredging, and it comes back to us incrementally as we do all that dredging.
So in the Gulf and at Wheatstone, we've got significant amounts that will come back to us as the activity levels pick up. We do have a couple of receivables in the Middle East that have aged that we are in active discussions to collect, and we're continuing to work on those.
And that's really the biggest issue there. And then we've got the ATB.
Jonathan W. Berger
Yes. I think as we've said, we spent -- we probably have, I think, $15 million or $16 million on our balance sheet on the ATB?
Katherine M. Hayes
Yes.
Jonathan W. Berger
$16 million. And once we get a new shipyard, we believe we'll be able to quickly turn that into a construction build lease, and we'll recover that money.
Philip Volpicelli - Deutsche Bank AG, Research Division
Okay. Are you willing to quantify how much working capital you guys hope to get out before the end of the year?
William S. Steckel
No.
Katherine M. Hayes
No.
William S. Steckel
No. We wouldn't publicly disclose any of those numbers.
Jonathan W. Berger
And I will tell you, just to be sure, both our executive management and our next level of management have all had detailed discussions in everybody's eyes and pulling all the levers are in place.
Philip Volpicelli - Deutsche Bank AG, Research Division
Okay. And what's the revolver availability at the end of the quarter?
William S. Steckel
Over $60 million -- around $60 million, I think. You've got a lot of it tied up in letters of credit, which reserves some of our $175 million.
Philip Volpicelli - Deutsche Bank AG, Research Division
I'll just wait for the Q to come out. And then lastly, the downtime that you experienced during the second quarter in some of your dredge ships, can you give us a schedule of is there a lot more in the third, in the fourth?
Or is it mostly all taken care of in the second? I'm just trying to get a sense of what can surprise us?
Obviously, weather we can't control, but are there other dredges that need to go into maintenance in the third and the fourth quarter?
William S. Steckel
No, I mean, we're going to have -- we're going to be working a lot in the second half of the year. I mean, look, with our equipment, there's constant maintenance going on with the fleet.
There's certainly periodic maintenance schedules that are built into what we do. But bottom line is that the fleet's going to be very active in the second half.
Jonathan W. Berger
Yes. And I think, I mean, to add just a little color, I don't think any scheduled maintenance on our fleet will reduce our ability to execute at that kind of levels we looked at in the fourth quarter and in the first quarter [indiscernible].
Philip Volpicelli - Deutsche Bank AG, Research Division
Okay. So I'm kind of putting words in your mouth.
You guys basically pulled forward all the maintenance into the second quarter and got it all done, so you'd have a strong fleet ready for the second-half? Is that kind of the way to think about it?
William S. Steckel
Well, I wouldn't use the word pull-forward. I would just say that the way the projects roll out, and you think about Miami coming on later in the year, some of the larger projects we've got going in various areas, it's really -- you take the opportunity to do the maintenance in between projects more so than pulling forward.
So it's a complex process of scheduling a fleet all across the globe, basically. And the second quarter is just a period where we were moving between projects and taking the opportunity to do maintenance work and getting ready for big projects that are coming down the road.
Katherine M. Hayes
And so the revolver availability was $60 million.
Operator
Our next question comes from Rick D'Auteuil from Columbia Management.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
I just have a few too. On the issues that came up on the fourth quarter call, related to the demo business in a couple of -- concentrated on a couple of the projects, I think you had some recovery in last quarter.
My recollection was $1 million or $1 million-something. Anything in this quarter related to the hits we took?
And then at the time you said you still expected to collect, do you still hold that opinion?
William S. Steckel
In the second quarter, Rick, there was no activity related to the things that we reversed or wrote down at year-end that came back into the financials. And in terms of moving forward, I mean, we still think we'll collect a significant portion of this.
It's a very arduous process, and we've kind of forced the issue as we disclosed. We filed the lawsuit against the GC and we're doing some other things there.
But we still expect to collect significant amounts of money from this.
