UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-Q





(Mark
One)


[√]
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
      the quarterly period ended September 30,
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
              
              Logo





ORION
      MARINE GROUP, INC.


(Exact
      name of registrant as specified in its
charter)





DELAWARE
            26-0097459(State
      or other jurisdiction of
              Incorporation
      or organization)
            (I.R.S.
      Employer
              Identification
      Number)12000
      Aerospace Dr. Suite 300
              Houston, Texas
            77034(Address of principal executive
      offices)
            (Zip
      Code)(713)
      852-6500
              (Registrant’s
      telephone number, including area
code)








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 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
[√]





As of
November 1, 2009, 26,776,722 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 September 30, 2009


INDEX








PART
      I
            FINANCIAL
      INFORMATIONItem
      1
            Financial
      Statements (Unaudited)
            PageCondensed
      Consolidated Balance Sheets at September 30, 2009 and December 31,
      2008
            3Condensed
      Consolidated Statements of Operations for the Three and Nine Months Ended
      September 30, 2009 and 2008
            4Condensed
      Consolidated Statement of Stockholders’ Equity for the Nine Months Ended
      September 30, 2009
            5Condensed
      Consolidated Statements of Cash Flows for the Nine Months Ended September
      30, 2009 and 2008
            6Notes
      to Condensed Consolidated Financial Statements
            7Item
      2
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            20Item
      3
            Quantitative
      and Qualitative Disclosures About Market Risk
            26Item
      4
            Controls
      and Procedures
            26PART
      II
            OTHER
      INFORMATIONItem1
            Legal
      Proceedings
            27Item
      1A
            Risk
      Factors
            27Item
      4
            Submission
      of Matter to a Vote of Security Holders
            27Item
      6
            Exhibits
            27SIGNATURES
            28Exhibits10.27
              
              10.28
            Lease Agreement dated July 16, 2009 between F. Miller Construction, LLC
      and Reeves Commercial
              
              Lease Agreement dated September 8, 2009 between F.
      Miller Construction, LLC and West Calcasieu Port Authority31.1
            Certification
      of the Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14 of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
            Certification
      of the Chief Executive Officer and the Chief Financial Officer pursuant to
      18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
      Act of 200232.1
            Certification
      of the Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14 of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002





2


Part I –
Financial Information


Orion
Marine Group, Inc. and Subsidiaries


Condensed
Consolidated Balance Sheets


(Unaudited)


(In
Thousands, Except Share and Per Share Information)





September
      30,
            
            
            December
      31,2009
            
            
            2008ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            108,984
            
            
            $
            25,712Accounts
      receivable:Trade,
      net of allowance of $1,203 and $800, respectively
            
            
            37,056
            
            
            
            37,806Retainage
            
            
            11,198
            
            
            
            5,719Other
            
            
            476
            
            
            
            691Income
      taxes receivable
            
            
            2,197
            
            
            
            4,017Note
      receivable
            
            
            765
            
            
            
            --Inventory
            
            
            1,744
            
            
            
            738Deferred
      tax asset
            
            
            1,642
            
            
            
            1,319Costs
      and estimated earnings in excess of billings
            
            
            9,094
            
            
            
            7,228Prepaid
      expenses and other
            
            
            1,834
            
            
            
            3,207Total
      current assets
            
            
            174,990
            
            
            
            86,437Property
      and equipment, net
            
            
            80,451
            
            
            
            84,154Goodwill
            
            
            12,096
            
            
            
            12,096Intangible
      assets, net of accumulated amortization
            
            
            320
            
            
            
            3,556Other
      assets
            
            
            66
            
            
            
            79Total
      assets
            
            $
            267,923
            
            
            $
            186,322LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Current
      portion of long-term debt
            
            $
            --
            
            
            $
            5,909Accounts
      payable:Trade
            
            
            20,481
            
            
            
            13,276Retainage
            
            
            778
            
            
            
            389Accrued
      liabilities
            
            
            11,740
            
            
            
            8,176Taxes
      payable
            
            
            353
            
            
            
            --Billings
      in excess of costs and estimated earnings
            
            
            5,402
            
            
            
            11,666Total
      current liabilities
            
            
            38,754
            
            
            
            39,416Long-term
      debt, less current portion
            
            
            --
            
            
            
            28,216Other
      long-term liabilities
            
            
            409
            
            
            
            422Deferred
      income taxes
            
            
            11,383
            
            
            
            12,286Deferred
      revenue
            
            
            330
            
            
            
            371Total
      liabilities
            
            
            50,876
            
            
            
            80,711Commitments
      and contingenciesStockholders’
      equity:Common
      stock -- $0.01 par value, 50,000,000 authorized,26,788,368
      issued; 26,776,722 outstanding at September 30, 2009; 21,577,366 issued;
      21,565,720 outstanding at December 31, 2008
            
            
            268
            
            
            
            216Treasury
      stock, 11,646 shares, at cost
            
            
            --
            
            
            
            --Additional
      paid-in capital
            
            
            150,748
            
            
            
            55,388Retained
      earnings
            
            
            66,031
            
            
            
            50,007Total
      stockholders’ equity
            
            
            217,047
            
            
            
            105,611Total
      liabilities and stockholders’ equity
            
            $
            267,923
            
            
            $
            186,322





See notes
to unaudited condensed consolidated financial statements


3


Orion
Marine Group, Inc. and Subsidiaries


Condensed
Consolidated Statements of Income


(Unaudited)


(In
Thousands, Except Share and Per Share Information)








Three months ended September
      30,
            
            
            Nine months endedSeptember 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Contract
      revenues
            
            $
            81,466
            
            
            $
            62,897
            
            
            $
            222,259
            
            
            $
            182,558Costs
      of contract revenues
            
            
            65,468
            
            
            
            50,297
            
            
            
            173,112
            
            
            
            150,056Gross
      profit
            
            
            15,998
            
            
            
            12,600
            
            
            
            49,147
            
            
            
            32,502Selling,
      general and administrative expenses
            
            
            7,699
            
            
            
            7,357
            
            
            
            23,638
            
            
            
            18,879Income
      from operations.............................
            
