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 company’s 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., Conrad’s 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 company’s historical experience."

"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 $6.1 million.”

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 Company’s 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 serve.”

Tell a friend: