ORION GROUP HOLDINGS INC
10-Ks and 10-Qs
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
[√]
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2009
OR
[ ]
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from
________
to_______
Commission
file number: 1-33891
ORION
MARINE GROUP, INC.
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Delaware
State
of Incorporation
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26-0097459
IRS
Employer Identification Number
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12000
Aerospace Suite 300
Houston,
Texas 77034
Address
of Principal Executive Office
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(713)
852-6500
Telephone
number (including area code)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title
of Each Class
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Name
of Each Exchange on Which Registered
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Common
stock, $0.01 par value per share
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The
New York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act: [ ] Yes [√]
No
Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act: [ ] Yes
[√] No
Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days: [√] Yes [ ] No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every interactive date file required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during
the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files
Yes
[ ] No [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act (Check One):
Large
Accelerated Filer
[ ] Accelerated
Filer
[√] Non-accelerated
filer [ ]
Smaller
reporting company [ ]
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Act) [ ] Yes
[√] No
There
were 26,864,244 shares of common stock outstanding as of March 1,
2010. The aggregate market value of the Registrant’s common equity
held by non-affiliates was approximately $413.9 million as of June 30, 2009,
based upon the last reported sales price on the New York Stock Exchange on that
date.
DOCUMENTS
INCORPORATED BY REFERENCE
Part III
– Portions of the Registrant’s definitive Proxy Statement to be issued on
connection with the 2010 Annual Meeting of Stockholders
ORION
MARINE GROUP, INC.
2009
Annual Report on Form 10-K
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FORWARD-LOOKING
STATEMENTS
In
addition to historical information, this Annual Report on Form 10-K and the
documents incorporated by reference herein may contain forward-looking
statements that are not based on historical fact. When used in this
report, words such as “expects”, “anticipates”, “believes”, “seeks”,
“estimates”, “plans”, “intends” and similar words identify forward-looking
statements. You should not place undue reliance on these
forward-looking statements. Although such statements are based on
management’s current estimates and expectations and currently available
competitive, financial and economic data, forward-looking statements are
inherently uncertain and involve risks and uncertainties that could cause our
actual results to differ materially from what may be inferred from the
forward-looking statements. Some of the factors that could cause or
contribute to such differences are listed and discussed in Item 1A “
Risk Factors”
, below and
elsewhere in this Annual Report on Form 10-K. We undertake no
obligation to release publicly any revisions or updates to any forward-looking
statements that are contained in this document.
General
We are a
leading marine specialty contractor serving the heavy civil marine
infrastructure market. We provide a broad range of marine
construction services on, over and under the water along the Gulf Coast, the
Atlantic Seaboard and in the Caribbean Basin. Our customers are
federal, state and municipal governments as well as private commercial and
industrial enterprises.
History
We were
founded in 1994 as a marine construction project management
business. Throughout the years, we expanded beyond the project
management business, established fixed geographic operating bases and made
several strategic acquisitions since 1997. The common stock of Orion
Marine Group, Inc. commenced trading publicly on December 20, 2007 and is
currently listed on the New York Stock Exchange under the symbol
ORN. Unless the context otherwise requires, all references herein to
“Orion”, the “Company”, the “Registrant”, “we”, “us” or “our” refer to Orion
Marine Group, Inc. and its consolidated subsidiaries.
Business
Strategy
General
We pursue
the following business strategies in order to improve our business and
prospects, increase our revenue and profitability and, ultimately, enhance
stockholder value:
Expand
and Fill in Our Service Territory
We grow
our business by seeking opportunities in other geographic markets by
establishing a physical presence in new areas through selective acquisitions or
greenfield expansions.
Pursue
Strategic Acquisitions
We
evaluate acquisition opportunities in parallel with our greenfield
expansion. Our strategy will include timely and efficient integration
of such acquisitions into our culture, bidding process and internal
controls. We believe that attractive acquisition candidates are
available due to the highly fragmented and regional nature of the industry, high
cost of capital for equipment and the desire for liquidity among an aging group
of existing business owners. We believe our financial strength,
industry expertise and experienced management team will be attractive to
acquisition candidates. Recent key acquisitions include:
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In
September 2006, we acquired substantially all of the operations of F.
Miller and Sons, LLC, a construction company based in Lake Charles,
Louisiana, and which expanded our marine construction
footprint.
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In
February 2008, we expanded our dredging capabilities along the eastern
Atlantic Seaboard, through the purchase of marine construction equipment,
including several dredges.
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In
January 2010, we purchased T.W. LaQuay Dredging, LLC, a dredging company
based in Texas which owns and operates marine construction equipment,
including several large dredges.
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In
February 2010, we purchased marine construction assets and expanded our
area of operations into the Pacific
Northwest.
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Continue
to Capitalize on Favorable Long-Term Industry Trends
Our
growth has been driven by our ability to capitalize on infrastructure spending
across multiple end-markets we serve including port infrastructure, government
funded projects, transportation, oil and gas, and environmental restoration
markets.
Continue
to Reinvest in our Core Business
Since our
inception, we have focused on pursuing technically complex projects where our
specialized services and equipment differentiate us from our
competitors. We intend to continue to grow our fleet through the
purchase and development of equipment.
Financial
Information About Segments
Although
we describe our business in this report in terms of the services we provide, our
base of customers and the geographic areas in which we operate, we have
concluded that our operations comprise a single reportable segment. In making
this determination, we considered that each project has similar characteristics,
includes similar services, has similar types of customers and is subject to the
same regulatory environment. We organize, evaluate and manage our
financial information around each project when making operating decisions and
assessing our overall performance.
Services
Provided
We act as
a single-source, turnkey solution for our customers’ marine contracting
needs. We provide a broad range of heavy civil marine construction
services. In addition, we provide dredging, repair and maintenance,
and other specialty services. Many of our contracts encompass
multiple services within a single project.
Marine
Construction Services
These
services include construction of marine transportation facilities, marine
pipelines, bridges and causeways, and marine environmental
structures. We generally serve as the prime contractor for many of
these types of projects and we have the capability of providing design-build
services.
Marine
transportation facility construction projects include public port facilities for
container ship loading and unloading; cruise ship port facilities; private
terminals; special-use Navy terminals, recreational use marinas and docks, and
other marine-based facilities. These projects typically consist of
steel or concrete fabrication dock or mooring structures designed for durability
and longevity, and involve driving piles of concrete, pipe or sheet pile up to
90 feet below the surface to provide a foundation for the port facility that we
subsequently construct on the piles. We also provide on-going
maintenance and repair, inspection services, emergency repair, and demolition
and salvage to such facilities.
Our
marine pipeline service projects generally include the installation and removal
of underwater buried pipeline transmission lines; installation of pipeline
intakes and outfalls for industrial facilities; construction of pipeline
outfalls for wastewater and industrial discharges; river crossing and
directional drilling; creation of hot taps and tie-ins; and inspection,
maintenance and repair services.
Our
bridge and causeway projects include the construction, repair and maintenance of
all types of bridges and causeways, as well as the development of fendering
systems in marine environments, and we serve as the prime contractor for many of
these projects, some of which may be design-build contracts. These
projects involve fabricating steel or concrete structures designed for
durability and longevity, and involve driving piles of concrete, pipe or sheet
pile to create support for the concrete deck roadways that we subsequently
construct on the piles. These piles can exceed 50 inches in diameter,
can range up to 170 feet in overall length, and are often driven 90 feet into
the sea floor. We also provide ongoing maintenance and repair, as
well as emergency repair, to bridges, pile supports, and fendering systems for
bridges.
Marine
environmental structure projects may include the installation of concrete
mattresses to ensure erosion protection; construction of levees to contain
environmental mitigation projects, and the installation of geotubes for wetlands
and island creation. Such structures are used for erosion control,
wetlands creation and environmental remediation.
Dredging
services
Projects
involving dredging generally enhance or preserve the navigability of waterways
or the protection of shorelines through the removal or replenishment of soil,
sand or rock. Dredging involves removing mud and silt from the
channel floor by means of a mechanical backhoe, crane and bucket or cutter
suction dredge and pipeline systems. Dredging is integral to capital and
maintenance projects, including: maintenance for previously deepened waterways
and harbors to remove silt, sand and other accumulated sediments; construction
of breakwaters, jetties, canals and other marine structures; deepening ship
channels and wharves to accommodate larger and deeper draft ships; containing
erosion of wetlands and coastal marshes; land reclamation; and beach nourishment
and creation of wildlife refuges. Maintenance dredging projects
provide a source of recurring revenue as active channels typically require
dredging every one to three years due to natural sedimentation. The
frequency of maintenance dredging may be accelerated by rainfall and major
weather events such as hurricanes. Areas where no natural deep water
ports exist, such as the Texas Gulf Coast, require substantial maintenance
dredging. We maintain multiple specialty dredges of various sizes and
specifications to meet customer needs.
Specialty
Services
Our
specialty services include salvage, demolition, surveying, towing, diving and
underwater inspection, excavation and repair. Our diving services are
largely performed in shallow water with little to no visibility and include
inspections, salvage and pile restoration and encapsulation. Our
survey services include surveying pipelines and performing hydrographic surveys
which determine the configuration of the floors of bodies of water and detect
and identify wrecks and obstructions. Most of these specialty
services support our other construction services and provide an incremental
touch-point with our customers.
Industry
Overview
Our
services are provided to customers in diverse end markets, including port
expansion and maintenance, bridges, causeways and other marine infrastructure,
the cruise industry, the Department of Defense, the oil and gas industry,
coastal protection and reclamation, along with hurricane restoration and repair
and environmental remediation. We believe that this diversity in our
customer base will enable us to utilize our resources to lessen the negative
effects of any downturn in a specific end market.
Port
Expansion and Maintenance
Ports and
harbors are vital to trade for the U.S. economy, help position the
U.S. as a leader in global trade and are essential to national security. We
anticipate that U.S. ports will need to build larger dock space and deepen
their channels to accommodate larger container, dry bulk and liquid cargo ships
in order to remain globally competitive.
Ports
located on the Gulf Coast can also expect greater volume growth as the Panama
Canal expansion projects should contribute to increased traffic of larger
container ships from the Pacific Ocean bypassing Long Beach, California. As a
part of our existing operations, we service most major ports across the Gulf
Coast and Florida.
Bridge
and Causeways
According
to the American Society of Civil Engineers, as of their 2009 report, 26% of the
nation’s bridges are structurally deficient or functionally obsolete. As the
system ages, the infrastructure cannot support the growing traffic loads,
resulting in frequent delays for repairs. At the same time, the repairs become
more expensive due to long-deferred maintenance. Legislation such as
the American Recovery and Reinvestment Act of 2009 demonstrates the growing
federal commitment to build, reconstruct and repair the U.S. transportation
infrastructure and we expect that our core markets of the Gulf Coast and
Atlantic Seaboard will benefit by higher transportation infrastructure
spending.
Marine
Infrastructure
The
U.S. Marine Transportation System (“MTS”) consists of waterways, ports and
their intermodal connections, vessels, vehicles, and system users, as well as
shipyards and repair facilities crucial to maritime activity. The MTS is
primarily an aggregation of federal, state, local and privately owned facilities
and private companies. U.S. inland and intracoastal waterways
require substantial maintenance and improvement. While waterway usage is
increasing, the facilities and supporting systems are aging. In
addition, channels and waterways must maintain certain depths to accommodate
ship and barge traffic. Natural sedimentation in these channels and
waterways require maintenance dredging to maintain navigability.
Cruise
Industry
An
expected increase in ship size has generated a need for substantial port
infrastructure development, including planning and construction of new terminals
and facilities, as well as on-going maintenance and repair
services. These larger vessels require development of new piers and
additional dredging services to accommodate deeper drafts. Our
service area includes the ports of Miami, Galveston, Tampa, New Orleans, and
Canaveral, and the Caribbean Basin, which includes numerous cruise facilities
and is the most popular cruise destination in the North American
market.
The
Department of Defense
The US
Navy has the responsibility for the maintenance of 39 facilities in the United
States, which includes a significant amount of marine
infrastructure. In recent years, Department of Defense funding
shifted away from naval base expansion, repair and maintenance. We
believe that the US Navy is poised to resume a more normal flow of maintenance
and upgrades to its infrastructure, including its marine
facilities.
The US
Coast Guard maintains more than 50,000 federal aids to navigation, which include
buoys, lighthouses, day beacons and radio-navigation signals, and additionally
has oversight responsibility for over 18,000 highway and railroad bridges that
span navigable waterways throughout the country. As part of the
Department of Homeland Security, we anticipate that US Coast Guard needs for
varied marine construction services will provide opportunities for us in the
future.
We
anticipate that the continued implementation of the U.S. Base Realignment
and Closure Program (“BRAC”), will shift emphasis towards improving domestic
military infrastructure, including port and other facilities located on, or
near, the water. This should result in the need for increased
infrastructure at the realigned facilities where personnel and equipment will be
moved from facilities targeted for closure.
Oil
and Gas Industry
We
construct, repair and remove underwater pipelines, and provide marine
construction and on-going maintenance services for private refineries, terminal
facilities and docks, and other critical near shore oil and gas
infrastructure.
U.S. Coastal
and Wetland Restoration and Reclamation
We
believe that increases in coastal population density and demographic trends will
lead to an increase in the number of coastal restoration and reclamation
projects, and, as the value of waterside assets rises from a residential and
recreational standpoint, citizens and municipalities will do more to protect
these assets via restoration and reclamation projects.
Hurricane
Restoration and Repair
Hurricanes
can be very destructive to the existing marine infrastructure and natural
protection barriers of the prime storm territories of the Gulf Coast, the
Atlantic Seaboard and the Caribbean Basin, including bridges, ports, underwater
channels and sensitive coastal areas. Typically, restoration and repair
opportunities continue for several years after a major hurricane event. These
events provide incremental projects to our industry that contribute to a
favorable bidding environment and high capacity utilization in our
markets.
Environmental
Remediation
We
believe there will be contingency funding for the protection of natural
habitats, environmental preservation, wetlands creation and
remediation for high priority projects in Louisiana and other areas
in the markets we serve that will protect and restore sensitive marine and
coastal areas, advance ocean science and research, and ensure sustainable use of
ocean resources.
Customers
Our
customers include federal, state and local governmental agencies in the Unites
States, as well as private commercial and industrial enterprises in the US and
the Caribbean Basin. Most projects are competitively bid, with the award going
to the lowest qualified bidder. In 2009, the US Army Corps of
Engineers accounted for 16% of our total revenue. Our customer
base shifts from time to time depending on the mix of contracts in
progress.
Backlog
Our
contract backlog represents our estimate of the revenues we expect to realize
under the portion of the contracts remaining to be performed. Given the typical
duration of our contracts, which ranges from three to nine months, our backlog
at any point in time usually represents only a portion of the revenue that we
expect to realize during a twelve month period. We include projects in our
backlog only when the customer has provided an executed contract, purchase order
or change order. Our backlog under contract as of December 31, 2009 was
approximately $252.9 million and at December 31, 2008 was approximately
$159.4 million. These estimates are subject to fluctuations based upon the
scope of services to be provided, as well as factors affecting the time required
to complete the project. In addition, many projects that make up our backlog may
be canceled at any time without penalty; however, we can generally recover
actual committed costs and profit on work performed up to the date of
cancellation. Although we have not been materially adversely affected by
contract cancellations or modifications in the past, we may be, especially in
economically uncertain periods. Consequently, backlog is not necessarily
indicative of future results. In addition to our backlog under contract, we also
have a substantial number of projects in negotiation or pending award at any
given time.
Competition
We
compete in our service areas of the Gulf Coast, Atlantic Seaboard and Caribbean
Basin, and in 2010 expanded into the Pacific Northwest, with several regional
marine construction services companies and a few national marine construction
services companies. From time to time, we compete with certain national
land-based heavy civil contractors that have greater resources than we do. Our
industry is highly fragmented with competitors generally varying within the
markets we serve and with few competitors competing in all of the markets we
serve or for all of the services that we provide. We believe that our turnkey
capability, expertise, experience and reputation for providing safe and timely
quality services, safety record and programs, equipment fleet, financial
strength, surety bonding capacity, knowledge of local markets and conditions,
and project management and estimating abilities allow us to compete effectively.
We believe significant barriers to entry exist in the markets in which we
operate, including the ability to bond large projects, maritime laws,
specialized marine equipment and technical experience; however, a
U.S. company that has adequate financial resources, access to technical
expertise and specialized equipment may become a competitor.
Bonding
In
connection with our business, we generally are required to provide various types
of surety bonds that provide an additional measure of security for our
performance under certain government and private sector contracts. Our ability
to obtain surety bonds depends upon our capitalization, working capital, past
performance, management expertise, and external factors, including the capacity
of the overall surety market. Surety companies consider such factors in light of
the amount of our backlog that we have currently bonded and their current
underwriting standards, which may change from time to time. The capacity of the
surety market is subject to market-driven fluctuations driven primarily by the
level of surety industry losses and the degree of surety market consolidation.
The bonds we provide typically are for the amount of the project and have face
amounts ranging from approximately $1.0 to approximately $50.0 million. As
of December 31, 2009, we had approximately $130.0 million in surety
bonds outstanding. On December 31, 2009, we believe our capacity under our
current bonding arrangement was in excess of $400.0 million in aggregate
surety bonds.
Trade
Names
We
operate under a number of trade names, including Orion Marine Group, King Fisher
Marine Service, Orion Construction, Orion Diving & Salvage, Misener
Marine Construction and Misener Diving & Salvage, F. Miller
Construction, and Orion Dredging Services, and in 2010, began operating under
the trade names of T.W. LaQuay Dredging and Northwest Marine Construction. We do
not generally register our trademarks with the U.S. Patent & Trademark
Office, but instead rely on state and common law protections. While we consider
our trade names to be valuable assets, we do not consider any single trademark
or trade name to be of such material importance that its absence would cause a
material disruption of our business.
Equipment
We
operate and maintain a large and diverse equipment fleet, substantially all of
which we own, that includes the following:
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Barges
— Spud
barges, material barges, deck barges, anchor barges and fuel barges are
used to provide work platforms for cranes and other equipment, to
transport materials to the project site and to provide support for the
project at the project site.
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Dayboats
— Small
pushboats, dredge tenders and skiffs are used to shift barges at the
project site, to move personnel and to provide general support to the
project site.
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Tugs
— Larger
pushboats and tug boats are used to transport barges and other support
equipment to and from project site.
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Dredges
— 24”
cutter head suction dredge (diesel), 20” cutter head suction dredge
(diesel/electric), 20” cutter head suction dredges (diesel), 16” cutter
head suction dredges, and 12” portable cutter head suction dredges are
used to provide dredging services at project
sites.
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Cranes
— Crawler
lattice boom cranes with lift capability from 50 tons to 400 tons and
hydraulic rough terrain cranes with lift capability from 15 tons to 60
tons are used to provide lifting and pile driving capabilities on project
sites, and to provide bucket work, including mechanical dredging and
dragline work, to project sites.
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We
believe that our equipment generally is well maintained and suitable for our
current operations. We have the ability to extend the useful life of our
equipment through capital refurbishment at periodic intervals. Most of our fleet
is serviced by our own mechanics who work at various maintenance sites and
facilities, including our dry dock facilities. We are also capable of building,
and have built, much of our highly specialized equipment. Our
strategy is to move our fleet from region to region as our projects require. We
have pledged our owned equipment as collateral under our credit
facility.
Equipment
Certification
Some of
our equipment requires certification by the U.S. Coast Guard and, where
required, our vessels’ permissible loading capacities require certification by
the American Bureau of Shipping (“ABS”). ABS is an independent classification
society which certifies that certain of our larger, seagoing vessels are
“in-class,” signifying that the vessels have been built and maintained in
accordance with ABS rules and applicable U.S. Coast Guard rules
and regulations. Many projects, such as beach nourishment projects with offshore
sand requirements, dredging projects in exposed entrance channels, and dredging
projects with offshore disposal areas, are restricted by federal regulations to
be performed only by dredges or scows that have U.S. Coast Guard
certification and a load line established by the ABS. All of our vessels that
are required to be certified by ABS have been certified as “in-class.” These
certifications indicate that the vessels are structurally capable of operating
in open waters, which enhances the mobility of our fleet.
Government
Regulations
Our
operations are subject to compliance with regulatory requirements of federal,
state and local governmental agencies and authorities including the
following:
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regulations
concerning workplace safety, labor relations and disadvantaged
businesses;
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licensing
requirements applicable to shipping and
dredging; and
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permitting
and inspection requirements applicable to marine construction
projects.
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We are
also subject to government regulations pursuant to the Dredging Act, the Jones
Act, the Shipping Act and the Vessel Documentation Act. These statutes require
vessels engaged in the transport of merchandise or passengers between two points
in the U.S. or dredging in the navigable waters of the U.S. to be
documented with a coastwise endorsement, to be owned and controlled by
U.S. citizens, to be manned by U.S. crews, and to be built in the
U.S. The U.S. citizenship ownership and control standards require the
vessel-owning entity to be at least 75% U.S.-citizen owned, and prohibit the
demise or bareboat chartering of the vessel to any entity that does not meet the
75% U.S. citizen ownership test. These statutes, together with similar
requirements for other sectors of the maritime industry, are collectively
referred to as “cabotage” laws.
The US Occupational Safety and Health
Administration (“OSHA”) is expected to promulgate a rule which will impose
stricter and more OSHA standards on certain of the Company’s marine operations,
including standards on the control of hazardous energy, so-called “lock-out,
tag-out”. While the Company does not currently expect that
OSHA’s final rule will materially, adversely impact its operations or financial
condition, we are continuing to monitor potential impacts as OSHA’s promulgation
of the rule progresses
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We
believe that we are in material compliance with applicable regulatory
requirements and have all material licenses required to conduct our
operations.
Environmental
Matters
General
Our
marine infrastructure construction, salvage, demolition, dredging and dredge
material disposal activities are subject to stringent and complex federal,
state, and local laws and regulations governing environmental protection,
including air emissions, water quality, solid waste management, marine and bird
species and their habitats, and wetlands. Such laws and regulations may require
that we or our customers obtain, and that we comply with, various environmental
permits, registrations, licenses and other approvals. These laws and regulations
also can restrict or impact our business activities in many ways, such as
delaying the appropriation and performance of particular projects; restricting
the way we handle or dispose of wastes; requiring remedial action to mitigate
pollution conditions that may be caused by our operations or that are
attributable to others; and enjoining some or all of our operations deemed in
non-compliance with environmental laws and regulations. Failure to comply with
these laws and regulations may result in the assessment of administrative, civil
and/or criminal penalties, the imposition of remedial obligations and the
issuance of orders enjoining future operations.
We
believe that compliance with existing federal, state and local environmental
laws and regulations will not have a material adverse effect on our business,
results of operations, or financial condition. Nevertheless, the trend in
environmental regulation is to place more restrictions and limitations on
activities that may affect the environment. In addition, we could be affected by
future laws or regulations, including those imposed in response to climate
change concerns. As a result, there can be no assurance as to the
amount or timing of future expenditures for environmental compliance or
remediation, and actual future expenditures may be different from the amounts we
currently anticipate. The following is a discussion of the environmental laws
and regulations that could have a material effect on our marine construction and
other activities.
Waste
Management
Our
operations could be subject to the federal Resource Conservation and Recovery
Act (“RCRA”) and comparable state laws, which impose detailed requirements for
the handling, storage, treatment and disposal of hazardous and non-hazardous
solid wastes. Under the auspices of the U.S. Environmental Protection
Agency (“EPA”), the individual states administer some or all of the provisions
of RCRA, sometimes in conjunction with their own more stringent requirements.
Generators of hazardous wastes must comply with certain standards for the
accumulation and storage of hazardous wastes, as well as recordkeeping and
reporting requirements applicable to hazardous waste storage and disposal
activities.
Site
Remediation
The
Comprehensive, Environmental Response, Compensation and Liability Act
(“CERCLA”), also known as “Superfund,” and comparable state laws and regulations
impose liability, without regard to fault or the legality of the original
conduct, on certain classes of persons responsible for the release of hazardous
substances into the environment. Such classes of persons include the current and
past owners or operators of sites where a hazardous substance was released, and
companies that disposed or arranged for the disposal of hazardous substances at
offsite locations, such as landfills. CERCLA authorizes the EPA, and in some
cases third parties, to take actions in response to threats to the public health
or the environment and to seek to recover from the responsible classes of
persons the costs they incur. Under CERCLA, such persons may be subject to joint
and several liability for the costs of cleaning up the hazardous substances that
have been released into the environment, for damages to natural resources and
for the costs of certain health studies. In addition, neighboring landowners and
other third parties often file claims for personal injury and property damage
allegedly caused by the hazardous substances released into the
environment.
We
currently own or lease properties that have been used by other industries for a
number of years. Although we typically have used operating and disposal
practices that were standard in the industry at the time, wastes may have been
disposed of or released on or under the properties owned or leased by us, on or
under other locations where such substances have been taken for disposal, or on
or under project sites where we perform work. In addition, some of the
properties may have been operated by third parties or by previous owners whose
treatment and disposal or release of wastes was not under our control. These
properties and the substances disposed or released on them may be subject to
CERCLA, RCRA and analogous state laws. Under such laws, we could be required to
remove or remediate previously disposed wastes or property contamination, or to
perform remedial activities to prevent future contamination.