            
            8,299
            
            
            
            5,243
            
            
            
            25,509
            
            
            
            13,623Interest
      (income) expenseInterest
      income
            
            
            (78
            )
            
            
            (107
            )
            
            
            (274
            )
            
            
            (375
            )Interest
      expense
            
            
            88
            
            
            
            365
            
            
            
            525
            
            
            
            855Interest
      expense, net
            
            
            10
            
            
            
            258
            
            
            
            249
            
            
            
            480Income
      before income taxes
            
            
            8,289
            
            
            
            4,985
            
            
            
            25,260
            
            
            
            13,143Income
      tax expense
            
            
            2,892
            
            
            
            1,221
            
            
            
            9,236
            
            
            
            4,132Net
      income
            
            $
            5,397
            
            
            $
            3,764
            
            
            $
            16,024
            
            
            $
            9,011Basic
      earnings per share
            
            $
            0.22
            
            
            $
            0.18
            
            
            $
            0.71
            
            
            $
            0.42Diluted
      earnings per share
            
            $
            0.22
            
            
            $
            0.17
            
            
            $
            0.70
            
            
            $
            0.41Shares
      used to compute earnings per share:Basic
            
            
            24,241,749
            
            
            
            21,557,601
            
            
            
            22,485,770
            
            
            
            21,562,722Diluted
            
            
            24,678,251
            
            
            
            21,833,327
            
            
            
            22,896,150
            
            
            
            21,840,370










































































See notes
to unaudited condensed consolidated financial statements


4


Orion
Marine Group, Inc. and Subsidiaries


Condensed
Consolidated Statement of Stockholders’ Equity


(Unaudited)


(In
Thousands, Except Share Information)





Common
            
            
            Treasury
            
            
            AdditionalStock
            
            
            Stock
            
            
            Paid-In
            
            
            RetainedShares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Capital
            
            
            Earnings
            
            
            TotalBalance,
      January 1, 2009
            
            
            21,577,365
            
            
            $
            216
            
            
            
            (11,646
            )
            
            $
            --
            
            
            $
            55,388
            
            
            $
            50,007
            
            
            $
            105,611Stock-based
      compensation
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            1,059
            
            
            
            --
            
            
            
            1,059Stock
      issued upon exercise of options
            
            
            375,198
            
            
            
            4
            
            
            
            --
            
            
            
            --
            
            
            
            1,872
            
            
            
            --
            
            
            
            1,876Tax
      benefit on exercise of options
            
            
            
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            1,456
            
            
            
            --
            
            
            
            1,456Issuance
      of restricted stock
            
            
            5,805
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Issuance
      of common stock, net of expenses
            
            
            4,830,000
            
            
            
            48
            
            
            
            --
            
            
            
            --
            
            
            
            90,973
            
            
            
            --
            
            
            
            91,021Net
      income
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            16,024
            
            
            
            16,024Balance,
      September 30, 2009
            
            
            26,788,368
            
            
            $
            268
            
            
            
            (11,646
            )
            
            $
            --
            
            
            $
            150,748
            
            
            $
            66,031
            
            
            $
            217,047














































































































See notes
to unaudited condensed consolidated financial statements


5


Orion
Marine Group, Inc. and Subsidiaries


Condensed
Consolidated Statements of Cash Flows


(Unaudited)


(In
Thousands)





Nine
      months ended
              September
      30,2009
            
            
            2008Cash
      flows from operating activitiesNet
      income
            
            $
            16,024
            
            
            $
            9,011Adjustments
      to reconcile net income to net cash providedby
      operating activities:Depreciation
      and amortization
            
            
            14,712
            
            
            
            13,862Deferred
      financing cost amortization
            
            
            189
            
            
            
            184Non-cash
      interest expense
            
            
            --
            
            
            
            22Bad
      debt expense
            
            
            442
            
            
            
            50Deferred
      income taxes
            
            
            (1,226
            )
            
            
            (2,187
            )Stock-based
      compensation
            
            
            1,059
            
            
            
            766Gain
      on sale of property and equipment
            
            
            (245
            )
            
            
            (1,040
            )Excess
      tax benefit from stock option exercise
            
            
            (1,456
            )
            
            
            --Change
      in operating assets and liabilities:Accounts
      receivable
            
            
            (4,956
            )
            
            
            (5,701
            )Income
      tax receivable
            
            
            3,276
            
            
            
            --Note
      receivable
            
            
            (765
            )
            
            
            --Inventory
            
            
            (1,006
            )
            
            
            (8
            )Prepaid
      expenses and other
            
            
            1,386
            
            
            
            (3,282
            )Costs
      and estimated earnings in excess of billings
            
            
            (1,866
            )
            
            
            2,930Accounts
      payable
            
            
            7,594
            
            
            
            (991
            )Accrued
      liabilities
            
            
            3,551
            
            
            
            3,357Income
      tax payable
            
            
            353
            
            
            
            (6,540
            )Billings
      in excess of costs and estimated earnings
            
            
            (6,264
            )
            
            
            5,988Deferred
      revenue
            
            
            (42
            )
            
            
            (42
            )Net
      cash provided by operating activities
            
            
            30,760
            
            
            
