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Orion Marine Group, Inc. 2009 Annual Report (10-K) Summary

Business Context and Reporting Period

This filing is the Annual Report on Form 10-K for Orion Marine Group, Inc. (NYSE: ORN) for the fiscal year ended December 31, 2009. Orion is a leading marine specialty contractor providing heavy civil marine construction, dredging, and specialty services along the Gulf Coast, Atlantic Seaboard, and Caribbean Basin. The company operates as a single reportable segment. In 2009, the company completed a public offering of 4.8 million shares, raising approximately $91.0 million in net proceeds, which was used to repay all outstanding debt and fund capital expenditures.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 12.1% to $293.5 million, driven by a shift in project mix toward the public sector (55% of revenue in 2009 vs. 50% in 2008) and increased spending by the U.S. Army Corps of Engineers.
• Profitability: Gross margin improved to 21.4% from 19.3%, despite a slight reduction in self-performance rates. This improvement followed production delays and unforeseen site conditions in 2008 that negatively impacted margins.
• Balance Sheet Strength: The company eliminated all long-term debt ($29.9 million) using proceeds from its August 2009 equity offering. Cash and cash equivalents grew from $25.7 million to $104.7 million.
• Backlog: Contract backlog increased significantly to $252.9 million from $159.4 million, providing visibility into future revenue.

Outlook, Risks, and Unusual Items

Outlook and Strategy: Management expects to maintain a strong balance sheet and pursue rational growth. The company plans to capitalize on infrastructure spending funded by the American Recovery and Reinvestment Act ("Stimulus package") and continued demand in port expansion, bridge maintenance, and dredging. In early 2010, the company acquired T.W. LaQuay Dredging, LLC for $64 million and expanded into the Pacific Northwest with a $7.0 million equipment purchase.

Risks and Contingencies:

• Fixed-Price Contracts: A significant portion of revenue is derived from fixed-price contracts, exposing the company to risks of cost overruns, inaccurate estimates, and unapproved change orders.
• Government Funding: Operations depend heavily on federal, state, and local government funding. Reductions in funding or delays in appropriations could materially reduce results.
• Legal Proceedings: The company is a defendant in litigation related to Hurricane Katrina levee breaches. Management believes liability is limited to the value of vessels involved and insurance deductibles ($100,000), as the trial court decision was partially affirmed in November 2009.
• Weather and Environment: Operations are susceptible to severe weather (hurricanes) and strict environmental regulations regarding dredging and waste disposal.

Key Facts for Investor Verification

• Debt-Free Status: Verify the company's ability to maintain its debt-free status and manage liquidity given the recent $71 million in cash outflows for acquisitions (T.W. LaQuay and Pacific Northwest assets) subsequent to year-end.
• Backlog Realization: Confirm the conversion rate of the $252.9 million backlog into revenue, noting that contracts can be canceled without penalty and backlog is not a guarantee of future earnings.
• Acquisition Integration: Monitor the integration and financial performance of the T.W. LaQuay Dredging acquisition, which added $25 million in backlog but required significant cash outlay.
• Government Contract Mix: Track the dependency on government contracts (55% of 2009 revenue) and the impact of potential changes in federal infrastructure spending or the "Stimulus package" funding.
• Self-Insurance Reserves: Review the adequacy of self-insurance reserves for workers' compensation and personal injury claims, which totaled approximately $2.1 million in accrued liabilities.