Water
Discharges
The
Federal Water Pollution Control Act, also known as the Clean Water Act (“CWA”),
and analogous state laws impose strict controls with respect to the discharge of
pollutants, including spills and leaks of oil and other substances, into waters
of the U.S., including wetlands. The discharge of pollutants into regulated
waters is prohibited, except in accordance with the terms of a permit issued by
the EPA or an analogous state agency. The CWA also regulates the discharge of
dredged or fill material into waters of the U.S., and activities that result in
such discharge generally require permits issued by the Corps of Engineers.
Moreover, above ground storage of petroleum products is strictly regulated under
the CWA. Under the CWA, federal and state regulatory agencies may
impose administrative, civil and/or criminal penalties for non-compliance with
discharge permits or other requirements of the CWA and analogous state laws and
regulations.
The Oil
Pollution Act of 1990 (“OPA”), which amends and augments the CWA, establishes
strict liability for owners and operators of facilities that are sites of
releases of oil into waters of the U.S. OPA and its associated regulations
impose a variety of requirements on responsible parties related to the
prevention of oil spills and liability for damages resulting from such spills.
For instance, OPA requires vessel owners and operators to establish and maintain
evidence of financial responsibility sufficient to cover liabilities related to
an oil spill for which such parties are statutorily responsible. We believe we
are in compliance with all applicable OPA financial responsibility
obligations. In addition, while OPA requires that certain vessels be
outfitted with double hulls by 2015, given the make up and expected make up of
our fleet of vessels, we do not expect to incur material expenditures to meet
these requirements.
In
February 2009, regulations promulgated by the EPA covering certain previously
exempt discharges to water from certain marine vessels became
effective. The regulations provide for a general permit to cover such
discharges and impose on marine vessel operators, including the Company, certain
discharge, permitting, recordkeeping, reporting, monitoring, maintenance, and
operating restrictions and requirements with respect to materials that are or
may be discharged from certain vessels. Applicability of these
restrictions and requirements is based on size and type of vessel, and they
apply only to a minority of the Company’s vessels. The Company,
nevertheless, is in the process of implementing such restrictions and
requirements with respect to its vessels which are subject thereto, and the
Company does not anticipate that such regulations or the associated permit
terms, restrictions and requirements will adversely impact the Company’s
business and results of operations.
Air
Emissions
The Clean
Air Act (“CAA”) and comparable state laws restrict the emission of air
pollutants from many sources, including paint booths, and may require
pre-approval for the construction or modification of certain facilities expected
to produce air emissions, impose stringent air permit requirements, or require
the utilization of specific equipment or technologies to control emissions. We
believe that our operations are in substantial compliance with the
CAA.
Climate Change
The
U.S. Congress is actively considering legislation to reduce emissions of
greenhouse gases in response to climate change concerns. In addition, several
states have declined to wait on Congress to develop and implement climate
control legislation and have already taken legal measures to reduce emissions of
greenhouse gases. Passage of climate control legislation or other regulatory
initiatives by Congress or various states of the U.S., or the adoption of
regulations by the EPA and analogous state agencies that restrict emissions of
greenhouse gases in areas in which we conduct business could have an adverse
affect on our operations and demand for our services.
Endangered
Species
The
Endangered Species Act (“ESA”) restricts activities that may affect endangered
species or their habitats. We conduct activities in or near areas that may be
designated as habitat for endangered or threatened species. For instance,
seasonal observation of endangered or threatened West Indian Manatees adjacent
to work areas may impact construction operations within our Florida market.
Manatees generally congregate near warm water sources during the cooler winter
months. Additionally, our dredging operations in the Florida market are impacted
by limitations for placement of dredge spoil materials on designated spoil
disposal islands, from April through August of each year, when the islands are
inhabited by nesting colonies of protected bird species. Further, restrictions
on work during the Whooping Crane nesting period in the Aransas Pass National
Wildlife Refuge from October 1 through April 15 each year and during the
non-dormant grass season for sea grass in the Laguna Madre from March 1 through
November 30 each year impact our construction operations in the Texas Gulf Coast
market. We plan our operations and bidding activity with these restrictions and
limitations in mind, and they have not materially hindered our business in the
past. However, these and other restrictions may affect our ability to obtain
work or to complete our projects on time in the future. In addition, while we
believe that we are in material compliance with the ESA, the discovery of
previously unidentified endangered species could cause us to incur additional
costs or become subject to operating restrictions or bans in the affected
area.
Employees
At
December 31, 2009, we had approximately 1,040 employees, 249 of whom were
full-time salaried personnel and most of the remainder of whom were hourly
personnel. We will hire additional employees for certain large
projects and, subject to local market conditions, additional crew members are
generally available for hire on relatively short notice. Our
employees are not currently represented by any labor unions. We
consider our relations with our employees to be good.
Financial
Information About Geographic Areas
The
Company primarily operates in the Gulf Coast and Atlantic Seaboard areas of the
United States. Revenues generated outside the United States,
primarily in the Caribbean Basin, totaled 14.0%, 7.0%, and 3.9% of total
revenues for the years ended December 31, 2009, 2008 and 2007,
respectively. Revenue in 2009 generated outside the United States was
primarily related to construction of a cruise pier and facilities in Labadee,
Haiti. Our long-lived assets are substantially located in the United
States.
Access
to the Company’s Filings
The
Company maintains a website at
www.orionmarinegroup.com
on which we make available, free of charge, access to the various reports we
file with, or furnish to, the Securities and Exchange Commission
(“SEC”). The website is made available for information purposes
only. It should not be relied upon for investment purposes, and none
of the information on our website is incorporated into this Annual Report on
Form 10-K by reference. In addition, the public may read and copy any
materials we file with the SEC at the SEC’s Public Reference Room at 100 F
Street, NE, Room 1580, Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-732-0330. The SEC also maintains an Internet site at
www.sec.gov
that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC.
Risk
Factors Relating to Our Business
We may be unable
to obtain sufficient bonding capacity for our contracts and the need
for
performance and surety bonds may adversely affect our
business.
We are
generally required to post bonds in connection with our contracts to ensure job
completion if we were to fail to finish a project. We have entered into a
bonding agreement with Liberty Mutual Surety of America (“Liberty”) pursuant to
which Liberty acts as surety, issues bid bonds, performance bonds and payment
bonds, and obligates itself upon other contracts of guaranty required by us in
the day-to-day operations of our business. However, Liberty is not obligated
under the bonding agreement to issue bonds for us. We may not be able to
maintain a sufficient level of bonding capacity in the future, which could
preclude us from being able to bid for certain contracts and successfully
contract with certain customers, or increase our letter of credit utilization in
lieu of bonds, thereby reducing availability under our credit facility. In
addition, the conditions of the bonding market may change, increasing our costs
of bonding or restricting our ability to get new bonding which could have a
material adverse effect on our business, operating results and financial
condition.
Our business
depends on key customer relationships and our reputation in the heavy
civil
marine infrastructure market, which is developed and maintained by our
executives and key
project managers.
Loss of any of our relationships, reputation or chief executives or key
project
managers would
materially reduce our revenues and profits.
Our
contracts are typically entered into on a project-by-project basis, so we do not
have continuing contractual commitments with our customers beyond the terms of
the current contract. We benefit from key customer relationships built over time
and with both public and private entities that are a part of or use the MTS. We
also benefit from our reputation in the heavy civil marine infrastructure market
developed over years of successfully performing on projects. Both of these
aspects of our business were developed and are maintained through our executives
and key project managers. We do not maintain key person life insurance policies
on any of our employees. Our inability to retain our executives and key project
managers would have a material adverse affect on our current customer
relationships and reputation. The inability to maintain relationships with these
customers or obtain new customers based on our reputation could have a material
adverse effect on our business, operating results and financial
condition.
To be successful,
we need to attract and retain qualified personnel, and any
inability to do
so would adversely affect our business.
Our
future success depends on our ability to attract, retain and motivate highly
skilled personnel in various areas, including engineering, project management,
procurement, project controls, finance, and senior management. If we do not
succeed in retaining and motivating our current employees and attracting new
high quality employees, our business could be adversely affected. Accordingly,
our ability to increase our productivity and profitability will be limited by
our ability to employ, train and retain skilled personnel necessary to meet our
requirements. We may not be able to maintain an adequate skilled labor force
necessary to operate efficiently. Our labor expenses may also increase as a
result of a shortage in the supply of skilled personnel, or we may have to
curtail our planned internal growth as a result of labor shortages. We may also
spend considerable resources training employees who may then be hired by our
competitors, forcing us to spend additional funds to attract personnel to fill
those positions. In addition, certain of our employees hold licenses and permits
under which we operate. The loss of any such employees could result in our
inability to operate under such licenses and permits, which could adversely
affect our operations until replacement licenses or permits are obtained. If we
are unable to hire and retain qualified personnel in the future, there could be
a material adverse effect on our business, operating results and financial
condition.
We could lose
money if we fail to accurately estimate our costs or fail to execute
within our
cost estimates on fixed-price, lump-sum contracts.
Most of
our net revenue is derived from fixed-price, lump-sum contracts. Under these
contracts, we perform our services and execute our projects at a fixed price
and, as a result, benefit from cost savings, but we may be unable to recover any
cost overruns. Fixed-price contracts carry inherent risks, including risks of
losses from underestimating costs, operational difficulties and other changes
that may occur over the contract period. If our cost estimates for a contract
are inaccurate, or if we do not execute the contract within our cost estimates,
we may incur losses or the project may not be as profitable as we expected. In
addition, we are sometimes required to incur costs in connection with
modifications to a contract (change orders) that may be unapproved by the
customer as to scope and/or price, or to incur unanticipated costs, including
costs for customer-caused delays, errors in specifications or designs, or
contract suspension or termination, that we may not be able to recover. These,
in turn, could have a material adverse effect on our business, operating results
and financial condition. The revenue, cost and gross profit realized on such
contracts can vary, sometimes substantially, from the original projections due
to changes in a variety of factors, such as:
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failure
to properly estimate costs of engineering, design, material, equipment or
labor;
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unanticipated
technical problems with the structures or services being supplied by us,
which may require that we spend our own money to remedy the
problem;
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project
modifications creating unanticipated
costs;
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changes
in the costs of equipment, materials, labor or
subcontractors;
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our
suppliers’ or subcontractors’ failure to
perform;
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difficulties
in our customers obtaining required governmental permits or
approvals;
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changes
in local laws and regulations;
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delays
caused by local weather
conditions; and
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exacerbation
of any one or more of these factors as projects grow in size and
complexity.
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These
risks increase if the duration of the project is long-term because there is an
elevated risk that the circumstances upon which we based our original bid will
change in a manner that increases costs. In addition, we sometimes bear the risk
of delays caused by unexpected conditions or events.
We may incur
higher costs to acquire, manufacture and maintain equipment necessary
for our
operations.
We have
traditionally owned most of the equipment used in our projects, and we do not
bid on contracts for which we do not have, or cannot quickly procure, whether
through construction, acquisition or lease, the necessary equipment. We are
capable of building much of the specialized equipment used in our projects,
including dayboats, tenders and dredges. To the extent that we are unable to buy
or build equipment necessary for our needs, either due to a lack of available
funding or equipment shortages in the marketplace, we may be forced to rent
equipment on a short-term basis, which could increase the costs of completing
contracts. In addition, our equipment requires continuous maintenance, which we
provide through our own repair facilities and dry docks, as well as
certification by the U.S. Coast Guard. If we are unable to continue to
maintain the equipment in our fleet or are unable to obtain the requisite
certifications, we may be forced to obtain third-party repair services, be
unable to use our uncertified equipment or be unable to bid on contracts, which
could have a material adverse effect on our business, operating results and
financial condition.
In
addition, our vessels may be subject to arrest/seizure by claimants as security
for maritime torts committed by the vessel or us or the failure by us to pay for
necessaries, including fuel and repair services, which were furnished to the
vessel. Such arrest/seizure could preclude the vessel from working, thereby
causing delays in marine construction projects.
The timing of new
contracts may result in unpredictable fluctuations in our cash flow
and
profitability. These factors as well as others that may cause our actual
financial
results to vary from any publicly disclosed earnings guidance and
forecasts
are outside of
our control.
A
substantial portion of our revenues is derived from project-based work. It is
generally very difficult to predict the timing and location of awarded
contracts. The selection of, timing of or failure to obtain projects, delays in
awards of projects, the rebidding or termination of projects due to budget
overruns, cancellations of projects or delays in completion of contracts could
result in the under-utilization of our assets and reduce our cash flows. Even if
we are awarded contracts, we face additional risks that could affect whether, or
when, work will begin. For example, some of our contracts are subject to
financing and other contingencies that may delay or result in termination of
projects. This can present difficulty in matching workforce size and equipment
location with contract needs. In some cases, we may be required to bear the cost
of a ready workforce and equipment that is larger than necessary, resulting in
unpredictability in our cash flow, expenses and profitability. If an expected
contract award or the related work release is delayed or not received, we could
incur substantial costs without receipt of any corresponding revenues. Delays by
our customers in obtaining required approvals for their infrastructure projects
may delay their awarding contracts for those projects and, once awarded, the
ability to commence construction under those contracts. Moreover, construction
projects for which our services are contracted may require significant
expenditures by us prior to receipt of relevant payments by a customer and may
expose us to potential credit risk if such customer should encounter financial
difficulties. Such expenditures could reduce our cash flows and necessitate
increased borrowings under our credit facilities. Finally, the winding down or
completion of work on significant projects that were active in previous periods
will reduce our revenue and earnings if such significant projects have not been
replaced in the current period. From time-to-time we may publicly provide
earnings or other forms of guidance, which reflect our predictions about future
revenue, operating costs and capital structure, among other factors. Any such
predictions may be impacted by these factors as well as others that are beyond
our control and might not turn out to be correct.
We depend on
continued federal, state and local government funding for marine
infrastructure. A
reduction in government funding for marine construction or
maintenance
contracts can materially reduce our results of operations.
Our
operations depend on project funding by various government agencies and are
adversely affected by decreased levels of, or delays in, government funding. A
future decrease in government funding in any of our geographic markets could
result in intense competition and pricing pressures for projects that we bid on
in the future. As a result of competitive bidding and pricing pressures, we may
be awarded fewer projects, which could have a material adverse effect on our
business, operating results and financial condition.
A significant
portion of our business is based on government contracts. Our operating
results may
be adversely affected by the terms of the government contracts or our
failure to
comply with applicable terms.
Government
contracts are subject to specific procurement regulations, contract provisions
and a variety of socioeconomic requirements relating to their formation,
administration, performance and accounting. Many of these contracts include
express or implied certifications of compliance with applicable laws and
contract provisions. As a result of our government contracting and
subcontracting, claims for civil or criminal fraud may be brought by the
government for violations of these regulations, requirements or statutes. We may
also be subject to qui tam litigation brought by private individuals on behalf
of the government under the Federal Civil False Claims Act, which could include
claims for up to treble damages. Further, if we fail to comply with any of these
regulations, requirements or statutes, our existing government contracts could
be terminated, we could be suspended or debarred from government contracting or
subcontracting, including federally funded projects at the state level. In
addition, government customers typically can terminate or modify any of their
contracts with us at their convenience, and certain government agencies may
claim immunity from suit to recover disputed contract amounts. If our government
contracts are terminated for
any
reason, or if we are suspended or debarred from government work, we could suffer
a significant reduction in expected revenue which could have a material adverse
effect on our business, operating results and financial condition.
We derive a
significant portion of our revenues from a small group of customers. The
loss of one
or more of these customers could negatively impact our business,
operating results
and financial condition.
We
believe that we will continue to rely on a relatively small group of customers
for a substantial portion of our revenues for the foreseeable future. We may not
be able to maintain our relationships with our significant customers. The loss
of, or reduction of our sales to, any of our major customers could have a
material adverse effect on our business, operating results and financial
condition. See “Business — Customers” for a description of our largest
customers.
We
may not be able to fully realize the revenue value reported in our
backlog.
We had a
backlog of work to be completed on contracts totaling approximately
$252.9 million as of December 31, 2009. Backlog develops as a result of new
awards, which represent the revenue value of new project commitments received by
us during a given period. Backlog consists of projects under contract which have
either (a) not yet been started or (b) are in progress but are not yet
complete. In the latter case, the revenue value reported in backlog is the
remaining value associated with work that has not yet been completed. We cannot
guarantee that the revenue projected in our backlog will be realized, or if
realized, will result in earnings. From time-to-time, projects are cancelled
that appeared to have a high certainty of going forward at the time they were
recorded as new awards. In the event of a project cancellation, we may be
reimbursed for certain costs but typically have no contractual right to the
total revenue reflected in our backlog. In addition to being unable to recover
certain direct costs, cancelled projects may also result in additional
unrecoverable costs due to the resulting under-utilization of our
assets.
Our business is
subject to significant operating risks and hazards that could result
in damage
or destruction to persons or property, which could result in losses or
liabilities
to us.
The
businesses of marine infrastructure construction, port maintenance, dredging and
salvage are generally subject to a number of risks and hazards, including
environmental hazards, industrial accidents, adverse weather conditions,
collisions with fixed objects, cave-ins, encountering unusual or unexpected
geological formations, disruption of transportation services and flooding. These
risks could result in damage to or destruction of, dredges, transportation
vessels, other maritime structures and buildings, and could also result in
personal injury or death, environmental damage, performance delays, monetary
losses or legal liability.
Our
safety record is an important consideration for our customers. If serious
accidents or fatalities occur or our safety record was to deteriorate, we may be
ineligible to bid on certain work, and existing service arrangements could be
terminated. Further, regulatory changes implemented by OSHA or the
U.S. Coast Guard could impose additional costs on us. Adverse experience
with hazards and claims could have a negative effect on our reputation with our
existing or potential new customers and our prospects for future
work.
Our current
insurance coverage may not be adequate, and we may not be able to obtain
insurance
at acceptable rates, or at all.
We
maintain various insurance policies, including general liability and workers’
compensation. We are partially self-insured under some of our policies, and our
insurance does not cover all types or amounts of liabilities. We are not
required to, and do not, specifically set aside funds for our self-insurance
programs.
At any
given time, we are subject to multiple workers’ compensation and personal injury
claims. We maintain substantial loss accruals for workers’ compensation claims,
and our workers’ compensation and insurance costs have been rising for several
years notwithstanding our emphasis on safety. Our insurance policies may not be
adequate to protect us from liabilities that we incur in our business. In
addition, some of the projects that we bid on require us to maintain builder’s
risk insurance at high levels. We may not be able to obtain similar levels of
insurance on reasonable terms, or at all. Our inability to obtain such insurance
coverage at acceptable rates or at all could have a material adverse effect on
our business, operating results and financial condition.
Furthermore,
due to a variety of factors such as increases in claims and projected
significant increases in medical costs and wages, our insurance premiums may
increase in the future and we may not be able to obtain similar levels of
insurance on reasonable terms, or at all. Any such inadequacy of, or inability
to obtain, insurance coverage at acceptable rates, or at all, could have a
material adverse effect on our business, operating results and financial
condition.
Our employees are
covered by federal laws that provide seagoing employees
remedies for
job-related claims in addition to those provided by state
laws.
Many of
our employees are covered by federal maritime law, including provisions of the
Jones Act (“Jones Act”), the Longshore and Harbor Workers Act, (“USL&H”) and
the Seaman’s Wage Act. Jones Act laws typically operate to make liability limits
established by USL&H and state workers’ compensation laws inapplicable to
these employees and to permit these employees and their representatives to
pursue litigation against employers for job-related injuries. Because we are not
generally protected by the limits imposed by state workers’ compensation
statutes, we have greater exposure for claims made by these employees as
compared to employers whose employees are not covered by these
provisions.
For
example, in the normal course of business, we are party to various personal
injury lawsuits. We maintain insurance to cover claims that arise from injuries
to our hourly workforce subject to a deductible. Over the last several years,
there has been an increase in suits filed in Texas due in large part to two
Texas law firms aggressively pursuing personal injury claims on behalf of
dredging workers residing in Texas. Aggressive medical advice is increasing the
seriousness of claimed injuries and the amount demanded in settlement. During
fiscal 2009, we recorded approximately $2.0 million of expense for our
self-insured portion of these liabilities. We believe our recorded self
insurance reserves represent our best estimate of the outcomes of these
claims. Should these trends persist; we could continue to be
negatively impacted in the future.
Many
of our contracts have penalties for late completion.
In many
instances, including in our fixed-price contracts, we guarantee that we will
complete a project by a scheduled date. If we subsequently fail to complete the
project as scheduled, we may be held responsible for cost impacts resulting from
any delay, generally in the form of contractually agreed-upon liquidated
damages. In addition, failure to maintain a required schedule could cause us to
default on our government contracts, giving rise to a variety of potential
damages. To the extent that these events occur, the total costs of the project
could exceed our original estimates, and we could experience reduced profits or,
in some cases, a loss for that project.
We may choose, or
be required, to pay our suppliers and subcontractors even if our
customers do not
pay, or delay paying, us for the related services.
We use
suppliers to obtain necessary materials and subcontractors to perform portions
of our services and to manage work flow. In some cases, we pay our suppliers and
subcontractors before our customers pay us for the related services. If we
choose, or are required, to pay our suppliers and subcontractors for materials
purchased and work performed for customers who fail to pay, or delay paying, us
for the related work, we could experience a material adverse effect on our
business, operating results and financial condition.
We extend credit
to customers for purchases of our services, and in the past we have
had, and in the
future we may have, difficulty collecting receivables from major
customers that
have filed bankruptcy or are otherwise experiencing financial
difficulties.
We
generally perform services in advance of payment for our customers, which
include governmental entities, general contractors, and builders, owners and
managers of marine and port facilities located primarily in the Gulf Coast, the
Atlantic Seaboard, the Pacific Northwest, and the Caribbean Basin. Consequently,
we are subject to potential credit risk related to changes in business and
economic factors. On occasion, we have had difficulty collecting from
governmental entities or customers with financial difficulties. If we cannot
collect receivables for present or future services, we could experience reduced
cash flows and losses beyond our established reserves.
Our
strategy of growing through strategic acquisitions may not be
successful.
We may
pursue growth through the acquisition of companies or assets that will enable us
to broaden the types of projects we execute and also expand into new markets. We
have completed several acquisitions and plan to consider strategic acquisitions
in the future. We may be unable to implement this growth strategy if we cannot
identify suitable companies or assets or reach agreement on potential strategic
acquisitions on acceptable terms. Moreover, an acquisition involves certain
risks, including:
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difficulties
in the integration of operations, systems, policies and
procedures;
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enhancements
in our controls and procedures including those necessary for a public
company may make it more difficult to integrate operations and
systems;
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failure
to implement proper overall business controls, including those required to
support our growth, resulting in inconsistent operating and financial
practices at companies we acquire or have
acquired;
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termination
of relationships with the key personnel and customers of an acquired
company;
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additional
financial and accounting challenges and complexities in areas such as tax
planning, treasury management, financial reporting and internal
controls;
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the
incurrence of environmental and other liabilities, including liabilities
arising from the operation of an acquired business or asset prior to our
acquisition for which we are not indemnified or for which the indemnity is
inadequate;
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disruption
of or receipt of insufficient management attention to our ongoing
business; and
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inability
to realize the cost savings or other financial benefits that we
anticipate.
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Future
acquisitions may require us to obtain additional equity or debt financing, which
may not be available on attractive terms. Moreover, to the extent an acquisition
transaction financed by non-equity consideration results in additional goodwill,
it will reduce our tangible net worth, which might have an adverse effect on our
credit and bonding capacity.
The anticipated
investment in port and marine infrastructure may not be as large as
expected, which
may result in periods of low demand for our services.
The
demand for port construction, maintenance infrastructure services and dredging
may be vulnerable to downturns in the economy generally and in the marine
transportation industry specifically. The amount of capital expenditures on port
facilities and marine infrastructure in our markets is affected by the actual
and anticipated shipping and vessel needs of the economy in general and in our
geographic markets in particular. If the general level of economic activity
deteriorates, our customers may delay or cancel expansions, upgrades,
maintenance and repairs to their infrastructure. A number of other factors,
including the financial condition of the industry, could adversely affect our
customers and their ability or willingness to fund capital expenditures in the
future. During downturns in the U.S. or world economies, the anticipated
port usage in our geographic markets may decline, resulting in less port
construction, upgrading and maintenance. As a result, demand for our services
could substantially decline for extended periods.
Any adverse
change to the economy or business environment in the regions in which we
operate
could significantly affect our operations, which would lead to lower
revenues
and reduced
profitability.
Our
operations are currently concentrated in the Gulf Coast, the Atlantic Seaboard
and the Caribbean Basin and we recently expanded into the Pacific Northwest.
Because of this concentration in a specific geographic location, we are
susceptible to fluctuations in our business caused by adverse economic or other
conditions in this region, including natural or other disasters.
During the
ordinary course of our business, we may become subject to lawsuits or
indemnity
claims, which could materially and adversely affect our business,
operating
results and
financial condition.
We have
been and may from time to time be named as a defendant in legal actions claiming
damages in connection with marine infrastructure projects and other matters.
These are typically claims that arise in the normal course of business,
including employment-related claims and contractual disputes or claims for
personal injury (including asbestos-related lawsuits) or property damage which
occurs in connection with services performed relating to project or construction
sites. These actions may seek, among other things, compensation for alleged
personal injury, workers’ compensation, employment discrimination, breach of
contract, property damage, environmental damage, punitive damages, civil
penalties or other losses, consequential damages or injunctive or declaratory
relief. Contractual disputes normally involve claims relating to the timely
completion of projects, performance of equipment, design or other engineering
services or project services. We may incur liabilities that may not be covered
by insurance policies, or, if covered, the dollar amount of such liabilities may
exceed our policy limits or fall below applicable deductibles. A partially or
completely uninsured claim, if successful and of significant magnitude, could
cause us to suffer a significant loss and reduce cash available for our
operations.
