UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
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[√]
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the quarterly period ended March 31,
2009
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OR
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[ ]
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from ________
to_________
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Commission
file number:
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333-145588
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ORION
MARINE GROUP, INC.
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(Exact
name of registrant as specified in its
charter)
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DELAWARE
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26-0097459
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(State
or other jurisdiction of
Incorporation
or organization)
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(I.R.S.
Employer
Identification
Number)
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12550
Fuqua
Houston,
Texas
(Address
of principal executive offices)
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77034
(Zip
Code)
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(713)
852-6500
(Registrant’s
telephone number, including area
code)
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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 is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of “Large Accelerated Filer,” “Accelerated
Filer,” and “Smaller Reporting Company” 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 Exchange Act). 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 [ ]
As of May 1, 2009, 21,565,720 shares of the Registrant’s common stock, $0.01 par value were outstanding.
As of May 1, 2009, 21,565,720 shares of the Registrant’s common stock, $0.01 par value were outstanding.
ORION
MARINE GROUP, INC.
Quarterly
Report on Form 10-Q for the period ended March 31, 2009
--2--
Orion
Marine Group, Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets
(Unaudited)
(In
Thousands, Except Share and Per Share Information)
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March
31,
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December
31,
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|||||||
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2009
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2008
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|||||||
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ASSETS
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||||||||
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Current
assets:
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||||||||
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Cash
and cash equivalents
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$ | 41,645 | $ | 25,712 | ||||
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Accounts
receivable:
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||||||||
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Trade,
net of allowance of $800 and $800, respectively
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26,303 | 37,806 | ||||||
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Retainage
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6,726 | 5,719 | ||||||
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Other
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1,490 | 691 | ||||||
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Income
taxes receivable
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1,500 | 4,017 | ||||||
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Inventory
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1,140 | 738 | ||||||
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Deferred
tax asset
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1,459 | 1,319 | ||||||
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Costs
and estimated earnings in excess of billings on
uncompleted
contracts
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7,822 | 7,228 | ||||||
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Prepaid
expenses and other
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2,062 | 3,207 | ||||||
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Total
current assets
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90,147 | 86,437 | ||||||
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Property
and equipment, net
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82,537 | 84,154 | ||||||
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Goodwill
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12,096 | 12,096 | ||||||
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Intangible
assets, net of accumulated amortization
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2,352 | 3,556 | ||||||
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Other
assets
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79 | 79 | ||||||
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Total
assets
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$ | 187,211 | $ | 186,322 | ||||
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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||||||||
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Current
liabilities:
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Current
portion of long-term debt
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$ | 5,909 | $ | 5,909 | ||||
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Accounts
payable:
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Trade
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11,958 | 13,276 | ||||||
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Retainage
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472 | 389 | ||||||
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Accrued
liabilities
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8,563 | 8,176 | ||||||
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Billings
in excess of costs and estimated earnings on uncompleted
contracts
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9,815 | 11,666 | ||||||
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Total
current liabilities
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36,717 | 39,416 | ||||||
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Long-term
debt, less current portion
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27,341 | 28,216 | ||||||
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Other
long-term liabilities
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471 | 422 | ||||||
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Deferred
income taxes
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12,021 | 12,286 | ||||||
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Deferred
revenue
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357 | 371 | ||||||
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Total
liabilities
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76,907 | 80,711 | ||||||
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Commitments
and contingencies
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||||||||
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Stockholders’
equity:
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||||||||
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Common
stock -- $0.01 par value, 50,000,000 authorized,
21,577,366
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||||||||
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issued;
21,565,720 outstanding
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216 | 216 | ||||||
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Treasury
stock, 11,646 and 0 shares, at cost
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-- | |||||||
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Additional
paid-in capital
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55,739 | 55,388 | ||||||
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Retained
earnings
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54,349 | 50,007 | ||||||
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Total
stockholders’ equity
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110,304 | 105,611 | ||||||
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Total
liabilities and stockholders’ equity
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$ | 187,211 | $ | 186,322 | ||||
See notes
to unaudited condensed consolidated financial statements
Orion
Marine Group, Inc. and Subsidiaries
Condensed
Consolidated Statements of Income
(Unaudited)
(In
Thousands, Except Share and Per Share Information)
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March
31,
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March
31,
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|||||||
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2009
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2008
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Contract
revenues
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$ | 70,040 | $ | 52,591 | ||||
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Costs
of contract revenues
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55,766 | 42,519 | ||||||
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Gross
profit
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14,274 | 10,072 | ||||||
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Selling,
general and administrative expenses
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7,199 | 5,827 | ||||||
| 7,075 | 4,245 | |||||||
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Interest
(income) expense
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||||||||
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Interest
income
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(103 | ) | (149 | ) | ||||
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Interest
expense
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206 | 126 | ||||||
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Interest
(income) expense, net
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103 | (23 | ) | |||||
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Income
before income taxes
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6,972 | 4,268 | ||||||
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Income
tax expense
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2,630 | 1,422 | ||||||
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Net
income
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$ | 4,342 | $ | 2,846 | ||||
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Basic
earnings per share
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$ | 0.20 | $ | 0.13 | ||||
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Diluted
earnings per share
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$ | 0.20 | $ | 0.13 | ||||
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Shares
used to compute earnings per share
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Basic
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21,565,720 | 21,565,324 | ||||||
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Diluted
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21,900,164 | 21,845,358 | ||||||
See notes
to unaudited condensed consolidated financial statements
Orion
Marine Group, Inc. and Subsidiaries
Condensed
Consolidated Statement of Stockholders’ Equity
(Unaudited)
(In
Thousands, Except Share Information)
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Common
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Treasury
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Additional
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||||||||||||||||||||||||||