            16,379Cash
      flows from investing activities:Proceeds
      from sale of property and equipment
            
            
            673
            
            
            
            3,581Purchase
      of property and equipment
            
            
            (8,389
            )
            
            
            (11,715
            )Acquisition
      of business (net of cash acquired)
            
            
            --
            
            
            
            (36,713
            )Net
      cash used in investing activities
            
            
            (7,716
            )
            
            
            (44,847
            )Cash
      flows from financing activities:Increase
      in loan costs
            
            
            --
            
            
            
            (80
            )Borrowings
      on long-term debt
            
            
            --
            
            
            
            35,000Payments
      on long-term debt
            
            
            (34,125
            )
            
            
            --Proceeds
      from the sale of common stock
            
            
            91,345
            
            
            
            --Expenses
      from the sale of common stock
            
            
            (324
            )
            
            
            (51
            )Exercise
      of stock options
            
            
            1,876
            
            
            
            --Tax
      benefit from stock option exercises
            
            
            1,456
            
            
            
            --Net
      cash provided by financing activities
            
            
            60,228
            
            
            
            34,869Net
      change in cash and cash equivalents
            
            
            83,272
            
            
            
            6,401Cash
      and cash equivalents at beginning of period
            
            
            25,712
            
            
            
            12,584Cash
      and cash equivalents at end of period
            
            $
            108,984
            
            
            $
            18,985Supplemental
      disclosures of cash flow information:Cash
      paid during the period for:Interest
            
            $
            539
            
            
            $
            492Taxes,
      net of refunds
            
            $
            6,831
            
            
            $
            12,405





See notes
to unaudited condensed consolidated financial statements


6


Orion
Marine Group, Inc. and Subsidiaries





Notes
to Condensed Consolidated Financial Statements


Three
and Nine Months Ended September 30, 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
Financial Accounting Standards Board (“FASB”) Accounting Standard 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 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 unaudited 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 Operationsalso 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
and nine months ended September 30, 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 (“U.S. GAAP”) 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:


7





·
            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. The Company follows the
guidance of ASC 605-35– Revenue Recognition,
Construction-Type and 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
September 30, 2009, 32.5% of our accounts receivable was due from two
customers.  No single customer accounted for more than 10% of total
receivables at December 31, 2008. In the three months ended September 30, 2009
and 2008, one customer in each period generated revenues in excess of 10% of
total revenues,  representing 13.7% and 10.8% of total revenues,
respectively.  In the nine months ended September 30, 2009, one
customer generated revenues of 14.5%.  No single customer generated
revenues in excess of 10% of total revenues in the nine months ended September
30, 2008.





Cash
and cash equivalents





All cash
and cash equivalents are stated at cost, which approximates
market.  The Company considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents.  The
Company maintains cash at various financial institutions that may exceed
federally insured limits.





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


8


determined
that the amounts will not be collected or if a settlement is reached for an
amount that is less than the carrying value. In the second quarter of 2009, the
Company increased its allowance for doubtful accounts by $400,000 to fully
reserve a receivable due to the bankruptcy filing of a customer.  As
of September 30, 2009 and December 31, 2008, the Company had an allowance for
doubtful accounts of $1.2 million and $800,000, respectively.





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 September 30, 2009 totaled
$11.2 million, of which $1.7 million is expected to be collected beyond
September 30, 2010.  Retention at December 31, 2008 totaled $5.7
million.





Income
Taxes





The
Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes, which
prescribes the use of the liability method whereby deferred tax asset and
liability account balances are determined based on differences between the
financial reporting and tax bases of certain assets and
liabilities.  These deferred tax assets and liabilities are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.  The Company provides a valuation allowance,
if necessary, to reduce deferred tax assets to their estimated realizable
value.





FASB ASC
740-10 clarifies the accounting for income taxes, by prescribing a minimum
recognition threshold that a tax position must meet before being recognized in
the financial statements, and provides guidance on derecognition, measurement,
and classification of uncertain tax positions, accounting for and disclosure of
interest and penalties, and accounting in interim periods.  Since
adoption in 2007, the Company has not recorded a liability for uncertain tax
positions.





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.  Effective July 1, 2009, the Company
renewed its existing policies and increased retentions under its self-insurance
programs.




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 FASB ASC 718
– Compensation – Stock
Compensation.  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.








9


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,
in the fourth quarter of each fiscal year, 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 ASC 350
– Intangibles – Goodwill and
Other.  No impairment resulted from the test performed in
2008.





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 4, 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




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.





Accounting
pronouncements adopted prior to Codification





In June
2009, the FASB issued SFAS No. 167 -- Amendments to FASB Interpretation
No. 46R (SFAS No. 167). SFAS 167 amends FIN 46R to require ongoing
analysis to determine whether a company holds a controlling financial interest
in a variable interest entity (“VIE”). The amendments include a new approach for
determining who should consolidate a VIE, requiring a qualitative rather than a
quantitative analysis. SFAS 167 also changes when it is necessary to reassess
who should consolidate a VIE. Previously an enterprise was required to
reconsider whether it was the primary beneficiary of a VIE only when specific
events had occurred.  The new standard requires continuous reassessment of
an enterprise's interest in the VIE to determine its primary
beneficiary. This statement will be effective for us in 2010.
Early adoption is prohibited.  We do not believe that the adoption of
SFAS 167 will have a significant effect on the Company’s consolidated financial
statements.  As of September 30, 2009, SFS 167 had not been added to
the Codification.







The
Company adopted the provisions of FASB ASC 855 – Subsequent Events as of June
30, 2009. FASB ASC 855 introduces new terminology, defines a date through which
management must evaluate subsequent events, and lists the circumstances under
which an entity must recognize and disclose events or transactions occurring
after the balance-sheet date.




The
Company discloses the fair value of its financial instruments in its interim
financial statements, in accordance with FASB ASC 825 -- Financial Instruments, which
it adopted in June 2009.  Adoption of this section of the Codification
did not have a material effect on our unaudited condensed consolidated financial
statements.  The appropriate disclosures related to adoption are
included in Note 8, below.





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.  FASB ASC 805 had no effect on the Company’s
unaudited condensed consolidated financial statements for the three and nine
months ended September 30, 2009.


10





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 EPS 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.





The
Company measures the fair value and discloses its fair value measurements in
accordance with FASB ASC 820 -- Fair Value Measurements and
Disclosures,and adopted provisions under FASB ASC 820 regarding the fair
value measurement of nonfinancial assets and liabilities, except those that are
recognized or disclosed at fair value on a recurring bases, and provisions under
FASB ASC 820 that clarify the objective and method of fair value measurement
even when there has been a significant decrease in market activity for the asset
being measured.  Adoption of these provisions did not have a material
effect on our consolidated financial statements.





Accounting
Standard Updates (“ASU”) issued after June 30, 2009





ASU No.
2009-12.In September 2009, the FASB amended Subtopic 820-10
-- Fair Value Measurements and
Disclosures – Overall,to allow a reporting entity to measure the fair
value of an investment on the basis of net asset value per share, as of the
reporting entity’s measurement date, in certain limited
conditions.  The amendments in this update are effective for interim
and annual periods ending after December 15, 2009.  Early application
is permitted in financial statements that have not been
issued.  Adoption of these amendments is not expected to affect the
Company’s consolidated financial statements.





3.   Offering
of Common Stock





In August
2009, pursuant to a shelf registration statement on Form S-3, the Company
completed a public offering of 4,830,000 million 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
            
            $
            95,151Less:Underwriters’
      commission
            
            
            (3,806
            )91,345Offering
      related expenses
            
            
            (524
            )Expense
      credit received from underwriters
            
            
            200Total
      proceeds, net of expenses
            
            $
            91,021Use
      of proceeds:Repayment
      of outstanding debt
            
            
            29,966Balance
      retained in working capital, September 30, 2009
            
            $
            61,055





Proceeds
are expected to be used for capital expenditures, possible future acquisitions
and general corporate purposes.


11











4.   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
            
            $
            18,500Intangible
      assets
            
            
            6,900Goodwill
            
            
            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:





Nine
      months ended
              September
      30,2008Revenue
            
            $
            185,336Income
      before taxes
            
            $
            12,369Net
      income
            
            $
            8,533Earnings
      per share:Basic
            
            $
            0.40Diluted
            
            $
            0.39








5.  Contracts
in Progress





Contracts
in progress are as follows at September 30, 2009 and December 31,
2008:





September
      30,
              2009
            
            
            December
      31,
              2008Costs
      incurred
            
            $
            222,450
            
            
            $
            196,363Estimated
      earnings
            
            
            66,494
            
            
            
            54,711$
            288,944
            
            
            
            251,074Less:
      Billings to date
            
            
            (285,252
            )
            
            
            (255,512
            )$
            3,692
            
            
            $
            (4,438
            )Included
      in the accompanying consolidated balance sheet under the following
      captions:Costs
      and estimated earnings in excess of billings
            
            $
            9,094
            
            
            $
            7,228Billings
      in excess of costs and estimated earnings
            
            
            (5,402
            )
            
            
            (11,666
            )$
            3,692
            
            
            $
            (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.


12





Costs and
estimated earnings in excess of billings arise when revenue has been recognized,
but the amounts have not, or cannot, by the terms of the contract, been billed
to the customer.  Billings in excess of costs and estimated earnings
arise when amounts billed to the customer exceed revenue recognized on the
project.





Costs and
estimated earnings in excess of billings, net of billings in excess of costs and
estimated earnings on completed contracts was $144,212 and $277,880 at September
30, 2009 and December 31, 2008, respectively.





6.  Property
and Equipment





The
following is a summary of property and equipment at September 30, 2009 and
December 31, 2008:





September
      30,
              2009
            
            
            December
      31,
              2008Automobiles
      and trucks
            
            $
            1,301
            
            
            $
            1,472Building
      and improvements
            
            
            12,226
            
            
            
            12,015Construction
      equipment
            
            
            90,853
            
            
            
            88,063Dredges
      and dredging equipment
            
            
            44,533
            
            
            
            42,458Office
      equipment
            
            
            1,593
            
            
            
            1,123$
            150,506
            
            
            
            145,131Less:
      accumulated depreciation
            
            
            (79,359
            )
            
            
            (69,092
            )Net
      book value of depreciable assets
            
            
            71,147
            
            
            
            76,039Construction
      in progress
            
            
            4,075
            
            
            
            2,886Land
            
            
            5,229
            
            
            
            5,229$
            80,451
            
            
            $
            84,154





For the
three and nine months ended September 30, 2009, depreciation expense was $4.0
million and $11.7 million, respectively.  Depreciation expense for the
three and nine months ended September 30, 2008 was $3.9 million and $11.2
million, respectively.  The assets of the Company are pledged as
collateral under the Company’s credit facility, which had been repaid in full at
September 30, 2009. Debt outstanding at December 31, 2008 totaled $34.1
million.





7.  Inventory





Inventory
at September 30, 2009 and December 31, 2008, of $1.7 million and $738,000,
respectively, consists of parts and small equipment held for use in the ordinary
course of business.





8.  Fair Value of Other Financial
Instruments





On June
30, 2009, we adopted changes issued by the FASB for fair value disclosures of
financial instruments.  This guidance requires quarterly fair value
disclosures for financial instruments in addition to the annual
disclosure.  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 $765,000 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.





The table
below summarizes the carrying amount and fair value of our debt payable
(including current maturities) at December 31, 2008.  Our debt was
repaid in full in August 2009.





September
      30,
              2009
            
            
            December
      31,
              2008Carrying
      amount:Debt
      payable (including current maturities)
            
            
            --
            
            
            $
            34,125Fair
      value:Debt
      payable (including current maturities)
            
            
            --
            
            
            $
            33,415





The fair
value of the debt payable was based on borrowing rates available to the Company
for bank loans with similar terms, average maturities and credit
risk.







13


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 provides 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 September 30, 2009, the Company had performed work with a
value of approximately $1.2 million, had taken delivery of four pushboats, and
construction was underway on the remaining three boats with an equivalent value
expended.





10.  Goodwill
and Intangible Assets





Goodwill





The table
below summarizes changes in goodwill recorded by the Company during the periods
ended September 30, 2009 and December 31, 2008:





September
      30, 2009
            
            
            December
      31, 2008Beginning
      balance, January 1
            
            $
            12,096
            
            
            $
            2,481Additions
            
            
            --
            
            
            
            9,615Ending
      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 4, above.  In
the three months ended September 30, 2009, the Company recorded amortization
expense of $764,000 and in the three months ended September 30, 2008, the
Company recorded amortization expense of $1.2 million related to these
assets.  For the nine month periods the Company recorded amortization
expense of $3.0 million and $2.6 million in 2009 and 2008,
respectively.  Amortization for the balance of 2009 is $8,300, for
2010 is $33,000 and for 2011 is $5,600.





11.  Accrued
Liabilities





Accrued
liabilities at September 30, 2009 and December 31, 2008 consisted of the
following:





September 30, 2009
            
            
            December 31, 2008Accrued
      salaries, wages and benefits.........
            
            $
            6,609
            
            
            $
            3,856Accrual
      for self-insurance liabilities..........
            
            
            2,452
            
            
            
            2,143Other
      accrued expenses.........................
            
            
            2,679
            
            
            
            2,177$
            11,740
            
            
            $
            8,176





14


12.  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.  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 September 30, 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 September 30, 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 from
      December 31, 2006 and each fiscal quarter thereafter;
  and


·
            A
      total leverage ratio not greater than 3.0 to 1.0 from December 31, 2006
      and each fiscal quarter thereafter.





At
September 30, 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.





13.  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
and nine months ended September 30, 2009 was 34.9% and 36.6%, respectively, and
differed from the Company’s statutory rate primarily due to permanent
differences and state income taxes.








Current
            
            
            Deferred
            
            
            TotalThree
      months ended September 30, 2009:U.S. Federal
            
            $
            3,009
            
            
            $
            (58
            )
            
            $
            2,951State
      and local
            
            
            248
            
            
            
            (307
            )
            
            
            (59
            )$
            3,257
            
            
            $
            (365
            )
            
            $
            2,892Three
      months ended September 30, 2008:U.S. Federal
            
            $
            2,342
            
            
            $
            (899
            )
            
            $
            1,443State
      and local
            
            
            60
            
            
            
            (282
            )
            
            
            (222
            )$
            2,402
            
            
            $
            (1,181
            )
            
            $
            1,221





Current
            
            
            Deferred
            
            
            TotalNine
      months ended September 30, 2009:U.S. Federal
            
            $
            9,786
            
            
            $
            (986
            )
            
            $
            8,800State
      and local
            
            
            676
            
            
            
            (240
            )
            
            
            436$
            10,462
            
            
            $
            (1,226
            )
            
            $
            9,236Nine
      months ended September 30, 2008:U.S. Federal
            
            $
            5,603
            
            
            $
            (1,988
            )
            
            $
            3,615State
      and local
            
            
            716
            
            
            
            (199
            )
            
            
            517$
            6,319
            
            
            $
            (2,187
            )
            
            $
            4,132





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
September 30, 2010.


15


14.  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. EPS data for prior periods presented were revised
to reflect these changes.





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. For the three months and
nine months ended September 30, 2009, respectively, 26,677 and 209,848 common
stock equivalents were not included in the diluted earnings per share
calculation, as the effect of these shares would have been anti-dilutive. In
each of the three and nine months ended  September 30, 2008, 569,740
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 endedSeptember 30,
            
            
            Nine months endedSeptember 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Weighted
      average number of common shares outstanding:
            
            
            24,241,749
            
            
            
            21,557,601
            
            
            
            22,485,770
            
            
            
            21,562,722Weighted
      average number of potentially dilutive common stock
      equivalents:
            
            
            436,502
            
            
            
            275,726
            
            
            
            410,380
            
            
            
            277,648Total
      weighted average shares outstanding assuming dilution
            
            
            24,678,251
            
            
            
            21,833,327
            
            
            
            22,896,150
            
            
            
            21,840,370





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





As part
of their 2009 compensation package, the independent directors of the Company
each received an equity award of either restricted stock or options with a fair
value on the date of grant of $35,000.  In June 2009, upon receipt of
the award, three directors elected to receive stock, which is restricted from
sale in total for a period of three years.  One director elected to
receive options, which grant 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, which is expensed ratably over the three-year vesting
period.





