corresp
October 2, 2007
Securities and Exchange Commission
Division of Corporation Finance
100 F Street N.E. Mail Stop 7010
Washington, D.C. 20549-7010
|
|
|
Attention:
|
|
Ms. Pamela A. Long |
|
|
Assistant Director |
|
|
|
Re:
|
|
Orion Marine Group, Inc. |
|
|
Registration Statement on Form S-1 |
|
|
Filed on August 20, 2007 |
|
|
File No. 333-145588 |
Ladies and Gentlemen:
We are writing on behalf of our client, Orion Marine Group, Inc. (the Company) in response
to comments received from the staff of the Division of Corporation Finance (the Staff) of the
United States Securities and Exchange Commission (the Commission) by letter dated September 14,
2007, with respect to the review of the Companys Form S-1 initially filed with the Commission on
August 20, 2007, File No. 333-145588 (the Registration Statement). For your convenience, the
numbered paragraphs below restate the numbered paragraphs in the Staffs letter to the Company, and
the discussion set forth below each numbered paragraph is the Companys response to the Staffs
comments.
We have filed through EDGAR and enclosed herewith five courtesy copies of Amendment No. 1
(Amendment No. 1) to the Registration Statement.
General
1. Please note that we may have comments on the legal opinion once it is filed.
This opinion is filed with this Amendment No. 1.
Cover Page
2. Because there is currently no market for your common shares please revise your cover page and
plan of distribution to provide that selling shareholders will sell at a fixed price or bona fide
range until your securities are quoted on the Nasdaq Global Market and thereafter at prevailing
market prices or privately negotiated prices. See Item 16 of
Schedule A to the Securities Act of 1933 and Item 503(b)(3) of Regulation S-K.
In response to the Staffs comments, language has been added to the cover page and under Plan of
Distribution, at page 109, to indicate that based on the range of prices at which the Companys
shares have traded on the PORTAL Market, the Company expects that prior to the time the Companys
common stock is listed on Nasdaq, purchases and
sales of its common stock will occur at prices between $14.05 and $15.00 per share, if any shares
are sold.
Summary Consolidated Financial Data, page 7
3. Please tell us how you determined the amount of basic weighted average shares outstanding for
the years ended December 31, 2002 and 2003 as well as the period from
January 1 to October 13, 2004. It is unclear why the number of weighted average shares outstanding
would decrease from 15,872,360 for the period January 1 to October 13,
2004 to 15,695,067 for the period October 14 to December 31, 2004, when no shares appear to have
been redeemed or bought back during that time period.
The weighted average shares outstanding for the years ended December 31, 2002 and 2003 as well as
the period from January 1 to October 13, 2004 (the Predecessor Period) appearing in the tables
under Summary Consolidated Financial Data at page 8 and Selected Consolidated Financial Data at
page 27 have been revised to 92,000, 97,100 and 97,100, respectively. The corresponding net income
per share data has been revised to reflect the changed weighted average shares outstanding. The
weighted average shares outstanding for the Predecessor Period are the actual shares outstanding at
that time. The substantial difference in weighted average shares outstanding between the
Predecessor and Successor Periods results from the acquisition of the Company by its former
principal stockholders. A sentence has been added to footnote (2) on pages 9 and 27 explaining
such difference. In addition, the Company has deleted the sentence from footnote (2) on page 27
which explained that the weighted average shares outstanding for the Predecessor period in its
initial filing was based on shares outstanding as of December 31, 2006.
Risk Factors, page 10
4. Please delete the second sentence of the first paragraph on page 10. All material risks should
be described. If risks are not deemed material, you should not reference them.
This sentence has been deleted.
Failure to establish and maintain effective internal control ... , page 19
5. If you have identified any material deficiencies related to your disclosure controls or internal
controls, please disclose.
The Company has advised us that no material deficiencies related to disclosure or internal controls
have been identified.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Operating Activities, page 37
6. Net income, adjusted for non-cash items is considered a non-GAAP measure. Please either remove
this measure from your filing or revise your filing to include the non-GAAP disclosures required by
Item 10(e) of Regulation S-K.
In response to the Staffs comments, this measure has been removed from the filing.