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Stock
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Stock
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Paid-In
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Retained
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|||||||||||||||||||||||||
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Shares
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Amount
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Shares
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Amount
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Capital
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Earnings
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Total
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Balance,
January 1, 2009
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21,577,366 | $ | 216 | (11,646 | ) | $ | -- | $ | 55,388 | $ | 50,007 | $ | 105,611 | |||||||||||||||
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Stock-based
compensation
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— | — | -- | -- | 351 | — | 351 | |||||||||||||||||||||
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Net
income
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— | — | -- | -- | — | 4,342 | 4,342 | |||||||||||||||||||||
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Balance,
March 31, 2009
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21,577,366 | $ | 216 | (11,646 | ) | $ | -- | $ | 55,739 | $ | 54,349 | $ | 110,304 | |||||||||||||||
See notes
to unaudited condensed consolidated financial statements
Orion
Marine Group, Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
(In
Thousands)
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March
31,
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March
31,
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2009
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2008
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Cash
flows from operating activities
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Net
income
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$ | 4,342 | $ | 2,846 | ||||
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Adjustments
to reconcile net income to net cash provided
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by
operating activities:
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Depreciation
and amortization
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4,942 | 3,751 | ||||||
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Deferred
financing cost amortization
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63 | 59 | ||||||
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Non-cash
interest expense
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-- | 23 | ||||||
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Deferred
income taxes
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(405 | ) | (801 | ) | ||||
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Stock-based
compensation
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351 | 254 | ||||||
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Gain
on sale of property and equipment
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(60 | ) | (62 | ) | ||||
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Change
in operating assets and liabilities:
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||||||||
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Accounts
receivable
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9,697 | (2,754 | ) | |||||
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Income
tax receivable
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2,517 | -- | ||||||
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Inventory
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(402 | ) | 8 | |||||
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Prepaid
expenses and other
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1,145 | (806 | ) | |||||
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Costs
and estimated earnings in excess of billings
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on
uncompleted contracts
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(594 | ) | 4,719 | |||||
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Accounts
payable
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(1,235 | ) | (2,583 | ) | ||||
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Accrued
liabilities
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436 | 590 | ||||||
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Income
tax payable
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-- | 55 | ||||||
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Billings
in excess of costs and estimated earnings
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on
uncompleted contracts
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(1,851 | ) | 3,527 | |||||
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Deferred
revenue
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(14 | ) | (14 | ) | ||||
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Net
cash provided by operating activities
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18,932 | 8,812 | ||||||
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Cash
flows from investing activities:
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Proceeds
from sale of property and equipment
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166 | 73 | ||||||
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Purchase
of property and equipment
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(2,290 | ) | (3,985 | ) | ||||
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Acquisition
of business (net of cash acquired)
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-- | (36,698 | ) | |||||
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Net
cash used in investing activities
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(2,124 | ) | (40,610 | ) | ||||
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Cash
flows from financing activities:
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||||||||
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Increase
in loan costs
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-- | (80 | ) | |||||
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Borrowings
on long-term debt
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-- | 35,000 | ||||||
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Payments
on long-term debt
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(875 | ) | -- | |||||
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Net
cash (used in) provided by financing activities
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(875 | ) | 34,920 | |||||
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Net
change in cash and cash equivalents
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15,933 | 3,122 | ||||||
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Cash
and cash equivalents at beginning of period
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25,712 | 12,584 | ||||||
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Cash
and cash equivalents at end of period
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$ | 41,645 | $ | 15,706 | ||||
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Supplemental
disclosures of cash flow information:
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||||||||
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Cash
paid during the period for:
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||||||||
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Interest
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$ | 205 | $ | 120 | ||||
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Taxes,
net of refunds
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$ | 517 | $ | 1,961 | ||||
See notes
to unaudited condensed consolidated financial statements
Orion
Marine Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three
Months Ended March 31, 2009
(Unaudited)
(Tabular
Amounts in thousands, Except for Share and per Share Amounts)
1. Description
of Business and Basis of Presentation
Description
of Business
Orion
Marine Group, Inc., and its wholly-owned 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
Statement of Financial Accounting Standards No. 131 – Disclosures about Segments of an
Enterprise and Related Information. In making this
determination, we considered that each project has similar characteristics,
includes similar services, has similar types of customers and is subject
to similar regulatory environments. We organize, evaluate and
manage our financial information around each project when making operating
decisions and assessing our overall performance.
Basis
of Presentation
The
accompanying condensed consolidated financial statements and financial
information included herein have been prepared pursuant to the interim period
reporting requirements of Form 10-Q. Consequently, certain
information and note disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted. Readers of this report
should also read our consolidated financial statements and the notes thereto
included in our Annual Report on Form 10-K for the fiscal year ended December
31, 2008 (“2008 Form 10-K”) as well as Item 7 – Management’s Discussion and Analysis
of Financial Condition and Results of Operations also included in our
2008 Form 10-K.
In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments considered necessary for a fair and
comparable statement of the Company’s financial position, results of operations
and cash flows for the periods presented. Such adjustments are of a
normal recurring nature. Interim results of operations for the three
months ended March 31, 2009, are not necessarily indicative of the results that
may be expected for the year ending December 31, 2009.
2. Summary
of Significant Accounting Principles
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States 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 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 are more
fully described in Note 2 of the Notes to Consolidated Financial Statements in
the 2008 Form 10-K.
On an
ongoing basis, the Company evaluates the significant accounting policies used to
prepare its condensed consolidated financial statements, including, but not
limited to, those related to:
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·
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Revenue
recognition from construction
contracts;
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·
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Allowance
for doubtful accounts;
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·
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Testing
of goodwill and other long-lived assets for possible
impairment;
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·
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Income
taxes;
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·
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Self-insurance;
and
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·
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Stock
based compensation
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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. The Company follows the
guidance of American Institute of Certified Public Accountants (AICPA) Statement
of Position (SOP) 81-1, Accounting for Performance of
Construction—Type and Certain Production—Type Contracts,
for its accounting policy relating to the use of the
percentage-of-completion method, estimated costs and claim recognition for
construction contracts. 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. 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, 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 excess of
revenues recognized.
