gldd-ex991_745.htm

and for the Years Ended
December 31, 2016 (Unaudited), 2015 and 2014, and Independent Auditor’s Report

We have audited the accompanying financial statements of TerraSea Environmental Solutions, LLC, which comprise the statement of net liabilities in liquidation as of December 31, 2015 and the related statements of changes in net assets in liquidation and cash flows for the year then ended and the related statements of operations, members' equity (deficit), and cash flows for the year ended December 31, 2014, and the related notes to the financial statements.

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the TerraSea Environmental Solutions, LLC's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the TerraSea Environmental Solutions, LLC's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the net liabilities in liquidation of TerraSea Environmental Solutions, LLC as of December 31, 2015, and the changes in net liabilities in liquidation and its cash flows for the year ended December 31, 2015 and the results of TerraSea Environmental Solutions, LLC’s operations and its cash flows for the year ended December 31, 2014 in accordance with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the financial statements, the partners of TerraSea Environmental Solutions, LLC have determined that liquidation was imminent as of December 31, 2015. As a result, the Company changed

its basis of accounting from the going concern basis to the liquidation basis. Our opinion is not modified with respect to this matter.

TERRASEA ENVIRONMENTAL SOLUTIONS, LLC
STATEMENT OF NET LIABILITIES IN LIQUIDATION (LIQUIDATION BASIS)
AS OF DECEMBER 31, 2016 (UNAUDITED) AND 2015
(In thousands)

	2016
	(unaudited)			2015
ASSETS
Cash	$	1,030		$	72
Accounts receivable		607			4,268
Claim receivable		740			740
TOTAL		2,377			5,080

LIABILITIES
Advances from members		26,245			28,142
Accrued liquidation costs		284			1,006
TOTAL		26,529			29,148

NET LIABILITIES IN LIQUIDATION	$	(24,152	)	$	(24,068	)


See notes to financial statements.

TERRASEA ENVIRONMENTAL SOLUTIONS, LLC
STATEMENT OF CHANGES IN NET LIABILITIES IN LIQUIDATION (LIQUIDATION BASIS)
FOR THE YEAR ENDED DECEMBER 31, 2016 (UNAUDITED) AND THE PERIOD ENDED DECEMBER 31, 2015
(In thousands)
	2016
	(unaudited)
Net liabilities in liquidation as of December 31, 2015	$	(24,068	)
Changes in net liabilities in liquidation
Changes in accrued liquidation costs		(84	)
Net liabilities in liquidation as of December 31, 2016	$	(24,152	)


	2015
Net liabilities in liquidation as of December 31, 2015	$	(23,967	)
Changes in net liabilities in liquidation
Changes in accrued liquidation costs		(101	)
Net liabilities in liquidation as of December 31, 2015	$	(24,068	)

See notes to financial statements.

TERRASEA ENVIRONMENTAL SOLUTIONS, LLC
STATEMENTS OF OPERATIONS (GOING CONCERN BASIS)
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(In thousands)


	2015			2014
CONTRACT REVENUES	$	6,960		$	11,278

COSTS OF CONTRACT REVENUES		10,761			30,431

GROSS LOSS		(3,801	)		(19,153	)

GENERAL AND ADMINISTRATIVE EXPENSES		—			703

NET LOSS	$	(3,801	)	$	(19,856	)


See notes to financial statements.

TERRASEA ENVIRONMENTAL SOLUTIONS, LLC
STATEMENTS OF MEMBERS' DEFICIT (GOING CONCERN BASIS)
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(In thousands)

	Members'
	Deficit
BALANCE — December 31, 2013 (unaudited)		(858	)

Net loss		(19,856	)

BALANCE — December 31, 2014		(20,714	)

Net loss		(3,801	)

BALANCE — December 31, 2015		(24,515	)


See notes to financial statements.