Furthermore,
our services are integral to the operation and performance of the marine
infrastructure. As a result, we may become subject to lawsuits or claims for any
failure of the infrastructure that we work on, even if our services are not the
cause for such failures. In addition, we may incur civil and criminal
liabilities to the extent that our services contributed to any property damage
or personal injury. With respect to such lawsuits, claims, proceedings and
indemnities, we have and will accrue reserves in accordance with generally
accepted accounting principles (“GAAP”). In the event that such actions or
indemnities are ultimately resolved unfavorably at amounts exceeding our accrued
reserves, or at material amounts, the outcome could materially and adversely
affect our reputation, business, operating results and financial condition. In
addition, payments of significant amounts, even if reserved, could adversely
affect our liquidity position.
We are
currently engaged in litigation related to claims arising from Hurricane
Katrina. See “Business — Legal Proceedings.”
Our operations
are subject to environmental laws and regulations that may expose us
to
significant costs and liabilities.
Our
marine infrastructure construction, salvage, demolition, dredging and dredge
material disposal activities are subject to stringent and complex federal, state
and local environmental laws and regulations, including those concerning air
emissions, water quality, solid waste management, and protection of certain
marine and bird species, their habitats, and wetlands. We may incur substantial
costs in order to conduct our operations in compliance with these laws and
regulations. For instance, we may be required to obtain, maintain and comply
with permits and other approvals (as well as those obtained for projects by our
customers) issued by various federal, state and local governmental authorities;
limit or prevent releases of materials from our operations in accordance with
these permits and approvals; and install pollution control equipment. In
addition, compliance with environmental laws and regulations can delay or
prevent our performance of a particular project and increase related project
costs. Moreover, new, stricter environmental laws, regulations or enforcement
policies, including those imposed in response to climate change, could be
implemented that significantly increase our compliance costs, or require us to
adopt more costly methods of operation.
Failure
to comply with environmental laws and regulations, or the permits issued under
them, may result in the assessment of administrative, civil and criminal
penalties, the imposition of remedial obligations and the issuance of
injunctions limiting or preventing some or all of our operations. In addition,
strict joint and several liability may be imposed under certain environmental
laws, which could cause us to become liable for the investigation or remediation
of environmental contamination that resulted from the conduct of others or from
our own actions that were in compliance with all applicable laws at the time
those actions were taken. Further, it is possible that we may be exposed to
liability due to releases of pollutants, or other environmental impacts that may
arise in the course of our operations. For instance, some of the work we perform
is in underground and water environments, and if the field location maps or
waterway charts supplied to us are not accurate, or if objects are present in
the soil or water that are not indicated on the field location maps or waterway
charts, our underground and underwater work could strike objects in the soil or
the waterway bottom containing pollutants and result in a rupture and discharge
of pollutants. In addition, we sometimes perform directional drilling operations
below certain environmentally sensitive terrains and water bodies, and due to
the inconsistent nature of the terrain and water bodies, it is possible that
such directional drilling may cause a surface fracture releasing subsurface
materials. These releases may contain contaminants in excess of amounts
permitted by law, may expose us to remediation costs and fines and legal actions
by private parties seeking damages for non-compliance with environmental laws
and regulations or for personal injury or property damage. We may not be able to
recover some or any of these costs through insurance or increased revenues,
which may have a material adverse effect on our business, operating results and
financial condition. See “Business — Environmental Matters” for more
information.
Our operations
are susceptible to adverse weather conditions in our regions
of
operation.
Our
business, operating results and financial condition could be materially and
adversely affected by severe weather, particularly along the Gulf Coast, the
Atlantic Seaboard and Caribbean Basin where we have concentrated operations.
Repercussions of severe weather conditions may include:
|
|
•
|
evacuation
of personnel and curtailment of
services;
|
|
|
•
|
weather-related
damage to our equipment, facilities and project work sites resulting in
suspension of operations;
|
|
|
•
|
inability
to deliver materials to jobsites in accordance with contract
schedules; and
|
|
|
•
|
loss
of productivity.
|
Our dependence on
petroleum-based products increases our costs as the prices of such products
increase, which
c
ould adversely
affect our business, operating results and financial
condition.
We use
diesel fuel and other petroleum-based products to operate our equipment used in
our construction contracts. Decreased supplies of those products relative to
demand and other factors can cause an increase in their cost. Future increases
in the costs of fuel and other petroleum-based products used in our business,
particularly if a bid has been submitted for a contract and the costs of those
products have been estimated at amounts less than the actual costs thereof,
could result in a lower profit, or a loss, on one or more
contracts.
Terrorist attacks
at port facilities could negatively impact the markets in
which we
operate.
Terrorist
attacks, like those that occurred on September 11, 2001, targeted at ports,
marine facilities or shipping could affect the markets in which we operate our
business and our expectations. Increased armed hostilities, terrorist attacks or
responses from the U.S. may lead to further acts of terrorism and civil
disturbances in the U.S. or elsewhere, which may further contribute to
economic instability in the U.S. These attacks or armed conflicts may
affect our operations or those of our customers or suppliers and could impact
our revenues, our production capability and our ability to complete contracts in
a timely manner.
We may be subject
to unionization, work stoppages, slowdowns or increased labor
costs.
We have a
non-union workforce. If our employees unionize, it could result in demands that
may increase our operating expenses and adversely affect our profitability. Each
of our different employee groups could unionize at any time and would require
separate collective bargaining agreements. If any group of our employees were to
unionize and we were unable to agree on the terms of their collective bargaining
agreement or we were to experience widespread employee dissatisfaction, we could
be subject to work slowdowns or stoppages. In addition, we may be subject to
disruptions by organized labor groups protesting our non-union status. Any of
these events would be disruptive to our operations and could have a material
adverse effect on our business, operating results and financial
condition.
We
may be unable to sustain our historical revenue growth rate.
Our
revenue has grown rapidly in recent years. However, we may be unable to
sustain our recent revenue growth rate for a variety of reasons, including
limits on additional growth in our current markets, less success in competitive
bidding for contracts, limitations on access to necessary working capital and
investment capital to sustain growth, limitations on access to bonding to
support increased contracts and operations, the inability to hire and retain
essential personnel and to acquire equipment to support growth, and the
inability to identify acquisition candidates and successfully integrate them
into our business. A decline in our revenue growth could have a material adverse
effect on our business, operating results and financial condition if we are
unable to reduce the growth of our operating expenses at the same
rate.
We
are subject to risks related to our international operations.
Approximately
14% of our revenue in 2009 was derived from international markets. We presently
conduct projects in the Caribbean Basin. International operations subject us to
additional risks, including:
|
|
•
|
uncertainties
concerning import and export license requirements, tariffs and other trade
barriers;
|
|
|
•
|
restrictions
on repatriating foreign profits back to the
U.S.;
|
|
|
•
|
changes
in foreign policies and regulatory
requirements;
|
|
|
•
|
difficulties
in staffing and managing international
operations;
|
|
|
•
|
taxation
issues;
|
|
|
•
|
currency
fluctuations; and
|
|
|
•
|
political,
cultural and economic
uncertainties.
|
These
risks could restrict our ability to provide services to international customers
and could have a material adverse effect on our business, operating results and
financial condition.
Restrictions on
foreign ownership of our vessels could limit our ability to
sell off any
portion of our business or result in the forfeiture of our vessels or
in our
inability to continue our operations in U.S. navigable
waters.
The
Dredging Act, the Jones Act, the Shipping Act and the Vessel Documentation Act
require vessels engaged in the transport of merchandise or passengers between
two points in the U.S. or dredging in the navigable waters of the
U.S. to be owned and controlled by U.S. citizens. The
U.S. citizen ownership and control standards require the vessel-owning
entity to be at least 75% U.S. citizen-owned, thus restricting foreign
ownership interests in the entities that directly or indirectly own the vessels
which we operate. If we were to seek to sell any portion of our business unit
that owns any of these vessels, we may have fewer potential purchasers, since
some potential purchasers might be unable or unwilling to satisfy the foreign
ownership restrictions described above; additionally, any sales of certain of
our larger vessels to foreign buyers would be subject to approval by the
U.S. Maritime Administration. As a result, the sales price for that portion
of our business may not attain the amount that could be obtained in an
unregulated market. Furthermore, although our certificate of incorporation
contains provisions limiting ownership of our capital stock by
non-U.S. citizens, foreign ownership is difficult to track and if we or any
operating subsidiaries
cease to
be 75% controlled and owned by U.S. citizens, we would become ineligible to
continue our operations in U.S. navigable waters and may become subject to
penalties and risk forfeiture of our vessels.
We
may be vulnerable to the cyclical nature of the markets in which our customers
operate, which may be exacerbated during economic downturns.
Current
global economic conditions are affecting numerous industries and companies and
many states are facing difficult budget decisions which could result in reduced
demand for general construction projects. This reduced demand may
increase the number of potential bidders in our markets and could increase the
competitive environment through pressure on pricing. Budgeting
decisions and constraints due to the tight credit markets may result in
diversion of governmental funding from projects we perform to other
uses. A weak economy may also produce less tax revenue, thereby
decreasing funds for public sector projects. Lower levels of activity
may result in a corresponding decline in the demand for our services, which
could have a material adverse effect on our revenue and
profitability.
Negative
conditions in the credit and financial markets could impair our ability to
operate our business, or implement our acquisition strategies
Due to
the continuing instability of the credit markets in the United States and
abroad, the availability of credit has continued to be relatively difficult or
expensive to obtain in spite of government efforts to increase liquidity and
hold or reduce interest rates. We may face challenges if conditions
in the financial markets do not improve. While these conditions have
not impaired the Company’s ability to access credit markets and finance
operations, at this time, there can be no assurance that there will not be a
further deterioration in financial markets and confidence in major
economies. A continuing shortage of liquidity could have an impact on
the lenders under our credit facility or on our customers.
Risk
Factors Related to our Accounting, Financial Results and Financing
Plans
Actual results
could differ from the estimates and assumptions that we use
to prepare our
financial statements.
To
prepare financial statements in conformity with GAAP, management is required to
make estimates and assumptions as of the date of the financial statements, which
affect the reported values of assets and liabilities, revenues and expenses, and
disclosures of contingent assets and liabilities. Areas requiring significant
estimates by our management include: contract costs and profits, application of
percentage-of-completion accounting, and revenue recognition of contract change
order claims; provisions for uncollectible receivables and customer claims and
recoveries of costs from subcontractors, suppliers and others; valuation of
assets acquired and liabilities assumed in connection with business
combinations; accruals for estimated liabilities, including litigation and
insurance reserves; and the value of our deferred tax assets. Our actual results
could differ from those estimates.
Our use of the
percentage-of-completion method of accounting could result
in a reduction or
reversal of previously recorded revenue and profit.
In
particular, as is more fully discussed in “Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Critical Accounting
Policies,” we recognize contract revenue using the percentage-of-completion
method. A significant portion of our work is performed on a fixed-price or
lump-sum basis. The balance of our work is performed on variations of cost
reimbursable and target price approaches. Contract revenue is accrued based on
the percentage that actual costs-to-date bear to total estimated costs. We
utilize this cost-to-cost approach as we believe this method is less subjective
than relying on assessments of physical progress. Under the cost-to-cost
approach, while the most widely recognized method used for
percentage-of-completion accounting, the use of estimated cost to complete each
contract is a significant variable in the process of determining income earned
and is a significant
factor in
the accounting for contracts. The cumulative impact of revisions in total cost
estimates during the progress of work is reflected in the period in which these
changes become known. Due to the various estimates inherent in our contract
accounting, actual results could differ from those estimates, which may result
in a reduction or reversal of previously recorded revenue and
profit.
Failure to
establish and maintain effective internal control over financial
reporting could
have a material adverse effect on our business, operating results
and stock
value.
Maintaining
effective internal control over financial reporting is necessary for us to
produce reliable financial reports and is important in helping to prevent
financial fraud. If we are unable to achieve and maintain adequate internal
controls, our business, operating results and financial condition could be
harmed. We are required under Section 404 of the Sarbanes-Oxley Act of 2002
(“SOX”) and the related rules of the SEC to annually assess the effectiveness of
our internal controls over financial reporting and our independent registered
public accounting firm is required to issue a report on the effectiveness of our
internal control over financial reporting. During the course of the related
documentation and testing, we may identify significant deficiencies or material
weaknesses that we may be unable to remediate before the requisite deadline for
those reports. If our management or our independent registered public accounting
firm were to conclude in their reports that our internal control over financial
reporting was not effective, this could have a material adverse effect on our
ability to process and report financial information and the value of our common
stock could significantly decline.
Our
bonding requirements may limit our ability to incur indebtedness.
We
generally are required to provide various types of surety bonds that provide an
additional measure of security for our performance under certain government and
private sector contracts. Our ability to obtain surety bonds depends upon
various factors including our capitalization, working capital and amount of our
indebtedness. In order to help ensure that we can obtain required bonds, we may
be limited in our ability to incur additional indebtedness that may be needed
for potential acquisitions and operations. Our inability to incur additional
indebtedness could have a material adverse effect on our business, operating
results and financial condition.
The
downturn in economic conditions may impact our customers’ ability to pay for
services and finance projects.
Our
primary customers are governmental agencies in the United States, as well as a
wide variety of private customers in diverse industries. It is
possible that the credit crisis and current economic conditions may affect some
of our customers’ ability to access sufficient capital to finance or complete
projects. Our cash flows may be adversely impacted through customer
delays in payment or non-payment of our accounts receivable, or through delays
or cancellations of projects awarded to us. We monitor our accounts
receivable balances closely and maintain contact with our customers to assess
the economic viability of projects in process.
None
Our
corporate headquarters is located at 12000 Aerospace, Suite 300, Houston, Texas
77034, with 10,983 square feet of office space that we lease, with an initial
term expiring February 28, 2017 and with two five year extensions at our
option. Our finance and executive offices are located at this
facility. As of December 31, 2009, we owned or leased the following
additional facilities:
|
Location
|
Type of Facility
|
Size
|
Leased or Owned
|
|
159
Highway 316
Port
Lavaca, TX
|
Waterfront
maintenance and dock facilities, equipment yard and dry dock; regional
office
|
17.5
acres
|
Owned
|
|
17140
Market Street
Channelview,
TX
|
Waterfront
maintenance and dock facilities and equipment yard
|
23.7
acres
|
Owned
|
|
5600
West Commerce Street
Tampa,
FL
|
Waterfront
maintenance and dock facilities; equipment yard and dry
dock
|
9.1
acres
|
Owned
|
|
12550
Fuqua
Houston,
TX
|
Regional
office
|
16,440
square feet
|
Leased
|
|
1500
Main Street
Ingleside,
TX
|
Regional
office
|
4
acres
|
Leased
|
|
City
of Port Lavaca Port Commission
Port
Lavaca, Texas
|
Safe
harbor
|
6.6
acres
|
Leased
|
|
825
Ryan Street
Lake
Charles, LA
|
Regional
office
|
6,500
square feet
|
Leased
|
|
Dock
Board Road
Sulphur,
LA
|
Waterfront
maintenance and dock facilities; equipment yard
|
4.37
acres
|
Leased
|
|
2400
Veterans Boulevard
Kenner,
LA
|
Regional
office
|
1,255
square feet
|
Leased
|
|
321
Great Bridge Blvd., Chesapeake, VA
|
Regional
office
|
1,500
square feet
|
Leased
|
|
5440
W. Tyson Avenue
Tampa,
Florida
|
Regional
office
|
6,160
square feet
|
Leased
|
|
1901
Hill Street
Jacksonville,
Florida
|
Waterfront
maintenance and dock facilities and equipment yard
|
Estimated
less than 5 acres
|
Leased
|
We
believe that our existing facilities are adequate for our
operations. We do not believe that any single facility is material to
our operations and, if necessary, we could readily obtain a replacement
facility. Our real estate assets are pledged to secure our credit
facility.
Although
we are subject to various claims and legal actions that arise in the ordinary
course of business, except as described below, we are not currently a party to
any material legal proceedings or environmental claims.
We have
been named as one of numerous defendants in various individual claims and
lawsuits brought in the United States District Court of the Eastern District of
Louisiana by or on behalf of the residents and landowners of New Orleans,
Louisiana and surrounding areas. These suits have been classified as a
subcategory of suits under the more expansive proceeding,
In re Canal Breaches Consolidation
Litigation,
Civil Action No. 05-4182 IE.D. La), which was instituted in
late 2005. While not technically class actions, the individual claims
and lawsuits are being prosecuted in a manner similar to that employed for
federal class actions. The claims are based on flooding and related
damage from Hurricane Katrina. In general, the claimants state that the flooding
and related damage resulted from the failure of certain aspects of the levee
system constructed by the Corps of Engineers, and the claimants seek recovery of
alleged general and special damages.
The Corps
of Engineers has contracted with various private dredging companies, including
us, to perform maintenance dredging of the waterways. In accordance with a
decision of the trial court (
In re Canal Breaches Consolidation
Litigation
, Civil Action No: 05-4182,
“Order and Reasons,”
March 9, 2007 (E.D. La, 2007)), we believe that we will not have
liability under these claims unless we deviated from our contracted scope of
work on a project. In June of 2007, however, the plaintiffs filed two
separate appeals of this decision to the United States Court of Appeals for the
Fifth Circuit, where on November 25, 2009 a portion of the decision of the trial
court was affirmed. The other portion, for claims in Limitation
Actions, remains pending. Additionally, plaintiffs in other cases
included in this subcategory of suits continue to seek trial court
determinations contrary to those reached in the “Order and Reasons” described
above.
The
plaintiffs in the pending lawsuit have not specified the amount of damages
claimed. Furthermore, as a matter arising in admiralty, which is
subject to statutory limitations provided under the Limitation of Liability Act
(46 U.S.C. section 30505), we believe that our liability is limited to the value
of our vessels involved in the dredging work. In addition, we
maintain insurance which should cover any liability that may be incurred,
further limiting our potential exposure. Therefore, we believe our
exposure is limited to our deductible under this insurance policy, which is
$100,000.
From time
to time, we are a party to various other lawsuits, claims and other legal
proceedings that arise in the ordinary course of our business. These actions
typically seek, among other things, compensation for alleged personal injury,
breach of contract, property damage, punitive damages, civil penalties or other
losses, or injunctive or declaratory relief. With respect to such lawsuits,
claims and proceedings, we accrue reserves when it is probable a liability has
been incurred and the amount of loss can be reasonably estimated. We do not
believe any of these proceedings, individually or in the aggregate, would be
expected to have a material adverse effect on our results of operations, cash
flows, or on our financial condition.
|
Item
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
|
|
Market
Information
|
Our
common stock listed on the New York Stock Exchange (“NYSE”) on May 13, 2009, and
trades under the symbol “ORN”. Prior to that date, we were listed on
the NASDAQ Stock Market, LLC and traded under the symbol “OMGI”. We have
provided to the NYSE, without qualification, the required certification
regarding compliance with NYSE corporate governance listing
standards.
The
following table sets forth the low and high prices of a share of our common
stock during each of the fiscal quarters presented, based on NYSE and NASDAQ
Stock Market LLC reports:
|
Low
|
High
|
|||||||
|
2009
|
||||||||
|
Fourth
quarter – December 31
|
$ | 17.57 | $ | 24.38 | ||||
|
Third
quarter – September 30
|
$ | 16.58 | $ | 24.98 | ||||
|
Second
quarter – June 30
|
$ | 11.65 | $ | 22.84 | ||||
|
First
quarter – March 31
|
$ | 7.93 | $ | 13.48 | ||||
|
2008
|
||||||||
|
Fourth
quarter – December 31
|
$ | 3.55 | $ | 10.40 | ||||
|
Third
quarter – September 30
|
$ | 9.01 | $ | 14.50 | ||||
|
Second
quarter – June 30
|
$ | 11.89 | $ | 15.41 | ||||
|
First
quarter – March 31
|
$ | 10.01 | $ | 15.00 | ||||
Holders
As of
December 31, 2009, we had approximately 8,400 stockholders of
record.
Dividends
For the
foreseeable future, we intend to retain earnings to grow our business and do not
intend to pay dividends on our common stock. We have not historically paid
dividends and payments of future dividends, if any, will be at the discretion of
our board of directors and will depend on many factors, including general
economic and business conditions, our strategic plans, our financial results and
condition, legal requirements, and other factors that our board of directors
deems relevant. Our existing credit facility restricts our ability to pay cash
dividends on our common stock, and we may also enter into credit agreements or
other borrowing arrangements in the future that will restrict our ability to
declare or pay cash dividends on our common stock.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table presents certain information about our equity compensation plans
as of December 31, 2009:
|
Plan
category
|
Column A
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
Column B
Weighted
average exercise price of outstanding options, warrants and
rights
|
Column C
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in Column
A)
|
|||||||||
|
Equity
compensation plans approved by shareholders
|
2,606,629 | $ | 6.75 | 337,317 | ||||||||
|
Equity
compensation plans not approved by shareholders
|
-- | -- | -- | |||||||||
|
Total
|
2,606,629 | $ | 6.75 | 337,317 | ||||||||
Performance
Graph*
The
following graph shows the changes, since our common stock began trading on the
NASDAQ Global Market on December 20, 2007, in the value of $100 invested in (1)
the common stock of Orion Marine Group, Inc., (2) the Standard & Poor’s 500
Index and (3) the Dow Jones Heavy Construction Group Index. The
values of each investment are based on share price appreciation, with
reinvestment of all dividends, assuming any were paid. For each
graph, the investments are assumed to have occurred at the beginning of each
period.
|
2007
|
2007
|
2008
|
2009
|
|||||||||||||
|
Orion
Marine Group, Inc.
|
100.00 | 94.94 | 61.14 | 133.29 | ||||||||||||
|
S&P
500
|
100.00 | 99.31 | 62.56 | 79.12 | ||||||||||||
|
Dow
Jones US Heavy Civil Construction
|
100.00 | 103.61 | 46.50 | 53.15 | ||||||||||||
Note: The
above information was provided by Research Data Group, Inc.
*This
table and the information therein is being furnished but not
filed.
The
following table presents selected financial data for each of the last five
fiscal years. This selected financial data should be read in conjunction with
the Consolidated Financial Statements and related notes beginning on page F-1 of
this Annual Report on Form 10-K and Item 7 “Management’s Discussion and Analysis
of Financial Condition and Results of Operations”. These historical
results are not necessarily indicative of the results of operations to be
expected for any future period.
The table
below includes the non-GAAP financial measure of EBITDA. For a
definition of EBITDA and a reconciliation to net income calculated and presented
in accordance with GAAP, please see “
Non-GAAP Financial Measures”
immediately below.
|
Dollar
amounts in thousands, except share and per share information
|
||||||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
Contract
revenues
|
$ | 293,494 | $ | 261,802 | $ | 210,360 | $ | 183,278 | $ | 167,315 | ||||||||||
|
Gross
profit
|
62,697 | 50,451 | 50,433 | 38,537 | 21,575 | |||||||||||||||
|
Selling,
general and administrative expenses
|
30,947 | 27,978 | 22,946 | 17,425 | 10,685 | |||||||||||||||
|
Net
income
|
20,030 | 14,475 | 17,399 | 12,403 | 5,311 | |||||||||||||||
|
Preferred
dividends
|
-- | -- | 782 | 2,100 | 2,100 | |||||||||||||||
|
Income
available to common shareholders
|
$ | 20,030 | $ | 14,475 | $ | 16,617 | $ | 10,303 | $ | 3,211 | ||||||||||
|
Net
income per share available to common shareholders:
|
||||||||||||||||||||
|
Basic
|
$ | 0.85 | $ | 0.67 | $ | 0.86 | $ | 0.65 | $ | 0.20 | ||||||||||
|
Diluted
|
$ | 0.84 | $ | 0.66 | $ | 0.83 | $ | 0.63 | $ | 0.20 | ||||||||||
|
Weighted
average shares outstanding;
|
||||||||||||||||||||
|
Basic
|
23,577,854 | 21,561,201 | 19,657,436 | 16,630,045 | 16,730,942 | |||||||||||||||
|
Diluted
|
23,979,943 | 21,979,535 | 19,976,683 | 16,958,453 | 16,730,942 | |||||||||||||||
|
Other
Financial Data
|
||||||||||||||||||||
|
EBITDA
|
$ | 50,538 | $ | 41,321 | $ | 40,079 | $ | 33,003 | $ | 22,331 | ||||||||||
|
Capital
expenditures
|
22,693 | 14,485 | 11,433 | 11,931 | 9,149 | |||||||||||||||
|
Cash
interest expense
|
553 | 1,234 | 927 | 2,848 | 2,146 | |||||||||||||||
|
Depreciation
and amortization*
|
18,788 | 18,848 | 12,592 | 11,805 | 11,036 | |||||||||||||||
|
Net
cash provided by (used in):
Operating
activities
|
40,336 | 26,471 | 10,092 | 32,475 | 11,618 | |||||||||||||||
|
Investing
activities
|
(21,598 | ) | (47,337 | ) | (9,463 | ) | (11,987 | ) | (5,431 | ) | ||||||||||
|
Financing
activities
|
60,286 | 33,994 | (6,606 | ) | (9,572 | ) | (6,244 | ) | ||||||||||||
*
includes depreciation, amortization
of finite lived intangible assets and amortization of deferred financing
costs
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
(in
thousands)
|
||||||||||||||||||||
|
Balance
Sheet Data:
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 104,736 | $ | 25,712 | $ | 12,584 | $ | 18,561 | $ | 7,645 | ||||||||||
|
Working
capital
|
130,760 | 47,021 | 32,452 | 12,970 | 14,729 | |||||||||||||||
|
Total
assets
|
273,157 | 186,322 | 133,534 | 125,072 | 114,626 | |||||||||||||||
|
Total
debt
|
-- | 34,125 | -- | 25,000 | 34,548 | |||||||||||||||
|
Total
stockholders’ equity
|
221,666 | 105,611 | 90,084 | 53,239 | 40,730 | |||||||||||||||
Non-GAAP Financial
Measures
We
include in this Annual Report on Form 10-K the non-GAAP financial measure of
EBITDA. We define EBITDA as income before interest, income taxes, depreciation
and amortization. EBITDA is used as a supplemental financial measure by our
management and by external users of our financial statements such as investors,
commercial banks and others, to assess:
|
|
•
|
the
financial performance of our assets without regard to financing methods,
capital structure or historical cost
basis;
|
|
|
•
|
the
ability of our assets to generate cash sufficient to pay interest costs
and support our indebtedness;
|
|
|
•
|
our
operating performance and return on capital as compared to those of other
companies in our industry, without regard to financing or capital
structure; and
|
|
|
•
|
the
viability of acquisitions and capital expenditure projects and the overall
rates of return on alternative investment
opportunities.
|
EBITDA is
not a presentation made in accordance with GAAP. EBITDA should not be considered
an alternative to, or more meaningful than, net income, operating income, cash
flows from operating activities or any other measure of financial performance
presented in accordance with GAAP as measures of operating performance,
liquidity or ability to service debt obligations. Because EBITDA excludes some,
but not all, items that affect net income and is defined differently by
different companies in our industry, our definition of EBITDA may not be
comparable to similarly titled measures of other companies. EBITDA has important
limitations as an analytical tool, and you should not consider it in
isolation.