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.
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.
At March
31, 2009, 17.3% of our accounts receivable was due from one
customer. No single customer accounted for more than 10% of total
receivables at December 31, 2008. In the three months ended March 31, 2009,
three customers generated revenues in excess of 10% of total
revenues, representing 39.9% of total revenues. In the
three months ended March 31, 2008, one customer generated 15.1% of total
revenues.
Accounts
Receivable
Accounts
receivable are stated at the historical carrying value, less write-offs and
allowances for doubtful accounts. 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. As of March 31, 2009 and December 31,
2008, the Company had an allowance for doubtful accounts of
$800,000.
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 March 31, 2009 totaled $6.7
million, of which $5.4 million is expected to be collected beyond
2009. Retention at December 31, 2008 totaled $5.7
million.
Income
Taxes
The
Company records income taxes based upon Statement of Financial Accounting
Standards (“SFAS”) No. 109, Accounting for Income Taxes, 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
accounts for any uncertain tax positions in accordance with the provisions of
Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48).
Self-Insurance
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.
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 of claims incurred but
not reported. The accruals are derived from actuarial studies, known
facts, historical trends and industry averages utilizing the assistance of an
actuary to determine the best estimate of the ultimate expected
loss.
Stock-Based
Compensation
The
Company recognizes compensation expense for equity awards based on the
provisions of SFAS No. 123(R), Share-Based
Payment. Compensation expense is recognized 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.
Compensation
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.
Goodwill
and Other Intangible Assets
Goodwill
Goodwill
represents the excess of costs over the fair value of the net tangible and
intangible assets acquired. Goodwill and the cost of intangible
assets with indefinite lives are not amortized, but are instead tested annually
for possible impairment (or more frequently if events occur or circumstances
change that would more likely than not reduce the fair value of the reporting
unit below its carrying value). The Company accounts for goodwill in
accordance with SFAS 142, Goodwill and Other Intangible
Assets.
Intangible
assets
Intangible
assets that have finite lives continue to be subject to
amortization. In addition, the Company evaluates 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. As described more fully in Note 3, the Company
acquired certain intangible assets as part of the acquisition of the assets of
Subaqueous Services, Inc. in February 2008.
Recently
Issued Accounting Pronouncements
In April
2009, the Financial Accounting Standards Board (“FASB”) issued FSP FAS 107-1 and
APB 28-1, Interim Disclosures
about Fair Value of Financial Instruments, which requires the fair value
for all financial instruments within the scope of SFAS 107, Disclosures about Fair Value of
Financial Instruments (SFAS No. 107), to be disclosed in the interim
periods as well as in annual financial statements. This standard is
effective for the quarterly periods ending after June 15, 2009. We do
not believe adoption of this standard will have a material effect on our
condensed consolidated financial statements.
In April
2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identyfying Transactions That Are Not Orderly, which
clarifies the objective and method of fair value measurement even when there has
been a significant decrease in market activity for the asset being
measured. This standard is effective for the quarterly periods ending
after June 15, 2009. We do not believe adoption of this standard will
have a material effect on our condensed consolidated financial
statements.
In April
2009, the FASB issued FSP SFAS 141R-1, “Accounting for Assets Acquired
and Liabilities Assumed in a Business Combination That Arise from
Contingencies.” FSP SFAS 141R-1 amends the guidance in
SFAS 141R to require that assets acquired and liabilities assumed in a
business combination that arise from contingencies be recognized at fair value
if fair value can be reasonably estimated. If fair value of such an asset or
liability cannot be reasonably estimated, the asset or liability would generally
be recognized in accordance with SFAS 5, “Accounting for Contingencies,”
and FASB Interpretation (FIN) No. 14, “Reasonable Estimation of the Amount
of a Loss.” FSP SFAS 141R-1 removes subsequent accounting guidance for
assets and liabilities arising from contingencies from SFAS 141R and
requires entities to develop a systematic and rational basis for subsequently
measuring and accounting for assets and liabilities arising from contingencies.
FSP SFAS 141R-1 eliminates the requirement to disclose an estimate of
the range of outcomes of recognized contingencies at the acquisition date. For
unrecognized contingencies, entities are required to include only the
disclosures required by SFAS 5. FSP SFAS 141R-1 also requires
that contingent consideration arrangements of an acquiree assumed by the
acquirer in a business combination be treated as contingent consideration of the
acquirer and should be initially and subsequently measured at fair value in
accordance with SFAS 141R. FSP SFAS 141R-1 is effective for
assets or liabilities arising from contingencies the Company acquires in
business combinations occurring after January 1, 2009.
Effective
January 1, 2009, the Company adopted the Financial Accounting Standards Board's
Staff Position (FSP) on the Emerging Issues Task Force (EITF) Issue No. 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions are
Participating Securities.” The FSP required that all unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents, whether paid or unpaid, should be included in the basic Earnings
Per Share (EPS) calculation. Prior-year EPS numbers have been adjusted
retrospectively on a consistent basis with 2009 reporting. This standard
did not affect earnings per share for all periods presented.
Effective
January 1, 2009, the Company adopted the Emerging Issues Task Force EITF
No. 08-7, “Accounting for
Defensive Intangible Assets” (EITF 08-7) that clarifies accounting for
defensive intangible assets subsequent to initial measurement. EITF 08-7 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).
Under EITF 08-7, the Task Force reached a consensus that an acquired defensive
asset should be accounted for as a separate unit of accounting (i.e., an asset
separate from other assets of the acquirer); and the useful life assigned to an
acquired defensive asset should be based on the period during which the asset
would diminish in value. The adoption did not have a material impact on the
Company’s consolidated results of operations or financial
condition.