TERRASEA ENVIRONMENTAL SOLUTIONS, LLC
STATEMENTS OF CASH FLOWS (GOING CONCERN BASIS)
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(In thousands)


	2015			2014
OPERATING ACTIVITIES:
Net loss	$	(3,801	)	$	(19,856	)
Adjustments to reconcile net loss to net cash used in operating activities
Provision for loss contract		(4,221	)		4,221
Changes in assets and liabilities:
Accounts receivable		(2,388	)		3,228
Contract revenues in excess of billings		6,727			(6,432	)
Prepaid contract expenses		—			229
Accrued expenses		(1,032	)		(691	)

Net cash flows used in operating activities		(4,715	)		(19,301	)

FINANCING ACTIVITIES:
Advances from members		4,715			19,300

Net cash flows provided by financing activities		4,715			19,300

NET CHANGE IN CASH AND EQUIVALENTS		—			(1	)

CASH AND CASH EQUIVALENTS — Beginning of year		72			73

CASH AND CASH EQUIVALENTS — End of year	$	72		$	72


See notes to financial statements.

Organization — TerraSea Environmental Solutions, LLC (the “Company” or “TerraSea”) is a limited liability company (LLC) organized on July 9, 2011, under Delaware law. TerraSea is 50% owned by Great Lakes Dredge & Dock Environmental, Inc. (“Great Lakes”), a member, and 50% owned by Environmental Remediation Holdings (“ERH”), a member, and is governed by a Board of Managers under the terms of a limited liability company agreement.

TerraSea provides water and land based environmental services in the area of clean up and remediation of sediments, soil and groundwater for both marine and land based projects. The joint venture was established to capitalize on the expertise of the two equal partners for projects in the United States offering optimally engineered global solutions for environmental cleanup needs.

The members in TerraSea have decided to begin the winddown of operations and liquidation of the investments at the conclusion of the ongoing project operations.

Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Revenue and Cost Recognition on Contracts — The Company’s contracts for dredging services are fixed-price contracts, which provide for remeasurement based on actual quantities dredged. The Company’s contracts for environmental and remediation projects are also fixed-price contracts, with others performed on a time-and-materials basis. Contract revenues are recognized under the percentage-of-completion method based on the Company’s engineering estimates of the physical percentage completed for dredging projects and based on costs incurred to date compared to total estimated costs for fixed-price environmental and remediation projects. For dredging projects, costs of contract revenues are adjusted to reflect the gross profit percentage expected to be achieved upon ultimate completion. For environmental and remediation contracts, contract revenues are adjusted to reflect the estimated gross profit percentage. Revisions in estimated gross profit percentages are recorded in the period during which the change in circumstances is experienced or becomes known. Provisions for estimated losses on contracts in progress are made in the period in which such losses are determined. Change orders are not recognized in revenue until the recovery is probable and collectability is reasonably assured. Claims for additional compensation due to the Company are not recognized in contract revenues until such claims are settled. Billings on contracts are generally submitted after verification with the customers of physical progress and may not match the timing of revenue recognition. The difference between amounts billed and recognized as revenue is reflected in the balance sheet as either contract revenues in excess of billings or billings in excess of contract revenues. Modifications may be negotiated when a change from the original contract specification is encountered, and a change in project scope, performance methodology and/or material disposal is necessary. Thus, the resulting modification is considered a change in the scope of the original project to which it relates. Significant expenditures incurred

incidental to major contracts are deferred and recognized as contract costs based on contract performance over the duration of the related project. These expenditures are reported as prepaid expenses.

The components of costs of contract revenues include labor, equipment (including depreciation, maintenance, insurance and long‑term rentals), subcontracts, fuel and project overhead. Hourly labor is generally hired on a project‑by‑project basis. Costs of contract revenues vary significantly depending on the type and location of work performed and assets utilized.

Income Taxes — The Company is treated as a partnership for federal and state income tax reporting purposes and is not subject to corporate income taxes on the taxable income. For income tax purposes, the Company reports income on the percentage of completion, capitalized cost method of accounting.

Classification of Current Assets and Liabilities — The Company includes in current assets and liabilities amounts realizable and payable in the normal course of contract completion, unless completion of such contracts extends significantly beyond one year.