The
following table provides a reconciliation of EBITDA to our net income for the
periods indicated as calculated and presented in accordance with
GAAP:
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
Net
income
|
$ | 20,030 | $ | 14,475 | $ | 17,399 | $ | 12,403 | $ | 5,311 | ||||||||||
|
Income
tax expense
|
11,534 | 7,282 | 10,178 | 7,040 | 3,805 | |||||||||||||||
|
Interest
expense(income), net
|
186 | 716 | (90 | ) | 1,755 | 2,179 | ||||||||||||||
|
Depreciation
and amortization*
|
18,788 | 18,848 | 12,592 | 11,805 | 11,036 | |||||||||||||||
|
EBITDA
|
$ | 50,538 | $ | 41,321 | $ | 40,079 | $ | 33,003 | $ | 22,331 | ||||||||||
*
includes depreciation, amortization
of finite-lived intangible assets and amortization of deferred
financing costs
Selected
Quarterly Financial Data
The
following table sets forth selected unaudited financial information for the
eight quarters in the two-year period ended December 31, 2009. This
information has been prepared on the same basis as the audited financial
statements and, in the opinion of management, contains all adjustments necessary
for a fair presentation.
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
Total
Year
|
||||||||||||||||
|
2009
|
||||||||||||||||||||
|
Revenues
|
$ | 70,040 | $ | 70,753 | $ | 81,466 | $ | 71,235 | $ | 293,494 | ||||||||||
|
Operating
profit(a)
|
7,074 | 10,136 | 8,300 | 6,241 | 31,750 | |||||||||||||||
|
Income
before income taxes
|
6,971 | 10,000 | 8,289 | 6,304 | 31,564 | |||||||||||||||
|
Net
income
|
4,341 | 6,286 | 5,397 | 4,006 | 20,030 | |||||||||||||||
|
Earnings
per share:
|
||||||||||||||||||||
|
Basic
|
$ | 0.20 | $ | 0.29 | $ | 0.22 | $ | 0.15 | $ | 0.85 | ||||||||||
|
Diluted
|
$ | 0.20 | $ | 0.28 | $ | 0.22 | $ | 0.15 | $ | 0.84 | ||||||||||
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
Total
Year
|
||||||||||||||||
|
(in
thousands, except per share data)
|
||||||||||||||||||||
|
2008
|
||||||||||||||||||||
|
Revenues
|
$ | 52,591 | $ | 67,070 | $ | 62,897 | $ | 79,244 | $ | 261,802 | ||||||||||
|
Operating
profit(a)
|
4,245 | 4,135 | 5,243 | 8,851 | 22,474 | |||||||||||||||
|
Income
before tax
|
4,268 | 3,890 | 4,985 | 8,614 | 21,757 | |||||||||||||||
|
Net
income
|
2,846 | 2,401 | 3,764 | 5,464 | 14,475 | |||||||||||||||
|
Earnings
per share:
|
||||||||||||||||||||
|
Basic
|
$ | 0.13 | $ | 0.11 | $ | 0.18 | $ | 0.25 | $ | 0.67 | ||||||||||
|
Diluted
|
$ | 0.13 | $ | 0.11 | $ | 0.17 | $ | 0.25 | $ | 0.66 | ||||||||||
(a)
Operating profit represents revenues, less cost of contracts and selling,
general and administrative expenses
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|
The
following discussion and analysis of our financial condition and results of
operations is based on and should be read in conjunction with our consolidated
financial statements and the accompanying notes beginning on page F-1 of this
Annual Report on Form 10-K. Certain statements made in our discussion
may be forward-looking. Forward-looking statements involve risks and
uncertainties and a number of factors could cause actual results or outcomes to
differ materially from our expectations. See “Forward-Looking
Statements” at the beginning of this Annual Report on Form 10-K for additional
discussion of some of these risks and uncertainties. Unless the
context requires otherwise, when we refer to “we”, “us” and “our”, we are
describing Orion Marine Group, Inc. and its consolidated
subsidiaries.
Overview
We are a
leading marine specialty contractor serving the heavy civil marine
infrastructure market. We provide a broad range of marine construction and
specialty services on, over and under the water along the Gulf Coast, the
Atlantic Seaboard and the Caribbean Basin, and we recently expanded into the
Pacific Northwest. Our customers include federal, state and municipal
governments, the combination of which accounted for approximately 55% of our
revenue in the year ended December 31, 2009, as well as private commercial and
industrial enterprises. We are headquartered in Houston, Texas.
2009
Recap and 2010 Outlook
Despite a
difficult and challenging economic environment, our revenues increased 12.1% in
2009 as compared with 2008. The mix of contracts in progress
and those completed during 2009 shifted more toward the public sector, with 55%
of 2009 revenue generated from federal and state agencies and local
municipalities, which includes the US Army Corps of Engineers.
In 2009,
pursuant to a shelf registration on Form S-3, we completed a public offering of
4.8 million shares of our common stock at $19.70 per share, and received net
proceeds of $91.0 million. With a portion of the proceeds, we repaid
all of our outstanding debt of approximately $29.9 million.
We
invested in specialized equipment to enhance our lift capabilities and expand
our fleet. Our capital expenditures in 2009 totaled $22.7
million.
During
the year ended December 31, 2009, our operations provided cash from operations
of $40.3 million and our cash position at December 31, 2009 exceeded $104.7
million. Our operations are not currently dependent on external
sources of capital and we have not utilized the $7.6 million available to us
under our revolving credit facility.
Our
overall performance generally depends on spending in the heavy civil marine
infrastructure market. Spending by our customers, both government and private,
is impacted by several important trends affecting our industry, including the
following:
|
|
•
|
port
and channel expansion and
maintenance;
|
|
|
•
|
deteriorating
condition of intracoastal waterways and
bridges;
|
|
|
•
|
continued
demand in the cruise industry;
|
|
|
•
|
infrastructure
spending by the United States Navy and Coast
Guard;
|
|
|
•
|
near-shore
oil and gas capital expenditures
|
|
|
•
|
ongoing
U.S. coastal wetlands restoration and
reclamation;
|
|
|
•
|
recurring
hurricane restoration and
repair.
|
In
January 2010, we acquired Texas-based T.W. LaQuay Dredging, LLC for $64 million
in cash, utilizing proceeds raised in our August 2009 public stock offering to
fund the acquisition. The acquisition provided us with additional
dredging resources for deep-channel dredging capability as well as additional
experienced personnel. Through its backlog of approximately $25
million, the acquisition will immediately contribute to 2010
revenue.
In
February 2010, we expanded our operations and established a base in the Pacific
Northwest through the purchase of several heavy civil marine construction
equipment items, including derrick barges, cranes, hammers and ancillary
equipment, at a total price of $7.0 million.
We
continue to see good bidding opportunities in our end
markets. Sources of bid opportunities available to us
include:
|
·
|
Gulf
Coast and Southeast Atlantic ports, which are expected to continue with
expansion plans, with supplemental funding available from the American
Recovery and Reinvestment Act (the “Stimulus
package”).
|
|
·
|
Bridge
maintenance, alterations, and construction, which should be a priority for
states, with funding from highway transportation programs and through the
Stimulus package.
|
|
·
|
Funds
available from the civil works budget and Stimulus package of the US Army
Corps of Engineers.
|
|
·
|
The
continuation of the highway transportation program for highway
construction, including bridges over
water.
|
Our focus
in 2010 will be to concentrate on our core business objectives; to manage our
business effectively and efficiently; to pursue rational growth strategies while
closely monitoring the costs of our operations; and to maintain our strong
balance sheet.
Critical
Accounting Policies
The
consolidated financial statements contained in this report were prepared in
accordance with accounting principles generally accepted in the United States
(“US GAAP”). The preparation of these financial statements in
conformity with US GAAP requires management to make estimates and assumptions
that affect both the Company’s carrying values of its assets and liabilities,
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Although our significant
accounting policies are described in more detail in Note 2 of the
Notes to Consolidated Financial
Statements
; we believe the following accounting policies to be critical
to the judgments and estimates used in the preparation of our financial
statements.
Revenue
Recognition
We enter
into construction contracts principally on the basis of competitive bids.
Although the terms of our contracts vary considerably, most are made on a fixed
price basis. Revenues from construction contracts are recognized on the
percentage-of-completion method
.
The
percentage-of-completion method measures the ratio of costs incurred and accrued
to date for each contract to the estimated total costs for each contract at
completion. This requires us to prepare on-going estimates of the
costs to complete each contract as the project progresses. In
preparing these estimates, we make significant judgments and assumptions
concerning our significant cost drivers of materials, labor and equipment, and
we evaluate contingencies based on possible schedule variances, production
delays or other productivity factors.
Actual
costs may vary from the costs we estimated. Variations from estimated contract
costs along with other risks inherent in fixed price contracts may result in
actual revenue and gross profits differing from those we estimated and could
result in losses on projects. If a current estimate of total contract cost
indicates a loss on a contract, the projected loss is recognized in full when
determined, without regard to the percentage of completion. We consider
unapproved change orders to be contract variations on which we have customer
approval for scope change, but not for price associated with that scope
change. These costs are included in the estimated cost to complete
the contracts and are expensed as incurred. We recognize revenue equal to cost
incurred on unapproved change orders when realization of price approval is
probable and the estimated amount is equal to or greater than our cost related
to the unapproved change order and the related margin when the change order is
formally approved by the customer. Revenue recognized on unapproved
change orders is included in contract costs and estimated earnings in excess of
billings on uncompleted contracts on the balance sheet. We consider claims to be
amounts that we seek or will seek to collect from customers or others for
customer-caused changes in contract specifications or design, or other
customer-related causes of unanticipated additional contract costs on which
there is no agreement with customers on both scope and price changes. Revenue
from claims is recognized when
agreement
is reached with customers as to the value of the claims, which in some instances
may not occur until after completion of work under the
contract. Costs associated with claims are included in the estimated
costs to complete the contracts and are expensed when
incurred. Depending on the size of a particular project, variations
from estimated project costs could have a significant impact on our operating
results for any fiscal quarter or year. We believe our exposure to losses on
fixed price contracts is limited by the relatively short duration of the
contracts we undertake and our management’s experience in estimating contract
costs. We provide for contract losses in their entirety in the period
they become known, without regard to the percentage of completion.
Long-Lived
Assets
Fixed
assets are carried at cost and are depreciated over their estimated useful
lives, ranging from one to thirty years, using the straight-line method for
financial reporting purposes and accelerated methods for tax reporting purposes.
The carrying value of all long-lived assets is evaluated periodically
to determine if
adjustment to the depreciation period or the carrying value is warranted. If
events and circumstances indicate that the long-lived assets should be reviewed
for possible impairment, we use projections to assess whether future cash flows
on a non-discounted basis related to the tested assets are likely to exceed the
recorded carrying amount of those assets to determine if write-down is
appropriate. If we identify impairment, we will report a loss to the extent that
the carrying value of the impaired assets exceeds their fair values as
determined by valuation techniques appropriate in the circumstances that could
include the use of similar projections on a discounted basis.
Goodwill
We have
acquired businesses and assets in purchase transactions that resulted in the
recognition of goodwill. In accordance with US GAAP, acquired
goodwill is not amortized, but is subject to impairment testing at least
annually or more frequently if events or circumstances indicate that the asset
more likely than not may be impaired.
We assess
the fair value of our reporting units based on a weighted average of valuations
based on market multiples, discounted cash flows, and consideration
of our market capitalization. The key assumptions used in the
discounted cash flow valuations are discount rates and perpetual growth rates
applied to cash flow projections. Also inherent in the discounted
cash flow valuation models are past performance, projections and assumptions in
current operating plans, and revenue growth rates over the next five
years. These assumptions contemplate business, market and overall
economic conditions. We also consider assumptions that market
participants may use.
As
required by the Company’s policy, annual impairment tests of goodwill are
performed during the fourth quarter of each year or when circumstances arise
that indicate a possible impairment might exist. Based on this
testing, we determined that goodwill was not impaired as of October 31, 2009,
and no events have occurred since that date that would require an interim
impairment test. The discount rate used in testing goodwill for
impairment was 15.3%. Revenue growth was fixed at 5% per year, which
we believe is appropriate based on our assessment of current economic and market
conditions. As compared with the impairment test performed in 2008,
the discount rate increased by 80 basis points, due to our assessment of
economic conditions and risk, while the revenue growth rate remained
constant. This had the effect of reducing the indicated fair value in
the 2009 test. Management performed a sensitivity analysis on
the fair value resulting from the discounted cash flow valuation, by increasing
the discount rate 100 basis points and decreasing the perpetual growth rate by
100 basis points. The results of the sensitivity analysis indicated
no impairment in goodwill.
Income
Taxes
We
account for income taxes using the asset and liability method prescribed by US
GAAP. We evaluate valuation allowances for deferred tax assets for
which future realization is uncertain. The estimation of required valuation
allowance includes estimates of future taxable income. In our assessment of our
deferred tax assets at December 31, 2009, we considered that it was more likely
than not that all of the deferred tax assets would be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. We consider the scheduled reversal of deferred tax liabilities,
projected future taxable income and tax planning strategies in making this
assessment.
The
Company accounts for uncertain tax positions in accordance with the provisions
ASC 740-10, which it adopted on January 1, 2007, which prescribes a recognition
threshold and measurement attribute for financial statement disclosure of tax
positions taken, or expected to be taken, on our consolidated tax
return. We evaluate and record any uncertain tax
positions based on the amount that management deems is more likely than not to
be sustained upon ultimate settlement with the tax authorities in the tax
jurisdictions in which we operate.
Insurance
Coverage, Litigation, Claims and Contingencies
We
maintain insurance coverage for our business and
operations. Insurance related to property, equipment, automobile,
general liability and a portion of workers’ compensation is provided through
traditional policies, subject to a deductible. A portion of our
workers’ compensation exposure is covered through a mutual association, which is
subject to supplemental calls.
The
Company maintains two levels of excess loss insurance coverage, $20 million in
excess of primary coverage and $10 million in excess of the $20 million, which
excess loss coverage responds to all of the Company’s insurance policies other
than a portion of its Workers’ Compensation coverage and employee health care
coverage. The Company’s excess loss coverage responds to most of its
policies when a primary limit of $1 million has been exhausted; provided that
the primary limit for Maritime Employer’s Liability is $10 million and the
Watercraft Pollution Policy primary limit is $5 million.
We have
elected to retain a portion of losses that may occur through the use of various
deductibles, limits and retentions under our insurance
programs. Losses on these policies up to the deductible amounts are
accrued in our consolidated financial statements based on known claims incurred
and an estimate of claims incurred but not yet reported. We derive
our accruals from known facts, historical trends and industry averages to
determine the best estimate of the ultimate expected
loss. Actual claims may vary from our estimate. We include any
adjustments to such reserves in our consolidated results of operations in the
period in which they become known.
Accounting
for Stock Issued to Employees and Others
We
measure the cost of equity compensation to our employees and independent
directors based on the estimated grant-date fair value of the award and
recognize the expense over the vesting period. We use the
Black-Scholes option pricing model to compute the fair value of the awards of
equity instruments. The Black-Scholes model requires the use of
highly subjective assumptions in the computation. Changes in these
assumptions can cause significant fluctuations in the fair value of the option
award.
Consolidated
Results of Operations
Current
Year—Year Ended December 31, 2009 compared with Year Ended December 31,
2008
The
following information is derived from our historical results of operations
(dollars in thousands):
|
Twelve
months ended December 31,
|
||||||||||||||||
|
2009
|
2008
|
|||||||||||||||
|
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||
|
Contract
revenues
|
$ | 293,494 | 100.0 | % | $ | 261,802 | 100.0 | % | ||||||||
|
Cost
of contract revenues
|
230,797 | 78.6 | % | 211,351 | 80.7 | % | ||||||||||
|
Gross
profit
|
62,697 | 21.4 | % | 50,451 | 19.3 | % | ||||||||||
|
Selling,
general and administrative expenses
|
30,947 | 10.5 | % | 27,978 | 10.7 | % | ||||||||||
|
Operating
income
|
31,750 | 10.9 | % | 22,473 | 8.6 | % | ||||||||||
|
Interest
(income) expense
|
||||||||||||||||
|
Interest
(income)
|
(352 | ) | -0.1 | % | (530 | ) | -0.2 | % | ||||||||
|
Interest
expense
|
538 | 0.2 | % | 1,246 | 0.5 | % | ||||||||||
|
Interest
(income) expense, net
|
186 | 0.1 | % | 716 | 0.3 | % | ||||||||||
|
Income
before income taxes
|
31,564 | 10.8 | % | 21,757 | 8.3 | % | ||||||||||
|
Income
tax expense
|
11,534 | 3.9 | % | 7,282 | 2.8 | % | ||||||||||
|
Net
income
|
$ | 20,030 | 6.9 | % | $ | 14,475 | 5.5 | % | ||||||||
Contract
Revenues.
Total revenue in 2009 increased $31.7 million
or 12.1%, as compared with 2008. The increase in revenue was
attributable, in part, to expansion of our dredging capabilities along the
eastern coast of the United States late in the first quarter of 2008 and to the
progress schedules and rate of completion of the contracts in progress in
2009. Our mix of projects during the year shifted toward the public
sector, which totaled 55.2% of 2009 revenues, with revenues generated from the
private sector representing 44.8%. In 2008, 50.1% of revenues were
generated from government agencies and 49.1% from the private
sector. An increase in spending by the Corps of Engineers, partly
targeting economic recovery, resulted in 18.5% of total revenues generated from
federally funded projects, as compared with 11.1% in the prior
year.
Gross
Profit.
Gross profit increased by $12.2 million, or 24.3% and
gross margin improved to 21.4% in 2009 from 19.3% in 2008. We
achieved an improvement in gross margin despite a reduction in our contract
self-performance rate to 87.6% of total costs, as compared with a
self-performance rate of 88.2% in 2008. During 2008, significant
production delays which resulted from unexpected amounts of trash and unforeseen
site conditions on two projects involving dredging services, negatively affected
gross margins.
Selling, General
and Administrative Expense.
As compared with the prior year,
selling, general and administrative expenses (“SG&A”) increased
$3.0 million or 10.6% in 2009. The increase was due primarily to additional
overheads to support our business growth. In the prior year, we
benefitted from lower group medical and workers’ compensation
expenses.
Income Tax
Expense.
Our effective rate for the year ended December 31,
2009 was 36.5% and differed from the Company’s statutory rate of 35% primarily
related to state income taxes and the non-deductibility of certain permanent tax
items, such as incentive stock compensation expense, offset in part by the
benefit of the domestic production activities deduction on our federal tax
return, which net effect increased our overall effective tax rate.
Our effective tax rate of
33.5% in 2008 differed from our statutory rate of 35%, primarily due to the
benefit of the domestic production activities deduction on the Company’s tax
return and true-ups of federal and state deferred taxes.
Prior
Year—Year Ended December 31, 2008 compared with Year Ended December 31,
2007
The
following information is derived from our historical results of operations
(dollars in thousands):
|
Twelve
months ended December 31,
|
||||||||||||||||
|
2008
|
2007
|
|||||||||||||||
|
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||
|
Contract
revenues
|
$ | 261,802 | 100.0 | % | $ | 210,360 | 100.0 | % | ||||||||
|
Cost
of contract revenues
|
211,351 | 80.7 | % | 159,927 | 76.0 | % | ||||||||||
|
Gross
profit
|
50,451 | 19.3 | % | 50,433 | 24.0 | % | ||||||||||
|
Selling,
general and administrative expenses
|
27,978 | 10.7 | % | 22,946 | 10.9 | % | ||||||||||
|
Operating
income
|
22,473 | 8.6 | % | 27,487 | 13.1 | % | ||||||||||
|
Interest
(income) expense
|
||||||||||||||||
|
Interest
(income)
|
(530 | ) | -0.2 | % | (1,000 | ) | -0.5 | % | ||||||||
|
Interest
expense
|
1,246 | 0.5 | % | 910 | 0.5 | % | ||||||||||
|
Interest
(income) expense, net
|
716 | 0.3 | % | (90 | ) | 0.0 | % | |||||||||
|
Income
before income taxes
|
21,757 | 8.3 | % | 27,577 | 13.1 | % | ||||||||||
|
Income
tax expense
|
7,282 | 2.8 | % | 10,178 | 4.8 | % | ||||||||||
|
Net
income
|
$ | 14,475 | 5.5 | % | $ | 17,399 | 8.3 | % | ||||||||
Contract
Revenues.
Total revenue increased $51.4 million or 24.5%,
from $210.4 million for the year ended December 31, 2007 to
$261.8 million for the year ended December 31,
2008. The increase in revenue was due to geographic expansion
of our dredging capabilities along the eastern coast of the United States and to
the progress schedules and rate of completion of the contracts in progress in
2008, despite an active hurricane season in the year with seven named storms
that affected our entire operations at various times. Revenues
generated by the private sector increased by a substantial 45% in 2008 as
compared with 2007. However, revenues generated from federal agencies
decreased by 22.4% in 2008 as compared with 2007 due to a slow volume of bid
opportunities by the Corps of Engineers.
Gross
Profit.
Gross profit was comparable to the prior year,
however, gross margin decreased from 24.0% in 2007 to 19.3% in
2008. The downward pressure on margin was due primarily to the use of
outside subcontractors resulting from the scope of work in the mix of contracts
in progress during 2008, which reduced our self-performance rate (as measured by
cost) from 90.3% in 2007 to 88.2% in 2008. Significant production
delays which resulted from unexpected amounts of trash and unforeseen site
conditions on two projects involving dredging services, negatively affected
gross margins. In addition, we achieved higher margins on certain
projects in 2007, due to productivity gains on labor and other
factors.
Selling, General
and Administrative Expense.
As compared with the prior year,
selling, general and administrative expenses (“SG&A”) increased
$5.0 million or 21.9% in 2008. Current year expenses include amortization
related to intangible assets; additional overheads to support the business
growth we experienced in 2008; and a full complement of annual public company
expenses. In addition, we increased our bad debt reserve to $0.8
million, related to receivables on two projects, and our property taxes
increased as compared with 2007, due in part to property taxes related to our
geographic expansion. In the prior year, we incurred one-time
payments of bonuses and incentives to key employees upon the successful
consummation of the common stock offering in May 2007, which totaled
approximately $2.6 million. As a percentage of revenues, however,
SG&A expenses decreased slightly, from 10.9% of revenues to 10.7%,
reflecting our continued focus on the management of costs.
Interest Expense,
net of Interest Income.
The increase in interest expense in
2008 directly resulted from debt incurred to purchase assets in February
2008. In 2007, upon closing of the private placement transaction, we
repaid all debt outstanding at that time. We earn interest
income on the cash balances we maintain throughout the year.
Income Tax
Expense.
Our effective tax rate of 33.5% differed from our
statutory rate of 35%, primarily due to the benefit of the domestic production
activities deduction on the Company’s tax return and true-ups of federal and
state deferred taxes. Excluding these true-ups, our effective tax
rate was 36.4% and differed from the statutory rate due to our estimate of the
impact of certain permanent deductions available on our federal tax return,
offset by increases in state income taxes. The effective rate of
36.9% in 2007 differed from the statutory rate primarily due to permanent
non-deductible differences and to state income taxes.
Liquidity
and Capital Resources
Our
primary liquidity needs are for financing working capital, investment in capital
expenditures and strategic acquisitions. Historically, our sources of liquidity
have been cash provided by our operating activities and borrowings under our
credit facility.
Our
working capital position fluctuates from period to period due to normal
increases and decreases in operations activity. At December 31, 2009,
our working capital was $130.8 million, of which $53.4 million was related to
the balance of the proceeds received from the sale of common stock in August
2009, as compared to working capital of $47.0 million at December 31,
2008.