The table
below summarizes the restricted stock activity under the LTIP and the 2005 Plan
at September 30, 2009:





Number of shares
            
            
            Weighted Average
              Fair
      Value of SharesNon-vested
      shares outstanding at January 1, 2009
            
            
            64,287
            
            
            $
            1.65Granted
            
            
            5,805
            
            
            $
            18.09Vested
            
            
            (27,579
            )
            
            $
            0.02Forfeited/repurchased
      shares
            
            
            --Non-vested
      shares outstanding at September 30, 2009
            
            
            42,513
            
            
            $
            4.95





16


Stock
options





During
2009, the Company granted options to purchase 26,677 shares of common stock to
individual employees and as part of the compensation package to the independent
directors of the Company.  The Company uses the Black-Scholes option
pricing model to estimate the fair value of its stock-based
awards.  The fair value of the options granted during 2009 was
determined using the following weighted average assumptions:





Expected
      life of options
            3
      yearsExpected
      volatility
            67.8%Risk-free
      interest rate
            1.5%Dividend
      yield
            0.0%Exercise
      price
            $19.89Grant
      date fair value
            $9.06





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 fair value of the awards granted in March
2008 was determined using the following assumptions:





Expected
      life of options
            6
      yearsExpected
      volatility
            36.7%Risk-free
      interest rate
            2.92%Dividend
      yield
            0.0%Exercise
      price
            $13.20Grant
      date fair value
            $5.35








17


Stock
option activity during the nine months ended September 30, 2009 consists of the
following:





Number
      of Options
            
            
            Weighted
      Average Exercise
PriceStock
      options outstanding at January 1, 2009
            
            
            1,328,340
            
            
            $
            8.35Granted
            
            
            26,677
            
            
            $
            19.89Exercised
            
            
            (375,198
            )
            
            $
            5.00Forfeited
            
            
            (22,139
            )
            
            $
            11.26Stock
      options outstanding at September 30, 2009
            
            
            957,680
            
            
            $
            9.92Stock
      options exercisable at September 30, 2009
            
            
            316,799
            
            
            $
            13.07





As of
September 30, 2009, the aggregate intrinsic value of stock options outstanding
and stock options exercisable was $10.2 million and $2.4 million,
respectively.  The weighted average contractual term of outstanding
options was 8.38 years and the weighted average remaining contractual term of
the exercisable options was 7.77 years at September 30,
2009.  Proceeds received by the Company for the exercise of stock
options in the three and nine months ended September 30, 2009 was $0.2 million
and $1.9 million,  respectively.  No options were exercised
in the three and nine months ended September 30, 2008.





For the
three and nine months ended September 30, 2009, compensation expense related to
equity awards for the periods was $350,000 and $1.1 million, respectively, and
for the comparable periods in 2008 was $258,000 and $766,000.





At
September 30, 2009, there was $1.9 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 1.48
years.





16.  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 court ruling (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 September
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.





17.   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 and nine months ended September 30, 2009 and 2008.





Three
      months ended September 30,
            
            
            Nine
      months ended September 30,2009
            
            
            %
            
            
            2008
            
            
            %
            
            
            2009
            
            
            %
            
            
            2008
            
            
            %Federal........
            
            $
            8,316
            
            
            
            10
            %
            
            $
            7,183
            
            
            
            11
            %
            
            $
            36,373
            
            
            
            17
            %
            
            $
            22,427
            
            
            
            12
            %State...........
            
            
            2,946
            
            
            
            4
            %
            
            
            9,825
            
            
            
            16
            %
            
            
            20,158
            
            
            
            9
            %
            
            
            24,529
            
            
            
            14
            %Local..........
            
            
            28,628
            
            
            
            35
            %
            
            
            13,593
            
            
            
            22
            %
            
            
            65,009
            
            
            
            29
            %
            
            
            51,303
            
            
            
            28
            %Private.........
            
            
            41,576
            
            
            
            51
            %
            
            
            32,296
            
            
            
            51
            %
            
            
            100,719
            
            
            
            45
            %
            
            
            84,299
            
            
            
            46
            %$
            81,466
            
            
            
            100
            %
            
            $
            62,897
            
            
            
            100
            %
            
            $
            222,259
            
            
            
            100
            %
            
            $
            182,558
            
            
            
            100
            %





Revenues
generated from projects located in the Caribbean Basin totaled 18.5% and 14.6%,
and 3.4% and 2.4% of total revenues for the three and nine months ended
September 30, 2009 and 2008, respectively.





The
Company’s long-lived assets are substantially located in the United
States.





18


18.  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.





19.  Subsequent
Events


The
Company evaluated its September 30, 2009 financial statements for subsequent
events through November 6, 2009, the date the financial statements were
available to be issued. The Company is not aware of any subsequent events which
would require recognition or disclosure in the financial
statements.





19





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
49% of our revenue in the three months ended September 30, 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.





20


Recent
Developments.In August 2009, we completed a public offering
of the sale of over 4.8 million common shares at a price of $19.70 per
share.  Net of offering expenses, we received proceeds of $91.0
million, and repaid all of our debt outstanding in the amount of approximately
$30.0 million.





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, thus providing a basis for EPA regulation and control of emissions of
such gases.  The EPA finding is subject to public comment before an
official ruling is made. Further, on September 26, 2009, the House of
Representatives passed a climate change bill to reduce United States greenhouse
gas emissions.





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 EPA’s actions, the House bill
referenced above, and subsequent legislative actions on its business as more
information as to the type and nature of potential regulation becomes
available.





In
addition to its proposed rule regarding safety hazards related to the operation
of hoisting equipment, such as cranes, discussed in more detail in our 2008
Annual Report on Form 10-K, 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.





Outlook.                        We
continue to see good bidding opportunities in our end markets as the economy
begins to stabilize.  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.





The
proceeds received in the August 2009 common stock offering will allow us to
pursue our core business strategies; expand and fill in our service areas;
pursue strategic acquisitions and reinvest in our business through additions to
and redevelopment of our equipment fleet.