Business
Our Business, page 41
7. We note your discussion of EBITDA throughout the filing and in particular on pages 1, 29 and 41.
In each of these instances, please revise to also include discussion of net income so that the
non-GAAP EBITDA measure does not receive greater prominence
than the most directly comparable GAAP measure. Refer to Item 10(e) of Regulation SK.
In response to the Staffs comments, the measure of income available to common shareholders has
been added throughout the filing and particularly on pages 1 and 42.
The discussion of EBITDA has been removed from the discussion under Utilization on page 29.
Environmental Matters, page 56
8. Please disclose any material estimated capital expenditures for environmental control
facilities. See Item 101(b)(2)(xii) of Regulation S-K.
The Company does not believe that material capital expenditures will be required for environmental
control facilities in the near term. Language has been added to this effect under Environmental
Matters at page 57.
9. Please also ensure that you discuss all of the environmental provisions that may have a material
affect on you. We note your statement that you discuss some of the environmental provisions that
apply to your activities.
In response to the Staffs comments, this section has been revised to clarify that the Company
discusses all of the environmental laws and regulations that may have a material effect on the
Company. See page 57.
Legal Proceedings. page 58
10. Please disclose the name of the court in which the class action proceedings are pending, the
date instituted, and the relief sought. See Item 103 of Regulation S-K.
This information has been added under Legal Proceedings at page 59.
Compensation Discussion and Analysis, page 65
Role of Executive Officers in Compensation Decisions, page 66
11. We note that the CEO plays a significant role in the compensation-setting process. Please
disclose whether the compensation committee approved Mr. Pearsons recommendations for salary and
compensation awards for 2006, or discuss the extent to which the committee determined to pay award
compensation other than as recommended.
In response to the Staffs comments, the CEOs role in setting compensation and the approval
process of his recommendations for salary and compensation awards for 2006
has been added under Role of Executive Officers in Compensation Decisions at page 68.
Performance-Based Incentive Compensation, page 67
12. With regard to company performance, we note that you have not disclosed any specific target
levels of corporate performance. Please disclose the 2006 and 2007 target levels for each item of
corporate performance that are measured. If you believe that disclosure of the target levels would
cause you competitive harm, using the standard you would use if requesting confidential treatment,
please discuss this supplementally. In that case, note that you must still include disclosure that
explains how difficult it will be for the executive or how likely it will be to achieve the
undisclosed target levels. We may have additional comments on whether you have met the standards
for treating the information confidentially. Please see instruction 4 to Item 402(b) of Regulation
S-K.
In response to the Staffs comments, the discussion under Performance-Based Incentive
Compensation at pages 69 and 70 has been revised to disclose the 2006 and 2007 target levels for
each item of corporate performance, as well as how difficult it may be for its executives to
achieve these target levels.
13. Please describe the formulas (for between 80% and 110% and above 110%) upon which you determine
to increase the aggregate size of the bonus pool.
This formula has been added under Performance-Based Incentive Compensation at page 71.
Certain Relationships and Related Party Transactions, page 84
14. Please disclose the relationship between each party to the redemption agreement to each other
and to the company or its affiliates and the purpose of this agreement.
This disclosure has been added under
Certain Relationships and Related Party Transactions and
Related Party Transactions at pages 86 and 40, respectively.
15. Please describe your policies and procedures regarding transactions with related persons,
consistent with the requirements of Item 404(b) of Regulation S-K. For example, please discuss the
types of transactions that are covered and state whether the policies and procedures are in writing
or how else they are evidenced.
We have been advised by the Company that it has proposed a Related Party Transaction policy to its
board of directors and it anticipates adopting this policy prior to effectiveness. We have
included language to this effect on pages 41 and 86.
Selling Shareholders, page 85
16. Please disclose the nature of any position, office, or other material relationship which any
selling security holder has had within the past three years with the registrant or any of its
predecessors or affiliates. See Item 507 of Regulation S-K.
A selling stockholder table has been added under Selling Shareholders at pages 87 through 100.
The footnotes to this table will be updated in a pre-effective amendment to reflect any changes in
the selling stockholders and to provide further information regarding the nature of any position,
office or other material relationship which any selling stockholder has had within the past three
years with the registrant or any of its predecessors or affiliates.