Cash Equivalents — The Company considers all highly liquid investments with a maturity at purchase of three months or less to be cash equivalents.

Accounts Receivable — Net — Accounts receivable represent amounts due or billable under the terms of contracts with customers, including amounts related to retainage. The Company anticipates collection of retainage generally within one year, and accordingly presents retainage as a current asset. The Company provides an allowance for estimated uncollectible accounts receivable when events or conditions indicate that amounts outstanding are not recoverable.

Fair Value —The carrying value of accounts receivable and other financial instruments included in current assets and current liabilities approximates fair value due to the short-term maturities of these instruments.

Liquidation—Based on discussions with the Company’s partners, it was determined that liquidation at TerraSea was imminent as of December 31, 2015. The Company finished dredging operations in October and demobilized in December 2015. Based on completion of the Company’s one project, effective December 31, 2015, the Company applied the liquidation basis of accounting on a prospective basis. The liquidation basis of accounting requires the Company to estimate amounts of cash or other consideration it expects to collect and to accrue all costs associated with implementing and completing the plan of liquidation and requires management to make estimates that affect the amounts reported in the combined financial statements and related notes. To the extent there are any changes in the Company’s December 31, 2015 initial estimates, there will be changes reflected in the Statement of Changes in Net Liabilities in Liquidation.

Before the Company can fully liquidate its Net Liabilities in Liquidation, TerraSea must complete the remaining contract item at the remediation site for its one project. This contract item was completed in 2016. There are no remaining TerraSea projects at December 31, 2016. The Company is expected to be fully dissolved in 2017. Accordingly, TerraSea has made appropriate expense accruals for such time period in the calculation of Net Liabilities in Liquidation. However, the projected remaining wind down period could be either shortened or lengthened by other intervening matters not currently known to management. If the timing of any of these steps changes, the future accrued costs may change. Results could differ from these estimates and may affect the net liabilities in liquidation and actual cash flows.

The financial statements for the period ended December 31, 2014, were prepared on the going concern basis of accounting, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

Prior period financial results have not been restated under the liquidation basis of accounting.

The following is a reconciliation of Members’ Equity (Deficit) under the going concern basis of accounting to net liabilities in liquidation under the liquidation basis of accounting as of December 31, 2015.

In applying liquidation basis of accounting, the Company recognized a decrease of $548 in its estimated value of net liabilities in liquidation. This estimated value of net liabilities in liquidation includes projections of costs and expenses to be incurred during the time it takes to complete the plan of liquidation. There is inherent uncertainty with these projects, and they could change materially based on the timing of the completion of all the steps necessary for the liquidation.

The Company has one customer that represents 99.2% of contract revenues in 2015. At December 31, 2015, two customers accounted for 78.2% and 21.7%, respectively, of accounts receivable, including retainage.

For the year ended December 31, 2014, the Company has two customers that represented 84.2% and 15.8%, respectively, of contract revenues.

Commitments include the usual obligations of construction contractors for completion of contracts and those incurred in the ordinary course of business.

The Company has no direct employees and pays no invoices directly, so each member incurs expenses on behalf of TerraSea and recharges the costs to the joint venture. Since inception, the Company received advances of $24,693 and $27,549 as of December 31, 2016 and 2015, respectively, from Great Lakes and $593 as of December 31, 2016 and 2015 from ERH, net of funds retained by members from project receivables collections, to fund working capital needs of TerraSea. The outstanding balance is shown as advances from members in the balance sheet.

The Company has recorded or disclosed, as appropriate, all events or transactions that occurred after December 31, 2016 up through February 28, 2017 the date these financial statements were available for issuance.

Members' Equity (Deficit) as of December 31, 2015	$	(24,515	)
Increase due to claims on project		740
Liability for accrued estimated disposal costs of liquidation		(192	)
Adjustments to reflect the change to the liquidation basis of accounting		548
Estimated value of net liabilities in liquidation as of December 31, 2015	$	(23,967	)