During
the nine months ended September 30, 2009, our operations provided cash from
operations of $30.8 million and our cash position at September 30, 2009 exceeded
$108.9 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.







21


Consolidated
Results of Operations





Three
months ended September 30, 2009 compared with three months ended September 30,
2008





Three
      months ended September 30,2009
            
            
            2008Amount
            
            
            Percent
            
            
            Amount
            
            
            PercentContract
      revenues
            
            $
            81,466
            
            
            
            100.0
            %
            
            $
            62,897
            
            
            
            100.0
            %Costs
      of contract revenues
            
            
            65,468
            
            
            
            80.4
            
            
            
            50,297
            
            
            
            80.0Gross
      profit
            
            
            15,998
            
            
            
            19.6
            
            
            
            12,600
            
            
            
            20.0Selling,
      general and administrative expenses
            
            
            7,699
            
            
            
            9.4
            
            
            
            7,357
            
            
            
            11.7Income
      from operations
            
            
            8,299
            
            
            
            10.2
            
            
            
            5,243
            
            
            
            8.3Interest
      (income) expenseInterest
      (income)
            
            
            (78
            )
            
            
            (0.0
            )
            
            
            (107
            )
            
            
            (0.2
            )Interest
      expense
            
            
            88
            
            
            
            0.1
            
            
            
            365
            
            
            
            0.6Interest
      expense, net
            
            
            10
            
            
            
            0.1
            
            
            
            258
            
            
            
            0.4Income
      before income taxes
            
            
            8,289
            
            
            
            10.1
            
            
            
            4,985
            
            
            
            7.9Income
      tax expense
            
            
            2,892
            
            
            
            3.5
            
            
            
            1,221
            
            
            
            1.9Net
      income
            
            $
            5,397
            
            
            
            6.6
            %
            
            $
            3,764
            
            
            
            6.0
            %








Contract
Revenues.Revenues are driven by the progress schedules, size,
composition,  scope, and number of projects under contract at any
given time.  In the three months ended September 30, 2009, revenues
increased approximately 29.5% as compared with the same period last
year.  Contract revenue generated from government agencies, including
federal, state and local municipalities represented 49% of total revenues in the
third quarter of 2009, with projects in the private sector comprising 51% of
revenue, which was similar in composition with the third quarter of
2008.  In the current year quarter, we benefitted from favorable
conditions, including the acceleration of progress schedules on certain
projects.  In the third quarter of 2008, construction was impacted by
an active hurricane season, which shut down all projects at some time in the
three month period, and resulted in a shift of revenue into later
periods.





Gross Profit.  Gross profit increased approximately $3.4 million, or 27.0%,
in the third quarter of 2009 as compared with the corresponding period last
year.  Gross margins between the two periods were essentially even, at
19.6% and 20%, in 2009 and 2008, respectively.  The improvement in
gross profit was due primarily to the increase in revenues.  The
change in gross margin was due principally to a larger component of outside
subcontracting costs and material purchases, such as concrete and steel,
resulting from the mix of projects in our portfolio of contracts during the
period.





Selling, General
and Administrative Expense.Selling, general and administrative expenses
increased $0.3 million in the three months ended September 30, 2009 as
compared with the prior year period, primarily related to overhead costs for
additional personnel.





Income Tax
Expense  Our effective rate for the three months ended
September 30, 2009 was 34.9% and differed from the Company’s statutory rate of
35% primarily due to state income taxes, to other permanent differences, and to
the reconciliation to our federal tax return. Our effective rate for the three
months ended September 30, 2008 was 24.5% and differed from the Company’s
statutory rate of 35% primarily due to the benefit of the domestic production
activities deduction on the Company’s tax return and to true-ups of federal and
state deferred taxes.


22





Nine
months ended September 30, 2009 compared with Nine months ended September 30,
2008





Nine
      months ended September 30,2009
            
            
            2008Amount
            
            
            Percent
            
            
            Amount
            
            
            PercentContract
      revenues
            
            $
            222,259
            
            
            
            100.0
            %
            
            $
            182,558
            
            
            
            100.0
            %Costs
      of contract revenues
            
            
            173,112
            
            
            
            77.9
            
            
            
            150,056
            
            
            
            82.2Gross
      profit
            
            
            49,147
            
            
            
            22.1
            
            
            
            32,502
            
            
            
            17.8Selling,
      general and administrative expenses
            
            
            23,638
            
            
            
            10.6
            
            
            
            18,879
            
            
            
            10.3Income
      from operations
            
            
            25,509
            
            
            
            11.5
            
            
            
            13,623
            
            
            
            7.5Interest
      (income) expenseInterest
      (income)
            
            
            (274
            )
            
            
            (0.1
            )
            
            
            (375
            )
            
            
            (0.2
            )Interest
      expense
            
            
            525
            
            
            
            0.2
            
            
            
            855
            
            
            
            0.5Interest
      expense, net
            
            
            249
            
            
            
            0.1
            
            
            
            480
            
            
            
            0.3Income
      before income taxes
            
            
            25,260
            
            
            
            11.4
            
            
            
            13,143
            
            
            
            7.2Income
      tax expense
            
            
            9,236
            
            
            
            4.2
            
            
            
            4,132
            
            
            
            2.3Net
      income
            
            $
            16,024
            
            
            
            7.2
            %
            
            $
            9,011
            
            
            
            4.9
            %








Contract
Revenues.Revenues for the nine months ended September 30, 2009 increased
approximately 21.7% as compared with the same period last year.  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, and to favorable
conditions which allowed us to accelerate certain progress
schedules.  Contract revenue generated from government agencies,
including federal, state and local municipalities represented 55% of total
revenues in the first nine months of 2009, with projects in the private sector
comprising 45% of revenue, as compared with the nine months of 2008, when the
mix of customers included 54% from government agencies and 46% from the private
sector.