17. Please disclose the names of the selling shareholders who are broker-dealers or affiliates of a
broker dealer. If a selling shareholder is a broker-dealer, the prospectus should state that the
seller is an underwriter. Broker dealers and their affiliates who received the securities as
compensation for underwriting activities need not be identified as underwriters. If a selling
stockholder is an affiliate of a broker-dealer, provide the
following representations in the prospectus: (l) the seller purchased in the ordinary course of
business, and (2) at the time of the purchase of the securities to be resold, the seller had no
agreements or understandings, directly or indirectly, with any person to distribute the securities.
If you cannot provide these representations, state that the seller is an underwriter.
A selling stockholder table has been added under Selling Shareholders at pages 87 through 100.
The footnotes to this table will be updated in a pre-effective amendment to reflect any changes in
the selling stockholders and to provide any additional names of selling stockholders who are
broker-dealers or affiliates of a broker dealer.
Description of Capital Stock, page 86
18. Please remove your statement that the discussion does not give full effect to the terms of
statutory or common law that may affect a persons rights as a stockholder. You are required to
discuss the items described in Item 202 of Regulation S-K. To the extent the items are impacted by
statutory or common law, they must still be described as required by Regulation S-K.
In response to the Staffs comments, this statement has been removed.
Annual Audited Consolidated Financial Statements
General
19. It appears from your disclosures on page 49 that you provide a variety of different services
which could be considered operating segments as defined in SFAS 131.
Furthermore, it appears from your disclosures on page 34 that some of the services you provide may
be more profitable than others. Please tell us how you determined your operating segments in
accordance with paragraphs 10-15 of SFAS 131. If applicable, please also discuss how you determined
it was appropriate to aggregate two or more operating segments into a single reportable segment in
accordance with paragraph 17 of SFAS 131.
The Company is engaged as a heavy civil contractor specializing in marine construction, generally
within the Gulf Coast and Atlantic Coast regions and surrounding areas. The Companys services are
provided and allocated on a project by project basis, which is determined by the Companys success
in bidding and negotiating specific contracts with agencies and owners, the Companys overall
operational and financial plans and strategies, and prevailing market conditions.
Usually, a single project contains a combination of the types of marine construction services that
we provide, including (i) bridge and causeway construction; (ii), commercial dock and port
construction; (iii) dredging; (iv) erosion control and other environmental protection or
restoration; (v)marine pipeline services; (vi) maintenance and repair with respect to the
foregoing; and (vii) related specialty marine services including diving, salvage, inspection and
towing. Because these services are normally intertwined and combined within a given project, the
Company operates as a single segment.
A single project manager is assigned to manage a project, including all of its components and
related services, from start to finish with oversight by the Chief Decision Makers of the Company
(the CODM). The CODM includes executive management, including the Chief Executive Officer, Chief
Financial Officer and senior management. Resources, including project managers and fixed assets,
are available on a company-wide basis and are deployed and allocated based on availability and
specific project requirements. The CODM analyzes financial information, which is available and
prepared on a project by project basis, to measure individual contract performance as compared with
original estimates, to assess market conditions and associated economic and bidding climates and to
evaluate risks. Financial information on a project is not compiled or presented by type of
service, customer or geographic area. Each month the project manager, in conjunction with project
controllers and accounting staff, update each projects projected performance at completion by
using actual costs-to-date and re-forecasted costs-to-complete for the balance of the work
remaining. Regular review of these project reports allows the CODM to manage the Companys
business, including allocating Company-wide available assets and resources, assessing production
efficiencies and external factors such as adverse weather conditions, and responding to
project-specific cost overruns, under-billings, change orders, and other items that might affect
project profitability and/or future business plans.
Accordingly, the Company manages its business on a project basis, and utilizes the synergies
available within the entire organization. All projects are reported as one operating segment; that
of a marine specialty contractor serving the heavy civil marine infrastructure market, and no
additional segmented information is considered more meaningful to financial statement readers.
20. As a related matter, if you determine that you have more than one reportable segment, please
also revise your MD&A to include relevant disclosures regarding your results of operations and
financial condition by segment. Refer to Item 303(a) of Regulation S-K.