Effective
January 1, 2009, the Company adopted FASB FSP No. 142-3, “Determination of the Useful Life of
Intangible Assets” (FSP No. 142-3) that amends the factors
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142. FSP
No. 142-3 requires a consistent approach between the useful life of a
recognized intangible asset under SFAS No. 142 and the period of expected
cash flows used to measure the fair value of an asset under SFAS
No. 141(R). The FSP also requires enhanced disclosures when an intangible
asset’s expected future cash flows are affected by an entity’s intent and/or
ability to renew or extend the arrangement. The adoption did not have a material
impact on the Company’s consolidated results of operations or financial
condition.
SFAS 157. In September 2006,
the FASB issued SFAS No. 157, “Fair Value Measurements”,
which defines fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. SFAS No. 157
emphasizes that fair value is a market-based measurement, not an entity-specific
measurement. We adopted SFAS No. 157 on January 1, 2008 as it relates
to our financial assets. In February 2008, the FASB issued FASB Staff Position
No. FAS 157-2 “Effective Date
of FASB Statement No. 157”, which deferred the effective date for us to
January 1, 2009 for all nonfinancial assets and liabilities, except those that
are recognized or disclosed at fair value on a recurring
basis. Adoption of SFAS No. 157 on January 1, 2009 did not have a
material effect on our consolidated financial statements.
SFAS 141(R). In
December 2007, the FASB issued Statement No. 141(R), “Business
Combinations”. SFAS No. 141(R) improves consistency and
comparability of information about the nature and effect of a business
combination by establishing principles and requirements for how an acquirer is
to (1) recognize and measure in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the
acquiree; (2) recognize and measure the goodwill acquired in the business
combination or a gain from a bargain purchase; and (3) determine what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business
combination. SFAS141(R) applies prospectively to all business
combination transactions for which the acquisition date is on or after January
1, 2009. Adoption of SFAS 141(R) did not have any impact on the
Company’s condensed consolidated financial statements as of and for the three
months ended March 31, 2009.
3. Acquisition
of the Assets of Subaqueous Services, Inc.
In
February 2008, a wholly-owned subsidiary of the Company purchased substantially
all of the assets (with the exception of working capital) and related business
(principally consisting of project contracts) of Subaqueous Services, Inc., a
Florida corporation (“SSI”) for $35 million in
cash. Additionally, the Company paid approximately $1.7 million for
net under-billings and retained funds held under certain project
contracts. The Company funded the acquisition using its acquisition
line of $25 million and a draw on its accordion facility of $10 million, and
cash on hand for the payments referenced above.
The
Company accounted for the purchase of the assets of SSI as a business
combination. The following represents the Company’s allocation of the
purchase price to the assets acquired:
|
Property
and equipment
|
$ | 18,500 | ||
|
Intangible
assets
|
6,900 | |||
|
Goodwill
|
9,615 | |||
| $ | 35,015 |
The
following pro forma condensed financial results of operations are presented as
if the acquisition described above had been completed at the beginning of the
first quarter of 2008:
|
Three
months ended
March
31, 2008
|
||||
|
Revenue
|
$ | 55,369 | ||
|
Income
before taxes
|
$ | 3,622 | ||
|
Net
income
|
$ | 2,447 | ||
|
Earnings
per share:
|
||||
|
Basic
|
$ | 0.11 | ||
|
Diluted
|
$ | 0.11 | ||
4. Contracts
in Progress
Contracts
in progress are as follows at March 31, 2009 and December 31, 2008:
|
March
31,
2009
|
December
31,
2008
|
|||||||
|
Costs
incurred on uncompleted contracts
|
$ | 290,509 | $ | 196,363 | ||||
|
Estimated
earnings
|
71,252 | 54,711 | ||||||
| 361,761 | 251,074 | |||||||
|
Less:
Billings to date
|
(363,754 | ) | (255,512 | ) | ||||
| $ | (1,993 | ) | $ | (4,438 | ) | |||
|
Included
in the accompanying consolidated balance sheet under the following
captions:
|
||||||||
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
$ | 7,822 | $ | 7,228 | ||||
|
Billings
in excess of costs and estimated earnings on uncompleted
contract
|
(9,815 | ) | (11,666 | ) | ||||
| $ | (1,993 | ) | $ | (4,438 | ) | |||
Contract
costs include all direct costs, such as materials and labor, and those indirect
costs related to contract performance such as payroll taxes and insurance.
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.
5. Property
and Equipment
The
following is a summary of property and equipment at March 31, 2009 and December
31, 2008:
|
March
31,
2009
|
December
31,
2008
|
|||||||
|
Automobiles
and trucks
|
$ | 1,439 | $ | 1,472 | ||||
|
Building
and improvements
|
12,015 | 12,015 | ||||||
|
Construction
equipment
|
88,471 | 88,063 | ||||||
|
Dredges
and dredging equipment
|
42,458 | 42,458 | ||||||
|
Office
equipment
|
1,162 | 1,123 | ||||||
| 145,545 | 145,131 | |||||||
|
Less:
accumulated depreciation
|
(72,634 | ) | (69,092 | ) | ||||
|
Net
book value of depreciable assets
|
72,911 | 76,039 | ||||||
|
Construction
in progress
|
4,397 | 2,886 | ||||||
|
Land
|
5,229 | 5,229 | ||||||
| $ | 82,537 | $ | 84,154 | |||||
For the
three months ended March 31, 2009 and 2008, depreciation expense was $3.8
million and $3.4 million, respectively. The assets of the Company are
pledged as collateral for debt in the amount of $33.3 million and
$34.1 million at March 31, 2009 and December 31, 2008, respectively. The
debt obligations mature in September 2010.
6. Inventory
Inventory
at March 31, 2009 and December 31, 2008, of $1.1 million and $738,000,
respectively, consists of parts and small equipment held for use in the ordinary
course of business.