Gross Profit.  Gross profit increased approximately $16.6 million, or 51.2%,
in the first nine months of 2009 as compared with the corresponding period last
year.  The improvement in gross profit was due to the increase in
revenues, as well as our ability to release certain cost contingencies,
resulting from improved project execution and performance.  Gross
margin for the nine months ended September 30, 2009 was 22.1%, as compared with
17.8% in the prior year period.  In the prior year period, unforeseen
site conditions on two dredging projects in the first half of 2008 resulted in
project delays and adversely affected gross profit and margins. We
self-performed approximately 89% of our work in the current year period, as
compared with 87% in the comparable period of 2008.





Selling, General
and Administrative Expense.Selling, general and administrative expenses
increased $4.7 million in the nine months ended September 30, 2009 as
compared with the prior year period.  The increase in expense was due
to overheads and amortization of intangible assets related to the acquisition of
the assets of Subaqueous Services, Inc. in February 2008, and to an increase in
our reserve for doubtful accounts.  In the nine months ended September
30, 2008, we recovered in full a previously reserved receivable and benefitted
from lower group medical and workers’ compensation expenses.





Income Tax
Expense  Our effective rate for the nine months ended September
30, 2009 was 36.6% and differed from the Company’s statutory rate of 35%
primarily due to the impact of certain permanent deductions available on our
federal tax return, offset by increases in state income taxes. Our effective
rate for the nine months ended September 30, 2008 was 31.4% and differed from
the Company’s statutory rate of 35% primarily due to the benefit of the domestic
production activities deduction on the Company’s tax return in that year and to
true-ups of federal and state deferred taxes.





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.


23


Our
working capital position fluctuates from period to period due to normal
increases and decreases in operational activity. At September 30, 2009, our
working capital was $136.2 million compared to $47.0 million at
December 31, 2008, of which $61 million was related to the balance of the
proceeds received from the sale of common stock in August 2009. As of September
30, 2009, we had cash on hand and availability under our revolving credit
facility of $116.5 million.





At
September 30, 2009, our operations provided cash from operations of $30.8
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, 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.





The
following table provides information regarding our cash flows for the nine
months ended September 30, 2009 and 2008 (unaudited):





Nine
      months ended September 30,2009
            
            
            2008Cash
      flows provided by operating activities.......................................
            
            $
            30,760
            
            
            $
            16,379Cash
      flows used in investing activities.............................................
            
            $
            (7,716
            )
            
            $
            (44,847
            )Cash
      flows provided by financing activities.......................................
            
            $
            60,228
            
            
            $
            34,869





Operating
Activities.During the nine months ended September 30, 2009, our
operating activities provided $30.8 million of cash as compared with
$16.4 million for the nine months ended September 30, 2008. The change of
$14.4 million was due to a $5.0 million increase in net income, 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, which aggregated $8.1 million.  The balance of
the $14.4 million change between periods was primarily due to decreases in
prepaid items and taxes payable.





Investing
Activities.Our capital asset additions totaled $8.4 million in the nine
months ended September 30, 2009, as compared with $11.7 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 August 2009, we completed our 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 the related excess tax
benefits.  Cash provided by financing activities in the prior year
period was attributable to our borrowing of $35.0 million under of line of
credit to fund the assets purchased from SSI.





24


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, the Company borrowed $35 million to fund the purchase of the
assets of SSI, and amended its credit facility to reflect the
borrowing.  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 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 September 30, 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 September 30, 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 from
      December 31, 2006 and each fiscal quarter thereafter;
  and


·
            A
      total leverage ratio not greater than 3.0 to 1.0 from December 31, 2006
      and each fiscal quarter thereafter.





At
September 30, 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 September 30, 2009, we believe our capacity under our
current bonding arrangement was in excess of $400 million, of which we had
approximately $188 million in surety bonds outstanding.  Despite the
prevailing economic conditions, we believe our strong balance sheet and working
capital position will allow us to continue to access our bonding capacity.
During the quarter ended September 30, 2009, approximately 49% of projects,
measured by revenue, required us to post a bond.





25


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 $42,000 for the three months ended September
30, 2009 and $208,000 for the nine month period.  Although we attempt
to secure firm quotes from our suppliers, we generally do not hedge against
increases in prices for concrete, steel or 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
September 30, 2009, we had no outstanding debt drawn 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.


26


PART
II – Other Information








Item
1.  Legal Proceedings





For
information about litigation involving us, see Note 16 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
4.                      Submission
of Matters to a Vote of Security Holders





None








Item
6.                      Exhibits


10.24*
            Lease
      Agreement dated May 14, 2009 by and between Orion Marine Group, Inc. and
      Aerospace Operating Associates, LP.


10.25*
            Amendment
      to Lease Agreement dated April 8, 2009 by and between Orion Construction,
      LP and Signet Maritime Corporation.


10.26*                      Schedule
of Changes to Compensation of Non-employee Directors, effective for
2009


31.1*
            Certification
      of the Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14 of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002


31.2*
            Certification
      of the Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14 of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002


32.1*
            Certification
      of the Chief Executive Officer and the Chief Financial Officer pursuant to
      18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002





*filed
herewith





27


SIGNATURES





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 PearsonNovember
      6, 2009
            J.
      Michael PearsonPresident
      and Chief Executive OfficerBy:
            /s/
      Mark R. StaufferNovember
      6, 2009
            Mark
      R. StaufferExecutive
      Vice President and Chief Financial
Officer