As of
December 31, 2009, we had available cash on hand and availability under our
revolving credit facility of $112.3 million.
At
December 31, 2009, our operations provided cash from operations of $40.3
million. Our operations are not currently dependent on external
sources of capital, and we have not utilized our available borrowing of $7.6
million under our revolving credit facility.
We expect
to meet our future internal liquidity and working capital needs, and maintain
our equipment fleet through capital expenditure purchases and major repairs,
from funds generated in our operating activities, and from the proceeds received
from our common stock offering, for at least the next
12 months. We believe our cash position, combined with the
capacity available under our revolving credit facility, is adequate for our
general business requirements. Subsequent to year end, we utilized
approximately $64 million of cash to purchase T.W. LaQuay Dredging, LLC (“
TWLD
”), and approximately
$7.0 million to purchase marine construction assets in the Pacific
Northwest.
The
following table provides information regarding our cash flows and our capital
expenditures for the years ended December 31, 2009, 2008 and
2007:
|
Year
ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Cash
provided by (used in):
|
||||||||||||
|
Operating
activities………………………………………….............
|
$ | 40,336 | $ | 26,471 | $ | 10,092 | ||||||
|
Investing
activities………………………………………………...
|
(21,598 | ) | (47,337 | ) | (9,463 | ) | ||||||
|
Financing
activities………………………………………….............
|
60,286 | 33,994 | (6,606 | ) | ||||||||
|
Capital
expenditures (included in investing activities above)………
|
22,693 | 14,485 | 11,433 | |||||||||
Operating
Activities.
Fluctuations in cash generated by
operating activities are generally the result of timing differences related to
the nature and volume of contracts in any given year. Our operations
provided net cash of $40.3 million during fiscal 2009. The increase
of $13.9 million, as compared with 2008 was due to:
|
·
|
An
increase of $5.6 million in net
income;
|
|
·
|
A
reduction in our deferred income taxes of $1.0 million ;
and
|
|
·
|
An
increase of $7.3 million in working capital components, as described
below.
|
In 2009,
the changes in working capital included an increase in trade payables of $11.2
million compared with 2008, related to the timing of payments to vendors, and
based on the mix of contracts in progress. Amounts remaining unbilled
to customers, net of our liability related to the receipt of progress payment on
certain projects, increased by $9.7 million as compared with 2008, and was
related to the timing of billings to customers and the utilization of progress
payments. We manage our working capital components in total, rather
than by the individual elements, and fluctuations in accounts receivable and
payable balances are normal within our business.
In 2008,
our accounts receivable and payable balances increased by $4.6 million and $1.8
million, respectively, and our billings to customers exceeded unbilled amounts
to customers on our contracts in progress.
Investing
Activities.
We purchase capital equipment as well as perform
major maintenance and upgrades of our existing fleet and construction equipment
to support our construction activities. Capital expenditures
supporting our operations and enhancing our fleet totaled $22.7 million in 2009,
an increase of $8.2 million as compared with 2008. Also in 2008, we
purchased assets to expand our dredging capabilities along the Atlantic Seaboard
for a total purchase price of $36.7 million. Proceeds from the sale
of property and equipment in 2008 include $2.8 million received from the sale of
a vessel no longer considered integral to our fleet.
Financing
Activities.
In August 2009, we completed a public
offering of common stock, receiving proceeds, net of expenses, of approximately
$91.0 million. With a portion of the proceeds, we repaid the
outstanding balance on our credit facility. In addition, we received
proceeds from stock option exercises, including related tax benefits of $3.4
million. Cash provided by financing activities in 2008 was
attributable to our borrowing of $35.0 million under our line of credit to fund
the purchase of assets. In 2007, net proceeds from the sale of our common stock
in a private placement transaction totaled approximately $18.5 million, which we
used to repay our debt facility.
Sources
of Capital
In
addition to our cash balances and cash provided by operations, we have a credit
facility available to us to finance capital expenditures and working capital
needs.
In
February 2008, the Company borrowed $35 million under its credit facility to
fund the purchase of marine construction equipment and related
assets. In August 2009, the Company repaid the outstanding balance on
the credit facility of $29.9 million from proceeds received from its common
stock offering. The Company currently has the availablity to borrow
up to $15 million under an acquisition term loan facility and up to $8.5 million
under a revolving line of credit. All provisions under the credit
facility mature on September 30, 2010.
The
revolving line of credit is subject to a borrowing base and availability on the
revolving line of credit is reduced by any outstanding letters of
credit. At December 31, 2009, the Company had outstanding letters of
credit of $910,000, thus reducing the balance available to the Company on the
revolving line of credit to approximately $7.6 million. The Company
is subject to a monthly commitment fee on the unused portion of the revolving
line of credit at a current rate of 0.20% of the unused balance. As
of December 31, 2009, no amounts had been drawn under the revolving line of
credit.
The
credit facility is secured by the bank accounts, accounts receivable, inventory,
equipment and other assets of the Company and its subsidiaries and places
restrictions on the Company as to its ability to incur additional debt, pay
dividends, advance loans, and engage in other actions. The credit
facility also requires the Company to maintain certain financial ratios as
follows:
|
·
|
A
minimum net worth in the amount of not less than the sum of $40.0 million
plus 50% of consolidated net income earned in each fiscal quarter ended
after December 31, 2006 plus adjustments for certain equity
transactions;
|
|
·
|
A
minimum fixed charge coverage ratio of not less than 1.30 to 1.0 as of
each fiscal quarter end; and
|
|
·
|
A
total leverage ratio not greater than 3.0 to 1.0 as of each
fiscal quarter end.
|
At
December 31, 2009, the Company was in compliance with all its financial
covenants with a sufficient margin as to not impair its ability to incur
additional debt or violate the terms of its credit
facility. Historically, the Company has not relied on debt financing
to fund its operations or working capital.
The
Company is in negotiations to renew its credit facility prior to the September
30, 2010 expiration.
Bonding
Capacity
We are
generally required to provide various types of surety bonds that provide
additional security to our customers for our performance under certain
government and private sector contracts. Our ability to obtain surety
bonds depends on our capitalization, working capital, past performance and
external factors, including the capacity of the overall surety
market. At December 31, 2009, we believe our capacity under our
current bonding arrangement was in excess of $400 million, of which we had
approximately $130 million in surety bonds outstanding. We believe
our strong balance sheet and working capital position will allow us to continue
to access our bonding capacity.
Effect
of Inflation
We are
subject to the effects of inflation through increases in the cost of raw
materials, and other items such as fuel. Because the typical duration of a
project is between three to nine months we do not believe inflation has had a
material impact on our operations.
Off
Balance Sheet Arrangements
We
currently have no off balance sheet arrangements, other than operating leases to
which we are a party, and which arise in the normal course of
business. These arrangements are not reasonably likely to have an
effect on our financial condition, or results of operations that is material to
investors. See Note 20 –
Commitments and Contingencies
of Notes to Consolidated Financial Statements beginning on page F-1 of this
Annual Report on Form 10-K.
Contractual
Obligations
The
following table sets forth information about our contractual obligations and
commercial commitments as of December 31, 2009:
|
Payment
Due by Period
|
||||||||||||||||||||
|
Total
|
< 1 year
|
1-3 years
|
3-5 years
|
> 5 years
|
||||||||||||||||
|
(in
thousands)
|
||||||||||||||||||||
|
Long-term
debt obligations………..
|
$ | -- | $ | -- | $ | -- | $ | --- | $ | --- | ||||||||||
|
Operating
lease obligations…………..
|
8,153 | 2,981 | 3,477 | 1,181 | 514 | |||||||||||||||
|
Purchase
obligations (1)…………….
|
-- | -- | --- | --- | --- | |||||||||||||||
|
Total…………………………………...
|
$ | 8,153 | $ | 2,981 | $ | 3,477 | $ | 1,181 | $ | 514 | ||||||||||
|
(1)
|
Commitments
pursuant to other purchase orders and subcontracts related to construction
contracts are not included since such amounts are expected to be funded
under contract billings.
|
To manage
risks of changes in the material prices and subcontracting costs used in
tendering bids for construction contracts, we obtain firm quotations from our
suppliers and subcontractors before submitting a bid. These quotations do not
include any quantity guarantees, and we have no obligation for materials or
subcontract services beyond those required to complete the contracts that we are
awarded for which quotations have been provided.
Subsequent
Events
On
January 28, 2010, Seagull Services, LLC, a wholly-owned subsidiary of the
Company purchased (a) the membership interests of
TWLD
, a Texas limited
liability company, from LaQuay Holdings, Inc. (the “
Seller
”), (b) all of the
issued and outstanding capital stock of Industrial Channel and Dock, Company, a
Texas Corporation, and Commercial Channel and Dock Company, a Texas Corporation
(collectively, the “
Channel
and Dock Companies
”), from Timothy W. LaQuay and Linda F. LaQuay (the
principal shareholders of the Seller, the “
Principal Shareholders
”), and
(c) certain parcels of real property located in Calhoun County, Port Lavaca,
Texas from the Principal Shareholders (collectively, the “
Purchase
Transaction
s”). At the closing, the Company entered into a
consulting agreement with Timothy and Linda LaQuay and with Charles F. Barnett
for a term of one year from the Closing Date.
Upon the
terms of and subject to the conditions set forth in the Purchase Agreement, the
total aggregate consideration paid by the Company to the Seller and the
Principal Shareholders consisted of the following:
|
·
|
Cash
consideration of $55.5 million, paid to the Seller for the membership
interests of T.W. LaQuay Dredging;
|
|
·
|
Cash
consideration of $4.5 million, paid to the Principal Shareholders for the
Channel and Dock Companies and the above mentioned parcels of land;
and
|
|
·
|
Up
to an additional $4.0 million (to be held in escrow) payable to Seller as
a result of an increase in the purchase price of the membership interests
by the amount of any additional taxes incurred by the Seller arising from
the allocation of the membership interests purchase price, as further
described in Section 1060 of the U.S. Internal Revenue Code, as
amended.
|
The
Purchase Agreement contains customary representations, warranties, covenants and
indemnities, including certain post-closing covenants with respect to
confidentiality and non-competition.
The
following table summarizes the preliminary allocation of the purchase
price:
Fair
value of working capital
items $ 4,007
Property
and
equipment $48,594
Goodwill
$11,399
Total
$64,000
The
purchase price has been allocated to the assets acquired and the liabilities
assumed using estimated fair values as of the acquisition date. The
estimates and assumptions are subject to change upon the finalization of
valuations, which are contingent upon final appraisals of property and
equipment, identifiable intangible assets, and other adjustments through January
28, 2010. Revisions to the preliminary purchase price allocation
could result in significant deviations from the preliminary
allocation.
On
February 11, 2010, the Company purchased several heavy civil marine construction
equipment items including derrick barges, cranes, hammers and ancillary
equipment from a private company exiting the marine construction business, for a
purchase price of approximately $7.0 million. The Company intends to
establish a base to serve the Pacific Northwest and West Coast, through the
lease of yard and office space in Tacoma, Washington. The
Company is currently evaluating the fair value of the assets
acquired.
Recently
Issued Accounting Pronouncements
Disclosures
about Fair Value Measurements
In
January 2010, the FASB issued a new accounting standard update (“ASU”) which
clarifies and provides additional disclosure requirements on the transfers of
assets and liabilities between Level 1 (quoted prices in active market for
identical assets or liabilities) and Level 2 (significant other observable
inputs) of the fair value measurement hierarchy, including the reasons for and
the timing of the transfers. Additionally, the guidance requires a roll forward
of activities on purchases, sales, issuance, and settlements of the assets and
liabilities measured using significant unobservable inputs (Level 3 fair value
measurements). This ASU is effective for us in 2010, except for the
requirements to provide Level 3 activity which will become effective for us in
2011. We do not expect the adoption of this ASU to have a material effect on our
consolidated financial statements.
We do not
enter into derivative financial instruments for trading, speculation or other
purposes that would expose the Company to market risk. In the normal
course of business, our results of operations are subject to risks related to
fluctuation in commodity prices and fluctuations in interest rates.
Commodity
price risk
We are
subject to fluctuations in commodity prices for concrete, steel products and
fuel. Although we attempt to secure firm quotes from our suppliers,
we generally do not hedge against increases in prices for concrete, steel and
fuel. Commodity price risks may have an impact on our results of
operations due to the fixed-price nature of many of our contracts, although the
short-term duration of our projects may allow us to include price increases in
the costs of our bids.
Interest
rate risk
At
December 31, 2009, we had no borrowings under our revolving credit facility or
line of credit. Our credit facility expires in September
2010. Our objectives in managing interest rate risk are to lower our
overall borrowing costs and limit interest rate changes on our earnings and cash
flows. To achieve this, we closely monitor changes in interest rates
and we utilize cash from operations to reduce our debt position. An
increase of 1% in our interest rate during 2009 would have increased our
interest expense by approximately $208,000.
The
information required by this Item 8 is submitted as a separate section beginning
on page F-1 of this Annual Report on Form 10-K and is incorporated herein by
reference.
Additionally,
a two-year Summary of Selected Quarterly Financial Data (unaudited) is included
in “
Selected Quarterly
Financial Data”
under Item 6 -
Selected
Financial Data.
|
|
|
Item
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
|
|
None
|
|
|
|
Item
9A.
|
CONTROLS
AND PROCEDURES
|
Disclosure
Controls and Procedures
We
maintain a set of disclosure controls and procedures that are designed to
provide reasonable assurance that information required to be disclosed in our
reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”) is
recorded, processed, summarized, and reported within the time periods specified
in the SEC’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosure.
Our
management, with the participation of our principal executive officer and
principal financial officer, has evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) under
the Exchange Act) as of the end of the period covered by this report. Based on
such evaluation, our principal executive and financial officers have concluded
that our disclosure controls and procedures were effective as of the end of such
period.
Management’s
Report on Internal Control Over Financial Reporting
Management is responsible for
establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. Internal control over financial
reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
our transactions and dispositions of our assets; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of our assets that could have a
material effect on the financial statements.
Internal
control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent limitations. Internal
control over financial reporting is a process that involves human diligence and
compliance and is subject to lapses in judgment and breakdowns resulting from
human failures. Internal control over financial reporting can also be
circumvented by collusion or improper management override. Because of such
limitations, there is a risk that material misstatements may not be prevented or
detected on a timely basis by internal control over financial reporting. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate. However, these inherent limitations are known features of the
financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.
Management
conducted an assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2009. In making this assessment,
management used the criteria described in
Internal Control — Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, management concluded that our
internal control over financial reporting was effective as of December 31,
2009.
Grant
Thornton LLP, an independent registered accounting firm, has issued an
attestation report on the effectiveness of the Company’s internal control over
financial reporting and issued an audit report thereon, which is included in
this Annual Report on Form 10-K
Changes
in Internal Control
There
were no changes in the Company’s internal control over financial reporting
during the Company’s quarter ended December 31, 2009, that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
|
Item
9B.
|
OTHER
INFORMATION
|
|
|
None
|
|
|
|
Certain
information required by Part III is omitted from this Report. We will
file our definitive proxy statement for our Annual Meeting of Stockholders to be
held on May 20, 2010 (the “Proxy Statement”) pursuant to regulation 14A not
later than 120 days after the end of the fiscal year covered by this Annual
Report, and certain information included therein is incorporated by reference
herein.
Directors,
Executive Officers, Promoters and Control Persons
The
information required by Paragraph (a), and Paragraphs (c) through
(g) of Item 401 of Regulation S-K (except for information required by
Paragraph (e) of that Item to the extent the required information pertains
to our executive officers) is hereby incorporated by reference from our
definitive proxy statement to be filed with the SEC pursuant to Regulation 14A
within 120 days after the close of our fiscal year.
The
following table presents the information required by Paragraph (b) of
Item 401 of Regulation S-K.
|
Name
|
Age
|
Position with the Company
|
Year Joined the Registrant
|
||||||
|
Richard
L. Daerr, Jr.
|
65 |
Chairman
of the Board
|
2007 | ||||||
|
J.
Michael Pearson
|
62 |
President,
Chief Executive Officer and Director
|
2006 | ||||||
|
Thomas
N. Amonett
|
66 |
Director
|
2007 | ||||||
|
Austin
J. Shanfelter
|
52 |
Director
|
2007 | ||||||
|
Gene
Stoever
|
71 |
Director
|
2007 | ||||||
|
Mark
R. Stauffer
|
47 |
Executive
Vice President and Chief Financial Officer
|
1999 | ||||||
|
Elliott
J. Kennedy
|
55 |
Executive
Vice President
|
1994 | ||||||
|
James
L. Rose
|
45 |
Executive
Vice President
|
2005 | ||||||
|
Peter
R. Buchler
|
63 |
Executive
Vice President, General Counsel and Secretary
|
2009 | ||||||
Code
of Ethics
We have
adopted a code of ethics for our chief executive, chief financial and principal
accounting officers; a code of business conduct and ethics for members of our
Board of Directors; and corporate governance guidelines. The full text of the
codes of ethics and corporate governance guidelines is available at our website
www.orionmarinegroup.com. Although we have never done so, in the event we make
any amendment to, or grant any waiver from, a provision of the code of ethics
that applies to the principal executive officer, principal financial officer or
principal accounting officer that requires disclosure under applicable
Commission rules, we will disclose such amendment or waiver and the reasons
therefore on our website. We will provide any person without charge a copy of
any of the aforementioned codes of ethics upon receipt of a written request.
Requests should be addressed to: Orion Marine Group, Inc. 12000 Aerospace,
Houston, Texas 77034, Attention: Corporate Secretary.
Corporate
Governance
The
information required by Items 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is
hereby incorporated by reference from our definitive proxy statement to be filed
with the SEC pursuant to Regulation 14A within 120 days after the close of our
fiscal year.
The information required by this Item is
hereby incorporated by reference from our definitive proxy statement to be filed
with the SEC pursuant to Regulation 14A within 120 days after the close of our
fiscal year.
|
Item
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
The information required by this item is
hereby incorporated by reference from our definitive proxy statement to be filed
with the SEC pursuant to Regulation 14A within 120 days after the close of our
fiscal year. The information required by Item 201(d) of Regulation S-K is
submitted in a separate section of this Form 10-K. See Item 5. — Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities, above.
The information required by this Item is
hereby incorporated by reference from our definitive proxy statement to be filed
with the SEC pursuant to Regulation 14A within 120 days after the close of our
fiscal year.
The
information required by this Item is hereby incorporated by reference from our
definitive proxy statement to be filed with the SEC pursuant to Regulation 14A
within 120 days after the close of our fiscal year.
The
following documents are filed as part of this Report:
1. Financial
Statements
The Company’s Consolidated Financial
Statements at December 31, 2008 and 2007 and for each of the three years in the
period ended December 31, 2008 and the notes thereto, together with the Report
of the Independent Registered Public Accounting Firm on those Consolidated
Financial Statements are hereby filed as part of this Report, beginning on page
F-1.
2. Financial
Statement Schedule
The following financial statement
schedule of the Company for each of the three years in the period ended December
31, 2009 is filed as part of this Report and should be read in conjunction with
the Consolidated Financial Statements of the Company.
Schedule
II – Schedule of Valuation and Qualifying Accounts
3. Exhibits
The exhibits listed in the accompanying
Exhibit Index are filed or incorporated by reference as part of this
Report.
Except as noted below, all exhibits are
incorporated by reference to the Company’s Registration Statement on Form S-1
filed on August 20, 2007, as subsequently amended.
|
Exhibit
|
||||
|
Number
|
Description
|
|||
|
1
|
.01
|
Form
of Indemnity Agreement for Directors and Certain Officers dated November
24, 2008 (filed as Exhibit 1.01 to Form 8-K filed on November 25,
2008)
|
||
|
2
|
.1
|
Asset
Purchase Agreement dated February 28, 2008, by and between OMGI Sub, LLC
and Orion Marine Group, Inc. and Subaqueous Services, Inc. and Lance Young
(filed as an exhibit to the Company’s Current Report on Form 8-K on March
4, 2008)
|
||
|
2
|
.2
|
Purchase
Agreement dated January 28, 2010 by and among LaQuay Holdings., Inc and
Seagull Services Inc. (filed as Exhibit 2.1 to the Company’s Current
Report on Form 8-K on February 2, 2010)
|
||
|
3
|
.1
|
Amended
and Restated Certificate of Incorporation of Orion Marine Group,
Inc.
|
||
|
3
|
.2
|
Amended
and Restated Bylaws of Orion Marine Group, Inc.
|
||
|
4
|
.1
|
Registration
Rights Agreement between Friedman, Billings, Ramsey & Co., Inc.
and Orion Marine Group, Inc. dated May 17, 2007
|
||
|
10
|
.1
|
Loan
Agreement, dated as of July 10, 2007, between Orion Marine Group,
Inc. and Amegy Bank National Association
|
||
|
**
|
10
|
.1.1
|
First
Amendment to Loan Agreement dated February 29, 2008, among Orion Marine
Group, Inc., and Amegy Bank National Association, a national banking
association, as agent
|
|
| 10 | .2 | Purchase/Placement Agreement dated May 9, 2007 between Orion Marine Group, Inc. and Friedman, Billings, Ramsey & Co., Inc. | ||
|
10
|
.3
|
Amended &
Restated Redemption Agreement dated May 7,
2007
|
||
|
+
|
10
|
.8
|
2005
Stock Incentive Plan
|
|
|
+
|
10
|
.9
|
Form
of Stock Option Agreement Under the 2005 Stock Incentive Plan &
Notice of Grant of Stock Option
|
|
|
+
|
10
|
.10
|
Form
of Restricted Stock Agreement Under the 2005 Stock Incentive
Plan & Notice of Grant of Restricted Stock
|
|
|
+
|
10
|
.11
|
Orion
Marine Group, Inc. Long Term Incentive Plan
|
|
|
+
|
10
|
.12
|
Form
of Stock Option Agreement Under the 2007 Long Term Incentive
Plan
|
|
|
+
|
10
|
.13
|
Form
of Restricted Stock Agreement and Notice of Grant of Restricted
Stock
|
|
|
+
|
10
|
.14
|
Executive
Incentive Plan (filed as an exhibit to the Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2008)
|
|
|
+
|
10
|
.15
|
Subsidiary
Incentive Plan (filed as an exhibit to the Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2008)
|
|
|
+
|
10
|
.16
|
Employment
Agreement, dated as of December 4, 2009, by and between Orion Marine
Group, Inc. and J. Michael Pearson
|
|
|
+
|
10
|
.17
|
Employment
Agreement, dated as of December 4, 2009, by and between Orion Marine
Group, Inc. and Mark Stauffer
|
|
|
+
|
10
|
.18
|
Employment
Agreement , dated as of December 11, 2009, by and between Orion Marine
Group, Inc. and Elliott Kennedy
|
|
|
+
|
10
|
.19
|
Employment
Agreement, dated as of December 11, 2009, by and between Orion Marine
Group, Inc. and Jim Rose
|
|
|
+
|
10
|
.20
|
Employment
Agreement, dated as of December 11, 2009, by and between Orion Marine
Group, Inc. and Peter R. Buchler
|
|
|
+
|
10
|
.23
|
Schedule
of Changes to Compensation of Non-employee Directors, effective for 2008
(filed as an exhibit to the Quarterly Report on Form 1-Q for the quarterly
period ended June 30, 2008)
|
|
|
*
|
21
|
.1
|
List
of Subsidiaries
|
|
| * |
23
|
.1
|
Consent
of Independent Registered Public Accounting Firm
|
|
|
*
|
23
|
.2
|
Consent
of Garland Sandhop, CPA
|
|
|
24
|
.1
|
Power
of Attorney (included on signature page of this filing)
|
||
|
*
|
31
|
.1
|
Certification
of CEO pursuant to Section 302
|
|
|
*
|
31
|
.2
|
Certification
of CFO pursuant to Section 302
|
|
|
*
|
32
|
.1
|
Certification
of CEO and CFO pursuant to Section 906
|
|
|
*
|
99
|
.1
|
Audited
financial statements of T.W. LaQuay Dredging, LLC as of December 31,
2008
|
|
|
*
|
99
|
.2
|
Unaudited
financial statements of T.W. LaQuay Dredging, LLC as of September 30,
2009
|
|
|
*
|
99
|
.3
|
Unaudited
pro forma condensed combined balance sheet as of September 30, 2009 and
statements of income for the year ended December 31, 2008 and nine months
ended September 30, 2009 of Orion Marine Group, Inc. and T.W. LaQuay
Dredging, LLC
|
|
|
*
|
Filed
herewith
|
|
|
**
|
Incorporated
by reference to the Company’s report on Form 8K filed with the SEC on
March 4, 2008
|
|
|
+
|
Management
contract or compensatory plan or arrangement
|
|
|
(b)
|
Financial
Statement Schedules
|
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
ORION
MARINE GROUP, INC.
|
||
|
Date: March
9, 2010
|
By:
|
/s/
J. Michael Pearson
|
|
J.
Michael Pearson
President
and Chief Executive Officer and
Director
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
|
Signature
|
Title
|
Date
|
|
President
and Chief
|
||
|
/s/
J. Michael Pearson
|
Executive
Officer and
|
March
9, 2010
|
|
J.