7. Non-monetary
transaction
During
the first quarter of 2009, the Company entered into a non-monetary exchange with
an unrelated party, whereby the Company will 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. All work performed by the
Company, and delivery of all push boats is to be completed by December 31,
2009. At March 31, 2009, the Company had performed work with a value
of approximately $569,000, and construction was underway on five boats with an
equivalent value expended.
8. Goodwill
and Intangible Assets
Goodwill
The table
below summarizes changes in goodwill recorded by the Company during the periods
ended March 31, 2009 and December 31, 2008:
|
March 31, 2009
|
December 31, 2008
|
|||||||
|
Beginning
balance, January 1
|
$ | 12,096 | $ | 2,481 | ||||
|
Additions
|
-- | 9,615 | ||||||
|
Ending
balance
|
$ | 12,096 | $ | 12,096 | ||||
Intangible
assets
The
Company acquired certain finite-lived intangible assets as part of the
acquisition of the assets of SSI, as described in Note 3, above. For
the three months ended March 31, 2009 and 2008, the Company recorded
amortization expense of $1.1 million and $0.4 million,
respectively.
9. Debt
and Line of Credit
The
Company has a credit agreement with several participating banks. In
February 2008, the Company borrowed $35 million to fund the purchase of the
assets of SSI, and amended its credit facility to reflect the
borrowing. After such borrowing, the Company has available up to $15
million under an acquisition term loan facility and up to $8.5 million under a
revolving line of credit.
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 March 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 rate of 0.20% of the unused balance. As of March
31, 2009, no amounts had been drawn under the revolving line of
credit.
Payments
of interest are due monthly. Payments of principal are due quarterly in
seven equal installments of $875,000, plus an annual principal payment based on
2008 year end results, of $2.4 million, due April 30, 2009. All
provisions under the credit facility mature on September 30, 2010.
Interest
on the Company’s borrowings is based on the prime rate, less an applicable
margin, or on the LIBOR rate, plus an applicable margin, then in effect, at the
Company’s discretion. For each prime rate loan drawn under the credit
facility, interest is due quarterly at the then prime rate minus a margin that
is adjusted quarterly based on total leverage ratios, as
applicable. For each LIBOR loan, interest is due at the end of each
interest period at a rate of the then LIBOR rate for such period plus the LIBOR
margin based on total leverage ratios, as applicable. At March 31,
2009, interest was based on LIBOR. The LIBOR interest rate, plus the
applicable margin, at March 31, 2009 was in two tranches, with rates of 2.02%
and 2.72%.
The
credit facility requires the Company to maintain certain financial ratios,
including net worth, fixed charge and leverage ratios, and places other
restrictions on the Company as to its ability to incur additional debt, pay
dividends, advance loans and engage in other actions. The credit
facility is secured by the bank accounts, accounts receivable, inventory,
equipment and other assets of the Company and its subsidiaries. As of
March 31, 2009, the Company was in compliance with all debt
covenants.
10. Income
Taxes
The
Company’s effective tax rate is based on expected income, statutory tax rates
and tax planning opportunities available to it. For interim financial
reporting, the Company estimates its annual tax rate based on projected taxable
income for the full year and records a quarterly tax provision in accordance
with the anticipated annual rate. The effective rate for the three
months ended March 31, 2009 was 37.7% and differed from the Company’s statutory
rate primarily due to state income taxes. In the first quarter of 2008, the
Company revised its estimate of the impact of certain permanent deductions,
among other factors, available to it on its federal tax return, which reduced
its effective rate for the period.
|
Current
|
Deferred
|
Total
|
||||||||||
|
Three
months ended March 31, 2009:
|
||||||||||||
|
U.S. Federal
|
$ | 2,851 | $ | (438 | ) | $ | 2,413 | |||||
|
State
and local
|
184 | 33 | 217 | |||||||||
| $ | 3,035 | $ | (405 | ) | $ | 2,630 | ||||||
|
Three
months ended March 31, 2008:
|
||||||||||||
|
U.S. Federal
|
$ | 2,004 | $ | (866 | ) | $ | 1,138 | |||||
|
State
and local
|
219 | 65 | 284 | |||||||||
| $ | 2,223 | $ | (801 | ) | $ | 1,422 | ||||||
The
Company does not believe that its uncertain tax positions will significantly
change due to the settlement and expiration of statutes of limitations prior to
March 31, 2010.
11. Earnings
Per Share
Basic
earnings per share are based on the weighted average number of common shares
outstanding during each period. Diluted earnings per share is based on the
weighted average number of common shares outstanding and the effect of all
dilutive common stock equivalents during each period. At March 31, 2009 and
2008, respectively, 579,769 and 604,261 common stock equivalents were not
included in the diluted earnings per share calculation, as the effect of these
shares would have been anti-dilutive.
The
following table reconciles the denominators used in the computations of both
basic and diluted earnings per share:
|
Three months ended March 31
|
||||||||
|
2009
|
2008
|
|||||||
|
Basic:
|
||||||||
|
Weighted
average shares outstanding
|
21,565,720 | 21,565,324 | ||||||
|
Diluted:
|
||||||||
|
Total
basic weighted average shares outstanding
|
21,565,720 | 21,565,324 | ||||||
|
Effect
of dilutive securities:
|
||||||||
|
Common
stock options
|
334,444 | 280,034 | ||||||
|
Total
weighted average shares outstanding assuming dilution
|
21,900,164 | 21,845,358 | ||||||
12. 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. 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.
For the
three months ended March 31, 2009 and 2008, compensation expense related to
stock options outstanding for the periods was $351,000 and $254,000,
respectively. No equity awards were granted in the first quarter of
2009. In March 2008, the Company granted options to purchase 15,000
shares of common stock and used the Black-Scholes option pricing model to
estimate the fair value of stock-based awards. The awards granted in
March 2008 used the following assumptions:
|
Expected
life of options
|
6
years
|
|||
|
Expected
volatility
|
36.7 | % | ||
|
Risk-free
interest rate
|
2.92 | % | ||
|
Dividend
yield
|
0.0 | % | ||
|
Grant
date fair value
|
$ | 5.35 | ||
13. Commitments
and Contingencies
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 has been 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, 2005), 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 recent 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 appealed this decision to the United States Court
of Appeals for the Fifth Circuit, where the appeal is currently 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.