Jonathan W. Berger
Yes, I mean, the one thing I'd like to highlight -- Well, 2 things, I guess, I'd like to highlight. One, with the one significant contract to help our demolition management, our corporate department has spent -- is spending more time, Bill, myself and our General Counsel, to try to help relieve their management time in trying to execute this.
So we've stepped in to lead that collection effort with them. And secondly, it's a project that is for the New York City Department of Transportation, and the process is just a very arduous, long-step process that you have to go through adjudicating with the department, prior to even having to use your legal remedies.
So I just remind everybody that this is a long game that it takes when you're dealing with the city or state government on that process.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
What inning are we in, in that long process?
William S. Steckel
That would to be pretty tough to give you that kind of an assessment. I mean, it's really not something that you can look at in quite that way.
Jonathan W. Berger
Yes. But we're certainly not in a situation.
We're bringing in our relievers and we're in the 8th and 9th inning.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
I thought that other one, then, the parks and rec or whatever that one was, where you actually were the prime?
William S. Steckel
That's moving forward, and we're making progress on that one.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
Is that -- I mean, do you expect the resolution this year? Or that's going to be a multiple year kind of collection?
William S. Steckel
I don't think we can speculate on just how quickly it will move forward. That one is moving forward.
And it's a bit of a different situation than the other project that we're working on.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
You said you expect a better half -- second half in the demo business. I mean, obviously, it can't be any worse than what you guys have done so far.
So with Terra, does that mean -- and the recognitions on all the identified bad contracts or projects, do you think we can approach breakeven in the second half if you throw in Terra and their contribution?
William S. Steckel
We said we're not giving guidance, and that's really all we can say about it. We expect the revenue to pick up in the second half, if you look at the backlog, you look at what we announce in terms of Terra and Rivers and Lakes joining together and start to work on that nice project up in Michigan.
Those are all going to be good contributors, but that's really all we can comment on at this time.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
Okay. So let me come at it from a different angle, then.
If you've identified -- if there's no new problems going into the mix, and you've identified all of the existing problems and business is picking up on the top line, I guess, how do we have significant losses with that being the scenario that you guys have painted?
Jonathan W. Berger
Yes, I mean, I don't think we've had significant losses. I don't think Bill or myself or the management out there expect anything like what we've gone through for the last year.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
Well, I mean, if that -- if we're even looking at anything close to that, we should be folding our tent, right? So, okay.
How about on the insurance claims? I know you've collected one this quarter, but it's not the one from the job that last year had issues.
What's the status of that?
Jonathan W. Berger
Yes. I mean, again, that's moving along.
Our expectation is that we will resolve that before the end of the year. But more than that, I think -- I'm told we should just wait until we conclude it.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
And then Wheatstone, are your expectations -- we've fronted some capital there. What's the expectations for cash collection in the second half?
And do we kind of catch up on things then?
William S. Steckel
We'll make significant progress on that project in regard to billings and revenue collections in the second half of the year. When the dredging starts, things really start to move completely, it swings in our favor significantly.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
Have you encountered anything that wasn't anticipated in the 1 month or a little over a month that you've been dredging?
Jonathan W. Berger
Any start-up dredging operation has ups and downs. But like we said earlier, we've rebudgeted the process in excruciating detail at the end of the second quarter, and the margins are holding for the project.
Operator
, Our next question comes from Anthony Raab from Perimeter Capital.
Anthony R. Raab - Perimeter Capital Partners LLC
We have a pretty rosy outlook for dredging projects in the next couple of years, and I'm curious what the scenario is on the supply side? Do you hear about the dredges being built in the marketplace?
What are your plans? Well, maybe a further discussion is, at what kind of margin do you typically see a supply come into the marketplace?
Jonathan W. Berger
Sure. Obviously, our ATB is, I think, the newest thing we've heard on the market.
There are some -- there is some clamshell building going on, retrofitting of older pieces of equipment, kind of not clear new builds. A significant amount anticipated on this is the fact that we expect there to be significant capital work over the next 4 to 5 years on all the ports.