Michael Pearson
|
Director
|
|
|
/s/
Mark R. Stauffer
|
Chief
Financial Officer
|
March
9, 2010
|
|
Mark
R. Stauffer
|
Chief
Accounting Officer
|
|
|
/s/ Richard
L. Daerr, Jr.
|
Chairman
of the Board
|
March
9, 2010
|
|
Richard
L. Daerr, Jr.
|
||
|
/s/ Thomas
N. Amonett
|
Director
|
March
9, 2010
|
|
Thomas
N. Amonett
|
||
|
/s/ Austin
J. Shanfelter
|
Director
|
March
9, 2010
|
|
Austin
J. Shanfelter
|
||
|
/s/ Gene
Stoever
|
Director
|
March
9, 2010
|
|
Gene
Stoever
|
ORION
MARINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL
STATEMENTS
WITH
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
December
31, 2009
ORION
MARINE GROUP, INC. AND SUBSIDIARIES
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009
|
Report
of Independent Registered Public Accounting Firm
|
F3
|
|
Consolidated
Balance Sheets at December 31, 2009 and 2008
|
F5
|
|
Consolidated
Statements of Income for the Years Ended December 31, 2009, 2008 and
2007
|
F6
|
|
Consolidated
Statement of Stockholders’ Equity for the Year Ended December 31,
2009
|
F7
|
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and
2007
|
F8
|
|
Notes
to Consolidated Financial Statements
|
F9
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Orion
Marine Group, Inc.
We have
audited the accompanying consolidated balance sheets of Orion Marine Group, Inc.
and subsidiaries at December 31, 2009 and 2008, and the related consolidated
statements of income, stockholders’ equity and cash flows for each of the three
years in the period ended December 31, 2009. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Orion Marine Group, Inc. and
subsidiaries at December 31, 2009 and 2008 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2009, in conformity with accounting principles generally accepted in the
United States of America.
As
discussed in Note 2 to the consolidated financial statements, the Company
adopted new accounting guidance on January 1, 2009 related to the inclusion of
certain instruments granted in share-based payment transactions in the
calculation of basic earnings per common share.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Orion Marine Group, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO ) and our report dated March 9, 2010 expressed an unqualified opinion on the effectiveness of internal control over financial reporting.
/s/ Grant
Thornton LLP
Houston,
Texas
March 9,
2010
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Orion
Marine Group, Inc.
We have
audited Orion Marine Group, Inc.’s internal control over financial reporting as
of December 31, 2009, based on criteria established in
Internal
Control—Integrated Framework
issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Orion Marine Group
Inc.’s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on
Orion Marine Group Inc.'s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Orion Marine Group, Inc. has maintained, in all material
respects, effective internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal
Control—Integrated Framework
issued by COSO.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Orion Marine
Group, Inc. and subsidiaries as of December 31, 2009 and 2008 and the related
consolidated statements of income, stockholders’ equity, and cash flows for each
of the three years in the period ended December 31, 2009, and our report
dated March 9, 2010 expressed an unqualified opinion on those consolidated
financial statements.
/s/ GRANT
THORNTON LLP
Houston,
Texas
March 9,
2010
ORION
MARINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2009 AND 2008
(In
thousands, except share and per share amounts)
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 104,736 | $ | 25,712 | ||||
|
Accounts
receivable:
|
||||||||
|
Trade,
net of allowance of $1,202 and $800, respectively
|
32,819 | 37,806 | ||||||
|
Retainage
|
12,028 | 5,719 | ||||||
|
Other
|
922 | 691 | ||||||
|
Income
taxes receivable
|
3,040 | 4,017 | ||||||
|
Note
receivable
|
961 | -- | ||||||
|
Inventory
|
1,472 | 738 | ||||||
|
Deferred
tax asset
|
1,499 | 1,319 | ||||||
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
10,868 | 7,228 | ||||||
|
Prepaid
expenses and other
|
1,624 | 3,207 | ||||||
|
Total
current assets
|
169,969 | 86,437 | ||||||
|
Property
and equipment, net
|
90,790 | 84,154 | ||||||
|
Goodwill
|
12,096 | 12,096 | ||||||
|
Intangible
assets, net of accumulated amortization
|
38 | 3,556 | ||||||
|
Other
assets
|
264 | 79 | ||||||
|
Total
assets
|
$ | 273,157 | $ | 186,322 | ||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Current
portion of long-term debt
|
$ | -- | $ | 5,909 | ||||
|
Accounts
payable:
|
||||||||
|
Trade
|
23,680 | 13,276 | ||||||
|
Retainage
|
1,227 | 389 | ||||||
|
Accrued
liabilities
|
8,354 | 8,176 | ||||||
|
Taxes
payable
|
312 | -- | ||||||
|
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
5,636 | 11,666 | ||||||
|
Total
current liabilities
|
39,209 | 39,416 | ||||||
|
Long-term
debt, less current portion
|
-- | 28,216 | ||||||
|
Other
long-term liabilities
|
514 | 422 | ||||||
|
Deferred
income taxes
|
11,453 | 12,286 | ||||||
|
Deferred
revenue
|
315 | 371 | ||||||
|
Total
liabilities
|
51,491 | 80,711 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders’
equity:
|
||||||||
|
Common
stock -- $0.01 par value, 50,000,000 authorized,
26,852,407
|
||||||||
|
and
21,577,366 issued; 26,840,761 and 21,565,720 outstanding at December 31,
2009 and 2008, respectively
|
268 | 216 | ||||||
|
Treasury
stock, 11,646, at cost
|
-- | -- | ||||||
|
Additional
paid-in capital
|
151,361 | 55,388 | ||||||
|
Retained
earnings
|
70,037 | 50,007 | ||||||
|
Total
stockholders’ equity
|
221,666 | 105,611 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 273,157 | $ | 186,322 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements
ORION
MARINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(In
thousands, except share and per share amounts)
|
Year
ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Contract
revenues
|
$ | 293,494 | $ | 261,802 | $ | 210,360 | ||||||
|
Costs
of contract revenues
|
230,797 | 211,351 | 159,927 | |||||||||
|
Gross
profit
|
62,697 | 50,451 | 50,433 | |||||||||
|
Selling,
general and administrative expenses
|
30,947 | 27,978 | 22,946 | |||||||||
| 31,750 | 22,473 | 27,487 | ||||||||||
|
Interest
(income) expense
|
||||||||||||
|
Interest
(income)
|
(352 | ) | (530 | ) | (1,000 | ) | ||||||
|
Interest
expense
|
538 | 1,246 | 910 | |||||||||
|
Interest
(income) expense, net
|
186 | 716 | (90 | ) | ||||||||
|
Income
before income taxes
|
31,564 | 21,757 | 27,577 | |||||||||
|
Income
tax expense
|
11,534 | 7,282 | 10,178 | |||||||||
|
Net
income
|
$ | 20,030 | $ | 14,475 | $ | 17,399 | ||||||
|
Net
income
|
$ | 20,030 | $ | 14,475 | $ | 17,399 | ||||||
|
Preferred
dividends
|
-- | -- | 782 | |||||||||
|
Earnings
available to common stockholders
|
$ | 20,030 | $ | 14,475 | $ | 16,617 | ||||||
|
Earnings
per share available to common stockholders:
|
||||||||||||
|
Basic
|
$ | 0.85 | $ | 0.67 | $ | 0.85 | ||||||
|
Diluted
|
$ | 0.84 | $ | 0.66 | $ | 0.83 | ||||||
|
Shares
used to compute earnings per share
|
||||||||||||
|
Basic
|
23,577,854 | 21,561,201 | 19,657,436 | |||||||||
|
Diluted
|
23,979,943 | 21,979,535 | 19,976,683 | |||||||||
The
accompanying notes are an integral part of these consolidated financial
statements
ORION
MARINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
(In
thousands, except share information)
|
Additional
|
||||||||||||||||||||||||||||||||||||
|
Preferred
stock
Shares Amount
|
Common
stock
Shares Amount
|
Treasury
stock
Shares Amount
|
Paid-in
capital
|
Retained
earnings
|
Total
|
|||||||||||||||||||||||||||||||
|
Balance,
December 31, 2006
|
35,000 | -- | 16,730,942 | $ | 167 | (100,897 | ) | $ | (24 | ) | $ | 34,963 | $ | 18,133 | $ | 53,239 | ||||||||||||||||||||
|
Forfeit
unvested restricted stock
|
(8,969 | ) | -- | -- | ||||||||||||||||||||||||||||||||
|
Stock-based
compensation
|
501 | 501 | ||||||||||||||||||||||||||||||||||
|
Liquidation
of preferred stock
|
(35,000 | ) | -- | (40,431 | ) | (40,431 | ) | |||||||||||||||||||||||||||||
|
Exercise
of stock options
|
22,422 | -- | 48 | 48 | ||||||||||||||||||||||||||||||||
|
Proceeds
from sale of common stock, net of expenses
|
20,839,350 | 210 | 109,866 | 24 | 260,292 | 260,526 | ||||||||||||||||||||||||||||||
|
Redemption
and cancellation of common shares
|
(16,053,816 | ) | (161 | ) | (201,394 | ) | (201,555 | ) | ||||||||||||||||||||||||||||
|
Issuance
of common stock
|
26,426 | -- | 357 | 357 | ||||||||||||||||||||||||||||||||
|
Net
income
|
-- | - | -- | -- | -- | -- | -- | 17,399 | 17,399 | |||||||||||||||||||||||||||
|
Balance,
December 31, 2007
|
-- | $ | - | 21,565,324 | $ | 216 | -- | $ | -- | $ | 54,336 | $ | 35,532 | $ | 90,084 | |||||||||||||||||||||
|
Forfeit
unvested restricted stock
|
-- | (11,646 | ) | -- | -- | |||||||||||||||||||||||||||||||
|
Stock-based
compensation
|
1,103 | 1,103 | ||||||||||||||||||||||||||||||||||
|
Expenses
related to the sale of common stock
|
(51 | ) | (51 | ) | ||||||||||||||||||||||||||||||||
|
Issuance
of restricted stock
|
12,042 | -- | -- | -- | ||||||||||||||||||||||||||||||||
|
Net
income
|
-- | - | -- | -- | -- | -- | -- | 14,475 | 14,475 | |||||||||||||||||||||||||||
|
Balance,
December 31, 2008
|
-- | $ | - | 21,577,366 | $ | 216 | (11,646 | ) | $ | -- | $ | 55,388 | $ | 50,007 | $ | 105,611 | ||||||||||||||||||||
|
Stock-based
compensation
|
1,614 | 1,614 | ||||||||||||||||||||||||||||||||||
|
Exercise
of stock options
|
-- | 382,852 | $ | 4 | 1,934 | 1,938 | ||||||||||||||||||||||||||||||
|
Excess
tax benefits from exercise of stock options
|
1,476 | 1,476 | ||||||||||||||||||||||||||||||||||
|
Proceeds
from sale of common stock, net of expenses
|
4,830,000 | $ | 48 | 90,949 | 90,997 | |||||||||||||||||||||||||||||||
|
Issuance
of restricted stock
|
62,189 | |||||||||||||||||||||||||||||||||||
|
Net
income
|
-- | - | -- | -- | -- | -- | -- | 20,030 | 20,030 | |||||||||||||||||||||||||||
|
Balance,
December 31, 2009
|
-- | - | 26,852,407 | $ | 268 | (11,646 | ) | $ | -- | $ | 151,361 | $ | 70,037 | $ | 221,666 | |||||||||||||||||||||
The
accompanying notes are an integral part of this consolidated financial
statement
ORION
MARINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands, except share information)
|
Year
ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Cash
flows from operating activities
|
||||||||||||
|
Net
income
|
$ | 20,030 | $ | 14,475 | $ | 17,399 | ||||||
|
Adjustments
to reconcile net income to net cash provided
|
||||||||||||
|
by
operating activities:
|
||||||||||||
|
Depreciation
and amortization
|
18,536 | 18,599 | 12,384 | |||||||||
|
Deferred
financing cost amortization
|
252 | 249 | 208 | |||||||||
|
Non-cash
interest expense
|
-- | 22 | 86 | |||||||||
|
Bad
debt expense
|
442 | 300 | -- | |||||||||
|
Deferred
income taxes
|
(1,013 | ) | (2,410 | ) | (1,998 | ) | ||||||
|
Stock-based
compensation
|
1,614 | 1,103 | 858 | |||||||||
|
Gain
on sale of property and equipment
|
(518 | ) | (1,075 | ) | (333 | ) | ||||||
|
Excess
tax benefit from stock option exercise
|
(1,476 | ) | -- | -- | ||||||||
|
Change
in operating assets and liabilities:
|
||||||||||||
|
Accounts
receivable
|
(1,996 | ) | (4,550 | ) | (11,292 | ) | ||||||
|
Income
tax receivable
|
2,453 | (4,017 | ) | -- | ||||||||
|
Note
receivable
|
(961 | ) | -- | -- | ||||||||
|
Inventory
|
(734 | ) | (92 | ) | (120 | ) | ||||||
|
Prepaid
expenses and other
|
1,608 | (2,380 | ) | (183 | ) | |||||||
|
Costs
and estimated earnings in excess of billings
|
||||||||||||
|
on
uncompleted contracts
|
(3,640 | ) | 1,678 | (5,540 | ) | |||||||
|
Accounts
payable
|
11,241 | 1,848 | 4,559 | |||||||||
|
Accrued
liabilities
|
270 | 661 | (3,086 | ) | ||||||||
|
Income
tax payable
|
314 | (1,960 | ) | 1,994 | ||||||||
|
Billings
in excess of costs and estimated earnings
|
||||||||||||
|
on
uncompleted contracts
|
(6,030 | ) | 4,076 | (4,790 | ) | |||||||
|
Deferred
revenue
|
(56 | ) | (56 | ) | (54 | ) | ||||||
|
Net
cash provided by operating activities
|
40,336 | 26,471 | 10,092 | |||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Proceeds
from sale of property and equipment
|
1,095 | 3,861 | 1,970 | |||||||||
|
Purchase
of property and equipment
|
(22,693 | ) | (14,485 | ) | (11,433 | ) | ||||||
|
Acquisition
of business (net of cash acquired)
|
-- | (36,713 | ) | -- | ||||||||
|
Net
cash used in investing activities
|
(21,598 | ) | (47,337 | ) | (9,463 | ) | ||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Increase
in loan costs
|
-- | (80 | ) | (194 | ) | |||||||
|
Borrowings
on long-term debt
|
-- | 35,000 | -- | |||||||||
|
Payments
on long-term debt
|
(34,125 | ) | (875 | ) | (25,000 | ) | ||||||
|
Purchase
of treasury stock
|
-- | -- | -- | |||||||||
|
Exercise
of stock options
|
1,938 | -- | 48 | |||||||||
|
Excess
tax benefit from stock option exercise
|
1,476 | -- | -- | |||||||||
|
Payment
of accumulated preferred dividends and liquidation of preferred
stock
|
-- | -- | (40,431 | ) | ||||||||
|
Proceeds
from the sale of common stock, net of offering costs
|
90,997 | (51 | ) | 260,526 | ||||||||
|
Redemption
of common stock
|
-- | -- | (201,555 | ) | ||||||||
|
Net
cash provided by (used in) financing activities
|
60,286 | 33,994 | (6,606 | ) | ||||||||
|
Net
change in cash and cash equivalents
|
79,024 | 13,128 | (5,977 | ) | ||||||||
|
Cash
and cash equivalents at beginning of period
|
25,712 | 12,584 | 18,561 | |||||||||
|
Cash
and cash equivalents at end of period
|
$ | 104,736 | $ | 25,712 | $ | 12,584 | ||||||
|
Supplemental
disclosures of cash flow information:
|
||||||||||||
|
Cash
paid during the period for:
|
||||||||||||
|
Interest
|
$ | 553 | $ | 1,234 | $ | 927 | ||||||
|
Taxes,
net of refunds
|
$ | 9,781 | $ | 14,476 | $ | 9,835 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements
ORION
MARINE GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
(Tabular
Amounts in 000’s, Except for Share and per Share Amounts)
1. Description
of Business and Basis of Presentation
Description
of Business
Orion
Marine Group, Inc. and its subsidiaries (hereafter collectively referred to as
“Orion” or the “Company”) provide a broad range of marine construction services
on, over and under the water along the Gulf Coast, the Atlantic Seaboard and the
Caribbean Basin. Our heavy civil marine projects include marine
transportation facilities; bridges and causeways; marine pipelines; mechanical
and hydraulic dredging and specialty projects. We are headquartered
in Houston, Texas.
Although
we describe our business in this report in terms of the services we provide, our
base of customers and the geographic areas in which we operate, we have
concluded that our operations comprise one reportable segment pursuant to
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 280 –
Segment
Reporting.
In making this determination, we considered that
each project has similar characteristics, includes similar services, has similar
types of customers and is subject to the same regulatory
environment. We organize, evaluate and manage our financial
information around each project when making operating decisions and assessing
our overall performance.
Basis
of Presentation
These
consolidated financial statements include the accounts of the parent company,
Orion Marine Group, Inc. and its wholly-owned subsidiaries and have been
prepared in accordance with accounting principles generally accepted in the
United States of America. All significant intercompany balances and
transactions have been eliminated in consolidation.
2. Summary
of Accounting Principles
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Management’s
estimates, judgments and assumptions are continually evaluated based on
available information and experience; however, actual amounts could differ from
those estimates.
The
Company’s significant accounting policies that rely on the application of
estimates and assumptions include:
|
·
|
Revenue
recognition from construction
contracts;
|
|
·
|
Allowance
for doubtful accounts;
|
|
·
|
Testing
of goodwill and other long-lived assets for possible
impairment;
|
|
·
|
Income
taxes;
|
|
·
|
Self-insurance;
and
|
|
·
|
Stock-based
compensation
|
Revenue
Recognition
The
Company records revenue on construction contracts for financial statement
purposes on the percentage-of-completion method, measured by the percentage of
contract costs incurred to date to total estimated costs for each contract. This
method is used because management considers contract costs incurred to be the
best available measure of progress on these contracts. Contract revenue reflects
the original contract price adjusted for agreed upon change orders. Contract
costs include all direct costs, such as material and labor, and those indirect
costs related to contract performance such as payroll taxes and insurance.
General and administrative costs are charged to expense as incurred. Unapproved
claims are recognized as an increase in contract revenue only when the
collection is deemed probable and if the amount can be reasonably estimated for
purposes of calculating total profit or loss on long-term contracts. Incentive
fees, if available, are billed to the customer based on the terms and conditions
of the contract. The Company records revenue and the unbilled
receivable for claims to the extent of costs incurred and to the extent we
believe related collection is probable and includes no profit on claims
recorded. Changes in job performance, job conditions and estimated
profitability, including those arising from final contract settlements, may
result in revisions to costs and revenues and are recognized in the period in
which the revisions are determined. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined, without regard to the percentage of completion. Revenue is recorded
net of any sales taxes collected and paid on behalf of the customer, if
applicable.
The
current asset “costs and estimated earnings in excess of billings on uncompleted
contracts” represents revenues recognized in excess of amounts billed to the
customer, which management believes will be billed and collected within one year
of the completion of the contract. The liability “billings in excess of costs
and estimated earnings on uncompleted contracts” represents billings in advance
of work performed.
The
Company’s projects are typically short in duration, and usually span a period of
three to nine months. Historically, we have not combined or segmented
contracts.
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.
Cash
Equivalents
The
Company considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents. At times, cash held by
financial institutions may exceed federally insured limits. We have
not historically sustained losses on our cash balances in excess of federally
insured limits. Cash equivalents at December 31, 2009 and 2008
consisted primarily of money market mutual funds and overnight bank
deposits.
Foreign
Currencies
Historically,
the Company’s exposure to foreign currency fluctuations has not been material
and has been limited to temporary field accounts, located in countries where the
Company performs work, which amounts were insignificant in either 2009 or
2008.
Risk
Concentrations
Financial
instruments that potentially subject the Company to concentrations of credit
risk principally consist of cash and cash equivalents and accounts
receivable.
The
Company depends on its ability to continue to obtain federal, state and local
governmental contracts, and indirectly, on the amount of funding available to
these agencies for new and current governmental projects. Therefore, the
Company’s operations can be influenced by the level and timing of government
funding. Statutory mechanics liens provide the Company high priority
in the event of lien foreclosures following financial difficulties of private
owners, thus minimizing credit risk with private customers.
The
following table represents concentrations of receivables (trade and retainage)
at December 31, 2009 and 2008:
|
December 31, 2009
|
December 31, 2008
|
|||||||||||||||
| A/R |
%
|
A/R |
%
|
|||||||||||||
|
Federal
Government………………….
|
$ | 5,262 | 12 | % | $ | 1,593 | 4 | % | ||||||||
|
State
Governments……………………
|
1,124 | 3 | % | 3,866 | 9 | % | ||||||||||
|
Local
Municipalities………………….
|
11,431 | 25 | % | 7,750 | 18 | % | ||||||||||
|
Private
Companies……………………
|
27,030 | 60 | % | 30,316 | 69 | % | ||||||||||
| $ | 44,847 | 100 | % | $ | 43,525 | 100 | % | |||||||||
At
December 31, 2009, one customer accounted for 12.3% of total
receivables. At December 31, 2008, no single customer accounted for
more than 10% of total receivables.
Accounts
Receivable
Accounts
receivable are stated at the historical carrying value, less write-offs and
allowances for doubtful accounts. The Company has significant investments in
billed and unbilled receivables as of December 31, 2009 and 2008. Billed
receivables represent amounts billed upon the completion of small contracts and
progress billings on large contracts in accordance with contract terms and
milestones. Unbilled receivables on fixed-price contracts, which are included in
costs in excess of billings, arise as revenues are recognized under the
percentage-of-completion method. Unbilled amounts on cost-reimbursement
contracts represent recoverable costs and accrued profits not yet billed.
Revenue associated with these billings is recorded net of any sales tax, if
applicable. In establishing an allowance for doubtful accounts, the Company
evaluates its contract receivables and costs in excess of billings and
thoroughly reviews historical collection experience, the financial condition of
its customers, billing disputes and other factors. The Company writes off
uncollectible accounts receivable against the allowance for doubtful accounts if
it is determined that the amounts will not be collected or if a settlement is
reached for an amount that is less than the carrying value.
At
December 31, 2009 and 2008, the Company had an allowance for doubtful accounts
of $1.2 million and $800,000 respectively. The increase in the
allowance is related to a receivable on one project.
Balances
billed to customers but not paid pursuant to retainage provisions in
construction contracts generally become payable upon contract completion and
acceptance by the owner. Retention at December 31, 2009 totaled $12.0
million, of which $1.8 million is expected to be collected beyond
2010. Retention at December 31, 2008 totaled $5.7
million.
The
Company negotiates change orders and claims with its customers. Unsuccessful
negotiations of claims could result in a change to contract revenue that is less
than its carrying value, which could result in the recording of a loss.
Successful claims negotiations could result in the recovery of previously
recorded losses. Significant losses on receivables could adversely affect the
Company’s financial position, results of operations and overall
liquidity.
Inventory
Inventory
consists of parts and small equipment held for use in the ordinary course of
business and is valued at the lower of cost or market using historical average
cost. Where shipping and handling costs are incurred by us, these charges are
included in inventory and charged to cost of contract revenue upon
use.
Property
and Equipment
Property
and equipment are recorded at cost. Ordinary maintenance and repairs that do not
improve or extend the useful life of the asset are expensed as
incurred. Major renewals and betterments of equipment are capitalized
and depreciated generally over three to seven years until the next scheduled
maintenance.
Depreciation
is computed using the straight-line method over the estimated useful lives of
the related assets as follows:
|
Automobiles
and trucks
|
3
to 5 years
|
|
Buildings
and improvements
|
5
to 30 years
|
|
Construction
equipment
|
3
to 15 years
|
|
Vessels
and dredges
|
1
to 15 years
|
|
Office
equipment
|
1
to 5 years
|
Dry-docking
activities and costs are capitalized and amortized on the straight-line method
over a period
ranging
from three to 15 years until the next scheduled
dry-docking. Dry-docking activities include, but are not limited to,
the inspection, refurbishment and replacement of steel, engine components,
tailshafts, mooring equipment and other parts of the
vessel. Amortization related to dry-docking activities is included as
a component of depreciation. These activities and the related
amortization periods are periodically reviewed to determine if the estimates are
accurate. If warranted, a significant upgrade of equipment may result
in a revision to the useful life of the asset, in which case, the change is
accounted for prospectively.
Property
and equipment are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized in the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Assets to be disposed of are separately presented in
the balance sheet and reported at the lower of the carrying amount or the fair
value, less the costs to sell, and are no longer depreciated. No property and
equipment were held for sale at December 31, 2009 and December 31,
2008.
Goodwill
and Other Intangible Assets
Goodwill
The
Company has acquired businesses and assets in purchase transactions that
resulted in the recognition of goodwill. Goodwill represents the
costs in excess of fair values assigned to the underlying net assets in the
acquisition. In accordance with US GAAP, acquired goodwill is not
amortized, but is subject to impairment testing at least annually or more
frequently if events or circumstances indicate that the asset more likely than
not may be impaired.
The
Company assesses the fair value of its reporting units based on a weighted
average of valuations based on market multiples, discounted cash flows, and
consideration of our market capitalization. The key assumptions used
in the discounted cash flow valuations are discount rates and perpetual growth
rates applied to cash flow projections. Also inherent in the
discounted cash flow valuation models are past performance, projections and
assumptions in current operating plans, and revenue growth rates over the next
five years. These assumptions contemplate business, market and
overall economic conditions. We also consider assumptions that
market participants may use.