14. Enterprise
Wide Disclosures
The
Company is a heavy civil contractor specializing in marine construction, and
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
following table represents concentrations of revenue by type of customer for the
three months ended March 31, 2009 and 2008.
|
Three months ended March 31,
|
||||||||||||||||
|
2009
|
%
|
2008
|
%
|
|||||||||||||
|
Federal
|
$ | 13,172 | 19 | % | $ | 8,293 | 16 | % | ||||||||
|
State
|
8,907 | 13 | % | 6,408 | 12 | % | ||||||||||
|
Local
|
11,451 | 16 | % | 15,879 | 30 | % | ||||||||||
|
Private
|
36,510 | 52 | % | 22,011 | 42 | % | ||||||||||
| $ | 70,040 | 100 | % | $ | 52,591 | 100 | % | |||||||||
Revenues
generated from projects located in the Caribbean Basin totaled 15.6% and 3.7% of
total revenues for the three months ended March 31, 2009 and 2008,
respectively.
The
Company’s long-lived assets are substantially located in the United
States.
15. Stockholders’
Equity
Common
Stock
The
Company has authorized 50,000,000 shares, of which 21,577,366 have been issued
and 21,565,720 are outstanding. Common stockholders are entitled to
vote and to receive dividends if declared.
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Unless the
context otherwise indicates, all references in this quarterly report to “Orion,”
“the company,” “we,” “our,” or “us” are to Orion Marine Group, Inc. and its
subsidiaries taken as a whole.
Certain
information in this Quarterly Report on Form 10-Q, including but not limited to
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (“MD&A”), may constitute forward-looking statements as such term
is defined within the meaning of the “safe harbor” provisions of Section 27A of
the Securities Exchange Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended.
All
statements other than statements of historical facts, including those that
express a belief, expectation, or intention are forward-looking statements. The
forward-looking statements may include projections and estimates concerning the
timing and success of specific projects and our future production, revenues,
income and capital spending. Our forward-looking statements are generally
accompanied by words such as “estimate,” “project,” “predict,” “believe,”
“expect,” “anticipate,” “potential,” “plan,” “goal” or other words that convey
the uncertainty of future events or outcomes.
We have
based these forward-looking statements on our current expectations and
assumptions about future events. While our management considers these
expectations and assumptions to be reasonable, they are inherently subject to
significant business, economic, competitive, regulatory and other risks,
contingencies and uncertainties, most of which are difficult to predict and many
of which are beyond our control. These and other important factors, including
those described under “Risk Factors” in Item 1A of the Company’s Annual Report
on Form 10-K for the year ended December 31, 2008 ("2008 Form 10-K") may cause
our actual results, performance or achievements to differ materially from any
future results, performance or achievements expressed or implied by these
forward-looking statements. The forward-looking statements in this
quarterly report on Form 10-Q speak only as of the date of this report; we
disclaim any obligation to update these statements unless required by securities
law, and we caution you not to rely on them unduly.
MD&A
provides a narrative analysis explaining the reasons for material changes in the
Company’s (i) financial condition since the most recent fiscal year-end, and
(ii) results of operations during the current fiscal year-to-date period and
current fiscal quarter as compared to the corresponding periods of the preceding
fiscal year. In order to better understand such changes, this
MD&A should be read in conjunction with the Company’s fiscal 2008 audited
consolidated financial statements and notes thereto included in its 2008 Form
10-K , Item 7 Management’s Discussion and Analysis of Financial Condition and
Results of Operations included in our 2008 Form 10-K and with our unaudited
financial statements and related notes appearing elsewhere in this quarterly
report.
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. Our customers include federal, state
and municipal governments, the combination of which accounted for approximately
48% of our revenue in the three months ended March 31, 2009, as well as private
commercial and industrial enterprises. We are headquartered in Houston,
Texas.
Our
contracts are obtained primarily through competitive bidding in response to
“requests for proposals” by federal, state and local agencies and through
negotiation with private parties. Our bidding activity is affected by such
factors as backlog, current utilization of equipment and other resources,
ability to obtain necessary surety bonds and competitive considerations. The
timing and location of awarded contracts may result in unpredictable
fluctuations in the results of our operations.
Most of
our revenue is derived from fixed-price contracts. There are a number of factors
that can create variability in contract performance and therefore impact the
results of our operations. The most significant of these include the
following:
|
|
•
|
completeness
and accuracy of the original bid;
|
|
|
•
|
increases
in commodity prices such as concrete, steel and
fuel;
|
|
|
•
|
customer
delays and work stoppages due to weather and environmental
restrictions;
|
|
|
•
|
availability
and skill level of workers; and
|
|
|
•
|
a
change in availability and proximity of equipment and
materials.
|
All of
these factors can impose inefficiencies on contract performance, which can
impact the timing of revenue recognition and contract profitability. We plan our
operations and bidding activity with these factors in mind and they have not had
a material adverse impact on the results of our operations in the
past.
Recent
Developments. On April 17, 2009, the U.S. Environmental
Protection Agency (“EPA”) concluded that carbon dioxide and five other
greenhouse gases, are a danger to public health and welfare. The EPA
finding is subject to public comment before an official ruling is
made.
As more
fully discussed in our 2008 Form 10-K, passage of climate control legislation or
adoption of regulations that restrict emissions of greenhouse gases could have
an adverse effect on our operations and demand for our services. The
Company will continue to monitor the impact of the EPA finding on its business
as more information as to the type and nature of potential regulation becomes
available.