And then I think the Sandy work has a 3-year kind of forward look with all the various work they're looking for. I'm not sure anyone kind of says well, when margins hit this, I pull the trigger on a new dredge.
I don't think that's how people look at it. I think they look at both a combination of the demand going forward and also the fact that a new build should be significantly more efficient than the older portions of a dredging supply side.
And as we talked about the thesis of our ATB, even in a flat market, it penciled out very nicely because it's so much more efficient than anything else in the U.S. fleet from a hopper dredge perspective.
So I think that's how people look at the market. And other than a few of our competitors, let's not forget, building new dredges are very expensive endeavors.
And we have 2 or 3 competitors that, I think, would ever look at building a $100 million piece of equipment. The rest of them being small private companies tend to be kind of retrofitters and bite along the edges.
And I don't foresee any kind of new entrants in the domestic market starting from scratch to build a dredging company.
Anthony R. Raab - Perimeter Capital Partners LLC
That's helpful. What was the previous peak margin in the dredging business?
And any reason to believe we cannot get back there? Or could we exceed the previous peak based on the asset base?
Jonathan W. Berger
Yes, I mean, I think the place to look would be our dredging performance in '10. And I have full confidence that we should be able to get to those margins again, clearly.
If you look at '10, if we all remember back in '10, '10 was when BP happened initially, and they were working on the firm. So we had high utilization.
But it was not tremendously a high margin business, because it was rental rate, because no one knew exactly what the work was. So I do feel good that we -- you look at '10, '10 would give you a reasonable placement in the near-term, where margins where we have high utilization and I believe we should -- we can hit that or above.
Anthony R. Raab - Perimeter Capital Partners LLC
Okay. Just one more, if you don't mind.
On demolition, since you've identified Q4 as the point in time where you decide which direction to go, what do you think the assets are worth? And is it such that you would have to split the business up in a sale?
Or do you think you could -- you think there's a buyer for the whole piece?
Jonathan W. Berger
Good question. The assets, I mean, I would look at our balance sheet.
William S. Steckel
We disclosed some segment information...
Jonathan W. Berger
Yes, I think we did.
William S. Steckel
And that will be out in the Q.
Jonathan W. Berger
And that'll be out in the Q to give you some idea of the book value of the assets. Would there be a buyer or is this an asset sale, just for sale of the assets?
A very good question. If we -- we have a lot of legacy issues that we wouldn't be able to get rid of from a buyer.
So, obviously, I think, any structure would be an asset sale. But I think there would be someone interested in the business as a business, because there's clearly -- you can operate a demolition business in a nonpublic market ownership differently than you can in the ownership structure of being a public company.
So I would perceive that's the case. And one of our alternatives is to shrink it down to a profitable core business and revenue, and do something with it under a different structure.
So we're looking at 3 or 4 different paths, but I do believe that we can -- we're on our way to turning it around. So I don't want to give anybody the expectation that we're just flipping it in December.
Anthony R. Raab - Perimeter Capital Partners LLC
Sure, I appreciate that. So just a follow-up and as -- do you have, I mean, what line are you looking at when you're going to make that decision?
You said you have 3 or 4 different paths, but is it -- it has to make money, it has to be cash flow breakeven. What's the magic number so that you can [indiscernible] that expectation?
Jonathan W. Berger
Yes. There has to be an expectation going forward into '14 that I can look my Board in the eye and say, "Guys, we can get a good return on this."
If we can't, then we can deploy our money elsewhere. So we ultimately have to have a path towards getting our return for the investment we have in the business.
Operator
I would now like to turn the conference back to Ms. Katie Hayes for closing remarks.
Katherine M. Hayes
Thanks very much for calling today. It's 10:00, so we're actually out of time.
I'm sure there's some of you that are still in there that may want to talk to us, and you can give myself a call, if you'd like. Otherwise, we will talk to you again after the third quarter is finished.
Thanks very much.
Operator
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation.
You may now disconnect, and have a great day.