August 7, 2003
Red ink at Conrad
Conrad Industries, Inc. reported a net loss of $726,000 and loss
per diluted share of $0.10 for the three months ended June 30, 2003
compared to net income of $300,000 and earnings per diluted share
of $0.04 for the second quarter of 2002.
The loss for the six months ended June 30, 2003 was $1.05
million and the loss per diluted share was $0.14 compared to net
income before a cumulative effect of a change in accounting
principle of $758,000 and earnings before a cumulative effect of a
change in accounting principle per diluted share of $0.10 for the
first six months of 2002.
Revenues for the three months ended June 30, 2003 were $9.3
million compared to $10.4 million for the second quarter of 2002.
Revenues for the six months ended June 30, 2003 were $19.8 million
compared to $21.0 million for the same period of the prior year.
The companys backlog was $34.8 million at June 30, 2003, as
compared to $36.2 million at December 31, 2002, and $22.6 million
at June 30, 2002.
The company recorded a gross loss of $67,000 (0.7% of revenue) for
the three months ended June 30, 2003 as compared to gross profit of
$1.7 million (16.4% of revenue) for the second quarter of 2002.
Gross profit was $748,000 (3.8% of revenue) for the six months
ended June 30, 2003, as compared to gross profit of $3.8 million
(18.1% of revenue) for the first six months of 2002.
Vessel construction segment revenue for the current quarter
decreased 4.8% and 18.0% as compared to vessel construction revenue
for the first quarter of 2003 and second quarter of 2002,
respectively. Vessel construction segment revenue for the first six
months of 2003 decreased 9.4% compared to the same period of the
prior year. Vessel construction hours for the second quarter and
first six months of 2003 decreased 1.3% and 0.8%, respectively,
when compared to the same periods in 2002. The decrease in revenue
in the current periods is primarily a result of changes in the
estimates at completion associated with increased production hours
encountered during the delivery phase of various contracts.
Kenneth G. Jerry Myers, Jr., Conrads President
and CEO commented, The vessel construction segment of our
business continues to be negatively impacted by performance on a
commercial project for four vessels. The first three vessels of the
project have now been delivered and the final vessel will be
delivered in the next couple of weeks. In addition, the margins
were negatively impacted by increases in the estimated costs of
completion on separate projects for other motorized vessels awarded
in the second quarter of 2002 as a result of the disruptive effects
experienced on this commercial contract. Complexities experienced
in the hull structures of the commercial contract discussed above
caused a significant compression of the schedule and forced the
company to deliver three separate vessels concurrently. As a
result, the company focused key project resources in order to
prioritize and control the increases in costs at completion on this
commercial contract. This resulted in a significant disruption to
the previously planned orderly sequence of work on other contracts
thereby precluding the labor efficiencies and productivity gains
previously forecast based on the companys historical
"Bid activity has slowed in the vessel construction segment of our
business;" said Myers. "However," he continued, "our backlog has
enabled us to be selective in an extremely competitive environment.
During the second quarter of 2003, the Army Corps of Engineers
exercised their option for an additional towboat for approximately
Repair segment revenue and gross profit decreased 22.0% and
111.9%, respectively, compared to the first quarter of 2003. Repair
segment revenue increased 13.2% and gross profit decreased 114.1%
as compared to repair segment revenue and gross profit in the
second quarter of 2002. The repair segment had a 15.0% decrease in
production hours compared to the first quarter of 2003 and an
increase of 41.1% compared to the second quarter of 2002.
The repair segment continues to be difficult due to the
continued decreased activity in the offshore oil and gas markets,"
commented Myers. "We have recently seen an increase in repair and
conversion activity and are hopeful that it is more than just
normal seasonal workload patterns; however, there continues to be
little to no visibility at this time into the repair market. We are
excited about the opportunities that our newest facility in Amelia,
Louisiana provides. The facility was opened in February 2003, and
has opened up some markets for the company from which we have
historically been limited from participating. We have now moved
four of our drydocks to the facility.
In July 2003, Conrad completed the financing for its expansion
into the aluminum marine fabrication, repair and construction
business. The $5.5 million financing consists of a $1.5 million
grant by the State of Louisiana through the Economic Development
Award Program (EDAP) and $4.0 million of industrial revenue bonds
issued by the St. Mary Parish Industrial Revenue Board.
In connection with the issuance of the bonds, Conrad subsidiary
Conrad Aluminum, LLC donated to the Industrial Revenue Board the
land and buildings at the Amelia Topside yard and is leasing them
back along with the items to be purchased with the bond proceeds,
with a right to repurchase. The lease payments will be used to pay
amounts owing on the bonds. Conrad and its subsidiaries have
guaranteed the bonds. The bonds have a 15 year term, monthly
principal payments of $22,222.22 plus interest and bear interest,
at the Companys option, at either a prime rate or the higher
of (a) 30, 60 or 90-day LIBOR plus two percent or (b) a prime rate
minus one percent. The $1.5 million EDAP grant requires the company
to meet specified job creation objectives.
Myers commented further, Work is now beginning on the
previously announced expansion into the aluminum marine
fabrication, repair and conversion business. We have ordered some
of the long-lead equipment and anticipate commencing aluminum
operations in the fourth quarter of 2003. The creation of this new
line of business allows us to selectively pursue opportunities
arising out of the changing demands of the industries we