Outlook. To
date, we have not seen a general, significant decline in our end market bidding
activity. Still, the recession has persisted throughout the first
quarter of 2009, and deterioration or delays in some of our end markets may
develop. A prolonged recession may result in the diversion of funds
from projects we perform to other uses; project bids may be postponed or
otherwise delayed, and existing projects may be cancelled or reduced in scope
due to budgeting decisions and credit constraints.
However,
bidding opportunities in other end markets that we serve may increase due to
enhanced focus on infrastructure spending and hurricane
protection. Additionally, supplemental emergency funding legislation
signed into law in 2008 provides $740 million to the Corp of Engineers allocated
for emergency dredging and construction projects in areas affected by the 2008
storms, which include the markets in which we operate. The $787
billion American Recovery and Reinvestment Act provides $90 billion of
infrastructure spending, including $27.5 billion toward highway construction,
$4.6 billion to the US Army Corps of Engineers, and $240 million for US Coast
Guard bridge alterations and construction improvements.
We
continue to evaluate our credit exposure as the economic recession
persists. During the three months ended March 31, 2009, our
operations provided cash from operations in excess of $18.9 million and our cash
position at March 31, 2009 was in excess of $41.6 million. Our
operations are not currently dependent on external short-term funding and we
have not utilized the $7.6 million available to us under our revolving credit
facility.
Our focus
in 2009 is to concentrate on our core objectives; to manage our business
effectively and efficiently in this recessionary economic environment; to pursue
rational growth strategies while closely monitoring the costs of our operations;
and to maintain our strong balance sheet.
Consolidated
Results of Operations
Three
months ended March 31, 2009 compared with three months ended March 31,
2008
|
Three
months ended March 31,
|
||||||||||||||||
|
2009
|
2008
|
|||||||||||||||
|
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||
|
Contract
revenues
|
$ | 70,040 | 100.0 | % | $ | 52,591 | 100.0 | % | ||||||||
|
Cost
of contract revenues
|
55,766 | 79.6 | 42,519 | 80.8 | ||||||||||||
|
Gross
profit
|
14,274 | 20.4 | 10,072 | 19.2 | ||||||||||||
|
Selling,
general and administrative expenses
|
7,199 | 10.3 | 5,827 | 11.1 | ||||||||||||
|
Operating
income
|
7,075 | 10.1 | 4,245 | 8.1 | ||||||||||||
|
Interest
(income) expense
|
||||||||||||||||
|
Interest
(income)
|
(103 | ) | (0.1 | ) | (149 | ) | (0.2 | ) | ||||||||
|
Interest
expense
|
206 | 0.2 | 126 | 0.2 | ||||||||||||
|
Interest
(income) expense, net
|
103 | 0.1 | (23 | ) | — | |||||||||||
|
Income
before income taxes
|
6,972 | 10.0 | 4,268 | 8.1 | ||||||||||||
|
Income
tax expense
|
2,630 | 3.8 | 1,422 | 2.7 | ||||||||||||
|
Net
income
|
$ | 4,342 | 6.2 | % | $ | 2,846 | 5.4 | % | ||||||||
Contract
Revenues. Revenues for the three months ended March 31, 2009 increased
approximately 33.2% as compared with the same period last year, and are driven
by the progress schedules, size, composition, scope, and number of
projects under contract at any given time. The increase, as compared
with last year, was attributable, in part, to our expansion late in the first
quarter of 2008 of our dredging and other construction capabilities along the
Atlantic Seaboard. Contract revenue generated from government
agencies, including federal, state and local municipalities represented 48% of
total revenues in the first three months of 2009, with projects in the private
sector comprising 52% of revenue, as compared with the first quarter of 2008,
when the mix of customers included 58% from government agencies and 42% from the
private sector. Revenues generated from projects in the Caribbean
Basin, primarily construction of a cruise pier in Haiti, represented
approximately 16% of first quarter 2009 revenue.
Gross Profit.
Gross profit increased approximately $4.2 million, or 41.7%,
in the first quarter of 2009 as compared with the corresponding period last
year. The improvement in gross profit was due primarily to the
increase in revenues. Gross margin for the three months ended March
31, 2009 was 20.4%, as compared with 19.2% in the prior year
period. Contributing to the increase were savings resulting from
lower commodity and material prices. In addition, we self-performed
approximately 95% of our work in the current year period, a significant increase
over the first quarter of 2008, when our self-performance rate was 89% of total
costs.
Selling, General
and Administrative Expense. Selling, general and administrative expenses
(“SGA”) increased $1.4 million in the three months ended March 31, 2009 as
compared with the prior year period. The increase in expense was due
primarily to overheads and amortization of intangible assets related to the
acquisition of the assets of Subaqueous Services, Inc. (“SSI”) in February
2008.
Income Tax
Expense Our effective rate for the three months ended March
31, 2009 was 37.7% and differed from the Company’s statutory rate of 35%
primarily due to state income taxes and to an expected reduction in certain
deductions due to the mix of jobs in the current year. In the first quarter of
2008, the Company revised its estimate of the impact of certain permanent
deductions available to it on its federal tax return, which reduced its
effective rate for that period to 33.3%.
Liquidity
and Capital Resources
Our
primary liquidity needs are to finance our working capital, invest in capital
expenditures, and pursue strategic acquisitions. Historically, our source of
liquidity has 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 operational activity. At March 31, 2009, our working
capital was $53.4 million compared to $47.0 million at December 31,
2008. The increase of $6.4 million in working capital was primarily due to
an improved cash position and decreases in trade payables and liabilities
related to billings in excess of costs and estimated earnings on uncompleted
contracts. As of March 31, 2009, we had cash on hand and availability
under our revolving credit facility of $49.2 million.