Please see response to comment 19 above.
21. Please revise to provide the enterprise-wide disclosures required by paragraphs 36-39 of SFAS
131.
In response to the Staffs comments, footnote 16 has been added at page F-43 to address
enterprise-wide disclosures.
Consolidated Statements of Income, page F-4
22. Please revise your filing throughout to include gains and losses on the sale of property and
equipment as a component of operating income instead of as a component of other (income) expense.
Alternatively, please tell us why you believe your presentation is appropriate. Refer to paragraph
45 of SFAS 144.
This gain on sale has been reclassified into income from operations and the appropriate pages,
including page F-4, of the filing have been revised accordingly.
Consolidated Statement of Stockholders Equity, page F-5
23. It appears that you did not give retroactive effect to the February 2005 stock split in your
statement of stockholders equity for the period ended December 31, 2004. Please revise your filing
accordingly. Refer to SAB Topic 4C.
The filing has been revised throughout, particularly on page F-5, to present the February 2005
stock split retroactively to the period from October 14, 2004 to December 31, 2004.
24. Please revise to include a statement of stockholders equity for the predecessor period from
January 1 through October 13, 2004.
In response to the Staffs comments, a statement of stockholders equity for the Predecessor Period
from January 1 through October 13, 2004 has been added at page F-5.
Note 1 Summary of Significant Accounting Policies
Revenue Recognition, page F-8
25. Please revise to disclose your accounting policy for pre-contract costs associated with
unsuccessful bids. It is unclear if you expense these costs immediately upon notification that the
bid was unsuccessful or if you occasionally defer these costs. To the extent that you defer
contract costs associated with unsuccessful bids, please revise your filing to describe the
circumstances under which you defer these costs and quantify the amount of any deferred costs as of
each balance sheet date presented.
In response to the Staffs comments, the disclosure on page F-8 has been revised. The Company may
incur costs that are not reimbursable if it is unsuccessful in obtaining the contract. The Company
expenses these costs immediately upon notification. None of these costs are deferred.
Property and Equipment, page F-l 0
26. Please revise your filing to provide a more robust explanation of your accounting policies
regarding the factors you consider in determining whether to expense or capitalize maintenance
costs. For example, we note from your disclosures on page 37 that you substantially overhauled and
upgraded a dredge. In order to help us better understand your capitalization policy, please tell us
the following regarding your 2006 dredge
upgrade:
|
|
|
Quantify the costs capitalized in total and by type of cost; |
|
|
|
|
Quantify the costs expensed in total and by type of cost (if any); |
|
|
|
|
The original amortization period associated with the dredge when first acquired or built; |
|
|
|
|
The remaining amortization period associated with the dredge at the time of the 2006
upgrade; |
|
|
|
|
The estimated number useful years added to the life of the dredge as a result of the 2006
upgrade; and |
|
|
|
|
The frequency with which each type of capitalized maintenance cost must be
performed in order to keep the equipment functioning. |
In response to the Staffs comments, a more robust explanation of its accounting policies regarding
the factors the Company considers in determining whether to expense or capitalize maintenance costs
has been added at page F-10.
In 2005, the Company purchased a used dredge at a cost of $100,000 and capitalized it with a useful
life of seven years. In 2006, the Company capitalized approximately $3.9 million in significant
upgrades and betterments, which included adding the capability to run the dredge on electric power,
thus increasing its economic value and extending its physical life by eight years to a total of 14
years.
Scheduled maintenance on major assets occurs every three to seven years. The Company routinely
inspects its major assets, particularly its fleet of vessels, to determine the need for significant
maintenance or betterments, which historically have been greater than $25,000 and have a useful
life of 3 to 7 years, until the next scheduled maintenance. Maintenance and repairs that do not
improve or extend the useful lives of the assets, which are generally less than $25,000, are
expensed as incurred.
27. As a related matter, we note your disclosure on page F-7 that you consider the
amortization period of maintenance and repairs for dry-docking activity to be a critical
accounting estimate. Please revise your filing here and on page 32 to more fully describe
your accounting policies for maintenance and repairs for dry-docking activity, including
the amortization periods you use and how you evaluate the appropriateness of these
amortization periods on an on-going basis.