As
required by the Company’s policy, annual impairment tests of goodwill are
performed during the fourth quarter of each year or when circumstances arise
that indicate a possible impairment might exist. Based on this
testing, the Company determined that goodwill was not impaired as of October 31,
2009, and no events have occurred since that date that would require an interim
impairment test. The discount rate used in testing goodwill for
impairment was 15.3%. Revenue growth was fixed at 5% per year, which
was a conservative estimate based on economic and market
conditions. As compared with the impairment test performed in 2008,
the discount rate increased by 80 basis points, due to our assessment of
economic conditions and risk while the revenue growth rate remained
constant. This had the effect of reducing the indicated fair value in
the 2009 test.
Intangible
assets
Intangible
assets that have finite lives continue to be subject to
amortization. In addition, the Company must evaluate the remaining
useful life in each reporting period to determine whether events and
circumstances warrant a revision of the remaining period of
amortization. If the estimate of an intangible asset’s remaining life
is changed, the remaining carrying value of such asset is amortized
prospectively over that revised remaining useful life.
Stock-Based
Compensation
The
Company recognizes compensation expense for equity awards over the vesting
period based on the fair value of these awards at the date of
grant. The computed fair value of these awards is recognized as a
non-cash cost over the period the employee provides services, which is typically
the vesting period of the award. The fair value of options
granted is estimated on the date of grant using the Black-Scholes option-pricing
model. The fair value of restricted stock grants is equivalent to the
fair value of the stock issued on the date of grant.
Compensation
expense is recognized only for share-based payments expected to vest. The
Company estimates forfeitures at the date of grant based on historical
experience and future expectations. See Note 13 to the consolidated
financial statements for further discussion of the Company’s stock-based
compensation plan.
Income
Taxes
The
Company determines its consolidated income tax provision using the asset and
liability method prescribed by US GAAP, which requires the recognition of income
tax expense for the amount of taxes payable or refundable for the current period
and for deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in an entity’s financial statements or tax
returns. The Company must make significant assumptions, judgments and estimates
to determine its current provision for income taxes, its deferred tax assets and
liabilities, and any valuation allowance to be recorded against any deferred tax
asset. The current provision for income tax is based upon the current tax laws
and the Company’s interpretation of these laws, as well as the probable outcomes
of any tax audits. The value of any net deferred tax asset depends upon
estimates of the amount and category of future taxable income reduced by the
amount of any tax benefits that the Company does not expect to realize. Actual
operating results and the underlying amount and category of income in future
years could render current assumptions, judgments and estimates of recoverable
net deferred taxes inaccurate, thus impacting the Company’s financial position
and results of operations. The Company computes deferred income taxes using the
liability method. Under the liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under the liability method, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
The
Company accounts for uncertain tax positions in accordance with the provisions
of ASC 740-10, which it adopted on January 1, 2007, which prescribes a
recognition threshold and measurement attribute for financial statement
disclosure of tax positions taken, or expected to be taken, on our consolidated
tax return. We evaluate and record any uncertain tax
positions based on the amount that management deems is more likely than not to
be sustained upon examination and ultimate settlement with the tax authorities
in the tax jurisdictions in which we operate.
Insurance
Coverage
The
Company maintains insurance coverage for its business and operations.
Insurance related to property, equipment, automobile, general liability, and a
portion of workers' compensation is provided through traditional
policies, subject to a deductible. A portion of the Company's
workers’ compensation exposure is covered through a mutual association, which is
subject to supplemental calls.
The
Company maintains two levels of excess loss insurance coverage, $20 million in
excess of primary coverage and $10 million in excess of the $20 million, which
excess loss coverage responds to all of the Company’s insurance policies other
than a portion of its Workers’ Compensation coverage and employee health care
coverage. The Company’s excess loss coverage responds to most of its
policies when a primary limit of $1 million has been exhausted; provided that
the primary limit for Maritime Employer’s Liability is $10 million and the
Watercraft Pollution Policy primary limit is $5 million.
Separately,
the Company’s employee health care is provided through a trust, administered by
a third party. The Company funds the trust based on current
claims. The administrator has purchased appropriate stop-loss
coverage. Losses on these policies up to the deductible amounts are
accrued based upon known claims incurred and an estimate to claims incurred but
not reported. The accruals are derived from known facts, historical
trends and industry averages to determine the best estimate of the ultimate
expected loss. Actual claims may vary from our estimate. We include
any adjustments to such reserves in our consolidated results of operations in
the period in which they become known.
New
Accounting Pronouncements
On July
1, 2009, the FASB officially launched the FASB ASC 105 --
Generally Accepted Accounting
Principles
, which established the FASB Accounting Standards Codification
(“the Codification”), as the single official source of authoritative,
nongovernmental, U.S. GAAP, in addition to guidance issued by the Securities and
Exchange Commission. The Codification is designed to simplify U.S.
GAAP into a single, topically ordered structure. All guidance
contained in the Codification carries an equal level of
authority. The Codification is effective for interim and annual
periods ending after September 15, 2009. Accordingly, the Company
refers to the Codification in respect of the appropriate accounting standards
throughout this document as “FASB ASC”. Implementation of the
Codification did not have any impact on the Company’s consolidated financial
statements.
The
Company accounts for business combinations in accordance with FASB ASC 805 --
Business Combinations
,
which is effective for business combinations for which the acquisition date is
after January 1, 2009. Among other changes, ASC 805 requires
acquisition related costs to be recognized separately from the acquisition; in
addition, in a business combination achieved in stages, an acquirer is required
to recognize identifiable assets, liabilities and non-controlling interests in
the aquiree at the full amounts of their fair values as of the acquisition date;
and an acquirer is required to recognize assets or liabilities from
contingencies as of the acquisition date.
The
Company adopted the provisions of FASB ASC 260 --
Earnings Per Share,
effective
January 1, 2009, which required that all unvested share-based payment awards
that contain nonforfeitable rights to dividends or dividend equivalents, whether
paid or unpaid, be included in the basic Earnings Per Share (EPS) calculation.
Prior-year basic weighted average shares outstanding numbers have been
adjusted retrospectively on a consistent basis with 2009 reporting. This
standard did not affect earnings per share for any period
presented.
The
Company accounts for its intangible assets under the provisions of FASB ASC 350
--
Intangibles – Goodwill and
Other
, and, effective January 1, 2009, adopted provisions within that
topic that clarify accounting for defensive intangible assets subsequent to
initial measurement, and applies to acquired intangible assets which an entity
has no intention of actively using, or intends to discontinue use of, the
intangible asset but holds it to prevent others from obtaining access to it
(i.e., a defensive intangible asset). Also effective January 1, 2009, the
Company adopted provisions within FASB ASC 350 that amend the factors considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset, which requires a consistent approach between
the useful life of a recognized intangible asset and the period of expected cash
flows used to measure the fair value of an asset. Adoption of these provisions
did not have a material impact on the Company’s consolidated results of
operations or financial condition for 2009. The Company is evaluating
the impact of this pronouncement for 2010 based on its recent
acquisitions.
3. Offering of Common Stock
2007
Common Stock Offering
In May,
2007, the Company completed the sale of 20,949,216 shares of its common stock
(the “Transaction”). Immediately prior to the sale of the common stock, the
Company’s certificate of incorporation was amended whereby all Class A
common stock was converted into preferred stock and the Class B common
stock was converted into common stock and each 2.23 outstanding shares of common
stock was combined into one outstanding share of common
stock.
In
connection with the Transaction, the Company entered into employment agreements
and transaction bonus agreements with its executive officers and certain key
employees. Under the agreements, the Company granted 26,426 shares of common
stock, granted options to acquire 327,357 shares of common stock, and made cash
payments totaling $2.2 million. In addition, the Company granted options to
acquire 26,904 shares of common stock to its independent directors.
From the
sale of its common stock in the Transaction, the Company received net proceeds
of approximately $260.5 million and used approximately $242.0 million to
purchase and retire all of the outstanding preferred stock and 16,053,816 shares
of common stock from its former principal stockholders.
Pursuant
to an agreement entered into at the end of March 2007, an employee who
participated in the Transaction agreed to accelerate the vesting of his
restricted stock and forfeit unvested stock options. The agreement
also provided that these shares would be redeemed in the Transaction but that
the Company would hold the proceeds until the end of the term of his employment
agreement (July 31, 2007). The proceeds were paid on July 31,
2007.
2009
Common Stock Offering
In August
2009, pursuant to a shelf registration statement on Form S-3, the Company
completed a public offering of 4,830,000 shares of its common stock at $19.70
per share. The Company received proceeds, net of underwriting
commissions, of $91.3 million ($18.91 per share), and paid approximately
$524,000 in related offering expenses. The underwriters contributed
$200,000 to offset a portion of the Company’s expenses. A portion of
the offering proceeds was used to repay the Company’s outstanding debt of
approximately $29.9 million.
|
Proceeds
received from the sale of securities
|
$ | 95,151 | ||
|
Less:
|
||||
|
Underwriters’
commission
|
(3,806 | ) | ||
| 91,345 | ||||
|
Offering
related expenses
|
(548 | ) | ||
|
Expense
credit received from underwriters
|
200 | |||
|
Total
proceeds, net of expenses
|
$ | 90,997 | ||
|
Use
of proceeds:
|
||||
|
Purchase
of specialized equipment
|
5,778 | |||
|
Repayment
of outstanding debt
|
29,966 | |||
|
Balance
retained in working capital, December 31, 2009
|
$ | 55,253 |
The
remaining proceeds, along with other cash on hand was used to fund the
acquisitions discussed in Note 22, below.
4. Business
Acquisitions
In
February 2008, the Company purchased substantially all of the assets (with the
exception of working capital) and related business (principally consisting of
project contracts) of Orlando, Florida-based Subaqueous Services, Inc., a
Florida corporation (“
SSI
”) for approximately $36.7
million in cash.
The
Company funded the acquisition using cash on hand, its acquisition line of $25
million and a draw on its accordion facility of $10 million.
5. Inventory
Inventory
at December 31, 2009 and December 31, 2008, of $1.5 million and $738,000,
respectively, consists of parts and small equipment held for use in the ordinary
course of business.
6
.
Fair Value of Financial
Instruments
The
fair value of financial instruments is the amount at which the instrument could
be exchanged in a current transaction between willing parties. Due to
their short term nature, we believe that the carrying value of our accounts
receivables, other current assets, accounts payables and other current
liabilities approximate their fair values. We have a note receivable in the
amount of $961,000 from a customer providing for payments over a ten month
period. Due to the short-term payment schedule, we believe that the
carrying value of the note receivable approximates its fair value.
7. Contracts
in Progress
Contracts
in progress are as follows at December 31, 2009 and December 31,
2008:
|
2009
|
2008
|
|||||||
|
Costs
incurred on uncompleted contracts…………………………….............
|
$ | 235,175 | $ | 196,363 | ||||
|
Estimated
earnings……………………………………………………………
|
61,486 | 54,711 | ||||||
| 296,661 | 251,074 | |||||||
|
Less: Billings
to date………………………………………………………...
|
(291,429 | ) | (255,512 | ) | ||||
| $ | 5,232 | $ | (4,438 | ) | ||||
|
Included
in the accompanying consolidated balance sheet under the following
captions:
|
||||||||
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts.
|
$ | 10,868 | $ | 7,228 | ||||
|
Billings
in excess of costs and estimated earnings on uncompleted
contracts.
|
(5,636 | ) | (11,666 | ) | ||||
| $ | 5,232 | $ | (4,438 | ) | ||||
Contract
costs include all direct costs, such as material and labor, and those indirect
costs related to contract performance such as payroll taxes, insurance, job
supervision and equipment charges. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions and estimated
profitability may result in revisions to costs and income and are recognized in
the period in which the revisions are determined. An amount equal to contract
costs attributable to claims is included in revenues when realization is
probable and the amount can be reliably estimated.
8. Property
and Equipment
The
following is a summary of property and equipment at December 31, 2009 and
December 31, 2008:
|
2009
|
2008
|
|||||||
|
Automobiles
and trucks…………………….
|
$ | 1,409 | $ | 1,472 | ||||
|
Building
and improvements………………..
|
12,832 | 12,015 | ||||||
|
Construction
equipment……………………
|
92,230 | 88,070 | ||||||
|
Dredges
and dredging equipment………….
|
44,912 | 42,458 | ||||||
|
Office
equipment…………………………...
|
2,460 | 1,123 | ||||||
| 153,843 | 145,138 | |||||||
|
Less: accumulated
depreciation…………...
|
(82,671 | ) | (69,092 | ) | ||||
|
Net
book value of depreciable assets………
|
71,172 | 76,046 | ||||||
|
Construction
in progress…………………...
|
14,389 | 2,886 | ||||||
|
Land………………………………………..
|
5,229 | 5,222 | ||||||
| $ | 90,790 | $ | 84,154 | |||||
For the
years ended December 31, 2009, 2008 and 2007 depreciation expense was $15.5
million, $14.7 million, and $12.4 million, respectively. The assets
of the Company are pledged as collateral for the Company’s line of
credit.
9. Non-monetary
transaction
During
the first quarter of 2009, the Company entered into a non-monetary exchange with
an unrelated party, whereby the Company would provide marine construction
services, including dredging and sheet pile work in exchange for delivery of
seven new pushboats to add to the Company’s fleet. The total value of
the work contracted and the fair value of the boats, when delivered to the
Company, is approximately $1.8 million. At December 31, 2009, the
Company had performed work with a value of approximately $1.3 million, and had
taken delivery of all seven pushboats, and is expected to complete the remaining
work early in 2010.
10. Goodwill
The table
below summarizes activity related to goodwill as of December 31, 2009
and 2008:
|
2009
|
2008
|
|||||||
|
Beginning
balance, January 1……………...
|
$ | 12,096 | $ | 2,481 | ||||
|
Additions…………………………………...
|
-- | 9,615 | ||||||
|
Impairment…………………………………
|
-- | -- | ||||||
|
Ending
balance, December 31……………..
|
$ | 12,096 | $ | 12,096 | ||||
11. Intangible
assets
The
tables below present the activity and amortizations of finite-lived intangible
assets
|
2009
|
||||
|
Intangible
assets, January 1, 2009………
|
$ | 6,900 | ||
|
Additions………………………………….
|
-- | |||
|
Total
intangible assets……………………
|
6,900 | |||
|
Accumulated
amortization………………..
|
$ | (3,806 | ) | |
|
Current
year amortization…………………
|
(3,056 | ) | ||
|
Total
accumulated amortization…………..
|
(6,862 | ) | ||
|
Net
intangible assets, end of year………...
|
$ | 38 | ||
The
Company’s finite-lived intangible assets are estimated to be amortized as
follows:
|
Year Ended December 31,
|
||||
|
2010
|
$ | 33 | ||
|
2011
|
$ | 5 | ||
12. Accrued
Liabilities
Accrued
liabilities at December 31, 2009 and 2008 consisted of the
following:
|
2009
|
2008
|
|||||||
|
Accrued
salaries, wages and benefits………
|
$ | 5,195 | $ | 3,856 | ||||
|
Accrual
for self-insurance liabilities……….
|
2,114 | 2,143 | ||||||
|
Other
accrued expenses…………………….
|
1,045 | 2,177 | ||||||
| $ | 8,354 | $ | 8,176 | |||||
13. Long-term
Debt and Line of Credit
The
Company has a credit facility with several participating banks. In
February 2008, the Company borrowed $35 million to fund the purchase of the
assets of SSI. In August 2009, the Company repaid the outstanding
balance on the credit facility of $29.9 million from proceeds received from its
common stock offering (Note 3, above). The Company has available to
borrow up to $15 million under an acquisition term loan facility and up to $8.5
million under a revolving line of credit. All provisions under the
credit facility mature on September 30, 2010.
The
revolving line of credit is subject to a borrowing base and availability on the
revolving line of credit is reduced by any outstanding letters of
credit. At December 31, 2009, the Company had outstanding letters of
credit of $910,000, thus reducing the balance available to the Company on the
revolving line of credit to approximately $7.6 million. The Company
is subject to a monthly commitment fee on the unused portion of the revolving
line of credit at a current rate of 0.20% of the unused balance. As
of December 31, 2009, no amounts had been drawn under the revolving line of
credit.
The
credit facility is secured by the bank accounts, accounts receivable, inventory,
equipment and other assets of the Company and its subsidiaries and places
restrictions on the Company as to its ability to incur additional debt, pay
dividends, advance loans, and engage in other actions. The credit
facility also requires the Company to maintain certain financial ratios as
follows:
|
·
|
A
minimum net worth in the amount of not less than the sum of $40.0 million
plus 50% of consolidated net income earned in each fiscal quarter ended
after December 31, 2006 plus adjustments for certain equity
transactions;
|
|
·
|
A
minimum fixed charge coverage ratio of not less than 1.30 to 1.0 as of
each fiscal quarter end; and
|
|
·
|
A
total leverage ratio not greater than 3.0 to 1.0 as of each fiscal quarter
end.
|
At
December 31, 2009, the Company was in compliance with all its financial
covenants with a sufficient margin as to not impair its ability to incur
additional debt or violate the terms of its credit
facility. Historically, the Company has not relied on debt financing
to fund its operations or working capital.
The
Company is in negotiations to renew its credit facility prior to the September
30, 2010 expiration.
14. Stockholders’
Equity
Common
Stock
Prior to
May 2007, the Company had a capital structure consisting of Class A and Class B
Common stock. The Class A stock was entitled to receive
cumulative dividends at the annual rate of 6 percent of the original issue
price. On May 17, 2007, the Company converted all Class A stock into preferred,
redeemed all Class A stock and paid all outstanding dividends totaling $5.4
million. Upon redemption the preferred stock was
retired. The Class B common stock was converted into common stock and
was subject to a 1 for 2.23 exchange of outstanding shares. Common
stockholders are entitled to vote and to receive dividends if
declared.
In August
2009, pursuant to a shelf registration statement on Form S-3, the Company
completed a public offering of 4,830,000 shares of its common stock at $19.70
per share. The Company received proceeds, net of underwriting
commissions, of $91.3 million ($18.91 per share), and paid approximately
$524,000 in related offering expenses.
15. Stock-Based
Compensation
The
Compensation Committee of the Company’s Board of Directors is responsible for
the administration of the Company’s two stock incentive plans (the “LTIP” and
the “2005 Plan”). In general, the plans provide for grants of
restricted stock and stock options to be issued with a per-share price equal to
the fair market value of a share of common stock on the date of
grant. Option terms are specified at each grant date, but generally
are 10 years. Options generally vest over a three to five year
period. Total shares of common stock that may be delivered under the
LTIP and the 2005 Plan may not exceed 2,943,946.
Restricted
Stock
The
following table summarizes the restricted stock activity under the 2005 Plan and
LTIP:
|
Number
of
Shares
|
Weighted
Average
Fair
Value
Per Share
|
|||||||
|
Nonvested
at December 31, 2006…………………
|
604,708 | $ | 0.02 | |||||
|
Granted……………………………………………..
|
26,426 | $ | 13.50 | |||||
|
Vested………………………………………………
|
(520,142 | ) | $ | 0.71 | ||||
|
Forfeited/repurchased
shares………………………..
|
(8,969 | ) | $ | 0.02 | ||||
|
Nonvested
at December 31, 2007…………………..
|
102,023 | $ | 0.02 | |||||
|
Granted……………………………………………...
|
12,042 | $ | 8.72 | |||||
|
Vested……………………………………………….
|
(38,132 | ) | $ | 0.02 | ||||
|
Forfeited/repurchased
shares………………………..
|
(11,646 | ) | $ | 0.02 | ||||
|
Nonvested
at December 31, 2008…………………..
|
64,287 | $ | 1.65 | |||||
|
Granted……………………………………………...
|
62,189 | $ | 19.01 | |||||
|
Vested……………………………………………….
|
(36,771 | ) | $ | 0.02 | ||||
|
Forfeited/repurchased
shares………………………..
|
-- | -- | ||||||
|
Nonvested
at December 31, 2009
|
89,705 | $ | 14.36 | |||||
In May
2007, 26,426 shares of fully vested stock were granted to certain employees of
the Company upon completion of the Transaction. Compensation related
to this grant of fully vested shares in May 2007 totaled approximately
$357,000.
As part
of their 2008 and 2009 compensation packages, the independent directors each
received an equity award of either restricted stock or options with a fair value
on the date of grant of $35,000. In December 2008, and in June 2009,
three directors elected to receive stock, which is restricted from sale in total
for a period of three years from the date of grant. One director
elected to receive options, which is also restricted from exercise for a period
of three years and is included in the discussion of stock options
below. Compensation related to the grants of restricted stock totaled
$105,000 in each of 2009 and 2008 and is expensed ratably over the three-year
vesting period.
Changes
to the independent director compensation plan, approved in November 2009,
resulted in equity compensation granted to each of the independent directors
with a fair value of $60,000, with vesting in six months from the date of
grant. Also in November 2009, the Compensation Committee of the Board
of Directors approved grants of stock to its named executive officers, with
vesting over a three year period.
Stock
Options
The
following table summarizes the stock option activity under the 2005 Plan and
LTIP:
|
Number
of
Shares
|
Weighted
Average
Exercise
Price
Per Share
|
Weighted
Average
Contractual
Life
(Years)
|
Aggregate
Intrinsic
Value
|
|||||||
|
Outstanding
at December 31, 2006………………….
|
443,959 | $ | 1.96 | |||||||
|
Granted……………………………………………....
|
579,261 | $ | 13.79 | |||||||
|
Exercised…………………………………………….
|
(22,422 | ) | $ | 1.96 | ||||||
|
Forfeited……………………………………………...
|
(98,654 | ) | $ | 3.00 | ||||||
|
Outstanding
at December 31, 2007………………….
|
902,144 | |||||||||
|
Granted……………………………………………....
|
451,749 | $ | 6.48 | |||||||
|
Exercised…………………………………………….
|
-- | -- | ||||||||
|
Forfeited…………………………………………...
|
(25,553 | ) | $ | 13.65 | ||||||
|
Outstanding
at December 31, 2008………………….
|
1,328,340 | $ | 8.35 | |||||||
|
Granted……………………………………………....
|
262,934 | $ | 19.19 | |||||||
|
Exercised…………………………………………….
|
(382,852 | ) | $ | 5.06 | ||||||
|
Forfeited…………………………………………...
|
(22,102 | ) | $ | 11.27 | ||||||
|
Outstanding
at December 31, 2009………………….
|
1,186,320 | $ | 11.76 | |||||||
|
Vested
at December 31, 2009 and expected to vest....
|
1,130,085 | $ | 11.76 |
8.47
|
$10,508
|
|||||
|
Exercisable
at December 31, 2009…………………..
|
521,279 | $ | 10.91 |
7.88
|
$5,292
|
|||||
As part
of the Transaction in May 2007, 89,686 options were forfeited, 22,422 were
exercised and vesting was accelerated on 165,078 options, for additional
compensation costs of $140,000.
The
Company calculates the fair value of each option on the date of grant using the
Black-Scholes pricing model and the following weighted-average assumptions in
each year:
|
2009
|
2008
|
2007
|
||||||||||
|
Weighted
average grant-date fair value of options granted
|
$ | 8.57 | $ | 2.52 | $ | 5.35 | ||||||
|
Risk-free
interest rate
|
1.3 | % | 2.9 | % | 4.3 | % | ||||||
|
Expected
volatility
|
66.5 | % | 37 | % | 31 | % | ||||||
|
Expected
term of options (in years)
|
3.0 | 6.0 | 6.0 | |||||||||
|
Dividend
yield
|
0 | % | 0 | % | 0 | % | ||||||
The
risk-free interest rate is based on interest rates on U.S. Treasury zero-coupon
issues that match the contractual terms of the stock option
grants. The expected term represents the period in which the
Company’s equity awards are expected to be outstanding, which for 2009 is based
on the exercise history.
For
2008 and 2007, the expected term was calculated using the “simplified method” as
the Company did not have sufficient information regarding historical exercise
behavior to accurately estimate the expected term. For grants made in
2009, volatility was calculated based on the Company’s historic stock
price. Volatility was calculated using an average of similar public
companies within the Company’s industry in 2008 and 2007, as the Company did not
have sufficient data to accurately estimate volatility of its common
stock. The Company does not anticipate paying dividends in the
future.
Compensation
expense related to equity award grants totaled $1.6 million, $1.1 million, and
$858,000 for the years ended December 31, 2009, 2008 and 2007,
respectively.