We
continue to evaluate our credit exposure as the recession
persists. At March 31, 2009, our operations provided cash from
operations in excess of $18.9 million and our cash position was in excess of
$41.6 million. Our operations are not currently dependent on external
short-term funding, 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, service our
debt, and maintain our equipment fleet through capital expenditure purchases and
major repairs, from funds generated in our operating activities 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.
The
following table provides information regarding our cash flows and capital
expenditures for the three months ended March 31, 2009 and 2008
(unaudited):
|
Three months ended March 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Cash
flows provided by operating activities
|
$ | 18,932 | $ | 8,812 | ||||
|
Cash
flows used in investing activities
|
$ | (2,124 | ) | $ | (40,610 | ) | ||
|
Cash
flows provided by (used in) financing activities
|
$ | (875 | ) | $ | 34,920 | |||
Operating
Activities. During the three months ended March 31, 2009, our operating
activities provided $18.9 million of cash as compared with
$8.8 million for the three months ended March 31, 2008. Contributing to the
increase between comparable periods was an increase of $6.9 million within
working capital components, including strong collections of receivables during
the period and a decrease in vendor payables related to the timing of such
payments. In addition, we had increases in non-cash items affecting
net income, such as depreciation and amortization expense associated with the
equipment and intangible assets acquired from SSI, and an increase in non-cash
stock-based compensation related to grants of options during 2008.
Investing
Activities. Our capital asset additions totaled $2.3 million in the three
months ended March 31, 2009, as compared with $4.0 million in the prior year
period. In February 2008, we purchased substantially all of the
assets of SSI for a total purchase price of $35 million, plus $1.7 million
related to the acquisition of projects under contract by SSI, for total cash
related to the acquisition of $36.7 million.
Financing
Activities. In the three months ended March 31, 2009, we paid down our
principal balances on our credit facility. Cash provided by financing
activities in the prior year period was attributable to our borrowing of $35
million under of line of credit to fund the assets purchased from
SSI.
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.
The
Company has a credit agreement with several participating banks. In
February 2008, Company borrowed $35 million to fund the purchase of the assets
of SSI, and amended its credit facility to reflect the
borrowing. After such borrowing, the Company has available up to $15
million under an acquisition term loan facility and up to $8.5 million under a
revolving line of credit.
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 March 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 rate of 0.20% of the unused balance. As of March
31, 2009, no amounts had been drawn under the revolving line of
credit.
Payments
of interest are due monthly. Payments of principal are due quarterly
in seven equal installments of $875,000, plus an annual principal payment based
on 2008 year end results, of $2.4 million, due April 30, 2009. All
provisions under the credit facility mature on September 30, 2010.
Interest
on the Company’s borrowings is based on the prime rate, less an applicable
margin, or on the LIBOR rate, plus an applicable margin, then in effect, at the
Company’s discretion. For each prime rate loan drawn under the credit
facility, interest is due quarterly at the then prime rate minus a margin that
is adjusted quarterly based on total leverage ratios, as
applicable. For each LIBOR loan, interest is due at the end of each
interest period at a rate of the then LIBOR rate for such period plus the LIBOR
margin based on total leverage ratios, as applicable. At March 31,
2009, interest was based on LIBOR. The LIBOR interest rate, plus the
applicable margin, at March 31, 2009 was in two tranches, with rates of 2.02%
and 2.72%.
The
credit facility requires the Company to maintain certain financial ratios,
including net worth, fixed charge and leverage ratios, and places other
restrictions on the Company as to its ability to incur additional debt, pay
dividends, advance loans and engage in other actions. The credit
facility is secured by the bank accounts, accounts receivable, inventory,
equipment and other assets of the Company and its subsidiaries. As of
March 31, 2009, the Company was in compliance with all debt
covenants.
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 March 31, 2009, we believe our capacity under our current
bonding arrangement with Liberty Mutual was in excess of $400 million, of which
we had approximately $100 million in surety bonds outstanding. During
the quarter ended March 31, 2009, approximately 48% of projects, measured by
revenue, required us to post a bond.
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
Management
is actively involved in monitoring exposure to market risk and continues to
develop and utilize appropriate risk management techniques. Our exposure to
significant market risks includes outstanding borrowings under our floating rate
credit agreement and fluctuations in commodity prices for concrete, steel
products and fuel. An increase in interest rates of 1% would have increased
interest expense by approximately $85,000 for the three months ended March 31,
2009. 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.
As of
March 31, 2009, there was $33.3 million outstanding under our credit
agreement and there were no borrowings outstanding under our revolving credit
facility; however, there were letters of credit issued in the amount of $910,000
which lower the amount available to us on the revolving facility to
approximately $7.6 million.
Item
4. Controls and Procedures
|
(a)
|
Evaluation of Disclosure
Controls and Procedures. As required, the Company’s
management, with the participation of its Chief Executive Officer and
Chief Financial Officer, have conducted an evaluation of the effectiveness
of disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended) as of the end of the period covered by this quarterly
report. Based on that evaluation, such officers have concluded
that the disclosure controls and procedures are
effective.
|
|
(b)
|
Changes in Internal
Controls. There have been no changes in our internal
controls over financial reporting during the period covered by this report
that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial
reporting.
|
PART
II – Other Information
Item
1. Legal Proceedings
For
information about litigation involving us, see Note 13 to the condensed
consolidated financial statements in Part I of this report, which we incorporate
by reference into this Item 1of Part II.
Item
1A. Risk Factors
There
have been no material changes to the risk factors previously disclosed in our
2008 Form 10-K
Item
6. Exhibits
*filed herewith
Pursuant
to the requirements 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.
|
|
|
By:
|
/s/
J. Michael Pearson
|
|
May
8, 2009
|
J.
Michael Pearson
|
|
President
and Chief Executive Officer
|
|
|
By:
|
/s/
Mark R. Stauffer
|
|
May
8, 2009
|
Mark
R. Stauffer
|
|
Executive
Vice President and Chief Financial
Officer
|