In response to the Staffs comments, accounting policies for maintenance and repairs for
dry-docking activity, including the amortization periods used and how the Company evaluates the
appropriateness of these amortization periods on an on-going basis, has been added under Property
and Equipment at page F-10 and in the Long-Lived Assets paragraph on page 32.
Self-Insurance, page F-11
28. Please revise your filing here and on pages 33 and 55 to disclose the extent to which you have
excess loss insurance. Your revised disclosures should quantify the thresholds at which the excess
loss insurance coverage would take effect for each risk (e.g. workers compensation, automobile
liability, etc) and should identify the risks for which you have no excess loss coverage.
In response to the Staffs comments, pages F-11, 33 and 55 (page 56 of Amendment No. 1) have been
revised.
Note 11 Earnings per Share, page F-18
29. Your reconciliation of the numerators and denominators used in the computations of basic and
diluted earnings per share should be audited. Please revise as necessary to
remove the reference to unaudited information from each of the column headings. Please
also disclose separately, by type of security, the number of shares that were not included
in the computation of diluted EPS, because to do so would have been antidilutive for the
periods presented.
In response to the Staffs comments, footnote 11 on page F-18 has been revised to include this
information.
30. Please tell us whether or not you include unvested shares of restricted stock in your
computation of basic EPS. If you do include these shares in your computation, please tell us the
authoritative literature you relied upon to support your accounting treatment.
Unvested restricted stock is not included in the computation of basic earnings per share and a
statement to this effect has been added to page F‑19.
Interim Unaudited Consolidated Financial Statements
General
31. Where a comment above requests additional disclosures or other revisions to be made to your
annual financial statements, please also revise your interim financial statements to address the
comments as appropriate.
The interim financial statements have been revised to address the comments above.
Consolidated Statements of Cash Flows, page F-25
32. It appears that your cash flow presentation has netted the proceeds from the sale of your
common stock against the redemption of your common stock and the liquidation of your preferred
stock. Please revise your cash flow statement to separately present each of these transactions.
In response to the Staffs comments, the statement of cash flow on page F-27 has been revised to
separately present the proceeds from the sale of common stock and the redemption of the shares.
Schedule II Valuation and Qualifying Accounts
33. It appears from your Schedule II and your statements of cash flows on pages F-6 and F-25 that
you established an allowance for doubtful accounts in the amount of $500,000 during the year ended
December 31, 2006 but that you have not had any direct or indirect write offs of doubtful accounts
during any period presented in your filing. Please confirm that this statement is accurate. If our
understanding is incorrect, please revise your schedule to include both the write-offs and the
entry necessary to replenish the allowance for each period presented.
The Company has advised us that because of the composition of the Companys client base, which
includes federal, state and local agencies, the Company historically has not established an
allowance for doubtful accounts. In 2006, the Company established a reserve relating to one
customer on one project and determined that a $500,000 reserve was appropriate. The Company
continues in negotiation with this customer. No other write-offs or reserves have occurred during
the periods presented.
Signatures
34. Please revise to indicate that the principal accounting officer or controller has also signed
the registration statement pursuant to Instruction I to Signatures on Form S-1.
Mark Stauffer, Vice President and Chief Financial Officer, is the Companys principal accounting
officer as well as the Companys principal financial officer and the filing has been amended to
reflect that he has signed in both capacities.
On behalf of the Company, we hereby acknowledge that:
|
|
|
The Company is responsible for the adequacy and accuracy of the disclosure filing; |
|
|
|
|
Staff comments or changes to disclosure in response to staff comments do not foreclose
the Commission from taking any action with respect to the filing; and |
|
|
|
|
The Company may not assert staff comments as a defense in any proceeding initiated by
the Commission or any person under the federal securities laws of the United States. |
The Company further understands that the Division of Enforcement has access to all information
provided to the Staff of the Division of Corporation Finance in the Staffs review of the Companys
filings or in response to the Staffs comments on the Companys filings.
Please direct any questions, comments or requests for additional information to the undersigned at
(512) 542-8539. Thank you for your courtesy and cooperation.
Very truly yours,
/s/ Kyle K. Fox
Kyle K. Fox
Vinson & Elkins, LLP