As of
December 31, 2009, there was $4.4 million of unrecognized compensation
cost, net of estimated forfeitures, related to the Company’s non-vested equity
awards, which is expected to be recognized over a weighted average period of
1.4 years.
|
2009
|
2008
|
2007
|
||||||||||
|
Total
intrinsic value of options exercised
|
$ | 5,042 | $ | ---- | $ | 258 | ||||||
|
Total
fair value of shares vested
|
$ | 6,367 | $ | 1,282 | $ | 4,007 | ||||||
16. Income
Taxes
The
following table presents the components of our consolidated income tax expense
for each fiscal year ended December 31:
|
|
Current
|
Deferred
|
Total
|
|||||||||
|
2009
|
||||||||||||
|
U.S. Federal
|
$ | 11,484 | $ | (392 | ) | $ | 11,092 | |||||
|
State
and local
|
1,063 | (621 | ) | 442 | ||||||||
| $ | 12,547 | $ | (1,013 | ) | $ | 11,534 | ||||||
|
2008
|
||||||||||||
|
U.S. Federal
|
$ | 9,090 | $ | (2,403 | ) | $ | 6,687 | |||||
|
State
and local
|
602 | (7 | ) | 595 | ||||||||
| $ | 9,692 | $ | (2,410 | ) | $ | 7,282 | ||||||
|
2007
|
||||||||||||
|
U.S. Federal
|
$ | 11,577 | $ | (1,392 | ) | $ | 10,185 | |||||
|
State
and local
|
599 | (606 | ) | (7 | ) | |||||||
| $ | 12,176 | $ | (1,998 | ) | $ | 10,178 | ||||||
The
Company’s income tax provision reconciles to the provision at the statutory
U.S. federal income tax rate for each year ended December 31 as
follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Statutory
amount (computed at 35%)………..
|
$ | 11,048 | $ | 7,615 | $ | 9,652 | ||||||
|
State
income tax, net of federal benefit……...
|
290 | 385 | (5 | ) | ||||||||
|
Permanent
differences……………………….
|
5 | (86 | ) | (101 | ) | |||||||
|
Other
(net)…………………………………...
|
191 | (632 | ) | 632 | ||||||||
|
Consolidated
income tax provision………….
|
$ | 11,534 | $ | 7,282 | $ | 10,178 | ||||||
|
Consolidated
effective tax rate………………
|
36.5 | % | 33.5 | % | 36.9 | % | ||||||
The
Company’s deferred tax (assets) liabilities are as follows:
|
December
31, 2009
|
December
31, 2008
|
|||||||||||||||
|
Current
|
Long-
term
|
Current
|
Long-
term
|
|||||||||||||
|
Assets
related to:
|
||||||||||||||||
|
Accrued
liabilities………………………………………
|
$ | 837 | $ | -- | $ | 738 | $ | -- | ||||||||
|
Intangible
assets…………………………………………
|
2,814 | 1,771 | ||||||||||||||
|
Allowance
for bad debt………………………………….
|
421 | 280 | ||||||||||||||
|
Non-qualified
stock options…………………………….
|
72 | 32 | ||||||||||||||
|
Other…………………………………………………….
|
241 | 731 | 301 | 21 | ||||||||||||
|
Total
assets………………………………………………
|
1,499 | 3,617 | 1,319 | 1,824 | ||||||||||||
|
Liabilities
related to:
|
||||||||||||||||
|
Depreciation
and amortization…………………………..
|
(15,003 | ) | (14,098 | ) | ||||||||||||
|
Other…………………………………………………….
|
-- | (67 | ) | -- | (12 | ) | ||||||||||
|
Total
liabilities…………………………………………..
|
-- | (15,070 | ) | -- | (14,110 | ) | ||||||||||
|
Net
deferred assets (liabilities)…………………………..
|
$ | 1,499 | $ | (11,453 | ) | $ | 1,319 | $ | (12,286 | ) | ||||||
As
reported in the balance sheet:
|
|
December
31,
2009
|
December 31,
2008
|
||||||
|
As
reported in the balance sheet:
|
||||||||
|
Net
current deferred tax assets
|
1,499 | 1,319 | ||||||
|
Net
non-current deferred tax liabilities
|
(11,453 | ) | (12,286 | ) | ||||
|
Total
net deferred tax liabilities:
|
$ | (9,554 | ) | $ | (10,967 | ) | ||
In
assessing the realizability of deferred tax assets at December 31, 2009, the
Company considered whether it was more likely than not that some portion or all
of the deferred tax assets will not be realized. The realization of deferred tax
assets depends upon the generation of future taxable income during the periods
in which these temporary differences become deductible. As of December 31, 2009,
the Company believes that all of the deferred tax assets will be utilized and
therefore has not recorded a valuation allowance.
Although
the Company believes its recorded assets and liabilities are reasonable, tax
regulations are subject to interpretation and tax litigation is inherently
uncertain; therefore the Company’s assessments can involve both a series of
complex judgments about future events and rely heavily on estimates and
assumptions. Although the Company believes that the estimates and assumptions
supporting its assessments are reasonable, the final determination of tax audit
settlements and any related litigation could be materially different from that
which is reflected in historical income tax provisions and recorded assets and
liabilities. If the Company were to settle an audit or a matter under
litigation, it could have a material effect on the income tax provision, net
income, or cash flows in the period or periods for which that determination is
made. Any accruals for tax contingencies are provided for in accordance with US
GAAP
.
The
Company believes that it has no uncertain tax positions. The Company does not
believe that its tax positions will significantly change due to the settlement
and expiration of statutes of limitations prior to December 31,
2010.
The
Company and its subsidiaries file income tax returns in the United States
federal jurisdiction and in various states. With few exceptions, the Company
remains subject to federal and state income tax examinations for the years of
2006, 2007, 2008 and 2009. The Company’s policy is to recognize interest and
penalties related to any unrecognized tax liabilities as additional tax expense.
No interest or penalties have been accrued at December 31, 2009 and 2008, as the
Company has not recorded any uncertain tax positions. The Company believes it
has appropriate and adequate support for the income tax positions taken and to
be taken on its tax returns and that its accruals for tax liabilities are
adequate for all open years based on an assessment of many factors including
past experience and interpretations of tax law applied to the facts of each
matter.
17. Earnings
Per Share
On
January 1, 2009, the Company adopted changes issued by the FASB to the
calculation of earnings per share. These changes state that unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method for all periods presented. Under our stock-based compensation
programs, certain employees are granted stock and performance awards, which
entitle those employees to receive nonforfeitable dividends during the vesting
period on a basis equivalent to any dividends paid to holders of the Company’s
common stock. As such, these unvested stock and performance awards meet the
definition of a participating security. Under the two-class method, all
earnings, whether distributed or undistributed, are allocated to each class of
common stock and participating securities based on their respective rights to
receive dividends. Prior to the adoption of these changes, stock and performance
awards were considered potential shares of common stock and were included only
in the diluted EPS calculation under the treasury stock method as long as their
effect was not anti-dilutive. Weighted average shares outstanding data for prior
periods presented were revised to reflect these changes, which did not affect
earnings per share in any period presented.
Basic
earnings per share are based on the weighted average number of common shares
outstanding during each period. Diluted earnings per share are based on the
weighted average number of common shares outstanding and the effect of all
dilutive common stock equivalents during each period. In April 2007, the Company
authorized a 2.23 for one reverse split of the then Class B common shares,
which became effective upon the closing of the Transaction at which time the
Company’s certificate of incorporation was modified such that Class A shares
were converted into preferred and Class B shares were converted into common
shares. Computations of basic and diluted earnings per share have been adjusted
retroactively for all periods presented to reflect the common stock
split. At December 31, 2009, 2008 and 2007, 262,934, 996,489 and
570,293 common stock equivalents, respectively, were not included in the diluted
earnings per share calculation, as the effect of these shares would have been
anti-dilutive.
In May
2007, all outstanding preferred (Class A) dividends were paid in full and these
shares were redeemed and retired.
The
following table reconciles the numerators and denominators used in the
computations of both basic and diluted EPS for each fiscal year ended December
31:
|
2009
|
2008
|
2007
|
|||||||||||
|
Basic
EPS computation:
|
|||||||||||||
|
Numerator:
|
|||||||||||||
|
Net
income…………………………………………...
|
$ | 20,030 | $ | 14,475 | $ | 17,399 | |||||||
|
Preferred
dividends…………………………………..
|
-- | -- | 782 | ||||||||||
|
Earnings
available to common stockholders………
|
$ | 20,030 | $ | 14,475 | $ | 16,617 | |||||||
|
Denominator:
|
|||||||||||||
|
Basic
weighted average shares outstanding,…………
|
23,577,854 | 21,561,201 | 19,657,436 | ||||||||||
|
Basic
earnings per share…………………………...........
|
$ | 0.85 | $ | 0.67 | $ | 0.85 | |||||||
|
Diluted
EPS computation:
|
|||||||||||||
|
Total
basic weighted average shares outstanding……
|
23,577,854 | 21,561,201 | 19,657,436 | ||||||||||
|
Effect
of dilutive securities:
|
|||||||||||||
|
Common
stock options……………………………
|
402,088 | 418,334 | 319,247 | ||||||||||
|
Total
weighted average shares outstanding assuming dilution
|
23,979,943 | 21,979,535 | 19,976,683 | ||||||||||
|
Diluted
earnings per share……………………………...
|
$ | 0.84 | $ | 0.83 | $ | 0.83 | |||||||
|
(1)
|
Upon
any liquidation of the Company, holders of preferred shares would have
received a liquidation preference of $1,000 per share, plus 6% cumulative
dividends per year. Holders were not entitled to additional payment or
distribution of the earnings, assets or surplus funds of the Company upon
liquidation. The shares were converted into preferred stock, redeemed
and retired in May 2007. See Note 19.
|
||||||||||||
18. Enterprise
Wide Disclosures
The
Company is a heavy civil contractor specializing in marine
construction. The Company operates as a single segment, as each
project has similar characteristics, includes similar services, has similar
types of customers and is subject to the same regulatory
environment. The Company organizes and evaluates its financial
information around each project when making operating decisions and assessing
its overall performance.
The
Company’s primary customers are governmental agencies in the United
States. The following table represents concentrations of revenue by
type of customer for the years ended December 31, 2009, 2008, and
2007.
|
2009
|
%
|
2008
|
%
|
2007
|
%
|
|||||||||||||||||||
|
Federal……..
|
$ | 54,173 | 19 | % | $ | 29,134 | 11 | % | $ | 37,528 | 18 | % | ||||||||||||
|
State………..
|
24,835 | 8 | % | 37,340 | 14 | % | 13,489 | 6 | % | |||||||||||||||
|
Local……….
|
82,933 | 28 | % | 64,713 | 25 | % | 69,235 | 33 | % | |||||||||||||||
|
Private………
|
131,553 | 45 | % | 130,615 | 50 | % | 90,108 | 43 | % | |||||||||||||||
| $ | 293,494 | 100 | % | $ | 261,802 | 100 | % | $ | 210,360 | 100 | % | |||||||||||||
Revenues
generated outside the United States totaled 14%, 7.0%, and 4.0% of total
revenues for the years ended 2009, 2008 and 2007,
respectively. Revenue generated outside the United States in 2009 was
primarily related to construction of a cruise pier and facilities in
Haiti.
The
Company’s long-lived assets are substantially located in the United
States.
Significant
customers
The
following customers accounted for 10% or more of contract revenues for the years
ended December 31, 2009, 2008 and 2007:
|
2009
|
2008
|
2007
|
||||||||||
|
Customer
A
|
N/A | N/A | 13 | % | ||||||||
|
Customer
B
|
16 | % | N/A | 12 | % | |||||||
|
Customer
C
|
N/A | 10 | % | N/A | ||||||||
19. Employee
Benefits
All
employees except the Associate Divers and Associate Tugmasters are eligible to
participate in the Company’s 401(k) Retirement Plan after completing six months
of service. Each participant may contribute between 1% and 80% of eligible
compensation on a pretax basis, up to the annual IRS limit. The Company matches
100% on the first 2% of eligible compensation contributed to the Plan and 50% on
the next 2% of eligible compensation contributed to the Plan. Participants’
contributions are fully vested at all times. Employer matching contributions
vest over a four-year period. At its discretion, the Company may make additional
matching and profit-sharing contributions. During the years ended December 31,
2009, 2008 and 2007, the Company contributed $1.0 million, $0.9 million, and
$0.8 million, to the plan.
20 Commitments
and Contingencies
Operating
Leases
In July
2005, the Company executed a sale-leaseback transaction in which it sold an
office building for $2.1 million and entered into a ten year lease
agreement. The Company, at its option, can extend the lease for two additional
five year terms. Scheduled increases in monthly rent are included in the lease
agreement.
The sale
of the office building resulted in a gain of $562,000 which has been deferred
and amortized over the life of the lease. The Company recognized $54,212 in each
of the years ending December 31, 2009, 2008 and 2007,
respectively. Rent expense under this agreement was $168,504,
$168,162 and $164,400 for each of the years ending December 31, 2009, 2008 and
2007, respectively.
In 2005,
the Company entered into a lease agreement for vehicles under a continuing
operating lease agreement. Rental expense under this lease for the years ended
December 31, 2009, 2008 and 2007 was $2.1 million, $1.4 million, and $951,000,
respectively.
The
Company leases its corporate office in Houston, Texas under a lease with an
initial term of nine years. In addition, the Company leases
other facilities, including office space and yard facilities, under terms that
range from one to five years. The Company also leases short-term
field office space at its various construction sites for the duration of the
projects.
Future
minimum lease payments under non-cancelable operating leases as of December 31,
2009 are as follows:
|
Amount
|
||||||
|
Year ended December 31,
|
||||||
| 2010………………………………………… | $ | 2,981 | ||||
| 2011………………………………………… | 2,229 | |||||
| 2012………………………………………… | 1,248 | |||||
| 2013………………………………………… | 669 | |||||
| 2014………………………………………… | 512 | |||||
|
Thereafter…………………………………...
|
514 | |||||
| $ | 8,153 | |||||
Litigation
From time
to time the Company is a party to various lawsuits, claims and other legal
proceedings that arise in the ordinary course of business. These
actions typically seek, among other things, compensation for alleged personal
injury, breach of contract, property damage, punitive damages, civil penalties
or other losses, or injunctive or declaratory relief. With respect to
such lawsuits, the Company accrues reserves when it is probable a liability has
been incurred and the amount of loss can be reasonably estimated. The
Company does not believe any of these proceedings, individually or in the
aggregate, would be expected to have a material adverse effect on results of
operations, cash flows or financial condition.
The
Company was named as one of a substantial number of defendants in numerous
individual claims and lawsuits brought by the residents and landowners of New
Orleans, Louisiana and surrounding areas in the United States District Court for
the Eastern District of Louisiana. These suits have been classified as a
subcategory of suits under the more expansive proceeding,
In re Canal Breaches Consolidation
Litigation,
Civil Action No: 05-4182, (E.D. La,), which was instituted in
late 2005. While not technically class actions, the individual claims and
lawsuits are being prosecuted in a manner similar to that employed for federal
class actions. The claims are based on flooding and related damage from
Hurricane Katrina. In general, the claimants state that the flooding and related
damage resulted from the failure of certain aspects of the levee system
constructed by the Corps of Engineers, and the claimants seek recovery of
alleged general and special damages. The Corps of Engineers has contracted with
various private dredging companies, including us, to perform maintenance
dredging of the waterways. In accordance with a decision
(In re Canal Breaches Consolidation
Litigation,
Civil Action No: 05-4182,
"Order and Reasons,"
March 9,
2007 (E.D. La, 2007)), we believe that we have no liability under these claims
unless we deviated from our contracted scope of work on a project. In June of
2007, however, the plaintiffs filed two separate appeals of this decision to the
United States Court of Appeals for the Fifth Circuit, where on November 25, 2009
a portion of the decision of the trial court was affirmed. The other
portion, for claims in Limitation Actions, remains pending.
21. Subsidiary
Guarantors
The
Company filed a registration statement on Form S−3 which became effective August
7, 2009, and registered certain securities described therein, including debt
securities, which may be guaranteed by certain of the Company’s
subsidiaries and are to be offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933. Orion Marine Group, Inc., as the
parent company, has no independent assets or operations. The Company
contemplates that if it offers guaranteed debt securities pursuant to the
registration statement, all guarantees will be full and unconditional and joint
and several, and any subsidiaries of the Company other than the subsidiary
guarantors will be minor. In addition, there are no restrictions on the ability
of Orion Marine Group, Inc. to obtain funds from its subsidiaries by dividend or
loan. Finally, there are no restricted assets in any subsidiaries.
22. Subsequent
events
On
January 28, 2010, Seagull Services, LLC, a wholly-owned subsidiary of the
Company purchased (a) the membership interests of T.W. LaQuay Dredging, LLC
(“
TWLD
”), a Texas
limited liability company, from LaQuay Holdings, Inc. (the “
Seller
”), (b) all of the
issued and outstanding capital stock of Industrial Channel and Dock, Company, a
Texas Corporation, and Commercial Channel and Dock Company, a Texas Corporation
(collectively, the “
Channel
and Dock Companies
”), from Timothy W. LaQuay and Linda F. LaQuay (the
principal shareholders of the Seller, the “
Principal Shareholders
”), and
(c) certain parcels of real property located in Calhoun County, Port Lavaca,
Texas from the Principal Shareholders (collectively, the “
Purchase
Transaction
s”). At the closing, the Company entered into a
consulting agreement with Timothy and Linda LaQuay and with Charles F. Barnett
for a term of one year from the Closing Date.
Upon the
terms of and subject to the conditions set forth in the Purchase Agreement, the
total aggregate consideration paid by the Company to the Seller and the
Principal Shareholders consisted of the following:
|
·
|
Cash
consideration of $55.5 million, paid to the Seller for the membership
interests of T.W. LaQuay Dredging;
|
|
·
|
Cash
consideration of $4.5 million, paid to the Principal Shareholders for the
Channel and Dock Companies and the above mentioned parcels of land;
and
|
|
·
|
Up
to an additional $4.0 million (to be held in escrow) payable to Seller as
a result of an increase in the purchase price of the membership interests
by the amount of any additional taxes incurred by the Seller arising from
the allocation of the membership interests purchase price, as further
described in Section 1060 of the U.S. Internal Revenue Code, as
amended.
|
The
Purchase Agreement contains customary representations, warranties, covenants and
indemnities, including certain post-closing covenants with respect to
confidentiality and non-competition.
The
following table summarizes the preliminary allocation of the purchase
price:
Fair
value of working capital
items
$ 4,007
Property
and
equipment
$48,594
Goodwill
$11,399
Total
$64,000
The
purchase price has been allocated to the assets acquired and the liabilities
assumed using estimated fair values as of the acquisition date. The
estimates and assumptions are subject to change upon the finalization of
valuations, which are contingent upon final appraisals of property and
equipment, identifiable intangible assets, and other adjustments through January
28, 2010. Revisions to the preliminary purchase price allocation
could result in significant deviations from the preliminary
allocation.
The
following unaudited pro forma condensed combined financial information presents
how results of operations may have appeared had the acquisition occurred on
January 1, 2008:
|
2009
|
2008
|
|||||||
|
Revenues
|
$ | 334,271 | $ | 284,190 | ||||
|
Income
before taxes
|
39,206 | 22,851 | ||||||
|
Net
income
|
$ | 24,879 | $ | 15,203 | ||||
|
Diluted
net income per share available to common stockholders
|
$ | 1.04 | $ | 0.69 | ||||
On
February 11, 2010, the Company purchased several heavy civil marine construction
equipment items including derrick barges, cranes, hammers and ancillary
equipment from a private company exiting the marine construction business, for a
purchase price of approximately $7.0 million. The Company intends to
establish a base to serve the Pacific Northwest and West Coast, through the
lease of yard and office space in Tacoma, Washington. The
Company is currently determining the fair value of the assets
acquired.
EXHIBIT INDEX
|
Exhibit
|
||||||
|
Number
|
Description
|
|||||
| 1 | .01 |
Form
of Indemnity Agreement for Directors and Certain Officers dated November
24, 2008 (filed as Exhibit 1.01 to Form 8-K filed on November 25,
2008)
|
||||
| 2 | .1 |
Asset
Purchase Agreement dated February 28, 2008, by and between OMGI Sub, LLC
and Orion Marine Group, Inc. and Subaqueous Services, Inc. and Lance Young
(filed as an exhibit to the Company’s Current Report on Form 8-K on March
4, 2008)
|
||||
| 2 | .2 |
Purchase
Agreement dated January 28, 2010 by and among LaQuay Holdings., Inc and
Seagull Services Inc. (filed as Exhibit 2.1 to the Company’s Current
Report on Form 8-K on February 2, 2010)
|
||||
| 3 | .1 |
Amended
and Restated Certificate of Incorporation of Orion Marine Group,
Inc.
|
||||
| 3 | .2 |
Amended
and Restated Bylaws of Orion Marine Group, Inc.
|
||||
| 4 | .1 |
Registration
Rights Agreement between Friedman, Billings, Ramsey & Co., Inc. and
Orion Marine Group, Inc. dated May 17, 2007
|
||||
| 10 | .1 |
Loan
Agreement, dated as of July 10, 2007, between Orion Marine Group, Inc. and
Amegy Bank National Association
|
||||
| ** | 10 | .1.1 |
First
Amendment to Loan Agreement dated February 29, 2008, among Orion Marine
Group, Inc., and Amegy Bank National Association, a national banking
association, as agent
|
|||
| 10 | .2 |
Purchase/Placement
Agreement dated May 9, 2007 between Orion Marine Group, Inc. and Friedman,
Billings, Ramsey & Co., Inc.
|
||||
| 10 | .3 |
Amended
& Restated Redemption Agreement dated May 7, 2007
|
||||
| + | 10 | .8 |
2005
Stock Incentive Plan
|
|||
| + | 10 | .9 |
Form
of Stock Option Agreement Under the 2005 Stock Incentive Plan & Notice
of Grant of Stock Option
|
|||
| + | 10 | .10 |
Form
of Restricted Stock Agreement Under the 2005 Stock Incentive Plan &
Notice of Grant of Restricted Stock
|
|||
| + | 10 | .11 |
Orion
Marine Group, Inc. Long Term Incentive Plan
|
|||
| + | 10 | .12 |
Form
of Stock Option Agreement Under the 2007 Long Term Incentive
Plan
|
|||
| + | 10 | .13 |
Form
of Restricted Stock Agreement and Notice of Grant of Restricted
Stock
|
|||
| + | 10 | .14 |
Executive
Incentive Plan (filed as an exhibit to the Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2008)
|
|||
| + | 10 | .15 |
Subsidiary
Incentive Plan (filed as an exhibit to the Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2008)
|
|||
| + | 10 | .16 |
Employment
Agreement, dated as of December 4, 2009, by and between Orion Marine
Group, Inc. and J. Michael Pearson
|
|||
| + | 10 | .17 |
Employment
Agreement, dated as of December 4, 2009, by and between Orion Marine
Group, Inc. and Mark Stauffer
|
|||
| + | 10 | .18 |
Employment
Agreement , dated as of December 11, 2009, by and between Orion Marine
Group, Inc. and Elliott Kennedy
|
|||
| + | 10 | .19 |
Employment
Agreement, dated as of December 11, 2009, by and between Orion Marine
Group, Inc. and Jim Rose
|
|||
| + | 10 | .20 |
Employment
Agreement, dated as of December 11, 2009, by and between Orion Marine
Group, Inc. and Peter R. Buchler
|
|||
| + | 10 | .23 |
Schedule
of Changes to Compensation of Non-employee Directors, effective for 2008
(filed as an exhibit to the Quarterly Report on Form 1-Q for the quarterly
period ended June 30, 2008)
|
|||
| * | 21 | .1 |
List
of Subsidiaries
|
|||
| * | 23 | .1 |
Consent
of Independent RegisteredPublic Accounting Firm
|
|||
| * | 23 | .2 |
Consent
of Garland Sandhop, CPA
|
|||
| 24 | .1 |
Power
of Attorney (included on signature page of this filing)
|
||||
| * | 31 | .1 |
Certification
of CEO pursuant to Section 302
|
|||
| * | 31 | .2 |
Certification
of CFO pursuant to Section 302
|
|||
| * | 32 | .1 |
Certification
of CEO and CFO pursuant to Section 906
|
|||
| * | 99 | .1 |
Audited
financial statements of T.W. LaQuay Dredging, LLC as of December 31,
2008
|
|||
| * | 99 | .2 |
Unaudited
financial statements of T.W. LaQuay Dredging, LLC as of September 30,
2009
|
|||
| * | 99 | .3 |
Unaudited
pro forma condensed combined balance sheet as of September 30, 2009 and
statements of income for the year ended December 31, 2008 and nine months
ended September 30, 2009 of Orion Marine Group, Inc. and T.W. LaQuay
Dredging, LLC
|
|||
|
*
|
Filed
herewith
|
|
|
**
|
Incorporated
by reference to the Company’s report on Form 8K filed with the SEC on
March 4, 2008
|
|
|
+
|
Management
contract or compensatory plan or arrangement
|
|
|
(b)
|
Financial
Statement Schedules
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and
Shareholders
of Orion Marine Group, Inc.
We have
audited in accordance with the standards of the Public Company Accounting
Oversight Board (United States) the consolidated financial statements of Orion
Marine Group, Inc. and subsidiaries referred to in our report dated March 9,
2010, which is included in the annual report to security holders and
incorporated by reference in Part II of this form.
Our audits of the basic
financial statements included the financial statement schedule listed in the
index appearing under Item 15 (2), which is the responsibility of the Company’s
management. In our opinion, this financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
Grant
Thornton LLP
Houston,
Texas
March 9,
2010
ORION
MARINE GROUP, INC.
SCHEDULE
II – VALUATION AND QUALIFYING ACCOUNTS
(Dollars
in thousands)
|
Description
|
Balance
at the
Beginning
of
the Period
|
Charged
to
Revenue,
Cost
or Expense
|
Deduction
|
Balance
at the
End
of
the Period
|
||||||||||||
|
Year
ended December 31, 2007:
|
||||||||||||||||
|
Provision
for Doubtful Accounts
|
$ | 500 | $ | -- | $ | -- | $ | 500 | ||||||||
|
Year
ended December 31, 2008:
|
||||||||||||||||
|
Provision
for Doubtful Accounts
|
$ | 500 | $ | 800 | $ | (500 | ) | $ | 800 | |||||||
|
Year
ended December 31, 2009:
|
||||||||||||||||
|
Provision
for Doubtful Accounts
|
$ | 800 | $ | 442 | $ | -- | $ | 1,202 | ||||||||
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. ReservedPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedules